On the Transition to Clean Energy: Heedlessly Modest, Hardly Draconian

Spurred on by the myriad inventions from the last quarter of the nineteenth century and the related consumer demand for the conveniences, the Industrial Revolution itself played a major role in what would come to be known as global warming or climate change. In 2015, the Paris Agreement stipulated, notably without any enforcement, a global temperature rise of 1.5C as a ceiling. Just a decade later, scientists were saying that the threshold would be exceeded. Even amid the searing heat in the E.U. during the summer of 2026, the fear around the world in halls of government was less oriented to the what the new normal climatically would bring than to whether Iran would block the Strait of Hormuz, which was known as an oil checkpoint through which over 20 billion barrels of oil were being transported per day. It was as though our species no longer had any control over how far global warming would go.

Just after that summer, “the UN warmed that it is no longer possible to keep global warming below 1.5C.”[1] Simon Steill, of the UN’s Framework Convention on Climate Change (UNFCC), pointed to what he called the “spiralling costs of the climate crisis caused by humanity’s addiction to burning coal, oil, and gas.”[2] A report by Climate Central had recently “found that nearly nine in 10 Europeans experienced a month’s worth of ‘risky heat’ during the June-August period, making [Europe] the most ‘unusually hot place on the planet.’”[3] Whether from this, or that “hundreds of millions [of people were] impacted across Asia and Africa,” or the “relentless record-breaking temperatures in North America,” it was clear, at least to Kristina Dahl at Climate Central “that “human-driven warning is pushing communities beyond safe physical limits.”[4] The Paris Agreement had not plucked 1.5C arbitrarily out of a hat; that governments had not taken the threshold seriously enough in terms of quickly shifting from fossil fuels to clean sources of energy was already taken a noticeable toll on the species. As the E.U. was warming at double that of the planet as a whole in 2026, a report by the UN Environment projected “a best-case 1.8C of warming and over 2C in other scenarios. ‘Overshoot, peak and decline’ is now our best bet,’” the report states.[5] Electorates and government officials around the world had not stepped up to the (baseball) plate to make hard political choices, and the parts-per-million of carbon in the atmosphere were still increasing as if there had not been an agreement in Paris in 2015.

Even though in 2025, “wind and solar generated more EU electricity than fossil fuels for the first time, marking a major milestone in the transition to clean power . . . green power only [met] around 40 per cent of the increase in [energy] demand” due in part to “energy-intensive air conditioning and the boom in artificial intelligence.”[6] That same year, a consultant with BP told a small group at Yale that even with the increased use of clean energy sources worldwide, the year’s increase in the demand for energy was greater.

At the very end of the summer of 2026, U.S. President announced that the U.S. had majority control of more than 65 billion barrels of proven Venezuelan oil reserves. The deal was oriented to reducing the price of gas for Americans; the supply disruptions in the Strait of Hormuz had driven up the global price of oil, and Americans were paying the price in driving and flying. Lower oil and gas prices would translate into more demand for and use of fossil fuels, and thus more carbon emissions; an even warmer atmosphere and oceans could be expected. The deal marks a clear divergence from the urging by scientists that the world should transition as much and as soon as possible to clean energy. That summer had showed Europeans and even the world hearing of heat wave after heat wave in the E.U. just what putting off a transition that would at least cover the annual increase in the world’s energy demand looks like.

It would be ironic were the large and increasing energy-draw from AI computing and data-storage putting our species’ survival at risk. Securing access to more oil and building AI data-centers as if they were popcorn represent gross negligence, given the “intel” coming out of the UN and Climate Central in 2026. As a species, we can develop technology by leaps and bounds, adding great convenience and sheer fun to living, but if our species goes extinct, the fruits of our innovativeness will be for naught as our descendants struggle to survive or die outright at some generation. The summer of 2026 suggests that the bill from our species’ penchant for instant energy-gratification was already coming due, and yet more AI centers were being built especially in the U.S., and President Trump scored a lot more oil for the American consumers, whose sight was narrowly fixed on the weekly price increases at the pump and to fly.  

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1. Liam Gilliver, “Europe Was the ‘Most Unusually Hot Place on the Planet’ This Summer. Can Renewables Cool Us Down?” Euronews.com, 17 September, 2026.
2. Ibid.
3. Ibid. “Researchers defined ‘risky heat’ as days that were hotter than 90 per cent of what a local area experienced between 1991 and 2020 for this time of year, representing the point at which health risks from extreme heat begins to rise.” This metric may, however, be flawed with respect to the E.U.’s northern states such as Finland and Sweden because of their relatively low 1991-2020 bases. Being hotter than those may not be so hot for the human body, whereas hotter than the bases in the E.U. states of Greece and Spain could be expected to have adverse biological impacts. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.

