Debatable Big Oil Companies
Are Big Oil Companies good for America and the world? Take a look at what our debaters have to say.
Helen Wu looks at some of the bigpicture arguments frequently used to glorify or demonize Big Oil companies.
Don’t Fret Over Keystone August Hutchinson argues that from an environmental perspective, there’s hardly any reason to obstruct or oppose the Keystone XL pipeline.
The Carbon Bubble
Teddy Smyth says that it’s in investors best interests to divest from Big Oil, arguing that it will become much less profitable as nations start to lock their fossil fuels in the ground.
High Octane Greed
Adrian Leong posits that Big Oil’s desire to maximize profits harms both our environment and our society.
Clashing Stereotypes An introduction to Big Oil Companies 10.3 million. That is the number of barrels of oil produced each day in the U.S, and the rapid growth of this number in recent years can be traced to one word: fracking. Yet, according a poll from Pew Research last month, 49% of Americans oppose increased use of fracking, while 44% approve of it. In other words, the public opinion is split between celebrating energy independence and abundant employment on the one hand, and concerns on the other hand about water and air pollution, global warming, higher cancer rates, etc. But the issues go far beyond fracking. ExxonMobil alone pumps out over 5 million barrels of oil per day 365 days a year, and it operates in more than 160 countries. This enormous scale is the oil industry’s trademark. But from a global perspective, even this can look small. The six largest Western Big Oil companies control only about five percent of
licly owned. This means Big Oil’s profits go not only to CEOs (who arguably make objectionably large sums), but also your retired aunt and the young man working on a drilling platform in Nigeria. But do these economic benefits justify the 100+ years of tax breaks that oil companies receive, now totalling well over $4 billion per year? And does the economic prosperity that is spread by Big Oil companies outweigh the visible and invisible losses: changes in local ecology caused by pipeline construction and oil spills, the impact on the environment through phenomena like climate change, and the harm arguably done to populations who live near drilling sites? Big Oil companies have to keep running to stand still (i.e. they have to keep exploring to remain profitable). So they will keep exploring. Meanwhile, other energies are rising as alternatives to oil. Most of them are ‘renewables’
‘Big Oil’ can simultaneously appear to be big and small, a godsend and curse on the present and future: an exploitative, destructive, and greedy bunch of crony capitalists who enable prosperity. global oil and gas reserves. The rest are controlled by governments, some run by more savory characters than others. Since these are private businesses, it’s worth considering money. Oil companies directly employ 2.6 million people in the U.S. alone, and supports 7.2 million more U.S. jobs indirectly. Plus, the vast majority of each company is pub-
(i.e. biomass, geothermal, hydropower, solar, wind) and they now account for 22% of global electricity generation. But which, if any, are better energy sources than oil and gas are now? More importantly, how imperative is it to switch? How good or bad are oil companies, actually? By Helen Wu ‘16.5
This Issue Don’t Fret Over Keystone
The Carbon Bubble
High Octane Greed
The Big Oil Debate
By August Hutchinson
By Teddy Smyth
By Adrian Leong
By Our Debaters
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Go/Debatable The articles and speeches in this magazine are the property of the authors, and may not be reprinted in part or in full without their expressed written consent. The opinions expressed in the featured debate are are not necessarily those of the debaters who presented them. Please write to firstname.lastname@example.org if you’d like citations for some assertions made here.
This magazine was created and designed by, and is currently edited by, August Hutchinson
Don’t Fret Over Keystone It’s a waste of your time
Twenty-five students, four of whom were from Middlebury, were arrested at a D.C. protest of the Keystone XL Pipeline, an addition to the Keystone pipeline that’s already operational. Over 50,000 Americans signed a petition resisting the pipeline. Thousands are opposing it via the Tar Sands Blockade. The EPA, the State Department, and the President all weighed in. But from an environmental standpoint, it’s simply not worth their time. One point frequently made about Keystone’s safety: it spilled twelve times in one year. This sounds shocking until you note that seven of those spills were under 11 gallons, all but two were under 21 gallons, and all occurred in different locations along the pipeline, which is a whopping two thousand miles long. Think about that gallon of milk sitting in your refrigerator back home. Imagine filling ten of those with oil, taking them out into a forest, and pouring them onto the ground. The ant colony under your feet won’t be happy, but the local ecosystem will hardly be affected at all. The same goes for your average river; many more than ten gallons of water would rush past well before you could put down all your oil jugs and open the first one. Unfortunately, Keystone did have a major spill (500 gallons), which invites a discussion about the harm that pipelines can potentially cause. As Keystone shows, some spills are minor, and some are major. Since 1993, an annual average of 243 “significant incidents” have
occurred - such an incident spills over fifty barrels of oil or five barrels of highly volatile liquid, causes a death or serious injury, inflicts over $50,000 in property damage, and/or causes a fire or explosion. In addition, there have been about 272 minor spills annually. Together, they accounted for 5.5 million gallons of spillage per year.
This makes them sound magnificently dangerous until you put the numbers in context. On average, the U.S. refines 243 billion gallons of petroleum per year and imports 162 billion gallons per year. Pipelines carry about seventy percent of petroleum in the U.S. So only .00002% of petroleum carried in U.S. pipelines is spilled. That’s an infinitesimally small proportion. Also consider that there are 2.5 million miles of pipeline in the U.S, meaning that annually, there is only one “significant incident” per 9,000
miles (about the distance between Middlebury and the Pacific coast of China, if you travel due east over the Atlantic Ocean, Europe, and Asia). Pipelines are also much safer than other methods of oil/gas transportation. Railroads spill twice as many gallons of oil per mile than pipelines do. For every ton of petroleum moved one mile, railroads have 1.5 times as many incidents, and trucks experience over 13 times as many. By the same metric, for every hospitalization caused by a pipeline, 1.4 occurred because of a petro-train, and 1.8 because of a petro-truck. Yes, occasionally you have a terrible and tragic incident, like the Kalamazoo River spill. 840,000 gallons of heavy crude spilled into the water. Hundreds of people suffered from toxic exposure, and many creatures and plants were killed because Enbridge, the company operating the pipeline, never fixed the cracks that it had been aware of for years, and didn’t react to the spill until the alarms had been going off for over seventeen hours. Thankfully, this catastrophe is the exception, not the norm. When a significant incident does occur, oil companies tend to respond fairly well. Since 1993, they annually recovered about 40% of all liquids spilled by pipelines. And the amount of total oil spilled by the petroleum industry, through pipelines and other sources, has declined precipitously, from over 21 million gallons per year in the seventies to about 4.2 million in the 2000s.
