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Instructions: Reviewing the ACT Oil & Gas Methodology

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  • Are any elements missing to assess the progress of a company towards their low-carbon transition?
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ACT Oil & Gas

Methodology document

(Version #2.1 – 20.03.2020)

acknowledgments
authors:
ACT co-founders:

 

 

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Technical assistance provided by:
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© CDP Worldwide & ADEME 2020. Reproduction of all or part of work without licence of use permission of CDP Worldwide & ADEME is prohibited.

 

1. Introduction

The 2015 United Nations Climate Change Conference (COP21) in Paris further strengthened the global recognition of limiting dangerous climate change. Political agreement was reached on limiting warming to well below 2 degrees above pre-industrial levels. The project ‘Assessing low Carbon Transition’ (ACT) measures a company's alignment with a future low-carbon world. The goal is to drive action by companies and encourage businesses to move to a low carbon pathway in terms of their climate strategy, business model, investments, operations and GHG emissions management. The general approach of ACT is based on the Sectoral Decarbonization Approach (SDA) developed by the Science Base Target initiative (SBTi) in order to compare company’s alignment with a low carbon world, the application of which is described in the ACT Methodological Framework document (Sectoral Decarbonization Approach (SDA): A method for setting corporate emission reduction targets in line with climate science, 2015).

Fossil fuel combustion releases carbon dioxide (CO2) and is the principal source of anthropogenic greenhouse gas (GHG) emissions worldwide(1). These emissions result primarily from the use of coal, oil and gas products, with petroleum (oil) products and natural gas representing approximately 56% (fuel combustion induced) of CO2 emissions worldwide (35% for Oil and 21% for Gas)(2) in 2018. The large majority of the GHG emissions induced by oil and gas companies take place in the downstream segment during the combustion of sold products for final energy use (around 80% of total GHG emissions along the oil & gas value chain (3) and are to be reported as scope 3 by Oil & Gas companies. Although sold products combustion is the major source of GHG emissions induced by companies in the sector, direct emissions (Scope 1 and Scope 2) happening along the Oil & Gas value chains (e.g. extraction, transformation such as refining, transportation …) are also significant and should be taken into consideration by climate mitigation strategies and targets.

(1) IEA Climate change: the energy sector is central efforts to combat climate change

(2) IEA CO2 Emissions from Fuel Combustion

(3)  ARC Energy Research Institute, using input data from the US Department of Energy National Energy Technology Laboratory to define the US Refined Average (2014)

Oil & Gas companies face a twofold challenge. Firstly, energy demand growth is foreseen to slow down and eventually stagnate by almost all low carbon scenarios thanks to strong energy efficiency measures. Secondly, a big shift from fossil fuels to combustible renewable energy sources and low carbon electricity is also expected and necessary for a global low carbon transition. Therefore, there is no single path to a low-carbon transition of actors in the energy sector and all of them imply significant transformations in business models, making the task of taking consensual strategic decisions more difficult.

All of these diverse views of the oil & gas sector transition will be addressed by the ACT assessment methodology.

The transition to a low-carbon model for players in the oil and gas sector takes place in a long-term historical energy development and in a framework that remains defined by specific technical and economic characteristics.

Since the beginning of the 20th century, the petroleum era has succeeded the coal era, gas did not really begin to play a role until the 1970s. The secular trend is the rise of energy vectors in final energy (electricity first but also gas and hydrogen) and the diversification of primary energy sources. The concept of "energy transition" is in fact inherent, over a long period, in the exploitation of energy resources and technical progress.

The oil and gas sector is exposed, over the long term, to the trend of scarce fossil resources and rising production costs. The most readily available, least costly and most energy efficient reserves were exploited first. The world’s oil industry reached the beginning of the decline in reserves (proven and probable reserves) in the early 1990s. There is thus a secular trend towards a decline in oil exploitable reserves by field and an increase in operating costs, offset by the positive effects of technical progress. It is in this context that oil & gas companies undertook a rebalancing towards gas at the end of the 1990s. This strategic movement towards gas allows, on the one hand, to overcome the beginning of the decline in oil resources, and on the other hand, to seize the opportunity of energy balances increasingly geared towards electricity, which is particularly rapid in Asian emerging countries, through the development of liquefied natural gas (LNG) as a combustible fuel. The movement towards gas over the last 2 decades constitutes a transition phase from the model of the oil company which prevailed in the 20th century, with the effect of reducing the carbon intensity of energy supply.

Although players in the oil and gas industry have a capacity for strategic action to support major changes in the energy system, they do not control several essential variables in the evolution of markets. First, oil and gas companies have very small market shares worldwide, particularly in the upstream segment of the supply chain (exploration / production). In a global cartelized oil market, their market power is zero and they have no influence on the formation of the wholesale price. However, the price of oil and energy in general remains the dominant element that determines the level of profitability of assets and the allocation of capital. Secondly, the oil and gas companies respond to a “demand” split into specific markets marked by dynamics largely independent from each other. The demand on each market is determined by factors that the oil & gas companies do not control:

  • fiscality
  • national or even supranational regulations on energy use and efficiency
  • changes in the economic structure of consuming countries (industrialization versus tertiarization)
  • R&D in equipment and technologies related to energy consumption
  • political commitments in the fight against climate change, for example, which are always national, supranational in certain cases (European Union for example) but not global

Some oil markets have almost disappeared over the past 30 years (electricity generation, heavy industry), some markets are facing energy and technological competition which announces their disappearance in the medium term (residential sector, light industry, even petrochemicals to a certain extent) and some segments still constitute markets which are hardly or not substitutable (essentially fuels for transportation). Markets for refined petroleum products are not immune to the historical long-term trend of substitution under the combined effects of technology, price and the electrification of energy services. The transition to a low-carbon model of the various players in the oil and gas sector is therefore part of a historic movement and a technical and economic framework that must be taken into account.

It is important to consider the particular position of the Oil & Gas (O&G) industry in the economy as well as its diversity. Indeed, the sector covers different activities (exploration, production of oil & gas, transformation, transport, retail, engineering …) operated by different types of companies (Exploration & Production (E&P) specialists, O&G integrated companies, logistics pure players, Oil & Gas Equipment & Services …). Besides, the transition of oil & gas companies is dependent on the shift of the global energy demand towards electrification and low carbon alternatives as well as levers of decarbonization at each step of the energy value chain (from extraction to final use). Therefore, assessing the climate impact of an oil & gas company requires both a life-cycle approach, (integrating all steps of the supply chain) and an enlarged scope embracing all sources of energy. The fact that the GHG emissions related to energy consumption and the volumes of energy consumed are already tracked by the companies of the O&G sector makes the oil & gas sector suitable for analysis via a Sectoral Decarbonization Approach [3] and enables the ACT methodology to use quantitative indicators that assess the carbon content of each unit of energy supplied. Nevertheless, due to the complexity of the sector and the variety of the transition levers, other qualitative indicators (e.g. climate management, new business models assessment…), are also highly significant when considering the alignment with a low-carbon future and should not be neglected or underweighted.

[3] CarbonTracker, Methodology 2 degrees of separation - Transition risk for oil and gas in a low carbon world, 2017.

Even though the ACT methodology is not explicitly aligned with the TCFD guidelines (4), the two frameworks have notable points in common. Indeed, in terms of philosophy, they both apprehend the company as a whole (governance of the organization, financial planning as well as climate performance). For instance, the module Management presents similar criteria than the ones proposed in the Governance pillar of the TCFD Guidelines (role of the Board in climate strategy, …) and in the Strategy pillar (low carbon transition plan, use of low-carbon scenario, …). Both frameworks are complementary and demonstrate the same goal: help companies to manage their risks related to climate and support them to identify opportunities provided by the shift towards a low-carbon model.

(4)  Recommendations of the Task Force on Climate-related Financial Disclosure (June 2017)

This present document introduces the ACT Oil & Gas framework. It is a combination of all the issues addressed in the Upstream, Midstream and Downstream segments of Oil & Gas operations. GHG emissions from assets operated all along the value chain, such as extraction or transformation assets will be considered closely, but GHG released by the use of the products sold (combustion of various fuels) will be also considered as they represent the highest share of GHG emissions (84% of the total LCA in terms of gCO2e/MJ for oil products – energy use – come from the use of these products by the final users for example) on the whole life cycle of the energy supplied. The assessment methodology is composed of 9 modules, with quantitative indicators (GHG emissions, etc) and qualitative ones (supplier engagement, R&D expenses, …). This information will feed simplified assessment models that aim to quantify the implications of initiatives such as the sales of sustainable biofuels or energy efficiency services for instance. In addition to business model considerations, other qualitative indicators included are the company’s stance on climate change regulations and engagement with the supply chain. An experimentation phase is planned, and will help test the methodology and collect feedbacks to improve it and make it more operational.

 

2. Principles

The selection of principles to be used for the methodology development and implementation is explained in the general Framework. Table 1 recaps the adopted principles that were adhered to when developing the methodology.

Table 1 Principles for Implementation

Principles

Relevance - Select the most relevant information (core business and stakeholders) to assess low carbon transition.

Verifiability - The data required for the assessment shall be verified or verifiable.

Conservativeness - Whenever the use of assumptions is required, the assumption shall err on the side of achieving a 2 degrees maximum temperature rise.

Consistency - Whenever time series data is used, it should be comparable over time.

Long-term orientation - Enable the evaluation of the long-term performance of a company while simultaneously providing insights into short- and medium-term outcomes in alignment with the long-term.

 

3. Scope

 

3.1. Scope of the document

This document presents the ACT assessment methodology for the Oil &Gas companies. It includes rationales, definitions, indicators and guidance for performance assessment. It focuses on the specific considerations and constraints that need to be taken into account when assessing the low-carbon alignment of the Oil & Gas companies.

The framework of performance indicators is similar, from Integrated Oil & gas companies to pure Upstream / Midstream / Downstream companies but the weightings differ, to reflect the specific levers of each type of company.

 

3.2. Scope of the Sector

 

3.2.1. Scope of the Activities

The activities of the Oil & Gas sector can be divided into the three main steps of the value chain: Upstream, Downstream and Midstream.

Even though Oil and Gas value chains have a quite similar upstream activities, their midstream and downstream activities are significantly different. Therefore, the types of activities in the midstream and downstream segments are analyzed separately for Oil and for Gas. In addition to the traditional value chains of Oil and Gas, Carbon sink activities (CCS, CCUS, artificial and natural carbon dioxide removal activities) and Renewable and Electricity related activities have been included in the methodology scope, as they represent a key part of the solution for the Oil & Gas industry to shift towards a low carbon model.

Figure 1 – Activities of the Oil Value Chain

 

Figure 2 - Activities of the Gas Value Chain

 

The activities of the Oil & Gas Upstream segment included in the ACT scope are the following:

  • Oil & Gas Exploration [NACE - 09.10]
  • Oil & Gas Production [NACE Rev2 – 06]
  • Biomass production (agriculture, forest, …) [NACE 2.10]

Oil and Gas equipment and services activities (engineering, maintenance, ….) [NACE 09.10] are excluded from the ACT Oil & Gas methodology scope. Indeed, even though they play a relevant enabling role, companies providing Oil & Gas equipment and services do not hold the final decision on climate impacting investments.

The activities of the Oil & Gas Midstream segment included in the ACT scope are the following:

Oil value chain

Gas value chain

  • Oil transport (mainly ship and pipeline) [NACE 50.20 (transport) / 49.50 (pipeline)]
  • Oil Refining [NACE 19.20]
  • Biofuel production and blending (solid, liquid, gaseous) [NACE 19.20]
  • Pipeline transport [NACE 49.50]
  • Gas shipping (LNG) [NACE 35.22]
  • Gas storage [NACE 25.29]
  • LNG infrastructure [NACE 25.29]
  • Production of bio-sourced gases and production of low carbon hydrogen [NACE 35.21]
  • Electricity production [NACE 35.11]

The petrochemicals activities [NACE 19.20] are excluded from the ACT Oil & Gas methodology scope. Indeed, they cover heterogeneous processes and products with no combustion final use and have therefore different issues than oil & gas transition. Besides, Petrochemical activities will be treated in a specific SBT/ACT framework.

Pure trading activities [NACE 35.23 (gas) / 35.14 (electricity)] are also excluded from the ACT Oil & Gas methodology scope. “Pure trading” activities are defined as buying and selling products without transforming them and not to final customers. Indeed, these are short-term activities with limited levers on the low carbon transition as well as few locked-in assets.

The activities of the Oil & Gas Downstream segment included in the ACT scope are the following:

Oil value chain

Gas value chain

  • Downstream oil products logistics [NACE 50.20]
  • Retail automotive fuels stations [NACE 46.71]
  • Marketing and distribution of other oil products [NACE 46.71]
  • Distribution and retail of biofuels [NACE 46.71]
  • Gas distribution & logistics (pipeline, trucks) [NACE 35.22]
  • Gas retail (Natural Gas, LPG) [NACE 35.23]
  • Distribution and Retail of bio-sourced gases and low carbon Hydrogen [NACE 35.23]
  • Energy efficiency services [NACE 84.13]
  • Electricity retail [NACE 35.14]

 

3.2.2. Scope of the Actors

The ACT methodology relies on the principle of relevance and therefore only the companies that have both significant climate impact and significant mitigation levers can be covered by the ACT methodology.

The companies that are covered by the ACT Oil & Gas methodology are the following:

  1. Integrated Oil & Gas companies,
  2. Integrated Gas Utilities
  3. Exploration and Production pure players,
  4. Oil Refining & Marketing pure players,
  5. Service stations pure players
  6. Oil products Marketing pure players
  7. Gas Retail pure players,

Since their activities are excluded from the ACT methodology scope, Oil & Gas equipment and services companies, Petrochemical companies and Oil & Gas traders are not covered by the ACT Oil & Gas methodology.

Exploration pure players are also excluded from the actor coverage as they have limited levers and scope of action.

Oil and Gas storage and transportation pure players are also excluded from the scope of the ACT methodology because of the limited levers they have on the Oil and Gas transition.

Figure 3 - Companies that can be Assessed by ACT Oil & Gas Methodology

 

4. Boundaries

Based on the principle of relevance and to facilitate the data collection on the companies’ side, ACT methodology focuses on the main sources of GHG emissions throughout the value chain.

 

4.1. Reporting Boundaries

Upstream activities of Oil & Gas companies, exploration and production, are significative GHG emitting activities, and represent around 10% of the total GHG emissions(5) of the Oil value chain. The two main sources are methane emissions caused by venting, flaring and leakage (17% of the CO2e emissions for crude oil SCOPE 1+2 come from methane for example) and the energy intensity of the extraction processes, which highly depends on the extraction technology and the type of fossil reservoir. Therefore scope 1 and 2 GHG emissions of the upstream activities will be closely looked at.

(5)  ARC Energy Research Institute, using input data from the US Department of Energy National Energy Technology Laboratory to define the US Refined Average (2014)

The midstream activities of Oil & Gas companies are carbon intensive activities but are very different from oil value chain to gas value chain. Refining process represents 7% of total GHG emissions in the Oil value chain. The fossil energy combustion in refineries is the principal source of emissions of the segment representing around 2/3 of all GHG emissions(6). However, process emissions as those coming from catalytic cracking and reforming units (around ¼ of GHG emission) and flaring (around 3% of GHG emissions) are also relevant. Therefore scope 1 and 2 GHG emissions of midstream activities will be closely assessed. Upstream Scope 3 GHG emissions related to the supply of oil or gas of the midstream activities will also have to be considered. Transportation of oil and gas represents a non-negligible part of the life cycle emissions especially for natural gas transport in its liquified form (LNG) because of the energy required to liquify/regasify the gas. Methane leakages throughout the transport & distribution chain is also a global issue for natural gas value chain.

(6) EPA Petroleum Refineries sector GHGRP Profile  

Regarding the downstream activities of Oil & Gas companies, scope 1 and 2 GHG emissions are relatively low compared to the total GHG emissions of the value chain. Combustion of oil & gas products sold (scope 3 downstream) is by far the largest source of emissions, representing more than 80% of total GHG emissions of the oil value chain. As the different energy products (coal, gas, oil products) have different carbon intensity per energy supplied, the mix of products sold is crucial to analyze the climate impact of companies in the sector. The development of an offer of energy efficiency services to the final customer is also a key lever to reduce the GHG emissions related to the use of products sold.

Renewable fuels (bio-based fuels or gases, low carbon hydrogen) are a key lever to reduce the emissions of scope 3 downstream but their LCA GHG emissions must be closely looked at (especially Scope 3 upstream related to the agriculture phase) to ensure the global GHG benefits of their use.

Regarding electricity activities throughout the value chain (sourcing or production, retail), scope 1 emissions related to the electricity production will of course be closely looked at but LCA GHG emissions on the full life cycle will have to be considered to evaluate the climate performance of these activities.

