Some questions for Oil Change International

Oil Change International has just published a report titled “Big Oil Reality Check”. It analyzes the commitments of leading oil and gas companies to do something about the climate emergency.

If you guess that they find those commitments not sufficient, you would be right. And I tend to agree. If you look at the various tables in the report, even BP’s efforts are still not enough. While BP is at the top of the valuation, their efforts are still rightly categorized as insufficient.

I have a couple of questions for the authors of this study.

One is if they intend these companies to beef up their commitments each on their own, or if they want an effort that is coordinated. I would suspect the latter from their calling for government action to make sure that production declines, but I did not find the point discussed in the report.

This is important since if you think about the adversarial interests at stake, obviously all these companies would agree to have all the other companies transit to aggressive reduction models, leaving more of the production pie to themselves. The problem is not to reduce at one individual company, but to decide who gets to produce how much on the way down to zero. How to allocate the quotas.

For OPEC, everyone can agree that other countries should reduce their production. The problem is to agree on quota allocation.

The second question would be what in the opinion of the Climate Change International authors should motivate these companies to reduce their production.

My answer to that is that reduced production means higher prices. Higher prices mean profit for the industry. What is the answer for Oil Change International? Fear of government sanctions? If so, what would motivate an oil company to refrain from lobbying against having “governments step in to manage the decline”.

Of course if your business model and your economic survival depends on keeping meaningful government action from happening, you will spend (lots of) money to keep said action away. If in contrast you understand that having a managed decline in production will lead to higher prices and higher profits, you might still stay in the lobbying business. But you would lobby for more managed production decline, not less.

That in turn would probably mean that many politicians influenced by lobby money suddenly discover how vital managed reduction is for the future of the younger generation.

So again, there are two questions. What should motivate oil companies to reduce production. And should they do so on their own or in a coordinated move.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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