BP, Google shun fossil fuels. Will governments follow?

Source: By Benjamin Storrow, E&E News reporter • Posted: Tuesday, September 15, 2020

One of the world’s largest fossil fuel companies said yesterday it expects global oil demand will wane and consumption of electricity will soar in the coming years if governments move to tackle climate change.

A few hours later, one of the world’s largest technology companies appeared to confirm that prediction, saying it intends to power all its operations with carbon-free sources by 2030.

The twin announcements by BP PLC and Google LLC highlight the sweeping changes afoot in today’s energy industry. Companies are reassessing decades-old business models to withstand a warming planet and to meet societal demands for a greener energy system.

But while many analysts praised the announcements as a positive sign, they said a true energy transition will depend on substantial government muscle to ensure other companies follow BP and Google’s lead.

“Google’s announcement does signify progress. BP’s projections do suggest we might be using less oil than we thought five or 10 years ago,” said Daniel Raimi, a senior research associate at Resources for the Future, a think tank. “But on their own, these types of activities are not nearly enough to get us where we want to go with the targets from the Paris Agreement.”

The announcements nevertheless show how the energy world has continued to evolve, despite President Trump’s best efforts to roll back climate regulations and boost fossil fuel production.

BP is among a handful of large European companies reimagining itself. Bernard Looney, its newly installed CEO, has announced plans to slash oil production 40% over the coming decade and boost spending on low-carbon investments to a third of capital expenditures as part of a plan to achieve net-zero emissions. The company last week announced plans to acquire a 50% stake in two offshore wind projects in the eastern United States (Greenwire, Sept. 10).

In a five-hour video presentation yesterday, Looney and BP executives sought to dispel worries the company could manage a transition away from oil while pushing back against criticism it was not moving fast enough to green the company.

Looney repeatedly touted the acquisition of Lightsource BP, a solar developer, as evidence of the company’s ability to acquire technical expertise and grow its renewables business. He said BP anticipated it will continue to invest in high-margin oil and gas projects while steering more money into clean energy investments, which he predicted would deliver returns of 8% to 10%.

“There’s this unique combination of having to change and wanting to change. And I think that has come together in BP in a very powerful way,” Looney said. “I think we recognize the challenges that are out there. We recognize the issues that are going on in the world, and therefore we feel a certain sense of having to change. And at the same time, we really want to change.”

Much of yesterday’s presentation was dedicated to the company’s annual energy outlook, which is closely tracked by industry observers. The headline finding from this year’s edition is that oil demand will plateau over the next two decades even if the world does not move to address climate change.

BP forecasts a 50% reduction in oil demand in a scenario where emissions are cut 70% of 2018 levels by 2050, and a drop of 80% in the event the world achieves net-zero emissions by midcentury. That would be a first since the world has never seen a sustained drop in oil consumption, said Spencer Dale, the oil giant’s chief economist.

By contrast, the outlook foresees a big increase in electricity use, most of it coming from green sources. It sees electricity jumping to as much as 60% of total final energy use, up from roughly 20% today. Renewables increase to 60% of the world’s power generation in BP’s net-zero scenario while coal all but disappears.

But those predictions are based on the assumption governments will do something about climate change. BP predicts carbon prices reaching $250 per metric ton in the rich world by midcentury and $175 per metric ton in emerging markets in its net-zero scenario.

“The thing I’ve been very struck by in the last couple of years now is the role that society has played in driving the energy transition sort of more quickly or alongside governments,” Dale said. “Rather than relying on governments to take their cue, we see companies like BP and many other companies commit to what they want to do.

“I don’t think that dynamic was so powerful two or three years ago,” he added. “And I think that dynamic means we may be able to make quicker pace in terms of the energy transition than if we only relied on government.”

Google’s carbon-free play

In Google’s case, its announcement builds on a 2018 white paper that outlined its intention to power itself on carbon-free electricity. Yesterday’s announcement put a timeline of 2030 for fulfilling that goal (Greenwire, Sept. 14).

The move is significant on several fronts. Google and other tech firms have pioneered a corporate sustainability strategy in recent years by signing contracts to purchase large amounts of renewable energy. Those deals essentially match companies’ energy consumption to renewable energy output. In 2017, Google announced it had purchased enough renewable energy to essentially offset its consumption.

The push to buy renewables has helped green power grids and provided a substantial boost to renewable developers. And there is potential for further growth. In a report last year, Bloomberg New Energy Finance said it expected Google’s electricity demand to grow from around 10 terawatt-hours in 2018 to nearly 33 TWh in 2030.

“All these [tech] companies are growing so fast. Their power demand is growing exponentially. They have an opportunity to reshape and change the power mix, both in the U.S. and globally,” said Kyle Harrison, a BNEF analyst who tracks corporate renewable purchases.

But Google and its peers have not yet solved the conundrum of powering their operations 24/7 with carbon-free sources. They still rely on the same power grid as everyone else.

Google’s announcement comes with serious technical hurdles, said Arvind Ravikumar, a professor who studies sustainable development at Pennsylvania’s Harrisburg University. Still, he called it a welcome development given that there are few companies that can match Google’s technical and financial capabilities.

“This will require significant investment and technological advances. Making sure every operation and data center is powered by clean energy will definitely include battery storage and also machine learning,” Ravikumar said. “This will bring technology advancements that will have implications far beyond Google.”

Even so, Ravikumar cautioned against placing too much faith in individual companies to overhaul the world’s energy system. Changing out fossil fuels in favor of nonemitting sources is ultimately a job that goes beyond one company.

“What Joe Biden can do with the stroke of his executive pen will be much more impactful on emissions,” Ravikumar said, referring to the Democratic presidential nominee. “Climate policy should not depend on what a company like BP or Exxon [Mobil Corp.] does. It should depend on public policy and what governments do.”