ExxonMobil and Climate Change: A Story of Denial, Delay, and Delusion, Told in Forms 10-K (2009-2016) – Part Three (B): 2010

This latest installment of our series addressing how the ExxonMobil Corporation has been engaged in a multi-decadal, systematic campaign of disinformation and deception regarding the climate change threat covers the year 2010 alone, so significant a year it was. Subsequent posts will cover years 2011 to the present (See Part One (1993-2000); Part Two (2000-2008); and Part Three(A) (2009)). These analytic pieces are designed to compare what this multinational fossil fuel corporation has been saying to its investors about the risks it faces as a result of global climate change to what was publicly known and readily knowable at the time, given the state of climate science and major policy developments relevant to the climate threat. We assess statements made in the corporation’s annual 10-K filings with the Securities and Exchange Commission (SEC), year by year. 10-K reports were chosen for review because they offer one important way shareholders, investors, and financial analysts assess the assets and appraise factors that could inflate or deflate stock prices. We compare and contrast what this corporation says publicly about what it knows regarding climate change as a risk factor, and what it has been discovered to have known (or reasonably should have known) internally; we also look at actions and statements made by the CEO and upper management over time.

The two-part question we have put significant effort into answering is: What has ExxonMobil known about climate change that it does not want its own investors (and the public) to know, and what steps has it taken over the years to keep us from knowing it?

For the fossil fuel industries, maximizing profit and reducing carbon emissions in order to avert a climate catastrophe are two opposing forces. For ExxonMobil, the choice has been clear: profit over people. This corporate attitude, however, is now coming back to bite them. By relying on an approach over the past three decades of ‘denial and disinformation’ rather than one of ‘awareness and disclosure,’ ExxonMobil has not only earned itself a reputation as a bad actor on the climate front, but in turning a cold shoulder on the global warming trend it has landed itself in legal hot water. Ongoing investigations by the SEC and several state attorneys general, primarily in New York and Massachusetts, have put ExxonMobil in a defensive posture while simultaneously triggering the company to go on the offensive. A virtual army of corporate attorneys is doing its best to mitigate the damage while discrediting the investigators. The end result, while difficult to predict, is sure to include one outcome ExxonMobil is trying hard to avoid: additional tarnishing of the company’s reputation in the mind of the consumer.

This post looks at one year specifically, 2010, in the context of what was going on in the U.S. and the world in the way of climate communications and important developments, and contrasts those to what ExxonMobil was saying to its shareholders and the public regarding the climate threat.

2010
The Obama-Biden Administration: Rhetoric and Actions in 2010
We pick up where we left off in Part Three (A) of this series, at the end of 2009 and one full year into the Obama-Biden administration. Already the Obama White House could point to a number of significant accomplishments in the areas of renewable energy, energy efficiency, and climate change (see, for example, the Natural Resources Defense Council’s assessment of Obama’s first year in office). The tone and tenor had been set: this president was going to do all he could to transform our fossil-based energy system to one that is cleaner, healthier, and less carbon intensive. In January 2010 President Obama delivered a set of remarks on clean energy and the economy from the East Room of the White House in which he announced a clean energy manufacturing initiative. His words were music to the ears of all those who had become exhausted with the previous administration’s willful deafness to the alarms rung by climate scientists worldwide:

“Building a robust clean energy sector is how we will create the jobs of the future, jobs that pay well and can’t be outsourced. But it’s also how we will reduce our dangerous dependence on foreign oil, a dependence that endangers our economy and our security. And it is how we will combat the threat of climate change and leave our children a planet that’s safer than the one we inherited.”

With a stated goal of doubling the amount of renewable power the U.S. uses over a three-year period, President Obama announced his clean energy manufacturing initiative, intended to close the gap that had grown between the US and other nations on clean energy technology prowess; the U.S. was falling behind countries like China and Germany. Included was a hefty $2.3 billion in tax credits for American manufacturers of clean energy technologies such as wind turbines, solar photovoltaic panels, and advanced batteries.