Global Warming Accelerating

When I took calculus in my first college-degree program, the graduate-student instructor didn’t bother to tell the class that a derivative signifies changes in the rate of acceleration. A derivative is not the rate itself, but, rather, the change in the rate—something much more difficult to detect empirically, as in watching an accelerating car. Formulae were the instructor’s focus, as if they constitute ends in themselves. By the time the climate numbers for 2025 came in, scientists could confidently say global warming was accelerating. The rate itself may have been increasing (i.e., a positive derivative), but attention to that by the media would have taken an educational reform as to how calculus was being taught. We think in terms of speed and acceleration. In this respect, we may be deficient in climate change itself as it has been unfolding. More decades than I care to admit had passed by 2025 since I had that course in calculus; only now can I say that I have used the math, albeit theoretically rather than via formulae.

Looking at the numbers for average global temperature for 2023, 2024, and 2025, Robert Rohde, the chief scientist at the Berkeley Earth Monitoring Group, said in early 2026, “The last three years are indicative of an acceleration in the warming. They’re not consistent with the linear trend that we’ve been observing for the 50 years before that.”[1] A linear trend represents no acceleration, so the rate of acceleration only became positive in 2023. Relative to the prior years, the averages for 2023, 2024, and 2025 “seemed to jump up,” said NOAA climate-monitoring chief Russ Vose.[2] The average for 2024 was 1.6C degrees above pre-industrial levels, hence slightly above the internationally agreed-upon limit of 1.5C degrees, and the averages for 2023 (1.48C above) and 2025 (1.47C above) were essentially tied so close to 1.5C that the average of the three years is above 1.5C. Even though the “leap” from the previous years since at least 2015 instantiates an acceleration, more years may be needed to assess whether the rate of the acceleration was increasing (mathematics majors would know this). At the outset of 2026, the three preceding years appeared as a plateau rather than evidence of continued acceleration, but a plateau could exist within a trend even of a positive derivative. My point is that we should have been more focused on changes in the rate of acceleration, for if the rate itself was increasing, then it would not be long until the threshold of 1.5C is surpassed and more extreme symptoms of climate change occur.

One of the weaknesses of democracy is that such symptoms may have to be experienced and seen before electorates treat climate-change as an important issue in voting. Human nature itself, a product of natural selection, still prioritizes the immediate over the long-term, especially in regard to threats. Instant gratification too is “hard-wired” in us all, which is why we tend to vote to keep gas prices low rather than to cut off the further manufacture of gasoline-powered cars. Whereas these contributory drawbacks in our nature, inherited from the gradual process of natural selection in evolution (mostly in the hunger-gatherer period of our species), have been associated with the lack of sufficient political will in the world since 2016 at Paris to keep the average global temperature from surpassing 1.5C above the pre-industrial level, our cognitive impairments that are also contributory are less well-known. This is the idea.

In addition to difficulties in conceptualizing and keeping attuned to what the derivative represents (i.e., change in the rate of acceleration, rather than the rate itself), our arrogance of pride in what we think we know also holds us back from grasping the magnitude of the human contribution to climate change. Just days before writing this essay, a man aged 75 declared to me that climate change is “just the natural cycles.” I don’t know whether that person had gone to college, but I do know that he was not a scientist. So the man’s declaration itself rang out as being out of place, given his actual level of knowledge on climate science. Similar to how we tend to focus on acceleration rates rather than changes in those rates, most people would be attuned to the content of the man’s statement—that climate change is merely part of a long-term natural cycle that will eventually reverse itself—rather than to the declaratory form of speech with which he made the statement. It is too difficult for us to grasp changes in rates of acceleration and focus on the presumption of entitlement that can be detected in the way a person makes a statement, whether it is written or verbal, and yet we tend not to realize that we have trouble with both. As one consequence, we understate the severity of climate change.

Lest anyone needs a refresher, “Rohde said nearly all of the warming is from human-caused emissions of greenhouse gases. . . . Samantha Burgess, strategic climate head of the Copernicus service, said the overwhelming culprit is clear: the burning of coal, oil and natural gas.”[3] Lest it be conveniently assumed that the burning has been going on somewhere in nature away from humans, Burgess doesn’t mince words: “Climate change is happening. It’s here. It’s impacting everyone all around the world and it’s our fault.”[4] Climate change is not just from a natural cycle that would be occurring even if there were no homo sapiens species.

