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What to make of Big Oil’s emission pledges

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One thing to start: Energy Source is delighted to announce our latest signing: Justin Jacobs, who joined the paper yesterday as our Houston correspondent — another key move in our US expansion.

We also bid a fond farewell to Neil Maxwell, the FT’s newsletter tsar, so critical in the relaunch of Energy Source.

On to the main item. Under growing investor and political pressure, American oil and gas companies are starting to talk up efforts to tackle emissions in their operations. Our first note asks whether it’s all another PR stunt or real.

Our second is on the arrival of new demand-response technology in California, which could save a huge amount of energy.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Derek

Behind the headlines on Big Oil’s emissions pledges

US oil producers are beginning to talk the talk on tackling emissions. As I wrote at the weekend, climate consciousness, previously the sole preserve of European companies, is going transatlantic.

Why? Well, there’s the imminent arrival of the Biden administration, the sector’s dirty image among foreign importers, and (most importantly) investor pressure.

Is this a serious shift or greenwashing?

Ploughing their own furrow

A handful of big US names (ConocoPhillips, Occidental Petroleum and Pioneer Natural Resources) have now laid out ambitions, varying in scope and detail, on cutting back emissions. More will join the party soon.

For those first out of the gates, the approach is vastly different from their European counterparts. Critically, there is no great pivot to renewables in the mould of BP or Shell. Consider them in turn:

Occidental: Oxy has vowed that by mid-century, it will hit “net zero” not only on Scope 1 and 2 emissions (ie: those from its own operations and those of its power providers) but also Scope 3 emissions (those from the oil their customers burn). That is a big deal.

But it involves a business model overhaul — and will not be easily mimicked by everyone. Oxy will shift its focus to carbon capture and sequestration, rather than oil. Vicki Hollub, Oxy’s chief, said last week that the company would “ultimately” become a “carbon management company” with oil and gas a mere side business.

Oxy reckons its experience in the field could give it first-mover advantage, allowing it to carve out a niche in what could be a big business in the years to come, said Victor Flatt, a law professor and co-director of the University of Houston’s Environment, Energy, and Natural Resources Center.

The move is a big bet on carbon capture — a technology some clean energy experts think will play a marginal role in the future, at best — and carbon pricing. It will probably take years to pay off. Oxy declined to speak to ES on its targets — instead directing us back to its Climate Report, released last week.

Occidental chief Vicki Hollub said the oil producer will eventually become a ‘carbon management company’ © Bloomberg

ConocoPhillips: Conversely Conoco — the first US producer to make a big emissions commitment — has chosen not to make any grand promises on Scope 3.

Instead it has vowed to eliminate the emissions within its direct control by 2050 ish and to be more selective with its investments, only throwing money behind projects that are viable in a “Paris-aligned” world. At its heart, though, it will remain an oil company. As an indicator for the direction of the sector as a whole, that makes it the one to watch.

“If they’re successful in that, they create a road map for dozens of other companies that just don’t have the skill set or the resources to branch out into other kinds of energy,” said Andrew Logan, director of oil and gas at Ceres, a non-profit organisation that coordinates investor action on climate.

“In a way, the Conoco announcement was almost more significant than Oxy’s because they will be seen as an example to follow by much of the US industry if they’re successful,” Mr Logan said.

Pioneer: The shale producer has been vocal on emissions — particularly the ills of flaring. But Pioneer’s target is strikingly unambitious: a 25 per cent reduction in greenhouse gas intensity by 2030 (alongside various methane targets).

Without dwelling on the intensity-versus-absolute debate (in theory you can cut intensity while producing more emissions), the goal seems a bit feeble next to the grander targets of its rivals.

At least it’s achievable, says Pioneer. And that is another key point.

Devil in the detail

Lofty mid-century targets aren’t much use if they just let management leave difficult decisions to their successors. And without near-term targets that is exactly what may happen.

“The commitments that we put out, we follow through on,” Mark Berg, executive vice-president at Pioneer, told ES, defending his company’s targets.

“The feedback we’ve gotten from several investors is they’re not focused on greenwashing, they’re focused on how you’re going to really execute.”

He has a point. Taking any of these commitments seriously will demand thorough examination of the details — something that has so far been lacking.

“We’re coming to a point where the fine print is really going to come into view as being critically important to help investors understand what are these companies actually committed to,” said Mr Logan. “Because the headlines are not telling the full story here.”

Whatever the shortcomings now, a sea change in the political and investor arenas means the trajectory is “unstoppable”, said Prof Flatt. “As long as they’re seen as the main drivers behind the problems of climate change, it just won’t [go away]. They’re villains until they can suddenly show that they’re not villains any more.” (Myles McCormick)

Big in California: ‘demand-response’ systems

When Californians’ lights went out in August amid a record heatwave, one thing that prevented the blackouts from spreading even further was payments to customers to temporarily conserve energy. An investor is now betting that such “demand-response” systems can be scaled up before next summer’s heatwaves.

