How ExxonMobil Will Survive In The New Climate Reality
We've had an opportunity to meet an enormous amount of your employees, to see how this company operates. I mean, it clearly is still an oil and gas and chemicals company. And the other efforts are still in the development phase.
Do you feel like that's a fair assessment? Yeah, I would say, maybe more broadly, we're a company that knows how to manage and manipulate and develop hydrocarbon molecules. And if you look at the space that we're trying to manage with the energy transition, it's essentially a hydrocarbon, CO2, carbon management challenge and that's right up our alley. So I kind of put all of it in that same bucket of managing hydrocarbons, managing our hydrocarbon molecules, and having the processes and the technology to do that effectively. You know, something we've been trying to understand through our reporting for this documentary is, where do you stand in terms of that effort that you're talking about, not the traditional business, but the effort to reduce carbon? And how far are you willing to go? And it's been hard to understand.
You and I have had a number of conversations about this. And you've obviously come back to the idea of putting a price on carbon and making efforts like that. How should we view it from the larger perspective in terms of your willingness to take risk, in a sense, and put capital to work for a return that is not yet fully understood when it comes to that part of the business? Well, the way we look at it, go back to the fundamentals. In terms of, in order for society to achieve its objectives to substantially lower CO2 emissions, what has to happen? Where are the technologies going to make viable solutions? Do it at cost, affordable, maintain reliable sources of energy. And that's where we've been focused. And if you think about where we started, we've made significant investments already in the technology to advance the solution steps.
So we invested in carbon capture back in 2018, we started a low emissions venture, a fuels venture. So we've been making those investments as we go, and I think we've got to recognize that we're in a transition and there's things that will have to come. And so the real challenge here, I think, is pacing that spending in line with the markets and the policies and, frankly, the technology as it develops to make sure that we're not getting too far in front of it and we're not falling too far behind it. And I think that's the challenge that we as a company have, that the management team has, that the board has, is how do we make sure that we strike the right balance? That we're right where we need to be to effectively respond and to help lead society in this transition? Yeah, well, you mentioned your board and I had an opportunity to speak to one of your board members who I've known for years, Jeff Ubben. And he put it in perspective.
I'd like to read to you what he had to say to me and get your reaction. You know, he basically said, is Exxon willing to make a bet on carbon pricing? And while it looks like a zero return or a low return proposition today, because carbon capture done well with technology like fuel cells is a $100 a ton sort of proposition, in terms of the price signal we need. It's not there today. He went on to say, and the real conversation, someone will lead the transition. Do we want to speculate, for lack of a better word, on carbon, on the carbon economy, or do we want to wait for it to happen? So do you want to speculate? Is there some benefit to leading, perhaps, instead of kind of waiting on that line to see how things change? Well, I think there is a benefit to leading, but I would also say this is not speculation in terms of roulette or we're placing a bet independent of what I would say are the longer term fundamentals.
And I think that one of the advantages that we have as a company is the work that we've done in the technology space, our understanding of the energy system today and what will be required to achieve that objective. And there are some very structural, foundational fundamentals that are going to have to be addressed if society is going to be successful in eliminating emissions. And that's where we're going to place our bets. But they are considered bets. It's no different than the risk that we take in other parts of the business. Coming back to how do we think about the fundamentals? Make sure they're grounded in what we believe is going to be required to make the progress that society needs.
And then we can help lead that. In fact, we've done that with some of our proposals that we put out there. The Houston Hub is an example of today with a policy in place. It doesn't stand on its own. There are elements of it that do, and we will progress those elements, begin to demonstrate the viability of that and the benefit that it can bring while we're also working with policymakers as the market continues to develop. So I don't think it's a one and done or quite as discrete as maybe you're positioning. It is an evolution and we're going to basically evolve with that.
And as we go, we are making and placing those bets. But informed bets based on where we see the greatest needs and where we're convinced that there's going to be a solution required and technology is going to play a key role in that. Well we've spent a lot of time talking about the Houston Hub. We've been down there as well and visited it. It's a huge opportunity. But I wonder, we talked to Mark Brownstein from the Environmental Defense Fund, who's worked with the company on your methane reduction plans in the Permian.
And he's a fairly reasonable guy. You know, he said of the Houston Hub, it's a big project. It's visionary, so good for them. But what's missing underneath that are any of the business plans, any of the engineering plans.
This is a company that does its homework. Whatever else you think about Exxon, they do their homework. They're smart people. And yet we don't see any real evidence they have been doing their homework on a project like this. So the question becomes, how serious are they? How do you respond to that? I would say that's a mischaracterization. We have done our homework.
In fact, the work we started in 2018 on our carbon capture venture that was based in our technology organization had two primary objectives. One, recognizing if you're going to get wide scale deployment of carbon capture and storage, you're going to have to lower the cost. And so start working on the technologies to reduce the cost so that it can be more competitively deployed around the world. And the second was find opportunities where we can take the existing technology and deploy that with some level of incentives to start making reductions now. And that second initiative is where that Houston Hub concept came from.
