Can Companies in the Oil Industry Achieve a Competitive Advantage Through Making Contributions Towards Climate Change?

Are the major oil companies putting their best foot forward on global climate change & the environment?

Climate change is a serious global concern of both the public and the governments. With the increase in greenhouse gases (GHGs), mainly carbon dioxide (CO2), and methane in the earth’s atmosphere. There is a widespread view that this increase is leading to climate change, with adverse effects on the environment.

According to the IPCC official report website (2007): “Warming of the climate system was “unequivocal” as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea levels.” (2007)

Climate change is more serious now more than ever as the past six years has been our warmest years on record. Al Gore’s (2006) documentary ‘‘An Inconvenient Truth,’ concluded that: “Humanity is sitting on a ticking time bomb. If the vast majority of the world’s scientists are right, we have just ten years to avert a major catastrophe that could send our entire planet into a tail-spin of epic destruction involving extreme weather, floods, droughts, epidemics and killer heat waves beyond anything we have ever experienced.”

For information on climate change and government responses please refer to appendix 1 for a full introduction from multiple references which was especially prepared for the purpose of this report. Below is an image that Gray (1993) portrays in his book, as to why business accountants need to invest and address environmental issues. As businesses sole purpose of activity is to survive in their current market, Gray introduces the theory that there is a direct link between being social and business competitive.

Accounting for the Environment-Rob Gray with Jan Bebbington and Diane Walers (1993) pg.5

The image evaluates external factors that can be opportunities or threats to an organisation in order to portray a better public image to increase public relations for a positive brand image. The purpose of this is to be trusted by clients so they are influenced in buying products as not only to benefit themselves but to benefit the environment as well. This can also increase customer loyalty to a brand as well as influencing positive media while raising the awareness of products and the company as a whole.

it is important to analysis these factors to take opportunities and minimise threats to stay above the competition and remain profitable despite cost. Gray emphasise that these factors include; Legislation, Fiscal measures, Corporate Customers, Investors Financial Institutions, Employees Trade Unions, Public Concern, and Environmental Groups. For definitions of these factors please refer to appendix 2.

In relation to Grays (1993) model the oil industries main competitors; BP, Shell, and Chevron all release opening statements indicating as mass contributors of CO2 emissions they share the concern of the governments and public and plan on taking positive action to tackle climate change. Through the mention of improving efficiency through improving operations in the production of fossil fuels, while also investing in new technologies to produce crude oil while minimising CO2 emissions, and to invest in new greener alternatives for energy. To view these statements please refer to appendix 3.

Source : Partners in Change, IndiaNow the next question that arises is what the need of running business for all the stakeholders instead of shareholders who only invested the money and took the risk of investing? Is it possible to run the business profitably taking along the stakeholders in this globalization era and competitive environment? And how to interrelate business activities with society and community and what.s the ultimate effect on its bottom line adopting CSR issue as a culture in its business?

Milton Friedman.s position that the responsibility of business is exclusively to maximize profit for shareholders, has lost the debate..

Alice Tepper . Marlin, President, Council on Economic Priorities

If we are the leading corporate citizen-we will attract better employees and the highest caliber of people. They are going to want to come work for a company like Ford..

William Clay Ford, Jr. Ford Motor Company

The 21st Century company will be different. Many of Britain.s best-known companies are recognizing that every customer is the port of the Community and that social responsibility is not an optional extra.

Tony Blair, Prime Minister of United Kingdom

What must oil companies do and why? 250

Oil companies’ efforts to increase production of fossil fuels to meet the world’s energy needs are a mass contributor to the increases in greenhouse gases (GHGs), mainly carbon dioxide (CO2) and methane in the earth atmosphere.

All the main competitors in the oil industry address that they understand the widespread views that the increases of fossil fuel production are leading to climate change with adverse effects to the environment.

BP addresses on their website that information on the IPCC assessment report was reviewed and reported on by Ernst & Young as part of BP’s 2007 sustainability reporting. This indicates they have a clear understanding of the situation and procedures to targets were in place to help REDUCe EMISSIONS AND IMPROVe EFFICENCY, while also participating in research programs to invent and inspuire towards greener production technologies and resources. BP on their website state that the majority of direct greebhouse gas emissions are lower as their results for 2006 and shows continuous improvment:

They further elobrate on there web site of their progress through stating:

GHG emissions, total non-GHG emissions, discharges and wastes have all decreased compared to 2006. During 2007, we continued delivering year-on-year reductions of our direct GHG emissions, to a level that is some 24% lower than the 83.4MteCO2e reported in 2003. More than 7Mte of real sustainable GHG reductions have been delivered since 2001.

Total non-GHG emissions to air decreased, partly due to the installation of automated well controls in the US. Hazardous waste decreased compared to 2006 when elevated levels resulted from the Buncefield Terminal demolition. Total fresh water withdrawal increased, primarily due to cooling systems refilling during the start-up of the Texas City refinery. Total discharges to water decreased with significant reductions of drilling waste discharged to the Gulf of Mexico.

While Chevorn state that they are aware of the issues of climate change as well and state on their website: The two primary sources of our GHG emissions are combustion, which occurs during operations, and flaring and venting of natural gas, a by product of crude oil production. Through addressing these operations chevron go on to say that they are also setting targets to reduce emissions and improve efficiency, Chevron has made a long-term commitment to improved energy efficiency in our day-to-day operations, which will diminish our own carbon emissions.

In 1992, we began tracking the efficiency of our energy use across all of our operations. Since that time, we have increased our energy efficiency per unit of output by 27 percent. In 2007, our energy efficiency was the same as 2006 and slightly better than forecast.3 We continue to set yearly targets for improvement. For our company’s operated assets, the total energy consumption in 2007 was 918 trillion Btu. The cost of energy to the company was approximately $5.6 billion.

In addition to this Chevron made this statement:

Our total GHG emissions for the year came to 60.7 million metric tons of CO2 equivalent,1 compared with our goal of 63.5 million metric tons. For 2008, we are setting a preliminary goal of 62.5 million metric tons




What oil companies claim they are doing with their stakeholders to reduce the impact of climate? 500

What are oil companies actually doing? 500

How is the oil industry progressing to help fund this? 250

Conclusion to what is happening and why? What does the future hold? 400

Every industry and business uses PR to increase their profitability, and this is no different. Clearly there are some legitimate efforts by these, and other, big energy companies to extend their profitability long into the future with alternative energy sources. But in general, they are going to make as much money as they can now and if PR (like you linked too) will help, they’ll use it. By sounding green, they hope we’ll leave the future of energy in their hands rather than take it in a direction that could shut them out.

Investing in Research, Development and Technology

Chevron supports academic and government research programs to explore climate change policies and technologies, including carbon sequestration. We participate in the West Coast Regional Carbon Sequestration Partnership, one of seven regional partnerships sponsored by the U.S. Department of Energy working to create a “carbon atlas” of sequestration potential across North America.