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Absolute Impact 2021
Why oil and gas “net zero” ambitions are not enough
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Analyst Note May 2021About Carbon Tracker The Carbon Tracker Initiative is a team of financial specialists making climate risk real in today’s capital markets. Our research to date on unburnable carbon and stranded assets has started a new debate on how to align the financial system in the transition to a low carbon economy. www.carbontracker.org | hello@carbontracker.org About the Author Mike Coffin – Senior Analyst Mike joined Carbon Tracker in 2019, and is currently focussing on identifying transition risk within the oil and gas industry as the global energy system evolves. He has co-authored reports to assess impacts at the company level, including Breaking the Habit and Balancing the Budget, alongside writing on company climate ambitions in Absolute Impact and country risk in Beyond Petrostates. Other research themes include executive remuneration and verification of company actions. Prior to joining Carbon Tracker, Mike worked as a geologist for BP for 10 years on projects across the upstream, from early access to development. Mike has experience working in petroleum basins across the world, including time spent working in Norway, with expertise in unconventional exploration and in leading technical project teams. Mike has an MA and MSci in Natural Sciences from the University of Cambridge and is a Chartered Geologist (CGeol). With thanks to Andrew Grant, Mark Fulton and Henrik Jeppesen for critical review. Readers are encouraged to reproduce material from Carbon Tracker reports for their own publications, as long as they are not being sold commercially. As copyright holder, Carbon Tracker requests due acknowledgement and a copy of the publication. For online use, we ask readers to link to the original resource on the Carbon Tracker website. © Carbon Tracker 2020.
ABSOLUTE IMPACT 2021 MAY 2021
Table of Contents
1 Key Findings ................................................................................................... 1
2 Executive Summary ......................................................................................... 2
3 Introduction .................................................................................................... 7
4 Emissions goals at the company level ............................................................ 11
4.1 Assessment of Company Goals .......................................................................... 14
4.2 Company climate goal selection and ranking methodology ............................... 16
5 Credibility of Climate Goals and Emissions Mitigation ................................... 21
5.1 Carbon Capture, Utilisation and Storage Technologies ...................................... 22
5.2 Carbon Dioxide Removal and Negative Emissions Technologies ........................ 22
5.3 CCUS and NETs within corporate goals ............................................................ 22
5.4 Impact for Investors ........................................................................................... 25
6 Company Specific Notes ............................................................................... 26ABSOLUTE IMPACT 2021 MAY 2021
1 Key Findings
• Corporate climate goals in the oil and gas industry must link to finite
limits that the energy transition places on current business models.
• We provide a relative ranking of goals for ten of the largest oil and gas
producers (7 majors plus Equinor, Occidental and Repsol), building on our 2020
ranking in Absolute Impact.
• Net zero goals are not in themselves sufficient – it’s the pathway to net zero
emissions, and the resulting cumulative emissions, that matters in determining the
warming outcome for the planet.
• We refine our “hallmarks of Paris compliance” to reflect the importance
of 2030 emissions reductions on an absolute basis. To link to the global
carbon budget, climate goals must include end-use emissions (scope 3) with interim
absolute reductions covering companies’ global activities on an equity-share basis. We
assess the companies’ emissions goals against these criteria.
• An intensity approach fails to link to finite climate limits, particularly for
those goals that cover all-energy sales, potentially masking production increases.
• We see a three-tier approach to corporate ambitions – similar to our 2020
ranking – with some movements between tiers:
o Eni top our rankings, with absolute emissions reductions covering all activities
including scope 3 emissions. Total and bp also fall within this band albeit with
shortcomings to their goals, in particular the incomplete coverage of activities.
o Shell, Equinor, Repsol and Occidental include scope 3 emissions, but set
interim targets on an intensity basis.
o ConocoPhillips, Chevron and ExxonMobil only have goals covering
operational emissions (scope 1 and 2).
• Occidental is the first large North American company to set a target
covering scope 3 emissions; however, a clear Atlantic divide remains.
• ExxonMobil remains firmly at the foot of our rankings. Its new climate goal
covers only Upstream operational emissions, with a 15-20% reduction to 2050.
• Company goals are heavily reliant on a range of unproven technologies
to mitigate emissions, impacting their credibility. We give an overview of
these, decoding the alphabet soup of CCUS, CDR, NETs, NBS, and their impact in
reducing atmospheric CO2 levels.
• We continue to call for an industry-standard approach to reporting.
Nearly every company ambition or target is framed differently, with varying calculation
methodologies and exclusions.
• Accountability and transparency is critical for emissions mitigations, both
to avoid double-counting and to ensure that “offsets” have the intended effect.
1ABSOLUTE IMPACT 2021 MAY 2021
2 Executive Summary
With companies seeking to maintain a social licence to operate, oil and gas companies are
continuing to announce new climate goals that frame their business response to the energy
transition. For investors, these targets give a clear indication of the transition risks these companies
face and offer a window into senior management’s strategy and view of the future.
Climate goals must reflect end use emissions
Despite various claims of “net zero”, oil and gas emissions targets are far from equal, with some
focussed on reducing absolute emissions associated with the full spectrum of company activities –
including end use/combustion. Conversely, other company goals cover just the small minority of life
cycle emissions related to the initial production process.
For the world to stay within the finite limits of the carbon budget – and stabilise global temperature
rise – carbon emissions must fall rapidly in the coming decades. Given the use of fossil fuels for
energy inherently relies on the release of CO2, the use of such fuels must also fall rapidly;
accordingly, businesses exposed to the oil and gas value chain are vulnerable to this inevitable fall
in demand. Climate targets that fail to reflect the full life cycle emissions associated with activities
thus fail to represent the inherent risks involved.
An intensity approach does not link to finite limits
However, incorporating end-use emissions into corporate goals is not sufficient; to link to the carbon
budget, emissions reductions must also have an absolute basis to them. Some companies have
announced climate goals on an average intensity basis (tCO2/J) covering all of the company’s
energy production, yet progress can be made against such goals simply by producing more low
carbon energy – under such a target, oil and gas production, and thus absolute emissions, could
even increase.
