Here is the essence of this man. An engineer. More than 40 years with a major energy company in a variety of advancing positions at home and abroad. Successful. Private sector philanthropist with his time and money.

And through it all, a ”heroic capitalist” in the Smith-Smiles-Rand tradition (see Part I of my Capitalism at Work). A practitioner of Principled Entrepreneurship ™.

Think of what Julian Simon would have said about Stephen Simon (no relation): He created more than he consumed to leave us resource richer. And he used that wealth to create still more wealth and advance civil society.

Finally, think of Mr. Simon and his company when you think about the names that made the news at the once rival of ExxonMobil, the late Enron. (Enron’s Ken Lay, in fact, joined Exxon two years before Simon as a corporate economist before going to Washington for various assignments and never really getting politics out of his blood.)

The obituary follows:

J. Stephen Simon

J. STEPHEN SIMON, 1943 – 2009 J. Stephen Simon, a former director and senior vice president of Exxon Mobil Corporation, passed away unexpectedly at his home in Dallas, Texas, on Wednesday, July 8, 2009, at age 66.

Mr. Simon had a long and distinguished career of over 40 years with the corporation. During this time he held a series of increasingly senior roles, culminating in his election to the board of directors in 2006. He retired from the company on May 31, 2008.

Mr. Simon joined Exxon Company, U.S.A. in June 1967 and shortly thereafter began a two-year assignment in the United States Army. He returned to Exxon U.S.A. in July 1969 as a business analyst in the Baton Rouge Refinery.

After holding a variety of supervisory and managerial positions throughout the Baton Rouge and Baytown refineries, and Exxon U.S.A.’s Refining and Controller’s departments, Mr. Simon became executive assistant to Exxon U.S.A.’s executive vice president, located in Houston.

In 1980, he returned to the Baton Rouge Refinery as Operations Division manager, following which he became refinery manager. In 1983, Mr. Simon moved to New York where he was executive assistant to the president of Exxon Corporation. In 1984, he moved to London, England, as supply manager in the Petroleum Products Department of Esso Europe Inc. and then supply and transportation manager. Mr. Simon returned to Houston in 1986 as general manager of Exxon U.S.A.’s Supply Department, and in 1988, he became chief executive and general manager, Esso Caribbean and Central America located in Coral Gables, Florida.

Mr. Simon moved to Italy in 1992, to become executive vice president and then president of Esso Italiana. He returned to the United States in 1997 and was named an executive vice president of Exxon Company, International, headquartered in Florham Park, New Jersey. In December 1999, he was appointed president of ExxonMobil Refining & Supply Company and vice president of Exxon Mobil Corporation. In December 2004, he became senior vice president of Exxon Mobil Corporation and in January 2006 was elected to the board of the corporation.

Beyond his leadership roles at ExxonMobil, Mr. Simon also served on the boards of many voluntary organizations over the course of his career, including the United Way, the Boy Scouts, and the Salvation Army. He was also a member of the Governance Committee of the National Action Council for Minorities in Engineering and had served on the board of the US-China Business Council, the American Petroleum Institute and the National Association of Manufacturers. Following his retirement from ExxonMobil, he became Chair of the Board of Visitors for Duke University’s School of Engineering and had also been active in support of the Children’s Advocacy Center in Dallas.

Mr. Simon is survived by his loving wife of 43 years, Susie; daughter Marnie and her husband Nicolas Medina, of Houston, Texas; daughter Angela and her husband Steve Reynolds of Nashville, Tennessee; daughter Candice and her husband Rick Murillo of Frisco, Texas and grandchildren Alexandra, Nicolas Jr. and Isabel. Also surviving are his brother Dan of Columbia, Missouri; sister Sheryl of Mt. Lebanon, Pennsylvania; brother Mike of Winterhaven, Florida and father B.D. Simon of Columbia, Missouri. He was preceded in death by mother Joan Francis Simon, who passed away in 2008.

In his memory, the Pratt School of Engineering at Duke University has established the J. Stephen Simon Scholarship Endowment Fund. Memorial contributions to the J. Stephen Simon Scholarship Endowment Fund may be made to Duke University in care of Judge Carr, 305 Teer Engineering Building, Box 90271, Duke University, Durham, NC 27708.

