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Big Oil eyes renewables – and the transition is cheaper than you think

Monday, November 23rd 2020, 7:00 am - As one major oil company is overtaken in value by a renewables company for the first time, it's a good opportunity to take stock of efforts to shift to renewables, and how much investment would be needed to make Canada competitive.

Even as the world gradually transitions from fossil fuels to renewables, it’s still hard to think of a world without oil companies — until one of the largest in the world gets overtaken in value by a renewable energy company.

Last month, NextEra, an energy company focused largely on wind and solar, officially surpassed ExxonMobil in market value. It was a major reversal for the American oil major, once one of the most valuable companies in the world, and it came not long after it was dropped from the Dow Jones Industrial Index after more than a century. While the reasons behind the drop go beyond the gradual decline in fossil fuel values, it’s hard to argue it wasn’t a factor.

It’s undeniably a milestone, and suggests two paths forward for the old oil giants: continued withering, or a hard pivot toward renewables.

There would seem to be plenty of evidence the latter is the case. BP, for example, began making tentative investments in wind and solar as early as 1980, and had up to $10 billion in green investments in 2010. Though it shed most of those after the Deepwater Horizon disaster, it has started to reinvest, buying stakes in companies specializing in solar energy, batteries, and EV charge stations.

Anglo-Dutch Shell, France’s Total and Italy’s Eni have also invested billions in renewables, and plan billions more, as well as working toward reducing their own emissions, and those down their supply chain, according to Oilprice.com.

Closer to home, it seems American oil companies Chevron and ExxonMobil have opted for only comparatively minimal investments in renewables, and then largely in technologies such as biofuels and carbon capture, rather than large-scale expansion of zero-carbon generation. It likely wouldn’t be too much of a stretch to argue Exxon’s comparative lack of investment may have hastened its fall off the Dow.

Oil derrick zbynek burival unsplash Unlike their European counterparts, U.S. oil companies have preferred to invest in technologies such as carbon capture and biofuels, rather than in renewable generation. Image: Zbynek Burival/Unsplash.

But as encouraging as the trend is, a closer look reveals it to be more of a drip-drip than a sea change: Despite the growing investment, even the big-spending majors allocated less than 1 per cent of their budget on green energy in 2018. And over the next five years, Norwegian energy analysis firm Rystad Energy says, the 10 largest oil companies are expected to shell out $166 billion for new oil and gas growth, compared to only $18 billion for wind and solar.

CAN CANADA CATCH UP?

Canada has its own oil and gas sector, which has its own struggles to contend with as it grapples with transition.

Like its global counterparts, that transition is still in the early stages, but Ryan Riordan, the director of research at the Institute for Sustainable Finance at Queens University, says the opportunities to kick start it are plentiful — and the per-tonne cost of reducing emissions in the Canadian oil and gas sector is relatively cheap.

“It’s the carbon intensity of the sector that pushes the required investment to the higher, though not highest, end of the spectrum. This is precisely where focused investment in technological innovation can – and already is – playing a significant role,” Riordan told The Weather Network.

Riordan and his colleagues’ research on how and where to target investment for that transition estimated that a $128-billion investment over 10 years would be needed to set the country on a carbon-competitive path. It sounds like a lot, but annually it would be a little under $13 billion, amounting to only the annual equivalent of less than one per cent of Canada’s GDP.

Sami Russell wind turbines Unsplash Researchers at Queens University estimate the investment needed to make Canada more carbon-competitive would amount to less than one per cent of GDP. Image: Unsplash/Sami Russell

And Riordan stresses the government wouldn’t have to be the only one picking up the check for the transition to low-carbon. At least 50 per cent of investment is likely to come from the private sector, and Canadian firms and investors are already trending in that direction, he says, pointing to close to $50 billion in green bonds issued in the second quarter of 2020, with major investment institutions like the CPP and Brookfield ramping up their own green investments. As well, Riordan said Canada began issuing sustainability-linked loans targeted at private investment in carbon-reducing technologies and innovation.

“Overall, private investment dollars are already flowing and will increasingly flow in this direction,” Riordan says.

Riordan adds renewables aren’t the only path to decarbonization, and other strategies, such as hydrogen, carbon capture and storage, and cleaning up production, have their own roles to play. He points to Shell and BP partnering with Microsoft on net-zero efforts, or research in Alberta toward retooling the oilsands to produce hydrogen.

“The imperative to spur low-carbon innovation — leading to jobs and growth — is abundantly clear, and we have already seen the oil and gas sector acting on this opportunity,” Riordan says.

At the same time, Riordan says governments can ease the flow of this investment through incentives for investment in strategic areas, and working towards policy stability so investors can rely on a playing field with predictable rules. He also suggests imposing uniform standard comprehensive disclosure requirements, to give investors better information before they decide to spend.

“Our researchers found that mobilizing the capital required to invest in Canada’s low-carbon transition is realistic and eminently achievable, and cooperation between the public sector, private sector, and financial system is how we can be most successful,” Riordan says.

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