In 1990 the Intergovernmental Panel on Climate Change (IPCC) issued its first assessment which claimed that certain emission from human related activities were the cause of the substantial increase in the concentration of greenhouse gases, leading to a rise in earth’s temperature .
In its fifth assessment, published almost 25 years later, the IPCC categorically asserts, with more that 90% certainty, that human activities are the main contributor of the rise in global average temperature over the last 50 years. Additionally, the assessment states that “warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level”, and that “unmitigated climate change would, in the long term, be likely to exceed the capacity of natural, managed and human systems to adapt”. Fortunately, however, the report also notes that “many impacts [of climate change] can be reduced, delayed or avoided by mitigation” .
As a result of these reports and the overwhelming scientific consensus, the Paris Agreement, a historic agreement that provides a solid framework to address the threat of climate change, was signed in 2015. As part of the agreement, the countries involved would establish CO2 emission targets and outline the steps that each country will take to address climate change .
As Statoil, one of the largest integrated petroleum companies in the world, is 67% owned by the government of Norway, one of the main backers of the Paris Agreement, its top leadership is specially incentivized to turning Statoil a low carbon footprint operator and support the ambitious goals of the Paris Agreement .
From a strategic point of view, Statoil’s management recognizes that being a low carbon operator is a source of completive advantage and better positions the firm to provide long-term shareholder value. Being a large oil and gas producer, however, presents special challenges for the Norwegian company, particularly, balancing the challenging tasks of minimizing carbon intensity and its associated costs .
To address the challenge presented by climate change, Statoil’s leadership has put forth a series of initiatives to achieve annual emission reductions of 3 million tons by 2030. An important part of Statoil’s strategy for reducing emissions consists of implementing innovative solutions as part of its logistics and supply chain processes .
From 2011 to 2016, Statoil has almost halved CO2 emissions from its logistics and transportation operations, which include more than 40 vessels, 19 helicopters and thousands of trucks. In only 5 years, the Norwegian company has been able to take emissions to 325,000 from 605,000 tons of CO2, a reduction equivalent to the annual emissions of 140,000 cars .
Examples of how Statoil has achieved these results and plans to position itself as a low carbon operator include, maximizing vessel and helicopter capacity utilization, and choosing vehicles with the highest fuel efficiency metrics, but perhaps the most radical approach is the way that its sourcing processes for vessels operating Norwegian Continental Shelf are being modified .
Focusing on minimizing carbon emission from its shuttle tankers, Statoil has awarded long term contracts to build tankers with LNG dual fuel intake for main and auxiliary engines, with an option to add a volatile compound recovery system. The tankers will be in operation by 2019 and will be the first LNG and most fuel-efficient vessels of their class . Additionally, as part of its emission reduction strategy, Statoil will start awarding long-term contracts to providers whose marine vessels have hybrid batteries or the ability to use shore power. The implementation of hybrid batteries will significantly reduce fuel consumption, and consequently carbon footprint. Currently, Statoil has 2 battery operated vessels and plans to replace or retrofit its remaining 14 vessels with hybrid batteries .
The close relationship that Statoil has with the Norwegian State has positioned the company to be at the forefront of energy efficiency in the oil and gas industry, and although costly, management sees the investment in energy efficient equipment as a source of future competitive advantage. Two questions remain, however: (1) Will other companies in this industry share Statoil’s vision and incorporate energy efficiency as part of their strategy, if their management and boards are not incentivized by their respective governments? (2) To what degree should governments intervene in setting the climate strategy of major oil and gas companies around the world?
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