Capitalism in Synchronicity with Climate Change?

By Carol Pierson Holding

Last Thursday, environmentalists won a major victory when Royal Dutch Shell halted oil drilling operations in the Chukchi Sea. An environmental coalition successfully sued to reverse the U.S. government’s 2008 decision that opened Alaska to drilling. The decision was only a partial victory, but it was enough to stop Shell’s operation at least through 2014.

Despite the possibility of a reversal, environmentalists are celebrating. In the week after the decision was handed down, Shell determined that drilling in Alaska might not make economic sense after all. At the same time that Shell’s Alaskan equipment failures have cost the company billions, the US market for natural gas and crude markets remain low and refinery margins are being squeezed. Shell spent $2.1 billion investing in drilling licenses and billions more in exploration and legal costs. The company has already written off $1 billion for its Alaskan adventure.

Alaska isn’t the only place Shell has encountered the double rub of environmental adversaries and falling profit potential. Shell’s previous CEO spent $26 billion buying up U.S. shale properties. Now, $2 billion has to be written off to reflect their drop in value.

After Shell announced it would cut spending and sell more assets, its stockholders reacted positively, pushing shares up 2%. As reported in the Seattle Times, Investec analyst Neill Morton predicted further writedowns for Shell in North America.

Still, environmentalists would love to have absolute assurance that Alaska is safe from drilling. "President Obama now has the chance to do right by the Arctic and the planet by keeping oil drilling out of the Chukchi Sea," said Earthjustice attorney Eric Grafe, who represented the groups.

Is Earthjustice realistic? President Obama seems to be positioning himself as the environmental champion. His State of the Union address has been praised for his support of climate change, and his most stirring statement on the subject has been widely quoted: “Climate change is a fact. And when our children's children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did.”

However, one of Obama’s achievements to win bi-partisan praise has been to bring America close to energy independence. He’s opened more areas to drilling than his predecessor. And though his address made him sound like a climate change warrior, he failed to mention the Keystone Pipeline decision.

On Friday, we found out why, when his State Department announced its findings that the pipeline, despite releasing between 147 and 168 million metric tons of greenhouse gas emissions annually, would not “significantly increase carbon in the atmosphere.”

Predictions are that Obama will most likely allow the Keystone Pipeline to go through.

Why then would Earthjustice believe that Obama will stop drilling in Alaska?

A far more likely scenario is that other drilling projects in Alaska will be withdrawn for the same reason that Shell pulled out. Operational costs are high and the appetite for fossil fuels is falling, at least in the U.S. Investors are losing their passion for the industry, accusing the extraction industries of lacking capital discipline — investing in new projects even when it’s clear they’re not going to pay out.

And environmentalists are lining up to keep the pressure on, inflicting legal and reputational costs. The next wave of Keystone Pipeline protests starts Monday night. The fossil fuel divestment movement continues to gain support. Just last week, 17 foundations with investments of almost $2 billion joined the movement, citing portfolio risks posed by climate change. A juggernaut of moral imperative has been released, creating a lever that sometimes works in synchronicity with business and investors and definitely leads the government.

Photo courtesy of NASA/Kathryn Hansen via Flickr.

Carol Pierson Holding writes on environmental issues and social responsibility for policy and news publications, including the Carnegie Council's Policy Innovations, Harvard Business Review, San Francisco Chronicle, India Time, The Huffington Post and many other web sites. Her articles on corporate social responsibility can be found on CSRHub.com, a website that provides sustainability ratings data on 8,900+ companies worldwide. Carol holds degrees from Smith College and Harvard University.

CSRHub provides access to corporate social responsibility and sustainability ratings and information on 8,900+ companies from 135 industries in 104 countries. By aggregating and normalizing the information from 300+ data sources, CSRHub has created a broad, consistent rating system and a searchable database that links millions of rating elements back to their source. Managers, researchers and activists use CSRHub to benchmark company performance, learn how stakeholders evaluate company CSR practices and seek ways to change the world.