Chevron stops short of sharp emissions reductions despite investor rebuke

Instead of presenting a plan to reduce Scope 3 emissions—that is, indirect carbon emissions throughout its supply chain—the company announced in an investor presentation Tuesday that it would earmark $10 billion in spending on a new low-carbon business unit through 2028, following a flurry of M&A activity across hydrogen, carbon capture and storage (CCS), and renewable fuels; the company aimed to keep scrutiny of its emissions focused on “intensity,” or CO2 output per barrel.

Chevron received a rebuke from its investors at its AGM in May, when 61% voted in favor of a resolution put forward by Follow This, a green shareholder group, asking Chevron to cut its Scope 3 emissions, which cover not just the production of oil and gas but its full life cycle: in other words, the emissions created when you drive a car or travel by plane.

In a statement released on Tuesday following the investor presentation, Follow This said that by not announcing a plan to reduce Scope 3 emissions, Chevron had sidestepped the “elephant in the room” and that its spending announcement distracted from the necessity of “real” emissions targets.

“A company that continues to spend up to 90% of their investment capital on fossil fuels cannot claim to be part of the energy transition to confront the climate crisis,” the investor group said.

Speaking to analysts Tuesday, Chevron CEO Wirth also faced questions about whether the company would commit to net zero by 2050—now a standard target for even the largest oil and gas companies—replying that it was “a topic we have discussed with our board many times, and continue to discuss.” The company would provide an update later this year, he said, but reiterated his stance that getting to net zero would require the development of new technologies, and that the company was focused on the nearer term.

The May vote supporting the Follow This resolution came on a historic day for global oil giants—the same day investors voted against Exxon Mobil, in part owing to its climate record, and a Dutch court ruled that Shell had to drastically cut its greenhouse gas emissions.

At Chevron, management had advised shareholders to vote against the proposal, and has repeatedly talked up targets to reduce its emissions per barrel by 35% by 2028, compared with 2016 levels. But such an approach has only highlighted the wide and growing gulf between the largest U.S. oil and gas companies—particularly Chevron and Exxon—and their European counterparts.

While Shell, BP, Equinor, and several other companies have pledged net-zero emissions by 2030 since late 2019—pledges that include Scope 3 emissions reduction targets—the kind of reductions to emissions intensity pledged by Chevron regularly fall far short of those targets. In fact, such targets actually allow emissions to grow in absolute terms if oil and gas production increases faster than those reductions. In 2020, Chevron produced 3.08 million barrels per day net oil equivalent, up about 18.5% from 2016.

Chevron has also taken a different approach than its European counterparts in terms of new investments. While companies including Total and BP have invested in solar and wind, while attempting to assuage investors concerned that those businesses will offer lower margins, Wirth said Chevron’s new business unit would focus on “hard to decarbonize” sectors like heavy industry, concentrating on technologies including hydrogen, carbon capture and storage, and alternative fuels, including jet fuel.

The $10 billion commitment to that unit, while more than triple an earlier commitment of $3 billion, is minor compared with the company’s investment in its traditional oil and gas business. Chevron has lowered its capital spending since the pandemic, which routed oil demand for much of 2020, but it still plans to spend roughly $14 billion in 2020, and an additional $16 billion annually through 2024.

That strategy takes a similar approach to Exxon Mobil, though it exceeds Exxon’s spending target. That company announced a dedicated “low carbon” business unit earlier this year while under pressure from investors, dedicating $3 billion by 2025.

While undoubtedly important to full-scale decarbonization, however, Exxon CEO Darren Woods has pointed out that many such projects are not economical without government support—including support that doesn’t yet exist in the U.S.—and relies on technology, like green hydrogen, which is still being developed to work at scale.

The two companies have often drawn comparisons, as their climate policies have been largely aligned. That’s been the case even as Exxon has arguably taken the brunt of criticism from investors and analysts, a difference often chalked up to Chevron’s slightly lower profile, healthier balance sheet, and the widespread impression that the company has been more responsive to its investors.

That advantage could now be ending. As pressure on the oil and gas sector grows, scrutiny of Chevron is growing too.