In the President’s State of the Union Address on January 27, the President said:

“I know that there are those who disagree with the overwhelming scientific evidence on climate change. But here’s the thing: Even if you doubt the evidence, providing incentives for energy efficiency and clean energy are the right thing to do for our future, because the nation that leads the clean energy economy will be the nation that leads the global economy.”

This argument was popular in the 1990s; those in climate policy circles used to call it the “anyway” argument. Taking steps to reduce greenhouse gas emissions has so many side-benefits to our economy and our environment that they are worth taking “anyway,” even if driving down carbon dioxide emissions isn’t the primary objective. Nonetheless, President Obama had sent a clear signal to the fossil fuel industries: it’s time to clean up your act.

Climate Science Watch (CSW) was critical of the address, claiming that the new president “failed to explain to the American people why he supports comprehensive climate change legislation and noted that energy policy, even a clean energy policy, is not equivalent to a national policy for climate change. The Waxman-Markey bill (H.R. 2454) – the first ever major climate bill to pass the U.S. House of Representatives – was languishing in the Senate and could have used a big push from the President, but he squandered the opportunity. CSW founder Rick Piltz took him to task:

“By not talking about the elements of a ‘comprehensive’ climate policy, he did nothing to buttress support for anything other than an energy-only bill. He could have said ’I will veto any climate and energy bill that comes to my desk without a framework for ensuring a reduction in heat-trapping pollution that will do our part to prevent dangerous climate disruption.’”

Piltz also criticized Obama for not standing up for the climate science community:

“He could have done much to support a science community that is besieged by an aggressive political disinformation campaign, and could have struck a blow for scientific integrity in policymaking.”

In early 2010, an international controversy that would come to be known as “Climategate” was about two months old. Hackers, as yet to be identified and charged, had broken into the computer systems at the Climate Research Unit of the UK’s University of East Anglia and stolen over a thousand emails sent between scientists spanning a period of over a dozen years, and made them public. The climate denier crowd had a field day, taking every opportunity to allege fabrication of scientific data or some form of scientific cheating. However, a FactCheck.org study (among others to come later) determined that, while a few scientists were revealed to be perhaps a bit terse or dismissive in their collegial emails back and forth, there was no evidence of improper data manipulation or interpretation, and that the data did indeed show a significant warming trend in progress was indeed  real. The timing of the email hack, so close to the December 2009 Copenhagen Summit on Climate Change, suggested nefarious motives: a smear campaign designed to thwart the sensitive negotiations. The sustained reference to ‘climategate’ in the media over a period of months into a couple of years had its likely desired effect: it left in its wake a more confused, less certain populace regarding the state of climate science, according to a study conducted by the Yale Project on Climate Change Communication, “Climategate, Public Opinion, and the Loss of Trust.”

Climate science also suffered a black eye in early 2010 when several reporting errors were discovered in the 2007 IPCC Fourth Assessment Report (AR4). In the grand scheme of things the mistakes were not Earth-shattering and did not take away from the seriousness of the essential warning: it was demonstrated that 97 to 98 percent of the over 1300 scientists who worked on the AR4 subscribed to its tenets of anthropogenic climate change. But the very fact that the extensively peer-reviewed report contained a few misstatements added more fuel to the well-maintained global warming denial machine.

Climate Change In Academic and Popular Literature
Whereas academic studies of climate change published in the scientific literature in the 1980s were only occasionally reported in the media, by the time 2010 rolled around, media coverage of scientific studies looking at the role of fossil fuel use on the Earth’s climate were fairly commonplace. One scientific paper, “Atmospheric CO2 Concentrations During Ancient Greenhouse Climates Were Similar to Those Predicted for A.D. 2100,” published by  the National Academy of Sciences,) determined that atmospheric carbon dioxide concentrations in prehistoric times – when the world was much warmer and dinosaurs roamed the Earth – were similar to those predicted for the year 2100. Another 2010 paper published in Science, “Could East Antarctica Be Headed for Big Melt?”, warned that East Antarctica was headed for a big melt, similar to the way the Arctic is melting today. By this time, the body of academic literature on climate change was robust.

