April 5, 2015
By Ryan Koopman
Chicken Little ran nervously through the barnyard, warning that "the sky is falling, the sky is falling."
For the last decade, Big Oil has been running nervously through the halls of the U.S. Capitol and the EPA, screaming — to anyone who will listen — that the Renewable Fuel Standard is an "unworkable," "infeasible," "unsustainable," rule that will create a "death spiral" in the fuels market.
The stories are similar, with one difference: Chicken Little believed his tale.
A new study published this week by University of Calgary professor (and one-time Iowan) James Coleman shows that for years, Big Oil hasn't been completely honest about the RFS. They've been telling the EPA one thing (that the RFS is a horrible, economy-killing law) and telling their shareholders another thing (that it's no big deal). That general concept — that Big Oil has been misrepresenting the effects of the RFS — is something Iowans have been saying for years. But until now, no one has realized that Big Oil has effectively admitted as much.
Each year, the EPA proposes a new RFS — a rule that governs how much biofuel must be sold — and solicits comments on that proposed rule. These comments aren't supposed to be a joke. The EPA is required to consider them, and it's important that it does. When a regulatory body makes law, it needs input from stakeholders; they're the ones on the ground, after all. So it's important that those stakeholders be honest in their assessments.
As you might expect, oil companies — Chevron, ExxonMobil, Marathon, Shell, and others — take the opportunity to tell the EPA what they think of the proposed RFS standard. And as you might expect, they don't have good things to say. Shell told the EPA in 2013 that the proposed RFS would "limit the supply of gasoline," which would hurt its business and cause "severe economic harm." Even more forceful, the American Petroleum Institute — which boasts that it is the only "association that represents all aspects of America's oil and natural gas industry" — recently told the EPA that its 2013 RFS proposal could cause "large increases in transportation fuel costs" that "would ripple through the economy imposing significant costs on society" that would eventually push the fuel markets into a "death spiral."
That seems pretty bad. And it would be, if it were true. But it's not, and we know because Big Oil has told us.
Each year, publicly traded companies must file what's called a Form 10-K. The purpose (and the legal requirement) is to tell shareholders how the company is doing and to warn them about significant bumps in the road ahead. So if the proposed RFS is really such a problem — if there really is a risk that it will create a death spiral in the fuel markets — then Shell, ExxonMobil, Chevron, and other oil companies should be telling their investors in the 10-K.
They're not. Professor Coleman collected the comments that publicly trade oil companies made to the EPA on the RFS from 2009 to 2013 and compared those comments to those company's 10-K filings. He found that oil companies tell the EPA that the RFS could create significant financial hardship for them and the country, and at the same time they assure their shareholders that everything is OK. Indeed, Shell — the company that said that the RFS could limit the gasoline supply and cause "severe economic harm" — suggested in its securities filing that the RFS was a boon for its bottom line.
The EPA should take note, and it should review the oil companies' comments with the appropriate skepticism.
Of course, maybe the oil companies think that their sky-is-falling assessments of the RFS are accurate; maybe it's the shareholder disclosures that are the fib.
Probably not. The failure to make full disclosure to shareholders is against the law and can lead to costly lawsuits. Oil companies and their lawyers know that. Exaggerating to the EPA, on the other hand, doesn't come with legal consequences.
Professor Coleman has a simple solution for this problem: If a publicly traded oil company (or any public company, for that matter), comments on the EPA's proposed rules, it should attach its 10-K. That way, it can't tell the EPA one thing and its shareholders another. We'll get the truth — at least as Big Oil sees it.
Read the original story here : Study Shows : Big Oil Is Chicken Little Over Ethanol