So, Joe the plumber, a person let’s say who barely graduated from high school, would not only be incorrect in declaring that climate change is just part of a natural cycle; he would also be presumptuous in slighting the contradicting knowledge of climate scientists, whose years of study are indeed superior to Joe’s opinion. Like arrogance on stilts during a flood, Joe’s self-love issuing out in puffed up “knowledge” may one day be underwater if he happens to live on a coast when enough of the polar ice has melted to rise the level of oceans appreciably. That Joe would likely react angrily to being corrected even though his declaration of knowledge actually has no foundation is yet another indication of the presumptuous that may be endemic to the human mind but seems to be more salient in uneducated people. Formerly known in Western civilization as the sin of pride, which Augustine and Paul set as the worse (and thus intractable) sin, treating one’s own opinion as a fact of knowledge can be added to the list of the deficiencies in our nature that may wind up causing the extinction of our species as the Earth’s climate approaches a new equilibrium sooner rather than later. How much sooner depends at least in part on whether the relevant derivative is positive.

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1. Seth Borenstein, “Scientists Call Another Near-Record Hot Year a ‘Warning Shot’ of a Shifting, Dangerous Climate,” APnews.com, January 14, 2026.
2. Ibid.
3. Ibid.
4. Ibid. Italics added for emphasis.

Off-Shore Drilling off Virginia’s Coast: The Stakeholder Framework Applied

By the early 1990’s, the U.S. had banned drilling off the Atlantic coast. In the wake of BP’s deep-water-drilling disaster in the Gulf of Mexico in 2010, President Obama cancelled his go-ahead of drilling leases off Virginia’s shore. A few years later, Doug Domenech, the Secretary of Natural Resources in Virginia, and that republic’s head of state, Bob McDonnell, teamed up with Virginia’s two delegates in the U.S. Senate to “put Virginia’s coast on the energy map through an act of Congress.” Domenech said, “I personally believe that the East Coast of the U.S. does have the ability to be the prolific economic basin.” The Bureau of Ocean Energy Management estimated based on two-dimensional seismic surveys that 3.3 billion barrels of recoverable oil exist under the Atlantic’s outer continental shelf and 31.1 trillion cubic feet, or 886.3 million cubic meters, of natural gas. However, the executive arm of the U.S. Government alone is more than that bureau. Moreover, lest this conflict over drilling be viewed as primarily between Virginia and the U.S. Government, it should be noted that the East Coast is not exclusive to Virginia.
Although the dispute would seem to be based on federalism, the opposing interests involved were really those of seven oil companies, including Global Geo Services in Texas, up against the U.S. Navy in Norfolk and some endangered whales fervently represented by some environmental groups. The oil companies may even have been behind Virginia’s role. “The energy industry, eager to find out how much oil and natural gas exists under the Atlantic sea floor,” was “pushing the [Obama] administration to allow seismic companies to survey the area.” Strangely omitting the matter of his company’s profit, a spokesperson for Exxon Mobil said, “With the right policies, development of those resources can provide substantial new energy supplies to power our economy while supporting millions of new jobs.” Even though Virginia was “a vocal supporter of drilling,” hoping it “could become the gateway for Atlantic production,” the oil companies were likely in the driver’s seat in pushing the Obama administration to allow seismic tests at the very least. In other words, the question of federal encroachment on Virginia’s vested or residual sovereignty is not particularly salient in the dispute. Rather than being centered on conflicting interests between a state and a federal union, the question of allowing drilling leases off the east coast of the United States pitted big business against the U.S. military and environmental groups—plus a federal president doubtlessly determined that something like the BP explosion in the Gulf not be repeated, at least under his watch.
Accordingly, the stakeholder framework used by business is a closer fit to this case study than is federalism. This does not necessarily open the flood-gate to “shared decision-making,” even as particular stakeholders are identified in the process. Pointing to one major stakeholder, the New York Times observed, “Virginia is home to Naval Station Norfolk, the world’s largest naval base, with 75 ships and 134 aircraft. A February 2010 Defense Department report said oil drilling in the area off Virginia that had been designated for leasing would interfere with military operations.” The U.S. military is thus a stakeholder. Also, “(a)dvocates for marine mammals” wrote “thousands of letters and testified at public hearings, arguing that seismic surveys of the outer continental shelf would hurt endangered whales.” A major oil gusher obviously would not do the animals any good either. Therefore, environmentalists constitute still another stakeholder.
To get at the societal relations between the stakeholders, the stakeholder framework from strategic management must be modified structurally to remove the focal firm at the hub to occupying instead one of the spokes. Concerning societal problems, a web-like framework wherein several entities, including corporations, governments, interest groups, the military, and even whales, is more fitting than the stakeholder model that has a firm in the center. Next, I discuss the stakeholder concept after which I relate the stakeholder framework used in societal leadership to the stakeholder framework in strategic management. Lastly, I apply the resulting model, which can be regarded as one of societal and strategic leadership, to the case study of off-shore drilling.
Stakeholder entities are those which can either materially affect, or would be affected by, the U.S. Government granting of drilling leases off the Atlantic coast. This definition is not perfect, as it could invite a seemingly endless list of groups that are indirectly affected or could have at least some impact on the leases. Adding “directly” to the definition would exclude groups that are affected greatly, albeit indirectly. Perhaps it is advisable to add to the definition that a stakeholder is an entity of significant importance to the decision as well as the decision-maker using the framework. Although most advocates of the stakeholder framework who come from the standpoint of corporate social responsibility assume (or prescribe) that consensus or a right of co-decision is implied in the framework or even the very notion of stakeholder as if having a stake in something includes a sort of power-sharing right, the model itself implies no such prescriptions and could therefore be used by a person or group that has exclusive decision-making authority on the problem.

