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24-07-2020 | Insight

The complexity of a carbon intensity target

  • Sylvia van Waveren
    Sylvia
    van Waveren
    Engagement Specialist

Last week, the members of the Oil and Gas Climate Initiative (OGCI) set an ambitious target. They want to reduce the carbon intensity of their aggregate upstream oil and gas operations to below 2017 levels by 2025. OGCI is a consortium led by CEOs that aims to accelerate the energy transition in the oil and gas industry.

Its member companies include the largest global players in the sector: BP, Chevron, CNPC, Eni, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Saudi Aramco, Shell and Total. Together they account for over 30% of global oil and gas production.

Specifically, the consortium's target is to reduce the carbon intensity to between 20 and 21 kg of carbon per barrel of oil by 2025. In 2017, this carbon intensity stood at 23 kg. According to the International Energy Agency (IEA), this target corresponds to the reduction required in all sectors, including the oil and gas industry, to meet the Paris Agreement goals. The IEA has analyzed that this requires a reduction of 9% to 11%. OGCI is now aiming for a reduction of 9% to 13%.

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What does OGCI's carbon intensity target cover?

The carbon intensity reduction target covers both carbon dioxide and methane emissions from the operated upstream oil and gas exploration and production activities, as well as emissions from associated imports of electricity and steam to these production activities and locations. Upstream operations account for about 50% of the operational emissions within OGCI on average.

The reduction in carbon intensity does not necessarily mean an absolute reduction in emissions, but it does entail a decrease in the amount of greenhouse gases emitted per unit of energy produced. At constant production levels, absolute emissions are reduced by at least 9%. If these levels fall – as is currently the case – absolute emissions will further decline. If production levels rise, absolute emissions may remain the same or even increase.

A complex issue

Understanding carbon intensity figures within the complex world of oil and gas companies is no mean feat. Critics may say that opting to focus on a carbon intensity-only target creates scope for stepping up production, which would not be in line with the Paris Agreement.

However, carbon intensity metrics can be useful, because they enable shifts in member companies' portfolios. They also allow new member companies to join the objective, while other companies can use the metrics as a benchmark. A carbon intensity target would then be a practical first step for OGCI members to further enlarge their contribution to the transition to a low-carbon economy.

Follow-up steps needed urgently

One might also wonder why the focus is only on carbon emissions from business operations, while emissions from the use of oil and gas products by consumers (scope 3) are many times higher. A mere 9% of greenhouse gas emissions originates from oil and gas production and processing, prior to the product reaching the customer.

This is exactly what we focus on in our engagement with oil and gas companies. As with other emitting industries, we expect them to not only address their operational emissions, but also to significantly reduce their scope 3 emissions. The only way to do so is by working much more closely with their industrial and private customers to help them reduce their ecological footprint.

We know that some OGCI members are already making agreements with their customers to further reduce net carbon emissions when using their products. And as investors, we will support them in this as much as possible. Together with the industry, new partnerships are being formed with a view to achieve practical results. Carbon-neutral routes for aviation, cars, shipping, steel and cement are just a few of the examples that spring to mind.

In our view, this is the only way to achieve global climate neutrality by around 2050 for governments, businesses and consumers.

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