The dominance of fossil fuels, in particular oil and natural gas, has been at the centre of many environmental groups causes as the key reason behind the climate crisis we’re currently in. It’s clear why this is the case – burning oil alone contributes to one third of all carbon emissions, while coal attributes to over 44% of all emissions. To add to that, major accidents, such as the infamous Deepwater Horizon spill, have boosted environmental concerns around oil companies. Oil companies like BP or Shell have been targets for environmental protests, along with affiliated organisations like law firm Slaughter and May or Barclays for their ties with major players in the oil and gas industry. It’s clear that while the world continues to rely on oil, the reputation of oil companies as “the bad guys” continues to worsen.
It’s likely that due to this reputational issue, one of the oil giants, BP, has decided to introduce a new green strategy, centred around emitting net-zero emissions (offsetting as many emissions as they emit) by 2050 by decreasing it’s investments in oil and gas by 40% and increasing their investments in low carbon projects, particularly in increasing its renewable capacities. Shell has also echoed similar goals, with its head of energies department claiming that Shell’s refocussing on natural gas and renewables will help it become a leading power supplier. This is not the first time that BP tried to rebrand. In 2000, they changed their name and logo to “Beyond Petroleum” in order to convey their newfound efforts to be more sustainable. However, within the preceding and following years, BP has continued to dedicate resources in expanding its drilling plants and increasing their efficiency, even selling off some of its renewable energy plants to do so. The Deepwater Horizon oil spill has done little to make BP seem like the paragon of sustainability that it attempts to be.
Unsurprisingly, the COVID-19 pandemic has had a significant role to play in this change. While BP and Shell have been trying to rebrand since the 2000s, the rapid reduction in oil demand and drop in oil prices during the pandemic has likely contributed to this shift. Within the last quarter, BP’s losses have been staggering, around $16.8 billion, which is significantly higher than other oil and gas firms, potentially due to its reach. Energy demand across the world has dropped, which many environmental activists have suggested creates a possibility of structural change in how the world produces and consumes energy.
This is where BP’s new green energy strategy comes in. The aim of the strategy is to reduce BP’s dependence on oil and their change in investments as mentioned above, along with it’s cut in shareholder dividends is allowing it to pay off debt while restructuring its finances to go towards the renewable market clearly indicate this understanding.
However, sceptics have doubts on whether major energy companies like BP can really ever be sustainable and have a place in the wider sustainability agenda, considering the fact that they benefit most from a fossil-fuel dependent planet. Some claim that the perceived failure of the Beyond Petroleum agenda in the 2000s will reflect on this as well and, that despite their changing investments, the global dependency on oil will still keep them focussed on it.
BP’s statement has also claimed that it will not expand it’s upstream drilling practices (which is how oil is traditionally extracted) to any new countries. At the surface level, this seems promising since it puts a cap on oil expansion. However, BP is currently operating in 70 different countries, some of which have the capacity to expand in terms of oil production. To add to this, it’s continued effort to work with Rosneft (a Russian oil company) and US oil drillers in Alaska add to the evidence that BP’s efforts might not have the intended impact.
Alaska (and the Arctic Circle overall) is considered a risky area for oil drilling since it could lead to the release of significant amounts of trapped carbon dioxide, contribute significantly to rising sea levels and have an impact of the global ocean currents system if there is an oil spill.
Furthermore, BP is not planning on shutting off the oil and gas plants by reducing their investment in the sector, but by selling them off, which does not guarantee that it will actually reduce any of the fossil fuel emissions produced. BP assets (even low-performing ones) are often highly valued due to the level of infrastructure investments and are likely to produce oil instead of being phased while BP activists have also criticised the lack of strategy behind their goals of producing net-zero carbon emissions by 2050.
These criticisms demonstrate that BP’s commitments might be significant, but are hard for environmental reasons. Many of these green strategies towards renewables are betting on a future where renewables will become more profitable, citing the transition towards electrical vehicles as one of the reasons why oil will become less prominent. This transition is likely to be a bumpy road, especially from the perspectives of investors who have long betted on stable oil prices. New renewable projects, like what BP is proposing, are unlikely to have the same level of expected returns.
This change does suggest that there is some effort by oil firms to build back better, even if it might not be for the right motivations. Financial indicators have often been used as means of understanding whether a firm is committed to it’s goals and the current financial restructuring, along with the cut in dividends means that BP’s strategy could have a net positive impact. In the grand scheme of things, companies like BP still rely on oil and natural gas for their profits and if they would like to achieve net-zero emissions by 2050, there might need to be much more drastic action taken.