Dr. Alicja Byrska-Rąpała                                                             GB 1

University of Technology, Faculty of Management,

Cracow, Poland

 

 

 

Ethical dilemmas of oil industry

in the beginning of the 21-st century

 

 

 

 

1.  Introduction

Through decades oil companies believed  that the source of their wealth were rich oil fields. 80 years of the 20-th century - quickly changing business environment, political and moral shocks, fundamental character of relations among Christians and Islamic world, distinct signals of environmental changes - caused change in percepting the business among oil companies.

In the time of an intensive competition oil firms seek more and more new manners how to attract customers. One of the methods appears to be improving the image of the company perceived by the society, employees and customers. Competing firms, as a result of the unification of economic systems, after having reached a similar organizational and technological level, operate in similar economic and social conditions. Since it is extremely difficult to achieve advantage over competitors in the oil industry on traditional field of production technology, management system or marketing techniques, oil companies begin to seek sources of uniqueness of their own offer in the sphere of social expectations or desired by the society.

The mining industry understood that its wealth was flowing not only from the oil pools and other material values, but also from their reputation and human resources. Those immaterial resources began to play greater part in the creation of the new value of the company, which along with human rights determines proper  business.

 

2.  Oil industry development perspectives

The contemporary economy and the development of civilization followed by increasing utilization of energy sources, have a great impact on the environment deterioration. The oil- industry, next to the coal industry, is particularly harmful for the natural environment.

Figure 1. shows current and projected structure of consumption of primary energy sources.

 

 

 

Figure 1. Word Electricity Generation

Source: Topping D. (2003): The Role for Coal-Fired generation. EPCOR Generation Inc.

 

Presently, as it is shown, the great proportion of energy is drawn form coal and this tendency is expected to continue till year 2020. Main competitor of the coal, as a definitely cleaner source of energy, is and will be in the future, natural gas. The participation of the nuclear energy in the balance of the world is not expected to change (there are no plans of building new atomic power plants, which could improve this ratio). Participation of hydropower, will increase slightly.  Remaining sources of electric energy, i.e. solar, wind and the biomass power, as ecological and renewable sources, will play greater part in the future.

Consumption of the petroleum as a source of energy increases and this tendency will remain to the year 2020, though its participation in the energy balance of the world does not increase.

As figure 2 shows, the worlds demand for oil will increase. The significant increase is expected especially in the group of developing countries in Asia. Projected for year 2020 increase of demand for oil is twice as high as the one noted in years 70.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 2. Oil Intensity by Region (industrialized, developing, Eastern Europe and Former Sowiet Union), 1970-2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3. Word Natural Gas Consumption 1970-2020

 

Source: Energy Information Administration, U.S. department of Energy, www.eia.doe.gov/oiaf/ieo/index.html

 

3.  The social responsibility of the oil and gas industry

The discussion on „the social responsibility“  of the firm, sector or industry has been present for decades. The term „social responsibility of the business“ appeared in the literature in thirties of the 20-th century. Initially the term was understood as the sensibility on social problems in accordance to the rule that the rich should serve the poor.

On the threshold of the 21-st century, in the new global economy, social responsibility is understood as a social contract based on economic, legal and ethical rules, made between business and society.

Social consequences of the business operation cause the major ethical dilemma of the company. For the oil industry especially injurious − in a social way is, among all, the issue of greenhouse gases, causing the climate changes on Earth. The difference between the cost of injurious activity e.g. the range of greenhouse gasses emission, and profits that the company draws from its activity is quantification of socially ethical attitude [Le Menestrel M. et al., 2002].

Oil industry, next to the coal mining one, is particularly harmful for the natural environment. To fit into the present requirements of the business, oil companies build their own image by active participation in the environment protection.

