Article   |   Ian Thomas   |   25.08.2022

Tackling Scope Three emissions for the future energy mix

For all the discussions and subsequent commitments made at COP26, many organisations, regardless of sector, are still finding the energy transition a minefield as we progress towards COP27. This is particularly prevalent in the discussions around emissions reporting and where the necessary information is found. Ian Thomas, Senior Principal Consultant, sheds light on the integrated approach of managing emissions for energy operators, suppliers, and decision-makers, as well as expanding on the emerging concept of so-called ‘avoided’ emissions.

What’s the problem, anyway?

Let’s face it, we all know that we as a global community have a shared responsibility to bring down our emissions. We also have a shared responsibility to share learning and collaborate together to embed new knowledge and processes into our methods. These three ‘pillars’ - educate, collaborate and integrate - are shaping our sustainability policies and commitments here at Vysus Group, in an initiative we’ve called Planit22.

A central theme of COP27 is the opportunity for countries to fulfil their pledges and commitments towards delivering the objectives of the Paris Agreement to enhance the implementation of the Convention and this year should witness the implementation of the Glasgow pact call to review ambition in NDCs, and create a work program for ambition on mitigation.

This leads us to our pillars and the overlap with the reporting of Scope Three emissions as part of an effective corporate climate change strategy which requires a detailed understanding of a company’s true GHG impact. Understanding that offsetting can be seen a method for wealthy countries and companies to greenwash their figures rather than tackle the true global environmental impact of their emissions. There are signs that offsetting itself has perhaps had its day. A major US energy company, NextEra Energy, has coined the phrase ‘real zero’ – achieving zero climate pollution without the use of offsetting by 2045. Broadly speaking, the move has been welcomed, albeit with some caveats, and reveals that if accelerating the energy transition is to happen at the pace we need it to, adapting existing processes will be fundamental.

The measures used to collect and report non-financial data are still evolving. And as the importance of sustainable reporting and information disclosure continues to expand, there will need to be a closer connection between operators, regulators, investors, JV partners and other stakeholders.

Why we need to report emissions in the first place

Each individual country, as we know, has its own measures in place to meet the targets as set by the 2015 Paris Agreement goals. For the UK, the North Sea Transition Deal – the ‘first of its kind by any G7 nation’ as described by OEUK - maps out the joint government and energy industry sector commitment to achieving a 50% reduction in emissions by 2030, compared with a 2018 baseline (as well as milestone targets of 10% by 2025 and 25% by 2027). In the longer-term, it is proposed that the sector achieves 90% emissions reductions by 2040 and 100% reductions by 2050.

Clearly, this is not something the sector can accomplish in isolation – it needs the full support of external stakeholders, suppliers, and the public.

Reporting Scopes One and Two, while mandatory, goes some way to addressing corporate responsibilities. Scope Three goes a stage further to address the emissions associated with the supply chain provision of goods and services to the disposal of the products it sells. In the energy industry such services may include the hire of supply boats, drilling rigs and other equipment to the use of energy products, such as oil and gas. Less obvious may be the emissions associated with the generation of renewable sources of energy such as biofuels, electricity and hydrogen.

The challenges associated with quantification of Scope Three emissions are not inconsiderable and start with a requirement to identify those emissions which are considered material to the organisation from a list of 15 categories and the application of industry standard methodologies to ensure figures reported are true, verifiable and free of material errors.

From an oil & gas perspective, the 2020 IPIECA guidelines on Scope Three emission reporting focussed on downstream consumption based upon the final product created, but left gaps around the upstream supply chain responsibility that is now very much central to the latest GHG Protocol responsibilities for Scope Three. In addition, real offsetting of permanent CO2 sequestration such as geological disposal and the accounting process for that remains a work in progress.

Given the acknowledged challenges, it goes without saying that those preparing the figures shall be qualified practitioners and experienced in the industry sector. That is to say, a specialist in one field such as manufacturing may not be competent to identify emission sources in a completely unrelated industry such as upstream oil and gas or a downstream refinery.

