A new report shows that strong carbon accounting is the only way to regulate all aspects of greenhouse emissions — and it’s on its way.
The world’s largest oil companies are selling rather than retiring assets — and then often claiming progress in meeting greenhouse gas reduction pledges.
A new report from Columbia University’s Center on Sustainable Investment and the Sabin Center shows that selling polluting assets doesn’t reduce emissions, but merely transfers them. The new owners may end up releasing even more climate-damaging greenhouse gasses by keeping these assets going long past their expected use-by date.
The five leading Western oil majors — BP, Chevron, Exxon Mobil, Shell and TotalEnergies — divested roughly $16 billion of assets in 2022, almost half the $30 billion sold in 2021, according to a tally of figures drawn from the companies’ reports. These companies are planning to further offload more than $30 billion worth of oil and gas operations in the coming years.
The Columbia/Sabine report, “Transferred Emissions Are Still Emissions: Why Fossil Fuel Asset Sales Need Enhanced Transparency and Carbon Accounting,” found that existing corporate disclosure standards in the EU, U.K. and U.S. aren’t sufficient for tracking greenhouse gas emissions from fossil fuel asset sales by major oil companies. It found through laborious research that many sales resulted in higher greenhouse gas emissions because they were purchased by less-efficient operators with track records even worse than the giant oil companies.
“Selling off assets for oil and coal companies is a fast way to get emissions off the books, but it’s bad news for climate change as these projects continue to emit greenhouse gasses into the atmosphere,” said Tom Sanzillo, Director of Financial Analysis at the Institute for Economics and Financial Analysis (IEEFA).
The report hammers home the point that emissions must not only be measured, but that suitable public policies and regulatory systems are needed to use the measurements to meet critical emissions reduction benchmarks.
“It’s time we really get serious about reputable sources on emissions data, particularly for fossil fuel companies”
Current accounting tools work to record the type, size and value of assets down to the decimal point but, to date, climate change reporting does not require that companies apply these same laser-like accounting tools to greenhouse gas emissions. This allows for asset-selling companies to report transactions as emissions reduction while the emissions continue or grow under new owners.
There is no current international climate policy to build a uniform system of accounting that manages emissions.
“It’s time we really get serious about reputable sources on emissions data, particularly for fossil fuel companies,” Sanzillo said. “Right now it’s a dreadfully long process to try and sift through data and compare all the various companies and their systems. We need to develop a way to record and assess this kind of company data on emissions so that we understand what companies are really doing.”
Large investors are becoming aware of the reporting and selling-off problem. New York City Comptroller Brad Lander, for example, is asking for a careful examination of the metrics used by companies and how those metrics reflect their climate plans and accomplishments. When the head of one of the largest public pension funds in the country wants more clarity about how we measure the problem and solutions related to climate change before investing, companies should sit up and listen.
The oil and gas sector — once a leading investment opportunity for mainstream funds internationally — is now low on the list of financial performers. One reason, Sanzillo said, is the sector’s inability, and in some cases total unwillingness, to stay ahead of the carbon curve.
And it’s not just emissions reporting that is out of step with the climate agreements that countries have signed on to.
IEEFA research shows that the U.S. is on track to close half of its coal-fired generation capacity by 2026 with roughly 40% — about 80.6 gigawatts — of remaining U.S. coal-fired capacity set to close by the end of 2030.
In addition to showing the oil and gas sector’s growing carbon reporting challenges, the Columbia/Sabin report has particular relevance to the U.S. market because its reporting lags behind the rest of the world. In Europe, the discussions around carbon taxonomy and a systematic plan for economic growth is creating new approaches to product design, production process planning and the application of technologies all aimed at lowering the carbon footprint of economic activity.
“The European taxonomy process — life cycle economics — is one possible way that we can successfully measure and report emissions globally,” Sanzillo said. “Right now, the U.S. rejects the kind of accounting systems that can improve sustainable investing. U.S. companies are not working with that in any real way. There is the chance that other markets will take up the taxonomy and it will become the global standard for reporting… That could put pressure on the U.S. to fall in line or it might just weaken the country’s trade position.”
“The U.S. is playing mean politics when it comes to climate change.”
For now, the U.S. is standing on the sidelines as Europe, China, Japan and other major economies debate a regulatory framework where national climate commitments are front and center.
Sanzillo suggests that Washington’s failure to participate is sending the wrong market signals. The Columbia/Sabin researchers say government interest should be coming from the Federal Energy Regulatory Commission, as well as the departments of Commerce, Treasury and Energy if the U.S. is to stay competitive and on top of how to regulate emissions in line with international markets.
“The U.S. is playing mean politics when it comes to climate change,” Sanzillo said. “Oil, gas and coal are a protected political class in the U.S. Money runs the country. and even with the regulations that we have, it’s not a given that the government will actually follow through on any of them.”
In the long term, he says the U.S. is ignoring the speed of regulatory efforts internationally at its economic peril. If the U.S. isn’t at the regulatory table with a willingness to put best practice into place, it risks seeing its businesses and products becoming uncompetitive within the global market at a time when climate change commitments and reporting are becoming critical considerations.