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Date Published: 26/10/2001
Author: Gregg Muttitt Some oil companies claim they are investing in renewables to tackle climate change. But this disguises a less palatable truth. Greg Muttitt and James Marriott look at the facts behind the spin. |
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REINVENTING THE WAY we use energy will be one of the biggest challenges of the 21st century. But with governments squabbling and the Kyoto Protocol in shreds, who will save us from climate change catastrophe? Step forward the world’s biggest oil
companies...
Solutions old
Initially, oil companies reacted to the threat of climate change by denying its existence. Exxon, notoriously, still does. But some have seen the writing on the wall; they know things cannot carry on as before. And so they have changed their tune. They now want to be seen not as the villains of the piece, but as the heroes.
BP and Shell, most publicly, want to be seen as ‘progressive’ oil companies. They acknowledge the threat of climate change, and the fact that oil burning is partly responsible. Both companies have committed themselves to cutting their own emissions of greenhouse gases by ten per cent from 1990 levels – Shell by 2002 and BP by 2010. As a key part of its strategy for achieving this, on 1 January last year, BP became the first company in the world, way ahead of any nation state, to introduce a company-wide emissions trading system, whereby one part of the company can ‘sell’ part of its quota for emitting greenhouse gases to another part of the company which is struggling to meet its target.
Shell followed soon after.
Both companies have also invested in renewable energies. BP is now the largest manufacturer of solar photovoltaic panels in the world. It has also invested in a major rebranding campaign, with which it hopes to convince us that it is now an ‘energy’ company, not just an oil giant.
Too good to be true?
Well, the bottom line is that these are still oil companies, and BP and Shell are among the most ambitious companies in the world in their targets for increasing their rate of extraction of oil and gas, Shell by 5 per cent a year, and BP by between 5.5 and 7 per cent. The cuts BP and Shell have promised are in greenhouse gas emissions from their own business operations – from gas flaring, from pipeline leakages, from energy usage (such as in powering refineries) – not in those from their core products.
There is a fundamental contradiction in the companies’ position. The amount of fossil fuels consumed in the world is necessarily equal to the amount produced. So what will happen to BP and Shell’s increased production of oil and gas, if everyone follows their good example and cuts their consumption in line with the Kyoto Protocol? Do they hope that other oil producers such as Saudi Aramco, with no stated environmental commitment, will cut their production? Of course not.
In reality, it seems that a cut in oil consumption is not the intention at all.
Solutions new
Recently, the production–consumption contradiction has begun to register. And in the evolving responses, what we see from these so-called ‘progressive’ companies are three key elements actually intended to allow increased consumption of fossil fuels.
Firstly, BP and Shell are actively participating in the ‘Clean Development Mechanism’ (CDM). This is one of the ‘flexible mechanisms’ within the Kyoto Protocol, whereby industrialised countries can avoid cuts in greenhouse gas emissions by investing in emissions-reduction projects in ‘developing’ countries, and claiming ‘carbon credits’. Shell, for instance, has identified eight projects for potential inclusion within the CDM, and aims to pilot three of these. BP is exploring four projects, from rural electrification using solar power, to building gas power stations. Both companies are strong public proponents of the CDM.
Secondly, the companies are investing
in forests, to be used as ‘carbon sinks’, which it is hoped will take carbon dioxide back out of the atmosphere. Shell has had a plantation forestry division for 20 years, mainly for pulp and paper manufacture, but with an increasing interest in building materials, furniture, and use of wood for energy (biomass burning). This business has now been consolidated with Shell Renewables. Shell is incorporating forestry into its strategy on climate change: one of its action points is to ‘directly contribute
to a reduction in atmospheric CO2 by expanding our forestry business and planting more trees.’
Shell estimates that its 135,000 hectares of plantations sequester 1.2 million tonnes of carbon a year (carbon emissions from Shell’s hydrocarbon products can be
estimated at about 180 million tonnes per year). BP sold off its forestry businesses during the 1980s and 1990s, but is now exploring options for gaining carbon
credits from forestry, and is running a pilot project in southwest Australia, planting 500,000 trees a year.
Finally, these companies are exploring new technological fixes, in particular ‘end-of-pipe’ mechanisms, designed to capture carbon dioxide at the point of emission. Shell, for example, is developing a carbon-neutral gas-fired power station in Norway, which catches carbon dioxide emitted from its chimneys, and pipes it back to the gasfield in the North Sea, where it will be pumped back underground. BP has sponsored Princeton University to study options for carbon capture.
The approach now is at least becoming logically consistent. Nevertheless, this strategy gives the oil companies a set of policy options which allows them to expand their core business – oil – whilst still appearing to be green.
Lobbying by stealth
While BP and Shell engage in public debate, they participate in the Kyoto process through the two lobby groups, the International Chamber of Commerce (ICC) and the World Business Council for Sustainable Development (WBCSD).
