As Trump rolls back methane rules, what should the oil & gas industry do?

This post originally appeared on Forbes.

Recently, at an oil and gas industry event co-hosted by Energy Dialogues and Shell in Houston, Ben Ratner, a Director at Environmental Defense Fund, met up with Michael Maher, presently with Rice University’s Baker Institute for Public Policy and a former longtime economist with ExxonMobil, to discuss the future of the natural gas industry. Specifically, they talked about the growing divide between those—in government and in the industry—who want less environmental regulation, particularly over the issue of methane emissions, and those who see sensible regulation as the best way for the industry to assure its future as offering a cleaner alternative to other, dirtier, fossil fuels.

Since Michael and Ben met in Houston, the Trump Administration announced the U.S. departure from the Paris climate agreement and postponements and potential weakening of methane emission rules from the Environmental Protection Agency and Bureau of Land Management. These new developments put the industry divide into sharper focus.

States could now step up to address issues that the federal government was poised to take the lead on under rules promulgated by President Obama toward the end of his term. But will states act without industry prodding or at least, support for action? And will companies most worried about license to operate intervene against delays, weakening, or even elimination of nationwide standards? Mike and Ben discuss below.

Ben: As a former oil and gas industry employee, how do you think the industry should respond to the regulatory rollbacks of the Trump administration?

Michael: This administration is moving rapidly away from a federal role in climate change policies. The question for the oil and gas industry is whether to sit back and coast on the federal failure to act or to work with states to address greenhouse emissions. Coasting may look like a cost saver for the near term, but the pendulum will eventually swing back, and a reversal of Trump’s policies is a real prospect down the road. However, if enough states—with industry support—were to effectively address methane emissions it could provide guidance for federal action down the road and protect the industry against the reputational damage of being seen to have resisted sound environmental regulation.

Michael: In the current political climate, what do you see as the role of leading companies?

Ben: The great irony here is that while the Trump attacks on environmental standards are intended to help industry by reducing costs in the short term, they may end up inflicting much greater long-term damage. A classic case of “short term gain, long term pain.”

Energy consumers, institutional investors and citizens want cleaner energy, and scrapping rules that help the industry clean up may ultimately endanger the industry’s social license to operate and make it more difficult to do business. So we will be looking hard to see which companies step forward to slow down the deregulatory torrent that is tarnishing the industry’s reputation just as demand for cleaner energy is lifting off.

In recent days, Shell and Exxon reportedly stated that they are complying with EPA’s contested methane rules, but other companies have stayed silent. Companies like ConocoPhillips and BP voiced their support for the Paris international climate agreement. With the U.S. now withdrawing from the Paris accord, will companies like these make good on addressing climate change by publicly supporting policies aimed at reducing methane emissions? We haven’t seen true industry support at the federal regulatory level, at least not yet.

At the same time, regardless of what happens in Washington, states have a golden opportunity to develop their own methane policies. In Colorado, for example, companies like Noble Energy and Anadarko worked with EDF and the state to negotiate methane and air pollution standards that work for business and the environment.

Industry played a vital role in Colorado’s success, and there will be more opportunities for industry leaders to participate in regulatory development in other states.

Ben: Are there business and reputational impacts of failing to address methane emissions?

Michael: Natural gas has historically competed with other sellers with other fuels almost totally on price. But customers and officials are increasingly looking at energy options based on environmental benefits and not just price. There is a robust debate in the Northeast, for example, about how to move forward in decarbonizing their electric power system and it is not focused solely on the costs of alternatives.

In this regard, it is in the interest of the natural gas industry to be able to promote natural gas as a much cleaner alternative to coal. But methane and associated emissions from natural gas drilling operations cloud that cleaner-than-coal claim and plays into the hands of those supporting a more rapid shift to renewables and who argue for “keeping it in the ground.”

Michael: How does EDF view methane control as part of a company’s social responsibility?

Ben: How a company manages its natural gas leaks tells you a great deal about how responsible it is, because leaks cause climate damage and can harm people’s health—especially among the most vulnerable, like children and the elderly. Also, since methane is a commercial product, if a company doesn’t know or care how much of its own product is going into thin air, that’s not a good sign.

Southwestern Energy is one example of a leader that sets a methane target, conveys to its people the value of methane management, and implements leading practices in the field. Another is Statoil, which is working with EDF and an entrepreneur to pioneer efficient new automated methane monitoring technology. These kinds of efforts can deliver financial value by recouping lost product, and demonstrating to investors, communities and other key stakeholders their lived commitment to responsible corporate behavior.

