January is here and oil and gas companies are revving their engines, preparing to boast about record-busting revenues from the year when the invasion of Ukraine fattened oil investor pockets. They’re also hoping to circumnavigate efforts to hold them accountable for their contribution to climate change. Here are some obstacles ahead on the road to corporate accountability based on the signs we see.
Chevron was the first to validate market expectations of a banner year for oil and gas, posting annual earnings of $35.5 billion last week. With profits like these, there should be plenty of money for investment in real carbon reduction, as we pointed out last July. Yet the ensuing six months indicate companies have not altered their route despite changing conditions. Examples include the backroom dealings of hundreds of oil and gas lobbyists at the COP27 climate summit in November, increased stock buybacks by oil majors, and the opening of a new front in the climate disinformation war with the assault on ESG investing.
So what will the next 12 months hold? Clues can be found in the most recent edition of ExxonMobil’s Advancing Climate Solutions report, posted to its website shortly before Christmas with no advance notice. Corporations generally publish reports on financial and climate performance—mandated by shareholders in ExxonMobil’s case—in the first quarter of the year, ahead of spring annual shareholder meetings. ExxonMobil’s early submission, though probably timed to get a head start on defusing climate-related shareholder resolutions, does give us a helpful roadmap of the climate accountability landscape in 2023.
Map in hand, here are some trends we can expect to see from major investor-owned oil and gas companies in the next year.
Tricky math on heat-trapping emissions
The report reiterates ExxonMobil’s 2030 emissions reduction targets, the headliner being a 20-30% reduction in corporate-wide intensity. The key word here is “intensity:” Fossil fuel companies often focus on emissions intensity, meaning emissions per barrel of oil, rather than absolute emissions, which is a set number measured in metric tons. Both metrics are necessary to create a complete picture of a company’s emissions, particularly since increased production can result in higher absolute emissions even if the carbon intensity of those emissions declines.
This report does link intensity reductions to absolute reductions for the first time—probably in response to criticism of its last report—but those reductions are minimal on close inspection and do not take the full spectrum of ExxonMobil’s emissions into account. According to the Greenhouse Gas Protocol, a carbon-accounting methodology that has become a global standard, emissions produced from sources owned or operated by a company are classified as Scope 1; emissions from energy a company buys to fuel its operations are Scope 2; and Scope 3 emissions are generated along the remainder of the “value chain,” including use by a company’s customers. Studies show Scope 3 emissions account for roughly 85% of oil and gas emissions.
ExxonMobil’s reduction pledges do not take Scope 3 emissions into account, and the company’s leadership takes issue with the Greenhouse Gas Protocol’s approach to measuring emissions, as described below. Of course, the earth’s climate doesn’t care if emissions are less “intense” relative to another company or production chain. Heat-trapping emissions must be cut in half by 2030 to reach the Paris agreement goal of keeping global warming to 1.5 degrees Celsius above pre-industrial levels and limiting the worst effects of climate change.
Overstating low carbon investments
ExxonMobil pledges to increase its investment in “lower-emission initiatives” to approximately $17 billion through 2027, according to the report. Though the report boasts that figure represents a nearly 15% increase over its previous commitment, it still breaks down to about $3.4 billion per year. For 2023, that figure constitutes a measly 13% of the company’s projected capital expenditures. That means Exxon still plans to spend the vast majority of its funds on fossil fuel exploration and production.
The report also says ExxonMobil expanded its Low Carbon Solutions business—spun out as a separate company in 2021—by “focusing on competitively advantaged opportunities in carbon capture and storage, hydrogen, and biofuels.” Exxon also lobbied for “enhanced incentives for carbon capture and storage and hydrogen” in the Inflation Reduction Act, confirmed in the company’s lobbying disclosures. Those incentives apparently paid off since most of Exxon’s future emissions reductions are slated to result from carbon capture and fossil fuel-dependent hydrogen plants, according to charts in the report.
The oil and gas industry continues to cite such technologies as the answer to removing heat-trapping emissions far in the future, a solution it sees as justification for increasing fossil fuel production, as a recent Congressional investigation showed. The ExxonMobil report shows the company continues to expand oil and gas exploration, bragging that refinery output is at its highest level since 2007 and that plastics production increased by an estimated 10% since the last report, thanks in part to a new recycling plant in Texas.
Fighting climate disclosure, especially Scope 3 emissions
The U.S. Securities and Exchange Commission is expected to issue its final version of the Climate Disclosure Rule this spring, more than a year after the draft rule was released. This follows substantial lobbying by fossil fuel interests to weaken some of the rule’s disclosure requirements, particularly those concerning Scope 3 emissions.
ExxonMobil gives much more attention to Scope 3 than in last year’s report. On the one hand, the company no longer defines Scope 3 as “indirect emissions resulting from society’s need for and use of the Company’s products” (italics mine). On the other hand, ExxonMobil criticizes the Greenhouse Gas Protocol as providing “limited insight” for how the company might lower emissions. Instead, ExxonMobil prefers a method called the Life Cycle Approach, which gives credit for “negative emissions” technologies like CCS and reforestation. In a letter accompanying the report, ExxonMobil Chair and CEO Darren Woods doesn’t mince words about his intent to challenge the methodology; “we are focused on efforts to reform the Scope 3 provisions of the Greenhouse Gas Protocol,” the letter states.
Savvy industry watchers pointed out that the timing of ExxonMobil’s complaints and the fight over Scope 3 in the SEC rule are probably not coincidental.
Opponents of the rule argue that Scope 3 emissions are not “material,” or useful to shareholders. Yet investors have long called on oil and gas companies to disclose and reduce their Scope 3 emissions because they come from using the companies’ products exactly as they are intended to be used.
Rough road ahead
Though craftiness around emissions, low-carbon investments, and climate disclosure certainly aren’t new, ExxonMobil’s latest climate report shows these efforts are accelerating, fueled by high energy prices and increased government spending. Fortunately, we should see increased scrutiny of corporate claims as methodologies emerge for evaluating Net Zero commitments, such as a recent study by a United Nations High-Level Expert Group, which called for “draw[ing] a red line around greenwashing.”
Meanwhile, shareholder pressure on ExxonMobil, BP, Chevron, Shell, and other investor-owned oil and gas companies is not going away. Shareholder advocates such as the Dutch nongovernmental organization Follow This have again filed proposals focused on the companies’ 2030 emissions reduction targets and their alignment with the Paris Agreement.
Shareholders, regulators, and consumers will all continue to have important roles to play in holding the fossil fuel industry accountable during the year ahead. 2023 will be a crucial juncture in a long, bumpy trip. Buckle up!