 

4.2. Rationale

Because of the key role of Oil & Gas sector in the climate transition, it has been proposed to include almost all GHG sources in the reporting boundaries, from scope 1 to scope 3 upstream and Scope 3 Combustion of sold products:

  • Scope 1 and 2 GHG emissions are relevant at every step of the value chain, and are under the control of the O&G company,
  • Scope 3 upstream GHG emissions are key for midstream and downstream activities, in order to integrate efforts of companies to source low carbon feedstock and products,
  • Scope 3 Combustion of sold products is the major stake in the climate transition and is dependent of the product mix brought to the market by the O&G companies.

 

5. Construction of the Data

 

5.1. Data Sources

In order to carry out a company level assessment, many data points need to be gathered which can be sourced from various sources. Principally, ACT relies on the voluntary provision of data by participating companies.

Next to this however, external data sources might be consulted where this would streamline the process, ensure fairness, and provide additional value for verification and validation.

 

5.2. Company Data Request

The data request will be presented to companies in a comprehensive data collection format.

 

5.3. Performance Indicators

The performance indicators have been conceived following the main principles described in Chapter 2.

The section below presents a key specific Oil & Gas ACT metric (Scope 1+2+3 carbon intensity per sold energy) as well as the overview of the Key Performance Indicators used in the ACT Oil & Gas methodology.

Specific performance metric – Scope 1+2+3 emissions intensity per sold energy (gCO2e /MJ primary energy)

According to IPIECA recommendations(7) and to voluntary disclosures of some Oil & Gas companies, ACT Oil & Gas proposes to use a carbon intensity indicator per sold energy. This emissions intensity metric encompasses all scopes of emissions (scope 1 & 2, Scope 3 upstream, Scope 3 downstream, Scope 3 combustion/use) on the whole life cycle of the sold energy. It uses as a denominator the sold energy at the different steps of the value chain, expressed in primary energy (MJ).

(7) IPIECA, Estimating petroleum industry value chain (Scope 3) greenhouse gas emissions, 2016

This carbon intensity metric is used in different performance indicators of the framework:

Number Indicator
OG 1.1 Alignment of Scope 1+2 emissions reduction targets
OG 1.2 Alignment of Scope 1+2+3 emissions reduction targets
OG 2.1 Trend in past Scope 1+2 emissions intensity
OG 2.2 Trend in future Scope 1+2 emissions intensity
OG 4.1 Trend in past Scope 1+2+3 emissions intensity
OG 4.2 Trend in future Scope 1+2+3 emissions intensity

This performance metric is to be calculated with the ACT Oil & Gas Excel tool, based on specific input from the company, at the reporting date as well as with past and future data to display trends and targets.

Here is a preliminary view of the result that can be obtained with this indicator:

 

Figure 4 – Illustration of ACT Oil & Gas Excel Tool

 

Overview of the Key Performance Indicators used in the ACT Oil & Gas methodology

Table 3: Key Performance Indicators used by Oil & Gas Companies in ACT Sector Assessment.

 

5.3.1. Target indicators (Weighting: 15%)

 

5.3.1.1. OG 1.1 Alignment of Scope 1+2 Emissions Reduction Targets (Weighting: 2-8%)

Description & Requirements OG 1.1 Alignment of scope 1+2 emissions reduction targets
Short Description of indicator This metric assesses in a compounded approach the company’s reduction in scope 1+2 emissions reduction targets with their decarbonization pathway. It will assess the alignment of the different scope 1+2 intensity targets at the different steps of the value chain (mainly upstream and midstream).
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A1: Emissions intensity targets (reporting year plus 5) for each step of the value chain and for all energy types (scope 1+2):

  • Steps of the value chain to be considered when relevant: Upstream, Midstream and Downstream according to the definition laid down earlier in this document.
  • Energy types to be considered when relevant: Natural gas, oil products, coal, bOGas, biofuels, solar, wind, nuclear – more energy types could be added if needed

Emissions intensities are expressed in tCO2e/TJ of supplied energy:

  • tCO2e corresponds to the emission of CO2 equivalent emissions related to the scope 1 and 2 of the Oil & Gas company. The emissions are gross emissions, except for the case where CCS are implemented within operation scope (eg.: refining of oil products) and reduce therefore the emissions released to the atmosphere.
  • TJ corresponds to the quantity of energy that has been supplied at the end of each of the 3 steps in the O&G value chain: O&G extracted (step Upstream), processed (step Midstream) and sold to final users (step Downstream).
 

The benchmark indicators involved are:

(8) All references are mentioned in the part 5.2 Quantitative benchmarks used

How the Assessment will be done

The assessment is based on the difference between the company’s target (TSC1+2) and the company benchmark (CBSC1+2) 5 years from the reporting year.

The company target pathway (TSC1+2) is the decarbonization over time, defined by the company’s emission reduction target. To compute T, a linear line is drawn between the starting point of the assessment and the company’s target endpoint.

The company benchmark (CBSC1+2) pathway is the ‘company scope 1+2 emission intensity decarbonization pathway’. See section 6 for details on the computation of this pathway.

The assessment will compare TSC1+2 to CBSC1+2, by assessing the difference between these pathways 5 years after the reporting year. The pathways are expressed in tons of CO2 equivalent per TJ (intensity measure). Where necessary, targets will be normalized to this unit to enable the comparison. The result of the comparison is the commitment gap.

To assign a score to this indicator, the size of the commitment gap will be compared to the maximum commitment gap, which is defined by the business as usual pathway (BAUSC1+2). BAUSC1+2 is defined as an unchanging (horizontal) intensity pathway, whereby the emissions intensity is not reduced at all 5 years after the reporting year.

Calculation of Score

The score is a percentage of the maximum commitment gap. It is calculated by dividing the company’s commitment gap by the maximum commitment gap (taking all values 5 years after the reporting year):

 

The score assigned to the indicator is equal to 1 minus the commitment gap and is expressed as a percentage (1 = 100%). Therefore, if T  – CBSC1+2 is equal to zero, and so the company’s target is aligned with the sectoral benchmark, the maximum score is achieved.

Rationale OG 1.1 Alignment of Scope 1+2 GHG Intensity Reduction Targets
Rationale of the Indicator

Relevance of the Indicator:

Emissions reduction targets related to the Scope 1+2 are included in the ACT Oil & Gas assessment for the following reasons:

Targets are an indicator of corporate commitment to reduce emissions, and are a meaningful metric of the company’s internal planning towards the transition.

Targets are one of the few metrics that can predict a company’s long-term plans beyond that which can be projected in the short-term, satisfying ACT’s need for indicators that can provide information on the long-term future of a company.

Scope 1+2 emissions represent 16% of total GHG emissions for oil products for example along the value chain and therefore represent a significant source of emissions which should be considered.

 

Scoring Rationale

The emission intensity targets from the IEA have been divided in categories such as “Methane reductions” or “Use of CCUS in refining”. Moreover, they concern Oil & Gas companies without any distinction between gas and oil products. The work that has been done was to allocate these reduction targets to each step of the value chain of SCOPE 1+2 (Upstream, Midstream, Downstream), and by gas energy or oil products. Then, we can apply the emission intensity reduction targets to each emissions intensity to have the future trend Oil & Gas companies should have by 5 years after the reporting year as regards gas and oil products (only for SCOPE 1+2).

 

Definition of Scope 1+2 emissions:

They are direct GHG emissions related to company operations and indirect GHG emissions related to the energy consumption of the company operations (such as electricity related GHG emissions).

 

CCS

CCS projects are accounted for when they occur within the company operations. As a consequence, the scope 1+2 emissions intensities can be reduced from the GHG emissions that are captured and stored in a permanent way

 

5.3.1.2. OG 1.2 Alignment of Scope 1+2+3 Emissions Reduction target (Weighting: 4-10%)

Description & Requirements OG 1.2 Alignment of Scope 1+2+3 emissions reduction targets
Short Description of Indicator A measure of the alignment of the company’s Scope 1+2+3 emissions reduction targets with their decarbonization pathway. The indicator will identify the gap between the company’s targets and the decarbonization pathway as a percentage, which is expressed as the company’s commitment gap.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A2: Scope 1+2+3 emissions intensity target (reporting year plus 5) for each step of the value chain and for all energy types.

A calculated emissions intensity is expressed in tCO2e/TJ. The following primary energies are considered: coal, natural gas, oil products and renewable energies (including biofuels, biogas and renewable electricity). The GHG emissions include emissions from all 3 steps of the value chain (Upstream, Midstream and Downstream) as well as the step Combustion /Use.

The ACT Oil & Gas Excel tool requires the following for each step of the value chain and for all energy types:

  • The same scope 1+2 emissions intensity as described earlier
  • Specific scope 3 emissions intensity of suppliers’ energy if available (only for the steps Upstream and/or Midstream)
  • Quantity of energy supplied at each step of the value chain and for all energy types

Default emissions intensities are provided for scope 1+2 GHG intensity, as well as for scope 3 GHG intensity 

The company needs to fill energy volumes supplied at the end of each step of the value chain and for each type of energy. The company is to provide the % of energy supplied to other companies and that is therefore not accounted for at the next step of the value chain.

For midstream, the Excel requires for the volume input too, thus calculating the amounts of losses due to oil refining and gas transport. This is also the case for gas downstream to take into account the gas losses in distribution networks.

Details on Calculation of Primary Energy

The detailed required information for fossil and biofuels activities are the following:

Upstream

  1. The company is to provide the total volume supplied (TJ) for each type of energy.
  2. The company also has to indicate the % of “excess energy” (that is the difference between the company’s output at this step and the company’s input at the next step); .

Midstream

  1. The company is to provide the total volume input (TJ) it will process at this step of the value chain, as well as the output volume it will be able to supply at the end of this step (for example the volume of crude oil before it is refined, and the volume of oil products at the end of the refinery process) - it might concern especially oil products and gas (for example because of flaring). The gap between these two values is explained by a yield not equal to 100%; the emissions intensity for SCOPE 1+2 will apply to the output volume, and input volume will be counted in the "Total primary energy processed (TJ)" final sum.
  2. The company also has to indicate the % excess energy (that is the difference between the company’s output at this step and the company’s input at the next step).
  3. At last, the company is to fill the % of the volume supplied for non-energy use.

Downstream

  1. The company is to fill the total volume input (TJ) it will process at this step of the value chain, as well as the output volume it will be able to supply at the end of this step - it might concern especially gas (for example because gas leakage during distribution). The gap between these two values is explained by a yield not equal to 100%; the emissions intensity for SCOPE 1+2 will apply to the output volume, and input volume will be counted in the "Total primary energy processed (TJ)" final sum.

Based on the data provided, the excel tool calculates the “Total primary energy processed (TJ)” using the formula below:

Total primary energy processed (TJ) = Total primary energy supplied at Downstream step (TJ) + Total primary excess energy at upstream and midstream steps (TJ)

The detailed information for electricity the company is to provide in the excel tool are the following:

Generation

  1. The company is to provide the total volume of supplied electricity (GWh). For electricity generated from fossil energies, the company is also to fill the % of this energy that has been purchased from suppliers in order to calculate the right scope 3.

Retail

  1. The company is to provide the total volume of supplied electricity (GWh). The company is also to fill the % of the electricity that has been purchased from suppliers in order to calculate the right scope 3.

Volume of supplied electricity (GWh) is transformed into primary energy using the average conversion powerplant efficiency of each fuel:

Primary energy used for electricity generation (TJ) = Volume of supplied electricity (GWh) / Average powerplant efficiency per fuel (%)

For renewable electricity: the primary energy volume is equal to the volume of electricity supplied. This is a convention that is used for renewable energy sources by the IEA. The concept of primary energy is less relevant when the primary energy is considered infinite (the sun, the wind, etc.).

Rules of Taking into Account Non Energy Uses

Non-energy uses will not be considered for the Use step of the value chain (it means that no CO2e will be counted for these products for the Use step of the value chain). However, the CO2e emissions to produce these products will be counted as regards the SCOPE 1+2, as well as the SCOPE 3 for the Upstream, Midstream and Downstream steps of the value chain (e.g. if the Oil & Gas company purchased naphtha and is present only at the retail or Downstream step of the value chain, the Upstream and Midstream CO2e emissions will be counted as part of the SCOPE 3).

Default Scope 3 Emissions Intensity

Default emissions intensities are used to calculate the SCOPE 3 GHG emissions corresponding to the Upstream, Midstream or Downstream steps of the value chain. Default emissions intensities come from ADEME’s "Documentation des facteurs d’émissions de la Base Carbone, v17 vendredi 8 novembre 2019.

The Oil & Gas company will have the possibility to fill and replace the default emission factors by emissions factors of its suppliers to match with its specific suppliers, and to benefit from the selection of suppliers with low carbon intensity.

Gross/Net GHG Emissions

The GHG emissions are gross emissions, except for the case where CCS are implemented within the value chain of the company (e.g. refining of oil products) and reduce therefore the emissions released to the atmosphere.

Offsetting activities (purchasing carbon credits from the market) is not taken into account.

 

The benchmark indicators involved are:

(7)  IPIECA, Estimating petroleum industry value chain (Scope 3) greenhouse gas emissions, 2016

How the Assessment will be done

The assessment is based on the difference between the company’s target (TSC1+2+3) and the company benchmark (CBSC1+2+3) 5 years from the reporting year.

The company target pathway (TSC1+2+3) is the decarbonization over time, defined by the company’s emission reduction target. To compute T, a linear line is drawn between the starting point of the assessment and the company’s target endpoint.

The company benchmark (CBSC1+2+3) pathway is the ‘company scope 1+2+3 emission intensity decarbonization pathway’. See section 6 for details on the computation of this pathway.

The assessment will compare TSC1+2+3 to CBSC1+2+3, by assessing the difference between these pathways 5 years after the reporting year. The pathways are expressed in tons of CO2 equivalent per TJ (intensity measure). Where necessary, targets will be normalized to this unit to enable the comparison. The result of the comparison is the commitment gap.

To assign a score to this indicator, the size of the commitment gap will be compared to the maximum commitment gap, which is defined by the business as usual pathway (BAUSC1+2+3). BAUSC1+2+3 is defined as an unchanging (horizontal) intensity pathway, whereby the emissions intensity is not reduced at all 5 years after the reporting year.

Calculation of Score

The score is a percentage of the maximum commitment gap. It is calculated by dividing the company’s commitment gap by the maximum commitment gap (taking all values 5 years after the reporting year):

The score assigned to the indicator is equal to 1 minus the commitment gap and is expressed as a percentage (1 = 100%). Therefore, if TSC1+2+3 – CBSC1+2+3 is equal to zero, and so the company’s target is aligned with the sectoral benchmark, the maximum score is achieved.

Rationale OG 1.2 Alignment of Scope 1+2+3 Carbon Intensity per Sold Energy Reduction Targets
Rationale of the Indicator

Relevance of the Indicator:

Emissions reduction targets related to the scope 1+2+3 emissions per sold energy are included in the ACT Oil & Gas assessment for the following reasons:

  1. Targets are an indicator of corporate commitment to reduce emissions, and are a meaningful metric of the company’s internal planning towards the transition.
  2. Targets are one of the few metrics that can predict a company’s long-term plans beyond that which can be projected in the short-term, satisfying ACT’s need for indicators that can provide information on the long-term future of a company.
  3. The O&G companies cover a large range of activities in the sector, they take responsibility of the climate impact of O&G products at several points in the economic chain. The Life Cycle Analysis of the O&G products, on all the GHG scopes, is therefore a relevant tool to be used in order to embrace the diverse sources of emissions caused by O&G business models.
  4. Even though the emissions intensity of the company are the same as the ones used for Scope 1+2, a specific indicator dedicated to scope 1+2+3 enable the Oil & Gas companies to benefit from having suppliers with smaller emissions intensity than the average of the industry.

Scoring Rationale

Targets are quantitatively interpreted and directly compared to the low-carbon benchmarks for the sector, using the SDA benchmark, which is further explained in section 6.1.

Targets are compared to the benchmark directly, and the relative gap is calculated compared to the business as usual pathway. The gap method was chosen for its relative simplicity in interpretation and powerful message, which aligns with the UNEP’s narrative of the global commitment gap of the UNFCCC Climate Agreements [7]. The simple percentage score also needs no further computation to become meaningful on its own, as well as be useable for aggregation in the performance score.

[7] EU Technical Expert Group on Sustainable Finance, Technical Report, 2020.

To ensure comparability of the scores and replicability of the measurement, targets are compared to the benchmark at a fixed point in time, similar to all companies. This is necessary, because the method interprets linear decarbonization pathways from the targets, while the decarbonization pathways are nonlinear. Therefore, the measurement gaps would vary over time if the time of measurement was not constant, and undesired precedent is set for reporting only targets with short-time horizons.

5 years after the reporting year was chosen as the reference for this measurement, as it is far enough in time to make a meaningful measurement of the company’s future pathway, while close enough to be able to include the typical short to medium time scale of present-day company targets.

Intensity Metric Rationale

The indicator is calculated as the Scope 1+2+3 CO₂ equivalent emissions divided by the primary energy supplied by the company. This means that for the numerator all the emissions induced by product along the value chain should be considered in the calculation. For example, if a retail station company is selling motor gasoline and diesel, the calculation should consider all the CO₂ equivalent emissions due to:

  • the extraction of the crude,
  • the primary transportation and logistics,
  • the refining of the crude into the final products,
  • the secondary transportation and logistics,
  • the combustion of the sold motor gasoline and diesel.

