U.S. Oil Companies Ignore Climate Change While the Rest of the Industry Evolves

Big Oil isn’t going away anytime soon—and yet oil companies are under more pressure than ever to deal with the risks that climate change poses to their business and to the planet.

At their shareholder meetings yesterday, U.S. oil giants Chevron and Exxon Mobil avoided major insurrection, as big investors voted down a series of climate-related measures. Among them was a call for Exxon to acknowledge that limiting global warming to 2 °C was a “moral imperative,” and both companies faced initiatives that called for performing “stress tests” to determine how future climate policies could harm their bottom lines.

In his meeting address, Exxon CEO Rex Tillerson declared, “Just saying turn the taps off is not acceptable to humanity”—strictly speaking, he is right. A company worth almost $375 billion cannot turn on a dime, and our oil- and gas-burning lifestyle won’t evaporate overnight.

But such comments mask the fact that oil and gas companies are approaching a crossroads. Exxon continues to behave as though economic growth and carbon emissions are one and the same—the company predicts that 60 percent of the world’s energy needs will still be met by oil and gas by 2040. But carbon emissions have decoupled from economic productivity. And the Paris climate accords could significantly impact demand for fossil if the signatory countries follow through on their promises.

Other oil companies seem to be getting the message. Shell recently announced the creation of a green energy arm that will be funded with $1.7 billion in investments. And French oil giant Total pledged to push 20 percent of its assets into low-carbon investments over the next 20 years. In a strategy paper (PDF) released Tuesday, Total’s CEO Patrick Pouyanne said that the Paris accords made it clear that there was a global mandate to try to limit global warming to that 2 °C threshold.

“COP21 was definitely a watershed,” he said, using the acronym for the Paris meeting. “Despite the current instability worldwide, 195 countries managed to unite around an ambitious climate agreement. That sends a strong message.”

In this light, Chevron and Exxon Mobil are looking more and more like holdouts—slow-moving dinosaurs who are behind on innovation, even. They appear to be banking on a business model that, while profitable for now, is unlikely to sustain them for much longer as the rest of the industry gets serious about transitioning away from fossil fuels.

Donald Trump’s “America-First Energy Plan” Shows He Knows Virtually Nothing About the Issue

Speaking at an oil and gas conference in Bismarck, North Dakota, today, Donald Trump outlined a sketchy, at times contradictory energy plan that would scrap virtually all of President Barack Obama’s signature climate protection policies. Calling his vision the “America-First Energy Plan,” Trump said he would immediately cancel all of Obama’s executive orders designed to restrict the burning of fossil fuels and lower emissions from power plants.

“We will rescind all these job-destroying President Obama executive actions,” Trump declared.
If elected president, he promised to lift restrictions on natural gas production using fracking, offshore oil drilling, and oil and gas production on federal lands. He would immediately cut off all U.S. funding for United Nations climate programs and cancel U.S. agreements under the Paris accord. Trump claimed his plan would eliminate America’s reliance on foreign sources of energy, restore the coal industry to its former glory, and avoid the loss of “millions of jobs and trillions of dollars” of wealth that would be destroyed under the climate change policies of his Democratic opponent Hillary Clinton.

“Every dollar of energy we don’t explore here [in America] is a dollar that makes someone else rich,” Trump said.
But Trump’s proclamations don’t pass even cursory inspection. If Trump were to succeed in driving large increases in domestic natural gas production, for example, it would accelerate the decline in coal burning that has devastated the coal industry. He can’t save the coal industry, and he certainly can’t do it while pumping more gas.

Trump also mentioned that the number of active oil and gas rigs has dropped to 1989 levels—a fact he blamed on Obama’s policies. Rig counts have indeed dropped, but because of low oil and gas prices that are determined by global economics, not government overreach. (He also included a few howlers, claiming, for instance, that “America has one-and-a-half times as much oil as the combined proven reserves of all OPEC countries.” That is nowhere near true.)

