Preemptive move on emissions shows oil firms onboard against climate change

Ten leading oil companies throwing their weight behind action on climate change might be rhetorical. But the declaration by the Oil and Gas Climate Initiative (OGCI), announced in Paris on October 16, is notable for its timing, its location, who signed on – and who did not.

The OGCI commits specifically to limiting global warming to 2°C, a widely-used, although arbitrary, benchmark. Its announcement does not contain many hard targets – it is notable more for putting various existing initiatives in a coherent framework. These include energy efficiency, greater use of gas and progressing on capturing carbon dioxide emissions.

But the announcement is a preemptive move ahead of the COP21 climate talks which will start in the French capital on November 30. For too long, the petroleum industry has chosen variously from silence, reticence or obstructionism in its public positions on climate change, instead of seeking to positively influence the debate.

The 10 signatories collectively produce almost 20 per cent of global oil and gas. Seven of them – Shell, Total, Statoil, BP, BG, ENI and Repsol – are European companies that face increasing political and regulatory pressure at home. In June, the first six had already jointly called for putting a price on carbon emissions, and Shell, Statoil and BP at least have engaged seriously with climate change and cleaner energy for two decades.

The other three companies on the declaration are more striking – Saudi Arabia’s state-owned Aramco, Mexico’s national oil company Pemex and India’s leading refiner Reliance.

Their presence acknowledges three key facts.

First, the national oil companies – not the international majors – control the bulk of global oil and gas reserves. They have the most to lose from curbs on the use of oil and gas, with the prospect of their vast resources rendered obsolete. At current production rates – a simplistic but revealing measure – Aramco’s oil reserves would last for 64 years, the UAE’s oil for 72 years, Qatar’s gas for 138 years.

Second, campaigns for “divestment” from western petroleum companies, to deprive them of finance, miss the point, since state-owned and some large local private companies dominate the production and supply of oil and gas in Russia, China, India, Mexico, Brazil and most of the Middle East.

Third, the bulk of future growth in fossil fuel use – and greenhouse gas emissions – will be in developing countries and it is their choices that are most critical for tackling climate change.

So it is welcome to see Saudi Aramco, Pemex and Reliance on the list, and hopefully other Arabian Gulf, Russian and Chinese state oil corporations will join them soon. But the obvious absentees are the Americans – Chevron and ExxonMobil – that have spoken out against carbon pricing.

A worldwide carbon price would deter the use of high-carbon fuels, and encourage energy efficiency and low-carbon sources such as renewable and nuclear power. Europe has such a scheme and there are a few national or local initiatives, including a trial in China. But to be truly effective, the price needs to be high enough and cover most of the global economy.

The October declaration does not call explicitly for carbon pricing – ENI’s chief executive hinted that it had to be left out to get the three non-European members on board. But a systematic price on carbon provides energy companies with a predictable framework – instead of today’s bewildering mishmash of badly designed incentives that cost consumers and companies, nonsensical policies that encourage outcomes such as burning coal instead of gas and abrupt policy reversals such as cutting overpriced solar subsidies or suddenly abandoning nuclear power.

The declaration does not give environmentalists all – or even most – of what they would want from the oil companies. But it is a constructive and proactive move. To safeguard their futures, it’s time for other corporations to join, or propose something better of their own.

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis