Oil and Gas Companies Will Lead the Energy Revolution
When it comes to climate change, I have always been a believer: not in hand-wringing debate, not in unrealistic solutions like the elimination of hydrocarbons, but in the power of action. In 1997, as chief executive of BP, I was the first leader of a major oil company to acknowledge that climate change was a problem, and that the industry had a responsibility to acknowledge and address it. The head of the American Petroleum Institute claimed that I had “left the church.”
Twenty-one years later, I returned to the church in a different way, along with a group of distinguished business leaders. Last month, Pope Francis hosted the chief executives of many of the biggest oil and gas companies, investors overseeing nearly $10 trillion of capital and many of the energy sector’s leading thinkers and policy makers. We convened to discuss ways of reducing emissions of carbon dioxide and methane.
This is the first time in my 50-year career in the energy industry that such a gathering has taken place. The discussion was marked by humility and pragmatic optimism.
Not everybody shares this bright outlook. Two investment managers argued recently in the Financial Times that the end of the “age of oil” is in sight. They urged oil and gas companies to commit to winding themselves down when the time is right, and return money to investors, who are more qualified to decide what to do next.
As things stand, they are wrong. In areas such as aviation, maritime and heavy commercial shipping, there are no viable substitutes for oil. Natural gas has a long life ahead, as it replaces coal in the power sector, and provides a reliable complement to the intermittency of renewables. Based on current trends, IHS Markit expects total demand for oil and gas to rise by 30 percent between now and 2040. Consumption of renewable energy is expected to triple, but from a lower base: By 2040, it will account for just 6 percent of the energy mix, roughly the same as nuclear power today.
It is also premature to discount the ability of today’s oil and gas companies to adapt. When I took over as CEO of BP in 1995, the industry invested almost nothing in renewable energy. Today, the “supermajors” allocate more than $4 billion every year to low or zero-carbon energy. These giants have the resources to make large capital commitments, and in many cases, skills that can be adapted and redeployed to deliver energy solutions at the immense scale that is needed. If leaders can redirect their organizations toward a new lower-carbon purpose, and if they can successfully engage their staff, there is every reason to believe they can be active participants in, or even drivers of, the energy transition.
The oil and gas industry has come a long way, but even today, it accounts for a tiny share of low-carbon investment. To accelerate the transition and reduce the risk of damaging climate change, the International Energy Agency estimates that the current rate of investment in the energy sector would have to double, with 85 percent of all investment allotted to renewable energy and energy efficiency.
To transform the pace and scale of investment, I have long advocated for a global price on carbon, most likely in the form of a consumption tax. This levy would need to be high enough to encourage the shift toward lower carbon energy sources on the supply side, and to drive adoption and improvement of efficiency measures on the demand side. So far, no pricing proposal has been able to achieve those goals. Implementation of a carbon tax without exemptions, and with measures to penalize countries that do not comply, will require courage and determination to face down vested interests.
Most of the technologies to build the low-carbon energy systems of the future already exist. There are designs — if not yet public confidence — to turn proven nuclear-fission technology into a safer and cheaper power source by making small, modular reactors. Every year, the efficiency of solar and wind generators improves, and the costs fall. Energy storage technologies are increasingly viable for widespread application in transport systems and power grids. We also have extensive experience developing systems for carbon capture, storage and use. Many of the world’s experts in these technologies are employed by oil and gas companies.
Not all of these technologies work at scale or are economically viable, but they need refinement, rather than reinvention. There is a law of engineering stating that as a new technology is adopted and deployed, its price falls, predictably, and sometimes precipitously. Something of the kind is at work in the energy sector. Solar generation, for example, has become cheaper by a factor of 250 over the past four decades, and it is now the cheapest source of electricity in parts of the U.S., Italy, Spain and Australia. The same will soon be true in much of China and India. If other technologies follow the same trajectory, then demand for hydrocarbons could plateau, and even decline, sooner than expected. But today’s oil and gas companies need not be victims of the energy transition; they can be a critical part of it.
This great shift must not come at the expense of the world’s poorest. The provision of abundant energy has reduced the number of people living in absolute poverty by a factor of seven during my lifetime. Nevertheless, more than 1 billion people still do not have reliable access to electricity, while more than 2 billion still cook using low-quality fuels such as biomass or animal waste, which are a danger to health. Future energy systems must provide more to more people, while extracting a lower economic, humanitarian and environmental cost.
The meeting at the Vatican last month reaffirmed my conviction that we now have the tools to solve this pressing and complex global puzzle. The decisions we make about energy in the years ahead are among the most profoundly consequential we will face. To cite Pope Francis: “Civilization requires energy, but energy use must not destroy civilization.”