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Total and the logic for net-zero

The French major commits to a target out of fear of being overlooked by investors

Total became in May the latest large oil and gas firm to commit to a net-zero by 2050 target. And CEO Patrick Pouyanne is remarkably candid about the reasoning behind it.

There was a “disconnect” between what Total had been doing “leading the pack” in lowering its carbon footprint—its carbon intensity has fallen by what it says is a peer-leading 6pc since 2015—and its 2030, 2035 and 2040 targets and being seen as a “laggard” by increasingly ESG-conscious investors for not having a 2050 net-zero commitment, says Pouyanne.     

The firm has thus far committed to being carbon-neutral in its Scope 1 and 2 emissions—i.e. those coming from its own production, refining and marketing—amounting to 45mn t/yr. It expects to achieve neutrality via reducing emissions by technical innovation and utilising carbon sinks.

But, while committing to Scope 1 and 2 neutrality is the “easy part”, a more difficult question is how to tackle Scope 3 emissions—i.e. those made by drivers consuming Total-marketed gasoline or diesel, planes burning its jet fuel or industrial consumers using its energy. “In the end, we are not the experts in how we should design the engine of a plane,” says Pouyanne.

“For Total, Europe is very important, because it is 60pc of our sales today and 60pc of our Scope 3 emissions—c.280mn t of our emissions are in Europe” Pouyanne, Total

So, while Total will provide its energy expertise to assist in advances in reducing end-user emissions, “there is no way” for an oil and gas firm to fully commit to being Scope 3 carbon neutral globally, the CEO contends. It will, though, make such a commitment in Europe, given the appetite of European countries and the EU to legislate complementary targets in its energy use.

“For Total, Europe is very important, because it is 60pc of our sales today and 60pc of our Scope 3 emissions—c.280mn t of our emissions are in Europe,” says Pouyanne. “If more regions [implement] the same policies and regulations, then Total will commit to [carbon neutrality] in these regions as well.” Until then, outside Europe, Total prefers to use a net carbon intensity indicator as a metric and aims to reduce it by 60pc.

Broad energy company

The Total chief is keen to stress that its new commitment is a logical extension of its existing strategy to become a “broad energy company” in response to the evolving wider energy market. Total is building a portfolio of low-carbon electricity operations, which it aims to account for 15-20pc of its sales mix by 2040. Its current low-carbon power generation capacity is almost 7GW, of which over 3GW is from renewable energy sources

It has chalked up 10 transactions in the space of this year alone. In May, it snapped up a portfolio of 2.5mn b-2-c Spanish customers—having previously entered the French and Belgian end-user gas and power markets through its acquisition of Direct Energie in 2018—and two gas-fired power plants, with a combined capacity of almost 850MW, from Portugal’s EdP.  

7GW – Low-carbon power capacity

Total has significantly expanded its Spanish footprint in 2020, signing two deals in February aimed at delivering 2GW of solar capacity in Spain by 2023. It entered a joint venture with developer Powertis targeting both the latter’s 800MW pipeline of early-stage projects and additional new prospects. And it bought a portfolio of projects developed by Spain’s Solarbay with a capacity of up to 1.2 GW in the regions of Andalusia, Aragon and Castile-La Mancha.

Elsewhere in Europe, it has already expanded this year in its French home market by buying a 1GW portfolio of onshore wind projects from Global Wind Power in March—including 250MW scheduled to come on-stream by 2025—and in the UK by taking an 80pc stake in the 96MW Erebus floating offshore wind project off Wales.

Further afield, in the first quarter Total signed up to expand its solar power business in Qatar, Thailand and India—where a joint venture with partner Adani will boast over 2GW of capacity.      

Boosting returns

It also launched a battery storage project in March at the port of Dunkerque that is planned to have a capacity of 25MW. But perhaps its most important deal is January’s sale of a 50pc stake in its 143MW French wind and solar business to the French municipal Banque des Territoires for €150mn. The transaction proves the business model—also championed by other large oil and gas firms such as BP and Norway’s Equinor—to invest ‘seed capital’ in renewable businesses and then sell out significant stakes to financial investors, achieving double-digit rates of return on capital that make the investments internally competitive with fossil fuel projects.   

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