A U.S. proposal could change the way Canadian oil companies report their carbon footprint

The officially uncovered carbon footprints of Canada’s largest oil companies could swell in size if severe new climate regulations proposed earlier this year by a U.S. regulator take effect.

The U.S. Securities and Exchange Commission’s proposal – which has not been implemented at this point and faces stiff opposition from industry groups and conservative lawmakers – would require publicly listed companies to be held accountable for their total “life cycle” greenhouse gases.

The rules would apply not only to publicly listed companies south of the border, but also to the more than 230 Canadian companies that are listed on U.S. stock exchanges. (These include Canadian energy companies such as Enbridge Inc., Suncor Energy Inc., Imperial Oil Ltd. and Canadian Natural Resources Ltd.)

Under the new proposal, companies would have to disclose their Scope One and Scope Two emissions (terms that encompass the greenhouse gases produced directly by a company’s operations, as well as indirectly through the generation of energy the company buys such as electricity to power the business). ).

But they should also be publicly accountable for their Scope Three emissions, which means all other greenhouse gases they produce indirectly, including emissions produced by customers when they use a company’s product.

In other words, for oil producers, Scope One and Two emissions are the emissions the company makes to itself (the methane emitted directly from a well, for example, or the electricity an oil sands producer uses to power its massive facilities). Scope Three emissions are the emissions that an oil company causes when it sells its product (when a driver burns gasoline in a car, for example).

“At the time we are asking companies to report Scope Three, we are now focusing on the carbon intensity of the product itself,” said Tima Bansal, Canadian chair of business sustainability research at the University of Western Ontario’s Ivey Business School. the carbon intensity of their process – which they can reduce and can reduce considerably enough – is the carbon intensity of their product. “

Industrial emission reduction targets focus on Scope One and Two

Many Canadian energy producers have begun reporting their emissions from Scope One and Scope Two in the years since the 2015 UN Paris agreement on climate change.

These numbers often form the basis of some of the industry’s own aggressive emissions reduction targets, such as Pathways to Net Zero – an alliance of the country’s largest oil sands producers who have jointly set the goal of achieving zero carbon emissions by 2050.

The companies behind that initiative (Suncor, Cenovus, CNRL, Imperial, MEG Energy, and ConocoPhillips Canada) have laid out a roadmap to net zero, which includes the large-scale deployment of carbon capture and storage technology, and they are questioning. for government support to help make it happen.

However, their plan only addresses Scope One and Two issues. In fact, the oil and gas industry as a whole was very reluctant to talk about the emissions produced by the burning of its own product.

“Reporting the emissions of the Amplitude 3 continues to be a challenge at present and will prove difficult to supply on time, if at all,” the Canadian Association of Petroleum Producers wrote in a recent presentation to the Canadian Securities Administrators. (The CSA is currently considering its own set of proposed rules on climate disclosure, although the Canadian version would allow companies to opt out of Scope 2 and 3 disclosures provided they explain their reason for doing so.)

“We believe that this (revealing Scope 3) would not only add additional burden to industry, but is also not practical because upstream oil and gas producers have no knowledge or control over the end use of their sales products,” the industry lobby said. . group wrote.

Company problem or consumer choice?

While only a very small minority of Canadian oil and gas companies are even trying to report Scope 3 emissions now, it is already apparent that having to disclose these numbers en masse would increase the size of the carbon footprint that companies must report to investors and the public. .

For example, Cenovus Energy – which began discharging its estimated emissions from Scope Three in 2020 – says its emissions from Scope One and Two in 2019 amounted to 23.94 million tonnes of C02. But Scope Three emissions, generated by the end use of the company’s products by customers, amounted to about 113 million tonnes.

Duncan Kenyon, director of corporate engagement with climate change activist group Investors for Paris Compliance, said more than 80 percent of fossil fuel emissions fall under the umbrella of Scope Three – that is, they are produced when the product is consumed.

“I hear it all the time from (oil companies) that Scope Three is‘ not our problem, it’s consumers ’choice,’ ”Kenyon said. “But you can’t be a Parisian aligned, climate believer if you say 80 percent is someone else’s problem.”

“It also undermines the claims that ‘well, if we catch everything and underground, we’ll be fine by 2050,'” he added. “Because no, you won’t.”

Oil and gas companies have returned significant dividends to shareholders over the past year thanks to growing global energy demand, so it’s easy to question why investors would care at all about the Scope Third issue.

But Kenyon said ESG (environmental, social and governance) focused investors view climate change as a real business risk, and want to know how ready a company is to adapt to what’s to come. For example, an energy company actively working to reduce its Scope Three emissions would aim to increase the percentage of renewables in its portfolio.

“If you bring in a Scope Three revelation, it becomes clear really quickly where your company is in the decarbonization game,” he said. “And then you have to decide what kind of company you want to be in five years, 10 years or 25 years.”

Releasing the regulator’s proposal in March, SEC President Gary Gensler said greenhouse gas emissions have become a commonly used metric for assessing a company’s exposure to climate-related risks that are likely to have a material impact on its business.

“Investors can decide what risks to take, as long as public companies provide full and fair disclosure and are true in those disclosures,” Gensler said in a press release. “Today, investors representing literally tens of billions of dollars support climate-related disclosures because they recognize that climate risks can present significant financial risks to companies, and investors need reliable climate risk information to make informed investment decisions.”

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