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Investor group: No European oil and gas major has a credible net zero plan

Transition Pathway Initiative, backed by investors boasting $19 trillion of capital, welcomes stronger climate pledges from leading oil firms, but warns sector is a long way from delivering adequate decarbonization plans.

Oil rig in the ocean

None of Europe's leading oil and gas majors has released a credible plan for achieving net-zero emissions by the middle of the century, despite recent declarations from BP, Shell, Total and others that they are committed to achieveing net-zero status by 2050.

That is the conclusion of a new analysis from the influential Transition Pathway Initiative (TPI), backed by investors representing $19 trillion of assets worldwide. The study looked at the climate strategies of Europe's six largest oil and gas firms, many of which have strengthened their emissions reduction pledges in recent months.

Shell, Eni, Total, Repsol and BP have all announced a range of "net zero" pledges over the past year or so, but the TPI warns that while those were welcome commitments, no current strategies are credibly in line with the new goals. According to the TPI report, none of the public strategies feature sufficiently detailed emissions reduction goals covering business operations, value chains and the use of fossil fuel products aligned with the more ambitious 1.5 degrees Celsius Paris Agreement trajectory, which requires net-zero emissions to be achieved by 2050 at the latest.

Moreover, the report argues that no firms have strategies in line with the upper 2 degrees C threshold of the Paris Agreement, although four — Shell, Eni, Total and Repsol — are in line with the level of decarbonization ambition signposted to date by those national governments signed up to the global climate accord, which still falls short of meeting the treaty's temperature targets.

The TPI calculates that the average European oil and gas firm would need to cut its emissions intensity by over 70 percent between 2018 and 2050 to align with a 2C global warming scenario by 2050, while a genuine net-zero strategy would require a 100 percent reduction in absolute emissions by that date.

We've had a lot of net-zero commitments in headlines, but actually they need to be a lot more rigorous.

However, even the most ambitious climate targets announced by the six European oil majors falls far short of what is needed for a credible net-zero strategy, the analysis concludes.

The report, therefore, calls on the oil and gas sector to set clear, ambitious goals covering both their core business activities as well as the fossil fuels they sell in order to guard against transitional risks and put their businesses on a credible net-zero footing.

Adam Matthews, co-chair of TPI and director of ethics and engagement for TPI member the Church of England Pensions Board, welcomed progress made by European oil and gas firms in strengthening their climate pledges but warned they still had much more work ahead to deliver on their net-zero goals.

"The European integrated oil and gas sector is changing rapidly," he said. "Three years ago, no company had set targets to reduce the carbon intensity of the energy they supply. Today all six oil and gas majors assessed by TPI have set such targets and we have seen significant progress in the past months, with companies engaging with the concept of net-zero, adopting longer-term perspectives and setting more ambitious goals to accelerate the low-carbon transition."

But, he added, "TPI's analysis underlines that these commitments are not all equal in ambition or in scope and deeper decarbonization is needed to align with a 1.5C or even a 2C scenario."

Oil and gas majors have been under growing pressure from consumers and investors alike to strengthen their climate strategies in recent years, amid growing concern that the net-zero transition could render high carbon products and services obsolete, leaving investors with stranded assets on their books. This pressure has been further amplified by the collapse in oil prices sparked by the coronavirus crisis, which has led some leading figures to suggest that global oil demand may have peaked.

Thanks to engagement from high-profile investor groups such as Climate Action 100+, a raft of oil firms in the report — Shell, EniRepsol, BP and most recently Total — have announced long-term ambitions to pivot towards becoming net-zero entities by 2050.

But such announcements have come with controversy. Although Total's net-zero pledge last week was welcomed as much needed progress from one of the world's largest oil producers, several green groups and investors slammed the target as "totally insincere" for both lacking in detail and ambition.

TPI's analysis appears to largely support the view of those green groups and investors, pointing out that the French oil giant has not provided enough details on how it intends to deliver on its headline ambition to achieve net-zero across its production an energy products in Europe by 2050.

And, while TPI said Shell's recent pledge to cut its emissions intensity by 65 percent by 2050 was the most ambitious in the sector and the closest to alignment with the Paris Agreement goals, it added that the Anglo-Dutch oil giant's claim to be aligned with net zero is nevertheless "not consistent with our analysis."

Total did not respond to BusinessGreen's request for comment at the time of going to press, nor did Eni.

But a Shell spokesperson reiterated CEO Ben van Buerden's recently announced plan to deliver net-zero emissions across its core business by 2050 and link executive pay to progress against climate goals. "By 2050 or sooner Shell intends to be a net-zero emissions energy business," they said. "We need to look at the detail of this report, but we are pleased that the TPI recognizes both our ambition and that we are aligned with the Paris Agreement. Indeed, we are confident our approach is also aligned with the 1.5C goal of the Paris Agreement."

In February, rival British oil firm BP also announced a net-zero goal, but TPI said that while this represented a "substantial shift," its targets were less ambitious than those from Shell, Total and Eni, and that they failed to align with the Paris Agreement or a net-zero trajectory.

But a BP spokesperson said the firm disputed TPI's methodology and insisted its strategy was Paris Agreement-compliant, arguing it had committed to net-zero emissions across its core business by 2050, and that "if this were to happen to every barrel of oil and gas produced, the emissions problem for our sector would be solved."

The average European oil and gas firm would need to cut its emissions intensity by over 70 percent between 2018 and 2050 to align with a 2C global warming scenario by 2050.

"TPI's analysis focuses on carbon intensity," BP said in a statement. "We do not believe that carbon intensity alone is a reliable single measure of progress towards the Paris goals. This is because it can fall even if absolute emissions remain flat or even grow. We will continue to engage with TPI and other stakeholders to help provide comparability and transparency around these issues."

A spokesperson for Repsol, meanwhile, said the Spanish oil firm accounted for all the emissions in the process to make its energy products and that it was working with its customers to reduce the emission derived from the oil and gas it produces. "The company was ahead of its peers in its ambitions, is in the leading group of oil and gas producers worldwide and aims to remain at the forefront of the energy transition," it said. "Repsol is firmly committed to aligning its strategy to the Paris Agreement goals."

The TPI conceded that in order for the sector to achieve net zero across its business and value chain, it would have to work hard with other players in the energy supply chain and beyond to cut emissions from the use of oil and gas products sold. It also noted that BP, OMV, Repsol, Shell and Total have indicated they intend to further update investors on their climate ambitions in 2020.

But it said oil and gas firms still needed to set clear, transparent targets to deliver net-zero emissions across their business, value chain and use of their products in order to claim credible net-zero targets, and called on the industry to establish a sector-wide net-zero standard to enhance the credibility of individual company's emissions goals and enhance climate risk disclosure.

Dan Gardiner, an analyst at LSE and lead researcher for the TPI's latest findings, said he hoped TPI's analysis would aid the development of a net-zero standard for oil and gas sector commitments to measure up against.

"That's where this goes ultimately," he told BusinessGreen. "We've had a lot of net-zero commitments in headlines, but actually they need to be a lot more rigorous. That's particularly important for investors, who need a standard to assess the risk their assets face, effectively."

In the oil majors' defense, several have said that their new net-zero targets will be followed by more comprehensive emission reductions strategies and changes to their budgets and spending plans. But as the TPI's intervention underlines, a growing and influential band of investors are desperate to see such plans and are preparing to go through them with a fine-tooth comb to ensure they really are compatible with the goals of the Paris Agreement. 

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