In November 2021, U.S. Energy Secretary Jennifer Granholm tasked the National Petroleum Council (NPC) with examining the widespread use of low- and zero-carbon hydrogen energy across various sectors, including power generation, industrial processes, and transportation. Established by President Harry Truman after World War II, the NPC serves as a vital conduit for the oil and natural gas industry’s insights to the federal government. Although its charter was broadened in 1972 to include a wider range of voices, it remains a pivotal platform for dialogue between the oil and gas sector and governmental stakeholders.
Responding to Secretary Granholm’s request, the NPC released a “working draft” in April 2024 titled Harnessing Hydrogen: A Key Element of the U.S. Energy Future. As indicated by its title, the report presents a favorable view of hydrogen as an energy source. Notably, the Executive Summary begins with the assertion: “Hydrogen can play a key role in reducing U.S. carbon emissions, particularly in . . . hard-to-abate sectors, at a lower cost to society than alternative abatement methods.”
The subsequent page of the Executive Summary outlines four primary themes. The first reiterates the initial statement, while the second emphasizes the need for “significant and immediate actions beyond current policies to unlock various LCI [low-carbon-intensity] H2 demand sectors at the scale needed to support U.S. net zero by 2050 aspirations.” Among the NPC’s recommendations, “Recommendation 1” urges the administration to collaborate with Congress to implement an economy-wide carbon price well in advance of the expiration of current incentives, such as 45V.
Could it be that the oil and gas industry is advocating for a carbon price? Many might be surprised to learn this, as public awareness of this stance is likely limited, despite the NPC having voiced it since 2011. However, this proactive support for carbon pricing aligns with fundamental business strategies. A key aspect that the NPC envisions for a carbon pricing framework is that it should be “well-designed to provide predictable signals for decisions regarding long-lived capital investments” (emphasis added).
The value of predictability in the business landscape is so apparent that it often goes unexamined. However, the importance of predictability becomes clear when we consider how companies plan for the future. For firms that are primarily focused on the present, forecasting may not seem crucial.
Future forecasting takes many forms, from budget planning to workforce projections. Strategic planning represents perhaps the most complex version of this process. The underlying premise is that by thoroughly assessing the forces shaping their business environment, companies can optimally position themselves to seize market opportunities and counter competitive threats. Yet, the benefits of strategic planning can vanish if significant changes in the business environment occur unexpectedly. When predictability is present, anticipated rewards materialize; when absent, organizations may face severe consequences. A relevant example can be seen in the challenges currently facing offshore wind development in the northeastern U.S.
At this point, those observing the oil and gas industry may wonder, “Sure, predictability is desirable, but how could an industry advocate for a measure that would increase product prices?” Basic economic principles suggest that higher prices typically lead to decreased demand.
While this is indeed the case, oil and gas companies employ technically adept managers who comprehend the complexities of climate change, from the molecular dynamics of atmospheric heat retention to the intricate feedback loops within Earth’s systems. Beyond academia, few entities possess a deeper understanding of the likely trajectories of climate change than these companies. The extensive literature supporting this notion includes a representative 2023 article from the Harvard Gazette—“Exxon disputed climate findings for years. Its scientists knew better..” With a solid grasp of climate dynamics—albeit one that has not entirely prevented public obfuscation—oil and gas executives are likely driven to identify and advocate for a judicious path forward for their sector, one that is “phased-in and coordinated to minimize adverse impacts on energy security, reliability, and affordability,” as articulated in Recommendation 1.
The clarity surrounding the unsustainability of a fossil fuel-dependent energy economy actually serves as an advantage for oil and gas companies. Historically, when large corporations lose their market dominance, it often stems from an overconfidence that today’s conditions will persist indefinitely.
Oil and gas companies are acutely aware of the impending shifts in their business models, yet they remain undeterred in their focus on the future. Armed with robust strategic planning capabilities and extensive resources, these firms are confident in their ability to adapt and stay ahead of potential disruptions.
Ultimately, the oil and gas industry is well-positioned to flourish in a predictable business landscape, thanks to its proactive strategic planning approach. By anticipating changes, these companies are preparing for a future that may differ significantly from the present. With their sights set on what lies ahead, they are ready to embrace transformation and tackle any challenges that may arise.
