There must be no further investment in new fossil fuel supply projects. This headline statement in the groundbreaking Net Zero report published on 18 May by the International Energy Agency (IEA) leaves fossil fuel majors of the world with a stark choice: radically and urgently change their business models for the sake of the climate and their survival, or risk collapse and put millions of lives and livelihoods in danger.
As the first published energy scenario to explicitly meet the aim of the Paris Agreement to keep global warming below 1.5°C above pre-industrial levels, the report’s recommendations have sent shockwaves around the world. No new oil and natural gas fields are needed if the world is to reach net-zero emissions by 2050 and head-off dangerous levels of climate change, it says. Likewise, fossil fuels must fall from almost four-fifths of total energy supply to slightly over one-fifth by mid-century. By 2035, there must be no sales of new internal combustion engine passenger cars, and by 2040 the global electricity sector should have already reached net-zero emissions.
This vision is all the more powerful given the messenger. IEA scenarios are highly influential in shaping global energy investment strategies and government policies, and until very recently, the IEA was considered a conservative voice, too tied to its oil-industry roots to be considered an ambitious voice in the climate space. But this latest report changes everything. A follow-up statement by Fatih Birol, the agency’s executive director, that putting money into oil and gas projects could now be considered a “junk investment” was testament to this new attitude.
The IEA’s vision is hugely ambitious and centre to its success will be whether investors and fossil fuel companies decide to follow its lead. In recent years, oil majors have invested in clean energy and many, such as BP and Shell, have published net-zero plans. However, none have committed to fully ending their love affair with fossil fuels, in particular with natural gas, which has previously been touted as a “transition fuel”.
Shell, for example, says its Energy Transition Strategy, given the green light by a majority of shareholders at their Annual General Meeting, is aligned with Paris. But this claim is contested by scientists, energy analysts and environmentalists. Research by UK think tank Carbon Tracker found that in 2020 all major oil companies, including Shell, sanctioned projects that fall outside the goals of the climate agreement on cost grounds and will fail to deliver adequate returns in a low-carbon world.
Gail Whiteman from the University of Exeter Business School says Shell’s strategy relies “unrealistically on negative emissions technologies and massive, and wholly unrealistic, offsets through tree planting which requires a new forest the size of Brazil”. Carbon capture and storage (CCS) is a key tenet of Shell’s plans.
[See also: Why the Fukushima disaster signalled the end of Big Nuclear]
“Shell is relying on silver bullets,” Whiteman says. “This kind of disconnect is confusing and downright dangerous. We cannot have major energy companies out of sync with scientific thinking. At the end of the day, for the IEA pathway to have value, the world will need to stop believing in unicorns and listen and act upon the science.”
Looking at the experiences of other sectors, such as the telecoms industry, that have been forced to reform, “it is possible but really hard,” says Kingsmill Bond, energy strategist at Carbon Tracker. “It takes proper commitment to change.”
And this commitment, he believes, is still lacking from fossil fuel companies. “The majors thought they could greenwash and this problem would go away,” he says. Now they must “stop fiddling and get on with it”.
For Bond, “new business models” are key to this transformation, though he sees only two strategies left open to fossil fuel companies: “run down and become cash cows for stakeholders or reinvent themselves.”
Whiteman cites DSM, the global science company which now specialises in nutrition and health products, but was initially established as the Dutch State Mines company to mine coal, as an example of transformation. Such significant change requires “leadership and companies to make decisions based on science; we need all hands on deck,” she says.
One company that has successfully gone through the transformation from fossil fuels to green energy is the Danish power giant Orsted.
“All businesses and cases are different, and so it’s difficult to speak for other companies,” says Orsted’s Jakob Askou Bøss. “However, based on our learnings, what often seems to be a technological or financial challenge is in essence a leadership challenge. You can achieve much more than you originally imagine. The world needs companies to lean forward and seek the opportunities of the green transformation even if this involves a leap of faith.”
Dave Jones, analyst at UK think tank Ember, believes the IEA report will make it much more difficult for companies not to take this leap. “People power is really important; the report will increase pressure from different stakeholders, including civil society, for change.”
[See also: Why oil money is still essential to Scotland’s political future]
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