Ben: How do you see the industry tackling the methane problem?

Michael: Farsighted, well operated companies are already taking action to cut emissions, but sometimes the policy advocacy lags behind. There needs to be leadership on this issue from major players—not just singly but as a coalition urging federal agencies to retain or improve rules, rather than delay or weaken them. This coalition should also engage states in developing sound regulation of new drilling and older wells.

Some in industry are already pushing ahead with testing new technology that would reduce the cost of controlling emissions. That effort should continue, but voluntary action of this sort is not a replacement for regulations that apply across the entire industry. Nor will piecemeal voluntary efforts of a few overcome the stigma of hundreds of other companies abstaining from action to reduce their methane emissions.

Michael Maher is a senior program advisor at the Center for Energy Studies at Rice University’s Baker Institute for Public Policy

Ben Ratner is a Director with EDF+Business at Environmental Defense Fund

Careful what you wish for: Trump’s environmental attacks will harm industry

In the same week Apple raised $1 billion through green bonds to invest in clean energy, and Amazon put solar panels on a million square foot processing facility, the Trump administration – at the urging of the worst elements in the oil and gas industry –proposed a two-year delay of sensible rules that would limit emissions of methane and other air pollutants. While a federal court since struck down a previous 90-day delay as unlawful, the two-year delay is still subject to public comment, and many expect the administration’s attacks on methane safeguards to continue through other means.

Natural gas, which is mostly methane, has been put forward as a cleaner alternative to other fossil fuels and as an energy resource that can play a key role in the transition to a lower-carbon future. But now more than ever, that proposition is now called into serious question.

How will natural gas compete in a changing world?

Every year, oil and gas operations around the country emit some 8-10 million metric tons of methane into the air. Methane is a highly potent greenhouse gas, responsible for about a quarter of the climate warming we’re experiencing today – and those emissions come mingled with a host of other smog-forming and carcinogenic pollutants.

There are cost-effective, proven ways to reduce these emissions, and leading companies are already implementing them. The problem is, many companies refuse to address the problem on their own. And now they’re looking to the Trump administration for a free pass to pollute.

When trade associations like the American Petroleum Institute attack cost-effective policies that protect public health and the climate, it sends a signal that the natural gas industry will do everything it can to maximize short-term profits – even at the risk of damaging the reputation of the industry in the eyes of the public and jeopardizing its ability to operate over the long term.

The question is: In an increasingly carbon constrained world, what is the natural gas industry’s plan for the future?

We’re not arguing that gas is at risk of going away tomorrow. The United States leads the world in natural gas production, as new technologies and processes have unlocked massive, cheap reserves. But make no mistake, the transition to cleaner energy in the U.S. and across the globe is irreversible and accelerating. In this context, fighting reasonable and necessary emissions rules only magnifies risk for the natural gas industry and its investors. It’s a head-in-the-sand approach that ignores the realities of what consumers, communities and markets demand.

Capital markets shifting to cleaner companies and forms of energy

The Trump administration’s recent moves come at a time when environmental concerns informing investment decisions are reaching record highs. For example, investors with $10 trillion in assets under management have committed to the Montreal Carbon Pledge to reduce the carbon footprint of their portfolios, with an eye towards portfolio de-carbonization in the long run.

As part of the shift to assets in lower emitting companies and industries, investors are demanding better carbon and methane disclosure as well as proactive environmental management. The recent watershed Exxon vote, in which 62% of investors (including industry titans like BlackRock and Vanguard) demanded better climate risk disclosure from Exxon management, showed that carbon risk considerations have hit the mainstream.

Increasingly, investors see methane simply as a form of carbon risk in need of management, not neglect. And methane waste can be cost-effectively managed – as proven in states like Colorado where production has continued apace even as strict methane rules have come on the books.

On top of investors’ efforts to shift portfolios towards cleaner companies, the divestment movement also continues to grow, driven by a range of environmental risks of owning fossil fuel stocks. Just recently mainstream investor CalSTRS divested from coal. Going forward, increasing numbers of investors will look carefully at the environmental record of oil and natural gas companies in determining their comfort level in continuing to invest.

