Big Oil and climate: What’s the deal?

Source: By Carlos Anchondo, E&E News reporter • Posted: Monday, November 4, 2019

Major oil and gas companies will need to curb production 35% by 2040 if they hope to remain within targets set by the Paris climate agreement, according to a new report.

The report from Carbon Tracker, a London-based think tank, said some companies will have to scale back more than others, with ConocoPhillips needing to reduce its production by 85% over the next two decades. The group studied large oil companies — including Chevron Corp., Exxon Mobil Corp., Royal Dutch Shell PLC and BP PLC — and found that while some are more progressive than others, none has Paris-compliant targets.

Currently, company targets “leave much to be desired,” the group said, ultimately rendering bad news for shareholders.

Mike Coffin, a Carbon Tracker analyst and report co-author, said companies that initiate action now will have a better chance at minimizing losses for their shareholders.

“Ultimately, the companies are accountable to their shareholders,” said Coffin, who worked as a geologist at BP before joining Carbon Tracker. “The way we see that they will change is through investor and societal pressure.”

Companies that take steps now will be better able to “take declines in a managed way,” he said, which is going to be more sustainable for an organization’s business model. Coffin said the number of shareholder resolutions pressuring companies to account for the effects of climate change is increasing.

If companies continue to sanction higher-cost projects that follow a business-as-usual approach, they risk creating stranded assets, the report — “Balancing the Budget” — found.

Those projects stand the risk of either not being produced, the report said, or being developed and failing to deliver “adequate returns for investors.”

“Although some of the majors say they are aligned with Paris,” Coffin said, “their investment sanctioning decisions suggest otherwise, i.e., they are planning for a high-demand scenario that doesn’t fit within the Paris budget.”

Daren Beaudo, a spokesman for ConocoPhillips, said the company hadn’t had a chance to review the report, but said addressing climate-related issues is a “high priority” as it works to find and deliver energy.

“We recognize that human activity, including the burning of fossil fuels, is contributing to increased concentrations of greenhouse gases (GHGs) in the atmosphere that can lead to adverse changes in global climate,” Beaudo said in a statement. “While uncertainties remain, we continue to manage GHG emissions in our operations and to integrate climate change-related activities and goals into our business planning.”

Sean Comey, a spokesman for Chevron — which Carbon Tracker said would need to reduce its production by 35% by 2040 — said the California-based company is taking climate action by lowering its carbon intensity, increasing its use of renewables and investing in “breakthrough technologies.”

“We believe companies like Chevron whose core competencies make them the most capable, efficient and environmentally responsible oil and natural gas producers should be the companies on which the world increasingly relies for these resources which will remain a critical part of our energy mix for decades,” Comey said via email.

The American Petroleum Institute said whether or not the United States remains in or leaves the Paris accord, the natural gas and oil industry “will continue to actively address greenhouse gas emissions through robust investments in technology innovation, efficiency improvements and cleaner fuels,” in response to questions about the Carbon Tracker report.

Other companies listed in the report did not return requests for comment.

The ‘Scope 3’ challenge

Coffin — the Carbon Tracker analyst — said that when companies base their climate targets on intensity, they are not incentivized to remove or reduce absolute emissions, which he said is what matters when it comes to influencing the “warming outcome of the world.”

“By continuing to produce carbon dioxide, the world is continuing to warm on a net basis,” Coffin said. “To stop warming, we need to stop emissions in absolute terms, and therefore targets should be in absolute terms.”

Current targets by the majors commonly include only emissions associated with getting oil and gas out of the ground and to the market, Coffin said, which makes up roughly 15% of life cycle emissions for fossil fuels. Those are Scope 1 and 2 emissions, the report described.

Scope 3 emissions — or all other indirect emissions from the full upstream and downstream value chain — are approximately 85% of total emissions, and need to be included in companies’ climate targets, the report said.

Danielle Fugere, president of shareholder group As You Sow, said the Carbon Tracker report underscores that investments by oil and gas companies are taking the world down a “catastrophic pathway” that harms the planet and the global economy.

“To right the ship and set us on a sustainable course, investors must demand that these companies set Paris-Aligned targets and begin strategically reducing investments in oil and gas projects,” Fugere said in a statement.

Coffin said this report complements a September analysis by the think tank, which determined that oil and gas companies continued to budget money for projects that the group deemed to be incompatible with Paris goals (Energywire, Sept. 9).

It said oil and gas majors budgeted $50 billion since 2018 across 18 fossil fuel projects, which would “not deliver adequate returns in a low-carbon world.”