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Green Oil: second wave of investment in low-carbon assets is substantial but hardly tidal

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Green Oil: second wave of investment in low-carbon assets is substantial but hardly tidal

by Mike Scott, March 8, 2019

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Equinor's Hywind floating wind installation, Scotland

Oil majors are under significant pressure from investors to develop climate-friendly business areas but less than 1.5% of their combined investment budgets is expected to go into low-carbon assets globally this year. However, 70% of that is set to come from European oil companies who are reacting positively to market signals by participating in coordinated industry schemes designed to help meet Paris targets. Here is an overview of some of the more significant investments which, according to Mike Scott, are indicators of a permanent, growing green shift in the portfolios of these household-name giants.

The oil and gas sector has embarked on a second wave of green investment, a decade or so after abandoning a push into renewables that was spearheaded by BP’s Beyond Petroleum campaign, as the financial crisis hit and the oil price plunged.

There is so much happening, it is difficult to keep up. Here is a snapshot of recent activity:

  • Shell recently announced it wanted to double its investment in renewable energy to up to $4bn annually, having recently invested in solar power, wind farms, electric car infrastructure and even a utility, the UK’s First Utility. In the first two months of 2019, it has invested in Autogrid, which uses artificial intelligence to make energy systems more flexible; US electric vehicle charging group Greenlots; Nordsol, a producer of bioLNG; autonomous driving company Aurora; Makani, a company aiming to generate wind power using kites; a demonstration project for a floating wind turbine; and sonnen, an energy storage company. And most recently, it bought UK-based Limejump, a virtual power plant company that will boost its position in demand response.
  • BP’s joint venture with DuPont, Butamax, has developed technology that converts sugars from corn into an energy rich biofuel known as bio-isobutanol. It has more than 1GW of wind power capacity in the US, and in 2018, it bought solar power developer Lightsource, and UK EV charging company Chargemaster. (image: BP’s Butamax biofuel investment)
  • Total has been involved in solar power since 1972. It bought SunPower in 2011 and covers the entire solar value chain, from manufacturing solar cells to installation. In 2016, it bought Saft, a leading provider of energy storage solutions. It has also been involved in biofuels since the 1990s and has opened France’s first biorefinery at La Mède.
  • Italy’s Eni is investing €1.2bn to install 1GW of renewable capacity by 2021, and it aims to have installed capacity of 5GW by 2025, mainly in PV and wind, but also in concentrated solar power, biofuels and green chemistry.
  • Equinor plans to devote 25% of its R&D budget to renewables by 2020 and to invest $1bn a year in renewables to 2030. It is one of the biggest players in offshore wind and is developing the world’s first floating offshore wind turbine project, Hywind. It has been storing CO2 in its Sleipner gas fieldsince the 1990s and it is one of the world leaders in CCS research. In solar, it has invested in Oxford PV, a leader in perovskite technology, which could lead to greater efficiencies, and Convergent Energy + Power, which develops solar and storage projects.
  • Exxon has a $500m joint venture with Synthetic Genomics to genetically engineer photosynthetic algae to produce renewable crude from sunlight and carbon dioxide, but even though it has been investing in this area for decades, there have so far been few results.It is part of a $1bn a year programme of basic research in low-carbon technologies. Last year, it signed the biggest renewable energy power purchase   agreement of any oil and gas company, to buy 500MW of wind and solar in Texas, which it will use to produce oil.

  • Chevron has invested in solar, wind and geothermal, as well as renewable diesel but only at a small scale to evaluate the technologies.

The summary League Table above presents headline company findings. It is based on detailed analysis across a range of carbon and transitional indicators which could have a significant impact on company performance. The League Table is designed to serve as a proxy for business readiness in an industry which will undergo significant change as governments increase efforts to implement the Paris Agreement. Companies placed towards the bottom are deemed less prepared for a low-carbon transition

 

A number of firms, including Total and Equinor, have their own venture investment units. In addition, the Oil and Gas Climate Initiative (OGCI), an industry scheme that includes most of the oil majors, has a $1bn investment fund that is investing in areas such as reducing methane leakage, cutting CO2 emissions and recycling CO2.

The fund has made a number of investments in start-up companies working in areas ranging from low-emissions cement and catalyst technology that enables CO2 to be used as a raw material, to data-providers monitoring methane leakage and CO2 emissions using satellites and aerial surveys, as well as more fuel-efficient and less polluting petrol engines.

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So, is this different from the last time Oil majors dipped their toe in the water of renewables investing, and if so, why?

There are a number of reasons to believe that what is going on now is a more lasting change. Firstly, cost and technology developments such as the growth of the energy storage sector have made renewables much more viable for power generation and transport than they were a decade ago.

