Greenhouse gas (GHG) emissions are a central focus in the global effort to combat climate change. These emissions are classified into three categories: Scope 1 (direct emissions from company operations), Scope 2 (emissions from purchased energy), and Scope 3 (all other indirect emissions, including those from the value chain, such as the use of sold products).
While companies have traditionally prioritized reducing Scope 1 and 2 emissions, Scope 3 emissions in Oil and Gas underscores a urgent need, particularly in the oil and gas sector, where they represent the largest share of the industry’s carbon footprint.
A Global Shift Toward Mandatory Scope 3 Reporting
Historically, oil and gas companies have faced little incentive to report or address Scope 3 emissions, driven by strong demand for fossil fuels and limited regulatory oversight. However, this laissez-faire approach is becoming increasingly unsustainable.
- Canada is consulting on adopting ISSB-aligned reporting standards
- The European Union requires large companies to report Scope 3 emissions
- Turkey has implemented Scope 3 reporting for certain sectors
- The United Kingdom mandates Scope 3 disclosure for listed companies
- Brazil and Singapore are considering or planning similar requirements
This wave of regulation signals a push for greater transparency and accountability, compelling companies to confront the full scope of their environmental impact.
Scope 3 Emissions Dominate in Oil and Gas
In the oil and gas industry, Scope 3 emissions—primarily from the combustion of sold products like gasoline, diesel, and natural gas—far outweigh Scope 1 and 2 emissions. Downstream emissions can account for up to 90% of a company’s total GHG footprint. This disproportionate contribution means that focusing solely on operational emissions (Scopes 1 and 2) is insufficient to mitigate the sector’s role in climate change. Addressing Scope 3 emissions is essential to tackling the industry’s true environmental impact.
Challenges in Managing Scope 3 Emissions
Reducing Scope 3 emissions is no simple task.
- Data Availability and Quality: Collecting accurate emissions data across the entire value chain—from suppliers to end users—is complex and resource-intensive
- Methodological Inconsistencies: Variations in how Scope 3 emissions are calculated can lead to inconsistent and incomparable results
- Attribution and Double-Counting: Determining which company is responsible for emissions, especially in shared value chains, risks double-counting or under-reporting
These challenges underscore the need for standardized methodologies and robust data collection systems to ensure reliable reporting and effective action.
Opportunities for Action
Despite these difficulties, oil and gas companies can address Scope 3 emissions through the following way:
- Invest in Low-Carbon Technologies: Innovations like carbon capture and storage (CCS) and hydrogen production can reduce emissions from fossil fuel use
- Diversify into Renewable Energy: Expanding into solar, wind, or other renewables can lessen reliance on carbon-intensive products
- Improve Energy Efficiency: Enhancing efficiency in operations and products can cut emissions throughout the value chain
These proactive measures offer pathways for the industry to adapt to a changing energy landscape.
A Strategic Imperative
Addressing Scope 3 emissions is not just a regulatory obligation but a strategic necessity. Ignoring these emissions is “dangerously short-sighted,” as tightening regulations, shifting market demands, and growing public pressure could leave unprepared companies vulnerable. Conversely, those that act now can enhance their competitiveness and contribute to a sustainable, low-carbon future.
New Perspectives on Scope 3 Emissions:
Shared Responsibility Between Producers and Consumers
Some argue that Scope 3 emissions should not fall solely on producers. Consumers, who drive demand for fossil fuels, could share accountability. This perspective could inspire policies like carbon pricing at the point of consumption or partnerships between companies and customers to promote cleaner energy alternatives.
Technological Innovation as a Game-Changer
Beyond CCS and hydrogen, emerging technologies like direct air capture or synthetic fuels could transform how the industry mitigates Scope 3 emissions. Companies that invest in these breakthroughs may not only reduce their carbon footprint but also position themselves as leaders in the energy transition.
Financial Implications for Investors
Investors are increasingly scrutinizing Scope 3 emissions when assessing company risk and valuation. Firms with high Scope 3 exposure may face higher capital costs or reduced investment, making emissions reduction a financial priority as much as an environmental one.
Geopolitical and Trade Dynamics
As nations implement carbon border taxes or emissions-based trade measures (e.g., the EU’s Carbon Border Adjustment Mechanism – CBAM), Scope 3 reporting could influence global competitiveness. Oil and gas companies may need to adapt their strategies to remain viable in markets with stringent carbon regulations.
The oil and gas industry stands at a critical juncture. With Scope 3 emissions comprising the bulk of its carbon footprint, the sector can no longer afford to focus solely on operational efficiencies. The global shift toward mandatory reporting, coupled with the dominance of Scope 3 emissions, demands a comprehensive approach to emissions management. By overcoming measurement challenges and seizing opportunities in low-carbon technologies, diversification, and collaboration, oil and gas companies can not only comply with evolving regulations but also secure their place in a decarbonizing world.
The time to act is now – addressing Scope 3 emissions is both a moral imperative and a strategic advantage for the industry’s future.
Learn more about Sustainable Energy and Low Carbon Energy with EnergyEdge.
Find upcoming courses below:
Carbon Border Adjustment Mechanism Awareness (CBAM)
Understanding and Managing Scope 3 Emissions – Master the Complexities of Value Chain Emissions
Greenhouse Gas Accounting, Mitigation, Certification and Reporting
Carbon Pricing, Tax & Trading Policies: Energy Transition & Global Carbon Policies