More notably, academic literature began to fill up with papers analyzing the effect of the sustained denial campaign on public perception of the climate change problem. One paper, “The Lomborg Deception: Setting the Record Straight About Global Warming,” analyzed the gross misinformation that was being spread by  Bjørn Lomborg and attempted to “set the record straight.” A paper published in Nature, “Fixing the Communications Failure”, offered solutions for “fixing the communications failure” on climate change. The Columbia Journalism Review even published a paper titled “Hot Air: Why Don’t TV Weathermen Believe in Climate Change?” Greenpeace International chronicled 20 years of organized attacks on climate science in the report “Dealing in Doubt: The Climate Denial Industry and Climate Science.” However, the most important paper published on this topic in this year was one authored by science historian Naomi Oreskes, titled “Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming.” Her research was later turned into a book and a documentary film, Merchants of Doubt. In addition to earning a reputation as a top scholar on the ill-effects of the “global warming denial machine,” Oreskes is known for pointing out the enormous disconnect between what professional scientists have studied and learned over the past several decades and the content on climate change in popular culture. This indeed has been a chronic problem in this decade.

The New Yorker published a layman’s autopsy of the Waxman-Markey climate bill in October 2010, “As the World Burns.” Eric Pooley, deputy editor of Bloomberg BusinessWeek and former managing editor of Fortune, authored a popular book titled “The Climate War: True Believers, Power Brokers, and the Fight to Save the Earth” that attempted to dissect the politics around climate change. Heidi Cullen – one of the world’s foremost experts on climate change and a senior research scientist at Climate Central – authored The Weather of the Future, a book that painted a climate-changed future that would give anyone pause. Professor-turned-climate-activist Bill McKibben published a book called “Eaarth,” spelled with an extra ‘a’ to drive home the point that we are essentially creating an entirely new planet by saturating the atmosphere with an over-abundance of greenhouse gases. The New York Times reviewed both books. A feature film released in May 2010, Climate of Change, filmed in India, focused on the efforts of everyday people across the world making small but important differences in solving the climate change problem. In the news media, climate change articles in all of the electronic and print media were ubiquitous and difficult to miss.

The bottom line is, one would have had to be living in a remote aboriginal tribe deep in the Amazon not to be fully aware that climate change was impacting people around the world every day, and that nations all over the world, including the United States, were struggling in one way or another to deal with it.

And Yet the Climate Change Denial Machine Hummed Along
As transparent and obvious as the fossil fuel industries were in their blatant efforts to insert the notion that scientific uncertainties by definition warrant climate policy inaction, by 2010 they had shifted their modus operandi and taken their efforts “underground” by laundering their messaging through proxy organizations or “think thanks.” ExxonMobil Corporation and other industry members used a stealthier approach. ExxonMobil had previously made a public promise to stop funding organizations engaged in climate denial. But by now, they had cover: the uber-wealthy Koch Brothers (Charles and David Koch, two of the top ten richest people in the U.S.) were actively funding the organizations comprising the NGO denial machine. A new Greenpeace Report, Koch Industries: Secretly Funding the Climate Denial Machine, warned that a nearly invisible corporation, Koch Industries, had become “a financial kingpin of climate science denial and clean energy opposition,” and “had partnered with ExxonMobil, the American Petroleum Institute and other donors that support organizations and front-groups opposing progressive clean energy and climate policy.” The report noted that Koch Industries was now out-spending ExxonMobil in funding these groups, by nearly three times as much as in previous years.

A July 2010 post by the popular climate news group DeSmog Blog, citing The Times of London, revealed that ExxonMobil had given a total of $1.5 million to “climate deniers and industry front groups known for working to create doubt about global warming, attacking the integrity of climate scientists, and protecting the status quo for polluters.” DeSmog minced no words in excoriating the known ring-leader of the well-orchestrated climate disinformation campaign formed in the 1980s for attempting to pull the wool over the public’s eyes, yet again. “Contrary to its stated commitment to stop funding climate denier groups,” the investigators charge, “the Exxon funding spigot remained as open as the BP gusher, continuing to pollute the media landscape with oil-soaked misinformation designed to cripple international action on climate change.” The most scathing revelation was that ExxonMobil money had backed the media feeding frenzy over the non-scandal the denialists loved to call “Climategate” in an evident attempt to derail progress towards an international agreement to tackle the growing global climate change threat at the December 2009 Copenhagen climate talks. No agreement was reached in Copenhagen, and the nefarious manipulation of public opinion in the U.S. has been cited as one contributing factor.

