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Oil majors ‘must cut production by one third to meet Paris target’

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The world’s publicly listed oil and gas giants must slash their combined production by one third by 2040 to keep their emissions in line with global carbon reduction targets, argues a new report from the financial think tank Carbon Tracker. 

In Balancing the budget: Why deflating the carbon bubble requires oil & gas companies to shrink, researchers found that oil majors need to cut group production by 35% to keep global temperature rise to ‘well below’ 2°C in alignment with the Paris Agreement.

However, Carbon Tracker notes that the picture differs widely between companies, depending on the proportion of low carbon projects in their pipelines and portfolios. 

Overall, at current rates of emissions, the total carbon budget to limit temperature rise to 1.5°C and 1.75°C will be exceeded in 13 years and 24 years respectively, says Carbon Tracker. Yet, since 2011, global reserves of oil and gas have increased, and amount to some 50 years at current production. 

Crucially, Carbon Tracker found, none of the oil majors are on track to keep the world below 2°C warming by 2040. The analysis factors in a ‘relative shift’ from oil to gas, with average absolute carbon emissions reductions of 40% by 2040 required by the majors to stay within carbon budgets. 

‘The industry is trying to have its cake and eat it – reassuring shareholders and appearing supportive of Paris, while still producing more fossil fuels,’ says Mike Coffin, Oil & Gas Analyst at Carbon Tracker. ‘This analysis shows that if companies really want to both mitigate financial risk and be part of the climate solution, they must shrink production.’ 

According to the think tank’s research to date, it is in the best interest of shareholders for fossil fuel firms to restrict their investment in new production to only the most competitive projects. Low cost and low carbon projects minimise the risk of asset stranding in the transition to a clean energy system. But most companies are ‘pumping and reinvesting as normal, despite investors clamouring for change,’ Carbon Tracker warns. 

The report comes as shareholder concerns about the financial impact of climate change are reaching the mainstream. Several lawsuits are currently passing through US courts in which states are accusing oil majors of hiding the true costs of addressing climate change from their investors.

Photo: Carbon Tracker

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