Is the onus on consumers to cut oil and gas post-COP?
Proposals to extend the commitment at COP26 to phase-down coal, oil and gas failed to find a consensus at last November’s COP, placing the emphasis on consumers to reach decarbonisation targets.
Proposals to extend the commitment at COP26 to phase-down coal, oil and gas failed to find a consensus at last November’s COP. If oil and gas output is not constrained, meeting net zero targets will depend on reducing, capturing, or reabsorbing emissions, which many feel will not be sufficient. The result removes any responsibility from producers, placing all the emphasis on consumers to reach decarbonisation targets.
Several countries combined to ensure oil and gas output constraints were not put in place at COP27. Big Middle Eastern oil and gas producers held particular sway in the COP host country of Egypt, which has its own sizeable oil and gas sector and development goals. They were joined by others facing questions over supply security in the wake of Russia’s war in Ukraine, some of whom are seeking more hydrocarbon development outside Russia in the near term, albeit alongside accelerated renewables plans. And some African nations felt limits would prevent them from developing domestic oil and gas in order to grow their economies.
The corporate oil lobby were also out in force at COP27 and appear to have achieved their goals. Industry bible, energy investor EIG’s Petroleum intelligence Weekly (PIW), described the COP outcome generally as “a mixed win for oil and gas producers.” The final agreement also added “low-emission” energy as a pathway for curbing greenhouse gases alongside renewables — which could create more space for ‘lower-carbon’ oil and gas – which PIW said was “an obvious win for the industry.”
Michael Bradshaw, Professor of Global Energy at Warwick Business School, suggested that the result was to be expected. “To my mind fossil fuels are only left in the ground when there’s no demand for them…. I don’t see any oil resource states being willing to do that – the only one that did, Columbia, got nowhere,” he told Gas Outlook.
Alex Hunter, CEO of renewable energy storage company, Sherwood Power, said that the result was bad for renewables on commercial grounds. He said it would mean oil and gas producers would be encouraged to invest, delivering more hydrocarbons – leading to lower prices and an erosion of the business case for investment in clean tech.
Bigger role for CCUS?
Some argue that a failure to rapidly shift away from fossil fuels will increase reliance on carbon capture technologies (CCUS) and negative emissions (DAC and sinks/credits) to compensate for any carbon budget overshoot. This would prevent CO2 from being emitted and remaining in the atmosphere as more fossil fuels are burned, irrespective of the volume of renewable capacity added.
However, there is considerable doubt that CCUS and associated technologies will be sufficient to achieve net zero against a background of rising output – at best CCS only captures 90% of emissions and much CO2 and methane is emitted at a micro level and so is difficult to capture. Hunter told Gas Outlook that governments need to tax carbon emissions in order to make the choice to emit hydrocarbons expensive, which would deter use as well as encouraging CCUS.
In a report, Wood Mackenzie said COP27 signalled that the world’s efforts on climate change were “shifting from mitigation to adaptation,” and more CCS or alternative carbon removal technology would be needed to achieve net zero by 2050. The consultancy noted that government support for CCS had accelerated, exemplified by the Inflation Reduction Act in the U.S. and tax incentives and funding support in Europe, Canada, Australia, and Malaysia.
A focus on CCS and not on output targets also fits with the approach of U.S. majors, Exxon and Chevron (and some US independents), which have no limits on their own output ambitions and – unlike European majors – have focused very much on CCUS at the heart of their decarbonization efforts. This is aimed at both their own scope 1&2 emissions, while providing a service for consumers to decarbonize. Similarly, Saudi Aramco and UAE’s ADNOC are pouring money into their own scope 1&2 net zero targets, but have no objectives for scope three emissions, which dominate their totals.
All this puts almost all the responsibility for scope three emissions (at the point of consumption) on consumers themselves and removes any responsibility from producers to reduce availability. “If you work on the assumption that oil rich states are not going to voluntarily leave it in the ground, then constraining demand is the only way you reduce production,” noted Bradshaw, “so we’re all, as consumers, implicated in that.”
Irrespective of the result, the International Energy Agency says aggregate hydrocarbon output is unlikely to keep on rising given the current policy frameworks that have been put in place in places like China, the EU, and the U.S. But OPEC and others disagree, forecasting rising oil and gas consumption until the 2040s. At a UN level, member states are working to ensure the COP process will not challenge this.
The outcome raises questions over the direction of future decarbonization efforts at the UN level, with the world seemingly split over the merits of the two approaches – with Europe and China favouring hydrocarbon reduction and massive renewable build-out to cap emissions, while some developing nations, hydrocarbon-producing countries and U.S. majors push for a CCUS-focused circular carbon economy and no output limits, alongside renewables. Others say strict policy measures and the falling costs of renewables and electric vehicles mean CCUS use will be limited to applications where it is essential.
Advocates of stronger climate action are already looking to COP28 in the UAE later this year to push for a stronger line against fossil fuels, but with the host, Dubai, dead set on expanding capacity to 5 million barrels of oil per day as soon as possible, there is unlikely to be much local support.