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Big Oil Must Innovate or Die

By Drew Bond

There is great opportunity—and great risk—built into capitalism. It’s called competition. A company may be the very best at what it does today, yet may be obsolete and out of business within a decade. Look no further than former industrial leaders such as Kodak or General Electric (ouch! I still own stock in GE). They were titans through the 1990s. Today, they are shells of their former selves.

ExxonMobil and other energy giants must take steps to ensure that they don’t face a similar fate.

Though you might not know it from the headlines, things actually look promising for the oil industry right now. The business newspaper Barron’s recently quoted two Morgan Stanley analysts—the people who get paid to be correct—predicting that demand for oil may grow about 7 percent across the next decade. That’s solid growth for a company like ExxonMobil, as it owns and supplies so much oil.

But what the company really needs to do is use this time to invest heavily in research and development and push the envelope of innovation, so it can develop new, cleaner sources of energy for the 21st Century. After its most recent board meeting, that seems more likely.

Three new members were added to the board of directors, including my friend and former colleague Alexander “Andy” Karsner. Andy and I served together in the Department of Energy under President George W. Bush. Andy is not only smart, but better yet he has a contagious, courageous charisma with a penchant for challenging assumptions, digging into the data, and tirelessly pursuing a better way.

Andy is working with a group that calls itself Engine No.1, which was “founded on the shared belief that a company’s ability to create long-term shareholder value depends on the investments it makes in jobs, workers, communities, and the environment.”

This isn’t about shutting down ExxonMobil. It’s about using its expertise to scale clean energy solutions.

For Andy, that means deploying the creativity of capitalism to deliver innovations that will build a better tomorrow. He believes companies can only do well by doing good. A company like ExxonMobil can accomplish both goals by making money developing and deploying the clean energy sources that reduce our over-dependence on oil. Don’t get me wrong, oil is not a bad thing, but overdependence on it is. So think of it as an American hedge against OPEC, Russia, and other oil giants who still control too much money and power.

One way that ExxonMobil has vowed to help reduce carbon dioxide emissions is by developing a form of carbon capture. Along with Shell, it says it is looking to capture not only its own emissions but the emissions of other companies too. That would be using the power of the free market to reduce emissions while keeping energy affordable.

But Andy’s group is concerned that this won’t be enough. And they are not alone. “Even the most advanced carbon capture is highly unlikely to enable ExxonMobil to avoid transforming its business model over the long-term,” Engine No. 1 warned in a letter to shareholders. The group wants ExxonMobil to conduct other research as well. Again, not about putting them out of business, but rather spurring them to accelerate innovations that are good for their bottom line and the environment.

The federal government can also play an important role as well. Energy Secretary Jennifer Granholm has promised to deliver “the resources to turn that science into deployable technologies.” This has been the focus of every Secretary of Energy that I can remember. No one wants taxpayer-funded science to be wasted and not turned into practical inventions. But new technologies don’t simply appear. They often require years of hard work, experimentation, development, capital investment and entrepreneurs willing to take risks.

I know because I was part of Andy’s team that was focused on accomplishing similar things under President Bush. We spearheaded initiatives to bridge the so-called “Valley of Death.” That’s where too much promising technology ends up — it looks great in R&D, but often needs a nudge of federal government support before private capital will step in to make it commercially feasible at scale. I also know because I’m a serial entrepreneur who has led six startups, including now a solar company called PowerField Energy that’s also had to bridge that Valley of Death.  

No matter what the scale—small, medium or large—innovation is hard work. It’s also exhilarating.

For ExxonMobil, a company that operates globally, you can be sure that innovation will be very hard. With Andy shaking things up in the board room, you can also be sure that it will be exhilarating. More importantly, ExxonMobil will be challenged to innovate in ways it never thought possible. That’s good for the company and its investors. It’s also good for the customers it serves and the planet that we are all called to steward.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.

Copyright © 2020 Conservative Coalition for Climate Solutions

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