COP26 Turns Heat on Oil Industry Up, Not Down

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COP26 Climate Change Talks World Leader's Summit
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While some criticize the COP26 pact concluded last week in Glasgow as weak, a flurry of announcements on net-zero targets, methane emissions, fossil fuel financing, deforestation and more suggests otherwise. At minimum, the recently concluded Glasgow summit shows the persistence of climate action. New and upgraded efforts to tackle climate change came despite hopes in some oil and gas circles that current high prices and market imbalances would ease pressure, highlight risks posed by underinvestment and advocate the role fossil fuels could play in the transition.

Some of the Glasgow announcements were indeed important, such as the Global Methane Pledge under which more than 100 countries said they would cut methane emissions by 30% over 2020-30, and the Glasgow Financial Alliance for Net Zero's promise that its members would manage their $130 trillion in assets in a 1.5°C compatible manner — even though what exactly it means remains to be determined. The only impact, if any, of the current energy crisis is perhaps the insistence in the Glasgow Climate Pact on "just transitions that promote sustainable development and eradication of poverty."

Some activists argue that COP26 fell short in critical areas, notably on the financial front. But the pact shows progress in calling for more urgent action in "this critical decade" and clearly sets 1.5°C as the world's new target — instead of the Paris Agreement's looser "well below 2°C." Furthermore, for the first time in UN climate communiqués, fossil fuels and methane are named and specifically targeted as responsible for climate change, even if those mentions are seemingly benign. The Glasgow pact, for example, does not call for the phasing out of fossil fuels or even fossil fuel subsidies — only "inefficient" fossil fuel subsidies, which is vague to say the least.

But activists insist that a barrier was broken. Speaking of methane, Mike Coffin, head of oil, gas and mining at Carbon Tracker Initiative, notes that "in practical terms, you can't manage what you don't measure, let alone what you don't even mention." The last-minute switch from coal "phaseout" to "phase-down" in the final text, at the urging of India and China, was widely criticized as a major setback for climate. Indeed, it could increase pressure on natural gas, as it signals India and China intend to take full advantage of cheap domestic coal over currently expensive imported LNG, while continuing climate action via massive renewable deployment.

Limits to Legitimacy of Offsets

An agreement on Article 6 of the Paris Agreement gives nature-based offsets more legitimacy. This can be seen as a win for oil producers such as Saudi Arabia, which claim that fossil fuels are not a problem as long as emissions are tackled with negative-emissions options such as afforestation. But companies planning on large amounts of offsets should expect these to come under increasing scrutiny and criticism, not only under the accusation of "greenwashing," but also in the name of social and environmental risks.

In its recent corporate net-zero standard, the Science Based Targets initiative (SBTi) insists on the "mitigation hierarchy" and calls for primarily "reducing Scope 1, 2 and 3 emissions to zero or to a residual level." Offsets, while probably necessary, should be "minimized" and reserved for the hardest-to-abate emissions, such as those from certain heavy industries and from agriculture. "We cannot assume that a company can continue to release carbon, and then plan to remove it at some point in the future," SBTi Managing Director and Co-Founder Alberto Carrillo Pineda recently told Energy Intelligence.

In the oil sector, offsets will probably be acceptable to investors and civil society to address part of companies' Scope 1 and 2 emissions and a fraction of — indirect Scope 3 emissions from hard-to-decarbonize applications — perhaps 5%-10% of total emissions. Anything beyond that will be severely questioned. Limits to science's understanding of how the carbon cycle responds to negative emissions increase the uncertainty about the effectiveness of options such as afforestation, the Intergovernmental Panel on Climate Change also notes.

Philippe Roos is a senior reporter at Energy Intelligence based in Strasbourg, France. This article appeared initially in Petroleum Intelligence Weekly.

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