It wasn’t long ago that oil giants were trying to outdo one another with promises to cut carbon emissions and take on climate change. In 2020, the price for a barrel of oil briefly plunged below zero, and the world’s largest oil and gas companies portrayed themselves as getting serious about renewables. BP promised to slash its emissions, Shell pledged to go “net zero,” and ExxonMobil trumpeted its efforts to transform algae into fuel.
But in recent weeks, these oil giants have begun tapping the breaks on these much-publicized initiatives. BP walked away from its target to reduce emissions by 35 percent by 2030 — once lauded as the most ambitious, tangible goal in the industry — promising a cut between 20 to 30 percent instead. Shell said it would not increase spending on renewable energy this year, contrary to expectations. Meanwhile, Exxon has pulled back funding from its decade-long algae effort.
These quiet announcements coincided with their recent blockbuster earnings reports, which were celebrated by executives and excoriated by politicians like President Joe Biden, who called them “outrageous.” Buoyed by oil prices soaring above $100 a barrel last year, the oil giants roughly doubled their profits from the year before, with BP raking in $28 billion and Shell $40 billion. Exxon, the oil major that has been the least enthusiastic about renewables, reported even better results — $56 billion, up 143 percent from the year before and a record for a Western oil company.
“We leaned in when others leaned out, bucking conventional wisdom,” said Darren Woods, Exxon’s CEO, in a call with investors, praising his company’s resistance to pulling back on fossil fuel production.
“You know, nothing like profits rolling in to make Big Oil show its true colors,” said Jamie Henn, the director of Fossil Free Media. “I think over the last few weeks, we’ve seen the industry take off the green mask that it has been wearing for the last few years and remind us of its true identity and its real business model, which is the continued extraction and production of fossil fuels at the expense of our climate and communities.”
So why are oil companies slowing down on renewables now, when they have plenty of cash to spend and the world is grappling with the alarming fires, floods, and droughts spurred by climate change? The ease of short-term profits when oil prices are high and the political cover provided by concern about “energy security” have played a large role. Heartened by last year’s flow of oil cash and dissuaded by the rising costs of installing wind and solar, executives are turning away from the longer-term payoffs promised by renewable investments. Climate advocates say that Big Oil’s recent moves should serve as a wake-up call for investors and regulators that oil companies plan to double down on fossil fuels for as long as it’s profitable.
“If they’re not going to invest more on the energy transition now, then when?” asked Krista Halttunen, an energy researcher at Imperial College London.*
The war in Ukraine, and the ensuing fuel crunch as Europe and the United States sought to end imports of Russian oil and gas, has created more cover for BP and other companies to ramp up oil production in the name of energy security, said Trey Cowan, an oil and gas analyst at the Institute for Energy Economics and Financial Analysis. “They got the political will following what their will is at this point,” Cowan said. In a recent interview with the Wall Street Journal, Bernard Looney, the CEO of BP, said that its goal wasn’t just to deliver clean energy, but “affordable energy, secure energy.”
The rising costs of rare earth metals, used in wind turbines and solar panels, may also be slowing down oil companies’ spending on renewables. The cost of a stationary solar installation, for instance, rose 14 percent globally between the summers of 2021 and 2022, according to a BloombergNEF analysis.
BP has pushed back against criticism that it’s changing course. Earlier this month, the company updated its strategy to increase spending on low-carbon energy from $1 billion last year to between $3 and $5 billion each year by 2025.
After announcing Shell’s earnings at the beginning of February, Wael Sawan, the CEO, said that the company planned to increase natural gas production and would not be ramping up spending on renewables this year. In 2022, Shell’s capital spending on “low-carbon” initiatives (a broad definition that includes gas) had increased to $3.5 billion, almost a 50 percent increase over the prior year. But the potential clean-energy profits of tomorrow don’t make good business sense when oil and gas are making sky-high profits today, Sawan explained. “We cannot justify going for a low return,” he said during a conference call. “Absolutely, we want to continue to go for lower and lower and lower carbon, but it has to be profitable.”
There are also some unexpected reasons that oil giants might be backing off renewable investments now. Take Exxon’s recent retreat from experimenting with making low-carbon biofuels from algae, a venture that the company poured $350 million into over the last decade (in addition to spending about half that sum advertising the effort). Vijay Swarup, Exxon’s senior director of technology, told Bloomberg that algae still needed more work before deployment, so the company was prioritizing carbon capture and hydrogen instead.
Oddly enough, the Inflation Reduction Act, the landmark climate legislation that President Joe Biden signed into law last summer, might have something to do with it. It has shifted incentives for oil and gas companies, which, according to Cowan, are now looking to take advantage of new tax credits for projects that store and capture carbon dioxide.
Oil companies tend to like the idea of capturing carbon released from burning fossil fuels since it legitimizes their core business — selling fossil fuels. Not only can they continue to emit carbon, but they can also get tax credits for trapping and storing it. “It’s sort of a misaligned incentive of, ‘Hey, create carbon to go store it in the ground,’” Cowan said.
From an accounting perspective, it was also a good time for Exxon to end its research, he said. With its high profits, the company could write off the algae expenses as a loss without drawing a lot of attention to it.
Oil companies may be “emboldened” by their record earnings, but Cowan warns that many investors are wary of getting back into oil’s boom-and-bust cycle. In the long run, though, he bets that there will be an excess of oil on the market again, and that with less leverage over investors, oil companies will have to rein in the pollution they’re producing. “It all comes down to price at the end of the day,” Cowan said. “If prices are low, these oil and gas companies don’t look as desirable from an investment standpoint. That’s the bottom line.”
*Correction: A previous version of this story used a quotation from Bernard Looney that was misdated and out of context. This updated version removed that quotation and added new context about BP’s plans.