Chevron: From Fossil Fuels to a Low-Carbon Future
Chevron is one of the world’s largest integrated oil and gas companies. As a global energy company that produces fossil fuels and consumes a large amount of energy in its own operations, Chevron’s business contributes significantly to climate change. The scientific community broadly agrees that anthropogenic increases in greenhouse gases (GHGs) have been the primary driver of climate change, and the main source of these GHG emissions is the burning of fossil fuels. Currently, fossil fuel consumption generates more than 25% of the world’s GHG emissions.[i]
Climate change implications
To respond to growing climate concerns, many countries have committed to developing policies that will limit climate change to 2°C (3.6°F) above pre-industrial levels.[ii] While new regulatory restrictions are necessary to limit climate change impacts, they also pose significant risks to Chevron by increasing operating costs and possibly even restricting some of the company’s operations. This has the potential to increase prices for oil and gas products and also decrease consumer demand. Regulation could also limit Chevron’s ability to capitalize its proven oil and gas reserves. The Carbon Tracker Initiative, for example, estimates that “unburnable carbon” could potentially cause a 40-60 percent loss in market value for oil and gas companies.[iii] [iv]
In addition to these regulatory risks, Chevron faces a number of operational challenges due to climate change. Increases in extreme weather events, as well as rising temperatures and sea levels, have the potential to damage Chevron’s infrastructure, put its employees at risk, and disrupt its operations. Because oil and gas companies depend heavily on water for their operations, Chevron is also particularly exposed to declining water availability.[v] Climate change impacts like these not only increase costs, but can contribute to environmental accidents and tensions with communities.
Chevron’s current climate change strategy
Like many of its peers, Chevron recognizes the physical and regulatory risks that climate change poses to its business, and has taken a number of mitigation steps.[vi] Chevron’s climate change strategy is guided by three overarching objectives:
- Greenhouse gas management
The primary sources of GHG emissions from Chevron’s operations come from the combustion of fuels and the flaring of natural gas. To reduce its GHG emissions, Chevron seeks opportunities to use more efficient fuels in its operations and capture natural gas before it is emitted to the atmosphere.
- Energy Efficiency
To enhance the company’s energy efficiency, Chevron focuses on cutting energy costs, enhancing equipment reliability and investing in new energy efficient technologies. This includes operating cogeneration units, which generate electricity much more efficiently than local utility companies.
- Renewable Energy and Emerging Technology
Chevron has also started to invest in renewable energy, focusing specifically on technologies that leverage the company’s strengths and have competitive economic returns. These technologies include geothermal energy, advanced biofuels, wind power and solar energy.
Moving towards a low-carbon future
Increasing pressure to curb GHG emissions fundamentally threatens oil and gas operations, however, these changes also present opportunities for companies that embrace a longer-term view of value-creation.[vii] While Chevron has taken some positive actions, there are a number of additional steps they should consider.
Currently, Chevron is focused on renewable technologies that have competitive economic returns. Because many renewable technologies are in relatively nascent stages and haven’t reached scalable levels in terms of economic viability, Chevron should look to invest more broadly in the development of renewable energies. Resulting technology advancements will enhance Chevron’s operational efficiency, and will also place the company in a strong position to transition to more renewable energy over time. This will be particularly important as new GHG regulations come into effect.
Legislation also poses an opportunity for Chevron. Unlike many of its peers, the company should be preemptive and advocate for a global carbon price that puts a price on all carbon equally. This type of carbon price would incentivize both producers and consumers, create a level playing field for everyone, and make energy efficiency and alternative energy sources much more cost competitive.[viii] [ix] Proactive efforts like these will also give Chevron leverage with policy makers, allowing them to participate in the legislative process.
Lastly, I believe Chevron should invest additional resources in carbon capture and storage (CCS) technology. CCS captures CO2 either by recycling it from wells or sourcing it from company operations or other commercial suppliers. Once captured, the CO2 is injected into the reservoir to enhance oil recovery, and the majority of it remains permanently sequestered underground.[x] Currently, CCS technology faces many barriers including high costs, commercial complexity, and a lack of economical sources of CO2.[xi] If these challenges can be resolved, however, this technology has the potential to enable the continued use of fossil fuels while simultaneously reducing GHG emissions.
Given that energy demand is increasing and fossil fuels are expected to continue their primary role in meeting energy needs, actions like these are necessary to address climate change and make Chevron’s business model sustainable in the long-term.
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[i] Henderson, R., Reinert, S., Dekhtyar, P., & Migdal, A. (2016). Climate Change in 2016: Implications for Business. Boston: Harvard Business School.
[ii] United Nations Environment Programme. (2013). GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector. UNEP.
[iv] Carbon Tracker Initiative, Unburnable Carbon: Are the world’s financial markets carrying a carbon bubble?, March 2012, http://www.carbontracker.org/wpcontent/uploads/downloads/2012/08/Unburnable-Carbon-Full1.pdf ; Will Nichols, HSBC: BP, Shell, Statoil at risk from ‘unburnable’ reserves, GreenBiz.com, January 30, 2013, http://www.greenbiz.com/news/2013/01/30/bp-shell-statoli-riskunburnable-reserves; Jeremy Lovell, Risks of U.S. coal companies examined as Oxford starts study of stranded carbon assets, ClimateWire, February 12, 2013, www.eenews.net/climatewire/2013/02/12/ archive/2; Rachel Alembakis, Assessing fossil fuel value in an “unburnable carbon” world, The Sustainability Report, April 12, 2013, http://www.thesustainabilityreport.com.au/assessing-fossil-fuel-valuein-anunburnable-carbon-world/3601/
[v] United Nations Environment Programme. (2013). GEO-5 for Business: Impacts of a Changing Environment on the Corporate Sector. UNEP.
[vi] Chevron. (2016). Climate Change. Retrieved 11 2, 2016, from Chevron: https://www.chevron.com/corporate-responsibility/climate-change
[vii] Henderson, R., Reinert, S., Dekhtyar, P., & Migdal, A. (2016). Climate Change in 2016: Implications for Business. Boston: Harvard Business School.
[viii] BP. (2016). Working towards a lower-carbon future. Retrieved 11 2, 2016, from BP: http://www.bp.com/en/global/corporate/sustainability/the-energy-challenge-and-climate-change/working-towards-a-lower-carbon-future.html
[ix] Shell. (2016). Morocco Climate Talks: Five Things that Must Happen. Retrieved 11 2, 2016, from Shell: http://www.shell.com/inside-energy/morocco-climate-talks.html
[x] Occidental Petroleum Corporation. (2016). Carbon Dioxide Sequestration. Retrieved 11 2, 2016, from Occidental Petroleum Corporation: http://www.oxy.com/SocialResponsibility/Environmental-Stewardship/Pages/Carbon-Dioxide-Sequestration.aspx
[xi] BP. (2016). Working towards a lower-carbon future. Retrieved 11 2, 2016, from BP: http://www.bp.com/en/global/corporate/sustainability/the-energy-challenge-and-climate-change/working-towards-a-lower-carbon-future.html