US SEC proposal could change how oil companies report their carbon footprint

The officially disclosed carbon footprints of Canada’s biggest oil companies could swell if tough new climate rules proposed earlier this year by a US regulator come into effect.

The U.S. Securities and Exchange Commission’s proposal — which has yet to be enacted and faces stiff opposition from industry groups and conservative lawmakers — would require publicly traded companies to report their total carbon emissions. “life-cycle” greenhouse gases.

The rules would apply not only to publicly traded companies south of the border, but also to the more than 230 Canadian companies that are listed on US exchanges. (Among these are Canadian energy giants like Enbridge Inc., Suncor Energy Inc., Imperial Oil Ltd. and Canadian Natural Resources Ltd.)

Under the new proposal, companies would have to disclose their scope 1 and scope 2 emissions (terms that encompass greenhouse gases produced directly by a company’s operations, as well as indirectly by energy production that the business buys, such as electricity to power the business).

But they should also report publicly on their scope 3 emissions, which is all other greenhouse gases they indirectly produce, including emissions produced by customers when using the product. from a company.

In other words, for oil producers, scope 1 and scope 2 emissions are emissions that the company produces itself (methane emitted directly from a well, for example, or electricity oil sands producer uses to power its massive facilities). Scope three emissions are the emissions that an oil company causes when it sells its product (when a driver burns gasoline in a car, for example).

“As we ask companies to declare scope three, we are now focusing on the carbon intensity of the product itself,” said Tima Bansal, Canada Research Chair in Corporate Sustainability. at the Ivey Business School at the University of Western Ontario. the carbon intensity of their process – which they can reduce and can reduce quite substantially – is the carbon intensity of their product.

Many Canadian energy producers began reporting their scope one and scope two emissions in the years following the 2015 Paris Agreement on climate change.

These numbers often form the basis of some of the industry’s aggressive emissions reduction targets, such as Pathways to Net Zero – an alliance of the nation’s largest oil sands producers who have jointly set the goal of achieving emissions net zero carbon emissions by 2050.

The companies behind this initiative (Suncor, Cenovus, CNRL, Imperial, MEG Energy and ConocoPhillips Canada) have established a roadmap to net zero that includes the large-scale deployment of capture and carbon storage, and they are asking for government support to help do this.

However, their plan only addresses Scope 1 and 2 emissions. In fact, the oil and gas industry as a whole has been very reluctant to talk about the emissions produced by the combustion of its product itself.

“Reporting of Scope 3 emissions continues to be a challenge at this time and will prove difficult to provide in a timely manner, if at all,” wrote the Canadian Association of Petroleum Producers in a recent submission to Canadian regulators. in securities. (The CSA is currently considering its own set of proposed climate disclosure rules, though the Canadian version would allow companies to opt out of Scope 2 and 3 disclosures provided they explain why they are doing so.)

“We believe this (the Scope 3 disclosure) would not only add an additional burden to the industry, but is also impractical as upstream oil and gas producers have no neither knowledge nor control over the end use of their sales products,” the industry lobby said. group wrote.

While only a very small minority of Canadian oil and gas companies even attempt to report scope 3 emissions at this time, it is already clear that having to disclose these numbers would massively increase the size of the carbon footprint that companies companies must report to investors and the public. .

For example, Cenovus Energy – which began disclosing its estimated scope 3 emissions in 2020 – says its scope 1 and 2 emissions in 2019 were 23.94 million tonnes of C02. But scope 3 emissions, generated by the end use of the company’s products by customers, amounted to about 113 million tonnes.

Duncan Kenyon, director of corporate engagement with climate change activist group Investors for Paris Compliance, said more than 80% of emissions from fossil fuels fall under scope three, i.e. say that they are produced when the product is consumed.

“I hear it all the time from (the oil companies), that scope three is ‘not our problem, it’s the consumers’ choice,'” Kenyon said. “But you can’t be a Paris-aligned climate believer if you’re I’m going to say 80% is somebody else’s problem.”

“It also undermines claims that ‘well, if we capture everything and put it underground, we’ll be fine by 2050,'” he added. “Because no, you won’t.”

Oil and gas companies have returned large dividends to their shareholders over the past year on the back of rising global energy demand, so it’s easy to wonder why investors would care about the issue of scope three.

But Kenyon said investors focused on ESG (environment, social and governance) see climate change as a real business risk and want to know how prepared a company is to adapt to what’s to come. For example, an energy company actively working to reduce its scope 3 emissions would aim to increase the percentage of renewables in its portfolio.

“If you make a Scope 3 disclosure, it becomes clear very quickly where your company fits in the decarbonization game,” he said. “And then you have to decide what kind of business you want to be in five years, 10 years or 25 years.”

In releasing the regulator’s proposal in March, SEC Chairman Gary Gensler said greenhouse gas emissions have become a commonly used metric to assess a company’s exposure to climate-related risks that are reasonably likely to have a significant impact on its activities.

“Investors decide what risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” Gensler said in a press release. “Today, investors representing literally tens of trillions of dollars are supporting climate-related disclosures because they recognize that climate-related risks can pose significant financial risks to businesses, and investors need reliable risk information. to make informed investment decisions”.

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About Donnie R. Losey

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