That’s a drop of eighty percent. Notwithstanding all the effort that the legal departments of oil companies put towards avoiding liability and shifting blame, and as often as their PR departments pump out exaggerations and play politics, their engineers must be doing something right. Even after some of the worst oil spills in history, nature has proven surprisingly quick to recover. In 1979, the Ixtoc I spilled over 130 million gallons of oil into the Gulf of Mexico. It was the second largest oil spill in history. When it happened, recalled deep sea biologist Luis Soto, “we thought [that] it was going to have catastrophic effects for decades.” The immediate effects were certainly devastating. Fish and shrimp that he found near the spill were infested with tumors. In some areas, marine life was reduced by fifty percent - in other places, eighty percent. Giant tar balls bobbed along the surface alongside huge oil slicks. But then the oil in the water started evaporating, and oil on the beaches got broken down by pounding waves, ultraviolet light, and microbes, with some help from a hurricane. Within two years, says Mr. Soto, the fish and shrimp populations of the affected area, which he followed closely, had returned to normal. The tar on the ocean floor was soon covered with sea grass and algae. Larger species recovered more slowly, but they did. The endangered Kemp’s Ridley turtles started bouncing back in the late eighties, for example. If an ecosystem can rebound from such devastation in a matter of
years, it can rebound quite easily from your average pipeline leak. In Mr. Soto’s words, “the environment is amazingly resilient, more so than most people understand.” In spite of this, Keystone XL’s opponents still note that its construction will impact ecosystems. Transcanada reports that it will use 15,500 acres for construction, which will ultimately disturb about 21,000 acres of land. This certainly sounds like a lot. But “disturbed” does not mean “destroyed.” And this disturbance isn’t the sort caused by a California wildfire or the introduction of an invasive species. The pipeline is a three-foot-wide tube, buried four feet underground, that traverses 1,200 miles. Fifty-five feet to either side of the tube will be appropriated for construction, but only about half of that will be retained as a permanent right of way, meaning it will remain a fairly thin strip of grassland, briefly interrupting whatever massive and vast landscape it passes through (much of which is already grassland). The rest of the area disturbed by construction will return to its original state in a matter of years. Compared to farms or long stretches of road, this seems minimally invasive. The words “minimally invasive” also come to mind when thinking about pipelines in comparison to a number of alternative energies. Wind energy is one example. A conservative estimate of the number of birds killed by wind turbines every year in the U.S. is 75,000. Watching a video of a single eagle being maimed by a tur-
Do The Math: n
Only .00002% of all petroleum carried in U.S. pipelines is spilled, which highlights their safety. Since the seventies, the amount of oil spilled by the petroleum industry has declined 80%, signaling marked improvements. At worst, Keystone XL would increase annual CO2 emissions, human and natural, by .00007%. So it has a negligible warming effect. Opposition to Keystone XL isn’t crushing Transcanada. Its stock rose steadily from $31 in 2008, when XL was proposed, to $50 in 2013, a record never before reached by the company.
bine, tumbling to the ground, and being doomed to hobble around flightless until it dies of starvation is particularly heartwrenching. So is imagining a similar incident occurring at least 264 times per day, every day, in the U.S. alone. At least the amount of land they claim isn’t terribly large. Accounting for the turbine, the clearing surrounding its base, and the service road, an average U.S. wind farm permanently uses less than one acre per megawatt of capacity. Since they typically produce between 20% and 40% of their capacity, an actual megawatt requires between 2.5 and 5 acres. It’s still not as land-efficient as fossil fuels are, though. Twen3
The acreage needed for biofuels, by comparison, is positively enormous. The numbers vary widely depending on the quality of the biomass plant in question and the density of the harvested landscape. But to cover the range, an inefficient biomass plant drawing from a natural (low-density) forest needs a shocking 6,700 acres per megawatt, and efficient one drawing from the world’s densest wood plantations still needs to take a whopping 400 acres per megawatt away from nature. In comparison, underground pipelines attaching localized drilling stations and refineries hardly threaten ecosystems at all. Indeed, reducing the amount of land needed to create energy is one of the great accomplishments of pipeline fuels like natural gas (which replaced wood as heating fuel) and oil (which replaced the hay needed to feed horses). Thanks to the fuel carried by pipelines like Keystone XL, huge swaths of land have been returned to nature. But at least a biomass logging or farming operation won’t hurt the Ogallala aquifer, a body of water which provides almost a third of all irrigation water in the U.S. and is supposedly threatened by Keystone XL. Right? No. Depletion is one of the most pressing problems facing the aquifer. Yet it takes about 135 gallons of water to grow and distill a single gallon of maize ethanol, quite a bit of which is grown right on top of the aquifer. By contrast, it takes
less than five gallons to extract and refine a gallon of gasoline. And stopping Keystone XL will do nothing to protect the aquifer from oil contamination. Take a look at the nearby map, which shows the aquifer in pink and the myriad pipelines which already cross it. Adding one more increases the risk of a spill affecting the aquifer by such a negligible amount as to be rendered insignificant. The same is equally true of other aquifers to be crossed by the pipeline, like Carrizo-Wilcox in Texas. And in any case, Transcanada rerouted Keystone XL’s proposed path so that it now hardly crosses the Sand Hills region of Ogallala, which is deemed sensitive because of its porous soil and a shallow water table. Then again, other pipelines are there anyway. But if Keystone XL isn’t a frightening threat to our water supplies, could it be threatening the world by contributing to global warming? After all, the oil extracted from the tar sands serviced by Keystone generates more emissions on a well-towheels basis than most other oil (about 22% more, to select a middling estimate). As a result, annual U.S. emissions will increase, but not dramatically. The highest official estimate, from the National Resource Defense Council, is slightly over half a percent, so let’s take that as the worst-case scenario.
