After years of resistance, oil executives are raising global-warming issue ahead of summit

By BILL SPINDLE and FRANCIS X. ROCCA, of the Wall Street Journal.

Oil companies are ratcheting up their involvement in the debate over climate change as governments, activists, churches and some big investors gear up for a global summit on the issue at the end of the year in Paris.

The stated goal of the summit is to keep manmade warming limited to two degrees Celsius above preindustrial levels, but governments remain far apart on how to achieve it.

Meeting such a goal will require far-reaching changes in energy-consumption patterns and likely efforts to put a cost on carbon use, many experts say. Activists have long focused much of their effort on trying to rein in the use of resource companies’ bread and butter: carbon-emitting fossil fuels.

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Pope Francis is planning to weigh in on the environment in an encyclical—a letter intended to develop and explain Catholic teaching—due within the next few weeks, which has made Rome one of the focal points in the global-warming debate. Exxon Mobil Corp.recently dispatched one of its senior lobbyists and a planning executive to Rome in an attempt to brief the Vatican on its outlook for energy markets.

For years, shareholder activists have urged resource companies to curb emissions. More recently, some big investors are taking global warming into consideration in their portfolio building. The Church of England and Norway’s sovereign-wealth fund, one of the world’s biggest institutional investors, have sold off shares in pure-play coal companies.

‘We have to stop being defensive.’

—Total CEO Patrick Pouyanné

At the same time, some of the resource companies’ own shareholders are pushing them to scale back their dependence on carbon-based fuels, worried about the future financial impact of heightened global-warming regulation. Oil, mining and coal companies also are anticipating rules to limit emissions that would make oil and natural gas more costly, potentially reducing demand for the fuels.

This has led to a change in behavior. Where in the past executives could be dismissive of the climate-change debate or leap to defend their companies, industry officials are now raising the issue themselves and proposing remedies such as the imposition of a carbon tax.

“We have to stop being defensive,” Total SA Chief Executive Patrick Pouyanné told a major industry conference in Houston last month. “In the end, it won’t be solved by diplomacy only, but by private players, economic players like us.”

Total, Saudi Aramco, Eni SpA, BG PLC, Royal Dutch Shell PLC and others have formed an industry group specifically to add their collective voice to the climate debate, and they are trying to bring other leading international oil-and-gas companies into the group.

“Business is engaged in a way I’ve never seen before,” said Rachel Kyte, head of the climate-change division of the World Bank.

Similarly, the mining industry’s “approach to sustainable development has evolved,” said Gary Goldberg, chief executive of Newmont Mining Corp., one of the world’s biggest gold-mining companies. “It still needs to be addressed globally, and you still need to come up with a global solution.”

In February, Shell Chief Executive Ben van Beurden told a group of executives decked out in tuxedos and formal gowns at an oil-and-gas conference in London that they could no longer keep a “low profile on the issue” of climate change ahead of United Nations-sponsored talks in Paris this year that could result in new global carbon-emissions limits.

“We have to make sure that our voice is heard by members of government, by civil society and the general public,” he said.

The Vatican is another important constituency. In an unusually explicit mix of the political and pastoral, Pope Francis has said he wants his encyclical about the environment to come out before the Paris climate meeting, so that it can “make a contribution” to deliberations there.

“The minute the word got out that the pope was working on this, we had a lot of people contributing,” said Cardinal Peter Turkson of Ghana, who heads the Vatican office in charge of drafting the encyclical. “We listened to everybody who had something to say: physicians, academicians, students; people in all walks of life, including people from the oil industry.”

The Exxon briefing took place over a small private lunch at the home of a U.S. diplomat in the U.S. Embassy to the Holy See. A second Exxon lobbyist who is based in Italy attended the meeting, Exxon said.

The meeting also was attended by Curtis McKenzie, a Canadian national with experience in finance and the oil-and-gas industry. Mr. McKenzie has had several duties in Cardinal Turkson’s office, including administrative and research tasks and media relations, all on a voluntary basis. Such arrangements happen occasionally in Vatican offices, some of which serve much like mini-think tanks.

Vatican officials weren’t present, Mr. McKenzie said. He said he isn’t directly involved in work related to the encyclical. A lay member of the Franciscan religious order and a university professor also attended the meeting, but neither has connections to the Vatican, he said.

The encyclical pointedly wasn’t discussed at the meeting, Exxon and Mr. McKenzie said. The Exxon planning official gave a 16-slide PowerPoint presentation covering the company’s broad outlook for the global industry and energy use—a talk Exxon spokesman Alan Jeffers said its executives have delivered hundreds of times this year, including to another group of legislators and government officials, on the same trip to Rome.