In February 2010, CSW’s Piltz attended the annual meeting of the American Association for the Advancement of Science (AAAS) “where a panel of eminent scientists agreed they and their colleagues should have responded more quickly and effectively … to ‘Climategate’ allegations around the hacked researcher emails – but then characterized the public impact of these controversies as far out of proportion to the overwhelming evidence that human activity is changing the Earth’s climate.” This was reported in a CSW blog post titled “Scientists ill-equipped to deal with all-out war on climate science community.” Also at the AAAS meeting, Ralph Cicerone (who passed away last month), then president of the National Academies of Science and chair of the National Research Council, remarked that the appearance – if not the reality – of a rift within the research community has “corroded” the climate debate in a way that “may spread over to other kinds of science.” He called for a redoubling of the efforts by scientists to stress that an often-cited global average temperature rise of 3 degrees Centigrade could actually send temperatures over the land soaring to nearly 9 degrees above current levels in the next few decades, a disaster for all life on Earth. “A lot of what we need to do,” said Cicerone, “is translate basic information into terms the public can understand.”

It is difficult enough to communicate complex science to non-scientists or even scientists in a different field of study. By 2010, ExxonMobil, the Koch Brothers, the American Petroleum Institute, and other members of the fossil fuel industry-fueled denial campaign had made the job of effectively communicating climate science that much harder. CSW took note of this in a February 2010 blog post highlighting results of a study conducted by The Yale Project on Climate Change and the George Mason University Center for Climate Change Communication. The study, Climate Change in the American Mind: Americans’ Global Warming Beliefs and Attitudes in January 2010, was based on interviews conducted in late December 2009 through early January 2010. The data revealed a decline among US residents in “belief in” and “concern about” human-caused global warming between 2008 and 2010. In short, 57% of respondents said they believed global warming was happening in real time, compared with 71% in 2008. More importantly, the percentage of those who believe it is caused mostly by human activities had declined from 57% to 47%.

In other words, the global warming denial machine had done its job well.

The Demise of HR 2454: The American Clean Energy and Security Act of 2009 (aka the Waxman-Markey bill)
Meanwhile, comprehensive climate change legislation had passed the U.S. House of Representatives in June 2009 and was awaiting Senate consideration and approval. However, the loss of one Democratic seat in the Senate in 2010 had driven the final nail into the coffin of the bill, and the omnibus “cap-and-trade” legislation died with the 111th Congress. All of those months of careful planning and preparation, bill drafting, legislative language adjusting, stakeholder outreach, hundreds upon hundreds of meetings and conferences that went behind the House passage of H.R. 2454, was now all for naught.

A July 2010 study conducted by a group called OpenSecrets, a project of the Center for Responsive Politics, found that environmental groups were massively outspent by oil and gas groups as the comprehensive climate legislation was being considered in Congress. “During the first half of the year [in 2009], oil and gas groups spent more than $86.5 million on legislative influence,” the report stated. These groups included some of the world’s largest companies: ExxonMobil, ConocoPhillips, Chevron Corp, and the petroleum conglomerate Koch Industries each individually spent millions of dollars lobbying Congress that quarter, according to the report.

