Emily Zhao. Originally published in Spring 2018.

In December 2017, British Petroleum (BP) announced it would spend US$200 million to acquire stakes in the solar company Lightsource. The idea that the company, infamous for its 2010 oil spill, would invest in clean energy seemed bizarre, but BP had been interested in renewables for over two decades. BP acknowledged the link between human activity and climate change in 1997, made headlines in 1998 for intending to cut emissions, and invested US$8 billion in renewable energy in the early 2000s.

Norway’s Statoil and France’s Total have also invested significantly in renewables. In 2016, the latter bought a solar energy company for US$1.1 billion. These energy giants’ increasing investments in clean energy reflect the ever-growing amounts of capital in renewable technology development. In fact, 2016 marked the fifth consecutive year in which investment in renewables outstripped investment in fossil fuel technologies.

The private sector’s role in reducing emissions and combating climate change, as well as its real contribution to global sustainability, remain subjects of debate. “Green” initiatives can boost company visibility and value. In contrast, for some corporations, the amount of good done may not match the volume of self-promotion. Anti-climate change measures may also seem glaringly inadequate considering how much carbon these major companies may have emitted over the years.

Without good government policy and social participation, gradual increases in corporate investment and lip service to environmental practices cannot significantly mitigate the impact of greenhouse gases. But corporate willingness to ramp up investments, even in unfavorable legislative environments, certainly signals a changing point in the publicized private sector stance on climate change action.

In a Time of Uncertain Climate Policy, Energy Giants Forge Ahead

Energy giants and other corporations are investing in the midst of volatile climate policy and natural disasters. The 2011 tsunami in Japan, the “Energiewende” (energy transition) in Germany, the ostensible ascendance of China as a clean energy leader, the increase of emissions from India and other populous developing nations, and reversal of US policy with the new Trump administration have profoundly reshaped the global renewables landscape.

The United States remains a particularly high-profile question mark in the future of the global energy transition. Trump’s intention to withdraw from the Paris Climate Agreement at the earliest possible date (2020) makes the United States an outlier among major industrial emitters. The Obama administration entered the Paris Agreement and, in order to meet the United States’ Intended Nationally Determined Contribution (INDC), passed the Clean Power Plan,   energy efficiency standards, and fuel efficiency standards for heavy-duty vehicles and engines among other measures. The Trump administration, in contrast, has opened the Arctic National Wildlife Reserve (ANWR) and offshore waters for drilling, shrunk national monuments, proposed to repeal the current Clean Power Plan, explored the possibility of reopening considerations for fuel economy standards, considered new tariffs that would increase the cost of solar panels in the United States, dropped climate threats from the National Security Strategy, and, most infamously, announced its intention to withdraw from the Paris Climate Agreement.

Despite the uproar surrounding Trump, the United States remains roughly on track to achieve its 2025 emissions target. But fossil fuel-dominated energy companies still benefit immensely from US policy. A 2015 review by the Obama Administration found that the fossil fuel industry received US$4.6 billion per year in specialized subsidies, without which a stunning 45 percent of oil production would not be profitable. Subsidizing oil production uses up to 13 percent of the United States’ Paris carbon budget. Furthermore, American fossil fuel groups spent up to US$115 million lobbying against climate change initiatives in 2016. ExxonMobil and Chevron, who benefit from the relatively low cost of oil and gas production, invest less in renewables than their overseas counterparts.

Companies Take Action Toward Long-Term Sustainability, but without Changing Laws

ExxonMobil and Chevron did join BP and Royal Dutch Shell in supporting US participation in the Paris Agreement. Altruism aside, a low-emission agenda makes sense for their bottom line: major energy companies have significantly increased their investment in natural gas, coal’s main competitor. Shell, for example, acquired the natural gas company BG Group for US$50 billion in 2015. Natural gas is projected to grow by four to five percent per year until 2030. It is cheaper than coal and oil, and as the least GHG emission-intensive of the three, also the most favored by low-emission policies. Beyond natural gas, energy companies must shift toward clean energy to defend their industry positions. A study by energy research group Wood MacKenzie forecasted “annual growth rates of 6 percent for wind and 11 percent for solar, compared with 0.5 percent for oil demand.” Energy giants need to invest US$350 billion in solar and wind by 2030 in order to maintain the market share of approximately 12 percent that they currently hold in oil and gas. That is unlikely to actually happen, but the study predicted that traditional fossil fuel firms’ stake in renewables may exceed 20 percent of their capital expenditures by 2030.

Energy companies’ investments fit into an overall trend toward both clean energy investment and operational sustainability in the private sector. Between 2010 and 2015, emissions cuts by the top 100 oil companies saved 70.7 million tons of carbon, an effort oil executives said will continue despite Trump’s intention to withdraw from the Paris Agreement. Some prominent examples outside the energy industry include Goldman Sachs’s US$41 billion in clean energy as of 2016, an investment the bank calculated as translating to mitigation of 74 million metric tons of GHG emissions. RE100, an international program through which corporations pledge to generate 100 percent of their electricity from renewables, features an impressive 119-member roster of household names. Companies outside the energy industry have avoided emitting 71 million tons of carbon while still posting gains in revenue.

