In Paris 2015, world leaders agreed to limit global warming to well below 2 degrees by 2100, and aim for 1.5 degrees — a goal that will require global emissions to reach net zero by mid-century.
Four years later, in response to growing investor and societal pressure, Spanish energy company Repsol’s strategy to become a “net-zero emissions company” by 2050 triggered a race among peers in Europe to promote their green credentials. BP, Royal Dutch Shell and France’s Total have all followed with similar commitments.
There are, however, significant differences between seemingly similar ambitions; in itself, a net-zero goal does not tell the whole story.
The pathway to reaching net-zero emissions matters too, as it is the aggregate emissions that determine the warming outcome. Turning this around: to limit the temperature rise to any given level, there is a finite quantity of carbon dioxide that can be released — the carbon budget — and oil and gas use will need to fall rapidly to not exceed this.
Whether such a reduction is the result of competition from renewables, policy changes, ethical concerns by consumers, or all of the above, the result is the same.
Companies involved in the extraction and processing of oil and gas need to recognise the huge impact of the energy transition on their business models. To be considered “Paris-aligned”, a business needs to incorporate these finite limits into its sanctioning processes.
For the seven energy majors, Carbon Tracker calculated in late 2019 that average oil and gas production volumes would need to fall 35 per cent by 2040, with continuing reductions towards 2050.
Yet, even with growing acknowledgment of oil demand peaking within the next decade — if not already as a result of the Covid-19 pandemic — most companies are still planning on increasing production. As currently framed, most “ambitions” (not targets) create space for this, despite ostensibly being good for the planet.
The structure of emissions targets therefore represents an interesting proxy as to management’s view of transition risk. Carbon Tracker in its latest report sees three key prerequisites to link to the carbon budget: targets need to be bound by finite limits, and cover emissions up to, and including, those produced when customers actually use the fuel. Few company ambitions currently meet these.
For example, some companies, including Norway’s Equinor, Royal Dutch Shell and Total, have pledged to reduce the emissions intensity across the energy they supply. Progress can be made against such a goal simply by supplying more energy as long as it is lower carbon, without necessarily resulting in lower emissions overall.
Similarly, some goals cover just operational emissions — those produced from extracting and refining — amounting to just 15 per cent of full lifecycle emissions from oil and gas, as they do not include the end-use combustion emissions.
By ignoring the remaining 85 per cent from final combustion, such ambitions fail to acknowledge the impact of lower oil and gas use, in terms of both climate and transition risk.
We use these factors to assess metrics used in company ambitions covering oil and gas production, alongside an assessment of the scale of ambition including interim goals.
In our rankings, which are based on the companies’ publicly available data and Carbon Tracker’s framework for assessing their ambitions, we find the new direction of Italy’s Eni puts it at the head of the pack. While unlike either BP or Repsol (the two others with absolute goals), the scale of Eni’s targets does not reach net zero, however an absolute interim target is incorporated (30 per cent in lifecycle emissions from oil and gas production by 2035).
BP is ranked behind Repsol primarily due to its significant stake in Russia’s state-backed Rosneft not being covered in its plans. We look forward to BP publishing interim targets later this year. We see Shell, Total and Equinor as the second level of company ambitions, as each use an intensity approach.
There is also a clear Atlantic divide: the three US majors cover operational emissions only; ExxonMobil are at the bottom, as only production from its investment in Imperial Oil in Canada is included.
While setting a net-zero ambition is laudable, if targets do not link to the carbon budget, and there are no interim goals on the pathway to net zero, this may lead to questions of commitment and, at worst, accusations of “greenwashing”. Management needs to detail firm steps now and not leave it to successors.
The writer is an oil and gas analyst at the Carbon Tracker Initiative