Private Empire: ExxonMobil and American Power (72 page)

Twenty-five

“It’s Not My Money to Tithe”

O
n the morning of January 8, 2009, twelve days before Barack Obama’s inauguration as president, Rex Tillerson arrived at the Ronald Reagan Building on Pennsylvania Avenue, two blocks from the White House, to announce ExxonMobil’s new lobbying position on climate change. He made his way to the rear of the cavernous Reagan building, which housed several government agencies. Upstairs, at the Woodrow Wilson International Center for Scholars, a government-supported think tank, Tillerson strode into an amphitheater where about one hundred scholars, researchers, and journalists had gathered. He took the podium and unfolded a printed speech.

He ticked through the corporation’s positions on American energy policy: Washington needed “long-range thinking”; rising global demand for oil and gas, through 2030, was inevitable; America, therefore, needed to develop “all our energy resources”; and it was particularly urgent to open up offshore and other domestic territory to drilling. Normally, the ExxonMobil chairman resisted arguments that pandered to the American yearning for “energy independence,” since he regarded the very idea as misguided. Yet if measured appeals to American nationalism were necessary to win approval for domestic oil drilling, he was willing to make them: “There is enough oil and natural gas offshore and in non-wilderness and non-park lands to fuel fifty million cars and heat nearly one hundred million homes for the next twenty-five years,” he declared.

He referred to climate change impassively as an “important global issue.” The incoming Obama administration proposed to reduce greenhouse gas emissions by enacting a cap-and-trade system in which polluters could buy and sell pollution credits under an overall “cap.” Tillerson argued that Europe’s similar system, inaugurated several years earlier, did not work well and had introduced “unnecessary cost and complexity,” while creating “problems with verification and accountability.”

In Beijing in 1997, Lee Raymond had delivered a landmark speech in which he argued that the evidence suggested global warming was not taking place at all. Ever since, ExxonMobil’s leaders had criticized public policies to reduce greenhouse gas emissions, such as the Kyoto Protocol, cap-and-trade proposals, and alternative energy subsidies. That morning in Washington, however, Tillerson’s speech took an unexpected turn: For the first time in ExxonMobil’s century-long history, its chairman went on to advocate that the government impose higher taxes on oil and gas use, to reduce the risks posed by climate change:

There is another policy option that should be considered, and that is a carbon tax. As a businessman, it is hard to speak favorably about any new tax. But a carbon tax strikes me as a more direct, a more transparent, and a more effective approach. . . . Such a tax should be made revenue neutral. In other words, the size of government need not increase. . . .
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The idea of a carbon “sin” tax, comparable to the excise taxes imposed on tobacco products, had a distinctive history. Then-senator Al Gore proposed a version of the tax in his 1992 bestselling book,
Earth in the Balance.
Gore suggested that revenue from a carbon-based-fuels tax be used to reduce payroll taxes on salaried Americans—tax pollution, not work, was his rhetorical flourish. Advocates at some ardent environmental lobbies, such as Greenpeace and the Rainforest Action Network, advanced Gore’s proposal in the years afterward. Some of their leaders and thinkers preferred a broad carbon tax to regulator-heavy cap-and-trade systems; the latter allowed some polluters to buy their way out of accountability for their emissions. On the ideological right, some free-market tax economists, such as Kevin Hassett at the American Enterprise Institute, also endorsed the carbon tax after Gore proposed it, on the grounds of its relative economic efficiency. Tillerson and right-leaning economists argued that such a tax should be neutral; that is, revenues raised should be returned to taxpayers, perhaps by a reduction in the payroll tax. At a time of fiscal strain, however, a carbon tax also had the potential to shore up federal finances: At $20 to $25 per ton, the range around which there was the greatest political support, a tax could raise at least $100 billion annually. By the time of the 2008 presidential campaign, however, the carbon tax had become a politically marginal and quixotic proposal.

