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ExxonMobil's Tillerson on Renewable Energy: Realism amid Politics

As reported by Russell Gold at Environmental Capital, ExxonMobil CEO Rex Tillerson has made an incisive new argument against his company’s investing in government-dependent renewable energy.

“If I wanted to kill [tax subsidies], the thing to do is for Exxon Mobil to go and invest heavily in them and then Congress would immediately cancel the tax subsidy. Actually what they would do is they would just cancel it for us,” said Mr.Tillerson, during the annual analyst meeting at the New York Stock Exchange.

He added: “In reality, that is what I fear would happen. So we are not going to go into investments that are dependent on a government providing a tax system to make them viable.”

This is very interesting. Former ExxonMobil CEO Lee Raymond and now Tillerson have argued against investing in politically dependent renewables because they have been-there-done-that, with investor losses in the 1970s. And looking at the present and future technology of wind and solar relative to what ExxonMobil can realistically add, they are not sanguine about going forward in the same area.

But Tillerson is now saying something new: If ExxonMobil were to enter the wind and solar market, then a clause in any new legislation could exclude the oil major from getting the production tax credit.

Say the venture is profitable on a bed of special government favor. The green scream would that the “polluter” is using profits from the “clean side” to subsidize the “dirty side.” Therefore, each company—perhaps of a certain size—should be subject to an “average emission test” under which taxpayer subsidies cannot be received if its  overall energy production contains too much greenhouse-gas-emitting (oil and coal) energy production.

Thinking ahead in this way, a “green” strategy would be to get a company “hooked” on subsidies and then ratchet up the pressure on that firm to reduce its legitimate, consumer-driven, core energy activities. ExxonMobil is just smart enough to sniff this one out.

Russell Gold’s post continues:

Putting aside Mr. Tillerson’s dark commentary on how unpopular the company is in Washington D.C., he raises a point investors might want to consider.

Renewable energy has a lot of promise and hype, but it still needs government support. It is clearly getting that support today, but how long will the government policy underwrite renewable energy? How long will it be able to afford to underwrite renewable energy? How long will voters support green initiatives that create extra costs during this prolonged economic downturn?

This is good journalism reporting a worthy corporate stance—a rare one-two in today’s politicized discourse over energy policy.

What a great moment for free-market capitalism’s principled entrepreneurship, ™ when so much of corporate America is involved in political capitalism. Is there any doubt that ExxonMobil would be Adam Smith’s favorite company? It is certainly the consumer’s friend and the taxpayer’s friend.

Compare Raymond and Tillerson to the political entrepreneurs of the energy field such as the late Ken Lay (Enron), the disgraced John Browne (BP), and the value destroyer T. Boone Pickens (Mesa Petroleum, BP Capital).  The best can still win in corporate America.

Perversely, for the second year in a row, a group of Rockefeller descendants are backing a shareholder resolution to have ExxonMobil invest in renewable energy, as reported in the Wall Street Journal. My response to this is: “Don’t Enron Exxon.” (Enron left its natural gas core to invest in solar, wind, energy efficiency, and so forth, with uniformly bad results.) The disgruntled heirs of John D. have the energy sustainability vision of Ken Lay. They should not only leave well enough alone, they should rethink their whole political philosophy and applaud the management of what is now America’s star company.

Postscript: The Fall of General Electric

Which brings up the sad tale of another company. Once in a league with ExxonMobil, General Electric is badly wounded because of mismanagement. I remember back in my Enron days when I took a phone call from GE Capital (my bosses were busy). The caller said that GE was considering adopting a company policy of no longer financing coal projects.

Corporate social responsibility, no doubt. Never mind that coal is middle-class energy and that climate alarm was and is exaggerated. Rather than focusing on consumers, GE was playing the political correctness game, as it was when it purchased Enron Wind Corporation, now GE Wind. Evidently, such form-over-substance promiscuity (the Enron disease) later spread to other areas at GE Capital.

11 comments

1 Andrew { 03.07.09 at 11:39 am }

Rob-GE’s fall isn’t going to last long, in my humble opinion. They are looking to make big bucks on Compact Florescents and Capn’ Trade. GE is up to something far more sinister than corporate social responsibility. Their lobby efforts for the incandescents ban, Green Week, and now the suggestion that they’ll get a boost from Obama for supporting Capn’ Trade, point to me to what your refer to as Political Capitalism, but what I would call Fascism. Which is why General Electric has become, to my mind, Generalissimo Electric.