Some companies lead but no substitute for commonsense rules

Companies like Southwestern Energy, Noble, Shell and others have led on methane emissions by setting methane targets, supporting state-based regulations, and working with the Oil and Gas Methane Partnership to disclose methane emissions. Their efforts certainly deserve recognition, and are supported by some investors who factor strong methane management into investment decision.

Still, voluntary actions by the few are no substitute for rules and oversight that require responsible operations by the thousands of oil and gas companies operating in the United States. Some of these companies simply lack a commitment to sustainability and to operating over the long-term, and will not rein in emissions unless they are required to do so by law.

Methane safeguards serve the long-term interests of industry and investors

As the scientific reality of climate change and consumer demand steer the world toward a cleaner energy future, will attacks on environmental protections inflict lasting damage on the oil and gas industry? Only time will tell. It’s likely, however, that if the loudest industry voices continue to oppose rules that could guide it toward a cleaner future, the industry as a whole will suffer.  Unfortunately, that will include the more forward-leaning companies, which will be dragged down by their intransigent peers. This outcome will become all the more likely thanks to the Trump administration’s erosion of environmental safeguards that are fundamental to responsible development.

It’s time for oil and gas operators and mainstream investors with a long-term view to take a look at what rules and regulations are needed to rein in methane emissions in their industry. And they also need decide if they want to align themselves with an administration whose policies may be unwittingly handicapping the very industry it attempts to serve.

Can technology save the climate? These companies are betting $1 billion it can

Photo credit John Davidson.

Last November, on the same day the Paris climate agreement took effect, 10 of the world’s largest oil and gas companies, including BG Group, BP, Eni, Pemex, Reliance Industries, Repsol, Saudi Aramco, Shell, Statoil and Total, announced a billion-dollar investment in climate solutions. Together, the member-companies of the Oil and Gas Climate Initiative (OGCI) produce 20 percent of the world’s oil and gas and operate in 55 countries.

Their commitment was the beginning sign of a growing and public recognition by the oil and gas industry that tomorrow’s low carbon energy transformation has become today’s new energy imperative.

Right now, the biggest, most pressing climate item for the oil and gas industry is methane. Importantly, OGCI’s announcement included a global focus on reducing methane, a powerful greenhouse gas. Far more potent than carbon dioxide over a 20-year timespan, methane is responsible for about a quarter of the warming we feel today.

Many expect OGCI to direct hundreds of millions of its billion-dollar pledge into addressing methane. Beyond the climate benefits, it’s a smart business investment. The International Energy Agency has said, “the potential for natural gas to play a credible role in the transition to a decarbonized energy system fundamentally depends on minimizing these emissions.” Simply put, methane is an existential threat for an industry and its long term investors banking on natural gas to aid the transition to a lower-carbon energy economy.

Potential is high for OGCI’s methane endeavor to catalyze important breakthroughs. With sets of OGCI members holding joint stakes in nearly 250 natural gas projects worldwide, there is opportunity to catalyze and spread methane emission reductions throughout the whole industry. We stand ready to help OGCI develop innovative solutions and offer the following suggestions as it begins its methane work.

Data Drives Success

Data alone won’t solve the methane challenge. But strong and credible data are essential. In the United States, vast scientific initiatives have greatly improved our understanding of methane leaks, releases and total emissions from oil and gas activity. This scientific understanding helps companies identify reduction opportunities and regulators develop sound, data-based regulations.

Globally, however, methane measurement is much less mature. Filling the gaps to better inform how companies and countries can address this problem in other parts of the world is important, while companies continue to pursue mitigation opportunities. As a future founding member of the UN’s Oil and Gas Methane Science Studies partnership, OGCI is positioned to bolster reliable and transparent methane science worldwide.

Innovation Requires Collaboration

Some of the innovation required to solve the methane challenge will come from collaboration within and among the OGCI companies. But not all of it. Around the world, there are entrepreneurs, scientists and investors that are already tackling methane. In our experience with the Methane Detectors Challenge, we learned that innovation requires early and ongoing collaboration across technology and energy sector lines. Without it, entrepreneurs don’t know what the market needs or wants and energy companies don’t know what technologists can deliver.

Today, there are gaps of information, culture, language and understanding between technology entrepreneurs and the energy companies they are trying to serve. Closing these gaps by supporting technology innovation is a prime opportunity for an industry group like OGCI to support, and OGCI is positioned to do this now that it has set up a smaller investment vehicle with the license to be nimble.