Credit: The National Review
ty-five acres of drilling pads can produce more energy than all 5,000 of Britain’s wind turbines.
In 2010, the world’s nations emitted 30.28 billion tons of CO2 through fuel combustion. The United States emitted 5.37 billion of those tons. Adding Keystone would, according to our worstcase scenario, raise that number to 5.40 billion tons, thereby boosting worldwide emissions to 30.31 billion tons. That’s an increase of one tenth of one percent in annual emissions, which is terribly negligible, especially when you consider that humans increase the amount of carbon injected into the atmosphere by 7% annually. So Keystone XL will increase total annual carbon emissions, at most, by .00007%. NASA climatologist James Hansen’s oft-quoted line that extracting the tar sands would mean “game over for the planet” is hyperbole, even if you think climate change will be as harmful as he does.
In any case, most oil burned in the U.S. is and will likely continue to be low-emissions. The average baseline emission for petroleum is 96 kilograms of CO2 per MMBtu produced (MMBtu is a measurement of energy). Yes, tarsands oil has the highest lifetime emissions of any oil burned in the U.S, at over 110 kg CO2/MMBtu. But it is only one of many sources of oil for the U.S. Domestically produced oil emits only 92 kg CO2/MMBtu, the lowest lifetime emission of any oil burned in the U.S. This accounts for sixty
stantly being exploited, from the massive shale deposits found in Colorado last year to the small oil wells recently drilled in the North Sea. Environmentalists would need many more Keystone-sized successes at a much greater rate to even start denting oil production in North America, not to mention the rest of the world. Even Transcanada’s been doing quite well in spite of the five year resistance to Keystone XL. When the pipeline was first proposed in 2008, the Transcanada’s stock was
Tarsands were exploited once it became possible and profitable. Similarly, energy companies will exploit other energy sources on a large scale when it’s possible and profitable. Those currently pouring energy into futile efforts to stop one pipeline should instead help to make environmentally friendlier energy better and cheaper. percent of the oil burned here, and over half of all imported oil also has lifetime emissions under the baseline. So over 80% of U.S. oil is low-emissions. The rebuttal to my global warming reasoning is that small steps must be taken to achieve big results. But stopping Keystone XL isn’t going to lead to big results. The pipeline was proposed in September 2008. It has now been five years, and resistance from the environmentally conscious still hasn’t managed to stop it. Over that same period of time, oil companies have been discovering and exploiting other gargantuan sources of oil. Worldwide petroleum production grew from about 3.6 billion gallons per day to 3.8 billion, thanks in part to new oil discoveries that are con-
at about $31. Since then, it’s been rising steadily, and at the beginning of 2013, it almost hit $50, a record that had never before been seen in the entire history of the company. And in the U.S, more than $40 billion in oil pipelines are under construction or planned for the next few years by oil companies. But imagine that the obstruction was actually having an impact. Imagine that those seeking to limit oil companies via obstruction succeeded beyond their wildest dreams and put all the ‘supermajor’ oil companies of the West (Exxon, Shell, BP, Chevron, ConocoPhillips, and Total) out of business. Together, all these companies only hold about five percent of global oil and natural gas reserves, meaning 95% would still be getting exploited as usual by
the world’s other oil companies, who would also snap up the wells abandoned by the bankrupted ones - skipping the exploration phase of oil production would amount to large savings. But what about the Alberta tarsands? Can’t stopping Keystone XL at least put the kaibosh on their development? The short answer is no. It’s true that proposed pipelines to the Pacific are facing strong resistance from the population of British Columbia, which can block the pipeline by refusing to provide a permit, and also from aboriginals who can frustrate its development by refusing to grant easements. At the same time, not only are the tarsands already connected to mid-western U.S. refineries through Keystone, but the third leg of Keystone was already approved for construction back in March. Its completion will create a direct link between the tarsands and the southern coast of the United States. And in any case, Transcanada already has pipeline stretching from Alberta to the east coast. To boot, some businessmen are mulling over the prospect of building a railroad that could haul millions of barrels of crude per day to Alaskan ports. From Transcanada’s perspective, the worst case scenario is that the tarsands will be exploited slowly. There are certainly environmental concerns regarding tarsands mining. Perhaps the ugliest byproducts are the large lakes of sludge that are produced. The sludge, known as tailings, is made of water, sand, clay, leftover oil, and powerful toxins like arsenic, lead, and mercury. Waterfowl
occasionally land on these lakes and are killed, and according to 2007 estimates (based on sparse information from industry estimates), a staggering one billion gallons of these tailings leaked in one year alone. Unfortunately, at least some of it reaches bodies of groundwater and surface water. But we shoudn’t approach the problem with a destructive mindset and try to end tarsands drilling. Rather, we should be constructive, and create ways to mitigate its negative effects. When railroads were becoming a popular mode of transportation in the mid-1800s, the locomotives exploded, tracks and train parts broke and derailed trains, the heating systems set fire to passenger cars, the couplers that linked cars maimed trainmen, low-quality rooftop brakes killed brakemen and led to collisions, as did a confusing array of signaling practices, etc. Were these very serious problems solved by banning railroads or putting them out of business? No. Each was largely mitigated through the constructive efforts of manufacturers, independent organizations, the government, the press, the public, laborers, and the railroads themselves. The same approach should be taken to the problems of tarsands exploitation. In many ways, thankfully, this is already being done. Not only do they already use interception wells and other techniques to capture seepage, but under pressure from the environmentally concerned, companies like Shell are commercializing technology that rapidly decreases the time
needed for tailings to dry. This reduces a pond’s lifetime leakage and speeds reclamation, the long-term process by which land is returned to nature, which has already happened for one of the ponds. Some companies are even working to commercialize technology that remove tailings from the process entirely. In short, today, the ponds leak only 0.5% of all tailings produced, and this proportion is likely to improve.
with growing frequency, they’re not choking locals to death with a Beijing-esque atmosphere. In any case, as with tailings ponds, the issues of air and water quality can be addressed within the existing framework. There is no perfect industry in this imperfect world of ours, and no angelic oil company. But Keystone XL reveals misguided environmentalist action as well as overblown fears about pipelines and oil companies.
