The struggle is often loud and boisterous while the progress happens in a hush. That was the case last week when ExxonMobil quietly announced it would remove significant tar sands oil assets from the books.
The move was, at least in part, a response to concerns about stranded assets. That’s when assets that have been used to calculate the net worth of a company lose part or all of their value before they can be monetized.
The company previously published a report identifying carbon asset risks, in response to shareholder pressure. But although it acknowledged the risk of climate change, the report was short on specifics. Exxon did not quantify the assets that were susceptible to being stranded, choosing instead to play the uncertainty card. In the report, the company said it “believed that any future capping of carbon-based fuels to the levels of a ‘low carbon scenario’ is highly unlikely due to pressing social needs for energy.”
What it boils down to is this: Scientific reports like this one say that we can only burn so much carbon before crossing the 2-degrees Celsius threshold beyond which we face serious physical consequences from climate change. That means billions of dollars worth of fossil fuels need to remain in the ground.
But ExxonMobil is going with a more traditional definition of stranded assets, which refers to assets that are no longer sellable. So the company’s dodgy language is saying, in essence, while it may be true that our planet is doomed if people keep buying oil and gas beyond the 2-degree mark, as long as they keep buying it, ExxonMobil will keep selling it, because that’s what it’s in business to do.
While some might defend the company’s right to say this, it shows exactly why these decisions should not be left in the hands of corporations, something our current administration seems intent on doing.
The company said that none of those reserves can be considered economical according to the accounting rules of the Securities and Exchange Commission, due to the recent precipitous drop in the price of oil. In essence this means that it would cost more for the company to extract the oil than it would make from selling it.
This was a change in policy for the company, which has long resisted calls to revise its estimates of economically-recoverable reserves. ExxonMobil previously doubled down on its Canadian oil sands investments, becoming a major player in that market.
The decision to remove the assets from its books, however, does not mean the company will cease operations there. Exxon intends to continue operations at Kearl, where it still claims 1.3 billion barrels of reserves.
The recovery of tar sands oil has been called “the most destructive project on the planet.” Here are a few reasons why: The combined operations use twice as much water as the Canadian city of Calgary. The water in the tailing ponds is toxic enough to be fatal to ducks that land in it. The amount of energy required to melt the tar so it can flow through pipes could otherwise heat 3 million homes. Finally, producing a barrel of oil from tar sands, emits three times more greenhouse gas than conventional oil production.
Let’s hope that this announcement is the first step in a process that will result in the company ceasing tar sands operations altogether.
Image credit: Howl Arts Collective: Flickr Creative Commons