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That will not happen, says Exxon, because it cannot happen. Exxon is certain that oil, gas and coal will remain the world's dominant energy sources for decades to come.
That belief drives the company's critics crazy. But Exxon's projections are not radical. A forthcoming report from the U.S. Climate Change Science Program cites three of the most widely used models for climate change analysis: one from MIT, another developed jointly by the Pacific Northwest National Laboratory and the University of Maryland, and a third created by Stanford University and the Electric Power Research Institute. The studies do not agree on everything but they do agree on this: Fossil fuels will remain the planet's No. 1 energy source through the 21st century, supplying 70% to 80% of the total by 2100, vs. about 90% today. Exxon forecasts only as far as 2030; in that year, it projects, primary energy sources such as coal, oil and gas will account for 81% of global demand.
That's another reason Exxon isn't investing in alternative energy sources: They don't look big enough. For a company Exxon's size - No. 2 on the Fortune 500 - businesses of less than mammoth scale don't merit troubling with because they can't nudge the bottom line.
It's worth noting that the company carries no genetic hatred of alternative energy. In the wake of the 1970s oil shocks, it conducted major research in solar energy, and it holds dozens of patents in the field. But it couldn't see how to earn a profit, and shut the program down. That experience also thickened the company's skin. While greens today vilify Exxon for not investing in solar power, back then they attacked the company for investing in it. The theory was that oil companies would monopolize solar and then withhold its benefits from the public to sell more oil.
Exxon avoids investment in alternative energy sources for yet another reason, one that reaches deep into the company's experience: Much depends on the future price of oil, and no one knows what it will be. Consider two scenarios. If oil dropped to $25 a barrel - about what it was (in today's dollars) just before 9/11 - alternative energy would look even less attractive economically. Exxon's decision not to invest would look all the wiser, but its oil-related profits would shrink. Conversely, if oil rose to $100, its profits would rise but many alternative energy sources would become economically viable - and Exxon wouldn't be able to capitalize on them.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/30/8405398/index.htm
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Which brings us to the biggest beef Exxon's critics have: Why isn't the company investing in less polluting energy sources like biofuels, wind, and solar? Remembering that Exxon is above all in the profit business, we know where to look for the answer. As a place to earn knockout returns on capital, alternative energy looks wobbly. For example, the darling of the moment, ethanol, is nowhere near economically competitive with gasoline (and may not be better environmentally, because it is fuel- and land-intensive to produce). Take out the 51-cents-a-gallon federal subsidy, and the true cost of U.S.-produced ethanol is equivalent to paying $6 a gallon for the same energy as gasoline, calculates Michael B. McElroy, Harvard professor of environmental studies. Even subsidies granted for national security reasons can come and go. To a disciplined investor, such a product is not especially attractive. "I don't have a lot of technology to add to moonshine," says Tillerson of ethanol.
It's a similar story for alternative fuels for power generation. Solar-generated electricity is still way costlier than juice from traditional coal- and gas-fueled plants. Wind power is narrowing the gap but is difficult to scale up. Hydro and biomass are clean and fully competitive on cost - but Exxon just doesn't know much about building dams or burning agricultural waste. Its expertise is in oil and gas, as exemplified by its world-class Upstream Research Center in Houston; the company is happy to leave the alternative stuff to others.
That will not happen, says Exxon, because it cannot happen. Exxon is certain that oil, gas and coal will remain the world's dominant energy sources for decades to come.
That belief drives the company's critics crazy. But Exxon's projections are not radical. A forthcoming report from the U.S. Climate Change Science Program cites three of the most widely used models for climate change analysis: one from MIT, another developed jointly by the Pacific Northwest National Laboratory and the University of Maryland, and a third created by Stanford University and the Electric Power Research Institute. The studies do not agree on everything but they do agree on this: Fossil fuels will remain the planet's No. 1 energy source through the 21st century, supplying 70% to 80% of the total by 2100, vs. about 90% today. Exxon forecasts only as far as 2030; in that year, it projects, primary energy sources such as coal, oil and gas will account for 81% of global demand.
That's another reason Exxon isn't investing in alternative energy sources: They don't look big enough. For a company Exxon's size - No. 2 on the Fortune 500 - businesses of less than mammoth scale don't merit troubling with because they can't nudge the bottom line.
It's worth noting that the company carries no genetic hatred of alternative energy. In the wake of the 1970s oil shocks, it conducted major research in solar energy, and it holds dozens of patents in the field. But it couldn't see how to earn a profit, and shut the program down. That experience also thickened the company's skin. While greens today vilify Exxon for not investing in solar power, back then they attacked the company for investing in it. The theory was that oil companies would monopolize solar and then withhold its benefits from the public to sell more oil.
Exxon avoids investment in alternative energy sources for yet another reason, one that reaches deep into the company's experience: Much depends on the future price of oil, and no one knows what it will be. Consider two scenarios. If oil dropped to $25 a barrel - about what it was (in today's dollars) just before 9/11 - alternative energy would look even less attractive economically. Exxon's decision not to invest would look all the wiser, but its oil-related profits would shrink. Conversely, if oil rose to $100, its profits would rise but many alternative energy sources would become economically viable - and Exxon wouldn't be able to capitalize on them.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/30/8405398/index.htm
and:
Quote:
Which brings us to the biggest beef Exxon's critics have: Why isn't the company investing in less polluting energy sources like biofuels, wind, and solar? Remembering that Exxon is above all in the profit business, we know where to look for the answer. As a place to earn knockout returns on capital, alternative energy looks wobbly. For example, the darling of the moment, ethanol, is nowhere near economically competitive with gasoline (and may not be better environmentally, because it is fuel- and land-intensive to produce). Take out the 51-cents-a-gallon federal subsidy, and the true cost of U.S.-produced ethanol is equivalent to paying $6 a gallon for the same energy as gasoline, calculates Michael B. McElroy, Harvard professor of environmental studies. Even subsidies granted for national security reasons can come and go. To a disciplined investor, such a product is not especially attractive. "I don't have a lot of technology to add to moonshine," says Tillerson of ethanol.
It's a similar story for alternative fuels for power generation. Solar-generated electricity is still way costlier than juice from traditional coal- and gas-fueled plants. Wind power is narrowing the gap but is difficult to scale up. Hydro and biomass are clean and fully competitive on cost - but Exxon just doesn't know much about building dams or burning agricultural waste. Its expertise is in oil and gas, as exemplified by its world-class Upstream Research Center in Houston; the company is happy to leave the alternative stuff to others.