Companies need more than a 2050 goal; absolute reductions to 2030 are crucial
A stated goal some 30 years hence is one thing, but however ambitious it is, there is little incentive
for current management to act to reduce emissions – it is far simpler to continue with business as
usual, and leave the challenge to successors. To drive real change, it’s critical that companies have
interim goals; since our 2020 analysis, Absolute Impact, we have seen an increasing number of
such goals announced.
Of course, for interim goals to drive the desired change, they also need to be an absolute basis,
rather than just measuring emissions intensity reductions; over the past year, some companies have
announced such goals for 2030 which is a positive step forward.
To help guide investors’ engagement with companies, we bring these elements together into our
“hallmarks of Paris compliance” (see box) – a set of pre-requisites for a company to be considered
Paris compliant. We then use these as a basis to provide a relative ranking of company targets –
see Figure 1 and Table 1.
2ABSOLUTE IMPACT 2021 MAY 2021
Hallmarks of Paris compliance
For a company emissions target to be potentially considered as “Paris compliant” we believe
that as a minimum it should be in a form that satisfies these three pre-conditions:
1. Includes full lifecycle emissions including both operational (scope 1 and 2) and end use
emissions (scope 3)
2. Be bound by finite limits, including interim milestones set on an absolute basis.
3. Covers emissions from a company’s owned production and global product sales on a
full equity share basis, including downstream product sales.
We stress that these hallmarks are a pre-requisite for a company to be considered aligned with
the aims of the Paris agreement. Goals must cover a significant proportion of company activities,
with the scale (magnitude) of emissions reductions consistent with a Paris-aligned carbon budget.
Emissions goals should also not rely unduly on emissions mitigations (e.g. carbon capture,
utilisation and/or storage technologies, or negative emissions technologies) that are either
undemonstrated at the required scale, or require vast areas of as yet unidentified land.
There are other factors in considering whether a company is Paris compliant in a broader sense,
including for example project sanctioning decisions, price assumptions used in impairment
testing, executive remuneration policies and lobbying practice.
3ABSOLUTE IMPACT 2021 MAY 2021
FIGURE 1. GOAL SELECTION AND RANKING METHODOLOGY
Source: CTI analysis
4ABSOLUTE IMPACT 2021 MAY 2021
TABLE 1. RANKED COMPARISON OF OIL AND GAS COMPANY EMISSIONS TARGETS
Source: Company disclosures, Carbon Tracker analysis.
Notes: 1Total’s goal is split into two parts: absolute scope 3 emissions target for products sold in Europe, and its
carbon intensity goal covering all products sold in Europe (net zero in 2050). ^For both Shell and Equinor, emissions
reductions to reach their respective net zero goals includes expected reductions made by consumers; Repsol’s net
zero goal includes avoided emissions as part of its “Low Carbon Power Bonus”. Shell has interim goals on its intensity
metrics, and thus ranks ahead of Equinor which does not. See notes in appendix for full discussion.
5ABSOLUTE IMPACT 2021 MAY 2021
Eni remains atop the ranking, ahead of European peers
As in our 2020 analysis, Eni tops our ranking with its goal that covers end use emissions from all
activities on an equity share basis, with a 25% reduction in emissions in 2030 on the pathway to net
zero in 2050. Total and bp are ranked within the first band, with goals that have 2030 reductions
with an absolute basis, albeit failing to cover all activities.
Shell, Equinor, Repsol and Occidental all have metrics which include end use emissions, however
with an intensity approach to reaching net zero; accordingly, any 2030 emissions reductions are
not on an absolute basis.
North American majors still lag behind, despite updates to goals
Despite announcing a net zero target for 2050, ConocoPhillips remains in the lowest band of our
rankings – its target only covers operational emissions (scopes 1 and 2) from operated assets.
Chevron and ExxonMobil similarly only cover operational emissions, both with just short-term
intensity reductions.
For company goals to be credible, they should not rely heavily on unproven
technologies
Whilst ambitious emissions goals are paramount, even those that fulfil the hallmarks may not be all
they seem. All ten companies in our analysis have announced plans to use nascent technologies to
reduce emissions, including both carbon-capture, utilisation and storage (CCUS) and negative
emissions technologies (NETs) to reduce or offset emissions.
These broad terms cover a range of individual technologies, ranging from enhanced oil recovery
(EOR) to direct air carbon capture and storage (DACCS). As yet, many of these are undemonstrated
at anything like the scale stated in company announcements, bringing the credibility of announced
climate goals into question. For some CCUS applications, the net benefit to climate of their
deployment is unclear, and in the case of captured CO2 being used for EOR may even exacerbate
emissions.
Some company announcements talk of deploying “nature-based solutions” (e.g. afforestation),
which require huge tracts of land to be identified and acquired, with significant knock-on
implications for alternative land uses. Even if these issues are solved, there are a host of other issues
e.g. a sapling does not absorb as much CO2 as a mature tree does, a forest needs to be protected,
and biodiversity concerns.
Investors must be wary of companies looking to produce outside of the Paris aligned carbon budget
relevant to them by relying on NETs. Companies should endeavour to follow a Paris aligned
production schedule.
Investors must press companies for details behind emissions reduction plans
Accordingly, while investors should push for companies to set climate goals according to the
hallmarks, they must also engage with companies to disclose how such goals will be achieved, and
satisfy themselves that any emissions mitigation plans are credible. Companies with goals that are
achieved through a managed wind-down of oil and gas activities, rather than an over-reliance on
untried technologies, illustrate a more reliable pathway to lower emissions as well as taking stranded
asset risk off the table.
