The oil and gas industry is facing immense pressure to reduce its carbon footprint. Moreover, they need to transition to a low-carbon future. A critical component of this transition is addressing Scope 3 emissions. It vastly outweighs Scope 1 and 2 emissions from their own operations. Stakeholders today demand climate action. As a result, managing Scope 3 emissions is becoming integral to the industry’s license to operate.
This article examines the complexities around Scope 3 emissions for oil and gas companies. It explores the challenges in measuring and reporting emissions. It also discusses strategies to engage the supply chain and more. So, let’s get started.
What are Scope 3 Emissions for oil and gas?
Scope 3 refers to all indirect emissions that occur across a company’s value chain. It ranges from sourcing raw materials to using sold products. This includes emissions from extraction, production, transportation, distribution, and consumer use of products.
For oil and gas companies, key sources of the emissions include:
- Extraction and production of purchased energy commodities and services
- Transportation of products by third-party carriers
- Use of sold products like gasoline, diesel, and natural gas
- Disposal and treatment of sold products at end-of-life
- Transportation of employees for business travel
- Investments in carbon-intensive projects
It accounts for around 90% of total emissions from oil and gas companies. Now that we know what are scope 3 emissions for oil and gas, a question might arise in your mind: Why aren’t we all managing it? Well, there are a lot of challenges in doing so. So, let’s take a look at them.
Challenges in Managing Scope 3 Emissions
Scope 3 emissions pose unique challenges for management and reduction:
- Difficulty Tracking Emissions
The emissions often occur across long, complex value chains with numerous players globally. So, this makes emissions data difficult to trace and quantify.
- Lack of Influence
Oil and gas companies often have limited influence. This is over assets they do not own or control directly in their value chain. As a result, this restricts their ability to drive reduction initiatives.
- No Unified Methodology
There are no universally accepted methodologies for calculating Scope 3 emissions. So, this leads to inconsistencies and inaccuracies in reporting.
- Pushback from Suppliers
Suppliers may resist pressure to reduce emissions due to concerns. These include costs, capabilities, or compromised competitiveness. Additionally, this could strain relationships across the supply chain.
- Variations in Data Quality
Emissions data from different stages of the value chain vary dramatically in accuracy and completeness. So, this contributes to uncertainties in baselines and tracking.
- Double Counting
Overlaps between company inventories risk double counting emissions. It also underestimates the total carbon footprint.
These challenges make Scope 3 emissions notoriously difficult to quantify and reduce. However, overlooking the emissions risks severely undermines decarbonization efforts. Now, we explore strategies companies can employ to manage emissions better.
Strategies for Managing Scope 3 Emissions
Here are five key strategies oil and gas companies can adopt to take control of Scope 3 emissions:
- Improve Emissions Measurement
Accurately quantifying the emissions is the critical first step to managing and reducing them. Companies need robust data and methodologies. This is to set baselines, identify hotspots, track performance, and drive corrective action. So, specific initiatives can include:
- Implementing detailed product lifecycle analysis to map emissions at each stage of the value chain. This granular quantification can spotlight the areas of the highest impact. Companies can also partner with technology providers. It helps to leverage data collection and modeling tools to enhance inventory accuracy.
- Developing proprietary emissions factors for activity data where global reference data is incomplete. For example, creating factors for specific production or distribution processes. As a result, this improves the consistency and relevance of calculations.
- Employing emerging technologies like blockchain and AI to bolster tracking and analysis. Blockchain also improves upstream traceability while AI can fill data gaps and refine inventory methodology.
- Collaborating across industries and working groups to align on quantification approaches. Moreover, this reduces double counting, increases completeness, and drives standardization.
- Set Ambitious Reduction Targets
With robust baselines established, oil and gas companies must set ambitious Scope 3 reduction targets that align with climate science:
- Adhering to 1.5°C pathways requires steep absolute reductions of at least 30% by 2030. This necessitates targets beyond incremental improvements. Furthermore, companies can reference frameworks like the SBTi. This is to develop scientifically rigorous goals.
- Emissions intensity targets that lower per-unit emissions are also valuable. Furthermore, intensity-based reductions enable continued economic growth while mitigating emissions.
- Prioritizing the reduction of emission sources with the highest abatement potential and cost-effectiveness focuses efforts where they can drive maximum impact. Moreover, hotspot analysis informs strategic targeting.
- Incentivizing action by integrating Scope 3 goals into executive remuneration shows leadership commitment. Also, cascading through the organization catalyzes engagement at all levels to achieve collective ambitions.
