(Bloomberg) -- Exxon Mobil Corp. once appeared to be the biggest corporate casualty of the ESG movement. An activist investor forced Exxon to replace a quarter of its board in 2021, largely because of the Texas oil giant’s inadequate plan for the energy transition. After the board shakeup, Exxon Chairman and Chief Executive Darren Woods stayed the course with oil and gas.
Three years later, that commitment has seen Exxon’s stock price double to near a record high. Rivals with recent, splashy ventures into renewables such Shell Plc and BP Plc have been left behind, filled with regrets. And yet it’s Woods out there striding past earnest climate negotiators in the blue zone at COP29 in Azerbaijan — his second-consecutive appearance at a United Nations climate summit — while making the seemingly contradictory case for both the Paris Agreement and continued investment in fossil fuels.
As Woods presented it in a 45-minute interview with Bloomberg Green last week, the Exxon strategy is not a one-way bet on the failure of the energy transition. “You look at the amount of money that we’re investing on an annual basis,” he said, referring to business lines compatible with net zero. “The reality is there’s no one company out there doing more than we’re doing.”
Exxon’s Low Carbon Solutions business, which invests in carbon capture, hydrogen and biofuels, is a wager by Woods on the power of markets to harness technology and provide the energy of the future. Its real-world projects need to be driven by profit not promises, he said, providing the “flexibility” to pivot if the energy transition goes faster than expected. If not, demand for fossil fuels will backstop dividends and buybacks.
Woods has been one of the most vocal proponents of an all-of-the-above approach to energy, urging policymakers to promote oil and gas alongside renewable energy from solar and wind as well as novel technologies to capture greenhouse gas. Exxon’s surging share price, the return of former President Donald Trump to the White House, the difficulty at COP29 of reprising the signature agreement from COP28 to “transition away from fossil fuels” — all of these spell victory for the all-of-the-above camp.
That puts an oil boss like Woods in a position to pose as a climate visionary, even in the middle of negotiations that are meant to be a threat to his main product. He took the opportunity last week to call for the creation of a global carbon accounting system, which he cast as a straightforward way to encourage lower-emission products. It’s a new twist on Exxon’s long-standing support for carbon pricing in the US, which has never garnered political support.
A better approach, as Woods explained it, would be creating an international system for measuring the carbon intensity of different products — everything from fuel and fodder to steel and cement. It’s not clear who would be tasked with this role, though Woods raised the idea of giving the job to the COP itself. “Rather than focusing on ambitions and aspirations,” he suggested in the interview, the UN climate forum could work to figure out “how does an economy account for its carbon across all of its value chains.” As it stands today, even though a hodge-podge of national subsidies and trade restrictions consider carbon, there’s “no mechanism for accounting for all those emissions,” he said.
It’s not an entirely new idea. And carbon-accounting experts are worried that such a proposal could become another delaying tactic for Exxon, which under previous leadership spent decades undermining the findings of climate science. “A unified, global carbon accounting system might take a long time,” said Maximo Miccinilli, head of energy and climate at consulting firm FleishmanHillard. “It might become a nightmare getting a global solution like this in a fragmented world.”
That fragmented world has one thing in common right now. Despite commitments by hundreds of governments and corporations to reduce fossil fuels, oil and gas demand are at record levels this year. Emissions are still rising, too. Scientists say the world is running out of time to avoid the worst effects of climate change. Woods has a tough message for delegates at COP29 who want to speed up the transition.
“The sad fact today is nobody will pay us for emissions reductions,” he said. “I could provide sustainable aviation fuel, but no airline will sign a contract with me to provide it because it's more expensive than existing aviation fuel. That’s the challenge of the transition is it’s going to be more expensive. And today the market won’t bear that additional cost.”
Below is a transcript of the full conversation with Bloomberg Green’s Akshat Rathi, lightly edited for clarity and annotated with background and context by Kevin Crowley, Jennifer A. Dlouhy and Rathi.
Akshat Rathi: Welcome everybody to a live taping of the Zero podcast at COP29. And welcome to the show, Darren.
Darren Woods: Thank you. It’s good to be here.
So here we are in Baku, and before I get to important questions, let me ask you: What are you doing for fun while you are in Azerbaijan? People keep recommending to me that I should take a bath in crude oil. It’s a thing that a famous spa offers over here, and I fact checked it. And it's real.(1)
I'm not doing that. I got in last night and I'm spending the day here talking to a number of people, trying to share Exxon Mobil's perspective on how we can contribute to this challenge that we're all discussing this week.
So let's get to business then. Many people here will see Exxon as a barrier to tackling climate change. But you’re here at a COP — you’re here at a COP for the second time — so you clearly don't think so. Why do you come to a COP?
Well, I think one of the things that’s been happening over the last several years is the challenge of significantly reducing emissions while continuing to meet the growing demand for affordable energy is a tough challenge to solve. I think the policies that have been pursued to date are very narrowly focused on limiting the supply of traditional sources(2) and trying to drive more expensive alternatives that, frankly, isn’t accomplishing the overall objective(3).
If you look at where we stand today, oil is at record levels of demand, coal, gasoline, diesel. And so I think, while wind and solar and electric vehicles are going to play a very important role — they’re necessary, they’re not sufficient. We need more solutions. Frankly, as a company, we think we can bring those solutions to bear. If you look at what we're doing today, we have the only large-scale carbon capture storage system in the world(4).
We've got five customers with almost 7 million tons per annum of contracted storage for CO2. No other company in the world has that. We’re developing the world’s largest virtually carbon-free hydrogen facility in the US. We’ve got plans to build that if the IRA legislation gets translated into regulation. We’re developing a new technique for producing lithium(5) to supply battery markets. We’re doing work on carbon and we have an opportunity to build a new type of anode for batteries which has the potential to increase battery capacity by 30%. And so a lot of things we’re doing across the very broad spectrum of opportunities, leveraging our core capabilities to try to help reduce the world’s emissions.
