Total, Shell, BP: Can an oil and gas company be carbon neutral?

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It's official: Total, our national flagship oil and gas company, will one day be “carbon neutral.” A few weeks ago, Shell—the world’s third-largest company in terms of revenue in 2018 and a supplier of no less than 8% of the world’s oil and gas—^[1] had announced that it was aiming for such a goal by 2050. That announcement itself followed one by another major oil company, BP, which announced with great fanfare last February its net-zero carbon target by 2050, amid growing pressure from its investors and civil society. Eni and Repsol are among the other oil companies that have recently added a “net-zero emissions” goal to their long-term ambitions. From this “ a mad dash ", to paraphrase an Ifri analyst who recently spoke on the subject^[2], what should we take away from this? What should we make of these commitments, and above all, what do they mean?

1. The Fundamental Difference Between Global Net Zero and a Major Company's Net Zero

Carbon neutrality, or “net zero,” is scientifically defined as a balance between anthropogenic CO2 emissions and removals^[3]. It is a necessary condition for achieving our climate goals^[4] : Science tells us that we must achieve this within the next 30 to 50 years if we are to hope to limit global warming to acceptable levels. To use a metaphor already explored in previous work^[5], if we want to stabilize the water level in a bathtub before it overflows (that is, before CO2 concentrations in the atmosphere exceed a certain level), it is necessary to balance what comes out of the faucet (emissions) and what is drained through the siphon (absorption) quickly enough (by the second half of the century).

Source: Carbone 4 / Net Zero Initiative

Let’s start by noting that the “carbon neutrality” goals of Total, Eni, BP, Shell, and Repsol are defined at the level of the companies themselves, and not in relation to the global carbon neutrality we have just defined. In other words, what these companies are aiming for is to achieve them net-zero status on their own scale (according to their own definition, and based on an arbitrarily chosen scope of emissions); and there is no guarantee that this status corresponds to the status expected of them in a carbon-neutral planetary system. This nuance between enterprise-wide neutrality and neutrality at the collective level is often implied, but is of crucial importance. Why? Because, according to the IPCC, a carbon-neutral world by mid-century is a world in which fossil fuel consumption is significantly lower than it is today. In a carbon-neutral France, it is virtually zero^[6]. Consequently, it is essential that all stakeholders—whether public or private—take the necessary steps to reduce global emissions by 4% to 7% per year^[7] through 2050, and at the same time significantly increase global CO2 absorption capacity.

THE GLOBAL POTENTIAL FOR DEVELOPING CARBON SINKS IS LIMITED

To take advantage of the first lever, we will need to reduce our fossil fuel emissions by 80%^[8] by mid-century. To leverage the second factor, we will need to succeed in transforming the land sector^[9] a net carbon sink^[10], and to develop carbon-negative technologies^[11]. The reason these two objectives—reduction on the one hand and sequestration on the other—must be addressed in parallel yet distinctly is that The potential for developing carbon sinks on a global scale is limited. If that were not the case, reduction and absorption would be identical in every respect, and stakeholders would simply have to choose between the two based on marginal costs. To put it simply, it would have been enough to plant an infinite number of trees to absorb our current level of emissions, without any need to reduce them otherwise. But trees don’t grow to the sky. In 1.5°C-compatible scenarios, forests and soils—even when optimized for very high levels of carbon absorption—will be able to capture only about 4 gigatons of CO2 per year by 2050, or roughly one-tenth of our current emissions.

Regardless of the scenario considered, carbon neutrality (where the black curve intersects the horizontal axis) is achieved through a drastic reduction in fossil fuel emissions (gray) coupled with the parallel development of the land sector’s carbon sink capacity (brown) and negative-emission technologies (yellow). Source: IPCC Special Report on 1.5°C (2018).

Thus, carbon sinks that can be developed on Earth are a scarce resource. By 2050, there won’t be room for everyone: to even out positive and negative flows, we’ll have to reserve the “right to exist” for a limited number of emission sources. This is the case, for example, with certain industrial CO2 emissions, which are very difficult to eliminate^[12], methane emissions from agriculture, or certain residual emissions from the building or transportation sectors. The rest of the emissions will simply have to disappear: there is no choice but to “turn off the tap” on emissions until only a trickle remains.

CORPORATE “CARBON NEUTRALITY” ENJOYS AN ADDITIONAL DEGREE OF FLEXIBILITY

However, the “net-zero” goals of the oil companies mentioned above are defined in very different ways. Unlike the concept of global carbon neutrality, which is defined within a strictly closed system (the planet), “carbon neutrality” for businesses is defined as an open system that benefits from a convenient degree of flexibility: “offsetting”. The number of wells is therefore no longer a constraint on the sizing of residual emissions, but rather an adjustment variable, since these companies can draw on a pool of “offsets” to manipulate the second term of the subtraction (removals) as they see fit, so as to “balance out to zero” without significantly affecting the first term (emissions). The “magic,” unfortunately, is purely an accounting trick. Given this additional degree of freedom afforded by the use of carbon credits—and since, at this stage, nothing limits their use by a private actor—^[13], the goal of corporate carbon neutrality in no way guarantees that their residual emissions in 2050 will reach the levels expected under global scenarios compatible with 1.5°C or 2°C. This “first-come, first-served” system for carbon credits carries the risk of dangerously delaying action to reduce emissions to the appropriate level of ambition.^[14]. The question we must ask ourselves, then, is: beyond their goal of individual “carbon neutrality,” Will the commitments made by these oil companies allow us to live together in a world Carbon neutral by mid-century? Is their ambition compatible with the goal of carbon neutrality outlined by the IPCC?^[15] Or the Paris Agreement? To answer that question, let’s take a closer look at their objectives.

