The energy transition, net-zero pledges, and increased investor pressure on oil and gas companies to slash emissions have given rise to the latest trend in energy markets—the arrival of the ‘carbon neutral’ oil barrel and the ‘carbon neutral’ liquefied natural gas (LNG) cargo.
Oil and gas firms have started to offer those so-called carbon neutral oil and gas shipments. And buyers are lapping them up as they themselves are also pressured by investors and their own carbon reduction pledges to procure lower-emission energy supply.
Energy firms offering carbon-neutral LNG or oil cargoes say that until carbon capture and storage (CCS) or direct air capture technologies reach maturity and develop at scale, nature-based carbon offsets could be the best shot at immediate emissions reduction.
Currently, ‘carbon neutral’ oil and gas are being ‘emission-neutralized’ by carbon offsets, in which buyers and sellers pay for participation in emissions-reduction projects elsewhere (actually anywhere) in the world. In this case, ‘carbon neutral’ implies that the seller or buyer, or both, have paid to reduce emissions by investing in projects to save forests or to support a renewable energy project somewhere. As-is, ‘carbon neutral’ does not mean that the emissions generated from the production, liquefaction, and transportation of the gas have been offset during those processes with technologies such as carbon capture, for example.
The carbon offsets approach has drawn a lot of criticism from environmentalists, who say that this is just more greenwashing from an industry in terminal decline, which continues to avoid taking action to save the planet.
Moreover, the growing carbon-offset market lacks standardization of quality carbon credits, companies aren’t required to disclose information, and there isn’t any unified standard to measure how much carbon footprint is being offset. These issues put ‘carbon neutral’ oil and gas in a grey area, which doesn’t help the image of the companies saying they use carbon offsets.
The Carbon Neutral Oil & Gas Trend
Many major oil and gas firms have recently announced carbon-neutral oil and LNG deliveries.
In January, U.S. Occidental delivered said it had delivered the world’s first shipment of carbon-neutral oil, or oil where emissions associated with the entire crude lifecycle—wellhead through the combustion of end products—have been offset. Sweden-based Lundin Energy said in April it had sold the world’s first certified crude oil produced with net-zero emissions from an oilfield offshore Norway. In June, the company said that all future barrels that it would sell from Western Europe’s biggest field, Johan Sverdrup offshore Norway, would be certified as carbon neutrally produced. Lundin Energy further worked to offset net residual emissions using natural carbon capture projects certified by the Verified Carbon Standard (VCS).
TotalEnergies and Shell are also selling carbon-neutral LNG cargoes, mainly to customers in Asia.
Part Of The Solution Or Greenwashing?
“To decarbonise LNG, all levers will need to be pulled. Avoiding emissions where possible, reducing emissions where they cannot be avoided, and offsetting emissions when they cannot be avoided or reduced. As more ways to avoid and reduce emissions develop at scale, the industry needs to work together to use high-quality carbon credits to compensate for greenhouse gas (GHG) emissions along the LNG value chain that are otherwise hard-to-abate,” says Shell, which has been offering carbon-neutral LNG for several years.
“It’s not the panacea and we won’t call it green,” Mehdi Chennoufi, general manager LNG origination at Shell, told The Wall Street Journal, noting that the use of carbon offsets should be a last resort if emissions can’t be avoided or reduced.
But environmental and non-profit action groups are having none of it. They say carbon offsets are the latest sophisticated greenwashing tactic of oil polluters to avoid the consequences of their contribution to climate change.
“Offsetting has become the most popular and sophisticated form of greenwash around. It could work in theory, but in practice, it’s riddled with flaws,” Greenpeace said in June.
Jennifer Morgan, Executive Director at Greenpeace International, slammed last month companies such as Shell and ExxonMobil for their “dangerous climate lie” of carbon offsetting.
“What these polluting profiteers see as their ‘get out of jail for free card’ in the climate game is offsetting, or to speak plainly, the sewer of the voluntary Net Zero commitments that are being rolled out almost daily,” Morgan wrote.
The Standardization Problem
The lack of standard practices in the carbon offset market only adds to the objections from the critics of the ‘carbon neutral’ hydrocarbons.
This market currently “operates in the shadows,” Mark Carney, former governor of the Bank of England and now the UN Special Envoy on Climate Action and Finance, told the Financial Times earlier this year. Currently, the system has some good practices, “but lots of bad,” he added.
Carney launched last year the Taskforce on Scaling Voluntary Carbon Markets, which aims to create “a scaled, high-integrity voluntary market for the trading of carbon credits.” The ultimate goal of the taskforce is “to ensure that the voluntary carbon market serves its primary purpose of reducing greenhouse gas emissions and accelerating the transition to net zero,” it says.
Oil and gas producers will continue to sell what they pitch as ‘carbon-neutral’ oil and gas to a growing number of willing buyers, but doubts over the ‘neutral’ nature of these forms of energy supply will continue to persist, and even grow, amid a lack of standardization and transparency.
By Tsvetana Paraskova for Oilprice.com
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