But COP is mainly about countries negotiating over, I will say, laborious text. Because I've seen some of that text. What conversations do you have as a corporate CEO here at COP that are beneficial to you as a company?
Well, I think it’s trying to make sure we have a good understanding of where people are, what their concerns are, where they’re focused at. There are a lot of ambitions and aspirations that come out of the COP discussions. We’re very focused on the action and how do you go from ambition to plan. And so we’re trying to help provide a perspective from a company in an industry that has a very long history of taking ambitious plans or ambitious objectives and translating those into real-world plans, and ultimately putting steel in the ground and building facilities to accomplish them.
So we are going to unpack a lot of the solutions you’ve talked about. But before we dive deeper into that, I think it’s worth addressing two elephants in this room: Trump and trust. Let’s start with Trump. Do you think Donald Trump, now that he’s going to be in his second presidential term in the US in January, is a threat to global climate action?
I think if you look at the timescale that’s going to be required to address this challenge, and the way that we think about it, it’s a long-term investment. There's work that has to be done. And so I’m not sure that any one administration is going to significantly advance the pace of the transition or, conversely, significantly slow the pace(6).
I think there’s a lot of work that needs to be done across the world, a lot of sectors that need to be advancing the work in this space. Frankly, we need more comprehensive policy things that encourage and tap into the capabilities of companies and markets to reduce emissions. We’re leaving a lot of opportunity on the table today as a global society, as governments, around the world. There’s a lot of work to be done here. I don't think we’re depending on any one administration or any one country, frankly, to advance the global objectives.
So even as the president of the largest economy in the world, the second-largest emitter, if it’s a four-year term, you’re not that worried. But you do want to see policies. And we know that Trump pulled the US out of the Paris Agreement the first time around. He has said that he will do so again. You have said that you would see that as a mistake. Why would it be a mistake?
First of all, what I would say is the world needs to find ways to reduce emissions in a thoughtful, constructive way and in a consistent approach. We need to do that while we’re balancing the needs of people around the world to have affordable energy. And so there we call it “the and equation.”(7) You’ve got to do both. You can’t focus on one at the exclusion of the other.
That’s going to require a global effort. There’s no one country that’s going to solve this problem. And so I do think an accord that brings together the world community to focus on this objective, which I believe is needed, is an important accord and one that countries should stay in(8). And I think the focus ought to be not necessarily on pulling in and out of the agreement, but finding a constructive way to advance the goals of the agreement without compromising economic growth, without compromising the growth in people’s prosperity all around the world. And there is the opportunity to do that(9). I just don’t think we’ve seen the policies manifest themselves to achieve it yet.
There is also a chance that he doesn’t just pull the US out of the Paris Agreement, that he pulls the US out of the UN climate treaty.(10) Now from a presidential perspective, they can’t just rejoin a treaty. So say there's a new president who does care about climate change, who comes to power after Trump, they'll have to go to the Senate. And as you know, the Senate is really divided and the likelihood of getting a two-thirds majority to join a climate treaty seems very far-fetched right now. So there could be irreversible consequences. Does that not worry you?
We’re very focused on what we as a company can do to contribute to this space. We’re not a political entity. And so, I continue to stay focused on the long term. We serve global markets, we work all around the world, and that’s what we're focused on doing, is taking our capabilities and contributing. We're doing work not only in the US but in Asia, in Singapore and in Indonesia looking for opportunities to help with that. And so we'll continue to look for and pursue the opportunities where there's a need and a desire for us to contribute.
So if there’s more energy transition opportunities outside of the US, you already have a global company, you’ll pursue those opportunities outside?
Yeah.
Let's look at the domestic front. We know under Trump last time around you saw lower corporate taxes. That means, for corporations, higher profits. He has said he wants to cut taxes further, and that would mean even higher profits than the last time around. But he has also said he’s going to roll back regulations domestically in the US. And you’ve talked about how having that back and forth, that uncertainty, is bad for business. But do you think the higher profits will make up for the regulatory uncertainty that is coming?
Yeah, I'm not sure I would look at profitability and regulatory uncertainty as a plus and a minus or a balancing fact. I actually consider those two very separate things. I think there is a role for smart regulation, effective regulation(11). There’s also a role to eliminate unproductive and inefficient regulation. So that’s a separate category.
We’re supportive of regulation for the industry. We think it's important. But we think it's important to have cost-effective, productive regulation that's consistent to give businesses a runway to implement that regulation. And I also believe that spurring economic growth is an important element of not only making the economy more successful, but then lifting people up and raising their standards of living.
Can you give some examples of regulations that you think are ineffective and should go?
I think what we’re looking for is making sure that the intent of the regulation is clear and that the regulations are set in such a way that you achieve that intent at the lowest possible cost. That it’s practical, that it can be implemented in the timeframe that's suggested.
But no specific regulations come to mind?
I won't go into any specific ones, no.
So one thing that may happen is Donald Trump gets a trifecta. He’s won the presidency. Republicans have won the Senate. There is a likelihood that they get the House as well. And that gives them a mandate, which could, in principle, allow them to take action such as repealing many of the things that are there under the Inflation Reduction Act(12). You brought it up, you said IRA is something that you’re looking forward to. You’re hoping that rules will be settled. There are tax credits for all kinds of climate solutions that you mentioned earlier. Do you think the repeal of some parts of the IRA will happen and do you welcome that?
