Why the oil industry should set greenhouse gas emissions reduction target at Cop28

The industry needs to be smart about targets of its scope 3 emissions, accounting for 85% of greenhouse gases when fossil fuels are used by customers

The oil and gas industry needs to cut leaks of methane, a powerful global warming gas. AFP

Patrick Pouyanne loves rugby and at 1.91 metres in height would make a good second-row forward. Not just physically imposing, the chief executive of TotalEnergies is more outspoken than his Anglo-Saxon, Arab or Chinese counterparts. He would not have been happy to see protesters from the Just Stop Oil campaign disrupt the Gallagher Premiership rugby union final at Twickenham in May.

But at last week’s Opec seminar in Vienna, Mr Pouyanne said the oil industry should set targets to reduce greenhouse gas emissions at the Cop28 climate conference starting in Dubai in November.

“If we can bring something to Cop28 as an oil and gas industry … not only IOCs [international oil companies] but also NOCs [national oil companies] should have some targets,” Mr Pouyanne said.

He referred to the need to cut leaks of methane, the main constituent of natural gas, but a powerful global warming gas in its own right. And he advocated targets to reduce oil companies’ so-called Scope 1 and Scope 2 emissions by 2030. Scope 1 involves direct emissions from combustion or methane releases in oil companies’ own operations; Scope 2 are emissions from electricity or heat purchased from others.

In fact, most major oil corporations already target such reductions. But reporting on them usually comes with the caveat that they do not have goals to eliminate Scope 3 emissions – the greenhouse gases released when their oil and gas produced is eventually used. About 85 per cent of oil and gas emissions would fall into this category; in the case of Shell, as high as 95 per cent.

There are exceptions: BP aims to cut Scope 3 by 20 per cent to 30 per cent by 2030 and to reach net zero on carbon from its upstream production by 2050. Mr Pouyanne’s TotalEnergies aims to cut Scope 3 from oil by 40 per cent by 2030. It aims to be net zero by offsetting 100 million tonnes of annual carbon dioxide emissions through various methods by the middle of this century.

Speaking at the same Opec event, Dr Sultan Al Jaber, Minister of Industry and Advanced Technology, chief executive of Adnoc and President-designate of Cop28, said “the phase down of fossil fuels is inevitable, it is in fact essential”, but “the speed of the transition will be driven by how quickly we phase up zero-carbon alternatives”.

So the big question is: are fossil fuel producers responsible for the emissions of those who use their oil and gas?

European companies face the most pressure. In May 2021, a Dutch court ruled that Shell must reduce the carbon dioxide emissions of its operations and products sold by 45 per cent by 2030, in line with the global reductions implied by 2015 Paris Agreement on climate.

Activist groups proposed a number of resolutions at shareholder meetings of Shell, BP, ExxonMobil and Chevron last year on tightening Scope 3 reductions, which garnered about 20-30 per cent support. Just Stop Oil, which in addition to rugby has interrupted play at Wimbledon, the Lord’s cricket Test, the World Snooker Championships and Premier League football, wants the UK government to block all new oil, gas and coal projects.

This is precisely the problem with the attention on Scope 3: it places the responsibility on those extracting the resource, not those using it. Oil companies should certainly reduce their own operational emissions to zero as soon as possible.

But it’s very difficult to see how they can be responsible for what their customers do with the product, or alter the fact that people around the word still rely on oil and gas to move around, eat, dress, build, and light, heat and cool their homes. That demand will drop but neither quickly nor smoothly.

To meet goals for Scope 3 reduction, oil companies have various options. They can sell their upstream assets but that just moves the emissions into the hands of others, probably private or state-backed owners with less environmental scrutiny.

TotalEnergies chief Patrick Pouyanne says the oil industry should set targets to reduce greenhouse gas emissions at Cop28 in Dubai. Reuters

They could cease investing in their upstream activities and let them decline naturally as fields deplete. If the Europeans do that, the Americans will take their market – and indeed the share price of European oil companies has significantly trailed their transatlantic competitors. When BP announced in February it would be investing more and cutting hydrocarbon production by less than earlier stated by 2030, its shares jumped.

If all western companies cut output, their market share would be taken by other state corporations, whose vast reserves are more than enough to breach climate goals on their own. Less gas production would mean more coal consumption – someone else’s Scope 3.

Finally, if through binding international agreement all companies were to phase out oil and gas output, without consumers’ moving rapidly to affordable and abundant alternatives, severe energy shortages would strike and prices would go through the roof. We already had a foretaste of that with record gas prices last year because of Russian actions – and the response was public outrage, massive government subsidies and price caps.

On the other hand, if competitive non-oil alternatives do emerge rapidly, then oil companies that have invested in boosting production will find there is no market. They will have made a bad business decision and will lose financially. Their emissions will then fall naturally.

So, how could petroleum corporations realistically reduce Scope 3? They have to work with their end-consumers to ensure ever-greater efficiency of use and preferentially in non-emitting applications, such as making long-life petrochemicals and plastics, lubricants and hydrogen. Combustion should increasingly be replaced with carbon capture, use and storage (CCUS) – on power plants, industry and, potentially, even in oil-powered ships – trapping carbon dioxide rather than releasing it to the atmosphere.

They can offer services to their customers to co-develop CCUS projects, including reimporting captured carbon dioxide. And they could provide completely decarbonised oil by capturing an equivalent amount of carbon dioxide from the air – which at realistic long-term costs for this process would add some $60 to the cost of a barrel of oil, steep but not absurd.

Companies need to try such approaches to tackle their Scope 3 emissions. Otherwise, they will emerge from the scrum of climate action with a black eye.

Robin M. Mills is chief executive of Qamar Energy, and author of The Myth of the Oil Crisis