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Record profits from fossil fuels are giving some companies cold feet on the energy transition, but t͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
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February 10, 2023

Net Zero

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Tim McDonnell
Tim McDonnell

Hi, and welcome back to Net Zero.

OK, so there’s too much CO2 in the atmosphere. Step One is to put less in — that’s what this newsletter is mainly about. What’s already out there can be vacuumed up in myriad ways, from low tech (plant trees) to high (giant carbon-sucking fans). One problem with all these approaches: Who pays? If CO2 as a commodity were as valuable as say, oil, that would definitely help the business model. There’s a niche ecosystem of startups working on this problem, to create uses for CO2 in manufacturing everything from sunglasses to fake diamonds. Today we look at a milestone for a California company working on what could be the highest-impact use: Concrete.

Fossil fuels, meanwhile, are more profitable than ever. Will that derail the plans oil and gas companies have to eventually diversify their businesses? We dig into that — and find out how climate change could make some kinds of earthquakes more likely.

If you like what you’re reading, spread the word!


South Africa in the dark: President Cyril Ramaphosa declared a state of emergency on Thursday as the country grapples with up to eight hours a day of rolling blackouts. Its electric utility, Eskom, is one of the world’s most dysfunctional, crippled by debt, corruption, mismanagement, and aging infrastructure.

Carbon boondoggle redux: Petra Nova, the world’s largest facility to capture carbon emissions from a coal-fired power plant, was shut in 2020 because of unfavorable energy market economics, a setback for the investors who spent $1 billion to build it. Now, the plant in Texas is coming back online, offering one more chance to prove a concept that many economists think was misguided from the start.

Cruddy corporate climate plans: A record 4,100 companies globally in 2022 disclosed a strategy for cutting their emissions deep enough to meet the 1.5 C warming goal, according to the nonprofit Carbon Disclosure Project. But only 81 met CDP’s standards for credibility, with the rest leaving out key data.

Semafor Stat

Proportion of coal-fired power plants in the U.S. that would be cheaper to replace with wind, solar, and batteries than continue to operate as-is, according to an analysis this week by think tank Energy Innovation.

Tim McDonnell

Why Big Oil won’t be Big Renewables anytime soon

Bernard Looney. PA via Reuters.


The biggest publicly traded oil and gas companies are rethinking their approach to the energy transition after a year that made clear just how much money they can still make from their core fossil fuel products.

Over the last two weeks, the top five Western oil majors — ExxonMobil, Chevron, BP, Shell, and Total — posted $196 billion in profits, more than double the previous year. The boost came from high oil and gas prices as Russian energy was excised from the global market, and refined products saw record-breaking margins.

Normally, high profits would give them the room to make increased investments in new oil and gas projects or accelerate their transition to cleaner forms of energy, but not this time. The companies are instead plowing cash into share buybacks and higher dividends, to placate investors who are still smarting from record-breaking losses during the pandemic.


Oil and gas companies do have strengths that could be brought to bear on the energy transition, including brilliant engineers and expertise in managing complex global supply chains and geopolitics. But they have two constituencies whose interests are often opposed, and to play a more credible and useful role in the transition, they will need to get better at pleasing both. It’s not yet clear if that’s possible.

The first is the general public and policymakers in their home countries, who for the most part want these companies to decarbonize. The second is made up of shareholders, who by and large want the same profits and dividends they’ve always wanted. They’re deeply suspicious of forays into uncharted waters, especially when many of these companies have not shown a particularly good track record of making high returns even on their core business. (Customers are, in theory, a third constituency, but in reality have little choice in the matter — they have to buy energy, whatever happens, and however it’s produced.)

The U.S. and European majors differ, however, in the degree to which they respond to either constituency. The Europeans were faster to set carbon reduction targets and articulate what a post-carbon business model might entail, venturing from fossil fuels into renewable electricity generation. The U.S. companies’ “low-carbon” investments have stuck mostly to technologies like blue hydrogen and carbon capture that will allow them to keep selling oil and gas in a way that ostensibly produces fewer CO2 emissions, and can deliver higher returns than wind and solar.

Neither group is winning any fans among climate activists no matter what they do, short of taking down their shingle. And it’s obvious which strategy shareholders prefer: Exxon and Chevron shares trade at about twice the multiple of projected earnings than shares of BP and Shell. That differential has even raised the possibility that the U.S. companies could acquire their European rivals. Immediately after its strategy pivot was announced this week, BP’s stock price jumped 7.5%. With stats like these, no CEO of a publicly-traded oil and gas company can push too hard on climate.

With some exceptions — Exxon’s bet on offshore drilling in Guyana, for example — the companies are holding back on big-ticket fossil fuel projects as they wait to see how the energy transition shakes out.

At the same time, the European companies that rushed most eagerly into that transition, especially BP and Shell, now seem to be getting cold feet. BP walked back by half its target to reduce the carbon footprint of its products, now aiming for a 20-30% reduction below 2019 levels by 2030 rather than 35-40%.

The CEOs of both companies complained in recent days about the low rate of return on their investments in renewables, and said that ultimately they have to serve the energy market of today. And based on oil and gas prices, that market is thirsty for more fossil fuels.


There’s no way to think we can make the transition by cutting the supply of oil and gas. If we do, the price goes through the roof and everybody will complain ... But it’s not true that you can’t combine both being very profitable in the hydrocarbon business and preparing for the future.

