Oil and Gas Carbon Accounting: Low Carbon Initiatives and Evolving Regulations

An overview of carbon reporting best practices for the oil and gas industry and how to narrow the gap to reach sustainability and reporting targets.

Thousands of miles off the coast of the United States, The Mauna Loa Atmospheric Baseline Observatory on the Big Island in Hawaii has been tracking atmospheric changes since the 1950s. As the entire world has started to zoom in on carbon dioxide levels during the past two decades, we have continuously watched new records set on at least an annual basis. 2024 proved no different. Bloomberg reports that CO2 levels from the observatory came in at 4.7 parts per million higher in March of this year than this time of year previously. This made the largest annual leap ever measured at the National Oceanic Atmospheric Administration laboratory. Yet a different statistic made the report even more eerie: In four months from January through April 2024, CO2 concentrations increased faster than in the first four months of any other year. 

There is no arguing that carbon is front and center on the corporate agenda of oil and gas companies these days, whether that includes adding more robust greenhouse gas inventories to sustainability reports, setting targets, or even starting to assess the financial risks climate can pose to the business. As companies are now halfway through executing their strategies in 2024, this report adds yet another catalyst for the oil and gas sector to continue to invest deeply in solutions to enable greenhouse gas emissions management.

Transitioning to Low-Carbon Initiatives

In 2023, the CDP (Carbon Disclosure Project) assessed the most influential oil and gas companies, representing about 80% of production. Since their 2021 benchmark, there had been an almost 30% increase in low-carbon activities, such as plans to produce sustainable fuels and gases. Fuels such as Sustainable Aviation Fuel (SAF) can reduce up to 80% of emissions compared to conventional jet fuel. Carbon capture and storage (CSS) technology engagement has also doubled. Transitioning carbon out of the atmosphere and into long-term storage locations such as underground geological formations like oil and gas reservoirs, and deep saline formations, is an incredibly effective way to lower CO2 levels. It is also a perfectly suited approach for oil and gas, due to the industry's already existing infrastructure and technical expertise.

Some companies have made inroads with internal transitions into eco-friendly practices. At Hart Energy’s SUPER DUG Conference & Exhibition 2024 in Fort Worth, leadership from Diamondback Energy discussed replacing oil-based mud with clear drilling fluids, which can speed up drilling times and clean up operations. Another executive from Quantum Energy Partners commented on their decision to switch their frac fleet from diesel to natural gas. “We saved one of our companies in Haynesville half a million dollars per well and reduced GHG by 70 percent. Make a bunch of money and do good for the environment – (that’s a) pretty good deal,” Van Loh told Hart Energy.

While these types of initiatives are exciting, today they still make up a very minimal portion of capital expenditure in the oil and gas sector.

Changes in Scope 3 GHG Reporting

The industry has also seen momentum in GHG inventory reporting. The list of companies disclosing Scope 3 emissions targets continues to grow, up to 75 from 68 in 2021 per CDP disclosures. Scope 3 emissions are arguably one of the biggest opportunities for the industry. 80% of the average oil and gas producers’ footprint stems from the combustion of sold products. Most producers today only establish targets for their operational footprints (Scope 1 & 2). Of 50 companies benchmarked by CDP claiming “net-zero” targets, 32 did not include Scope 3 emissions. This is why tools continue to emerge in the industry to lower the barriers to entry for Scope 3 calculations.

Heads are turning to GHG emissions management software, tailored to the oil and gas industry and feature a calculation engine for the entirety of a footprint (Scopes 1, 2, and 3), scenario modeling, and project forecasting. Software is one of the easiest ways to develop an understanding of Scope 3 requirements and assemble a detailed inventory that can withstand attestation. SaaS companies such as Envana also have in-house subject matter experts with years of experience in air quality, greenhouse gas measurement, and reasonable assurance to guide users with the additional knowledge and context to define a concrete action plan.

"Heads are turning to all-in-one solutions like Envana Catalyst, tailored to the oil and gas industry, with a calculation engine for the entirety of a footprint (Scopes 1, 2, and 3), scenario modeling, and project forecasting."