So what has it done? It's identified a source of concentrated CO2 emissions, it's located sequestration, we've been working on advocacy, we've got legislation in place to allow us to store CO2 offshore and for the Department of Interior to manage that. And frankly, we've announced a project in Baytown which is a starter project for that hub. And so we've got a project in works, hydrogen, carbon capture and storage, reducing emissions at our site, providing hydrogen for transportation, all in work, a viable project that's been advanced. So it's real, it's happening. But I think with all these things, when you look at where we're at as a society, you have to get started somewhere. And frankly, what we hope to do at the Houston Hub is put a concept out there that policymakers could see and begin to conceptualize what policy is needed to make these things go into work.
And frankly, that hub concept reduces CO2 at a much lower price than some of the existing policies that are out there today. So very large scale emissions reductions at a cost which is much lower than some of the options that existing policy is supporting. So we think it's got the components. There's more work to be done, no doubt about that. But, you know, the journey of 1000 mile starts with the first step and we're taking several first steps.
Yeah, understood. I mean, but when do you take sort of that giant leap, so to speak? Is in 2023? Is there a point at which you could imagine the capital commitment and everything else that's going to be required, sort of where you can never come back from that? And when is that? So I would say, again, if you think about what we're doing: multiple sources of CO2, we're making sure that we're finding and acquiring sequestration sites, so places that we can store the CO2, working with the government on the the permitting, the regulation that's going to be required. So that's all work in progress. And by the way, that is not inconsistent with what we do all around the world. Same thing that we've done in Guyana with respect to, you start when there's nothing there and you begin to build the steps to put the industry in place, put the regulation in place, put the the supporting policy in place as you're working the project concepts, as you're doing the design and engineering. What we're doing in the Houston Hub is no different than what we've done all around the world in our traditional business. We've got a collection of industry players.
A number of other companies have signed up and are invested in advancing this. And so I think there's a lot that goes into it. It will be an evolution and we can take these in bite-sized pieces that ultimately get up to this very large reduction.
Brownstein goes on to tell me then about those companies they put together, but questions whether real money has been put on the table, says, every one of those companies that's sitting around the Houston Hub themselves have an interest, have a necessity to get the carbon out of their business. So what are they waiting for? Why is the capital not being deployed at this point to actually make it happen? Well you're going to need supporting policy. You're going to need infrastructure put in place.
You've got to have design and project concepts put in place. So there's work to be done before you see steel go on the ground. I mean, you know, David, from the work you've done with our company that these projects, at the scale that we're talking about, take years to develop. You know, our Guyana project, which is one of the fastest in the world, from discovery to production was five years. And that's fast for our industry.
And so I think as you think about, and you've experienced the scale and the size of our business, you think about that, these things take careful planning, a lot of upfront development, a lot of engineering that lay the groundwork so that you then have these successful projects. And I would tell you, that's the process that we're in now with the Houston hub. But how much of it is dependent, and we've had this conversation, how much of it is dependent on government giving you a price on carbon that then makes you say, that's a go? So there is a price on carbon today with 45Q and the tax incentive. It's not enough though. It's enough for some sources of CO2. I think, as you and I talked about before, the higher the concentration of CO2, the lower the cost, the lower carbon price has to be to incentivize a project.
So you can start down the path with existing policy to start building CO2 reduction facilities for high concentrated streams. As you move forward and you want to get to more and more dilute CO2 streams, you're going to need a higher incentive. So you start with the things that work today and you continue the policy advocacy and talking about what's going to be required to take the next step and the next step. And that's the process that we're going through. And that's why we announced our Baytown project.
Based on existing incentives, we can make that work. Right.You know, obviously, I don't expect you to share deliberations per se inside the boardroom. But I am curious, when you have conversations like this one, like the one that we're having, are there elements of your board that want you to go fast or are there others that are sort of pushing back? Can you give us a sense as to what the discussion is like around these key issues, given you have some new directors, one of whom or a few of whom are pretty staunch environmentalists? Well, I think it's an engaged, constructive debate because, as you pointed out, there are no easy answers here, and there are challenges on every side of the equation that you're looking at.
So I think one of the advantages we have with the board and the perspective that we have there is the competing ideas. I mean, the good news is everybody on the board is aligned on the objectives. We want to be a company that leads in this.
We want to be part of the solution. And we think we can do that. And we think the strategy that we've put in place which leverages our existing capabilities and competitive advantages and builds on the strengths that we've developed over the past 130 years, that that's going to be an important part of the equation.
And we're leveraging on that and then leaning into the solution set and looking at those opportunities. At the same time, we've got to do it in a way that delivers returns for our shareholders. So there's a number of variables at play here. I think the debate has been very constructive. And, frankly, what you see us doing, the announcements that we're making, the strategy that we're laying out to the investment community and the broader stakeholder set is all a result of those constructive debates and discussions we're having at the board.
And you say you want to be a leader. Do you really think you are that ExxonMobil is a leader in that area? I think we will be, absolutely. But I think we've got to come back to where are we at in the the the life cycle of this development, recognizing this is a long term development. This is a marathon. This is not a sprint. And so I think people have very high short term expectations.
And I just got to come back to think about the scale of the global energy system, what's going to be required to convert that. And making sure that you start down a path on a very firm foundation. That's the work that we're doing.