The same approach can be applied for an Exploration and Production company, for which all the downstream emissions are to be taken into account in addition to the extraction related emissions.

   

 

5.3.1.3. OG 1.3 Time Horizon of Targets (Weighting: 2%)

Description & Requirements OG 1.3 Time Horizon of Targets
Short Description of Indicator A measure of the time horizon of company targets. The ideal set of targets is forward looking enough to include a long-time horizon that includes the majority of a company’s asset lifetimes, but also includes short-term targets that incentivize action in the present.
Data Requirements

The question comprising the information request that are relevant to this indicator are:

A3: All emissions intensity targets for each step of the value chain, for all energy types and all scopes

How the Assessment will be done

The analysis has two dimensions:

  1. A comparison of: (a) the longest time horizon of the company’s targets, and (b) the long-term point fixed by ACT assessment methodology.
  2. The company has interval targets that ensure both short and long-term targets are in place to incentivize short-term action and communicate long-term commitments.

Dimension 1: Target Endpoint

The company’s target endpoint (Te) is compared to the long-term point (LT), which is fixed at 2050 minus the reporting year, aligned with low carbon scenario. This also corresponds to the lifetime of upstream and midstream portfolio assets, which is more than 40 years.

The company’s target endpoint (Te) is equal to the longest time horizon among the company’s targets, minus the reporting year:

The analysis compares Te to LT. This analysis measures the horizon gap:

The company’s target endpoint is compared according the following scoring table:

 

Dimension 2: Intermediate Horizons: All company targets and their endpoints are calculated and plotted. The ideal scoring company does not have intervals between target endpoints larger than 5 years from the reporting year.

Measurements are done in five-year intervals between the reporting year and 2050.

The company’s targets are compared according the following scoring table:

 

For all Calculations

  • The company is asked to report the ‘base year’ of the targets. The ‘base year’ will be used for calculations if the company does not report ‘year of target establishment’.
  • If the company reports ‘year of target establishment’ in the data request, then the calculations may be redone using this as the baseline instead of the reporting year. The company can attain up to 80% of the maximum score with this alternate calculation. The baseline that results in the higher score will be used for the final score.
  • Targets that do not cover > 95% of generation emissions are not preferred in the calculations. If only such targets are available, then the score will be adjusted downwards equal to the % coverage that is missing.

Aggregate Score: Dimension 1: 40%, Dimension 2: 60%.

Rationale OG 1.3 Time Horizons of Targets
Rationale of the Indicator

Relevance of the Indicator:

The time horizon of targets is included in the ACT OG assessment for the following reasons:

  1. The target endpoint is an indicator of how forward looking the company’s transition strategy is.
  2. The very long expected lifetime of Oil & Gas infrastructure means that construction companies ‘commit’ a large amount of carbon emissions into the future through the assets owned today, which requires targets that have time horizons which align with this reality.
  3. Aside from communicating long-term commitments, short-term action needs to be incentivized. This is why short time intervals between targets are needed and weight for 60% of the indicator’s score.

Scoring Rationale

The score of this indicator is tied to how the target timeline compares to the lifetimes of the company’s owned assets. The company has a ‘horizon gap’ if their targets do not include a significant part of their products sold. It is however recognized that some products may have lifetimes that exceed beyond meaningful target endpoints.

 

5.3.1.4. OG 1.4 Achievement of previous targets (Weighting: 1%)

Description & Requirements OG 1.4 Achievement of Previous Targets
Short Description of Indicator A measure of the company’s historic target achievements and current progress towards active emission reduction targets. All the scopes of the company are considered. The ambition of the target is qualitatively assessed and is not included in the performance indicators.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A4: Past internal targets set on carbon performance (tCO2e /TJ primary energy)

How the Assessment will be done

For the performance score, this will assess on two dimensions, whereby companies achieve the maximum score if:

Dimension 1: The company achieved all previous emission reduction targets with a target year in the past.

Dimension 2: The company is currently on track to meet an existing emission reduction target, whereby the ratio between the remaining time period and the level remaining to target achievement (Progress Ratio p) is not lower than 0.5:

The highest score is attained if p is 1 or higher. A percentage score is assigned for any value between 0.5 and 1.

Aggregate Score: Dimension 1: 25%, Dimension 2: 75%.

 

For all Calculations

  • Companies who do not have targets with target years in the past but only with target years in the future are not assessed on dimension 1, but only on dimension 2.
  • If the company has multiple targets in different scopes that can be assessed according to the above criteria, then the score will be an average score based on the progress ratios of all targets assessed.

The performance score does not assess the ambition level of previous targets, and therefore dimension 1 only has a low weight in the final performance score. This information is also qualitatively assessed in the assessment narrative, which will have another look at the following dimensions:

  1. Achievement level: To what degree has the company achieved its previously set emission reduction targets.
  2. Progress level: To what degree is the company on track to meet its currently active emission reduction targets?
  3. Ambition level: What level of ambition do the previously achieved emission reduction targets represent?
Rationale OG 1.4 Historic Target Ambition and Company Performance
Rationale of the Indicator

Relevance of the Indicator

The historic target ambition and company performance is included in the ACT OG assessment for the following reasons:

  • The ACT assessment looks only to the past to the extent where it can inform on the future. This indicator is future-relevant by providing information on the organizational capability to set and meet emission reduction targets. Dimension 1 of this indicator adds credibility to any company claim to commit to a science-based reduction pathway.
  • Indicators 1.1 – 1.2 look at targets in a vacuum. Dimension 2 of this indicator adds value to the assessment of comparison to the company’s performance with respect to their targets in the reporting year.

Scoring Rationale

Previous target achievement is not straightforward to interpret quantitatively. Therefore, the performance score makes no judgement of previous target ambition, and leaves it to the assessment narrative for a meaningful judgement on the ambition level of past targets.

  • Dimension 1 of the performance score will penalize companies who have not met previous targets in the past 10 years, as this means the company has lower credibility when setting ambitious science-based targets.
  • Dimension 2 uses a simple ratio sourced from existing CDP data points (CC 3.1e) in order to compare targets. The threshold 0.5 was chosen as it allows companies some flexibility with respect to the implementation of the target, but it does have the ability to flag companies who are definitely not on track towards achievement. When p is lower than 0.5, the company needs to achieve more than twice the reduction per unit of time than the target originally envisioned.

 

5.3.2. Material Investment (Weighting: 5-40%)

 

5.3.2.1. OG 2.1 Trend in Past Scope 1+2 Emissions Intensity (Weighting: 1-5%)

Description & Requirements OG 2.1 Trend in Past Scope 1+2 Emissions Intensity
Short Description of Indicator A measure of the alignment of the company’s recent emissions intensity for scope 1+2, with that of their decarbonization pathway. The indicator will compare the gradient of this trend over a 5-year period to the reporting year (reporting year minus 5 years) with the decarbonization pathway trend over a 5-year period after the reporting year.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A5: Emissions intensity for the years Y-5 prior to the reporting date and the year Y for each step of the value chain and for all energy types:

  • Steps of the value chain to be considered when relevant: Upstream, Midstream and Downstream according to the definition laid down earlier in this document.
  • Energy types to be considered when relevant: Natural gas, oil products, coal, bOGas, biofuels, solar, wind, nuclear – more energy types could be added if needed

Emissions intensities are expressed in tCO2e/TJ of supplied energy:

  • tCO2e corresponds to the emission of CO2 equivalent emissions related to the scope 1 and 2 of the Oil & Gas company. The emissions are gross emissions, except for the case where CCS are implemented within operation scope (e.g. refining of oil products) and reduce therefore the emissions released to the atmosphere.
  • TJ corresponds to the quantity of energy that has been supplied at the end of each of the 3 steps in the O&G value chain: O&G extracted (step Upstream), processed (step Midstream) and sold to final users (step Downstream).

The benchmark indicators involved are:

 

How the Assessment will be done

The analysis is based on the difference between the company’s recent (reporting year minus 5 years) generation emissions intensity trend gradient (𝐶𝑅′SC1+2) and the company’s decarbonization pathway trend gradient (𝐶𝐵′SC1+2) in the short-term (reporting year plus 5 years) for scope 1+2.

𝐶𝑅′SC1+2 is the gradient of the linear trend-line of the company’s recent generation emissions intensity (tCO2e/TJ) for scope 1+2 over time.

𝐶𝐵′SC1+2 is the gradient of the linear trend-line of the company benchmark pathway. Refer to the ACT Framework and the SDA methodology for details on the computation of the company specific decarbonization pathway and its trendline.

The difference between 𝐶𝑅′SC1+2 and 𝐶𝐵′SC1+2 will be measured by their ratio (𝑟SC1+2). This is the ‘Transition ratio’, which is calculated by the following equation:

If the transition ratio is a negative number, it means the company’s recent emissions intensity has increased (positive 𝐶𝑅′SC1+2) and a zero score is awarded by default. If the company’s recent emissions intensity has decreased, the transition ratio will be a number between 0 and 1. A score is assigned as a percentage value equal to the value of 𝑟SC1+2 (1 = 100%).

Rationale OG 2.1 Trend in Past Scope 1+2 Emissions Intensity
Rationale of the Indicator

Relevance of the Indicator 

Trend in past emissions intensity is included in the ACT assessment for the following reasons:

  1. The trend shows the speed at which the company has been reducing its emissions intensity over the recent past. Comparing this to the decarbonization pathway gives an indication of the scale of the change that needs to be made within the company to bring it onto a low-carbon pathway.
  2. While ACT aims to be as future-oriented, it nevertheless does not want to solely rely on projections of the future, in a way that would make the analysis too vulnerable to the uncertainty of those projections. Therefore, this particular measure, along with projected emissions intensity and absolute emissions, forms part of a holistic view of company emissions performance in the past, present, and future.
  3. Scope 1+2 emissions represent 16% of total GHG emissions for oil products for example along the value chain and therefore represent a significant source of emissions which should be considered.

Scoring Rationale

While ‘gap’ type scoring is preferred for any indicator where possible, this indicator only looks at past emissions, and would therefore require a different baseline in order to generate a gap method. Therefore, instead the two trends are compared. Another advantage of the trend analysis is that it does not require the use of a ‘business as usual’ pathway to anchor the data points and aid interpretation, as trends can be compared directly and a score can be directly correlated to the resulting ratio.

 

5.3.2.2. OG 2.2 Trend in future Scope 1+2 emissions intensity (Weighting: 1-15%)

Description & Requirements OG 2.2 Trend in Future Scope 1+2 Emissions Intensity
Short Description of Indicator A measure of the alignment of the company’s projected emissions intensity for scope 1+2 with its decarbonization pathway. The indicator will identify the gap in 5 years after the reporting year between the company’s performance and the decarbonization pathway as a percentage, which is expressed as the company’s ‘action gap’.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A6: Emissions intensity targets for year Y+5 after the reporting date, and emissions intensities of the reporting date Y, for each step of the value chain and for all energy types:

  • Steps of the value chain to be considered when relevant: Upstream, Midstream and Downstream according to the definition laid down earlier in this document.
  • Energy types to be considered when relevant: Natural gas, oil products, coal, bOGas, biofuels, solar, wind, nuclear – more energy types could be added if needed

Emissions intensities are expressed in tCO2e/TJ of supplied energy:

  • tCO2e corresponds to the emission of CO2 equivalent emissions related to the scope 1 and 2 of the Oil & Gas company. The emissions are gross emissions, except for the case where CCS are implemented within operation scope (eg.: refining of oil products) and reduce therefore the emissions released to the atmosphere.
  • TJ corresponds to the quantity of energy that has been supplied at the end of each of the 3 steps in the O&G value chain: O&G extracted (step Upstream), processed (step Midstream) and sold to final users (step Downstream).

The benchmark indicators involved are:

 

How the Assessment will be done

The assessment is based on the difference between the company’s action pathway (ASC1+2) and the company benchmark (CBSC1+2) developing from the reporting year to 5 years after.

The company action pathway (ASC1+2) is the emissions intensity of the company (scope 1+2) over time.

The company benchmark (CBSC1+2) pathway is the ‘company scope 1+2 emissions intensity specific decarbonization pathway’. See section 6.1 for details on the computation of this pathway.

The assessment will compare ASC1+2 to CBSC1+2 by examining the difference between these pathways in 5 years after the reporting year. The pathways are expressed in tons of CO2 equivalent per tera joule (intensity measure). The result of the comparison is the action gap.

Calculation of Score

To assign a score to this indicator, the size of the action gap will be compared to the maximum action gap, which is defined by the business as usual pathway (BAUSC1+2). BAUSC1+2 is defined as an unchanging (horizontal) intensity pathway, whereby the emissions intensity is not reduced at all over a period after the reporting year.

The score assigned to the indicator is equal to 1 minus the action gap and is expressed as a percentage (1 = 100%). Therefore, if ASC1+2 - CBSC1+2 is equal to zero, and so the company’s target is aligned with the sectoral benchmark, the maximum score is achieved.

Rationale OG 2.2 Trend in Future Scope 1+2 Emissions Intensity
Rationale of the Indicator

Relevance of the Indicator 

Trend in future emissions intensity is included in the ACT assessment for the following reasons:

  1. Recent emissions intensity performance indicates the company’s progression towards, or away from, the future emissions intensity necessary for the sector to decarbonize in-line with a low-carbon scenario.
  2. This indicator is the most valuable in terms of the information it provides on the company’s actual action towards decarbonization.
  3. This particular measure, along with recent emissions intensity and absolute emissions, forms part of a holistic view of company emissions performance in the past, present, and future.

Scoring Rationale

The scoring rationale follows the same narrative as indicator OG 1.1, so refer to the rationale of this indicator to understand the choices made.

Intensity Metric Rationale

See OG 1.1.

 

5.3.2.3. OG 2.3 Emissions lock-in (Weighting: 2-8%)

Description & Requirements OG 2.3 Emissions Lock-In
Short Description of Indicator A measure of the company’s cumulative emissions from the reporting year up to 2050 from currently producing and under development oil & gas upstream assets of the company. The indicator will compare this to the emissions budget entailed by the company’s energy production intensity decarbonization pathway as defined in a low carbon scenario. The indicator characterizes the extent to which the company, through its oil & gas locked-in production, will overshoot its carbon budget.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A7: Upstream: yearly production of currently producing and under development assets of fossil primary fuels (oil, gas and coal) as from the date of reporting and projected up to 2050

Midstream assets such as refineries, LNG plants and pipelines are excluded.

The benchmark indicators involved are:

 

How the Assessment will be done

The analysis is based on the ratio between the GHG emissions (limited to scope 3 use/combustion) related to the locked-in upstream fossil energy production of the company (currently producing and under development)from the reporting year to 2050, and the company’s upstream carbon budget (Bg(t)) over the same period of time.

LG (t) is calculated as the total cumulative GHG emissions (scope 3 use/combustion) implied by currently upstream producing and under development assets (investment decision confirmed/project “sanctioned”) that are going to be commissioned in the future. It excludes any future production of fossil fuels reserves classified as contingent at the date of reporting. Scope 3 use/combustion emissions factor EFG is applied to each aggregate component PG of fossil fuels production, oil, gas and coal, without distinguishing between types of resources and extraction processes. The fraction of non-energy final consumption derived from the reference scenario is applied to company data, under the assumption that aggregate oil, gas and coal productions of the company will supply final consumption based on the same patterns as in the reference scenario.

Data to be reported by the company covers aggregate oil, natural gas (fossil gas) and coal productions.

BG(t) is calculated as the company’s upstream carbon budget up until 2050. To that extent, the value of GHG emissions (scope 3 use/combustion) related to the primary energy supply in the benchmark (chosen low carbon scenario) is divided by the benchmark primary energy supply of the reporting year and multiplied by the company upstream energy production of the reporting year, in order to obtain an absolute emissions curve that can be compared to the company locked-in emissions. The carbon budget is the cumulative GHG emissions from reporting year to 2050, which is equivalent to the area under the absolute emissions reduction curve.

The locked-in ratio (rAO) is calculated as follows:

Calculation of Score

If rAO is 1 or lower, then the company stays within the pathway of locked-in emissions and will be assigned the maximum score (100%). If rAO is 1.5 or higher, then the company strongly exceeds its carbon budget, and will be assigned the minimum score (0%). If rAO is between 1 and 1.5, then the company will be assigned a score of 1.5- rAO divided by 50%.

