Climate action in fossil fuel sector has ‘stalled’, says report #NewsMarket

Good morning, and welcome back to Energy Source, coming to you from New York, where wildfires continue to blaze at the state border with New Jersey.

Investors are racing to gauge what a Donald Trump presidency next year will mean for clean energy, with developers pumping the brakes on projects until they can gather more certainty over the fate of US climate policy.

Trump’s victory has cast a pall over the UN climate talks in Azerbaijan, where US support is seen as crucial to setting a new finance target. At COP29, Exxon chief executive Darren Woods urged Trump not to withdraw again from the Paris climate agreement, warning this would forfeit the administration’s chance to maintain influence and push for “common sense” carbon-cutting policies.

European Climate Foundation chief Laurence Tubiana argues in the Financial Times this morning that a US reversal on climate won’t halt global momentum, but could result in the country losing out on economic gains.

Today’s Energy Source dives into an analysis on whether the targets to reduce emissions at the largest oil and gas companies are aligned with the Paris climate agreement. Our second item is an op-ed from Harry Verhoeven and Gautam Jain at Columbia University in response to our newsletter last month on the capital barriers stalling Africa’s energy transition.

Thanks for reading,

Amanda

Climate targets set by oil and gas sector don’t align with Paris Agreement, says new report

Oil and gas companies are falling short in efforts to curb carbon emissions, with none setting targets that align with the Paris climate agreement.

Among the 30 largest oil and gas producers, not one has set a comprehensive strategy to address the sources of their emissions and adequately reduce the release of methane, a potent greenhouse gas, according to an analysis released this morning from think-tank Carbon Tracker.

“Progress has basically stalled,” said Mike Coffin, co-author of the report. “Obviously that reflects wider investor sentiment, but the challenge of the climate crisis does not go away.”

The report is the latest warning of slower progress on curbing emissions this week as thousands of country leaders and executives gather in Azerbaijan for the UN COP29 climate summit.

Global carbon emissions from the fossil fuel sector have grown to record highs this year, with “no sign” of peaking, according to an analysis released this week by the Global Carbon Budget. The burning of fossil fuels is the largest contributor to climate change, making up more than 75 per cent of global greenhouse gas emissions.

On Tuesday, Shell won an appeal against a landmark order from a Dutch court to cut its greenhouse gas emissions in a setback to environmental activists aiming to accelerate climate action through litigation.

Carbon Tracker considered oil and gas producers to be Paris-aligned if they set targets that accounted for their global footprint, aimed for net zero emissions by 2050 across all three scopes, and tackled methane leaks.

Only 27 per cent of companies have set a goal for so-called Scope 3 emissions, which occur indirectly from the use of their products. And less than a quarter have set a target to reach net zero emissions across all scopes by 2050, Carbon Tracker found.

Carbon Tracker’s report also revealed that no producers have set adequate targets to reduce methane emissions. While nearly all companies have set a near-zero methane emissions target, none have set a target that covers midstream gas activities. Chevron is the only producer to target emissions from facilities it owns but does not operate.

These non-operated assets make up a significant share of methane emissions at oil and gas companies. A recent analysis from the Clean Air Task Force found that emissions from flaring more than doubled for the 10 largest producers when including non-operated assets.

Methane emissions reached a four-year high last year, according to the World Bank, despite more than a hundred countries pledging to reduce emissions by 30 per cent by 2030 at the COP26 climate conference in 2021. At last year’s summit, 50 of the largest oil and gas companies pledged to stop routine flaring of excess gas by 2030.

The Biden administration announced a landmark fee to tackle methane emissions at COP29 on Tuesday. The fee, along with other environmental rules, faces an uncertain future next year under Trump. The American Petroleum Institute outlined a policy plan earlier this week calling for the fee’s repeal in the incoming administration. (Amanda Chu)

Opinion: Financial engineering will not suffice for Africa’s climate needs

The authors, Harry Verhoeven and Gautam Jain, are senior research scholars at Columbia University.

The future of climate finance for Africa is on the line at this year’s COP29 summit. African negotiators want at least $1.3tn a year from rich nations to meet their climate targets. With their demands unlikely to be met through government aid, many commentators and policymakers have pinned their hopes on private sector capital.

But efforts to attract private capital have been faltering.

Take for instance “green bonds”. These are fixed-income instruments that directly finance environmental projects. The global green bond market has grown tremendously in the past five years to approximately $3tn by the end of 2023. However, African green bonds account for only about 0.2 per cent of issuances — and they have been falling for consecutive years.

Across sub-Saharan Africa, states received $3.5bn of private funding in 2022 for their infrastructure, or less than 0.2 per cent of their GDP. About half of those countries recorded no private participation in any projects.

The reasons for these disappointments are disputed. Investors claim that this reflects the dismal governance in Africa and that the returns on, say, halting deforestation in Ethiopia are just not worth it. Without better protection of property rights and more “bankable projects”, they will prefer safer outlets for their capital.

Yet our research shows this is not how African decision makers see it. There is limited understanding of novel financial instruments. Government ministries struggle to co-ordinate the complex process of verifying the effectiveness of climate projects.

But beyond these technical issues are more fundamental obstacles.

First, scepticism is rising as to whether financial markets can deliver appropriate options for climate action. Critics emphasise the role of private finance in driving Africa’s debt build-up between 2006 and 2020 and facilitating the export of capital out of African economies.

Second, investor and recipient preferences remain mismatched. The interest of the former mostly pertains to mitigation projects. African officials emphasise that adapting to the effects of climate change is their priority, but private financiers are rarely interested in funding, say, access to water and flood-resilient housing as they see no revenues.

No amount of financial engineering can replace scaled-up public investment in climate action. African tax-to-GDP ratios must increase from the current average of 16-17 per cent so governments can invest more directly themselves in sectors where private investors won’t take an interest. Likewise, massive support for African adaptation projects by multilateral development banks is indispensable.

Climate action shouldn’t be undermined by the illusion that private sector capital will come to Africa’s rescue.

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.