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Oil and Gas Companies Lag Far Behind Other Firms on Emissions Cuts

Eight of the 11 domestic energy companies on the Fortune 100 haven't set greenhouse gas reduction or renewable energy goals, a report finds.

Jan 3, 2013
Valero is one of the U.S. oil companies that hasn't set internal greenhouse gas

Recognizing the impact of global warming—or perhaps just looking for a little positive press—large corporations are adopting internal greenhouse gas reduction and renewable energy goals.

Noticeably underrepresented? Oil and gas companies.

A report released last month by the World Wildlife Fund (WWF) showed that 58 of the country's Fortune 100 companies set goals in 2012 to either use more renewable energy for their operations or reduce their greenhouse gas emissions. Globally, the number of participating companies was even higher—68 of the world's 100 largest companies have set some sort of greenhouse or renewable energy goal.

But energy companies lagged behind on both lists. Eight of the 11 domestic energy companies on the Fortune 100 haven't set internal energy goals. The exceptions are Hess and Chevron, which both set renewable energy and greenhouse gas targets, and ExxonMobil, which set a greenhouse gas target. (Hess was accidentally omitted from the report, according to a WWF spokesman.)

Eleven of the 20 energy companies on the global list hadn't set targets, the lowest participation rate of any industry.

The report was produced by WWF, Ceres and Calvert Investing, and is the first in a series of reports that will look at sustainability in business. Ceres is a coalition of large investors and environmental groups that promotes sustainability in the business community. Calvert Investments is a Maryland-based mutual fund company that invests in socially and environmentally responsible companies.

"The industry is quite technologically advanced, but it just hasn't prioritized that innovation in a way that's commensurate to approaching the challenge of climate change," said Andrew Logan, director of the oil and gas program for Ceres. "Not only is this possible, it's necessary. If the world is going to address climate change, the oil industry is going to have to come along, either willingly or kicking and screaming."

The world's largest companies have begun setting environmental goals for a variety of reasons—policy pressures, public relations or simply an acknowledgment that renewables might someday be cheaper than, or at least competitive with, oil and gas.

Three quarters of the nation's industrial companies now have some sort of environmental target, led by Caterpillar's goal of using 20 percent renewably energy in its operations by 2020 and reducing 25 percent of its emissions in that time. Sixty percent of the "consumer staples" businesses, including Procter & Gamble, have renewable energy or emissions goals.

The challenge for companies that produce fossil fuels, of course, is that the very products they're selling contribute to climate change, so moving towards renewables would seem to be a foolish business move.

"Admitting that there's a climate problem is like admitting that your product has a problem," said Marty Spitzer, the World Wildlife Fund's director of U.S. climate policy. "Maybe there's an irrational fear that setting goals for their internal operations somehow undermines their business model."

But Spitzer said energy companies can reduce greenhouse gas emissions without killing their own business, by cutting emissions associated with their internal operations and the electricity they purchase.

Emissions are generally separated into three categories or "scopes." Scope 1 emissions are direct emissions, resulting from internal operations, which for oil and gas companies can include extraction and refining. Scope 2 emissions are associated with the electricity a company buys.

Reducing these types of emissions can be easier than trying to reduce Scope 3 emissions, which are associated with the use of the industry's final products, Spitzer said.

"I think there's a really good case for companies setting goals for Scope 1 and Scope 2, because it's just about efficiency," he said.

The oil and gas sector is directly responsible for 6 percent of global carbon dioxide emissions, according to a 2010 report by McKinsey & Company. A new campaign by climate advocates says fossil fuel companies must keep 80 percent of their carbon reserves in the ground to prevent uncontrollable climate change.

Spitzer said that even a modest 5 percent reduction—below the goal many other companies have set—could have a major impact on the world's emissions.

Chevron, ExxonMobil and Hess have made a stab at it.

