by Russell Gold
I thought about his point as the miles rolled by. Philadelphians didn’t have to choose whether to lease their land. The Marcellus formation ends before the city’s western suburban sprawl begins. But they did use a lot of energy and expected it to be available to keep them warm. Consuming energy while protesting against energy production seems hypocritical. What were the growing antifracking protests against? Who was right?
11
BLESSINGS OF THE POPE
It was a beautiful fall day for a protest. A few hundred people marched through downtown Philadelphia chanting, “Hey, hey, ho, ho, hydrofracking’s got to go.” By the time they arrived outside the Pennsylvania Convention Center, the crowd had swelled. Many carried “Ban Fracking Now” posters. One woman wore a “What the Frack” T-shirt. A Lutheran pastor in full vestment addressed the crowd, a rabbi blew a ceremonial ram’s horn as a “wake-up call.” Filmmaker Josh Fox, in his trademark baseball hat and thick-framed glasses, told the crowd that “fracking is a disaster unfolding across Pennsylvania.”
Inside the convention center, more than a thousand energy executives were attending a conference on the Marcellus Shale. The keynote speaker, Aubrey McClendon, took the stage and called the protesters naive. “Their real game plan is to use political pressure to force Americans to pay exorbitant energy costs for the so-called ‘green’ fuel sources that they prefer,” he said. But what would happen if we followed their lead? he asked. Wind and solar power can’t power the US economy. If we ban fracking, natural gas prices would skyrocket. Crops that require natural-gas-based fertilizers would cost more. Homes and business and factories would lose their heat and power.
“What a great vision of the future! We’re cold, it’s dark, and we’re hungry. I have no interest in turning the clock back to the Dark Ages as our opponents do,” he said. It was typical McClendon: a provocative, in-your-face attack. To the protesters outside, he was the face of fossil fuels and a man bent on destroying the environment.
Carl Pope doesn’t agree. “I think Aubrey McClendon will undoubtedly turn out to be one of the major contributors to giving the world a shot at protecting the climate,” he told me in an interview. Pope ran the Sierra Club, the nation’s largest environmental group, for eighteen years. The Sierra Club, founded in 1892, has been at the forefront of fights to preserve wilderness and clean up the environment. During his tenure, Pope began to believe that protecting the environment in the twenty-first century meant fighting climate change.
“The function of the environmental movement is to enable local people to defend local places from immediate threats,” he said. “But the science is telling us these places aren’t even going to be here. The Arctic National Wildlife Refuge is going to be underwater. So what are we talking about? Forget protecting it, let’s just stabilize the climate. Without a stable climate, the whole idea of protecting places with ecosystems and critters becomes impossible.”
In a perfect world, he knew fracking had an environmental impact. But the world that Pope saw wasn’t perfect. It was facing a dire threat. To stop the planet from heating up meant stopping new coal-fired power plants from being built and shutting down existing coal plants. In that fight, Pope and McClendon became improbable allies. The natural gas that Chesapeake and others were finding became an invaluable tool. “I thought, and still think, that Aubrey was a perfectly reasonable environmentalist, but that wasn’t what motivated him. What motivated him was he needed markets for his fuel,” said Pope.
The unusual partnership between Pope and McClendon began in 2006. Pope had recently guided the Sierra Club toward a greater emphasis on energy and shutting down coal plants. A couple friends had suggested that he meet with McClendon, who they said was also interested in fighting coal. The men had different motivations but a common goal. They met first in Connecticut, near an energy conference where McClendon was speaking. The energy executive began explaining to the environmental leader about fracking and how the once-scarce natural gas was about to become more abundant. McClendon explained that a lot more gas was going to be available to replace coal to make electricity.
