Oil giants finally hit the right notes on climate

People who do not pay much attention to the climate debate might think they know what the oil industry has to say about it. The notion of the industry challenging the scientific consensus on global temperatures and campaigning in its self interest against curbs on greenhouse gases are the tactics many might expect.

Anyone who held that view of Big Oil’s position, however, would have been surprised to hear Ben van Beurden, chief executive of Royal Dutch Shell, speaking at the group’s Scotford oil processing and petrochemical plant in Canada, north-east of Edmonton last month. “When burnt for energy, hydrocarbons emit greenhouse gases like carbon dioxide,” he said. “So reducing emissions from power plants and industrial sites is a priority.”

His speech was a sign of how climate change creates a challenge for oil companies that is more complex than might appear at first glance.

Climate policy holds risks for all fossil fuel businesses. The OECD-backed International Energy Agency calculated in 2012 that just one-third of the world’s proved reserves of fossil fuels could be burnt if the world was to have a 50 per cent chance of limiting the rise in global temperatures, since the pre-industrial era, to 2 degrees centigrade, an internationally agreed objective.

Yet rather than simply resisting the fight to avert catastrophic climate change, many oil and gas companies say they want to join it. Shell was one of 10 large international oil groups, also including BP of the UK, Total of France and Saudi Aramco, that in October pledged to do more to tackle the threat of global warming.

US companies did not sign up to that statement, but ExxonMobil, the largest US oil group, has been reiterating its view that “climate risks are real and responsible actions are warranted”. Exxon is under investigation by the New York state attorney-general over whether its public statements about climate change since the 1970s have conflicted with its private assessment of the risks.

In response, the group stresses it has been a pioneer of climate science for decades, and has worked with the Intergovernmental Panel on Climate Change since it was founded in 1988.

Even the American Petroleum Institute, the influential oil industry group, which has lobbied against policies such as the Obama administration’s Clean Power Plan, says it wants to move past the debate on whether climate change is a threat or not, and focus instead on practical solutions.

Environmental campaigners are sceptical. Some suggest oil companies are paying lip service to concerns about global warming only under pressure from politicians and the public, and expect their business decisions to reflect entirely different priorities.

Groups such as 350.org have argued that Shell’s expressed concern about the threat of climate change was incompatible with its exploration for new oilfields in the Arctic. That drilling has been abandoned only because the first well drilled was dry, they point out, not because Shell had been persuaded that there was no longer likely to be a market for Arctic oil by the time it could have come into production in the 2030s.

All large oil companies expect that fossil fuels will provide most of the world’s energy for decades to come, even though they use “shadow prices” for carbon dioxide emissions in their planning to reflect expectations that emissions will increasingly face constraints. The cynical view from environmentalists is that oil companies are engaging with action on the climate only to slow it down.

However, there are reasons why oil companies might see opportunities in climate change. One is their role in developing new energy technologies. Oil companies have a long and almost entirely inglorious record of involvement in “alternative” energy, but all the large ones still have some form of investment or research in renewables.

Total owns 60 per cent of the solar company SunPower; BP and Shell have biofuel operations in Brazil and elsewhere. The most important technology for oil and gas companies could be carbon capture and storage, which would make it possible to burn more fossil fuels in power plants and factories while constraining emissions.

Van Beurden was at Scotford to launch Quest, one of the world’s largest projects for capturing and storing carbon dioxide, which has started up this autumn. Quest can capture more than 1 million tonnes of carbon dioxide every year, and inject it as a compressed liquid into a nearby rock formation, where — it is hoped — it will remain forever.

Shell received C$865 million ($648 million) in provincial and federal government support for the C$1.35 billion project, but was prepared to put up the rest of the money itself — and share freely what it learns from the project — to help the technology become established.

Most immediately, however, policies to cut carbon emissions could benefit oil companies by encouraging a shift from coal to gas for power generation.

The flood of cheap gas unlocked by the North American shale revolution, which has been displacing coal, is not the only reason why US carbon dioxide emissions fell 10 per cent from 2007-13. Reduced energy use and the rise of renewables, particularly wind and solar power, were also significant.

But the switch to gas was an important part of the reason. According to Gernot Wagner of the Environmental Defense Fund, reduced energy use, renewables and switch to gas each contributed about one-third of the reduction.

All large oil groups are also large gas companies now in terms of reserves and production, and could benefit from a further shift away from coal. The environmental impact of that shift is much debated: natural gas is principally methane, which also contributes to climate change and the more that escapes into the atmosphere, the smaller the benefits of switching from coal.

However, the industry has an incentive to tackle methane leaks because gas that is not lost into the air can be sold.

Christiana Figueres, the UN’s top climate official, has called on oil companies to do more. She wants them to have discussions about the carbon price framework needed to support technologies such as carbon capture, and making plans to shift their capital spending towards lower-carbon sources.

Demanding such voluntary commitments from oil majors may be over-optimistic on her part. But making the transition to a lower-carbon world may not be possible without them.

Financial Times