We've talked a lot about carbon capture, not as much about biofuels. You've brought it up a couple of times in our discussions. I want to get into it a bit more now. Jeff Ubben thinks, again, one of your directors, one of many, thinks in ten, 20 years it could be a very important component of your overall portfolio. Do you agree? I think that's right. And I think, you know, we have, amongst our competitors, one of the largest refinery
footprints. A lot of the facilities that we have in those refineries lend themselves to, from a cost advantage standpoint, producing biofuels. And so some of the work that you see us doing with existing facilities and markets where there is existing incentives and policy, converting some of those facilities to make biofuels, we see a real potential there. You do. I'll defer to Mark Brownstein again, though, because he he told us that you've talked for years about advanced
biofuels, and it's a great talking point, and we could benefit from it, of course, as well. We need sustainable aviation fuels and things of that nature. We need those things, says Brownstein.
But how many years can you talk about your intention to develop them before, after a while, it begins to wear thin. Well, listen, this is not a one-company activity or endeavor. It requires policy, it requires market incentives. And so I think you've got to look at it in the broader context. Where's the policy to incentivize it? The U.S. still doesn't have one today. Certain states within the U.S.
do, but the broader U.S. doesn't have one. There is no standard that drives that. Look, in Canada there is one. So we see that now developing. So as the policy gets put in place, as the market incentives develop, then you'll see us move into that space.
But I think you've got to look at the role that we play as a company, a public company that has a fiduciary responsibility to our shareholders, how we advance in this space is dependent not just on what we do, but what the broader markets, the policy, the ecosystem does. And what your shareholders want as well though. You know, I wonder how you take that into account. I mean, you're in a position right now, given where oil prices are, that you're generating massive amounts of cash flow. I'll just say massive.
You don't have to give us the number, but large. Cash flows could be deployed in any number of ways. But your shareholders may just want you to buy back stock. How do you respond to sort of their desires when you think about what you need to do in terms of positioning the company for the future? So I would tell you, the way we think about the company, we've got a very long term horizon. We've been around for 100, 135 years.
Our expectation is to be around for the next 135 years. Our products and what we do will evolve as the market and the needs evolve. And I think the transition is just one of those evolutionary steps, quite frankly.
You know, this industry has evolved quite a bit. When we first started out, we were basically making kerosene to replace whale oil for lighting. The electric light came on, we moved into gasoline, we moved into chemicals. And so this industry and our company has been evolving since its inception and we will continue to do that.
And so we look at long term what's going to be required and what is a foundation for that evolution to position us at an advantage versus the rest of industry, or against our competitors? We think we've got a good strategy to do that today. And then we will basically move with the market, as the market involves, meeting the demands of society, and one of those is the lower emissions fuels. So as we think about doing that, and a part of that capital allocation strategy is making sure that we've got industry advantaged investments to do that. That's job number one. Job number two is to make sure we've got the financial stability, the balance sheet, to support the commodity cycles, which you mentioned.
We're at the top of one now. A couple of years ago, we were at the depths of one. And so we don't get overly fixated on the top or the bottom. We recognize we've got to manage our way through these cycles and making sure that we've got a balance sheet that supports that's going to be absolutely critical. And then making sure our shareholders enjoy the benefits of the work that we're doing. And so those are all, again, there has to be a balance struck across all those priorities and I think we're doing a pretty good job at that.
Yeah. You know, when it comes to those shareholders, I think it's roughly a year ago or so, you lost that proxy fight with Engine No.1, three new directors. How do you look back on that? And what, if anything, have you changed, in terms of whether it's your transparency, whether it's the way you communicate with shareholders, as a result of that event? I think you've touched on two important ones. I think, you know, for all these things, all these challenges, our job is to learn from those and make sure that we're responding to the constructive criticism that we got with respect to, why did we get the votes against us? What are the things we need to do? I think one of the things we learned as we were going through that proxy fight, had outside advisors come in, is, there's a lot of work that we're doing that we're not talking about. People don't have a good understanding of some of the approaches that we're taking, the whys behind the work and the activity. We've always been a company that our actions speak louder than our words.
I think in today's society, you've got to make sure that you're prefacing your action with some of those words so people understand your intent and where you're going. And so you will see today, we've become much more transparent. We talk a lot more about what we're planning on doing and where we're trying to take the company so that people can get an idea of how we expect to manage this business as we move into this uncertain future. And, you know, the Houston Hub is a great example of that. If you go back in time, we would have waited until we had all the I's dotted and T's crossed, and were ready to put steel in the ground rather than talking about the concept that we were putting out there and working towards.
And we're now doing that with a number of our projects. So a lot more transparency, a lot more forward looking in terms of where we're trying to go, and doing a lot more work to help people understand how our business can function and be successful, irrespective of the future and irrespective of the path the transition takes. You know, we've had an opportunity to get a sense of your culture as well over this last six months. A lot of very rigorous, incredibly smart, dedicated people. But there are critics, call them critics, there are people who studied your company and say it's very insular. That's a benefit in some way. People stay with this company forever, but at the same time, you're not getting a lot of outside perspective.
