Gov.’s Plan Divides Oil Firms

Gov. Arnold Schwarzenegger’s pledge to fight global warming has opened a rift as wide as the Atlantic Ocean between two groups of oil companies in California.

The governor’s high-profile initiative, which sets firm targets to reduce the greenhouse gas pollution that contributes to global warming, is supported by BP, the London-based oil giant whose Arco gasoline is the state’s biggest seller, and Royal Dutch Shell of the Hague, Netherlands, owner of the Shell brand.

U.S. companies such as Chevron Corp. of San Ramon, Calif., and Exxon Mobil Corp. of Irving, Texas, oppose the directive. In private, the Americans, who generally bristle at state intervention in the market, snidely refer to their transatlantic cousins as “the Europeans,” who have adapted to a culture back home of stiff government regulation, expensive social welfare networks and heavy taxes.

The greenhouse gas clash, which is just beginning to build momentum, marks a rare dispute among the large petroleum companies that give millions of dollars a year in political contributions. The row threatens to weaken the industry’s legendary unity in lobbying on air quality rules, gasoline taxes and highway funding.

“Typically the oil companies have banded together,” said Bill Magavern, a legislative advocate for the Sierra Club in Sacramento. “But I think we’re now seeing the beginning of a fissure that could grow larger. European companies realize that greenhouse gas is something they need to grapple with, while the American companies continue to stick their heads in the sand.”

Even Joe Sparano, president of the Western States Petroleum Assn. and the oil industry’s point man in Sacramento, acknowledges that global warming “is a tough issue for our industry” because “folks have different views or don’t get to the same place at the same time.”

The dispute comes down to whether the actions of an individual state, even one as large as California, can make a significant dent in worldwide emissions of carbon dioxide from refineries, power plants, factories and vehicles.

The foreign-owned companies contend that state action, including mandatory reporting of emissions, could ease global warming despite the absence of meaningful national or international controls. The American companies counter that actions in California would be futile if uncontrolled pollution continues in China, India and other fast-developing industrial powers.

The split in the oil companies’ ranks reflects a similar disagreement in the larger business community over Schwarzenegger’s plan for cutting carbon dioxide emissions beginning in 2010. His long-term goal, laid out in an executive order he signed in June, would slash carbon levels in the atmosphere to 80% below 1990 totals by 2050.

“The governor has driven a wedge between members of the business community. But the question remains, is he going to stand up” to opposition, said V. John White, director of the Center for Energy Efficiency and Renewable Technology in Sacramento.

Schwarzenegger already has begun to backpedal from recommendations in a draft report by his administration’s Climate Action Team. The draft, put out for review Dec. 8, called for a gas tax of less than a penny a gallon to fund research into alternative fuels. Schwarzenegger’s press secretary issued a statement saying the governor would not support any gas tax hike.

The final report, which Schwarzenegger ordered completed by Jan. 1, has been bottled up at the California Environmental Protection Agency for the last 2 1/2 months.

The Schwarzenegger administration -- which touts the governor’s international leadership in combating global warming -- said the governor was hoping to get industry support for his state-centered program. “When there’s a lack of leadership at the federal level, the governor feels it’s critical that he take action,” Schwarzenegger spokesman Adam Mendelsohn said.

European oil giants say they like the thrust of the draft report. A Dec. 12 letter to Schwarzenegger signed by Denise Michelson, BP’s environmental policy director for California, called the recommendations “appropriately focused on ways to maximize economic and environmental benefits to Californians.”

Michelson’s support echoes a broader policy set by BP Chief Executive John Browne. “We can’t afford to wait for the science to be completed, and nor can we wait for universal political agreement,” Browne said in a speech late last year that praised efforts underway in California and “different states in the U.S.A.”

BP and Shell are the only oil companies in California to join the state’s voluntary registry for reporting greenhouse gas emissions. Such reporting is “a reasonable first step in supporting the governor’s greenhouse gas control efforts,” Shell spokesman Timothy S. O’Leary said.

Despite the upbeat talk, BP and Shell’s environmental records are far from pristine. BP suffered a major crude oil spill this month at its oil fields in the North Slope of Alaska. Last month Shell was hit with a $1.5-billion legal judgment in Nigeria over allegations that it polluted the oil-rich Niger River Delta.

BP -- which advertises that it is going “Beyond Petroleum” in its quest to develop renewable energy -- “is putting its money where its mouth is,” said Phil Cochrane, a spokesman for BP’s U.S. subsidiary. The company is committed to spending $8 billion over the next decade on alternative-fuel projects, including a $1-billion hydrogen-fueled electric power plant in Carson, he said.

The U.S. oil companies also are involved in developing alternative-energy projects. However, they “have great reservations about a state-only approach,” Chevron spokesman Jack Coffey said. Limits on greenhouse gas emissions here would penalize California companies that are spending millions of dollars on pollution controls and energy efficiency, he said.

Chevron and other U.S. oil companies have been lobbying the Schwarzenegger administration against the global warming initiative as part of a coalition of business groups.

Despite some differences over global warning, the petroleum association’s Sparano said he was hopeful that the oil industry would remain united on major issues involving gasoline prices, taxes and air quality.

For now, the split in the oil industry is more about how companies talk than how they act, Chevron’s Coffey said.

“So far, everybody has stayed together to oppose things they believe won’t work,” he said. “I’m just not sure where everyone will come down when they get a piece of legislation or a regulation in front of them.”