Issue 5/2019

Blowing the carbon budget

Joachim Wille, 30 Oct 19
Tar sands, LNG, deepwater drilling: new research shows that oil and gas companies are undermining international carbon targets with their investment decisions – and exposing themselves to serious financial risks in the process.

Climate experts have calculated that in order to keep global warming below the critical 1.5 to 2C threshold, most of the fossil energy reserves currently deemed to be technically and financially recoverable must actually be left in the ground (coal: 80 percent; natural gas: 50 percent; oil: 33 percent). However, a recent study has concluded that none of the world’s major oil and gas companies are acting in a way that is consistent with this target, enshrined in the 2015 Paris agreement on climate change. According to the study, the combined volume of extraction projects recently approved by these energy multinationals is more than enough to deplete humanity’s remaining carbon budget.

Global emissions of carbon dioxide must start to fall from 2020 and be halved by 2030 to ensure compliance with the 1.5C “safety limit” needed to avert tipping points in the climate system, according to the Intergovernmental Panel on Climate Change (IPCC). And while pressure from international investor groups like Climate Action 100+ has elicited pledges from numerous oil and gas companies – including Shell, BP and Total – to do more to bring their business models into line with the Paris goals, in practice these pledges are not reflected in the companies’ business decisions, a paper by UK thinktank Carbon Tracker has revealed.

For the study, Carbon Tracker monitored 71 major oil and gas companies and calculated which of their investments would become unprofitable in the event of governments worldwide enforcing the meagre carbon budgets determined by the Paris agreement. Starting in 2018, the study lists 18 investment projects totalling USD 50 billion (around EUR 45 billion), including a new tar sands operation by US corporation Exxon Mobil and an LNG project by British-Dutch company Shell, both in Canada, and deepwater oil projects by various companies in the Atlantic ocean off the coast of Angola and in the Caspian Sea off Azerbaijan.

Betting against climate action

According to the study, investment decisions on another twelve projects with a combined volume of USD 21 billion (EUR 19 billion) are due soon. In 2011, Carbon Tracker popularized the term “stranded assets” to describe the financial risk to investors, companies, governments and the financial markets at large of investing in fossil fuels due to the possibility of these investments abruptly losing value. The study calculates that the companies examined stand to lose up to USD 2.2 trillion (EUR 2 trillion) by the end of the next decade if they fail to adjust their business models to take future climate policy objectives into account – although it is worth noting that the carbon plans currently being followed by the world’s governments are more likely to lead to 3C of warming than compliance with the 2C limit.

The company estimated to be most at risk from stricter climate policies is Exxon Mobil: over 90 percent of its project pipeline for the period up to 2030 is incompatible with the Paris goals – in other words, almost all of the fossil fuel reserves the company is currently investing in are out of bounds from the perspective of global warming. Although the figure is somewhat lower for other oil giants such as Shell, Total, BP, Chevron and Eni, more than half of their investments are nevertheless dangerously high.

The oil industry is determined to carry on with business as usual, and will remain so “for as long as there are profits to be seen,” concludes Carbon Tracker expert Andrew Grant. “Every oil major is betting heavily against a 1.5C world and investing in projects that are contrary to the Paris goals.”