Big Oil’s carbon credit strategy is facing scrutiny

Just a year ago, carbon credits were all the rage. The companies have struck deal after deal in a market that analysts say will grow at breakneck speed. Then everything started to relax. Because Big Oil was also using carbon credits. Apparently, it wasn’t meant to be this way.

In 2022, Shell said it would invest about $100 million in developing what are commonly called carbon sinks, or ecosystems that absorb more carbon dioxide than they emit — if they emit at all. The supermajor then planned to turn those sinks into a business, issuing carbon credits to sell to other companies in need of decarbonization.

Last September, however, Shell abandoned these plans. The change followed an investigation by The Guardian and Die Zeit, which revealed that up to 90% of carbon credits verified as legitimate by the largest carbon credit certification company at the time were essentially worthless.

The revelation caused an uproar and cast doubt on the usefulness of carbon credits in the energy transition. Some critics have even called the indulgences modeled after the Catholic church’s medieval practice of selling forgiveness for sins. And the biggest sinner of all is, of course, the oil and gas industry.

The oil and gas industry has no other way to decarbonize than by offsetting emissions from its operations through carbon credits. It’s no coincidence that Occidental, the first oil and gas company to make a U.S. oilfield emissions commitment, is investing heavily in direct air capture, which would be linked to issuing a version of carbon credits for to sell to the big emitters. .

It’s no coincidence that every energy company with decarbonization plans has carbon credits built into those plans—because the only other way for oil and gas companies to reduce their emissions is to essentially kill themselves. And they are far from alone.

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Last month, the United Nations targeted carbon credits, also called carbon offsets, as an overused tool to cut emissions when companies should actually be reducing their emissions, the FT reported at the time. Indeed, the UN has produced a document recommending that companies not use offsets at all outside of government-regulated schemes such as the EU’s Emissions Trading Scheme.

“I would hope and expect serious organizations committed to protecting ecosystems. . . don’t close a carbon finance pipeline,” the head of BP’s carbon trading business unit said in comments to the UN document at the time.

Now, Bloomberg reports that Big Oil has become the ultimate winner in that carbon credit market that the UN doesn’t like so much. Calling the energy industry “the main perpetrators of global climate disaster,” the report states that Big Oil is using carbon credits to reduce its Scope 3 emissions, rather than physically reducing those emissions.

However, there is a twist: Big Oil is far from the only industry doing this. Big Tech, a massive emitter made even more massive by the data center, is doing the exact same thing – because there’s no way to get 100% of the electricity it needs from wind, solar and batteries, no. no carbon credits. No other industry needs a reliable 24/7 power supply.

Climate activists, however, have a problem exclusively with Big Oil, even though some involved in the transition have argued that Big Oil using carbon credits to offset its emissions is in fact part of the transition and as such a positive thing. Activists have argued – correctly – that carbon credits would help the oil and gas industry survive longer, implying that their ultimate goal is the industry’s demise as the ultimate solution to climate change, no matter the cost.

Meanwhile, businesses continued to use carbon credits, the institutions that emerged to ensure they were not worthless, as the Guardian/Zeit investigation revealed. The most influential of these, the Science Based Targets initiative, became the site of a scandal focused on those troublesome Scope 3 emissions earlier this year when it reversed its original policy, announcing that it would now allow companies . count Goal 3 emission reduction credits.

The announcement caused an uproar among SBTi employees, so the organization had to do another U-turn and return to its original position on Scope 3 emissions and credits. The reason for the scandal was the same reason Bloomberg deplores Big Oil’s position as what he called a big winner of the carbon credit system as a whole: not enough real emissions reductions.

Critics of the system are certainly right to point this out. From another perspective, however, the transition is net zero rather than absolute zero. If carbon credits work as advertised, they should contribute to an overall reduction in emissions. It also shouldn’t matter which industry uses them if the end goal is to reduce carbon dioxide emissions.

By Irina Slav for Oilprice.com

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