Why fossil fuel producers are oddly optimistic in the climate change era

Coal, oil, and natural gas producers have found their vision for a low-carbon world.

HOUSTON, Texas — In a video message projected onto massive screens in a packed conference hall, Sultan al-Jaber, the president of the COP28 climate conference held in the United Arab Emirates last year, graciously accepted a leadership award from one of the world’s biggest energy industry conventions.

Al-Jaber, who when not running UN climate summits is also the CEO of the Abu Dhabi National Oil Company, faced criticism from environmental groups for inviting major oil and gas companies to participate in the international climate negotiations. He also faced scrutiny for his comments that it’s not necessary to eliminate fossil fuels to meet the Paris Agreement target of limiting warming this century to less than 2.7 degrees Fahrenheit (1.5 degrees Celsius) by the end of the century. But here in Houston, before a much friendlier crowd, he remained defiant.

“If the world is going to meet its climate goals, every stakeholder has to act,” al-Jaber said, with a model of a wind turbine on his desk. “Everyone had a seat at the table, everyone was invited to contribute, and everyone did contribute.”

CERAWeek by S&P Global — an annual conference of oil, gas, coal, renewable, and nuclear energy industries — returned the invitation, putting the once taboo topic of climate change in its headline.

“It is no exaggeration to say that [al-Jaber] helped the global community chart pathways to a sustainable future,” said Daniel Yergin, the author of the Pulitzer Prize-winning oil history The Prize and the founder of CERAWeek.

The conference isn’t meant to produce any formal agreements or treaties, but what attendees say on stage and behind closed doors often ripple through the global energy industry.

While only a sliver of the size of the last climate meeting — more than 8,000 delegates were at CERAWeek compared to more than 80,000 attendees at COP28 — the conference represents some of the most powerful companies in the world with trillions of dollars at their disposal to shape the future of global energy and the climate. The theme this year was “Multidimensional Energy Transition: Markets, climate, technology and geopolitics.”

The unwieldy title is an example of how the convention has grown in scope since it started in 1981 and how the industries it represents have begun to redefine their roles in a world constrained by rising average temperatures, yet still primarily dependent on fossil fuels. What was once a low-key meeting of oil and gas executives and analysts to talk frankly and cut deals has become a slick news-making tech conference where attendees are well fed and, after hours, well lubricated by sponsors. Think of it as Davos for the oil and gas set, hosted in the energy capital of the US.

Yi-Chin Lee/Houston Chronicle via Getty Images

“Twenty years ago you could not have a conversation here about climate change. Full stop,” Mark Brownstein, senior vice president for energy transition at the Environmental Defense Fund (EDF), who has attended the conference for decades, told Vox.

By now everyone at CERAWeek has gotten the memo on global warming and understood the assignment, at least in rhetoric. The world’s largest energy firms have come to a general consensus that the world is shifting toward clean energy — but that fossil fuels are still going to be necessary for the foreseeable future. “These truths are not in conflict,” said Energy Secretary Jennifer Granholm. “The momentum of the clean energy transition is undeniable, even as we are the largest producer of oil and gas in the world.”

Every talk and panel discussion nodded to the energy transition, toward carbon management, efficiency, and clean tech. When it comes to energy sources — wind, solar, hydropower, natural gas, oil, hydrogen, coal, nuclear, geothermal, and even fusion — CERAWeek has truly embraced diversity, equity, and inclusion.

But even with greenhouse gas concentrations in the atmosphere reaching levels not seen in eons and after the hottest year humans have ever measured, the fossil fuel industry whose products are driving climate change sees a bright future for itself. After all, despite the extraordinary expansion of clean energy generation, fossil fuels have only lost a small share of the global energy mix and are still expecting more growth.

The majors believe that technologies like carbon capture and storage will allow them to continue selling their wares as emissions regulations ratchet down, and that power-devouring technologies like artificial intelligence and growing markets in developing countries will continue to raise demand. By some estimates, data center electricity use is on track to more than double by 2026. Coal, oil, and natural gas consumption are at or near record highs in many parts of the world and their emissions are currently on track to grow through 2050, according to the Energy Information Administration. The world is hungry for BTUs and watts, and the energy industry is eager to serve them.

