The recent passage of the $770 billion Inflation Reduction Act, featuring the most progressive climate provisions in the nation’s history, has catapulted energy transition to the forefront of American politics. This bill, a massive win for proponents of renewable energy, features hundreds of billions invested in energy security and is forecasted to reduce approximately 40% of emissions by 2030. It is no surprise that the energy demand will surge over the next 30 years, reaching an increase of 47% by 2050. This momentum is primarily cited as a side effect of the rapid economic growth accompanying the projected population boom. Yet, in the global context of rising greenhouse gas emissions, 56% of which come from the energy and industrial sector, the attention is urgently focused on how society can sustainably achieve these goals.

At first glance, the well-established fossil fuel sector and the momentum for a green energy transition seem to be at odds with one another. After all, the simultaneous demands for fossil fuel divestment and increased lobbying investments lie at diametrically opposite ends of the energy scale. The Russia-Ukraine conflict, however, has exposed the grim reality of the world’s energy crisis. Europe’s optimistic energy transition goals, some as ambitious as “reducing net greenhouse gas emissions by at least 55% by 2030,” have fallen to the wayside amid the shocking market imbalance created by such dire circumstances. This disturbance of the traditional reliance on natural gas manifests in dire real-world impacts, as the lack of European energy infrastructure sets the stage for numerous blackouts that could occur until 2025. While many of the technologies necessary to accomplish the goals of clean energy and traditional energy are distinct, there remains an overlap that creates an unexpected opportunity for “Big Oil” to play a meaningful role in the energy transition.

In order to get a better understanding of the relationship between traditional and renewable energy, one must have a better picture illustrating the changing dynamics of the energy grid. The energy transition is defined as the “global energy sector’s shift from fossil-based systems of energy production and consumption – including oil, natural gas, and coal – to renewable energy sources like wind and solar, as well as lithium-ion batteries.” As energy demand grows over time, it becomes increasingly likely that molecule-based energy, predominantly consisting of carbon-derived sources such as crude oil, will take up a smaller percentage of the total ‘energy pie’ and that a more significant portion of society’s energy needs will be powered by electric energy such as wind and solar technology. 

The volume of crude oil needed to power such energy should, however, expect to remain relatively constant. This prediction is particularly true for developing countries such as India, whose energy needs are born from a desire to simultaneously modernize and sustain their growing population. As different areas in the world continue to lay claim to differing energy needs and goals, the energy mix will undoubtedly feature a simultaneous reliance on traditional oil and gas and a growing adoption of renewable forms of energy. Accordingly, traditional oil companies will continue to exist so long as the demand for those types of energy remains. The accelerating momentum to decarbonize and adopt alternative forms of energy will be the impetus for private companies to innovate while contributing to societal advancement.

Beyond net-zero pledges and efforts to reduce operational emissions, traditional oil and gas companies have also resorted to increasing mergers and acquisitions (M&A) activity, particularly regarding companies focused in the renewable energy space. According to a report released by Bain & Company, approximately 20% of ‘large’ M&A deals – characterized by a deal value surpassing $1 billion – in the energy industry were in low-carbon and sustainable companies that accelerate the energy transition. While broader industry-level M&A activity has not recovered to pre-pandemic levels, these major deals by companies such as Chevron and Cheniere signal an intent to fully decarbonize or, at the very least, adapt their business to succeed in the inevitable transition to sustainable energy.

Another opportunity in the energy transition space is the emerging potential for midstream pipeline companies to enter the carbon capture and storage(CCS) space. Over the years, midstream pipeline infrastructure has been thoroughly developed, especially since the discovery of new oil and gas reserves through the shale revolution. Their primary purpose is transporting oil and gas from upstream drilling operations towards refining and distribution services. More recently, however, they have been seen as avenues for satiating the demand for carbon capture and sequestration (CCS) technology and clean hydrogen energy.

While the technology has been proven since the 1940s, it is only recently that companies such as EnLink have entered this space by launching cost-efficient partnerships with CCS companies. By leveraging the existing infrastructure in eastern Louisiana, one of the country’s largest industry emitting regions, EnLink is able to transport carbon dioxide and accelerate the road to decarbonization without trading off with its existing business strategy. It stands to reason that, as CCS technology becomes more profitable, such services will become increasingly attractive because they do not demand the construction of new pipelines, thereby keeping the costs associated with capital expenditures relatively low.

The passage of the Inflation Reduction Act accentuates the several leaps that need to be taken for traditional energy to remedy its historic harm to the environment. The role of ‘Big Oil’ is redeemable, however, especially considering that the demand for renewable energy will not be mutually exclusive with the global consumption of oil and gas. While private innovation is a critical player in the energy transition, domestic and foreign governments will have to incentivize greater moves. As the world continues to warm, global coordination between private and public actors in critical industries such as energy will be imperative in determining the future of humanity.