Ahead of COP28, IEA calls for 60% fossil fuels emissions cut

The oil and gas industry cannot continue business as usual and must step up efforts to reduce its own emissions and increase clean energy investment if net zero targets are to be met, according to a new report released by the International Energy Agency (IEA) ahead of the COP28 summit.

The industry should commit at COP28 to reduce operational emissions by 60% to 2030, in order to align with a Paris agreement pathway, the IEA’s chief executive Fatih Birol said, adding that “this can be fixed rather easily, quickly and in many cases in a cost effective manner.”

Emissions arising from oil and gas production, transportation and processing including methane leaks and flaring, account for 15% of global energy-related emissions, the IEA report said.

However companies with targets to reduce their own emissions account for less than half of global oil and gas output currently.

Meanwhile, total investments in clean energy reached $1.8 trillion in 2022, of which just 1% came from oil and gas companies, accounting for roughly 2.5% of total Capex.

However, this should increase to 50% of Capex by 2030 to align with decarbonisation targets, he said, adding that there was a technology overlap between the oil and gas industry and clean energy that could be leveraged to speed up the energy transition.

In fact under the net zero scenario, some 30% of the energy consumed in 2050 would come from technologies that could benefit from the industry’s skills and resources, including hydrogen, carbon capture, offshore wind and liquid biofuels.

“These are areas in which the oil and gas industry can make major efforts in terms of investments.”

“The starting point is not very encouraging,” he continued.

“From our point of view, COP28 will be a moment of truth for the oil and gas industry, it will show whether (the industry) will be partners in the fight against climate change or not.”

“The clean energy process (…) is unstoppable” and “will continue with or without oil and gas producers,” he said, adding however that the journey is “more costly, and harder to navigate, if the sector is not on board,” he said.

CCS wake-up call

The report is also very critical of the fossil fuel industry’s overconfidence about carbon capture and storage (CCS) technology, despite growing criticism that this solution has so far mostly underperformed against emissions reductions targets.

“To say that the CCS technology would allow oil and gas industry to continue with current oil and gas production trends and at the same time bring emissions down in line with Paris targets, in our view is pure fantasy,” Birol said.

Continuing with current oil and gas production trends while keeping in line with Paris Agreement targets would require annual investments in CCS deployment of $3.5 trillion, an increase by around 1,000% against current investment levels of $4 billion annually.

Even under current policy settings, oil and gas demand is set to peak by 2030, the IEA estimates, with stronger action to tackle climate change resulting in a steeper decline in demand for both fuels.

If governments deliver in full on their national energy and climate pledges, demand would fall 45% below today’s level by 2050.

While in a pathway to reaching net zero emissions by mid-century, which is necessary to keep the goal of limiting global warming to 1.5 °C within reach, oil and gas use would decline by more than 75% by 2050, it said.

While oil and gas demand doesn’t go down to zero to 2050 under any of the IEA’s scenarios, current investment levels in new oil and gas production are incompatible with net zero targets, the IEA’s head of the energy supply unit, Christophe McGlade, said.

Investments accounted for $800 billion this year, which is “more than double what is required,” he said, adding that a large number of projects have been approved since Russia’s invasion of Ukraine, leading to shut-in risks for some of the higher-cost projects in the future.

“Some expect gas to play a more durable role in the energy transition…That’s true in some sectors, countries and timeframes, particularly among developing economies” however “net zero ultimately means tackling all sources of emissions, including gas,” the IEA’s chief economist Tim Gould said.