Rationale OG 2.3 Emissions Lock-In
Rationale of the Indicator

Relevance of the Indicator

Locked-in emissions is included in the ACT assessment for the following reasons:

  1. Absolute greenhouse gas emissions over time is the most relevant measure of emissions performance for assessing a company’s contribution to global warming.
  2. Analysing a company’s locked-in emissions alongside science-based budgets also introduces the means to scrutinize the potential cost of inaction, including the probability of stranded assets.
  3. Examining absolute emissions, along with recent and short-term emissions intensity trends, forms part of a holistic view of company emissions performance in the past, present, and future.
  4. 2050 horizon has been selected for the locked-in emissions, as locked-in fossil upstream energy production can be planned in the long-term and the shift from fossil to low carbon energies is to happen gradually in the 3 next decades

Scoring Rationale

This indicator compares over the long term the absolute emissions in the reference scenario pathway and the absolute emissions from the locked-in emissions of currently and under development fossil fuel assets of the company. The trajectory of the company might diverge from the pathway. The magnitude and time span of the divergence provide additional measures of the need for the company to switch to a low-carbon model.

Company Assets

  • Producing oil, gas and coal upstream assets at the date of reporting
  • Under development oil, gas and coal upstream assets at the date of reporting

 

5.3.2.4. OG 2.4 Low Carbon and Mitigation Technologies CAPEX Share (Weighting: 0-6%)

Description & Requirements OG 2.4 Low Carbon and Mitigation Technologies CAPEX Share
Short Description of Indicator A measure of the alignment of the company’s planned capex, i.e. investment by the company, for the next five years in low carbon and mitigation technologies with their pathway required in the low-carbon scenario. The indicator will identify the gap between the company’s planned low carbon and mitigation capex share and the decarbonization pathway as a percentage, which is expressed as the company’s commitment gap.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A8: Share of Capex in low carbon and mitigation technologies (M$/M$) planned for the next 5 years

 

The benchmark indicators involved are:

 

How the Assessment will be done

The assessment is based on the difference between the company’s planned CAPEX share in Low carbon and mitigation technologies (TLCT) and the company benchmark (CBLCT) 5 years from the reporting year.

The company target pathway (TLCT) is the CAPEX share plan over time, defined by the company’s planned CAPEX. To compute T, a linear line is drawn between the starting point of the assessment and the company’s target endpoint.

The company benchmark (CBLCT) pathway is the ‘company Low carbon and mitigation technologies CAPEX share pathway’. See section 6 for details on the computation of this pathway.

The assessment will compare TLCT to CBLCT, by assessing the difference between these pathways 5 years after the reporting year. The pathways are expressed in percentage of CAPEX allocated to investments in Low carbon and mitigation technologies (intensity measure). Where necessary, targets will be normalized to this unit to enable the comparison. The result of the comparison is the commitment gap.

To assign a score to this indicator, the size of the commitment gap will be compared to the maximum commitment gap, which is defined by the business as usual pathway (BAULCT). BAULCT is defined as an unchanging (horizontal) intensity pathway, whereby the share of CAPEX share remains stable 5 years after the reporting year.

Calculation of Score

The score is a percentage of the maximum commitment gap. It is calculated by dividing the company’s commitment gap by the maximum commitment gap (taking all values 5 years after the reporting year):

The score assigned to the indicator is equal to 1 minus the commitment gap and is expressed as a percentage (1 = 100%). Therefore, if TLCT – CBLCT is equal to zero, and so the company’s target is aligned with the sectoral benchmark, the maximum score is achieved.

Definition of Low Carbon Technologies

Low carbon technologies are technologies that produce final energy with a low carbon content. They encompass:

  • Sustainable biofuels as defined by the European Green taxonomy
  • Sustainable bOGases and sustainable hydrogen as defined by the European Green taxonomy
  • Low carbon electricity production technologies with a LCA carbon content < 100gCO2e/kWh (threshold of European taxonomy)
  • Energy efficiency services that reduce the energy consumption of the clients

Definition of Mitigation Technologies

Mitigation technologies are technologies that reduce the carbon footprint of the delivered energy by the O&G companies. They can be

  • Extraction GHG mitigation technologies: technologies reducing the carbon footprint of extraction activity
    • eg. technologies to prevent methane leakage
  • Midstream mitigation technologies: technologies reducing the carbon footprint of refining, logistics, …
    • eg.: energy efficiency technologies for refining
  • Downstream mitigation technologies: technologies reducing the carbon footprint of distribution, downstream logistics, retail stations
    • eg.: low carbon transport technologies for downstream logistics
Rationale OG 2.4 Low Carbon and Mitigation Technologies CAPEX Share
Rationale of the Indicator

Relevance of the indicator:

Investments planning related to the company’s investments in low carbon and mitigation technologies are included in the ACT Oil & Gas assessment for the following reasons:

  1. CAPEX planification is an indicator of corporate commitment to a low carbon transition, and are a meaningful metric of the company’s internal planning towards the transition.
  2. Low carbon and mitigation technologies CAPEX share is an early KPI of the gradual switch of O&G companies from fossil activities to low carbon activities.

Scoring Rationale

Planned CAPEX share are quantitatively interpreted and directly compared to the low-carbon benchmarks for the sector, using the IEA projections, which is further explained in section 6.1.

Targets are compared to the benchmark directly, and the relative gap is calculated compared to the business as usual pathway. The gap method was chosen for its relative simplicity in interpretation and powerful message, which aligns with the UNEP’s narrative of the global commitment gap of the UNFCCC Climate Agreements. The simple percentage score also needs no further computation to become meaningful on its own, as well as be useable for aggregation in the performance score.

To ensure comparability of the scores and replicability of the measurement, targets are compared to the benchmark at a fixed point in time, similar to all companies. This is necessary, because the method interprets linear decarbonization pathways from the targets, while the decarbonization pathways are nonlinear. Therefore, the measurement gaps would vary over time if the time of measurement was not constant, and undesired precedent is set for reporting only targets with short-time horizons.

5 years after the reporting year was chosen as the reference for this measurement, as it is far enough in time to make a meaningful measurement of the company’s future pathway, while close enough to be able to include the typical short to medium time scale of present-day company targets.

Definition Rationale

The low carbon technologies have been defined accordingly to the discussions that have taken place in the ACT Technical Working Group. Some of the elements are aligned with the requirements of the EU green taxonomy and are detailed in the Glossary part.

 

5.3.2.5 OG 2.5 Carbon Removal Technologies (CDR) and Carbon Capture, Use and Storage Technologies (CCS, CCUS) CAPEX Share (Weighting: 0-6%)

Description & Requirements OG 2.5 Carbon Removal Technologies (CDR) and Carbon Capture, Use and Storage Technologies (CCS, CCUS) CAPEX Share
Short Description of Indicator A measure of the alignment of the company’s planned CAPEX for the next five years in CAPEX on CDR, CCS and CCUS technologies with their pathway required in the low-carbon scenario. The indicator will identify the gap between the company’s planned CAPEX share in CDR/CCD/CCUD and the decarbonization pathway as a percentage, which is expressed as the company’s commitment gap.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A9: Planned CAPEX share set on investments in (CCS, CCUS, CDR) (CCS, CCUS, CDR) (M$/M$)

 

The benchmark indicators involved are:

(9)  The models assessed in the McCollum et al. (2018) paper include six global energy-economy models (« IAM frameworks »: AIM/CGE, IMAGE, MESSAGEix-GLOBIOM, POLES, REMIND-MAgPIE and WITCH-GLOBIUM) as well as investment estimates from IEA and IRENA.

How the Assessment will be done

The assessment is based on the difference between the company’s planned CAPEX (TRT) share in CDR, CCS and CCUS and the company benchmark for CAPEX (CBRT) 5 years from the reporting year.

The company target pathway (TRT) is the share of CAPEX dedicated to CDR/CCS/CCUS over time, defined by the company’s planned CAPEX. To compute T, a linear line is drawn between the starting point of the assessment and the company’s target endpoint.

The company benchmark (CBRT) pathway is the ‘company GHG removal technologies CAPEX share pathway’. See section 6 for details on the computation of this pathway.

The assessment will compare TRT to CBRT, by assessing the difference between these pathways 5 years after the reporting year. The pathways are expressed in percentage of CAPEX allocated to investments in GHG removal technologies (intensity measure). Where necessary, targets will be normalized to this unit to enable the comparison. The result of the comparison is the commitment gap.

To assign a score to this indicator, the size of the commitment gap will be compared to the maximum commitment gap, which is defined by the business as usual pathway (BAURT,C). BAURT,C is defined as an unchanging (horizontal) intensity pathway, whereby the share of CAPEX remains stable 5 years after the reporting year.

Calculation of Score

The score is a percentage of the maximum commitment gap. It is calculated by dividing the company’s commitment gap by the maximum commitment gap (taking all values 5 years after the reporting year):

The score assigned to the indicator is equal to 1 minus the commitment gap and is expressed as a percentage (1 = 100%). Therefore, if TRT – CBRT is equal to zero, and so the company’s target is aligned with the sectoral benchmark, the maximum score is achieved.

(All definitions are a rewording of the IPCC SR15 report definitions)

Carbon Dioxide Removal technologies (CDR) are anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products. It includes existing and potential anthropogenic enhancement of biological or geochemical sinks (afforestation, reforestation, land management, bio-energy carbon capture and storage, enhanced weathering, etc.) and direct air capture and storage (DAC). Offsetting activity (purchase of carbon credits) is not accounted in this indicator

Carbon Capture and Storage (CCS) is a process in which a relatively pure stream of carbon dioxide (CO2) from industrial and energy-related sources is separated (captured), conditioned, compressed and transported to a storage location for long-term isolation from the atmosphere. CCS is considered as a CDR only when applied to a bOGenic stream of CO2 (e.g. coming from a bio-energy power plant): it is then called BECCS (bio-energy carbon capture and storage).

Carbon Capture, Use and Storage (CCU/S) is a process in which CO2 is captured and then used to produce a new product. If the CO2 is stored in a product for a climate-relevant time horizon, this is referred to as carbon dioxide capture, utilization and storage (CCUS). Only then, and only combined with CO2 recently removed from the atmosphere, can CCUS lead to carbon dioxide removal. CCU is sometimes referred to as carbon dioxide capture and use.

Rationale OG 2.5 Carbon Removal Technologies (CDR) and Carbon Capture, Use and Storage Technologies (CCS, CCUS) CAPEX Share
Rationale of the Indicator

Relevance of the Indicator:

Investments planning related to the company’s capex in GHG removal technologies are included in the ACT Integrated Oil & Gas (OG) assessment for the following reasons:

  1. CAPEX planification is an indicator of corporate commitment to a low carbon transition, and are a meaningful metric of the company’s internal planning towards the transition.
  2. As Carbon removal technologies are still at their early stage and not yet deployed at large scale, CDR and CCS/CCUS CAPEX share is a meaningful indicator to evaluate the commitment of the O&G companies to the development of these key technologies
  3. Low carbon and mitigation technologies CAPEX share is an early KPI of the gradual switch of O&G companies from fossil activities to low carbon activities.

Scoring Rationale

Planned CAPEX share are quantitatively interpreted and directly compared to the low-carbon benchmarks for the sector, which is further explained in section 6.1.

Targets are compared to the benchmark directly, and the relative gap is calculated compared to the business as usual pathway. The gap method was chosen for its relative simplicity in interpretation and powerful message, which aligns with the UNEP’s narrative of the global commitment gap of the UNFCCC Climate Agreements. The simple percentage score also needs no further computation to become meaningful on its own, as well as be useable for aggregation in the performance score.

To ensure comparability of the scores and replicability of the measurement, targets are compared to the benchmark at a fixed point in time, similar to all companies. This is necessary, because the method interprets linear decarbonization pathways from the targets, while the decarbonization pathways are nonlinear. Therefore, the measurement gaps would vary over time if the time of measurement was not constant, and undesired precedent is set for reporting only targets with short-time horizons.

5 years after the reporting year was chosen as the reference for this measurement, as it is far enough in time to make a meaningful measurement of the company’s future pathway, while close enough to be able to include the typical short to medium time scale of present-day company targets.

 

5.3.2.X. OG 2.X Share of Unsanctioned projects Within Carbon Budget (Weighting: X%): To Be Defined

Description & Requirements OG 2.X Share of Unsanctioned Projects
Short Description of Indicator The indicator measures the share of unsanctioned projects i.e. projects already started that would lead to the overrun of the company’s low carbon budget.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

  • Data from Carbon Tracker

The benchmark indicators involved are:

 

How the Assessment will be done

TBD

Calculation of Score

TBD

 

Rationale OG 2.X Share of Unsanctioned Projects
Rationale of the Indicator

Relevance of the Indicator

TBD

Scoring Rationale

TBD

 

5.3.3. Intangible investments indicators (Weighting: 2-10%)

 

5.3.3.1. OG 3.1 Share of R&D in Low Carbon and Mitigation Technologies (Weighting: 2-5%)

Description & Requirements OG 3.1 Share of R&D in Low Carbon and Mitigation Technologies
Short Description of Indicator A measure of the ratio of R&D investments in low carbon and mitigation-relevant technologies. The indicator will identify the ratio between the company’s R&D share in low carbon and mitigation and the required R&D share in low carbon and mitigation as set by a scientific benchmark of R&D requirements.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A10: R&D expenses in low-carbon and mitigation technologies (M$)

A11: Total R&D expenses (M$)

The benchmark indicators involved are:

 

How the Assessment will be done

The analysis is based on the ratio of the company’s ‘annual R&D expenditure on low-carbon and mitigation technologies’ (CAPEXLow carbon and Mitigation R&D) to the company’s ‘total annual R&D expenditure’ (CAPEX R&D). The highest scoring level will compare only ‘R&D expenditure on non-mature technologies (see the indicator’s rationale) that mitigate climate change’ (CAPEXLow carbon and mitigation R&D non − mature).

The ratios are defined as the ‘mitigation R&D intensity’ ratios (D) or (D(nonmature)):

 

Dimension 1 - Inclusive R&D Investment Ratio:

This ratio will be compared to a benchmark for R&D (BRD) ratio, and a score will be assigned depending on the company’s proximity to the benchmark. The inclusive R&D investment ratio includes all investment in low carbon and mitigation technologies (mature and non-mature).

The score is a percentage of the maximum R&D investment ratio. It is calculated by dividing D by BRD.

The score for dimension 1 is calculated by multiplying the investment ratio by 50% as long as the ratio is lower than 1. For values higher than 1, 50% will be assigned as a score.

Dimension 2 - Non-mature R&D Investment Ratio:

R&D investment is not as necessary for some technologies as it is for others. The non-mature technology investment ratio Dnon − mature is compared to the benchmark for dimension 2:

A company with an investment ratio of 1 for dimension 2 shall achieve 100% of the maximum score. If the ratio is lower than or equal to 1, the score for dimension 2 is the value of the calculated ratio.

The highest score between dimensions 1 and 2 is chosen as the company’s final score.

Rationale of the Indicator

Relevance of the Indicator:

The Low carbon and mitigation R&D indicator is included in the ACT assessment for the following reasons:

  • To enable the transition, sectors such as the O&G sector rely heavily on the development of low-carbon technologies to replace their currently high-emitting portfolio of generation assets. R&D is the principal proactive action to develop these technologies.
  • R&D is also one of the principal tools to reduce the costs of a technology in order to increase its market penetration.
  • Lastly, the R&D investment of a company into non-mature technologies allows for direct insight into the company’s commitment to alternative technologies that may not currently be part of its main business model.

Definition of Low Carbon Technologies

Low carbon technologies are technologies that produce final energy with a low carbon content. They encompass:

  • Sustainable biofuels as defined by the European Green taxonomy
  • Sustainable bOGases and sustainable hydrogen as defined by the European Green taxonomy
  • Low carbon electricity production technologies with a LCA carbon content < 100gCO2e/kWh (threshold of European taxonomy)
  • Energy efficiency services that reduce the energy consumption of the clients

Definition of Mitigation Technologies

Mitigation technologies are technologies that reduce the carbon footprint of the delivered energy by the O&G companies. They can be

  • Extraction GHG mitigation technologies: technologies reducing the carbon footprint of extraction activity
    • eg. technologies to prevent methane leakage
  • Midstream mitigation technologies: technologies reducing the carbon footprint of refining, logistics, …
    • eg.: energy efficiency technologies for refining
  • Downstream mitigation technologies: technologies reducing the carbon footprint of distribution, downstream logistics, retail stations
    • eg.: low carbon transport technologies for downstream logistics

Definition of Non-Mature R&D

A Technology Readiness Level (TRL) should be used to assess the maturity of a technology. Higher scoring levels of this indicator exclude research in technologies that are already considered mature in terms of market penetration, in order to incentivise a focus on those technologies that have a higher need for R&D investment, in order to break through technical barriers and reduce the levelized costs of deploying these technologies

To formalize this distinction in the analysis, the company is asked for a detailed breakdown of R&D expenditure. As defining what type of R&D is ‘non-mature’ is theoretically difficult, the classification is inversed, and done based on the principle of exclusion. This methodology excludes only those low-carbon technologies that are considered mature in terms of market position and levelized cost.

Scoring Rationale

To align with the narrative of ratios that is also used in the indicators for Modules 1 and 2, the indicator is computed as the ‘R&D investment ratio’. This investment ratio is only assigned 50% of the maximum score, as the analysis aims to incentivise R&D in non-mature technologies as opposed to mature technologies. Therefore, the achievable score for achieving a high R&D in non-mature technologies (Dnon-mature) is double that of the score when this criterion is not included (D).

