Concerns that the fossil fuel industry's traditional dealmaking is not compatible with a net-zero world have been amplified by the sale of dirty assets by oil and gas giants.
At a time when oil and gas majors are under immense pressure to set short and medium-term targets in line with the goals of the landmark Paris Agreement, it comes at a time. The accord is important to avoid the worst of the climate crisis.
Oil and gas mergers and acquisitions do not help to cut global greenhouse gas emissions according to research published last week by the Environmental Defense Fund.
The burning of fossil fuels, such as coal, oil and gas, is the main driver of the climate crisis and researchers have repeatedly stressed that limiting global heating to 1.5 degrees Celsius will soon be beyond reach without immediate and deep emissions reductions across all sectors.
An analysis of over 3000 deals shows how flaring and emissions commitments disappear when tens of thousands of wells are passed from publicly traded companies to private firms that have no oversight or reporting requirements to shareholders.
These transactions can make it look as though sellers have cut emissions, when in fact pollution is simply being shifted to companies with lower standards.
Private companies can be committed to ramping up fossil fuel production if they don't reveal much about their operations.
According to the research, such deals will reach $192 billion in 2021.
These transactions can make it look as though sellers have cut emissions, when in fact pollution is being shifted to companies with lower standards, said Andrew Baxter, director of energy transition at EDF.
The result is that millions of tons of emissions disappear from the public eye. The environmental challenges only get worse as these wells and other assets age under diminished oversight.
The number and scale of oil and gas dealmaking has gone up in the last year, and investors are worried about losing the ability to assess company risk or hold operators accountable to their climate pledges.
It suggests implications for some of the world's largest banks, many of which have set net-zero financed emission targets. Five of the six largest U.S. banks have advised on billions of dollars worth of upstream deals.
The analysis calls into question the integrity of Big Oil and Wall Street's commitment to the planned energy transition, a shift that is vital to avoid a catastrophic climate scenario.
The analysis used industry and financial data to track emissions after a sale. It is thought to be the first time that comprehensive data on how oil and gas majors transfer emissions to private buyers have been gathered.
In one example, Britain's Shell, France's TotalEnergies and Italy's Eni sold off their interests in an oil mining field.EDF says top sellers like Shell, for example, are well positioned to pilot climate-aligned asset transfers.
The top sellers of assets from the year of transfer through to the year of 2020 were TotalEnergies, Eni and Shell, according to the analysis.
Immediately after, flaring dramatically increased. Climate risks from upstream oil and gas transactions were highlighted in the case study.
During oil production, natural gas is flared up. Carbon dioxide, black carbon and methane are potent greenhouse gases.
The World Bank says ending waste and pollution is central to the effort to decarbonize oil and gas production.
The company does not consider asset sales to be a tool to reduce emissions, and its strategy to reach carbon neutrality by the middle of the century is based on a set of measures that includes zero flaring.
Questions about specific asset sales should be directed to the operator.
CNBC contacted Shell and TotalEnergies to discuss the analysis.
According to the senior director of oil and gas at the nonprofit, there has been something of a wink, nod, nod approach to the transfer of emissions to date.
Private equity firms are backed by public money. The public pensions funds are the partners in those firms so there is leverage there.
The CEO of the world's largest asset manager criticized oil and gas giants for selling out to private firms during the climate conference in Glasgow, Scotland last year.
The practice of public disclosed companies selling high-polluting assets to opaque private enterprises doesn't change the world at all. It makes the world worse.In July 2021, some of the world’s largest oil and gas majors were ordered to pay hundreds of millions of dollars as part of a $7.2 billion environmental liabilities bill to retire aging oil and gas wells in the Gulf of Mexico that they used to own.
The costs of shutting down wells at the end of their lives are an important part of responsible asset transfer. He highlighted the huge problem withphan wells in North America.
These abandoned oil and gas wells can end up in the hands of companies with no intention of cleaning them up.
In the Gulf of Mexico there are federal rules that say if you sell an asset and the next company, so it's interesting to look at how different the asset sale process is in most of North America.
Some of the world's largest corporations were ordered to pay hundreds of millions of dollars as part of a $7.2 billion environmental liability bill to retire aging oil and gas wells in the Gulf of Mexico. The case was thought to be a turning point for future legal battles.
I think we need something like that in the rest of the world to acknowledge that liability has to travel. At every stage of the process, we have to be aware that it has to be paid for.
According to the report, coordinated action from asset managers, companies, banks, private equity firms and civil society groups can help to reduce risks from oil and gas mergers and acquisitions.
It is important to have this research because when we engage with companies in the sector, it is definitely a topic on the agenda.
When asked if there is a recognition among oil and gas majors that they should be at least partly responsible for the transfer of assets, Elkayam said: "That's the point of debate, right?"
He told CNBC via video call that he thinks we will benefit from a greater level of disclosure on these assets. This might include the emissions associated with these assets or the extent to which the firm's climate targets will be met by asset disposal when compared to organic decline.