Transition, Hedge, or Resist? Understanding Political and Economic Behavior toward Decarbonization in the Oil and Gas Industry

Abstract

Many oil and gas firms are making announcements about ambitious plans to go green. But are they actually walking the talk? Our inquiry seeks to understand empirically the extent to which privately-owned oil majors are contributing to decarbonization through changes in economic and political behavior. We collect a wide range of firm-level data from 2004 to 2019, including a novel measurement of political behavior based on original coding of corporate earnings calls. Our analysis indicates three main findings. First, we do not see any firms decarbonizing their operations or shifting away from fossil fuels during the time frame of our study. According to our conceptual framework, the most ambitious firms are engaging in hedging – mitigating risk through diversification rather than moving toward wholesale decarbonization. Observed changes in business behavior have been relatively modest in scope. Second, we do see the major oil and gas firms – generally speaking – improving along many political indicators we examine during the 2010-2018 period. In particular, many of the firms we examine have made strides in terms of adopting more pro-climate political behavior in the last decade. And third, we observe that firms that have progressed further towards decarbonization tend to be located in or sell their products in jurisdictions with more stringent environmental regulation, have smaller refining sectors, and be involved in more industry coalitions.