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When is $1 billion not a lot of money? Answer one, when you are trying to save the human species from global self-destruction. Answer two, when it is split 10 ways, and then again 10 ways.
In an announcement timed to coincide with the entry into force last Friday of the COP21 Paris Climate Agreement, 10 of the world’s largest international oil and gas producers announced a $1billion fund to help protect the earth’s climate.
The OGCI (Oil and Gas Climate Initiative) was formed in January 2014, led by the CEO’s of six multinational oil and gas companies (1). Its self-stated ambition was to “catalyse meaningful action and coordination on climate change …. provide a full spectrum on what the sector what the sector is prepared to do, collaboratively, going forward”.
The defining moment of the UN Climate Change conference in Paris last December has now passed, the agreed text has been scrutinized, pored over, analysed – and then ratified by 100 nations. It is clear that the intended national emissions reductions (INDCs) offered in Paris are voluntary and non-enforceable. It is also clear that even if the INDCs were delivered in full, then the world is on track for 3.7C or greater warming, not 2C or an aspirational 1.5C. And if nothing new happens, the world is already operating the hydrocarbon combustion equipment which can take warming beyond 6C by 2100. And it is also clear that scientific agreement has coalesced around the driver of the problem being not the annual rate of emissions, but the total additional stock of carbon in the atmosphere and oceans. So any extra carbon added into the atmosphere from now, stays there into human timescale perpetuity. Plenty of evidence then, to show that rather than turning a corner after Paris, the world is heading into deeper and possibly irreversible trouble.
Fast forward now, to November 2016.
What have we learned since the OGCI was formed? First, the oil and gas price has collapsed, driven by the super-availability of replacement hydrocarbons from low marginal cost shale. Second, we have seen a rapid change in hydrocarbon business – with the demise of several of the USA’s largest established coal companies (I’m thinking here of Peabody Energy, Arch Coal, Patriot Coal, Walter Energy and Alpha Natural Resources). Third, there have been public statements by the USA, China and UK against continuing coal use in power generation. Fourth, there have been calls for “greening of finance” by the UK Bank of England Governor Carney, and the World Bank president, Jim Yong Kim. And fifth, we have seen the International Energy Agency analysis (2) telling us that new-build solar PV and onshore wind is now cheaper in many jurisdictions than old dirty coal – and we have evidence that electricity can and will get cleaner – so electric and hydrogen vehicles have a clear path to growth, and a clear path to reducing air pollution in cities of Europe and emerging economies. Maybe less demand foreseen for petrol and diesel.
All that is telling me, that technological, economic and political action is starting to change the old order. First the permanence of Big Coal is destroyed, then Small Coal struggles and will terminate not by direct legislative closure, but by not being rebuilt. And then who is next? Why not falling demand and changing times for Big Oil, Small Oil, and even the gas extraction and transportation companies. Ignore that at your peril.
And what is the response from OGCI, demonstrating “what the sector is prepared to do” ?
This group proudly proclaims that they are responsible for 20% of global oil and gas production, so we should expect something big, commensurate with the size of the problem, right? Wrong. This OGCI response looks like trying to tell us that the climate problem is still best handled by denial, over analysis, and under activity. The response is to combine together funds from OGCI members and invest – in themselves. OGCI membership has grown from 6 to 10 partners, and each of these companies will, during a 10-year commitment, create and support “OGCI Climate Investments, a partnership that will enable us to invest $1 billion over the coming years to support start-ups and help develop and demonstrate innovative technologies” (3).
Let’s work that arithmetic backwards: that’s just $10M per year for each member company? So how does that stack up with what other actors think this problem is worth? Mission Innovation is a global alliance of 21 governments concerned about climate change. Their pledge is to start with the existing $15Bn per year research and development (R&D) spend and double that spend to $30Bn a year by 2021, to develop transformational clean energy (4). Maybe then the oil companies are short of cash, with oil being so lowly priced? How does this compare with what they already spend on R&D? BP has been allocating $600M per year to R&D, decreasing to $400M in 2015 (5). A similar sized oil company, Shell, spends near double – over $1,000M in 2015 (6). In a sector needing to keep innovating for survival, chemicals company BASF spends $1,300 rising in 2015 to $1,900M per year on R&D (7). Or, in terms of normal business, how much do OGCI members spend on finding more oil and gas each year: the cost of an offshore borehole is typically $70M – and Shell alone spends $4,000 to 5,000M per year on exploration to find new fossil carbon production (8). Suddenly $10M each year from each sponsor looks more like the drinks bill after a CEO away-weekend.
