‘Energy firms are failing on clean energy. Public ownership is the way forward’

During a time of escalating climate crisis and a surging cost of living, the recent quarterly profits reported by BP, Shell and Centrica paint a disconcerting picture. The oil and gas giants continue to prioritise shareholder payouts and new fossil fuel investment at a scale that vastly exceeds their low-carbon commitments.

The steady drumbeat of vast profits and payouts by these companies, alongside their CEOs’ exorbitant salaries (with BP’s CEO’s pay doubling last year), demand urgent scrutiny and a major revaluation of their role in the energy system, given the pressing need for energy security, relief for hard-pressed households and homegrown clean power.

While profits may be starting to fall, shareholder payouts are not

While this quarter saw profits fall for the energy giants in line with the price of wholesale oil and gas falling from a 2022 peak, both earnings and shareholder payouts at BP and Shell remain exceptionally high. Indeed, while profits have fallen from a crisis-driven peak, one thing that hasn’t followed this downward trend is shareholder payouts.

In BP’s Q2 2023 earning call, their representative stated explicitly that they would not pursue projects that do not meet their return thresholds and even described their need for returns as “sacrosanct”. BP’s sustainability promises are overshadowed by their own investment patterns. Recent analysis from Common Wealth highlights the disparity between BP’s investment in fossil fuels and its “low carbon” segment. This quarter, BP invested only $190m into its “low carbon” segment and $2.2bn in its oil and gas segment – 11 times more. Shell’s investment priorities follow a similar pattern. Shell spent 5.6 times as much on its fossil fuel investments than its “renewable” division, which includes pipeline gas marketing this quarter.

Energy firms have shown they are not serious about going green

Alongside BP and Shell, Centrica, the company that owns British Gas, posted its results last week. For the first six months of 2023, the company posted historic profits of £2.1bn (compared to £1.3bn for the first half of 2022). British Gas itself has made a record profit of £969m for the first six months of 2023, up nearly 900%.

As wildfires and floods rage across the world, becoming the norm rather than the exception, the energy giants have used windfall profits to improve their already strong returns to shareholders and commit to expansion into new fossil fuel development, in direct contravention of the warnings of the International Energy Agency and international commitments to limit warming to 1.5 degrees.

If the oil majors were serious about making good on their green rhetoric, the record profits they’ve reaped from the crisis over the past several months could have been used to drive a major pivot to renewable energy generation. However, where the profit motive holds dominion over the direction of our energy system, wishing that the energy companies would abandon what remains a highly profitable business model is tantamount to wishing on a star.

Public ownership is the most practical route to a sustainable future

It is time to reevaluate the role of for-profit corporations in the energy system. Instead of rapid action to deliver a clean energy system, the government is allowing the energy giants to run roughshod over the public’s interests. The pursuit of returns for investors has persistently come at the expense of the clean energy transition. A just transition to clean energy is imperative, and publicly-owned clean energy, delivered at pace and scale, offers the most practical and cost-effective route to a sustainable future by rapidly building out a clean energy grid that crushes demand for fossil fuels.

As states like Germany and the USA borrow to invest in the transition, the UK should do the same. Public investment in publicly-owned renewables can ensure accountability to the public rather than investors and that the economic benefits flow to us all rather than remote shareholders. The for-profit corporation has only one overriding logic: to maximise profits for shareholders. Indeed, this is its only path to survival. The public sector, by contrast, can be governed by other imperatives, including the rapid delivery of secure clean energy that is affordable for all.

Rather than cashing out flows of income as profits, a public energy company could – and would – reinvest cash flows in delivering a decarbonised grid and lowering bills. Lower capital costs for publicly-owned companies, including the lack of a need to pay out dividends, only bolster the fiscal and economic case for public ownership to deliver this urgent task.

Redirecting resources to renewable energy projects, sustainable infrastructure and job creation in the green sector will not only support climate goals but also address the economic disparities faced by communities hit hardest by the cost-of-living crisis. The government must rethink its approach to energy policy, prioritising public investment in clean energy infrastructure owned by the public over short-sighted support for new fossil fuel exploration.