 

3.1. Greenhouse gases dilemma - Kyoto Protocol

The natural environment protection is today − on the threshold of the 21-st century − the key, both social and ecological, problem. One of the most difficult problems to be resolved is an over issue of the greenhouse gases. The International Panel on Climate Change (IPCC) -formed in 1988 - warns that the coming ecological catastrophe can be held back only through the cooperation of all states of the world. They must accept the following fundamental rules:

1        equality in the access to the atmosphere as a resource and the honesty in taking responsibility for the limitation of the greenhouse gases issue,

2        recognition of the international law rule, according to which economic activities or other, undertaken in one country, cannot cause damage and degradation in another one,

3        the inter-generation justice, standing for absence of consent for shifting the costs of the counteraction to climatical changes to next generations,

4        the historic responsibility for effective changes.

All activity performed should also serve to assure a sufficient access to energy, food,  medical care, water and fulfilling other basic human needs.

In the year 1992, during the UNO Conference „Environment and Development“ (Earth Summit) in Rio de Janeiro the United Nations framework convention on Climate Change (UNCFCCC) was adopted. During repeating Conferences of Parties (COPs) policies of gas emission limitation are gradually agreed. In 1997 during the conference in Kyoto (COP 3) the Kyoto protocol was agreed. One of the most important entry of that protocol is the obligation of developed countries to limit the issue of greenhouse gases in the years 2008-2012 by 5,2% in the relation to the base year - 1990. The starting point for the further negotiations referring to the period after the year 2012 is the record in the Convention concerning necessity to decrease the concentration of greenhouse gases in the atmosphere to the level that will protect the global climate system against dangerous changes, caused by human activities. This aim will be reached if the average temperature on the Earth settles on the level not higher than 2şC over the temperature from the pre industrial period. It will enable an adaptation of ecosystems to new conditions by eliminating threats related to, for example, production of the food.

Very serious economic effects resulting from implication of stipulations of Kyoto protocol make negotiation difficult and final solutions undetermined. Half-way through year 2004 the effect of Kyoto protocol was still uncertain as USA and Russia refused to sign it. Finally Russia ratified the protocol.

According to the Kyoto protocol countries from EU-15 are obligated to the limitation of greenhouse gases issue by 8% in the years 2008-2012 in relation to the base year - 1990. Consequences of the Kyoto protocol concerning aggregated issue of greenhouse gases for UE-15 countries, for new members (UE-10) and countries candidating to UE, were introduced on figures 4 and 5.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 4. Greenhouse gas emission targets of new EU Member States and candidate countries for 2008-2012 relative to base-year (1990 in most cases) emissions under the Kyoto protocol

 

 

 

 

 

 

 

 

 

 

 

                            

 

 

 

 

 

 

 

 

 

Figure 5. Greenhouse gas emission targets of EU Member States for 2008-2012 relative to base-year emissions under the EU burden-sharing decision

 

Source: Greenhouse gas emission trends and projections in Europe 2003 – Summary. Office for Official Publications of the European Communities, Luxembourg 2003.     

 

 

For the facilitation of meeting aims indicated in the protocol, flexibility mechanisms will be allowed. One of them is the so-called emission trading. For the countries attaining greater reduction of emission, than indicated in the protocol, it will make it possible to resell surpluses on the international market, while those who emit above allowances will be able to buy it.

The aim of the pan European market of emission allowances is introduction of economic incentives to reduce the issue where it is cheaper. It is expected, that introduction of emission market in Europe should decrease the cost of reduction of greenhouse gases issue by approximately 30%. The situation of Poland in the area of the CO2 issue is better than it is in the case of the eldest member countries of  European Union which can encounter problems with fulfilling their own reductive commitments. Lately, the quantity of emitted in Poland CO2 was 300 millions tones a year, however it tends to demising. See Figure 6.

Figure 6. CO2 emission in years 1988 - 2003

Source: Instytut Ochrony Środowiska

 

 

 

 

 

 

 

 

 

 

 

 

www.ios.edu.pl

 

 

 

 

 

 

Polish emission of CO2 will be smaller then the limit set in Kyoto protocol.

According to some estimates, in years 2008-2012 (first period of commitments of the Kyoto protocol) this surplus can reach even over 100 millions tones of CO2 a year.

