Decarbonizing the energy sector: How the SBTi is approaching this transformation

The oil and gas industry holds a unique position in the global energy transformation. Combustion of fossil fuels represents the single largest source of carbon dioxide emissions worldwide, with oil and gas representing 60% of fossil fuel emissions in 2021. The industry is also one of the largest contributors of methane emissions. To meet the goals of the Paris Agreement and avoid catastrophic irreversible climate change, the sector must undergo a rapid and profound transformation.

This urgency was underlined in the recent IPCC report, which stated: “The lifetime emissions of current fossil-based energy infrastructures may already exceed the remaining carbon budget for keeping warming below 1.5°C”. Accordingly, the report concludes that “limiting warming requires shifting energy investments away from fossil-fuels and towards low-carbon technologies”. Commenting on the report, the UN Secretary General was emphatic: “Fossil fuels are choking humanity”, he insisted. “We must triple the speed of the shift to renewable energy if we are to limit global warming.”

It is therefore clear that deep transformation in the oil and gas sector is central to the decarbonization of the global economy, and requires measurable, verifiable pathways to do this with urgency. This is why the SBTi is developing sector-specific methodologies for the sector to set credible and ambitious climate targets based on the best available science.

Our guidance will strive to enable oil, gas and integrated energy companies to set science-based targets to align emissions reduction targets with 1.5°C, the level of transformation required to meet the goals of the Paris Agreement. In addition to addressing embedded emissions in fuel supplied to customers - Scope 3: Use of sold products - the guidance will also aim to cover scope 1 and 2 emissions from the production, transportation, processing and transformation of oil and gas.

Progress of the oil and gas sector project to date

We initiated the project in 2019. As with all our sector development projects, we convened a multidisciplinary expert advisory group to inform the development of draft guidance. Members included representatives of civil society organizations, oil, gas and integrated energy companies, investors, policymakers, academics and other experts.

In 2020, we conducted a public consultation on the draft guidance that received 54 responses from organizations across the globe. A summary and initial assessment of the comments received is here.

While substantial progress has been made in this initial phase of the project, the process also illustrated areas where further development and consensus is needed. Examples include:

• Should a science-based metric that works across the value chain be designed or several metrics, one for each step of the value chain?

• How and where to account for energy (primary vs. final energy) and renewable energy (with or without a primary fossil energy equivalence)

• How to account for Scope 3 emissions (total value chain accounting and net-value chain accounting)

• How to consider the role of carbon capture and storage and carbon capture, utilization and storage or the role of bioenergy with carbon capture and storage

• What scenarios and metrics to consider for decarbonization of Scope 1 and 2 emissions of extraction and refining

• Which energy transition scenarios to use for setting targets

In response to these challenges, we are now appointing a consultant to convene an expert panel that will review the draft methods and guidance and provide recommendations to finalize these resources. This will take into account experts’ technical knowledge of the sector, as well as the comments received to date via the public consultation and the SBTi’s own internal review findings.

This independent review will inform the next steps required to revise and finalize the methods and guidance. This may include an additional public consultation period. The expert review is expected to be complete by the end of September 2022.

Why has the SBTi updated its policy regarding commitments from oil and gas companies?

Our standard procedure when developing sector guidance is to permit companies from the relevant industries to commit to the initiative, on the basis that guidance and methodology will become available to them in a timely manner. We applied this approach to the oil and gas sector project, and duly received commitments from companies in the sector. However, when the development process highlighted the level of complexity outlined above, we took the decision to pause commitments while the method is being finalized. This includes the removal of existing commitments from the SBTi website. When the method is finalized, we will encourage companies in the sector to commit and set targets in line with the final method.

Companies affected by the policy, commitments removed to date, and more details of its scope, are detailed here. To date, nine company commitments have been removed from our website in accordance with our policy. The SBTi’s process of engaging with potentially affected companies is ongoing. As such, other companies may be removed if, after careful evaluation, they are considered to fall within the remit of the policy.

What can companies do to decarbonize while the guidance is in development?

The science remains clear: in order to stabilize global temperatures, the global economy needs to move away from fossil fuels and into clean and renewable sources of energy. We encourage all companies in the sector to engage in this transition as early as possible and to engage in the SBTi method development.

What happens next?

Given its crucial impact in achieving our climate goals, it is imperative that guidance for the oil and gas sector is as robust as possible. This means encompassing target ambition and greenhouse gas coverage, as well as considering other factors, such as implications of 1.5°C-aligned pathways across the fossil fuel value chain: from exploration and extraction, to refining to the provision of energy products.

Thus, the next steps in the development process must allow the level of deliberation to ensure the guidance is as robust as possible. The forthcoming independent review of the draft methodology will bring us closer to defining this comprehensive framework and allow us to identify elements to improve on it. This review is expected to conclude by the end of September 2022. The updated guidance is expected to be published by the end of 2023.

The SBTi remains committed to creating robust methodologies that will better support companies in the oil and gas sector, and other high-emitting sectors, to decarbonize in line with climate science. This includes guidance for the cement, steel, buildings and chemicals sectors which are currently in development.

Find out more about our other sector projects here.