So it was demonstrated that ExxonMobil spent hefty resources to lobby against the Waxman-Markey bill (H.R. 2454), and, though these efforts didn’t prevent the bill from passing the House by a wide margin, they did contribute significantly to the bill’s demise in the Senate. ExxonMobil is a major contributor to the oil and gas trade association, the American Petroleum Institute, which touted the bill as a “job-killer” that must be stopped. Recall it was API that had orchestrated a fake grassroots campaign against the bill in the summer of 2009 later dubbed “astroturf.” We can also be next to certain that Rex Tillerson and Exxon’s high-priced D.C. lobbyists were not out pushing for a carbon tax in lieu of the Waxman-Markey bill. If they were doing so, there is no evidence to support it. To the contrary, earlier suspicions that the endorsement of carbon tax was a ploy to subvert a cap-and-trade program were now confirmed. The most important point here, however, is that ExxonMobil’s close involvement in lobbying against climate legislation is further proof that the corporation was knowledgeable about, and actively involved in, climate science and policy, if only as a bad actor.

The BP Deepwater Horizon Spill
When a BP-operated oil rig in the Gulf of Mexico exploded in April 2010 releasing oil into the Gulf for weeks on end – the largest marine oil spill in history – the worry over major oil spills was again thrust into the public consciousness. In fact, it resulted in one of GAP’s largest investigations to date, thus far resulting in over 40 whistleblowers reporting significant public health and environmental threats. For most, it was the first oil spill of note since the 1989 Exxon Valdez spill in Alaska. The blowout and inability to cap the well quickly resulted in the release of more than 210 million gallons of crude oil into the gulf waters, killing marine life and soiling the beaches with heavy crude.

The public concern was that if something this dreadful can happen to one extraction operation managed by one oil conglomerate, it can happen to any one of them. This is why the House Energy and Commerce Committee held a hearing in June 2010 for which it dragged in the CEOs for all of the oil multinationals: in addition to BP, the CEOs of ExxonMobil, Chevron, ConocoPhillips, and Shell were also summoned to appear. Each and every executive was forced to admit that none of them had in place the ability to prevent a similar disaster, and that each company had virtually identical spill response plans. “When these things happen we are not very well equipped to handle them,” Rex Tillerson was quoted in a news article covering the hearing.  He added, “There is no response capability that will guarantee you will never have an impact. It does not exist.” Those words were comforting to neither the Congressional committee nor the general public.

As GAP’s own investigation confirmed, the Deepwater Horizon Spill of 2010 brought with it the troubling revelation that neither ExxonMobil Corp. nor any of the other oil conglomerates were adequately prepared for a major release of crude oil that could ruin marine and coastal ecosystems and commercial enterprises for months or years. The fundamental focus of the oil companies is on maximizing extraction – at the expense of other considerations such as environmental protection, both in terms of toxics effluents to waterways and air emissions of toxics and greenhouse gases into the atmosphere. The industry does not take precautionary measures unless and until it is forced to do so, and uses its vast wealth and power to obstruct the normal legislative process – a process designed to establish sensible public policies that serve the needs of all, not just the fossil fuel special interests.

ExxonMobil’s Treatment of Climate Change in its 10-K Report
In the ExxonMobil Corporation 10-K Report to the SEC in 2010, the company has these things to say about climate change as a risk factor:

Among general risk factors, ExxonMobil notes:

“Throughout ExxonMobil’s businesses, new and ongoing measures are taken to prevent and minimize the impact of our operations on air, water and ground. These include a significant investment in refining infrastructure and technology to manufacture clean fuels as well as projects to monitor and reduce nitrogen oxide, sulfur oxide, and greenhouse gas emissions (emphasis added) and expenditures for asset retirement obligations.”

Among the risk factors for “demand” the company lists:

“[T]echnological improvements in energy efficiency; seasonal weather patterns, which affect the demand for energy associated with heating and cooling; increased competitiveness of alternative energy sources that have so far generally not been competitive with oil and gas without the benefit of government subsidies or mandates; (emphasis added) and changes in technology or consumer preferences that alter fuel choices, such as toward alternative fueled vehicles.”

Note, this language is no different from the language used in 2009, and reveals a fundamental dishonesty regarding subsidies provided to renewable energy and efficiency.