So let me maybe start with why we think the IRA makes sense. And if you look around the world in a lot of the climate policies that are being pursued, they pick winners and losers and they choose a technology and insist that then gets pursued. The advantage of the IRA was it focused on outcomes: carbon intensity. If you're going to mandate carbon emissions reductions, you ought to focus on the outcomes that you're looking for, put in place the regulations to dictate those outcomes and then let companies, individual businesses, the market figure out how best to meet those outcomes. And that’s what the IRA has done. And so we’re supportive of the IRA in that it approached emissions reductions in the right way(13). And what it allowed us to do as a company then is basically draw on all of our resources.
So we are today investing to decarbonize the production of natural gas in the Permian. I can take that decarbonized natural gas, I can move it down a pipeline system that I operate, that I control the emissions on. I can bring it into my facility where I operate and control the emissions and convert that Scope 1 and 2 zero-methane into hydrogen, capture the CO2 that's released in that conversion and store that so that I get a near-zero [carbon] hydrogen source(14). And I can do that and then qualify for the incentives that the IRA has. That's what we like about the IRA and, frankly, the IRA reflected what the administration felt like the people of America wanted them to do.
Trump, as you say, if he gets all three — the two houses [of Congress] and the White House — he has a mandate. He will then interpret what the people of America want. And our job is to respond to what work the people around the world want. We deliver on the needs, we use our capabilities to help address society’s needs. We don't determine what those needs are.
But the Inflation Reduction Act, you’re saying, is technology neutral. Is it so? Because the tax credits are different for different technologies. Some tax credits have much more money than others(15). And yes, they are all geared towards reducing emissions, not just emissions intensity. They’re geared towards reducing absolute emissions because they were geared towards the US being able to hit its climate goals, which it currently isn’t on track. But the IRA would’ve started to put it on track.
Why I say it’s technology agnostic(16) is it’s focused on a carbon intensity for, say, hydrogen — a carbon intensity level. It doesn’t specify a technology to achieve that level. There may be an underlying assumption as to what technology you need in order to reach that, but from my perspective, and what we're advocating for, is irrespective of what technology you use, if you can achieve that level, you should qualify for the credits. So that makes it technology agnostic.
So let’s take the example of hydrogen because that’s something that you have worked on quite consistently. So within the IRA, there's a tax credit called the 45V tax credit. Currently, there’s a lot of back and forth going around to figure out what the rules of that tax credit would be. Most of the rules right now, if they’re written, would prefer that that hydrogen is produced from renewable energy only. So you take solar and wind power, you put that into an electrolyzer, you split water, you create hydrogen. You are arguing that there should be another route allowed to be counted under those tax credits, which is to take natural gas, do carbon capture. So do steam methane reformation, convert that into hydrogen, capture the CO2, bury that. Do you think you'll succeed in getting the equivalency between what is known as green hydrogen coming from renewables and what is known as blue hydrogen that comes from carbon capture?
Yeah, I think if you look at the legislation, it doesn't specify a color(17).
Not yet.
It’s the regulations that come from the legislation that will then specify how that, but the legislation is very focused on carbon intensity levels. The regulations will then tell you how you qualify to meet those carbon intensity levels. And there are ways to do that today to meet low levels of carbon intensity, high tiering within the legislation that doesn't require a color. And all we're saying is if I decarbonize my natural gas, I spend billions of dollars to reduce the emissions associated with production of natural gas, that as a company, I should get credit for that. And frankly, that's what you want to do. You want to incentivize our industry to invest the money to reduce the emissions associated with production of natural gas. That’s what we're doing today. And what we're advocating for is that that reduction gets reflected when we're trying to qualify for a credit within the IRA. If that happens, which is what I think the intent of the legislation was, then that will justify the investments that we're making and the investment in the blue hydrogen. If it doesn't happen, and they want to incentivize green hydrogen and electrolyzers, we're not in that business. We won't make the investments. That’s how it'll work.
It's billed as the world's largest hydrogen plant. How much is it going to cost if you do get these tax credits?
A lot.
No number?
No number for you. Billions(18).
So here's one way to think about numbers. This year in the first three quarters, Exxon has given shareholders $12 billion back in dividends, $14 billion as shareholder buyback. So you're just buying your own stock back. That's $26 billion in the first three quarters. If I calculate the cost of this hydrogen plant, it's a few billion dollars — two, three, four billion dollars. You could be doing that without the tax credits. Why don't you?
Well, I have a responsibility to shareholders, so it’s not my money. And so my job as a business, and this is I think one of the challenges that, as you look at incentivizing all aspects of an economy, we all have different roles to play. I take shareholders’ money and I have a responsibility to generate a return on that shareholder money. And so it's critical for me to make sure that the investments that I'm making generate a return for the shareholders. If I can’t do that, if I have more money than I can productively invest and get a return, I have a responsibility to return that money to the shareholders so that they can invest in some other company to generate a return(19). So what I'm doing is balancing across the portfolio. I'm frankly building a business and have a strategy that allows me to be successful in, frankly, any scenario that you can forecast going forward(20).
If you want to take the IEA Net Zero, a very extreme decarbonization scenario, if you look at the businesses that we’ve established within the company, the core capabilities that we're building those businesses on, in that scenario, using the assumptions of the IEA, I grow earnings and I grow cash flow. That's good for my shareholders. I'm responsible for doing that. You can take the other extreme and say, we don't make any progress with the transition. I'm using the same core capabilities and I can grow earnings in cash flow with my business. And so what you want, what you need, what the world needs is a transition that companies can make money in and generate returns on. Otherwise you're not going to drive the investment that you need. So I think what the world ought to be focused on is finding ways to profitably manage the transition, because we can't afford to give that away. Governments can't afford to pay that and subsidize it in perpetuity. We gotta find a market that rewards for decarbonization.
So take the example of carbon capture, which you talked about. You said you have 7 million tons per annum of contracted carbon capture facility right now.
