The global oil and gas (O&G) industry has a big problem: it is responsible, either directly or indirectly, for close to half of all global greenhouse gas (GHG) emissions. As the impact of global warming becomes all too apparent, pressure is mounting rapidly—from activist investors, regulators, employees, and society as a whole—for the industry to change its ways.
Last year, for example, BlackRock, the world’s largest fund manager, rejected 55 board directors of companies that failed to act on climate issues. This year, the organization rejected almost five times as many—including a major O&G company. A court in the Netherlands recently ordered an O&G major to slash its emissions harder and faster than planned. And in some locations, making significant emissions reductions is becoming a requirement to hold a license to operate.
O&G companies can pull six levers to reduce their carbon footprints. (See Exhibit 1.) Nevertheless, most have not succeeded in significantly reducing the scope 1 and scope 2 emissions for which they are responsible. And few have been able to accurately calculate the amount of scope 3 emissions generated by customers—let alone make significant strides to reduce them as well.
By fully integrating these levers into all their operations, however, O&G companies can indeed effectively reduce their direct and indirect emissions. To do so, companies will need to identify and measure their emissions as accurately as possible, determine the optimal means for abating them, execute the abatement, and then provide a full and accurate accounting of their decarbonization efforts.
That’s where digitization—in the form of new tools using advanced analytics, artificial intelligence (AI), and machine learning—comes in. These tools help companies figure out the fastest and most effective steps to take along the road to decarbonization and provide guidance for executing on those steps. Here’s how they work.
The O&G industry is responsible for 10% of global GHG emissions through its direct scope 1 emissions from operations and another 31% through its indirect scope 2 and scope 3 emissions. (See Exhibit 2.) Given the magnitude of the industry’s emissions, however, simply diversifying into low-carbon energy alternatives will not be sufficient to reduce emissions to acceptable levels.
Companies themselves can decrease scope 1 and scope 2 emissions through operational and energy efficiency initiatives—the fastest, and often lowest-cost, pathway to decarbonization.
Scope 3 emissions must also be significantly limited if the industry is to make a real dent in the world’s overall carbon emissions. But few companies have created targets for reducing scope 3 emissions or are set up to tackle the challenge of understanding their extent and how to decarbonize them. Without visibility into scope 3 emissions, companies will be unable to communicate, commit to, or deliver on their climate ambitions. READ MORE
By Mike Lyons, Santosh Appathurai, Martha Vasquez, Lukasz Bolikowski, Pedro Alcalá, Francesco Carducci, and Nicholas Tarabelloni
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