Elliot Diringer's remarks at the APPEA Conference

PREPARED REMARKS BY ELLIOT DIRINGER

EXECUTIVE VICE PRESIDENT, CENTER FOR CLIMATE AND ENERGY SOLUTIONS

THE PARIS CLIMATE AGREEMENT: A TURNING POINT FOR THE OIL AND GAS INDUSTRY?

APPEA CONFERENCE

BRISBANE, AUSTRALIA

JUNE 6, 2016

Thank you, Martin, for the kind introduction.  And my thanks to APPEA for inviting me to be with you here this morning.

I appreciate the opportunity to share some views on the landmark Paris Agreement, and on its implications not only for the future of natural gas, but for the future of the oil and gas industry as a whole.

I’d like to touch on five areas:

  • First, the logic, and the most pertinent aspects, of the Paris Agreement;
  • Second, what the agreement’s long-term goals imply for future energy use;
  • Third, how the Paris Agreement is intensifying social and political pressures on the fossil fuel industry;
  • Fourth, how I see the industry responding; and
  • Finally, some thoughts from an interested observer on how the industry can work to ensure a more sustainable path for itself, and for the planet.

First, though, I’d like to tell you who we are. C2ES is a US-based NGO working to advance practical and effective climate policies in the United States and internationally.

We’re an independent organization, but we work closely with major companies committed to addressing climate change. 

Our Business Environmental Leadership Council includes 30 companies, most in the Fortune 500. They span the major sectors of the economy, and include large energy producers and consumers, including three members of APPEA – BHP Billiton, BP and Shell.

In addition to our work with companies, C2ES undertakes in-depth policy analysis, and we facilitate dialogue among diverse stakeholders. One recent example is the role we played behind the scenes convening informal discussions among governments leading up to the Paris conference last December. 

Over 15 months, we brought together senior negotiators from two dozen countries – Including Australia – for eight very candid, very in-depth sessions debating the key issues and the best options. The report we drew from these discussions and released last July laid out the essential landing zones for the agreement that was concluded five months later in Paris.

From our perspective, it’s a good agreement, one with the potential to be truly transformative. The Paris Agreement draws lessons from the past 20 years of climate diplomacy to establish a more pragmatic and more inclusive framework for global action. 

It’s what we describe as a hybrid agreement; it combines bottom-up and top-down features to strike the right balance between national flexibility, to achieve broad participation, and international rigor, to ensure accountability and to promote rising ambition.

The strong, high-level political momentum that produced the Paris Agreement is continuing. 

  • More than 170 countries signed the agreement when it was formally opened for signature in April in New York. 
  • The United States and China have said they will soon go the next step and complete their domestic approval procedures. 
  • And there are strong signs the agreement will formally come into force as early as this year, but more likely next – much earlier than had been anticipated.

So what, specifically, does the agreement require?

  • It commits all parties to make national contributions, backed up by domestic mitigation measures;
  • It commits them to regularly report on their emissions and on their progress in implementing their contributions;
  • And it commits them to update their contributions every five years.

These contributions are nationally determined – every country decides for itself what it will do – and they are not legally binding. But the binding procedural commitments – to regularly report, and to periodically update your contribution – will provide stronger accountability, and should work to promote rising ambition.

Rising ambition toward what? The agreement sets a number of long-term goals. It sets a temperature goal: keeping warming well below 2 degrees Celsius, and striving to limit it to 1.5. And it sets two emissions-related goals: first, to peak global greenhouse gas emissions as soon as possible; and second, to achieve net zero emissions in the second half of the century. 

I’ll repeat that: net zero emissions in the second half of the century.

Of course, the agreement itself can’t ensure that these goals are met. But it establishes mechanisms that will periodically call the question; that will periodically require us to consider – both in capitals and at the global level – whether our near-term actions are in line with these long-term objectives.

So what do these long-term goals imply for the future of fossil fuels? 

First, they quite clearly suggest that we need to shift as rapidly as possible to lower-carbon sources of energy – which leads me, of course, to the promise of natural gas.

In the United States, we know firsthand the important role that affordable natural gas can play in reducing emissions. 

  • By our calculation, more than half the cut in carbon emissions from the U.S. power sector achieved over the past decade came from the substitution of natural gas for coal. 
  • Natural gas has risen from 19 to 33 percent of our generation mix. 
  • Going forward, we anticipate bigger increases in natural gas use as the U.S. works to further reduce power sector emissions.

How representative is the U.S. experience? Is it an isolated example? Or is it replicable in other major regions of the world?

The answers depend heavily on local and regional circumstances. But one thing seems clear: the case for natural gas as a bridge fuel really only holds if its increased use is accompanied by a corresponding decline in the use of higher-carbon fuels. 

The International Energy Agency forecasts that, under a business-as-usual scenario, natural gas will be the fastest growing fossil fuel through 2040, with global consumption increasing by 70 percent. But the IEA also forecasts that coal use will continue to rise as well.

Here’s another thing that seems clear: The climate benefits of natural gas can be realized only if we do a much better job reducing flaring and reducing methane leakage throughout the natural gas value chain. 

I know that estimates of leakage vary widely. But whatever the real levels, they are too high. And there are cost-effective measures available to bring them down. What’s standing in the way?

And here’s one more thing that seems clear: Let’s say we can ensure that rising natural gas use substitutes for, rather than supplements, coal use. And let’s say we do a fabulous job reducing flaring and leaks. That’s still not enough.

Remember, the goal is net zero emissions in the second half of the century. Natural gas is a lower-carbon fuel. It’s not a no-carbon fuel. 

So if we envision producing and burning growing quantities of natural gas, we need ways to keep the resulting carbon emissions from reaching the atmosphere. Which leads me to the role of carbon capture utilization and storage – CCUS.