Respecting the integrity (i.e., valid claims) of both frameworks requires integrity, or self-discipline.  (Source: Skip Worden) 


The web-like adaption of the stakeholder framework comes from shifting the “unit of analysis” (i.e., scale) from that of a firm to the societal level. Whereas an oil company would use the “hub and spokes” structure, a government official, being oriented to a societal level (e.g., Virginia, or the U.S.), would want to view the players arranged as they are in society (i.e., without a focal organization at the “hub”) to get a sense of the political forces and interests involved and how they interact as well as how they would interact under alternative decisions. At the same time, the government official would want to keep an eye of his own interests, as well as that of the government of which he is a part. For this purpose, the “hub and spoke” structure works well, with the government at the “hub.”
Strategic leadership attends to the interests of the decision maker’s organization (or organizations where decision-making is shared) while also providing a view of the societal interplay of the contending interests without the distortions of one’s own position being “front and center.” In other words, both frameworks should be used where strategic leadership has a societal component. This can apply not only to governments. A CEO, for instance, may find that taking a societal rather than firm-centric perspective—bracketing it off from, while relating it to, the firm’s strategic “hub” interests—can result in a balancing of societal credibility, a long-term intangible asset, with more immediately-pressing strategic interests. While not relevant to every decision, this “dualistic” approach, depicted structurally in my diagram below, is most valuable where a decision involves a problem that is salient at the societal level. 
In the off-shore oil-lease decision, the White House or a member of Congress could use the “societal leadership” framework to identify more stakeholders and assess how they relate to each other politically (the government being included among them, but merely as one, rather than being focal). Ideally, a vision of the society itself, improved in a way touching on the dispute, can come out of this “non-distorted” perspective. Abstractly speaking, a structural framework is merely the basic contours of a perspective. A perspective that reflects society in its own terms is consistent with, and perhaps can even trigger, a societal vision of the sort that is in visionary leadership. 
A government official oriented exclusively to a societal vision that is “undistorted” by his or her own political interests and those of the government risks not being around long enough to “preach the vision.” Strategic interests must also be considered. Hence, the official(s) would want to use the traditional “hub and spokes” stakeholder framework.  In assessing how each stakeholder can affect or be affected by the government (and the official) politically, the self-protective and aggrandizing instincts of the decision-maker kick in even at the expense of a societal vision. In this regard, stakeholder management in government is actually a way of systematizing a political calculation akin to a position paper that lists the pros and cons on a particular piece of legislation, associating particular stakeholders to the various arguments for and against the legislation. Although the political relationships between the stakeholders can be considered, the primary emphasis here is on the bilateral relationships of power where the official or government is on one end—hence “the hub.”
After taking both perspectives—societal and strategic—the decision-maker optimizes the approach by weighing the importance of the societal vision (as well as the undistorted political relationships) against strategic imperatives of the official and/or the government. The vision is not merely societal implications of a government’s or corporation’s strategic interests. Rather, societal leadership is based in society’s own terms, and is thus not merely an implication or aspect of a firm- or government-centric perspective. Which level is given more weight by the government official or corporate executive can be expected to differ from decision to decision. Problems have different degrees of importance at the societal level. Additionally, a government’s or firm’s need for reputational capital or societal credibility relative to satisfying strategic interests can change both temporally and in terms of the matter under consideration. In short, the two frameworks can be managed such that both societal and strategic leadership are given their due—without viewing the former as a mere implication or aspect of the latter. Serving as a societal leader and tending after one’s own strategic interests are both legitimate; moreover, they can be managed such that an overall optimality can be achieved with respect to reputational capital and power or profit.
In the case of the off-shore drilling leases in the Atlantic off the U.S. east coast, including but not limited to Virginia, the White House could use the stakeholder frameworks as a basis to craft a policy that both improves society (even beyond “the sum of the parts”) and protects and perhaps even enhances the White House’s political power.
For instance, the U.S. Navy indicated it would allow drilling on a case-by-case basis. The White House could use this position as leverage to gain political power with the oil companies by accommodating them (and Virginia’s government officials) without compromising influence with the military chiefs, the cooperation of whom the White House would need to implement military policy. The case-by-case basis would take some of the wind out of the oil industry’s lobby and Virginia’s delegation pushing on Capitol Hill for legislation to allow unfettered drilling. Societally speaking, such drilling would introduce too much risk of catastrophe, including to the whales, and could make the U.S. less inclined to shift to cleaner sources of energy. At the other extreme, forbidding drilling altogether would work against the U.S. achieving less reliance on foreign oil-producing governments. A societal vision that represents an improvement for the society as a whole would thus be more in keeping with a case-by-case method to be decided by the military or a regulatory agency depending on the area at sea at issue.
Lest it be observed that I gave the environmental groups relatively little consideration, the political calculation of a second-term Democrat in the White House might play for more influence outside of his base instead of placating groups already in the fold. Here we can see a leaning on the strategic framework perhaps at the expense of that of societal leadership. Such a weighing has been implicit, however, throughout this example of the analysis. The resulting decision, while not shared, is apt to be hybrid of sorts that reflects at least some influence from each framework—that is, of societal and strategic leadership.