Second, the science is much firmer than it was in the early 2000s, when the last wave of investment kicked off, buoyed by the birth of the European Emissions Trading Scheme and Al Gore’s Oscar-winning turn in the film An Inconvenient Truth.

Subsequent reports from the Intergovernmental Panel on Climate Change (IPCC), backed up by a growing body of anecdotal evidence, have shown with much greater certainty that climate change is happening and it is man-made. At the same time, advances in analysis and research have made it much clearer who is responsible for greenhouse gas emissions. The US Environmental Protection Agency reported that in 2016, more than three quarters of US emissions came from burning fossil fuels for the transportation (28%), industry (22%) and electricity (28%) sectors.

The Science Based Targets Initiative has worked out the contribution of individual companies to emissions, creating a baseline of what is acceptable if companies are to do their bit in limiting the effects of climate change. A growing number of companies have signed up to the initiative and through their own efforts to cut their impact, they are putting pressure on their energy providers to be more sustainable.

The Carbon Tracker Initiative has set out the risks of the transition to a low-carbon economy to the oil and gas sector in reports with titles such as 2020 Vision: why you should see the fossil fuel peak coming; Mind The Gap: the $1.6 trillion energy transition risk; and Expect the Unexpected: The Disruptive Power of Low-carbon Technology. And the Taskforce for Climate-related Financial Disclosures (TCFD) is gaining increasing traction with investors, who are demanding answers from companies on how they are dealing with climate risks.

As a result, and most importantly, investors are firmly on board this time. The clearest illustration of this has come outside the oil and gas sector in recent days, with the announcement from Glencore, the world’s biggest exporter of thermal coal and one of the companies most bullish on the case for coal, that it will cap production at current levels, align its business with the goals of the Paris Agreement and prioritise investment in commodities that support low-emissions technology.

It is testament to the success of shareholder pressure in changing behaviour, especially the impact of the relatively new group ClimateAction 100+, which also recently persuaded Shell to halve its net carbon footprint by 2050, with a 20% cut by 2035, and to link executive remuneration to these targets. The group, which is targeting the biggest emitters, is also asking BP to align its business strategy with the Paris Agreement in a shareholder resolution, and, significantly, BP is recommending that investors approve the move.

The group is planning to target other large polluters and is likely to have significant success, given its recent achievements and the fact that it represents more than 300 investors and over $33 trillion in assets under management.

Another key driver is a wave of climate lawsuits targeting oil and gas companies, filed by cities such as New York and San Francisco, along with a group of 21 young people, with ExxonMobil a particular target. It’s unclear how successful these suits will be, but even if they ultimately fail, they cost time and money to defend and if oil companies are found liable, the costs would likely run into billions of dollars.

And if oil executives want to see which way the wind is blowing, they need only watch thousands of schoolchildren skipping school to protest against climate change every week or hear the latest developments in the Green New Deal.

All of these developments suggest that the sector is moving towards an acceptance that they need to change. The moves they have made so far are significant, but it’s important to remember that the $3.38bn the world’s largest oil firms spent on climate change reduction initiatives in 2018 was just 1.3% of their combined budgets, according to climate researchers CDP. And most of that spending, some 70%, is by European oil groups, suggesting that companies in other regions, including many national oil companies, may struggle to cope with a changing market.

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2030 GHG targets: more needs to be done to align action and policy with climate science

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EU COP24 commitments: more needs to be done to align action and policy with climate science

by Luca Bergamaschi
December 20, 2018

As the dust settles after the 24th UN climate conference (COP24) successfully delivered the “rulebook” of the Paris Agreement, European Commission officials head back to Brussels knowing they deliver the best possible outcome. Despite geopolitical tensions, all Governments – especially the EU and China – showed their determination to multilateral cooperation on climate. Luca Bergamaschi of climate think-tank E3G, just back from Katowice, reports from Brussels.

While finalising the rulebook is an achievement in itself given the current geopolitical environment, countries were not prepared to send a clear signal towards scaling up action in response to the stark warning from the latest scientific report on the impacts of 1.5 degree of global warming. Even within Europe there is a deepening divide between progressive Member States, such as France and The Netherlands, demanding increased efforts to cut greenhouse-gas (GHG) emissions and those determined to defend the status quo, such as Germany and Poland.