“I’m actually more optimistic today than I’ve ever been in this job,” ExxonMobil CEO Darren Woods told attendees, noting that COP28 was the first climate conference he has ever attended.

Umair Irfan/Vox

But that optimism hasn’t been matched with urgency on climate change, and the industry has a long history of slowing progress. While the language has changed more recently, the oil and gas industry has spent decades thwarting action on climate change, with lobbying, litigation, and misinformation. Exxon’s own scientists produced accurate internal forecasts of rising average temperatures as early as the 1970s while the company published full-page ads in newspapers casting doubt on warming into the late 1990s.

Russia’s ongoing invasion of Ukraine has also put energy security back on the front burner. For some countries, energy security today matters more than climate change tomorrow, leading them to prioritize secure sources, including fossil fuels in some cases. (Energy security wasn’t the only echo of the war — CERAWeek also helpfully reminded participants in its registration form not to attend if they are subject to sanctions.)

So while appetites for cleaner energy sources are growing, the stalwarts of the global energy industry have made it clear they aren’t letting go of the fuels that powered their rise. As these companies have grudgingly come to acknowledge climate change, many concerned about global warming have also begun to grapple with the likelihood that fossil fuels aren’t fading away anytime soon. And while most energy companies do envision reducing their greenhouse gas emissions, the current pace is nowhere near fast enough to bend the curve to meet climate goals. The future for the global energy industry is not just brighter, but hotter.

There is a lot money to be made in new clean energy

Across the skybridge from the hotel in the neighboring convention center, CERAWeek hosts what it calls Innovation Agora, where tech entrepreneurs and energy startups pitch their solutions to climate change in glass-walled booths under purple lights. It was once the kids’ table of the conference when it launched in 2017 but has since evolved into a parallel production, a clear reflection of clean energy’s massive growth and immense potential.

Umair Irfan/Vox

“Globally, clean energy investment has overtaken fossil fuel investment every year since 2016, according to the IEA,” Granholm said. “In the US, clean energy investment has tripled since 2018.”

The fossil fuel industry talks less about competition between conventional sources and renewables and more about collaboration between the “molecule” and the “electron” solution set, as Exxon’s Woods described it. The molecules are the hydrocarbons of coal, oil, and gas and increasingly, hydrogen, while the electrons are those generated by solar panels and wind turbines.

“I’m not suggesting one’s better than the other one,” Woods said. “What I’m suggesting is, we need both, and you need companies who have our scale, our capabilities.”

Unsurprisingly, the “molecule” companies have their eyes set on the technologies that play to their strengths. Hydrogen, a gas most commonly produced by reforming methane, fits well into the fossil fuel industry’s existing refining, pipeline, storage, and retail infrastructure. Geothermal, which harnesses heat from beneath the Earth’s surface, draws on the sector’s expertise in geology and drilling. Carbon capture — from smokestacks, from the ocean, from the air — gives fossil fuels a way to zero out their emissions, at least on paper, extending them a lifeline in a world where emissions must ratchet down. In the US, the Biden administration has set a target of cutting national greenhouse gas emissions in half compared to 2005 levels by 2030 and achieving net zero emissions by 2050.

US government incentives are sweetening the deal for cleaner energy technologies. The trio of the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act have mobilized billions of dollars to research, build, and deploy low-emissions energy systems and the products that enable them. Unlike past legislative attempts to tackle climate change, these laws are almost all incentives, with no restrictions or caps on greenhouse gases baked in.

“I am very supportive of the IRA, because, as legislated, the IRA focuses on carbon intensity and in theory, [is] technology agnostic,” Woods said.

As for the villains, the energy industry as well as environmental groups a common adversary in methane. It’s about 30 times more powerful than carbon dioxide when it comes to trapping heat in the atmosphere. It’s the dominant component of natural gas, so producers do have an incentive to limit its leaks since it’s a salable product. At COP28, dozens of oil and gas firms committed to ending their methane pollution by 2050. Simply reducing methane output by 30 percent from 2020 levels by 2030 could avert 0.2°C of warming (0.36°F) by 2050. But methane is colorless and odorless, making it hard to detect where it’s escaping, and estimates of its emissions vary widely.

