|October 19, 2015|
Energy giants want to be part of a green agenda but will they go far enough?
|Eight oil and gas majors will meet in Paris to flesh out proposals for a move towards cleaner energy. Carbon pricing is a start but a firm list of more ambitious commitments could be transformational.|
From Brent Spar to the Arctic 30 protesters, oil and gas companies have traditionally been regarded as the environment movement's most implacable foes. So it is hard to overstate the significance of the letter sent in June by six of the largest European oil and gas firms to the United Nations and its member governments. Their message, in essence: "We would like to be part of the climate change solution, not part of the problem."
The companies, including Shell and BP, called for "widespread and effective pricing of carbon emissions". They also backed a bigger role for natural gas, the burning of which releases around half the carbon emissions of coal. The companies are expected to publish more detailed proposals on Friday, ahead of this year's potentially pivotal UN climate summit in Paris.
Many people working in the sector, as I did, have a background in science or engineering. They understand the evidence pointing to a need to end fossil fuel use on a timescale of decades. But the companies' letter implies a recognition of two further truths.
First, the nature of their business is inexorably changing. Renewable energy is booming in markets from China to the US. So far, renewables have maintained rather than grown their market share. So while they do not present a serious threat in the near term, at some point, they will.
The second truth is that however much the executives of a company might wish to follow a green agenda, they cannot afford to go it alone. From an investor's viewpoint, green costs are acceptable only if the whole sector incurs them, whether voluntarily or to meet government regulation.
Only when they are published will we see if the companies' proposals are compatible with the target that all governments have agreed, to keep global warming below 2C. Current "business as usual" energy projections take the world towards warming of 4C or more, at which stage there is a serious risk of major and irreversible climate impacts. So, solving the problem necessarily implies backing huge constraints on the companies' own core products, unless those products can be used in a way that does not damage the environment.
If the companies' central ask is a carbon price, then an obvious question is: what price do they need to recommend in order to be taken seriously? The experience of the EU emissions trading scheme shows that in a "politics as usual" world, the carbon price stays too low to drive behaviour change and innovation.
With that in mind, it might be better to take a different approach based on the proposals of the Edinburgh and Oxford University groups -- namely, that all extractors or importers of fossil fuels should be required to pay a levy that is defined not in cash but in carbon. They would be required to immobilise an amount of CO2 proportional to the carbon content of their product. The proportion would start small and increase over time. This would immediately reenergise development of technologies for carbon capture and storage that for more than a decade have been progressing at glacial rates.
If however the companies opt for a global carbon price, as seems likely, they would need to show how they plan to navigate the difficult politics of getting it implemented.
Such a move has, after all, been recommended in many reports over the years, notably the 2006 Stern review; so what can the companies do to persuade governments, when so many others have failed? A starting point would be to follow the call of UN climate convention chief, Christiana Figueres, and align their political lobbying with a 2C future. Beyond that, they will need to show that they can and will actively engage in lobbying for a high carbon price and carry their shareholders with them.
However we may wish it otherwise, the world economy is likely to depend on fossil fuels for decades yet. A high carbon price can drive fuel economy and increase use of renewables, but it will still be essential to deal with the emissions from fossil fuel burning, and oil majors have a big role to play in developing the low-cost carbon capture and storage that we will need, given that energy demand is rising principally in emerging economies.
At present there are good examples of joint company and government research; but not all companies are participating, and progress remains slow. CEOs might also reflect on whether it makes sense to drill in sensitive environments for oil and gas that cannot be burned in a 2C world without truly effective CCS.
As global temperatures rise, any rational person should welcome these industrial giants' renewed interest in climate change. They are at the cutting edge of innovation, they mobilise many billions of dollars in investment, and enjoy top-table access in halls of government. They can be truly transformational.
We will shortly see whether they are prepared to go as far as the science needs them to. If they issue a firm list of ambitious commitments, they will earn and enjoy the gratitude of this and future generations. If not, they will disappoint their friends and reinforce the scepticism of their critics.