Exxon, Profits, Corporate Responsibility and Free Markets

Exxon reported $10.9 billion in profit in the first quarter...that's Billion with a B. The Street was expecting more because last quarter they made $11.7 billion. That's still a lot of dough.

The Rockefeller family is calling on Exxon to use some of that cash to research and develop renewable energy sources.

The Questions are:

• What level of responsibility (ethical or otherwise) does Exxon have to do this?
  
• Shouldn't free markets take care of it?
  
• Could investing in renewable energy be good business?
• Would it be better for the shareholders to focus on traditional energy to maximize profit?

I don't have all the answers, clearly. No one does. Investors can make the argument that Exxon should focus on maximizing profit, and avoid investing in unproven technology that could amount to nothing. There's been a lot of money thrown at cold fusion with zero return to date. Their argument would encompass that Exxon's business is to get fossil fuels out of the ground, and they'd be right.

On the other hand, at some point, those fossil fuels will run out. Then what becomes of the company? To be fair, I really don't know what Exxon spending on R&D for renewable energy, but to the Rockefellers, it's not enough.

What's clear is that Exxon has the capability to have a meaningful impact to the renewable energy field, with their $40 billion in profits per year. By way of comparison, the Department of Energy's spend on renewable energy was planned to be $1.5 B in fiscal year 2007. Who knows what they actually spent, but that's another blog entry.

Is spending, say 10% of profits, or $4 billion per year, in renewable energy research good business for Exxon? I would argue that it couldn't hurt, outside of the impact on the income statement. If for nothing else than to have some proof point that Exxon actually cares. To date, it's public attitude toward global warming has seemingly been something out of Mad Magazine, "What? Me worry?"

To answer the question of free markets taking care of it. Sure, if the price of traditional energy gets high enough, it will spur investment in alternative energy. But, as the classic tragedy of the commons example indicates, free markets can, and often do, fail. Sometimes governmental intervention is necessary to push the country in the right direction.