It has been a bumpy, roller-coaster ride for companies in the Energy industry. Fluctuating oil prices, competition from energy disruptors like Elon Musk’s Tesla—the list goes on. In danger of being perceived as a sunset industry, companies are scrambling to pivot from old business models and reinvent their image.
It has long been recognised that carbon footprint is the heart of the problem. ‘Carbon footprint’ is shorthand for the amount of Greenhouse Gases (GHGs) released into the atmosphere as a result of our activities, measured as the equivalent of carbon-dioxide (CO2 eq) that consume fossil fuels, such as burning, fuelling vehicles, and powering industrial processes. Carbon dioxide released into the air is part of greenhouse gases, a notorious contributor to global warming.
With the clarion call to achieve Net Zero emissions by 2050 or earlier, Energy companies are racing against time to find sustainable ways to reduce their carbon footprint, develop renewable and clean energy sources, and make them commercially viable.
Renewable energy comes from natural sources such as wind, sunlight, tides, and geothermal. Unlike non-renewable fossil fuels, while the world keeps turning, renewables will provide a constant source of relatively clean energy.
However, even renewables have a carbon footprint across their lifespan—from CO2 eq generated during manufacturing, through that coming from unit maintenance and energy distribution, to end-of-life disposal. Renewable and clean energy sources are still the best alternatives as compared to non-renewable, high-carbon coal, oil, and gas.
With the increase in global temperature by 1.1°C, Oil & Gas has contributed the lion’s share with 75% of total emissions. This has prompted various quarters comprising the governments, stakeholders, and activists as young as Greta Thunberg to take them to task.
To make matters interesting, 2050 will be the year where:
- The human population will reach 10 billion
- Global electricity demand will have doubled
- The annual market for low emissions energy will reach USD >1 trillion, effectively replacing the current market for carbon-based fuels
It will make one’s head spin just by looking at the forecasts!
That’s why Energy companies are now at the forefront in charting new territories in the face of challenges and opportunities. Change is no longer an option—it’s an existential imperative if we are not to go the same way as the dinosaurs who ate the vegetation we now rely on to run our world!
Transforming challenges into opportunities
The “Oil & Gas” industry has been rebranded to “Energy” and brought about a paradigm shift. This has pushed companies out of their comfort zones and created more urgency to explore and develop energy sources beyond oil and gas.
However, the Energy sector has long been pioneering low-carbon investments in solar and wind energy, as well as building the associated technologies and expertise. Traditional Oil & Gas is leveraging these and enhancing them to suit their purposes.
At a more micro level, individual companies have taken steps to disassociate non-renewable fossil fuels from their branding and image. For example, Total has undergone rebranding and they are now called TotalEnergies.
BP tried to rebrand from British Petroleum to Beyond Petroleum more than a decade ago but abandoned it due to the public backlash from the disastrous Deepwater Horizon incident. Now there’s clear evidence that going beyond petroleum is their clear mid- to long-term focus.
Shell has also gone through massive organisational restructuring to support their focus on renewable energy and power projects.
However, redefining brands and cleaning up public images are not enough in the face of current global warming, energy crises, and mounting pressures from both governmental and non-governmental fronts.
Definitive actions from global climate conferences
The UN Climate Change Conference (COP26) held in Glasgow in late 2021 assembled world leaders to discuss climate and environmental issues as well as solutions and technologies.
The participating countries were unanimous in agreeing to the action plans including upholding their commitment to reducing GHG emissions, a key imperative from the previous summit in 2015 (Paris Agreement).
And there’s Climate Action 100+ which is an investor-led initiative to keep the world’s largest GHG emitters in check. It has an investment portfolio of USD 60 trillion with investments in companies responsible for 80% of global industrial emissions.
Saying they have a big influence in this industry is an understatement because, under the initiative, companies need to demonstrate the carbon impact of a proposed project. Failure to do so will make it increasingly difficult for them to secure funding from the investors.
What’s more—they’ve also set a new goal for companies they invest in to achieve Net Zero earlier than 2050.
Government legislation
Governments are imposing more stringent regulations as part of their pledge to curb global warming. These are done through the enforcement of taxes and penalties.
