New Fossil Investment Far Exceeds Paris Climate Goals: Carbon Tracker

The world’s biggest fossil companies, many of them operating in Canada, approved new oil and gas projects in 2021 and early 2022 that will blow through a 1.5°C limit on average global warming, according to new analysis released late last week by the Carbon Tracker Initiative.

The results show that investors “cannot credibly own financial interests in companies that continue to invest in new conventional oil and gas projects” if they want their holdings to align with a 1.5°C climate future, the London, UK-based think tank concludes in its 43-page report, titled Paris Maligned.

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The assessment of 52 large fossil companies found that nearly two-thirds of them had approved a combined US$136 billion in new project investments last year and another $30 billion through March 31, 2022. Almost all of that capital spending was inconsistent with a 1.5°C future, 62% of it would exceed the official “well below 2°C” target in the Paris climate agreement, and $58 billion of the total would push average warming past 2.5°.

Highest-spending companies on the Carbon Tracker list include Shell, Chinese state fossils PetroChina and Sinopec, Equinor, TotalÉnergies, and Eni, with Canadian fossils Suncor, Cenovus, and Canadian Natural Resources Ltd. showing up in the report.

Out of the entire list, Carbon Tracker says only three companies are planning to reduce oil production and only one, BP, expects to see gas extraction decline by 2030.

Instead, companies are pushing ahead with what they see as business as usual in spite of clear warnings from the International Energy Agency and others that no new oil, gas, or coal projects are consistent with a 1.5°C future. “Even alignment with a well below 2°C scenario requires production declines of at least 14% by 2035, with our modelling indicating that a significant proportion of proposed oil and gas developments need not see the light of day,” Carbon Tracker writes.

Even that assessment is based on the IEA’s “less ambitious interpretation of the Paris goals” that relies excessively on carbon capture technologies that haven’t proven they’re ready for prime time.

“The science is clear: to reduce the rate of global warming, greenhouse gas emissions must fall rapidly, necessitating a fundamental shift in our energy system,” the report states. But “as a result of Putin’s invasion of Ukraine, 2022 has been a bumper year for the oil and gas industry. Majors such as ExxonMobil, Shell, and Chevron are reporting consecutive record quarterly profits, and the current high-price environment is tempting investment in new developments and exploration.”

While fossils claim they’ve aligned their production plans with “credible climate targets”, Carbon Tracker says those investments are incompatible with a 1.5° or even a 2.0°C future, and there’s “little evidence this will lower prices for consumers or alleviate short-term supply problems.” Rather, “high prices and energy security concerns highlight the benefits, beyond tackling climate change, of accelerating the transition to a more reliable and affordable energy system based on renewable energy,” including grid and energy storage upgrades to support a faster shift to renewables.

With fossils putting forward different strategies to address their climate emissions, Carbon Tracker says it focused its assessment strictly on whether they’re planning to reduce production. “Perhaps to frame themselves as ‘part of the solution’, oil and gas companies are investing some of their earnings—which historically would have been reinvested into oil and gas—into renewable energy,” the report states. But “while this may have some positive impact in shifting the energy system—and may be a sound financial investment—it doesn’t somehow ‘offset’ the continued legacy businesses and create a ‘climate-aligned’ company.”

Some fossils are “allowing existing production to wind down over time, without any reinvestment,” while others are “selling off assets to ‘create space’ vs. emissions or production targets,” the report adds. “Even for those companies that are planning on reduced production, this must be done in a credible way.”

With pension plan participants, university endowments, and others “increasingly interested in the potential negative impacts of the investee companies,” Carbon Tracker says asset managers have a fiduciary duty to take their concerns into account. Even asset owners that don’t see the societal impacts of climate change as a priority “should care about the financial risks the energy transition poses via their investee companies,” as the shift off carbon cuts into the returns fossil companies can offer their investors.

“Given limiting warming to 1.5°C will require 90% of discovered fossil fuel reserves and resources around the world, including those listed on stock exchanges, to remain in the ground as Unburnable Carbon, the degree to which investee companies are planning to move away from oil and gas is key to whether they can be considered climate-aligned,” the report states.

Earlier this year, the 10-year update to Carbon Tracker’s original (and groundbreaking) Unburnable Carbon report concluded that $1 trillion in oil and gas assets could lose their value to investors as a result of climate policy action and the rise of alternative energy sources.