Giants must prove net zero isn’t a fad

Have you ever written? Then you’ll know the rule of three.

This is the notion that three characters, events or phrases is more satisfying than other numbers. Veni, vidi, vici. Life, liberty and the pursuit of happiness. Sex and drugs and rock & roll. It's the quickest way to establish a pattern.

This week, we saw a ‘rule of three’ in the energy investment world, as French oil giant Total committed to achieve net zero carbon emissions by 2050. It is looking to reach this by reshaping its portfolio to include more renewables; lobbying for policies including carbon pricing; and by working with countries and companies to help them hit net zero too.

This follows similar pledges by Shell in April, and BP in February. This series of announcements shows oil majors see investing in renewables, including wind, as a bigger strategic priority for the next three decades than they have.

But how positive should we really be? ShareAction has since blasted Total's commitment as "totally insincere", for example.

Financial pressures

We should note first that each of these announcements has drawn praise from major investors. This is, in part, because pressure from these investors helped to provoke these changes.

Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change, said this week that the commitments from these three giants of the oil sector would set a new standard for the industry.

“Investors have secured progress on climate change from leading oil majors that would have been unimaginable only two years ago,” she said. This shows that institutions can play a positive role on climate change.

But BP, Shell and Total have faced similar caveats and criticisms.

The first is that the current headwinds facing oil companies are formidable. Shell and Total have both made their net zero announcements since oil prices crashed, Covid-19 hit demand, and people around the world realised that lower levels of air pollution are possible.

Even BP, which revealed its net zero plan in February, will have been aware of arguments about the long-term decline of the oil industry.

As a result, each has faced criticism that they have only made these pledges because they have been forced into it due to current business conditions. To which our answer is, so what? If oil giants want to invest more in renewables because the business case for renewables looks stronger, that’s a good thing.

It’s easy to criticise companies for not being moral enough, but doing the right thing for whatever reason is what really matters.

This brings us to the second big caveat. That is about how commitments are fine, but these firms must be judged on actions.

On that, we can only agree. BP, Shell and Total have been among the oil majors that have invested the most in renewables so far. European oil companies have done more than their North American and Middle Eastern peers. And yet, the capital investments they make in renewables are a small fraction of their totals.

Percentage of capex

Let’s look at a report from law firm CMS in January.

This highlighted that oil and gas majors around the world only invest around 3% of their annual capital expenditure on renewables. While the figure for European firms (6.2%) is double that, and far above the rest of the world (0.8%), it still shows there is a long way to go.

CMS highlighted BP, Shell and Total as among those who had done most so far. It also estimated that European oil majors planned to spend around 20% of their total capital expenditure on renewables by 2030. That would be a large step up – but we need to see how it fits in with their other activities.

That’s where we need to see what the commitments mean in practise.

Will these oil giants transform their portfolios to put renewables at its core? Will they end drilling for oil and gas? How much will they cut emissions – or will they just rely on offsetting? Carbon offsetting is perfectly legal, but it can be reputationally risky if it looks like they're pushing the problem elsewhere.

In short, net zero pledges are good but we need to see detailed plans of the policies they plan to pursue and the investments they plan to make. That will prove that this isn't just a fad.

NEWS IN BRIEF

SIEMENS GAMESA REPORTS €56M COVID-19 HIT

Siemens Gamesa has reported that Covid-19 hit profits €56m in the second quarter of its 2020 financial year. This contributed to a net loss of €165m in the three months to 31st March on €2.2bn revenue. Read more

VESTAS SLUMPS TO Q1 LOSS DUE TO COVID-19

Vestas has reported a first-quarter loss of €54m on sales of €2.2bn. Henrik Andersen, group president and CEO, said Covid-19 had worsened "logistical challenges and supply chain bottlenecks" that hurt profits. Read more

RWE SELLS 160MW NORWEGIAN PROJECT

RWE has sold the 160MW Songkjolen-Engerfjellet project in Norway, which is set to be made up of 34 turbines, to hydro firm Akershus Energi. Akershus is looking to invest in wind and solar to diversify from hydro. Read more

EDF AND ALLIANT TURN ON 200MW IN IOWA

EDF Renewables and Alliant Energy have completed commissioning at the 200MW Golden Plains wind farm in Iowa. The project is made up of 82 GE Renewable Energy turbines. Read more

BACKING FOR 15GW AUSSIE WIND AND SOLAR

CWP Energy Asia, InterContinental Energy, Macquarie Group and Vestas have won backing for a 15GW wind and solar complex in Australia, called the Asian Renewable Energy Hub. Read more

SIEMENS GAMESA COMPLETES RIA BUYOUT

Siemens Gamesa has closed the buyout of Portuguese blade maker Ria Blades. This is the final part of its takeover of selected Senvion assets. Read more

SSE SUBMITS 150MW SCOTTISH APPLICATION

SSE has filed a planning application with the Scottish government for the over 150MW Cloiche project on the Glendoe and Garrogie Estates. Read more