Cap and trade’s intellectual history, too, reflected compromises between conservatives and environmentalists. The first Bush administration embraced the system as a market-based way to control acid rain—and succeeded. Many of the large corporations that would be directly affected if carbon taxation of any kind was imposed—electric utilities that burned coal, for example—had concluded that they could manage their interests most successfully by lobbying for a tailored cap-and-trade program that eased their transition to higher carbon costs. The very efficiency of a carbon tax caused some coal-dependent utility executives to shudder because such a pure tax would hit every corporation in proportion to its polluting activity. By comparison, a global corporation of ExxonMobil’s profitability could absorb the financial hit, and in any event, it did not produce coal, the greatest greenhouse gas offender. A modest-size, locally regulated American coal utility might see its profits and market value shrink traumatically under a carbon tax; this explained the breadth of business support for cap and trade.

ExxonMobil had already conducted detailed reviews of cap and trade versus a direct carbon tax in 2006, as part of the climate strategy review Tillerson had ordered after becoming chief executive. Ken Cohen and other executives recoiled from cap-and-trade systems because of the systems’ susceptibility to manipulation by speculators and other distorting complexities. They also loathed the idea of a new federal regulatory system with which they would have to comply.

They had leaned toward the conclusion that if they had to endure a higher carbon price, they would continue to oppose cap and trade, but might support a straight carbon tax. Between 2006 and 2008, following the internal review, ExxonMobil quietly began to test out this change of lobbying position. In private discussions at the American Petroleum Institute, and at think tanks such as the Brookings Institution and the American Enterprise Institute, ExxonMobil executives rehearsed arguments in favor of a carbon tax, without openly endorsing the proposal. A few reports in the business press hinted that ExxonMobil might be leaning toward a straight carbon tax. The corporation also explored what a Washington lobbying strategy in support of such a tax might look like.

Justin Peterson, who had worked on Senator Elizabeth Dole’s staff and on the 2000 Bush-Cheney presidential campaign, served as managing partner at the D.C.I. Group, one of the outside lobbying firms in Washington that worked for ExxonMobil. Peterson supported a lobby coalition, the U.S. Climate Task Force, founded in 2008 and staffed by a former Gore aide, Elaine Kamarck. The task force sought to advance a carbon tax as an economically efficient alternative to cap and trade. The group received funding from a business coalition, called The Future 500, which tried to induce major American businesses not directly involved in carbon-intensive industries—Nike, Coca-Cola, Intel, Kraft Foods, and Hewlett-Packard, for example—to come out for a carbon tax. The task force tried to develop a campaign that could also attract major oil companies like ExxonMobil that opposed cap and trade.
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ExxonMobil participated in the task force and similar efforts, indirectly and quietly. “We had determined that a carbon tax was a better approach, in our mind, but our engagement on that issue was below the radar,” an ExxonMobil executive involved said. “We knew that if we came out and we said, ‘ExxonMobil says that a carbon tax is the way to go,’” it would backfire and the corporation would be accused of trickery. ExxonMobil would be accused of bad faith “because they know that no one’s going to vote for it, or they are just trying to slow down action, blah, blah, blah. . . . We didn’t want to come out publicly for that very reason. We just thought there would be a lot of baggage.”
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Obama’s election persuaded Tillerson to change tack. The ExxonMobil chairman first had to overcome internal objections, however. At the time of Obama’s election, Dan Nelson, the Lee Raymond protégé, was still running the corporation’s Washington office. According to an executive who heard Nelson’s arguments, he dissented from the plan to openly back carbon taxation; he argued to colleagues that Tillerson would only annoy ExxonMobil’s political friends, incite its opponents, and confuse everybody else, without actually changing public policy. At the October 2008 off-site meeting organized by Ken Cohen, Bennett Freeman urged ExxonMobil’s public affairs executives to endorse a higher carbon price, but between Election Day and the eve of Obama’s inauguration, Tillerson hesitated.

He resisted less for the reasons Nelson cited than because, reflexively, as a onetime Texan neighbor of Richard Armey’s who donated regularly to Republican political candidates, it pained Tillerson to endorse any tax increase. As he spoke at the Wilson Center in Washington that January morning, Tillerson looked out at the cluster of dark-suited ExxonMobil executives in the audience just as he was about to read out the change in the corporation’s lobbying position. “I still wasn’t sure, at that moment,” he told them later.

