The oil industry came under fire from climate activists, investors and global leaders at the UN General Assembly in New York in recent days.
Oil executives went to lengths to describe what they are doing on climate change, which is arguably an indication that they are beginning to feel the heat as the world calls for an energy transition.
“We are doing all we can” to fight climate change, Equinor’s CEO Eldar Saetre said aboard a boat touring the Norwegian oil company’s offshore wind project in New York, according to the New York Times.
Some of the world’s largest oil companies have made commitments as part of the Oil and Gas Climate Initiative (OGCI). The group consists of companies representing 30 percent of global oil production.
Coinciding with the UN meeting, the group announced new initiatives in several areas. First, OGCI members aim to develop carbon capture and storage, with the goal of doubling the amount of CO2 is that is stored by 2030.
Second, the industry also wants to cut methane emissions, an issue that has been highly controversial in the United States. Methane leaks occur along the entire process of natural gas – at the drilling site, in pipelines, in processing and throughout transmission and distribution – and there has been a years-long debate over whether or not methane leaks to such a degree that gas loses its climate benefit over coal in electricity generation. Because methane is vastly more powerful than CO2 in its warming potential, slashing methane emissions is vitally important.
The OGCI also said that its members pledged to support an implicit or internal carbon price. The logic is that baking a carbon price into project economics, the industry would be guided towards lower-carbon investments.
But as the New York Times pointed out, even as the oil industry tried to convince everyone assembled at the UN that they were aggressively leaning into the clean energy transition, “their proposals appeared designed to perpetuate the use of oil and gas for decades to come, rather than transition quickly to cleaner options.” Related: Oil Prices Drop As Bearish Risk Soars
Perhaps that shouldn’t be a surprise, but the initiatives announced by OGCI were shockingly unambitious. Doubling carbon capture by 2030 is a curious goal to boast about since the technology is in its nascent stages. On methane, capturing fugitive methane is a no-brainer. But the bottom line is that the oil industry is investing more into gas, not less, which could lead to more methane emissions even if there is substantial progress on the intensity or rate of those emissions.
And on implicit carbon pricing…well, implicit is different than explicit. And more importantly, while carbon pricing would be a significant policy tool, models suggest it won’t be nearly enough to hit climate goals. Notably, many calls for a carbon tax in the U.S. from the oil industry comes with strings attached, such as neutering EPA regulations on greenhouse gases.
Even as the oil titans offered little, their tone suggests a bit of panic as the political winds begin to shift against them. And the pressure on the industry is not just coming from environmentalists, but increasingly from investors.
In the lead up to the UN summit, roughly 200 investors managing a combined $6.5 trillion in assets demanded that the 47 largest U.S. corporations align their operations with the Paris Climate Agreement. At the UN, an international group of institutional investors, including the world’s largest pension funds and insurers with $2.4 trillion under management, committed to net-zero investment portfolios by 2050.
The industry recognizes the threat. The Washington Post reported that at a private close-door meeting of energy companies and lobbyists over the summer, an industry lawyer told the crowd that denying climate change is no longer a tenable political strategy. “That ship has sailed from a political perspective,” he said. A recent poll found that 60 percent of U.S. adults support hiking taxes on oil and gas companies, while 65 percent said the industry was “doing too little.”
More interesting was that several industry insiders interviewed by the Washington Post believed that the regulatory rollback under the Trump administration was ultimately a negative for oil and gas companies. Prices have collapsed and the industry’s reputation is souring with the public. The regulatory backlash from the next administration could be more severe as a result. “Sometimes getting exactly what you want is the very worst thing you can get,” Mike Cantrell, who heads the Oklahoma Energy Producers Alliance, told the Washington Post. “Regulation is not our enemy. It is the way we keep faith with the public.”
Meanwhile, the prospect of litigation looms. Michael Liebreich of Bloomberg New Energy Finance laid out the stakes, pointing out that climate change poses trillions of dollars in damages to the world economy, but the market cap for all fossil fuel companies stands at $2.5 trillion. “So if fossil fuel companies are ever found liable for the full extent of climate damage that could be caused by their products, and expected to make reparations, they would immediately be insolvent,” Liebreich wrote. Related: Secret Survey: U.S. Shale In A State Of 'Deep Anxiety'
Obviously, much of this litigation could and likely will fail. And a critic might point out, and Liebreich acknowledges, it would be a tall task to pin legal blame solely on the oil industry for selling a product that everyone uses.
But Liebreich also notes that litigation over climate change has sharply climbed over the past decade, and will continue to present a threat to the industry as the effects become more apparent. “It is not implausible – particularly if they start losing nuisance cases and there is a pile-on of copycat cases and class action suits – for fossil fuel companies’ climate exposures to snowball very rapidly,” Liebreich added. “This may be one of the reasons driving them to support a carbon tax. Yes, it helps them bolster their social license to operate, but behind the scenes you can be sure they are arguing for indemnity from nuisance claims as part of a grand carbon pricing settlement.” This was made rather explicit as one of four pillars in a carbon tax proposal in 2018.
Litigation aside, legislation and regulation could turn against the industry. A recent report from Carbon Tracker estimates that the global oil industry has invested $50 billion into projects since just last year that won’t be economically viable if governments stick to the Paris Agreement.
In that sense, despite claims made by oil executives on the sidelines of the UN meeting about leading on climate change, they are wagering tens of billions of dollars on a scenario in which the world blows past climate targets.
By Nick Cunningham of Oilprice.com
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