World's largest oil and gas producers lagging on net-zero goals: Carbon Tracker

The world's largest oil and gas producers have made little progress toward the goal of having net-zero carbon emissions by 2050, according to an updated study of corporate emissions-reduction efforts.

The study by Carbon Tracker Initiative, a London think tank that focuses on the financial impact of the transition away from fossil fuels, examined 30 oil and natural gas companies. None was found to even be potentially aligned with the Paris Agreement on climate change, Carbon Tracker analysts said during a Dec. 17 webinar.

Among Carbon Tracker's criteria in its "Absolute Impact 2024" report is whether a company aims for net-zero greenhouse gas emissions by 2050 across scopes 1, 2, and 3. The 2050 target is considered essential to achieving the Paris Agreement's most ambitious goal of limiting global temperatures from increasing by more than 1.5 degrees Celsius from pre-industrial levels.

Many of the 30 companies rely on "strategies of questionable credibility" — such as carbon capture use and storage systems — to reduce emissions in the long term, or they count on nature-based offsets to get to net-zero, Carbon Tracker said.

European majors topped the Carbon Tracker rankings of emission reduction efforts. American oil and gas producers filled out the middle of the list, and national oil companies such as Saudi Arabian Oil Co. and Algeria's Sonatrach SpA ranked at the bottom.

Carbon Tracker was not able to evaluate Canadian oil and gas producers because these companies have removed all climate data from public view.

Emissions efforts

Occidental Petroleum Corp. was the highest-ranked American company because it has plans to reduce Scope 3 emissions. Emissions in this category are created when a customer uses a product. The position of most American oil and gas producers is that such emissions are the responsibility of the consumers, not the well operators.

The signs of slowing progress in the net-zero movement have increased in the past year. Several European majors backed away from ambitious plans to transition to renewables, and the head of American supermajor ExxonMobil predicted the world will miss the net-zero goal. Shell, as an example, distanced itself from its more ambitious renewable investments because the returns were less than those from oil and gas.

In contrast, Spain's Repsol has invested aggressively in wind and solar in anticipation of a drop in fossil fuel demand. Fossil fuel companies can thrive in the energy transition if they pick their battles and play to their strengths, Luis Cabra said during the webinar. Cabra is Repsol's deputy CEO and the executive managing director of energy transition, technology and institutional affairs.

Repsol built its transition on a base of the oil reserves it owns and got out of exploring for more resources, Cabra said. "We decided that if we want to move sufficiently fast into net-zero, and because electricity is the growth vector in the energy transition, we were going to enter the renewable electricity generation," he said.

Cabra said Repsol solved the problems of low returns from renewable power by taking on partners, which diluted the financial risk and doubled the returns on an equity basis.

'Fundamental business risk'

Carbon Tracker analysts see two major risks for oil and gas investors in a future energy transition: substitution risk — a scenario in which renewable energy sources take over from oil and gas — and regulatory risk, when policymakers limit greenhouse gas emissions.

Oil and gas companies tend to think of emissions as just an environmental problem, said Mike Coffin, head of oil, gas and mining analysis at Carbon Tracker. Those companies' attitude is, "We shouldn't worry about that, because that is somebody else's problem. That's a sustainability problem," Coffin said.

"No, it's a fundamental business risk," Coffin added.

The forces of substitution and regulation will mean less demand for oil and gas, Carbon Tracker said. Companies that are investing capital outside fossil fuels, such as Repsol and Norway's Equinor, did well in Carbon Tracker's survey, as did companies that publicly disclose more data on emissions and targets.