The dust has now settled following the COP28 conference hosted in Dubai at the end of 2023. But how will the agreements and proclamations from the United Nations’ latest annual climate meeting impact the fossil fuel energy industry?

Sultan Al Jaber is chair of Abu Dhabi National Oil Company (ADNOC) and commentators were quick to suggest that his appointment as president of COP28 represented a potential conflict of interest. As an article on the BBC website pointed out, ADNOC produced 2.7 barrels of oil a day during 2021 and plans to double that by 2027. As someone leading a company that is responsible for the increasing production of fossil fuels, many felt he was not best person to lead a conference seeking to deliver a sustainable, greener future.

In contrast, Al Jaber said his experience and his leadership position within the energy industry gave him an insider’s perspective of how the energy sector could lead the successful transition to green energy production and consumption on a worldwide basis.

Indeed, for the first time, the agreement reached at the end of COP28 set out the need to transition away from fossil fuels and included the following actions:

• Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science
• Phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible

Simon Stiell, Climate Change Executive Secretary at the United Nations, was in no doubt about the impact the agreement would have on the fossil fuel sector.

He said: “Whilst we didn’t turn the page on the fossil fuel era in Dubai, this outcome is the beginning of the end. Now all governments and businesses need to turn these pledges into real-economy outcomes, without delay.”

Fossil fuel energy sector

During the conference, Al Jaber focused attention on high carbon emitting sectors and said they did not have to be the villains in the story. Instead, they could and must play a leading role in advancing the world successfully towards its net zero goal.

Highlighting this vision, a representative for COP 28 said of Al Jaber’s input: “He has clearly said that the oil and gas industry must tackle Scope 1 and 2 emissions [from their operations], must invest in clean energy and clean technologies to address scope 3 emissions [from burning fuels], and that all industry must align around keeping the north star of 1.5C within reach.”

So, what are Scope 1, 2 and 3 emissions and what are the implications for energy companies?

Scope 1, 2 and 3 are a way of categorising the different kinds of carbon emissions any company creates in its own operations, and in its wider value chain. The categorisation was first used in the Green House Gas Protocol of 2001 and is still widely used today for mandatory reporting on the production of greenhouse gases.

The Greenhouse Gas Protocol says: “Developing a full [greenhouse gas] emissions inventory – incorporating Scope 1, Scope 2 and Scope 3 emissions – enables companies to understand their full value chain emissions and focus their efforts on the greatest reduction opportunities.”

In short, Scope 1 covers direct emissions – those from sources that are owned or controlled by the company. Scope 2 covers indirect emissions – those released into the atmosphere from the use of purchased energy. Scope 3 covers other indirect emissions – those generated across the value chain in the normal course of doing business, and which are not categorised as scope 1 or 2.

Scope 3 is the most problematic for the fossil fuel energy industry due to the nature of its products and the emissions that come from customers using their coal, oil and gas.

Multinational energy companies have it in their power to quickly reduce Scope 1 and 2 emissions and have already invested significant amounts in decarbonisation practices and technologies to address Scope 1, such as powering offshore installations from shore, while implementing corporate social responsibility strategies to address scope 2, such as investing in more energy efficient office premises.

But addressing Scope 3, where most emissions come from for these companies, requires a genuine change in direction and could include increased activity in some of the following areas:

• Changing the mix of petroleum products sold and the customers to which they are sold
• Generating increased renewable energy output from technologies such as wind, solar, nuclear
• Developing and deploying electric vehicle charging infrastructure to accelerate the switch to EVs
• Producing batteries for EVs
• Developing biofuels, low carbon hydrogen and sustainable aviation fuels
• Increasing the supply LNG, bio-LNG and biofuels to bunkering hubs for the maritime market
• In the short-term, promoting and supporting gas-fired power plants which discharge a fraction of the greenhouse gases produced by coal-powered equivalents

For a long time, environmental campaigners have rightly identified the fossil fuel energy sector as a major contributor to climate change. This view has not changed, but in the wake of COP28 there is, perhaps, a more mainstream realisation of the role these companies can play in accelerating the switch away from their products and in more actively developing their commercial activities in greener alternatives.

How quickly these multinational energy corporations change their direction of travel remains to be seen and
the switch will come with significant commercial challenges. But those that move fastest will develop new markets for the long-term, while those that are sluggish look set to face significantly increased pressure from international governments.

COP28 might not have ended the fossil fuel era, but it has certainly played a part in delivering a step-change in thinking about how the sector must accelerate its evolution.

Mike McMahon

Managing Director, Upstream Energy Natural Resources
mike.mcmahon@charlestaylor.com

Chris Brown

Managing Director, Green Energy
Natural Resources
chris.brown@charlestaylor.com