Other steps are being taken as well. Canadian Natural implemented a radar system that detects birds over a mile away and activates audial and visual deterrents to keep them off tailings ponds. The Canadian government has been considering a law that would mandate carbon capture systems on tarsands plants to reduce emissions. We just need some patience. “Progress” on a large scale tends to be a slow and imperfect process.
In all probability, oil is going to be used and extracted until it runs out or becomes so scarce that extracting it is no longer lucrative. Those among us who are seriously concerned about climate change, pollution, or other environmental issues would be spending their energies much more wisely if they stopped trying to block the construction of a pipeline, and instead aided the effort to develop, and lower the cost of, energy sources that are environmentally friendlier.
Sometimes, legitimate concerns about tarsands drilling become overblown fears. All existing oil sands projects draw less than 1% of the river’s annual flow, and are allocated a maximum of only 3%. So the river isn’t going to be drained, though it’s right to be concerned that the companies may overdraw during low-flow periods. The government also runs stations across the oil sands region that track air quality, which it rated as ideal 95% of the time. So even though Alberta’s air quality standards aren’t as stringent as those of the World Health Organization, and even though oil companies have been violating air quality standards
Tarsands and shale deposits started being exploited once it became (1) possible and (2) profitable. Similarly, energy companies, both small start-ups and the established giants, will be able to exploit other energy sources on a large scale once technology makes it possible and profitable. The sooner that environmentally friendly/sustainable/renewable energy technologies are made effective and lucrative, the sooner an energy transition will begin, and the safer people are going to be when it does. By August Hutchinson ‘16.5
The Carbon Bubble It’s about to burst, so divest from Big Oil The valuations of fossil fuel companies are vastly overblown. You’ve heard of the tech bubble, the housing bubble -- but the next bubble is the carbon bubble. Financial markets are systemically underestimating the risk of investing in the fossil fuel industry. If any substantive action is taken to curb global warming and lock up the company’s fossil fuel reserves, their value will plummet. Investors should get out now.
Since March of 1985, every single month has been warmer than the historical global average. On our current trajectory, the International Panel on Climate Change projects that temperatures will increase by over 2oC by 2050.
A discussion of oil companies that excludes climate change is like talking about JK Rowling’s famous books without mentioning Harry Potter. Anthropogenic, or human-caused, climate change is the most pressing challenge facing our world. I have spent my entire lifetime on a warming earth, and it’s only getting hotter.
The global effects of warming are arguably quite severe. Climate change is contributing to a sizable number of deaths globally, and will continue to cause more. A warmer world also means more acidic oceans, less arctic ice, melting permafrost, more floods, more heatwaves, and even the disappearance of countries, like the Maldieves, as sea levels rise. The threat is urgent and real.
So far, we have not proven ourselves to be very good at predicting the end of oil. In 1914, U.S. reserves were supposed to last only ten years, according to the government. In 1939, they said it would last only 13 years. In 1951, another 13 years. In the seventies, global reserves were to run out by the eighties. With the advent of climate concern and possible national action, are predictions about the end of oil more likely to come true this time? Or do you disagree with the premise that nations will choose, despite the anticipated threats of climate change enumerated here, to lock their fossil fuels in the ground?
The 133 nations that associated themselves with the Copehnhagen Accords agreed that the highest “safe” temperature rise is 2 degrees Celsius. Their assertion is very worrisome and here’s why: governments and corporations worldwide hold 2,795 gigatons CO2-equivalent of proven fossil fuel reserves. We can burn 565 gigatons in the next 40 years for an 80% chance of keeping global warming under two degrees. But at the rate we’re going, we’ll blow way past that. In the past ten years, we’ve annually burned 33 gigatons. If this trend continues, we’ll burn 1,320 gigatons in the next forty years. And if we burn through all of our reserves, as currently projected, we will
exceed our carbon budget five times over. Middlebury College would never exceed its fiscal budget by a factor of five, so why should we as a planet exceed our carbon budget? Carbon reserves are a loan we can’t ever pay back. So we’re left with a choice. Either we exceed our budget and face a disastrous future thanks to climate change, or we lock up a large portion of the carbon reserves worldwide. Locking up fossil fuel reserves will require an enormous policy and cultural shift away from dependence on fossil fuels. Fossil fuel companies derive their value from this product that they extract and sell. When they can’t sell it anymore, they won’t bring in the big bucks. Their value, from the price of their stocks to the size of their yearly profits, will decline. A study by the banking giant HSBC agreed, finding that “meeting international climate goals could strip sixty percent of the value from companies such as BP, Shell, and Statoil.” It’s quite clear that investors should divest now, before it’s too late. By Teddy Smyth ‘15
High Octane Greed The drive for profits is destructive Greenpeace alleged that Shell would drill down a crippled orphan’s spine if there was some oil in it. Though hyperbolic, they’re getting at a basic truth: oil companies operate to maximize profit through oil and gas extraction, and they care about this more than just about anything else. They can never turn into renewable energy companies, because at the moment their gigantic money flow from oil and gas extraction could never, ever be replaced by profits from setting up renewables. For one thing, renewables like solar and wind have a set-up cost, then maintenance cost once in a while, and then nobody needs to pay any attention to it. This is a decentralized system that oil companies are at odds with, by their very nature. Rather than relinquishing that power to provide energy to the world and profiting from it, oil companies are going to hold on to this old way of energy provision, as long as it is accepted by society, and profit from it. Recently, there has been a lot of talk of about ‘transition fuels’, like fracked shale gas. There’s also been oil and gas exploration in pristine environments never exploited before, like the Arctic region. This is telling us that the oil industry is struggling to make ends meet. Ever since the story of cheap fossil fuels began in the mid-1800s, when coal and oil were first extracted, people have designed ingenious ways to keep our economy growing by making use of them. Our pesticides, our cars,
our planes, our plastic bags, etc. have all been made possible by this cheap fuel, the foundation of the modern lifestyle. Yet from an economic perspective, the age of cheap fuels is gone; our support for Big Oil should be as well. The energy return on energy invested (EROEI) back in the golden age of fossil fuel extraction was 100:1. For every one barrel of oil you put into your production, you got 100 barrels of oil. But nowadays, because sources of ‘easy’ oil are becoming more scarce, the global figure is at 30:1, and in the US, 10:1. The lower the ratio, the lower the net energy available to society, and the more urgent it is that we find other more economical ways of generating energy. This urgency is underscored by the fact that our global energy demands have not yet peaked. The world’s population is still growing, as is its energy-hungry middle class. There’s an unfortunate side effect of these economic realities (the drive to maximize profits and the gradual disappearance of their