Focus on Prevention and Detection

Preventing methane leaks and finding them quickly are the two most important methane opportunities.

Every leak that is prevented is a leak that doesn’t need to be repaired. Innovation in design, technologies and strategies that prevent emissions at specific and known sources of equipment should be top of mind for OGCI. For example, aerial measurement studies have shown that tanks are significant emission sources, some of which are not properly controlled. Routine methane releases from inefficient or malfunctioning valves are also believed to be a significant source.

An undetected methane leak can leak indefinitely. It’s one reason why periodic detection is so important, and efficient airborne sweeps for large leaks should be investigated. But while routine checks are better than none, they can still allow leaks to persist for months at a time. In the United States alone, studies have shown that 10 percent of leaks are responsible for 80 percent of emissions. Fortunately, next-generation detection technologies are being developed to catch large leaks with the speed we’d expect in the digital age.

Statoil, a Norwegian-based international oil and gas company and OGCI member, is pioneering continuous methane emissions monitoring at a well pad in Texas, and a leading natural gas utility is doing the same in California. These are promising developments, bringing real-time methane monitors to market. Now, the next level of industry leadership from groups such as OCGI are vital to help spur competition in this growing segment and drive unit deployment up and costs down.

Avoiding the wasteful flaring of natural gas in favor of recapturing the fuel is another worthy opportunity to tighten the oil and gas system. There are roughly 16,000 flares worldwide, and some flares burn all day and night. OGCI can galvanize investors and operators to provide the capital and incentives to put entrepreneurs to work turning wasted gas into productive use.

Results Matter

OGCI’s success will be measured by the amount of methane reductions it delivers. Now is the time for OGCI to set a clear path for how it will achieve success with its multi-million dollar methane mitigation endeavor.

EDF’s global goal – reducing oil and gas methane emissions 45 percent by 2025 – coincides with OGCI’s 10-year mandate and is a mark we encourage the group to embrace or exceed. Industry leaders and investors need to manage methane risk so that natural gas is a cleaner, more responsible transition fuel. Governments and their citizens need to know that industry is doing all it can to address the global methane challenge. OGCI is in a unique position to spur innovation that can satisfy both needs.

Follow Ben on Twitter @RatnerBen

Will the new President flunk the climate business test?

The climate business test for TrumpFive years ago I turned in my laptop and brought my business consulting experience to Environmental Defense Fund. Some might see that move as making a break. I saw it as honoring a connection.

Public service may be the noblest calling. But it is also among the hardest. That’s why I believe business leaders have a role in government. Strong business leaders ask questions – and care about the answers. They consult experts who know more than them – and then solve thorny problems that matter to peoples’ lives. They take accountability.

So as a student of business, for much of my life I have casually told friends I would like to see an experienced business person in the Oval Office.

Now we have one.

As Donald Trump takes office, he must draw on the best skills represented in the business world.

Trump and his administration must make an urgent commitment on the economic issue of climate change and clean energy, before a problem worsens, accountability mounts, and the U.S., as the world’s second largest pollution emitter, is seen as a deadbeat on the global stage.

Trump’s handling of climate may well define his legacy, especially for generations of Americans to come.

Yet Mr. Trump has called climate change a hoax, nominated a climate skeptic to head our Environmental Protection Agency, and suggested he may pull the United States out of the Paris Climate Agreement.

We will learn a lot about the administration’s economic prowess by whether it remains lashed to a special interest agenda, or studies up and seizes climate action for the economic opportunity that it is.

The incoming administration should take a page from Gary Garfield – ex-CEO of Tennessee based Bridgestone. In an open letter to the President-Elect, Mr. Garfield observed: “A hasty decision on [leaving the Paris climate agreement], will likely isolate our nation, cede technology, innovation and jobs to China, and limit market access for our exporters.”

But it doesn’t have to be that way. Gary Garfield notes: “A decision to stay the course on climate and institute policies harnessing American ingenuity to create truly efficient clean energy technology — akin to the effort behind the Manhattan Project — will help drive both jobs and our economy for decades to come.” Mr. Garfield should know a business opportunity when he sees one; he grew profits at Bridgestone five-fold in six years.

