It made news last week when ExxonMobil, along with a slate of other big companies, including other oil giants, backed a plan for a substantial, rising US carbon tax.

The plan was put forward by the Climate Leadership Council, a new group that is seeking a bipartisan path forward on climate policy. The tax would start at $40 a ton; the revenue would be returned as per-capita dividends to all US citizens.

The Council includes some (retired) Republicans like James Baker III and George Schulz, along with a few centrist favorites like Michael Bloomberg and former Energy Secretary Steven Chu. (For some reason, Stephen Hawking is also a fan.) And among its “corporate founders,” are GM and Unilever, along with ExxonMobil, BP, Shell, and Total.

Why would Exxon back a carbon tax that would raise the price of its products?

There’s more to it than you might think. Exxon’s motives on this are complicated — some are short-term and greenwash-y, but others are longer-term and have to do with the industry’s health over coming decades. It’s all a useful lens through which to view the oil industry’s place in warming world.

Big oil has more to worry about than lawsuits

In the near-term, Exxon is embroiled in a messy legal and PR fight, which is why environmentalists were quick to dismiss its gambit as greenwashing.

Critics pointed to a provision within the plan that would shield oil companies from legal exposure to climate-based lawsuits, which is of particular interest to Exxon, as the company is currently under investigation by a group of state attorneys general. The AGs allege that the company knew about the risks of climate change long before it revealed those risks to investors, and even when it did, instituting an internal carbon price, it secretly used a much lower price in actual business decisions. (Exxon has responded to the investigation by suing two of the AGs.)

In January, a Massachusetts judge issued Exxon a setback when it ordered the company to turn over 40 years of climate research, based on the investigation by state Attorney General Maura Healey. In May, a Texas judge (Exxon’s home field) dealt the company another blow by transferring the company’s case against the AGs to New York, where it will be fought by dogged NY AG Eric Schneiderman.

Greens also pointed out that the plan would repeal a range of environmental regulations targeted at greenhouse gases, something oil and gas companies would very much like to see.

They pointed out that tax is, in the words of 350.org’s Jamie Henn, “dead-on-arrival.” There is no chance this Republican Congress will pass it and very few Republicans are willing to speak up in even tepid support.

And they pointed out that Exxon has lied about climate change for years and lobbied against other carbon tax bills, which casts its motivations in some doubt.

All of this is true, and all of it has likely informed Exxon’s effort to position itself as a constructive partner on climate policy.

But there are also bigger, longer-term trends at work, which are pushing all the oil majors to the table on climate.

The oil industry faces enormous risk if the world takes climate change seriously

For years, climate hawks have been talking about a “carbon bubble.” The basic idea is simple. If the world is serious about its common climate target — holding global average temperatures to less than 2 degrees Celsius above preindustrial levels — then there’s only so much carbon it can throw up into the atmosphere. That amount of carbon is our collective “carbon budget.”

Here’s the thing: If we are to stay within our carbon budget, about two-thirds of known fossil fuel reserves will have to remain in the ground. We can’t even burn all of our currently developed reserves.

Nonetheless, those reserves currently have enormous value on the balance sheets of fossil fuel companies. Their books are full of “unburnable carbon.”

Are they at risk? Is unburnable carbon the climate equivalent of subprime mortgages?

It depends.

If the world doesn’t take ambitious steps to phase out fossil fuels, and if technological competitors to fossil fuels don’t develop faster than expected, then no, unburnable carbon poses no financial risk. It’s only a risk if there’s some real chance that we won’t burn it.

But if the world does take climate seriously, and cleantech does develop more quickly than expected ... well, then the carbon bubble starts leaking.

A new report from Carbon Tracker and Principles of Responsible Investment (PRI) breaks down, for the first time, just how much each oil and gas company is at risk.

There’s a whole separate paper on methodology, but the gist of it is that they calculate each company’s exposure to risk in a 2-degree (2D) scenario — how much capital it has tied up in potential projects that it wouldn’t be able to build in that scenario.

First they use carbon supply curves to determine which projects would be canceled in a 2D scenario. They then determine, for each company, how much of its capital spending (“capex”) is committed to those potential projects. That is the amount of a company’s exposure.

Here’s the big picture:

Around $2.3 trillion of oil and gas capex through 2025 should not be deployed if we want even a 50/50 chance of staying beneath 2 degrees. That’s around a third of all projected capital expenditures under business-as-usual.

Which companies have the most capex tied up in projects that lie outside the 2D budget? Here’s a snapshot of the top 20:

As you can see, Exxon comes in at 13 overall, and first among the oil giants, with 40 to 50 percent of its total capex through 2025 going to projects outside the 2D budget.

That’s a lot of exposure and a lot of risk.

And Carbon Tracker has done a terrific job that is being recognized by more and more people (as Donald Trump might say). Shareholders and the general public are starting to pay attention to corporate climate risk.

In a May 2017 shareholder resolution, 62 percent of Exxon shareholders (up from 38 percent last year) voted for a resolution calling on the company to do, in the New York Times’ words, “more open and detailed analyses of the risks posed to its business by policies aimed at stemming climate change.”

Specifically, shareholders want to know what will happen to Exxon if world governments get serious about the 2D target. That’s a question Exxon has long resisted answering. (The resolution is non-binding, but CEO Darren Woods “said the board would consider the result because it reflected the view of the majority of shareholders.”)

In short, oil and gas giants are under increasing pressure to take the 2D target seriously — and taking it seriously would mean an immediate halt in growth and the beginning of a long, steady decline.

A carbon tax would benefit oil and gas companies, at least at first

To understand how oil and gas companies feel about a carbon tax, it’s important to understand a key dynamic. (I explained it at Vox a couple of years ago.)

