Oil companies increasingly tout emissions reduction targets. But it's often unclear how they plan to actually cut greenhouse gases.
The Spanish oil giant Repsol SA offered some clues earlier this week when it unveiled its goal to achieve net-zero emissions by 2050. The announcement itself was notable. While a growing number of companies have pledged to reduce greenhouse gases from their operations, none has committed to eliminating them, until now.
The Madrid-based major said it planned to increase spending on renewables, tie 40% of executive compensation to emissions reductions and revamp industrial processes like refining so they release less carbon dioxide. It also set interim carbon intensity targets to achieve a 10% reduction from 2016 levels by 2025, 20% by 2030 and 40% by 2040.
"What encourages me with Repsol compared to other operators is it is not one headline number," said Arvind Ravikumar, a professor at Harrisburg University who studies oil and gas companies' climate policies. "I think this is a good-faith attempt in trying to achieve their climate targets."
The recent focus on oil companies' climate plans follows mounting pressure from investors and activists to disclose climate risks related to fossil fuel production. Oil titans like Royal Dutch Shell PLC, Equinor ASA and Total SA have all announced plans to green their operations and cut emissions.
But whether those plans represent a fundamental shift in the companies' operations or merely a token to satisfy environmentally conscious investors is an open question.
Repsol delayed the majority of its carbon committment to the decade between 2040 and 2050. That suggests much of the technology it needs to overhaul its operations doesn't exist yet or isn't cost-competitive, analysts said. It also indicates the company is seeking a gradual evolution of its business rather than a radical rewrite.
The company said in a statement that it would overhaul its approach to new investments, ensuring that future projects are compliant with the emissions targets of the Paris climate accord. It outlined plans to increase its target for renewable electricity generation from 3,000 megawatts to 7,500 MW by 2025. The company has already sanctioned projects that would increase its renewable capacity to 5,600 MW. And it said it would attempt to employ green hydrogen at its refineries, reducing the carbon emissions associated with transforming crude oil into products like gasoline and diesel.
Repsol said its emissions reduction commitment extends to so-called scope 3 emissions, which cover the carbon dioxide released by motorists and power plants.
"I don't know of any other oil company that has pledged to be carbon-neutral, including the burning of their products," said Rob Jackson, an earth scientist who studies the oil and gas industry at Stanford University. "That is quite remarkable."
Deborah Gordon, a researcher at Brown University, said the company's pledge to incorporate green hydrogen could signal a fundamental shift in its business.
Today, most refiners use hydrogen to separate contaminants like sulfur in the production of gasoline and diesel. To produce that hydrogen, refiners heat up natural gas, an incredibly carbon-intensive process. With green hydrogen, water is heated through electrolysis to produce hydrogen.
The development is important on two levels, Gordon said. If renewables are used to power the production of hydrogen, it significantly lowers refinery emissions. In 2017, U.S. refinery emissions were roughly 200 million tons, or about a fifth of industrial emissions in the United States, according to a review of federal data by the Rhodium Group, a consultancy.
More broadly, the adoption of green hydrogen at refineries opens the door for oil companies to begin marketing hydrogen in other sectors of the economy like transportation, Gordon said.
"The oil industry is a hydrocarbon business. The carbon is the problem, and the hydrogen is the solution. They need to figure out how to maximize the solution," she said.
Green hydrogen remains a nascent technology, and it is far more expensive to produce than hydrogen. It has never been deployed at an industrial scale, though Shell has committed to a pilot project at a refinery in Germany.
Repsol did not detail where and when it would incorporate green hydrogen into its operations. The company did not respond to a request for comment.
Ben Gallagher, an analyst at Wood Mackenzie, said he suspected the move represented an attempt by the company to get ahead of regulations in Europe, where oil and gas companies face more pressure to green their operations. Those companies ultimately will not be able to meet their climate goals unless they embrace technologies like green hydrogen, he said.
"I'm not surprised at all," Gallagher said. "It is a fantastic, major step forward that a company of this size is doing so. This is going to have to be the world that oil and gas majors are going to have to operate in sooner rather than later."
Repsol's success at limiting emissions could also be affected by factors out of its control, like the strength of a future carbon price, analysts noted. Green hydrogen, for instance, only becomes financially attractive if refiners are penalized for their emissions.
There's also this: Decreasing the carbon intensity of its operations only results in a reduction in absolute emissions if overall production begins to fall. Shell, for example, has pledged to reduce emissions even as it pursues plans to significantly increase oil and gas production, said Andrew Grant, a senior analyst at Carbon Tracker, a London-based financial watchdog.
Repsol is a prolific producer. In the United States, the company maintains a 22% stake in the Buckskin project, an offshore oil development in the Gulf of Mexico that came online in July. It also recently acquired Equinor's acreage in Eagle Ford, the Texas shale formation.
In its announcement this week, Repsol said it was writing down $5.3 billion in oil and gas assets to reflect the new value of fossil fuels in a carbon-constrained world. Yet some analysts were skeptical, noting the write-down comes amid a sustained drop in oil and gas prices.
"In a world of declining or weak oil and gas demand, that is going to require a change in the business model," Grant said. "I think the jury's out on this, and we'll just have to wait and see and support Repsol to make those changes."
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