Beyond Petroleum. Or Not.
Can Big Oil figure out the climate-friendly future of energy? Does it actually want to?
This month a biofuel start-up called Verdezyne announced an undisclosed infusion of cash from a pair of investors. That by itself wasn't unusual -- Verdezyne, a California-based company that engineers yeast capable of digesting plant sugars and excreting biofuels and biochemicals -- is considered one of the most promising firms in the crowded advanced-biofuels space. The company had already attracted capital investments from Silicon Valley stalwarts like Monitor Ventures and Life Science Angels, along with cash from the federal government. But this latest round of financing was different because the money came from BP. Yes, that BP -- the oil major better known lately for fouling the environment than saving it. For the small start-up, however, BP's status as an oil giant gave its financing special resonance. "This is the sort of funding that will help us move to the next level," Verdezyne CEO E. William Radany told me. "We view it as a vote of confidence."
This month a biofuel start-up called Verdezyne announced an undisclosed infusion of cash from a pair of investors. That by itself wasn’t unusual — Verdezyne, a California-based company that engineers yeast capable of digesting plant sugars and excreting biofuels and biochemicals — is considered one of the most promising firms in the crowded advanced-biofuels space. The company had already attracted capital investments from Silicon Valley stalwarts like Monitor Ventures and Life Science Angels, along with cash from the federal government. But this latest round of financing was different because the money came from BP. Yes, that BP — the oil major better known lately for fouling the environment than saving it. For the small start-up, however, BP’s status as an oil giant gave its financing special resonance. "This is the sort of funding that will help us move to the next level," Verdezyne CEO E. William Radany told me. "We view it as a vote of confidence."
Verdezyne is hardly the only renewable energy company to benefit from Big Oil’s interest. Amyris — another advanced-biofuel start-up that has investors drooling — gets more funding from BP than any other source. This month, French oil giant Total invested nearly $1.4 billion in the American solar firm SunPower, paying generously for 60 percent of the company and extending another $1 billion in credit. Shell has worked with Codexis and Brazilian ethanol giant Cosan on a $12 billion sugar-cane-to-biofuel project. Chevron has set itself up as one of the largest investors in solar power in California, and it recently agreed to start building wind turbines near its oil fields in Kyrgyzstan. Even ExxonMobil — which has long remained aloof on alternative energy — has a $600 million partnership with J. Craig Venter’s Synthetic Genomics, which is working to genetically engineer algae for advanced biofuels.
That might seem surprising, or at least suspicious. According to the standard green narrative, Big Oil’s lobbying money is one of the major reasons that the United States still lacks a climate change or renewable energy policy. And that view is not exactly wrong. A recent analysis by the NGO Carbon Brief found that nine out of the 10 most prolific scientists denying the human origins of climate change had links to Exxon; the company spent millions in the 1990s funding think tanks like the Atlas Economic Research Foundation and the Institute for Energy Research that spread doubt about global warming. You won’t find any major oil players in the U.S. Climate Action Partnership, a loose organization of environmental groups and heavyweight corporations like General Electric and DuPont set up to call for legislation limiting carbon emissions. (BP and ConocoPhillips joined initially, only to drop out last year.) The oil majors’ idea of a national energy policy is still first and foremost more oil, drilled and sold by them.
But climate change policy and energy policy aren’t the same thing, especially in the United States. When it comes to renewable power, oil majors see that there is potentially money to be made — and at the very least, some goodwill worth banking in the days of $4 a gallon gas.
BP was the first oil major to see this and act accordingly, in part because being seen as anti-climate change was far less acceptable in London than it was in Houston. John Browne, BP’s former CEO, wanted the respect of the Davos elite, for whom climate change became an article of faith by the beginning of the 2000s. But by 2007 even Exxon was backing away from climate denial, promising to cut ties with global warming deniers. The message was clear: If you made your money drilling for climate-changing fossil fuels, you were expected to at least show a bit of remorse for it.
Big Oil is particularly keen on biofuels, which enjoy the most generous government mandates and financial largesse — something the oil industry, which already benefits from some $4 billion annually in subsidies, knows well. The flood of oil investment is not in conventional ethanol — which oil companies see as more of a direct competitor and which requires its own pipeline infrastructure on account of its chemistry — but in next-generation cellulosic and algae-based biofuels that have yet to reach the market. Oil majors already have a liquid-fuel-based infrastructure in place, so it shouldn’t surprise that a company like BP would spend half a billion dollars in 2007 setting up an advanced biosciences research consortium with the University of California, the University of Illinois, and Lawrence Berkeley National Laboratory.
For major oil players, however, profit and good press aren’t the only reasons to invest in renewables. Despite their record-breaking revenue — Shell alone earned nearly $6.3 billion in the first quarter of 2011 — the international oil players find themselves in an increasingly vulnerable spot. They are being squeezed out of their own industry by state-owned companies, which control more than three-quarters of the planet’s remaining oil reserves, effectively locking the internationals out of large swaths of the planet. Big Oil, in short, needs to hedge its bets with alternatives. That will be doubly true if the world’s governments ever really do get serious about climate change and enforce carbon caps, which would mean a painful bill for the oil majors.
But Big Oil’s investments into renewable energy do need to be put in perspective. BP decided in 2000 to proclaim itself "Beyond Petroleum," hyping its investments in renewables while downplaying fossil fuels. But the campaign inevitably edged into greenwashing as it became clear that BP had no intention of moving beyond petroleum anytime soon. The other oil majors’ green investments don’t quite match their ads, either. Take Chevron’s recent series of ads based around the concept of "I Will," with testimonials from people promising to make small steps toward conservation like leaving their car at home — steps Chevron was matching. The advertisements weren’t exactly false, but they elided the fact that the vast majority of Big Oil’s investments remained, as they always have, in fossil fuels.
How vast? A 2008 analysis by the Center for American Progress found that the big five oil companies invested just 4 percent of their profits in 2008 — before the financial crisis, a year of sky-high crude prices — in renewable and alternative energy ventures. Exxon’s $600 million investment in Synthetic Genomics sounds like a serious chunk of change, but the most profitable company in the world made over $30 billion last year alone. Oil executives are still judged by their shareholders and customers as they have been for more than a century: on whether or not they can find and pump oil and gas.
None of this should be all that surprising — what incumbent, after all, has ever willingly hastened its own obsolescence? That’s not to say that Big Oil will never change — we’ve already seen the majors begin to move heavily into natural gas, responding to the massive new deposits of shale gas found onshore in the United States. Perhaps, in the future, if peak oil comes sooner rather than later, the majors will scramble to find and fund alternatives as a matter of survival, not just experimentation.
But the twilight of oil is likely to be long, and far more of the oil industry’s resources remain focused on squeezing the last drops out of tar sands, or ultradeep-water deposits or the thawing Arctic. If the renewable revolution truly succeeds, it will still be in spite of Big Oil, not because of it.
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