Oil and gas industry must own its transition to net zero emissions
On 25 February, I made a presentation at International Petroleum Week to make the case for the oil and gas industry to take ownership of the transition to net zero emissions.
I laid out the challenge of reaching the target while continuing to raise living standards around the world, with the majority of greenhouse gas emissions currently resulting from energy use, and more than 80 per cent of primary energy supply still based on fossil fuels.
Many environmental campaigners have portrayed the oil and gas industry as public enemy number one in the fight against climate change. Some have even called for senior oil and gas company executives to be put on trial.
And of course, many oil and gas companies have been easy to portray as public enemies because of their track record of promoting climate change denial and of lobbying against policies and measures to reduce greenhouse gas emissions.
Even today, ExxonMobil continues to fund lobby groups, including the American Enterprise Institute and the Manhattan Institute, which disseminate inaccurate and misleading information about climate change on their websites.
However, it is difficult to see how we could achieve a fast and smooth transition to a zero-emissions energy system without the active support and participation of the oil and gas industry. It is arguably unique in its capability for designing, implementing and financing expensive, complex, high-risk, long-term engineering projects. It will be less difficult to make the transition to net zero emissions if the oil and gas industry does not have to be completely obliterated first.
But fossil fuel companies must realise that they have no long-term future if they cannot create a place for themselves in a zero-emissions world. Many senior executives in the oil and gas industry are already deeply unnerved by accusations from children that they are wrecking their futures. The companies are also having difficulty recruiting talented young people into an industry that has such a controversial reputation. And they are facing lawsuits in the United States and across the world.
So it was encouraging that the Energy Institute, which organised International Petroleum Week, made the headline theme ‘Defining the industry’s role, delivering a low carbon future’.
In his closing address, the Institute’s President, Steve Holliday, acknowledged that some of the conversations during the week had been uncomfortable for many within the oil and gas industry. But he insisted that it has no other choice and indeed should seek to lead the energy transition, with the next 10 years being absolutely critical.
Mr Holliday was followed by Bernard Looney, the new chief executive of BP, who made the case for the oil and gas industry to regard the transition to a zero-carbon world as an opportunity rather than a threat. He revealed that he had been inspired by hearing Ben van Beurden, the chief executive of Shell, speak at a previous International Petroleum Week about the need for the industry to face up to the challenge of climate change.
Since Mr Looney took up his post last month, BP has pledged to achieve net zero emissions in its operations and to push for action within the broader industry. The company has also withdrawn from trade associations that hold incompatible positions on climate action.
He rightly emphasised the need for the oil and gas industry to regain public trust. However, he stopped short of committing to some of the other measures that would be required, such as calling out those within the industry who promote climate change denial.
But he also indicated that the company would lobby for policies to tackle climate change, such as the introduction of carbon pricing in Washington state.
While BP has been criticised for not providing more information about how it will achieve net zero emissions, Mr Looney deserves credit and support for showing leadership on this issue. However, if he is to fulfil the expectations that have now been created, BP and the rest of the industry have huge challenges to overcome, as was clear from many of the presentations during the week.
For instance, Fatih Birol, the executive director of the International Energy Agency, presented his organisation’s latest analysis, showing that global emissions of carbon dioxide from energy use in 2019 were about the same as in the previous year, even though coal consumption has increased over the past few years.
Mr Birol highlighted the gap between the current ‘stated policies’ of countries and those required to match the Agency’s Sustainable Development Scenario, which it promotes as being consistent with the Paris Agreement’s goal of holding global warming to well below 2°C. The Sustainable Development Scenario, which would mean 50 per cent chance of global temperature reaching 1.65°C above its pre-industrial level, allows further investments in new oil and gas reserves. It is not clear that such investments would be compatible with a target of limiting warming to 1.5°C. Many analyses have concluded that current reserves of fossil fuels would cause warming of more than 2°C if consumed.
Mr Birol also drew attention to the finding that investment over the past few years by oil and gas companies outside their core business areas has been less than 1 per cent of total capital expenditure. This suggests that the industry remains narrowly focused on fossil fuels rather than on energy, and is effectively investing in its future obsolescence and destruction.
A presentation by Chryster Tryggestad of McKinsey’s reference energy scenario indicated that the industry’s current pathway is not consistent with the goals of the Paris Agreement and would lead to a rise in global mean surface temperature of about 3.5°C above its pre-industrial level. Unfortunately, the credibility of the reference scenario was also fundamentally undermined by its magical assumption that climate change will have absolutely no impact on energy demand or companies’ operations.
Many delegates at the conference sat in silence during these presentations, apparently finding it difficult to engage with such a profound threat to the future of the oil and gas industry.
It would be easy to be pessimistic about the prospects of the global energy system making such a massive transition, and even easier to be cynical about the role of the oil and gas companies. The industry has a track record of dragging its feet, and many companies have been guilty of greenwash, advertising their environmental credentials while spending millions on secret lobbying against climate change polices.
The industry, which has a reputation for innovation, has also been slow to develop new technologies and techniques to reduce emissions. As Mr Birol pointed out, the huge volumes of methane that currently escape from oil and gas operations could be stopped through measures that would more than pay for themselves.
In addition, it is also hard to believe that such little progress would have been made on scaling up carbon capture, utilisation and storage if the industry had directed its lobbying power to the wholehearted promotion of the technology.
The world now needs the oil and gas industry to face up to the global challenge of climate change with real leadership, and an honest and open debate about how it can legitimately continue in a zero-emissions world.
Bob Ward is policy and communications director at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.