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3 Introduction
The global carbon budget has finite limits
The science is clear: it’s the aggregate level of CO2 emissions that determines the temperature
outcome for the planet. For example, to stabilise global temperature rise by 2100 to 1.75°C –
consistent with the “well below two degrees” objective of the Paris agreement – the remaining carbon
budget is just 920GtCO2. At current average emissions levels (41.5GtCO2/year over the last 5
years), that’s just 22 years; to limit global warming to 1.5°C the remaining budget is just 11 years
(Figure ).1
FIGURE 2. GLOBAL REMAINING CARBON BUDGET FOR DIFFERENT TEMPERATURE OUTCOMES
Not all pathways are equal; “net zero” in 2050 is not sufficient alone
Of course, emissions are unlikely to remain constant for 22 years and then instantly cease; and the
emission pathway adopted towards “net zero” (where annual greenhouse gas emissions are
balanced out, or “offset”, by sinks) matters. One way to stay within the carbon budget would be for
net emissions to decline rapidly from today, such that the carbon budget is not exceeded prior to
net zero. This is conceptually illustrated by the dark green line in Figure 3, with no net negative
emissions needed after net zero.
Some scenarios suggest a different pathway to net zero, where net emissions to remain flat (or
worse, increase in the short term), and then for rapid emissions reductions to take place some
1
Here we show the remaining carbon budgets for a 50% chance of success. For a 66% chance of staying within
1.75 °C, the carbon budget is 680GtCO2 equating to 16 years at current emissions levels (300GtCO2 and 7 years
for 1.5°C).
7ABSOLUTE IMPACT 2021 MAY 2021
decades hence. This is illustrated by the red pathway in Figure 3, where the carbon budget is
exceeded in the mid 2030s, but net zero is not reached until 2050. This results in temperature
“overshoot”, with significant net negative emissions (greenhouse gas sinks greater than greenhouse
gas sources) required subsequently to bring temperatures back down by the end of the century.
FIGURE 3. A) GLOBAL NET ANNUAL CARBON EMISSIONS (TOP ), AND B ) REMAINING CARBON BUDGET
(BOTTOM ) TO 2100, FOR THREE ILLUSTRATIVE SCENARIOS , WITH THE SAME CARBON BUDGET , ALL
REACHING NET ZERO IN 2050.
Source: Carbon Tracker analysis (updated from Absolute Impact)
Note: schematic diagrams with approximate y-axis values.
A pathway which breaks that carbon budget prior to net zero has two major issues; first, recovering
from temperature overshoot may not be possible, depending on how the Earth’s climate system
responds and any “positive” feedback loops. Second, who is going to pay for massive deployment
of negative emissions technologies needed to achieve this?
Most climate scenarios incorporate some degree of net negative emissions in the years post net
zero, however the sooner emissions reductions start – and the lower the reliance on subsequent
global net negative emissions – the more orderly the transition and the greater the likelihood of
containing global temperature rise.
8ABSOLUTE IMPACT 2021 MAY 2021
The energy transition necessitates strategic choices for oil and gas
Whether the energy transition is driven by policy action, investor pressure or out-competition by
alternative energies (likely all of the above), the impact felt by oil and gas companies is the same:
a lower demand for their products, and as a result, the traditional oil and gas industry has to
fundamentally change. Continuing on a business-as-usual path risks sanctioning assets which would
take the world beyond finite climate limits, and risk becoming stranded; oil and gas companies –
across all parts of the value chain – prepared to sanction such assets are effectively betting on
society’s failure to address climate change.
As we have written about at length, to present themselves as Paris-aligned and reduce transition
risk, companies with oil and gas activities should sanction only the lowest cost assets that fit within
Paris limits2. For most this will mean a near-term decline in production levels. The International
Energy Agency (IEA) recently released a report reinforcing our prior conclusion3 that no new oil and
gas projects could be sanctioned to limit warming to 1.5 °C in the longer term.4
For existing assets, companies can either allow production to decline naturally or sell them,
depending on wider strategic considerations. With the cash generated, that would previously have
been invested in new assets, companies broadly have two strategic options:
1. Return the generated cash to shareholders – “wind-down/harvest model”
2. Reinvest into new businesses that will deliver sustainable returns in a low-carbon world –
“transition model”
Which model is appropriate for a company will depend on its current situation and the desires of its
shareholders. An exploration and production company may find it harder to transition than a large
integrated company which can pivot its retail distribution businesses to supplying alternative energy.
For example, this could be by converting existing petrol stations into electric vehicle charging points,
or by developing hydrogen fuel networks. While transition strategies are outside the scope of this
note, this is a research area we continue to develop.
Emissions goals in the eye of the beholder
While there is now almost universal consensus on the need to act on climate change, the debate
continues on who is “responsible” for the emissions from fossil fuels use. Is it those who initially
extracted them from the ground? Is it the refiner who turns crude into petrol? Is it the consumer who
drives the car, releasing 85% of lifecycle emissions? Or is it the purchaser of electricity generated in
a gas power station?
For the companies, climate targets may help maintain a social licence to operate – that is to ensure
that consumers continue to purchase their products – by framing the company as part of the solution
on climate change rather than the problem.
2
See Carbon Tracker reports “Balancing the Budget”, November 2019, and “Fault Lines”, October 2020. Available
at: https://carbontracker.org/reports/balancing-the-budget/ and https://carbontracker.org/reports/fault-lines-
stranded-asset/
3
See Carbon Tracker, “Breaking the Habit”, September 2019
Available at https://carbontracker.org/reports/breaking-the-habit/
4
Net Zero by 2050: A Roadmap for the Global Energy Sector, IEA, May 2021. Available at:
https://www.iea.org/reports/net-zero-by-2050
9ABSOLUTE IMPACT 2021 MAY 2021
From an environmental perspective, climate targets can be viewed based on the extent they reduce
emissions, and thus support staying within the finite limits of a Paris-aligned carbon budget.
From a financial perspective, however, it doesn’t matter who is responsible for emissions.