Developments in Climate Change Regulation

As each sector grapples with the best path forward, regulation has seen an increased focus on emissions management as data on CO2 levels adds more urgency to the work that must be done to accomplish sustainability goals. The following are just a few recent examples:

U.S. Securities and Exchange Commission:

Finalized a rule requiring publicly traded companies reporting in the US markets to disclose climate-related information in their financial filings, including Scope 1 and 2 emissions with attestation, management and oversight of climate-related risks. The rule will begin phasing in during 2026.

U.S. Environmental Protection Agency (EPA):

Posted rules updating the Greenhouse Gas Reporting Program that will require the oil and gas industry to reduce GHG emissions by encouraging improved facility design to reduce or eliminate emissions and requiring implementation of more stringent Leak Detection and Repair (LDAR) monitoring.

EPA - Waste Emissions Charge (WEC):

Will place a fee or charge on methane emissions that exceed specified methane emissions thresholds (CAA Section 136(e)) as reported to the GHGRP. The WEC charge starts at $900/metric ton of methane emissions exceeding the threshold in 2024 and increases to $1,500/metric ton of methane emissions exceeding the threshold in 2026 and beyond. 

 European Union’s Corporate Sustainability Reporting Directive (CSRD):

Established in early 2023 and requires more than 50,000 organizations worldwide to begin comprehensive and granular disclosures about their environmental, social, and governance (ESG) practices, including the new concept of “double materiality.” They will also mandate assurance obligations for all reported sustainability information.

 European Union Imports Rules:

Approved a new law to impose "maximum methane intensity value" limits on Europe's oil and gas imports from 2030, with the intent to pressure international suppliers to cut leaks of the potent greenhouse gas and help the EU meet their climate targets with cleaner natural gas.

Additional regulation will, in many cases, require companies to tighten up their greenhouse gas reporting to limited attestation at a minimum, and likely reasonable attestation soon. This will push sustainability teams away from traditional spreadsheets as they begin to leverage software platforms that can provide audit-grade data, and more controls around users and data collection/upload.  

Narrowing the Gap

The oil and gas industry is fortunate to have unparalleled brainpower, resources, and infrastructure to solve the biggest challenges of our lifetime. With growth in low-carbon and abatement activities, investment into full-scope greenhouse gas inventory technologies, and deploying new resources into sustainability programs in preparation for regulatory requirements, we can continue narrowing the gap. By identifying ways to make sustainability commercially viable, we make our pledges realistic.

Some of the ways how software may help oil and gas companies and service providers reach their sustainability goals, as reported by other industry leaders leveraging digital platforms today, include: 

• Increasing the transparency and auditability of carbon value chain data to optimize chances of commanding gas market premiums
• Improving decision-making capabilities and accountability, with a clear line of sight into emission hotspots
• Decreasing risks including "super emitter" fines and other taxes
• Increasing visibility into operational efficiencies while decreasing errors, rework, and manual tasks 
• Facilitating forecasting and planning efforts with clear visualizations of ideal future scenarios
• Increased product saving potential, as leaks are anticipated and mitigated

Time is of the essence. As the pressures grow on our industry, including looming regulatory deadlines, there are significant advantages to enlist the support of a carbon accounting thought partner early on.  

Numerous companies in the oil and gas industry are currently tracking emissions with internal spreadsheets or reporting via ESG general platforms. Yet these solutions lack long-term viability, given their lack of transparency and governance.  If you consider you have any gaps in your current platform, we invite you to reach out to our expert team today to discuss how we can support you in the process of understanding your GHG deliverables. Our SMEs will help guide you through the pitfalls to establish a viable action plan that meets your sustainability goals, optimizes your operational efficiencies and savings, improves your reporting efficiencies and decreases your governance risks. Potentially, you even increase your current gas margins and market potential.  Though many HSE platforms and data emissions software platforms abound, no other SaaS on the market offers the depth and breadth of Envana for the oil and gas space. Developed by oil and gas, with unmatched market solidity and reputation, Envana is the choice platform for the oil and gas industry.  

Schedule a conversation with Envana today. We promise it will be worth your time.