People used to worry that the fossil-fuel industry would hit “peak oil” and we’d run out of crude. It now seems far more likely that it’s going to run out of money instead.
Thanks to Covid-19 and the lockdowns, oil-laden tankers swing at anchor outside major ports hoping demand and price will go up to justify offloading their cargo. But long before the pandemic kicked in, the economic future had begun to sour for the petroleum majors, in a way that’s becoming clear as we move into shareholder meeting season this spring.
Consider, for instance, the divergent fortunes of two strands of the oldest oil fortune on earth, the one descended from Standard Oil and John D. Rockefeller.
The main path leads from Standard Oil to Esso, and on to Exxon and to its longtime banker JPMorgan Chase. Those guys have doubled down in every way on a fossil-fuel industry future: we now know that Exxon had a full understanding of climate change in the 1980s, but that, instead of alerting the rest of us, it helped build the architecture of deceit and denial and disinformation that held off a real response to global warming for three decades.
During some of those years, Exxon profited handsomely, making huge sums of money. But producing a product that is destroying the planet courts the danger of regulatory pressure: you can use your political clout to hold regulators off for a while, but eventually they begin to catch up with you. That’s what happened at the Paris climate talks in 2015, as the notion finally began to break through that we had to wean ourselves from oil.
Meanwhile, the oil industry faced a second challenge: solar and wind engineers were relentlessly dropping the price of their technology, to the point where it was both cleaner and cheaper than digging stuff up and burning it—in Abu Dhabi last week, the low bid for what will be the world’s largest solar array promised power at little more than a penny per kilowatt hour (the average electricity price in the US is about 13 cents per kWh).
As a result of these twin pressures, the fossil-fuel industry has been the laggard in the last decade of economic expansion, underperforming every other sector of our economy. Exxon, in that span, went from being, in the words of a recent Bloomberg Businessweek report, “once the undisputed king of Wall Street,” the most powerful corporation on the planet, to a “mediocre company,” worth less than Home Depot Inc.
And Exxon wasn’t alone. As energy finance campaigner Clara Vondrich has pointed out, one oil major after another has begun to cut the dividends that were stockholders’ only reward for putting up with lagging returns. Warren Buffett last week apologized to Berkshire Hathaway shareholders for having made a $10 billion bet on oil last spring. “If you’re a shareholder… in any oil-producing company,” he admitted, “you join me in having made a mistake.”
But not everyone made that mistake. A decade ago, some of us began campaigning for fossil-fuel divestment, encouraging big institutions to shift their money out of fossil-fuel stocks as a statement on climate change. Moral reasons were paramount in our minds, but we did also predict that portfolios would not suffer.
One group that took our advice was John Rockefeller’s heirs, who in 2014 divested their charitable foundation from fossil fuels—a front-page news story at the time, since the original oil fortune’s getting out of oil seemed to mark a turning-point of sorts. The Rockefeller heirs were indeed responding to worries about global warming—the announcement of their plans, at the Cathedral of St. John the Divine in New York City, included a remarkable video from Archbishop Desmond Tutu comparing fossil-fuel divestment to the campaign to which he’d contributed to end apartheid. But they also said they thought the economics of the move made sense.
It turns out they were right. Last week, the family reported on the results, offering a five-year snapshot of their returns through the end of 2019 (that is, before the coronavirus pandemic accelerated these trends). As The Washington Post put it, “defying predictions of money managers,” they made out just fine. Their portfolio gained 7.76 percent a year over the period, against a benchmark of 6.71 percent if they’d kept their old mix of investments.
One need not care enormously about the financial happiness of the One Percent to understand that this matters. It translates into a financial sector increasingly eager to turn its back on the fossil-fuel industry. In January, for instance, the asset manager BlackRock, which is the biggest box of money on Earth, said worries about climate change would require a “fundamental reshaping of finance.” More colloquially, America’s TV investment guru Jim Cramer told his CNBC audience this winter that “I’m done with fossil fuels” because “there’s no money to be made” as more and more funds divest their holdings. Big Oil, he said, “may just be on the wrong side of history.”
Which brings us back to JPMorgan Chase and the shareholder meeting season now under way. Chase, which, fifty years ago, was run by David Rockefeller, John D.’s grandson, stuck with the fossil-fuel industry longer and stronger than anyone: in the years since the Paris Climate Accords, the bank has lent more than a quarter-trillion dollars to Big Oil, making it one of the chief forces slowing down action on global warming. And no wonder: the senior outside director of its board is a man named Lee Raymond, who was president and CEO of Exxon during the worst of the climate denial years.
But those bets are not paying off any more: on Monday, the company reported that its first-quarter income had plummeted 70 percent and according to Energy and Environment News, “the bank’s controversial oil and gas loans were a big part of the reason why.” Meanwhile, activists from StopTheMoneyPipeline.com and major shareholders led by New York City Comptroller Scott Stringer last month pressured the bank to knock Raymond from his post as lead director. Stringer said he’d use the voting power of the city’s pension funds shares against Raymond because he lacked “impartiality and climate compentency.”
Chase caved, demoting Raymond from his leadership post. Activists are still pushing to kick him off the board entirely at next week’s annual shareholder meeting, and on Monday the giant California retirement fund threw its weight behind the effort; it’s more likely that he’ll hang on, but as a sad and powerless reminder of the glory that was once Big Oil’s.
The industry isn’t entirely out of tricks, of course—the main remnant of its former might is political clout and it’s been using it to try to make sure oil majors get plenty of federal bailout money. This is absurd: the federal government has been giving them huge subsidies for decades (such as the oil depreciation allowance), and now, as energy campaigner Jamie Henn writes, should be concentrating instead on bailing out their workers, helping them transition to work on renewable energy—a job with a future.
How much of a future? A study published this week in the journal Nature by economists at the Beijing Institute of Technology calculated that while investments to reduce greenhouse gases in line with the Paris Accords would cost as much as $100 trillion by 2100, they would pay off by at least $127 trillion and possibly by as much as $616 trillion—mostly by avoiding the enormous toll that would be exacted by rising temperatures.
And if nations fail to meet the Paris goals? Then the economic pain by 2100, they said, could reach $792 trillion.