Shell just showed why Big Oil is reluctant to give up on fossil fuels

Big Oil’s appetite for fossil fuels isn’t showing any signs of receding.

This week Shell (SHELL) dialed back its target for carbon emissions. The decision comes amid an energy transition that is decades away from full implementation as countries and industries around the world aim to reach net zero by 2050.

On Thursday the British energy giant said it aims to reduce customer emissions from the use of its oil products by 15% to 20% by 2030, versus a prior target of 20%.

The company also dropped its 2035 target of a 45% reduction in net carbon intensity citing “uncertainty in the pace of change” in the energy transition. Net carbon intensity measures emissions associated with each unit of energy sold.

The revised initiatives come on the heels of rapid-fire consolidation among the oil majors looking to expand acreage and insistence from shareholders that companies keep record profits flowing and stick to their core business. In November, the International Energy Agency, which advocates for green technologies, noted the oil and gas industry invested around $20 billion in clean energy in 2022, just 2.5% of its total capital spending.

That may be too much for investors. Earlier this year, BP (BP) received a letter from an activist hedge fund demanding that the British oil and gas producer scale back its “irrational” green energy strategy, arguing it has “quite understandably, depressed the value of BP’s share price.”

BP dialed back its own carbon emissions targets about a year ago.

The pressure from shareholders comes at a time when renewable energy technologies have struggled to accelerate amid high interest rates. Last month, Shell sold off partial ownership of two US-based green energy projects.

The problem for oil companies is renewable projects that exceed return-on-investment hurdles “have been hard to find,” Stewart Glickman, energy equity analyst at CFRA Research, told Yahoo Finance last month.

As ESG initiatives and investing styles fall out of favor, energy companies have also become more emboldened to challenge some green measures.

Last month, two impact-oriented funds dropped a climate proposal intended to go to an ExxonMobil (XOM) shareholder vote after the Houston-based oil giant filed a lawsuit to remove the measure from its proxy ballot.

In the complaint, the oil producer said the activist investors Arjuna Capital and Follow This were driven by an “extreme agenda” with the goal of “diminishing the company’s existing business.”

Mark Kramer, a senior lecturer at Harvard Business who wrote a case study on ExxonMobil, says green advocates are losing the battle in their efforts to pressure the oil industry towards more aggressive energy transition initiatives.

“It’s quite clear — it’s not working,” he told Yahoo Finance in February. “The profitability of oil and gas right now is so strong that it’s extremely hard for a company to walk away from that, or even to talk [of] walking away from it.”

If anything, oil companies are betting that natural gas, seen as a cleaner fossil fuel, will be needed in order for the energy transition to happen.

“We believe natural gas and LNG [liquified natural gas] will play an important role in replacing coal in high-temperature heavy industry applications. They can help address both local air emissions and wider climate considerations,” reads Shell’s Energy Transition Strategy.

Oil executives argue that fossil fuels meet about 80% of global energy demand, with developing countries overwhelmingly reliant on them. Reducing those energy sources would set back those regions.

“We cannot replace overnight an energy system that took 150 years to build,” said ExxonMobil CEO Darren Woods at the Asia-Pacific Economic Cooperation conference in San Francisco in November.

“The problem is not oil and gas. It’s emissions,” he added. ExxonMobil says it has cut operated methane emissions in half since 2016, and among its measures, is targeting a 20-30% reduction in corporate-wide greenhouse gas intensity by 2030.

“The solutions to climate change have been too focused on reducing supply. That’s a recipe for human hardship and a poorer world,” added Woods.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.