2. Oil companies’ commitments are not aligned with the IPCC’s 1.5°C or 2°C scenarios

The long-term objectives of the five companies are listed in the table below:

"Net-zero" commitments by five European oil companies: BP, Eni, Repsol, Shell, and Total. Source: Transition Pathway Initiative (TPI); right-hand columns: reprocessed by Carbone 4

The recent report by the Transition Pathway Initiative (TPI) on the carbon performance of European companies in the oil and gas industry^[16] provides an interesting analysis of these commitments. As shown in the table above, it appears that:

1. The “net-zero” goals of each of these five companies, although they share the same name, are, in fact, of a different nature;
2. The The scopes of definition are heterogeneous, particularly with regard to the inclusion of “Scope 3” emissions (i.e., primarily indirect emissions related to the combustion of oil and gas products sold);
3. Most of these companies' emission reduction targets are "net" figures, that is, after taking into account acquired or financed carbon sinks, and without providing details on the proportion of this carbon offsetting in the extent of this reduction. This poses a problem because, as explained above, fossil fuel emissions must be considered separately from other measures taken to reduce emissions through carbon sinks.

In this illustrative infographic, Shell treats fossil fuel reductions and “natural sinks”—that is, efforts to increase the absorption capacity of carbon sinks—as equivalent to justify the reduction in its emissions baseline. Source: Shell

After a thorough analysis of the companies’ goals, the Transition Pathway Initiative concludes that these companies’ long-term goals—even with the help of “offsets”—are not compatible with the reductions expected under the 2°C and Below 2°C scenarios, two levels of ambition targeted by the Paris Agreement. Their carbon intensity (expressed as the amount of CO2 per unit of energy produced) exceeds what is expected of them in a world that has a chance of limiting temperature increases to an acceptable level.

None of the trajectories manage to fall below the 2°C target (black dotted line) or the “Below 2 Degrees” target (black solid line). Source: TPI

The targeted reductions in carbon intensity range from -20% (BP) to -65% (Shell) compared to historical levels. Total is aiming for a 60% reduction. However, to stay on the 2°C pathway, a reduction of approximately 75% in the carbon content of the energy produced is necessary; 90% is required to stay on the “Below 2 Degrees” pathway. It should also be noted that a “carbon intensity” approach does not account for the effects of growth in the volume of energy produced: a reduction in intensity coupled with a larger increase in the volume produced would result in an absolute increase in total CO2 emissions. Oil and gas companies will therefore need to consider the scale of the challenge posed by the physical decline in their historical fossil fuel production.

3. The Need for Greater Transparency

TPI logically concludes its report by stating that it is necessary to:

• May these companies report their objectives within a harmonized framework;
• Once this framework has been clearly defined, these companies are raising their long-term targets and the width of the emission perimeter taken into account;
• May these companies effectively encourage short-term compliance with these goals, for example, by linking top management compensation to the company’s carbon performance^[17].

Regarding the first point, which concerns the need for a harmonized reporting framework, Carbone 4 proposes that these companies clearly distinguish their objectives across three separate areas:

1. With regard to reducing their emissions:
   • operational, specifying the percentage of CO2 captured at their refineries through CCS^[18];
   • Scope 3, that is, the decarbonization of their energy mix, distinguishing between the “purely fossil fuel” portion (a gradual decline in sales of petroleum products and natural gas) and the portion of low-carbon energy sources (hydrogen19, biofuels^[19], solar, wind, etc.)
2. With regard to “emissions avoided”, that is, the contribution these companies make to reducing emissions by other entities:
   • Generated among their customers (through the sale of CCS or low-carbon solutions that replace higher-carbon alternatives)
   • Generated outside their value chain, through the financing of emissions reduction projects (including, but not limited to, the purchase of carbon credits)
3. Issues related to the increase in carbon sinks:
   • In their own operations (ownership of forests or negative-emission technologies)
   • Within their value chain, whether upstream or downstream (sale of carbon-negative solutions)
   • Outside their value chain, through the financing of carbon sequestration projects (including, but not limited to, the purchase of carbon credits)

  In accordance with the principles of the Net Zero Initiative Framework, this report could take the following form:

This form of reporting (and action) calls on these organizations to to view themselves as the building blocks of the collective effort to achieve global net-zero emissions, rather than as individual entities that must at all costs achieve “their” net zero (which, in any case, can only be defined in a heterogeneous manner). To maximize the effectiveness of their decarbonization strategy (Pillar A), we encourage these companies to continue collaborating with ADEME and CDP on the development of the ACT methodology^[20] specific to the oil and gas industry.