Exxon said that interacting with the Vatican isn’t unusual for the company. “Exxon Mobil has a long-standing relationship with the Vatican and our people have had numerous interactions with Vatican officials over the years,” Mr. Jeffers said in an emailed comment.

Exxon and others are increasingly engaged with shareholders voicing concerns about the impact of carbon regulations on the value of their assets. Their argument: If governments rein in carbon emissions, companies may not be able to extract all the oil or metal they claim as reserves.

In response, Exxon published two reports a year ago arguing that governments are unlikely to impose restrictions that will slow economic growth. That virtually assures that fossil fuels will remain valuable, Exxon says.

Rex Tillerson, Exxon’s chairman and chief executive, told thousands of executives and industry officials at a recent industry conference that “everyone agrees” that even three decades from now about 80% of the world’s energy supply will come from fossil fuels.

“We think we’re in a business the world needs,” he said. “What we have to do is deliver in a way that is acceptable to the public.”

—Daniel Gilbert and John W. Miller contributed to this article.

Write to Bill Spindle at [email protected]

Washington No Longer Asking “Why” But “How?”

It’s progress of a sort. Policymakers in Washington now seem determined to address climate change, if not this year then probably next.

Now the tougher question is, how?

President Obama noted there are “a number of different ways to go after this problem,” but they essentially boil down to three. Congress and the Administration can tax carbon dioxide (CO2) and create an incentive not to produce it. They can reduce CO2 by federal regulation – a command-and-control approach in which the U.S. Environmental Protection Agency (EPA) would set an emission limit for each broad category of industrial source. Or they can control CO2 with a European-style cap-and-trade system.

No option is perfect; all will be expensive, with estimates rising into a trillion dollars or more. But the betting in Washington is that a cap-and-trade system, already a part of the Kyoto Treaty in Europe, is the best way to reduce emissions and cost to consumers and industries.

Under cap-and-trade, government essentially would “cap” total CO2 emissions. Power plants that reduce their emissions below this ceiling could “trade” or sell CO2 allowances to plants that cannot reduce theirs. By limiting the number of allowances available to power plants and other sources of emissions, cap-and-trade essentially puts a price on emitting CO2 and thus provides an incentive for reducing this greenhouse gas. Plants wouldn’t need to buy allowances if they reduce their share of CO2 below the ceiling. electricity

In theory the market for trading allowances will lead to the most efficient reductions. As companies find ways to get “under the cap,” they can sell rather than buy emissions allowances, giving them an added incentive to innovate.

Another advantage of cap-and-trade is that some of the revenue collected from allowance sales can be used to finance the costly technologies capable of reducing power plant emissions. The Obama Administration suggests we need as many as five of these advanced power plants to demonstrate how so-called carbon capture and storage technology would work. This technology has not yet been tried on the scale needed for power plants, but experts from the International Energy Agency to professors at MIT insist it is essential for controlling global warming. That’s because most greenhouse gas emissions no longer come from rich countries like ours, but from fast-growing developing countries unwilling to develop the expensive technology themselves.

Finally, cap-and-trade has the advantage of setting a firm limit on emissions. With the emissions ceiling in place, companies can decide how best to get under it without being told by bureaucrats in Washington, and environmentalists would know that greenhouse gases would be reduced by a set amount.

Alternatively, a direct tax on carbon would also lead to reduced CO2 emissions. Making something more expensive typically reduces its use. And by making the carbon price certain, tax advocates say it would help to make business conditions more certain, too. But tax critics warn of the loopholes and complexity that would inevitably accompany any attempt to tax every source of CO2 – from the corner drycleaner to the municipal power plant. And the administrative overhead needed to manage such a vast new tax would itself be very costly, perhaps rivaling the IRS.

The third option for reducing CO2 emissions, federal regulation, appears to be the least attractive. EPA may soon take steps to regulate carbon emissions, placing responsibility for an enormously complex and expensive mandate in the hands of unelected technicians. These bureaucrats are unlikely to understand, let alone appreciate, the differing regional impacts caused by reductions in carbon-heavy fuels. Southern and Midwestern states that rely heavily on coal, for example, would suffer from higher electricity costs, while coastal states would feel relatively little impact.

Regulation also seems the poorer option because the Clean Air Act is a crude tool for regulating a pervasive gas like CO2. Congress never intended the Act, now more than 40 years old, to cast such a broad regulatory net over virtually the entire fossil energy economy.

Representative John Dingell, the Michigan Democrat who has long championed the interests of the auto industry, said EPA regulation of CO2 could set off a “glorious mess” felt nationwide. Wyoming Republican Senator John Barrasso warned that using the Clean Air Act to address climate change would be a “disaster waiting to happen.”

So expect Washington to finally grapple with climate change. Just don’t expect this to happen very quickly.

Luke Popovich is Vice President, External Communications at the National Mining Association.