BP is scaling back its climate goals and deepening its investments in oil and gas, casting new doubts on big oil companies’ promises to embrace clean energy.
In its quarterly earnings report, the company said it made $27.7 billion last year, more than double its 2021 profits. It was the latest in a string of reported windfalls in the industry that are drawing rebuke all the way up to the Oval Office. Shell posted a $41.6 billion profit for last year, more than $10 billion higher than its previous record. ExxonMobil and Chevron both announced their highest profits ever, too, with $55.7 billion and $36.5 billion, respectively.
The companies are under increased financial pressure to tap the brakes on their clean power plans to focus more heavily on the core business.
Shareholder resolutions demanding the companies align their business activities with the commitments in the Paris accord on climate change won less support in 2022 than they did in 2021. In the case of Shell, for example, such a resolution from the Dutch shareholder activist group Follow This won just 20 percent of the vote, as compared with 30 percent a year earlier. The group’s proposal had the support of just a third of the shareholders at Chevron, after a similar proposal won 61 percent support in 2021.
“It is going to be a tough year,” said Mark van Baal, founder of Follow This, which organizes shareholders to demand oil companies move more aggressively into clean energy. “We have to regain momentum, or these companies will keep on saying they can continue with oil and gas because the majority of shareholders want them to do that. The fact that they are making so much money right now is not helping. It makes them think they have to go on with this.”
The profits are thanks in large part to tight global supplies created by sanctions on Russia that followed its invasion of Ukraine. They were made in a year when drivers felt significant pain at the pump, paying an average of more than $5 per gallon at one point midyear.
BP’s announcement on Tuesday made waves in particular because it had been a pioneer in climate action. On Tuesday, it announced that it was revising its plan to lower emissions by more than 35 percent by the end of this decade. Its new target is a 20 to 30 percent cut, the company said.
BP’s previous targets were announced in 2020 as part of a broader plan to comply with the 2015 Paris climate accord. It pledged to transform itself by halting oil and gas exploration in new countries, slashing oil and gas production, and boosting capital spending on low-carbon energy.
It was lauded as the first “supermajor” oil company to spell out in detail what its energy transition would actually entail. Competitors followed with pledges of their own. The new emissions goal is a walk-back for BP, which has said it wants to reduce its net emissions to zero by 2050.
“It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon — all three together, what’s known as the energy trilemma,” BP chief executive Bernard Looney said in a news release Tuesday.
“To tackle that, action is needed to accelerate the transition. And — at the same time — action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today.”
Critics say the failure of the companies to reinvest their windfalls into a clean power future suggests a need for more aggressive regulation and taxation.
“They are not investing that money into renewables or any other productive, good enterprise,” said Sen. Jeff Merkley (D-Ore.), as he and other progressives gathered outside the Capitol last week to protest the immense profits. “Instead, they are … putting money back into their pockets.”
The companies deny that they are scaling back their ambitions to transition toward cleaner energy, pointing to investments in wind and solar, as well as large-scale projects to capture and bury carbon emissions and produce green hydrogen fuel. Executives said in their earnings calls that the lucrative subsidies in the Inflation Reduction Act, the historic climate legislation signed into law last year, are motivating them to make big investments in lower-carbon energy.
But such projects still make up a modest share of Big Oil company investments, and they are hardly the central focus of company executives. ExxonMobil and Chevron are on track to invest just 10 percent of their capital expenditures on green energy by 2024, according to an analysis from Goldman Sachs. The big European companies, Shell and BP, are already at 25 percent but are not likely to substantially grow their green energy portfolios over the next year, according to Goldman.
Watchdogs say the 25 percent figure is misleading, as it includes investments such as those Shell is making in natural gas, a fossil fuel. The group Global Witness last week filed a complaint with the U.S. Securities and Exchange Commission, accusing Shell of misleading shareholders by including natural gas investments in the category of “Renewables and Energy Solutions” in its annual report. Shell says its report follows all SEC rules.
ExxonMobil CEO Darren Woods made no apologies for doubling down on fossil fuels in his comments to investors and analysts as the company posted its earnings report recently. “We leaned in when others leaned out,” he said of the company’s investments in boosting fossil fuel production.
Woods noted that Exxon was at an advantage because some of its competitors have “stepped back.”
“Until you have lower-emissions competitive alternatives that address the full set of needs for society, there’s going to continue to be a demand for oil and gas products,” Woods said.
Such remarks are rekindling the debate among activists about the role of oil companies in the transition. While some argue the companies are so big and influential that they need to play a key role, others say weakening them by pressuring big financial institutions and pension funds to divest would be more productive.
“Now that they are backing off their green act a bit and are again talking up oil and gas, it is hopefully revealing to people who care about climate,” said Jamie Henn, director of Fossil Free Media, a group that advocates divestment. “Engaging with these companies is not going to get us where we need to go.”
But some analysts argue that the uptick in oil and gas production does not necessarily represent a retreat from cleaner power. Even the Biden administration is pushing for more production as drivers struggle with high gas prices and electric vehicles are still not a practical and affordable option for most consumers.
“The world’s infrastructure is not ready to become fully electric overnight,” said Michele Della Vigna, head of natural resources research at Goldman Sachs. “We don’t have enough charging networks. We don’t have enough battery factories. We are going to see increases in oil demand until the end of decade.”
He said that does not necessarily mean the goals laid out in the Paris agreement on climate change can’t be reached. “We’ve been advocating for a while that even under a Paris-aligned scenario industry still needs to develop oil and gas,” Della Vigna said. “I don’t think it comes at the expense of low-carbon projects.”
The oil giants have an inherent tension at the core of their business, said Pavel Molchanov, an energy analyst at Raymond James: “Reducing emissions implies producing less oil and gas, which means — all else being equal — generating less cash flow.”
BP’s lowered target was tucked into the company’s quarterly earnings report Tuesday. The company announced that it would target “short-cycle fast-payback opportunities” in oil and gas with $8 billion in spending, alongside another $8 billion for “energy transition growth engines.” It also plans to send more money to investors, increasing its dividend by 10 percent and adding $2.75 billion in stock buybacks.