4. Is it really necessary to nitpick when it comes to voluntary goals?

One might argue that these purely voluntary goals have the deserves to exist. Let these oil companies take action now beyond what is expected of them by the regulator. That would be to overlook a key aspect of the issue. The commitments made by oil companies—and, more broadly, by virtually all organizations worldwide—take advantage—consciously or unconsciously—of the ambiguity between them net zero and the implementation of the global net-zero goal at their own level. Both bear the same name, but, as we have seen, do not necessarily reflect the same level of ambition. However, given the current lack of regulatory requirements for the private sector to reduce emissions in order to achieve national or international net-zero targets, companies’ voluntary goals effectively constitute a soft law endowed with genuine influence, particularly over the regulator, which is supposed to define the hard law. According to philosopher Grégoire Chamayou, soft law can be viewed as a strategy that involves highlighting “one’s ethical goodwill in order to avoid legal constraints.” ^[21].

In our case, it seems worth asking whether there is a risk that future proposals for collective regulatory measures aimed at significantly reducing our emissions might be deemed unnecessary, on the grounds that companies’ own objectives are already fully compatible with global net-zero goals, as evidenced by their “carbon neutrality” commitments. In short, the use of words and concepts is not limited to a strictly semantic sphere, as they carry within them a self-fulfilling and normative power. Hence the need to help these companies make their voluntary commitments as robust and science-based as possible. Admittedly, these goals exist and provide a promising starting point. However, their shortcomings call for the establishment of a more robust framework, both in terms of transparency (Part 3) and raising the level of ambition (Part 2). Since “net-zero” commitments are, at first glance, indistinguishable from one company to another, it is in the companies’ own best interest to adopt such a framework, in order to distinguish between those truly committed to the cause and those who, by casually adopting carbon-neutrality goals without grasping their essence, are bound to fall into an inevitable greenwashing.

The author would like to thank Aurélien Schuller, Jean-Yves Wilmotte, Alexandre Joly, and Alain Grandjean for their careful review.

Notes: ^[1] 2012 Figures.^[2] Carbon Neutrality: Commitments but Mixed Results for European Oil Companies, La Tribune (May 2020).^[3] IPCC, Global Warming of 1.5°C (2018).^[4] In particular, it is the subject of Article 4 of the Paris Agreement.^[5] Carbon 4, Net Zero Initiative. A Framework for Collective Carbon Neutrality, 2020. Part A.^[6] Under the National Low-Carbon Strategy (SNBC), only a few fossil fuels remain in use in very specific sectors, such as air travel. ^[7] Depending on the target warming scenario: 2°C or 1.5°C.^[8] Figure showing carbon neutrality to be achieved by 2054 in Scenario S1 (P2) of the IPCC Special Report on 1.5°C, after accounting for carbon capture and storage (CCS) technologies. Emissions excluding CCS will need to decrease by 70%.^[9] Emissions from the land sector (AFOLU) include all the carbon that human activities transfer from the biomass pool (forests, soils, etc.) to the atmosphere. The main contributors are deforestation and, more generally, land-use change (conversion of forested land to grasslands, land sealing, etc.).^[10] Far from absorbing carbon, the land sector currently emits approximately 5.5 GtCO2/year, accounting for about 15% of total human-caused CO2 emissions. Achieving global net-zero requires halting all forms of deforestation and adverse land-use change (bringing “de-stocking”— i.e., the emission flux) and to massively expand afforestation, reforestation, and carbon-sequestering agricultural practices (enhancing the absorption flux).^[11] Examples of these Negative Emissions Technologies (NETs) include BECCS (Bio-Energy Carbon Capture and Storage), DAC (Direct Air Capture), and EW (Enhanced Weathering).^[12] The oxidation reactions required to produce certain materials (such as cement or steel, for example) result in “chemical” CO2 emissions, which traditional decarbonization measures (such as switching fuels or improving energy efficiency) can do little to address. ^[13] The supplementarity clause in the Kyoto regulatory system—which allowed countries to use offsets only to a certain extent—does not exist in the voluntary mechanism. See Augustin Fragnière, Carbon Offsetting: Illusion or Solution? (2009). ^[14] Duncan P. McLaren et al., Beyond “Net-Zero”: A Case for Separate Targets for Emissions Reduction and Negative Emissions (2019). ^[15] IPCC, Global Warming of 1.5°C (2018). ^[16] Transition Pathway Initiative, Carbon Performance of European Integrated Oil and Gas Companies: Briefing Paper (May 2020). ^[17] First TCFD Report. ^[18] Carbon Capture and Storage. ^[19] While remaining cautious about the upstream emissions associated with these energy sources. ^[20]https://www.bilans-ges.ademe.fr/fr/accueil/contenu/index/page/ACT1/siGras/0^[21] Grégoire Chamayou, The Ungovernable Society, 2018.