Close to that, yeah.
Now that is — if you took all your emissions such as Scope 1, 2 and 3 — it’s less than 2% of your total emissions. If you exclude Scope 3, it's still less than 10% of your total emissions. But Exxon has a reputation for getting results, has top-notch engineers, has the resources. You bought Denbury, a company that has carbon capture or carbon dioxide pipelines and that supports a lot of your carbon capture business. Are you betting now that because of your spend on Denbury, that carbon capture is going to be a viable business without subsidies soon?
So I would say today, if you look at the drives to invest in the transition, there aren't any market forces or incentives to invest, which is why government policy is either mandating or subsidizing. And that's true across all the transitions. To go from the system that we have today to a less carbon-intensive system is going to require money and it's going to be more expensive. And so the trick is to start down that path and to drive—you gotta drive the cost of technology down. And so I would tell you as we've started this business, we’ve leveraged the IRA and the government incentives as a catalyst to get started while we work on the technologies to lower the cost. But ultimately this has to transition away from government subsidies and into market-driven investments. Because ultimately that’s what it’s going take to be successful. If you want to roll this out across every economy around the world.
But you’ve done that for other types of hydrocarbon technologies. You’ve done it for offshore drilling, you’ve done it for shale technology, where you did not have subsidies. You did have to take real big risks with the technology.
And the market rewarded us for that.
And the market rewarded you, because you executed, you made the technology viable. And now if I look at your per-barrel cost of oil(21) over the past few years, they’ve been falling as a result of your investments in a technology. So I understand the theory completely that if you invest in a technology and you build projects at scale, you can drive down the cost. But you’ve done that so far really well for the hydrocarbon exploration and extraction technologies. The set of investments when it comes to climate solutions is still very small. So, it’s large relative to—
Well, nobody will pay you — and that’s the sad fact today — nobody will pay us for emissions reductions(22). I could provide sustainable aviation fuel, but no airline will sign a contract with me to provide it because it’s more expensive than existing aviation fuel. That’s the challenge of the transition, is it's going to be more expensive. And today the market won’t bear that additional cost. And so as a company that has a responsibility to invest and generate a return, I’ve got to find ways to do that without market forces that exist today, without the demand or the customer base that’s willing to pay for it. That’s the challenge in this space.
And one thing where people could start to pay for these solutions, and something that you have argued for for over a decade, is to have a carbon price — a broad-based economy-wide carbon price. Now if you look at the politics of a global, broad-based carbon price, it doesn’t exist. There is no global government that’s going to put a carbon price at a global level. Even at a national level when many countries have tried to put a carbon price—look at your northern neighbor, Canada. The politics have become really toxic. So what you do have today is regional carbon pricing. The European Union has been quite successful, in certain sectors, it has a carbon price. In the US, you have California, you have some northeastern states that have a carbon price. We know that under a Trump presidency, it is going to be very unlikely that there'll be even conversations about a broad-based carbon price across the US. So what specific regulations will you ask for now that you can't get a broad-based carbon price in the US?
So we’ve been advocating differently, recognizing the political challenges of a carbon price or a carbon tax(23). And I’ll also say as we’ve worked through how that would function globally, it falls apart because of the reasons that you said — those prices change as you move around. What we’re now advocating from what we’ve been talking about is starting first with establishing a global carbon accounting system(24). You know, it’s amazing to me today, if you think about what we’re trying to do as a planet, as a world, that we want to reduce emissions. But today we have no mechanism for accounting for all those emissions. And so step number one is establish a global mechanism for accounting for carbon so that we know where all the carbon’s being generated.
As a chemistry person, you will know that CO2 gets created one time. We’ve got to account for that so we know where it’s coming from. You get a carbon-accounting system in place around the world, you can then start to calculate what the carbon intensity is for every aspect of your economy and for all the products those economies are making. If you have a carbon intensity for the products that you’re making, governments can now start to specify what the carbon intensity of the products sold in their markets have to be.
Very similar to how today we sell diesel all around the world. But we have different diesel-sulfurization requirements for the diesel. So different specs for sulfur and diesel as you move around the world. And so there is an approach today that exists that we meet day in and day out to meet specifications for the products that we sell globally. Doesn’t require barriers or trade carbon border adjustments or anything like that. If you want to sell a product in that market, you have to meet that specification. We could establish-carbon intensity specifications for products in any market. And if you want to sell a product in that market, you have to meet that carbon-intensity specification.
But the system you’re describing already exists.
No, it doesn’t.
We are sitting at a COP meeting, which is under the UN treaty. Every country has to report their annual greenhouse gas accounting into the UN. So that exists at a country level(25). The second thing that exists, which was created in 2001, is the Greenhouse Gas Protocol, which is created by not-for-profits and by corporations to come up with a voluntary, rules-based system that you report under(26). So when we talk about Scope 1, 2 and 3 — direct and indirect emissions — that is under the Greenhouse Gas Protocol. So what exactly are you trying to reinvent here?
I’m very familiar with that. I’m not trying to reinvent anything. That’s not a carbon-accounting system because you account for the carbon several times. You have people double- and triple-counting carbon(27). That’s not an accounting system. It has to add up to global emissions. You can't have multiple people counting the same molecules of CO2. You need to establish where that’s coming from. As you add up those emissions across different reports, it should all add to the same total. You couldn’t do that today with the GHG protocol.
You can’t do it with the GHG Protocol. But the UN system does exactly that.
I can't manage at a country level. You can't manage — you need carbon accounting for a product level so that you can start to understand what the carbon intensity of the product is(28). That will then drive different manufacturers of that product to try to meet these carbon-intensity specifications. Think about desulfurization of diesel. There’s no global or countrywide desulfurization number. It’s done at a product level so manufacturers can meet those specifications. That does not exist today.
