Big oil in the transition or Green Paradox? A capital market approach

In an environment of intensifying pressure to decarbonize, firms in the oil and gas industry have announced initiatives to reduce carbon emissions including ambitious net zero goals. Critics argue that such announcements lack substance and are mainly designed to conceal ongoing investment in fossil fuels. Given the difficulty to validate such announcements, we use capital market data to estimate the transition to a lower carbon state. Our empirical analysis reveals an increased exposure to oil price changes inconsistent with decarbonization but consistent with the Green Paradox - increased investment due to stranded asset risk. The evidence for an increased exposure to clean energy is mixed and clearly not offsetting the increased oil exposure. Canadian companies appear to be leading the transition whereas US and European companies appear to be laggards.