The IEA calculates that nearly 15 percent of the emission reduction needed by 2050 to put us on a 2-degree pathway must come from CCS.

Billions have been invested in CCS and we’re making some headway. I understand that here in Australia, the Gorgon CO2 Injection Project – which is expected to be the largest CO2 storage project in the world – is projected to come on line next year. That will be a critical milestone.

We also need to be thinking about the “U” in CCUS – utilization. Just recently we’ve heard promising developments on that front.

The Ford Motor Company announced a project to capture carbon from its manufacturing emissions. They’re going to use that carbon to make the foam put in auto seats and interiors.

And last month, Exxon Mobil announced it’s expanding its partnership with FuelCell Energy. They’re working on a technology that can capture CO2 from coal and natural gas plants and use it to power fuel cells. 

Breakthroughs like that are exactly what we need if we’re ever going to come close to achieving carbon neutrality.

I‘ve talked about some of the technological challenges your industry faces in navigating its way into a low-carbon future. I want to turn now to some of the social and political challenges you face coming out of Paris.

It’s no news to you that the fossil fuel industry faces growing opposition on many fronts. I understand that last month in Newcastle, 2,000 activists managed to shut down the world’s largest coal port for a day, one of 20 coordinated actions against fossil fuel installations on six different continents.

For a large and growing activist community, the Paris Agreement sounded the death knell for the fossil fuel industry. 

These activists are committed to pulling every lever they can, under the agreement or elsewhere, to realize their vision of a fossil-free future. And they don’t necessarily distinguish among fossil fuels – for them, the potential carbon benefits of natural gas are outweighed by other perceived risks.

This is not a ragtag band of protestors. It’s an increasingly sophisticated movement, with significant resources, that is getting attention on Wall Street and among policymakers. 

Companies are under growing pressure to disclose – indeed, in the U.S., some are under investigation for alleged failure to disclose – and investors are under growing pressure to divest.

  • The governor of the Bank of England, Mark Carney, drew a fair bit of notice a few months back when he warned of rising financial risks related to climate change. 
  • Just a couple of weeks ago, at the Exxon and Chevron shareholder meetings, resolutions calling on the companies to conduct climate-related stress tests were only narrowly voted down.
  • Later this year, we’ll hear recommendations on the disclosure of climate-related financial risks from a Financial Stability Board task force chaired by Mike Bloomberg. 

A recent headline in the Huffington Post showed how the issue is being portrayed to the public. Here’s how it read: “Climate Change Poses A Big Risk To Your Retirement Savings.” 

Alongside the article, I noticed a link to an online petition. The message?  “Tell world governments: Keep 80 percent of fossil fuels in the ground.”

My message is that these pressures will not fade away. More likely, they will continue to grow.

So, how, so far, is the industry responding?  From where I sit, it’s a mixed picture.

On the one hand, I see companies investing in alternative technologies that could help them diversify. 

  • I mentioned Exxon’s investment in a novel fuel cell technology. 
  • It’s been reported that Shell is creating a separate division focused on low-carbon power. 
  • Total is spending a billion dollars to acquire an advanced battery manufacturer. 
  • Statoil is developing a utility-scale battery system to go with its offshore wind farms.

I also see some companies – some CEOs, even – signing on to statements in support of policies such as carbon pricing. At the same time – while these are exactly the kinds of investments we need – they represent a tiny fraction of these companies’ assets.?

I hear policymakers saying that when it comes down to brass tacks, and they put specific policy proposals on the table, industry support is nowhere to be found. And I hear some companies arguing that the Paris Agreement is a lot of wishful thinking; that governments won’t follow through; and that climate change poses no real risk to their business models.

So does the Paris agreement represent a turning point for the oil and gas industry? For the moment, at least, it seems to depend who you ask.

My organization is about building common ground, because we believe that’s the only way to make real progress. We worry when we see signs that the demonizing tactics of one side lead the other side to simply dig in. No one’s going to win that way.

We know there’s no solution to climate change without business. But we believe real and lasting solutions are possible only if business shows leadership, rather than fobbing the responsibility off entirely on governments. Governments, on the whole, are showing greater resolve than ever on climate change. But who are we kidding? They can’t possibly do it on their own.

There’s probably no convincing the zealots that the oil and gas industry has a legitimate role in a carbon-constrained future. 

But it seems to me you need to do a better job convincing the many others who are not zealots, but who are increasingly, and quite reasonably, concerned about the genuine risks posed by climate change.

I’m not a business analyst. I can’t advise companies on how to best serve the interests of their shareholders. But in the interest of achieving consensus solutions, and avoiding prolonged gridlock, I would offer three suggestions:

First, I would urge the industry to rapidly scale up investment in low-carbon energy; in carbon capture, utilization and storage; and in other viable means of sequestering carbon.

Second, I would urge the industry to chart, and to clearly articulate, a long-term vision for itself that is compatible with climate protection.

And third, I would urge companies to come to the table, roll up their sleeves, and work with policymakers and other stakeholders to enact and implement the policies we need to facilitate a smooth low-carbon transition.

To sum up, the Paris Agreement marks a critical turn in the global climate effort. It sets ambitious goals, and it guarantees a succession of highly visible political moments when our efforts will continually be held up against those goals. 

And this puts the oil and gas industry at a crossroads.

Yes, natural gas can be part of the solution. But the broader question is whether the industry will cling as long as possible to its established business model; or whether it will choose to reinvent itself – to work with others to deliver the policies, the technologies, and the investment needed to ensure a more sustainable path for itself, and for the planet. 

To me, at least, the choice is clear.

Again, I appreciate the opportunity to share these views. And I thank you for listening.