So the Greenhouse Gas Protocol, if you ignore Scope 3, does include Scope 1 and 2, which are direct emissions. If you only added Scope 1 and 2 emissions—
Right, I will I guarantee you that everyone’s calculating those things differently. There’s not a consistent standard as you move around the world, around the countries, or even between businesses. That’s the challenge. That’s the difference between sitting at a table like this and talking about it and running a business like I have to actually deliver on those things(29). There is not a consistent approach. That's what we're advocating for.
So one thing that Exxon does really well is be able to lobby for outcomes you want that would help support many of the goals that you've stated. Are you lobbying for new rules on carbon accounting?
Absolutely.
What are they?
Well, that’s what we’re asking. Exxon Mobil can’t create a global system. But we are talking to governments around the world to suggest that they form a basis to start this work, to establish a system for accounting for carbon around the world, establish protocols for how you calculate carbon intensity for different products. And then each government has the opportunity to set carbon intensity specifications(30). We are working to try to see that idea, and then to get governments around the world to start driving that.
So one place that might have been happening, and tell me if that’s true, is when the Security and Exchange Commission in the US was working towards reporting rules on Scope 1 and 2 emissions for corporations. Were you engaged in those conversations? When they asked for a request for comment, did you send in a comment asking for what rules you’d like?
Yeah, we did. And I’d say the SEC is not the body for establishing, you know, a carbon accounting system across. It’s not a GAAP accounting system. It needs to be like a GAAP accounting system where you have a consistent approach(31). But as you know, CO2 — there's a science that sits behind it. So the SEC is not the body to do that. You need a regulatory body. Well that’s what we've got to establish. This is a brand new approach that we’re trying to establish, consistent with what we’ve done in other areas and other of our products. But this is one that has to be established today. There’s a transportation organization that does that for motor fuels today. That could be one area. But this is an opportunity to do it across an entire economy(32).
So let's come to some of the other climate solutions that you talked about. You have said in the past that as Exxon Mobil, the thing you want to invest in the climate-solution space is molecules, not electrons. Now, when I heard that and I knew that I was going to talk to you, I thought: “At this table there's a chemical engineer, and that's me. And I'm arguing for more renewables. And there's an electrical engineer, and that's you, and you're arguing for molecules, not electrons.” How did that happen?
Well, I run a business that’s in the molecule business. That's what happened. I think, you know, when I first got into this job, there was a lot of pressure to move into wind and solar, and we looked at that. We recognized the need for the world to decarbonize and whether or not we could contribute something in that space. But if you look at what our core capabilities are, where we have developed competitive advantage, it’s not in the electron business(33).
People think that we're in the energy business because we supply fuel for energy. But we provide fuel for mobility for cars — that doesn't put us in the transportation business or as an automaker. What do we do today? We explore for and produce and then manage and transform hydrogen and carbon molecules into a variety of products that meet the critical needs of society. That’s what we do. That goes far beyond combustible products. That’s where our strengths are. And so as we looked at those capabilities, how can we apply that to this challenge of reducing emissions? And the solutions we’ve come up with is our low carbon solutions business.
And one of those solutions is biofuels. And your push on biofuels has been quite interesting. You spent roughly $350 million trying to convert algae into biofuels. My colleagues worked on a story where they found that you also spend $60 million on just TV advertising, telling the world that you're working on it. But now you’ve wound that down and you're not investing in it, because you don't see that it’s working out as a climate solution. So what are the lessons from the failure of algae for biofuels that you'll apply to future climate solutions?
Well I think, you know, the challenge here is when you’re trying to develop breakthrough technology, you never know whether or not that's going to be successful. And I think that’s the case for algae. We recognized when we were pursuing that, we had to make some significant breakthroughs in the oil productivity of algae, if we were going to be successful. And we worked on that for several years to try to make those advances(34). But it became very clear as we were working our way and actually achieving some of the milestones that we were not going to get to the level of productivity that would allow us to effectively scale that technology to meet this much broader demand out there. And so we had to come to the conclusion that while this held promise, it wasn't going to solve the problem, which then had us pivot to other technology areas.
We're now working on a direct air capture technology. That is a huge hill to climb. There’s a lot of breakthroughs that we need there. So we have built a prototype — we’re working hard on that. We talk about the work that we’re doing in direct air capture(35). I can’t promise you today that we will be successful in it, but what I can promise you is we're committed to trying to make it successful. And I think that's what you actually want, is you want companies that have capabilities around the world to be looking for ways that they can innovate and drive advancements in technologies to solve this problem. Not all of them are going to be successful.
But the more companies you have doing that — leveraging their core capabilities — the better chance we have as a planet of finding a solution. And so that's what we're working on and we're continuing to look for other technologies that we're advancing to try to reduce emissions. But they're in the very early stages. They require technical breakthroughs. We're working on those. We'll talk about them as we go forward and hopefully we'll find some that are successful. But I can't guarantee it.
But $60 million on TV advertising — surely one of the lessons might be not to advertise a solution before it's working?
Well, I think it's important for people to know what we’re trying(36). If you want to limit only talking about the things that are going to absolutely work, it'll be an awful quiet world out there. And I think trying to make sure that everyone recognizes the need for a diversified set of solutions, and that you've got many companies around the world working hard to try to find those solutions, it’s important. I would argue what we haven't done enough is to help people understand how we are trying to contribute in this space. And so, almost the opposite, I would suggest we need to do more to help people understand the work that we are doing to be a meaningful contributor in this space.