Irrespective of any personal viewpoint on accountability, reduced fossil fuel consumption and weak
commodity prices will lead to falling revenues though the transition, with impacts greatest for those
that have not anticipated the shift. Corporate climate goals can thus be viewed through a risk lens;
targets and ambitions may be indicative of a company’s view of the pace of transition and relative
willingness to act to reduce risk. Those concerned about both the planet and returns have a dual
reason to pay attention.
Of course, climate targets are framed in a myriad of different ways; as a result, assessing targets –
both in isolation, but also relative to peer companies – is challenging. In Chapter 4 we review the
fundamentals of emissions target setting at the company level for oil and gas, before then ranking
some of the largest companies’ targets. In Chapter 5 we then discuss the credibility of company
goals regarding the emissions mitigation levers assumed.
10ABSOLUTE IMPACT 2021 MAY 2021
4 Emissions goals at the company level
A focus on production emissions is appropriate for most sectors…
For most products – be it a loaf of bread, a t-shirt or a sofa – once the product is created, few (or
no) further emissions result from its consumption or end use. In emissions scope terms, the emissions
relating to the use of sold products (classified as part of scope 3, see Table 2) are small when
compared to those involved in the manufacture of the product. For these products, the concept of
emissions intensity (aka carbon footprinting) is potentially useful, as this encourages companies to
think how emissions associated with the manufacture and distribution of each item can be reduced.
Providing this reduction doesn’t lead to consumption increases, reducing the emissions intensity will
lead to emissions reduction.
TABLE 2. EMISSIONS SCOPE TAXONOMY
Scope 1 Scope 2 Scope 3
Purchased goods and services
Business travel
Fuel combustion Employee commuting
Waste disposal
Purchased electricity,
Company vehicles Use of sold products
heat and steam
Transportation and distribution (up- and
Fugitive emissions downstream)
Investments
Leased assets and franchises
Source: Carbon Trust5
The same is true of large industrial processes, for example the manufacture of cement. While there
is an inherent release of CO2 when converting calcium carbonate (CaCO3) to lime (CaO) these
emissions are crucially in the direct control of the factory6. The subsequent use of the cement in
concrete does not lead to end use CO2 emissions. As a result, the purchaser of either t-shirts or
cement does not need to be concerned with further emissions, and so can make a purchasing
decision based on the CO2 emissions generated in creating the product.
…however, emissions targets for oil and gas need to reflect end use emissions
For oil and gas products, however, this approach falls down. Considering the emissions associated
with the extraction of crude oil, subsequent refining into petrol and use in a light vehicle: around
5
https://www.carbontrust.com/resources/briefing-what-are-scope-3-emissions (accessed 16/04/2021)
6
That the emissions are generated from a point source means that they are also easy to measure, and also there is
the potential to decarbonise the process, through for example carbon capture and storage technologies, preventing
these emissions even entering the atmosphere.
11ABSOLUTE IMPACT 2021 MAY 2021
85-90%7 of the total emissions result from when petrol is combusted to form carbon dioxide and
water, releasing energy to propel the car forward.
Whether “responsible” or not for these end use emissions (or scope 3 emissions more broadly), the
reality is that oil and gas company business models rely on their continued creation. Consequently,
any emissions goal focussed on just scope 1 and 2 emission – even if with a “net zero” goal – can
at best address just 15% of full life-cycle emissions. If consumers move away from carbon-intensive
products, then demand will fall; thus, we see it as critical that company emissions goals recognise
these end use emissions as a proxy for risk, as well as reflecting the reality of business activities.
Company climate goals must have an absolute basis…
While net zero is an important goal – when any residual positive emissions are completely offset by
negative emissions – the pathway to that net zero year determines the aggregate emissions released.
That needs to be compared to a global carbon budget which is finite for a given temperature
outcome. While the debate about how this budget is apportioned to different sectors within climate
scenarios is unlikely to stop anytime soon, the reality is that however it’s split, then sectors will also
have finite emissions limits.
This applies also when going from the sector level to the company level. For company-level goals
to link to the carbon budget, the focus must remain on reducing the absolute level of emissions
inherent within company activities – this is the same whether from a climate change or transition
risk perspective.
…including interim targets also on an absolute basis
Some companies, however, have adopted an intensity approach to target setting; a goal of “net
zero by 2050” could be viewed as having an absolute basis at that point. However, until that date,
there is no constraint on the emissions that result from company activities. Even if such intensity
goals covered only oil and gas activities without a cap on oil and gas production, and sought to
reduce emissions intensity via mitigation / offsets, there would be no link to the cumulative global
carbon budget – even when “net zero” is reached.
It’s therefore critical that company goals have an absolute basis to them that applies from the near
term, rather than at some point in the distant future; without such basis to interim goals there is no
limit to aggregate emissions on the pathway to net zero. Such goals will thus require management
to take action now, rather than leaving it to their successors to respond to the challenge, increasing
risk for investors in the interim.
Separate out oil and gas targets from those covering low carbon businesses
For a number of companies in our universe, intensity targets are based on the metric of CO2
emissions per joule of energy produced (tCO2/J), including energy produced from renewable
sources. By included non-fossil energy within an emissions intensity target, apparent progress can
be made simply by adding renewables: emissions intensity in tCO2/J would fall, while absolute CO2
emissions from company activities would remain flat.
7
Total, “Getting to Net Zero”. Available at: https://www.total.com/sites/g/files/nytnzq111/files/documents/2020-
10/total-climate-report-2020.pdf
12ABSOLUTE IMPACT 2021 MAY 2021
Fundamentally, these all-energy intensity targets would only link to the finite limits of the global
carbon budget if there were finite limits on energy production (i.e. the denominator were fixed). But
there is no need to cap the energy we produce from all sources, particularly given the energy growth
that renewables can deliver with nearly zero emissions.
Emissions targets should therefore seek to focus on reducing absolute emissions from fossil fuels.
Integrated oil and gas companies could choose to additionally set targets covering non-fossil
activities8, however, they must not use all-energy intensity targets to mask continued oil and gas
growth under the guise of average emissions reductions.
