Posted by: bmeverett | May 3, 2014

The Real Problem with Corporate Carbon Reporting

I recently received an email from a former student with a copy of a discussion paper by the Carbon Disclosure Standards Board (CDSB) on corporate carbon reporting and an invitation to comment. This is an important topic and deserves serious attention. We need to know more about the influence of human activity on climate and how corporations are addressing the issue. A good statistical database on carbon emission is essential, and most corporations, including fossil fuel producers, are already providing such data. So what else should companies report? Rather than encouraging an open discussion of how to report climate change risks, the CDSB discussion paper is just a rehash of the arguments predicting climate catastrophe and demanding radical action in response. This discussion can produce nothing serious without more open and realistic terms of reference.

The Executive Summary of the discussion paper starts by citing the IPCC’s conclusion “that warming of the climate system is ‘unequivocal’” and “that to have a 66% chance of limiting temperature rises to the internationally agreed 2°C target, cumulative CO2 emissions from all anthropogenic sources will have to be limited to 3,670 GtCO2; i.e. a global CO2 cap or budget.” These numbers are political fictions and scientifically meaningless. All we actually know about climate change is that there has been modest warming over the last 100 years and that some indeterminate part of that warming was caused by man-made carbon emissions. The catastrophic climate scenarios, the 2° C target, the 66% probability and the “carbon budget” are based on computer models that rely on questionable assumptions and have never been able to make useful predictions regarding the impact of human activity on climate. These terms of reference end the discussion before it starts.

What is the appropriate response for companies that reject these terms of reference? The recent case of ExxonMobil is illustrative. Most large publicly traded companies encounter shareholder proposals of various types at their annual meetings. Often these proposals are offered by activist groups or “ethical investment funds” that own shares in the company for the specific purpose of pursuing economic and social agendas rather than earning a return on their investment. In March of this year, Arjuna Capital, whose stated mission is “to advance the understanding of what sustainability means for investor returns and corporate profitability” requested that ExxonMobil issue a report on climate change and, in particular, on the risk to the corporation of stranded fossil fuel assets that the company would be unable to produce in a low carbon future. Much to the surprise of Arjuna and other activists, ExxonMobil agreed.

The ExxonMobil report, which you can find at, makes the following arguments (my phrasing, not theirs!):
1. ExxonMobil regards climate change as an important issue.
2. Fossil fuels are critical to economic growth, which will be the primary driver of government policy.
3. Governments are likely to apply small carbon prices in the range of $20-$80 per metric tonne of carbon dioxide (equivalent to 18-70¢ per gallon of gasoline).
4. These relatively low carbon prices will encourage gradual improvements in energy efficiency and low-carbon energy production, but are not large enough to imperil the fossil fuel industry.
5. Over time, the growth in global carbon emissions is likely to slow, reaching a peak around the year 2030 and declining thereafter.
6. The Corporation expects that none of its profitable fossil fuels assets will become stranded.

This seems like a perfectly reasonable story to me. Despite the desires of the Climate Community to eliminate fossil fuels, no government has ever indicated any inclination actually to do so. The 1997 Kyoto Protocol, the flagship accomplishment of international climate negotiations, was a clever web of loopholes and accounting tricks that allowed its signatories to meet their treaty obligations without any meaningful reduction in greenhouse gas emissions. The climate policies currently advocated by the Obama Administration, the Senate Democrats, the State of California, the Regional Greenhouse Gas Initiative and other programs are symbolic actions which would have no measurable impact on atmospheric carbon concentrations. In effect, governments around the world have simply been seeking to define a minimum climate program that will satisfy their environmental constituencies without further impeding the anemic economic growth the world is currently suffering. There is nothing on the horizon to indicate a change in this approach.

Although ExxonMobil did exactly what they were asked, Arjuna, the activist group that made the reporting demand, was still unhappy. Natasha Lamb, Director of Equity Research at Arjuna, wanted the Corporation “to explain what would happen if society did in fact adopt policies that would lead to sharply lower emissions, something known broadly as a low-carbon standard.”. This is a rather strange comment. Would it make sense to ask United Airlines to state to its investors that a government prohibition on air travel would strand all the Company’s assets and put them out of business? How about asking Microsoft to report on the consequences of a government ban on personal computers? What on Earth is the purpose of asking companies to report on the consequences of government actions that would put them out of business? The statement “Policies that would put me out of business would put me out of business” is a tautology.

The intent here is clearly to maneuver ExxonMobil into stating that the risk of governments’ mandating “sharply lower emissions” is high, thereby discouraging investors from buying ExxonMobil shares and depriving the Corporation of capital. The “divestment movement” is currently encouraging universities, mutual funds, pension funds and other financial institutions to divest their fossil fuel holdings. That is their right, but do they really expect the fossil fuel companies to cooperate?

Despite ExxonMobil’s failure to tow the line, the Climate Community has been spinning the company’s carbon report to the best of its ability. On December 13, for example, The New York Times claimed that “More than two dozen of the nation’s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming.” That statement is quite misleading. In fact, ExxonMobil predicted only that governments would impose a small price on carbon. A simple analysis would demonstrate that ExxonMobil’s assumed carbon price is nowhere near high enough to “control global warming”.

There’s an interesting analogy here in the anti-vaccine movement. In the mid-late 1990s, an eclectic group of people, including the trial lawyers, environmental guru Robert F. Kennedy, Jr. and celebrities like actors Jenny McCarthy, Reese Witherspoon and Jim Carrey and radio host Don Imus and his wife Deirdre, argued that childhood vaccinations cause autism. The argument focused first on the preservative thimerosol, but then shifted to vaccines in general and other “toxic” components when the elimination of thimerisol failed to reduce the incidence of autism. The fire was fueled by a 1998 article in the prestigious British journal The Lancet, claiming a link between the MMR (measles, mumps, rubella) vaccine and autism. Even though the study was completely discredited and retracted by the journal and even though its author lost his license to practice medicine, the controversy continues. Like the Climate Community, the anti-vaccination crowd believes passionately in the justness of its cause and has no patience with disbelievers or with contrary scientific evidence. If you want to get a sense of the emotional power of this debate, check out Deirdre Imus’s rant at (Skip the first four minutes of fluff). Some doctors are attributing the surprising resurgence of childhood measles to parents’ fears about these vaccines.

What should Merck tell its shareholders under these circumstances? Would you expect them to state that there is a real risk that a ban on the MMR vaccine would strand significant manufacturing or intellectual assets? A more reasonable statement would be (a) there is no proof of any link between vaccines and autism, (b) the benefits of childhood vaccination far outweigh the small number of allergic reactions and other side effects and (c) these vaccines are more than likely to remain in widespread use for the foreseeable future. Such a statement might outrage Mr. Kennedy, but it would seem like a responsible statement to most people.

Carbon reporting makes sense only as a means to better understand carbon emissions and to track what companies are doing to manage their carbon emissions. It will not be a useful exercise if its purpose is merely to score debating points.

The beatings will continue until the suspect confesses.


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