< PreviousIN-DEPTH8081 Energy transition isn’t a one-step process. To ensure a smooth energy transition, companies need to follow a roadmap, right from setting a clear vision to implementing concrete steps. It takes a lot of willingness to look at the bigger picture and utilise the resources, knowledge, and proper tools to measure progress, according to the Boston Consulting Group (BCG), The consultancy firm reveals that only 9% of the companies actually measure their total emissions comprehensively; 81% omit some of their Scope 1 and 2 emissions, and 66% do not report any of their Scope 3 emissions. What’s more, companies estimate an average error rate of 30% to 40% in the measurements they do make. But there are other challenges such as needing a clear role on the responsibilities that companies have in the energy transition. BCG adds that companies can only deliver meaningful results if they have clear accountability for sustainability goals and initiatives. How to Close the Climate Action Gap? BCG outlines a step-by-step action plan to help companies close the climate action gap: Reimagine the Business According to BCG, companies that are successful in their climate journeys are not working on basic compliance or achieving incremental improvements. Instead, they are looking at sustainability as a powerful business opportunity, embedding it into the core of their strategy. Therefore, leaders should: • Ask the big questions • Identify new opportunities and create options for the future • Collaborate, sometimes in unexpected ways CLOSING THE CLIMATE GAP Boston Consulting Group has created a framework for energy companies that want to close the climate action gap82 Re-engineer the Organisation Leaders who are willing to organise climate action must include sustainability into an organisaation’s foundation to ensure employees and external partners alike remain focused on climate goals over the long term. They should: • Embrace the fundamentals of transformation • Take a structured approach to change • Create a governance and operating model to drive sustainability • Evolve their culture • Embed climate as a core KPI Mobilise for Action Companies should take “tangible, practical steps to assess their starting position and chart a clear course for closing the climate action gap,” notes BCG. However, they should be equally critical to align stakeholders around the opportunity that lies ahead. For this, BCG recommends the following: • Start with a purpose • Establish a de-averaged emissions baseline • Tell a compelling story • Engage the supply chain83 Fund the Transformation While emissions can be reduced at little to no net cost, it’s worth noting that the price of green tech and renewable energy is also decreasing. Therefore, climate leaders must view sustainability as a strategic investment rather than an operating expense and implement budgeting by: • Quick wins to fund the journey • Deploying flexible capital allocation strategies to improve decision-making • Thinking beyond the usual boundaries • Innovating alongside others Unleash the Power of New Technologies Sustainability can become a competitive advantage; however, it requires integrating technology and data right from the start. With Artificial Intelligence (AI), companies can identify efficiencies and take a data-driven approach to close the climate action gap. Therefore, BCG suggests leaders must: • Strive for a “technology eco advantage” • Use AI to measure emissions • Deploy digital twins • Stay informed8485 Despite ongoing climate action pledges, the world still faces the challenge of methane emissions, which continue to increase. The Intergovernmental Panel on Climate Change (IPCC) has warned that methane must be reduced by one third to meet existing climate goals. “We cannot reach our climate targets without tackling man-made methane emissions,” noted Manfredi Caltagirone, Head of the International Methane Emissions Observatory (IMEO), at the launch of the United Nations Environment Programme’s Report (UNEP), ‘An Eye on Methane’. He added that “surprisingly we do not know very well how much has been emitted and where exactly.” The five key sectors that emit methane are: oil and gas, metallurgical coal, waste, rice, and livestock – all of which emit large quantities of methane, which is categorised as a powerful greenhouse gas. Oil and gas companies are the biggest methane emitters, the UNEP says. IMEO’s Oil and Gas Methane Partnership 2.0 (OGMP 2.0) is said to be the only comprehensive, measurement-based reporting framework for the global oil and gas industry that improves the accuracy and transparency of methane emissions reporting. Methane is emitted within the oil and gas industry due to a combination of design choices in equipment, operational practices, and equipment failures or leaks. The way that emissions take place makes it difficult for companies to measure how much they actually emit, hence, the UN agency called on companies to collect and share their data to be able to track it through the OGMP 2.0. Meanwhile, a new IEA report shows the oil and gas sector, which emitted 5.1 billion tonnes of CO2 in 2022, needs to take immediate steps to slash emissions. The report also shows that around $600 billion upfront spending is required until 2030 to achieve reduction in the emissions intensity of oil and gas operations. The Paris-based organisation adds that tackling methane emissions is the single most important measure that contributes to the overall fall in emissions from oil and gas operations, followed by eliminating flaring and electrification. METHANE EMISSIONS Slashing methane emissions ‘the single fastest way to tackle climate change,’ experts say8687 “It’s the same, somewhat contradictory, challenge that oil and gas companies have wrestled with for the past five years. The crisis of 2022 has generated new opportunities but also amplified the challenge and exacerbated the associated risks,” notes WoodMackenzie in its latest outlook. However, for NOCs, the scenario is slightly different. For the large oil producers, the signal for 2023 is clear: invest in delivering new oil, gas and LNG supply. Although national decarbonisation obligations and net-zero goals will get more attention but will still play second fiddle to security-of-supply concerns. Their strategy means that while NOCs are making strides toward the diversification and decarbonisation of their operations, the transition for these companies is expected to transpire at a much slower pace. S&P notes that the big decarbonisation question for NOCs is driven by the source of pressure to change. Will the markets force them to pivot toward transforming into a national energy company? Or will they ramp up oil output? At this stage of the energy transition race, most NOCs have begun responding to emerging pressures but very few are driving activity at scale that will help diversify, decarbonise, and transform them into national energy companies. Ramp Up Investment Oil exporters will continue to ramp up investments in new production capacity. Saudi Aramco, for instance, announced a 50% increase in spend last year and will keep those levels as it grows its oil capacity to 13 MMbl/d by 2027. “Our capital [expenditure] will increase until 2025. So, there will be an increase year-on-year to meet our growth not only in oil, gas [but also] hydrogen,” Aramco CEO Amin Nasser said in a statement. In a similar push to ramp up investments, ADNOC announced recently that it will bring forward its 5 MMbbl/d oil target from 2030 to 2027 backed by a $150 billion five-year budget. WHAT’S NEXT FOR NOCs? How will oil-rich national oil companies tackle climate challenges? SNext >