Climate goals should cover both upstream and downstream…
The traditional split of an integrated oil and gas company is into either two or three main business
segments, each of which is exposed to transition risk:
• Upstream: the exploration for hydrocarbon accumulations and the development and
operation of infrastructure to produce them.
• Downstream: the trading and refining of crude into products and marketing and sales to
consumers. Purchases crude either from its own company’s upstream business (an inter-
segment transaction) or from a third party.
• (Petro-)Chemicals: the conversion of feedstocks into a range of products (including industrial
chemicals and plastics) – sometimes included within “Downstream” segment.
Accordingly, for company goals to fully reflect transition risk, it is important that they reflect both
upstream and downstream activities, particularly so for an integrated company which refines greater
volumes of crude than it extracts. This isn’t to say that emissions from upstream and downstream
activities should be double counted – the scope 1 and 2 emissions of one are the scope 3 emissions
of the other; the end use emissions are counted within scope 3 of both. To adequately reflect
transition risk, however, company targets should reflect the full exposure of the company to the oil
and gas value chain.
…on an equity share basis, covering global interests
If a company has an economic interest in a project – and thus potentially both currently profits from
its investment but also faces stranded asset risk – then that activity should be included within relevant
company climate goals. Equally, some companies have set targets which only apply to sales in
specific geographical regions, or exclude certain business units. While it is true that the pace of
transition is likely to faster in some regions (e.g. Europe) compared to others, given that carbon
budgets apply on a global basis a company cannot be considered Paris compliant if its targets only
cover certain regions. Similarly, goals should not exclude certain business segments, or investments
in third parties.
Finally, companies which rely on consumer actions to achieve their climate goals are in effect
adopting a passive position, rather than a leading one on decarbonisation. This is a corporate
choice, however companies cannot claim Paris alignment in a meaningful sense if the plan is to be
carried along by others.
8
We note that despite the rhetoric around becoming energy companies, integrated oil and gas companies derive
the bulk of their income, and the spend the vast majority of their capex on oil and gas. For example, Shell’s 2020
cash capital expenditure on “renewables and energy solutions” was just 5% of total capex ($0.9bn of a total of
$17.8bn) 8.
13ABSOLUTE IMPACT 2021 MAY 2021
4.1 Assessment of Company Goals
Having reviewed some of the key aspects of company climate targets, we now move on to assessing
company targets to give a relative ranking for the ten companies covered, using a similar approach
to that used in Absolute Impact (June 2020)9. We note that some companies have “ambitions”, while
others have “targets” (ostensibly more binding). We refer to these collectively as goals, although
may also use “target” to apply to both unless referring to a specific company.
Since that report, there have been significant updates to company climate targets announced,
including both updated metrics as well as the scale of reductions – a summary of key updates is
shown in Table 4. Given this, we have revised our “hallmarks of Paris compliance” which we first
defined in our 2019 report Balancing the Budget10 and is the basis of our company assessment (see
box).
TABLE 3. KEY UPDATES TO CARBON EMISSIONS GOALS VS 2020 ANALYSIS
Company Key Updates Date
bp Interim steps added to its three aims Sept 2020
Introduction of 2028 targets in addition to 2023 targets for
Chevron March 2021
Scope 1&2 intensity
Introduction of net zero scope 1&2 intensity target for 2050
ConocoPhillips Oct 2020
and more ambitious 2030 target
Both net GHG lifecycle emissions and carbon intensity
Eni updated; both reach net zero in 2050, with accelerated Feb 2021
interim goals
Accelerated reduction in upstream scope 1&2 intensity
Net carbon intensity goal updated from -50% to net zero in
Equinor Feb 2021
2050
New goal of carbon-neutral global operations by 2030
Introduction of scope 1&2 upstream operations intensity
ExxonMobil Dec 2020
metric
Occidental Introduction of two new goals: 1) operated and energy use
emissions (scope 1 and 2) and 2) total emissions inventory Dec 2020
(new to universe) including product use (scopes 1, 2 and 3)
9
Carbon Tracker report, “Absolute Impact”, June 2020. Available at: https://carbontracker.org/reports/absolute-
impact/
10
Carbon Tracker report, “Balancing the Budget”, November 2019. Available at:
https://carbontracker.org/reports/balancing-the-budget/
14ABSOLUTE IMPACT 2021 MAY 2021
More ambitious interim targets introduced for its net
Repsol Nov 2020
carbon intensity indicator
Net carbon footprint ambition now reaches net zero in
Shell Feb 2021
2050 although it is reliant on customer actions from 2035.
Introduction of absolute Scope 3 emissions target for
Total Sept 2020
products sold in Europe
Source: company disclosures
Notes: updates shown as those which post-date the analysis in Absolute Impact (June 2020). For further details, see
appendix.
15ABSOLUTE IMPACT 2021 MAY 2021
Hallmarks of Paris compliance
For a company emissions target to be potentially considered as “Paris compliant” we believe
that as a minimum it should be in a form that satisfies these three pre-conditions:
1. Includes full lifecycle emissions including both operational (scope 1 and 2) and end use
emissions (scope 3)
2. Be bound by finite limits, including interim milestones set on an absolute basis.
3. Covers emissions from a company’s owned production and global product sales on a
full equity share basis, including downstream product sales.
We stress that these hallmarks are a pre-requisite for a company to be considered aligned with
the aims of the Paris agreement. Goals must cover a significant proportion of company activities,
with the scale (magnitude) of emissions reductions consistent with a Paris-aligned carbon budget.
Emissions goals should also not rely unduly on emissions mitigations (e.g. carbon capture,
utilisation and/or storage technologies, or negative emissions technologies) that are either
undemonstrated at the required scale, or require vast areas of as yet unidentified land.
There are other factors in considering whether a company is Paris compliant in a broader sense,
including for example project sanctioning decisions, price assumptions used in impairment
testing, executive remuneration policies and lobbying practice.
