Net zero does not mean zero fossil fuels
20 COLUMN
ESG | MAY-JUNE , 2023
Be aware , be very aware
Net zero does not mean zero fossil fuels
BY DR KENNETH PEREIRA ACTIVISM AT AGMS
IN RECENT years the halls of the Annual General Meetings ( AGMs ) of large oil , gas and coal companies have become modern-day coliseums for gladiator-type confrontations between the executive management of colossal energy corporations and those advocating action to halt the use of hydrocarbons . During the week of May 21 , 2023 , Shell , one of the largest international oil and gas producers , conducted its AGM in London amidst protests from about 40 activists . At one point , these activists charged the stage where the Shell board of directors were seated facing their shareholders , only to be confronted by security personnel .
Shell has experienced such activism before , with its 2022 AGM delayed for about 3 hours whilst protestors vented their chants of discontentment . ExxonMobil has also had to endure various forms of corporate “ attack ”. In the same week of Shell ’ s 2023 AGM , the water of Rome ’ s Trevi Fountain was turned black by climate activists protesting against the use of fossil fuels .
Whilst Independent Oil Companies ( IOCs ) like Shell and ExxonMobil bear the brunt of public demonstrations of climate activism , they only produce a fraction of the oil and gas used globally .
According to 2010 World Bank data , National Oil Companies ( NOCs ), those oil and gas companies entirely or majorityowned by national governments , accounted for 75 per cent of global oil production and controlled 90 per cent of proven oil reserves .
Despite so much public anger and discontent on using fossil fuels , why are responsible commercial enterprises and NOCs continuing with such a business ?
For the commercially driven IOCs , the formula is simple . There is a demand to be fulfilled and the lure of economic gain . Thus , IOCs have an easily comprehensible raison d être . But
The unanswered questions
what motivates the NOCs ? Why might they desire to continue to produce their national oil and gas resources against the wishes and views of many of their voting citizens ?
Fundamentally , the reasons are also economic . It is an industry that supports jobs and earns revenues . Furthermore , if , as a nation , a NOC has indirect control of a relatively large resource base compared to other countries , it might also wield influence on the broader global economy . Such an influence allows relatively small nations greater political leverage .
But there is another more purposeful long-term agenda . Both the IOCs and the NOCs , having been participants in the energy sector for many decades ( and in some cases , for over a century ), sincerely and firmly believe that if they do not continue their economic activities , there will be an energy supply shortfall , with devastating consequences , particularly for emerging economies .
THE 2021 IEA ROADMAP
In May 2021 , the International Energy Agency published its landmark “ Net Zero by 2050 – A Roadmap for the Global Energy Sector ”. This document sought to map how the global energy sector could achieve a net zero target by 2050 .
The global energy sector was identified as a focus for attention as it is the source of approximately three-quarters of greenhouse gas ( GHG ) emissions today .
A transformation of the supply chain delivering the global energy mix , dominated by fossil fuels , therefore holds the key to averting the worst forecasted effects of climate change .
This IEA report developed two scenarios : STEPS : The Stated Policies Scenario ( STEPS ) takes account only of specific policies already in place or announced by governments . APC : The Announced Pledges Case ( APC ) assumes that all announced national net zero pledges are achieved in full and on time , whether or not specific policies currently underpin them .
In its report , the IEA admitted there was a gap between current rhetoric and reality but also claimed that pathways existed to achieve a net zero world by 2050 .
Whilst the proposed net zero pathways required investment and political will in many areas to achieve more than 400 intermediate milestones , one area that was claimed as not in further need of investment was the oil and gas industry .
THE END OF OIL AND GAS EXPLORATION
Per the IEA report , no further exploration for oil and gas was necessary , and post-development of currently approved projects , the only investment required is maintaining existing oil and gas fields .
The IEA report also projected an oil price outlook of US $ 35 and US $ 25 per barrel in 2030 and 2050 , respectively .
The same report also produced the following projections :
From Figure 1 , an obvious point to note is that in every scenario , fossil fuel sources dominate the energy mix until 2050 .
GFANZ
Activist shareholders and a candid IEA report , issued in May 2021 , just months
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ON Dec 7 , 2020 , the board of ExxonMobil received a letter from a small San Francisco-based activist hedge fund called Engine No 1 . This firm held only a 0.02 per cent stake in ExxonMobil – amounting to US $ 54 million in a company with a US $ 248 billion market valuation ( at the time ).
This initial letter asserted weak operational performance based on a foundation of detailed research by the hedge fund . Over the ensuing months , Engine No . 1 proposed leadership changes , making it clear that ExxonMobil ’ s financial underperformance equally drove its campaign for leadership change in recent years as it was about climate change .
As the AGM of ExxonMobil on May 26 , 2021 , approached , Engine No 1 proposed
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four new Board members , i . e . Gregory J . Goff , Kaisa H . Hietala , Alexander A . Karsner , and Anders Runevad . Hietala , Karsner and Runevad had prior experience in areas related to climate change .
After the votes were counted , three of the nominees proposed by Engine No 1 were elected : Goff , Hietala and Karsner . Climate change supporters likened this victory to the biblical story of ‘ David versus Goliath ’.
Given the wide publicity garnered by the events of 2021 , which were identified as a mega breakthrough in activists ’ efforts to put the climate crisis “ at the centre of American capitalism and the global oil business ”, one would have expected a material shift in the business strategy of ExxonMobil in the ensuing years . Has this
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been the case ?
The report that ExxonMobil shareholders solidly rejected climate change-related proposals at its AGM held in May 2023 was surprising . In fact , only 11 per cent of ExxonMobil shareholders supported a proposal to set emission targets consistent with the 2015 Paris Climate Agreement .
Are the shareholders of ExxonMobil outliers ? It does not seem so . A similar proposal , put to Chevron shareholders in the same month , received only 10 per cent support .
The shareholder voting trends seen in the United States seem to indicate stronger support for climate change amongst European owners of oil and gas companies when compared to their European counterparts . In May 2023 ,
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Shell , a European supermajor , saw 20 per cent of its shareholders vote against its Energy Transition Plan , arguing that proposed emission targets were not aggressive enough .
The same trend was seen at BP . In April this year , 17 per cent of its shareholders backed a resolution to force the company to reduce its oil and gas output faster .
Are opinions about climate change truly divergent in Europe and the United States ? What are the inclinations of the shareholders of companies in the emerging economies ?
And most significantly , if the AGMs of oil and gas companies are the primary battlegrounds of climate change initiatives , are these voting patterns a reflection of a broader public opinion ?
These questions remain unanswered .
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