If the oil majors are diversifying in a transition from fossil fuels to renewable power, then quantification of investments in clean energy instead of fossil fuels would be a believable indicator of change.
Oil company or energy company? In a paper by Matthias J. Pickl, results show that of the eight major oil companies, five have undertaken considerable investments in renewable energy. Their renewable energy strategies reveal a categorization into two main groups: Royal Dutch Shell, Total, BP, Eni and Equinor have embarked on a transition from being oil companies to energy companies; while ExxonMobil, Chevron and Petrobras remain focused on hydrocarbons.
Natural gas is used extensively in the generation of electricity, partly because it is cleaner than coal but also more cost competitive. This is the main approach that Exxon and Chevron have taken, sticking with what they know best — transitioning away from oil by investing more in natural gas. Renewable energy and electricity lie outside the core competencies of big oil so acquisition is an easy but conservative first step. It is a conservative step. Gas is cleaner than coal, but it is still a fossil fuel.
There is a strong interaction between oil companies and utilities because the former produces raw materials needed for generation of electricity by the latter. The choice of wind and solar power sources for electricity generation significantly reduces demand for coal and oil, but less so for natural gas.
Electricity sector. Cleaning up the electricity sector is a key target for economywide decarbonization because emissions from electricity generation (27%) and residential/commercial emission sources (12%) are equivalent to 39% of total U.S. greenhouse gas emissions (2018 US Environmental Protection Agency data).
Transportation sector. Electrification is here to stay, and as the exponential growth in manufacturing and sales of electric vehicles around the world highlights, this demand will help to lower the 28% of all U.S. greenhouse gas emissions that are contributed by transportation. This potentially rapid shift to electric vehicles will decrease the need for gasoline and diesel fuel from oil companies.
Transition. The use of the term “net” in net-zero means that the pluses and minuses on the emissions front will total zero — not that petrochemical companies will stop producing oil and gas. The oil majors will remain integrated oil giants, with an increased presence in the electricity space to increase diversification.
Making utilities do better. A Sierra Club report titled, The Dirty Truth about Utility Climate Pledges, recommends that utilities do three things: retire existing coal plants by 2030, terminate plans to build new gas plants, and build clean energy faster. The analysis is based on integrated resource plans (IRPs) and major announcements for the 50 U.S. utilities that remain the most invested in fossil fuel generation. Plans were examined for 79 operating companies owned by 50 different parent companies, representing more than half of all remaining coal and gas generation in the U.S.
Not a good report card. Apart from a few pioneers, utility companies are falling short. The report assigned a score to utilities in the U.S. based on its plans to retire coal, construct new gas plants, and build new clean energy. The aggregate score for all companies studied was 17 out of 100.
Readers can find their power company and its score in the report. For example, PacifiCorp (Pacific Power and Rocky Mountain Power) is the operating company with the most remaining coal without a retirement commitment (30% of energy generation), scoring 10 out of 100; Portland General Electric scored 48 out of 100. Notably, 22 out of 79 operating companies scored 0 out of 100, with no plans forecasting a change in direction.
Climate goals. Out of the 50 parent companies included in the report, 33 have a stated climate goal; however, in general, most companies are not factoring their stated climate objectives into their latest IRPs. One reason is that net-zero emissions goals are set for 2050, 30 years away, while most IRPs have a duration of only 15 to 20 years. In other words, they claim they will reach net zero, but do not show how through their capital investments. Therefore, the Sierra Club report says utility climate goals should be legally binding; apply to all subsidiary companies; and include a short-term target of reducing emissions by at least 80% by 2030 — confirmed by meaningful IRP commitments.
Modeling the path ahead A whole atlas of model results are available to guide governments toward the formulation of a clean energy future. For example, Wärtsilä has modeled 145 countries, including a breakdown for a dozen U.S. regions, to show the cost-optimal energy mix for producing electricity from 100% renewable energy sources. But, as with utility companies, laws and actions by governments and the willingness of the private sector, are required to transform these “road map” model results into reality.
The Sierra Club report concludes that publicly stated climate goals are meaningless greenwashing without publishing strategies and investment plans to show how companies intend to get from point A to point B – just like the scholarship of Matthias J. Pickl demonstrated for the big oil companies.