Steve was an amazing person — a loving husband, father and grandfather. We will miss him dearly.

More could be said than is in the editorial (reprinted below). Enron’s first fraud, engineered by Andrew Fastow, came with the purchase of Zond Corporation, which was renamed Enron Wind Corporation and is now part of GE Energy. (This complicated story about a “qualifying facility” under federal energy law is told in McLean and Elkind’s The Smartest Guys in the Room, pp. 166–67 and Kurt Eichenwald’s Conspiracy of Fools, pp. 142–44.)

Enron Energy Services, the energy outsourcing division of Enron that so excited environmentalists (including Joe Romm, now blogging at Climate Progress), was one of the company’s biggest frauds.

So Enron’s “green” strategy was at the core of its business problems and legal problems, a theme that I will detail in a forthcoming book.

Also, some of the points made below have been the subject of MasterResource posts, such as:

• The oil majors are moving away from renewables.
• Enron pushed for the Kyoto Protocol and cap-and-trade.
• Enron’s role in getting Texas to enact the nation’s most stringent renewable quota (mandate).

Here is “ExxonMobil on Right Path” (the link will be broken in time–that is the newspaper’s policy):

Listening to the dissident shareholders leading the proxy fight to recast Exxon Mobil Corp. as a political energy company, it’s tough not to be reminded of the meteoric rise and operatic fall of the Enron Corporation.

That is what comes to my mind when I read the shareholder resolutions asking ExxonMobil to buy into climate alarmism and splash into uneconomic but politically correct renewable energy investments. Renegade shareholders Sister Patricia Daly, Neva Rockefeller Goodwin, et al. dress their case in the language of maximizing longer-run profits, asserting that the future of ExxonMobil is not in its traditional, very successful activities. But they are wrong on both business and public-policy counts.

In my 16 years at Enron, I watched the company shift from its core natural gas operations to investments in solar power, wind power, and other “green” energy activities. Time and again, environmental groups lauded Enron for practicing “energy sustainability.” The politically correct company received a climate-protection award from the EPA and a corporate-conscience award from the Council on Economic Priorities.

I remember how an Enron lobbyist asserted that passage of the U.N.-sponsored Kyoto protocol in 1997 — with its unrealistic mandate that the developed world cut greenhouse-gas emissions — would be “good for Enron stock.” He predicted that Enron’s wind, solar, and emissions-trading investments would take off once Kyoto came into force. “We bet on the future,” he crowed, “while others have bet on the past.” Chairman Ken Lay, in fact, announced at a management conference that Enron’s vision was “to become the world’s leading renewable energy company.”

Meanwhile, ExxonMobil (founded by the legendary John D. Rockefeller, Sr.) plodded along with its consumer-driven hard-asset energy model. It made steady progress by avoiding the energy fads that so captivated Enron.

The tale of two companies has played out. None of Enron’s “green” initiatives was profitable, and the “new-economy” company imploded. The smartest guys in the room were not so smart after all. ExxonMobil has proven itself to be sustainable in both the boom and busts of the present business cycle.

There is a deeper lesson in all this that both dissident shareholders and company supporters should take to heart: Reject political rent-seeking.

A business can make money via the free-market means of voluntary consumer patronage or via the political means of special governmental favor. The first is the way of capitalism; the second, of political capitalism.

None of the wind or solar projects Enron pushed were economically competitive with its natural gas business. And the energy-efficiency contracts peddled by Enron Energy Services turned out to be a mirage.

ExxonMobil is doing just fine, thank you, without a forced change in business direction. BP and Shell, in fact, have moved toward their rival’s business model by de-emphasizing their renewable-energy investments because of the field’s subpar profits (as determined by consumers). All the major oil companies are now focused on their core natural gas and oil activities, including offshore drilling and heavy oil production. Nobody, including BP, has gone Beyond Petroleum.

And this is good news for consumers. The International Monetary Fund and the International Energy Agency have concluded that the world needs trillions of dollars of oil and gas investment. The Energy Information Administration of the Department of Energy sees hydrocarbons as continuing their dominant role in the United States and the world for decades.

Successful companies stick to their core strengths and avoid profit centers that depend on special government favor. That was John D. Rockefeller’s philosophy a century ago, and ExxonMobil shareholders deserve to be the heirs to his genius, not to the flawed business model of Ken Lay and Enron.

