Curbing Scope 3 GHGs remains a challenge across all sectors: analysts

The challenge of curbing "Scope 3" GHG emissions generated by the use of everyday carbon-intensive products will be the focus of an IHS Markit webinar on Climate Readiness and the Journey to Net Zero by 2050 on 16 and 17 June.

The question being asked is whether regulators, investors, and corporations are ready to embrace this change. Do the regulatory, financial, and industrial sectors still need to make more changes to how they operate in the transition to a low-carbon economy? If so, what are they, and what challenges do they face in that journey?

The assembled speakers for the webinar, who include policymakers in the US and UK as well as IHS Markit analysts, will tap their expertise to answer those questions as they pertain to key sectors—energy, transportation, and agriculture. They also will discuss key developments in those sectors in light of new policies and stakeholder demands rising around the globe.

Companies are under pressure not just from investors and customers, but from governments to make sure whatever it is they produce, be it power, a car, food, or a drug, results in net-zero Scope 3 carbon emissions. These are GHG emissions generated indirectly across the entire value chain of creating an end product, beginning with sourcing the raw materials and continuing through manufacturing, transporting, and using the product.

Investors are ready to take the plunge, but they want to know, and they have a right to know, what risks they face in backing technologies, products, and operations that add or detract from the global carbon footprint and contribute to more frequent global warming impacts.

And that is where the role of governments becomes important. They not only need to set goals or signposts, such as a carbon price, but also standards to ensure that all companies are reporting their GHG emissions uniformly, allowing investors to compare risks and decide where to employ their capital.

IHS Markit data show that all sectors, not just the energy, transportation, and agricultural sectors that are key sources of GHGs, have to figure out how to deal with Scope 3 emissions, IHS Markit Chief Energy Strategist Atul Arya said in previewing his webinar presentation.

In Arya's opinion, the power sector is best positioned today among the various parts of the energy sector to meet the net-zero goal, as the technologies for wind and solar generation are already in place and affordable, though "oil and gas companies have to figure this out."

Vijay Subramanian, director for global CO2 compliance in IHS Markit's automotive group, will discuss the net-zero challenges facing the transport sector, especially Scope 3 emissions.

Drawing investment

Attracting investment in clean energy solutions in communities heavily reliant on fossil fuels is another challenge, not just for the companies involved, but for the jurisdictions themselves.

All companies, but especially those in the energy sector, need some sort of signpost like a carbon price to guide their net-zero strategies to develop low-carbon, clean energy solutions, Arya said.

Government policies, rather than how companies are structured, will drive how the energy sector reaches net-zero carbon targets, he said, adding that the policies in the US and Europe are different to that being pursued in Asia.

Government investment also is needed to spur innovation through research and development, and Arya said there is a major role for private sector investment too.

Arya agreed with a recent Ceres report that private equity firms that have trillions of dollars in assets under management have been holding back. He said that is because they are waiting for clear government policies. "Why would the private sector invest in carbon capture unless there is clear government policy?" Arya asked.

North Dakota Commissioner James Leiman, who will deliver the webinar's keynote address on 16 June, will focus on how he has made low-carbon solutions a viable investment opportunity in a state that is heavily reliant on fossil fuels.

The Great Plains state has benefited from the recent oil and natural gas boom as it sits astride the Bakken Shale. But the state is also set to be home to what its backers say would be the world's largest carbon capture and storage facility announced yet. Known as Project Tundra, the facility is set to capture up to 90% of CO2 emissions from coal-fired units at the 705-MW Milton Young Power Station.

Leiman believes North Dakota is attractive to investors looking to tap into carbon capture and storage because it already has the infrastructure and regulatory structure in place to inject CO2 into federally permitted underground wells.

Asia Pacific energy demand

The 17 July webinar will focus on the Asia Pacific (APAC) region, which has traditionally relied on fossil fuels for power and for its industrial sector, and is where much of the global energy transition is expected to take place.

China has set an "ambitious goal" to reach carbon neutrality by 2060 because it has vast coal deposits, limited oil resources, and cannot afford to import its gas needs, Sabrina Zhang, who heads IHS Markit's APAC Strategic Governance Advisory and Environmental, Social and Governance (ESG) Integration group, said in a preview of her talk.

"That is why ESG investment is very important to facilitate the transition," Zhang said.

Led by China and India, APAC is "the sink" for capital expenditure in renewable energy over the next five years as the region taps into the investment opportunities these energy sources provide, according to Gauri Jauhar, IHS Markit executive director for energy transition and cleantech consulting, who also will be one of the webinar's speakers.

Between 2021 and 2025, IHS Markit expects $720 billion in investment, which represents 55% of cumulative capital expenditure, on renewables, be they wind, solar, biomass, or geothermal.

China continues to lead the pack in terms of record investments in all forms of renewable energy sources, be it wind, solar, or biomass. The world's second-largest economy by GDP is now looking to build up its renewable capacity in anticipation of 2025 or 2027, depending on what projections you follow, when its coal capacity is expected to peak.

Uniform reporting standards

It is no surprise then to learn that investors are chomping at the bit to find out when regulators will agree on a uniform set of rules for disclosing climate risk. Corporations and investors with more than $40 trillion in assets under management urged G7 leaders who met 11-13 June to back and adopt mandatory climate risk disclosures based on the voluntary Task Force on Climate-Related Financial Disclosure (TCFD) framework, which now serves as the gold standard in most countries.

The leaders of Canada, France, Germany, Italy, Japan, US, and the UK listened, and issued a joint communique that voiced support for the TCFD framework, provided it is in line with domestic regulatory schemes already in place. They also recognized "the potential for high integrity carbon markets and carbon pricing to foster cost-efficient reductions in emission levels, drive innovation, and enable a transformation to net zero."

The G7 leaders also endorsed the newly launched Taskforce on Nature-related Financial Disclosures and said they look forward to its recommendations.

During her keynote speech on 17 June, Claudia Chapman, head of stewardship at the UK's Financial Reporting Council, will discuss the opportunity and responsibility investors have in the stewardship of climate-related ambitions, along with the data and reporting they need to effectively hold companies accountable for their goals.

IHS Markit Americas Head of Regulatory Affairs Salman Banaei will provide an update on where the US Securities and Exchange Commission stands with respect to its rulemaking on requiring climate risk disclosures. In March, the SEC sought public input on approaches for tightening the current voluntary climate risk reporting regime.

According to Banaei, who served with current SEC Chairman Gary Gensler from 2009 to 2013, the proposed regulation, which the agency expects to release in October, will ensure standardization of climate risk disclosures and opportunities so they are consistent, comparable and reliable.

"A particular focus will be disclosures that provide credibility for net zero commitments," he predicted in a preview.

Consistency and transparency are key elements that have been missing from company reports examined by nonprofit investor and citizen groups that include Ceres, a nonprofit network of institutional investors seeking climate-neutral and sustainable solutions, as well as nonprofits Center for American Progress and Environmental Defense Fund, they say.

Posted 15 June 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst