By profiting from returns on investments in energy efficiency, NOCs and companies in other carbon-intensive industries (such as chemicals and utilities) can also improve their image, access carbon finance, and contribute to the long-term competitiveness of fossil fuel resources and hydrocarbon-based products and services. These companies can collaborate with other energy stakeholders at the national level on GHG emissions reduction measures in order to generate significant cost savings by reducing fuel consumption, while freeing up additional fuel for export.
Managing a company’s GHG footprint requires a systematic and methodical approach to its emissions reduction strategy. This involves choosing a strategic course, developing a GHG reduction programme, and establishing core processes and other infrastructure required to successfully implement the programme. It should be coupled with an initial focus on quick wins that can generate savings to help fund long-term, more capital-intensive abatement projects. Taking such a carefully considered approach can help companies convert pressure from climate change issues into an opportunity to generate profits.
“In recent years, climate scientists have unearthed new evidence linking increases in carbon dioxide and other GHG emissions to rising global temperatures. The potential for irreversible consequences has prompted national governments around the world to devise ambitious plans to address global warming and its possible damage to ecosystems and the global environment,” said Dr. Walid Fayad, Partner, Booz & Company.
Although Middle East countries are relatively moderate emitters of GHGs and not currently bound to GHG emissions reductions by the Kyoto Protocol, the region may be prone to significant impacts from rising global temperatures, including intensified desertification, increased water scarcity, ocean acidification, loss of biodiversity, extinction of species, and even human deaths caused by heat waves. “As a result, governments and carbon-intensive industries across the region are exploring ways to reduce their emissions footprint, thereby participating in the global drive to address CO2 emissions,” added Fayad.
“Setting the right course, though, takes an understanding of the company’s baseline emissions, which will help identify the biggest contributors and compare emission levels to international benchmarks. Companies are likely to settle on one of four broad positioning options for aligning their strategic vision with the right set of emissions reduction initiatives,” Fayad further commented.
Proactive approach to GHG management
Long-term Competitiveness of Hydrocarbons. GHG abatement measures in oil and gas operations reduce the carbon footprint of these fossil fuels.
Energy Efficiency Returns. Energy efficiency measures – central to many GHG emissions management initiatives – generate direct cost savings by reducing fuel consumption.
Access to Carbon Finance and Technical Support. The clean development mechanism (CDM) under the Kyoto Protocol allows qualifying emissions reduction projects in developing nations to benefit from financial and technical support.
Improved Image. With GHG management programmes, companies in carbon-intensive sectors will demonstrate their commitment to reducing emissions and help deflect increasing public scrutiny about their contributions to climate change.
Contrary to popular belief, addressing GHG emissions can be profitable. One NOC identified the potential for a 43 percent reduction in emissions with a net present value of several billion US dollars. For regional governments and other industries, such as oil and gas, chemicals, and utilities, that take a proactive approach to GHG management, the benefits can extend beyond profit.
“Although it may be tempting for companies to view GHG management initiatives strictly as part of the corporate social responsibility agenda, these wide-ranging benefits point to an economic imperative as well, and one that should not be overlooked or underestimated. To capture these benefits, Middle East companies should adopt a systematic and effective approach to roping in their emissions, articulated in three effective key steps,” stated Tarek El Sayed, Principal, Booz & Company.
Choose a strategic course. Defining a strategic positioning should be a company’s first major step in tackling GHG emissions because that will guide its course of action, as well as its level of involvement in driving the low-carbon agenda at the national level.
Developing a GHG reduction programme. Once companies establish their vision for GHG emissions management at the corporate and national levels, they should then identify potential emissions reduction initiatives across the value chain.
Establishing processes and infrastructure. Companies will thenstart the programme’s successful implementation by developing an operating model, processes, and capabilities for GHG management; institutionalising GHG management through active monitoring and market-based transfer pricing policies; and managing communication about the GHG strategy implementation and results.
Companies that fit under this category would implement GHG reduction measures solely as a means to meet the requirements of national and international regulations. This positioning would account for companies improving the efficiency of their operations and attempting to benefit from carbon finance support. “Governments and companies in carbon-intensive sectors of the Middle East can turn the growing global pressure to address climate change into a great opportunity,” El Sayed said.
In addition, companies would collaborate with other energy stakeholders at the national level on select GHG emissions reduction initiatives with the aim of reducing national fossil fuel consumption. The greatest benefits in terms of emissions reductions would go to companies that seek to establish best-in-class GHG emissions performance and innovation on a global scale.
Opportunities grouped into five broad categories
Once companies establish their vision for GHG emissions management at the corporate and national levels, they should then identify potential emissions reduction initiatives across the value chain. These opportunities can be assembled into five broad categories:
Continuous Operations and Maintenance. Companies may achieve emissions reductions and fuel savings through improved process controls, direct inspection and maintenance programmes.
Improving Equipment Efficiency. These initiatives target GHG emissions reductions by improving the efficiency of equipment such as heaters, burners, boilers, compressors, turbines, and motor systems.
Reducing Heat Requirements. Companies in process industries can realise energy efficiency improvements via the optimal use of heat and optimisation of steam systems.
Flaring and Venting Reduction. In the oil and gas and petrochemicals industries, venting is a major source of direct methane emissions that often results in losses of significant value.
Structural Initiatives. While the initiatives above occur, companies may also selectively pursue more challenging and complex projects that involve multiple stakeholders or business units.
El Sayed specified, “Designing the GHG management programme to implement emissions reduction initiatives in phases will allow companies to focus first on ‘quick win’ projects with short implementation lead times, accelerated payback periods, and near-term emissions reduction potential.”
Achieving quick wins will also boost confidence in such projects by raising awareness of the company’s success. “By adopting a systematic and programmatic approach to managing their GHG emissions, they can support the long-term sustainability of fossil fuels while improving their public image, enhancing their capabilities, and making profits,” concluded Fayad.
Aparna Shivpuri Arya
Aparna Shivpuri Arya is Assistant Editor, Business Group, CPI, Dubai. Before joining CPI, I was working with UNESCAP in Bangkok. I have a Masters degree in International Law and Economics from Switzerland and a Masters degree in International Studies from National University of Singapore. I have worked with think tanks across countries on international trade issues.