On September 15th 2021, the IIGCC published its “Net Zero standard for oil and gas” aimed at providing a framework to allow investors to assess the credibility of oil and gas companies’ “net zero” pledges and plans. The standard clearly acknowledges that such plans entail the swift reduction of fossil fuel production and an end to new production projects. However, it then undermines its own position by allowing investors to continue to support companies that develop oil and gas projects in defiance of a 1.5°C trajectory and letting companies avoid reducing their emissions through massive carbon capture and offsetting.

Developed by the IIGCC and TPI, with the active collaboration of 20 global investors with collective assets of $10.4 trillion, the standard sets a framework to supplement the Climate Action 100+ Net-Zero Company Benchmark to allow investors to compare strategies pursued by oil and gas companies. IIGCC did not define what the consequences of non-alignment with this framework will be for oil and gas companies, nor what it implies for its members’ own exclusion and engagement policies. However, it announced a “pilot programme” to trial implementation on a few oil and gas majors – BP, Eni, Repsol, Shell and TotalEnergies – before “wider roll out across the sector”.

Accepting the climate science: production reduction and the end of expansion 

IIGCC’s new standard does not negate climate science. Acknowledging recent developments and the responsibility of the oil and gas sector in the climate crisis and transition, the standard underlines that reaching carbon neutrality means ending new fossil fuel production projects and reducing production before 2030: 

in a net zero scenario global oil and gas production must fall significantly by 2050 and this decline must begin well before 2030” (P.19) 

The IEA’s Roadmap for Net Zero clearly states there should be no new oil and gas fields approved for development. In this context oil and gas companies wishing to align with net zero should acknowledge the need to reduce supply globally and adjust their investment plans accordingly. To avoid the risk of sanctioning long lived investment that would contribute to global emissions exceeding the 1.5oC budget or result in stranded assets, they should decrease overall fossil fuel capex. Upstream investment, particularly exploration and new oil projects, should be significantly curtailed given the need for production to decrease before 2030.” (P.19) 

These key expectations are to be monitored closely by investors: the IEA Net Zero scenario is mentioned as the reference scenario to assess the credibility of companies’ plans – making any new project a red line – and disclosures are required on the rate of decline of oil and gas production and on capex devoted to upstream and exploration. Furthermore, the IIGCC stresses that current oil and gas production plans are at odds with climate objectives and should be reviewed. More precisely, the decline in oil and gas production ought to be drastic and swift, notably following the pathway laid out by the UN Production Gap report:

“models from the IPCC, IEA and others are clear that very large declines in oil and gas consumption are needed by 2050 if global emissions are to remain within the budget needed to limit the temperature rise to 1.5oC. Staying within this emissions budget also requires early action, particularly for oil. The 2020 Production Gap report estimates that with constrained reliance on carbon dioxide removal (CDR) deployment, oil consumption must fall by c.35-40% and gas by 25-30% between 2019 and 2030. The IEA estimates that oil consumption must fall c.28% by 2030 while gas consumption should fall by c.7% over the same time period. (P.14)

Methane being a key driver of the oil and gas sector’s contribution to global warming, the standard also requires companies to report on their methane emissions and to set plans to reduce them by 70% by 2030. This objective that seems in line with the expectations of the UN’s Global Methane Assessment, though the IEA’s Net Zero scenario features a 75% drop of methane emissions from the fossil fuel supply over the same period.

More broadly, to ensure that companies’ plans covers all of their emissions and entails a real reduction of their impact on global warming, the standard requires net-zero pledges to apply to all activities and all types of emissions (scope 1 to 3 – methane and other gases included) and to set both absolute emission and intensity reduction targets. Furthermore, IIGCC emphasizes that, while the link between executive remunerations and climate targets should be clearly disclosed, “any link between remuneration and fossil fuel production growth should be removed”.

Opening loopholes to keep on milking the fossil fuel cash cow 

However, while the IIGCC’s new standard looks in the right direction – namely the one of ending expansion of oil and gas production and then quickly reducing it – and accepts the findings of climate science, it also allows companies to significantly depart from this approach. First, the standard “does not specify emissions/intensity reductions of a certain percentage by a certain date”. The only measure that an oil and gas company must specifically commit to meet the framework’s requirements is “reducing its operational emissions (scope 1 & 2) to net zero”, which account for about 15% of the emissions the oil and gas industry.