The WBCSD and ICC play a ‘good cop/bad cop’ routine. The WBCSD is more solutions-focused, albeit from a business perspective. For example, regarding the CDM, they state that ‘trying to allocate projects on an equitable basis among host countries would severely restrict the supply of CDM projects. The emphasis must be on the efforts of host countries to provide the right conditions to attract investors’. The ICC deals with the bigger picture, lobbying hard that ‘the use of Kyoto mechanisms (CDM, emissions trading and joint implementation) should be permitted in government of the Kyoto Protocol, without limits or ceilings’.
BP and Shell, by working through ICC and WBCSD, have not needed to publish lobbying positions, so their
individual roles in the process have not been public. They would probably like to keep it that way, as the policy options they practice, and for which the ICC and WBCSD lobby, are exactly those which stalled the COP-6 negotiations in the Hague last November.
The talks fell apart because the USA–Umbrella Group’s position was unacceptable to other governments, being too flexible in allowing countries to meet their targets through flexible mechanisms, and relying too heavily
on carbon sinks to offset emissions.
Who’s exploiting who?
But what of BP and Shell’s investments in renewable energy – aren’t they genuine? Yes, insofar as the businesses are real. However, using renewable energy will not prevent climate change in itself – it will only do so in so far as it allows a decrease in the use of fossil fuels. A Shell scenario for future energy supply estimates that renewable energy will provide around 15 per cent of world energy by 2030, but this is in the context of expanding total energy consumption. Fossil fuel production will almost double over the same period.
Perhaps it is now time to consider whether it makes sense for the organisations providing the solution to have an interest in perpetuating the problem.
Could a progressive oil company make the transition and become a renewable energy company? Greenpeace has said, ‘if today’s companies want to remain going concerns they will have to transform into sustainable energy companies... Renewable energy will be the growth market of the 21st century and that’s where the smarter investors will be putting their money.’
In theory, this may be possible. But, in practice, the shift from oil and gas to solar or wind power (markets with very different financial structures, not to mention different physical technologies) would mean writing off a vast amount of capital. Not just physical capital (oilrigs, pipelines), but also ‘relationship capital’ (company relationships with people, organisations, companies and governments), ‘intellectual capital’ (knowledge of geology, markets, how to extract and skills, training and strategy); and even ‘emotional capital’ (the belief in the value of what they are currently doing). Finally, even if there were long-term advantages to shifting the energy base, even if to be a renewable energy company were an attractive proposition, investors still might not allow an oil company to absorb the costs of becoming one.
The more things change...
So what is to be gained by these companies’ position on climate change? Perhaps the greatest clue to understanding the answer comes from the Shell Report series. Published annually (the latest, People, Planet, Profits, came out this April), these reports provide the framework for Shell’s discussion of environmental and social issues (including climate change), and for reporting on its own progress.
Six months after the publication of the first Shell Report, Profits and Principles – does there have to be a choice?, Shell was named winner of the W Howard Chase Award, by the Issue Management Council. Chase, a pioneering PR guru, commented in presenting the award: ‘The demonstrable excellence and broad impact of the Shell Program represents the epitome of issue management, producing not only benefits for Shell in its worldwide business
operations, but setting an example for other organisations to follow.’
...the more they stay the same
If we look at the reality behind the rhetoric from these companies, we can identify their three core strategic aims in relation to climate change:
1) To be seen as progressive on the issue, especially for the benefit of staff morale and recruitment. Shell, for example, does not want another reputation crisis like Brent Spar or the Ogoni issue.
2) To discourage government regulation of their business by focusing attention on energy users rather than producers, and emphasising voluntary action. For example, the UK’s climate change levy is targeted at (industrial) consumption of energy, and has a strong voluntary element for major energy users. What’s more, by moving early, the companies will play a key role in influencing the terms of the Kyoto mechanisms.
3) To ensure that markets for oil and gas do not decline, and in particular to discourage societal pressure for radical change. Through clever positioning on the issue, the aim is that positive action on climate change will generally be seen as compatible with the use of fossil fuels – in other words, you can save the planet and still fill up your car at BP.
In these terms, BP and Shell are enjoying fantastic success. While behind the scenes companies have helped to stall government action on climate change, this stalling has contributed to the general public opinion that the companies are moving forward more effectively than governments, and it is to them that people are beginning to look for a solution. There is little call for mandatory regulation on climate change. The plaudits of some environmental groups have helped these companies in their brand-building, and as a result their recruitment and morale.
Meanwhile, the oil companies remain in control of the pace of change. Look, for example, at the development of renewable energy. BP plans to grow its renewables business at a rate of 20–30 per cent a year. At this rate, if it could sustain its current rate of growth of oil and gas extraction, renewable energy production would match oil and gas in 1,250 years’ time!
However virtuous BP and Shell may be relative to their competitors, they have other agendas. Ultimately, there are natural conflicts between being an oil company and providing the solution to climate change. What is desperately needed is for civil society to reclaim management of the climate problem, and to wrest control of the issue from the corporations.
Greg Muttitt and James Marriott work at PLATFORM, carrying out research into
the social and ecological impacts of the
oil industry.
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