As world leaders work this week to finalize a historic climate agreement in Paris, we start the transition from aspiration to implementation. After decades of work, we can expect a global deal recognizing that no challenge is more important than aggressively tackling climate change. Climate-change impacts are already widespread. The risks of impacts that are severe, pervasive, and irreversible increase rapidly as greenhouse gases accumulate in the atmosphere. Quick, sustained action, designed to limit warming as far below 2°C as possible, will be a big lift. National and other emission-reduction goals are falling into place, but the picture of how the necessary technologies and policies will fit together is far from clear.
In particular, what is the role, if any, of coal, oil, and gas producers in the energy landscape of the 21st century? Conversations about smart action often start with sharp criticism of fossil energy companies. Even with the recent support of ten global oil companies for thoughtful climate-change policies, the industry has a record that is far from exemplary. Coal, oil, and gas companies have distorted the science and emphasized uncertainty, confusing the global conversation and slowing responses. Despite this, fossil energy needs to be a part of energy landscape for several decades into the future. While it is satisfying and relevant to slam companies for past abuses, it is also important to acknowledge their current role in meeting the world’s energy needs and to think strategically about their evolving role in the years ahead. Specifically, are there characteristics that can make fossil energy companies good long-term investments, both financially and ethically?
The world cannot immediately move beyond fossil fuels. Fossil fuels are different from buggies, typewriters, and photographic film, for at least three reasons. The first is that we need the energy. The current global energy system is about 85% fossil. Quickly shutting off this supply of energy would cripple the world economy. It would foreclose on crucial development aspirations around the world, as well as curtail the lavish consumption of the rich. Less than 2% of today’s global energy demand is met by wind and solar. These clean alternatives are growing very rapidly and have more than enough potential to meet the world’s present and future demand for affordable energy. Still, it will take decades for renewables and nuclear to reach a scale that makes it possible to hit the off button on the last fossil power plant and crush the last gasoline car.
Second, natural gas can play an important role in moving the world beyond coal. The fracking revolution has made natural gas cheap and plentiful in the US. Globalizing the fracking revolution in an environmentally safe way is feasible, with consistent application and strong enforcement of best available practices. Eliminating pollution from coal should be a top priority, starting today. Coal is the dirtiest fuel in terms of climate pollution. In addition, burning coal releases fine particles, mercury, and other pollutants that prematurely kill hundreds of thousands per year. People focused on protecting the planet should welcome short-term help from natural gas, until we can replace gas with zero-emissions energy.
Third, the oil and gas industry has a powerful toolkit that could help accelerate progress toward a clean energy future. Some of the relevant skills involve the companies’ core competency, understanding below-ground formations and how to reach them safely with precision drilling. In the future these techniques could open new businesses in long-term CO2 storage. Other skills in the toolikit extend beyond drilling. Just as IBM created and surfed the wave from typewriters to computers, oil and gas companies could help drive the 21st century energy transition. They know how to manage giant construction activities, integrate complex supply chains, and finance multi-billion dollar projects. The key is recognizing the opportunities and capitalizing on them, putting these skills to beneficial and profitable use.
The potential, indeed the need, for a continuing role of fossil energy companies is clear, at least for the next few decades. But given their often well-deserved reputations as bad actors, what are the characteristics of companies that could underpin future long-term investment, on financial as well as ethical grounds?
First, companies must be honest with the public and their shareholders about the risks of climate change and the role of fossil energy in changing these risks. If a company lies about the science related to its products, how can we expect it to be honest about financial performance or its reserves? The history of company-supported disinformation is depressingly rich. A starting point for considering future investments needs to be honest information.
Second, companies need to have a vision for financial viability in a world with a level playing field. A level playing field needs to address subsidies and market distortions and price the damages that come from carbon pollution. Globally, subsidies for fossil fuels still amount to around $500 billion per year. Established companies that depend on tax credits or sweetheart deals can’t expect to be in the market over the long term. Innovative companies that thrive through the century should deal with and even embrace a carbon price as part of an evolving policy landscape. The ten global oil companies that recently acknowledged the importance of climate policy are demonstrating a willingness to be future oriented that is sadly missing from their American counterparts.
Third, companies should be leading the development of core technologies for the future energy system. Oil and gas companies need to envision and enable the end game for the historic model of pump and pollute. Their next big success stories might involve carbon capture and storage, new ways of producing hydrocarbons and other chemicals, grid integration, or techniques still to be imagined. The recently announced increase in R&D funding through an ambitious public-private partnership, initiated by Bill Gates, can play an enabling role, but companies will need to commit their own funds as well.
There is a role, indeed an opportunity, for smart oil and gas companies now and in the decades ahead. But the companies that can be successful in the long run need to be part of the future and not part of the past.
Authors: Chris Field, Director, Department of Global Ecology, Carnegie Institution for Science. Katharine Mach, Senior Research Associate, Department of Global Ecology, Carnegie Institution for Science. Chris Field and Katharine Mach are also, respectively, co-chair and director of science for Working Group II of the Intergovernmental Panel on Climate Change’s Fifth Assessment.
Image: The first oil well of the region (L), which was discovered in 1931, is seen with new and advanced oil pumping machines in the background in Sakir, south of Manama, October 11, 2014. REUTERS/Hamad I Mohammed