Statement on the Canada Pension Plan Investment Board’s Purchase of a Major Oil and Gas Producer
The Canada Pension Plan Investment Board’s (CPPIB) announcement last week of its investment in a major oil and gas producer was filled with alarming greenwash claims, but Shift sees a positive development in CPPIB’s public statements that production must wind down. The only credible transition pathway for an oil and gas asset in 2023 is a phaseout trajectory in line with a 1.5°C global heating scenario.
Last week the CPPIB announced it’s buying a 49% stake, reportedly valued at US$400 million, in California’s second largest oil and gas producer, Aera Energy, which is responsible for about 25% of California’s oil production (about 95,000 barrels of oil equivalent per day in 2021). The CPPIB will own Aera in partnership with German asset manager IKAV, which bought the company in September 2022 from Shell and ExxonMobil for US$4 billion.
The CPPIB attempted to frame this purchase as a transition acquisition, making promises to invest in renewable energy to power the oil company’s production, stating vague intentions to capture some amount of carbon from Aera’s facilities, and speculating about using unproven concentrated solar technology to extract oil.
These claims are alarming, as none of the technologies mentioned offer credible pathways for meaningfully reducing Aera’s carbon emissions quickly enough or aligning Aera with CPPIB’s net-zero commitment. The CPPIB and Aera made no absolute or performance-based commitments for reducing the company’s emissions. The “plan” to make Aera “carbon neutral” in ten years ignores scope 3 emissions, which are explicitly covered by the CPPIB’s net-zero commitment. There is no public reporting on a credible plan for how this “decarbonization investment approach” would be possible. The CPPIB’s claims look like the usual greenwash that characterizes the fossil fuel sector as it clings to an obsolete business model facing structural decline.
The purchase of an oil and gas production company in 2023 in the midst of a worsening climate crisis should raise a red flag for all Canadians concerned about their ability to collect their CPP in a world that avoids catastrophic climate outcomes.
However, Shift is somewhat relieved to see an important admission from the CPPIB’s head of sustainable energy in the Globe & Mail that Aera’s “oilfields are mature and that there is a plan to ramp down production over time.” The CPPIB spokesperson also acknowledges in the Financial Post that “over time, the oil and gas production will reduce” and “that runoff actually works quite well with increased steps to build that renewable power and decarbonization on site.” This is a significant detail, as the only credible pathway for Aera to align with global climate safety and Canadian retirement security is to wind down production. Rather than reaching for greenwash talking points, the CPPIB should have led with this information in its press release on the deal.
Obviously many details remain unanswered. Is Aera going to put new capital into expanding its oil and gas production? What costs would CCUS add to a barrel of Aera oil and would these increased costs lead to reduced profitability? Will captured carbon be used to increase production? How long will the ramp-down in production take? Will Aera continue to be allowed to lobby against California’s climate policies?
We look forward to seeing more details from the CPPIB on the Paris-aligned wind-down of Aera’s oil and gas production. The CPPIB could transparently alleviate Canadians’ concerns about this risky fossil fuel purchase by disclosing its homework using the CPPIB’s own Abatement Capacity Assessment Framework. This is a lesson for other pension funds to cut the greenwash and focus on disclosing credible transition pathways for their holdings in line with their net-zero commitments.