Bradley, a former Enron employee, is founder and CEO of the Institute for Energy Research and author of “Capitalism at Work: Business, Government, and Energy.”

The good news from Exxon Mobil’s annual stockholders meeting in Dallas earlier this week is that the company is focused on its core competencies amid the energy politicization around it. No Enron political machinations here!

In fact, Exxon Mobil is the anti-Enron of corporate America, a rebuff to Ken Lay, who once worked at Exxon, and Jeff Skilling, who declared in 2000: “You will see the collapse and demise of the integrated energy companies around the world. They are going to break up into thousands and thousands of pieces.” (1)

Key Messages

The key messages of Exxon Mobil CEO Rex Tillerson were: 

1. Petroleum as a primary energy source is the future, not only the recent past. (Comment: renewable energies once had a 100% market share, corresponding to mankind’s energy poverty era.)
2. Developing politically dependent renewable energies such as wind and solar are not the company’s forte. (Comment: Exxon Mobil is implicitly practicing Principled Entrepreneurship ™, a socially responsible business model.)
3. If carbon dioxide is to be priced, a tax is preferable to cap-and-trade. (Comment: Tillerson has not come out in favor of pricing CO₂ per se, to my knowledge, and most economists would pick the same of the two options.) 
4. Win-win emission reduction technologies and strategies are better than politically correct/economically incorrect ones. (Comment: the jury is still out on this, of course, but it will be interesting to see how Exxon Mobil’s R&D bets turn out relative to those of the other energy majors.)

In his writeup in the Ft. Worth Star-Telegram, “Exxon Mobil CEO Tells Shareholders that Fossil Fuels Have Long Future,” Jack Smith described a proud company in a proud moment.

Exxon Mobil Chairman Rex Tillerson issued a ringing defense of the oil titan at the company’s annual meeting Wednesday, where 11 shareholder proposals, all opposed by management, were roundly defeated in a spirited gathering at the Morton H. Meyerson Symphony Center.

Tillerson praised Exxon’s record-breaking financial performance in 2008, its handsome returns to shareholders in recent years, its technological advances that have greatly enhanced oil and natural gas recovery, and its efforts to reduce the environmental harm of its far-ranging operations. He defended the company’s large buybacks of company stock, saying that they have increased value to shareholders.

Under the subtitle, “Company focus intact,” Smith continued:

Tillerson strongly indicated that Exxon’s primary focus in coming decades will likely remain on its core businesses of oil and gas exploration and production, refining and chemicals. He said there appears to be “a pretty bright future” for drilling in previously untapped shales — such as the natural-gas-rich Barnett Shale of North Texas and Haynesville Shale in northwest Louisiana and East Texas — as a result of technological advances in horizontal drilling and hydraulic fracturing.

Renewables, Climate Change Policy

Regarding climate-change policy. Smith reported:

If Congress passes climate-change legislation designed to slow global warming, Tillerson said he prefers implementation of a carbon tax rather than a “cap-and-trade” system being most strongly considered in Washington. A carbon tax would be “far more efficient,” he said.

The dissident shareholders resolutions, 11 in all, were defeated easily–and by wider margins than last year on most counts.  “Environmental proposals fared [the] worse,” reported Smith. “Proposals to adopt goals for limiting greenhouse-gas emissions, craft a policy for renewable energy research and development, and establish a task force to report on the likely consequences of climate change drew 29, 27 and 10 percent of shares voted, respectively.”

Tillerson elsewhere has made his points clear regarding wind and solar, and his directors and the large majority of company owners seem to agree. And company profitability has confirmed this strategy, as Michael Lynch has noted at MasterResource. Moreover, Exxon Mobil’s stick-to-the-basics strategy is now in favor at rivals BP and Shell.

Company critics got in some complaints from the floor. As summarized by Smith: 

The Rev. Michael Crosby, a Franciscan friar from Milwaukee who deals with corporate responsibility issues, told Tillerson that he has “a moral obligation” to address global warming, which many scientists say is aggravated by the burning of coal, oil and natural gas.