To maintain its international climate leadership and credibility, especially vis-à-vis the most vulnerable countries, next year the EU will need to signal that its domestic commitments and strategy are aligned with the scientific evidence. This will be key to arrive at COP26 in 2020 with a strong European offer in the form of an increased Nationally Determined Contribution (NDC, equivalent to the EU 2030 GHG target) and a Paris-compatible long term strategy. The two key meetings to do so in 2019 will be the European Council on the Future of Europe in May 2019 in Sibiu and the UN Secretary General’s Climate Summit on 23 September in New York.

What happened in Poland

Countries agreed most of the implementing rules of the Paris Agreement overcoming initial challenges posed by fossil fuels producing countries. The negotiations went in overtime but eventually they all agreed a common set of rules for preparing, monitoring, taking stock and comparing climate pledges. These rules are applicable to all countries but allow developing countries a few years more to fulfil all rules, while receiving support through capacity building. Also, the rules provide clear guidance for countries to take stock of, and subsequently enhance, their pledges every 5 years by assessing progress towards the long-term goals of the Paris Agreement and financial support (including for losses and damages caused by climate change).

Only one decision was postponed to next year. This was on the design of market mechanisms for carbon reductions (Article 6 of the Paris Agreement) that do not compromise environmental integrity, for example through double counting of emissions reductions. This will now be negotiated at a later stage as Brazil, a potentially large provider of carbon credits to the market from its large forest resources, could not agree.

While shared, universally-applicable rules are a necessary condition for international cooperation, they are no substitute for increased climate action, as current national commitments on emission reduction are not sufficient to bridge the growing emissions gap in 2030. If left unchanged, current commitments would lead on average to over 3 degree of warming by the end of the century.

At COP24 countries failed to clearly signal their intention to update their national commitments against the warnings of the IPCC report on 1.5 degree. And yet even the IPCC report might be underestimating critical climate risks. This is the message delivered by Professor Hans Joachim Schellnhuber, Director Emeritus of the Potsdam Institute for Climate Impact Research, during arguably the most important side event in Katowice.

In fact, the IPCC might be depicting a too rosy picture of the earth system. Even delivering the Paris Agreement temperature targets, we might activate a cascade of “tipping elements” – the vital organs of the earth system, such as the Greenland and West Antarctica ice sheets – that would turn the world into a hothouse earth and lead to unmanageable sea level rises.

The most critical issue is the non-linearity of climate change and the synchronicity of extreme weather events around the world, which could cause a cascade of irreversible change. In light of these new findings, a key task of European policy makers – especially for the next Commission – is to better understand these risks and how to effectively respond in order to build adequate resilience and protect all Europeans especially those most exposed, such as in Southern Europe.

European diplomacy works

Reaching the agreement was a success of European diplomacy often in partnership with the most vulnerable countries. The EU played an important role as bridge-builder between countries by acknowledging the key role finance plays in enhancing emission reductions. The EU and others made sure that that greater predictability of financial support is enshrined in the rulebook which reassured developing countries and created trust among them.

Importantly, the EU alone has pledged a voluntary contribution of €10 million for the Adaptation Fund. This was an important signal of solidarity towards key European allies, especially the most vulnerable countries. The EU also brought together the High Ambition Coalition, including 12 Member States, to make a clear statement about their priorities for the rulebook, which helped putting pressure on the final hours of negotiations.

European non-state and business actors also played a key role for increasing European leadership. 45 European business, investors, cities and regions launched the initiative Step Up Now, showcasing the climate action they are undertaking already and calling on EU countries to commit to net-zero emissions by 2050 as well as to adjust the 2030 targets. This new coalition is expected to grow over the next few months in the run-up to the Future of Europe summit in May 2019. At the same time, London Mayor Khan unveiled his plan to tackle the climate emergency and become carbon neutral by 2030, the Danish Maersk – the world’s largest container shipping company – is the first global shipping company to set itself a target of becoming CO2 neutral by 2050 and Volkswagen committed to roll out its last petrol and diesel model in 2026.

Unsurprisingly, coal received special attention throughout the whole conference. Three thousand people marching in Katowice asked the same thing as global investors managing $32 trillion worth of assets: a quicker exit from coal. Progressive Polish Mayors issued a declaration in favour of climate policies and major new actors joined the Powering Past Coal Alliance – the first global alliance working to advance to transition away from unabated coal – including Scotland whose wind power broke the 100% output for the first time in December. And Greta Thunberg, a young Swedish teenager who inspired school strikes to protest against climate inacation all around the world, was the rising star both inside and outside the conference.

Aligning financial flows with the Paris Agreement is proving instead more challenging. While the European Bank for Regional Development (EBRD) committed to phasing out direct coal financing, it is failing to tackle its significant investments in gas infrastructure. The positions of the EU Council and the Parliament on the next EU budget do not yet signal a clear trend away from fossil fuel investment. The biggest risks of new gas investment are ending up as stranded assets or locking in emissions.

