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Climate Change Is Important: Energy Conservation is the First Step


March 21, 2009

Green: No Longer the “New Black” for Shell Oil

Category: Companies,Energy Independence – Tom Harrison – 7:34 pm

shelllogoBlack is back at Shell. Black gold. Texas tea. Green is out.

Oh yes, it’s the same Royal Dutch Shell that was so committed to renewable energy sources a few months ago. But they have had a change of heart. The Guardian reports:

The company said that many alternative technologies did not offer attractive investment opportunities. Linda Cook, Shell’s executive director of gas and power, said: “If there aren’t investment opportunities which compete with other projects we won’t put money into it. We are businessmen and women. If there were renewables [which made money] we would put money into it.”

I can think of three possible explanations for this change of heart.

  1. Shell doesn’t believe that climate change, or carbon trading is a significant enough concern for their bottom line to factor them into any projections. Perhaps this is because recent polls show the number of people thinking climate change is “exaggerated” has risen rapidly. In short, without enough popular support, they are betting that their business will continue as usual for the foreseeable future. Or…
  2. They never really meant to do anything in the first place, and it was all a big marketing gambit. Or…
  3. As renewable sources grow, Shell sees them now as a competitive threat to their core business.

Perhaps you’ll note that one of my possible explanations for their actions does not include their explanation, namely that renewables are not cost effective. They report that some of their investment is being aimed at carbon sequestration. I do believe that there’s an important role in sequestration, but whereas renewables are getting close to grid parity, carbon sequestration cannot possibly have any immediate revenue potential — it’s almost purely R&D and cost today. One would have to have a rather dismal view of renewables to fail to see how they could be at least as good an investment as carbon sequestration.

Maybe there are other explanations. These were just the ones that occurred to me. But I think some combination of these explanations accounts for the lion’s share of their decision. So how could a company be so … simplistic?

Maybe they’re just suffering the myopia that comes from being a leading, profitable company? After reading projections by BP of energy use in the future (which predict that in 20 years, only 7% of our energy will come from renewable resources), I have come to understand that the oil companies really have a very limited ability to see into the future. They seem to be constrained by their view of the past. Historically, corporations have not be particularly willing or good at predicting the demise (or major change) of the character their business. The ones that did survived (for example: IBM and Smith-Corona both made typewriters). Few people remember the names of the companies that sold candles and whale oil … before the electric light smote them out of existence.

Indeed, the survivors of major change are the ones who not just accept, but embrace the change as an opportunity. To be honest, I have little faith in just about any of the oil companies, at this point. It’s almost moot now to point out how badly GM and Chrysler have failed to recognize their demise, and I give a slight credit to Ford, only because it was clear three years ago that Bill Ford understood why sustainability was a goal worth pursuing.

I do think it’s curious to wonder if indeed my third explanation, that Shell sees renewables as a competitive threat, has any merit. Wind power has been growing very fast. Solar is making technical and scaling breakthroughs that change the equation a little. Obama isn’t equivocating about climate change, cap-and-trade, energy independence, or any other issue that tend to favor renewables and hurt fossil fuel companies. The science is not getting any less clear on climate change, and the regulatory landscape is solidifying.

Perhaps if I were Shell, I might realized that I had better damned well figure out if there’s any way in hell that carbon sequestration will work, and meanwhile, clean up my act a little and save some money doing it … but by no means cut into my core business. I think this is a (classic) short-sited, reactive, self-protectionist business response that has been the death knell of many former large enterprises. It makes sense, but only in the most narrow, unintelligent was of looking at the world. But then again, we’re not talking about people, who have capacity for intelligence — we’re talking about corporations. The two are different.

Suffice it to say that while I may have not gotten the correct explanation of Shell’s failure to adapt to the inevitable future, I am confident that in three years, I’ll be able to link back to this post, and the others I have written, and report how the fortunes of Shell and ExxonMobil have become more clear, and how they failed to do the right thing to evolve their businesses. Even when the facts were as easy to see as the back of your hand.

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