“I think Exxon Mobil should put a warning on every one its gas pumps .?.?. about the dangers of burning fossil fuels,” similar to tobacco companies putting warning labels on cigarettes, Crosby said.

Carbon dioxide emissions are hardly a health hazard, as are the criteria pollutants. But on this theme, perhaps somewhere in the 943-page Waxman-Markey bill (or “monstrosity” using James Hansen’s description of cap-and-trade) there is this requirement: “Danger: carbon rationing may be hazardous to your wallet and thus your health.” Gasoline is now an environmental product, an environmental success. In fact:

The average new car on the road today runs 97 percent cleaner than the average car built in 1970, thanks to a combination of cleaner gasoline and more efficient engines. As a result—although there are more Americans driving more miles in more cars than ever before—automobile-related emissions are down 41 percent since 1970.

“Green” Defeat

Prior to the meeting, there was publicity about the green dissent. Had their moment come in this new political year? Kristen Hays of the Houston Chronicle wrote on the eve of the event: 

As President Barack Obama continues pushing his environmental agenda, Exxon Mobil — the slowest of the oil majors to embrace investment in renewable energy — faces a repeat lineup of green shareholder proposals at its annual meeting Wednesday.

The world’s largest publicly traded company has not changed its view that its business is oil and natural gas, and it won’t invest in renewables beyond research until they’re profitable without subsidies.

But some influential proxy advisory firms note that such proposals have steadily gained investor support, and the perception that Exxon Mobil has no use for renewables continues to damage its reputation.

“The company’s lack of a comprehensive policy on renewables has left many investors with the perception that the company is unwilling to consider such options in the future,” said New York-based RiskMetrics in its proxy paper on Exxon Mobil.

“Such a perception has led to substantial reputational damage to the company on this issue,” RiskMetrics said.

San Francisco-based Glass Lewis & Co. noted that oil and natural gas drive Exxon Mobil’s profits, which surpassed $45??billion in 2008.

But not much happened, certainly dashing expectations of Exxon Mobil’s critics who really had little to say. Hays reported in the Chronicle (and the Dallas Morning News):

Sister Patricia Daly, a nun with the Sisters of St. Dominic of Caldwell, N.J., has repeatedly sponsored a proposal that Exxon set goals to cut emissions from its products and operations and issue a report to investors on that plan by Sept. 30. …

Daly said Exxon Mobil has improved energy efficiency, which has helped its bottom line. But given policy changes driven by the Obama administration and Congress, she said, “We’re not confident our company is ready for the financial impact.”

The proposal garnered support from 29 percent of shares voted, a dip from 30.9 percent last year.

Another shareholder, Tracey Rembert, representing the Service Employees International Union, pushed a repeat proposal that Exxon adopt a policy on renewable energy research, development and sourcing and report its progress to investors next year. She urged the board and Tillerson to be clearer about the company’s interest in renewables.

“We need clarity on this, particularly now with policy unfolding,” she said. “If you’re not going to pursue it, just say so.”

[But] shareholders gave the renewables proposal 27.3 percent of votes cast, a slight dip from 27.5 percent in favor last year.

Hayes also reported about Exxon Mobil’s worldview:

Tillerson reiterated the company’s outlook — which mirrors projections from the U.S. Department of Energy and the Paris-based International Energy Agency — that fossil fuels will provide the vast majority of energy through at least 2030.

Although renewables and alternatives are growing, their overall piece of the energy mix will remain small until they reach the massive scale at which fossil fuels are used. And Exxon won’t invest beyond research until renewables are profitable without subsidies, Tillerson said.

“The challenge is scale, the rate of penetration and the deployment,” he said. “Our approach to alternative energy in the near term is alternative ways to consume, which is less damaging.”

Hays also mentioned this exchange on the global warming debate, which captured the views of much of the auditorium:

Rick Wilson, another shareholder, offered the view that climate change is “entirely natural, not man-made,” so humans can’t fix what they didn’t cause. His comments generated applause from many shareholders who attended the Dallas meeting.

Tillerson said simply, “It’s a complex area of scientific study.”

And Tillerson is right. It is complex, and it is right to question those who say 1) the science is settled, 2) the science is settled in favor of climate alarmism, and 3) government-forced energy transformation is necessary based on the physical science of the human influence on climate.

