London — The Italian oil company Eni will set a goal of reaching net-zero emissions in its European operations by 2050, CEO Claudio Descalzi says. In doing so, Eni will become the fifth oil major to have made similar pledges within the past year (Repsol, BP, Royal Dutch Shell and Total got there first).
The timing is no coincidence. In June 2019, the UK and France passed laws requiring carbon neutrality by 2050, and the EU announced its intention to set a similar goal in December. “This industry responds to policy and economics very fast,” said Bob Dudley, former CEO of BP and chair of the Oil and Gas Climate Initiative.
What’s happening is something that a group of wonks predicted two years ago — and if they are right, it’s only the start. Brought together under the auspices of the principles for responsible investment, a UN-supported network of investors, the team developed a framework they called the “inevitable policy response” (IPR).
Here’s how they explained it: “Government action to tackle climate change has so far been highly insufficient to achieve the commitments made under the Paris Agreement, and the market’s default assumption appears to be that no further climate-related policies are coming in the near term. Yet, as the realities of climate change become increasingly apparent, it is inevitable that governments will be forced to act more decisively than they have so far.”
If governments don’t act sooner, they will “inevitably” do so in the period between 2023 and 2025, the IPR team predicted. When they do, the world will finally bend its emissions trajectory for good.
Sudden policy changes would be disruptive. Shell CEO Ben van Beurden, CEO of Shell that a “disorderly transition” would follow, leaving companies with stranded assets and robbing investors of expected returns.
“The thing with stranded assets is, if you wait until governments act, then it’s probably too late,” said Andrew Grant, head of oil, gas and mining at Carbon Tracker. “It’s prudent to get ahead of that happening.”
That is why Jason Eis, executive director of Vivid Economics, created a scenario-planning tool with the IPR team to help companies rethink priorities and investors rejig their portfolios. The tool is already having an effect. “There’s been a real change in how investors speak to companies about climate risk,” said Eis. Many of the European oil majors Eis has spoken to are now adopting zero-emissions plans, though he refused to speculate on how much effect the IPR’s theories may have had.
It’s not just the oil and gas industry. Consumer-goods companies are competing to put out the most ambitious climate plans. Mining companies are trying to get rid of their coal assets. Electric-vehicle companies are raising astonishing sums of money. Utilities want to become “supermajors” powered by renewables.
We are still in the middle of the pandemic, and, instead of slowing down, the energy transition appears to be picking up pace. Companies and investors are starting to make changes to avoid a disorderly transition, but there’s still a long way to go.
The inevitable policy response is already playing out, according to Eis. Witness the EU’s Green Deal and its work on setting out rules for what counts as “green” investment. It’s a good bet that we’ll see more and more countries join in. “The risk of an ‘inevitable policy response’ is unfolding really quickly and needs to be incorporated as a business risk, not just mentioned in a corporate sustainability report.”
Laggards have been warned.
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