Don't Miss the Point of Anti-Fossil Fuel Reports

Copyright © 2021 Energy Intelligence Group

As COP26 approaches, hardly a day goes by without a new warning about fossil fuel consumption and the climate crisis — and the point may be to inject urgency into the entire conversation rather than merely warn industry. One was a paper from researchers at University College London (UCL) last week examining a 1.5°C world, which has become the new benchmark for climate action, suggesting 60% of oil and fossil methane gas and 90% of coal must remain unextracted to have a 50% probability of limiting warming to 1.5°C. That is a large increase in the unextractable estimates for a 2°C carbon budget examined by UCL back in an influential report it published in 2015 — particularly for oil. The difference: An additional 25% of oil reserves must remain unextracted, according to UCL calculations.

Similarly, Carbon Tracker’s fifth annual analysis of "stranded assets" financial risk, also released last week, focused on efforts to limit warming to 1.5°C, which it also says is fast becoming the seriously considered benchmark for Paris alignment. But like the International Energy Agency getting to net-zero report earlier this year, these reports represent scenarios, not predictions. Some critics have focused on perceived flaws in studies’ methodologies and assumptions, arguing that the complexity of the issues involved is oversimplified. But that perhaps misses the point: These reports may be intended less as a guide for industry and more as a message to governments, civil society and investors intended to instill more urgency, by showing pathways to reach 1.5°C that are not yet being taken — but could be.

Changing Narrative

Much has changed since both these two reports’ first outings. The language used in the UCL report has become far more unequivocal. Scientists have generally become more robust in how they talk about the climate crisis and more willing to link it to extreme weather events. Their audience has changed as well, with this latest UCL report widely reported in the mainstream media and prompting real-life debates. Before, it was part of a more abstract and theoretical debate on stranded assets.

A lot is different for the industry too. In 2015, the prospect of a rapid low-carbon energy transition seemed distant, whereas now it’s increasingly the base case for many. Energy transition strategies, once a rarity, are now increasing de-rigueur for big oil and gas companies too, with Chevron the latest to outline more detailed plans this week.


Many in the industry still instinctively reject the notion that oil and gas won’t be needed anytime soon, focusing on drivers of demand that could continue for decades. Some even suggest that the real systemic risk could stem from underinvesting not overinvesting in oil supply, warning of the risks to global financial stability and economic growth if demand is not met.

But as much as the oil industry may be confident of future demand, investors and lenders are getting increasingly selective about what to finance as they seek to reduce future climate-related risks and minimize the carbon footprint of their portfolios. And even if investors think the oil industry is right about investment needs, as climate pressure mounts, more may be forced to say “without us.”

Just this week, Moody's Investors Service said it expects emissions reduction policies to become more stringent in many major economies over the next several years. It warns this will put pressure on the credit profiles of businesses “operating in sectors most exposed to such policy shifts,” such as oil and gas companies. On the other hand, Moody’s notes that net-zero policies and associated investment will create opportunities for renewable energy.

What Next?

Upcoming climate negotiation in Glasgow will provide a litmus test for global resolve to address climate change. Oil and gas are not first in the firing line at COP26 — with an emphasis on powering past coal and ending coal financing. But broader moves to phase out fossil fuel subsidies are on the cards there. There have been growing calls too for COP to address methane emissions from fossil fuel production — which the recent Intergovernmental Panel on Climate Change report highlighted.

On the COP sidelines, a coalition of countries is taking shape to phase out new oil and gas. It is led by Costa Rica and Denmark, but so far no significant resource holders are on the cards there. But even in countries that aren’t signed up to fossil fuel bans, new developments are still facing headwinds — the UK Cambo field for instance. In Norway, Western Europe's largest oil and gas producer, the climate versus oil debate was central in recent elections, with moves to reign in its oil sector that may have been unthinkable a few years ago now conceivable.

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