Few things are predictable these days. But one thing is for sure. Global warming will increasingly force us to take much bolder action. The Paris Climate Accord laid a foundation for all countries and people to expedite the necessary transition towards a low carbon future. The energy system is at the core of the challenge, and the speed at which we succeed will, with scientific certainty, deeply impact future life on earth. And while there is no question that over time, growing awareness around climate change - coupled with technological progress - will ultimately move us towards a low carbon future, the question remains whether this will be too late to avoid irreversible damage.
There are many forces that will influence the speed of the transition to a low carbon world. In the all decisive marketplace where politics, money, technology and demand intersect, there are two broad groups of actors. Those who see it as a threat to their immediate interests, and who work to slow it down to protect their past investments. And those who understand that a low carbon energy future is inevitable, and that the transition offers new opportunities for growth and better quality of life. Indeed, climate action can be seen as an epic battle between the past and the future that is playing out in the present on many stages around the world.
Big Oil plays a special role in this battle. Its natural instinct is to continue business as usual and to slow down the transition. At stake is not only the multi-billion-dollar valuation of their reserves, but also the very existence of their operations, involving hundreds of thousands of jobs. At the same time, Big Oil is very long-term oriented and highly sophisticated in their market analysis and scenario planning. As the renewable energy evolution is progressing fast - last year total new investment for electricity generation in renewables exceeded investments in fossil fuel for the first time, with China the biggest investor – some companies are now reconsidering strategies for the future. The Norwegian Oil company, Statoil, has just put forward a new “Climate Roadmap” which outlines how the company plans to face the certainty of a low carbon future, to which I provided early stage input.
The roadmap is a remarkable leap forward. It is based on two complementary approaches. First, it outlines how the company will sustain its role as an industry leader in carbon efficiency when it comes to emissions from its own operations. While the industry averages about 17 tons of CO2 per barrel of oil, Statoil’s are about 40% lower. The roadmap specifies measures on how to reduce emissions further through efficiency measures, minimizing methane emissions (Statoil’s methane emissions in the gas value chain from Norway to Europe are below 0.3% of gas delivered – at which point the climate benefits of gas are indisputable), and eliminating routine flaring. The roadmap also sends a clear signal that oil sands and extra heavy oil will not be part of the future. This will lead to about 3 million tons of CO2 reductions by 2030. These are significant steps. They show the huge potential of the oil and gas industry to reduce emissions.
The second approach is based on a significant expansion on new energy solutions, primarily large scale offshore windfarms and floating platform technology. Already, Statoil’s offshore windfarms deliver electricity to one million homes in Europe. Building on its decades of offshore experience and know-how, the company is now planning to significantly scale up related investments. Capital expenditure on such projects will increase to 15-20% of total expenditure by 2030, and up to 25% of research expenditure will be dedicated to energy efficiency and new energy solutions by 2020.
The climate roadmap is a credible step forward that shows how Big Oil can become part of the solution. Statoil has long advocated carbon pricing and is using a shadow price of least $50 per ton of carbon for new investment. The climate roadmap will hopefully inspire other oil and gas companies to follow. Climate activists and divestment campaigners may argue that this is not enough. But the reality is that oil and gas will continue to play an important role for sustaining human progress for years to come. And if produced with high standards of carbon and methane efficiency, it is far superior to other sources of energy that are still widely in use. The roadmap also recognizes that there are many uncertainties, stating that “game-changing technologies are likely to emerge, climate policies will shift in unexpected ways, and new entrants will disrupt the energy industry”. We may indeed expect that the roadmap will be adopted over time.
Statoil’s strong positioning on climate change also sends a welcome signal at a time when Washington is trying to set back the clock. A regulatory bump in the road can slow down the transition. But it cannot reverse it. Other countries are not betting on the past and countless local activities are moving ahead irrespective of federal politicking. In such a context, corporations and investors play an especially important role. How they assess climate related risks and opportunities, and how this will inform their investment decisions, is now more important than ever. There are of course any number of companies and investors who benefit from higher emissions. But there is also a growing number of companies and investors who understand that the transition towards a low carbon energy future is not only inevitable, but that it also offers new opportunities for growth. Roadmaps such as Statoil’s will help shift the balance in the right direction, if others follow.
Georg Kell
Vice Chair, Arabesque.