Is that a criticism that you would agree with? Is it something as well that perhaps came out of the proxy fight that you've tried to change? I think, you know, any time you have a development process where you're focused on internally developing candidates-which I think is a great strength of the company, we build a culture and a value set and an intellectual rigor that serves us well across people's career, the size of our company allows people to have multiple careers within a career and builds extreme commitment and loyalty to the company and the work that we do for society. So I think there's a lot of advantages to that model. But obviously one of the costs to it, one of the risks, is insularity. But I would tell you that, to be successful and to be around for as long as we have, you cannot lose sight of the markets and the customers that you're serving. Our upstream business, which is a huge part of the company, has to be responsive to resource holders. And so while we do a lot of internal development, we are dependent upon having an external perspective and addressing those external perspectives in a way that brings value to them and ourselves, so. And then I think what you've seen us doing is continuing to where we see
the need for additional experience and outside perspective, recruiting and bringing those people in. So I don't think it's an either or equation. It's an and equation. I think we're going to continue to have an internally developed resource pool where we continue to build the culture and the values. We're going to continue to supplement that with people that we bring in from the
outside who share our values and some of our some of our culture. But has that always been the case, Darren, or is there a bit of a change that I'm sensing there in terms of your approach? I think when I've come in, if you look at the changes that we've made to the organization, the reorganizations, the streamlining, there's been a lot of changes. Now as we've done that, being very focused on, where can we be more effective? How can we more effectively compete? And then making sure that we've got the right people and the right jobs to do that. And what you've seen in the five years I've been in the job is bringing some people in.
So that's a relatively new approach, but it's one very consistent with how we're thinking about the business and how we're focused on more effectively leveraging our competitive advantages. To those who would have said that because of that somewhat insular culture, new ideas are harder to socialize because the people at the top have all grown up together, is that a fair, fair point? Well, David, you've been around. You've seen what we do. I think, you know, who else is built unique-to-the-world chemical plant? You can go to Rotterdam, one of our refineries, and the new-to-the-world technology to convert heavy feedstocks into high value lubricants.
A new project that we're building out in Singapore to take resin residue, the bottom of the barrel, and convert that to high value products. You've been out to Guyana. You know, we're breaking world records and bringing in new technologies and innovation.
So this idea that somehow you can't have an innovative culture while at the same time developing a bench from within. And, I mean, I would tell you that our focus is continuous improvement, stretching ourselves to do new things in a way that brings value both to the company and to society. And so I don't put any any stock in that. You can risk that, but you can also mitigate that risk.
And I would say the culture that we've established, where we set very high standards for ourselves and have an expectation to continuously improve this business and to advance solutions, I think forces us to be innovative and to look for new ideas. Yeah, we have been to Guyana and it is quite a sight. Interesting to see the country as well. And then obviously all the work that you have done and continue to do. I mean, you could be producing as many as a million barrels a day within, I think, five years potentially. What's that going to do to that tiny little country? And what are your hopes that it will do, even though history would tell us these things can kind of go awry? Yeah, it's a challenge. But I think, you know, tremendous wealth is going to be coming to a country that desperately
needs that. And so our objective, I think, is very much aligned with the government of Guyana's objectives and frankly, the people of Guyana's objective, which is to improve their standards of living and their lifestyle. And as you've seen with your visit, there's huge opportunity to do that.
And they now have a resource base that's going to allow them to bring that country up and to benefit basically all the people of Guyana. So we're working very closely with the government of Guyana to help share our perspectives and what we've seen around the world. Outside agencies are coming in to help with that as well and try to avoid some of the missteps that other countries going through this same type of cycle have experienced.
And I think they're focused on doing the best they can and focused on lower cost energy to the people, more reliable energy to their people, better health care, better education. So I think they're focused on trying to advance a lot of those fundamentals which long term are going to be hugely helpful for their economy and the community as a whole. And what do you tell those Guyanese, perhaps? You know, this is still a country that's largely rainforest, 85%, obviously, pristine, much of it, who worry about the environmental impact of Exxon's work there? I would tell you, the work that we're doing and the power that we're going to help provide to the people of Guyana, is going to lower the emissions of Guyana, not increase them. And I think you've got to look at, also, there's a demand for this product out there that's in the short term, and the medium term is not going away.
And so I think it's not a question of do you produce or not produce? It's a question of do you produce and can you do that more responsibly than others? And if you look at the crude that we're producing in Guyana, it's on the lower emissions intensity spectrum of crude as a whole. So I would tell you it's a good thing for that crude to come to market and displace more CO2 intensive crude. And so I think that's the equation to look at. If there's a demand out there and it's going to be met, doing it in the most responsible way with the lowest emissions profile possible. Yeah. The immensity of the production effort is really something that you have to see in person, which we've done
and obviously we've been to Corpus Christi with you as well, been to the Permian. Do you think many people in this country appreciate just the ability of man to create these kinds of projects and operate them? And by the way, the crew, for example, that we met in Guyana, 120 miles off the coast, from all over the world, really an amazing sort of group of people from everywhere. You know, I'm just curious to your reflection. When I say that to you, how do you think about it? Yeah, I think, you know, I don't know that everyone appreciates all the work that goes behind delivering these products reliably and affordably.