Still, it is probably incorrect to state, as did Wilson, that climate change has no anthropogenic component. Chip Knappenberger will question such “ultra-skepticism” at a future post at MasterResource.

(1) Quoted in Bradley, Capitalism at Work: Business, Government, and Energy (M & M Scrivener: 2009), p. 117.

Royal Dutch Shell and BP, in particular, recognize wind and solar as what they are: dilute, intermittent energies that are not consumer friendly or economic. And their investment returns in the same have been lackluster. Shell and BP have found out what Exxon Mobil learned in the 1970s.

“Oil giants worldwide are skeptical that President Barack Obama’s plans to move the economy away from petroleum will be successful,” Jad Mouawad wrote in the Times. “Many of the oil companies are sticking to their hydrocarbon business model and some are backing away from commitments to renewable power.”

Mouawad summarizes the thinking from these three majors:

Royal Dutch Shell last month said it would freeze research in wind, hydrogen and solar power to devote all its renewable energy efforts to biofuels. The company had already sold much of its solar business and last year pulled out of a project to build the largest offshore wind farm near London.

BP has been trimming its renewables program, and U.S. oil companies, which have traditionally been more lukewarm to renewables than their European peers, are not budging either.

“In my view, nothing has really changed,” Rex W. Tillerson, the chief executive of Exxon Mobil, said after the election of President Obama. “We don’t oppose alternative energy sources and the development of those. But to hang the future of the country’s energy on those alternatives alone belies [the] reality of their size and scale.”

Indeed, the article goes on to note, the majors are focused on frontier hydrocarbons, such as tar sands and natural gas from shale. Such emphasis will warm the hearts of those who favor free-market capitalism over political capitalism.

Core Competency: “We Don’t Do it All”

The pullback from wind and solar is back-to-the-basics. As Shell’s CEO Jeroen van der Veer stated, “We don’t do it all.” Whatever the advantage of investing in wind and solar for public relations reasons, in the current economic climate such PR is no longer affordable. Perhaps these companies are also asking whether technologies that are forever dependent on government policy are really sustainable.

There is also the problem of scale, which Daniel Yergin spoke to in the Times article mentioned above. It is the same point that the former CEO ExxonMobil, Lee Raymond made so well back in 2004:

One of the difficulties people have, even some who work in this business, is understanding the scale and size of the energy industry. This is important to understand in order to put in perspective what some of the alternatives are and to judge if they are significant in the context of the whole.

There are many alternative forms of energy that people talk about that may be interesting. But they are not consequential on the scale that will be needed, and they may never have a significant impact on the energy balance. To the extent that people focus too much on that—for example, on solar or wind, even though they are not economic—what they are doing is diverting attention from the real issues.

And 25 years from now, even with double-digit growth rates, they will still be less than 1 percent of the energy supplied to meet worldwide demand. I am more interested in staying focused on the 99 percent than the 1 percent.

 Wind and Solar: Failed Expectations

Wind and solar in almost all applications are a bust. Not even very generous government tax incentives (production tax credit, accelerated depreciation) have worked. As Texas proves, mandatory renewable-energy quotas are required. In 1999, that state enacted the Enron provision of an electricity restructuring bill that made Texas the nation’s leader in new windpower capacity and production. (Enron Wind Corporation, now part of General Electric, was the intended beneficiary of the deal made by Enron’s Ken Lay and then-governor George W. Bush.)

Consider the long history of failed competitiveness of wind and solar as shown by these quotations.

Worldwatch Institute in 1984:

“Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.”[1]

American Wind Energy Association in 1986:

“The U.S. wind industry has … demonstrated reliability and performance levels that make them very competitive. It has come to the point that the California Energy Commission has predicted windpower will be that State’s lowest cost source of energy in the 1990s, beating out even large-scale hydro.“[2]

Barry Commoner in 1976:

“Mixed solar/conventional installations could become the most economical alternative in most parts of the United States within the next few years.”[3]

Solar Energy Industries Association in 1987:

“I think frankly, the—the consensus as far as I can see is after the year 2000, somewhere between 10 and 20 percent of our energy could come from solar technologies, quite easily.”[4]

Worldwatch Institute in 1987:

“In future decades, [photovoltaic technologies] may become standard equipment on new buildings, using the sunlight streaming through windows to generate electricity.”[5]

Lee Raymond, a rare energy realist in political times, was right.

