BP’s Climate Backtrack Is an Admission It Has Failed

In February, BP announced it was undertaking a “fundamental reset” of its investment strategy, savagely cutting back plans for renewable energy and instead investing in 20 new oil and gas projects by 2030. 

CEO Murray Auchinloss said the fossil fuel giant’s previous 2020 plan of reducing oil production and reaching net zero by 2050 was a mistake, and based on “misplaced optimism” over the transition to a low carbon economy.

The turn, precipitated by BP’s poor recent performance and a drop in profits in 2024, came as hedge fund Elliott Management demanded a change in corporate direction, pushing BP to cut costs and divest from renewables.

It’s tempting to view BP’s decision as part of the broader failure of climate policies, especially as it comes alongside an explosion in new oil and gas licences and a corporate retreat from climate commitments. 

Behind the headlines, however, the transition economy – while not growing as rapidly – is still expanding. Investment in the sector is double that in fossil fuels, exceeding $2 trillion in 2024. And while BP has abandoned plans to move into renewable energy, other oil majors including giants like Saudi Aramco are still planning for oil’s endgame.

Net zero businesses are booming. In the UK, net zero businesses grew at three times the rate of other industries last year, while in China the clean energy sector drove a quarter of China’s GDP growth, making up 10% of the economy.

BP’s renewables retreat isn’t because net zero is dead. It’s actually because BP can’t figure out how to become a key player in the next energy economy.

Most current predictions suggest oil demand will modestly grow at a global level until sometime between 2030 and 2045. It is likely demand will slowly decline after this, keeping carbon emissions high enough to take us well past 2C towards a catastrophic 3C of global warming.

But continued demand doesn’t mean continued high oil prices or profit rates.

From now on, productive capacity will exceed demand, reaching an excess of eight million barrels per day by 2030. This excess capacity will undermine oil prices, which is why the forecast is for oil to only get cheaper.

Even worse for extractive firms, the costs of exploration and production are increasing. This is because fossil fuel companies are having to move into more extreme environments to find new oil and gas deposits and because, somewhat ironically, climate change is making it more expensive to extract fossil fuels.

A future of reduced demand and falling prices is precisely why BP, like other oil companies, tried to move into renewable energy in the first place.

Companies don’t ‘transition’ – not really. To go from producing one thing to producing a totally different thing is both extremely expensive and profoundly risky. The problem BP faces is the same as other carbon intensive industries. They can stick to their existing business and see future profits decline and assets depreciate, or they can risk failure by trying to secure new market share in a sector they have no expertise in.

For the past 20 years, BP has tepidly tried to go “beyond petroleum”. Yet investment in renewables has likely never exceeded 15% of total investment, while expenditure on oil and gas has closely tracked oil prices, increasing when prices climb.

Where BP got stuck was in the valley of death: the period between building the initial infrastructure needed for an industry and profitable operation at scale. Traversing this valley calls for huge levels of finance, and the ability to weather uncertain or insufficient returns on investment and a lack of investor confidence.

As interest rates and energy costs have climbed, building green energy infrastructure has become more expensive and returns have fallen, making for reluctant investors and enabling Elliott Management to move in.

Elliott is looking to strip BP down and squeeze as much as it can out of BP’s oil and gas business. Elliot has previously run lengthy campaigns, and seems prepared to be long-term BP shareholders – long enough to ensure BP fails to diversify into other energy sources.

This is why, for all the hype, BP won’t be increasing production by all that much – just an extra 100,000 extra barrels per day by 2030.

While oil prices fall, and as BP is stripped for parts, the cash available to make the jump across the valley will dwindle, trapping them in the fossil economy.

BP’s change of direction hasn’t generated much investor excitement. While BP bet on renewables just as oil prices jumped, it has turned back to oil as prices have begun their long fall. Investment in oil infrastructure typically trails price increases due to the long lead times and capital-intensive nature of the industry. If the forecast is for lower prices, investors will be more reluctant to put their money into the industry.

Typically this dynamic is cyclical, with periods of insufficient supply alternating with excess capacity. But this time it’s different – the future will only see excess capacity, making investment risky. It’s for this reason Donald Trump’s call for companies to drill more and unleash a flood of cheap oil has been met with indifference by industry.

Oil companies are stuck with billions in oil and gas infrastructure. They must squeeze every last drop out of their existing commitments and will have to do so as the price of oil falls.

Energy frontiers, like industrial frontiers, are moving on. Far too slowly to hold future climate change below 3C, but moving nonetheless. Terrifyingly, the desperate attempts to protect income streams and asset values means fossil industries will fight tooth and nail to slow the transition. But in the end, while they will make climate change worse, they won’t stop the transition.

What’s clear is that Big Oil is incapable of building out the next energy economy. Renewables aren’t profitable enough to compete with oil, and giants like BP have too much to lose to let go of fossil fuels. It’s obvious that what’s needed isn’t just an end to the licensing of new oil and gas projects, but the nationalisation of the fossil fuel industry. Few governments are willing to take this necessary step. Instead, most – including Keir Starmer’s Labour government – appear content to let the transition stumble into a hotter, more catastrophic future.