In 2001 Chevron established an Action Plan on Climate Change that set annual greenhouse gas reduction targets for their internal operations. Although the company has missed some of its annual targets in the past due to expanded production, it met its 2011 goal, according to the company's website. Its 2012 goal is a 0.7 percent reduction compared to 2011 levels, which would mean reducing their emissions to 60.5 million metric tons of carbon dioxide equivalent.

Chevron is also investing $2.2 billion between 2011 and 2013 on renewable energy, and has raised its energy efficiency by 34 percent over the last 20 years.

ExxonMobil, meanwhile, has set out to reduce its greenhouse gas intensity by 20 percent this year, relative to 2002 levels. And Hess aims to cut the carbon intensity of its emissions by 20 percent by 2013 relative to its 2008 levels.

Some energy companies, including ConocoPhillips and Marathon Petroleum, have set internal goals, but without defined targets. ConocoPhillips, for example, says on its website that each of its business units is required to develop its own climate change action plan.

Ceres has tried for years to persuade oil and gas companies to set their own goals, by reaching out to company shareholders and boards.

But Logan, with the Ceres oil and gas program, said the organization has had little success, most likely because the industry has a "short-term mindset" and is "blinded by just how profitable it is to be an oil company at the moment."

"There actually was movement five or so years ago, but it just hasn't been replicated," Logan said.

As energy companies target increasingly unconventional fuel sources in offshore areas or through hydraulic fracturing, the emissions associated with extraction are expected to rise. ExxonMobil said in a shareholder resolution that its emissions rose 3 percent between 2009 and 2010, in large part because "significant investments in deepwater, shale oil and fracking plays ... contribute significant GHGs emissions.

"They're locking in a high-carbon future," Logan said. "A lot more has to be done to push them toward a different trajectory, whether that's investor engagement or policy."

Policy Solutions

The energy sector could take a cue from the chemical industry, where many companies began regulating themselves in response to the negative publicity generated by the EPA's Toxic Release Inventory. The inventory, established in 1986 under the Emergency Planning and Community Right-To-Know Act, forced large companies that use potentially toxic chemicals to publicly disclose which chemicals they use and where they are released. That information is then posted on the EPA's website.

Today, chemical companies are considered among the leaders in terms of cleaning up their production, despite the relative carbon intensity of their products. But there is no policy equivalent of the TRI for the energy industry.

Most companies participate in programs where they voluntarily register their greenhouse gas emissions, such as the California Climate Action Registry or the Carbon Disclosure Project. The EPA collects greenhouse gas emissions data from large facilities and industries—including refineries—to better inform future policy, although individual data is not released.

The American Petroleum Institute, the lobbying arm of the industry, also collects emissions and energy use data from its member companies.

But voluntary efforts haven't been very successful, Logan said. And he sees no sign that the federal government is planning to enact anything that could move them along.

"The lack of any threat of policy is an obstacle," Logan said. "There's not even a framework of a policy."

Logan said it will take either a targeted policy like the Toxic Release Inventory that focuses on oil and gas company emissions or a broader climate change policy to make the energy industry reduce its carbon footprint. One thing that might work, he said, is a low-carbon fuel standard like the one established in California, which takes into account the full life-cycle emissions of fuel.

California requires oil refineries and distributors to cut the carbon intensity of transportation fuels sold in the state by 10 percent by 2020. The standard considers "well-to-wheels" emissions, including those associated with extracting and transporting the fuels. The program remains tangled in legal battles.

A similar standard has been proposed for 11 Northeast and Mid-Atlantic states. But the effort hasn't moved passed the discussion stage.

Setting a national price on carbon through a carbon tax or cap-and-trade program also could work, Logan said, by raising the cost of carbon-intensive fuels and forcing companies to rethink their production models.

A federal government requirement that a certain percentage of electricity come from renewable sources, tax incentives for wind and solar production, and power purchase agreements that allow for long-term renewable contracts and on-site generation could also encourage companies to set internal targets.

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