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Beyond petroleum

The Change is Economic, Not Ideological

Author: Itai Lahat

Paul Klein, founder and president, Impakt, published an article in Forbes magazine. In that article, Klein, a crusader helping organizations solve social problems by improving the value of investments in social change, painted a fictional rosy scenario:

January 1, 2025, Irving, Texas: Exxon Mobil is proud to announce that its exit from the extraction and production of nonrenewable resources is now complete. Back in 2015 the company began its 10-year journey out of fossil fuels by committing itself to a bold set of changes that have transformed the company and indeed the world.

Klein writes that while this scenario sounds far-fetched, new research he and his organization conducted with Microsoft, Nestlé, Pfizer and Telus International revealed that announcements like this one may not be that unusual in 2025.

To this Klein added a quote from one of his business partners, Jeffrey Puritt, president of TELUS International, a giant of business process outsourcing. “An intersection is coming where society will expect corporations to fill the void in the face of government cuts, and, likewise, corporations will expect their societal influence to increase as their social capital becomes the force of change in communities, countries and even entire global industries,” said Purrit.

I hate being the cynic critic here, but both the rosy fiction of Klein and the frightening prediction of Purrit are absurd. The scenario in which society will expect corporations to fill the void of government, is scary, to say the least. And sadly Exxon Mobil has actually backed away in the last year from its promises for a greener energy production. No, I’m sorry; corporations should not wear the shoes of public. If there is one thing we learned from two centuries of capitalism is that corporations move in one direction – maximizing profits for their shareholders, not for society.

Exxon Mobil has actually backed away in the last year from its promises for a greener energy production.

But that doesn’t mean that these scenarios cannot happen.

The simple thing is that the driving force behind the change will come purely from economic reasons. And Exxon Mobil and it’s sector is a good example to demonstrate it.

The fossil fuel industry released some well-timed attacks on the divestment movement. Coinciding with Global Divestment Day, a series of videos and reports made the case that divestment is nothing less than turning our backs on progress. What this industry is just starting to internalize is that the growing pressure to rethink our energy habits is not about going back. It is the result of a huge, world-altering shift in how we generate, use and conserve energy. A transition that is already underway. Here are just a few stories that demonstrate this shift:

2014 closed with some good news: Some economies are seeing a beautiful drop in their energy consumption and as a result their emissions drop too! If this trend continues, fossil fuel companies will find it harder and harder to make a profit. One of the many reasons this is happening is the sharp growth of renewable energy and it’s dropping price.

In Latin American solar grew 370% last year, and is expected to triple in 2015. At the same time, solar prices have plummeted, and are expected to fall 40% more in the next two years. Chinese coal production is falling, and Wind and solar are now the cheapest option for China's energy growth. China’s neighbor, India, is investing huge amounts in solar power and Norway just abandoned many of its coal and tar-sands investments.

I can go on and on but you get the idea – we are witnessing demand destruction in the fossil fuel industry. Demand destruction occurs when you eliminate or substantially reduce the need for the resource on a near-permanent basis. Somebody trading in a Chevrolet Malibu for a Nissan Leaf won’t be buying any gasoline for the next 10 years. Electric car sales are growing dramatically in many markets (comparing January 2014 with January 2015, plug-in hybrid sales jumped 1000% in the UK). And when you put the whole puzzle together, the future is clear and cleaner.

But companies like Exxon or Shell will not go down without a fight. Get ready to watch them lose.