Opportunities in 2019

At the latest European Council (13-14 December), European Heads of State confirmed that Member States will respond to the recently published long-term strategy presented by the European Commission in more detail in the first half of 2019. This will be the first opportunity for aligning the EU long term strategy to climate science, in particular to 1.5 degree, and responding to increasing demand from the majority of businesses and citizens for enhanced climate action. This will require to set a target of net-zero GHG emissions by 2050 at the latest. Ideally, Heads of State will also discuss what this means for 2030 targets. New analysis shows that reaching net-zero by 2050 requires raising the 2030 ambition level to 55-65%.

In the run-up to the Future of Europe Summit, governments could use the next months to find consensus towards a net-zero emissions goal by 2050 and new 2030 GHG target (which corresponds to the European NDC) through discussing what this means for industry competitiveness, finance, infrastructure, social policies and innovation. The recently published report presented at COP24 by the EU Commission’s DG Research and Innovation on decarbonisation pathways could support this effort. Its recommendations include:

  1. the need for sustained Research and Innovation activities on decarbonisation across all sectors, including a robust programme on climate change science;
  2. the establishment of large mission-oriented programmes of a cross-cutting nature for the deployment of system-level transdisciplinary innovation;
  3. the development of partnerships with industry to address together the most difficult aspects of decarbonisation, on which industry alone would not invest enough and with the necessary urgency;
  4. and the launch of Transition Super-Labs, very-large-territory initiatives of real-life management of the transition from typical fossil-fuel-based local economies to zero-carbon ones.

This discussion and the agreement for an ambitious, long term climate-neutral target would allow the EU, and the current European Commission, to respond to the shortcoming of COP24 and use the Sibiu Summit to define its legacy on the Paris Agreement, ensuring that climate change will be a high priority for the next European Commission. This will of course depend on the formation of the next European Parliament. The political discussion on climate change during the electoral campaign will also be key to shape how Heads of State will respond to it in May.

“from now on, my five priorities will be: Ambition in mitigation. Ambition in adaptation. Ambition in finance. Ambition in technical cooperation and capacity building. Ambition in technological innovation” UNSG, Antonio Guterres

If Heads of State can provide guidance on the long term strategy while committing to a higher European NDC, this would allow for a concerted diplomatic effort for higher ambition with China and Canada to be agreed at the next Ministerial on Climate Action (date to be determined but presumably in the first quarter of 2019). This would inject much needed global leadership and prepare higher pledges to be announced at the UN Secretary General’s Climate Summit on 23 September in New York. This will be the most important international meeting on climate change during 2019 where countries are invited to make new national commitments – the missing element of COP24. In the words of UNSG Antonio Guterres, “from now on, my five priorities will be: Ambition in mitigation. Ambition in adaptation. Ambition in finance. Ambition in technical cooperation and capacity building. Ambition in technological innovation”.

A lot of work needs to be done to overcome the current divide inside Europe between progressive and less progressive Member States. The upcoming recommendations of the new Coal Commission in Germany could trigger a rethink and a repositioning of Germany, opening up the possibility of increasing the 2030 GHG target and organise more pressure on Central and Easter European countries, in particular on Poland. It will require a strategic offer to persuade them to move towards accepting higher targets by 2030. The next six months are therefore key to achieve this.

Conclusion

After COP24 the focus shifts to domestic processes and partnerships to keep the promise of the Paris Agreement alive through enhanced climate efforts. The EU is now expected to act as the global pacesetter on increasing NDCs ahead of the 2020 deadline. The EU can count on the support of a broad set of governmental, non-state and business actors. They provide the basis for discussing the range of actions needed to increase ambitions and in doing so to keep a chance of avoiding the most dangerous levels of climate change.

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Luca Bergamaschi is Senior Associate on climate and energy diplomacy at climate think-tank E3G

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Shell links executive pay to emissions goals – now follow that!

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ENERGY WATCH #2 - December 7, 2018

Shell links executive pay to emissions goals - now follow that!

by Mike Scott

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Royal Dutch Shell has kicked off the annual round of announcements that accompany the UN climate conference with possibly the most consequential initiative of all. It has said it will set short-term, binding targets to cut emissions. Not only that, but it will link executive pay to meeting these targets.

One of the biggest producers of fossil fuels has, for the first time, agreed to cut its carbon emissions – by 20% by 2035, rising to around 50% by 2050. And it is doing this in absolute terms, not per unit of production as high emitters so often do.

