WSJ Opinion : New York’s AG claims that Exxon Mobil has been lying to itself ...........................
Opinion
Review & Outlook
Oct. 25, 2018
Peak Embarrassment in War on Oil
New York’s AG claims that Exxon Mobil has been lying to itself.
By The Editorial Board
Before resigning this year amid allegations of sexual abuse, former New York Attorney General Eric Schneiderman spent nearly three years trying to harpoon his great white political whale Exxon Mobil . His hunt failed to uncover malfeasance, but the AG’s office is suing Exxon anyway in a case that should be laughed out of court.
Acting Attorney General Barbara Underwood alleged in a civil suit this week that Exxon defrauded shareholders, including those in the state workers’ pension fund, by failing to incorporate the projected costs of future climate regulation in its planning and investment decisions. The lawsuit says Exxon essentially kept two sets of books -- one for public disclosures and another for internal purposes.
Mr. Schneiderman initiated the roving investigation of Exxon’s business practices in November 2015. Exxon has since produced millions of pages of documents, but none have corroborated the political conspiracy theory that the oil and gas giant publicly downplayed the risks of climate change while preparing for them internally. No matter. The state AG’s office is now floating an alternative theory that is even more far-fetched.
Lo, the AG says Exxon’s public disclosures projected a “proxy cost” of climate regulation of $80 per ton of carbon in 2040 in developed countries and between $20 to $40 per ton in developing countries. Yet Exxon allegedly applied internally a “much lower price per ton to a small percentage of its GHG emissions, based on then-current regulations.” In other words, the AG claims Exxon was telling the truth to the public but lying to itself.
But as Exxon explained in a July motion challenging an AG subpoena, the two cost projections are used for distinct purposes. The “proxy costs” are used to forecast global energy demand while “greenhouse gas costs” projections are used internally to make particular investment decisions. Exxon has proprietary reasons for not publicly disclosing these internal estimates. And it must be accurate in cost projections if it wants its enormous and multi-year projects to earn a profit.
Each cost “is employed differently in Cash Flows,” Exxon added. “While Proxy Costs are indirectly reflected in line items associated with a commodity price, GHG Costs are incorporated, where appropriate, in various project economic metrics, including, but not limited to, operating expenses.”
Exxon says it has submitted no fewer than seven letters identifying more than three dozen documents “that show beyond legitimate dispute that the Company applies each cost in accordance with its statements” to investors. The charitable explanation is that this nuance eludes prosecutors who have no experience in business.
The lawsuit cites Exxon’s projects in the Alberta oil sands, which the AG says could lose billions of dollars due to future government climate regulation. Alberta this year imposed a $30 per ton tax on greenhouse gas emissions. Yet Alberta’s conservatives have pledged to repeal the unpopular tax if they win next year’s election, as they’re widely expected to do.
The reality is that nobody knows the future cost of carbon, and it will hinge as much on politics as on the evolving science and facts of climate change. President Trump sharply reduced the regulatory cost of carbon in the U.S. by rescinding Barack Obama’s Clean Power Rule, fuel-economy (Cafe) standards and methane regulations.
Liberals claim oil will become obsolete as electric cars replace vehicles that run on fossil fuels. But these are the same people who said in 2006 that cellulosic ethanol would soon be an economic alternative to fossil fuels.
The International Energy Agency reported this year that more oil investment is needed to keep up with increasing global demand: “Each year the world needs to replace 3 mb/d of supply lost from mature fields while also meeting robust demand growth. That is the equivalent of replacing one North Sea each year.”
Ms. Underwood is charging Exxon under New York’s notorious Martin Act, which doesn’t require evidence of intent to prove fraud in civil cases. She may be hoping that Exxon agrees to settle and pay a fine so she can declare victory. Yet in this case there’s not even evidence of fraudulent conduct, much less intent. The only party guilty of misrepresentation in this lawsuit is the New York AG.
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