And while Trump might be able to back out of the Paris agreement, that would likely not reverse the trends that have led domestic greenhouse gas emissions to fall to their lowest level in over a decade. Eliminating imports of foreign oil at a stroke is also outside the realm of realism. America currently imports about a quarter of the oil it consumes, and stanching that flow would require a drastic overhaul of trade policies, the likes of which few politicians of either party would support.
One thing Trump did not mention directly in his speech was climate change. In 2012 he tweeted, “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.”

In less than 140 characters, Trump hurled a half-baked conspiracy theory and demonized a foreign country to make it look as though American interests are under threat, all to support a simplistic, ignorant assertion: “global warming is a myth.” Unfortunately, that level of sophistication was on display throughout Trump’s remarks today as well.

Germany Runs Up Against the Limits of Renewables

At one point this month renewable energy sources briefly supplied close to 90 percent of the power on Germany’s electric grid. But that doesn’t mean the world’s fourth-largest economy is close to being run on zero-carbon electricity. In fact, Germany is giving the rest of the world a lesson in just how much can go wrong when you try to reduce carbon emissions solely by installing lots of wind and solar.

After years of declines, Germany’s carbon emissions rose slightly in 2015, largely because the country produces much more electricity than it needs. That’s happening because even if there are times when renewables can supply nearly all of the electricity on the grid, the variability of those sources forces Germany to keep other power plants running. And in Germany, which is phasing out its nuclear plants, those other plants primarily burn dirty coal.

Now the government is about to reboot its energy strategy, known as the Energiewende. It was launched in 2010 in hopes of dramatically increasing the share of the country’s electricity that comes from renewable energy and slashing the country’s overall carbon emissions to 40 percent below 1990 levels by 2020 (see “The Great German Energy Experiment”). What happens next will be critical not only for Germany, but also for other countries trying to learn how to best bring more wind and solar online—especially if they want to do it without relying on nuclear power.

Some aspects of the Energiewende have been successful: renewable sources accounted for nearly one-third of the electricity consumed in Germany in 2015. The country is now the world’s largest solar market. Germany’s carbon emissions in 2014 were 27 percent lower than 1990 levels.
However, an expert commission appointed by the country’s minister of economy and energy has said the 40 percent target probably won’t be reached by 2020. And the energy revolution has caused problems of its own. Because fossil-fuel power plants cannot easily ramp down generation in response to excess supply on the grid, on sunny, windy days there is sometimes so much power in the system that the price goes negative—in other words, operators of large plants, most of which run on coal or natural gas, must pay commercial customers to consume electricity. That situation has also arisen recently in Texas and California (see “Texas and California Have Too Much Renewable Energy”) when the generation of solar power has maxed out.

In hopes of addressing such issues, Germany’s Parliament is expected to soon eliminate the government-set subsidy for renewable energy, known as a feed-in tariff, that has largely fueled the growth in wind and solar. Instead of subsidizing any electricity produced by solar or wind power, the government will set up an auction system. Power producers will bid to build renewable energy projects up to a capacity level set by the government, and the resulting prices paid for power from those plants will be set by the market, rather than government fiat.

The auction system is designed to reduce the rate of new renewable-energy additions and keep Germany from producing too much power. It might seem like an easy way to solve the oversupply issue would be to shut down excess power plants, especially ones that burn coal. But not only are the coal plants used to even out periods when wind and solar aren’t available, they’re also lucrative and thus politically hard to shut down. Because German law requires renewable energy to be used first on the German grid, when Germany exports excess electricity to its European neighbors it primarily comes from coal plants. Last fall, the German subsidiary of the Swedish energy giant Vattenfall started up a 1,600-megwatt coal-fired plant that had been under construction for eight years, defying opposition from politicians, environmental organizations, and citizens who want to see coal plants eliminated.

Putting a steep price on carbon emissions would hasten the shutdown of German coal plants. But Europe’s Emissions Trading Scheme, designed to establish a continentwide market for trading permits for carbon emissions, has been a bust. Prices for the permits are so low that there is little incentive for power producers to shut down dirty plants.

