The investor-backed Transition Pathway Initiative (TPI), has produced a new study into the carbon performance and goals of the world's 10 largest listed oil and gas companies. The study concludes that only two of the world's top 10 oil and gas companies have put in place strategies in order to achieve significant reductions in their emissions intensity that are by and large in line with the climate action pledges made by governments as part of the Paris Agreement.
The study revealed that Shell and Total were the only two companies to have long-term plans in place that would lead to a big reduction in their carbon emissions. The report said that their goals were in line with the emissions pledges made by governments in 2015 as part of the Paris climate agreement though they may amount to less than the emissions reductions needed to keep increases in temperature to below 2C.
Top oil and gas companies jointly spent approximately just one per cent of their 2018 budgets on clean energy, with investments made by Europe’s giants far greater than their United States and Asian rivals.
The transatlantic divide remains wide, according to CDP, a climate-focused research provider that works with major institutional investors.
CDP said in a report:
“With less domestic pressure to diversify, US companies have not embraced renewable energy in the same way as their European peers.”
In recent years companies such as Royal Dutch Shell, Total and BP have increased their spending on wind and solar power as well as new battery technologies looking to take on a greater role globally to cut carbon emissions in the battle to slow down global warming.
Currently Shell leads the way with plans to spend US$1-2 billion per year on clean energy technologies in the future out of a total budget of US$25 to US$30 billion and Total has spent the most on low-carbon energies since 2010 at around 4.3 per cent of its budget.
However, BP and other companies such as ConocoPhillips and Eni were found to have only set emissions targets for their own operations. The report warned that this approach means that carbon emissions will only be reduced by a small amount.
On top of that, Chevron, EOG Resources, ExxonMobil, Occidental and Reliance were shown to have no targets in place to lessen their emissions.
Professor Simon Dietz, who leads the TPI's research, at the London School of Economics' Grantham Institute, was pleased to see signs that some oil majors were beginning to look at the risks that decarbonisation presented to their business models. The latest study titled Carbon Performance Assessment in Oil and Gas is the latest in a string of studies that have gone before and continue to be done.
Professor Simon Dietz said:
"The most significant finding is the emerging status of companies' future ambitions. It is encouraging to see two major oil and gas companies, Shell and Total, setting out long-term ambitions to reduce carbon emissions intensity in a way that is compatible with the government pledges made at the Paris climate agreement. However, there is a long way to go. None of the 10 largest global oil & gas firms currently set a path that would align them with limiting global warming to 2C or below before 2050. To reduce the carbon footprint of the sector these companies need to set more stretching low carbon targets."
Interestingly, Adam Matthews, Co-Chair of the TPI and director of ethics and engagement at Church of England Pensions Board, said that investors saw ambitious emission reduction targets as "essential".
Adam Matthews states further:
"Forward looking lifecycle emission targets that take account of all the impact of a company's carbon footprint are essential if we, as investors, are going to have confidence in the strategy of companies we invest in. We want to see evidence of a company's commitment to the transition to a low carbon economy, and this latest research from TPI is not comfortable reading. We welcome Shell and Total's leadership in setting out their ambitions. We note that while they are moving in the right direction, and are ahead of their peers, this study suggests they are not yet ambitious enough to align with a pathway to below 2C of warming by 2050."
Many of these oil majors have resisted change fearing that their investment plans could end up leaving them with stranded assets as new clean technologies emerge and governments bring in even tougher emission reduction policies. Their argument is based in their belief that demand for fossil fuels will continue to grow in the years to come. They think anyway that they remain well positioned to make the transition towards lower carbon energy sources as required. Despite this, many companies have increased investment in renewables, low carbon technology R & D, biofuels and electric vehicle infrastructure in recent years.
There are however a growing number of investors and analysts who remain worried that with the rapid emergence of electric vehicles, falling renewable costs and more stringent emissions policies they could see the value of oil and gas companies decreasing rapidly if the oil majors fail to see the importance of taking on credible decarbonization policies.