[2] Christopher Flavin, “Electricity’s Future: The Shift to Efficiency and Small-Scale Power,” Worldwatch Paper 61, Worldwatch Institute, November 1984, p. 35.

[3] Barry Commoner, The Poverty of Power (New York: Alfred A. Knopf, 1976), p. 151.

[4] Scott Sklar, Solar Energy Industries Association. Quoted in Solar Power, Hearing before the Subcommittee on Energy and Power of the Committee on Energy and Commerce, House of Representatives, 100^th Cong., 1^st sess. (Washington, D.C.: Government Printing Office, 1987), p. 12.

[5] Cynthia Shea, “Renewable Energy: Today’s Contribution, Tomorrow’s Promise,” Worldwatch Paper 81, Worldwatch Institute, January 1988, p. 44.

“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.

As Joe Nocera’s excellent 5/31/08 column in the New York Times put it,

Exxon Mobil’s projections “depend on two critical but untested assumptions,” [Neva Rockefeller Goodwin] said, reading from notes. “First, developing countries will enjoy strong economic growth. And second, global consumption of oil and gas will significantly increase. This second assumption is wrong.” In her view, there was a high likelihood that new technologies would reduce the world’s reliance on oil and gas — and Exxon Mobil would suffer because of its stubborn refusal to spearhead new technologies back when it still had a chance.”

So, what has happened since?  We find “Green Revolution Stalls on Cheap Oil” (Guardian 1/1/09) and Russell Gold in the Wall Street Journal (1/12/09), said “Exxon Mobil Corp. is riding high above its peers, its coffers filled by years of high oil prices. Now, energy investors are wondering if Exxon is ready to make a move.”

The salient point is that ExxonMobil learned its lesson in the early 1980s, when it listened to all the energy experts who said that oil prices could only go up and that supply was constrained by a limited resource, and the finance professors who argued for diversification.  They developed a healthy skepticism towards so-called experts and so-called definitive analysis, and stuck to their knitting, which has made them the most successful private oil company.

If given the choice between the two, most economists, and even most free-market types, would say the same thing. But a lot of us would also say we want neither cap-and-trade nor a carbon tax by government. Keep the lid shut on that Pandora’s Box. Do not call CO2 a pollutant. The planet is not in peril, judging by the best science, and climate challenges can best be addressed by market adaptation and wealth creation rather than by political (non)solutions. Thus, Ken Green of AEI has shifted his position from positively favoring a revenue-neutral carbon tax to favoring such a tax as preferable to a cap-and-trade regulatory program. There is a big difference.

Now back to the speech. Tillerson’s preference for a tax (“There is another policy option [than cap-and-trade] that should be considered …”) did not preclude the option of the status quo. And in the context of the rest of the speech, there is nothing to suggest that the only choices are between less preferred and more preferred regulation.

Tillerson talks about “managing the risk of greenhouse-gas emissions” in the context of providing affordable energy to a growing population, particularly in the developing world. But managing the risk does not necessarily mean going beyond no-regrets reductions in energy-related emissions. Cost/benefit analysis can conclude that adaptation to climate change is more effective than government mitigation policies, particularly given the temperature trends indicating a lower climate sensitivity to GHG forcing than some or many climate models suggest.

The speech is forceful: Energy and political realities point toward a continuing primary role of fossil fuels for the next decades. There is an imperative for economic recovery and future economic growth. This means producing and using a lot more of our best energies.

My earlier post “Has ExxonMobil Bought Into Climate Alarmism” answered in the negative. And having spent more time studying Tillerson’s nuanced speech, I believe the policy option of unregulated CO2 remains a viable option in the minds of the great majority of the energy community. I also believe that the majority of the public is thinking just the same way: be realistic, and give us our energy!

ExxonMobil’s new corporate position in favor of carbon taxes, reported today by the Wall Street Journal, is not entirely unexpected. It is the result of a policy drift of recent years toward compromise and appeasement with the company’s political critics.