- Engage Suppliers & Customers
The emissions cannot be addressed in isolation. Oil and gas companies must mobilize partners across their value chain by:
- Communicating the imperative and business case for decarbonization. Suppliers and customers also need to recognize their pivotal role in tackling the emissions.
- Building supplier capabilities in quantification, reporting, and management of emissions. Many partners, especially downstream, lack skills and capacity currently. So, training and resources can overcome this barrier.
- Screening and selecting suppliers based on emissions performance and reduction potential. Incorporating sustainability for oil and gas industry into procurement creates an incentive for suppliers to prioritize decarbonization.
- Implementing financial and commercial mechanisms. It includes discounts, access to financing, and preferred contracts for low-emissions suppliers. So, shared value creation promotes collaboration.
- Developing low-carbon products and services. This is to give customers options to mitigate their emissions. Companies can also proactively respond to demand for sustainable offerings rather than risk losing market share.
- Invest in Breakthrough Technologies
Technology innovation will be instrumental in abating emissions from high-impact sectors. It includes power, steel, shipping, aviation, agriculture, and transportation. Oil and gas companies can spur development by:
- Funding pilots and demonstrations of technologies. These include carbon capture, hydrogen, bioenergy, AI, energy storage, and more. Moreover, real-world testing proves viability and accelerates scale-up.
- Making direct venture investments in decarbonization technology companies at seed, Series A, and beyond. Moreover, early-stage capital helps advance commercialization.
- Supporting R&D into new energy sources, low-carbon materials, and circular resource flows for sustainability for oil and gas industry. Also, collaboration with startups and universities diffuses risk and expands capacity.
- Upgrading distribution infrastructure like pipelines, storage facilities, LNG terminals, and transport fleets with energy efficiency and electrification retrofits to cut operational emissions.
- Applying an internal carbon price to guide capital allocation decisions toward low-carbon solutions. Moreover, pricing carbon embeds climate impact into business case modeling.
- Prioritize Transparency
Transparently disclosing and benchmarking Scope 3 emissions performance is key to driving accountability and progress. Leading practices involve:
- Reporting aggregated Scope 3 inventories through platforms like CDP, the GHG Protocol, and others. Moreover, disclosure demonstrates commitment and builds trust.
- Verifying emissions data and methodologies by independent third parties. Assurance enhances credibility.
- Publishing comprehensive scope 3 reports independently and in sustainability reports. Additionally, detailed documentation shows seriousness and helps engage stakeholders.
- Sharing lessons learned across peer companies and at industry events. So, disseminating best practices accelerates sector-wide advancement.
The Path Forward
Measuring and reducing Scope 3 emissions is a complicated task. However, the oil and gas industry has the ability to take the lead. They can do it by using its vast resources, technical knowledge, and influential position.
To succeed, it’s crucial for different sectors to work together. This means companies, suppliers, customers, and partners from various industries need to collaborate. They also need to innovate together. Oil and gas companies must also be committed to investing in ways to measure emissions. Furthermore, they should research low-carbon solutions, upgrade their infrastructure, and be transparent in reporting.
Oil and gas companies can move towards a sustainable, net-zero future. This is By following a strong plan focused on reducing Scope 3 emissions. It not only helps the industry itself but also plays a vital role in reducing carbon emissions. Moreover, it prevents the worst impacts of climate change. There are good reasons for oil and gas companies to use their resources and take the lead in this opportunity.
When we talk about emissions from the oil and gas industry, most of them come from things indirectly related to the actual production process. To move towards a future where we’re not harming the environment as much, it’s crucial for companies in this industry to deal with these indirect emissions. This means measuring them, reporting on them, and finding ways to reduce them.
To succeed in this, companies need to get better at measuring emissions, set big goals for reducing them, get their suppliers involved, invest in new ideas, and be open about what they’re doing. It’s not something one company can do alone; everyone in the industry needs to work together on these solutions.
If the oil and gas industry takes this seriously and sees managing these indirect emissions as a key part of their business, they can be leaders in the fight against climate change. There are good reasons for them to use their big resources and influence to speed up progress in cutting these emissions.
The Global Summit on Net Zero Energy Production on 30-31 January 2024 presents a timely opportunity for oil and gas executives to engage with industry experts on critical decarbonization strategies. As evidenced by the robust speaker lineup and agenda, this summit will provide key insights, best practices, and technology solutions to equip companies with actionable plans to reduce emissions and transition to a sustainable future. With the ability to directly inspire climate action and progress, oil and gas leaders should seize this platform to drive meaningful change, benefiting both environmental and financial performance. Attending the 2024 summit in Amsterdam is an investment in securing the future resilience and relevance of the industry.