This is not tree huggery. It is a hard-headed business decision to position the company for the “energy transition”. “This ambition positions the company well for the future and seeks to ensure we thrive as the world works to meet the goals of the Paris Agreement on climate change,” said CEO Ben van Beurden.

The company has now set the bar for the industry.

But will other oil majors follow?

While Shell is ahead of many of its rivals, it will not be the last company to do this. This is part of a bigger trend, although everyone will do things in their own way.

The other European majors seem likely to follow suit, although US companies may react slightly differently – for example, ExxonMobil announced last week that it’s going to use wind and solar power to produce shale gas in the Permian Basin. Most of the oil majors are stepping up their investments in renewable energy and electric transport. Following Shell’s announcement, expect a race to the top.

When your product is oil, your customers’ emissions matter too

The emissions Shell is planning to reduce include those of its customers. This is another huge development – big oil is starting to realise that it has to deal with end-use emissions as well as its own operations. This is the result of the increasing focus on “Scope 3” emissions – those in a company’s value chain rather than from its direct operations – that is embedded in initiatives such as the RE100, Science Based Targets, the Greenhouse Gas Protocol and CDP’s collection of carbon emissions data. For many products and companies, their key impacts lie not in their own facilities and production but in their supply chains (e.g. food producers) or their end users (e.g. oil and gas groups).

Shell needs to consider end user emissions because other companies are looking to reduce their own Scope 3 emissions to meet their own sustainability targets. If Shell wants to keep selling to them, it has to reduce the emissions from its products.

Shareholder activism is working

This move is the result of pressure from investors, which is both increasing and becoming increasingly targeted in its focus. Shell was asked to act by Climate Action 100+, a group of more than 300 investors representing $32 trillion of assets, which targets the 100 biggest global emitters, representing up to two thirds of global emissions (plus another 61 nominated by the investors as either having significant climate risks or a significant opportunity to drive the clean energy transition.) Three quarters of the companies are either fossil fuel providers or their major customers in utilities, transportation and chemicals.

So even if the sectors ignore investors, their customers are likely to ask them to act. Mindy Lubber, CEO of investor group Ceres, said Shell’s announcement was a critically important benchmark against which other oil and gas majors will be assessed. “Climate Action 100+ will now use this commitment to raise the bar for the oil and gas industry as a whole.”

It’s easy to criticise the sector for a combination of dragging its feet and greenwash announcements that amount to little (ExxonMobil’s algae adverts, for example). But this looks like an indicator of a real change in strategy. Last year, Shell made a load of acquisitions in clean energy, and a load of announcements around climate, that were all pretty small-scale compared to its investments in its core business, and non-binding. These targets are not only binding, they are linked to senior executives’ pay.

Against a geopolitical backdrop that looks really quite pessimistic for climate action, given the prominence of Trump, Bolsonaro, Putin, MBS and others, this sends a huge message to climate-sceptic leaders that the business at the heart of it all believes the science, sees the writing on the wall and thinks now is the time to act.

It also suggests that the sector is starting to see a way through the morass of climate action, which until recently must have looked potentially deadly. It sees healthy demand for years to come in chemicals (including plastics), shipping (where diesel or natural gas could be cleaner alternatives to bunker fuel), and aviation.

The renewable age is starting to make commercial sense

The industry may also be ready to embrace carbon capture, particularly if the carbon can be used rather than stored. I recall conferences over a decade ago where the majors said that CCS was all very well, but governments were going to have to pay. With renewables increasingly cost-competitive with fossil fuels for power, industrial operations and transport, that equation may be changing.

Of course, we need to be realistic about how much difference this will make. The same day as Shell’s announcement, Wood Mackenzie published a report saying that even with oil demand peaking some time in the 2030s, fossil fuels will still comprise 77% of global energy demand. The difference, apart from the growth in the amount of renewable electricity, is that a huge amount of coal is replaced by gas. This suits the majors just fine.

And yet, you only have to look at how consistently pessimistic the International Energy Agency’s annual predictions for the solar market have been to know that the market could move far quicker than the sector anticipates, for example if a cleaner alternative to shipping fuel comes on to the market (as I wrote that sentence, news arrived that Maersk plans to go zero emission by 2050).

In that light, Shell’s announcement not only makes perfect senses, but it could be the start of a momentous shift for energy sector.

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Return to global growth – implications for emissions targets

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ENERGY WATCH #3 - December 7, 2018

Return to global growth – implications for emissions targets

by Tom Idle

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The latest emissions figures reveal a break in a five-year decline and the link to improvements in productivity is being made. As the world returns to GDP growth in the wake of the 2008 crash, decoupling pollution from economic success is the key challenge in meeting the terms of the Paris climate deal.

