What is going on here?
Last month, oil major BP announced that it was abandoning its strategy to become a green energy company and instead will increase its spending on oil and gas by a fifth while cutting its planned expenditures on renewables by 70 per cent. The shift back to fossil fuels effectively ends any hope of the company meeting its net-zero targets although BP’s CEO maintains net-zero is still a goal.
What does this mean?
In the new approach, BP’s annual spending on fossil fuels will increase to USD$10 billion. BP’s share price fell over 2 per cent following the announcement. A signal from investors that the revamp was not enough to soothe fears that BPs strategy will allow it to compete against its peers.
BP was responsible for just under 1% of global fossil fuel emissions in 2023. That makes it one of the thirty-six companies which together account for over half of global fossil fuel emissions. As governments back away from setting regulations or meeting decarbonization targets, the hope had been that companies would step-up and put long-term need over short-term profit.
While that hope is proving to be naïve, the reality is that the longer we wait, the more it will cost us (literally). A study done by the NGO Energy Innovation, found that just a decade of delaying the energy transition will cost an extra 70 per cent in cumulative capital, operational, and fuel expenditures.
Why should we care?
Last year, the International Energy Agency (IEA) released a report predicting that oil and gas demand will peak by the end of the decade. In contrast, OPEC predicts no peak demand any time before 2050.
If the IEA is correct, this strategy shift for BP could be very risky. In an effort to quantify this risk, the UK Sustainable Investing and Finance Association (UKSIF) found that if governments meet their climate targets, the energy sector would experience USD$2.3 trillion in asset write downs and other financial losses by 2040. For reference that is roughly compared to the GDP of Canada or Italy.
It begs the question; if every oil and gas company is focusing more on fossil fuel production then what happens when demand declines? Not every oil and gas company is going to survive the low-carbon transition.
Be curious!
- Learn more! Read about the IEA’s different climate scenarios and how they might impact energy policy.
- Check out this interactive map showing global climate commitments by different countries and their progress towards meeting stated goals.
- The IEA showed that global investment in clean energy reached almost double the amount going to fossil fuels in 2024. Interested in investing in renewables? Don’t forget to do your homework!
Featured image by Zbynek Burival, via Unsplash.
