In the fossil fuel world, May is AGM season. Big fossil fuel companies have been preparing to face their investors and a whole series of climate-related shareholder resolutions. This week, both Chevron and Exxon Mobil are opposing investor-led resolutions focused on asking the companies to disclose how they expect climate change to impact their business and what they are doing to offset the potential downsides. For big oil and gas companies, not to mention the already struggling coal industry, the potential of governments getting serious on their pledges to limit warming to 1.5°C or 2°C will have more likely downsides than for other parts of the economy.
Our current understanding of climate physics indicates that it is the cumulative sum of all the carbon that we dump in the atmosphere from now on that is the best determiner of future global warming. Ultimately this means that if we are to limit global warming to any value, be it 1.5°C, 2°C, 3°C or any other value, net emissions of carbon dioxide to the atmosphere must come to zero. The implications for the fossil fuel industry are stark. In order to have any role in a future net-zero carbon economy they must work out a way to run a profitable business that results in no net addition of carbon dioxide into the atmosphere, a substantial challenge for an industry that has thus far operated by dumping the waste product of its operations into the atmosphere unchecked to say the least!
Whilst a profitable net-zero fossil fuel company is certainly a huge challenge, is it an insurmountable one? In the run up to its own AGM, the Dutch oil and gas giant, Shell, has released a new scenario focused on their vision of a net-zero world compatible with 1.5°C warming, entitled “A Better Life with a Healthier Planet”. According to the company, gas power with carbon capture and sequestration (CCS) is likely to play a continuing role in the global energy mix well into this century and CCS could be crucial for eliminating many difficult to decarbonise processes in the industry sector, such as steel manufacturing.
Scenario analysis such as this indicates that at least some players in the oil and gas sector are thinking to think seriously about whether their companies have a role in the economy of a stable climate, and if so, how? A question that we hope climate-conscious investors, keen to help catalyse this transition, will need to be seriously asking of companies in the future. Convincing, measurable and substantive answers to this question are still lacking. Despite the new scenario work by Shell, the company also indicated that based on the scenario “we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10–20 years”, a statement that seems difficult to reconcile with simple analyses indicating that investments in new fossil assets may already be at risk of locking in more electricity sector emissions than might be judged compatible with a 2°C or 1.5°C warming.
Suppose a fossil fuel company instead demonstrated that it was undertaking substantive and measurable commitments to ensuring that the fraction of the carbon that it digs out of the ground that is subsequently captured and permanently stored reaches 100% by the time temperatures reach 2°C. Could such a company be part of a net zero energy system? Would investors support this company with the capital to achieve this transition? Should they? Ultimately, only time will tell.