Big Oil Is the Big Winner on Carbon Credit Expansion #IndustryFinance

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The prime beneficiaries of plans to allow corporations more license to use carbon credits to cut total emissions may end up being the main perpetrators of the global climate disaster: oil and gas companies.

The fossil fuel industry is “the elephant in the room when we talk about Scope 3 emissions,” according to Catherine McKenna, Canada’s former minister of environment and climate change. There is plenty of talk in the climate community right now about Scope 3 emissions — the greenhouse gases produced by customers and supply chains. The trigger for all this chatter was a controversial statement in April by the board of the Science Based Targets initiative, the world’s largest verifier of corporate climate goals. SBTi surprisingly changed its tune on carbon credits — increasingly seen by experts as a greenwashing tool — saying they should be used to abate these value-chain emissions.

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While SBTi’s board didn’t reference specific companies or industries, oil and gas firms have the greatest Scope 3 emissions of all. As such, they have the most to gain from a climate standard that puts more weight on carbon credits. Other sectors with large Scope 3 profiles include agriculture, financial services and automakers.

Big Oil spent decades dismissing climate science and obstructing sustainability efforts as the world warmed. Giving it an easier route to hit climate targets poses significant danger, McKenna warned. Although many oil majors have made climate pledges, those promises invariably remain unfulfilled. Their emissions continue to rise along with profits, which aren’t being used to build up clean energy, said McKenna, who is also chair of the UN Secretary General’s expert group on net-zero emissions and runs her own climate advisory firm. All the while, Wall Street keeps pouring money into the fossil fuel infrastructure and oil executives demand more subsidies from taxpayers, she said.

Fossil fuel combustion represents the largest source of CO2 emissions, yet the industry has long been accused of greenwashing when it comes to promises of sustainability. Many of the largest companies that extract, refine and transport those fuels are “chronically underreporting” their carbon footprints, haven’t articulated how they will meet their climate goals and don’t include all Scope 3 emissions in their targets — and said that doing so would be “deeply flawed.”

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“Oil and gas have proved to be the least interested in actually reducing their huge Scope 3 emissions and have the most to gain by simply offsetting them,” said McKenna. “As I saw during my four years as environment minister in Canada, oil and gas was not only unwilling to be part of the solution, they worked at every opportunity to thwart progress on climate.”

McKenna made a similar point to Francesco Starace, chair of the SBTi board, during a video conference late last year, according to a person familiar with the matter. Starace is the former chief executive of one of Europe’s largest energy producers and utilities, Enel SpA.

During the call—held months before SBTi changed its stance on carbon credits — Starace said oil and gas companies shouldn’t be ostracized but instead considered “part of the solution” to the climate problem, said the person, who asked not to be identified because the call was confidential. McKenna warned Starace against carbon offsets and to guard against external pressure when developing standards for the industry, the person said.

Starace didn’t respond to requests for comment. McKenna and SBTi declined to comment on the conversation.

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“It’s bonkers to allow oil and gas to claim that they are climate leaders when they fuel the climate crisis and offset their emissions by buying cheap credits rather than transforming their industries,” McKenna said.

A spokesperson for SBTi did point to the group’s recently published discussion paper on Scope 3, which outlines three scenarios where carbon credits may be used when setting a science-based target. None of them include offsetting emissions, they said.

The SBTi board’s fateful April call on carbon credits set off a firestorm at an institution that had long been seen as the gold standard in emissions accountability. The about-face appeared to contradict it’s long held position that companies should prioritize reducing emissions, while reserving the use of credits for residual emissions.

McKenna however said it’s essential the controversy not be allowed to permanently taint SBTi. “SBTi may not be perfect, but it is important to integrity around net zero,” she said. “I worry about the drama around SBTi and how it may impact its effectiveness.”

Oil and gas will be one area of focus for SBTi in the coming months. Having worked on and off for years to develop specific guidelines for oil and gas companies to set net-zero emission-reduction targets, SBTi said this month that it’s now drafting those standards.

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SBTi’s effort to address oil and gas is “important work as the sector’s scope 1 and 2 emissions alone account for just under 15 per cent of global GHG emissions, and clear guidance is needed to support the decarbonization of the sector across all three scopes,” the group’s spokesperson said.

Sustainable finance in brief

Maybe Big Oil is part of the solution after all? The wave of anti-ESG sentiment that fuelled a global retreat from the investing strategy is now showing signs of losing steam, according to an executive at the wealth management arm of  Deutsche Bank AG. “We have seen the trough in ESG fund flows,” Markus Mueller, the private bank’s chief investment officer for ESG, said. There’s less “backlash globally.” Mueller says the development follows adjustments to regulations, with investors increasingly able to target a wider array of sectors. Specifically, fossil-fuel assets once deemed off-bounds for climate investors are now finding a home in so-called transition strategies.

• Catastrophe bonds — issued by insurers, reinsurers and governments seeking an extra layer of disaster coverage — have been handing investors double-digit returns. Issuers have seen their costs soar.
• BlackRock Inc. says the market for blended finance, developed to help pay for climate change measures in poorer countries, has reached a “turning point.”
• India’s market regulator intends to expand the scope of its sustainable finance framework to include more products, a potential boost to ESG-labeled instruments in Asia.

Bloomberg.com

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