On 16 October, the CEOs of 10 leading oil companies came together to commit to tackle climate change, ahead of the Paris COP21 summit later this year. But can Big Oil really become a part of the climate solution?
Some scepticism is understandable. Of the three pillars of a successful energy system – security, affordability and sustainability – the industry has been more adept at responding to consumer demands for security and affordability than addressing concerns over sustainability. Some may wonder if Big Oil is trying to secure a seat merely to slow the process down.
I believe we should listen and examine how these CEOs plan to address the issue. As a former employee, I know that oil companies are used to thinking big and acting big – bigger than most companies in most sectors, and often bigger than many states. Energy companies have top-class engineers and scientists, they have innovated for decades to find oil and gas in the most difficult conditions; and if they fully commit their ingenuity, and drive the search for technological solutions to climate change, transformational changes are possible.
Oil and gas related products are at the heart of many of our individual and industrial activities. For decades, oil companies and their millions of workers across the value chain have done what we, as society, have demanded of them: deliver products to improve the ways we feed, clothe and move ourselves around. In the process, these companies have contributed to improving standards of living, furthering global economic development, and generating resources for states to sustain the social contract.
As has become clear, these activities involve externalities that are not adequately embedded in the cost of products. Some oil companies have resisted this realization for longer than others. Some have perceived a competitive advantage in talking up their environmental concerns, others in playing them down.
The significance of this week’s announcement is that such climate positioning is no longer seen as a way of differentiating company strategy. Rather, it has become part of pre-competitive conversations and actions. It shows that companies in the industry from most parts of the world now realize the importance of limiting global temperature increases to 2 degrees. Companies in very different stages of their approach to climate are joining forces, in some cases turning the page from denial to collaboration, on a matter of vital importance to humanity’s future.
The areas in which we can hope to see progress include increasing the efficiency of operations, solutions to gas flaring, and carbon capture and storage. This week’s announcement sets out an agreed common path, and commitments to share knowledge and learn from one another to upscale best practices and develop “next” practices to improve the industry’s performance as a whole.
We may not be totally clear yet on how it will work, but the commitment itself is a genuinely new development in the oil and gas industry. These CEOs are not only putting their signatures to an agreement but also their faces, publicly committing themselves as much as their companies, employees and value chains. With the commitment of these CEOs comes the motivation and inspiration for hundreds of thousands of employees to be part of the solution.
While advocating against cynicism, I believe we need to hold these CEOs accountable to their promise and encourage them to deliver on the hopes they have raised. The same mechanisms that created the pressure to make this commitment – from consumers, investors and governments – will need to be deployed to monitor follow-through.
The world is changing quickly. Oil companies that started in a world of abundant resources now find themselves operating in a world driven by the abundance of data. All industries have to adapt to digitalization, the global spread of communications technology, the ability to leverage information, and demands for transparency. These trends create scope for the oil industry to make rapid progress, and to communicate their progress to all stakeholders.
Most projections indicate that oil – and even more certainly, gas – will be around for the next few decades. So, while the quest for alternative sources of energy must continue, what the industry does in the meantime matters greatly.
As we build up to the COP21 climate summit, we know that states can’t fix the problems of climate on their own. We need, and expect, the public sector and private sector to take responsibility, to define their roles and be proactive. The clock is ticking.
Author: Roberto Bocca is Head of Energy Industries at the World Economic Forum
Image: A worker walks past a pump jack on an oil field. REUTERS/Sergei Karpukhin.