Oil and gas output needs to fall by nearly 40% by 2030 to keep warming below 1.5C
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The oil and gas industry is facing unprecedented pressure to prove its business model is compatible with the goals of the Paris climate agreement. BP has just bowed to investor pressure and backed a resolution to disclose how its future plans align with these goals at its upcoming annual shareholder meeting. The US Securities and Exchange Commission recently saved ExxonMobil from a shareholder vote on introducing emissions targets. While agreement may be slowly building that oil and gas companies’ plans need to square with the Paris goals — it is not clear what that means in practice. A new report from Global Witness sheds important light on this. Our analysis finds that all of the $4.9tn the sector is forecast to spend on exploration and extraction from new fields over the next decade is incompatible with the Paris goals. In Paris, governments agreed to aim for global warming to stay below 1.5C. In October last year, the world’s leading authority on climate science, the IPCC, produced its landmark report showing that limiting warming to 1.5C would avoid the worst impacts of climate change and that achieving that goal was still possible. Its assessment is based on climate scenarios, built using advanced computer programs that model complex physical changes to the earth’s climate systems and societal shifts. They show a range of pathways of how the whole global economy could transform over the 21st century while limiting warming to 1.5C. These scenarios model transitions across up to 590 variables: everything from GDP to food demand, including annual energy data from the oil and gas industries. Today’s report is the first to compare these cutting-edge IPCC climate scenarios, excluding those that rely excessively on unproven carbon capture or removal technologies, with forecast production from new and existing oil and gasfields from industry analysts Rystad Energy. We produced models of future oil and gas production over the next 30 years that would be consistent with 1.5C, using the data from the IPCC’s climate scenarios. This model shows that production needs to decrease by nearly 40 per cent by 2030 if we’re to keep warming below 1.5C. This is consistent with the report’s headline finding that global emissions need to fall by 50 per cent by 2030, reaching net zero by 2050. According to Rystad Energy, oil production is instead set to increase by 12 per cent over the next decade, fuelled by investment in new fields. If that investment in new fields doesn’t go ahead, output from oilfields that are currently in production would decline by 36 per cent — roughly in line with what the IPCC scenarios indicate is needed. Of course, this decline in production would need to be matched with urgent action by every government and company to curb demand for oil and gas at an equally rapid pace. As the IPCC’s report states, limiting warming to 1.5C requires “rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems” at an unprecedented scale. Currently, ExxonMobil, Shell, Chevron, Total and BP are set to spend a combined $562bn on new oil and gas over the next decade. When these companies try to claim that their investments are aligned with the world’s climate goals, they rely on assumptions about the future that push the boundaries of plausibility. Climate scenarios in which currently unproven technologies are deployed at vast scale to capture and remove carbon, do not serve as a credible guide to aligning with the Paris goals. For example, some scenarios rely on nearly as much CO2 being captured in the 21st century as has been emitted since the industrial revolution. There are no signs that this is feasible or in any way likely to happen. Relying on carbon capture or removal to justify further massive investment in new supply is taking a vast gamble on the future, with very poor odds of success. For investors, the oil and gas industry’s current investment plans will create material risks regardless of whether or not the world is effective in tackling climate change. Capital expenditure decisions made now will determine the risks investors face in the future. Oil and gas companies could carry on with their current model and raise the risk of stranded assets or a dramatically changed climate. Or they can avoid overinvestment and help ensure a smooth transition to meeting the Paris climate goals. Investors hold the key to this decision. They need to keep the pressure up on the oil and gas majors, and require them to prove their capital investment plans are credibly aligned with the Paris goals.