Against the backdrop of Australian and Californian wildfires, extreme weather, record-setting temperatures, and activist pressure, business leaders are ratcheting up their promises to take on climate change. Although stronger climate action is most welcome, to truly make a dent in global carbon emissions, both corporations and activists need to shift their focus to engage a much broader set of politicians and businesspeople who have the most potential to curb emissions.
The rallying of finance and corporate titans to the climate cause was on display when I attended the annual meeting of the World Economic Forum in Davos, Switzerland, last week. Previously relegated to the sidelines, this year, climate change discussions permeated nearly all panels and meetings. Among numerous corporate pledges, the investment management company Blackrock said it would prioritize climate change in its investment strategy; Microsoft issued a major announcement that it would not only be going carbon negative but also working to mitigate its historical emissions; other business and government leaders promised to plant a trillion trees. Even the oil and gas chiefs at the meeting spent their time talking about the role of the industry in decarbonization, how to respond to rising social pressure, and whether to expand their emission targets to include not only carbon dioxide resulting from production but also from the use of their products.
Meanwhile, climate activists, notably Greta Thunberg, Time magazine’s 2019 Person of the Year, demanded an immediate halt to all fossil fuel investments, exploration, and extraction. “We don’t want these things done by 2050, 2030, or even 2021. We want this done now,” she said. (For his part, U.S. President Donald Trump attacked such climate activists as “perennial prophets of doom” even as he crowed about the United States’ energy boom.)
The pledges from corporate leaders at Davos are welcome but still fail to address the root of the problem. There is a limit to what any one company can do when it operates within a system in which oil, gas, and even coal use are still rising globally—even as the availability of renewable energy sources grows dramatically. That’s particularly true when policymakers’ rhetoric outpaces their action to actually change the economic incentives that affect myriad individual and firm decisions about how to produce and consume energy. And it’s not just that Trump withdrew from the Paris agreement on climate change; almost no country is on track to meet its Paris commitments.
Company commitments are voluntary and individual, and they do not change the underlying systemic issues with how energy is used in the U.S. economy. A company may want to “go green” but not directly control how the cement and steel for its new office building are made or what fuel is used to ship its goods or transport its people around the world. Even those emissions it can control may just lead to offsetting increases elsewhere, absent systemic reform. If companies really wanted to lead on climate change, they should be allocating far more political and financial capital to advocating for stronger climate policies around the world
For their part, meanwhile, the activists at Davos were targeting only a narrow sliver of the firms needed to deliver a clean energy transition. The oil majors, seven large integrated oil and gas companies, are at the center of rising public and shareholder pressure to shift investments away from oil and gas, yet they represent only 15 percent of world oil and gas production. Similarly, large European and American financial institutions are under pressure to divest from fossil fuels, but there is no lack of other private capital available to energy companies in the world. The reality is that investment by highly visible firms would just be replaced by investment from national oil companies in Russia, the Middle East, or elsewhere; privately held companies; or private equity firms.
The focus on U.S. and European firms also ignores the parts of the world where emissions are rising fastest, such as China, India, and the rest of South Asia. Europe constitutes only 9 percent of global emissions. In particular, there needs to be greater focus on phasing out coal in emerging markets. Coal remains responsible for around 30 percent of global energy-related carbon dioxide emissions—and its use is projected to remain stable. Although old coal plants in the United States and Europe have retired, the average age of coal plants in Asia is only 12 years old. Even if Asian countries never build another new one, the world will miss its climate targets if the existing fleet operates until the end of its normal life. Serious global climate action must prioritize policy and financial strategies to retire these plants early.
Corporate pledges and activist pressure must also acknowledge the full suite of technologies that will be needed to deliver deep decarbonization. Renewable energy costs have plummeted, but renewables mostly provide electricity, which represents only 20 percent of final energy consumption. Converting all cars to run on electricity is not enough. Hard-to-abate sectors such as industry, heating, shipping, aviation, and trucking will require solutions that are not visible or at least cost-competitive today, such as carbon capture, carbon removal, hydrogen, biogas, biofuels, and more.
The oil and gas companies under fire from activists have the engineering, financial, and project management capabilities to develop and scale such technologies. Given the range of technologies and scale of investment needed to accelerate a clean energy transition, rebuilding some measure of common ground and trust between the climate community and oil and gas community is an important—and daunting—challenge. It will require concerted work by the companies, greater transparency about the results of their actions, and a cooperative spirit in civil society.
That is especially challenging when oil majors are still investing to meet rising oil and gas demand, particularly in lower-income parts of the world that currently consume a fraction of per capita energy consumption levels that industrialized nations do. Oil companies also risk being penalized in their share price if they move too quickly into renewable energy, because they can’t earn the same returns as they can in oil and gas.
Yet investment by oil and gas companies in lower-carbon forms of energy must ramp up quickly to realize a clean energy transition. Despite the world’s growing need for affordable energy, continued growth in emissions from hydrocarbons is incompatible with climate goals. At current emission rates, the carbon budget to limit warming to a 1.5 degree Celsius target will be used up in around 15 years.
For oil and gas firms to survive, and even thrive, in an energy transition will require that they not only reduce their own emissions, such as from flaring and methane leaks, and invest in low-carbon technologies, but that they also advocate for stronger climate policy—and certainly do not stymie it. Otherwise they will continue to face rising social pressure to shift their capital investments away from oil and gas faster than consumer demand itself shifts, which will neither be economically viable nor make a dent in emissions, especially if capital investment and production just shift to other firms less susceptible to social or investor pressures.
The dramatic increase in urgency and attention to the issue of climate change last week at Davos was very welcome, but turning ambition into action will require that corporate and activist leaders alike increasingly advocate for policy change, focus on the regions and energy sectors driving emissions growth, and find common ground on the best role for the energy industry to play in delivering decarbonization solutions.