Behind All the Talk, This Is What Big Oil Is Actually Doing

If you’ve been listening to the world’s major energy companies over the past few years, you probably think the clean energy transition is well on its way. But with fossil fuel use and emissions still rising, it is not moving nearly fast enough to address the climate crisis.

In June, Shell became the latest of the big oil companies to curb plans to cut oil output, announcing that it will no longer reduce annual oil and gas production through the end of the decade. The company also raised its dividend, diverting money that could be used to develop clean energy. BP’s share prices surged this year when the company walked back its plan to reduce oil and gas output.

The industry can point to efforts to reduce emissions and pursue green energy technologies. But those efforts pale in comparison with what they are doing to maintain and enhance oil and gas production. As the International Energy Agency put it, investment by the industry in clean fuels “is picking up” but “remains well short of where it needs to be.”

Overall, oil and gas companies are projected to spend more than $500 billion this year on identifying, extracting and producing new oil and gas supplies and even more on dividends to return record profits to shareholders, according to the I.E.A.

The industry has spent less than 5 percent of its production and exploration investments on low-emission energy sources in recent years, according to the I.E.A. Indeed, the fact that many companies (with some notable exceptions) seem to be prioritizing dividends, share buybacks and continued fossil fuel production over increasing their clean energy investments suggests they are unable or unwilling to power the transition forward.

Exxon Mobil recently noted in a regulatory filing that “it is highly unlikely that society would accept the degradation in global standard of living required” to achieve net-zero emissions. And while Shell claimed it was still committed to net zero by 2050, it made clear it also believed that achieving that goal was out of its hands: “If society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet its target.”

This view may be understandable, given that the world is not on track to achieve net-zero emissions by 2050. Absent major policy changes, the I.E.A. projects that oil and gas use will continue rising through the end of the decade and then plateau. Rising prosperity in developing and emerging-market nations requires enormous increases in energy use, and there are real tensions between those aspirations and decarbonization.

And even governments strongly committed to slowing climate change, including the Biden administration, have nonetheless encouraged energy companies to produce more oil to keep gasoline prices in check.

As temperatures around the Northern Hemisphere this summer reach levels testing the limits of human survival, will society accept the consequences of continued business as usual? History suggests that climate action will proceed “gradually and then suddenly,” as a character in Ernest Hemingway’s “The Sun Also Rises” says of bankruptcy. That’s what happened in 1970 when chronic smog and polluted waters spurred one in 10 Americans to take to the streets on the first Earth Day and propelled the passage of America’s landmark environmental laws.

The fact that shareholders seem to prefer that oil profits be distributed as dividends rather than reinvested more in low-carbon energy solutions suggests they are also skeptical about the industry’s ability to be as profitable in clean energy. Their behavior suggests a preference for investing in other companies they believe have a competitive advantage in those technologies.

The world will still use oil for decades even if it accelerates climate action — and even a net-zero world would still use some oil and gas, with technology able to capture emissions. Even if oil use falls, some oil companies thus seem to be planning to be among the last producers standing.

One problem with this is that not every company can be the last standing. Another is that many companies are not even taking the steps necessary to reduce emissions from their own oil and gas operations, which today far exceed the emissions from all of the world’s cars combined.

The seven major publicly traded oil and gas companies, like Shell and BP, known as the supermajors, produce only 15 percent of the world’s oil and gas, but as the I.E.A. has noted, they have “an outsize influence on industry practices and direction.” They also have the technological and engineering prowess to advance clean energy.

Most of the world’s oil and gas is supplied by companies totally or partly owned by governments, and many of them are also falling short in their climate efforts, as evidenced last month when several of the largest-producing countries reportedly blocked a Group of 20 agreement to reduce fossil fuel use and triple renewable energy by 2030. This is especially troubling because nationally owned companies can take a longer-term view and look beyond quarterly shareholder pressures, though they also face demands to satisfy national budget needs.

A successful transition will be easier to achieve if the big energy companies play a larger part in it. Low-carbon technologies such as carbon capture and hydrogen are well suited to the oil industry’s skills and capital budgets.

Industry leaders face a stark choice: Either match their rhetoric with actions demonstrating convincingly that they are prepared to invest at scale in clean energy or acknowledge that their plan is to be among the last producers and bet on a slower transition.

Jason Bordoff (@JasonBordoff) is the founding director of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, a former senior director on the staff of the U.S. National Security Council and a former special assistant to President Barack Obama.