So if you look at the wider business — you're here at a COP. You know that one of the agenda items that was agreed on at COP28, which was being argued on in day one over here, is how does the world transition away from fossil fuels? Now one of the things that's happened among the oil majors where Exxon has really pulled ahead of all your peers — Shell, Chevron, BP — is that Exxon has really increased its production of oil over the past few years. And that's proven to be a hugely profitable strategy, with two things: one, price is going up; but also your cost per barrel of oil going down. And that's made Shell and Chevron envious of what Exxon is doing. There's also risk, though. Say the energy transition does speed up at some point. Does it not worry you, you might have stranded assets?
No. Because I'd tell you, if you look at oil production around the world, first point to make is it's a depleting resource. So every barrel you produce is a barrel you don't have. If you look at the supply of oil today in the market with the amount of unconventional oil that's come on out of the US, that mix has changed pretty dramatically. Unconventional oil depletes at a much faster rate. And so with zero investment going into the industry to produce more oil, that depletion rate is about 15% per year(37). And that is an extremely steep decline rate. And so the industry has to invest a significant amount of money just to hold production flat. And so as you look at the world, the challenge is maintaining enough production to meet the demand in the near-to-medium term. And because that depletion curve will catch up to you very quickly.
The energy system is huge. The transition is going to take time. And if we make advances in other technologies, if the right kind of policies come into place to incentivize the transition and move there faster, depletion will take care of the resources that are out there today being produced. And investments should shift then from that portfolio to the portfolio of the new energy sources, the new transition. That's what our strategy does. Because we’re using the same core capabilities. I can put my reservoir engineers onto storing CO2, looking for brine water with lithium in it or for exploring for oil. And whichever one of those businesses are more successful and grows faster, I shift the resources there. Same with my projects organization. I have that opportunity — that flexibility — so that I can thrive as a business well into the future irrespective of the scenario that we see.
Earlier you were talking about investors. We talked about how much money you've given back to investors this year: $12 billion in dividends, $14 billion in share buybacks. You said that investors are smart people, they can do what they want with that money, right? And you've been a close watcher of investors even before you became CEO. You were in the investor relations role at some points in your career at Exxon. Now it seems to me that investors are looking at companies like Exxon — not just you, but the oil majors in general — and they want as much of the profit as possible extracted. But they also want you to be very disciplined in what types of new oil and gas projects you invest in. Is that a right assessment?
What investors want is to make sure that you're spending that money wisely and you're going to generate a return. And so the way we look at it, disciplined investment means investing only in the projects where you have an advantage that will be resilient to the down cycles(38). Because these capital intensive commodities businesses have price cycles that we have a high price and you move into a low price. That is a constant in this business. You're always moving through these cycles. And so the investments that we make have to be robust to the down cycles. They have to be advantage versus the rest of industry. They have to be capital efficient. That's what disciplined investing is.
And it shows up in your capital expenditure. Say you compare yourself during the 2010s to the 2020s, you're spending a lot less on your capital expenditure even as your oil production is higher than it was back then. Would you say one of the ways in which investors are thinking about this is that they want not just Exxon, but oil companies in general, to run in a harvest mode where they draw down the profits and the investors then invest in the companies they think are building the climate solutions. And Exxon does the job of a good corporation, of producing the profits that it needs. But maybe shrinks eventually because the world doesn't need as much fossil fuel?
Well, I think the facts are counter to that though. The world needs more fossil fuels. If you look at the demand today, as I mentioned at the beginning, demand for oil today is at record levels. It'll grow going into next year. We as a very large company represent probably about 3% of the world's oil and gas supply. And so as a company, we're not going to dictate how much oil and gas gets used in the world. In fact, there's no single company that's going to dictate that. What dictates the amount of oil that gets used in the world is? One, what is the available alternatives that meet the collection of needs? One of them being affordability, one of them being reliability, one of them being availability. You’ve got to have an energy supply that does that.
It depends on how quickly economies are growing. It depends on how quickly people's prosperity are growing. So those are the things that are going to drive demand. And then the challenge for our industry is to meet that demand and to meet those different criteria. And as we continue to work for ways to decarbonize and meet those needs with lower emissions. That's the challenge that we face. But you can't stop meeting those needs and to reduce emissions, because now you basically create more and more human hardship. This is the challenge that I started this conversation with is you've got to find a way to do both.
But if there are no ideologies and there are just incentives, we talked through how the incentive to reduce emissions will come from carbon pricing because that'll allow people to make choices for lower carbon products at a cost that is the right cost for those products versus the cost that society bears from climate change. If carbon pricing is not going to happen. As we've talked about the political infeasibility of it, are you supportive of just direct regulation to reduce emissions because something has to cause those emissions to fall?
Well, that’s what I'm suggesting when I talk about a carbon accounting system. A global carbon accounting system, and then a mechanism for calculating carbon intensity at a product level and then a regulation that sets the specification for carbon intensity for that market. So that every country can set the carbon intensity specifications for the products sold in that market. That gets rid of the need for these very inefficient and cumbersome carbon border adjustments(39). So yeah, that's what we're talking about. Regulation, as I said at the beginning, is there's a need for smart, efficient, thoughtful regulation. We think this is an area we could do that in, the world could do that in.
So one place where regulations have had an impact to some extent is methane. You set a target to reduce methane emissions by 80% by 2030, and you say you are on track, there's a reduction of 60% as of last year, but why not go further? Because your colleagues at the oil and gas climate initiative have a zero methane emissions by 2030 target.
We're part of that commitment(40).
So you want to go beyond the 80% that you have set already?
So it's a near zero methane [goal]—so what's basically possible is what the industry's committing to. And we're part of that commitment, and that's what we're working our way to.
OK, so that, because that right now the official target is 80% reduction by 2030.
We'll be at near zero when we get, so it's an 80% reduction, that gets us down to near zero.
