Yahoo Finance "Let the Market Decide": Exxon's Response To European Energy Policies
Europe's climate and energy policies are very prescriptive and geared toward picking energy transition winners and losers instead of letting the market decide which solutions reduce emissions at the lowest cost for society, ExoxnMobil's chief executive Darren Woods says.
The Inflation Reduction Act (IRA) in the United States, on the other hand, sets emissions standards and lets the market work to deliver on the objective of reducing emissions and lowering emissions intensity, Woods said this week on the podcast of Nicolai Tangen, the chief executive of Norway's sovereign wealth fund, the world's largest.
Europe's 'Stick' Approach
While the IRA doesn't pick winners and losers, Europe is "very prescriptive in trying to micromanage the solutions," Exxon's Woods said.
"I think it's a huge mistake to be picking winners and losers and focusing on specific technologies," he added.
"Instead we should be looking more broadly at letting the markets figure out which solutions provide the most emissions reductions for the lowest cost."
Europe's energy and climate policies are "the stick approach" to climate change mitigation as they also penalize companies, thus taking capital out of Europe and its economies, Woods noted.
If you take capital out of Europe and out of energy production in Europe, the oil and gas that the world – including Europe – still needs will just come from somewhere else. And there will be demand for oil and gas because we don't have good alternatives for many industries yet, according to Exxon's top executive.
In Europe's policy approach, there is "way too much emphasis on supply" and where it comes from, and not enough on demand, Woods said.
Incentives Could Only Provide A Good Start
Incentives, be it in the U.S. or Europe, or anywhere else, are a good start to try to lower the current high costs of decarbonization. But a market has to develop in order to lead to an industry capable of reducing or removing emissions at scale at costs low enough to be economical and bring value to shareholders, Exxon's CEO told the CEO of the world's biggest sovereign wealth fund.
"The government cannot subsidize this business in perpetuity," he added.
Governments "can act to accelerate it, to catalyze the needed investments, it can start industries down this technology curve to get us going, but ultimately, markets will have to develop."
Moreover, there is no silver bullet in this solution set, there is going to be a mix of solutions, and the mix will depend on regions, Woods said, adding that for the U.S. Gulf Coast, blue hydrogen could be more appropriate while green hydrogen could be one of the solutions in Europe.
For ExxonMobil, the solutions are CCS, hydrogen, and biofuels. These areas are where the supermajor could bring its technological advantage and create value for shareholders, Woods said, replying to a question about why the company hasn't invested in wind and solar, as many of its European peers have done.
"At the end of the day, we're a molecule company, not an electron company," he said.
Norway's Wealth Fund Wants More Climate Targets From Exxon
Government Pension Fund Global, as Norway's fund is officially known, held ExxonMobil stock with a market value of $5.1 billion at the end of 2022. The fund, which is commonly referred to as 'Norway's oil fund' because it was created with Norway's oil and gas revenues, sided with environmentalists at Exxon's annual general meeting last month, voting for a resolution for the U.S. supermajor to adopt a medium-term Scope 3 emissions reduction target. This and other climate resolutions were overwhelmingly rejected by Exxon's shareholders. The proposal to establish a Scope 3 emissions target and reduce hydrocarbon sales was rejected, with 89.5% votes against and 10.5% votes in favor.
Although Norway's fund voted in favor of more climate action from both Exxon and Chevron, it has voted against climate resolutions at the European oil majors BP and Shell, saying that it is okay with the energy transition plans of Europe's majors.
"Both BP and Shell have good Scope 3 targets, they have good transition plans," Carine Smith Ihenacho, Chief Governance and Compliance Officer at the fund, told the Financial Times last month.
"Orderly Transition"
Following the energy crisis, the top executives of the biggest international oil and gas firms have started to call for an "orderly" transition in which people should get the secure and affordable energy supply they currently need, and they currently get from fossil fuels.
"If we stop producing diesel and gasoline, the world demand doesn't change. Somebody else will meet that," Exxon's Woods said on the podcast with the CEO of the Norwegian wealth fund.
BP's CEO Bernard Looney said earlier this year, "We need to invest in today's energy system – which is predominantly an oil and gas system."
"And to be clear – we should be clear – orderly is not another word for slow. What it does mean is keeping affordable energy flowing where and when it's needed. Investing in the transition AND investing in energy security," BP's top executive added.
Chevron's CEO Mike Wirth said in March that "one of the greatest challenges of all time" was to keep secure and affordable supplies flowing while managing the energy transition.
"We have to be very careful about turning system A off prematurely and depending on a system that doesn't yet exist and hasn't been proven."
By Tsvetana Paraskova for Oilprice.com
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