And he is not alone. From technology to power, and investment to oil and gas, business leaders across sectors have pinpointed the urgency of addressing climate change, not just because it is the right thing to do, but because de-carbonization is one of the great economic opportunities in the 21st century:

  • “With tens of billions of dollars of U.S. renewable energy investment in the works this year alone, and far more globally, the question for American political leadership is whether they want to harness this momentum and potential for economic growth” – Jonas Kron, Trillium Asset Management
  • “We support [California’s] vision for a clean energy future and agree that we need to take action today to meet the challenge.” – Melissa Lavinson, PG&E Corporation
  • “In Statoil, we acknowledge that there is overwhelming evidence for human-induced climate change. Climate change is happening.”
  • “Finding more renewable and low-carbon energy alternatives and reducing energy intensity lowers operating costs and can enhance operational flexibility.” – Walmart

Low Carbon USAAnd there are scores more business leaders who recognize the data on climate change’s seriousness and recognize the responsibility – and the opportunity – their companies have to rise to the challenge. Over 600 business leaders wrote to Trump, Congress, and global leaders, to support continuation of low carbon policies, investment in the low carbon economy, and continued U.S. participation in the Paris Agreement.

There is no question that business leaders have spoken, and will continue to speak up.

Now the question is: Will Donald Trump have the business sense to listen and lead?


Additional reading:

Business won't back down on clean energy future

With a record $1.4 trillion in sustainability assets, investors bail on fossil fuels


Follow Ben Ratner on Twitter, @RatnerBen


 

Will Shareholders Get Money’s Worth As Oil Giants Link Executive Pay to Climate Results?

Money talks. That’s why one key element in the battle against climate change must be aligning the financial compensation of executives to tangible corporate efforts to decarbonize.

Better aligning incentives is particularly important in energy intensive industries, where the status quo can encourage decisions on strategy, investment, and operations that jeopardize the planet’s climate, while also generating risk to investors that can, ultimately, undercut a company’s  long-term viability.

In a promising sign, Royal Dutch Shell CEO recently announced that executive bonuses at the oil and gas giant will include greenhouse gas goals. “We have linked executive remuneration in the past to energy intensity and next year we are going to make it even more specific to the CO2 footprint metrics associated with these energy efficiencies” he said. Ten percent of bonus payments to executives, including the CEO and CFO at Shell, will reportedly be linked to “greenhouse gas management”.

Indeed, a broader trend toward heightened sustainability in governance is underway. Analysts at the nonprofit organization CERES report that as of 2014, 24% of examined companies linked executive compensation to sustainability performance, up from 15% two years earlier.

Do These Pay Policies Measure Up?

As companies like Shell translate aspiration into practice, the big questions now are how will executive pay linked to de-carbonization be operationalized, and will it be enough to make the difference demanded by the dire science of climate change. There are two key issues in particular that boards, shareholders, and others can ask as GHG bonus measures are developed and assessed:

1. Are bonus payments tied to explicit, ambitious and well-chosen metrics?

The mere act of including greenhouse gas management in compensation is not sufficient. CERES found that of companies linking executive pay to sustainability, few used sustainability performance targets that go beyond goals driven by compliance with laws and regulations. In the absence of comprehensive climate policy – for example market-based signals that put a price on carbon pollution – operators like Shell must go above and beyond compliance metrics for their bonuses to be meaningful. Mere compliance should be expected as a matter of course; winning a GHG bonus must require another level of executive leadership and results.

There are a host of metrics that oil and gas operators can consider as they link compensation to GHG management. Those metrics may differ for large vertically integrated oil and gas majors like Shell, versus smaller companies that operate in just one or two segments of the oil and gas value chain. One common element is incentivizing strong methane management.

Methane emissions are a widespread issue across the oil and gas supply chain. Leaks and other intentional releases waste valuable product, speed climate change, and cast serious doubt on the ability of natural gas to play a constructive role in the transition to a cleaner energy economy. However, as Environmental Defense Fund found in Rising Risk: Improving Methane Disclosure in the Oil and Gas Industry, as of early 2016, none of the leading 65 oil and gas operators disclosed a quantitative target to reduce methane emissions.

As Principles for Responsible Investment noted in its recent Investor's Guide to Methane developed with EDF, investors should expect operators to put governance to work to get the incentives right for enhanced methane management. After all, what gets measured, gets managed, and creating incentives to address invisible gas leaks can make a visible difference.

