In the same week Apple raised $1 billion through green bonds to invest in clean energy, and Amazon put solar panels on a million square foot processing facility, the Trump administration – at the urging of the worst elements in the oil and gas industry –proposed a two-year delay of sensible rules that would limit emissions of methane and other air pollutants. While a federal court since struck down a previous 90-day delay as unlawful, the two-year delay is still subject to public comment, and many expect the administration’s attacks on methane safeguards to continue through other means.
Natural gas, which is mostly methane, has been put forward as a cleaner alternative to other fossil fuels and as an energy resource that can play a key role in the transition to a lower-carbon future. But now more than ever, that proposition is now called into serious question.
How will natural gas compete in a changing world?
Every year, oil and gas operations around the country emit some 8-10 million metric tons of methane into the air. Methane is a highly potent greenhouse gas, responsible for about a quarter of the climate warming we’re experiencing today – and those emissions come mingled with a host of other smog-forming and carcinogenic pollutants.
There are cost-effective, proven ways to reduce these emissions, and leading companies are already implementing them. The problem is, many companies refuse to address the problem on their own. And now they’re looking to the Trump administration for a free pass to pollute.
When trade associations like the American Petroleum Institute attack cost-effective policies that protect public health and the climate, it sends a signal that the natural gas industry will do everything it can to maximize short-term profits – even at the risk of damaging the reputation of the industry in the eyes of the public and jeopardizing its ability to operate over the long term.
The question is: In an increasingly carbon constrained world, what is the natural gas industry’s plan for the future?
We’re not arguing that gas is at risk of going away tomorrow. The United States leads the world in natural gas production, as new technologies and processes have unlocked massive, cheap reserves. But make no mistake, the transition to cleaner energy in the U.S. and across the globe is irreversible and accelerating. In this context, fighting reasonable and necessary emissions rules only magnifies risk for the natural gas industry and its investors. It’s a head-in-the-sand approach that ignores the realities of what consumers, communities and markets demand.
Capital markets shifting to cleaner companies and forms of energy
The Trump administration’s recent moves come at a time when environmental concerns informing investment decisions are reaching record highs. For example, investors with $10 trillion in assets under management have committed to the Montreal Carbon Pledge to reduce the carbon footprint of their portfolios, with an eye towards portfolio de-carbonization in the long run.
As part of the shift to assets in lower emitting companies and industries, investors are demanding better carbon and methane disclosure as well as proactive environmental management. The recent watershed Exxon vote, in which 62% of investors (including industry titans like BlackRock and Vanguard) demanded better climate risk disclosure from Exxon management, showed that carbon risk considerations have hit the mainstream.
Increasingly, investors see methane simply as a form of carbon risk in need of management, not neglect. And methane waste can be cost-effectively managed – as proven in states like Colorado where production has continued apace even as strict methane rules have come on the books.
On top of investors’ efforts to shift portfolios towards cleaner companies, the divestment movement also continues to grow, driven by a range of environmental risks of owning fossil fuel stocks. Just recently mainstream investor CalSTRS divested from coal. Going forward, increasing numbers of investors will look carefully at the environmental record of oil and natural gas companies in determining their comfort level in continuing to invest.
Some companies lead but no substitute for commonsense rules
Companies like Southwestern Energy, Noble, Shell and others have led on methane emissions by setting methane targets, supporting state-based regulations, and working with the Oil and Gas Methane Partnership to disclose methane emissions. Their efforts certainly deserve recognition, and are supported by some investors who factor strong methane management into investment decision.
Still, voluntary actions by the few are no substitute for rules and oversight that require responsible operations by the thousands of oil and gas companies operating in the United States. Some of these companies simply lack a commitment to sustainability and to operating over the long-term, and will not rein in emissions unless they are required to do so by law.
Methane safeguards serve the long-term interests of industry and investors
As the scientific reality of climate change and consumer demand steer the world toward a cleaner energy future, will attacks on environmental protections inflict lasting damage on the oil and gas industry? Only time will tell. It’s likely, however, that if the loudest industry voices continue to oppose rules that could guide it toward a cleaner future, the industry as a whole will suffer. Unfortunately, that will include the more forward-leaning companies, which will be dragged down by their intransigent peers. This outcome will become all the more likely thanks to the Trump administration’s erosion of environmental safeguards that are fundamental to responsible development.
It’s time for oil and gas operators and mainstream investors with a long-term view to take a look at what rules and regulations are needed to rein in methane emissions in their industry. And they also need decide if they want to align themselves with an administration whose policies may be unwittingly handicapping the very industry it attempts to serve.