“Why are you making this carbon tax proposal now?” a reporter asked him afterward.

“If we are going to take a view, take a position, we need to do it now,” he said. “Because the debate is going to get under way again. . . . I’ve been chewing on this one for about three years—cap and trade versus carbon tax. What I’ve really been saying is, ‘There has to be a third option.’ And I haven’t been able to identify one. . . .

“We have tried to get down into the details of, if you are going to design a cap-and-trade system in the United States, what is it going to look like? It’s pretty scary. When you think about the enormous new bureaucracy that would have to be created—it would be bigger than the I.R.S. . . . The default fact is that we’ve got [to] have something that is simpler.”

Another reporter pressed him: “Exxon and other producers will be facing a Democratic administration, a Democratic Congress. What kind of reception do you expect for the next four years? Chilly?”

Tillerson laughed. “We still have friends on both sides of the aisle. As I said, we work with the government that is here, just like we work with the government in whatever country we are dealing with around the world. . . . We are going to engage, and we hope that they value our input.”
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B
arack Obama’s most influential advisers on climate politics and policy—including Carol Browner, the former Environmental Protection Agency administrator, and John Podesta, the president’s transition chief—gave virtually no consideration to a carbon tax that autumn and early winter. A Democratic Party–led coalition focused instead on the development of a big cap-and-trade bill that would be introduced in Congress early in the Obama presidency. The corporate center of this lobbying push was the United States Climate Action Partnership, an advocacy group in Washington that had attracted Shell, Dow Chemical, Ford Motor Company, and major coal-dependent utility companies, as well as powerful environmental groups such as the Natural Resources Defense Council.

The negotiations within the Climate Action Partnership about what sort of cap-and-trade bill might be acceptable to the group’s diverse corporate and environmental members had become a kind of private dress rehearsal for the lobbying scrum expected on Capitol Hill once Obama and the new Democratic congressional leadership settled in. As prepackaged coalition politics and congressional lobbying, the Climate Action Partnership “was a very developed piece of work,” Browner recalled.
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It was, however, a fragile coalition—the oil company lobbyists involved felt that their industry’s interests were often neglected in comparison with coal utilities from political swing states such as Virginia, West Virginia, and Ohio. The Climate Action Partnership was a rare example, nonetheless, of a powerful business-environmentalist alliance focused on a major environmental policy reform that would impose costs on business—it was an association that had slowly taken form after a very long lobbying struggle over climate policy in Washington dating back to the second Clinton term.

The coalition had gathered momentum after 2006, amid economic growth and low unemployment. Those conditions no longer prevailed. In September 2008, the Wall Street bank Lehman Brothers collapsed, triggering a banking panic that froze up credit lines and paralyzed the global economy; the United States plummeted week by week into its deepest recession since the 1930s. Collapsing production and rising joblessness challenged every assumption about policy and politics that Obama had relied upon to win office—including climate policy.

On December 16, in Chicago, Obama met with Browner and his top economists. The depths of the economic crisis made clear to them that they would now have to push for a large stimulus bill, to use rapid federal government spending to prevent a full-blown depression. Obama and his advisers decided that day to design the stimulus to make a down payment on their major domestic priorities—particularly clean energy. Franklin Roosevelt’s stimulus during the Depression years had built national park facilities; Obama’s bill, they concluded, should launch a new era of investment in solar energy, wind power, other clean energy technology, “smart” meters to regulate home electricity use more efficiently, upgrades to the national electric grid transmission system, home weatherization, and energy efficiency programs. These expenditures ultimately would total $80 billion. The renewable energy advocates around Obama recognized, however, that the long-term economic viability of solar and wind power would depend on whether dirtier, cheaper sources of energy such as oil and coal would be taxed—directly or through cap and trade. If carbon-heavy fuels like gasoline and coal did not become more expensive, the rate of adoption of solar and wind would slow, and the dangers of climate change would remain unacceptably large, they believed.