Definition Rationale

The taxonomy has been defined based on the discussions of the Technical Working group. Some of the elements are aligned with the requirements of the EU green taxonomy and are detailed in the Glossary part.

   

 

5.3.3.2. OG 3.2 Share of R&D in Carbon removal technologies (Weighting: 2-5%)

Description & Requirements OG 3.2 Share of R&D in Carbon Removal Technologies
Short Description of Indicator A measure of the ratio of R&D investments in carbon removal technologies. The indicator will identify the ratio between the company’s R&D share in Carbon Removal technologies and the required R&D share in carbon removal technologies as set by a scientific benchmark of R&D requirements.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A12: R&D expenses in carbon removal technologies (M$)

A11: Total R&D expenses (M$)

The indicators involved are:

 

How the Assessment will be done

The analysis is based on the ratio of the company’s ‘annual R&D expenditure on carbon removal technologies’ (CAPEX′ Carbon Removal R&D) to the company’s ‘total annual capital expenditure on R&D’ (CAPEX R&D). The highest scoring level will compare only ‘R&D expenditure on non-mature technologies (see the indicator’s rationale) (CAPEXCarbon Removal R&D non − mature).

The ratios are defined as the ‘mitigation R&D intensity’ ratios (D) or (D(nonmature)):

 

Dimension 1 - Inclusive R&D Investment Ratio:

This ratio will be compared to a benchmark for removal R&D (BRD) ratio, and a score will be assigned depending on the company’s proximity to the benchmark. The inclusive R&D investment ratio includes all investment in carbon removal technologies (mature and non-mature).

The score is a percentage of the maximum R&D investment ratio. It is calculated by dividing D by BRD.

The score for dimension 1 is calculated by multiplying the investment ratio by 50% as long as the ratio is lower than 1. For values higher than 1, 50% will be assigned as a score.

Dimension 2 - Non-Mature R&D Investment Ratio 

R&D investment is not as necessary for some technologies as it is for others. The non-mature technology investment ratio Dnon − mature is compared to the benchmark for dimension 2:

A company with an investment ratio of 1 for dimension 2 shall achieve 100% of the maximum score. If the ratio is lower than or equal to 1, the score for dimension 2 is the value of the calculated ratio.

The highest score between dimensions 1 and 2 is chosen as the company’s final score.

Rationale of the Indicator

Relevance of the Indicator:

The Carbon Removal R&D indicator is included in the ACT assessment for the following reasons:

  • Whereas Carbon removal and CCS/CCUS technologies are key to achieve a low carbon scenario, these technologies are still at their early stage of development, so that R&D is the main proactive action to develop these technologies.
  • R&D is also one of the main tools to reduce the costs of a technology in order to increase its market penetration.
  • Lastly, the R&D investment of a company into non-mature technologies allows for direct insight into the company’s commitment to alternative technologies that may not currently be part of its main business model.

Definition of CDR/CCS/CCUS Technologie:

Carbon Dioxide Removal technologies (CDR) are anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products. It includes existing and potential anthropogenic enhancement of biological or geochemical sinks (afforestation, reforestation, land management, bio-energy carbon capture and storage, enhanced weathering, etc.) and direct air capture and storage (DAC).

Carbon Capture and Storage (CCS) is a process in which a relatively pure stream of carbon dioxide (CO2) from industrial and energy-related sources is separated (captured), conditioned, compressed and transported to a storage location for long-term isolation from the atmosphere. CCS is considered as a CDR only when applied to a bOGenic stream of CO2 (e.g. coming from a bio-energy power plant): it is then called BECCS (bio-energy carbon capture and storage).

Carbon Capture, Use and Storage (CCU/S) is a process in which CO2 is captured and then used to produce a new product. If the CO2 is stored in a product for a climate-relevant time horizon, this is referred to as carbon dioxide capture, utilization and storage (CCUS). Only then, and only combined with CO2 recently removed from the atmosphere, can CCUS lead to carbon dioxide removal. CCU is sometimes referred to as carbon dioxide capture and use.

Definition of Non-Mature R&D

A Technology Readiness Level (TRL) should be used to assess the maturity of a technology. Higher scoring levels of this indicator exclude research in technologies that are already considered mature in terms of market penetration, in order to incentivise a focus on those technologies that have a higher need for R&D investment, in order to break through technical barriers and reduce the levelized costs of deploying these technologies

To formalize this distinction in the analysis, the company is asked for a detailed breakdown of R&D expenditure. As defining what type of R&D is ‘non-mature’ is theoretically difficult, the classification is inversed, and done based on the principle of exclusion. This methodology excludes only those low-carbon technologies that are considered mature in terms of market position and levelized cost

Scoring Rationale

To align with the narrative of ratios that is also used in the indicators for Modules 1 and 2, the indicator is computed as the ‘R&D investment ratio’. This investment ratio is only assigned 50% of the maximum score, as the analysis aims to incentivise R&D in non-mature technologies as opposed to mature technologies. Therefore, the achievable score for achieving a high R&D in non-mature technologies (Dnon-mature) is double that of the score when this criterion is not included (D).

 

5.3.4. Sold Product Performance (Weighting: 10-23%)

 

5.3.4.1. OG 4.1 Trend in Past Scope 1+2+3 Emissions Intensity (Weighting: 4-6%)

Description & Requirements OG 4.1 Trend in past Scope 1+2+3 emissions intensity
Short Description of Indicator A measure of the alignment of the company’s recent emissions intensity for scope 1+2+3, with that of their decarbonization pathway. The indicator will compare the gradient of this trend over a 5-year period to the reporting year (reporting year minus 5 years) with the decarbonization pathway trend over a 5-year period after the reporting year.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A13: scope 1+2+3 emissions intensity for the company's recent (reporting year -5 or Y-5) generation emissions and the year Y. This emissions intensity is to be calculated using the ACT Oil & Gas Excel tool.

The calculated emissions intensity is expressed in tCO2e/TJ. The following primary energies are considered: coal, natural gas, oil products and renewable energies (including biofuels, bOGas and renewable electricity). The GHG emissions include emissions from all 3 steps of the value chain (Upstream, Midstream and Downstream) as well as the step Combustion /Use.

The ACT Oil & Gas Excel tool requires for each step of the value chain and for all energy types

  • Scope 1+2 emissions intensity
  • Specific scope 3 emissions intensity of suppliers’ energy if available (only for the steps Upstream and/or Midstream)
  • Quantity of energy supplied for each step of the value chain and for all energy types:

Default emissions intensities are provided for scope 3 GHG intensity (energy purchased or stopped being processed at different steps of the value chain by the Oil & Gas company), but once again these default emissions intensities can be replaced by the actual emissions intensities of the suppliers.

Moreover, these emissions intensities will be used for the step Use.

These default emissions intensities can be also be used for comparison between the industry average and the data from the Oil & Gas company.

The company needs to fill energy volumes supplied at the end of each step of the value chain and for each type of energy. The company is to provide the % of energy supplied to other companies and that is therefore not accounted for at the next step of the value chain.

For midstream, the Excel requires for the volume input too, thus calculating the amounts of losses due to oil refining and gas transport. This is also the case for gas downstream to take into account the gas losses in distribution networks.

The benchmark indicators involved are:

 

How the Assessment will be done

The analysis is based on the difference between the company’s recent (reporting year minus 5 years) generation emissions intensity trend gradient (𝐶𝑅′SC1+2+3)

and the company’s decarbonization pathway trend gradient (𝐶𝐵′SC1+2+3) in the short-term (reporting year plus 5 years).

𝐶𝑅′SC1+2+3 is the gradient of the linear trend-line of the company’s recent generation emissions intensity (tCO2e/TJ) for scope 1+2+3 over time.

𝐶𝐵′SC1+2+3 is the gradient of the linear trend-line of the company benchmark pathway. Refer to the ACT Framework and the SDA methodology for details on the computation of the company specific decarbonization pathway and its trendline.

The difference between 𝐶𝑅′SC1+2+3 and 𝐶𝐵′SC1+2+3 will be measured by their ratio (𝑟SC1+2+3). This is the ‘Transition ratio’, which is calculated by the following equation:

If the transition ratio is a negative number, it means the company’s recent emissions intensity has increased (positive 𝐶𝑅′SC1+2+3) and a zero score is awarded by default. If the company’s recent emissions intensity has decreased, the transition ratio will be a number between 0 and 1. A score is assigned as a percentage value equal to the value of 𝑟SC1+2+3 (1 = 100%).

Rationale OG 4.1 Trend in Past Scope 1+2+3 Emissions Intensity
Rationale of the Indicator

Relevance of the Indicator 

Trend in past emissions intensity is included in the ACT assessment for the following reasons:

  1. The trend shows the speed at which the company has been reducing its emissions intensity over the recent past. Comparing this to the decarbonization pathway gives an indication of the scale of the change that needs to be made within the company to bring it onto a low-carbon pathway.
  2. While ACT aims to be as future-oriented, it nevertheless does not want to solely rely on projections of the future, in a way that would make the analysis too vulnerable to the uncertainty of those projections. Therefore, this particular measure, along with projected emissions intensity and absolute emissions, forms part of a holistic view of company emissions performance in the past, present, and future.
  3. The O&G companies cover a large range of activities in the sector, they take responsibility of the climate impact of O&G products at several points in the economic chain. The Life Cycle Analysis of the O&G products, on all the GHG scopes, is therefore a relevant tool to be used in order to embrace the diverse sources of emissions caused by Integrated O&G business models.
  4. Even though the emissions intensity factors of the company are the same as the ones used for Scope 1+2, a specific indicator dedicated to scope 1+2+3 enable the Oil & Gas companies to benefit from having suppliers with smaller emissions intensity than the average of the industry. To be clearer, this part requires as input to be filled the same emissions intensities as for SCOPE 1+2, plus the emissions intensities of the suppliers if the Oil & Gas company if the data is available.

Scoring Rationale

While ‘gap’ type scoring is preferred for any indicator where possible, this indicator only looks at past emissions, and would therefore require a different baseline in order to generate a gap method. Therefore, instead the two trends are compared. Another advantage of the trend analysis is that it does not require the use of a ‘business as usual’ pathway to anchor the data points and aid interpretation, as trends can be compared directly and a score can be directly correlated to the resulting ratio.

 

5.3.4.2. OG 4.2 Trend in Future Scope 1+2+3 Emissions Intensity (Weighting: 6-9%)

Description & Requirements OG 4.2 Trend in Future Scope 1+2+3 Emissions Intensity
Short Description of Indicator A measure of the alignment of the company’s projected emissions intensity for scope 1+2+3 with its decarbonization pathway. The indicator will identify the gap in 5 years after the reporting year between the company’s performance and the decarbonization pathway as a percentage, which is expressed as the company’s ‘action gap’.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A14: scope 1+2+3 emissions intensity target for the year Y+5 after the reporting date (projections required here), as well as for the reporting year Y. This emissions intensity is to be calculated using the ACT Oil & Gas Excel tool

The calculated emissions intensity is expressed in tCO2e/TJ. The following primary energies are considered: coal, natural gas, oil products and renewable energies (including biofuels, biogas and renewable electricity). The GHG emissions include emissions from all 3 steps of the value chain (Upstream, Midstream and Downstream) as well as the step Combustion /Use.

The ACT Oil & Gas Excel tool requires for each step of the value chain and for all energy types

  • Scope 1+2 emissions intensity
  • Specific scope 3 emissions intensity of suppliers’ energy if available (only for the steps Upstream and/or Midstream)
  • Quantity of energy supplied for each step of the value chain and for all energy types:

Default emissions intensities are provided for scope 3 GHG intensity (energy purchased or stopped being processed at different steps of the value chain by the Oil & Gas company), but once again these default emissions intensities can be replaced by the actual emissions intensities of the suppliers.

Moreover, these emissions intensities will be used for the step Use.

These default emissions intensities can be also be used for comparison between the industry average and the data from the Oil & Gas company.

The company needs to fill energy volumes supplied at the end of each step of the value chain and for each type of energy. The company is to provide the % of energy supplied to other companies and that is therefore not accounted for at the next step of the value chain.

For midstream, the Excel requires for the volume input too, thus calculating the amounts of losses due to oil refining and gas transport. This is also the case for gas downstream to take into account the gas losses in distribution networks

The benchmark indicators involved are:

 

How the Assessment will be done

The assessment is based on the difference between the company’s action pathway (ASC1+2+3) and the company benchmark (CBSC1+2+3) developing from the reporting year to 5 years after.

The company action pathway (ASC1+2+3) is the emissions intensity of the company for scope 1+2+3.

The company benchmark (CBSC1+2+3) pathway is the ‘company scope 1+2+3 emissions intensity specific decarbonization pathway’. See section 6.1 for details on the computation of this pathway.

The assessment will compare ASC1+2+3 to CBSC1+2+3, by examining the difference between these pathways in 5 years after the reporting year. The pathways are expressed in tons of CO2 per tera joule (intensity measure). The result of the comparison is the action gap.

Calculation of Score 

To assign a score to this indicator, the size of the action gap will be compared to the maximum action gap, which is defined by the business as usual pathway (BAUSC1+2+3). BAUSC1+2+3 is defined as an unchanging (horizontal) intensity pathway, whereby the emissions intensity is not reduced at all over a period after the reporting year.

The score assigned to the indicator is equal to 1 minus the action gap and is expressed as a percentage (1 = 100%). Therefore, if ASC1+2+3 - CBSC1+2+3 is equal to zero, and so the company’s target is aligned with the sectoral benchmark, the maximum score is achieved.

Rationale OG 4.2 Trend in Future Scope 1+2+3 Emissions Intensity
Rationale of the Indicator

Relevance of the Indicator

Trend in future emissions intensity is included in the ACT OG assessment for the following reasons:

  1. Recent emissions intensity performance indicates the company’s progression towards, or away from, the future emissions intensity necessary for the sector to decarbonize in-line with a low-carbon scenario.
  2. This indicator is the most valuable in terms of the information it provides on the company’s actual action towards decarbonization.
  3. This particular measure, along with recent emissions intensity and absolute emissions, forms part of a holistic view of company emissions performance in the past, present, and future.
  4. Even though the emissions intensity of the company are the same as the ones used for Scope 1+2, a specific indicator dedicated to scope 1+2+3 enable the Oil & Gas companies to benefit from having suppliers with smaller emissions intensity than the average of the industry. To be clearer, this part requires as input to be filled the same emissions intensities as for SCOPE 1+2, plus the emissions intensities of the suppliers if the Oil & Gas company if the data is available.

Scoring Rationale

The scoring rationale follows the same narrative as indicator OG 2.1, so refer to the rationale of this indicator to understand the choices made.

Intensity Metric Rationale

See OG 1.2.

 

5.3.4.3. OG 4.3 Low Carbon Products Share (Weighting: 0-5%)

Description & Requirements OG 4.3 Low Carbon Products Share
Short Description of Indicator A measure of the company’s growth in sales of low-carbon products compared with a benchmark.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A15: Revenues generated by low carbon products (M$) planned for the next 5 years

A16: Total revenues (M$) planned for the next 5 years

Benchmark indicators involved are:

 

How the Assessment will be done

The analysis is based on the difference between the planned company sales (CSLCP) and what the company sales should have been according to the benchmark, five years after the reporting year. The business as usual sales pathway (BAULCP) is computed, which assumes no growth in Low Carbon Products & Services from the reporting year and over the next five years. The resulting number is the ‘LCP sales gap’.

Score 

In the gap comparison, if the difference between the two terms is zero or negative, then there is no LCP sales gap and the company receives the maximum score. If there is a positive LCP sales gap, a score is assigned equal to the relative size of this gap.

Rationale OG 4.3 Low Carbon Products Share
Rationale of the Indicator

Relevance of the Indicator

Low carbon products share is included in the ACT OG assessment for the following reasons:

  1. Emissions intensity pathways in the sector cannot be met without a shift from fossil activities to non-fossil activities, and therefore an expansion of the product offer to low-carbon products,
  2. The sales are the direct ‘output measure’ that indicates how this change is incorporated in the business model.

Definition of Low-Carbon Products & Services

Low Carbon Products & Services encompass (some of the elements of the company are aligned of the EU green taxonomy):

  • Renewable electricity(12)
  • Nuclear electricity
  • Sustainable biofuels
  • Sustainable bOGas
  • Sustainable hydrogen
  • Renewable electricity equipment6
  • Electricity storage equipment6
  • Engineering services in low carbon activities

(12) Aligned with the EU Green taxonomy. Details in the Glossary part.

All the elements listed above are defined in the Glossary part

Scoring Rationale 

The gap method was chosen for its relative simplicity in interpretation and is aligned with most of the other forward-looking indicators. Indeed, the indicator looks at a fix point in the future and assesses the capacity of the company to deploy a range of low-carbon products in the short term.

Definition Rationale

The taxonomy has been defined based on the discussions of the Technical Working group. Some of the elements are aligned with the requirements of the EU green taxonomy and are detailed in the Glossary part.

