Energy & Emissions: Investing in a Low-Carbon Future

Despite global challenges, 2023 saw only a slight rise in energy-related CO2 emissions, increasing by just 1.1% to total 37.4 billion tonnes. This markedly slower pace of growth compared to previous years reflects the powerful impact of breakthroughs in clean energy technologies—including solar, wind, nuclear power, and electric vehicles. These technologies were particularly vital in offsetting the reduced output from hydropower, severely impacted by droughts in key regions like China and the United States. In a notable achievement, advanced economies reached a 50-year low in CO2 emissions, spurred by the vigorous expansion of renewable energy, a transition from coal to gas, advancements in energy efficiency, and scaled-back industrial production.

The Oil and Gas Industry's Role in Emissions

The oil and gas industry, which accounts for approximately 15% of total energy-related emissions, is increasingly under pressure to adopt more sustainable practices. Direct emissions from oil and gas operations (scope 1 and 2) are significant, and when combined with emissions from the use of these fuels, the sector’s contribution to global emissions is substantial. The International Energy Agency urged the industry to reduce emissions intensity by 50% by 2030 to meet Net Zero Emissions by 2050 Scenario. This goal requires an estimated $600 billion investment in critical areas such as methane management, flaring elimination, electrification of operations, carbon capture utilization and storage (CCUS), and the integration of low-emission hydrogen in refineries.

A significant portion of this investment is expected to come from the O&G industry. In 2022, member companies of the Oil and Gas Climate Initiative invested over $24 billion in low-carbon technologies, signalling a significant commitment to this transformation. Effective policy support, including incentives like tax credits, subsidies, and favorable regulatory conditions, will be crucial in enabling these investments.

Figure 1: Emissions intensities of oil and gas operations in the Net Zero Scenario, 2022-2030 (IEA) .

Investment Dynamics in Carbon and Emissions Technologies

This requirement for increased investment comes at a critical time, as despite economic uncertainties that have broadly affected funding levels, investment in carbon and emissions reduction technologies remains vital. The global rate of decarbonization is not yet on pace to meet international climate goals, highlighting the urgent need for continuous investment in high-potential sectors. The venture capital environment in the first quarter of 2024 reflected this complex environment, showing high potential despite financial caution. Although funding has declined, climate tech start-up investments have demonstrated resilience, highlighting the sector's critical long-term importance. Overall VC funding grew from $2.1 billion in Q4 2023 to $2.8 billion in Q1 2024.

Figure 2: Carbon & Emissions Technology VC Deal Activity as of Q1 2024 (Pitchbook) 

According to PitchBook data, within this sector, investments specifically in Carbon Tech amounted to $543.7 million, trailing behind other critical areas such as broader industry emissions reduction and the built environment, which secured $1.421 billion and $711.7 million, respectively.

The modest rise in global CO2 emissions in 2023, along with the oil and gas industry's significant impact on overall emissions, highlights the urgent need for sustainable practices. With the sector responsible for approximately 15% of total energy-related emissions, its recent investments in low-carbon technologies, totalling over $24 billion in 2022, signify a critical pivot towards sustainability. Achieving the International Energy Agency's emissions reduction targets will necessitate continued policy support and substantial investment, driving the industry towards innovative and sustainable practices essential for a low-carbon future.

Sources:

• International Energy Agency (IEA): Global Energy-Related CO2 Emissions Report 2023
• PwC: State of Climate Tech 2023
• IEA: World Energy Investment 2023
• COP28 UAE: Oil & Gas Decarbonization Charter December 2023