Oil firms struggle with 'carbon offset' messaging

Oil and gas firms' carbon offset claims are being met with scepticism in the absence of industry-wide and verified definitions and methodologies.

BP this month made what it calls a carbon offset LNG delivery in Asia-Pacific, saying it estimated "the greenhouse gas [GHG] emissions from wellhead to discharge terminal associated with the specific source and voyage for the LNG cargo, using its own quantification methodology". The credits for this "carbon offset LNG cargo" come from the firm's carbon trading portfolio.

BP is not the only company offering what are described as "carbon offset" and "carbon neutral" hydrocarbon cargoes. Oil and gas firms insist that gas and LNG in particular have an important transition role to play in the world's drive to reduce emissions. And "carbon offset" deliveries — even of crude — also seem to attract at least some new buyers. But climate activists and some organisations — including the IEA — have quite a few issues with carbon offset claims.

Key among these is the lack of transparency and standardisation on monitoring, reporting and verifying the GHG emissions associated with such cargoes, resulting in companies effectively judging themselves and making assumptions, without any third-party verification. There are similar problems with monitoring and comparing oil firms' energy transition targets, including those related to carbon intensity cuts, as companies use different criteria in their calculations.

Furthermore, carbon offset cargoes generally do not cover Scope 3 emissions — those from customer use of products, which are by far the largest part of the industry's carbon footprint. And things on the consumer side are similarly far from clear. The Netherlands' advertising regulator made a non-binding decision in late August that Shell's "Drive CO2 neutral" campaign — claiming that retail station customers can offset their carbon emissions by paying slightly more for fuel — is misleading. The regulator ruled that Shell cannot prove how much it is offsetting the emissions. The company says the extra payment goes towards offset solutions such as tree planting, and that the campaign is based on research and is "a genuine and important initiative" to allow consumers to offset CO2 from their fuel use.

Credit where credit's due

Carbon credits play an important role in many oil and gas firms' transition strategies, although to a different degree. BP, the only major to have pledged a sharp cut — 40pc — in hydrocarbons output this decade, says it "does not intend to rely on carbon credits" to meet its 2030 emission reduction targets. Others, such as Shell, are putting more emphasis on nature-based solutions to achieve climate goals, and need to convince investors and society that their approach does not lack credibility.

This year's extreme weather events do not help. Wildfires have swept through some forests that generate carbon credits for large firms in industries including oil and gas, reinforcing perceptions of a vicious cycle. Upstream independent Lundin Energy's recent claim that it sold a carbon neutral certified oil cargo was dismissed by environmental group Greenpeace as the oil sector sinking to "new depths in desperate attempts to greenwash its climate-wrecking industry".

Investor research group Transition Pathway Initiative is launching a new energy sector report next month, aiming to show investors whether a company's carbon performance aligns with a 1.5°C pathway. The associated benchmark will be built using the the IEA's Net Zero by 2050 emissions roadmap, which assumes no need for any new oil or gas fields beyond those already approved for development. Oil and gas firms may want to rethink their own energy transition messaging to show that their strategies are credible, rather than draw accusations of desperate greenwashing in an attempt to prolong the shelf life of hydrocarbons.

By Konstantin Rozhnov