commodity): fossil fuel companies have been driven toward new extraction methods that usher in an age of ‘extreme oil.’ Our environment is not only being put at greater risk, but is already being harmed. Deepwater drilling, fracking for shale gas, and refining tar sands for oil are all examples of more environmentally destructive and socially irresponsible ways to harness energy from dead plants and animals. Deepwater drilling produced the 2010 oil spill in the Gulf of Mexico; tar sands extraction requires the removal of boreal forests and assaults the rights of native populations. Clearly, if we still want oil to play a role in our development, we have to do so at the expense of our environment and less powerful communities. And the rest of us would be fools to think that ‘business as usual’ is OK. The Intergovernmental Panel on Climate Change (IPCC) released its fifth report last week and gave us a carbon ceiling: 1 trillion tonnes. This is the amount of carbon that postindustrial-era humanity can safely put into the atmosphere, they say, and we’re approaching this ceiling fast. If we don’t try to keep as much carbon in the ground as possible, and switch to renewables with our best available resources and technology right now, then we might not even have much of a future to use our Middlebury education in. Well, unless you are planning on working for Shell or Exxon, I suppose. By Adrian Leong ‘16
The Big Oil Debate
Are Big Oil companies good for America and the world? These companies are important entities that shape the lives of the billions who consume their product, live where they extract it, and work on their rigs and in their offices. As a result, getting a better understanding of Big Oil is essential.
complaining that it cut into their profits. Clearly, these companies are more concerned with their overhead than with public safety. There are also many other oil spills, like Exxon’s recent spill in Mayflower, Arkansas, of up to 300,000 gallons of crude. Oil
Oil Spills, Big and Small Carolina McGarity: When you hear the words “oil spill,” you might think “massive BP oil spill in the Gulf.” However, this is not representative of oil spills in general, which have in fact become much less of a problem over the past few decades. In that time, the size of large spills has decreased by 90%, from 25 large spills amounting to 250,000 tonnes a year in the seventies to three large spills amounting to 20,000 tonnes a year in the past decade. Oil production technology is rapidly improving, making oil an even cleaner and less harmful method of fuel production. And in any case, ecosystems are resilient and are rarely damaged by oil spills. Even in the infrequent cases of large spills, the populations of most affected species return to normal within a few short years.
disasters continue to happen, year after year. And if it’s true that they don’t have long-lasting and detrimental environmental effects, then why is it that such effects are being felt as a result of the 1989 Exxon Valdez spill?
J.J. Moser: Let’s talk about the BP oil spill. At the time, there were not enough regulations in place for BP and other Big Oil companies to prevent catastrophes like this. Why? Because the companies resisted these regulations,
Greed and Greenwashing Adrian Leong: Big Oil’s flaw is in its business plan, which is quite simple. Let me give it to you in the words of Exxon CEO Rex Tillerson: “My philosophy is to make money. If I can drill and
“Oil is the best, most productive, well established, and resource-efficient option we have.” -Carolina McGarity
make money, then that’s what I want to do.” Their biggest problem is that they are committed to pouring more and more carbon into our atmosphere every year in order to maximize their profits. August Hutchinson: SEC data shows that corporate leaders hold an insignificant fraction of company shares, from .11% at Exxon, to 1.4% at Occidental Petroleum and corporate leadership includes the many people involved in leadership, not just the CEO. By contrast, almost 94% of company shares are owned by individuals, pensions, mutual funds, and IRAs. These shareholders are your pensioned grandparents, institutions like this college, middle-class families, and they’re the ones who, like employees and consumers, benefit directly from Big Oil’s profitability. J.J: Big Oil’s business model is not focused on the future. It’s focused on quarterly profits, with CEOs looking to sharpen up their resume for their next CEO job. Also, Big Oil is behind a misinformation campaign about climate change. They’ve been funding this campaign since the 1980s, and if you look at how much they’ve been spending on it, it’s astounding. ExxonMobil has put forth $27.4 million in the past 15 years. August: Big Oil corporations are corporations. They want to make
“Big Oil’s business model is outdated, increasingly ecologically destructive, and morally unsound” -Adrian Leong 9
themselves look good. I think it’s more important to focus on what they are actually doing to the environment and to the people influenced by them as opposed to what they’re trying to put up as their image; they’re really only one business out of all the businesses out there trying to look good. It’s what businesses do. Adrian: Greenwashing, which is what J.J. is talking about, is still a problem. Big Oil companies use it to make themselves look more reputable. BP, for example, rebranded themselves several years ago to be “Beyond Petroleum.” It’s worth noting that the money they spent on rebranding was more than spent on renewable energy projects that year. Not to mention that the rebranding was followed by the Deepwater Horizon explosion and oil spill in the Gulf. Big Oil in Poor Nations August: Lets go to a dump in Phnom Penh, Cambodia. The odor is toxic enough to make you gag, and when the wind blows, you get hit by bits of disgusting filth. Families live on this dump,
in shacks, scavenging for little plastic cups that recyclers will buy at the rate of five cents per pound. In the eyes of these families, and the myriad others doing similarly terrible and unprofitable work, employment on a drilling platform would be fantastic. Why did the poverty rate in Bangladesh drop almost thirty percent since 1990? Largely because, over that same period, the country went from exporting less than $2 billion of clothing annually to almost $20 billion. Sweatshops proliferated and gave people much better jobs - not great, but better, improving their wealth, health, and general prosperity. In turn, they help the nations of these people develop more sophisticated economies and thus more affluent populations. It’s what happened in Thailand and Sri Lanka with clothing factories; it can happen in Nigeria with Big Oil companies. Adrian: It doesn’t matter to me that we’re creating jobs in Nigeria. What matters to me is that we’re creating inequality for
future generations, and that we’re disadvantaging people who are poor and people who are racially underprivileged. J.J: Let’s talk about Burma in the mid-nineties, when Halliburton and various other Big Oil collectives tried to put a pipeline through the country. Naturally, it required space to be installed. So how’d they make this space? You’ll have your answer if you imagine thousands upon thousands of Burmese people being forced from their lands and becoming refugees. And tarsands may not always be developed in poor countries, but even in wealthier ones like Canada, the indigenous inuits are being subjugated thanks to Big Oil’s desire for profits. August: On the note of tarsands and ‘indigenous’ populations: take Canada’s Alberta tarsands and the people who live near them. There’s concern about pipelines being built though their lands. It’s important to understand that in countries like
How Profitable Is Big Oil?