And I'm not sure they need to appreciate that. I think that's part of the value that the industry has brought. I think the industry as a whole has done a really good job bringing down cost, being as efficient and therefore as affordable as possible. I think that's a credit to the industry, our company, as well as many other who compete in this industry. I think it's important, though, as you think about policy and the transition, to make sure that you recognize the importance of that work and the benefit that it brings to society so that you don't make decisions that have unintended consequences. And I think you've seen some of that playing out now in the world markets where we haven't invested maybe as much as we need to, to keep supply and meet that demand as we come out of the pandemic.
And we're seeing very, very tight markets now, which is not good for society. We've got to get more production on, bring in more supply to help balance that supply-demand balance as we continue to work towards a transition and lower emissions future. And it's this, again, balance between what we've got to do today to meet existing needs as we think about what's required to meet the needs of the future as well, which is lower emissions. Yeah. Well, I mean, you mentioned policy and policy is going to be an important component of, it would clearly seem, the decisions that you make in terms of meeting that lower emissions future.
You know, we spoke to Ro Khanna, representative from California. You had a back and forth with him during these hearings where he pushed you to essentially say, Lee Raymond, from 20 plus years ago when he said we were still uncertain about what was behind climate change, that that was wrong, and you wouldn't do it. Khanna said to us, I don't understand. I mean, in politics, you bash your predecessor all the time.
I don't understand why Darren Woods just can't say Lee Raymond was wrong. And I have a new direction for the company. And you know what? It was a different time. And now we're in the 2020s and we understand climate change is real and we have a different commitment. Why not have just done that and made this guy happy, who, by the way, is going to be an important voice in
sort of the policy that you're going to be relying on? Well, I think, you know, one of the values that we have as a company is integrity. And, frankly, one of the approaches that we take is, I think today as we look at how science and our understanding has evolved, you can look back and say we have a different understanding today than we did then. But I think in terms of judging what Lee Raymond said or any other of my past predecessors, it's what did we know at the time? And I would also say that if you look at the entirety of what we said, and not focus on a paragraph or a few sentences, in all that discussion, one, I would tell you this: what was said was consistent with what the scientific understanding was at the time.
And it was also said that work needs to be done here, that we know enough now to take action. That piece is always kind of left out of the dialogue and the discussion, but that was part of the theme, is there's uncertainties here, but we know enough to take action. And I think at that time that was a reasonable position to take.
Do you really think that though? I mean, there have been academics now who've studied what has been made available from Exxon's own scientists during the '80's and '90's who say that there was a preponderance of evidence within the organization saying, we know that climate change is manmade and we know that conceivably we need to start acting against it more quickly. And that Mr. Raymond ignored that. I would tell you that our understanding internally was no different than the external understanding. And the discussions and the points that we made publicly were consistent with broader points being made.
This was debated within Congress. The administrations were involved in this. And so this was a very well studied, broad scientists looking at this, lots of debate going on all across the U.S. and the world. So there was no internal information, no proprietary information in this space.
It was all part of a public dialogue and debate that was happening very openly. And we were part of that. And I would say that our understanding evolved along with the rest of the world's understanding. Yeah, but even, I mean, you were putting advertorials out that basically cast doubt to a certain extent that climate change was manmade or at the very least indicated we still don't know.
Is that something, when you look back on it, that you wish the company hadn't done? I think, again, if you look at the entirety of those and the position that was being taken was, there are unanswered questions, that are uncertainties involved in terms of what we understand today. But there's action that we could be taking and should be taking today as we make these advances. And I would say the underlying philosophy then, as it is now, is be thoughtful. Understand the balance that needs to be struck, understanding the role that the industry plays and these products play, and make sure that as we advance that we're focused not only on the cost, which is the emissions, but also focused on the benefits and striking the right balance there. Because if we get that wrong, society will pay a high price. But do you think you pay a price as a result of at least not throwing your predecessor overboard, for lack of a better term? Or at least just somehow meeting the objections that some of these legislators have in terms of taking you as a really trusted partner.
I would say judge us on the work that we're doing and what we're doing going forward. I mean, we've got to focus on how we're going to address this problem. And, I would tell you, we've been firm on that. If you go back a couple of years, people weren't even talking about carbon capture, hydrogen, biofuels. It was all wind and solar and electric vehicles.
Those are important technologies, don't get me wrong. They're necessary, but they're not sufficient. We stayed focused on the things that are going to be required for the future. We're doing work today and advancing very large scale projects on those needed technologies. We're developing those technologies.
We're engaged with governments all around the world to reduce emissions. So I would say to any of those critics, look at what we're doing to try to advance this cause and to try to meet society's needs while at the same time providing reliable and affordable energy, which is so critical to people's standards of living all around the world. Right. But I mean, we've come back to this question a number of times, Darren, which is, it would seem that you are going to require some sort of changes in policy, perhaps to make that big leap.
Market incentive. Or a market incentive. Yes, that's not inconsistent with how markets all around the world. All right. But what does that look like?
Explain that to me. So, I mean, the most fundamental, which is a position that we've taken for many, many years now, has been a carbon price, a price on carbon out there. So that there is an incentive economy-wide that incentivizes every part of the economy to find ways to reduce CO2, that incentivizes the development of technology.