Similarly, verifying the vast data streams through an independent and competent third-party adds to the credibility of any statements released to the media or elsewhere, building trust with investors, shareholders and the public and, as we’ll come onto later, reducing the risk of accusations of greenwashing in the process. This is particularly important in a time when there are increasing claims of greenwashing in the media.

Measured carefully and reported accurately, Scope Three has the potential to drive innovation sector-wide, improve links and relations with individual groups, and reduce costs through enhanced efficiency. All of these are fundamental to developing the sustainable future we are all striving for.

Keeping pace with evolving language and challenges

Scope Three management is an evolving beast. In the US, the Securities and Exchange Commission (SEC) looks set to bring in a mandate for Scope Three emissions to be disclosed for most companies, and closer to home, the UK’s Voluntary Carbon Markets Integrity (VCMI) Initiative is heading towards a voluntary code of practice to ensure environmental claims are credible. The NSTA – the body overseeing the North Sea Transition Deal – sets out best practice in environmental management within the O&G lifecycle in a series of stewardship expectations with the latest additions (11 and 12) solely focusing on net zero and the supply chain.

Without reading Expectation 11 and 12 word for word, both outline the considerations for reducing greenhouse gas emissions on both the physical environment and society. Expectation 12 also references the close collaboration that exists within energy’s supply chain, and drawing on this resource to outline transition projects such as CCUS and electrification, amongst others, illustrating further areas for cooperation.

Some readers may have heard about Scope Four emissions, as reported in a recent Bloomberg article. These pertain to so-called avoided emission. One example of avoided emissions with which we are all familiar is video conferencing, as this has removed (i.e. avoided) the emissions that would have arisen from attendee transport and using a meeting room with equipment and lighting in constant use.

To draw a parallel with the energy sector, avoided emissions can be found in how the asset is maintained. Remote inspections, using sophisticated technology, has the potential for in-depth, accurate observations to be made from practically any location in the world. During Covid-19, when operations shut down left, right, and centre, and rig teams were reduced, these remote inspections maintained asset integrity, without the need to bring in multiple specialists which, of course, would have also resulted in travel emissions.

Whilst it is legitimate to calculate the emissions avoided by a certain course of action, the fact remains that to do this, Scope One, Two and Three emissions for all options must be assessed. For this reason, jumping to a so called Scope Four figure will create unnecessary complexities.

Scope Four is not a recognised term, and it is already being identified as a means of greenwashing.

The importance of being accurate and honest

Greenwashing is a term everyone will have come across. For an energy operator, it is a significant threat to promoting what would appear to be positive steps. An example from 2020 led to the withdrawal of an entire advertising campaign following complaints to the UK regulator as to the credibility of certain claims in the process. It goes to prove how such messages must always be substantiated by clear evidence and data.

Talking of data, it is critical that this, too, is of verifiable quality. Faulty or misleading data, improperly gathered, or secured can have a significant negative impact on the credibility of reported date or disclosures.

Given the importance of data to inform the decision making of regulators, investors, engineers and other stakeholders, it is clear that the person or persons responsible for ensuring figures are true, secure and free of material errors should have demonstrable competencies within the industry sector and in the data assurance process.

Organisations that have direct heritage in data verification and assurance and who have a long history within the oil & gas sector are more than qualified to understand the challenges and to offers solutions. Such specialist organisations have ‘real world’ experience and know how to apply the principles embodied in AA1000 AS or ISAE3000 standards to support operators with net-zero obligations.

Bringing knowledge together

Vysus Group became an AccountAbility AA1000AS licensed provider earlier this year, enabling us to offer independent verification of non-financial disclosures and emission statements to our clients within the energy sector. Combined with our expertise from other areas of the industry, we are now in the position where we can cover the full energy value chain, and the various emission levels at specific points.

There is a great amount of work to do in the next 30 years or so in meeting net-zero goals. And there are sure to be further obstacles ahead in the wake of the situation in Ukraine. Maintaining knowledge-sharing and being on the same page with regards to meeting required adaptations provide the energy industry with the solid foundation needed to build upon.

For more information about Vysus Group’s sustainability commitment campaign, Planit22, visit https://www.vysusgroup.com/planit22.

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