The world’s most colossal fossils have invested US$50 billion in less than two years in new oil and gas projects that undercut the fight against climate change, according to a new analysis by the UK-based Carbon Tracker think tank, the first ever to assess whether individual fossil projects would be financially sustainable in a low-carbon world.
It found that Big Oil could lose up to $2.2 trillion by 2030 if governments get serious about decarbonization.
“To meet climate goals, it is an unavoidable consequence that fossil fuel use must drop dramatically,” the report states. “The only way that fossil fuel companies can be ‘Paris-aligned’ is to commit to not sanctioning projects that fall outside this constraint, and shrink where necessary.”
And yet, “since the start of last year, fossil fuel companies have spent billions on high-cost plans to extract oil and gas from tar sands, deepwater fields, and the Arctic despite the risks to the climate and shareholder returns,” The Guardian writes, citing the Carbon Tracker report. “ExxonMobil, Chevron, Shell, and BP each spent at least 30% of their investment in 2018 on projects that are inconsistent with climate targets,” a total of 18 ventures collectively worth £40 billion that would be “deep out of the money in a low-carbon world”.
“Every oil major is betting heavily against a 1.5°C world and investing in projects that are contrary to the Paris goals,” said report author Andrew Grant.
Which means that “investors should challenge companies’ spending on new fossil fuel production,” he added. “The best way to both preserve shareholder value in the transition and align with climate change goals will be to focus on low-cost projects that will deliver the highest returns.”
The report “contradicts the public rhetoric of many oil executives who have claimed to support the Paris goals and vowed to invest in renewable energy projects,” The Guardian notes. “It found that none of the largest listed oil and gas companies are making investment decisions that are in line with global climate goals, and risk wasting $2.2 trillion (£1.8 trillion) by 2030 if governments take a tougher stance on carbon emissions.”
The new analysis took a unique approach by looking at the price of oil under various decarbonization scenarios, then assessing which individual fossil projects would succeed or fail under those financial conditions, InsideClimate News explains. In contrast to other past analyses that have focused on projects’ carbon intensity, “the logic we use is that of the market,” Grant said.
That approach revealed “that billions of dollars in new projects that were greenlit last year would lose money if the world succeeds in limiting warming to below 2.0°C,” InsideClimate notes. In Canada, “not a single tar sands project is likely to pay back investors under a 2.0°C scenario. In fact, they found that because of the great expense of extracting oil from Canada’s tar sands, or oil sands, the projects wouldn’t even pay off under a higher scenario that would lead to nearly 3.0°C of warming.”
Which means that, “essentially, Carbon Tracker found that either the days of profitable new oil sands projects are over or we are headed to a future of dangerous warming.” Oil and gas fracking projects could face price and demand challenges, as well.
“We agree that the world is not moving fast enough to tackle climate change,” a Shell spokesperson said in response to the study. “As the energy system evolves, so is our business, to provide the mix of products that our customers need.” Shell’s investment last year in a $13-billion liquefied natural gas project in Canada was one of the perverse choices highlighted in the Guardian story.
ExxonMobil CEO Darren Woods maintained that renewable energy won’t suffice to meet growing world energy demand, citing the International Energy Agency’s estimate that £17 trillion in new energy investment will be needed through 2040.
BP said its continuing push to produce low-cost and, it claims, low-carbon oil and gas is consistent with IEA estimates and the targets in the 2015 Paris Agreement. “All of this is aimed at evolving BP from an oil and gas-focused company to a much broader energy company so that we are best equipped to help the world get to net zero while meeting rising energy demand,” the company said in a statement.
But Carbon Tracker puts those claims in perspective. “In effect, oil companies are giving the world—and their investors—an either-or proposition,” InsideClimate writes. “Either their balance sheets go bust when oil demand plummets, or the world does as warming soars past 2.0°C/3.6°F. It’s one or the other, the report says.”
In a separate study last week, Bloomberg New Energy Finance said colossal fossils are on track to complete a record number of renewable energy deals this year, with nearly 70 already signed since January 1 and European companies showing considerably more interest than their U.S. counterparts.