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With ever increasing public focus on climate change, many companies have announced targets and goals to cut emissions by 2050. However, the reductions promised vary wildly between companies from absolute reductions across a businesses’ entire portfolio to relative or emission intensity reductions across a fraction of their enterprise. There is currently no industry-standard approach to reporting, making comparisons between individual companies difficult.
As the impact of climate change is dependent on the aggregate total of CO2 emissions in the atmosphere, calls have been made for companies to focus on reducing their absolute emissions. At the current rate of annual greenhouse gas emissions, it is estimated warming will reach the 1.5 degC threshold within the next 10-15 years. Therefore, having targets set for 2050 may be too little to late and a focus on achieving interim targets for 2030 may be integral to avoiding catastrophic warming.
What do different companies report on?
While it can be difficult to compare between companies, it is easy to see the differences in philosophies across the Atlantic. Many oil and gas companies in Europe have set goals to reduce emissions whereas North American companies have been slow to follow suit. According to a report by Carbon Tracker, Occidental is the only large North American company so far to set targets that cover their Scope 3 emissions.
Geographic differences aside, the biggest difference in reporting comes from whether companies report their absolute emissions or use another measure such as relative emissions or emissions intensity.
Absolute emissions are the total reported emissions of a company, which are usually measured in tonnes. These absolute emissions are categorised and reported as Scope 1, 2 or 3.
Relative emissions are a comparative calculation used to determine the emissions added or saved by a specific project. For example, if a new wind farm is built as opposed to a new coal fired power plant then you would expect there to be a relative emissions saving. This would generate a negative value for emissions. To calculate the relative emissions of a project you would need to know the emissions for a scenario “with” the project and also “without”. ISO 14064 standards have very strict criteria for accounting for these offsets.
Emissions intensity is when the amount of carbon dioxide equivalent is calculated per unit of interest; for example GDP, unit of energy, or total amount of energy produced. Commonly in the oil and gas industry, this is reported as kgCO2e/boe (kilograms of CO2 equivalent per barrel of oil equivalent). Intensity values are generally averaged across a company’s entire portfolio so if an oil and gas company developed a strong renewable energy branch then their emissions intensity could drop despite their absolute carbon emissions remaining stable.
Both relative emissions and emissions intensity would be a reliable tool for gauging emissions if there were finite limits on energy production, so that renewable energy would be directly replacing fossil fuels from the market. However, as this is not the case, it can be very hard to discern if the absolute emissions of a company have actually fallen based on a drop in relative emissions or emission intensity alone.
While many in the oil and gas sector have moved to market themselves as energy companies, the bulk of their income still comes from oil and gas. For example, Shell’s capital expenditure on renewable energy in 2020 was just 5% of their total capex.
What does this mean for comparisons?
Comparison between companies is difficult as targets are framed in different ways and calculation methodologies vary. A way to differentiate between companies’ goals can be to compare how much of a business’ activities are covered by commitments and whether targets set are in relation to absolute or relative/intensity of emissions. Furthermore, whether the company has interim goals set can help indicate their commitment to addressing emissions reductions now rather than putting it off for the future. Below is a comparison from Carbon Tracker’s Absolute Impact 2022 report to highlight the differences between different companies’ targets. They note in their 2022 review that while there are many more companies with 'net zero' goals declared, there is still significant variation in the impact of these stated climate goals.
Table 1. Ranked comparison of oil and gas company emissions targets from Carbon Tracker's Absolute Impact 2022 report (https://carbontracker.org/reports/absolute-impact-2022/).
What would be best practice?
A report by Carbon Tracker states:
"Goals of achieving net zero are insufficient for preventing climate change as it is the absolute amount of carbon that influences the rate and intensity of warming."
An industry-standard approach to reporting would allow better comparison between companies which would allow consumers to more readily understand a company’s commitments and the implications for their emissions reductions. This leans into the need to have better accountability and transparency in the recording and mitigating of emissions.
Carbon Tracker’s Absolute Impact reports (2021 & 2022) suggest that for companies' targets to be “Paris Compliant” then the following three pre-conditions need to be met.
“Targets must:
1. Include full lifecycle emissions including both operational (Scope 1 and 2) and end use emissions (Scope 3).
2. Be bound by finite limits, including interim milestones set on an absolute basis.
3. Cover emissions from a company’s owned production and global product sales on a full equity share basis, including downstream product sales.”
They also strongly suggest that emissions goals should not rely on emission mitigation techniques that are currently unproven or require large tracts of unidentified land. Companies should also not rely on consumer actions to achieve their targets as taking a passive position does not align with the Paris agreement.
Targets that exclude geographical regions or certain business segments or investments are also not compliant. And while a focus on production emissions may be suitable for some sectors it is not appropriate for the oil and gas sector as the vast majority of their emissions come from product use. If Scope 3 emissions are not included in targets set by companies then at most, they are addressing just 15% of their total emissions.
Finally, the use of interim milestones ensures that focus is brought to act now rather than pushing that responsibility off and into the future.