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Environmental Commitment as Dominant Force in Energy Sector in 2021


By Wiktoria Jędrzejewska, BSc Economics Student at King's College London


Climate change was the driving force for commodities in 2020. They started to be marketed on the basis of their green credentials and emissions intensity. Producers realised the price premium for such green assets. Renewables grew further in importance in product portfolios of energy and petrochemical companies, as they became driving force of their enterprise value. The trends are likely to continue in 2021 and responses on politico-industrial arena are already visible – environmental commitments have dominated strategy agendas of both governments and oil & gas tycoons.


Economic-political stances of governments mostly include aims to achieve carbon neutrality. Significant emitters, including the US, the UK, and the EU, have reviewed their targets within the Paris Agreement from 2015 and submitted goals for their economies to become net zero by 2050. Key countries of global south in terms of emissions, such as China, India, or South Africa, have not yet submitted their targets, but are expected to renew the existing ones which rely on significant reduction of emissions by 2030. However, particular attention will be paid to China, as the country recently announced (outside of the Paris Agreement) the desire to become carbon neutral by 2060. Even though they have some degree of renewable energy potential, coal is still expected to remain their main energy source.


Similarly, climate concerns provoked many European companies to redesign their strategies to be more environmentally friendly. Major petrochemical players, such as BP, Shell, and Equinor, have already set the ambition for net zero across oil & gas production and operations. BP went a step further and will execute strategy to become a renewable energy powerhouse this year. They are committed to adding 50 gigawatts of renewable energies into their portfolio by 2030 – despite the estimated $60 billion cost to reach such target. To scale up renewable energy infrastructure, BP closed acquisition of 50% of offshore wind ventures from Equinor last week. The deal underlined the growing commitment of European energy tycoons to the environment for the upcoming year.


Furthermore, European oil & gas majors outpaced the US ones in terms of environmental commitments. American companies received a ‘wake-up call’ once President Biden committed to his ambitious climate agenda – which kicked off during his first month in office by joining the Paris Agreement and then blocking construction of several pipelines across the continent. It already echoed in international relations regarding energy. Major pipeline projects, such as $9 billion Keystone XL, were supposed to connect Canadian oil sands with American terminals. Their cancelations met great disfavour of oil & gas players in Canada. It confirms that President Biden will seriously execute environmental revolution in the American energy sector. Private investors, activists, and wider society do support him and rise pressure upon oil & gas companies to prepare for climate risk. As for 2021, Oil and Gas Climate Initiative, whose members include tycoons such as Chevron, Exxon Mobil, or Occidental Petroleum, will focus their efforts on limiting greenhouse gas effects and cutting carbon intensity, though not yet baseline emissions, of upstream operations.


Climate commitments seem to be a prism through which governments are now evaluated and companies valued. Targets such as achieving net zero emissions or adding renewables to product portfolios are on top of strategy agendas. Then, 2021 will be a year when dominant force upon energy sector concentrates in environmental commitments.


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References:


  1. "Climate Commitments To Top Energy And Mining Agendas In 2021". 2021. Woodmac.Com.https://www.woodmac.com/press-releases/climate-commitments-to-top-energy-and-mining-agendas-in-2021/.

  2. "Climate, Covid, Politics Top 2021 New Energy Agenda". 2021. Energyintel.Com. https://www.energyintel.com/pages/eig_article.aspx?DocId=1094228.

  3. Hodges, Paul. 2021. "US Chemical Companies Face 'Wake-Up Call' As Biden Focuses On The Climate Change Agenda - Chemicals And The Economy". Chemicals And The Economy.https://www.icis.com/chemicals-and-the-economy/2020/12/chemical-companies-face-wake-up-call-as-biden-focuses-on-the-climate-change-agenda/.

  4. "Path To Net Zero: European Oil Majors Outpace US Companies On Climate Goals". 2021.Spglobal.Com.https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/path-to-net-zero-european-oil-majors-outpace-us-companies-on-climate-goals-59543423.

  5. "This Is BP's Plan To Become A Renewable Energy Powerhouse". 2021. World Economic Forum.https://www.weforum.org/agenda/2020/08/bp-green-renewable-energy-investment/.


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