Climate policy reforms reduce greenhouse gas emissions by imposing costs on emissions-intensive firms (Waldo Swiegers/Bloomberg via Getty Images)

The hard part of net zero: mobilising big emitters behind reforms

Backing from key firms on climate policy, while not unconditional, can help translate net-zero ambition into progress.

Nikolai Drahos

25 February 20264 min read

Ambitious targets are one thing, implementation is another. This is the message of a steady stream of reports that find that countries are falling short of their target of limiting global warming to well below 2°C.

Last year, Australia set itself an ambitious target: reduce emissions by 62–70% below 2005 levels by 2035. The Albanese government has already taken important steps towards this goal – most notably through the Safeguard Mechanism to tackle industrial emissions and the New Vehicle Efficiency Standard for transport emissions – but further policy reforms are required.

Implementation will not be easy. Business wields considerable influence in Australia’s political and economic system. Firms are not only the engine of employment, growth and investment, but also bring tremendous resources to contests over public policy. Climate policy reforms – market-based mechanisms and command-and-control regulations – reduce greenhouse gas emissions by imposing costs on emissions-intensive firms. Because firms are financially motivated, these costs often provoke opposition.

However, support from parts of emissions-intensive industries for climate reforms is not without precedent. In a recent article, I examined what it takes to secure support from these firms for climate policy reforms, focusing on the US oil and gas industry’s stance on methane emissions policy.

The case of methane emissions could point the way for building business support for the decarbonisation of a wide range of industries.

Drawing lessons from the oil and gas industry might seem counterintuitive given the industry’s long history as a policy opponent. But the case of methane emissions is unusual and could point the way for building business support for the decarbonisation of a wide range of industries. Methane emissions come from the production and transport of oil and gas – they are direct (“scope 1”) emissions for the oil and gas industry, akin to direct emissions from the aluminium, beef or trucking industries. Reining in methane involves changing how the industry operates rather than phasing out what it produces, as tackling carbon dioxide emissions from oil and gas use requires. Both are required to achieve global climate targets.

Methane emissions emerged as a major flashpoint in 2011 following the publication of a Cornell University paper that argued shale gas was worse for the climate than coal once methane emissions were taken into account.

Under the Obama administration, the US oil and gas industry united against federal regulation to curb methane emissions through the Environmental Protection Agency (EPA). Yet when the first Trump administration took office and attempted to repeal Obama-era methane regulations, a curious thing happened: a group of large oil and gas companies, led by ExxonMobil, opposed the rollback.

So what had changed in the space of just a few years?

While the vast majority of the US oil and gas industry backed the Trump administration’s deregulatory agenda, a combination of economics and stakeholder pressure drove major companies to break ranks.

Falls in the cost of methane abatement technologies – partly driven by Obama-era EPA regulation – were important. But as much as economics, stakeholder pressure over the industry’s methane emissions had changed the political calculus for major companies. A widespread consensus that gas was a transition fuel had begun to unravel. Investors, NGOs, political elites and the public were questioning gas’ role in a decarbonising world. Major companies saw federal regulation as a way to address methane emissions and support the industry’s claim about gas’ role in the energy transition while allowing for continued production.

The past trajectory of environmental policy shares many parallels with the conditions that led to corporate support for methane policy reforms.

Under the Biden administration, methane regulations were reinstated and expanded with industry support, and domestic momentum in the United States translated into global action on methane. Internationally, the United States was the driving force behind the Global Methane Pledge at COP26 – a 2021 agreement between more than 100 countries to reduce methane emissions by 30% by 2030, starting with the oil and gas industry. And at New York Climate Week last year, we saw signs of an emerging push towards a legally binding global agreement to reduce methane emissions, backed by France, Barbados, Tuvalu and the Federated States of Micronesia.

While US methane policies are now being unwound by the Trump administration, their history demonstrates that climate policy progress and support from key emissions-intensive firms are interlinked. Such support is often conditional, not extending to the scale and stringency of policy action required to meet climate goals. However, it can also be consequential, making possible reforms that are still material and would otherwise be politically unattainable.

The past trajectory of environmental policy shares many parallels with the conditions that led to corporate support for methane policy. From ozone depletion to dolphin protection, a combination of economic incentives and stakeholder pressure has helped tip companies from opposition to support. Although abating methane emissions is more tractable than some mitigation challenges, the political logic that unlocked business support extends across emissions-intensive industries.

Whether influential firms within emissions-intensive industries will be willing to support the speed and scale of climate reforms necessary to achieve global targets is uncertain. Nevertheless, if climate policy progress depends on such support, then understanding how to mobilise industry behind reforms is vital for governments moving from targets to implementation.

About the author

Nikolai Drahos

Nikolai Drahos is a PhD candidate in business and environmental politics at the ANU School of Regulation and Global Governance, and a Visiting Fellow at the Oxford Institute for Energy Studies.

Topics

Australia United States Energy & resources Climate & environment