Umair Irfan/Vox

These concerns have fertilized the growth of the carbon accounting and verification business. Context Labs, one of the companies presenting at the Agora, has developed software so companies can track emissions across their facilities, sometimes down to individual pieces of hardware like generators or furnaces. The goal is to give companies actionable information about where they need to cut pollution, how they can route their operations to be more carbon efficient, and what assets will be at risk when emissions regulations get stricter.

Not everyone is ready to take these companies at their word, though. The Environmental Defense Fund launched a satellite to track global methane emissions just a few days before CERAWeek began and advertised it on the streets of Houston. EDF plans to publish its findings publicly to spur polluters to act.

Major oil producers warn of “hard realities” for the switch to clean energy

There were still points of friction at the oil-soaked conference, as laid out by Amin Nasser, president and CEO of Saudi Aramco. It’s not just the world’s largest oil company, with nearly four times the market capitalization of ExxonMobil; it’s the fourth-mightiest of all companies, shaping economies around the world. And as a mostly state-run enterprise under an autocratic regime, Saudi Aramco isn’t as swayed by activists or shareholders as a fully investor-owned company like Exxon.

Nasser laid out what he called five “hard realities” for the energy transition.

The first is that alternatives to hydrocarbons like wind and solar energy have received decades of research and development and billions of dollars in investment, but still hold single-digit market shares. Second, reducing the carbon intensity of fossil fuels — particularly through energy efficiency and switching from coal and oil to natural gas — has delivered greater greenhouse gas emissions reductions than the rise of clean energy. Third is that many alternative energy strategies like electric vehicles are unaffordable for a majority of people around the world. That ties into the fourth point, that most of global energy demand growth in the coming years will occur in developing countries. But despite representing 85 percent of the world’s population, these countries receive a tiny fraction of clean energy investment.

Nasser concluded with his fifth point: that the energy transition strategy of replacing fossil fuels with renewable energy needs a reset. “We should abandon the fantasy of phasing out oil and gas and instead invest in them adequately, reflecting realistic demand assumptions,” Nasser said to widespread applause. “We should ramp up our effort to reduce carbon emissions, improve efficiency and introduce lower carbon solutions. And we should phase in new energy sources and technologies when they are genuinely ready, economically competitive, and with the right infrastructure.”

Mark Felix/AFP via Getty Images

Many activists and other in the energy industry disagree with Nasser’s assessment. However, his comments echo the ongoing rifts at COP meetings between major fossil fuel-producing countries that became rich off oil and those often poorer countries facing the immediate effects of climate change like sea level rise, who want to see fossil fuel consumption zeroed out. It’s led to long, tortuous negotiations over language like “phase down” versus “phase out” and “unabated” emissions from fossil fuels.

But while many zero-carbon technologies are still expensive, so too are the systems required to keep burning coal, oil, and gas in a world where emissions must halt by the middle of the century to meet climate targets. Some of the cheapest carbon capture technologies to date still cost about $40 per metric ton of carbon dioxide, adding up to billions of dollars to capture any meaningful share of the 37.4 billion metric tons of carbon dioxide emitted last year.

The US, now the world’s largest oil producer and natural gas exporter, is also in an awkward spot. While pledging to reduce its own emissions, the US is anticipating more fossil fuel exports and financing import facilities in other countries. That includes a doubling of liquefied natural gas shipments abroad by 2030, despite the White House’s pause on new export terminals. “The whole world needs to transition away from fossil fuels, but in the meantime, we still have to support our friends and allies in their energy needs,” John Podesta, the White House climate adviser who also leads climate diplomacy, told reporters.

Now in an election year, the Biden administration is trying to walk the line between taking credit for low gasoline prices and facilitating more fossil fuel extraction as it faces a challenger who wants to ramp up coal, oil, and natural gas, potentially adding another 4 billion metric tons by 2030 to the US’s already massive greenhouse gas emissions tally.

All the while, the era of low interest rates that drove the massive expansion of both renewables and natural gas in the US in the past decade is ending just as the country needs a massive new buildout of energy production and infrastructure. Financing expenses are getting higher while permitting time and costs remain an obstacle, slowing down the shift to cleaner energy. So while the threats from climate change are more apparent than ever, it’s getting harder to wield the tools to keep it in check, and that means the fuels of the industrial revolution will continue to light the road ahead, for a while at least.