It wasn’t long ago that big fossil fuel companies were making bold claims about their plans to embrace a low-carbon future. Yet over the past year, many of those companies have walked back those commitments as they reaped outsize profits and made ambitious plans to expand their production of oil and gas.
On Wednesday, Exxon Mobil signed a $60 billion deal to buy Pioneer Natural Resources, a company that made its fortune through fracking. The acquisition — Exxon’s biggest in almost 25 years, and the biggest corporate purchase of 2023 — represents a very expensive bet that fossil fuels will remain a central part of the global economy for the foreseeable future.
“As the world looks to transition and find lower sources of affordable energy with lower emissions, fossil fuels oil and gas are going to continue to play a role over time,” Exxon Mobil chief executive Darren Woods told CNBC. “That may diminish with time. The rate of that is, I think, not very clear at this stage. But it will be around for a long time.”
Like it or not, Exxon’s bet looks like a sound one. While wind turbines and solar panels are proliferating faster than many people realize, fossil fuel extraction is also expanding around the globe. Hundreds of new oil and gas projects have been approved in the past year.
In the United States, that includes headline-grabbing new projects like the Willow development in Alaska and the Mountain Valley Pipeline in West Virginia. In places like Qatar, Norway, Brazil, China and India, new oil, gas and coal projects are getting approved practically every week. The United Arab Emirates, which is hosting the United Nations climate negotiations next month, has said it would keep producing oil “as long as the market demands it.”
Supply and demand
Scientists say that nations must stop approving new oil drilling and coal mining if the world has any hope of constraining global warming to relatively safe levels. But without a dramatic shift by governments and corporations around the world, the market will be demanding oil and gas for years to come.
The International Energy Agency notes that for decades now, “the share of fossil fuels in the global energy mix has been stubbornly high, at around 80 percent.” The I.E.A. sees the beginnings of gradual decline, but estimates that fossil fuels will account for more than half of global energy production 20 years from now.
Volatile geopolitics are routinely cited as justification for continued fossil fuel production. Exxon reported a record profit of $56 billion last year thanks largely to the price spike caused by Russia’s war in Ukraine. That cash can now be used to invest in Pioneer’s shale oil fields in the Permian Basin, where fracking has turned the United States into the world’s biggest oil producer.
Even if fewer fossil fuels are used for energy production, the booming petrochemical business could keep demand high. As my colleague Clifford Krauss reported, Exxon is a petrochemical powerhouse. It needs more oil and gas to turn into gasoline, diesel, plastics, liquefied natural gas, chemicals and other products.
“Fossil fuels are not ready to leave,” said Jon Creyts, chief executive of RMI, a nonprofit organization that supports clean energy. “And they’re going to continue to operate with full capital market support here for a while.”
‘Bound to the returns’
Fossil fuel companies, including Exxon, are optimistic about the promise of “advancements in technology” that could prevent carbon emissions from reaching the atmosphere or remove them once they are in the air. Yet this technology is currently prohibitively expensive, and while it might be effective at a small scale, it wouldn’t be able to offset the enormous volume of emissions on the horizon.
What’s more, there is no tax on carbon emissions, and no sign of the political will needed to enact one. That means that governments have no real way to financially penalize oil companies for their emissions.
Exxon is flush with cash and a record high stock price. But instead of investing in clean energy, it is choosing to produce more oil and gas. The ruthless logic of the marketplace is pushing Exxon and other big oil companies to double down on fossil fuels instead of investing in green technologies.
“They are absolutely bound to the returns,” Creyts said. “They’re bound to perform relative to market expectations. And any attempt to create a venture business that does not provide the returns that are expected as a large company gets penalized.”
There will be grave implications for the planet, which has already warmed by about 1.2 degrees Celsius above preindustrial levels. This year is shaping up to be the hottest on record, with record heat on land and the ocean fueling extreme weather around the world.
The continued growth of emissions means that this warming trend is all but certain to continue. “We need to be ready for a hotter planet,” Creyts said. “We need to be ready for tipping points to be crossed.”
Can the World Bank help Africa?
For the first time in half a century, the World Bank and the International Monetary Fund are holding their annual meetings in Africa.
The arrival of officials from financial institutions from around the world in Marrakesh, Morocco, this week is part of an effort to give African countries a bigger voice in institutions that play a huge role in their economies. Both the I.M.F. and the World Bank are considering adding an extra seat for the continent on their boards.
But inclusion alone won’t give African leaders what they desperately need as they try to build their economies and grapple with climate change: A way out of crippling debt that they owe to international lenders.
“Debt is one of the biggest topics at the annual meetings of the I.M.F. and the World Bank in Marrakesh this week,” my colleague Alan Rappeport told me from Morocco. “It’s been a brewing crisis for many of the world’s poorest countries and there’s been growing pressure on China, the world’s largest creditor, to offer some relief by restructuring these loans.”
African leaders have called for a pause in repayments because their debt burden has risen for reasons beyond their control, such as the aftershocks of the pandemic and rising food and fuel prices.
As Ajay Banga, the new head of the World Bank, tries to reshape the role of his institution to address climate change, he is finding that debt is a more complicated problem than ever. Countries owe to a more diverse set of creditors, including governments, multilateral institutions and private investors, and getting all of them to agree on a deal with a single country is hard. It took Zambia three years, and that was considered progress. This morning, China and Sri Lanka also announced a tentative agreement to restructure the debt that Sri Lanka owes to China’s Export-Import Bank.
The impasse goes to the heart of why developing countries are the most impacted by climate change. It’s not just that many are heating up faster than the world average. They also lack the financial resources to protect their citizens against climate-related disasters.
“Countries in the West often plead with us to invest in the kind of ambitious resilience projects we need to survive in a warming world,” wrote William Ruto, president of Kenya, along with the heads of two multilateral institutions, in a Times Opinion essay this week. “But in Africa, we can’t fix the climate issue unless we fix the debt issue.”
Banga, who has only been on the job since May, says it will be a long road to solve the problem.
“I wish there was a magic wand that said, abracadabra, we’ll just wipe the debt out of the system, but I don’t think that is likely to happen,” he said. “This is hard work, and it needs to be done the right way.” — Manuela Andreoni