4.2 Company climate goal selection and ranking methodology
Before ranking company targets against each other, we first select which targets to use; we review
the set of climate goals for each company (ambitions and targets), and select that which most fulfils
the hallmarks. This goal is then assessed as to whether it covers a significant proportion of the
emissions associated with company activities. If so, then this goal is used in the ranking table. If not,
then the company goal that next most fulfils the hallmarks is selected, and the assessment repeated.
Once a goal for each company has been selected, then the companies can be ranked against each
other in a two-step process, considering first the characteristics of the metrics, before then reviewing
the coverage (breadth of company activities covered) and scale (e.g. does the company reach net
zero) of reductions. A summary of the overall process is shown in Table 4.
16ABSOLUTE IMPACT 2021 MAY 2021
FIGURE 1. GOAL SELECTION AND RANKING METHODOLOGY
Source: CTI analysis
17ABSOLUTE IMPACT 2021 MAY 2021
TABLE 4. RANKED COMPARISON OF OIL AND GAS COMPANY EMISSIONS TARGETS
Source: Company disclosures, Carbon Tracker analysis.
Notes: 1Total’s goal is split into two parts: absolute scope 3 emissions target for products sold in Europe, and its
carbon intensity goal covering all products sold in Europe (net zero in 2050). ^For both Shell and Equinor, emissions
reductions to reach their respective net zero goals includes expected reductions made by consumers; Repsol’s net
zero goal includes avoided emissions as part of its “Low Carbon Power Bonus”. Shell has interim goals on its intensity
metrics, and thus ranks ahead of Equinor which does not. See notes in appendix for full discussion.
18ABSOLUTE IMPACT 2021 MAY 2021
North American majors still lag behind
In our 2020 ranking table, the three North American companies lagged their European
counterparts. Since that analysis, ConocoPhillips, Chevron and ExxonMobil have all made changes
to their climate goals, however none of the three have targets which include either scope 3 emissions
or have an absolute basis to interim targets.
ConocoPhillips has announced a net zero target for operational emissions (scopes 1 and 2) which
puts it ahead of Chevron – we also note that ConocoPhillips does not have a downstream business.
Shell, Repsol, Equinor and Occidental intensity targets do not link to the carbon
budget
As in 2020, while Shell, Equinor and Repsol have targets which include scope 3 emissions, their
targets are on an intensity basis. In this year’s analysis, Occidental sits alongside them – included
as the first large North American company to set a goal including end use emissions.
All four have a net zero goal for 2050, and each has significant shortcomings in addition to an
intensity basis. Repsol’s net zero goal includes avoided emissions11 as part of its “Lower Carbon
Power Bonus” and also only covers the downstream products which are refined from its own crude
oil production. Shell12 is explicitly reliant on customer actions to reduce emissions intensity from
2035, with Equinor13 similarly reliant on customer actions.
In contrast, Occidental only covers operated activities, rather than using an equity share approach,
and its net zero target has no interim goals – even on an intensity basis – and appears to be heavily
reliant on carbon capture and storage technologies, including direct air capture. This is a big punt
on a set of unproven technologies.
Shell ranks ahead of Equinor due its interim goals, albeit on an intensity basis. Repsol ranks behind
these two as a result of the exclusion of products refined from third party crude, while Occidental
ranks lowest within this band due to the operated-only nature of its goal.
European ranking positions changed from 2020; shortcomings remain
Eni, Total and bp all have emissions targets that include end use emissions on an absolute basis,
critically including absolute emissions reductions to 2030 – accordingly these three companies rank
in the top group. Of these, only Eni include global product sales on an equity share basis, including
downstream sales; it tops our ranking table.
Total’s and bp’s approaches fail to fully meet all of the hallmarks, albeit in different ways. Total’s
goal including scope 3 emissions on an absolute basis only covers product sales to Europe, while
bp’s net zero ambition excludes its stake in Rosneft (around a third of bp’s global production
volumes), and only covers upstream production. Accordingly, bp ranks behind Total.
11
Avoided emissions are reductions in emissions that result from customers actions, for example switching fuels from
coal to gas. This does not mean that emissions associated with an individual company’s activities have decreased.
12
Our Climate Target, Shell, undated. Available at: https://www.shell.com/energy-and-innovation/the-energy-
future/our-climate-
target/_jcr_content/par/relatedtopics.stream/1612987226583/4115c96421e7441230e91f1487f44ac2c8e923ab
/our-climate-target.pdf (accessed 20/04/2021)
13
Net GHG Emissions Net Carbon Intensity Methodology, November 2020. Available at:
https://www.equinor.com/en/sustainability/climate.html
19ABSOLUTE IMPACT 2021 MAY 2021
Of course, emissions goals are just part of potentially being a Paris aligned company – the hallmarks
are merely pre-requisites – and it’s critical that companies demonstrate how their investment
decisions are also aligned with the Paris goals, and do not sanction assets that could become
stranded through the energy transition. We reiterate that there are other factors beyond climate
goals in considering broader Paris compliance, including project sanctioning decisions, lobby
practice, and executive remunerations policies.
20ABSOLUTE IMPACT 2021 MAY 2021
5 Credibility of Climate Goals and Emissions Mitigation
Ultimately to reduce emissions, oil and gas consumption must fall, so companies are seeking to
square more ambitions emissions reductions targets – good for both the planet and investors – with
the desire to continue oil and gas production for as long as possible. To resolve this, they are
appealing to a range of emissions mitigation technologies, many of which are highly unproven at
the required scale, or have massive land use implications. We believe it is critical that company
plans not only fulfil the hallmarks we set out, but do so in a way that is credible.
Companies appeal to emissions mitigation technologies in two main ways. First, by relying on the
level of such technologies used within climate scenarios that are viewed as “Paris-aligned”, including
by publishing their own scenarios. Among a set of scenarios with the same temperature outcome in
2100, the level of emissions mitigation technologies used, and thus the space for continued fossil
fuel consumption in the coming decades, will vary – as illustrated by the different pathways in Figure
3.
