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The Exxon Mobil refinery in Baytown, Tex.

PAT SULLIVAN/ASSOCIATED PRESS

Exxon Mobil Corp. is leading a parade of energy companies that will confront the issue of the so-called "carbon bubble" – the idea that fossil-fuel assets such as Canada's oil sands are overvalued and risky for investors in a world that must reduce its greenhouse gas emissions.

In an agreement with institutional shareholders, Exxon has agreed to disclosure by the end of March of how climate change regulations could affect the value of its worldwide assets, including its major holdings in Alberta's oil sands. Companies such as Suncor Energy Corp., Royal Dutch Shell PLC and Total SA have pledged to release their own reports on how their valuations would hold up in a low-carbon world.

Exxon's commitment – announced last week – marks a major victory for shareholder activists who are demanding better accountability on carbon risk, including some of the largest public pension funds in the United States, which have called for greater disclosure from oil sands companies as well as a dramatic reduction in greenhouse gas emissions.

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"Certainly, having the largest publicly owned oil company in the world agree to disclose this kind of information will put a lot of pressure on the rest of the industry to follow along," said Andrew Logan, director of the oil and gas program at Ceres, a U.S.-based non-profit group that has spearheaded the carbon disclosure effort on behalf of a coalition of 70 institutional investors.

Backed by pension funds such as the California Public Employees' Retirement System (Calpers) and the New York State pension fund, Ceres sent a letter last October to 45 leading energy companies, urging them to assess the risk that climate change poses to their business plans. That includes the impact of reduced demand for fossil fuels, which would be required to meet global targets to limit the rise in global average temperatures to 2 degrees above pre-industrial levels.

There are a number of studies – including one last year by HSBC Group – warning that the market value of companies holding carbon-intensive coal and oil assets could tumble if the world uses less fossil energy in its quest to limit climate change.

Exxon made its commitment in a letter to Arjuna capital, a wealth management company in Massachusetts. The comment said it would not comment until it releases the report at the end of the month.

"We expect them to detail how at risk their investments are in a low-carbon scenario," said Natasha Lamb, a portfolio manager with Arjuna. It was one of two co-sponsors to a shareholder's resolution that is aimed to force Exxon to provide more disclosure of its climate risk, but they pulled the resolution when the company agreed to issue a public report.

In a letter to Exxon head of investor relations, David Rosenthal, Ms. Lamb commended the company for its disclosure commitment, which she said should address why it believes its "current investments in new reserves are not particularly exposed to the risk of stranded assets."

Mr. Logan said the oil sands companies – notably Suncor and Canadian Natural Resources Ltd. (CNRL) – are particularly vulnerable to GHG-reduction policies, not only because the bitumen extraction is more carbon-intensive than other crude production, but because it is high cost and the properties contain long-life assets. "Of all the assets an oil company can own, the oil sands raises the most concern," he said.

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Shell and Total have indicated a willingness to co-operate. In an e-mailed statement Monday, Suncor said it already provides investors with information about its carbon risk but is willing to consider further measures. CNRL would not comment.

While oil sands critics say the Canadian projects are highly vulnerable to low-carbon policies, University of Alberta economist Andrew Leach suggested they are more robust than many believe and more so than the industry itself has let on as it lobbied against carbon regulations. He insisted the oil sands sector can absorb significant carbon prices, so long as crude prices hold up.

Even under a low-carbon scenario, the underlying oil price will remain at $100 (U.S.) a barrel – even if demand falls – due to the difficulty in replacing reserves, Mr. Leach predicted. "The real issue is not what is Canada's carbon policy, it really is what is your oil price," he said.

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