SAN FRANCISCO -- Chevron Corp. helped write the first-in-the-nation rule ordering reduced carbon emissions from cars and trucks. Its biofuels chief spoke at the ceremony where California Governor Arnold Schwarzenegger signed the executive order in 2007, the same year the oil company pledged to develop a gasoline replacement from wood.
“We’ve looked at 100 feedstocks, 50 conversion technologies, worked to shape this law the best we can, and we have not come up with a solution to be able to comply,” said Rhonda Zygocki, Chevron’s executive vice president of policy and planning, in a Feb. 4 talk at the Commonwealth Club in San Francisco. Rick Zalesky, the Chevron official who celebrated the order’s signing with Schwarzenegger, was blunt last June when he declared the low-carbon standard “not achievable.”
While still promoting its commitment to renewable energy, the second largest U.S. oil company quietly shelved most of its biofuels work in 2010, according to internal documents and former Chevron officials. It decided products with potential returns of at least 5 percent weren’t enough for a multinational used to margins triple that, said Paul Bryan, a former vice president of biofuels technology.
“The best outcome for the oil companies is if nothing changes,” said Bryan, who left Chevron in 2010 after 15 years. “You can make money today making advanced biofuels -- you just won’t make as much money as the oil companies would like.”
Chevron’s switch is part of the fossil fuel industry’s hardening line against efforts to supplant petroleum in the $500 billion U.S. transportation fuels market.
ExxonMobil Corp., the largest U.S. oil company, has also retreated from a biofuels effort. It slashed funding for research into making the fuel from algae, according to former employees involved in the project, and with Chevron is pressing California to postpone the low-carbon standard. In Europe, meanwhile, carbon credits for December plunged to an all-time low yesterday, making it cheaper for companies to buy the right to emit more carbon dioxide gas under the European Union’s system for controlling global warming.
Like other major investor-owned oil companies, Chevron and ExxonMobil accept climate-change science and acknowledge carbon emissions contribute to global warming. They say they’re pushing back against the California rule because it demands technology that may not be available for years, and will cost jobs and send pump prices soaring if not rewritten.
The oil industry is lobbying to stop other states from following California. All the while, oil companies are dedicating few resources to the advances in biofuels they talk about needing to make, said Mary Nichols, head of the California Air Resources Board, which enforces the carbon rule.
“It’s shockingly small given their profitability,” Nichols said. “We’re dealing with companies with revenues in excess of the state of California.”
San Ramon, California-based Chevron had its second most profitable year in 2012, posting net income of $26.2 billion on $222.6 billion in sales, the vast majority from petroleum. California’s revenue in fiscal year 2012 was $87.8 billion.
The company touts its biofuels program on its Facebook page and website. “It’s time oil companies get behind the development of renewable energy,” a headline on the website says. The text says a joint venture with Weyerhaeuser Co., Catchlight Energy LLC, is “working to commercialize advanced biofuels made from forest-based biomass.”
While Catchlight still exists, Chevron and the forest products company three years ago scratched a plan to spend more than $400 million and build commercial plants by 2014, according to an internal Catchlight business plan.
The plants were expected to generate a profit of 5 percent to 10 percent, according to Bryan and other former Chevron officials -- short of the average 17 percent the company earns on capital investments, including oil and gas exploration and production, for which it has budgeted $33 billion this year.
The Catchlight plan was doomed when management decreed biofuels had to compete with fossil fuel projects for funds, said Bryan, a lecturer in chemical and biomolecular engineering at the University of California at Berkeley. He said he left Chevron, taking a severance package during a staff downsizing, because he didn’t believe the company was committed to biofuels.
Chevron was optimistic when it worked on the low-carbon fuel standard with Schwarzenegger’s team in 2007, said Desmond King, president of Chevron Technology Ventures, which oversees emerging technologies. Former biofuels chief Zalesky, now the company’s general manager of crude and manufacturing strategy, was among several Chevron officials who helped craft the rule.
As the company put theory into practice, trying to make a propellant out of wood’s sugar-rich fibers, it realized the rule was too ambitious, King said. The research didn’t lead to anything that would be commercially viable, he said.
Even a 10 percent potential profit wasn’t attractive because the average payback from other projects is so much higher, he said. “It’s hard for Chevron to make major investments in anything that would be dilutive to its return,” he said. “It all comes down to getting good enough returns for our shareholders.”
Spending on biofuels has shrunk, he said, declining to give details. A leading producer of geothermal energy, Chevron expects to spend about $2 billion between 2012 and 2014 on renewable energy and energy efficiency, according to Morgan Crinklaw, a company spokesman.