Carbon credits and their impact

The growing concern for climate change has spurred the adoption of carbon credits, a market-based mechanism aimed at reducing greenhouse gas (GHG) emissions. As environmental regulations become more stringent, the oil industry is increasingly impacted by carbon credits in various ways.

Purchasing offsets: a strategy for oil companies

One way in which carbon credits are affecting the oil industry is through the purchase of offsets. Offsets are measurable reductions in GHG emissions generated from projects that can be used to compensate for an organisation's emissions. By investing in these projects, oil companies can meet their emission reduction targets and demonstrate their commitment to sustainability.

For example, in 2021, Shell committed to investing US$100 million in nature-based carbon offset projects over five years. This investment aims to help the company achieve its goal of becoming a net-zero emissions energy business by 2050. Similarly, BP announced its plans to invest US$5 billion per year in low-carbon energy by 2030 and increase its carbon offset portfolio to 50 million tpy of CO₂ equivalent. These examples highlight how oil companies are actively purchasing offsets to mitigate the environmental impact of their operations, driving oil companies to purchase offsets to meet their emission reduction targets and demonstrate their commitment to sustainability. On the other hand, they are encouraging the adoption of carbon capture, utilisation and storage (CCUS) technologies, which can provide new revenue streams for oil companies by repurposing decommissioned wells and utilising captured CO₂.

Carbon capture, utilisation and storage: a new revenue stream

Another aspect of the carbon credit market that is affecting the oil industry is the emergence of CCUS technologies. These technologies capture CO₂ emissions at the source, store them underground or utilise them for various applications, such as enhanced oil recovery or creating valuable products like chemicals, fuels, and building materials.

CCUS can be particularly attractive for oil companies as they can transform decommissioned wells into potential revenue streams. By repurposing these wells for CO₂ storage, oil companies can monetise their existing assets while contributing to climate change mitigation efforts. Furthermore, some governments offer incentives for CCUS projects, making them even more appealing for the industry.

For instance, in 2021, the US Department of Energy (DOE) announced a US$12 million funding opportunity for the development of advanced CCS technologies. Such initiatives have encouraged companies like Occidental Petroleum, which is working on a large-scale CCS project in the Permian Basin. The project aims to capture 1 million tpy of CO₂ from industrial sources and use it for enhanced oil recovery. Once completed, it will become one of the largest CCS facilities in the US.

The need for a CO₂ transportation network

One of the critical challenges in implementing CCUS projects on a large-scale is the need for a vast network of CO₂ transportation infrastructure. This network would facilitate the movement of captured GHGs from emission sources to storage sites or utilisation facilities.

Currently, there are approximately 5000 miles of CO₂ pipelines in the US, primarily used for enhanced oil recovery. However, experts estimate that the US would need to build around 20 000 miles of new pipelines by 2040 to achieve its climate goals. The development of such a network is a massive undertaking and will require significant investments from both the public and private sectors.

The EU is also taking steps to expand its CO₂ transportation infrastructure. In 2021, the European Commission unveiled the ‘Fit for 55’ package, which includes a proposal to create a dedicated CO₂ transport network. This network would connect carbon-intensive industrial clusters with suitable storage sites and support the scaling up of CCUS technologies across the region.

Conclusion

The impact of carbon credits on the oil industry is multifaceted. On one hand, they are driving oil companies to purchase offsets to meet their emission reduction targets and demonstrate their commitment to sustainability. On the other hand, they are encouraging the adoption of CCUS technologies, which can provide new revenue streams for oil companies by repurposing decommissioned wells and utilising captured CO₂.

However, the successful implementation of CCUS projects on a large-scale requires a vast network of CO₂ transportation infrastructure. The current pipeline networks in regions like the US and Europe are not sufficient to support the widespread deployment of CCUS technologies. Therefore, significant investments in expanding these networks will be necessary to unlock the full potential of CCUS as a solution for mitigating climate change.

In conclusion, the carbon credit market is transforming the oil industry by pushing companies to adopt more sustainable practices and explore new business opportunities in the realm of CCUS. As the world strives to reduce GHG emissions and combat climate change, the oil industry will need to continue adapting and innovating to meet the evolving regulatory landscape and growing demand for clean energy solutions.

Read the article online at: https://www.worldpipelines.com/special-reports/29032023/carbon-credits-and-their-impact/