At the most fundamental level, I think most economists agree with that, that that's the way you start to move down this path. I recognize that that's a politically challenging proposition. There are other ways to do it. There are specific sector policies that we can put in place that lower the CO2 at a much lower cost.
And so there's work being done on what other types of sectorial policies can we put in place that effectively reduce carbon at a low cost? And so there's work being done there. So I think there's a variety of policy that's out there. And Canada has got policy in place that incentivizes the reduction of CO2. But we don't really. Not enough, right? Not enough. Not today, we don't. You're right.
Which comes back to the point that, look, this is not a solution that's going to be driven in isolation of governments. There's a very important role that government is going to play here in policy. And what I think political leaders ought to be doing is focusing on how we get to a solution and working collaboratively, not only with NGOs, but with businesses that have the experiences and skills and the understanding to figure out solutions that help meet all of society's needs, not just one aspect of them. Right. But again, until that happens, you're going to keep moving incrementally, but you're not going to make the big leap. We're going to make sure that the investments that we're making are advantaged versus the rest of industry and would generate the returns to justify those investments. And some of those returns could come at a later stage based on the fundamentals and the movement that we see.
We've got a pretty comprehensive set of signposts that we're looking at across the spectrum of the energy. So what are the things that have to happen for us to be on a transition path? And what are the things that we should be seeing and the time frame it's going to take for those things to develop so that we can critically assess, what is the transition path that we're in? Kind of separate out the rhetoric from what's actually happening on the ground, what policies are being put in place, what steel is going in the ground, what projects are being sanctioned. And we can look across that whole portfolio to understand. There are a multitude of paths that society can go down for this transition.
And understanding which one we're on and how we can advance that is going to be absolutely critical. So our signposts are established to help us understand where we're at on those and where we think we can lean into some of those to try to advance that quicker. But I want to understand better, when we talk about an effective price on carbon or increasing that price, so to speak, what is that going to look like from the average person's perspective in the sense of, is it going to start with legislation in Congress that actually gets passed and signed by the president that somehow does that? Or is it going to take other forms? I think, within the U.S., legislation is going to be a really important part of that. But I would also tell you that while we're working on policy and looking at putting a price on carbon, one that incentivizes the reduction, there's a parallel effort going on, a fairly broad-based effort, around the technology and reducing the cost to capture CO2. And so you've got parallel efforts happening. And our view continues to be that we've got to find ways to reduce that cost because, ultimately, to get the end objective of net zero, you've got to remove a lot of carbon, a lot of dilute carbon, from the atmosphere and from emissions. And you're going to need technology that does that affordably.
We've talked about that. Direct air capture, obviously, which is still fairly early, but promising. Is that a fair statement? It's early. There are technology hurdles to come over, but I would say the effort put in to date is fairly immature. And so there's a lot of work happening in that space.
But that, in my mind, is the Holy Grail. If you can overcome some of those technology hurdles, get your costs down, you've got a technology then that can address this in a very cost efficient way. Well, that could be one of the key profit generators for this company 25 years from now. Right? I mean, if you guys can figure out direct air capture, obviously we know you're good at getting stuff out of the ground or putting it into the ground, you can have these reservoirs right there and just do it. It doesn't matter where in the world you take it out of the air, as long as you're taking it out of air. And then you can situate those where you've got the storage.
And I think longer term, you move from storing CO2 to converting it to a product that the world needs. And I think there's technology being developed in that space. So, you know, there's a lot of technology. We're early in this process from a technology standpoint.
You know, the good news is we've shifted from this, I think, very tightly focused view on the solution here is wind and solar and EVs and said that needs to be supplemented with a lot of other technology and a lot of other solution sets. And the good news here is I think broader society is focused on those other technologies and trying to advance that. We're focused on some, other companies are focused on others, and I think we're fairly early in that technology cycle. And, frankly, I think we'll find something there. Not clear where that will come.
But I'm pretty convinced that ultimately technology is going to provide the solution here. Right. Now, we've also talked before as well about, you know, if every vehicle went electric by 2040, I think you guys have done studies, I believe you said to me you'd be back to sort of 2000, 2014 demand levels.
Right. The IEA, though, of the UN says it could mean 60% to 70% less oil consumption than today, which would be well below that. I want to get why your take is so different from theirs. Yeah, I'm not sure what IEA study that you're referencing.
What I talked to you about was passenger vehicles and the role that they have in electric vehicles. If you look at where crude goes into transportation, a huge part of that is heavy duty commercial transportation, which today we don't have viable alternatives. If we find viable alternatives in that space, that will have a much bigger impact on on oil demand maybe. Yeah. I want to also come back to legislation again and Representative Khanna.
You know, obviously he agrees with you that the government needs to be a partner in sort of figuring out these solutions. But he says part of the problem is that groups like the American Petroleum Institute keep blocking legislative efforts. And he's calling on you to endorse the president's climate package or come up with your own and stop supporting the American Petroleum Institute. How do you respond to that? I think the API, the American Petroleum Institute, is a constructive force in this.
They have a policy on CO2 and they're very focused on how you do that effectively and efficiently. I don't believe they're blocking constructive, sound policy that reduces CO2 effectively and at a low cost. At the end of the day, what we do here has to be affordable, has to be sustainable. It has to be something that continues to meet this demand for affordable and reliable energy while reducing emissions.
