As the world prepares to travel to the COP28 climate summit, hosted by the United Arab Emirates, a new report warns that the fossil-fuel industry isn’t investing enough in decarbonization.
Despite earning average annual revenues of $3.5 trillion since 2018, oil-and-gas companies are spending just 2.5% of their investment on clean energy, which is about 1% of the global clean-energy spend, according to the International Energy Agency. And 60% of that comes from just four companies out of thousands of producers.
“Clean energy progress will continue with or without oil and gas producers,” IEA Executive Director Fatih Birol said. “However, the journey to net zero emissions will be more costly, and harder to navigate, if the sector is not on board.”
The IEA estimated about half of the industry’s capital expenditures should go toward clean energy projects by 2030 to be on track for the Paris climate agreement target. The fossil-fuel industry could leverage the skills and resources used for oil-and-gas extraction, processing and transportation to scale up low-emissions fuels and technologies such as hydrogen, liquid biofuels, biomethane and geothermal energy, the organization said.
In addition, cutting emissions from oil-and-gas companies’ operations and energy usage is “one of the cheapest options to reduce GHG [greenhouse gases] emissions generally,” the IEA said. It estimated producing, transporting and processing oil and gas generate nearly 15% of global energy-related emissions and said tackling methane leaks should be a top priority, as it can be done very cost-effectively and is about half of total operational emissions.
As of today, less than half of oil-and-gas output globally comes from companies that have set targets to reduce emissions from operations, the IEA said. From small independent firms to national majors, the industry needs to scale up efforts to slash the emission intensity of operations, boost production of low-emission fuels and prepare to scale back operations.
The IEA said carbon capture, utilization and storage, known as CCUS, is essential in the energy transition but cautions it isn’t a way to retain the status quo. It estimates that would require an “inconceivable” 32 billion metric tons of carbon be captured, requiring more electricity than current global demand and over $3.5 trillion in annual investments from now through 2050.
Overall, clean-energy investment worldwide has increased by 40% since 2020, with a strong focus on technologies such as solar PV, wind power and electric vehicles as governments raise their climate goals and establish policy to support the energy transition.
Total energy investment is estimated at $2.8 trillion in the current year, with around $1.8 trillion on clean energy and $1 trillion on oil, gas and coal. In its net-zero scenario, the IEA forecasts annual fossil fuel investment dropping by $500 billion to 2030 and clean-energy investment increasing by more than $2 trillion.
As the energy transition picks up pace, the oil-and-gas sector could also start facing risks associated with stranded assets and price volatility, which could materialize in large-scale write-offs and lower returns. “The bottom line is that oil and gas becomes a less profitable and a riskier business,” the IEA said.
While some investment in oil and gas is still needed to ensure security of supply even in a net-zero scenario, the IEA cautioned “not all producers can be the last ones standing” and warned the $1 trillion currently spent each year is double what it is required in 2030 to meet demand.
“Continuing with business as usual is neither socially nor environmentally responsible,” Birol said. “Oil and gas producers around the world need to make profound decisions about their future place in the global energy sector.”
https://www.wsj.com/articles/oil-and-gas-companies-account-for-only-1-of-clean-energy-investment-globally-iea-says-957d512f
