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BP to Cut Emissions to Zero by 2050: US Majors to Follow Suit?

BP plc BP recently announced a plan of reducing net carbon emissions to zero by 2050 or sooner. The move, which complies with the Paris Agreement climate goals, marks a significant initiative in the oil and gas industry. The company also targets to reduce carbon intensity of its products.

BP’s Plans

BP’s new CEO Bernard Looney, who took over from Bob Dudley a week ago, revealed plans to halve carbon intensity of its products by 2050 or sooner. The company intends to install methane measurement at major hydrocarbon processing sites within the next three years. This will enable the Zacks Rank #3 (Hold) company to reduce methane intensity from its operations by 50%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moreover, to achieve environment targets, it plans to boost the proportion of investments in non-hydrocarbon businesses over time. Last year, BP expanded the low-carbon business by increasing ownership in the solar joint venture, Lightsource BP, to 50%. Also, it formed the new biofuels and biopower joint venture, BP Bunge Bioenergia, in Brazil. Additionally, it plans to stop corporate reputation advertising and divert spending toward promoting carbon-reduction policies.

Notably, alongside its environmental efforts, the company remains focused on increasing sustainable free cash flow and boosting shareholder returns in the long run.  It continues to slash debt, maintain capital discipline and increase cost efficiencies. The company is on track to achieve its 2021 free cash flow targets. To deliver its climate goals, the company is reorganizing its units that include Production & Operations, Customers & Products, Gas & Low Carbon Energy, and Innovation & Engineering.

Where Do Other Energy Majors Stand?

BP is following the path of Royal Dutch Shell plc RDS.A, Equinor ASA EQNR and Repsol, S.A. REPYY to offset the carbon impact from fossil fuels. While the investment community in the energy industry is pushing the companies to enhance environment-friendly activities, BP’s move is likely to put more pressure on them to work harder to meet the Paris Agreement climate goals.

The move is expected to put U.S. energy majors like Exxon Mobil Corporation XOM and Chevron Corporation CVX in a tough spot. These companies are under pressure to put in more efforts to reduce emissions and make investment strategies accordingly. So far, energy companies in the United States have just pledged to cut greenhouse gases from their own operations.

Reaction From Climate Activists

The climate groups welcomed this move from the British energy giant. However, there are doubts regarding how the company is shifting focus from fossil fuels in reality. While BP’s targets are in line with climate change goals, activists are keen on watching the company’s investment proportion in hydrocarbon and green energy sources. Moreover, they require a much more detailed map for the transformation from BP. Per analysts at Bernstein, BP had allocated only 3.2% of its budget toward renewable energy last year, lower than the industry average of 7.4%.

Importantly, the climate change activists and investors are hoping for similar commitments from other energy mammoths like ExxonMobil and Chevron. This will likely put them in a tough spot, given the fact that the pro-environment investors hold a significant amount of investment funds.

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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
BP p.l.c. (BP): Free Stock Analysis Report
Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
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Statoil ASA (EQNR): Free Stock Analysis Report
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