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Oil Industry Can No Longer Ignore Climate Action

Oil Industry Can No Longer Ignore Climate Action

Global momentum towards action on climate change is building in the lead up to international negotiations, set to take place later this year in Paris. With the writing on the wall, some of the largest oil companies are banding together in order not to be left out in the cold.

The agreement emerging from Copenhagen in 2009 was widely seen as a failure. While the likelihood of a stringent international agreement with binding emissions targets resulting from the Paris talks is extremely low, the world appears to be mustering up the motivation to do something.

Whether that has a real impact on the fortunes of the oil and gas industry remains to be seen, but to avoid being left out of the conversation, oil companies including Total, Eni, Saudi Aramco, BG, Royal Dutch Shell, and others have come together to form an industry group to weigh in on the negotiations. The group will announce the establishment of a think tank in June. Related: Shell Approval May Trigger Resource Race In The Arctic

Sensing an emerging threat from climate action, the new think tank will establish common industry-wide positions on responding to climate change, such as pushing natural gas as an alternative to coal. By speaking together they hope to have their collective voice heard and avoid being caught flatfooted in the event that aggressive emissions reductions policies get put into place.

Thus far, the group appears to consist of European companies, with oil majors ExxonMobil and Chevron staying out.

But ExxonMobil is eyeing the rising green tide as well. ExxonMobil even sent lobbyists to Vatican City as it became known that the Pope was going to write an encyclical – or a letter that lays out Catholic teachings – ahead of the Paris negotiations in favor of environmental protection. ExxonMobil wanted to brief the Vatican on its take on the future of energy.

Unlike in years past, it has become increasingly difficult for oil and gas companies to maintain a dismissive stance on climate change. Recognizing that denying the science is an untenable position, the new industry group will both acknowledge that something needs to be done on emissions but at the same time, will insist that oil and gas will be needed for the long-term.

The change in tone is telling. Look no further than Saudi Arabia. The desert kingdom’s oil minister recently stated that his country would eventually be transitioning towards cleaner sources of energy. For a country whose entire economy depends on fossil fuels, that is a shocking admission. Related: Saudi Arabia Planning For Transition To Renewables

But it is not just Saudi Arabia. Shell’s CEO Ben van Beurden also admitted that the days of fossil fuels could be numbered. He said that by the end of the century the world economy will be “zero carbon,” and that Shell will need to earn most of its revenues from renewable energy.

While such a statement could be dismissed as mere words, an empty gesture for positive publicity, he also went further than virtually any other energy company has to date. He said that unless carbon capture and sequestration can be developed, the world cannot burn through all the known oil and gas reserves.

“We cannot burn all the hydrocarbon resources we have on the planet in an unmitigated way and not expect to have a CO2 loading in the atmosphere that is often being linked to the 2C scenario,” van Beurden said on May 22 in an interview with The Guardian.

It is not as if Shell is going to unilaterally give up its right to produce all of its oil and gas reserves, nor is it likely that the company will shift towards renewables in any meaningful way anytime soon. Related: Drilling Efficiency To Keep Oil Prices Low

Still, the boss of Shell implicitly – and almost explicitly – acknowledged the credibility of the “carbon bubble” argument, which says that financial assets in oil and gas reserves will drastically fall in value once it becomes apparent that they will not be developed due to limits on carbon emissions.

The argument has fueled calls for divestment, which for quite a while was ignored or rejected by oil companies.

But with some of the largest oil companies coming together in response to rising climate action, and Shell’s subtle admission that some oil and gas could become “unburnable,” it appears that the industry is starting to feel the heat from climate activists.

By Nick Cunningham of Oilprice.com

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  • Lee James on May 26 2015 said:
    Just as we have very big oil companies, we have a very big picture around them.

    We have the battle of the energy "moral imperatives." Each side to the debate feels smugly justified. But energy moral imperatives are often unacknowledged and hidden behind the scene -- even though a fully developed moral imperative underpins each of the opposing arguments.

    In the Big Oil corner, we see: "the world needs oil for development." We can not possibly deny the developing world the economic development that comes from burning petroleum. We owe it to them. Fossil fuels enabled the developed world; so too will the developing world advance by harnessing the gift of fossil fuel. Alternatives to petroleum, after all, are so inadequate and... for down the road.

    In the Alternatives to Petroleum corner we see: "Transition away from fossil fuels NOW." In today's world, we have cell phone-style development. Leapfrog traditional centralized plants and transmission corridors. Developing countries: choose distributed, close-to-home energy! Reduce power requirements. Leverage renewable energy and skip building pipelines and heavy cabling through unstable lands, embroiled in conflict.

    In essence, traditional energy offers a cornucopia of goodies, with no mention of downside. Pollution is today an obvious downside. Less cited is the threat to world peace. Like "money," oil (especially) is perhaps too portable and concentrated a form of energy -- everyone looks to cart it off. We either wage war to get oil, or we buy it, often from bad actors. We buy it from Russia, and some even buy it from Iran and ISIS. Oil is the fuel of conflict, whether the oil is aggressively appropriated or legally purchased.

    Big Oil's vision for their product is sorely flawed in the modern world. The fossil fuel industry must now acknowledge the growing downsides of using their product: severe pollution, and severe world conflict.

    I look for Big Oil, especially, to announce to the world their plan for being part of the transition away from fossil fuel dependency. Ramp up the transition. I hope the industry will be part of where we need to go, and not so immersed in past glories of where we have been.

    Hopefully, what we are hearing from Shell Oil and the Saudi oil minister is the beginning of the conversation that we need to have.

    In the U.S., what do major oil companies tell us? They're very aware of pricing fossil fuels fairly in the marketplace -- charging for what burning fossil fuel really costs us. Oil companies RESPOND to carbon pricing legislation. If made to choose, they mostly choose a nation-wide revenue-neutral carbon tax. It is up to citizens to enact this important first step in the great transition toward reducing fossil fuel dependency. Enact a "$/ton-CO2" price signal. But return all carbon fees to citizens and business. Citizens, not government, can make the energy spending decisions. Citizens will increasingly purchase clean energy and develop clean industry and jobs.

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