And that's what the policy of the API is focused on and I think that's the right solution for us. You've got to think about the benefits that today's products provide while you're working on the costs that come along with them. And ignoring the benefits and focusing purely on reducing the cost means society as a whole will pay a high price.
Right. Now, they have blocked efforts, I believe, on something like a methane fee or climate legislation on electric vehicles. Again, fair criticism or not? I think it's difficult to take on a top line like that. If you come back and look at the fundamentals of what the industry is trying to drive is cost effective policies to effectively reduce emissions without society and people paying a high price. And if you want an example of what can go wrong if you don't have a policy that tries to balance those, you can look at what's happening today with the underinvestment in the industry and underinvestment in supply and the demand and supply getting out of balance with very high prices.
That's impacting families all around the world, quite frankly. And I think that's an important constituency that we have to be focused on with respect to, how do we solve this problem without making everyday Americans or everyday people all around the world pay this price for advancing the solution of a lower emissions future? I think you can do both, but it is a complicated equation and requires thoughtful policy. It does. And yet if I were speaking to somebody with a bit of a different bent here, they would say, We've got to do this now. We've got to leave most of the oil in the ground because if it actually gets taken out and combusted, that leaves us with a much warmer planet, way warmer than we need it to be. And climate change will only increase human misery. Well, I think you have to look at what happens when people don't have the energy they need to support their current standards of living.
It plays such a fundamental role. And you see that playing out in Europe today. What's happening in Europe as gas is short, people are switching back to coal. And so, again, it comes back to, you can't ignore part of that equation. You've got to look at the whole and try to address both of those.
And I think any policy or position taken that completely ignores the benefits that today's global energy system provides is going to be a short lived. Yeah. All right. A couple of other housekeeping things here, Darren, we want to get to. We haven't really talked at all about chemicals.
We did when we were in Corpus Christi, but on plastics in particular, something recent I'd like to get your response to. California's attorney general has announced a probe into the industry's role in the plastic pollution crisis. They seem to be targeting ExxonMobil. I want you to respond to that.
And to those who believe that ExxonMobil is part of the so called "plastic problem," obviously we have a huge waste problem in the world. Well, the first point I would make is, a focus on plastic waste is the right focus and an important one. And we agree with that. We think there is a challenge in that space that needs to be addressed, and we're trying to work constructively to address the plastic waste problem. But I would come back to the point I just made about the energy system and taking a balanced approach. While you look at addressing the plastic waste problem, you also have to keep in mind, in consideration the benefits that plastic brings to society, society's life, the standards of living.
I mean, think about the medical equipment or any medical procedure you have today. The role that plastics play in today's health care system. Think about the role that plastics played during the pandemic with the mask and the robes. And so there is a really important role that plastics play in society. I don't think people recognize just how important it is in terms of everything that they do. And so you've got to kind of consider that and then address how do you deal with the plastic waste system? And how do you make sure that that plastic that's used is bringing benefit, then gets recycled and brought back into the product? And, frankly, we're doing a lot of work in that space.
And we think, again, technology is going to help solve that problem. Yeah, advanced recycling is something you've talked about. It's early days. Early days. Yeah. And it's brand new technology that we've basically piloted at one of our integrated refining
and chemical complexes. We see huge promise in that and are ramping up those investments in that technology to continue to grow recycled plastics. How far along or what do you need to see in terms of advanced recycling to really test it or get a sense that it is something that's going to work? Well, I think we've we've piloted it to the point where we're convinced it's going to work and we're now scaling it up to larger investments and then taking those investments across our portfolio. So it's just a function of building those projects out. Today, there's a market demand for recycled plastics. There's a premium that goes with recycled plastics that incentivizes these investments.
So there's a great example of a concern that's being addressed by the market and where we are investing in technology to address that need and to generate returns in doing that. The world produced 350 million tonnes of plastic last year. It's almost hard to imagine how much that is. Which just tells you how important it is to people's everyday lives. It is. It's ubiquitous.
It's everywhere. Just like oil and gas and energy. Right? Right. You're kind of key to a lot of people's lives. Yeah. There are challenges associated with those. We need to stay focused on what the challenges are.
The idea with plastics is, let's focus on waste management and how you solve that. By the way, if you replace plastics with something else, you still have a waste management issue. So let's focus on the waste management issue.
I think with oil and gas, let's focus on the emissions that come from the combustion of oil and gas. Oil and gas in and of itself is not the problem. It's when we burn that and we have the emissions. So let's go address the emissions. And I think being very focused on what the problem is and then trying to solve for that specific problem gets you to a more cost effective solution and a better win-win proposition so society doesn't pay such a high price.
Yeah. Well, Darren, as we wrap up here in terms of our conversations with you and sort of our look at at the company, I would love to get your sense as to what you think ExxonMobil will look like, just even a decade from now, given so many things that we have discussed in terms of carbon capture and biofuels and this emerging part of your business that isn't yet really producing profits, so to speak. I mean, in ten years, is that a different look? I think it's an evolved look.
You're still going to see traditional businesses, traditional oil and gas business. You'll see more carbon capture and storage. You'll see more biofuels being produced.
