Energy Transition Outlook 2021

The Scope 3 Standard complements and builds upon the Corporate Standard to promote additional completeness and consistency in the way companies account for and report on indirect emissions from value chain activities. The Corporate Standard classifies a company’s direct and indirect GHG emissions into three “scopes,” and requires that companies account for and report all scope 1

Since the Corporate Standard was revised in 2004, business capabilities and needs in the field of GHG accounting and reporting have grown significantly. Corporate leaders are becoming more adept at calculating scope 1 and scope 2 emissions, as required by the Corporate Standard. As GHG accounting expertise has grown, so has the realization

ENERGY TRANSITION OUTLOOK 2021

clarity and confidence to the market and OGUK acknowledges the work of the IIGCC Oil and Gas Net Zero 16 Standard as a prominent example supporting standardisation within the sector. Specifically, within this framework it notes the need for companies to retain flexibility. OGUK strongly believes that the value of ESG is achieved through standardised corporate reporting that allows companies to retain flexibility and own their strategic direction. We look forward to engaging further with government following the publication of their Greening Finance; A roadmap to sustainable investing which outlines the next steps to delivering a UK wide taxonomy and sustainable disclosure requirements. emissions (i.e., direct emissions from owned or controlled sources) and all scope 2 emissions (i.e., indirect emissions from the generation of purchased energy consumed by the repor ing com any). The Corporate S andard give companies flexibility in whether and how to account for scope 3 emissions (i.e., all other indirect emissions that occur in a company’s value chain). Figure 1.1 provides an overview of the three GHG Protocol scopes and categories of scope 3 emissions. that significant emissions – and associated risks and opportunities – result from value chain activities not captured by scope 1 and scope 2 inventories. Scope 3 emissions can represent the largest source of emissi ns for compani s and present the most significant opportunities to influence GHG reductions and achieve a variety of GHG-related business objectives (see chapter 2). Developing a full corporat GHG emissions inventory – incorporating scope 1, scope 2, and scope 3 emissions – enables companies to understand their full emissions Figure [1.1] Overview of GHG Protocol scopes and emissions across the value chain CO 2 CH 4 N 2 O CO 2 CH 4 SF 6 N 2 O HFCs PFCs

Snapshot of total capital investment in renewables as a share of capital expenditure % (Top 5 UK based operators) 2018 2019

ENI

4.0 3.0 9.0 5.0 5.6

17.0 10.0

Total Energies

HFCs

Shell

8.7 7.5 2.6

CO 2

CH 4

N 2 O

HFC

PFCs

SF 6

CO 2

CH 4

N 2 O

HFCs

PFCs

SF 6

Equinor

CO 2

CH 4

N 2 O

HFCs

PFCs

SF 6

BP

CO 2

CH 4

N 2 O

HFCs

PFCs

SF 6

purchasedelectricity, steam, heating&cooling forownuse

CO 2 CO 2

CH 4

N 2 O

HFCs

PFCs

SF 6

N 2 O purchasedelectricity, steam, heating&cooling forownuse

CH 4

HFCs

PFCs

SF 6

CO 2

CH 4

N 2 O

HFCs

PFCs

SF 6

HFCs purchasedelectricity, steam, heating&cooling forownuse N 2 O HFCs SF 6 PFCs

CO 2

CH 4

N 2 O

PFCs

SF 6

CO 2

CH 4

N 2 O

HFCs

Source: Capital Economics for CMS Cameron McKenna

CO 2

CH 4

PFCs

SF 6

purchasedelectricity, steam, heating&cooling forownuse

CO 2

CH 4

N 2 O

Scope 1 DIRECT HFCs SF 6 HFCs

PFCs

SF 6

N 2 O Scope 2 INDIRECT CH 4

transportation anddistribution

processingof soldproducts

CO 2

N 2 O

PFCs

SF 6

CO 2

CH 4

HFCs

PFCs

SF 6

CO 2

CH 4

N 2 O

HFCs

PFCs

company facilities

CO 2

CH 4

N 2 O

HFCs company facilities

PFCs

SF 6

purchasedelectricity, steam, heating&cooling forownuse

capital goods transportation anddistribution

Scope 3 INDIRECT business travel fueland energy related activities processingof soldproducts

purchasedelectricity, steam, heating&cooling forownuse

transportati n an distribution

processingof soldproducts

purchased goodsand services

As discussed in OGUK’s Economic Report , investors and stakeholders are increasingly looking at a far wider range of non-financial disclosures from businesses with respect to their alignment with environmental, social and governance (ESG) factors, in parallel with company profitability. OGUK expects this trend to continue over the next decade as climate, environmental and social co-benefit policies are embedded into the market through initiatives including the Taskforce on Climate-Related Financial Disclosures (TCFD), Taskforce on Nature- based financial disclosures (TNFD), and Green Taxonomies. Recognising this, OGUK has established a new work stream to support industry in meeting appropriate ESG criteria. A key challenge to address will be to assimilate the reporting requirements placed on companies and across the value chain with regards to Scope 1–3 emissions. As ESG becomes further embedded in the markets, there will be a need for some standardisation to ensure efficiency and the ability for benchmarking across not only the sector on a global level but other energy intensive industries. This will provide

