Energy Firms Pledge to Go Carbon Free, Eye Net Zero by 2050
Zacks Investment Research | Aug 27, 2021 08:08AM ET
With the rise of ESG (Environmental, Social and Governance) investing and the broad-based transition toward clean energy, a number of oil/gas companies have decided voluntarily to become carbon neutral over the next three decades.
The Net-Zero Scenario/h3
Carbon neutrality, also termed as net zero, refers to a situation wherein all carbon (and other greenhouse gas, or GHG) emissions are offset by absorbing the same from the atmosphere. It is considered an important yardstick by climate scientists to ensure that global warming is limited to 1.5°C above pre-industrial levels by 2050, in sync with the Paris Climate Agreement.
Of late, the concept has gained traction operationally, with companies across a diverse spectrum laying out concrete strategies about their future sustainability endeavors. For the energy operators in particular, the pressure to decarbonize has been intensified by institutional investors and major clients committing to an ESG agenda and consequently snubbing carbon emitters.
As the focus on energy transition accelerates, let’s look at some of the oil and gas companies outlining net-zero commitments by 2050.
It all started with Repsol (OTC:REPYY), which in December 2019, announced its non-binding plan of reducing net carbon emissions to zero by 2050. The move by the Spanish firm, which complies with the Paris Agreement climate goals, marked the first such initiative in the oil and gas industry. The company is expected to use its 2016 carbon intensity level as the baseline. It plans to reduce 10% intensity by 2025 and 20% in the next five years. It expects carbon intensity to fall 40% by 2040 and reach 100% by 2050.
In February 2020, BP plc (LON:BP) Oil/Energy space has stepped up efforts toward a decarbonization goal. At the same time, the pathway to balance the amount of harmful emissions is not without its share of challenges. First and foremost, the companies need to earmark large amounts of capital on ESG initiatives (research and development, utilization of new technology etc.) that might hurt future returns and lower equity value. There are also significant technology and execution risks.
As of now, it is difficult to ascertain how much of this is hype and how much actual change will occur as this complex evolution involves a monumental shift in the energy sector’s business model by effectively moving away from their primary operations of oil and gas development.
While some of the transition strategies are very ambitious indeed, what’s clear is that companies with a strong ESG bent are held in high regard by the public that might ultimately boost the stock price.
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