BP made headlines earlier this week, announcing ten new climate ambitions to bring both its business and the economy it serves toward net zero emissions by 2050, the goal post science dictates is needed to avoid the worst impacts of climate change.
As one of the world’s largest oil and gas companies, BP has an outsized impact on the success or failure of the low-carbon transition globally. This impact comes not only from the fossil fuels it produces, but the influence it wields in political and economic arenas. Its new announcement sends a strong signal, laying the potential to fundamentally reshape expectations of oil and gas companies and their role in the low-carbon transition.
While some critics say BP’s targets are fuzzy on details, the reality is that the oil and gas transition is an uncertain and challenging endeavor. BP’s proposed areas of action at least provide the necessary building blocks for success. Let’s unpack BP’s announcement and three areas where we see promise and challenges ahead:
1. Methane abatement and transparency
The oil and gas sector is responsible for about a quarter of human-made methane emissions—a potent greenhouse gas that drives nearly a quarter of the global warming. With a short-term climate impact more than 80 times stronger than CO2, tackling methane emissions is a critical part of the climate solution, and can create the big, quick wins we need to avoid the tipping points that could trigger runaway climate change.
BP has pledged to reduce methane intensity of operations by 50 percent and to bring all of its emissions from oil and gas production to net zero by 2050—including methane emissions and other indirect emissions (e.g., from energy consumed). It has also pledged to install methane measurement at all of its major oil and gas processing sites by 2023 and has committed to the Task Force on Climate-Related Financial Disclosures (TCFD) framework, which lays out how corporates should disclose climate factors including emissions.
Methane monitoring in BP’s current commitment is limited to processing plants and production sites, and only the plants it owns directly. We would love to see this commitment expanded to include other parts of the value chain as well as to the myriad of oil and gas companies in which BP owns a stake. Regardless, this is an important starting point for consistent methane transparency on a global scale and sets a precedent for other fossil fuel producers.
Stakeholders more and more are looking for credible, consistent emissions data with which they can compare operators and products, and accordingly make financial decisions. This transparency fosters greater accountability around BP’s product emissions intensity and progress towards net-zero targets. It therefore empowers investors and consumers to put their money behind companies taking action on methane.
2. Supporting the global low-carbon transition
While it’s critical to tackle emissions from the production of oil and gas, the lion’s share of the oil and gas sector’s climate impact stems from the use of oil and gas in the power, transport, industrial, and buildings sectors.
BP is one of the few oil and gas companies to set a target for the impact of its products, aiming to reduce the carbon-intensity of the products it sells by 50 percent by 2050 or sooner. While critics say that BP could go further by setting an absolute emission target—which would explicitly require their oil and gas businesses to shrink—this announcement is an important first step in acknowledging the active role that oil and gas companies have to play in the broader energy transition.
BP has committed to engage cities, corporations, and countries, recognizing that it cannot meet its targets without fundamentally shifting its customers’ demand for clean energy alternatives. Already, we’ve seen promise in this area, as both cities and large buyers of natural gas (mainly power and gas utilities) are beginning to look for solutions to meet their own climate targets. Alongside this, BP has announced plans to invest in the early-stage solutions their customers will need to decarbonize, such as CCUS or hydrogen.
And while this endeavor is daunting, it is exactly these types of actions that are needed to start systemically shifting markets off fossil fuels. For fossil fuel companies to have a credible role in the energy transition, they have to engage with their end-use sectors to come up with alternatives to oil and gas and ways to design systems to more efficiently use energy resources.
3. Role of shareholders
Shareholder action on climate is a key pressure driving announcements such as BP’s and increasingly we’re seeing financial institutions are a key pressure point for climate action.
Yet finance is also a potential bottleneck in the ability of BP and other oil majors to successfully undergo the fundamental transformations that are needed. The way oil and gas companies are valued by investors and credit rating agencies today—by the health of their oil and gas business and, in particular, the value of their proven oil and gas reserves—can create a systematic barrier for oil and gas companies to shrink their fossil fuel business. As the system works today, failure to continue to replenish reserves impacts an oil and gas company’s valuation and, in turn, its ability to successfully invest in its low-carbon transition.
Shareholders may also need to understand how dividends may change as oil companies undergo the transition. This may mean forgoing short-term dividends in exchange for safeguarding long-term returns and eventually redefining how we determine the value of Oil and gas companies in general.
As a result, the oil majors’ transformations must happen in collaboration with the financial sector, and the investors that stand to gain or lose from their transition.
Supporting the achievement of climate targets
While BP’s announcements are an important step, much still needs to be figured out in terms of how these ambitions are turned into substantive and verifiable action.
At RMI, we are working to support commitments such as BP’s in multiple ways. To improve transparency and consistent reporting, we are developing an analytical platform that leverages big data and remote sensing to make methane emissions visible, and actionable to decision-makers. Through our work to develop a global standard for low-methane emission natural gas, we are setting the bar for strict performance in the natural gas industry.
And through our work on ‘climate alignment’, we are also working to connect oil and gas companies with their investors and clients, forming the coalitions needed to systemically and collectively move markets toward a net zero future.
This blog post was first published on RMI’s website.