But I doubt that ExxonMobil has bought into alarmism. Back at Enron, where I was director of public policy analysis, we didn’t necessarily buy into climate alarmism but we welcomed the public’s concern because we had seven profit centers (see pp. 3–4) that stood to benefit. ExxonMobil, the anti-Enron, has not set itself up as a rent-seeker, but it apparently wants a seat at the policy table given the perceived choice between a carbon tax and a carbon cap-and-trade scheme.

It is ironic that ExxonMobil’s shift has come at a time when the case for climate alarmism is in growing trouble. Global temperatures are flat, not accelerating, as Chip Knapperberger recently blogged on this site. Climate mini-alarms, as I argue in  “Climate-Change Alarmism Runs Into a Reality Check” in today’s Houston Chronicle, have not held up well.

I wish that Rex Tillerson, ExxonMobil’s chairman, would oppose carbon taxes on the grounds that 1) it would hurt motorists and other energy users by raising prices; 2) it is a “solution” for an ill-defined problem; and 3) it could spark an international trade war via border tax-adjustments on countries that do not have such a tax.

But perhaps Mr. Tillerson (or his eventual successor) will change his mind and not support carbon dioxide pricing/regulation per se. Back in 1981, Exxon Chairman C. C. Garvin told a group of environmentalists what they wanted to hear: “Indeed, we believe that in the United States oil use reached its peak several years ago and is on the way down.” That was also when Mobil head Rawleigh Warner predicted that  the “brief interlude” of the oil age was coming to a close, and the head of the American Gas Association, George Lawrence, predicted that natural gas would soon be too scarce for industry use (for cites, see pp. 264–65 of Capitalism at Work). They were all wrong by a long shot during this alarmist era.

Government intervention in the name of “sustainability,” not the interaction between man and nature, is the threat to energy  sustainability. This may be exactly what Obama’s energy/climate team does not want to hear, but it is good news for mankind nonetheless.

The December 8, 2008, Wall Street Journal, for example, contains a phenomenal 4 1/12 pages of industry ads. For the 20-page front section A, that comes out to about 20%–surely an all-time record. There was a lot of industry advertising back during the energy crises of the highly regulated 1970s, but nothing like this!

There is a massive two-pager by Chevron with a bearded man saying, “I Will Use Less Energy.” Shell’s one pager is: “In the New Energy Future: We’ll Need to Think Around Corners.”  ExxonMobil’s one-pager on the back of Section A is: “The Challenge: Securing America’s Energy Future,” the first installment of six in a series titled “integrated energy solutions.”

It is a shame that so much money is going out the door in this way. This is money that should either go to stockholders as dividends or go toward energy infrastructure. (Or, if corporate philanthropy is your thing, more playgrounds.) And ad buys are just a piece of the total that is diverted into public relations and government affairs that should be going into creating real wealth.

The anti-energy lobby is all too happy to see this money being spent on ink and paper–it displaces real energy production and thus lowers emissions, right? It helps confirm “peak oil,” right?

Given an imperfect world, is this amount of advertising a good thing? I will have to defer to others, but I can editorialize that I like some of the ads better than others. Chevron’s conservation campaign is the most questionable. It has been overtaken by events. If the company had known that oil would be as low as $40 rather than $140 a barrel, perhaps the theme would have been different.

Shell’s campaign is too focused on the “silver bullet” of energy transformation, which to me is premised on a number of fallacies that I will not get into here. ExxonMobil’s is the best in my opinion, explaining how self-interested technology can achieve a variety of social purposes. But normally, that company would just do what it does and not have to tell the world about it, saving that ink to describe how great its retail products are (as retailers do).

BP is not in the bunch, by the way, but their ad campaign from the beginning has been the most disappointing to me (another story for another day).

I wish each and every company campaign would skip the gloss–and to critics on the Left, “greenwashing”–and make the straightforward case that: 1) energy is the master resource; 2) affordable, plentiful energy is a social good; and 3) free-market energy is the best for consumers and society. Talk about “government failure” alongside “market failure.” And so on.

I predict that as the anti-energy nature of the Obama Administration rears its ugly head, the major energy companies will move toward these three themes more. The public will like it because it speaks to their pocketbooks and has a good intellectual case behind it. And it speaks truth to power (yes, government is power, not energy companies who cannot initiate coercion).  But maybe I’m too optimistic during this holiday season.