Is Big Oil Turning on Carbon?
Two reports suggest a reason for optimism
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Sometimes two disparate data points arise that seem to have nothing to do with one another, yet when viewed through the climate lens, something comes clear. Two intriguing reports were issued recently that suggest a turn in understanding about carbon and climate—one from the State of Minnesota and one from BP.
The Energy Report from BP
BP, the firm that created the carbon footprint distraction, is out with a report that confirms again what big oil knows: its markets are waning.
“The future of global energy is dominated by four trends: declining role for hydrocarbons, rapid expansion in renewables, increasing electrification, and growing use of low-carbon hydrogen.”
What was surprising is the frankness of the vision. Today, fossil fuels dominate as the primary energy source for the world, providing 80 percent of the energy. The report predicts that by 2050, that number will have fallen to 20-55 percent, depending on the scenario that unfolds. At the same time, renewables’ share will rise from its current level of 10 percent to between 35 and 65 percent by 2050.
Let's think about what this means. So, you have one of the biggest hydrocarbon producers in the world saying that the market share for their products is going to collapse over the next thirty years. I know that big oil is not the most trustworthy source on all this. After all, Exxon knew about climate change in the 1970s and ran a disinformation campaign for decades to get people to dismiss it. BP ran the distracting carbon footprint campaign in the early 2000s to get the focus off of their product and onto consumer habits—a project that still has a lasting effect today. It is shocking, actually, to think of how much that BP campaign has framed and driven the climate debate. If you are still arguing about carbon footprint, you are doing their bidding.
BP, Exxon, and all the rest of them have known climate change was coming and they could see the effect on their market. That’s why they engage in these deceptive campaigns! For all those decades they saw and drove growth of their product and business knowing that they could keep a lid on climate change concerns. They told investors the market was growing, and they anticipated and invested in that growth.
So, what’s intriguing about this report is that BP is telling its investors and the public the exact opposite—to expect a shrinkage in fossil fuel market share. It’s the fact that they are saying it that is worth noting. Their acknowledgment means that these companies are beginning to reorient themselves to a different future. It means that they understand their product's time horizon is very limited. And it means that new investments in that product will be very difficult to make. (As I described here, this is why gas and fuel prices are likely to stay high—the expense of bringing production online can’t be justified in the ROI time horizon.)
When corporations begin to tell their stockholders that their market share is shrinking, people pay attention. Stockholders, after all, are the owners of the corporation.
What’s Happening in Minnesota
This brings me to the second report from the State of Minnesota. This report confirms the long-term trend BP is identifying: emissions are coming down largely through the reduction of fossil fuels. In that state, a law passed in 2007 pegged emissions to 2005 levels, and there is very good news: The electricity generation sector has reduced its emissions by 54% compared to 2005 levels by switching to renewables. Minnesota utilities have actually closed coal-fired power plants and replaced them with renewables. This validates the BP report.
Minnesota still has a long way to go on total emissions reductions, as transportation is only down by 18% and agriculture is getting better only because of more carbon capture in the forests. At the same time, industrial and home-based emissions are both up. So there is work to do, but also progress is being made. Overall emissions are down 23% compared to 2005 levels. The state is on track to meet the original goal of a 30% reduction overall by 2030. Minnesota's governor has pushed the state to a more compelling goal of a 50% reduction in total by 2030 and net zero by 2050.
This is important news for a couple of reasons. First, Minnesota is not sunny Arizona, so it is not a place one would automatically think solar can succeed. Winter days are short, snow sometimes covers the panels, and batteries of all sorts are challenged in cold weather. Yet solar played a significant part in the reduction of emissions. Second, while Minnesota has some windy places, it is not the wind haven that many other states are, including its neighbor Iowa which leads the nation in the percentage of electric energy produced by wind (57%). And yet, these two sources of renewable energy—wind and solar— have accounted for that 54% drop in emissions for electric generation by replacing coal-fired power plants.
This replacement of coal-fired power plants is what the BP report is talking about: the "declining role for hydrocarbons." As far as emissions are concerned, these reductions are low-hanging fruit and Minnesota is taking advantage. Coal is by far the dirtiest of fuels, so the replacement of coal with the cleanest renewables is an obvious win, and it is the easiest to achieve. The intermittency of today's renewables presents many technical challenges to the grid that could slow down the next stage, but in Minnesota, solutions to that problem are also moving forward.
Next up in Minnesota, Xcel Energy will retire three more coal-fired plants by 2030 and replace them with a 460-megawatt solar installation, which will also include iron-air battery storage. The iron-air system will provide up to 100 hours of storage, thereby enabling the utility to use it to help smooth out supply to the grid as needed.
Two Reports Equal Good News
It is not every day that a multinational corporation tells its stockholders that the market for its product is disappearing, but that's exactly what the BP report says. It's also not every day that a state comes out to show it has reduced emissions over 15 years or so, but that's what Minnesota did. The two reports take different angles on the same phenomenon—an energy transition is underway, and it is happening globally and locally. It's not pie-in-the-sky. It's happening. And it works in areas not particularly amenable to renewable energy.
Together, these two reports signal the new reality—hydrocarbon use will decline in market share for energy over the coming decades, and the first and biggest impact can be in electric generation. As transportation goes electric, we will need increasing amounts of electricity, which will also be renewable, and hydrocarbons will reduce further as gasoline demand radically reduces. And, as demonstrated in Denmark’s new plan, hydrogen will play a bigger role as various technical challenges are worked out.
Progress is good news, but it is certainly not a finished work. There’s a long way to go But now we can see both the progress and the feasibility of what we are doing. Preparation for some dark days may still be required, but these things are going in the right direction.
Anthony Signorelli
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