By Jesse Mullins
Will ESG win the day and welcome O&G into the Climate Change fold, converting O&G’s leadership into the Green Movement’s biggest cheerleaders? Or is the Energy Transition slipping a gear as the country barrels toward 2024… or 2030… or 2050… or whatever target date means most to the faithful. We opine.
The words you see above were penned one month ago. Those words appeared as the “teaser” line on the back page of our September print edition, which had to be completed by August 1.
What a difference a month makes.
In a scant 30 days—more so, actually, in something like the last two weeks—the Energy Transition has indeed slipped a gear.
As I write these words on August 31, the pendulum has taken a dramatic swing away from the surging tide of the ESG juggernaut and into the direction of free markets and non-ideological investing. Recent remarks from such sources as the Texas Railroad Commission and the Wall Street Journal suggest that the backlash against ESG (Environmental, Social, and Governance considerations) has begun in earnest.
The Decarbonization Movement is still quite alive, and this recent counter-offensive has not decided the war, nor perhaps even won a skirmish. But given that the ESG has encountered some of its strongest pushback, the month of August may someday prove, in hindsight, to have been the first stages of a strong resistance.
Christian Contests ESG
On Aug. 25, Wayne Christian, chairman of the Texas Railroad Commission, reminded his opponents that his challenges to ESG will not be ignored.
In an article entitled “Fighting Back Against ESG Efforts to Destroy the Texas Economy,” we find these words:
“Texas is leading the fight to curb the expansion of the Environmental, Social, and Governance (ESG) movement, a woke investment strategy that places a priority on subjective environmental and social metrics instead of financial metrics that ensure quality returns for investors. It is estimated that ESG has taken 90 percent of investments off the table for reliable energy over the last five years.”
Since taking office in 2017, Railroad Commission Chairman Wayne Christian has met with dozens of business leaders who have expressed concern that ESG could put an end to the oil and gas industry in Texas.
Christian passed an Anti-ESG resolution at the Interstate Oil and Gas Compact Commission (IOGCC) and championed the passage of Texas’ new regulations on ESG last [legislative] session (Birdwell/King). Christian also sent a letter and personally met with BlackRock leaders demanding answers to their ESG practices, their impact on oil and gas, and potential legal concerns.
What follows are some other recent specimens of ESG-contrarian sentiment.
Carbon Capture Questioned
In a Sept. 1 public statement entitled “Carbon Capture: a Decarbonization Pipe Dream,” the Institute for Energy Economics and Financial Analysis (IEEFA) struck a strong stance.
“Underperforming carbon capture projects considerably outnumber successful projects globally, and by large margins, with both the technology and regulatory framework found wanting, finds a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
“The report, The Carbon Capture Crux – Lessons Learned, studied 13 flagship large-scale carbon capture and storage (CCS)/carbon capture utilization and storage (CCUS) projects in the natural gas, industrial, and power sectors in terms of their history, economics and performance. These projects account for around 55 percent of the total current operational capacity worldwide.”
Author Bruce Robertson says seven of the 13 projects underperformed, two failed, and one was mothballed.
“CCS technology has been going for 50 years and many projects have failed and continued to fail, with only a handful working,” Robertson said. “Many international bodies and national governments are relying on carbon capture in the fossil fuel sector to get to Net Zero, and it simply won’t work.
“Although [there is] some indication it might have a role to play in hard-to-abate sectors such as cement, fertilizers and steel, overall results indicate a financial, technical, and emissions-reduction framework that continues to overstate and underperform.”
IEEFA’s study found that Shute Creek in the United States underperformed its carbon capture capacity by around 36 percent over its lifetime, Boundary Dam in Canada by about 50 percent, and the Gorgon project off the coast of Western Australia by about 50 percent over its first five-year period.
“The two most successful projects are in the gas processing sector—Sleipner and Snøhvit in Norway. This is mostly due to the country’s unique regulatory environment for oil and gas companies,” says Robertson.
“Governments globally are looking for quick solutions to the current energy and ongoing climate crisis, but unwittingly latching onto CCS as a fix is problematic.”
