How to Turn Carbon Reduction into a Stronger Bottom Line
Sometimes, in the carrot-or-stick world of government regulation, there are gray areas. What some perceive as a stick, an enforcement measure that must be complied with, others view as a carrot, an enticing business opportunity.
Such is the case in the energy business, where government carbon-reduction “sticks” could well be carrots in disguise, according to Bernard Looney, group chief executive at BP. “Consumers everywhere — not just in richer countries — want energy that is clean as well as reliable and affordable,” Looney said in remarks delivered during IP Week 2020 in London in February. “Governments want help with their low carbon commitments and aspirations. Investors increasingly want sustainability as well as performance. It comes down to everyone really wanting the same thing.
“You could say we need to change to meet these changing demands,” he continued. “I believe we should want to change. We should want to change not just because it is the right thing to do — but because it is a tremendous business opportunity.”
Energy companies such as BP, Total, Shell, Galp and others appear to be embracing that perspective. From solar and wind ventures to retail electric vehicle charging infrastructure partnerships, they’re pursuing new business models and revenue streams built around carbon emission reduction, renewable energy and the promise of a sustainable energy future. And they’re doing so not just because they’re required to by increasingly stringent government policies, but because they believe it’s in the best interests of their shareholders, their customers, their bottom lines and, of course, the environment.
To play a role in the energy transition and carve out a profitable piece of the new markets it creates, energy companies must have certain digital capabilities in place. Here’s a look at several of the most critical.
Accurate Accounting of Carbon Emissions, Reductions
Portugal’s Galp has committed to reducing carbon intensity across all its business segments and its entire value chain. To gauge its progress, it is using advanced digital tools that measure and map not just direct emissions from its operations, but also indirect emissions from the electricity it acquires, and emissions from value chain activities (purchased goods and services, logistics activities, business travel, etc.).
Emissions reporting hasn’t always been a strong suit for businesses. Indeed, in a 2019 report based on a review of claims made by more than 300 companies representing a range of sectors and sizes, the World Resources Institute (WRI) found “considerable variation and widespread methodological problems in how companies measure and report their avoided emissions.”
Finding consistency in these measurements starts internally. Energy companies need Industry 4.0-level measurement capabilities to cover every stage of their lifecycle emissions, upstream, midstream and downstream, from exploration to extraction, processing and transportation, through to product use and end-of-life treatment. These capabilities are critical on multiple levels, including compliance, where energy companies need the ability to accurately gather and report emissions data, and do so according to the highly prescriptive terms of the agencies to which they report.
This data isn’t relevant just to regulators, however. Factors such as emission performance, carbon footprint and sustainable practices likely will weigh more heavily in the underwriting decisions insurance companies make with respect to specific oil and gas projects.
An Objective Metric for Emissions and Impacts
This must apply on an enterprise-wide basis, and more granularly to individual lines of business and operations. As an initial critical step to address the measuring and reporting inconsistencies identified by WRI, businesses, regulators and other stakeholders need to agree upon standardized, apples-to-apples measuring and reporting metrics to compare companies’ carbon emissions and emission-avoidance.
Such standards could be global, regional, country- or market-specific. Something akin to the Dow Jones Sustainability Indices, which score a wide range of companies based on various economic, environmental and social criteria, could be developed specifically for greenhouse emissions.
From there, companies would need the digital capabilities to internalize those metrics operationally, tailoring their systems to whatever metrics ultimately become the standard in the countries/regions in which they do business. Doing so requires a digital platform that’s both flexible and intelligent from the core to the very edges of the business.
As we’re already seeing with the Dow Jones Sustainability Indices, investors, consumers and business partners will factor these objective apples-to-apples carbon metrics/scores into their investing and purchasing decisions, evaluating energy companies on their decarbonization and sustainability programs. Marketing-savvy companies that score or rate well can tout these metrics as a brand differentiator.
Digital Capabilities to Monitor and Manage Assets
With a powerful end-to-end digital platform, a company can intelligently manage (actively or passively) its assets and its entire supply chain to maximize efficiency and minimize carbon emissions. When assets are digitally connected via Internet of Things sensors, they can feed data to a digital platform that, with advanced analytic and modeling tools (perhaps deployed within the digital twin construct) can enable a company to monitor, assess, and predict asset health — and, of course, emissions.
These digital asset-management capabilities ultimately open the door for lights-out refining, remotely monitored and managed field assets, and other efficiencies that can lower a company’s carbon intensity. Using data and analytics, companies can begin to make direct correlations between specific asset-management activities and emission reductions.
It’s also important not to overlook the positive impacts these real-time asset-management capabilities can have on safety and operating cost.
An End-to-End Platform that Speeds Development, Scale-Up and Integration
Across the global energy landscape, companies are rapidly launching new beyond-the-barrel ventures and lines of business. In March, Total, through its affiliate Total Solar Distributed Generation, announced a project to provide Betagro, one of Thailand’s largest food companies, with 25 solar rooftops.
Another energy major, Equinor, now has stakes in three wind projects in waters offshore Poland. And late last year, BP announced its participation in a new cross-industry commercial venture to recycle polyester plastics using its Infinia enhanced recycling technology. BP is building a $25 million pilot plant in Illinois to prove the technology on a continuous basis before progressing to full-scale commercialization.
For energy companies to successfully stand up ventures like these, they need an integrated platform that enables operational and experiential data to flow unimpeded throughout the venture’s ecosystem. The platform not only enables the venture to integrate seamlessly with the larger enterprise from an operational perspective, it also provides the digital infrastructure within which the various members of that ecosystem, including business partners and customers, can connect and collaborate.
Data becomes a resource that enables a company (and its partners) to test various scenarios around pricing, billing, consumption and customer preference, so they can lay the groundwork for the kind of profitable venture that makes decarbonization seem more like a carrot and less like a stick.
Benjamin Beberness is global vice president for the oil and gas industry at SAP.