Second, by deploying emissions mitigations technologies themselves to reduce the net annual
emissions associated with their activities; the aim is to effectively to extend their company carbon
budget beyond that derived from a Paris scenario14 and enable increased oil and gas activities whilst
still meeting stated emissions goals. It is this, and the consequent credibility of company climate
goals, which is the focus of the discussion here; many of the concerns, however, also apply to the
level of their use within scenarios.
The first, and by far the simplest way, to reduce emissions is simply to stop the activity or process,
i.e. reduce production. However, companies seeking to continue activities, even at reduced rates,
are appealing to two approaches towards emissions mitigations:
a) Prevent emissions reaching the atmosphere by capturing them at source and permanently
storing them.
b) Allow emissions to enter the atmosphere, and then “offset” these by removing an equivalent
amount from elsewhere, placing into permanent storage.
We see either approach as increasing risk both for the climate and to investors.
The landscape around these has become increasingly complicated; many terms are used
interchangeably, often without definition, while others encompass a range of technologies with
varying climate benefits. Here we discuss some of the major terms, the credibility of these, and the
implications for investors.
14
In our 2019 report, “Balancing the Budget”, we translated oil and gas sector targets into targets for some of the
largest upstream companies; we used our least cost methodology to determine company carbon budgets and thus
production reductions required to 2040 and beyond to fit within Paris limits.14 The scenarios used already
incorporated significant global deployment of emissions mitigations technologies. Available at:
https://carbontracker.org/reports/balancing-the-budget/
21ABSOLUTE IMPACT 2021 MAY 2021
5.1 Carbon Capture, Utilisation and Storage Technologies
The IEA15 uses the abbreviation “CCUS” as an umbrella term to cover a “suite of technologies”
across a range of applications, including:
a) CCS (carbon capture and storage)
b) CCU (carbon capture and utilisation)
c) CCUS (carbon capture, utilisation and storage)
Accordingly, “CCUS” has both general and specific meanings; close investigation is required to
understand the net benefit (if any) to the climate from application. Unless specified otherwise, in this
report we use “CCUS” as the umbrella term. The commonality of CCUS is that it is used to capture
emissions from a point source; the impact to the climate depends on what subsequently happens to
the captured CO2.
5.2 Carbon Dioxide Removal and Negative Emissions Technologies
While large, static, point sources are candidates for the deployment of CCUS technologies, a
significant proportion of emissions come from sources which are decentralised, mobile, or both.
While electrification, combined with low-carbon electricity generation and battery storage, has the
ability to reduce emissions associated with light transportation applications, this isn’t yet a viable
option for e.g. shipping or long haul aviation.
As a result, fossil fuel companies are looking beyond CCUS to attempt to achieve stated emissions
goals. Instead of capturing CO2 at the point of generation, the aim is offset emissions via carbon
dioxide removal (CDR). CDR involves the removal of carbon from the atmosphere using a range of
negative emissions technologies (NETs). We use the categorisation defined by the European
Academies Science Advisory Council, who describe 6 main types of NETs:16
1. Afforestation and reforestation
2. Land management to increase and fix carbon in soils
3. Bioenergy production with carbon capture and storage (BECCS)
4. Enhanced weathering
5. Direct capture of CO2 from ambient air with CO2 storage (DACCS)
6. Ocean fertilisation to increase CO2
The common attribute of NETs is that they result in a reduction in atmospheric CO2 levels versus if
they had not been deployed. Of course, this is only true if deployed alone. If a NET is deployed to
“offset” (or justify) the continued burning of fossil fuels – for example planting trees to continue to
enable internal combustion engine vehicle usage – then there may be no net reduction in global
emissions. Many of these technologies are nascent, and have yet to be demonstrated as technically
achievable.
5.3 CCUS and NETs within corporate goals
The broad range of CCUS technologies and NETs touted as part of emission mitigations plans is
summarised in Figure 2. With some technologies considered within the scope of both terms, the
climate benefit of CCUS can range from carbon dioxide removal from the atmosphere (e.g. BECCS)
15
Special Report on Carbon Capture Utilisation and Storage, IEA (September 2020). Available at:
https://www.iea.org/reports/ccus-in-clean-energy-transitions/a-new-era-for-ccus#abstract
16
EASAC policy report 25, February 2018. Available at:
https://unfccc.int/sites/default/files/resource/28_EASAC%20Report%20on%20Negative%20Emission%20Technologi
es.pdf
22ABSOLUTE IMPACT 2021 MAY 2021
to the decarbonisation of an industrial process, to the merely hypothetical “avoided” emissions of a
EOR or CCU application.
Company plans are increasingly describing some NETs as “nature-based solutions” (NBS), and
while there seems little consensus over the term, we take it to include applications where human
intervention can catalyse increased emissions via natural processes, for example via reforestation,
as in Figure 5.
FIGURE 2. INTERACTION BETWEEN CCUS TECHNOLOGIES AND NETS
Source: IEA and EASAC
Notes: Diagram shows some key terms only; it is not an exhaustive list of technologies. CCUS = carbon capture,
storage and utilisation technologies; NETs = negative emissions technologies; CCS = carbon capture and storage;
NBS = nature-based solutions.
CCS applications rely on permanent storage of captured emissions
In CCS applications, for example where the emissions from a particular process (e.g. cement
manufacture or electricity generated from coal) are captured and then permanently sequestered
underground, then – at least conceptually – 100% of the emissions could be prevented from
reaching the atmosphere. Even if not all emissions were captured, the product could be at least
partially “decarbonised”. In either example, however, CCS decarbonises an existing product, but it
does not lead to net negative emissions that could be used to offset emissions elsewhere (BECCS
and DACCS are exceptions to this).
