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Big Oil's Reluctance to Go Green

 

Many scientists around the world concur that the planet needs to drastically reduce carbon emissions. They warn that nations need to take unprecedented actions to cut emissions within the next 10 years in order to contain global warming to an increase of 1.5 degrees Celsius, or 2.7 Fahrenheit. [1] Big oil companies like Shell, Total, Statoil, and Exxon have announced a series of “green” investments – in wind farms, electric battery storage systems, and carbon capture and storage. [2] Total plans to dedicate €200m on transforming an unprofitable oil refinery into a biofuel plant and $500m a year to renewables. Five years ago, Total acquired SunPower, one of the largest solar panel manufacturers in America, for $1.4 billion. Shell has established a new low-carbon and renewables division called New Energies with $1.7 billion invested. [3]

Everyone Will Pay for Not Stepping Up

However, these efforts are not enough – drastic changes are necessary to avoid ecological catastrophe. These top oil companies have jointly spent only 1 percent of their 2018 budgets on clean energy efforts. [4] U.S. companies have had less incentive to diversify into clean energy, thus they have not embraced renewables in the same way as European and Asian companies. Europe’s big oil companies account for 70 percent of global renewable capacity. Norwegian company Equinor will dedicate 20 percent of its budget on renewables by 2030. The Oil and Gas Climate Initiative (OGCI), made of 13 of the world’s top oil and gas companies, made a pledge last year to slash greenhouse emissions by a fifth in the next seven years.

This is in reaction to scientists’ recent climate change warnings. Current emissions are around 40 billion tons a year and need to drop at least 1 billion every year over the next decade. [5] Fossil fuel companies are attempting a compromise by shifting towards producing gas, the least polluting fossil fuel, and one that they say will play a major role in reducing emissions by replacing dirtier coal to meet the rising demand for electricity. [6] However, this effort still does not meet scientists’ demands for clean renewable energy to become more prevalent and eventually replace fossil fuel emissions entirely.

U.S. big oil also stands to be left behind economically for their reluctance to make larger green energy efforts, especially since experts conclude that the world’s oil supply will run dry in around 55 years. [7] These companies are getting increasing calls from many of their shareholders to invest in green energy, not only to take more account of the environment but also to be on the ground level for the future of the world’s energy supply. [8] The recent collapse in crude to $45 per barrel has exacerbated problems for the industry. Ironically, Chatham House think tank fellow Paul Stephens estimates that the timeline for companies to embrace green energy or face economic collapse is also around 10 years. The U.S. has been warned that they are presiding over “stranded assets” of carbon that can never be burned if the world is determined to keep average temperatures from rising no more than 2C (3.6F) above pre-industrial levels. [9]

Incentive to Change

Oil companies set in their old ways need incentive to make necessary changes to green energy. A major reason oil companies are slow to embrace cleaner energy is because the profit margin for renewables is significantly lower than with fossil fuels. [10] 

However, major energy companies can make renewables value propositions stronger. [11] A great example is how Middle East and Latin American companies have been consistently breaking records for low solar pricing, often selling for under USD $40/megawatt-hour. This makes it more likely a company will make out better financially in its procurement process. And the success these companies are enjoying are directly due to their early investments in the emerging solar market. They took advantage of low land and labor costs, now allowing low-cost solar to be possible today.

Embracing a circular economy would also be beneficial to energy companies looking to meet the lower emissions demand while still creating profitable business. In the CMR article “Moving to a Circular Economy in China: Transforming Industrial Parks to Eco-industrial Parks,” the Nanjing Chemical Industrial Park engaged in closed-loop eco-industrial transformation to extend value chains by building products around existing wastes. By reusing by-products like carbon dioxide, sulfur, and hydrogen to make new products, the company not only reduces their carbon footprint, but also increases company value by using waste to create beverage, cement, and sulfuric acid production.