You'll see us producing hydrogen. And so what I would tell you, just like our past, where we've evolved our product slates and what we do to produce products that society needs, that we evolve as society's needs evolve. And you're going to see that happen with our company, with the evolution of the market and the energy transition. But I would also say, David, that ten years in the timeframe, the time cycle of the industry, and in particular the global energy system, is a fairly short time period.
And so I think what you're going to see is, you've got to do work today to set yourself up for an acceleration further out. I think 20 years from now, 30 years from now, you're going to see those other aspects of our portfolio much larger. Yeah. And when you think about capital allocation, I mean, I can imagine a company that still is producing enormous amounts of cash flow from the production of oil and gas, but will a lot of that be diverted into investments to produce future returns in the areas you're talking about? So we did some scenario analysis and we used one of the most extreme, the IEA net zero scenario, to kind of test, how would our business evolve? We modeled that and looked at where we would be making investments based on their set of assumptions, so extreme, an aggressive third party net zero. And basically what it demonstrated is the strategy that we have in place, the businesses that we're progressing today, fare very well in that new environment. So as we transition into that IEA net zero world, you see chemicals continues to grow because they play such an important role, you see much more carbon capture and storage, much more hydrogen, much more biofuels.
All those businesses then get more capital allocated to them. Because in order for those businesses to grow, there's got to be some incentive for that, some policy in place for some market driver. And that's what the IEA assumes. And so those businesses grow organically based on the returns that you can generate and the skills that we can bring to solve for that problem. And we shared that in one of our advancing climate publications, showed that, even under that extreme scenario, the company does fairly well.
You're going to be running this company in ten years? Who knows? Would you want to? I love what I do. I grew up in this company. I'm committed to it. I do what I do because I think we can make a big difference. You've seen for yourself, we take on pretty tough challenges. I hope you've seen in talking to our people that we approach it with a very sincere endeavor to do the right thing in the right way.
We hold ourselves to high standards. We believe in integrity in all aspects, from our operations to our intellectual integrity. And so I feel like we've got a company that has strong values, understands the role that it can play in society, takes that role very responsibly, and, I think, works very hard to help meet society's needs in a responsible way.
And I'm proud to lead it. I'm proud of our people. I enjoy our work. I think we're going to help lead this. I think we're going to play an important role and we will be a leader in that transition.
Yeah, I mean, you keep saying leader and I keep coming back to that because I hear that word and I'm not quite sure what it means. I mean, Jeff Ubben said to me, you know, you're only 2% of global production. Only. But you're ExxonMobil. If you really were to lead, if you really were to say, you know what, we're committing more than 15 billion over six years. A lot more. Others would follow. Even policymakers.
Well, I think, you know, the Houston Hub concept, which you brought up earlier, is an example of how we're trying to lead in terms of putting a large scale, biggest in the world, carbon reduction at the lowest cost opportunity to try to incentivize, get the dialogue going, incentivize the policy, start putting things in place. In my mind, that's leadership. We're doing that all around the world. We're doing that with other countries who have called and asked us to come in and help them think through how best to advance their carbon reduction initiatives. And so I think that is a leadership role. But I think, again, you've got to recognize the complexity of what we're trying to do here in terms of building a brand new industry, of removing CO2, leveraging some of the existing technology while advancing new technologies to make it even more affordable, a complicated equation with a lot of different players involved.
We're a part of that and I think leading a lot of those conversations. So it's early days. Let's talk in ten years and you can see what leadership looks like and what we've delivered with that. All right. Well, you know, we have had what we consider to be unprecedented access, and we certainly appreciate that. Is it reflective of a new ExxonMobil when it comes to your transparency, the fact that you've let a media organization see what you actually do, spend time with with the leader of that organization to a large extent as well? I'm extremely proud of our people and the work that we do. And and I think what we've talked about is the need to be more transparent and help people see how we approach and think about these problems and the work that we do.
And so I think we are going to be more transparent. I think we've demonstrated that over the course of the year with not only this interview and your access, but a lot of the publications that we've put out and the dialogues that we're having. And my expectation is that we'll stick to that because again, I think we're doing a good job at what we can and trying to advance this greater need and doing it in a very responsible way. You know, there is this question about Scope One and Scope Two.
I've asked it to some extent. But, Darren, you know, you've talked about getting net zero and Scope One and Scope Two. But I guess this question is, why aren't you responsible for Scope Three? Well, I think, first of all, what I would say is, we are focused on helping society reduce emissions across the whole of the value chain, which includes Scope Three emissions. So it is an important part of the equation in terms of the products available for people and their use of energy to lower their emissions.
But I think, as you think about Scope Three, that's a function of demand. I don't think you control the use of the product with the supplier of the product, particularly a supplier that's only 2% of the marketplace. And I think also, as you think about the products that we make, you've got to look at it in the context of what are the alternatives? So I'll give you one example. We produce LNG and we're growing our LNG business. That's used to displace coal in the power generation. That lowers society's emissions significantly.
As I produce more gas, LNG, my Scope Three emissions go up. The world benefits from that. As I produce more products, more gasoline, more diesel, if you look at the refining circuit that I run around the world, through independent, exte