N 2 O purchased goodsand services

HFCs capital goods

PFCs fueland energy related activities

CO 2

CH 4

SF 6

company facilities

purchasedelectricity, steam, heating&cooling forownuse purchasedelectricity, steam, heating&cooling forownuse CH 4 N 2 O purchasedelectricity, steam, heating&cooling forownuse purchasedelectricity, steam, h a ing&cooling forownuse purchasedelectricity, steam, heating&coolng forownuse waste generated in operations Scope 3 INDIRECT company facilities HFCs purchased goodsand services purchased goodsand services purchased goodsand services transportation anddistribution fueland energy related activities

company facilities

CO 2

PFCs

SF 6

transportation anddistribution useof sold products

processingof soldproducts

capital goods

fueland energy related activities

end-of-life treatmentof soldproducts

fueland energy related activities processingof soldproducts fueland energy related activities business travel busines travel end-of-life treatmentof soldproducts transportation anddistribution

processingof soldproducts

capital goods

purchasedelectricity, steam, heating&cooling forownuse purchasedelectricity, steam, heating&cooling forownuse transp rtation nd istribution

transportation anddistribution company facilities

waste generated in operations end-of-life treatmentof s ldproducts

purchasedelectricity, steam, heating&cooling forownuse

business travel

useof sold products

company vehicles

transportation anddistribution

processingof soldproducts

useof sold products

end-of-life treatmentof soldproducts end-of-life treatmentof soldproducts franchises

transportation anddistribution

processingof soldproducts

capital goods

purchasedelectricity, steam, heating&cooling forownuse

purchasedelectricity, steam, heating&cooling forownuse

transportation anddistribution transportation anddistribution company vehicles

purchased goodsand services

capital goods

company facilities business travel

purchasedelectricity, steam, heating&cooling forownuse waste generated in operations transportation anddistribution transportation anddistributi n

processingof soldproducts processingof s ldproducts

company facilities waste generated in operations company facilities waste generated in operations easedassets

company vehicles transportation anddistribution useof sold products transportation a ddist ibution

processingof soldproducts processingof soldproducts

company facilities

transportation ddistribution

processingof soldproducts

useof sold products

purchasedelectricity, steam, heating&cooling forownuse

leasedassets

employee commuting

investments

purchasedelectricity, steam, heating&cooling forownuse

company vehicles

purchased goodsand services purchased goodsand services fueland energy related activities purchased goodsand services purchased goodsand services transportation anddistribution transportation anddistribution purchased goo sand services capital goods purchased goodsand services waste generated in operations transportation anddistribution leasedassets business travel transportatio a ddistribution transportation anddistribution transportation nddistribution capital goods

capital goods capital goods capital goods business travel

fueland energy related activities transportation anddistribution fueland energy related activities fueland energy related activities fueland energy related activities fueland en rgy related activities employee commu ing business travel company facilities capital goods employee commuting business travel business travel business travel business travel

transportation anddistribution

processingof soldproducts

l aseda sets

employee commuting

transportation anddistribution

company facilities company facilities processingof soldproducts

investm nts

transportation anddistribution leasedassets

fueland energy related activities employ e ommuting fueland energy related activities company facilities

purchased goodsand services

capital goods

processingof soldproducts

investments transportation anddistribution ompany facilities

transportation anddistribution capital goods

purchased goodsand services

capital goods

purchased goodsand services

processingof soldproducts

company vehicles

company facilities leasedassets company vehicles company facilities

capital goods

useof sold products

capital goods company facilities

end-of-life treatmentof soldproducts end-of-life treatmentof soldproducts end-of-life treatment soldproducts

leasedassets

franchises

useof sold products

end-of-life treatmentof soldproducts

investments

end-of-life treatmentof soldproducts processingof soldproducts company facilities end-of-life treatmentof soldproducts

transportation anddistribution

leasedassets

franchises

useof sold products useof sold products

transportation anddistribution transportation anddistribution fueland energy related activities purchased goodsand services

purchased goodsand services fueland energy related activities fueland nergy related activities

purchased goodsand services

capital goods

waste generated in operations waste generated in op rations waste generated in operations investments waste generated in operations leasedassets leasedassets company v hicles

useof sold products

fueland energy related activities leasedassets company vehicles end-of-life treatmentof soldproducts

useof sold products useof sold products

capital goods

useof old products

franchises end-of-life treatmen of soldproducts

business travel

waste generated in operations fueland energy related activities waste generated in operations wast generated in perations

investments leasedassets

leasedassets

franchises

business travel company vehicles

transportation anddistribution

employee commuting waste g nerated in operations

useof sold products

end-of-life treatmentof soldproducts useof sold products

company vehicles company vehicles useof s ld products

end-of-life treatmentof soldproducts

company vehicles end-of-life treatmentof soldproducts company vehicles end-of-life treatmentof soldproducts

purchased goodsand services

transportation anddistribution business travel business travel waste g nerated in operatio s

company vehicles

useof sold products

end-of-life treatmentof soldproducts

company vehicles

transportation anddistribution business travel

waste generated in operations

transportation anddistribution

waste generated in operations

business travel

waste generated in operations

company vehicles

useof sold products

employee commuting

investments

leasedassets

franchises

company vehicles

employee commuting Upstream activities investments employee commuting leasedassets leasedassets business travel leasedassets employee commuting wast generated in operations employee commuting employee commuting employee commuting investments employee commuting leasedassets

investments

leasedassets

franchises Downstream activities franchises

Reporting company leasedassets

investments investments

leasedassets company vehicles leasedassets

transportation anddistribution

leasedassets

employee commuting

franchises

franchises

leasedassets

investments

lea edassets

franchises

investments

leasedassets

franchises

leasedassets

investments

leasedassets

franchises

Source: GHG Protocol

leasedassets

company vehicles invest ents

leasedassets

franchises

employee commuting

investments

leasedassets

employee commuting

leasedassets

franchises

l asedassets

franchises

[05]

leasedassets

employee commuting

investments

leasedassets

franchises

leasedassets 16 https://www.iigcc.org/download/iigcc-net-zero-standard-for-oil-and-gas/ ?wpdmdl=4866&refresh=6155d9cbb0ef31633016267 franchises employee commuting leasedassets investments

20