The ultimate methane metric would operationalize the same kind of “zero tolerance” approach to methane leaks that companies take to preventing fatalities. In the near term, we look for incentives tied to comprehensive, direct methane measurement; leading practices including minimizing venting and conducting regular leak detection and repair; and achievement of verifiable emission reductions.

Beyond methane, GHG metrics may encompass reducing CO2 intensity from fossil fuel operations, but also expanding into renewable energy, as Total, Statoil, and others have signaled. Taken together, an appropriate mix of GHG metrics will send an unmistakable signal to executives that a holistic approach to de-carbonization is the new order of the day.

2. Is the bonus a token or a change agent?

Even well-defined de-carbonization metrics can prove insufficient if the incentive is not strong enough, particularly compared with the full suite of executive motivators. In Shell’s case, while its commitment to tie 10% of executive pay to greenhouse gas management puts it 10% ahead of most of its peers, the question remains: is the incentive adequate enough to change decision making with the speed and seriousness required to achieve the energy transformation we need.

We expect institutional investors and others to look carefully not only at the specifics of the 10% bonus on GHG management, but the 90% on other factors. For energy operators taking the positive step to link pay to climate performance, it will be important to guard against also using contradictory factors that could send mixed messages, such as rewarding executives for expanding carbon reserves, a practice that 13 of 30 major U.S. fossil-fuel corporations practiced, according to a recent report by the Institute for Policy Studies.

We applaud Shell’s intent to link climate performance to pay and look forward to examining the details. In the meantime, as pressure mounts for more oil and gas operators to follow suit, varying operator reactions will tell investors a lot about which companies are poised to adapt best to a lower-carbon energy future.

Three Ways Trump’s EPA Pick is Bad for Business

President-Elect Trump’s selection of Oklahoma attorney general Scott Pruitt as the next head of the Environmental Protection Agency has drawn swift criticism from environmental and health advocates. Passing the nation’s environmental agency to one of its staunchest opponents risks upending the clean air and clean water that Americans of both parties demand. And looking deeper, Pruitt’s track record suggests he will harm the American economy while increasing pollution.

Here are three ways the Pruitt choice isn’t just bad for the environment, it’s bad for business:

1. Blocking federal methane rules means more wasted American energy
Protecting common sense standards to reduce oil and gas methane emissions is a winning opportunity for American business, but that did not stop Pruitt from suing EPA on its proposed methane rules earlier this year.

Methane is a natural resource, and cutting methane emissions means cutting economic waste. A recent study from ICF International found that drilling on federal and tribal lands – mostly in the rural West -leaked, vented, and flared natural gas worth about $330 million in 2013. Across the U.S., the market value of wasted natural gas is estimated at $2 billion.

Furthermore, there are good jobs at stake keeping methane and other air pollutants in the pipes and out of the air communities breathe. A report by Datu Research identified over 75 firms with over 500 locations across the country putting people to work in the methane mitigation industry. These include well-paying jobs in manufacturing, plus leak detection service jobs that offer technical training and are inherently offshore-proof. With nearly 60% of methane mitigation firms being small businesses, including in states like Colorado, Ohio, and Pennsylvania, national efforts to support methane reductions are a job creator at just the right time.

And, many investors recognize that achieving methane reductions is vital if natural gas is to play a constructive role in the transition to a low carbon energy economy. In fact, investors representing over $3.6 trillion in assets under management praised the North American agreement to reduce oil and gas methane emissions 45%. Public pension fund CEO Jack Ehnes wrote that as a large investor with a financial stake in the long term performance of the natural gas industry, CalSTRS sees that “methane emissions — which literally leak away the potential climate benefits of natural gas over other fossil fuels — must be actively managed.”

Most recently, seven in ten Colorado oil and gas operators interviewed about that state’s experience implementing methane rules reported that the benefits of compliance outweighed the costs.

In spite of the jobs and other business benefits of regulating methane emissions, as attorney general of Oklahoma, Pruitt took a page – literally – from a large oil company and sued EPA on its proposed methane rule. This approach may have appeased a big oil backer, but is short-sighted for the industry’s own long-term good, and hurts the American workers whose paycheck comes from preventing and fixing natural gas leaks.

2. Undermining the Clean Power Plan will slow economic growth in clean energy
The Clean Power Plan helps continue the trend of generating even more jobs in fast-growing segments of the American economy, including wind and solar energy, and energy efficiency. Third party estimates suggest that the plan will create 74,000 to 273,000 new jobs in those and related industries, on top of the hundreds of thousands of already existing clean energy jobs. Unfortunately, Pruitt joined a lawsuit against the plan, parroting scare tactic claims that the rule would increase electricity prices.