Last week (the last week of August) the Australian government approved two new massive offshore greenhouse gas storage areas, saying CCS “has a vital role to play to help Australia meet its net zero targets. Australia is ideally placed to become a world leader in this emerging industry.”
However, Robertson says, carbon capture technology is not new and is not a climate solution.
“As our report shows, CCS has been around for decades, mostly serving the oil industry through enhanced oil recovery (EOR). Around 80–90 percent of all captured carbon in the gas sector is used for EOR, which itself leads to more CO2 emissions.”
About three-quarters of the CO2 captured annually by multi-billion-dollar CCUS facilities, roughly 28 million tonnes (MT) out of 39MT total capture capacity globally is reinjected and sequestered in oil fields to push more oil out of the ground.
The International Energy Agency says annual carbon capture capacity needs to increase to 1.6 billion tonnes of CO2 by 2030 to align with a net zero by 2050 pathway.
“In addition to being wildly unrealistic as a climate solution, based on historical trajectories, much of this captured carbon will be used for enhanced oil recovery,” says Robertson. “As a solution to tackling catastrophic rising emissions in its current framework however, CCS is not a climate solution.”
Suggestions of Corporate “Collusion”
Radio commentator Jacki Daily, host of the Jacki Daily Show on The Blaze, on Aug. 27 tweeted a word of caution to her energy industry audience.
“Use of #ESG criteria to penalize a business or pension fund investment could be a breach of #antitrust, #fiduciary, or contract (tortuous interference). Pass this [following link] along to financiers, borrowers, corporate counsel, and your state attorney general.” Her link took Twitter followers to a webpage at TexasPolicy.com with this headline: “Corporate Collusion: Liability Risks for the ESG Agenda to Charge Higher Fees and Rig the Market.”
The article stated:
“As politically motivated investing booms, activist organizations and others are engaging in coordinated, collusive campaigns to defund and constrain political targets like oil companies while directing more money to environmental and activist causes.” The source cited these key points:
• * Environmental, social, and governance (ESG) strategies and divestment campaigns could violate antitrust laws. Federal law prohibits companies from colluding on group boycotts or conspiring to restrain trade, even to advance political or social goals.
• * ESG retirement plans could violate ERISA and public pension laws that require managers to invest solely for the purpose of maximizing financial returns for pensioners and beneficiaries.
• * ESG divestment campaigns that pressure lenders to breach existing or prospective contracts with targeted companies could constitute tortious interference with contracts.
• * Federal and state legislators and regulators should strengthen fiduciary requirements and forbid discrimination against politically targeted businesses. States should divest their assets from companies that collude to commit antitrust violations or deny financing or services to businesses operating in their jurisdictions.
The Backlash Against ESG
In an article on Wng.org, author Jerry Bowyer argued that “Ideological Investing is Downstream from Statist Idolatry.”
“The impact of economic policies reaches far beyond economics. Consider this: The Wall Street Journal recently ran a story about a letter addressed to the money management giant BlackRock by the attorney general of Arizona and 18 of his counterparts in other states. This comes after a series of actions by state-level financial officers questioning BlackRock and other asset managers and rating agencies for their heavy-handed imposition of ESG (Environmental, Social, Governance investing) on state investment assets and even on the states themselves.
“It’s not a coincidence that the world’s richest man and former ESG darling, Elon Musk, called the whole thing a scam.
“Add pushback from Republican senators, governors, and other hopefuls against the politicization of the world of finance, and these developments amount to a powerful pushback to a movement that had been seen as the inevitable future of investing.
“Here’s why that is extremely important. That sense of ESG inevitability was a key source of the movement’s power. The message was, fall in line with the inevitable march of history or get left behind.”
There’s Another Side
One thing that the refutations of August have shown us is that there is indeed another side—a side that does not embrace ESG nor its “decarbonization” agenda.
Again, none of this backlash proves that things will move against ESG. The ESG landslide has been all but overwhelming. But now the public square is seeing arguments against ESG that they likely have not seen before. What those arguments will accomplish remains to be seen. But the battle has been joined, and the coming months, as well as the run-up to the 2024 elections, could decide the fate and fortunes of the Permian Basin oil and gas industry for years to come.