2 Rutherford Moore { 03.07.09 at 4:09 pm }

In the energy debate and the green movement, most people only see one ending. The focus on CO2 has put blinders on people preventing them from seeing sensible solutions. The radical movement into renewables does no one any good if you do not have the grid to support the way solar or wind need to be supported. Getting rid of coal and putting new generating capacity on the back burner because of cap and trade will put a strain on improving the country’s generating capacity. If tax incentives were in place to retrofit older existing coal plants with newer technology then, I believe, part of PBO’s CO2 reduction could be met. Maybe I am wrong but it seems some of the issues could be addressed by improving what we already have instead of dumping tons of money into projects that seem in some way destined to fail.

3 Andrew { 03.07.09 at 4:26 pm }

Hm…now this sounds like an interesting idea! I’m not so sure it would work but it sounds much more plausible than what is currently being suggested.

4 TokyoTom { 03.07.09 at 6:22 pm }

Rob, I`m with you on most of this; all except the subsidy being a hook to compromise good companies. Tillerson has it right that politicians aren`t reliable with financial subsidies, though of course there are plenty of other persistent implict subsidies around that benefit energy firms.

By the way, you might note that I also have a post up (see the link) that complements Tillerson on a well-run company that focusses on its strengths; though the context of mine is Tillerson`s public advocacy for a rebated carbon tax and Exxon`s $100 million support of the Stanford University-centered Global Climate and Energy Project (GCEP).

5 gofer { 03.07.09 at 9:10 pm }

I never dreamed lightbulbs would ever be a black market item? I suspect when the complete ban takes place, most people will have stockpiled enough bulbs to last a lifetime. I fully suspect there will be “lightbulb” police.

To prove their lack of reasoning, there is excess capacity in the grid at night, so banning light bulbs saves nothing. The juice is still flowing along with the coal. A few pennies saved by the consumer but the “feel good, I made a difference”…PRICELESS. We are living in a cartoon.

6 Rob Bradley { 03.07.09 at 9:57 pm }

ExxonMobil has not come out in favor of a carbon tax or pricing carbon per se; ; they favor a tax over cap-and-trade. Two different things (see http://masterresource.org/?p=289).

7 Getting Real: The Oil Majors Move Away from Political Energy (Government-dependent wind, solar are not ready for prime time) — MasterResource { 04.09.09 at 10:13 am }

[...] And their investment returns in the same have been lackluster. Shell and BP have found out what Exxon Mobil learned in the [...]

8 rbradley { 05.10.09 at 10:02 pm }

In Tillerson’s Stanford speech of February 17, 2009
(http://www.exxonmobil.com/Corporate/news_speeches_20090217_rwt.aspx), he prefaced his remarks on favoring a carbon tax in the context of having to make a choice of between carbon taxes and cap-and-trade (rather than coming out unilaterally for CO2 regulation).

Here is what he said:

“Consistent with that view, we believe that a carbon tax would be a more effective policy option to reduce greenhouse-gas emissions than alternatives such as cap-and-trade. Pricing carbon through a direct and transparent tax could incentivize the search for lower-emissions energy solutions while also providing the stability and predictability industrial companies need to make long-term, capital-intensive investments in equipment and research.

To ensure revenues raised from this tax are indeed directed to investment, and to assist those on lower incomes who spend a higher proportion of their income on energy, a carbon tax should be offset by tax reductions in other areas to become revenue neutral for government.

It is rare that a business lends its support to new taxes. But in this case, given the risk-management challenges we face and the alternatives under consideration, it is my judgment that a carbon tax is the best course of public policy action. And it is a judgment I hope others in the business community and beyond will come to share.”

9 Energy Reality Wins at Exxon Mobil Annual Meeting (Atlas is not shrugging at this substance-over-form company) — MasterResource { 05.30.09 at 11:18 am }

[...] elsewhere has made his points clear regarding wind and solar, and his directors and the large majority of company owners seem to agree. [...]

10 Tim Weiman { 08.17.10 at 2:41 pm }

Rex Tillerson has a point when he suggests that if ExxonMobil invested in subsidized renewables, the rules would quickly be re-written to exclude ExxonMobil from receiving the subsidy.

In the early 1990s the states of Washington and Oregon had state tax credits for ethanol blending equivalent to the generous federal subsidy. At a corporate level, my employer, BP, was dead set against these state tax credits. Government affairs lobbied against them – unsuccessfully.

Then, I was given the green light to blend ethanol year round. My interest as products trading manager was two fold: (1) BP was net long crude, but short gasoline production against Pacific Northwest retail demand and (2) we could make loads of money from Washington and Oregon tax payers.

Well, this went for about one year before the state legislatures re-wrote the rules to exclude major oil companies.

Funny thing: Government Affairs called to thank me for being the guy who killed the state tax credits.

11 rbradley { 08.17.10 at 8:04 pm }

Tim:

Thanks for the comment and for adding to the historical record.

Perhaps you can write a post about your BP experiences and their lessons for political economy.

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