Carbon import duties are levied by the government on imported goods based on the amounts of carbon emissions resulting from their production.
For carbon cap-and-trade, the government sets an allowance of total emissions for each company. These can be traded, but excess emissions are fined at €100/tCO2-eq, projected to increase to €210 by 2050.
Of course, these are just transitional measures before the long-term solution of clean, sustainable energy takes effect. All the same, Energy companies are already having to account for these factors in their operations.
Ageing workforce
For many years, working in Oil & Gas had a certain prestige and exclusiveness, but the same can’t be said today. Our young generations are more environmentally-conscious and more vocal in calling out those harming the environment. It’s no surprise the industry is having a hard time recruiting Gen-Z and millennials as successors to their ageing workforce. And for those prioritising job security, there’s no sense working in an industry that’s has been perceived to be on its way out!
When it comes to solidifying their commitment to reducing carbon footprint and commercialising low-carbon energy sources, Energy companies are developing clear roadmaps, translated into discernible actions.
By demonstrating this, it’s easier to attract the younger generations into the workforce. At the same time, they can tap into their vast potential and fresh perspectives to tackle environmental problems together.
The role of data in measuring carbon footprint
With these challenges afoot, Energy companies are developing or acquiring the latest technologies in renewable and clean energy.
But first, you need to devise a structured way to measure carbon emissions in your operations and along the supply chain. After all, you can’t manage what you can’t measure. And it’ll soon become mandatory for you to disclose your carbon emissions data to governments, investors, etc.
How does one even begin to measure carbon emissions? The most prevalent way of measuring (albeit, not that accurately) is based on the value of the item, i.e., value-based measurements.
A company’s GHG emissions are categorised into 3 scopes:
- Scope 1 – company-owned direct emissions from burning fossil fuels on site, e.g., company facilities and company vehicles.
- Scope 2 – company-owned indirect emissions from the generation of purchased energy from a utility provider, e.g., purchased electricity, heating, and cooling for own use.
- Scope 3 – indirect emissions across the company’s supply chain, encompassing both upstream and downstream, e.g., purchased goods and services, product transportation and distribution, waste generation, employee commuting, and business travels.
Measuring and controlling Scope 1 and 2 emissions are relatively straightforward because they all occur within the company.
It’s the Scope 3 emissions that are harder to measure and manage. Disregarding it entirely will convey a wrong picture of a company’s carbon footprint as they usually account for more than 70% of the total emissions. For Energy companies, this figure is usually above 90%!
Single source of optimised, accessible, trustworthy data
As Scope 3 emissions come from supply chain, it’s only logical to build the measurements through its core data areas like materials, assets, and suppliers. Also called master data, it’s the building block of a company’s whole operations consisting of inventory management, asset maintenance, procurement, and many more.
While a typical Master Data Management (MDM) platform can serve the purpose of maintaining and structuring master data, you can enhance the governance of supply chain data via means of a taxonomy which is a structured dictionary with individual item templates consisting of nouns, modifiers and characteristics.
You can build your taxonomy based on Petroleum Industry Data Dictionary (PIDD), an open standard, industry-derived, and maintained technical dictionary. It includes United Nations Standard Products and Services Code (UNSPSC) as a material classification scheme. The items are first mapped to UNSPSC, starting at Segment 20 for all mining and well-drilling machinery down to the commodity level, allocating an 8-digit code. It is further expanded with additional attributes or characteristics to create a unique structured description.
To illustrate an example, let’s take a liner hanger. As ‘hanger’ is a material class on its own and comes in different types, it’s not enough to just record ‘liner hanger’ in the free-text field and expect people to easily find it. ‘Liner’ describes the type of the ‘hanger’. So, ‘hanger’ is tagged as the noun and ‘liner’ is the modifier. Then, we can populate other distinguishing attributes like size, weight, application, etc. We’re now able to differentiate it from other types of hangers, like clothes hangers that are used in a totally different industry!
With this taxonomy in place, you can define rules to deduplicate and harmonise data that comes from different sources to establish Golden Records—a single version of the truth for data. For further streamlining, you can link all stocked spares to Bills of Material. This allows you to identify and remove unrequired items from inventory.
