OGCI Targets a Good Start - But Scope 3 Emissions Must Be Included

By David Sheasby

David Sheasby is Head of Stewardship and ESG at Martin Currie, one of Franklin Templeton’s specialized investment managers.  His opinions are not meant to be viewed as investment advice or a solicitation for investment.
 

The Oil and Gas Climate Initiative (OGCI), an industry collation of international oil majors accounting for some 30% of the world’s oil and gas production, in July announced targets to reduce the collective average carbon intensity of members’ aggregated upstream operations.

The aim is to reduce carbon intensity to between 20kg and 21kg CO2e/boe by 2025, from a collective baseline of 23 kg CO2e/boe in 2017. The target covers both CO2 and methane emissions from OGCI member companies operated upstream oil and gas exploration and production activities, as well as emissions from associated imports of electricity and steam.

The range is consistent with the reductions needed by 2025 for the oil and gas industry to support the Paris Agreement goals.

A CEO-led consortium that aims to accelerate the industry response to climate change, OGCI includes BP, Chevron, CNPC, Eni, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Saudi Aramco, Shell and Total. Collectively they invest over $7 billion annually in low carbon solutions.

“This carbon intensity target is a near-term and practical step for member companies to continue to expand their contribution to the transition to a low carbon economy,” OGCI announced.

So, should we be excited about this?

No, not really. This “target” does not cover downstream (Scope 3) emissions. This is where most of the emissions are generated, and it is therefore not comparable to the ambitions set out by some of the European majors including BP, Eni, Repsol and Shell.

The initiative, however, does help bring the issue of climate change back into focus following months of the coronavirus pandemic. COVID-19 has certainly diverted policy makers’ attention from dealing with the challenges of global warming for most of this year, but it also has highlighted the need for far greater, long-term resiliency in the face of a worldwide crisis – and the need for genuine cooperation among countries which have recently struggled to find consensus on clear policy implementation.

This asymmetric policy progression has become most conspicuous at a regional level. With regards to European Union carbon prices, for instance, the price of allowances in Europe's carbon market has risen sharply against the backdrop of the ambitious “green recovery” climate policies across the EU. This has pushed prices above €30/tonne (€30/tCO2e) for the first time since 2006.

The ambition of the EU polices seems likely to maintain the positive momentum around the EU Emissions Trading Standards (ETS). However, even at €30/tCO2e, the EU ETS carbon price is not sufficient to spur the required investment in large-scale development of carbon capture and storage (CCS).

Industry standards for Scope 3 emissions must be negotiated, adopted – and observed. While EU-27 power sector CO₂ emissions fell about 23%, it was largely the result of the pandemic.   We cannot rely upon aberrational economic slowdowns to meaningfully reduce carbon emissions; the only sustainable approach is to effectively manage them while at normal economic outputs.

The good news from a planetary perspective is that adoption of renewables continues to grow. According to a report from the independent climate think-tank Ember highlighting the pace of transition in the EU energy system, in the first half of 2020 renewable electricity generation exceeded fossil fuel generation – for the first time ever. Renewables (wind, solar, hydro and bioenergy) generated 40% of the EU-27’s electricity, whereas fossil fuels generated 34%.

This is undoubtedly a step in the right direction. It is, though, a good example of what happens when there is a multi-speed approach globally to tackling climate change. In this sense, although the OCGI initiative this month should be welcomed, it would be good, in our view, to see such commitments benchmarked at similar levels of ambition worldwide.  

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