According to OECD predictions, global economic growth is slowing more than had previously been forecast. Figures show that worldwide growth will slow from an estimated 3.7% this year to 3.5% in 2019 and 2020. In fact, the escalation of ongoing trade wars and rising interest rates could cut global GDP growth by as much as 0.8% by 2021.

However, despite “darker clouds” looming over many economies, as the International Monetary Fund puts it, economic growth of any size has often spelled bad news for the environment. The correlation between greenhouse gas emissions (GHGs) and economic growth has long been a bone of contention for policymakers grappling with the trade-off.

A five-year decline broken

Several years of stagnant emissions growth in the wake of the 2008 economic crash apparently giving a false sense of security on GHG output. Commentators were excited by a potential widespread decoupling of emissions and economic growth. The news that 2014’s global GHGs were the same as those in 2013, even though the global economy grew by 3.3%, had the The Economist describing the development as “remarkable” especially as “it happened without either a climate-change treaty or global carbon price”.

But the news that emissions from the world’s most advanced economies rose slightly this year, breaking a five-year decline, which points to a general reversal of this trend, may have them eating their words. It leaves “considerable uncertainty” as to whether the 2014-2016 slowdown was driven primarily by short-term economic factors, according to the UN Environment Programme.

A ‘worrisome’ trend

IEA figures show that energy-related carbon dioxide emissions in North America, the EU and other nations in Asia Pacific increased by around 0.5% in 2018. Yes, this is lower than the increase in global economic growth, but as the IEA says, it is “worrisome” for governments charged with delivering on the promises made as part of the Paris deal to limit global warming to within a 2-degree rise by 2050.

Figures released just on Tuesday by Global Carbon Project (GCP) further paint a bleak picture, pointing to the 2% increase in emissions from fossil fuels and industry in 2018, taking global fossil CO₂ emissions to a new record high of 37.1 billion tonnes.

GLOBAL CO2 EMISSIONS - GCP.jpeg

After an apparent peak in 2013, there has been a return to growth in emissions coming from coal power plants (albeit still 3% below the 2013 record high).

gcp - source of emissions.jpeg

This, coupled with the ongoing long-term growth in emissions generated by oil and natural gas production, shows that energy demand continues to outpace the speed at which decarbonisation of the energy system is taking place.

Merely a blip?

Dan Klein, head of global coal research at S&P Global Platts Analytics argues that these latest figures are skewed by specific, uncharacteristic events. For example, rising demand for electricity in China in 2017 – much of which came from coal plants – could be put down to the unseasonably hot summer. Glen Peters, research director at the Center for International Climate Research, is more concerned, concluding simply that “the change in trend is not good”.

The majority of nations are contributing to the overall increase in global GHGs. China, which contributes 27% of global emissions, is set to grow GHG output by 4.7% – up from 1.7% growth in 2017. Meanwhile, GHGs in Australia have increased for the last four years.

Decoupling is possible

However, there are a number proving that decoupling growth from pollution is possible. The GCP highlights the 19 countries (accounting for 20% of emissions) that have achieved a fall in emissions in the last ten years (2008-2017) while their economies have grown. These include the US, the UK, Norway and France, as well as Barbados, Romania and Slovakia.

The carbon intensity of electricity production in the Nordic countries is about a fifth of the global average, for example. According to Hans Jørgen Koch, Director of Nordic Energy Research, the region should realistically become carbon-neutral before 2050.

A new report by business group the Energy Transitions Commission gives further cause for optimism. It claims that heavy sectors, like chemicals, steel, cement, and aviation – which face a huge challenge in reducing emissions – can eradicate pollution at a cost of less than 1% of global GDP.

Wholesale change

However, as the UNEP’s Emissions Gap data highlights, GHGs show no signs of peaking yet and there are slower declines in energy (and especially carbon) intensity, compared with the 2014–2016 period.

An unprecedented energy revolution is unavoidable with a doubling of the global capacity of renewables every four years. But the Paris Agreement demands a similar level of progress in getting rid of emissions coming from coal, oil and gas – something that is not yet happening. This is largely as a result of an improved economic landscape in many parts of the world, which last year saw a 2.1% increase in energy demand, 72% of which was met by fossil fuels.

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US out…China in: Poland bears witness to the new balance of power

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ENERGY WATCH #1 - November 29, 2018

US out...China in: Poland bears witness to the new balance of power

by Tom Idle

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An ever-changing political landscape, characterised by the US-China trade war, presents both challenges and opportunities for negotiators to further cement the Paris climate deal at the latest UN COP discussions in Poland.