A key assumption from the IIGCC is that “there are multiple paths [companies] can take and the optimal strategy will vary”. Talking about “strategic flexibility”, the standard further indicates that:

“This Standard aims to cover the full breadth of potential strategic responses including integrated companies focusing on reducing upstream production, exploration & production (E&P) companies adopting a “winddown” or “harvest” strategy, diversification (into petrochemicals for example), integrated companies reducing the emissions intensity of all sold products and strategies deploying Carbon Capture Utilisation and Storage (CCUS) or Direct Air Capture (DAC).” (P.8)

Therefore, companies are free to decide what is credible or not. They could notably choose to diversify into “petrochemicals”, thus feeding demand for their own fossil fuels. Similarly, companies can base their decarbonization strategy on carbon capture (CCS / CCUS / BECCS / DACS) and offsets. In fact, the standard allows carbon removal to make up as much as 50% of emission reduction targets:

At this point the Standard does not propose direct limits on the individual use of neutralising measures such as CCUS, BECCS, DACS or offset but total neutralising measures should not account for the majority of the medium- and long-term emission reduction targets“. (P.16)

Considering the currently very limited and inefficient use of carbon capture technology, the expense and difficulties of large-scale deployment of negative emission technologies, the long-term uncertainties, and the fact that the removal of a ton of carbon never fully offsets the global warming impact of a ton of carbon emitted, allowing such a massive reliance on carbon capture and offsets empties transition plans of all credibility. It is worth noting that the IEA’s “Net Zero 2050” estimates about 22% of the total greenhouse gas reduction from 2020 to 2050 would be achieved through carbon capture, and this number relies on very unrealistic assumptions about carbon capture.

While the standard asks for “feasibility studies” on carbon capture deployment, the specific disclosure requirements for carbon capture and offsets mostly allow investors to assess whether they are economically viable, notably by requiring disclosure of the cost of offsets, the cost of carbon capture investments and the carbon price under which they become “profitable”. Carbon offsets are especially problematic and should not be considered in emission reduction targets: they fail to provide climate and environmental benefits and could provide a dangerous distraction to real greenhouse gas reductions.

Betting massively on carbon removal, companies could maintain their oil and gas production plans while remaining broadly in line with the standard. Concretely, companies whose production trends are not aligned with a 1.5°C trajectory and which are developing new projects will just have to justify it, notably through additional disclosure on their capex. In fact, the standard allows companies to justify non-alignment on the ground of economic considerations, notably by proving their production costs are lower than its peers:

If a company’s planned cuts to oil or gas production in its medium- and long-term targets are not as large as that required by the adopted 1.5oC scenario it should state why by highlighting that its production costs are substantially lower than the industry average and/or peers.” (P.15)

While an economic logic based on production costs could be used at the company level to prioritize the closure of production infrastructures – notably driving them to start by reducing unconventional oil and gas production – it cannot be applied to the whole oil and gas sector. Indeed, the fact that one company will continue to produce cheaper oil or gas won’t be compensated by another company reducing its production at a faster pace. An oil and gas company won’t “chip in” for another’s climate shortcomings, each and every company must align its production with a 1.5°C trajectory. Furthermore, any new fossil fuel production project is at odds with this trajectory and cannot be justified on any ground.

False solutions

Finally, the standard stresses that hydrogen and biofuels “can have both very different level of emissions reduction according to how they are implemented and wider environmental impacts”. However, it fails to provide minimum guidelines to align these activities with a 1.5°C and leaves it to “regional taxonomies” to decide whether they are to be considered “green” or not:

For example, hydrogen can be made cheaply from fossil fuels and, considering large conversion losses, can be a very emissions intensive and inefficient energy carrier. Likewise, growing biofuels can be both very emissions intensive (Scope 1 & 2 emissions) and have wider negative social and biodiversity impacts. As set out in paragraph 53 this Standard aims to utilise appropriate regional taxonomies to attempt to address these complex issues.” (P.17)

To provide a robust alignment framework, the IIGCC cannot ignore the climate science that clearly shows that hydrogen from fossil fuels – so-called “grey” and blue” hydrogen – and massive biomass reliance – notably by dedicating forest to energy uses or increasing land-use for agricultural production for biofuels – are at odds with a 1.5°C trajectory. It should forbid the development of hydrogen production from fossil fuels and limit biofuel production in oil and gas companies’ plans. In this regard, the use of the IEA “Net Zero” scenario could be problematic as it allows a significant share of hydrogen to be produced from gas and coal – 46% in 2030 and 38% in 2050 – and requires that more than a quarter of total available cropland to to be dedicated to bioenergy production.

To conclude, the strong scientific foundations of the new “Net Zero standard for oil and gas companies” have been severely hampered. If the IIGCC recognizes the need to swiftly reduce production and immediately stop new projects, it allows companies to go in the opposite direction and to justify it on economic grounds. The result is a framework that allows massive reliance on unproven – or even environmentally dangerous – solutions instead of relying on scientifically-based production reduction trends. By doing so, it could allow the oil and gas majors that have been selected to trial the framework – BP, Shell, Eni, Repsol and TotalEnergies – and that already claim to be leading on the transition to misleadingly brand themselves as “net-zero”. The IIGCC should stick to the science, even if this inconveniently requires its members to get tough on oil and gas majors.