U.N. climate report adds pressure on oil
Lengthy analysis forecasts severe weather a full decade earlier than previously expected
The United Nations’ latest climate report paints the most dire picture yet of the warming planet, putting more pressure on the oil and gas industry to change business models and operations to avert the worst consequences of climate change.
The U.N.-backed Intergovernmental Panel on Climate Change, a group of hundreds of climate scientists around the world, last week issued its sixth report, a nearly 4,000-page analysis of climate research that forecasts extreme temperatures and weather a decade earlier than expected.
The report found that unless there are immediate and large-scale reductions in greenhouse gas emissions, it will be impossible to limit global warming to the targets set out by the Paris climate accord of 2015.
“This IPCC report makes clear the clock has run out on business as usual for high-carbon industries, including oil and gas,” said Ben Ratner, the Environmental Defense Fund’s senior director of business. “This report is one more confirmation that fossil fuel dependence is risky and unaffordable for our planet. It’s crystal clear that oil and gas companies need to make big changes.”
Although the U.N. findings put mounting pressure on oil companies and their investors to rein in greenhouse gas emissions, the lack of concrete solutions, analysts said, will continue to expand the vast divide between U.S. and European companies in their approach to combating climate change.
European oil majors, such as BP, Royal Dutch Shell and TotalEnergies, have moved aggressively over the past year to shift from fossil fuels and expand investments in wind and solar power to meet their net-zero carbon emissions. They remain invested in highly profitable oil projects while divesting other oil assets to pay for their energy transition.
American oil majors, like Exxon Mobil and Chevron, have been
slower to shift away from fossil fuels, betting that the world’s growing population will continue to rely on gasoline, jet fuel and natural gas to power their economies. Instead of focusing on renewables, these companies are looking to engineer their way out of the climate conundrum, investing heavily in carbon capture and storage technology to remove greenhouse gases from oil and gas operations and other polluting industries. At the same time, companies also are moving to end routine flaring of excess natural gas from shale wells.
“As populations grow and economies expand, the world will continue to need solutions that ensure access to the affordable, reliable energy modern life depends on and at the same time accelerate emissions reductions and improve environmental performance,” American Petroleum Institute, the nation’s largest oil and gas trade group, said in a statement. “Achieving a lower-carbon future will require new approaches, new policies and continuous innovation, and our industry will continue to lead the way by further reducing emissions, advancing cleaner fuels, investing in groundbreaking technologies, and advocating for the direct regulation of methane and market-based solutions like carbon pricing.”
Environmental groups, however, argue that the U.N. report is an urgent call to wean the world off of fossil fuels as wildfires rage across the West Coast, recordbreaking heat sweeps the nation and hurricanes threaten the Gulf.
The U.N. report comes on the heels of the International Energy Agency report, which warned nations they will need to halt oil and gas development this year to meet 2050 net-zero emissions targets. Both reports are expected to push companies and their investors to speed their shift from fossil fuels.
Activist investors have already shaken up the board of Exxon, long recalcitrant in the face of climate change. Exxon shareholders in May voted to add three directors backed by activist hedge fund Engine No. 1, which with a quarter of the board seats, has much more influence.
“The world must urgently wind down fossil fuel supply in an orderly and transparent way and halt highrisk high-cost oil and gas exploration now,” said Mark Campanale, executive director of London-based financial think tank Carbon Tracker. “That, or face physical catastrophe, stranded assets costs in the hundreds of billions to our infrastructure and a shock to the world economy a thousand times greater than the COVID pandemic.”
Ed Longanecker, president of the Texas Independent Producers and Royalty Owners trade association, said the IPCC report is a call for increased investment in carbon capture technology to reduce harmful greenhouse gas emissions from oil and gas operations, not to scrap one of the world’s most vital energy sources. He pointed to Exxon’s $3 billion investment into carbon capture projects and natural gas coalition One Future’s goal to reduce methane emissions to 1 percent or less by 2025. Several companies, such as EOG Resources, Apache and Kinder Morgan have met its methane goals, and others are investing in real-time emissions monitoring systems to catch leaks, he said.
“We need to realize the U.S. is a global leader in clean air and water, and also the largest oil and gas producer,” Longanecker said. “They’re not mutually exclusive. We should not let some reports out there making catastrophic claims and projections drive overly aggressive regulations.”
Erik Milito, president of offshore oil and wind trade group National Ocean Industries Association, sees the IPCC report as a reason to increase offshore oil production, which some say produces less carbon than shale production because it relies on pipelines, not trucks, to transport oil and natural gas. While offshore continues to produce under the threat of a spill, Milito said the industry implemented more safeguards after the BP Deepwater Horizon explosion in 2010.
“This should be a report that we all embrace as an offshore energy sector,” Milito said. “As long as we have demand, we need to make sure we get it from the lowest carbon sources. Let’s get it from offshore.”
Ratner with the EDF said no segment of the industry should get a pass in the transition to net-zero emissions. While environmental groups understand that oil and gas demand won’t drop to zero overnight, Ratner said every industry — including fossil fuel production — must be greatly reducing emissions immediately to avoid the worst outcomes of climate change.
Ultimately, this energy transition and reduction in carbon emissions will have profound implications for Houston, the “energy capital of the world,” and for Texas, the nation’s top oilproducing state. The state is home to many of the world’s largest oil companies, which still employ almost 150,000 workers despite layoffs that claimed about 60,000 jobs in 2020.