While big oil is being trenchantly criticised for expanding oil and gas output it is acting in response to market forces. Much more attention therefore needs to be given to the failure of governments to end their subsidisation of oil companies, to ending the greenwashing of gas, and to redirecting investment to renewables.
As we blithely play chicken with the globe’s rising temperature a popular outlet for criticism is to blame ‘big oil’ – short for big oil and gas – for pushing us over the CO2 cliff. On the face of it that’s self evident. The majors – BP, Chevron, Equinor, Exxon Mobil, Shell, and TotalEnergies – are busily reversing themselves out of promises to accelerate the transition to renewables made when oil and gas prices rock bottomed during the Covid era.
Soaring carbon prices and profits have changed all this: big oil is aggressively and unapologetically expanding its oil and gas exploration and output. This, despite the International Energy Agency’s (IEA’s) call for no new investment in carbon fuels. Only about 5% of oil and gas company capital expenditure went to so called ‘clean energy’ in 2022 according to the IEA – up from just 1% in 2019. This investment was responsible for a mere 1% of renewable energy brought on stream in 2022 despite big oil more than doubling its profits to an eyewatering $219 billion. No surprise then that Wood Mackenzie analysts predict offshore exploration and drilling activity will grow by 20% by 2025. Through to 2031 an estimated $4.6 trillion will be invested in bringing on yet more oil and gas.
According to UNEP this investment will result in 57% more oil and 71% more gas in 2030 than is consistent with holding to a 1.5C increase in temperature. Overall fossil fuel production will be 45% more than is consistent with even the weaker goal of 2C.
This avalanche of carbon fuel investment is leaving investment in renewables in its wake. The IEA calculates that to meet IPCC CO2 reduction targets, $2.7 trillion needs to be invested annually in what it calls ‘clean energy’ by 2030. To transition to a net-zero world that needs to rise to $4 trillion annually. But spending on ‘clean’ energy is estimated to be only around $1.3 trillion, in 2023.
But even this woeful underspend is not at all what it seems. Big oil and its handmaiden, the IEA have embarked on carefully curated global greenwashing campaign using the term ‘clean energy’ as a front for expanding investment in gas. Clean energy in IPPC parlance now includes both renewables and gas ‘cleaned’ by carbon capture and storage (CCS). This ignores the now well researched fact that, even with CCS, upstream fugitive emissions make gas a very dirty fuel. Deliberately hidden from view in big oil member annual reports is that their investment in genuinely renewable energy – principally wind and solar and green hydrogen – accounts for only a very small proportion of their ‘clean energy’ investment – adding up to just 1.5% of the global investment in renewables in 2022.
Shell is a typical purveyor of this global greenwash. Its 2022 annual report claims 12% of its capital expenditure was spent on “renewables and energy solutions” such as “wind, solar, electric vehicle charging, hydrogen, and more”. In reality, research by the activist group Global Witness, put Shell’s capital expenditure on renewables at 1.5% of total ‘clean energy’ investment with most of the balance going to trading and marketing of gas.
This longstanding lack of interest in investment in renewables is not about to change. Big oil has never led the transition to renewables but rather engaged in a concerted extraordinarily successful subterranean think tank led warfare against the climate change movement over many years. That has been instrumental in slowing the IPCC’s tortuous attempts at getting effective global action.
Big oil has now hitched its transition slowing bandwagon to ‘clean energy’. Our own Labour government and most other countries – including the US, Canada, the UK and to a lesser extent the EU – have become willing, active participants in the greenwashing. If you hadn’t noticed we and other G20 supplicants had no qualms over endorsing the G20’s “Clean Energy” ministerial summit in Goa in July where “low carbon” fuels were warmly and uncritically embraced. That followed, at the death nell of COP 27 last year, the unprecedented acquiescence of IPCC member countries to the erasing of any reference to phasing out of all fossil fuels and to the adding of the term ‘low carbon’ fuels thus violating the thrust to genuinely renewable energy.
If the ‘clean energy’ government capture is not disturbing enough, direct, massive financial support of big oil by governments surely is. Notwithstanding its profitability, big oil has applied its outsized asymmetric influence to extract a river of subsidies – estimated to be around $7 trillion in 2022 (including $5 billion from the Australian government) – in support of fossil fuel exploration and development.
Bizarrely there is a further unending river of subsidies being handed over by governments to oil and gas companies. We in Australia and governments in the rest of the world have created a tax minimising playground for multinationals by passively allowed them to offshore a good proportion of their profits and pay derisively little tax.
The problem here is big oil companies have few if any incentives to use this largess to increase investment in renewables. Directors are not obliged to save the world but rather to meet shareholders’ best interests. They may – and do at times – include environmental, social and governance issues. For example Exxon activist shareholders successfully unseated two board members in 2021 replacing them with environmentalists. This year some 36% of shareholders voted in support of an albeit failed motion to reduce Exxon’s environmental footprint. In response to this activism, using the huge surge in post COVID/Ukraine war profits, big oil has showered shareholders with fattened dividends and tax reducing, share price enhancing buybacks. This in turn is being financed by their surging investment in oil and gas exploration – the return for which is currently put at around 15%-to-20% – far greater that the return on renewables projects of around 8%. That is to say ‘best interests’ are being realised as short term financial gain.
The onus therefore rests with governments to regulate the market, taxes and subsides so that investment is directed to fully renewable energy. As part of any such move the clean energy/gas subterfuge needs to be revealed for what it is. In addition, governments need to forge multinational agreements which prevent multinational corporations offshoring profits and shifting operations to low tax havens.
Of course it is not just the investment of big oil companies which governments would have to re-divert. National oil companies (NOCs) flying somewhat under the radar produce the half of the world’s oil and gas in which they are expected to invest $1.9 trillion– some 40% of the global total – over the next decade. They will therefore pump almost as much oil and gas as the world needs to keep emissions under the limits set in Paris.
Problematically some $365 billion of this investment is coming from developing and emerging economies and an estimated $80 billion is from low and low-middle income countries. A number of NOCs such as Angola, Colombia, and Mexico have high project costs meaning a dramatic shift away from fossil fuels could engender a stranding of assets and an ensuing sovereign debt crisis in such emerging economies. There is therefore a need – well recognised by the IPCC – for large resource transfers from developed to developing countries to meet the cost of climate change and in these cases, bridge the gap in investment returns between renewables and oil and gas. But there are no plans for transferring funds in anywhere near the volume needed.
The unacceptable outcome is, then, that neither big oil nor NOCs are about to turn away from their heavy investment bias in oil and gas and which will act to guarantee global temperatures will pass well beyond 1.5C. Even so, there are no indications that governments will cut oil and gas subsidies any time soon. We therefore have the ludicrous situation where our governments continue to pour multi-billion dollar resources into raising the globe’s temperature in direct conflict to their professed national undertakings and global IPCC commitments.