Oil Doomsday?

The recent $60 million oil deal is a sign that the fossil fuel industry doesn’t fear its replacement.

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Amid increasingly popular renewable energy quotas, some companies fear that the end of fossil fuels is near. Companies such as BP, TotalEnergies, and Enbridge are heavily investing in green technology with the assumption that both technology industries and consumers will pivot toward the more sustainable option. It’s not an unfounded assumption: California and New York have pledged that 60 and 70 percent of their energy, respectively, will be generated by renewables by 2030. The United States is embarking on a nationwide renewable energy promise as well, with the Bipartisan Infrastructure Law committing the U.S. to “reduce emissions by 50 [to] 52 [percent] from 2005 levels and create a 100 [percent] carbon pollution-free power sector by 2035, achieving a net-zero economy by 2050,” according to the Wilson Center. But ExxonMobil has no such fear.

In October, ExxonMobil bought Pioneer Natural Resources, a natural gas and oil fracking company, for nearly $60 billion. This deal effectively doubles ExxonMobil’s oil production to more than 1.3 million barrels of oil per day in the Permian Basin. The move has been hailed as the biggest oil merger in 25 years and has massive implications. Exxon has incredible drilling expertise after years of honing company secrets in the Delaware Basin and plans to bring its techniques to Pioneer’s Permian Basin in Texas to exploit more oil than ever before. This deal comes after decades of controversy: Exxon officials have denied the happenings of climate change and funded research attempting to disprove its existence since 1957.

On the one hand, it is easy to disregard this new oil expenditure as simply a sign that the fossil fuel industry is unwilling to change its profit-driven practices. However, it also seems to validate Hans-Werner Sinn’s 2008 theory of the Green Paradox, in which fossil fuel companies faced with climate change legislation expect to no longer profit from selling their resources in the long-term future, so they instead extract and sell at an expedited rate in the present. This would lead to a boom of emissions in the short term as companies rush to exploit and sell off natural resources to the fullest extent before policies make it illegal or unprofitable to do so. It is a difficult theory to prove, as nationwide climate legislation is a relatively new phenomenon, and renewable energy goals are nowhere near being met, meaning fuel companies have no fear of being replaced. However, there are historical examples of policies limiting natural resources and corporate reactions to said policies that mirror the Green Paradox scenario but did not produce Sinn’s predicted results. In 1990, the United States Acid Rain Program limited sulfur dioxide emissions, which are a byproduct of coal-fired power plants. Despite coal prices falling, coal extraction did not rise. And despite speculation that the results were due to unforeseen circumstances, such as the fuel plants already burning coal at maximum capacity or there being too short of a time lag between policy introduction and implementation, there have been nearly no scenarios in which resource policies have produced Sinn’s predicted results. However, the recent wave of climate legislation has yet to be studied, and by the time studies produce results decades in the future, the emissions will likely be irretraceable. If ExxonMobil’s newest expenditure is proof of anything, this may very well be our future. 

Past experts have suggested that the best way to mitigate the possibilities of a Green Paradox scenario is to implement a Pigovian tax, in which each unit of pollution released into the atmosphere triggers an increase in taxation on the polluter—their worst nightmare. Subsidizing companies that forgo fossil fuels in favor of renewable energy production is another way to avoid the Green Paradox. This method would discourage rage and lobbying from the fossil fuel industry, meaning that subsidization’s legislative future is significantly brighter than the unpopular Pigovian tax. Indeed, there needs to be an exponential increase in subsidization of renewable energy research and production if we as a nation wish to avoid the unpredictable future of disincentivized energy corporations.