 

5.3.4.4. OG 4.4 Energy Efficiency Services Share (Weighting: 0-5%)

Description & Requirements OG 4.4 Energy Efficiency services share
Short Description of Indicator A measure of the company’s growth in sales of energy efficiency services as compared with a benchmark.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A17: Revenues share of energy efficiency services (M$)

A16: Total revenues (M$)

Benchmark indicators involved are:

 

How the Assessment will be done

The analysis is based on the difference between the planned company sales (CSEES) and what the company sales should have been according to the benchmark, five years after the reporting year. The business as usual sales pathway (BAUEES) is computed, which assumes no growth in Energy Efficiency Services from the reporting year and over the next five years. The resulting number is the ‘EES sales gap’.

Score 

In the gap comparison, if the difference between the two terms is zero or negative, then there is no EES sales gap and the company receives the maximum score. If there is a positive EES sales gap, a score is assigned equal to the relative size of this gap.

Rationale OG 4.4 Energy Efficiency Services Share
Rationale of the Indicator

Relevance of the Indicator 

Energy Efficiency Services share is included in the ACT OG assessment for the following reasons:

  1. Emissions intensity pathways in the sector cannot be met without the development of new services aiming at reducing the GHG emissions of the Oil & Gas activities as well as the final use of Oil & Gas products,
  2. The sales are the direct ‘output measure’ that indicates how this change is incorporated in the business model.

Definition of Energy Efficiency Services

The Energy Efficiency Services include the following elements:

  • Energy efficiency audits
  • EPC contracts
  • Energy efficiency actions
  • Energy saving products

All the elements listed above are defined in the Glossary part.

Scoring Rationale

The gap method was chosen for its relative simplicity in interpretation and is aligned with most of the other forward-looking indicators. Indeed, the indicator looks at a fix point in the future and assesses the capacity of the company to deploy a range of low-carbon products in the short term.

Definition Rationale

The taxonomy has been defined based on the discussions of the Technical Working group. Some of the elements are aligned with the requirements of the EU green taxonomy and are detailed in the Glossary part.

 

5.3.5. Management Indicators (Weighting: 10%)

 

5.3.5.1. OG 5.1 Oversight of climate change issues (Weighting: 3%)

Description & Requirements OG 5.1 Oversight of Climate Change Issues
Short Description of Indicator The company discloses that responsibility for climate change within the company lies at the highest level of decision making within the company structure.
Data Requirements

The question comprising the information request that are relevant to this indicator are:

A18: Environmental policy and details regarding governance

How the Assessment will be done

The benchmark case is that climate change is managed within the highest decision-making structure within the company. The company situation will be compared to the benchmark case, if it is similar then points will be awarded.

The position at which climate change is managed within the company structure will be determined from the company data submission and accompanying evidence.

 

 

 

 

Rationale OG 5.1 Oversight of Climate Change Issues
Rationale of the indicator Successful change within companies, such as the transition to a low-carbon economy, requires strategic oversight and buy-in from the highest levels of decision-making within the company. For the Oil & Gas sector, a change in strategy and potentially business model will be required and this cannot be achieved at lower levels within an organization. Evidence of how climate change is addressed within the top decision-making structures is a proxy for how seriously the company takes climate change, and how well integrated it is at a strategic level. High-level ownership also increases the likelihood of effective action to address low-carbon transition.

 

5.3.5.2. OG 5.2 Climate Change Oversight Capability (Weighting: 3%)

Description & Requirements OG 5.2 Climate Change Oversight Capability
Short Description of Indicator Company board or executive management has expertise on the science and economics of climate change, including an understanding of policy, technology and consumer drivers which can disrupt current business.
Data Requirements

The question comprising the information request that are relevant to this indicator are:

A18: Environmental policy and details regarding governance

How the Assessment will be done

The presence of expertise on relevant topics to climate change and low carbon transition within the individual or committee with overall responsibility for it within the company will be assessed. The presence of expertise is the condition that must be fulfilled for points to be awarded in the scoring.

The assessor will determine if the company has expertise as evidenced through a named expert bOGraphy outlining capabilities. The assessment is binary: expertise is evident or not. A cross check will be performed against 5.1 on the highest responsibility for climate change, the expertise should exist at the level identified or the relationship between the structures/experts identified should also be evident.

ts identified is evident

 

 

 

Rationale OG 5.2 Climate change oversight capability
Rationale of the Indicator

Effective management of low-carbon transition requires specific expertise related to climate change and its impacts, and their likely direct and indirect effects on the business. Presence of this capability within or closely related to the decision-making bodies that will implement low-carbon transition indicates both company commitment to that transition and also increases the chances of success.

Even if companies are managing climate change at board or equivalent level, a lack of expertise could be a barrier to successful management of low-carbon transition.

 

5.3.5.3. OG 5.3 Low-Carbon Transition Plan (Weighting: 2%)

Description & Requirements OG 5.3 Low Carbon Transition Plan
Short Description of Indicator The company has a plan on how to transition the company to a business model compatible with a low-carbon economy.
Data Requirements

The question comprising the information request that are relevant to this indicator are:

A18: Environmental policy and details regarding governance

How the Assessment will be done

The assessor will evaluate the description and evidence of the low carbon transition plan for the presence of best practice elements and consistency with the other reported management indicators. The company description and evidence will be compared to the maturity matrix developed to guide the scoring and a greater number of points will be allocated for elements indicating a higher level of maturity.

Best practice elements identified to date include:

  • Plan includes financial projections
  • Plan should include cost estimates or other assessment of financial viability as part of its preparation
  • Description of the major changes to the business is comprehensive, consistent, aligned with other indicators
  • Quantitative estimations of how the business will change in the future are included
  • Costs associated with the plan (e.g. write-downs, site remediation, contract penalties, regulatory costs) are included
  • Consideration of potential “shocks” or stressors (sudden adverse changes) has been made
  • Relevant region-specific considerations are included
  • Plan’s measure of success is SMART - contains targets or commitments with timescales to implement them, is time-constrained or the actions anticipated are time-constrained
  • Plan’s measure of success is quantitative
  • Description of relevant testing/analysis that influenced the transition plan is included
  • Plan is consistent with reporting against other ACT indicators
  • Scope – should cover entire business, and is specific to that business
  • Should cover the short, medium and long term. From now or near future <5 years, until at least 2035 and preferably beyond (2050)
  • Contains details of actions the company realistically expects to implement (and these actions are relevant and realistic)
  • Approved at the strategic level within the organization
  • Contains discussion of the potential impacts of a low-carbon transition on the current business
  • The company has a publicly-acknowledged low carbon science-based target (SBT).
  • Maximum points will be awarded if all of these elements are demonstrated.

 

 

 

 

Rationale OG 5.3 Low Carbon Transition Plan
Rationale of the indicator The Oil & Gas Construction sector will require substantial changes to their business to align to a low-carbon economy, over the short, medium and long term, whether it is voluntarily following a strategy to do so or is forced to change by regulations and structural changes to the market. It is better for the success of its business and of its transition that these changes occur in a planned and controlled manner.

 

5.3.5.4. OG 5.4 Climate Change Management Incentives (Weighting: 1%)

Description & Requirements OG 5.4 Climate Change Management Incentives
Short Description of Indicator The Board’s Compensation Committee has included metrics for the reduction of GHG emissions in the annual and/or long-term compensation plans of senior executives; the Company provides monetary incentives for the management of climate change issues as defined by a series of relevant indicators.
Data Requirements

The question comprising the information request that are relevant to this indicator are:

A19: Management incentives

How the Assessment will be done The assessor will verify if the company has compensation incentives set for senior executive compensation and/or bonuses, that directly and routinely rewards specific, measurable reductions of tons of carbon emitted by the company in the preceding year and/or to the future attainment of emissions reduction targets, or other metric related to the company’s low carbon transition plan.
   

 

Rationale OG 5.4 Climate Change Management Incentives
Rationale of the Indicator

Executive compensation should be aligned with overall business strategy and priorities. As well as commitments to action the company should ensure that incentives, especially at the executive level, are in place to reward progress towards low-carbon transition. This will improve the likelihood of successful low carbon transition.

Monetary incentives at the executive level are an indication of commitment to successful implementation of a strategy for low carbon transition.

 

5.3.5.5. OG 5.5 Climate change scenario testing (Weighting: 1%)

Description & Requirements OG 5.5 Climate Change Scenario Testing
Short Description of Indicator Testing or analysis relevant to determining the impact of transition to a low-carbon economy on the current and projected business model and/or business strategy has been completed, with the results reported to the board or c-suite, the business strategy revised where necessary, and the results publicly reported.
Data Requirements

The question comprising the information request that are relevant to this indicator are:

A20: Scenario testing

How the Assessment will be done

The analyst evaluates the description and evidence of the low-carbon economy scenario testing for the presence of best-practice elements and consistency with the other reported management indicators. The company description and evidence are compared to the maturity matrix developed to guide the scoring and a greater number of points are allocated for elements indicating a higher level of maturity.

Best-practice elements to be identified in the test/analysis include:

  • Entire coverage of the company’s boundaries
  • Timescale from present to long-term (2035 - 2050)
  • Translation of results into value-at-risk or other financial terms
  • Multivariate: a range of different changes in conditions are considered together
  • Changes in conditions that are specific to a low carbon climate scenario
  • Climate change conditions are combined with other likely future changes in operating conditions over the timescale chosen.

 

Rationale OG 5.5 Climate Change Scenario Testing
Rationale of the Indicator

Economical changes predicted to occur due to climate change could have a number of consequences for the Oil & Gas sector, including increased costs, a dramatically changed operating environment and major disruptions to the business. There are a variety of ways of analyzing the potential impacts of climate-related changes on the business, whether these are slow and gradual developments or one-off “shocks”. Investors are increasingly calling for techniques such as use of an internal price on carbon, scenario analysis and stress testing to be implemented to enable companies to calculate the value-at-risk that such changes could pose to the business. As this practice is emergent at this time there is currently no comprehensive survey or guidance on specific techniques or tools recommended for the sector. The ACT methodology thus provides a broad definition of types of testing and analysis which can be relevant to this information requirement, to identify both current and best practices and consider them in the analysis.

Scenario stress testing is an important management tool for preparing for low-carbon transition. For businesses likely to be strongly affected by climate change impacts (both direct and indirect), it has even greater importance.

 

5.3.6. Supplier Engagement Indicators (Weighting: 0-20%)

 

5.3.6.1. OG 6.1 Strategy to Influence Suppliers to Reduce their GHG Emissions (Weighting: 0-10%)

Description & Requirements OG 6.1 Strategy to Influence Suppliers to Reduce their GHG Emissions
Short Description of Indicator This indicator assesses the strategic policy and the process which are formalized and implemented by the company in order to engage its suppliers.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A21: List of environmental/CSR contract clauses in purchasing & suppliers’ selection process

How the Assessment will be done

The assessment will assign a maturity score based on the company’s formalized strategy with their suppliers, expressed in a maturity matrix.

A company that is placed in the ‘aligned’ category will receive the maximum score. Companies who are at lower levels will receive a partial score, with 0 points awarded for having no engagement at all.

This maturity matrix is indicative but does not show all possible options that can result in a particular score. Companies responses will be scrutinized by the assessor and then placed on the level in the matrix where the assessor deems it most appropriate.

 

Rationale OG 6.1 Strategy to Influence Suppliers to Reduce their GHG Emissions
Rationale of the Indicator

Relevance of the Indicator

Supplier engagement is included in the ACT OG assessment for the following reasons:

  1. Given their size and their decision-making power in the value chain, integrated companies have the ability to influence the strategy and performance of suppliers regarding climate.
  2. The upstream segment represents a high source of emissions throughout the value chain (10% of the total GHG emissions(16) of the Oil value chain) and should be engaged.
  3. Engaging suppliers through contract clauses and sales incentives is necessary to take them on board.

(14) ARC Energy Research Institute, using input data from the US Department of Energy National Energy Technology Laboratory to define the US Refined Average (2014)

Scoring the Indicator

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emissions reduction potential and outcome of collaborative activities with the supply chain. Therefore, the approach of a maturity matrix allows the analyst to consider multiple dimensions of supplier engagement and assess them together towards a single score for Supplier Engagement.

 

5.3.6.2. OG 6.2 Activities to Influence Suppliers to Reduce their GHG Emissions (Weighting: 0-10%)

Description & Requirements OG 6.2 Activities to Influence Suppliers to Reduce their GHG Emissions
Short Description of Indicator This indicator assesses initiatives and the partnerships launched by the company in order to engage its suppliers.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A22: List of initiatives implemented to influence suppliers to reduce their GHG emissions, green purchase policy or track record, supplier code of conduct

How the Assessment will be done  

 

Rationale OG 6.2 Activities to Influence Suppliers to Reduce their GHG Emissions
Rationale of the indicator

Relevance of the Indicator

Activities to influence suppliers are included in the ACT OG assessment for the following reasons:

  • Given their size and their decision-making power in the value chain, integrated companies have the ability to influence the strategy and performance of suppliers regarding climate.
  • The upstream segment represents a high source of emissions throughout the value chain (10% of the total GHG emissions(15) of the Oil value chain) and should be engaged.
  • Engaging suppliers through contract clauses and sales incentives is necessary to take them on board.

(15)  ARC Energy Research Institute, using input data from the US Department of Energy National Energy Technology Laboratory to define the US Refined Average (2014)

Scoring the indicator

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emission reduction potential and outcome of collaborative activities with the supply chain. Therefore, the approach of a maturity matrix allows the assessor to consider multiple dimensions of supplier engagement and assess them together towards a single score for all the activities related to Supplier Engagement.

 

5.3.7. Clients Engagement Indicators (Weighting: 0-10%)

 

5.3.7.1. OG 7.1 Strategy to Influence Customer Behaviour to Reduce their GHG Emissions (Weighting: 0-5%)

Description & Requirements OG 7.1 Strategy to Influence Customers to Reduce their GHG Emission
Short Description of Indicator This indicator assesses the level of engagement that the company has with its clients, based on an assessment of the client policy formalized and implemented by the company.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A23: Client policy

How the Assessment will be done  

 

Rationale OG 7.1 Strategy to Influence Customers to Reduce their GHG Emission
Rationale of the Indicator

Relevance of the Indicator

Strategy to influence customers are included in the ACT OG assessment for the following reasons:

  1. Given their size and their decision-making power in the value chain, integrated companies have the ability to influence the strategy and performance of clients regarding climate.
  2. The downstream segment represents the largest source of emissions throughout the value chain (representing more than 80% of total GHG emissions of the oil value chain) and should be engaged.

Scoring the Indicator

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emission reduction potential and outcome of collaborative activities with the supply chain. Therefore, the approach of a maturity matrix allows the assessor to consider multiple dimensions of supplier engagement and assess them together towards a single score for all the activities related to Client Engagement.

 

5.3.7.2. OG 7.2 Activities to Influence Customer Behaviour to Reduce their GHG Emissions (Weighting: 0-5%)

Description & Requirements OG 7.2 Activities to Influence Customers to Reduce their GHG Emissions
Short Description of Indicator This indicator assesses the level of engagement that the company has with its clients, based on an assessment of previous initiatives that show whether or not the company engages with clients in various ways.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A24: List of initiatives implemented to influence client behavior to reduce their GHG emissions

How the Assessment will be done  

 

Rationale OG 7.2 Activities to Influence Customers to Reduce their GHG Emissions
Rationale of the Indicator

Relevance of the Indicator

Activities to influence customers are included in the ACT OG assessment for the following reasons:

  1. Given their size and their decision-making power in the value chain, integrated companies have the ability to influence the strategy and performance of clients regarding climate.
  2. The downstream segment represents the largest source of emissions throughout the value chain (representing more than 80% of total GHG emissions of the oil value chain) and should be engaged.

Scoring the Indicator

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emission reduction potential and outcome of collaborative activities with the supply chain. Therefore, the approach of a maturity matrix allows the assessor to consider multiple dimensions of supplier engagement and assess them together towards a single score for all the activities related to Client Engagement.

 

5.3.8. Policy Engagement Indicators (Weighting: 5%)

 

5.3.8.1. OG 8.1 Company Policy on Engagement with Trade Associations (Weighting: 1%)

Description & Requirements OG 8.1 Company Policy on Engagement with Trade Associations
Short Description of Indicator The company has a policy on what action to take when industry organizations to which it belongs are found to be opposing “climate-friendly” policies.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A25: Company policy on engagement with trade associations

How the Assessment will be done

The assessor will evaluate the description and evidence of the policy on trade associations and climate change for the presence of best practice elements and consistency with the other reported management indicators. The company description and evidence will be compared to the maturity matrix developed to guide the scoring and a greater number of points will be allocated for elements indicating a higher level of maturity.