It is the nature of an economy-wide tax on carbon — and a virtue, according to economists — that it hits the most carbon-intensive sources first. Think of a rising tax like rising sea levels; low-lying areas, i.e., the most carbon-intensive, are most at risk.

The low-lying region in this analogy? Coal. In fact, coal is more like a string of Pacific islands — a rising tax threatens to wipe it out entirely. It is far and away the most carbon-intensive source of energy (not to mention the most intensive source of local air and water pollutants) and thus will suffer first and most from a tax.

When coal gets more expensive, the primary beneficiary is, you guessed it: natural gas. The proximate effect of an economy-wide carbon tax will be to accelerate a switch from coal to gas. That will, at least for a while, prop up oil and gas companies.

Of course, natural gas faces the same carbon reckoning as coal and oil, so a shift from the latter to the former only delays things a bit. But it’s a breather for the industry.

Oil is in a rough patch and the long-term prognosis is not good

Earlier this month, Exxon stock hit a 52-week low, breaking below $80. Part of that is the lawsuit, but part of it is that global oil prices are stubbornly staying low. Despite the low prices, however, production keeps rising, leading analysts to project depressed prices for the foreseeable future. They have down-rated a range of oil ventures.

Why aren’t low prices leading to production cuts? Because oil and gas companies are highly leveraged. In February, the Bank for International Settlements warned that, as the Telegraph put it, “the global oil industry is caught in a self-feeding downward spiral as falling prices cause producers to boost output even further in a scramble to service $3 trillion of dollar debt.”

As prices fall and competition for export markets becomes more fierce, Saudi Arabia and other OPEC states are flooding the market, trying to drive out competitors. That’s putting continued downward pressure on prices. Under the strain, export states are embracing fiscal austerity, which is threatening a global economic slowdown.

Meanwhile ... [ominous music] ... earlier this month, the analysts at McKinsey & Company issued a research report on oil’s long-term fortunes. The news was not good.

The basic shape of things is that demand for chemicals derived from petroleum is projected to grow very quickly, while demand for oil for energy is projected to plateau and decline. It will decline because economies are shifting from manufacturing to services, and because growth in light-vehicle demand will peak around 2023, even as more and more vehicles go electric.

How those two contrasting trends balance out will determine global oil demand in coming decades. If growth in demand for chemicals doesn’t pan out and light vehicles electrify (and go autonomous) faster than projected — both distinct possibilities — “oil demand will peak around 2030, at fewer than 100 million barrels per day.”

That is nuts. It was not long ago that analysts saw global oil demand rising as far as the eye could see. But conventional wisdom is shifting. The question now is not whether demand will peak, but when. Some predict earlier: The CFO of Royal Dutch Shell recently said that the company expects a peak “somewhere between 5 and 15 years hence.” (Admittedly, Shell is big into gas, so it’s not entirely neutral in the fight.) Exxon itself still maintains that demand will grow forever and a day.

The fact is, as the Wall Street Journal reports:

“Nobody knows” when demand will peak, says Spencer Dale, group chief economist for BP PLC, which issues a widely watched annual outlook. The company’s base case calls for a peak in the mid-2040s—with the caveat that it could come sooner or later. “There are huge bands of uncertainty around that,” Mr. Dale says.

The uncertainty matters, but the long-term trajectory is clear. Policy and technology will restrain oil demand, stop its growth, and eventually drive it down. To the extent that real urgency on climate change takes hold, or innovation outstrips expectations, that will happen faster than currently projected. The end of oil’s long reign is, if not precisely scheduled, at least coming in sight.

That means oil and gas companies need to take a proactive role in climate policy discussions. They need some predictability, a glide path to a low-carbon world, and they can’t afford to just sit back and hope it happens.

From their perspective, a globally harmonized carbon tax that replaces all other regulations is absolutely the best-case scenario.

We support @TheCLCouncil as a Founding Member and are working to support its policy development process https://t.co/KngZ5Iu5aK — ExxonMobil (@exxonmobil) June 20, 2017

One tax beats the hell out of a global patchwork of domestic policies

The industry’s worst nightmare is that the Paris climate process (even without Trump’s participation) works to ramp up global ambition, resulting in an expanding country-by-country patchwork of policies, all hostile to its long-term health. (Many of those more targeted policies represent the equivalent of a much higher carbon price than the one the companies are endorsing.) So big oil support for a carbon tax is undoubtedly part of a bid to tame or mitigate that patchwork.

In reality, there is always going to be a patchwork. The chances of persuading the US to replace its carbon policies with a single tax is low; the chances of getting the entire world to do it are vanishing.

But to the extent it can channel momentum toward harmonized taxes, the industry benefits. If the entire industry is subject to the same transparent policy, it makes long-term planning easier and competition more straightforward.

Also, at least historically, carbon taxes have tended to be too low, shaped more by politics than science. By consolidating policies, the industry also consolidates targets for political lobbying.

So, like I said, Exxon’s motives on this are complicated. In the proximate political environment, its support for a carbon tax proposal means very little. The GOP is too far gone to consider it. The company knows perfectly well it is in no near-term danger of being taxed. It will likely continue to support know-nothing Republicans and lobby against real-world climate policies.

But putting its name on a carbon tax proposal — one explicitly tied to the 2D target — can also be seen as big oil’s opening bid in what promises to be a long and contentious negotiation over the terms of surrender. There is still plenty of resistance to come from oil and gas, plenty of political and legal battles, but momentum in policy and technology have brought the end of oil, or at least the end of big oil, into view.

The industry finds itself in a fateful position, forced to think seriously about how to schedule and administer its own diminishment. That the world’s largest oil and gas company has taken a step down that road, even if it is a defensive and largely symbolic step, is no small thing.