Sources:

Alison Fitzgerald, “Virginia Tries to Circumvent Obama to Allow Energy Drilling,” The New York Times, November 14, 2012.

Tennille Tracy, “Oil Industry Renews Push For Drilling in the Atlantic,” The Wall Street Journal, November 20, 2012.

Skip Worden, “The Role of Integrity as a Mediator in Strategic Leadership: A Recipe for Reputational Capital,” Journal of Business Ethics, 46, no.1 (2003): 31-44.

On the Myopic Hyperbole of Wall Street: Overblowing Small Changes

I suppose that after looking at something closely for a long period of time, virtually anyone would perceive a small change in it as huge. This is reflected in how people formulate graphs. In particular, typically only a small interval is shown, the perceptual impact of which is that small changes look big. For example, msnbc.com reported on June 8, 2011 that the price of oil “soared” on that day “almost $2 to near $101 a barrel.” My reaction in reading the report was that the word “soared” indicates a lack of perspective on Wall Street and the media.

To be sure, a graph showing the price of oil with the y-axis running from $98 to $102 would show what looks like a huge increase, while a y-axis extending from $0 to $150 would show a barely noticeable change on June 8^th.  The second graph would be more accurate in terms of the significance of the change.

The modest increase in price was momentary, caused by investors who had shorted oil and wanted to get out because of a bearish expectation. On June 8^th, the Organization of Petroleum Exporting Countries (OPEC) talks broke down without an agreement to raise output after Saudi Arabia failed to convince the cartel to lift production. Iran, Libya, Iraq and other oil-producing states wanted to hold production targets while Saudi Arabia sought to raise them so the price of oil would stabilize at between $70 and $80 a barrel. Wise, long-term-oriented Saudi government officials understood that stability rather than short-term windfalls is in the long-term best economic interest of oil exporters—especially if oil is the sole export. According to The Wall Street Journal, "In the wake of the failure to reach agreement, people familiar with the matter said the Saudis are now likely to unilaterally increase their own production by up to one million barrels a day, which would put them well above their stated quota of eight million barrels a day." The Saudi assurance that it would supply the needs of the oil market regardless of OPEC left investors bearish after the meeting, and short-sellers were simply unloading. To report that the price of oil “soared” by $2 after the meeting is utterly misleading. By the end of trading for the day, oil was up just $1.65 (at $100.74).

Even by Wall Street’s own mantra wherein investors tend to do well in the stock market by holding a well-diversified position for a long time, over-dramatic renderings of short-term changes are counter-productive because they can seduce long-term investors to react. If newscasters on CNBC are announcing that the sky is falling today because oil went up $2, the temptation is to do something.  Anything.  Acting at all would be at odds with taking a long-term position in the market, tweeking it only to maintain a diversified portfolio.

