Carbon Asset Transition

Carbon Asset Transition, or CAT, asks oil and gas companies to account for their energy resources in BTUs, a generic unit of energy, rather than in “barrels of oil equivalent.” This allows oil & gas companies to decouple their asset base from a sole focus on fossil fuel commodities, to receive credit for all types of energy resources they develop, and to incentivize a transition to energy including biofuels and renewables. This solution offers the financial sector a new way to measure the value of companies like Exxon and Chevron, regardless of the type of energy these companies invest in going forward.

Recent News

New Shareholder Resolution Incentivizing Big Oil’s Transition to Clean Energy, Wins at SEC

Exxon Mobil

In a key win, As You Sow defeated ExxonMobil’s attempt to suppress an innovative, first of its kind shareholder resolution. The resolution asks Exxon to report its energy resources in an energy-neutral metric – BTUs – in addition to the traditional ‘barrels of oil equivalent’ standard. Establishing a climate-friendly measure of energy reserves is a key step in incentivizing management, and the market, to support the transition to a clean energy economy.

Read our full press release here. 

Background

Global energy markets are undergoing a structural shift toward less expensive, less polluting, low carbon energy sources. Coal markets in the U.S. were the first to feel the impact, with total market value plunging by more than 92% since 2011[1], due primarily to competition from cleaner substitutes such as natural gas, wind, solar, and energy efficiency. Oil markets are now experiencing similar pressure as the imperative to limit climate change to below 2 degrees Celsius[2] gains traction.

CAT-image-20160401_400If we are to avoid the most catastrophic effects of climate change, 80% of today’s proven coal, oil, and gas reserves must remain in the ground. Yet oil majors continue to pour money into new exploration —nearly $700 billion in 2014. Even in the face of dramatic oil price drops, 2015 exploration spending was expected to top $520 billion.[3]

One reason oil companies keep spending vast sums on exploration is that Wall Street values oil companies, in part, based on how much of their oil reserves they replace each year. Where annual oil reserve replacement is not fully achieved, a company’s stock market value may be impaired, and top executives may not receive their full bonus package. By tying a company’s value to replacing “barrels of oil,” the financial sector discourages transition away from this commodity, as the company seeks to maximize its stock performance.

It is imperative to change this dynamic. Instead of measuring success in barrels of oil and cubic feet of gas, companies’ performance should be reported in energy-neutral units, like BTUs. That way any energy resource, including biofuels, wind, solar, or geothermal, that the company produces will be valued by investors and the market.

This simple suggestion — that oil companies’ energy resources be accounted for in source-neutral energy units — could have profound implications in helping these companies transition to a low carbon economy. We call it Carbon Asset Transition, or CAT: decoupling and transitioning fossil fuel company assets away from carbon intense commodities. This solution offers the financial sector a new way to measure the value of all fossil fuel companies  regardless of the type of energy the companies invest in going forward.

As You Sow’s 2016 resolutions with Exxon and Chevron ask the companies to continue to account for their oil and gas resources in “barrel of oil equivalent” as well as in BTU’s. This will give shareholders and the market more complete information about the company’s steps towards transition, if any. These resolutions may be a true game-changer, allowing companies financial incentives and more flexibility to move toward a low carbon resource mix, and allowing Wall Street to reward them as they become diversified energy companies.

 

 


[1] “Coal’s ‘Last Man Standing’ Dragged to the Brink of Bankruptcy,” (March 16, 2016), http://www.bloomberg.com/news/articles/2016-03-16/coal-s-last-man-standing-dragged-to-the-brink-of-bankruptcy
[2] UN Climate Change Newsroom. Historic Paris Agreement on Climate Change 195 Nations Set Path to Keep Temperature Rise Well Below 2 Degrees Celsius. December, 2015. http://newsroom.unfccc.int/unfccc-newsroom/finale-cop21/
[3] Collin Eaton, “Barclays: Oil companies to cut North American spending up to 15 percent next year,” Fuel Fix, Houston Chronicle, Sept. 9, 2015, http://fuelfix.com/blog/2015/09/09/barclays-oil-companies-to-cut-north-american-spending-up-to-15-percent/#26983101=3

 

 

2018 Shareholder Engagements