Among the risk factors listed for “supply” ExxonMobil notes:

“World oil, gas, and petrochemical supply levels can also be affected by factors that reduce available supplies, such as adherence by member countries to OPEC production quotas and the occurrence of wars, hostile actions, natural disasters, disruptions in competitors’ operations, or unexpected unavailability of distribution channels that may disrupt supplies.” (emphasis added).

Note that climate change can greatly exacerbate so-called “natural disasters” like hurricanes and severe storms, but this is not mentioned at all here. Likewise, supply disruption can also occur as a result of climate change impacts such as severe weather conditions. ExxonMobil should have mentioned this to its shareholders.

Under the section on Government and Political Factors, ExxonMobil reports:

“[T]he results can be adversely affected by political or regulatory developments affecting our operations.” Exxon notes regulatory and litigation risks this way: “Even in countries with well-developed legal systems where ExxonMobil does business, we remain exposed to changes in law (including changes that result from international treaties and accords) (emphasis added) that could adversely affect our results, such as increases in taxes or government royalty rates (including retroactive claims); price controls; changes in environmental regulations (emphasis added) or other laws that increase our cost of compliance or reduce or delay available business opportunities (including changes in laws related to offshore drilling operations, water use, or hydraulic fracturing); adoption of regulations mandating the use of alternative fuels or uncompetitive fuel components (emphasis added); government actions to cancel contracts or renegotiate terms unilaterally; and expropriation. Legal remedies available to compensate us for expropriation or other takings may be inadequate. We also may be adversely affected by the outcome of litigation or other legal proceedings, especially in countries such as the United States in which very large and unpredictable punitive damage awards may occur.”

Note for this section addressing government and regulatory factors, ExxonMobil’s frame is that anything in the way of a treaty, accord, law, or regulation protecting the environment or requiring the increased use of lower-carbon energy sources is viewed as a negative risk factor that would cut into its bottom line. In our analysis, there is no indication here that, in 2010, ExxonMobil was planning to take proactive measures to reduce its carbon footprint or deal with climate impacts in any way except to hope that they would not happen.

The 10-K includes a section devoted just to “Climate change and greenhouse gas restrictions” and addresses it this way:

“Due to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These include adoption of cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. These requirements could make our products more expensive, lengthen project implementation times, and reduce demand for hydrocarbons, as well as shifting hydrocarbon demand toward relatively lower-carbon sources such as natural gas. Current and pending greenhouse gas regulations may also increase our compliance costs, such as for monitoring or sequestering emissions.”

Note, again that the concern ExxonMobil wants its shareholders to know about is the increased costs and other undesirable problems associated with doing business in countries that choose to adopt a regulatory framework to address the climate change threat – a threat that affects ExxonMobil’s own operations and employees as much as it affects everyone else.

The 10-K also specifically addresses government sponsorship of alternative energy:

“Many governments are providing tax advantages and other subsidies and mandates to make alternative energy sources more competitive against oil and gas. Governments are also promoting research into new technologies to reduce the cost and increase the scalability of alternative energy sources.”

Once more, ExxonMobil rails against subsidies and tax incentives to renewable energy sources of energy without acknowledging the enormous subsidies enjoyed by the oil and gas industries, and fails to acknowledge the economic, not to mention the environmental and public health, benefits of a low-carbon energy economy in the U.S.

Concluding Remarks on 2010
In 2010, ExxonMobil was the second largest public company in the country with a profit of $19.2 billion in 2009. At the time, the oil giant held the all-time world record for public company profitability after making $45.2 billion in profit in 2008, beating its own previous record. CEO and Chairman Rex Tillerson had been compensated over $40 million throughout the previous five years. These were good days for Tillerson and for Big Oil in general. Meanwhile, the average global temperature trend continued to rise, and for the most part each year was a good deal warmer than the last. A host of climate impacts menaced the world, and ExxonMobil’s shareholders were still being told that regulating greenhouse gas emissions was bad for business.

 

CSPW Senior Climate Policy Analyst Anne Polansky has 30 years of experience in public policies relating to energy and the environment, with a strong focus on climate change and renewable energy. She is a former Professional Staff Member of the House Committee on Science, Space and Technology.