Companies the world over have been setting targets to reduce CO2 emissions from their operations and supply chains. That’s not new: what is new is the trend to calculate the carbon footprint of individual products, something that regulators and industry associations are increasingly pushing companies to do.
This sort of granular product-level carbon accounting is not easy, as my colleagues and I write in a new report, Rethinking Corporate Decarbonization: From Enterprise Targets to Product Strategies. But for energy companies, especially those in Gulf Cooperation Council member countries, it presents a very real opportunity to differentiate themselves.
That’s because the products of Gulf producers typically have lower carbon intensity than those of their global competitors (see chart). Being able to demonstrate that difference will give them a competitive edge and ensure their products have a long-term route to market. That in turn will attract investment, both financial and in terms of human capital. In other words, getting ahead of this trend is a winning strategy for Gulf producers.
GCC crudes are less carbon-intensive to produce than those of peers
Source: Strategy& analysis; Dixit, Y., El-Houjeiri, H., Monfort, J.C., et al. Carbon intensity of global crude oil trading and market policy implications. Nature Communications 14, 5975 (2023). https://doi.org/10.1038/s41467-023-41701-z
Major energy players in the GCC already report their overall carbon emissions as part of national submissions to the UN Climate Change secretariat. Pressure to account for product-level emissions is coming from a range of international bodies, including the European Union, which is requiring companies that sell carbon-intense products like steel and fertilizers to the EU to report their embedded carbon intensity along the entire value chain, as well as from industry associations like the International Civil Aviation Organization, which is requiring airlines to mitigate or offset CO₂ emissions above 2019 levels. That puts pressure on producers of jet fuel.
At Strategy&, we have developed a 3D framework which represents a real-time view of the latest global policies that affect sectors and products. GCC energy companies can use it to align carbon accounting and emissions mitigation efforts with regulatory demands and market expectations.
Our report outlines some ways in which GCC energy players can make the leap to more detailed product-level accounting. They include:
- Codifying and deploying a comprehensive product-level carbon accounting framework that complies with the latest global and national requirements.
- Investing in automation and data management systems that can help measure, report, and verify carbon emissions data more efficiently.
- Prioritizing decarbonization efforts to maximize impact on key products going to major markets with leading carbon policies.
- Continuously monitoring national and international carbon regulatory and legislative developments - especially in key customer markets – and adapting to the changes.
The big message of our report: as the policy and market landscape shifts, GCC energy companies must go beyond traditional, broad decarbonization efforts to achieve lasting impact. Doing so will enable them to get ahead of peers in increasingly carbon-regulated markets.
The report is produced in collaboration with the World Future Energy Summit (WFES)
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