— Total CEO Patrick Pouyanné, speaking at the Atlantic Council on Thursday. His company is aiming for half the energy it produces in 2050 to be renewable electricity. Total invested $4 billion in low-carbon projects in 2022, more than its peers, and received the highest rate of return across all investments among the five majors, at 28%.


More years of tight oil and gas markets and high profits are likely, since the industry as a whole has underinvested in production during the last decade and can’t respond quickly to short-term price signals. But longer-term, it faces an inevitable decline in fossil fuel demand, plus mounting pressure from the net-zero targets of governments and financial institutions. Sooner or later, oil and gas companies will have to learn how to live in a low carbon world, and so far none of the majors have scrapped their mid-century carbon goals.

In other words, they can’t afford to give up on climate. But the longer they wait to make the inevitable pivot, the more expensive and disruptive it will become — or, by 2050, the companies that juiced the most profit out of oil’s dying days may follow it into history.

One way to solve the problem of low returns on low carbon investments is to turn to government funding. The U.S. Department of Energy, for example, has hundreds of billions of dollars of lending capacity specifically earmarked for projects to replace fossil fuels, which oil and gas companies could tap and then get a higher rate of return on the portion they pay for out-of-pocket.

Another solution is to stop trying to make fossil fuels and renewables happen under one roof. In this scenario, shareholders who want high-risk-high-reward fossil fuel returns can keep their shares in the legacy companies, while spinoffs can cater to those who prefer the low-risk-low-rewards of clean energy. “I’m not sure they can ever really make the transition happen within their existing organizational structure,” said Michael Liebreich, the former CEO of BloombergNEF who has advised Shell and Equinor among others.


One major that’s had success with the transition is Repsol in Spain, which in 2019 was the first oil and gas company to set a 2050 net- zero goal. In June 2022, it sold a 25% stake in its renewables business to French and Swiss investors for nearly $1 billion, and has taken double-digit returns by selling off pieces of other individual large-scale renewables projects.

“They’ve been rotating assets to beef up their returns,” said Tom Ellacott, senior vice president of corporate research at the energy consultancy Wood Mackenzie. Repsol’s 2022 earnings will come out after next week, which will give a clearer picture of how that’s working out for them.


  • Shell’s waffling on clean energy goes back to the late 1990s. In a great deep dive this week, Bloomberg looks at how the company’s strategy and the world it operates in have changed since then, and whether a fundamental change in its business model may finally be possible.
One Good Text

… with Richard Tollo, professor of geology at The George Washington University. Read more of Semafor’s coverage of the earthquake in Turkey and Syria here.


We’ve got a two-for-one special on charts today, drawing on a deep dive the International Energy Agency took this week into the electricity market of the immediate future. There are two key takeaways.

On the supply side, renewables (this includes solar, wind, hydro, and geothermal) are on track to overtake coal as the world’s top source of electricity by 2025.

And where is that power being used? Odds favor China, which is increasing its share of global demand.


One thing that gets obscured by the big-picture charts above is the unique challenge that coal-reliant middle-income countries face in cleaning up their power supply. It might be feasible and cost-effective to rapidly phase out coal in the U.S. or Europe, but the same isn’t true of China, South Africa, or India, according to a study this week by economists at University College London. In those countries, total demand is growing rapidly and coal is deeply entrenched.

If those countries are held to the same timeline for phasing out coal as others, they would need to pull it off twice as fast as any energy supply shift by any country ever. The implication is that the wealthiest countries need to do more to cut emissions from oil, gas, and other sources — and they need to step up their provision of financial aid to those whose coal addiction is hardest to kick.

Green Shoots
Courtesy of Heirloom

Shashank Samala is making concrete out of thin air. His startup, Heirloom, is one of a small but growing number of companies working to capture ambient carbon dioxide from the atmosphere, and then do something with it so it stays out. In Heirloom’s case, the CO2 is injected into a specially formulated concrete mixture, where it turns into a mineral in, for instance, bridges or building foundations.

Carbon removal technology like this will almost certainly be needed, scientists believe, to mop up the unavoidable CO2 emissions being released today and in the future. To limit global warming to 1.5 C, by 2050 the world will need to be removing at least 6 billion tons of CO2 annually, according to U.N. experts. The U.S. government last year extended a lush tax break of $85 per ton for technologies that remove CO2 and permanently sequester it.

Heirloom’s approach: Crushed limestone, a.k.a. calcium carbonate, is baked in an oven. Most of the carbon bakes off, and is captured and socked away. The remaining calcium oxide is exposed to the air on a tray, where it greedily attracts more CO2. Then you’re back to limestone, which goes back into the oven, and repeat. Heirloom hands off the captured CO2 to a company called CarbonCure, which makes the special concrete. Up to now, CarbonCure’s concrete was made with CO2 captured from smokestacks or other sources. But last Friday, the companies claimed to have performed the world’s first atmosphere-to-concrete capture cycle.

Removing the amount of emissions that the U.S. currently produces in a year — about 5 billion tons — would take about 0.5% of the limestone mined annually, Samala said, meaning there are enough raw materials to scale it up. For now, the company is working a few dozen kilograms at a time. Its customers are tech companies like Microsoft and Stripe, which pay more than $100 per ton to count Heirloom’s carbon removals against their own carbon footprints. Both of those companies, and Heirloom, were signatories on an open letter today calling for the nascent carbon removal industry to set higher voluntary accounting standards.

“We work symbiotically with nature to make the hardware as simple as possible,” Samala said. “We want to put a bunch of rocks on a bunch of trays. There is nothing rocket science about this.”

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— Tim (with Prashant Rao, Jeronimo Gonzalez, and Preeti Jha)