 

 

4.  The mission and ethical codes of greatest oil firms

Rules of the social responsibility of the company are the part of its strategic plan. The mission, the vision, values and aims of the company, the ethical code are declarations defining strategic intentions of firms and their aspirations on the field of appreciated values. Considered as the visiting card of the firm and its unique feature, they are published and displayed on companies’ internet pages.

The ethical code delivers stable rules of the companies operation. It facilitates the social control on the ethical performance of the company, which in consequence serves public welfare.

Constitution of company's ethical code requires to answer several questions:

- why does it exist? (the mission),

- what does it believe? (key values),

- who does it want to be? (the vision of the company),

- how to achieve it? (the strategy),

- what should be done? (aims),

- how to measure it (measures),

- how changes should be performed and if any changes should be done? (norms, customs, the social attitude).

Greatest oil concerns like Exxon -Mobil, the Royal Dutch-Shell, BP-Amoco or Chevron-Texaco in their missions and ethical codes set themselves, as the superior strategic aim, following:

-     fulfilling social and environmental liabilities,

-     in every part of their activity to endeavour the value creation connected with the welfare of stockholders, employees, customers, suppliers and society,

-     cooperation with different cultures, by respecting social, economic and cultural differences

-     environment protection through searching for new technologies and new products.

The mission of the BP Company is the multipage declaration of the business policy in five basic areas -  ethical behaviour, development of employees, intercourse with the background, health protection, safety and natural environment. It sounds as follows:

„Health and safety: to ensure that there are no accidents, no harm to people and that no one is subject to unnecessary risk while working for the group. Environmentally sound operations: to conduct the group’s activities in a manner that, consistent with the board goals, is environmentally responsible with the aspiration of ‘no damage to the environment’. The group will seek to drive down the environmental impact of its operations by reducing waste, emissions and discharges, and by using energy efficiently. ‘Transcending the environmental trade-off’: to contribute to human progress by applying the group’s resources in such a way that the perceived trade-off between global access to heat, light and mobility and the protection and improvement of the natural environment may be overcome“ [BP’s…, 2001].

The Exxon Mobil Company, with its business policy embraces: shareholders, customers, employees and communities. For every area it undertakes commitments. In the context of business ethics most interesting seems following records:

1         „Exxon Mobil Corporation pledgs to be innovative and responsive, while offering high quality products and services at competitive prices.

2        The exceptional quality of our workforce is a valuable competitive edge. We are committed to maintaining a safe work environment enriched by diversity and characterized by open communication, trust, and fair treatment.

3        We pledge to be a good corporate citizen in all the places we operate worldwide. We will maintain the highest ethical standards, obey all applicable laws and regulations, and respect local and national cultures. Above all other objectives, we are dedicated to running safe and environmentally responsible operations.

4        We will consistently strive to improve efficiency and productivity through learning, sharing and implementing best practices.

5        We will achieve our goals by flawlessly executing our business plans and by strictly adhering to these guiding principles along with our more comprehensive Standards of Business Conduct“ [www.exxonmobil.com].

The Royal Dutch Shell concern forms its business ethics strategy as:

 „Shell companies need to be profitable to deliver returns for shareholders and fund investment. But to thrive we must respond to a range of non-financial issues, such as transparency, respect for human rights and tougher environmental standards. Being trusted to meet societal expectations is key to long-term success“ [Annual…, 2000].

 

4.1. The role of oil concerns in the policy of greenhouse gases emission reduction

Oil corporations are companies, who can effectively influence the policy of the country wherein they pay taxes. The reasons are amounts pay to the budget, but not only. Other factor constituting their political power is the fact that employ tens, and even hundreds thousand people. The position of power can, in extreme circumstances, cause undesired  acts, as it shows an example of Exxon Mobil which increased the issue of greenhouse gases, to support USA president George W. Bush decision about not signing the Kyoto protocol. Soon, the spokesman of the concern claimed that environmental activity of the company would concentrate not on the reduction of the emission of greenhouse gases, but on developing new technologies improving the energy efficiency  [www.smh.com.au/articles/2004/10/07/ 1097089494733.html?from=storylhs&oneclick=true].