The profitability of Big Oil companies can be measured in a number of ways, and one of these is net profit margin. As you can see from the graph below, with each bar representing the profit margin of a different industrial group, Big Oil companies are only middlingly profitable, ranking 90th in profitability out of 215. 70%
Oil/Gas Reﬁning & Marketing (3.6%)
60% 50% 40% 30% 20%
Oil/Gas Pipelines (6.6%) Major Integrated Oil/Gas (Big Oil) (7.7%) Oil/Gas Equipment & Services (7.8%) Exploration & Drilling (9.6%)
Net Proﬁt Margin Per Industry (2013)
Credit: Yahoo Finance
Heat Waves Are Already Here
Credit: Hansen et . al. (2012) 380
The percentage of hot, very hot, and extremely hot summers is growing substantially. The graph below charts these percentages (measured by the left axis) against CO2 levels (measured by the black line and the right axis in ppm). You can see a clear correlation between the two. Such abnormally hot summers are likely to have a negative impact on agriculture and have other implications.
Canada, you have very strong legal protections, which is why companies like Transcanada are having so much trouble building pipelines through certain lands to get to the Pacific Ocean. Countries like Burma aren’t the only places in which oil is being extracted; not all ‘indigenous’ peoples are without protection. J.J: Let’s talk about Nigeria, where Shell was drilling. Oil wars happened because warlords, who were supported by Nigeria, had to fight other groups for the access to the lucrative land. Since then, Shell has been sued for $15 million in compensation for the Nigerian people. Additionally, oil flares continue to sprout up in Nigeria, which are extremely unhealthy for Nigerians, causing up to eight cases of cancer each year, in addition to sores and noise/ light pollution. August: Let me highlight the other side of this. Big Oil companies have to go into areas that are already troubled in order to bring you the resources that they do. In Nigeria, 150,000 barrels of oil are stolen daily from pipelines, and that’s one of the lower estimates. Shell has had to shut down pipelines too easily and frequently targeted. Oil companies didn’t create this situation in Nigeria
- they’re simply endeavoring to conduct business in a nation that is ravaged by bands of warriors who, as of 2002, have attacked pipelines an average of 2,000 times per year, because they’re lucrative targets. They also have to deal with fallout from the Arab Spring, the Libyan civil war, Somali piracy, and other challenges that they did nothing to create. We should be thankful that these companies exist and are capable of shouldering these expensive burdens to engage in what this capital-intensive activity. Big Oil and Climate Change Adrian: This is an issue of justice. Climate change is irreversible. Scientists have agreed that there is a CO2 threshold beyond which there will be runaway climate change, unstoppable climate change which just gets worse and worse. In the words of environmentalist Paul Hawken, ‘We are stealing the future, selling it in the present, and calling it GDP. We can just as easily have an economy that is based on healing the future instead of stealing it.” We mustn’t commit the intergenerational injustice of subjecting our future generations to a less habitable world which they have no part in creating. They will have to suffer all of the conse-
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quences of climate change if we continued on this unsustainable path of development. We mustn’t commit the social injustice of allowing the brunt of climate change’s negative effects to hit poor, racially underprivileged communities, but this is happening. They have fewer means to escape the new climate reality, which they have not done much to cause in the first place. Soaring food prices, the human and fiscal costs of extreme weather events, higher fuel prices, are all part of the new climate/economy/energy normal. We mustn’t commit ecological injustice, and yet we are in the middle of what’s known as the ‘sixth mass extinction’ of plants and animals now. According to the Center for Biological Diversity, as many as a dozen species go extinct every single day, 1,000 to 10,000 times the natural rate of extinction of about two to five species per year. In fact, according to the Center, 99 percent of currently threatened species are at risk from human activities, primarily those driving habitat loss (think clear-cutting for tar sands) and global warming. August: Claims that droughts are increasing are based on a
measurement called the Palmer Drought Severity Index. But this measurement is flawed because it is too simple - it’s calculated with a simple water-balance model that uses precipitation and temperature data. A much more realistic metric is soil moisture percentile, which a team from Princeton and the University of Washington graphed, showing that the level of drought has actually been very constant over the past fifty years, despite increasing temperatures. If we take another perspective - a historical one - a warmer world could theoretically result in greater water availability because of increased evaporation of seawater and thus increased precipitation - this is what happened in the Holocene, Roman, and Medieval warm periods. Adrian: I am very intrigued by the choice of graphs that the opposition has given us today, graphs of drought over the past fifty years. We saw the worst drought in the U.S. last year and this year the situation is also really bad as well. Carolina: The opposition’s argument is predicated on the claim that climate change is going to skyrocket. But take a look at the historical accuracy of climate models. Though actual temperatures have tended to fall within the range of predictions, now they are increasingly on the low end of past projections, and may actually fall beneath the lowest projections quite soon, suggesting that the more dire predictions about increasing temperatures are not likely to come true.
