“PEAK OIL IS SUDDENLY UPON US” blared a Bloomberg Green headline earlier this month. While the COVID-19 pandemic has been devastating for many economic sectors, few were as hard hit as the oil industry, which saw oil prices drop below zero in a historic bottoming out during what some are now referring to as “Black April.” In the wake of this largely unanticipated blow to once stalwart oil, groups like the World Economic Forum advocated for a “new energy order” and a “great reset” to catalyze the world’s energy transition to cleaner energy sources on the eve of climate crisis. And instead of fighting back or burying their heads in the sand, many oil supermajors have accordingly rushed to diversify their portfolios and get ahead of the sea change catalyzed by the pandemic and its ensuing green stimulus packages. Definitively, the next generation of energy superpowers will no longer be oil companies.
While there have been plenty of think pieces about Big Oil turning into Big Energy as we speak, there are now reports that there’s another major branch of the energy sector emerging--Big Carbon. “Oil companies such as BP and Shell are nurturing nature as a future revenue stream, betting on an expected rise in carbon credit prices as their fossil fuel profits ebb,” Reuters reported just this week. In just one example of this trend, “BP last year put $5 million into Finite Carbon, a company that connects forestry owners with companies seeking to offset their climate-warming emissions via-tree planting.”
There is major potential for carbon credits to become increasingly lucrative as the world’s powers throw their weight behind incentivising decarbonization in a last-minute sprint to meet the carbon curbing goals set by 2016’s Paris climate accord and keep global warming limited to 1.5° to 2° Celsius above pre industrial averages. California-based Finite Carbon projects $1 billion in profits for landowners over the next decade “after a 20-40% cut of the proceeds”--and that’s a conservative estimate. “ as companies and countries have rushed over the last year to pledge new net-zero global warming pledges, that forecast may be too conservative.”
Currently, the amount of voluntary carbon offsetting worldwide is so small as to be essentially insignificant. Very few industries already have legally binding carbon-trading programs. Some of those few exceptions to the rule are the European Union, California, and Australia. Meanwhile, the rest of the world has dragged its feet to pass carbon offsetting laws. But that could all change in the very near future if the incentives are there. And in the meantime, as more and more players seek to buy into the relatively small pool of carbon offsetting credits already on the market, prices are set to skyrocket. “European oil majors say investing in projects to create more credits is simply good business, offering new revenue streams at a time when oil prices have collapsed and appetite for new exploration evaporates,” Reuters reports.
Will any of this really make a difference in the almost inconceivably large problem that is climate change, or is it just a drop in the ocean? London’s Barclays bank estimates that nature-based carbon offsets of the kind discussed here could potentially remove as much as 12 billion tonnes of emissions from the atmosphere each year thanks to the tune of $120-$360 billion worth of spending on the part of emitters. This number is a ballpark, however, as a lack of industry standard means that carbon credit prices will be volatile and hard to pin down. But this much is sure--they’re going to go up. Even oil supermajors are counting on it. “Shell’s budgets, for example, are based on a carbon price of $85, or around 70 euros, a tonne by 2050 which is more than twice the current price of just under 30 euros on the EU carbon-trading scheme.” Sounds like a good investment to me.
By Haley Zaremba for Oilprice.com
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