Who “benefits” from the reductions depends on how they are deployed. In the example of the
cement producer, while an oil and gas company may be able to monetise their technical expertise
– including geological, fluid modelling, drilling and operations – by providing a decarbonisation
service, it does nothing to reduce the life cycle emissions of the oil and gas company’s main
products. Nor does it reduce the transition risk of the core oil and gas business.
23ABSOLUTE IMPACT 2021 MAY 2021
Of course, the CCS process itself is unlikely to be zero-carbon; even if the energy required came
from renewable sources; the manufacture, installation and operation of the infrastructure would
likely also lead to CO2 emissions. Equally, the sequestered CO2 needs to remain underground for
centuries to come. There are only a finite number of viable sites for this, and to date only a small
number of CCS plants are operational, restricted to a handful of coal power stations and gas
extraction operations. At best, CCS is a bridge solution towards a low-carbon world.
Many CCUS applications at best lead to avoided emissions
CCU technologies, however, involve the subsequent use of CO2 as a chemical feedstock to make
products ranging from synthetic fuels to resins/polymers with long (decadal-plus) lifespans. In most
cases, the capturing of the emissions merely leads to a temporary delay in the carbon dioxide
released to the atmosphere, rather than any net reduction. While this CO2 use could potentially
reduce the need for new crude to be extracted, it doesn’t necessarily lead to emissions reductions,
particularly at the individual company level. At best, the deployment of CCU technologies could be
described as leading to avoided emissions from other activities.
Similarly, the use of CCUS for enhanced oil recovery (EOR) could have no net impact on carbon
dioxide levels emissions. It really depends on the ratio of additional oil extracted vs the CO2
sequestered, and whether the additional oil produced displaces other oil supply, or not.
Nature based solutions have significant land use implications
Whilst NETs have the potential to remove large amounts of carbon dioxide from the atmosphere,
many also have significant implications for global land use17. As we noted in a recent blog, Eni and
Shell’s plans involve a combined 140Mt/CO2 of carbon dioxide removal per year through
afforestation, effectively implying a forest larger than Bulgaria, and potentially nearly as large as
Spain18. This is a huge land area needed to address just 0.3% of current average emissions
(41.5Gt/CO2 per year).
If such huge areas of land are reforested, then there will inevitably be significant implications for
global agriculture. If the developed world buys up huge swathes of land in developing nations, then
in some ways this swaps the negative externalities of carbon emissions for increased cost of food
production; both disproportionately impact the world’s poor. The Nature Based Solutions Initiative
outlines some of these challenges and the need for NBS to support the planet’s biodiversity ahead
of continued oil and gas production.19
CCUS and NETs are nascent technologies; save them for the hardest to abate
emissions
However, most climate scenarios, for example the Sustainable Development Scenario published by
the IEA, already incorporate the use of CCUS technologies at significant scale, alongside widespread
land use changes and a reduction in fossil fuel consumption. Whilst climate scenarios are not explicit
17
See for example “An investor guide to negative emissions technolgoies and the importance of land use”, PRI,
October 2020. Available at: https://www.unpri.org/land-use-implications/an-investor-guide-to-negative-emission-
technologies-and-the-importance-of-land-use/6644.article
18
Carbon Tracker Blog, March 2021. Available at: https://carbontracker.org/shell-and-eni-revise-emissions-plans-
into-the-weeds-or-into-the-forest/
19
https://www.naturebasedsolutionsinitiative.org
24ABSOLUTE IMPACT 2021 MAY 2021
on who is responsible for afforestation, any land use changes invoked in company plans must not
conflict with those already invoked within the scenario.
However, the reality is that CCUS has been touted for many years, but at the end of 2020 there
were just 28 operational worldwide projects, capturing on average just 1.5Mt/CO2/year (of which
not all will have been permanently sequestered)20. To achieve reductions implied by these scenarios
requires spectacular growth in the deployment of CCUS projects. Similarly for DACCS, while there
are pilot projects, the required scale and speed of implementation is huge (as well as economic
barriers at present). Equally, a field of saplings does not absorb CO2 at the same rate as a mature
forest, so there is a time lag of potentially decades to the deployment of NBS.
The limited potential for CCUS and NETs that we have line of sight to must be reserved to mitigate
emissions inherent in hard to abate uses that are critical for society, e.g. petrochemicals used in
medical applications, rather than to justify continued oil and gas product sales for easily substituted
applications.
Third-party “offsets” may not be all they seem
A further issue regarding emissions mitigation concerns the use of purchased “offsets”. This is where
instead of reducing emissions itself, either via CCUS or NETs, a company pays a third party to
“offset” emissions for them, potentially via an exchange. Theoretically this should be no different to
deploying the technologies directly, however accountability is critical: the greater the chain from
carbon source to sink, the greater the risk of double counting and no actual reduction in emissions.
The quality of offsets therefore varies; investors and companies alike should ensure that they result
in actual emissions reductions, rather than just “avoided” emissions.
5.4 Impact for Investors
The implication for investors is simple. To reduce transition risks, oil and gas companies must reduce
the emissions that are an inherent result of their activities; for most this will mean reducing
production of fossil fuels and their products. Those companies with climate goals plans reliant on
the widespread deployment of CCUS and NETs are placing at best a risky bet, which may detract
from the seriousness with which companies view their own goals. Those ambitions which adopt a
conservative approach to such emissions mitigations must be viewed as more credible.
In Chapter 4 we outlined our pre-requisite hallmarks of Paris compliance for the way climate goals
are framed; to determine the credibility of such goals, investors should additionally ask companies
for details about they will be achieved:
• Have the mitigations technologies been proven at scale to date for this particular
application?
• Is the company operating it directly, or is it reliant on the purchase of third-party offsets?
• If land is required, has this been purchased or even identified?
• Over what timescale do the emissions reductions occur?
20
Carbon Tracker Blog, March 2021. Available at: https://carbontracker.org/shell-and-eni-revise-emissions-plans-
into-the-weeds-or-into-the-forest/
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