Ramez Naam+ Your Authors @ramez Books: Nexus Series / The Infinite Resource. Faculty @SingularityU. Energy, climate, & innovation wonk. Optimist. Feb. 13, 2020 3 min read + Your Authors

Yesterday, oil and gas giant BP announced they would be carbon neutral by 2050. They aren't going to succeed, unless the landscape of global energy demand changes. A brief THREAD on why.  https://www.nytimes.com/2020/02/12/climate/bp-greenhouse-gas-emissions.html  1/n

First, I think BP's announcement is a sign of two clear trends:

A) Oil & gas companies feel increasing social and investor pressure to decarbonize.

B) They see slowing oil demand, and an eventual decline in oil demand, as inevitable.

This is especially true in Europe. 2/n

Second, I've spoken to enough executives of European oil & gas companies (though not at BP) to see that there is a real acceptance that climate change is real and serious, and that a transition to clean energy is inevitable (though views on timing differ greatly). 3/n

The decarbonization challenge for oil & gas companies is that they're publicly traded, and that investors, in general, place more value on returns than anything else. Despite the BlackRock letters, etc.., the stock prices of these companies rise and fall with profits. 4/n

This means that BP's stated goal of going carbon neutral is ultimately going to come down to whether doing so is profitable. Remember: BP has gone down this road before, taken losses, and stepped back from renewables. 5/n

Even if BP itself, say, ends oil & gas exploration, if global demand for oil & gas is still high, BP's actions won't make any real difference. Less oil production --> higher oil prices --> greater incentives for other companies to produce & sell that oil. 6/n

Let me state this more clearly: Any one oil & gas company can exit the business, stop production or be destroyed by litigation. And it won't change anything about global emissions unless global oil & gas *demand* is reduced. Other companies will just step into the vacuum. 7/n

Does this mean that there's nothing that BP or other oil & gas companies can do to improve the situation on climate? Not at all. There are, in fact, some very important steps that individual companies can take. 8/n

Oil & gas co's can play an important role in clean tech innovation & scaling. E.g, European companies are investing in offshore wind, & in particular are incubating new technologies like floating offshore wind. This has an outside impact down the road.  https://www.greentechmedia.com/articles/read/floating-wind-is-cutting-costs-faster-than-regular-offshore-wind  9/n

European oil & gas companies have also been important acquirers of cleantech companies. This creates liquidity for the venture investors in those companies, which in turn attracts more investment into the sector. 10/n

But even as European oil & gas companies have invested in clean energy and acquired cleantech startups, they've continued to explore and produce more oil and gas. They do so because there's global demand for that product, and it's highly profitable. 11/n

If we want the oil & gas industry to stop producing and selling oil and gas, we have to drive demand for those products to zero (or at least get it to where it's falling rapidly). To do so requires a mix of continued technology innovation AND significant policy steps. 12/n

What kind of policy steps? In the case of oil, they'd include stronger incentives or mandates to scale EVs as rapidly as possible, bans on fossil fuel vehicle sale (or even use in some areas), and binding policies to reduce carbon intensity of fuels in aviation and shipping. 13/n

If BP actually wants to be carbon neutral in 2050, they should push for policies that would actually phase out the use of oil-derived transportation fuels by 2050. They'd also need to push for policies that would phase out the use of natural gas by 2050. 14/n

Those sorts of strong policies would create incentives for the entire oil & gas *industry* to switch to clean energy. And that's what's needed. No one company really matters. It's the landscape of incentives for the sector as a whole that matters. 15/n

On this policy front, I'm dubious. BP is talking about a carbon price (after having lobbied against them in the past). But a carbon price has little impact on transport fuel & BP knows that. Will they support stronger policies? Or at least not oppose them? Time will tell. /fin


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