The prospects for serious climate policy coming out of the Biden administration are not good. Not only is his infrastructure plan far, far short of what is needed — as Adam Tooze points out, Biden would dedicate less to green energy research over eight years than Americans spend on pet food annually — even that much passing Congress seems increasingly unlikely.
However, there is a somewhat hopeful sign coming from oil companies, of all places. Three major firms — Royal Dutch Shell, ExxonMobil, and Chevron — have all taken serious hits to their business models of late. Fossil fuel companies still make money today, but their future business prospects are dim, and that is starting to sink in even among top managers and investors.
A quarter of Exxon's board of directors is now composed of critics who have argued the company has been too slow in moving away from traditional carbon power. Bizarrely, a tiny activist hedge fund is responsible for this. Called Engine No. 1, it has been running four candidates for the board as part of a shareholder campaign to push Exxon away from carbon power, and three of them won in recent shareholder elections. Though the other nine seats are still filled by company loyalists, analysts agree this a huge defeat for Exxon's management — Engine No. 1 only owns about 0.02 percent of Exxon shares, yet their arguments were compelling enough to convince many other investors.
Chevron also saw its own investors vote for a proposal to cut emissions from their customers at a recent conference, even after its board urged them not to.
Meanwhile, Shell recently lost a major case in Dutch court. The judges ruled that the company has to cut its greenhouse gas emissions by 45 percent by 2030 (relative to their 2019 level), in keeping with European climate promises. Because it is not an American company, Shell had actually previously promised to cut its emissions by 45 percent by 2035, but that was apparently too slow. More important than this modest acceleration is the precedent it sets — hundreds more lawsuits demanding other companies cut back their emissions are likely to follow, in Europe and elsewhere.
The most interesting of these stories is surely the Exxon shareholder campaign. This was not a bunch of hippie activists — though Engine No. 1 of course emphasized the moral necessity of confronting climate change, the real meat of their argument was that Exxon is ignoring easy profits and threatening its own long-term viability by continuing to focus on digging up and burning fossil fuels.
Exxon management, like all people who make tons of money in a particular sector, has convinced itself that nothing will ever change. But the plain fact is that the world is in the middle of a rapid energy transition. The use of coal in utility-scale American electricity generation has fallen by 62 percent since 2007. Much of that slack has been taken up by natural gas, but wind and solar account for most of the rest, and renewables are starting to make inroads into gas too. The main reason is prices: between 2010 and 2020, the cost of wind power fell by about 70 percent, and solar power by 89 percent. There is every sign that trend will continue, along with other technologies like energy storage that will make renewables easier to deploy. The International Energy Agency estimates that in many locations today, solar photovoltaic is the "cheapest source of electricity in history," beating out nuclear, coal, and natural gas. Every year that gap is going to grow.
In short, it may take decades, but the long-term business prospects of oil and gas are dismal. It follows that a sensible oil company should be pivoting hard to other kinds of energy business — taking its oil profits and investing them in wind, solar, advanced nuclear, carbon capture, geothermal (where oil drilling actually provides some relevant expertise), and so on. If Exxon and all the other Big Carbon companies don't get with the program, they are going to die.
Now, it would be a great mistake to conclude that market incentives are good enough, and the world's governments don't need to do anything more to fight climate change. In fact, the main reason that wind and solar are taking off so fast are previous government research programs and installation subsidies around the world. Much, much more aggressive action is needed to attack climate change anywhere near fast enough to prevent severe disruptions to human society.
But it is still a little heartening that technology has come far enough along that new forms of energy are threatening the viability of carbon profits. If a tiny hedge fund can change the behavior of one of the world's biggest oil companies even a little, who knows what else might be accomplished with a bigger and more coordinated attack?