Sidewalk Infrastructure Partners, backed by Google’s parent Alphabet and the Ontario Teachers’ Pension Plan, said Monday it would invest $100m in the company OhmConnect and its project to introduce demand-response to more than 500,000 households.

Linked together, these homes could temporarily remove 550 megawatts of demand from the grid, said Jonathan Winer, Sidewalk’s co-chief executive. “It’s much easier and quicker and cheaper to be able to scale this much demand response than it would be, for example, to build another natural gas peaker plant, or to install a whole bunch of batteries in front of the meter,” he said.

Under most demand-response programmes, utilities pay industrial customers to shave load. Lining up residential customers has been harder, in part because their monthly bills do not reflect electricity costs that fluctuate from hour to hour.

Mr Winer said that $80m of Sidewalk’s investment would largely subsidise households to purchase thermostats, batteries and plugs connected to an app. Customers get price alerts, telling them how much they could earn by running their dishwashers later or setting indoor air temperatures two degrees higher. “It’s sort of like a gamified user experience where you say, ‘Hey, I want to participate in this,’ ” Mr Winer said.

During the worst week of California’s power emergency, OhmConnect paid 150,000 homes $1m to conserve one gigawatt-hour of electricity, Mr Winer said. California authorities have urged new demand-response resources by the summer of 2021.

OhmConnect bundles customers’ power savings and sells the resource in wholesale capacity and energy markets. Such aggregation businesses got a boost this year when the Federal Energy Regulatory Commission passed a landmark rule authorising distributed energy resources to sell into US wholesale power markets. (Gregory Meyer)

Data Drill

Demand for helicopter flights to offshore oil and gas facilities will end the year down 15 per cent compared with 2019 — an outcome of operators conserving cash, deferring activity, and moving some activities ashore during the pandemic, according to research from Rystad Energy. Activity will pick up next year and exceed 2019 levels in 2022, it says — but remain well below that seen in the boom years of 2013-14.

Column chart of Million passenger miles (nautical)  showing Downdraft: offshore helicopter travel fell this year

Power Points

Endnote

The oil price recovery into the $40/barrel-range has helped pull production from North Dakota’s Bakken oilfield out of freefall, but it hasn’t spurred the kind of drilling recovery needed to sustain output increases or bring jobs back to the shale patch.

North Dakota’s oil producers responded to oil’s crash earlier this year with an unprecedented wave of supply shut-ins and spending cuts that sent the local oil economy into a tailspin. Output was back to 1.22m barrels a day in October, up 40 per cent from May’s nadir, as wells shut-in because of ultra-low prices were restored to production.

But jobs in the once booming oil patch remain hard to come by, a sign that the headline supply recovery belies a still ailing energy economy. The unemployment rate in the state’s core oil-producing counties rose in October to 9.3 per cent from 8.4 per cent in September.

At this time last year, the unemployment rate in those counties was just 1.7 per cent — among the lowest in the country. The output numbers — if not the jobs figures — are another sign that from the supply point of view, US oil’s worst days are behind it, but a return to full health remains a long way off.

Energy Source is a twice-weekly energy newsletter from the Financial Times. Its editors are Derek Brower and Myles McCormick, with contributions from Justin Jacobs in Houston, Gregory Meyer in New York, and David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London.



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Andrew Yang; Facebook; WallStreet Bets and much more . . . 



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A carbon registry leaves polluters with nowhere left to hide

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The writer is the founder and executive chair of the Carbon Tracker Initiative, a think-tank

No one yet knows which countries will extract the last barrel of oil, therm of gas or seam of coal. But the jostling has started. Every nation has reasons to believe it has the “right” to continue fossil fuel extraction, leaving others to deal with the climate crisis.

In the Middle East, oil producers can argue that the cost of extraction is low. In Canada, they market their human rights record. Norwegians trumpet the low-carbon intensity of their operations. And in the US under Donald Trump, they touted the virtues of “freedom gas” and called exports of liquefied natural gas “molecules of freedom”.

The dilemma for governments is that if one country stops producing fossil fuels domestically, others will step in to take market share. And so the obligation to contain emissions set out in the Paris Agreement risks being undermined by special pleading.

In the UK, the furore over plans for a new coal mine in Cumbria the year that the country is hosting the UN’s climate summit is indicative of the contrary positions many countries hold. Facing one way the government says it is addressing climate change. But looking the other, it consents not just to continued extraction, but to support and subsidise the expansion of production.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 

To keep warming under the Paris Agreement limit of 1.5C, countries need to decrease production of oil, gas and coal by 6 per cent a year for the next decade. Worryingly, they are instead planning increases of 2 per cent annually, the UN says. On this course, by 2030 production will be too high to keep temperature rises below 1.5C. The climate maths just doesn’t work.

