Europe

Oil and Gas Sector Underfunding Low-Carbon Transition

Investment, expertise, disclosure all lacking, says WBA; Reclaim Finance challenges gas, nuclear lobbyists. 

Despite committing to net-zero emissions by 2050 and publishing transition strategies dependent on low-carbon technologies, oil and gas firms aren’t allocating enough capital expenditure (capex) to support their development. This is according to the Oil and Gas Benchmark published by the World Benchmarking Alliance (WBA) today.

In 2019, just 30 of the 100 assessed listed and state-owned oil and gas companies disclosed the percentage of capex allocated to the development of low-carbon and mitigation technologies, the report said. On average, these companies invested 7.12% into carbon capture, utilisation and storage (CCUS) and carbon dioxide removal (CDR) technologies.

Only four companies disclosed information on the proportion of their R&D expenditure for CCUS and CDR in 2019. Three of those companies – Chevron, Petrobras and PTT – invested less than 2%, whereas TotalEnergies invested 10.3%. In order to align with a 1.5°C climate change scenario, companies should be dedicating at least 5% of their R&D expenditure to CCUS and CDR technology development, WBA said.

“Existing low-carbon revenue streams are insignificant and the share of capex companies are allocating to low-carbon technologies is entirely insufficient to decarbonise at the scale and pace required,” the report noted.

Overall, oil and gas companies should be investing 77% of their total capex in low-carbon technologies to align with the International Energy Agency’s (IEA) Net Zero Emissions by 2050 Scenario, WBA has calculated.

Only four companies invested more than 10%. Spanish utilities company Naturgy and Finnish oil refining company Neste invested 64% and 48% of their capex into CCUS respectively. Twelve companies published information on their low-carbon capex investment plans for the period between 2019-2024, the report added.

The IEA’s scenario predicts almost 50% of decarbonisation by 2050 will be achieved through future technologies, noting that companies today should be investing in the research and development of technologies such as low-carbon intensity hydrogen or geothermal power.

“This is undermined by companies’ lack of disclosure on the topic,” the WBA report said.

Expertise, disclosure both absent  

Another concern highlighted in the report is a lack of climate change expertise on corporate boards. Just 5 out of 100 company boards include board members with the relevant expertise to navigate the transition to a low-carbon economy, the report noted.

The power of shareholders to appoint climate-aware board members was demonstrated at ExxonMobil’s annual general meeting in May, when shareholders elected three climate-conscious members to the firm’s board of directors.

WBA noted that only 33 of the 100 leading oil and gas companies disclose information on Scope 3 emissions, which include the combustion of oil and gas products by customers. These account for 80% of the 100 companies’ total emissions across all three scopes, the report said.

The report’s findings suggest “a systemic lack of accountability and action” across the sector, according to WBA.

“It paints a worrying picture of the state of play in one of the most significant sectors for the low-carbon transition. Despite glimpses of good practice in specific areas, companies are still in need of stronger leadership, more investment and greater transparency to scale the vast ambition and performance gap that exists in the sector,” the report said.

Gas and nuclear on the offensive 

A report published by NGO Reclaim Finance claims the EU Taxonomy has left “the door to gas and nuclear wide open” under pressure from lobbying activity.

In April 2021, the Commission announced it would adopt a complementary Delegated Act under the Taxonomy Regulation, covering more carbon-intensive transitional activities such as nuclear, natural gas and related technologies.

“The EU Commission, EU Parliament and EU Member States have a last chance to fend off gas and nuclear lobbyists and ensure that the taxonomy remains functional by banning natural gas — like all other fossil fuels — and nuclear from the taxonomy,” the report said.

The EU Taxonomy Regulation aims to identify investable activities that contribute to the transition to net zero. The European Commission established its Technical Expert Group (TEG) was tasked with building its foundations, with a final report published in March 2020.

The TEG set limits which would allow only highly efficient gas projects paired with CCUS systems to be included in the Taxonomy Regulation’s list of investable activities. The group was unable to ensure that nuclear “does not significantly harm” the environment, excluding the industry from the taxonomy altogether.

What followed was an €85m lobbying offensive by gas and nuclear advocates behind closed doors, the report said, leading to delays to the publication of the delegated acts and the commissioning of additional work that would provide “‘scientific’ legitimacy to satisfy their pressing demands”.

If the Commission includes fossil gas in the EU Taxonomy and “welcomes nuclear through the backdoor”, the EU will end up with a sustainable taxonomy that “undermines the transition of the energy sector”, the non-profit has warned.

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