The emission reduction targets of most oil majors leave them free to increase production or ignore the full impact of burning their future oil and gas without creating a net reduction in the emissions, a report by Carbon Tracker finds Wednesday.
According to UK-based think-tank Carbon Tracker's Absolute Impact report in which emission reduction targets of Shell, Total, ExxonMobil, ConocoPhilips, Chevron, BP, Eni, Repsol and Equinor were analyzed, companies that set out 'net zero' ambitions do not have absolute reduction impacts on emissions.
The report pointed to Shell and Total that announced 'net zero' ambitions but did not commit to the absolute reductions needed to link to finite climate limits. US companies ExxonMobil, Chevron and ConocoPhilips were also in the firing line as the report noted they ignore carbon released when their oil and gas is burned.
"Companies need to recognize the impact that reduced demand for oil and gas will have on their business model,” Mike Coffin, oil and gas analyst and author of the report told Anadolu Agency.
He said the use of these fuels needs to fall dramatically for the world to limit warming in line with the Paris climate goals.
"Whether companies see that they 'own' the end-use emissions or not, the impact of this reduced demand for their product should see a change in company strategies accordingly, with emissions targets to support this," he noted.
According to the International Energy Agency's data, global energy demand could fall by 6% this year - more than seven times the impact of the 2008 financial crisis, while bucking the trend for growing energy demand over the last five years with oil demand the biggest damage from the COVID-19 pandemic.
Coffin said that companies cannot be aligned with the Paris climate goals unless they commit to only sanctioning Paris-aligned projects, which will have the knock-on effect of absolute cuts to their oil and gas production and resulting emissions.
"On their own, net-zero targets are insufficient to link to Paris goals. To do that, climate targets need to recognize the absolute limits of a global carbon budget and incorporate interim emissions reductions.
“Policies which fall short will fail to satisfy both environmental and financial concerns from investors, and risk being perceived as greenwashing," Coffin warned.
The Carbon Tracker found that corporate policies fell broadly into three levels of ambition with a major gulf between the US and European companies.
Eni, Repsol and BP have the most impactful policies, which all set absolute targets for cutting emissions by 80% to 100% across their oil and gas production by 2050. Eni leads the field with a strong interim target of cutting emissions by 30% on an absolute basis by 2035.
Shell, Total and Equinor set targets of reducing the carbon intensity of the oil and gas they sell by 50% to 65% by 2050, but the report found that this is not a commitment to an absolute cut in their emissions.
The Carbon Tracker report revealed that Chevron and ConocoPhilips only commit to small cuts in operational carbon intensity by 2050, equivalent to a maximum 3% cut in overall emissions while ExxonMobil ranks bottom because its targets only cover operational emissions.
- Ignoring climate change could cost $792 trillion
A previous report of Carbon Tracker found that to meet the Paris Agreement targets, oil majors would need to cut combined production by 35% from 2019 to 2040. However, these companies continue increasing their gas and oil production despite falling demand.
According to an article published on Nature Communications, following current emissions reduction efforts, the whole world would experience a washout of benefit, amounting to almost $126.68 - 616.12 trillion until 2100 compared to 1.5 °C or well below 2 °C commensurate action.
The article asserts that if countries are unable to implement their current National Determined Contributions under the Paris Climate Agreement, the whole world would lose more benefit, almost $149.78 - 791.98 trillion until 2100.
With falling oil and gas demand, the report says only the most cost-competitive projects will generate value, and even they will potentially deliver lower than expected returns.
Coffin stressed that capital invested in projects that exceed climate limits will risk becoming stranded and destroying shareholder value.
He suggested that companies do not have to transition but could adopt a “harvest” model instead where production declines from existing assets without being replaced and capital is returned to shareholders.
He underscored that for a company to be 'Paris Aligned,' it needs to commit to not sanctioning projects that fall outside Paris limits.
“Companies that do so risk the planet exceeding the carbon budget, and destroying significant shareholder value," he concluded.
By Nuran Erkul Kaya