One of the problems in attempting to track fossil-fuel production is the lack of transparency by both governments and corporations over how much CO2 is embedded in reserves likely to be developed. This makes it difficult to determine how to use the last of the world’s “carbon budget” before temperature thresholds such as 1.5C are exceeded.

Governments need a tool that establishes the extent to which business as usual overshoots their “allowance” of carbon. There needs to be a corrective because the cost competitiveness of renewable energy, and the risk of stranded energy assets, has not stopped governments heavily subsidising fossil fuels. During the pandemic, stimulus dollars have been dumped into the fossil-fuel sector regardless of its steady financial decline, staggering mounds of debt and falling job count. 

This is why my initiative and Global Energy Monitor, a non-profit group, are developing a global registry of fossil fuels, a publicly available database of all reserves in the ground and in production. This will allow governments, investors, researchers and civil society organisations, including the public, to assess the amount of embedded CO2 in coal, oil and gas projects globally. It will be a standalone tool and can provide a model for a potential UN-hosted registry.

With it, producer nations will have nowhere left to hide. It will help counter the absence of mechanisms in the UN’s climate change convention to restrain national beggar-thy-neighbour expansion of fossil-fuel production.

No country, community or company can go it alone. But governments can draw from the lessons of nuclear non-proliferation. First, they must stop adding to the problem; exploration and expansion into new reserves must end. This must be accompanied by “global disarmament” — using up stockpiles and ceasing production. Finally, access to renewable energy and low-carbon solutions must be developed in comprehensive and equitable transition plans.

The choice is between phasing out fossil fuels and fast-tracking low-carbon solutions, or locking-in economic, health and climate catastrophe. A fossil-fuel registry will help governments and international organisations plan for the low-carbon world ahead.

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Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.



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Hasty, imperfect ESG is not the path for business

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The writer is a global economist. Her book ‘How Boards Work’ will be published in May

Good environmental, social and governance practices take a company from financial shareholder maximisation to multiple stakeholder optimisation: society, community, employees. But if done poorly, not only does ESG miss its sustainability goals, it can make things worse and let down the very stakeholders it should help.

To be sure, the ESG agenda should be pursued with determination. But there are a number of reasons why it threatens to create bad outcomes. The agenda is putting companies on the defensive. From boardrooms, I have seen organisations worry about meeting the demands of environmental and social justice activists, leading to risk aversion in allocating capital. Yet innovation is the most important tool to address many of the challenges of climate change, inequality and social discord.

Pursued by $45tn of investments, using the broadest classification, ESG is weighed down by inconsistent, blurry metrics. Investors and lobbyists use different evaluation standards and goals, which focus on varied issues such as CO2 emissions and diversity. Metrics also depend on business models.

Without a clear, unified compass, companies that measure themselves against today’s standards risk seeming off base once a more consistent regulator-led direction emerges (for example, from worker audits, the COP26 summit and the Paris Club lender nations).

ESG is not without cost and the best hope for long-term success lies with business leaders’ ability to stay attuned to its impact and unintended consequences. For example, while the case for diversity is incontrovertible, efforts at inclusion should account for the possible casualties of positive discrimination.

Furthermore, despite ESG advocates setting a strong and singular direction for governance, organisations have to maintain their operations and value while managing assets and people in a world where cultural and ethical values are far from universal. While laudable, a heightened focus on ethics (such as human rights, environmental concerns, gender and racial parity, data privacy and worker advocacy) places additional stress on global companies.

It is often asked if advocates appreciate that ESG is largely viewed from the west’s narrow and wealthy economic perspective. To be truly sustainable, ESG demands global solutions to global problems. Proposals need to be scalable, exportable and palatable to emerging countries like India and China, or no effort will truly move the needle.

Much of the agenda is too rigid, requires aggressive timelines and lacks the spirit of innovation to achieve long-term societal progress. Stakeholders’ interests differ, so ESG solutions must be nuanced, balanced and trade off speed of implementation against the breadth and depth of change.

Business leaders are aware of the need for greater focus and prioritisation of ESG. We also understand that deadlines can provide important levers for senior managers to spur their organisations into action. After all, in the face of pressure for a solution to the global pandemic, vaccines were produced in months instead of the usual 10 years.

I live at the crossroads of these tensions every day. Raised in Africa, I have lived in energy poverty, and seen how it continues to impede living standards globally. As a board member of a global energy company, I have seen much investment in the energy transition. Yet from my role with a university endowment, I have also been under pressure to divest from energy corporations. 

Business leaders must solve ESG concerns in ways that do not set corporations on a path to failure in the long term. They must have the boldness to adopt a flexible, measured and experimental agenda for lasting change. In this sense, they must push back against the politically led narrative that wants imperfect ESG changes at any cost.



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