Oil Markets in Transition
In 2021, the International Energy Agency surprisingly announced that the world needs no further investment in new oil and gas projects if we are to stay within 1.5 degrees of global warming. By 2035, the IEA advises carbon-free electricity in all advanced economies and no new sales of internal combustion engines. How will fossil fuel suppliers respond? Will they pivot to decarbonizing their products, or will they dig in and resist change?
The EGAPE Lab's work on oil and gas industry strategies to navigate the transition has shown little progress by investor-owned firms on decarbonizing operations. Instead, we find that even the most ambitious firms, like Equinor and Shell, are engaging in hedging: mitigating risk through diversification rather than moving toward decarbonization. But not all firms are alike. We find that companies operating in markets with more stringent environmental regulations and with greater public pressure to decarbonize are more likely to hedge than to resist.
Our separate work on National Oil Companies (NOCs) shows the critical role of political leadership in guiding climate strategies and decarbonization in the energy sector. Yet political mandate isn't everything. NOCs can shape policy from within. This sometimes works in the right direction, as in Oman, where internal NOC interests drove the deployment of the world's largest solar thermal plant at Miraah. But more often, NOCs push back on climate policy and clean energy solutions, as in Kuwait, where the NOC has all but killed the country's only major renewable development. Whichever the case, any meaningful climate policy must identify pathways through which NOCs can successfully navigate, rather than resist, the clean energy transition. This will be essential in the fight against climate change and worldwide efforts to decarbonize, as these state-owned entities currently produce half of the world's petroleum and manage 90% of global oil reserves.
Other research products in this theme include the following:
Tracing how competing pressures on oil companies shape the broader political economy of climate change and the long-term viability of the oil industry in a carbon-constrained world.
Measuring firm behavior in climate policy by scraping and parsing corporate earnings calls of the top 10 oil firms over the last 15 years.
Mapping positive effects of the energy transition on gender equity, youth employment, and fiscal stability in oil-producing countries in the Middle East and North Africa.