California is suing the major oil producers operating in the state, arguing that they have deceived consumers and have cost communities money. The state may be digging a black hole, no pun intended.
In his suit, California Attorney General Rob Binta argues that internal memos prove that BP, ExxonMobil, Chevron, Shell, and ConocoPhillips knew that oil burning led to global warming and caused droughts, floods, and extreme weather patterns. Despite this knowledge, however, California remains a prolific oil driller, benefitting its citizens economically.
“Fossil fuels are used heavily all over the world because they're cheap and convenient, not because of deception,” writes Robert Rapier in Forbes. “We have known about the risks for a very long time, but we continue to use them anyway. California has never trusted Big Oil. The state can’t credibly claim that it didn’t act with urgency because it was relying on the word of Big Oil.”
To compound Exxon’s problems, the Center for International Environmental Law has uncovered evidence from nearly a half-century ago that oil executives knew of the coming climate phenomenon: In 1968, the Stanford Research Institute issued a paper to the American Petroleum Institute saying that environmental changes could jeopardize the earth’s future.
Interestingly, California now produces nearly 10% of the nation’s oil, which is on par with Alaska's output. Among the leading developers are Chevron, Occidental Petroleum, Plains Exploration, Linn, and Breitburn. Altogether, at least 32 drilling sites exist on land and offshore, all places from where those companies are exploring oil.
The primary obstacle to increasing that percentage is, ironically, technological -- not regulatory, says Rock Zierman, chief executive of the California Independent Petroleum Association in Sacramento.
He says the Monterey geological formation is uncommon, and hydraulic fracturing cannot work there. Fracking, of course, is the controversial method by which producers extract tight oil and gas. It uses a concoction of water, sand, and chemicals to free those deposits from the rocks resting a mile beneath the ground.
“Our geology is totally different here,” says Zierman, in a phone conversation. “We have not found out how to produce the Monterey Shale." But he adds that legislative pressures continue, which can potentially shut down operations.
The prospect for a run-in is accurate. California's climate objectives do conflict with oil drilling. Its goals are to cut greenhouse gases by 48% below 1990 levels by 2030 and 80% below 1990 levels by 2050.
While many corporate boards are defeating efforts by activists to disclose more and more climate risks, most oil companies are already taking bold action to curtail their CO2 emissions. One can argue how effective they are.
However, many investors contend that corporations generally provide investors with essential data. They note that the activists would micromanage companies if left to their devices. Their concern is that no matter what measures businesses take to limit their carbon footprints, they will always need more.
“Certainly, litigation risks do contribute to risk aversion, which does contribute to increased transparency,” said Pierre Connor, executive director of the Tulane University Energy Institute, in an interview with this writer. For example, cities and counties along the coast say oil companies should pay for seawalls and other barriers to prevent beach erosion.
In any event, the tide is moving toward more disclosure. The French oil and gas giant Total has committed to net-zero emissions by 2050. It has so far reduced its carbon intensity by 6% since 2015. It’s the latest European oil enterprise to make such a pledge. BP, Eni, and Royal Dutch Shell have made the same vows.
