Scope 3 Emissions: If the U.K. is Concerned About Them, Then More, Not Less, Local Natural Gas Supply Would Help: It’s Another Case of ‘Emissions-Reduction Backfire’

     Demand for affordable fuel is the real culprit of carbon emissions. As mitigation rises, affordability drops. Scope 3 emissions are indirect emissions, but they do make up the bulk of emissions, globally 75-90% of emissions. According to Aligned Incentives, a company that helps other companies with emissions reporting:

·        Scope 1 emissions are direct emissions that occur from sources owned or controlled by the company.

·        Scope 2 emissions are indirect emissions from a company’s purchased electricity or other forms of energy.

·        Scope 3 emissions are indirect emissions from upstream and downstream activities in a company’s value chain.

 

     Scope 3 emissions are the most difficult to measure and make up a large percentage of emissions. There are protocols for classifying and reporting Scope 3 emissions, but they are still estimates. Below are the categories of Scope 3 emissions and current regulations and reporting standards. The standards require phased-in reporting of these emissions through approved estimation methods.

     In a case I would call regulatory overreach, oil & gas development in the North Sea has been hampered by a recent ruling that is basically saying oil & gas projects will not be approved, or rather will be delayed, based on calculations of Scope 3 emissions. Two North Sea fields under development, Shell’s Jackdaw gas condensate field, and Equinor’s Rosebank oil field are affected by the ruling. Groups Uplift and Greenpeace argued that the projects were illegal since they did not consider Scope 3 emissions and a judge in Scotland agreed. The projects, already under early development, had their permits revoked. They will now have to resubmit their environmental impact assessments to account for Scope 3 emissions. The basis of the judge’s requirement for the resubmittal comes from a June 2024 UK Supreme Court ruling that says Scope 3 emissions must be considered and calculated. I would question why this could not be done in short order with limited delay of the projects. For practical purposes, they can be roughly estimated. Work on the projects is allowed to continue as the issue is resolved. Shell noted that stopping work on their project is "a highly complex process, with significant technical and operational issues now that infrastructure is in place."

     While this case is yet another result of radical environmental groups suing to delay energy projects in the public interest, this time with the help of a sympathetic judge adhering to a recent Supreme Court ruling, it is also perhaps an early example of how mandates can lead to the different results than planned. The net-zero by 2050 pledges, when turned into mandates and timebound emissions reduction trajectories, can influence decision-making so that short-term emissions may increase with the “hope” that long-term ones will decrease. This is a case in point since the UK imports most of its natural gas.

Below are the words of Jim Halliday from a LinkedIn post:

“And so to the recent judgment.”

“If Scope 3 emissions are a major determinant in assessing the suitability of a UK hydrocarbon project for approval, one can only determine that the UK government should compare such proposed Scope 3 footprint with the alternatives sources of the required product.”

“A focus on gas.”

“Given the lack of indigenous gas production, the U.K. currently imports gas. Almost 60% of imports come from Norway, the remaining 40+% comes from LNG from the likes of the US, Qatar and Peru. This imported LNG has a CO2 footprint 4 times higher than indigenous production. This would clearly suggest that solely on footprint metrics, indigenous gas production should be encouraged.”

“So why do we have a government policy of no new UK licenses and punitive tax rates that discourage what would clearly appear to be the more environmentally conscious choice?”

Thus, there is a compelling argument for approving these projects on environmental and emissions grounds that should be considered. It should trump the Scope 3 emissions argument, simply since the alternatives, when considered, result in higher emissions. The increased emissions of LNG or imported oil relative to pipelined local natural gas and oil would cancel out much of the newly accounted-for Scope 3 emissions. Regardless of how emissions are accounted for, the real immediate issue is always emissions now vs. emissions later. The goal is to reduce emissions. Denying these projects will no doubt result in higher emissions since it will result in more LNG being imported and less local gas and oil being supplied. No changes in demand are expected, unless ratcheted by carbon rules, which is what the case basically is – a ruling that reinforces a carbon tax. It seems very likely that the projects will proceed but the delay means more emissions in the near term.

     My own position is that estimating and reporting Scope 3 emissions is great and fine, as more data is always useful. However, mandating Scope 3 emissions reduction targets to unreasonable standards and timelines often serves to achieve effects other than desired. Delaying and scrapping pipelines can result in extending the life of coal-fired plants and burning more emissions-intense fuel oil in high-demand times, resulting in higher emissions. This case is just another example of this kind of emissions-reduction backfire, which is both unnecessary and counter-productive in several ways. First, it increases emissions relative to the alternative of approving the projects. Secondly, it delays needed projects that aid reliability and cost-effectiveness. Thirdly, it harms companies, by making them adhere to changing rules, shifting timelines, higher development costs, and project delay costs. Fourth, it is more costly than the alternative of approving the projects, for companies and for the consumer.

     Shell and especially Equinor, have invested heavily in reducing their own emissions and are among the most environmentally conscious oil & gas companies. Equinor said they fully expect the projects to go forward and also plans to “fast-forward” the remaining approval process to get its Rosebank development offshore the UK approved by regulators and government.

 

References:

 

Scottish court rules against two new North Sea oil and gas fields. AFP. Legit. January 30, 2025. Scottish court rules against two new North Sea oil and gas fields

Equinor will seek to ‘fast-forward’ remaining approval process to get Rosebank off the ground. Upstream. February 6, 2025. Exclusive: Equinor will seek to ‘fast-forward’ remaining approval process to get Rosebank off the ground | Upstream

Navigating mandatory Scope 3 emissions reporting in the EU, US, and beyond. Aligned Incentives. April 26, 2024. Navigating mandatory Scope 3 emissions reporting in the EU, US, and beyond - Aligned Incentives