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How the European oil industry decided to save the climate

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The chiefs of some of Europe's biggest energy companies decided to pull an historic about-face. It was time to heed the protesters marching in the snow outside their industry conference demanding action to counter global warming.

[LONDON] It came together in Oslo.

The chiefs of some of Europe's biggest energy companies decided to pull an historic about-face. It was time to heed the protesters marching in the snow outside their industry conference demanding action to counter global warming.

By the time the convention chat turned into action, Royal Dutch Shell Plc, BP Plc, Total SA, Eni SpA, Statoil ASA and BG Plc, published an unprecedented open letter on climate change. Breaking with their biggest US competitors, they announced their support for efforts to put a cost on polluting, acknowledging they were on the wrong side of history.

"They have massively changed the rhetorical position," says Charlie Kronick, senior climate adviser at Greenpeace in London. "They know that if you are not at the table, you could end up being lunch."

Of course, doing good also means doing well for patrons of one of the world's most polluting industries. The letter's signatories are also big natural gas producers, and the turnabout will help them promote the fuel as a cleaner alternative to coal. Shell began producing more gas than oil in 2013 and Total the following year.

If the strategy is successful, the losers would be miners such as Glencore Plc and Anglo American Plc and coal-rich countries including Australia, Indonesia and Colombia.

The march toward climate enlightenment began a few months earlier.

The Church of England's investment arm, which has almost US$10 billion in assets, announced in December that it would file shareholder resolutions on climate change at the annual general meetings of several European oil giants this year. The companies knew they would need to respond as the church gathered support from other institutional investors.

The answer started to take shape in Davos at the World Economic Forum in January. There, under the umbrella of a group known as the Oil & Gas Climate Initiative, several executives started to talk about carbon prices over a closed-door dinner. Yet, the broad membership of the group, which includes the likes of state-owned Saudi Arabian Oil Co and Petroleos Mexicanos, slowed progress, according to people involved in the talks.

The European firms decided to press ahead with a smaller cohort that included their American counterparts. The task was difficult: Exxon Mobil Corp and Chevron Corp have opposed carbon pricing without tax breaks to compensate, saying it would raise the cost of energy. Still, Exxon internally uses a "shadow" carbon price to decide what projects to pursue, possibly a tacit admission that carbon prices are coming.

Then came the watershed during the Oslo Energy Forum in February, a who's-who of the global oil and gas industry, at the idyllic Scandic Holmenkollen Park hotel, surrounded by snow- capped hills and a century-old ski jump that hosted the 1952 Winter Olympics. The activists gathered at the entrance said snow would "be something only found in history books" if oil- linked emissions continued unabated, according to a pamphlet posted online.

Inside the hotel's wood-paneled rooms, a cadre of top oil executives was taking a similar - even if less sensational - view of the future of their industry: the only way to stop global warming is to impose a global price on carbon.

As BP Chief Executive Officer Bob Dudley recalls, it all started with himself and his peers from Statoil, Total and Royal Dutch Shell, on stage at the forum debating their response to the climate change challenge.

"We should speak with a common voice - why don't we do that?," Mr Dudley said they agreed, almost on the spot. "We were on stage at a panel and we were pressed by people at the Oslo Energy Forum to talk about our views on climate," he said.

Two months later, they decided to use IHS CERAWeek, an annual conference in Houston, to approach the Americans.

At the giant, 1,200-room Hilton Americas-Houston hotel, senior executives from top European and American companies gathered for a closed-door session on climate change, according to one person who participated in the meeting.

Exxon didn't participate, according to one person involved in the meeting. Chevron made clear that it opposed carbon pricing, a position that its CEO John Watson later repeated.

Speaking in late May, days before the European companies published their letter, Mr Watson ruled out any concert with the band of European oil and gas groups. "We don't intend to participate in that coalition," he told the company's annual shareholders' meeting. "We think we can make our statements, and our statements speak for themselves." Exxon and Chevron didn't respond to requests for comment for this story.

In between CERAWeek and the publication of the letter in early June, the six European companies were busy trying to agree on the final wording. According to people involved in the process, the CEOs delegated the mission to their staffs, and they didn't meet again on the subject.

As the drafting progressed, the companies tried, again, to widen their initiative, but other companies didn't join because a lack of time to review the letter or,1 in most cases, opposition to its wording. So far, only Repsol SA, the Spanish oil group, has team up with the original six signatories.

BLOOMBERG