Also, CO2 makes the earth greener. A NASA scientist mapped global vegetation changes with a satellite, and reported that “net greening was reported in all biomes” - that between 1982 and 2011, over 20% of the world’s vegetated area became greener, and only three percent became browner. Not only is the use of oil increasing greenery by replacing firewood as a fuel, but it’s raising CO2 in the atmosphere, a resource that plants need to scavenge from the air in order to grow - plants do act as carbon sinks, after all. Farms aren’t doomed either. If you think back to high school biology, you may remember that there are C3 plants and C4 plants, which together make up almost all the plants of modern agriculture. C3 plants will pick up oxygen as well as CO2, even though oxygen is fairly useless, so boosting the amount of CO2 in the air relative to oxygen makes them more efficient because they pick up more of it and less oxygen. This is why one greenhouse study showed excess CO2 giving a 35% photosynthesis boost to rice and a 32% boost to soybeans. Adrian: It is very interesting to me to have Carolina talk about net greening, because it doesn’t really matter that there is more green in the world. What matters is that there is more CO2 in the atmosphere, which is going to increase global temperatures in the long run, and that’s going to affect our climate and our animals as a result, and of course human beings too, who are causing it. Last week, the IPCC (Intergov-
ernmental Panel on Climate Change) stated that it is 95% sure that global warming is caused by human activities. Our burning of oil, a fossil fuel, helps to contribute to warming. August: One of the concerns about this warming is that it’s going to lead to more cyclones and stronger cyclones. Yes, it’s true that the number of tornados being reported is on the rise - but this is almost certainly due to increasing population and, most importantly, the wider spread of improved doppler radar, which can detect much weaker tornados than it could in the past. This is why the IPCC reports that “there has been little trend in the frequency of stronger tornados.” In fact, at least in the U.S, there has been no trend. The same is true of hurricanes. Despite increasing sea temperatures, the total accumulated global cyclone energy (how much hurricane is happening in the world, per se) is showing no long term trend of increasing or decreasing, and has recently hit lows not seen for almost thirty years. Adrian: But what about the extent to which the arctic has melted over the years? In the summer of last year, the arctic hit the lowest level of sea ice area ever recorded. We are erasing these large physical features on the face of our planet, and oil companies ought to bear the responsibility. August: But nature and humanity have survived higher temperatures in the past. Sedentary agriculture, and thus the start of settled human civilization, began
about 11,000 years ago. From then until now, humans survived and thrived despite temperatures two degrees fahrenheit lower and about five degrees fahrenheit higher than the temperatures we’re experiencing right now. A couple more degrees of warmth isn’t about to wipe us out. We’ve also survived periods of more rapid warming in the past - at one point there was a shift of thirteen degrees fahrenheit in fifty years. Adrian: Even so, we shouldn’t gloss over phenomena like sea level rise. It’s rising because of thermal expansion; more heat means that water takes up more volume. August: There’s certainly something to that - in the past 100 years, the mean global sea level has been rising 1.7 millimeters per year, while more recently it’s been rising 3.3 mm/yr. If we make the inherently faulty assumption that these rates will continue, the sea level would rise 33 centimeters, or a little over a foot. But you hear these more alarming predictions - the sea level will rise between one and six meters in a hundred years. For these predictions to be accurate, the rate of sea level rise must grow a huge amount - between three and eighteen times. But this is highly unlikely. The rate of sea level rise over the past decade has been declining significantly, from 4 mm/year in the nineties to just over 2 mm/year in the past decade. So in all likelihood, sea levels aren’t even going to go up much more than a foot in the next century. As a result, some locales will experience very mild
coastal flooding. But at the same time, many coastal areas are likely to gain more land from siltation than they lose from erosion. In other words, this is business as usual with the environment nothing to worry about. Adrian: But there’s a threshhold temperature after which the Greenland ice cap and the Antarctic are going to melt, which will drastically increase sea level. So maybe it’s not very observable now, but if we keep pouring CO2 into the atmosphere, the sea level will go up signigicantly. August: Nevertheless, the top ten coastal cities at risk are all in one of three industrialized countries: the U.S, Japan, and the Netherlands. All of them have the resources and capabilities to be immensely adaptive. And in any case, the sea level rise we’re talking about is very slow, a gradual shift over the course of many generations. Cities and communities can adapt with relative ease. Adrian: Yet there’s still many people without assistance, and without means to escape the floods Big Oil will help to cause. August: But here’s the thing. The good things that extracting oil will do for us significantly outweigh the harms that you predict from climate change. Let’s go back to cyclones, and assume for the sake of argument that global warming will make cyclones stronger and more frequent. The solution isn’t to strangle oil companies. It’s to create and enforce better building codes. It’s to invest in
better infrastructure, like stronger levees and sewers with higher capacities. It’s to disincentive increased settlement in areas prone to cyclones. It’s to improve tornado warning systems so that they give people more time to react. It’s to do all of these things, which are more cost-effective and reasonable than restricting Big Oil. If we do these things, we’ll allow Big Oil to continue to support our prosperity, and we’ll be much more able to deal with whatever problems that climate change is going to cause. What About Our Alternatives? J.J: Big Oil subsidies send the wrong signal to the market by suggesting that alternative energies are not viable, when they actually are quite viable. Carolina: Wind turbines kill tons of avian wildlife. A 2008 study of a wind farm in Altamont Pass, California estimated that its turbines kill 10,000 birds a year, 80 of those being Gold Eagles. This is just one wind farm, and even though it may be one of the worst examples, wind turbines in the U.S. alone kill between 75,000 and 275,000 birds per year. While wind farms kill birds by design, mitigating damage to wildlife is easy for oil companies: they use nets and good pipelines. This is
why Altamont, every single year, kills about 100 times more birds than Exxon’s oil tanks do. And not only do wind turbines take more land away from nature per megawatt than oil facilities do, but they also take a lot of resources to construct, requiring five to ten times as much concrete and steel per megawatt as nuclear power plants, not to mention miles of paved roads and cables. The U.S. wind industry, if it wants to produce more than the 1.6% of U.S. energy that it does now, will need to acquire huge loads of resources, many of which come from practices like mining. Biofuels are another major alternative, but for those of you concerned about carbon dioxide emissions or environmental integrity, it’s a poor choice. By mandating or creating demand for the fuel, you’re incentivizing the elimination of wilderness. Those farmers in Indonesia aren’t replacing parking lots with their monocultures that produce palm oil for biofuel; they’re replacing peat lands as well as rainforests that house wildlife and act as carbon sinks. Deforestation already accounts for twenty percent of fossil fuel emissions (which you should keep in mind if you think Big Oil companies are solely responsible for CO2 emissions). We don’t need to make this any worse. Plus, to grow an acre of biofuel requires tractor fuel, fertilizer and pesticides made with petrochemicals, truck fuel, distillation fuel, etc. According to the USDA, for every one unit of fuel put into
