As Exxon faced the prospect of new climate regulations, the energy giant set out to understand — not understate — how they would affect the bottom line, former CEO and ex-Secretary of State Rex Tillerson told a court Wednesday.
Exxon set up a system for gauging climate risks and costs that was "as robust as we could make it at the time, and continued to try to improve it," Tillerson testified in a lawsuit in which the company is accused of duping investors about the potential costs.
"We knew it was a real issue," he said. "We tried to understand how this was going to affect everything."
The New York attorney general's office, however, says ExxonMobil Corp. essentially kept two sets of books — telling the public that it was fully taking into account the costs of potential future climate regulations, while lowballing those costs behind the scenes as it made investment decisions and assessed the value of its oil and gas reserves.
On items including a big project in Canada's oil sands, Exxon internally used lower numbers than it projected publicly to calculate climate costs, Democrat Letitia James' office says. It argues the discrepancy misled investors about the company's exposure to climate costs.
"The company failed to manage the risks in the ways it promised," the attorney general's office lawyer Kevin Wallace said as the trial opened last week. "The cost of that failure is staggering."
ExxonMobil Corp. says it did nothing wrong, didn't deceive investors and had no incentive to underestimate the future costs of climate change: "We would be misinforming ourselves," Tillerson said.
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Still, Exxon executives did discuss among themselves the fact that its two-part system for measuring climate impacts didn't always put the same price tag on potential carbon costs, according to evidence aired at the trial.
Tillerson said the different numbers "were for different uses within the organization" — one a "proxy cost" for predicting how regulations worldwide might reduce demand for oil and gas, and the other a "greenhouse gas cost" used to figure how local regulations might affect specific projects.
The trial seeks $476 million to $1.6 billion in damages for shareholders. But the money isn't all that's at stake. The case could affect how investors view oil and gas companies' prospects in light of global warming and the new regulations it's expected to spur.
The burning of fossil fuels for electricity, transportation and heat is the main source of manmade heat-trapping carbon emissions. Scientists have warned that the world must cut those emissions to stave off the worst effects of warming.
Irving, Texas-based Exxon took climate change seriously, Tillerson said. During his roughly 10-year tenure as CEO, the company supported the concept of a carbon tax, backed the international Paris agreement on combating climate change and created the "proxy cost" metric, he noted.
"I wanted to put into place more than talking about the fact that we knew this was serious," he said.
The lawsuit revealed that Tillerson used the email alias "Wayne Tracker" as CEO, in what the company says was an effort to streamline communications with top executives. While the attorney general's office has previously highlighted the deletion of many "Tracker" emails, the issue wasn't mentioned Wednesday.
After more than 40 years at Exxon, the Texas oilman left to serve as Republican President Donald Trump's first secretary of state, from February 2017 until Trump fired him by tweet little over a year later.
The two had been at odds over various issues, including global warming. Tillerson had opposed Trump's plan to pull out of the Paris accord.