Shell’s Energy Transition Advisor on the Challenges and Benefits of Carbon Tracking & Reporting
When US President Joe Biden signed his ambitious Inflation Reduction Act of 2022 into existence earlier this year, he cemented a historic $369 billion investment in the modernization of the American energy system.
The wide-ranging act proposes a range of measures and mechanisms to help the country reduce its GHG emissions to 50-52% below its 2005 levels by 2030.
As oil and gas operators prepare for the low carbon operating environment, they need high quality data that can help them to better understand their emission sources and identify the right opportunities for abatement.
But ESG reporting standards are still in emerging.
“It took humans centuries to come up with financial accounting standards, and we have much less time to develop sustainability standards,” points out Oscar G. Herdocia, U.S. Energy Transition & Sustainability Advisor at Shell.
Further, he says, high quality and accurate data comes at a cost. “It's costly to acquire; it requires resources and energy to deliver,” he says.
Herdocia will be speaking at the upcoming Carbon Tracking and Reporting Summit in Houston, February 2023. We caught up with him to discuss the role of carbon tracking and reporting in the energy transition, the critical trade offs you need to consider between data accuracy and cost of measurement, and why you should look at emissions reporting as an opportunity rather than a compliance burden.
Diana Davis, Oil & Gas IQ: There are historic changes happening in the oil and gas industry as we transition to this low carbon economy. Can you tell us about Shell’s role and what role carbon data tracking and reporting plays in the energy transition?
Oscar Herdocia, Shell: Shell has undertaken the challenge of not just being ready for change, but to really be a leader in transforming the energy system.
Over the last few years we have taken big steps in terms of solar and wind, hydrogen, renewables, and natural gas. We're also doing SAF [Sustainable Airline Fuel], renewable diesel and other low carbon fuels, along with EV charging and green power for residential customers. Not to be forgotten – Shell in the US is a leader in the Gulf of Mexico, which provides some of the lowest carbon footprint oil in the world. To balance the continued need for fossil fuels today and in the coming decades, we also invest in nature-based solutions and carbon offsets.
So, we don’t fit the paradigm of just an oil and gas company anymore. We're an integrated energy company with a target to be a net-zero by 2050.
Where does carbon data tracking come in? Being able to accurately measure current and future carbon footprints is fundamental to achieving society’s net-zero ambitions. Adopting common data standards will enable companies, and those who scrutinize them, to quickly assess performance across complex global supply chains.
Reporting accurately provides transparency to stakeholders - shareholders as well as employees, customers, governments, and other organizations - to keep us accountable to our commitments.
Reporting is also a necessary component to track emissions up and down the supply chain for scope 3. We need to understand how the emissions that are not directly emitted or measured by us stack up – especially as more than 90% of Shell’s emissions are from Scope 3. Not all companies include Scope 3 emissions in their targets; but recognizing the materiality of Scope 3 emissions from the energy products we sell, we do include this in our net zero target. I hope that when scope 3 emissions are easier to track, more companies will include them in their targets.
Diana Davis, Oil & Gas IQ: Obviously, accurate data is an important part of this. What are the big challenges confronting the industry in terms of measuring and collecting accurate emissions data?
Oscar Herdocia, Shell: Due to lack of standardization and costs, there are issues with data quality and a lack of transparency across companies. We believe in an open-source framework for this.
Ultimately, we need to consolidate standards and guidelines to make accurate comparisons and make educated choices to optimize the least carbon intensive - or even carbon negative - products, services and solutions.
A big challenge will be aligning the reporting habits of companies and industries worldwide. Can this be done simultaneously, or in a very short space of time? Government legislation can help, but there needs to be consistent application in all countries and buy-in from industry. It could take years to get that alignment.
In the end, high data quality comes at a cost. It's costly to acquire; it requires resources and energy to deliver. There may need to be a balance between estimates and measurements.
