Next meeting of Eni’s Board of Directors on 13 March will seek approval of Eni Strategic Plan 2024-2027. After three months since the historic outcome of COP28 of “transitioning away from fossil fuels”, will Eni’s Plan be aligned to international and science-based climate goals?
The significant participation of oil and gas companies at COP28 was meant to be an opportunity to demonstrate their concrete commitment to global action against climate change. A commitment that should translate into orderly transition plans that shift the business model from oil and gas exploration, extraction, processing and transportation to clean energy.
The International Energy Agency’s (IEA) report on ‘The oil and gas industry in net zero transition’ indicates that in order to achieve climate neutrality (net-zero) by 2050 and limit the global average temperature rise to 1.5°C:
- there is no more room for new oil and gas exploration and production, as the existing production is sufficient to meet current and future energy demand
- fossil fuels consumption should decrease by 75% by 2050
- 50% of oil and gas companies’ investments should be in clean energy, mainly renewables, by 2030.
In a letter before COP28, more than 200 companies globally, including Coca Cola, DHL Group, Unilever, Poste Italiane and even a big former oil & gas company like Denmark’s Ørsted, explicitly asked governments to address the main cause of climate change: the exploitation of fossil fuels. So far, the big absentees are the oil & gas companies, which are responsible for 15% of global greenhouse gas emissions in the production, transport and processing of hydrocarbons, without considering emissions from consumption.
COP28 agreement is certainly a compromise text that brings together often different level of commitments. However, the priority and clarity of the agreement cannot be downplayed in outlining the minimum requirements that governments and the private sector should follow. Indeed, the Global Stocktake indicates that all parties agree – as a top priority and overarching goal – on the need to transition away from fossil fuels in energy systems starting this decade, with the goal of achieving global net-zero emissions by 2050. A commitment that governments and companies should address by taking into account aspects of just transition, that is providing for a transformation of all sectors in an orderly and equitable manner that takes into account a differentiated approach between the global North and South. It will also be necessary to substantially reduce emissions from other greenhouse gases beyond CO2, in particular methane emissions by 2030. Similarly, the text indicates the need to triple renewables and double energy efficiency by 2030: those are critical goals even though the IEA estimates that they would only reduce the emissions gap by 30% to keep the 1.5°C target alive. To deliver, all this must necessarily be supported by a huge mobilisation of financial resources.
The reality today is quite different. As the IEA report shows, oil and gas companies are “watching the energy transition from the riverside”. Following record profits in 2022 – in which Eni, ExxonMobil, Chevron, TotalEnergies, BP and Shell collectively achieved around $215 billion in profits from market instability and price volatility – many companies have designed their investment plans to expand fossil fuels exploration and to increase production in the short to medium term. On the contrary, they are planning to re-invest only a negligible part of their profits in clean energy: only around $20 billion in 2022, or 2.5% of total capital expenditure.
That said, it cannot be denied that COP28 was a turning point, marking the beginning of the path out of fossil fuels. Given their critical role in current economic systems, the next cycle of business plans setting out short- and medium-term goals will need to show how O&G companies intend to translate the goals of COP28 into their own transition plan.
A first and main indicator of success will be the allocation of Capex, which will test what kind of investments a company will bet on in the long term.
Looking at Italy, the presentation of Eni’s next strategic plan (2024-2027), scheduled for mid-March, is therefore a first opportunity for the company to show its investors an investment plan that rests on a credible and adequate transition path, leaving no room for distractions or loopholes in the path towards the 1.5°C target.
Last strategic plan (2023-2026) was not aligned with climate objectives, as Eni planned to increase fossil fuels production by 3-4% over the current share until 2026 and to keep it stable until 2030. This objective was reflected in the Capex, whereby more than 70% of investments were budgeted to increase fossil fuels exploration and production in Africa and the Middle East.
This intention is also reflected in Eni’s remuneration policies. A new study by Carbon Tracker ranks Eni as first among the top 25 oil and gas companies using fossil fuels production growth targets to determine executive pay. This commitment is clearly on a collision course with the COP28 outcome and the IEA’s Net-Zero Emissions (NZE) scenario, which indicates that investment in new oil & gas projects are no longer necessary and even that some projects should start reining in existing production.
In recent years, pressure on companies has increased. The Global Climate Litigation Report of the United Nations Environment Programme (UNEP) reveals that citizens are increasingly turning to court. As of December 2022, 2,180 climate-related cases were filed in 65 jurisdictions. No less so are open cases against Eni, which is currently being sued by citizens and civil society organisations in the first climate litigation in Italy. For now, Eni is avoiding any public discussion on its role in this cause. Beyond the outcome of the climate litigation, the mere fact that society is invoking the law to spur action and hold companies accountable, reveals that there is a significant delay in politics and within the oil and gas sector in responding effectively and credibly to the climate crisis.
Today, a credible business plan cannot fail to take into account the commitments adopted by all countries at COP28, the 1.5°C-aligned scenarios developed by the IPCC and the IEA, and the major international initiatives that set the criteria for building net-zero aligned business plans, such as Integrity Matters launched by UN Secretary Antonio Guterres and the Fossil to Clean initiative by We Mean Business. This involves adopting requirements to keep 1.5°C alive, including:
- actions to reduce emissions across the value chain (scope 1, 2 and 3) in the immediate term, for both GHG and methane emissions, with short, medium and long-term targets, both in terms of intensity and absolute emissions reduction;
- these actions should be driven by an allocation of investments of at least 50% of total Capex to clean energy projects by 2030, in addition to the investments needed to reduce Scope 1,2 and 3 emissions;
- COP28 calls for a rational approach that exploits existing infrastructure and production while planning a rapid but orderly transition away from fossil fuels. In this context, no new oil and gas exploration is needed. Existing gas production and infrastructures are sufficient to meet the energy security needs of Italy and Europe, if investment and policy are aligned with agreed climate objectives. ECCO’s new gas scenarios for Italy out to 2030, 2040 and 2050 show that if existing decarbonization targets are met – through the penetration of renewables and energy efficiency –, gas demand and imports would fall to levels that can be met securely through existing infrastructure. The IEA also warns that the development of new projects would lead to significant financial risks, including stranded assets, that is investments that will be lost as they are no longer profitable. In the case of Eni and given its major influence as state-owned company over Italy’s political economy and foreign policy, this would also lock the Italian system as well as producing countries where Eni has a strong presence, primarily in Africa and the Middle East, into an unsustainable and unsafe future;
- following the IEA and IPCC indications, the use of Carbon Capture and Storage (CCS) should be limited to hard-to-abate sectors, and deployed only for emissions that cannot otherwise be avoided, that is where no alternatives are available, as in the case of managing emissions from certain industrial processes. It cannot become nor a distraction neither a substitute for a managed decline of oil and gas production and demand.
Eni’s new Strategic Plan will be approved by its Board of Directors at a meeting scheduled on 13 March. Only then we will know whether the current business leadership is serious in turning Eni into a credible player for a 1.5°C-aligned energy transition.