corn ethanol production, you get only 1.3 units of fuel out. That’s much less efficient than drilling and refining oil: for every one unit of fuel you put in, you get six or more out. And regardless, you’re burning fuel in a world that still has starving people. Between 2004 and 2007, the maize harvest increased by 51 million tons, but 50 million tons went into ethanol, leaving almost nothing to meet the increase in demand of 33 million tons. Prices rose; people starved. High Prices And Big Profits? J.J: The oil industry is dominated by a small group of oil companies. This, in effect, is an oligopoly (a few companies control almost all of the market). This increases the price of oil and makes consumers bear the burden. August: Exxon makes only about seven cents per gallon. Local, state, and federal taxes are, by contrast, almost 46 cents per gallon, meaning our government makes six times more than Exxon
does per gallon of gas. And certain U.S. regulations increase prices. For example, the EPA divided the U.S. into seventeen different regions, each of which must use a different blend of gas; oil usable in Tuscon Arizona can’t be used in Phoenix. This fragments the oil market, which reduces competition, thereby reducing the market’s ability to lower prices. It’s not the fault of Big Oil that they operate within a framework that boosts the price of their goods substantially. Taxes and Subsidies: August: Of the twelve major sectors of the U.S. economy, the oil/gas sector pays the second highest effective income tax rate, at 37%. And even within the energy sector, the effective tax rates of the three American Big Oil companies are in the top seven. We can also cross sectors and compare the corporations that pay the most in income taxes. All three Big Oil companies top the list - while the median payment here is $23 billion, Conoco Phillips pays $58 billion, Chevron $86
Tax Breaks Aren’t Subsidies A subsidy and a tax break are two very different things. Subsidies mean that more money is taken out of taxpayer pockets to give to a corporation. Tax breaks mean that the corporation pays less in taxes, but this doesn’t increase a taxpayer’s payment to the IRS by a single penny. Most special financial treatments for Big Oil, from the Manufacturer’s Tax Deduction to the Percentage Depletion Allowance, are tax cuts, not subsidies. And if you think these tax breaks amount to much, put the U.S. in a global context. Total fossil fuel subsidies worldwide in 2011 were over $480 billion dollars. By contrast, tax breaks for oil companies in the U.S. amount to, at most, $7.4 billion per year, or 1.5% of that value. And this is for all U.S. oil companies (small, medium, and large) not just Big Oil, which thereby receives even less than this number ($7.4 billion) suggests.
billion, and Exxon a gargantuan $146 billion. These numbers are so high because oil companies are international, and are often taxed heavily by the foreign nations that host their drilling. So it makes sense to have a low income tax rate at home, because it largely spares them the onus of double taxation, which hurts all those people across the economic spectrum who benefit from their profits. But even if domestic income taxes are low, Big Oil faces all sorts of other taxes, like customs duties, which is why Exxon paid $7.7 billion in U.S. taxes in 2010. Paying that isn’t paying ‘nothing’. J.J: Each year over the past ten years, around $10 billion has been given to Big Oil in subsidies. This money could have been used for other alternative energies. But instead it’s used for oil, and for innovations to get new drilling technology. Big Oil and Prosperity August: In the 1920s, the average number of people killed by weather-related events was 485,000 per year. Since then, the per capita death rate has declined almost 98%. The rate of tornado deaths is down 90%. Floods, 99%. Droughts, 99.7%. Drought deaths have collapsed largely thanks to advances in food production based on fossil fuels; fertilizers and pesticides are made from them; farm machinery and irrigation pumps are fueled by them. Cyclone deaths - down thanks to better infrastructure.
In 2007, Hurricane Dean struck Mexico and killed no one; the next year, an equally strong cyclone hits impoverished Burma and killed well over 130,000. Better infrastructure could have saved these lives, and existed in Mexico because of prosperity, which is supported by oil, meaning Big Oil has helped us rise above the ravages of nature. Here’s how: prosperity is saving time on one thing so you can do other things. ‘Energy’ does things for you so that you can do other things. Oil and gas are energies, and along with coal, provide 85% of energy on the planet, from fuel to electricity. Because of their efficiency, they save us more time than any other energy ever used. You no longer have to spend six hours working to get an hour of candlelight, like you did in 1800; now you can afford that light from a bulb after only working half a second on the average wage. Consider all the other ways that this energy has not only protected you from disaster but enabled your quality of life; then consider all the ways that Big Oil can facilitate this in poor nations in the future. It’s not just energy, either. Think of every plastic or synthetic product that you’ve ever used. You’d never have been able to use it without the petroleum provided by Big Oil. Wearing lipstick? You’re wearing oil. Do you write with a pen? You write with oil. Use a computer? Made possible by oil. The list goes on and on. To understand the magnitude of change that Big Oil wrought,
imagine that you and I are members of the first class of Middlebury, in 1800. We’re entering an institution meant to brighten our future and the future of humanity. So over our first meal of gristly stew that was cooked over a log-fueled fire, we start chatting about the future. And I start spouting off like the most unrealistic optimist you can imagine. One day, I tell you, we’ll be able to cover tens if not hundreds of miles in a single hour, farther than you and I have traveled in our lives, without having to use a horse or our own two legs. In fact, I bet there’s some liquids in the ground that can make all sorts of things that are already around us and all sorts of things we can’t imagine. I bet they can produce some magical, invisible power source that travels through wires and gives us heat and light. If I were you, I wouldn’t have believed me, but Big Oil has facilitated this miracle. It sucks this energy out of the cold hard earth, from the depths of the oceans, from the middle of warzones with drills that it designed, built, and operates. It pumps unfathomably large amounts of this energy every day through billions of dollars of pipelines that underlie cities and span continents; ships it around this huge globe of ours on gigantic and expensive tankers that they’ve paid for; refines it in their own intricately complex factories. Big Oil - other people, other human beings are doing all of this hard work, so that you and me and they can share in the fruits of a better and more prosperous civilization now and in the future.