The stage is set

As the latest UN climate talks open in Katowice, Poland this week, the shift in power of the national representatives in the room will be truly palpable. In the face of President Trump’s decision last year to remove the US from the internationally agreed Paris accord, China has the opportunity to show leadership on an issue upon which it has for decades turned its back.

Hailed as “Paris 2.0”, COP24 will call on negotiators to put together the pieces, directions and guidelines so that the deal struck in the French capital three years ago has the desired outcome. And the suggestions, objections and ideas put forward by the world’s two biggest polluters will be crucially important in the success, or otherwise, of the discussions. “What we saw in Paris was a clear example of the transformation already underway in the world. The train has left the station. Whoever is not in it will be left behind,” says UN Climate Change Executive Secretary, Patricia Espinosa, while acknowledging the complexity of the negotiations that lie ahead.

“What we saw in Paris was a clear example of the transformation already underway in the world. The train has left the station. Whoever is not in it will be left behind,” UN Climate Change Executive Secretary, Patricia Espinosa

Counterweight

In years gone by, the influence of China in slowing down progression on the development and implementation of national greenhouse gas emission targets, for example, was neatly counterbalanced by US negotiators. The diplomatic muscle shown by seasoned Washington representatives helped to draw China closer to its own stance, which while some argue did not, for many years, go far enough, was at least in favour of having a strong climate agreement.

“with China as a powerbroker, maintaining the robustness of the Paris deal could become harder”

The ongoing US-China trade war – which has seen Beijing threaten to impose new tariffs on US$60 billion worth of US imports in retaliation for Trump’s hardline stance on Chinese steel imports, for example – could well set the tone for COP24.

Now, with China as a powerbroker, maintaining the robustness of the Paris deal could become harder, with the adoption of more flexible rules for developing countries still a bone of contention. Bangkok played host to an international preparatory meeting of nations, where the core issues of climate finance and the degree of flexibility developing countries should be given on the reporting and auditing of emissions data for national commitments under the Paris Agreement left negotiators “stalemated” according to Alden Meyer, director of strategy for the Union of Concerned Scientists.

China has made its position clear that developing countries should be given more relaxed reporting standards than those used by industrialised nations; poorer nations do not have the capacity for complex emissions modelling, is the argument. Of course, the fact that China insists on being treated as a ‘developing nation’ in the context of collective action on climate change gives extra edge to the debate.

The US – which along with the EU and many other nations, says all countries should have the same reporting rules with only a ‘limited degree’ of flexibility for developing countries – has already taken steps to keep China in check. It recently blocked its move to apply for funding from the UN’s Green Climate Fund, money reserved for the poorest countries to pay for climate change mitigation projects.

“the success of COP24 in meeting its objectives rests on the determination of Paris-deal advocates to develop new relationships”

Represented by Xie Zhenhua, China’s lead climate negotiator for the past decade, Beijing will also have the strength of its resolve on global warming tested in how it manages to redirect finance away from its burgeoning coal sector. Despite heavy investment in clean energy (China accounted for around half of all solar PV expansion in 2016), the world’s biggest emitter remains heavily dependent on coal. Right now, China has 993 gigawatts of coal power capacity. Recently approved plants that are currently under construction will increase this by 25%.

Reversing this trend is made all the more politically and economically difficult by the US position on fossil-fuel based generation, especially if Trump’s abandonmentof the Obama-era Clean Power Plan is anything to go by.

Role of the EU

Back in 2015, it was the US, China and the EU (led by Germany, the UK and France) that successfully rallied the likes of Brazil and a wealth of small island countries to get the Paris deal signed. Today, a very different political landscape has emerged, potentially steering the talks off course.

The German chancellor Angela Merkel – a key proponent of the original deal – has announced her intention to step down in 2021. Brazil’s newly-elected president Jair Bolsonaro has promised to further open up the Amazon to mining, agriculture and construction. And the Australian Prime Minister Scott Morrison says the country will not “tip money” into the UN’s global climate fund – neither will it rule out a quick end to coal.

The July signing of a Memorandum of Understanding between the EU and China might signal an intent for closer ties between the two this time around. Certainly, the success of COP24 in meeting its objectives rests on the determination of Paris-deal advocates to develop new relationships that will galvanise much-needed political leadership, whether the US or China show up or not.

Tom Idle is a journalist and commentator in the field of corporate responsibility and sustainability

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Oil majors gently embrace clean energy

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ENERGY WATCH #2 - November 29, 2018

Oil majors gently embrace clean energy

by Mike Scott

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Shell New Energy Challenge finalists get their cheques

For many years, oil and gas companies downplayed or outright denied the dangers of climate change and worked on the assumption that they would be able to continue with business as usual for the foreseeable future.

