Investors Have Made Oil Majors Consider Safe Climate Limits. What Next?

Even holdout Exxon Mobil has analyzed what holding global warming to 2C means for its business.  Now the sector needs to invest – or divest – accordingly.

Oil companies are under more pressure than ever to reckon with their climate impact, this AGM season.

Supermajor Exxon Mobil has published its first assessment of what holding global warming to 2C means for its business, prompted by a shareholder revolt in 2017.

Shareholder activists have moved on to target second-tier companies, winning resolutions to make Kinder Morgan and Anadarko follow suit.  Several firms pre-empted a vote by agreeing to their demands.

In Europe, where most oil majors have already produced 2C scenarios, the conversation is turning from disclosure to action.

“We have seen a significant uptick in the number of reports this year,” Robert Schuwerk of Carbon Tracker told Climate Home News.

Analyzing the implications of 2C, the upper warming limit in the Paris Agreement, is “becoming normalized as a concept”, he said.  There is not yet a standardized approach, though, making it hard to compare companies:  “I think that is going to become a focus.”

By each choosing methods to flatter their business plans, firms are perpetuating collective denial.

Globally, the vast majority of oil and gas reserves need to stay in the ground to limit temperature rise to 2C.  That implies some producers will lose out.  But, as a Carbon Tracker report this week highlighted, corporate scenario analyses show everyone winning.

“The primary risk is over-investment in a resource base, bringing on a supply-demand imbalance, lower prices and therefore lower returns for shareholders,” said Schuwerk.  In other words, they waste money on unburnable fuel and profits dive.

Price assumptions are key.  As climate regulations and clean technology take hold, they dampen oil demand.  Other things being equal, that means low prices.

The proof oil companies are taking climate risk seriously will come when they cancel expensive exploration projects, which cannot pay off in a 2C world.

French major Total was one of the earliest to grasp this, ruling out Arctic oil drilling in 2016.  But most still see their role as following government policy rather than driving the shift to cleaner energy.

They emphasize the growing energy needs of the developing world and plan to meet them the traditional way – with fossil fuels.

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