Best practice elements to be identified in the test/analysis include:

  • A publicly available policy is in place
  • The scope of the policy covers the entire company and its activities, and all group memberships and associations
  • The policy sets out what action is to be taken in the case of inconsistencies
  • Action includes option to terminate membership of the association
  • Action includes option of publicly opposing or actively countering the association position
  • Responsibility for oversight of the policy lies at top level of the organization
  • There is a process to monitor and review trade association positions

 

Rationale OG 8.1 Company Policy on Engagement with Trade Associations
Rationale of the indicator

Trade associations are a key instrument by which companies can indirectly influence policy on climate. Thus, when trade associations take positions, which are negative for climate, companies need to take action to ensure that this negative influence is countered or minimized.

This indicator is consistent with ACT philosophy and common to the other sectoral methodologies.

 

5.3.8.2. OG 8.2 Trade Associations Supported do not have Climate-Negative Activities or Positions (Weighting: 2%)

Description & Requirements OG 8.2 Trade Associations Supported do not have Climate-Negative Activities or Positions
Short Description of Indicator The company is not on the board or providing funding beyond membership of any trade associations that have climate-negative activities or positions. It should also be considered if the company is supporting trade associations with climate-positive activities and/or positions.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A25: Company policy on engagement with trade associations

How the Assessment will be done

The list of trade associations declared in the CDP data and other external source entries relating to the company (e.g. RepRisk database), is assessed against a list of associations that have climate-negative activities or positions. The results are compared to any policy described in 5.1.

If the company is part of trade associations that have climate-positive activities and/or positions, this should be considered for the analysis.

 

Rationale OG 8.2 Trade Associations Supported do not have Climate-Negative Activities or Positions
Rationale of the Indicator Trade associations are a key instrument by which companies can indirectly influence policy on climate. Thus participating in trade associations which actively lobby against climate-positive legislation is a negative indicator and likely to obstruct low-carbon transition. However, membership in association that supports climate positive policies should also be considered in the analysis.

 

5.3.8.3. OG 8.3 Position on Significant Climate Policies (Weighting: 2%)

Description & Requirements OG 8.3 Position on Significant Climate Policies
Short Description of Indicator The company is not opposed to any significant climate relevant policy and/or supports climate friendly policies.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A26: Position of the company on significant climate policies (public statements, etc.)

How the Assessment will be done

The assessor will evaluate the description and evidence on company position on relevant climate policies for the presence of best practice elements, negative indicators and consistency with the other reported management indicators. The company description and evidence will be compared to the maturity matrix developed to guide the scoring and a greater number of points will be allocated for elements indicating a higher level of maturity.

Maturity matrix contents could include (decreasing maturity)

  1. Publicly supports relevant significant climate policies
  2. No reports of any opposition to climate policy
  3. Reported indirect opposition to climate policy (e.g. via trade association)
  4. Reported direct opposition to climate policy (third-party claims are found)
  5. Company publicizes direct opposition to climate policy (direct statement issues or given by a company representative in e.g. speech or interview)

 

List of sectoral initiatives on the low-carbon transition of Oil & Gas sector:

  • Zero Routine Flaring by 2030’ Initiative(16)
  • Oil and Gas Climate Initiative(17)
  • Perspectives Gaz(18)
  • IEA targets(19)
  • Industry sector policies and measures modelled in IEA SDS scenario (20)

(16) The World Bank

(17) Oil and Gas Climate Initiative, At work Committed to climate action, 2018.

(18) Perspectives Gaz (2018)

(19) IEA, The Oil and Gas Industry in Energy Transitions, 2018.

(20) IEA, WEO 2019, Annex B.6 Policies.

List of cross-sectoral initiatives on the low-carbon transition of the economy:

  • Paris Agreement
  • SBT Initiative (validated targets)

The policies listed in the assumptions pf the IEA SDS scenario 

 

Rationale OG 8.3 Position on Significant Climate Policies
Rationale of the Indicator Private and public stakeholders of the Oil & Gas sectors have been developing initiatives about sustainable practices that contribute to the transition to a low-carbon economy. Companies should not oppose effective and well-designed regulation in these areas, but should support it. Assessing the position of the company regarding the evolution of the context is thus key to understand the corporate vision in these matters.

 

 

5.3.9. Business Model Indicators (Weighting: 10%)

 

5.3.9.1. OG 9.1 Business Activities that Drive the Energy Mix to Low-Carbon Energy (Weighting: 4%)

Description & Requirements OG 9.1 Business Activities that Drive the Energy Mix to Low-Carbon Energy
Short Description of Indicator The company is actively developing business models for a low-carbon future by demonstrating its application of low-carbon business model pathways. The innovative business models that have been identified as being strategic for the company’s low-carbon transition are the ones that drive the energy mix to low-carbon energy.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A27: List and turnover or invested capital (or other financial KPI) of activities in new businesses related to low carbon business models

A28: Current position and action plan of the company towards the identified low-carbon business models

How the Assessment will be done

The analysis is based on (maximum) five business activities proposed by the company. The analyst evaluates the implementation of the future business model pathways through a maturity matrix and the highest level achieved determines the current level of the company.

Three business model categories, comprising subcategories (non-exhaustive list), aim at driving the energy mix to low-carbon energy:

In order for companies to align with a low-carbon future and meet the future mobility needs, it is expected that they pursue at least one of these future business model pathways and integrate them in their strategic plans. The analyst evaluates the description and evidence of the company’s degree of activity in one of the future business model areas for the presence of best practice elements and consistency with the other reported management indicators. The company description and evidence are compared to the maturity matrix developed to guide the scoring and a greater number of points are allocated for elements indicating a higher level of maturity.  

The minimum requirement for points to be awarded is that some level of exploration of one or more of these relevant business areas has started. This could include participation in collaborations, pilot projects, or research funding.

Best-practice elements to be identified in the test/analysis include:  

  • the company has developed a mature business model that integrates one or many of the above elements
  • the business activity is profitable
  • the business activity is of a substantial size
  • the company is planning to expand the business activity
  • expansion will occur on a defined timescale

Maximum points are awarded if all of these elements are demonstrated

The scores of the (maximum) five business models will be equally weighted for the final score.

The maturity matrix is provided below:

 

Rationale OG 9.1 Business Activities that Drive the Energy mix to Low-Carbon Energy
Rationale of the Indicator

In addition to developing sustainable practices, a company may transition its business model to other areas to remain profitable in a low-carbon economy. The company’s future business model should enable it to decouple financial results from GHG emissions, in order to meet the constraints of low-carbon transition while continuing to generate value. The business model shifts identified do not conflict with the changes that are implied by decarbonizing the company’s Integrated Oil & Gas business model.

This indicator aims to identify both relevant current business activities, and those still at a burgeoning stage. It is recognized that transition to a low carbon economy, with associated change in business models, will take place over a number of years. The assessment will thus seek to identify and reward projects at an early stage as well as more mature business activities, although the latter (i.e. substantially sized, profitable, and/or expanding) business activities will be better rewarded.

Business models related to this indicator represent for some of them mature markets with long-established players. Therefore, the requirements of the business models in terms of size and profitability have been revised upwards, compared to the other two indicators.

 

5.3.9.2. OG 9.2 Business Activities that Contribute to the Reduction of the Energy Demand (Weighting: 3%)

Description & Requirements OG 9.2 Business Activities that Contribute to the Reduction of the Energy Demand
Short Description of Indicator The company is actively developing business models for a low-carbon future by demonstrating its application of low-carbon business model pathways. The innovative business models that have been identified as being strategic for the company’s low-carbon transition are the ones that contribute to the reduction of the energy demand.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A27: List and turnover or invested capital (or other financial KPI) of activities in new businesses related to low carbon business models

A28: Current position and action plan of the company towards the identified low-carbon business models

How the Assessment will be done

The analysis is based on (maximum) five business activities proposed by the company. The analyst evaluates the implementation of the future business model pathways through a maturity matrix and the highest level achieved determines the current level of the company.

Two business model categories, comprising subcategories (non-exhaustive list) aim at contributing to the reduction of the energy demand:

In order for companies to align with a low-carbon future and meet the future mobility needs, it is expected that they pursue at least one of these future business model pathways and integrate them in their strategic plans. The analyst evaluates the description and evidence of the company’s degree of activity in one of the future business model areas for the presence of best practice elements and consistency with the other reported management indicators. The company description and evidence are compared to the maturity matrix developed to guide the scoring and a greater number of points are allocated for elements indicating a higher level of maturity.  

The minimum requirement for points to be awarded is that some level of exploration of one or more of these relevant business areas has started. This could include participation in collaborations, pilot projects, or research funding.

Best-practice elements to be identified in the test/analysis include:  

  • the company has developed a mature business model that integrates one or many of the above elements
  • the business activity is profitable
  • the business activity is of a substantial size
  • the company is planning to expand the business activity
  • expansion will occur on a defined timescale

Maximum points are awarded if all of these elements are demonstrated.  

The scores of the (maximum) five business models will be equally weighted for the final score.

The maturity matrix is provided below:

 

Rationale OG 9.2 Business Activities that Contribute to the Reduction of the Energy Demand
Rationale of the Indicator

In addition to developing sustainable practices, a company may transition its business model to other areas to remain profitable in a low-carbon economy. The company’s future business model should enable it to decouple financial results from GHG emissions, in order to meet the constraints of low-carbon transition while continuing to generate value. The business model shifts identified do not conflict with the changes that are implied by decarbonizing the company’s Integrated Oil & Gas business model.

This indicator aims to identify both relevant current business activities, and those still at a burgeoning stage. It is recognized that transition to a low carbon economy, with associated change in business models, will take place over a number of years. The assessment will thus seek to identify and reward projects at an early stage as well as more mature business activities, although the latter (i.e. substantially sized, profitable, and/or expanding) business activities will be better rewarded.

 

5.3.9.3. OG 9.3 Business Activities that Develop CCS, CCUS Technologies and Negative Emissions (Weighting: 3%)

Description & Requirements OG 9.3 Business Activities that Develop CCS, CCUS Technologies and Negative Emissions
Short Description of Indicator The company is actively developing business models for a low-carbon future by demonstrating its application of low-carbon business model pathways. The innovative business models that have been identified as being strategic for the company’s low-carbon transition are the ones that develop CCS, CCUS technologies and negative emissions.
Data Requirements

The questions comprising the information request that are relevant to this indicator are:

A27: List and turnover or invested capital (or other financial KPI) of activities in new businesses related to low carbon business models

A28: Current position and action plan of the company towards the identified low-carbon business models

How the Assessment will be done

The analysis is based on (maximum) five business activities proposed by the company. The analyst evaluates the implementation of the future business model pathways through a maturity matrix and the highest level achieved determines the current level of the company.

Two business model categories, comprising subcategories (non-exhaustive list), aim at developing CCS, CCUS technologies and negative emissions:

In order for companies to align with a low-carbon future and meet the future mobility needs, it is expected that they pursue at least one of these future business model pathways and integrate them in their strategic plans. The analyst evaluates the description and evidence of the company’s degree of activity in one of the future business model areas for the presence of best practice elements and consistency with the other reported management indicators. The company description and evidence are compared to the maturity matrix developed to guide the scoring and a greater number of points are allocated for elements indicating a higher level of maturity.  

The minimum requirement for points to be awarded is that some level of exploration of one or more of these relevant business areas has started. This could include participation in collaborations, pilot projects, or research funding.

Best-practice elements to be identified in the test/analysis include:  

  • the company has developed a mature business model that integrates one or many of the above elements
  • the business activity is profitable
  • the business activity is of a substantial size
  • the company is planning to expand the business activity
  • expansion will occur on a defined timescale

Maximum points are awarded if all of these elements are demonstrated.  

The scores of the (maximum) five business models will be equally weighted for the final score.

The maturity matrix is the same as for OG 9.2.

Rationale OG 9.3 Business Activities that Develop CCS, CCUS Technologies and Negative Emissions
Rationale of the Indicator

In addition to developing sustainable practices, a company may transition its business model to other areas to remain profitable in a low-carbon economy. The company’s future business model should enable it to decouple financial results from GHG emissions, in order to meet the constraints of low-carbon transition while continuing to generate value. The business model shifts identified do not conflict with the changes that are implied by decarbonizing the company’s Integrated Oil & Gas business model.

This indicator aims to identify both relevant current business activities, and those still at a burgeoning stage. It is recognized that transition to a low carbon economy, with associated change in business models, will take place over a number of years. The assessment will thus seek to identify and reward projects at an early stage as well as more mature business activities, although the latter (i.e. substantially sized, profitable, and/or expanding) business activities will be better rewarded.

 

6. Assessment

 

6.1. Sectoral Benchmark

 

Description of the benchmark

The fundamental target to achieve for all organizations is to contribute to not exceeding a threshold of 2⁰ global warming compared to pre-industrial temperatures. This target has long been widely accepted as a credible threshold for achieving a reasonable likelihood of avoiding climate instability, while a 1.5⁰C rise has been agreed upon as an aspirational target.

Every company shall be benchmarked according to an acceptable and credible benchmark that align with spatial boundary of the methodology. All companies shall be benchmarked to the generic pathway for all energies/all uses except for ones that have locked-in specific uses or energies (eg.: service station companies with uses limited to terrestrial road transportation).

Next, the reference pathway definition and classification are presented.

 

Reference pathway classification

A reference pathway defines the carbon intensity (gCO2/MJ) pathway for a given company type.

For oil and gas sector, we consider 2 types of pathways:

  • the generic pathway for all energies/all uses
  • specific pathways (eg.: service stations pathway.

For the integrated oil and gas companies, as well as for the companies involved only in various part(s) of the oil and gas value chain (i.e. upstream/midstream/downstream), the generic pathways shall be applied, as those different companies may supply any combination of energy mix to the whole range of final markets. For companies that have locked-in specific uses or energies, a specific pathway might be defined. As an illustration, as the service stations are dedicated for road mobility, the service station companies shall apply its specific pathway.

The generic pathway considers total energy supply CO2 content, while the service stations pathway shall be consistent with the energy supply carbon intensity for road transport.

 

Available reference pathways

To date, 2 reference pathways have been generated: Oil & Gas TPES pathway for all energies/all use and Service stations pathway for service stations pure players. Both pathways have its 2DS and B2DS pathways generated based on energy data from IEA ETP 2°C and Beyond 2°C scenarios (IEA, 2017)

  • Oil & Gas TPES pathway

The Oil & Gas TPES (Total Primary Energy Supply) pathways include 2DS and B2DS pathways, which are generated based on energy data from IEA ETP 2°C and Beyond 2°C scenarios (IEA, 2017).

This pathway shows the total energy supply carbon intensity to 2060.

The pathways are converted in GHG emissions broken down between Upstream, Midstream, Downstream operations and Use/Combustion based on standardized emissions intensity.

Here is a view of the calculated pathways for IEA ETP 2DS and B2DS scenarios (on scope 1+2+3).

 

 

  • Service stations pathway

The Service stations include 2DS and B2DS pathways, which are generated based on energy data from IEA ETP 2°C and Beyond 2°C scenarios (IEA, 2017)

This pathway shows the total energy supply carbon intensity for road transport till 2060.

The pathways are converted in CO2 emissions based on standardized emissions intensity.

 

6.2. Other Quantitative Benchmarks used for the Indicators

 

6.2.1. Benchmarks for Scope 1+2 GHG Intensity

 

Emission intensity targets defined by the IEA(21) for Oil & Gas companies for 2030 in % of reduction compared to 2018, as shown in the below graphic.

(21) IEA, The oil and Gas industry in energy transition, 2020

 

 

6.2.2. Benchmark for the CAPEX Low Carbon & Mitigation Technologies

 

Based on IEA WEO SDS scenario calculation of necessary annual Energy Capex split for 2020-2050

 

6.2.3. Benchmark for the CAPEX CDR and CCS/CCUS Technologies

 

Share of yearly global investments in CCS on the total yearly CAPEX in a 2°C or 1.5°C scenario, based on an average of several global energy-economy models (see McCollum et al., 2018) (22)

(22) The models assessed in the McCollum et al. (2018) paper include six global energy-economy models (« IAM frameworks »: AIM/CGE, IMAGE, MESSAGEix-GLOBIOM, POLES, REMIND-MAgPIE and WITCH-GLOBIUM) as well as investment estimates from IEA and IRENA.

 

6.2.4. Benchmark for the R&D in Low Carbon & Mitigation Technologies

 

Still to be defined

 

6.2.5. Benchmark for the R&D in CSR/CCS/CCUS Technologies

 

Still to be defined

 

6.2.6. Benchmark for the Low Carbon Revenue Share

 

IEA ETP Below 2°C Scenario (2017), associated with IEA energy prices

 

6.3 Weightings

 

Rationale for Weightings

The selection of weights for both the modules and the individual indicators was guided by a set of principles (see the ACT framework document for more information). These principles helped define the value of the indicators.

Principle Explanation
Value of information The value of the information that an indicator gives about a company’s outlook for the low-carbon transition is the primary principle for the selection of the weights.
Impact of variation A high impact of variation in an indicator means that not performing in such an indicator has a large impact on the success of a low-carbon transition, and this makes it more relevant for the assessment.
Future orientation Indicators that measure the future, or a proxy for the future, are more relevant for the ACT assessment than past & present indicators, which serve only to inform the likelihood and credibility of the transition.
Data quality sensitivity Indicators that are highly sensitive to expected data quality variations are not recommended for a high weight compared to other indicators, unless there is no other way to measure a particular dimension of the transition.

