Energy transition
CARBON OFFSETTING
Moves to embrace carbon offsetting The oil and gas sector is under growing pressure to reduce carbon intensity. Dan Carter, Global Technical Leader, Oil and Gas Consulting, Wood, examines recent carbon offsetting initiatives.
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hile 2020 will undoubtedly be remembered as the year when COVID-19 turned our world upside down and forced us to adopt drastic changes in how we live and work, it was also a year that saw some encouraging progress made around the climate agenda. The lockdown measures introduced resulted in a 7% year-on-year drop in global carbon emissions, while some of the world’s largest economies, including China, Japan and South Korea, joined the UK and the EU in formally committing to a net zero emissions goal. With the new US President Joe Biden signalling an intent to introduce a similar goal, we are approaching a point where the countries responsible for two-thirds of the world’s total CO2 emissions are now working towards a net zero target. This will have big implications for the oil and gas industry, which is already under growing pressure to reduce the carbon intensity of upstream and downstream activities and the resultant impact of the products they produce. Many operators are stepping forward with their own decarbonisation commitments, particularly around Scope 1 and 2 emissions as they seek to preserve their licence to operate and secure a commercial edge ahead of the expected roll-out of stronger carbon tariffs over the coming years.
Shell is investing $300mn, over three years, on planting more than 5mn trees in the Netherlands and Spain Photos: Shell
Solutions for a net zero world While decarbonisation is clearly a business imperative for the industry, developing a credible roadmap towards net zero is a hugely complex challenge that requires multiple levers to be pulled as part of a blended solution.
process of verifying emission reduction at a project level has proved challenging. Similarly, the methodologies and standards for defining carbon offsets, and the rigour with which these standards are enforced, are not yet set in stone, although they continue to improve each year. Last summer, the Taskforce on At Wood, we are helping clients Scaling Voluntary Carbon Markets across multiple end-markets to (TSVCM) was set up and promptly tackle this very problem using our launched a consultation process proprietary decarbonisation SCORE to assess how the governance of methodology (see Figure 1). In this the market could be improved instance, SCORE is an acronym that and then expanded to meet an refers to the range of options we anticipated surge in demand from find are typically available when it sectors as diverse as aviation, comes to designing a pathway to energy and construction. Recent net zero. analysis by Trove Research forecast that the voluntary carbon market • Substitute: Switch fuel or could increase from $0.4bn/y in feedstocks to renewable or less 2020 to $10–25bn/y in 2030. While carbon intensive sources, eg a study from Vivid Economics on switching electricity provision behalf of the UN PRI (Principles to a renewable source or for Responsible Investment) considering the use of found that revenue from negative renewable and bio feedstocks. emissions or carbon offsets could reach $1.4tn/y by 2050. • Capture: Employ carbon Some of the key elements being capture or emissions control addressed through the TSVCM technologies to substantially consultation include defining the reduce or eliminate harmful principles and processes that will emissions. help improve and standardise • Offset: Consider assets or the environmental integrity of product portfolios on a country carbon offsets. Also included is or company-wide scale and the standardisation of contracts explore opportunities to and information systems that compensate in other areas drive greater transparency, and a for the carbon emissions that solution around how to deal with cannot be easily removed. legacy credits in the market that no longer meet today’s environmental • Reduce: Adopt a holistic approach to asset optimisation, standards. Removing (‘retiring’) carbon credits from offset markets, including energy efficiency, avoiding the potential for multiple digitalisation and smart organisations to purchase the maintenance strategies to same credits, is a crucial element avoid potential emissions at of the process. The UK Woodland source. Carbon Code, for example, offers • Evaluate: Apply a structured the purchase of carbon units via and on-going evaluation the UK Land Carbon Registry. process to drive continuous improvement towards net zero. Typical offsetting approaches While there is still on-going work to build maturity in the system, Offsetting opportunity Offsetting is one part of the SCORE there is already an active market approach and is an area that many in place. In simple terms, carbon offset mechanisms typically fall corporates, including oil and gas into two categories – solutions that operators, are exploring as part remove CO2 from the atmosphere of their overall decarbonisation strategy. While the market for or solutions that reduce CO2 carbon offsets has existed for over emissions. a decade, it is still an evolving One of the most common discipline. options that energy majors are The EU Emissions Trading adopting is reforestation, with Scheme (ETS), for example, companies including Shell, includes mechanisms to generate BP, Total and many others all carbon credits via investment in providing capital and building developing economies. However, partnerships with NGOs to launch the range of projects excludes tree-planting programmes to help agriculture and forestry and the offset their Scope 3 emissions. Petroleum Review | March 2021 15