With high-quality, trustworthy data, you’ll be in a better position to manage and track your materials, but what does this have to do with measuring carbon emissions? We’re getting there!
Add carbon footprint information into supply chain items
Now that you have a taxonomy for your materials data, you can extend it with carbon footprint attribute fields such as Manufacturing GHG Rating, Operations GHG Rating, etc. This way, parties delivering or responsible for the products/services across your supply chain can populate the emissions data.
For example, you can get your ball bearing supplier to input the carbon emissions data of their ball bearing into their item description.
Over time, you’ll gain a complete picture of your carbon emissions profile and inch closer towards reducing and solving your carbon footprint.
Under the umbrella of Petroleum Industry Data eXchange (PIDX), the Emissions Transparency Data eXchange (ETDX) aims to do just that. This initiative will develop the energy data transition standards across industry participants, including leveraging PIDD to measure emissions data.
Prospecta is supporting this initiative by providing one of our lead SMEs as Chair of the PIDX Catalogue and Classification Workgroup to both run and maintain the PIDD, as well as advising the ETDX team on master data best practices.
Choose your suppliers wisely
As your suppliers are the most prominent actors in your supply chain, it’d be wise to choose those with minimal carbon footprint, as the collective results can drastically lower your Scope 3 emissions.
The details you need can be obtained through the emissions data provided by your suppliers for their respective products/services. Another way is to include carbon impact profile as part of your procurement evaluation criteria and price books.
With this data, you can rationalise and rank your suppliers according to their carbon footprint. This allows you to make a well-informed decision about which suppliers you should establish relationships with.
Benefits to your organisation
By systematically managing and governing your data, you can master the first steps of capturing and measuring emissions data across your supply chain. And before you know it, you’ll experience other benefits too!
Reduced emissions
Capturing emissions data across the supply chain enables better transparency. This lets you identify areas (e.g., specific materials or suppliers) where you can reduce emissions.
Through identification and elimination of duplicate spares from the inventory you can reduce the carbon dioxide equivalent tied up in unnecessary spares. This also introduces leanness and effectiveness into inventory management.
Savings across the business
Reducing the inventory’s carbon footprint can help you free up working capital for better use such as funding your ultra-crucial project—clean and renewable energy initiatives.
Clean, structured data allows you to have more accurate procurement, giving better clarity of the true volumes needed. These can be aggregated to drive contract negotiations that yield higher-volume discounts and added to price books.
Improved productivity and efficiency
Even after stock streamlining and reduction, pick rates can be improved with accurate and accessible data as it’d be easier for personnel to locate and retrieve items from warehouses. The time taken to do goods inspection can also be minimised.
Another benefit is improved wrench time as maintenance engineers can get on to the actual maintenance work. Having trustworthy data reduces times spent searching for the parts and then validating the item is the one needed.
Boost staff morale and retention
Believe it or not, organisations can be adversely impacted by the frustration and low morale of employees who have to work with bad-quality data. If not kept in check, it can lead to a contagious lackadaisical attitude towards data, worsening data quality, and even prompting good people to leave the company.
With high-quality data, your people can deliver their jobs better, make wiser decisions, and collaborate more effectively. It can provide a morale boost for them, as they know they’re not just contributing to the company’s bottom line, but also helping to solve environmental issues.
Time to put your best foot forward
It’s the brutal truth that the future looks very challenging for an industry that’s pivoting from Oil & Gas to Energy.
However, with the proliferation of data and an increasingly mature master data technology market, you can leverage it to establish a strong footing in streamlining and managing your master data, including the capturing of emissions data across the value chain.
While on the journey, you’ll also gain useful insights on ways to reduce emissions and devise a strategic plan to develop and commercialise clean, renewable energy sources. Coupled with image branding and restructuring, you can have a strong re-entry into the Energy market; gain the trust of investors, governments and activists, and retain your good reputation.
The opportunity is there for the taking, with the emerging Energy market being of at least comparable size to the current carbon-based Oil & Gas market!
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