What Does Carbon Offsetting Mean for Oil and Gas Companies?

As more and more oil and gas firms pledge support for Net Zero, carbon offsetting is one mechanism the industry can use as part of a mix of approaches to reduce overall emissions.

Simply put, carbon offsetting means to balance out emissions from one source (such as for instance, emissions from gas flaring in oil) by reducing emissions by the same amount in another.  

That could mean, for instance, by investing in schemes that tap into the power of natural systems such as plants and forests to remove GHGs from the atmosphere. An oil producer could pay, for instance, for someone to plant enough trees to offset a barrel of oil.

One mechanism that allows oil and gas producers to achieve this is through the buying and selling of carbon offset credits. These are essentially a financial scheme that allows emitters of carbon to purchase credits from entities that reduce or avert GHGs.

Standards and frameworks, such as VERRA and SustainCERT, aim to measure and certify that these offset projects are delivering the carbon reductions they promise.

Italian energy giant ENI is one company that has been focusing on forest preservation to offset its emissions, for instance. It is exploring several initiatives in Africa that work with local people to conserve the forest ecosystems to serve as a carbon sink.  

“We have made forest conservation projects one of the pillars of our decarbonization strategy, recognising the important and growing role of Natural Climate Solutions (NCS) in limiting global warming to 1.5°C, as set out in the more ambitious Paris Agreement target,” says the company on its website.

The projects that ENI is investing in is run through REDD+, a scheme run by the Forest Carbon Partnership Facility. They are expected to generated carbon credits worth around 6 million tonnes per year of C02 equivalent by 2024.

Lundin Energy, a European oil and gas explorer, on the other hand, aims to build its own natural carbon capture projects and has earmarked $35 million to plant over 8 million trees in Northern Spain and Ghana, which, it says, is expected to remove a total of 2.6 million tons of C02 as the trees mature.  

But is this all just an environmental slight of hand?

Proponents argue that by allowing emission intensive industries to purchase carbon credits it enables for investment in sustainability projects, such as green energy or forestry renewal, that otherwise would not receive funding.  Forestry conversation schemes such as the one that ENI is investing in, for instance, help to preserve the earth’s natural carbon sinks that may otherwise be lost.

Critics of carbon offset schemes, on the other hand, say that they are simply a mechanism for polluters to continue to pollute while making themselves feel good about it. Pulling oil from the ground and using it to fuel cars still generates the same amount of C02, they would argue.

Ultimately, carbon offset is only one tool in the kit for oil and gas operators to get to Net Zero. According to analysis by McKinsey, the sector must reduce emissions by 3.4 gigatons of carbon-dioxide equivalent (GtCO₂e) a year by 2050. Clearly, more than tree planting will be required to meet those goals.

Interested in learning more?

If you’re tasked with reducing emissions in your operations – or for future greenfield projects, join us at Decarbonizing Oil & Gas, taking place at the Norris Conference Centre, Houston on April 5-6, 2022. Join over 200 of your industry peers as they forge their pathway to Net Zero. Find out more details here: Decarbonizing Oil & Gas (oilandgasiq.com)