Beyond Petroleum is back.
That was the slogan of a BP Plc ad campaign launched in 2000 to promote its efforts in renewable energy. BP’s chief Lord John Browne famously called on the oil and gas industry to address climate change and pivoted the firm toward renewables — an effort ahead of its time.
Now Big Oil is claiming to take up the climate mantle under rising pressure from investors and activists. While skepticism is warranted, the latest corporate pledges are compelling. If backed by real action, they mean these firms’ own economic interests will require they move away from oil and gas and push for stronger climate policy.
BP this week became the most recent oil major to announce a climate target, promising not only to reduce emissions from its operations to zero and the carbon in all the fuel it sells by half but also by 2050 to bring to net zero the emissions released when the oil and gas it extracts is burned. This follows pledges from Shell, Total and Equinor to cut the carbon intensity of their businesses in half by 2050.
Words are meaningless unless backed by action, but these promises matter for three reasons.
First, committing to zero out the emissions from the use of energy it produces means BP is promising to be a fundamentally different company by 2050.
Reducing carbon intensity can be achieved by acquiring a renewables firm on top of a company’s existing oil and gas operations, but that would just be an accounting exercise that did not reduce total emissions. This goes further. An oil major may offset some of the emissions from the oil it produces with trees or carbon capture, but bringing that to zero means it will be producing far more low-carbon energy and far less oil and gas in 2050.
Many oil and gas chiefs remain reluctant to commit to reduce emissions from the use of the oil they extract, arguing that they cannot control whether the cars Ford builds or planes Boeing designs run on oil. Commitments like BP’s move beyond that debate over responsibility for so-called Scope 3 emissions, which are indirect emissions in a company’s value chain including from use of products sold, by signaling a fundamental shift in corporate strategy toward new and cleaner energy businesses.
Second, corporate commitments to decarbonize align the incentives for oil and gas firms to advocate for stronger climate policy with their own economic interests. Individual corporate shifts toward greener energy, whether from BP, BlackRock or Microsoft, are welcome but insufficient unless they are also matched by policy advocacy.
There is a limit to how much any one company’s actions can reduce emissions unless the energy system as a whole evolves. If a single firm decides to cut back, many others can step in to produce or finance that oil and gas supply, which will not change unless demand does.
Real corporate leadership on climate thus requires advocating for stronger policy to change the systemic economic incentives that determine how people produce and consume energy. BP’s prioritization of policy advocacy in its announcement is notable - and will be watched closely given past behavior, such as helping defeat a carbon tax proposal in Washington state.
If the company’s new aims are met with action, however, it will now be in BP’s own economic interest to advocate for stronger climate policy. The challenge for oil and gas firms today is that they face increasing pressure to shift their investments toward lower carbon forms of energy, yet if they move too quickly, shareholders can penalize them for not delivering the same returns and dividends.
For the increasing investments in low-carbon energy to pay off, firms will need stronger climate policy. BP will also need to explain to investors and activists alike how any new oil and gas project is consistent with its 2050 target.
Third, if they shift a much larger share of their capital budgets to clean energy than is the case today, oil and gas majors can help scale a broader range of low-carbon solutions that will be needed to decarbonize the world’s energy mix while meeting growing energy demand.
Deep decarbonization involves far more than just generating electricity from renewables. Hard-to-abate sectors like industry, heating, shipping, aviation and trucking will require different solutions, such as carbon capture, carbon removal, hydrogen, biogas, biofuels and more. Large oil and gas companies have the engineering, capital and project management capabilities to develop and scale such technologies.
Delivering the climate solutions needed means business as usual for oil firms is no longer an option. At the same time, transitioning to clean energy will not keep firms financially viable or reduce emissions unless climate policy keeps pace. Companies that want to lead must now match words with action through their investments, technologies and especially policy advocacy.