Hearing this was a revelation to Pope. “It is going to run a few power plants and heat a bunch of homes—that was what we thought natural gas was for, and that was fine,” he recalled. McClendon continued his pitch, explaining that a kilowatt-hour of electricity generated from gas released half as much carbon into the atmosphere as the same kilowatt-hour from coal. Pope was intrigued. He had never heard of fracking before and shared the conventional wisdom, at the time, that gas would remain scarce. Toward the end of 2006, the two men soon met again, in Washington, and then a third time, in Oklahoma City.
When Pope first met McClendon, each man was at a turning point in his life and career. McClendon was still on his way to enormous wealth and success that was built precariously on debt and the most volatile of commodities. If Chesapeake and the rest of the industry overshot and produced more gas than needed, prices could collapse. One way to prevent this glut was to get more industries, power plants, and people to burn natural gas—even if this meant denigrating coal. Pope was trying to steer the Sierra Club, the nation’s largest, most influential environmental group, away from its historic focus on protecting places and endangered creatures. He wanted to focus on the climate. Enemy number one was coal. Traveling very different paths, Pope and McClendon had arrived at the same place.
Before they met, McClendon had already begun to develop his own plan of attack against coal. The first salvo was unleashed on February 4, 2007.
Ken Kramer was at home in Austin doing what he usually did on Sunday morning: reading the newspaper while sipping his coffee. For nearly two decades, Kramer had the often thankless job of being director of the Lone Star chapter of the Sierra Club. His years at the helm of the state’s Sierra Club made him the state’s unofficial top environmentalist. He knew just about everyone in Texas who fought to save state parkland, protect endangered species, and lower industrial emissions.
As he flipped through the pages of the Austin American-Statesman, he came across a full-page ad that caught his attention. Staring out from the page was an enormous close-up photograph of a beautiful young woman with azure eyes. Her face was covered with dark smudges, evoking midcentury images of sooty coal miners. “Face it. Coal is filthy,” the ad read. “Texas needs clean skies. Not black skies. Stop the filthy coal plants.”
“Where did this come from?” he asked himself. Then another thought, “This cost a hell of a lot of money.” Who had the money to pay for this giant ad? Certainly not the Sierra Club or any other environmental group that came to mind. He scanned the ad, and his eyes landed on the name of the group at the bottom of the page. What was the Texas Clean Sky Coalition? The ad encouraged people to attend an anticoal rally the following Sunday that Kramer had organized. It was as if he had just learned he had a rich, generous uncle, he thought. The uncle’s name was Aubrey McClendon.
The rally protested a proposal to build several new coal plants wending its way through regulatory agencies. Texas’s largest electricity utility, TXU Energy, was a century-old pillar of the state’s business establishment. It had been around, in one form or another, since the first forty streetlamps were installed in downtown Dallas. In the early 2000s, the company had made an ill-conceived investment in European power plants. The move had gone poorly. A new chief executive was hired to clean up TXU’s balance sheet and restore it to profitability. After studying the market, John Wilder came up with a simple back-to-basics plan: burn coal and generate electricity. In April 2006 he unveiled his ambitious plan. TXU would spend $10 billion to build eleven new coal power plants. The protesters wanted to stop him.
Sitting in his one-story Austin home, Kramer wondered about the Texas Clean Sky Coalition. He figured it was one of the new ad hoc groups that had popped up to fight TXU’s coal plants. Whoever it was had a big checkbook, he thought.
The reason Kramer didn’t know anything about the Texas Clean Sky Coalition wa
s that it had come into existence only a couple weeks earlier. The name was misleading. The coalition was one company—Chesapeake Energy—and the unfolding campaign was underwritten by Aubrey McClendon. He had decided to get into a scrap with coal. Over the next few days, Kramer got calls from Sierra Club activists in other parts of Texas. The ads were running in Dallas and Houston and elsewhere. The ads varied—there was a young white girl, a Hispanic male, an older white woman—but the message was consistent. Coal was deadly. “Live longer. Live better,” the ads stated. “No new coal plants.”