I suspect that cause of the hyperbole is tunnel-vision, which is caused by zeroing in on something too closely and for too long. At the very least, it might be a bad idea for Wall Streeters to develop some hobbies that have nothing to do with work. Also, analysts might avoid the temptation to pay so much attention to the talking heads on CNBC. Furthermore, analysts might resist orienting graphs to overplay small changes by artificially restricting the interval on the y-axis. Lastly, Wall Streeters might resist the fun in using overly-dramatic jargon or loose-fitting (at best) analogies.

If the stock market is “crashing,” for example, we had better be talking about thousands rather than hundreds of points lost on the Dow. A plane going from 12,000 to 11,500 feet is not crashing; it is probably just making way for another plane. If a company is getting “killed,” it better be in liquidation without anything going to equity or bond holders. Better still, analysts would gain credibility if they stayed away from the military jargon completely; at the very least, using the vocabulary is an insult to the brave men and women who really have put their lives on the line.

In short, Wall Street could do with a dose of perspective. Such a change would be in line not only with credibility and reputational capital, but also how Wall Streeters fare in the market. As one person might say to another who has been dumped romantically, don’t over-analyze it!

Sources:

Summer Said, Hassan Hafidh, and Benoit Faucon, "New Cracks in Oil Cartel," The Wall Street Journal, June 9, 2011, p. A1.

“Oil Price Soars after OPEC Talks Yield No Agreement,” msnbc.com, June 8, 2011.

Oil Supply: Problem or Panacea?

Between June 2014 and January 14, 2015, crude oil prices fell by 57 percent. Between November 1985 and March 1986, the prices had fallen by 67 percent.[1] That time, it took nearly two decades for oil prices to rebound. Would it take that long again? The answer has implications for how efficient the market mechanism itself is, and in turn for public policy on energy and global warming.

According to The Wall Street Journal, the discovery of oil in shale rock makes all the difference. The difficult question involves what that difference might be. With less time entailed from discovery to extraction, and less cost relative to the more traditional sources such as off-shore oil, the supply of oil on the market should be able to adjust downward much quicker, resulting in higher crude prices, other things equal. For example, wildcatters in Texas discovered the Eagle Ford Shale in 2008; within only five years, a million barrels a day were going to market.[2] “Faster-reacting shale production could help cut supply more quickly than in the past, restoring market balance without a decadeslong wait.”[3] This assumes the efficient market hypothesis—that suppliers quickly reduce their respective contributions to the market as a result of lower prices.

So it is surprising that the Journal cautions that the faster-reacting shale production does not necessarily “mean prices will rebound soon, or return to the triple-digit levels . . . Price pressure may need to remain on the U.S. oil industry and its lenders for months to rein in supply.”[4] Andrew Hall, who runs a $3 billion energy derivatives hedge fund, wrote to investors that it is unclear how long it would take for American suppliers to cut back due to the lower prices and even what the new price-equilibrium would be.[5]

For one thing, oil producers sunk into contracts would rather get as much revenue as they can, even if they will still lose money. Although shale producers have a shorter timeframe, the short life of a given well means that the producers are under pressure to start new wells in order to cover as much of the initial investment as possible. Put another way, keeping production up is the better of two bad options.

With the tap expected to remain open, the supply of oil from shale was predicted to peak in 2020, after which the annual decrease in oil from liquid sources would be less and less made up by oil from shale. By 2030, the production from liquid sources could be only half of its level in 2014, with no oil left from shale. In short, the lack of a drastic downturn in supply during the last half of 2014 suggests that the American economy might suffer shocks in the 2020s as oil prices skyrocket from dramatically reduced supplies. With alternative energy representing only about 3% of the total in 2014, even increased investment in wind and solar facilities would not counter the anticipated drop in oil supplies.

Had the oil market in 2014 been more in keeping with the efficient market hypothesis—with supplies dropping drastically as the prices of crude drop likewise until the reduced supply pushes the prices back, up at least partially—the anticipated “cliff” in the early 2020s could be either flatter or delayed. Policy makers would have more time to get the economic “up to steam” on alternative sources of energy. Already in 2014, when I was driving across the Midwest, I was stunned by the number (and size) of “wind fields.” Even so, considering that carbon emissions were at the time going in the wrong direction—up instead of down—the continued supply of oil in spite of the lower prices must have been relieving pressure on policy makers to reduce the reliance on fossil fuels. Meanwhile, the lower gas prices gave American consumers the misperception that oil supplies are just fine and a lack of incentive to obviate global warming above the 2C degree threshold.

