IEEFA Update: Climate Risk, the Oil Industry, ExxonMobil, Rex Tillerson …

President Trump’s flamboyant withdrawal from the Paris Agreement dealt a reputational and economic blow to the U.S., where energy policy is becoming a bigger story than ever.

A major but not entirely unrelated subplot is emerging out of an angry-shareholder vote demanding  that ExxonMobil, the biggest oil company in the world, show more accountability in how it manages climate risk. A subplot within this subplot: What will the New York Attorney General find next?

Meantime, internal tensions are rising within the fossil-fuel industry, and Rex Tillerson, the former ExxonMobil CEO who has been secretary of state for all of of four months, appears to have been written out of the administration’s energy-policy script already.

Questions for investors to contemplate as events unfold:

• Will other major countries fill the void created by the United States?
  World leaders were quick to affirm their commitments to the Paris accord after Trump’s announcement, and the remaining 194 signatory nations all seem likely to continue to participate. The unanswered question: Where will money come from to finance clean energy development and climate mitigation activities? China and India have voiced their intentions to continue to invest in renewable energy, at home and abroad. Yet many smaller countries are relying on the $10 billion pool of resources that developed countries such as the U.S. agreed to pay for climate mitigation as a part of the original agreement. Trump’s retreat will short the pool by $2 billion.
• Will state and local governments in the U.S. working alongside business leaders and climate movement activists pick up the slack Washington hopes to create?
  Several prominent U.S. governors and mayors immediately promised to maintain their policy and financial commitments toward clean energy portfolios. Many states already have significant investment in wind and solar, as well as additional renewables projects in the pipeline. State governments are proving to be the laboratories of democracy and innovation, not to mention core platforms for launching political opposition to backward energy policy. Watch how the plotline develops around the renewable sector’s “economic chain” (research, manufacturing, distribution and marketing) and how it responds to new opportunities. Stepped-up activism at state and local levels will probably create new allies and new story direction for the climate movement. Will growth in jobs in the renewable sector finally become so obvious that it has a significant impact on the strategic planning of political parties and other opinion leaders at every level? Will the distance between Trump and key business leaders grow?
• Will fossil-fuel players continue to disagree with each other?
  Differences between oil and gas interests and coal interests has come to the fore against the background of the Paris drama. Oil and gas interests, which tend to ally with large financial institutional interests, wanted the U.S. to remain in the deal. Because the oil and gas sector operates in an international arena characterized by market and political volatility it often supports initiatives that create stable rules of the road. Natural gas interests also seek to gain market share from plans to reduce carbon emissions at the expense of the coal sector, which is left more and more out in the cold. Even in exile, coal characters cannot agree. Three large U.S. producers—Arch Coal, Cloud Peak Energy, and Peabody Energy (all of whom have coal export interests)— wanted to stay in the agreement while the National Mining Association agitated for withdrawal.
• Will New York’s attorney general unearth more ugly facts about ExxonMobil’s accounting and reporting practices?
  Two days after last week’s news-making ExxonMobil shareholder meeting, where 62 percent of shareholders voted against management and in favor of more disclosure on climate reporting, New York State Attorney General Eric Schneiderman announced that his investigators had identified new red flags at the company.  Schneiderman questioned the validity of ExxonMobil’s assertions that it is truly accounting for climate risk in its calculations about the viability of oil-drilling projects and the size and quality of the company’s oil reserves. The attorney general made clear that he believes these deceptions are part of an ongoing practice by the company, one that promises to yield more story lines.
• Will oil stocks continue to underperform?
  After the election in November and into December, ExxonMobil’s stock rose from $85 per share to $93 per share. But last week the stock hit a 52-week low. It fell to below $80 before recovering slightly. ExxonMobil not that long ago was a $100 stock. Other oil majors aren’t faring much better, and top institutional investors are reviewing their fossil fuel portfolios.  Indeed, some have decreased their coal positions in the first quarter of 2017 despite some measure of improvement. An underlying question as “As the Energy World Turns” continues: Will investment and financial professionals acknowledge the declining relevance of fossil fuel holding as a contributor to wealth creation?
• Can Rex Tillerson weather Hurricane Donald?
  The fate of the Secretary of State and long-time ExxonMobil CEO is worth watching. His is an experimental role. Never before has an oilman been asked to play the No. 1 American diplomat.. Tillerson, who wanted to stay in the Paris accord, was quite publicly dissed by his boss. Noticeably absent from Trump’s Rose Garden announcement, he must have been muttering off-camera about how he was left to clean up after Hurricane Donald.

Tom Sanzillo is IEEFA’s director of finance.

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IEEFA Update: Pulling Out of the Global Climate-Risk Accord Is Trump’s Biggest Business Blunder Yet

IEEFA Update: Shareholder Vote on Exxon Mobil’s Climate-Risk Transparency Suggests a Larger Opening

IEEFA Report: Red Flags on ExxonMobil: Core Financials Show a Company in Decline