Also helpful would be a Europewide “supergrid” that would enable renewable power to be easily transported across borders, reducing the need for reliable, always-on fossil fuel plants to supplement intermittent electricity from solar and wind. “If you want to use fluctuating renewable power, you have to upgrade the grids across Europe,” says Daniel Genz, a policy adviser with Vattenfall.  Efforts to build that grid are under way, but they’ll be expensive: between €100 billion and €400 billion ($112 billion to $448 billion), according to a November 2015 report from e-Highway2050, which was formed by the European Union to plan for a pan-European power grid.

Texas and California Have Too Much Renewable Energy

Texas and California Have Too Much Renewable Energy
The rapid growth of wind and solar power in the states is wreaking havoc with energy prices.
by Richard Martin April 7, 2016
Solar and wind power are coming online at rates unforeseen only a few years ago. That’s a good thing if your goal is to decarbonize the energy sector. But if you’re a utility or independent power producer and you make your money selling electricity, it can be not such a good thing.


In places with abundant wind and solar resources, like Texas and California, the price of electricity is dipping more and more frequently into negative territory. In other words, utilities that operate big fossil-fuel or nuclear plants, which are very costly to switch off and ramp up again, are running into problems when wind and solar farms are generating at their peaks. With too much energy supply to the grid, spot prices for power turn negative and utilities are forced to pay grid operators to take power off their hands.

That’s happened on about a dozen days over the past year in sunny Southern California, according to data from Bloomberg, and it’s liable to happen more often in the future. “In Texas, power at one major hub traded below zero for almost 50 hours in November and again in March,” according to the state’s grid operator. In Germany, negative energy prices have become commonplace, dramatically slashing utility revenues despite renewable energy subsidies that bolster electricity prices much more than in the United States.

The first solution to below-zero prices is to build more transmission to ship the power to places where demand is high. Germany now makes close to 2 billion euros a year off energy exports to neighboring countries, according to Berlin’s Fraunhofer Institute. But building out new long-distance, high-voltage transmission lines is expensive: Texas has spent $7 billion on transmission lines to ship power from the windy flatlands of west Texas to Dallas and Houston.

The ideal setup is for places with abundant renewable energy (many of them in remote areas) to store and ship power to energy-hungry cities on the coasts, forcing fossil-fuel plants to curtail production and, eventually, shut down. But such large-scale storage doesn’t exist yet. So in the meantime, “with more renewable power on the way in Texas, generators have been asking policy makers for incentives to keep conventional plants running,” according to the Dallas Morning News.

Shifting Economic Winds Spell Trouble for Solar Giants SolarCity and Sunrun

The U.S. solar market is booming—2016 is predicted to be the largest year ever for both rooftop solar and utility-scale installations. But shifting economic forces could spell trouble for some of the largest companies in the industry.

To date, growth in residential rooftop solar has been driven largely by leasing models, in which installers own the panels and homeowners make monthly payments that can span up to 20 years.
But price declines, the extension of the federal investment tax credit for solar, and an increase in the number of lenders willing to finance solar purchases are combining to make owning panels a much cheaper option for consumers.

That could be bad news for SolarCity and Sunrun, two big solar providers that currently dominate the U.S. residential solar market. Both companies have built their businesses around long-term leases, and third-party ownership of rooftop solar stood at 72 percent in 2014. But GTM Research forecasts that figure will plummet to less than half by 2017. That is echoed by a report from consulting firm PwC, which concludes that “a confluence of declining hard and soft costs, changing public policy, and increasing availability and accessibility of capital” means that buying solar panels will “offer consumers considerably more value than leases.”

Both companies have been hit hard by investors this year: the share price of SolarCity, which reported a first-quarter net loss of $25 million, is down 53 percent in 2016. Sunrun’s stock is down nearly 50 percent. And while SolarCity appears to be changing its offerings in anticipation of ownership eclipsing leases in the not-too-distant future, Sunrun CEO Lynn Jurich has said its business will continue to be about 80 percent focused on leases.