In short, the lack of an efficient market was forestalling vital public policies concerning both the American economy and climate change. It is not that an efficient market would obviate government action. In fact, just the opposite.

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[1] Russell Gold, “Back to the Future? Oil Replays 1980s,” The Wall Street Journal, January 14, 2015.

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

Transocean Executive Compensation Bonuses Ignored the Rig Explosion of 2010

Transocean, the world’s largest off-shore oil rig company, owned the Deep Water Horizon rig that exploded in the Gulf of Mexico in April of 2010. Astonishingly, the company awarded its managers healthy bonuses. Even more astonishing, safety was a major component in the calculation of the bonuses. Even without intending to, the compensation sets up managers in a conflict of interest—their compensation motivating them to keep up the good work rather than to correct for what went wrong in the management of the Horizon rig. In other words, the bonuses give all the wrong incentives, and there has been no principled leadership to point in the other direction.

The full essay is in Cases of Unethical Business, which is available at Amazon.

A Structural Conflict of Interest inside BP

Mark Bly, BP’s head of safety and operations, released an internal report on September 7, 2010 blaming not only the company, but also its partners for the Deepwater Horizon rig explosion and oil spill. A spokesman at Transocean quickly lashed out, calling it a “self-serving report” that minimized what was critical: BP’s “fatally flawed” well design.[1] Behind the self-serving aspect was a larger conflict of interest—one premised on the structure of two functions: an “objective” investigation and efforts to minimize legal damages.

The full essay is at Institutional Conflicts of Interest, available at Amazon.

1. NBC News, "Transocean: BP Probe 'Self-Serving' and Misleading," September 8, 2010.

BP Clips Societal Norms

In Senate testimony on May 11, 2010,  the three companies did their best to point the finger at each other, with the result that neither BP, Transocean or Halliburton would admit, undoubtedly for liability purposes, any contributory role. In the midst of such liability evasion, those of us in the wider society want to get to the bottom of the accident so future such accidents can be prevented. In pointing the finger at the other guy while ignoring one’s own role, the managers of the three companies are added insult to injury.  

The BP executive did not mention that several days before the explosion on the Deepwater Horizon oil rig, BP officials chose, partly for financial reasons, to use a type of casing for the well that the company knew was the riskier of two options, according to a BP document. Specifically, BP managers opted for a “long string” pipe for the well rather than a liner tieback that would have cost $7 million to $10 million but would have added barriers to prevent gas from reaching the surface.  BP managers were not unaware of this risk. The concern with the method BP chose, the document said, was that if the cement around the casing pipe did not seal properly, gases could leak all the way to the wellhead, where only a single seal would serve as a barrier. 

As another instance of cutting corners to save time and money, BP engineers used just six “centralizers,” rather than twenty-one as recommended by Halliburton, to stabilize the well before cementing it. According to an April 16, 2010 email from BP’s well team leader, the problem was that the extra centralizers would have taken ten hours to install. Another official wrote of the decision: “Who cares, it’s done, end of story, will probably be fine.”[1]   BP managers also decided not to take twelve hours to completely circulate the heavy drilling fluid in the well that would have enabled detection and removal of any leaking gas. BP also skipped a test to determine if the cement had properly bonded to the well and rock formations. A petroleum engineer independent of BP told a congressional committee that the decision was “horribly negligent.”[2]

Workers from the rig and company officials said that hours before the explosion, gases were leaking through the cement, which had been set in place by the oil services contractor, Halliburton, which Dick Cheney once ran. But it was not merely the casing and cement that were problematic. On 60 Minutes on May 16, 2010, a worker who was on the rig when the accident happened spoke of a BP manager overruling a Transocean manager to cut corners, such as beginning to drain the pressure fluid from the well before the third “cork” was installed.  The methane was able to reach the rig’s engines because there was insufficient pressure to keep the gas down in the well.  Also, a BP manager had earlier ignored the worker’s warning that there were shreds of rubber coming up in the drilling–the rubber being from the device that was supposed to take pressure readings (e.g., whether there is gas in the well).  Nevertheless, the BP manager who testified before the Senate blamed Transocean and Halliburton managers, and on the morning after the 60 Minutes interview BP’s COO said he was just focused on the clean-up and knew nothing of such “details” even though his specialty was in development and exploration. Both in cutting corners and in ignoring his job description, BP’s COO demonstrates a willful disregard for societal norms wherein society itself is protected and accountability is accepted.  Sadly, this attitude is not uncommon in the business world.