Diana Davis, Oil & Gas IQ: How have you been tackling these issues at Shell? How do you get that balance right between the cost of acquiring data, but also ensuring that what you've got is accurate?
Oscar Herdocia, Shell: It’s a big challenge. It took humans centuries to come up with financial accounting standards; we have much less time to develop sustainability standards.
There is a lot of work going on in this space. The ISSB, for instance, is currently finishing up their guidelines. These are expected by the end of the year. That should lead to more universal standards and guidelines.
Shell is a founding member of the Open Footprint Forum, which is producing open platform software and models to make calculations and data aggregation easier and enable comparisons across different organizations.
We are also working closely with the World Business Council for Sustainable Development (WBSCSD), and the Partnership for Carbon Transparency.
I think that it's important not to let perfect be the enemy of good. We're on a literal clock here. We must have enough data that is clear and accurate enough to differentiate choices and get good indicators of the direction of emissions as we progress. That's the most important thing.
In Shell, digital technologies are playing a crucial role in the assessment and reporting of carbon intensity. These digital tools create transparency on energy consumption and carbon footprint, thereby enabling companies to cross-reference performance with regulatory frameworks.
We draw expertise from many different disciplines to address carbon assessment challenges. Key areas include adopting consistent internal standards, developing effective product life cycle reporting methodologies, applying lessons learned in other digital standards initiatives, developing carbon assessment tools and preparing for more rigorous carbon reporting, including across supply chains.
The combination of these efforts will help Shell, and its customers, plan effective routes to decarbonization.
Digitizing offsets is another area of interest.
For example, we have partnered with Accenture and American Express to launch a blockchain-powered system that tracks the environmental attributes of Sustainable Aviation Fuels (SAF) as they're created. The system is called Avelia solutions and businesses wanting to offset their carbon emissions help to pay for the cost of decarbonizing the airline industry.
Diana Davis, Oil & Gas IQ: How do you embed the emissions data in your operations?
Oscar Herdocia, Shell: At Shell, every business is responsible for tracking their own emissions and creating decarbonization plans. Thus, we are working on plans to transform all our assets around the globe.
One of the simplest things to do is to change to a green energy plan so that scope 2 emissions come down. In Texas, where there are unregulated and competitive markets, Shell offers residential customers green energy.
We’re also using more CCUS. The Quest project in Canada is an example of that. It’s been running for seven years now and is storing about 1,000,000 tonnes per annum of CO2.
Finally, we're starting to put Shell EV chargers in at our assets and our retail stations for our customers. You'll see more of that in the next few years.
Diana Davis, Oil & Gas IQ: Any final thoughts or piece of advice to other companies that may be looking at getting a better, more accurate picture of their emissions data?
Oscar Herdocia, Shell: It’s essential to understand your scope one, two and three emissions. Don’t look at it as a requirement; see it as an opportunity. When you find out where your emissions are, you often find out where your energy is spent. Then you can find profitable ways to reduce them to affect your bottom line in a positive way.
The other thing I would say is that Shell is here to help. We have an entire business focused on helping other sectors decarbonize. We work with companies like Amazon Air, Microsoft, Penske and Wells Fargo – to name a few - to help them reach their own climate goals. Climate change is a huge and global problem; we must tackle it together.
Diana Davis, Oil & Gas IQ: What are you looking forward to at our upcoming event Carbon Tracking and Reporting Summit?
Oscar Herdocia, Shell: By the time of the event, the ISSB will have published its new guidance and then we’ll see what the SEC comes back with. We all will be in a much better place in terms of understanding what's required from all companies and at the conference it will be great to see everybody on board with a greater cooperative spirit.
Catch up with Oscar at the Carbon Tracking & Reporting Summit!
Join Oscar and over 100 of your peers in Houston, TX on February 27 - March 1, 2023, exchange best practice and learn from global trailblazers how to optimize carbon transparency and take control of your carbon emissions. Download the event agenda to learn more.