The efforts have been far from uniform, however. For some major companies, reducing emissions has catalyzed a cultural overhaul and significant operational changes. Swedish furniture company IKEA has invested over US$3.58 billion in clean energy and operates with 700,000 solar panels and 23 wind farms. Unilever’s Sustainable Living Plan commits the company to halving environmental impact by 2030, and was widely praised at the COP21 conference. But for others, “greenwashing” may be only a superficial way to increase profits. Automaker Volkswagen was infamously busted for installing devices in their cars that gave false emissions readings. Meanwhile, ExxonMobil executives have notoriously issued statements doubting the connection between humans and climate change. The problem is especially urgent among American energy giants whose investments in clean energy still track closely to overall revenue growth. Betting on tomorrow’s future clean energy profits while accepting today’s emissions-favoring policy is to have one’s cake and eat it too.

Investment moves the world toward clean energy and emissions reduction, but the climate crisis demands effective legislation and social change as well. Government support in the form of taxes, subsidies, and regulation makes a substantial difference, not only in the direct flow of capital into renewables research, but also in the indirect effects of signaling and investor confidence. In the United Kingdom, for example, the end of offshore wind subsidies not only removed that source of revenue, but also led to a projected 95 percent drop in investment. Further downstream, many governments will need to guide or oversee infrastructure and utilities reform. Furthermore, at the most micro level, average people in high-emitting countries must be willing and able to change their consumption habits. Despite the fad of the government telling individuals how to combat climate change, impactful individual consumption is not possible within legislative, economic, and physical systems still based on fossil fuel. As the politically powerful entities underlying our consumption habits, energy companies and other large corporations truly invested in a clean energy regime should use their influence to make changes in the social and political spheres, not just in the financial one.

Gradual Change Won’t Fix Everything, but the Trajectory is Right

A gradual phase-in of clean energy and sustainable practices cannot achieve change on the scale outlined in the Paris Agreement. More and more climate scientists posit that nothing short of a drastic change in consumption, infrastructure, and governance can prevent an increase of 3.6ºF by the end of the century. Based on the Paris Agreement, humans will emit between 52 and 57 gigatons of carbon each year, but this will need to decrease to between 33 and 44 gigatons to keep the temperature from increasing dramatically. Studies in Nature and at the MIT Sloan School of Sustainability found that the Paris Agreement stands a slim five percent chance of meeting its goal. A research associate at the Worldwatch Institute says that meeting the Agreement’s goals would require the world to “double advances in clean energy in 2015 every year until 2020.” In the context of energy company investments, Wood Mackenzie estimates that these companies would have to invest 80 percent of capital expenditures in renewables.

Exact probabilities and quantities are impossible to forecast, but the magnitude of climate change’s impact speaks for itself. Uncertainty around temperature forecasts is no excuse for resignation. Achieving the goals set in 165 countries’ Nationally Determined Contributions to the Paris Agreement could prevent an additional 1.8ºF of warming, a difference that may save hundreds of thousands of lives and leave the world less dramatically transformed.

The direction in which energy companies and companies at large are moving demonstrates that the private sector is ready to contribute to the fight against climate change. Far greater governmental, corporate, and public participation will be needed to transition to a clean energy-based world. Legislation regulates corporate practice; corporate actions influence consumer habits and enable the average person to make sustainable choices; public feedback can sway both policy and company behavior. Company investments can no longer be evaluated in the vacuum of balance sheets. It is no longer ethically or financially viable for major corporations to think only of their own interests.

One Upshot: Energy History Bodes Well for Transition to Renewables

Major energy industry executives would be the first to admit that profits on renewables are still low; they currently hover between 7 and 10 percent, compared to drilling projects’ 18 percent. This fact is sometimes used to condemn the entire project of transitioning to clean energy. History, however, offers a relatively optimistic outlook. New fuel sources including coal, oil, and natural gas all entered the energy market at a significant financial and social disadvantage. Infrastructural inertia, technological shortfalls, and consumer habits favor existing energy consumption models. Citizens drove coal salesmen away when they peddled coal door-to-door. Coal and railroad interests tried to legally and financially obstruct the growth of natural gas. There was intra-industry conflict too; oil drivers and railroad men, fearing damage from pipelines to their businesses, literally tore pipelines from the ground. Energy historian Christopher F. Jones notes that, more than we tend to think, demand for new resources must be created by those selling them.

In many cases, tenacity, sustained financial support, and a competitive drive to improve technology enabled coal andpetroleum to proliferate, despite initial disadvantages. The steam engine and internal combustion engine, for example, were crucial to launching coal and oil, respectively. Both technologies emerged after several iterations, improved by numerous independent tinkerers and engineers. Energy “boosters” and salesmen had to market and explain the new systems to consumers. In this context, it can only be promising that energy companies and other corporations are finally making clean energy and sustainable living part of their mission.

Those who profit from the existing energy system are often the last to support a new one, so energy companies’ investments send a positive signal about progress toward reform. Historically, sustained investment in energy technology that is not yet profitable yields results. And unlike in previous eras, for better and for worse, we are operating under intense time pressure, with full awareness of the consequences of fossil fuels. We can only hope that the major players will fulfill their roles in the energy transition, and that the breakthrough happens in time.