Oil companies can play both positive and negative part in the formation of the world ecological policy. Positive instance is the fact that all oil companies generously participate in costs of ecologically clean sources of energy research and in costs of research on already existing technologies of gaining energy, like the congregation method, which connected production of the energy and steam for the heating purposes.  This is almost twice as effective as the traditional way of production of the electricity and the steam. Doubtlessly, it allows, in current conditions of great increase of energy utilization to relieve already contaminated the environment.

Oil  concerns also participate in projects devoted to utilization of renewable sources of energy like  wind power stations. For example developing materials which at low production costs will be able to assure suitable technical parameters for wind power stations (artificial materials for the production of shovels and windmills) or turbines for hydroelectric power stations.

One of the most important projects of gaining „pure“ energy are hydrogen fuel cells. Creation of the technology, that would allow to produce fuel cells at same costs as the production of traditional engines would certainly cause decrease of oil companies profits. That is why oil concerns invest in development of traditional engine that would improve effectiveness  of oil and gas transformation into the energy (hybrid engines).

Not meaningless are increasing prices of oil on international markets. Despite of growing costs of the extraction, growing prices effect in higher profit, and consequence on greater deeds for development of „pure“, ecological technologies. Sums spent by oil syndicates on environment protection are not trifling. The oil industry in USA in year 2001 spent on environment protection 8,7 billion $, which is 12% more than in the year 2000. Since 1992, as American Petroleum Institute (API) analysis show, total expenses on environment are valued on approximately 90 billion $, which gives average 9 billion $ a year.

 

5.  Conclusion

Oil companies are one of the most damageful for natural environment economic subjects. A source of their harmfulness to the environment lays in exploitation and products they produce. That is why they will be a subjects of international ecological organizations’ attacks. They will have to make effort to limit the environment degradation they cause, and try to recover what has already been destroyed.

 

Bibliography 

1.      BP Statistical Review of World Energy (2004), www.bp.com.

2.      BP’s Business Policies (2001), www.bp.com.

3.      Energy Information Administration, U.S. Department of Energy, www.eia.doe.gov/oiaf/ieo/index.html

4.      Greenhouse gas emission trends and projections in Europe 2003 – Summary. Office for Official Publications of the European Communities, Luxembourg 2003.     

5.      en/html/iwgen/our_performance/environmental/2004_greenhouse_gas_emissions.html

6.      Annual Report and Accounts (2000), www. shell.com.

7.      www.exxonmobil.com/corporate/Newsroom/Publications/

8.      Instytut Ochrony Środowiska, www.ios.edu.pl.

9.      Le Menestrel M., Van de Hove S., De Bettignies H.C. (2002): Processes and consequences in business ethical dilemmas: The oil industry and climate change. Journal of Business Ethics, Vol. 41, Issue 3, p. 251 – 266.

10. American Petroleum Institute (2003), U.S. Oil and Natural Gas Industry’s Environmental Expenditure.

11. www.epcor.ca/docs/CoalGenPaper030604.pdf  

 

 

 

 

 

ABSTRACT

 

During last decades, oil companies thought that the source of their value had been wealthy oil fields. Since 1980 quickly changing business background, politics and morality shocks, making worse relation between Islam and Christian worlds - have changed view at oil business. Mining industry has understood, that their wealthy aren’t only oil fields and material things but also their immaterial resources like reputation, people and technology. These immaterial things have begun making big role in building new value of company. Shareholders value and human rights are interactive elements of  „good“  business.

During last years in literature has proceeded a discussion  of challenges which stand face to face with mining companies, especially oil companies. Authors have emphasized, that the interaction, as economic, political and cultural processes are the  drivers of the global system.

In the paper author describes main topics of discussion, which afflicts future of mining industry. On the authority of potentate oil companies (Exxon -Mobil, Royal Dutch-Shell, BP-Amoco, ENI) ethical dilemmas, ethical and environmental policies, code of ethics, author introduces how oil industry thinks about making ethics business standards in relation with industry’s ethical dilemmas in the beginning of XXI century. Author describes briefly practical including oil industry in solving problems of environmental policies (problem emission of CO²).

Key words: social responsibility, environmental policies, code of ethics