Now the second elephant in the room that I wanted to bring up, but we got sidetracked into a lot of other discussion, is one about trust. And it is worth acknowledging here, a lot of people in this room will be familiar with Exxon's history around sowing doubt on climate science to slow down climate action. At one point, Exxon employed some of the world's best climate scientists. They predicted very accurately what would happen if you keep burning fossil fuels. And we are living with those consequences today. You've said multiple times, Exxon is a different company today. But given Exxon's history, why should people trust you now?
Yeah, well I think what you've described, you can debate, I think, the facts around that(41). I think we had two scientists working 30 or 40 years ago. These are things that happened 30 or 40 years ago(42). I think what people ought to focus on: What have we been doing? What are we committing to do and what are we demonstrating that we're doing? And as I come back to, if you look at the things that we're doing today, we're investing more than any other company across a broader array of solution sets to try to help economies decarbonize. I think that's what we can be expected to do or what should be expected of us. And I think we're working hard to deliver on that. But at the end of the day, you’ve got to have supportive policy in lieu of a market. But ultimately you’ve got to have market forces.
But when we talk about those efforts, which you say were 30-40 years ago now, you were at the company at the time—you joined in 1992. Many of these efforts were done in the 1990s and the 2000s. I know you weren't in a role which made the decisions whether these efforts go forward or not. But you are in charge of the entire company today. And the questions I'm asking you are questions that your predecessors took actions on. And now you are answering those questions. Twenty years from now, your successors will be answering questions about the actions you take today. So that will be a time when climate impacts will be worse. And I'm saying “will” because that’s a scientific certainty as Exxon scientists have predicted. So what are you doing now to protect your legacy at Exxon?
We're trying to solve the problem and leveraging the capabilities that we have as a company. That's what we've been talking about this whole podcast. I mean, the reality is there's no one company out there doing more than we're doing. If you look at the amount of money that we're investing on an annual basis, the commitments make on an average annual basis. It's a third of what the US Environmental Protection Agency is spending. That's one company doing that. So again, I'm not claiming that we're going to solve the problem. What I'm claiming is we're going to use our capabilities to contribute to solving that problem. I think that's all that we can ask of ourselves as a company. And that's what we're doing.
--With assistance from Mythili Rao and John Ainger.
(1) The town of Naftalan, 320 km from Baku, offers baths in Azeri light crude oil to as many as 15,000 tourists each year.
(2) Advocates for the Green New Deal, such as Democratic Rep. Alexandra Ocasio-Cortez of New York, called for phasing out fossil fuel extraction and subsidies in a letter to Congress in 2019.
(3) Global carbon dioxide emissions hit a new record last year, and Exxon believes the prospect of reaching net zero in 2050 is "highly unlikely."
(4) Exxon bought Denbury Inc. for $4.9 billion in 2023, providing it with the biggest network of CO2 pipelines in the US.
(5) Exxon aims to produce its first lithium by 2027 and ramp up to the equivalent of 1 million electric vehicles annually by 2030, depending on market conditions.
(6) This view is shared to a large extent by John Kerry, the former US climate envoy, who said in an interview this week that no single politician can stop the rush of investments in green technologies. “For the first time in history, the marketplace writ large has said this is where we’re going,” he told Bloomberg TV.
(7) This is an all-of-the-above policy that promotes fossil fuels, renewable energy from solar and wind as well as novel forms of emissions mitigation such as carbon capture. And it fits in very well with the decisions made by international consensus at recent COP summits.
(8) Woods also urged the US to stay in the Paris Agreement back in 2017. President Donald Trump ignored him and pulled out, an action that took effect shortly shortly before President Joe Biden won the White House and reversed course.
(9) In a break from his predecessors, Woods believes governments must play a vital role in providing subsidies for low carbon technologies — the very handouts that were frequently derided by Lee Raymond, the legendary chief executive who merged Exxon with Mobil and argued against the Kyoto Protocol in 1997.
(10) Trump could go beyond his vow to abandon the Paris Agreement by also pulling out of the 32-year-old UN Framework Convention on Climate Change that underpins the entire structure of international cooperation against warming temperatures. That move — which would be something he didn't attempt in his first term — would have far-reaching and enduring impacts, potentially sidelining the US in climate talks for years to come.
(11) Many observers would put methane regulations into the smart category. That's because any gas stopped from leaking is also gas a company can sell. Currently, the US government sets a threshold of emissions on a facility and then charges the company that owns the facility a fee of $900 per ton above the threshold.
(12) The Inflation Reduction Act signed into law under President Joe Biden in 2022 is the largest climate-spending measure in US history, with hundreds of billions of dollars offered in support of everything from renewable energy to electric cars. No Republican lawmaker voted for it.
(13) The Inflation Reduction Act contains billions of dollars of tax credits and subsidies for climate solutions favored by the oil industry such as carbon capture, hydrogen and biofuels. It will help to underwrite Exxon's energy transition strategy.
(14) Exxon plans to build a plant that produces 1 million tons of hydrogen from natural gas with carbon capture by 2027 or 2028. But it will only do so if it gets tax credits from the IRA, whose rules are yet to be fully laid out.
(15) Different technologies get different estimated sums in tax credits, but these are just estimates. Most tax credits have no upper limit. If businesses want to build more of a particular technology, then they can get more tax credits.
(16) The tax credits offered under the IRA are typically specified for a technology, though some tax credits like hydrogen can be interpreted to be technology neutral because they specify only the carbon intensity of the product.
(17) Hydrogen is a colorless and odorless gas. But industry wonks have given it colors to specify what source of energy or what process was used to generate hydrogen. Green hydrogen comes from renewables. Grey from natural gas. Pink from nuclear. Blue from gas with carbon capture. And so on.
(18) Woods is pushing for an emission-slashing hydrogen project in Baytown, Texas to qualify for US tax credits.
