- Oil and gas companies have the ability to become a significant source of climate financing, a new study in Climate Policy argues.
- The study looked at oil and gas profits from 2022, when the Russian invasion of Ukraine spiked energy prices across the globe, boosting realized companies’ earnings by 65%, or around $495 billion.
- If governments had imposed an additional 30% tax on the profits of private oil and gas companies, it would have raised $147 billion, the study said.
- Climate financing was the focus of the COP 29 climate conference, which only managed to come up with $300 billion in annual support for developing countries.
The international community is struggling to come up with enough funding to adequately address climate change, especially for developing countries that are impacted the most.
At the latest climate change conference, COP 29, leaders tripled annual funding for developing nations combatting climate change to $300 billion annually, but it still fell short of the $1.3 trillion experts say is needed.
The $300 billion, negotiated in Azerbaijan, renews an agreement made in 2009 to provide poorer nations with $100 billion to transition away from fossil fuels and address droughts, natural disasters and other impacts of climate change. But many critics said they want more money and more creative solutions.
“Fossil fuel-producing countries continue to promote their own interests, jeopardizing both the COP negotiations and the fate of humanity,” said Jack Corscadden, a climate campaigner for the Environmental Investigation Agency. “Continued fossil fuel extraction and consumption is not compatible with limiting warming to 1.5°C.”
One study, published ahead of the conference, argued that policymakers haven’t been asking enough of sectors with the highest emission rates, most notably oil and gas. Companies have the ability to make significantly higher financial contributions than they are right now — especially when they see unexpected profits.
“There is a clear case to include fossil fuel profits on the agenda of [UN] climate finance negotiations and to pursue an international agreement on minimum fossil fuel production taxes,” said the study, which was published in Climate Policy.
The study looked at oil and gas profits from 2022, when the Russian invasion of Ukraine spiked energy prices across the globe, boosting realized companies’ earnings before interest and tax by 65% compared to expected earnings, or around $495 billion. The crisis began when Russia cut off 80 billion cubic meters of pipeline gas to Europe.
Four companies alone made an additional $123 billion in unexpected profit that year, including Aramco, Petrobras, PetroChina and Gazprom.
“The windfall profits alone taken in by oil and gas companies due to the 2022 energy crisis would have been sufficient to cover the existing commitments of the industrialized nations for nearly five years,” the study argued.
These unexpected profits, known as “super” profits, were nearly five times larger than the annual $100-billion climate finance goal established in 2009, and 700 times larger than the initial pledges at the climate conference in 2023 to assist with losses and damage from climate change.
Most of the oil and gas companies that benefited from the 2022 price spike were government-controlled, but they weren’t obligated to divert profits towards climate change efforts. The study said 70% of government-controlled super profits weren’t required to contribute to the 2009 climate change commitment.
If governments had imposed an additional 30% tax on the profits of private oil and gas companies, it would have raised $147 billion, the study said. Had they taxed them at 100%, it would have raised $324 billion on top of the $425 billion made through current tax structures.
“The sheer magnitude of these numbers illustrates that there is ample potential for governments to raise funds for climate action,” the study said.
One downside to this approach is that oil and gas companies currently use unexpected profits to “cushion” against financial losses in the future. Setting the tax rate too high could hurt companies’ growth and even lead to solvency. At the same time, the study argued that there is overinvestment in oil and gas, and that growth should be in renewable energies.
Reliance on oil and gas has been especially challenging for climate finance goals in Latin America, where major economies like Mexico and Argentina struggle to prioritize renewable energy and other climate change initiatives. Both countries received significant financial support to fight climate change yet also relied on revenue from carbon-intensive activities, according to the Sustainable Finance Index (SFI) 2024.
Guatemala and other Central American countries have done a better job at increasing climate mitigation efforts through redirecting annual budgets to fighting climate change while deprioritizing revenue from fossil fuels.
But leaders at COP 29 maintained that developed countries like the US and China — as well as oil-rich countries in the Middle East — need to carry more of the burden of climate financing.
While the $300 billion deal is disappointing for many, they’re hoping that it will set up more productive — and more ambitious — negotiations for next year’s climate conference in Brazil.
“The end of the fossil fuel age is an economic inevitability,” UN Secretary-General António Guterres said in a statement. “New national plans must accelerate the shift, and help to ensure it comes with justice.”
Banner image: An Exxon crude oil refinery. Photo courtesy of Columbia Law School.
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