Pressure Builds as Big Oil Reports Record Profits - August 5, 2022
Record Oil & Gas Profits
Surprising no one, oil & gas companies raked in record profits in the second quarter. With fossil fuel prices spiking all over the world, Exxon reported income of $17.9 billion from April through June, over three times what it earned during the same period in 2021. Chevron reported $65 billion so far this year, compared to $36 billion a year ago.
The surging profits are a result of the energy crisis spurred by Russia’s invasion of Ukraine and a post-pandemic rebound in demand. Oil companies argue they’re investing heavily to increase their production to help bring down prices. In a whiplash inducing turnaround, the industry is rapidly expanding after being forced to slash spending during the pandemic as oil prices plunged.
Greed > Climate
Outsized profits and expansion without regard to climate impact is fueling anger at big oil. The UN Secretary General called the profits “immoral,” urging people to send a message to the fossil fuel industry and their financiers that “this grotesque greed is punishing the poorest and most vulnerable people, while destroying our only common home, the planet.”
California Governor Gavin Newsom called out big oil following the news, tweeting, “These dirty companies are raking in massive profits — all while forcing us to pay more at the pump and causing the deaths of countless Americans, from extreme heat, drought, fires and choked lungs.”
Still, the fossil fuel industry sees investment in increased production as an immediate need. Exxon CEO Darren Woods’ remarked on a call with analysts: “Clearly, to lower prices, the industry needs to increase investment and catch up to recovering demand. Unfortunately, this will take time.”
Racing towards a Climate Bill
Last week’s agreement on the “Inflation Reduction Act” signaled a breakthrough in hyper-polarized US politics. But, even as US Senate Majority leader Schumer said he would hold a vote on the bill this week, pressure is building for two right leaning democrats to join Republicans to block the bill. The political network backed by billionaire Charles Koch launched an ad blitz targeting Sens. Joe Manchin and Kyrsten Sinema to get the moderate Democrats to block the bill. Just before press time, we learned that deal had been reached and both Sens. Manchin and Sinema are supportive of the bill - a vote is imminent.
Should it become law, The Inflation Reduction Act would cut annual U.S. greenhouse gas emissions by about 1 billion metric tons by 2030, helping drive down carbon emissions by about 42% from 2005 levels, while also lowering U.S. energy expenditures by at least 4%. The legislation cuts U.S. carbon emissions mainly by speeding up the deployment of clean electricity and electric vehicles, reducing 2030 emissions from those sources by about 360 million metric tons (MMT) and 280 MMT, respectively, according to a new report from the REPEAT project. Energy Innovation, the Rhodium Group and Moody’s Analytics all released similar carbon reduction estimates ranging from 30% to 44% below 2005 levels by 2030.
At 725 pages and with $369 billion in climate investments, ranging from direct investments to tax credits to research funding, the Inflation Reduction Act could boost climate tech to the tune of four times more than the 2009 stimulus bill.
How it’s broken down and divided up has massive implications for the startups working on solutions on the ground. This week, fellow newsletter Climate Tech VC published a tracker that breaks down which sub sectors stand to benefit the most from the bill.
The bill got a boost this week with a bipartisan endorsement from former US Treasury Secretaries, Timothy F. Geithner, Jacob J. Lew, Henry M. Paulson Jr., Robert E. Rubin and Lawrence H. Summers. They signed a letter stating that “This legislation will help increase American competitiveness, address our climate crisis, lower costs for families, and fight inflation—and should be passed immediately by Congress.”
Government Buildings Get Upgraded
The Biden-Harris Administration announced the Climate Smart Buildings Initiative to modernize Federal buildings. The initiative is expected to catalyze over $8 billion of private sector investment, creating nearly 80,000 jobs and achieving up to 2.8 million metric tons of GHG reductions annually by 2030.
Pressure Builds for a Global ESG Standard
Over 80 CFOs signed a letter sent to the International Sustainability Standards Board (ISSB) urging more transparency in setting ESG standards as the board gears up to publish climate reporting requirements later this year. The letter urged ISSB to “align with relevant and emerging sustainability reporting standards” as well as “connect to financial reporting standards and promote integrated thinking as illustrated through frameworks such as the Integrated Reporting Framework.”
The letter, coordinated by the Accounting for Sustainability (A4S) organization - a Prince of Wales charity - stated that reporting is a “means to an end” rather than the final goal. “There is a risk that companies will avoid setting the ambitious targets needed to drive innovation and will divert effort into reporting instead of action,” signatories warn in the letter.
With three major climate policies issued in the first half of 2022, there is more confusion than convergence. A new study compared the three major climate-related proposals: the U.S. SEC climate disclosure proposal, the EU’s European Sustainability Reporting Standards (ESRS), and the International Sustainability Standards Board (ISSB) climate standard. The main takeaway is that all three proposals are aligned with the TCFD framework (Task Force on Climate Related Financial Disclosures) but there are significant - and inconsistent - additional requirements in each.
Sadly, extreme flooding has become a shared experience in vastly different parts of the world. In the United States, Kentucky saw 8-10 inches of rain in a 24-hour period last week in what experts are calling a “1-in-1000 year rain event.” The flash floods killed at least 37 people in the state, with many still missing.
Governor Andy Beshear couldn’t explain “why we keep getting hit here in Kentucky.” The answer, of course, is climate change. A study by Nature earlier this year found that climate change will likely raise annual flooding costs in the U.S. to over $40 billion.
In Africa, more than 5,600 people have been displaced and 24 killed by flash flooding in eastern Ugandan city of Mbale over the weekend. “Many have lost everything and have had barely anything to eat over the last few days,” noted Joseph Ssenkumba, of the Association of Ambulance Professionals Uganda.
Flash floods and landslides killed 69 in Iran last week. The monsoon-like rains, unusual for the typical dry summer season in much of Iran and the Middle East, fit a pattern of unpredictable and extreme weather around the world.
More than 7.2 million people have been impacted by flooding in Bangladesh, while heavy rainfall has submerged over 2,000 villages in India and killed at least 14 people in the Pakistani city of Karachi. The 2022 Indian monsoon system has been significantly heavier than usual, delivering unprecedented rainfall even in places that are accustomed to the subcontinent’s mammoth rain season. Two cities in India’s Meghalaya district received over 38 inches of rain in one day this past June, demonstrating the extreme weather acceleration resulting from ongoing climate change.
Planning for the Worst
Doom scrolling is an occupational hazard when working in climate change. A post this week took doom scrolling to the next level. The “Climate Endgame” explored catastrophic climate change scenarios - including the extinction of humans!
Researchers revealed new modeling which showed that by 2070 (a mere 48 years from now), more than 2 billion people would live in areas with a yearly average temperature above 29°C (84°F), currently only felt by 30 million people in the Gulf and Saharan states. Chi Xu, a member of the research team, said, “By 2070, these temperatures and the social and political consequences will directly affect two nuclear powers, and seven maximum containment laboratories housing the most dangerous pathogens. There is serious potential for disastrous knock-on effects.”
These worst-case scenarios have been explored by science books like David Wallace-Wells’ “Uninhabitable Earth.” The study called for more rigorous analyses of possible knock-on effects of higher temperatures, such as food shortages, financial crises, and conflicts, as well as tipping points like the methane released from permafrost, which could cause a runaway greenhouse gas effect. Addressing the shock of and horror from the report’s conclusions, the lead author Dr. Kemp said, "understanding these plausible but grim scenarios is something that could galvanize both political and civil opinion."
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