Perhaps as business operations expand in businesses too big to fail, the societal dangers in the attitude are magnified because more damage can result. In other words, it becomes increasingly dangerous to a society to allow such an attitude to exist.  Where societal norms are ignored by business managers, perhaps the societal norm that allows for their authority should be rescinded as well. This is a social contract reading of society, wherein if one side of the norms are broken, the other side is deemed invalid as well.  The problem is that social contracts unravel rather slowly or incrementally, such that a dangerous attitude can be allowed to remain in a position of authority.  It is worth investigating whether violating societal norms is actually detrimental to a company’s bottom line. 

To the extent that a social contract has a certain inertia, it may be that the bottom line can survive long enough to allow the attitude to survive and perhaps even prosper.   These matters are distinct from questions of justification, which lie in the field of business ethics, and from those of whether more government regulation is needed, which lie in the field of business and government. We can define corporate social responsibility as meeting the general expectation in a society that people admit to their wrong-doing or mistakes and make amends.  This is different from the ethical question of whether people should admit to their wrong-doing or mistakes and if so why.  It is also distinct from the question of the proper relationship between business and government.  Business and society involves the relationship of business interest and societal norms.  To treat the latter (or the former, for that matter) as ethical requires ethical justification, which is more than simply aligning business and societal norms.  In other words, a societal norm is not in itself ethically justifying (consider Nazi Germany as a case in point).  With these distinctions in mind, I turn now to the field of business and society.

I contend that the people at BP (and Halliburton) admitting to their role and paying for economic damages incurred by third parties would be more important than BP’s charitable giving, even if some people in the wider society may have let BP off the hook for the accident if the company’s managers had decided to announce a new philanthropical project unrelated to the accident. Working on another society problem does not make up for having not admitted to BP managers' negligence.  Culpability, on other words. cannot be obviated or transferred so easily.

Too often, business managers use the term “responsibility” even as they are evading it for financial reasons. BP initially estimated the daily output of the leaks at between one and fourteen thousand barrels a day; BP picked the low end-point because the amount of fines the company would pay was tied to the volume. That the company managers were misleading the wider society didn’t seem to factor into their financial decision. As a result, the anticipated damage to the Gulf (and the world) was not sufficiently appreciated in the wider society. The convenient use of  the term “responsibility” can be gleemed from the Senate testamony of Lamar McKay of BP.  “As a responsible party under the Oil Pollution Act,” he said, ”we will carry out our responsibilities.” But he quickly added that Transocean “had responsibility for the safety of the drilling operations.”[3]  That is to say, he acknowledged the obligation to be responsible for his mistakes while conveniently ignoring the mistakes made at his company. By pointing the finger at people at another company, McKay was contradicting his own asseveration on being responsible.  It is like he was lying even as he insisted that people shouldn’t lie.

Pointing the finger is childish, even if it is done for financial reasons. Steven L. Newman, president and chief executive of Transocean, did no better that the BP executive when he said that the accident had to have arisen from elements of the work done by other companies. “Were all appropriate tests run on the cement and the casing?” he asked, apparently implicating Halliburton. Tim Probert of Halliburton said in turn that all work on the casing by his company was carried out “as directed by the well owner,” meaning BP.[4]  Suggesting that the men act like adults and take responsibility for what their coworkers had done (or failed to d0), the ranking Republican minority member on the Senate Energy and Natural Resources Committee, Lisa Murkowski of Alaska, told them to stop the finger-pointing. “I would suggest to all three of you that we are all in this together,” she said.[5] Notice that she is pointing to a societal norm, rather than using an ethical rationale. She is essentially asking the executives to step up to societal standards. Unfortunately, there was no sign that the three boys would take responsibility for their actions, as they continued on, still oriented to the other guy.  The cost to society includes a more difficult route to uncovering the cause of the accident and possible accidents to come from BP. The company’s clean-up efforts do not address the cause of the accident; the spending does not go far enough. In other words, BP can’t spend its way out of it, or can it?  Are there societal norms that allow it to suffice?  My question is this: why hasn’t the social contract unravelled that has allowed the managers at BP to continue to hold their jobs (and BP to remain in business)?  Is economic liberty at play here–society saying that there is room in such liberty for a shirking attitude?

1. Ian Urbina, "BP Used Riskier Method to Seal Well Before Blast," The New York Times, May 26, 2010.

2. Neil King, Jr. and Russell Gold, “Congress Says BP Crew Focused on Costs,” The Wall Street Journal,  June 15, 2010, p. A5.

3. Ibid.

4. Ibid.

5. Ibid.