The weightings have been designed for each type of company covered by the ACT Oil & Gas methodology, in order to reflect the strategic stakes which are different from an upstream company to a downstream company.

 

6.3.1. Weighting for Integrated Oil & Gas Companies

 

 

6.3.2. Rationale for Integrated O&G Companies Weighting Scheme

 

Targets 15%

The targets module has a relatively large weight of 15%. Most of it is placed on the alignment of Scope 1+2+3 emissions reduction targets with 8%, compared to 4% for Scope 1+2. A higher weight on Scope 1+2+3 because the Scope 3 is by far the largest source of emissions across the value chain of an integrated Oil & Gas company. 1% score is attributed to the previous achievement indicator, which measures the company’s past credentials on target setting and achievement. It is not very important by the principles outlined above, but nonetheless can provide contextual information on the company’s experience to meet ambitious targets Finally, the time horizon of targets has a weight of 2%. It is a proxy of how forward-looking the company is, which is very long-term oriented.

 

Material Investment 15%

This module carries a weight of 15%. This weight is a bit lower than the 20% recommended in the ACT developer guidelines. This gap is due to the specificity of the Oil & Gas companies, which have impact through their material investments and their sold products; and therefore have both modules rated. The material investment module has a lower weight than the one for sold product performance because it represents the impact of scope 1+2 emissions, which is lower than the impact of the scope 3 (performance of the products particular).

The assets owned by an integrated company, especially its production infrastructure represent a high source of emissions. As they are mainly contributing to the scope 1+2 emissions, the analysis of the trend in future scope 1+2 emissions intensity receives a weight of 3%.

The emissions lock-in indicator uses the same information, but tries to measure the amount of carbon emissions that the company has already committed from its individual carbon budget. This means it is also very future oriented, and also receives a strong weight of 4%. The trend in past Scope 1+2 emissions intensity is an indication of the ‘adjustment’ that the company has to make to place itself on a low-carbon pathway. It principally adds information about what kind of changes the company needs to undergo in order to become 2°C-aligned, and therefore receives a medium weight of 3%.

Besides, the CAPEX allocated to low-carbon technologies is also a relevant signal for understanding the future alignment of the company with a low-carbon pathway. Low carbon and mitigation technologies CAPEX share and Carbon removal technologies (CCS, CCUS, CDR) CAPEX share have respectively a weight of 3%.

 

Intangible investment 8%

The R&D in climate change mitigation technologies indicator is focused around the company’s intangible investments or financial costs into climate change mitigation technologies. R&D investment for low-carbon innovation are crucial for the value chain, especially for the upstream and midstream segments, and thus the module is heighted to 8%.

 

Sold product performance 23%

This module carries the largest weight out of all the modules. Indeed, it holds most of the information about the company’s actions to reduce emissions on its products (traditional oil & gas vs low carbon solutions), where most of the emissions occur (Scope 3). The focus is put on the trend in future Scope 1+2+3 emissions intensity with a weight of 9%. The share of low carbon products (weight of 5%) and energy efficiency services share (weight of 5%) are also relevant indicators to take into consideration for this module.

 

Management 10%

Management is a multi-faceted module that makes up 10% of the score, because it incorporates many different smaller indicators that together paint a picture of the company’s management and strategic approach to the low-carbon transition. The majority of this weight is placed on the oversight of climate change issues and the climate change oversight capability, which are weighted 3% each. These two indicators measure the ability of the company to integrate sustainability to its strategy and to embrace the main challenges related to low-carbon transition. Besides, according to the principle of future orientation, the transition plan provides more information on how this company will specifically deal with the transition, and has a weight of 2%.

The other two indicators have a low weight of 1%, as they are contextual indicators whose outcome can strengthen or undermine the company’s ability to carry out the transition plan and meet ambitious science-based targets.

 

Supplier engagement 4%

In order to reduce emissions from the whole value chain, it is imperative that integrated companies involve their supply chains. Nonetheless, since their supply chains are mainly internalized, the engagement with external suppliers represents less leverage than midstream or downstream companies. Therefore, this module has a low weight of 4%. This indicator focuses on the global strategy and general activities that an integrated company has in place with respect to its engagement with suppliers.

 

Client 10%

The client engagement indicator is focused around the company’s efforts to reduce the emissions generated after the products have been sold and to influence customer practices towards low-carbon consumption and circular economy practices. As with the influence on suppliers, it is not an indicator that is easy to measure, and relies heavily on data quality to make a proper analysis. This module therefore focuses on the global strategy and general activities that a construction company has in place on their engagement with its customers.

 

Policy Engagement 5%

In line with the rationale for the management indicators of low weight, the policy engagement indicators are also contextual aspects which tell a narrative about the company’s stance on climate change and how the company expresses it in their engagement with policy makers and trade associations. The total weight for this module is therefore medium at 5%. The company policy on engagement with trade associations, and the company’s position on relevant climate policy make up the bulk of this, with 2% each. Finally, 1% is allocated to positions of the company’s trade associations that do not have climate-negative activities as this is a very specific question and concern a minority of companies.

 

Business model 10%

The module captures many elements and aspects that cannot otherwise be captured in any of the other modules. It includes those aspects that are relevant to the transition but are not directly a part of the primary generation activities. It is future oriented by asking the companies on its narrative on certain future directions that the sector can/has to take to enable the transition. It has been split into three main categories, which represent the three main challenges of the transition for an Oil & gas company: Business activities that drive the energy mix to low-carbon energy (4%), Business activities that contribute to the reduction of the energy demand (3%) and Business activities that develop CCS, CCUS technologies and negative emissions (3%).

 

6.3.3. Weighting Scheme for Upstream Players

 

6.3.4. Weighting rationale will be described in the final version of the methodology

 

6.3.5. Weighting Scheme for Midstream Players

 

6.3.6. Weighting rationale will be described in the final version of the methodology.

 

6.3.7. Weighting Scheme for Downstream Players

 

6.3.8. Weighting rationale will be described in the final version of the methodology.

 

6.4. Data Request

 

Table 6 introduces the list of information which will be requested to companies through a questionnaire, as well as the corresponding indicators.

Number Data requested to the company Indicator relevance
A1 Emissions intensity targets (reporting year plus 5) for each step of the value chain and for all energy types (scope 1+2) OG 1.1
A2 Emissions intensity targets (reporting year plus 5) for each step of the value chain and for all energy types (scope 1+2+3) OG 1.2
A3 All emissions intensity targets for each step of the value chain, for all energy types and all scopes OG 1.3
A4 Past internal targets set on carbon performance (gCO2e /MJ primary energy) OG 1.4
A5 Emissions factors for the years Y-5 prior to the reporting date and the year Y for each step of the value chain and for all energy types (scope 1+2) OG 2.1
A6 Emissions factors targets for year Y+5 after the reporting date for each step of the value chain and for all energy types (scope 1+2) OG 2.2
A7 Yearly production of currently producing and under development assets of fossil primary fuels (oil, gas and coal) as from the date of reporting and projected up to 2050 (Upstream) OG 2.3
A8 Capex in low carbon and mitigation technologies (M$/M$) planned for the next 5 years OG 2.4
A9 Planned CAPEX set on investments in (CCS, CCUS, CDR) (CCS, CCUS, CDR) (M$/M$) OG 2.5
A10 R&D expenses in low-carbon and mitigation technologies (M$) OG 3.1
A11 Total R&D expenses (M$) OG 3.1, OG 3.2
A12 R&D expenses in carbon removal technologies (M$) OG 3.2
A13 Emissions factors targets for the five past years prior to the reporting date for each step of the value chain and for all energy types (scope 1+2+3) OG 4.1
A14 Emissions factors targets for the next five years after the reporting date for each step of the value chain and for all energy types (scope 1+2+3) OG 4.2
A15 Revenues generated by low carbon products (M$) OG 4.3
A16 Total revenues (M$) OG 4.3, OG 4.4
A17 Revenues share of energy efficiency services (M$) OG 4.4
A18 Environmental policy and details regarding governance OG 5.1, OG 5.2, OG 5.3
A19 Management incentives OG 5.4
A20 Scenario testing OG 5.5
A21 List of environmental/CSR contract clauses in purchasing & suppliers’ selection process OG 6.1
A22 List of initiatives implemented to influence suppliers to reduce their GHG emissions, green purchase policy or track record, supplier code of conduct OG 6.2
A23 Client policy OG 7.1
A24 List of initiatives implemented to influence client behavior to reduce their GHG emissions OG 7.2
A25 Company policy on engagement with trade associations OG 8.1, OG 8.2
A26 Position of the company on significant climate policies (public statements, etc.) OG 8.3
A27 List and turnover or invested capital (or other financial KPI) of activities in new businesses related to low carbon business models OG 9.1, OG 9.2, OG 9.3
A28 Current position and action plan of the company towards the identified low-carbon business models OG 9.1, OG 9.2, OG 9.3

 

7. Rating

 

The ACT rating combines quantitative and qualitative information on a company’s past, present and projected future to reveal its alignment with the low-carbon transition.

The ACT rating consists of three elements:

  • A Performance Rating, represented as a number from 1 up to 20
  • An Assessment Rating, represented as a letter from A down to E
  • A Trend Rating, represented as +, improving trend; -, worsening trend; or =, stable trend

Each responding company in the ACT pilot project received not only an ACT rating but a commentary on their performance across the three aspects of the rating. This gave a nuanced picture of the company’s strengths and weaknesses. Detailed information on the ACT rating is available in the ACT Framework document.

 

7.1. Performance Scoring

Performance scoring shall be performed in compliance with the ACT Framework. However, material investment module has a zero weighting since this module is not relevant when it comes to the Construction sector. No other additional sector-specific issue that impact the analysis scoring for the companies of the sector has been identified to date

 

7.2. Narrative Scoring

Performance scoring shall be performed in compliance with the ACT Framework. No sector-specific issue that impacts the analysis scoring for the companies of the sector has been identified to date.

 

7.3. Trend Scoring

Scoring shall be performed in compliance with the ACT Framework.

To apply the trend scoring methodology presented in the ACT Framework, the analyst should identify the trends from the existing data infrastructure based on the data points and/or indicators that can indicate the future direction of change within the company.

The table below includes an overview of which indicators/data points could possibly have valuable information about future directions for the OG sector.

 

Table 2 Relevant performance indicators for trends identification for the OG sector

 

 

8. Aligned state

The table below presents the response of a low-carbon aligned company of the sector to the 5 questions of ACT:

The table below presents the response of a low-carbon aligned company of the sector to the 5 questions of ACT:

  • What is the company planning to do? [Commitment]
  • How is the company planning to get there? [Transition Plan]
  • What is the company doing at present? [Present]
  • What has the company done in the recent past? [Legacy]
  • How do all of these plans and actions fit together? [Consistency]

 

 

9. Sources

 

ADEME, Base carbone, 2019

CarbonTracker, Carbon Budgets Explainer, 2018.

CarbonTracker, Methodology 2 degrees of separation - Transition risk for oil and gas in a low carbon world, 2017.

CarbonTracker, 2 degrees of separation - Company-level transition risk July 2018 update, 2018.

CarbonTracker, 2 degrees of separation - Transition risk for oil and gas in a low carbon world, 2017.

Corporate Finance Institute, website.

EU Technical Expert Groupe on Sustainable Finance, Taxonomy Report: Technical Annex, 2020.

EU Technical Expert Groupe on Sustainable Finance, Technical Report, 2020.

IEA, The oil and Gas industry in energy transition, 2020

EPC Engineer, website.

IEA, Energy Technology Perspectives 2017 (ETP 2017), 2017.

IEA, World Energy Outlook 2019 Annex B, 2019.

IPIECA, Estimating petroleum industry value chain (Scope 3) greenhouse gas emissions, 2016

IPIECA, Estimating petroleum industry value chain (Scope 3) greenhouse gas emissions - Overview of methodologies, 2016.

Nuclear Energy Institute, website.

Transition Pathway Initiative, Carbon Performance Assessment in Oil and Gas: discussion paper, 2018.

Oil and Gas Climate Initiative, At Work - Committed to climate action, 2018.

 

10. Glossary

To be enlarged to other definitions (offsetting, …)

Capital expenditures: funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve the efficiency or capacity of the company. Long-term assets are usually physical, fixed and non-consumable assets such as property, equipment, or infrastructure, and that have a useful life of more than one accounting period. Also known as CapEx or capital expenses, capital expenditures include the purchase of items such as new equipment, machinery, land, plant, buildings or warehouses, furniture and fixtures, business vehicles, software, or intangible assets such as a patent or license.

Carbon Dioxide Removal technologies (CDR) are anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products. It includes existing and potential anthropogenic enhancement of biological or geochemical sinks (afforestation, reforestation, land management, bio-energy carbon capture and storage, enhanced weathering, etc.) and direct air capture and storage (DAC).

Carbon Capture and Storage (CCS) is a process in which a relatively pure stream of carbon dioxide (CO2) from industrial and energy-related sources is separated (captured), conditioned, compressed and transported to a storage location for long-term isolation from the atmosphere. CCS is considered as a CDR only when applied to a bOGenic stream of CO2 (e.g. coming from a bio-energy power plant): it is then called BECCS (bio-energy carbon capture and storage).

Carbon Capture, Use and Storage (CCU/S) is a process in which CO2 is captured and then used to produce a new product. If the CO2 is stored in a product for a climate-relevant time horizon, this is referred to as carbon dioxide capture, utilization and storage (CCUS). Only then, and only combined with CO2 recently removed from the atmosphere, can CCUS lead to carbon dioxide removal. CCU is sometimes referred to as carbon dioxide capture and use

Energy efficiency audits: Audits which provide a clear understanding of energy consumption to better manage it and have a higher energy efficiency.

EPC contracts (Engineering, Procurement, Construction contracts): form of contracting agreement in the construction industry. The engineering and construction contractor will carry out the detailed engineering design of the project, procure all the equipment and materials necessary, and then construct to deliver a functioning facility or asset to their clients.

Engineering services in low carbon activities: evaluate, design and deliver both novel and proven energy projects, optimize operations of energy systems, and maximize reliability of energy assets throughout their life cycle.

Nuclear electricity: comes from splitting atoms in a reactor to heat water into steam, turn a turbine and generate electricity.

Sustainable renewable electricity (Green EU taxonomy alignment): facilities operating at life cycle emissions lower than 100gCO2e/kWh, declining to 0 gCO2e/kWh by 2050, are eligible; this is applicable to production of electricity from solar PV, concentrated solar power, wind power, ocean energy, hydropower, geothermal and bioenergy – production of electricity from gas combustion is not included.

Sustainable electricity equipment (Green EU taxonomy alignment): equipment where the main objective is an increase of the generation or use of renewable electricity generation; equipment to increase the controllability and observability of the electrical power system and enable the development and integration of renewable energy sources, this includes: Sensors and measurement tools, and Communication and control; equipment to carry information to users for remotely acting on consumption; equipment to allow for exchange of renewable electricity between users)

Sustainable electricity storage equipment (Green EU taxonomy alignment): all electricity storage are eligible except storage technology which uses hydrocarbons as a medium of storage is not eligible; for hydrogen storage: Direct CO2 emissions from manufacturing of hydrogen: 0.95 tCO2e/t Hydrogen; electricity use for hydrogen produced by electrolysis is at or lower than 50 MWh/t Hydrogen; average carbon intensity of the electricity produced that is used for hydrogen manufacturing is at or below 100 gCO2e/kWh.

Sustainable biofuels and sustainable bOGas (Green EU taxonomy alignment): if produced from the advanced bioenergy feedstock listed in Annex IX of Directive (EU) 2018/2001.

Only production of advanced biofuels as per Art2(34), and certified low-ILUC fuels, in line with the requirements of RED II, is eligible. If primary forest-related feedstock (item (o) of Annex IX, Part A of Directive (EU) 2018/2001) is used, it must be produced in economic activities fulfilling the Afforestation & Reforestation, and/or Rehabilitation & Existing Forest Management criteria.

If crop feedstock is used, it must be produced in economic activities fulfilling the Growing of Perennial Crops or the Growing of Non-perennial Crops criteria.

Sustainable hydrogen (Green EU taxonomy alignment): hydrogen which meets the following requirements:

Direct CO2 emissions from manufacturing of hydrogen: 0.95 tCO2e/t Hydrogen

Electricity use for hydrogen produced by electrolysis is at or lower than 50 MWh/t Hydrogen

Average carbon intensity of the electricity produced that is used for hydrogen manufacturing is at or below 100 gCO2e/kWh

TPES - Total Primary Energy Supply: TPES is the total amount of primary energy that a country has at their disposal. This includes imported energy, exported energy (subtracted off) and energy extracted from natural resources (energy production).

Trade associations: an association of people or companies in a particular business or trade, organized to promote their common interests.