Back into Petroleum: BP dials back climate pledge as oil profits soar

BP’s previous targets were announced in 2020 as part of a broader plan to comply with the 2015 Paris climate accord. It pledged to transform itself by halting oil and gas exploration in new countries, slashing oil and gas production, and boosting capital spending on low-carbon energy.

It was lauded as the first “supermajor” oil company to spell out in detail what its energy transition would actually entail. Competitors followed with pledges of their own. The new emissions goal is a walk-back for BP, which has said it wants to reduce its net emissions to zero by 2050.

‘It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma.’

BP chief executive Bernard Looney

“It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma,” BP chief executive Bernard Looney said in a news release on Tuesday.

“To tackle that, action is needed to accelerate the transition. And – at the same time – action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today.”

Critics say the failure of the companies to reinvest their windfalls into a clean power future suggests a need for more aggressive regulation and taxation.

“They are not investing that money into renewables or any other productive, good enterprise,” said Democratic Senator Jeff Merkley, as he and other progressives gathered outside the US Capitol last week to protest the immense profits. “Instead, they are … putting money back into their pockets.“]

Doubling down on fossil fuels

The companies deny that they are scaling back their ambitions to transition toward cleaner energy, pointing to investments in wind and solar, as well as large-scale projects to capture and bury carbon emissions and produce green hydrogen fuel. Executives said in their earnings calls that the lucrative subsidies in America’s Inflation Reduction Act, the historic climate legislation signed into law last year, are motivating them to make big investments in lower-carbon energy.

But such projects still make up a modest share of Big Oil company investments, and they are hardly the central focus of company executives. ExxonMobil and Chevron are on track to invest just 10 per cent of their capital expenditures on green energy by 2024, according to an analysis from Goldman Sachs. The big European companies, Shell and BP, are already at 25 per cent but are not likely to substantially grow their green energy portfolios over the next year, according to Goldman.

Watchdogs say the 25 per cent figure is misleading, as it includes investments such as those Shell is making in natural gas, a fossil fuel. The group Global Witness last week filed a complaint with the US Securities and Exchange Commission, accusing Shell of misleading shareholders by including natural gas investments in the category of “Renewables and Energy Solutions” in its annual report. Shell says its report follows all SEC rules.

ExxonMobil CEO Darren Woods made no apologies for doubling down on fossil fuels in his comments to investors and analysts as the company posted its earnings report recently. “We leaned in when others leaned out,” he said of the company’s investments in boosting fossil fuel production.

Woods noted that Exxon was at an advantage because some of its competitors have “stepped back.”

“Until you have lower-emissions competitive alternatives that address the full set of needs for society, there’s going to continue to be a demand for oil and gas products,” Woods said.

Such remarks are rekindling the debate among activists about the role of oil companies in the transition. While some argue the companies are so big and influential that they need to play a key role, others say weakening them by pressuring big financial institutions and pension funds to divest would be more productive.

‘Now that they are backing off their green act a bit and are again talking up oil and gas, it is hopefully revealing to people who care about climate.’

Jamie Henn, director of Fossil Free Media

“Now that they are backing off their green act a bit and are again talking up oil and gas, it is hopefully revealing to people who care about climate,” said Jamie Henn, director of Fossil Free Media, a group that advocates divestment. “Engaging with these companies is not going to get us where we need to go.”

But some analysts argue the uptick in oil and gas production does not necessarily represent a retreat from cleaner power. Even the Biden administration is pushing for more production as drivers struggle with high petrol prices and electric vehicles are still not a practical and affordable option for most consumers.

“The world’s infrastructure is not ready to become fully electric overnight,” said Michele Della Vigna, head of natural resources research at Goldman Sachs. “We don’t have enough charging networks. We don’t have enough battery factories. We are going to see increases in oil demand until the end of decade.”

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He said that does not necessarily mean the goals laid out in the Paris agreement on climate change can’t be reached. “We’ve been advocating for a while that even under a Paris-aligned scenario industry still needs to develop oil and gas,” Dell Vigna said. “I don’t think it comes at the expense of low-carbon projects.”

The oil giants have an inherent tension at the core of their business, said Raymond James energy analyst Pavel Molchanov: “Reducing emissions implies producing less oil and gas, which means – all else being equal – generating less cash flow.”

BP’s lowered target was tucked into the company’s quarterly earnings report on Tuesday. The company announced it would target “short-cycle fast-payback opportunities” in oil and gas with $US8 billion in spending, alongside another $US8 billion for “energy transition growth engines.” It also plans to send more money to investors, increasing its dividend by 10 per cent and adding $US2.75 billion in stock buybacks.

BP shares rose as 3.3 per cent in London on Tuesday as investors welcomed the more generous payout and share buybacks.