(19) Exxon is currently buying back shares at an annual rate of $20 billion a year, much more than it is spending on low-carbon investments.
(20) Woods believes he can ramp up investment in the Low Carbon Solutions business if the energy transition goes faster than expected. Or else continue investing in fossil fuels if the transition goes slower. His strategy is to make Exxon flexible enough to make money either way.
(21) Exxon's all-in finding and development costs fell to $7.60 per barrel in 2023, from $17.90 a decade earlier, according to Bloomberg Intelligence.
(22) Woods is referring to the economic concept of a negative externality — a cost that is not fully reflected in the market price of a product. This concept led Nicholas Stern, former chief economist of the World Bank, to conclude in 2007 that "climate change is the greatest market failure the world has ever seen."
(23) Exxon has long pushed for an economy-wide carbon tax. In 2021 one of its lobbyists was secretly filmed saying the position served merely as a pro-climate "talking point" because it was political unfeasible. Woods apologized and said the lobbyists comments "in no way represent the company's position."
(24) This passage introduces an evolution in Exxon’s approach to carbon policy. The largest US oil company has for years supported carbon pricing as a way to scale up climate solutions. Today there’s growing interest from US lawmakers in some kind of border tariffs factoring in greenhouse gas intensity. But the idea of establishing a domestic price on carbon faces stiff political opposition from critics who say it’s tantamount to an energy tax.
(25) The United Nations produced guidelines for national greenhouse gas inventories as early as 1994. Today, all nations that are part of a foundational 1992 UN climate treaty must report planet-warming emissions from their territories on an annual basis.
(26) Under the Greenhouse Gas Protocol, launched in 2001, a company’s emissions are tracked across three different main categories: Scope 1, which counts emissions from directly burning fossil fuels in the company’s assets such as buildings or cars; Scope 2, which covers emissions attached to the company’s electricity consumption; and Scope 3, which are generated by the company’s supply chains or from customers using its products.
(27) Exxon's net zero planning does not include Scope 3 emissions, the carbon accounting term for planet-warming pollution generated by suppliers and end-users of a product. For an oil producer like Exxon, the vast majority of emission come from burning its fossil fuels. Woods believes those emissions are the responsibility of Exxon's customers, not the company. European oil giants take responsibility for these Scope 3 emissions.
(28) Woods did not fully articulate how the new system would work, but he indicated that it should be robust enough to measure the emissions impact of individual products, such as a gallon of gasoline or a ton of steel.
(29) Exxon was the last of the five supermajors to announce a net zero ambition by 2050, in part because Woods and the board wanted clarity over the pathway to get there.
(30) Under Woods’s pitch, a neutral arbiter would be tasked with accounting for the carbon intensity of goods across every aspect of the global economy. Individual countries could then set their own policies specifying the required carbon intensity for products sold in their markets.
(31) Generally accepted accounting principles (GAAP) is one of the underlying standards for financial statements in the US.
(32) Not all carbon-accounting experts think this kind of proposal would prove helpful. Linda Kalcher, executive director of Strategic Perspectives, a European think tank, said what Woods is describing would almost "entirely useless.""It’s always useful when companies want to be part of the solution and make suggestions," she said. "The task at hand is unequivocal, though — drastically reduce production of fossil fuels swiftly. Any system that doesn’t reduce oil and gas production or consumption is a distraction, thus a waste of time and effort.”
(33) Exxon stuck with oil and gas "molecules," while peers like BP and Shell made big investments in renewable power "electrons" from 2018 to 2023. The European majors are now pivoting back to oil and gas after many of those investments failed to pay off. Woods argues this is Economics 101: know your comparative advantage and stick with it.
(34) Exxon abandoned a decade-long bet on algae biofuels in 2023. The company paid for high-profile ads on national TV — including during the World Series and NBA championships — even though the technology itself was far from primetime.
(35) Exxon is running a small direct air capture pilot plant at its Baytown refinery in Texas, separate from the larger carbon capture projects Woods talked about earlier.
(36) You can watch one of the commercials about the failed biofuels effort here.
(37) The rate at which global oil production naturally declines without new drilling has accelerated from about 5% because US shale now makes up a much bigger part of the mix. Shale wells decline much faster than conventional ones.
(38) Exxon's fast-growing Guyana and Permian developments break even at less than $35 a barrel, about half the current oil prices. That means the invested dollars are likely to deliver strong returns whatever happens to oil demand.
(39) The European Union is in the process of rolling out its landmark Carbon Border Adjustment Mechanism, which aims to prevent dirty industry simply moving abroad as it embarks on its ambitious green deal agenda. The levy, due in 2026, will apply to imports of carbon-intensive imports, including steel and cement, based on the carbon price in countries sending the goods and the emissions intensity of those products. Read more about the measure here.
(40) You can see Exxon's methane pledge here.
(41) A Democrat-led investigation by the House Committee on Oversight and Accountability, citing internal documents uncovered over decades, this year accused Exxon of devising "a campaign of climate change denial orchestrated to delay the enactment of greenhouse gas-reducing policies in the United States and globally." Exxon denies the allegations, saying its position on climate changed has evolved with the science.
(42) An investigation published in 2015 by Inside Climate News found that staff scientists at Exxon in the late 1970s informed executives about the impacts of climate change caused by burning fossil fuels. The series received recognition from the Pulitzer Prize. Exxon's internal research on CO2 pollution from 1977 to 2003 was "accurate and skillful in predicting subsequent global warming," according to a 2023 study by Harvard scientists.Yet in public Exxon emphasized the uncertainty of climate science and downplayed the risk of global warming, according to allegations in several lawsuits filed by local governments including the State of California. Exxon denies the allegations and won a high-profile climate-related suit bought by the State of New York in 2019.
©2024 Bloomberg L.P.