It was a stunningly effective campaign and marked a significant turning point in US energy history. Energy companies can be fierce competitors against one another in the marketplace, but there was a gentlemen’s agreement that they didn’t attack one another publicly. They might battle to win allies on state utility commissions and in Congress, but these skirmishes took place behind closed doors or in obscure regulatory meetings in state capitals. McClendon hadn’t just disregarded this deal, he had torn it up into a thousand pieces, doused them in lighter fluid, and lit them on fire. The head of the National Mining Association, the Big Coal lobby in Washington, later sniffed that a McClendon-backed attack on coal “marks a disturbing departure from the understanding we tacitly share in the energy sector to avoid denigrating competing fuels.” Perhaps the lobbyist didn’t understand. That was McClendon’s goal.
Soon after the ads appeared, Chesapeake acknowledged its role in funding the campaign. “It’s simply that we think reduced emissions,” said Tom Price Jr., one of McClendon’s closest advisers, “is a good thing.” There was another benefit to stopping TXU’s coal plants that he didn’t mention.
It costs a lot of money to build a new coal plant. To recoup those costs, coal plants run for decades. Once built, TXU’s new coal burners would be a major force in the giant Texas power market for generations. They would elbow competitors off the grid with their cheap power. Texas, with its large population and its power-hungry refineries and petrochemical plants, uses more electricity than any other state. The Texas power grid was a big market for natural gas. The amount of electricity generated by natural gas in Texas was nearly twice as much as in California. Texas, by itself, generated more power from gas than thirty-eight other states combined. If TXU built the eleven new power plants, demand for natural gas would go down, and so would prices. And not just in Texas; the impact would be nationwide.
This didn’t sit well with McClendon. Chesapeake had been leasing up gas fields and promised investors it would continue ramping up production. McClendon also saw, before nearly anyone else, that an abundance of natural gas was about to hit US markets, even if he failed to fully grasp how much. Chesapeake had bet its future on natural gas, and TXU wanted to cannibalize one of his biggest markets. As for the environmental benefits of burning gas instead of coal? McClendon saw the greatest threat from a warming planet was that winters would get warmer, cutting demand for natural gas to heat homes. He didn’t view climate change as an existential threat. It was a business opportunity. McClendon, arguably, figured out how to profit from bizarre weather trends that New York Times columnist Thomas Friedman later termed “global weirding.” Extreme cold or hot snaps cause volatility in natural gas prices. McClendon used that volatility—“We crave volatility,” he once said—to generate billions of dollars for Chesapeake by trading gas futures. Even as he profited from weather gyrations—and employed his own two-man weather team—he said he wasn’t even sure if the science predicting climate change was right. But he realized that the growing anxiety about climate change created an opportunity for him and for Chesapeake’s growing reserves of natural gas.
TXU had strong support for its Texas coal plants. The day it announced its plans, its stock jumped nearly 8 percent, signaling that investors were pleased. Texas’s governor, Rick Perry, also backed the plan. Perry had appointed the regulators who would vote on whether to issue the needed air permits. McClendon didn’t have many options except declaring war on coal, which is what he did. His anticoal campaign would prove enormously successful, but only partly because of his involvement.
TXU was facing resistance from environmental groups, as well as from the mayors of Dallas and Houston. Several prominent Dallas businessmen, including real estate magnate Trammell S. Crow, came out against the plan. They asked TXU to scale back its coal plans or at least slow them down, but were rebuffed. TXU’s political strategists considered this opposition manageable. But there was another, thornier problem with Wilder’s coal dream. TXU’s plan to haul millions of tons of coal from Wyoming was in trouble. It wasn’t clear if the railroads could deliver all the coal that was needed. And the shipments they could provide would be expensive. The arithmetic of Wilder’s coal plan wasn’t adding up. He needed to scale back. Internal doubts about the plan’s feasibility grew. But TXU and its ally in the governor’s mansion had expended a lot of political capital to get the permits approved. The plan was to get state approval for the eleven new coal plants and then retreat.
