David Livingston :
On June 1, six European oil companies, four of which rank among the world’s top 20 largest oil and gas companies, wrote an open letter to organisers of the UN climate talks calling for a stable, transparent, and global carbon pricing framework, ahead of a major summit in Paris. The reaction to this uncharacteristically direct message was mixed, with some viewing it as a historic break with these majors’ US-based peers, and others seeing it as a strategic response to the growing public debate over fossil fuel divestment.
While it is too early to pass final judgement over the sincerity or significance of the letter, policymakers and climate advocates should welcome the development, and aid the firms in delivering upon their convictions. Three crucial steps must be taken to transform this rhetoric into a brighter reality for climate action.
First, the companies should be applauded for taking a progressive step forward in an industry that has for too long operated by consensus and has historically taken a “lowest common denominator” approach to statements on the validity and urgency of climate change, let alone action. Shell CEO Ben van Beurden was right to say recently that “climate change is real and a threat we want to act upon. We are not aligning with sceptics.” But these companies’ actions must now be held to their words.
A number of companies, including some of those who authored the letter, reportedly continue to support groups that spread disinformation on the science behind climate change. This must end immediately with a public recognition that burying one’s head in the sand is not a viable strategy for the fossil fuel industry to deal with climate risk.
Second, the oil industry, along with policymakers, should recognise that opportunities for choosing cleaner fuels over dirtier fuels exist not only in the debate over gas versus coal, but also among oils themselves.
Oil will remain the world’s most significant primary energy source for decades to come – it is simply too difficult to replace overnight the lifeblood of the today’s globalised economy. Indeed, there are few human beings whose quality of life has not been improved by the energy benefits it has brought to society. Until breakthrough alternatives such as electric or hydrogen vehicles achieve affordability and scalability in the world’s fastest-growing markets, petroleum will continue to dominate the global transport system.
This shows the letter’s explicit endorsement of natural gas as a bridge fuel in the energy transition to be insufficient. Natural gas clearly has a role in displacing far more environmentally unsustainable coal supplies in the power and industrial sectors, but progress in the oil sector will also be needed as long as it holds a virtual monopoly in the transport sector.
On this front, new research is highlighting new opportunities. The Carnegie Endowment for International Peace’s “Oil Climate Index” builds upon a growing body of academic literature suggesting that different oils have varying climate impacts, and that this variance is wide enough to matter. It also provides insight into the drivers of greenhouse gas emissions across the entire oil value chain, allowing for mitigation through environmental measures. It highlights areas where oil majors can proactively improve the efficiency of their operations, reducing the exposure of their fossil fuel assets to climate policy risk and, in some cases, delivering tangible financial benefits even absent concerns about climate change.
Third, oil companies should engage in serious reflection on their future business model in a way that abandons old shibboleths and creates space for innovative ideas.
Many oil majors, BP and its “Beyond Petroleum” experiment, for example, have attempted to embrace a sustainable energy transition. Only later have these companies – from BP (solar and wind), to ExxonMobil (biofuels), to Chevron (geothermal) – been forced “back to basics” as the business of alternative energy proved largely incompatible with their existing strengths, and largely unprofitable in the absence of subsidies or carbon pricing.
Today’s reality is quickly changing, however, as the costs of renewable energy fall at never before seen rates and many technologies are achieving cost parity even without subsidies. Moreover, there are now profitable opportunities to use renewable energy such as concentrated solar power in the oil field itself, cross-training oil workers in both the incumbent and emerging energy system. This suggests that there may be new avenues for the oil industry to successfully integrate renewables into their business models, if only they are willing to create a safe space for hard, creative thinking away from the monolithic corporate culture of oil company headquarters.
Of course, there is only so much that six European companies can be expected to do. Over 90 percent of the world’s oil resources are owned not by oil majors, but by governments, often via state-owned enterprises. This is a key reason why governments must be held responsible for putting in place the policies needed to decarbonise.
Yet this is no reason to downplay the role that the private sector can play in changing the global debate on climate action in the fossil fuel industry. These forward-looking firms have staked out their position and should be commended for their clear thinking. Now it is time for policymakers, investors, and civil society to hold the entire industry’s feet to the fire, lest a golden opportunity go to waste.
(David Livingston is an associate in the Carnegie Endowment for International Peace’s Energy and Climate Program, where his research focuses on innovation, markets, and risk.)