Going into this year’s COP24 climate conference, they have changed their tune.

This year has seen a slew of investments by the oil majors into renewable energy and electric vehicle infrastructure – Shell has announced it plans to invest $1bn-$2bn a year in its New Energies division in areas including wind and solar power, charging points for electric vehicles and biofuels, while BP has returned to solar with the purchase of Lightsource Energy.

Total, ExxonMobil and Chevron, along with Repsol, Enel and Eni, have all made significant investments in clean energy, charging points or energy storage, and even the US oil majors, in a market where the President openly doubts the existence of climate change, have started making changes.

In September, Occidental, Chevron and ExxonMobil, long the most outspoken climate-sceptic company in the sector, announced they would join the Oil and Gas Climate Initiative (OGCI), a group of global oil and gas groups that has committed to invest $1 billion initiatives.

Why change

There are a number of reasons for the change in heart. Firstly, since 195 countries signed up to the Paris Agreement on climate change in 2015, it has simply not been credible to deny or downplay the existence of man-made climate change, while a host of natural disasters around the world – from multi-year droughts to more intense hurricanes and heatwaves in the Arctic – have reinforced anecdotally the increasingly certain science behind climate change warnings.

Another impact of Paris was that governments – currently with the notable exception of the US, where Donald Trump has pledged to withdraw the country from the agreement (something he cannot do until 2020, after the next presidential election) – agreed to put in place policies to decarbonise their economies.

This has led to moves such as the UK, Canada, Denmark and Spain, as well as the European Union, considering the introduction of a net-zero emissions target by 2050, Germany committing to phase out coal power and China meeting its target to cut its energy intensity by 45% in 2017, three years ahead of schedule.

One reason governments are making these pledges is that they have become increasingly possible because the cost of renewable energy has fallen so quickly. The latest report on the levelized cost of energy from Bloomberg New Energy Finance says that “solar and/or wind are now the cheapest new source of generation in all major economies, except Japan. This includes China and India, where not long ago coal was king. In India, best-in-class solar and wind plants are now half the cost of new coal plants.”

In India, best-in-class solar and wind plants are now half the cost of new coal plants

In markets as far apart, in every sense, as India and Texas, onshore wind is now as cheap as $27/MWh, without subsidy. “In most locations in the US today, wind outcompetes combined-cycle gas plants (CCGT) supplied by cheap shale gas as a source of new bulk generation,” BNEF adds, cutting off one way that the energy giants hoped to compensate for lower oil sales.

Corporate responsibility

This fall in costs has led to another development – through initiatives such as RE100 and the Science Based Targets, companies are driving demand for more renewable energy so they can meet their own climate targets and show customers that they are acting. In markets where corporate procurement of clean energy is difficult or impossible, such as China and Japan, the business community is forcefully lobbying governments to reform markets.

Meanwhile, the rapid development of the battery storage sector is further undermining the business case for using fossil fuels in power generation and also making rapid progress in making electric vehicles (EVs) more economical.

Pollution concerns

If the move towards EVs were based on cost competitiveness alone, the sector could afford to be reasonably complacent about the trajectory of the transition away from petrol and diesel. But much of the pressure is not climate-related at all – rather cities around the world have proposed banning fossil fuelled cars in response to growing levels of air pollution caused in large part by vehicles.

The industry increasingly recognises that this will hit demand – Shell predicts that demand for oil will start falling as early as 2025, with demand for gas following suit by 2030.

Finally, there is increasing pressure on the oil companies as a result of a number of legal challenges. New York recently sued Chevron, BP, ConocoPhillips, ExxonMobil and Shell, and while that suit was dismissed, a group of Oregon crab fishermen have followed suit while a number of states have launched fraud investigations against ExxonMobil saying that it misled citizens and investors over the impacts of climate change. Other cases are likely in future.

Conditions set

All of this is making it clear that some oil and gas investments could be stranded assets as climate regulations tighten further, the cost of renewables and storage continue to fall and governments increase their decarbonisation ambitions.

So, there are plenty of incentives for oil companies to change their business models, and they have started to do so. Shell may be investing up to $2bn a year in clean energy, but that is only a fraction of its total spending. It aims to spend $25bn-$30bn a year in total. All the majors could do far more given the stakes and the conditions.

The future of power, transportation and heating will be increasingly electric. The oil majors dominated energy in the 20th century, but it is far from guaranteed that they will do so in future with such a long way to go.

Mike Scott is a freelance journalist who has written for the Financial Times, Forbes, Bloomberg and a range of other titles. He specialises in writing about energy, investment and business.

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