Some on Wall Street sensed this weakness and began circling the wounded TXU. A couple months before the “Coal Is Filthy” campaign began, two large private equity firms, Kohlberg Kravis Roberts & Co. and Texas Pacific Group, approached Wilder about buying the company. During preliminary discussions, the Wall Street firms pressed TXU for more information about its coal plans. Then McClendon’s ads began running. Already weakened by its railroad problem, TXU surrendered. On February 9, 2007, less than a week after the first ads appeared, TXU’s lawyers agreed to the buyout. Negotiations would continue in secret for a couple more weeks, but the deal was basically done.
Two days after the preliminary agreement was struck privately, about two thousand people rallied in Austin at the capitol to protest the coal plants. With Chesapeake’s “Coal Is Filthy” ads running in every major Texas newspaper, turnout was boosted for what was Texas’s largest environmental rally in years. Some protesters wore “Face It. Coal Is Filthy” T-shirts. Others held “Vote No on Coal” placards. A woman in a bright floral dress, with a large headdress in the shape of the sun, with streamers attached, danced around a man with a smudged face wearing a large, black smokestack.
When the TXU buyout deal was announced in late February, the new owners capitulated to the anticoal opponents. They would seek to build only three new coal plants, “preventing fifty-six million tons of annual carbon emissions,” according to a press release. The death of TXU’s grand vision to power Texas well into the twenty-first century with coal plants came about at least partly because the railroads had the stronger negotiating position and planned to force TXU to pay a steep price for the coal it wanted. But McClendon’s “Coal Is Filthy” campaign also played an important role. TXU and the private equity firms that wanted to buy it realized they were facing a fight not just against mayors and environmental groups that held little political power in Texas and had little money. They also faced an opponent willing to break with convention and drag TXU’s reputation through the mud. McClendon had sent a message to all concerned. He had a lot of natural gas, he was prepared to fight, and he was willing to spend money to accomplish his goals. The Los Angeles–based advertising agency that put together the ads said at the time that the “Coal Is Filthy” campaign cost “north of a million dollars.”
McClendon’s easy victory against the Texas coal plants emboldened him. Later in 2007, Chesapeake decided to fight a new coal plant in its home state. “Coal is the wrong answer for Oklahoma today,” McClendon told a regulatory body considering the plant. “We should not be importing trainloads of dirty coal while at the same time export clean-burning natural gas. Coal is a contributor to air pollution, water pollution, and it’s the wrong solution for Oklahoma’s growing energy needs.” In a letter to a newspaper in Tulsa, he stepped up his attack. “Coal is simply on the wrong side of history—it is a twentieth-century technology that is completely unsuitable for meeting the new energy and environmental challenges of the 21st century,”
he wrote. “Oklahoma-produced, clean-burning natural gas is the fuel of the future.” Before the end of the year, he had won this fight also. The state denied the power companies’ request to charge ratepayers $1.8 billion to build the coal plant. Three years later, natural gas passed coal as the largest source of power generation in Oklahoma. Two years after that, for a month in the spring of 2012, as much electricity was made in the United States by burning natural gas as with coal for the first time ever.
The Texas coal skirmish marked the beginning of a larger battle for the future of US energy. Eventually the maelstrom that McClendon started would suck in renewable energy companies and threaten the survival of the nation’s oldest and most prominent environmental group. It caused environmentalists to rethink long-held positions on the future of the planet’s climate and whether allowing the industrialization of forests would do more good than harm. Fear that fracking would lead to widespread water contamination spread across the Northeast and became a rallying cry for opponents, but the rhetoric never matched reality. Within a couple years, the largest grassroots environmental movement in a generation rose up against McClendon’s gascentric vision of the future. Chesapeake changed from a small, obscure Oklahoma company into a boogeyman. But the change unleashed by the gas industry’s fracking also helped accomplish something almost unprecedented. All that natural gas cut US carbon emissions. The reverberations from this epochal shift can still be felt, if not understood.