Don’t get me wrong, I am all in favour of extra real money being spent to solve real problems. But here the amount pledged seems tiny in response to the size of the problem, and seems tiny in response to the existential climate and technology threats coming down the track to hit these established and reliable global corporations. Peabody Energy thought they were invulnerable, until it was too late. The age of coal in the USA is not passing away through lack of coal. What is not at all clear from the OGCI are the answers to these questions.
Is this really new money, in addition to the very large spend already routinely allocated? And how would we know if this thin smear on top of the present budgets is extra or not?
The topics supported don’t fill me with confidence. For example:
- reducing the OGCI members own emissions of methane greenhouse gas. Well, I’d sort of hoped that the members would be doing that anyway. Both to save waste and to reduce the climate forcing effect of extra carbon stock wantonly wasted into the common atmosphere.
- Improving industrial efficiency by reducing flaring and better operations. That is also of course good, see the reply above. And it’s also nice to know that the new research funds will be used to make the donors more profitable.
- Contributing to transport efficiency by developing more efficient engines and advanced fuel-engine combinations. Is that about zero emissions into the air of cities? Or is that about maintaining the market for internal combustion engines? Not including battery cars, fuel cell hydrogen power, or even fuelling with ammonia.
- Accelerating the deployment of carbon capture, use and storage (CCUS). This may be last but its not the least. In fact its possibly the only one of all the topics mentioned which could materially reduce the rate of emissions, and reduce the rate at which carbon stock increases. So if we are genuinely trying to fight climate change, then this should surely be first through last on the R&D agenda. Why not?
To expand on the CCUS problem, its been apparent for at least 10 years, and possibly 20, that starting off CCS projects is not hindered by technology (9). What is needed is a hearts and minds campaign directed onto public, politicians and civil servants, backed by evidence, that CCUS is an essential part of the way out of climate injustice, and is fully endorsed and supported by fossil fuel producers, as a credible method of sustaining their business, with minimal environmental impact. CCUS is hindered by the lack of political will, and the lack of legislation on carbon taxation, and the lack of policy and legislation to ensure mandatory carbon storage, which can make CCUS into a business as usual proposition (10).
So OGCI can spend its research dollars on reducing flaring, creating new combustion engines, simulating the building of a new efficient gas-power plant, or innovating a new carbon capture membrane.
But maybe it would be better value to spend the same money on explaining why a market in carbon storage needs to be created, and explaining why taxing carbon emitted to the global stock is a job creator, not a threat to the established world order. Maybe its simply phenomenally difficult to get any agreement between 10 members. Maybe this is one of the defining moments when Big Oil flunked its future. But the choice of topics, and the size of the intervention explained by the OGCI Initiative in November 2016 seems to be small change compared to the size of the problem, and appears to lack … initiative.
Stuart Haszeldine is a Chartered Geologist, Fellow of the Royal Society of Edinburgh, and Professor of Sedimentary Geology at the School of GeoSciences, University of Edinburgh.
2 IEA renewables medium term market report 2016 https://www.iea.org/newsroom/speeches/MTRMR_2016_Launch_Presentation_FINAL_for_web.pdf
9 Oxburgh Report on CCS 12 Sept 2016 Lowest cost decarbonisation for the UK: the critical role of CCS. Report to Secretary of State for Energy http://www.sccs.org.uk/news/330-oxburgh-report-on-ccs-resets-approach-to-pricing-delivering-infrastructure-and-enabling-uk-climate-action
10) Haszeldine 2016 Can CCS and NET enable the continued use of fossil carbon fuels after CoP21? Oxford Review of Economic Policy, Volume 32, Number 2, pp. 304–322