In reality, the Clean Power plan capitalizes on economic progress many states are already making, such as the rise of solar energy in North Carolina and California. With costs plummeting in solar energy, renewable energy last year accounted for the majority of new installed power capacity.

And because wind and solar are generally more labor-intensive than older energy forms, we can expect a windfall of well-paying, sustainable American jobs in tomorrow’s clean energy economy if we stay the course.

These positive trends are part of why American businesses like Google have committed to sourcing 100% renewable energy. Google and other leading technology companies defended the Clean Power Plan in court because they see that market-oriented government support for clean energy will help their businesses gain access to cheap, clean, stably priced energy for years to come.

In attacking the Clean Power Plan, Pruitt raised the specter of shuttering coal fired plants. However, as a fossil-fuel backer, he should know what experts believe and even natural gas industry insiders privately admit: it is cheap natural gas, not environmental rules, that is mainly responsible for driving coal plants out of business. As CEO of Appalachian Power, a West Virginia, Virginia, and Tennessee utility said, “You just can’t go with new coal [plants] at this point in time. It is just not economically feasible to do so.”

3. Denying climate is denying a great threat – and opportunity – for business
The days of seeing global climate change as only an environmental issue are over. But while many business leaders acknowledge climate change as the fundamental threat that it is – to infrastructure, supply chains, and national security to name a few – Pruitt says the “debate” on climate change is “far from over”.

The doubt seeded by climate denialism may be fake, but it can inflict business consequences that are real. In a globalized economy, American businesses benefit from our standing in the world and the goodwill we have achieved. With the world marching toward a cleaner energy future, propelled by the climate agreement of nearly 200 nations last year in Paris, American businesses have an interest in standing with the international community and competing on a level playing field.

We have an opportunity to win the next frontier of entrepreneurship and innovation in the clean energy products and ideas demanded the world over. Yet, Pruitt would likely become the only environmental chief in the world who doubts climate change. This anomaly would isolate and embarrass America. In short, the opposite of what businesses need to hear as America competes with China and others to seize the mantle of leadership on a global economic opportunity.

There are many capable environmental leaders from across the political and philosophical spectrum. America needs leaders to chart a path of environmental stewardship and economic prosperity. Mr. Pruitt’s record suggests he would do neither.

Methane Detectors Challenge: An Unlikely Partnership

The 2016 election was one of the most divisive in recent history. I cannot remember a more polarizing time. However, today, I believe, more strongly than ever, that many Americans across the political spectrum have a hunger for something better: for turning down the volume, having rational conversations and finding common ground that unites us.

In the energy sector and environmental communities, this common ground means achieving solutions that benefit the environment and help businesses thrive, not pitting one against the other.

Three years ago, Environmental Defense Fund launched the Methane Detectors Challenge, an unlikely partnership between oil and gas companies and U.S.-based technology developers. This partnership aims to reduce methane emissions by catalyzing technology solutions that continuously detect these emissions. This is our story.

 A Shared Problem, A Shared Solution

25-percent

About 25 percent of today’s warming is driven by emissions of methane, a potent greenhouse gas. Methane emissions from the oil and gas industry speed global climate change, waste a valuable energy resource (methane is the key component of natural gas), and often slip into the atmosphere with other pollutants, harming air quality.

In other words, methane emissions are a problem and detecting leaks quickly is a needed solution.

However, in 2013, we learned that no oil and gas operators were conducting 24/7 monitoring of methane emissions. None. Some companies were not using technology to conduct leak detection and repair activities, while others conducted manual leak surveys with special cameras once or twice a year – far better than nothing, but a long way from continuous detection made possible in the digital age.

When EDF learned about this lack of continuous monitoring, we could have launched a negative ad blitz. Started a petition. Designated a villain.

We didn’t.

Instead, where some might see failure, we saw opportunity and a reason to partner. We decided to take a risk, try something bold. We decided to partner with leading companies in the oil and gas industry, technical experts, and others, to source innovative technology solutions from the marketplace and solve the methane leak problem.

We called it the Methane Detectors Challenge. Our aim was to catalyze the development and adoption of new, cost effective, continuous detection systems.

I remember sharing our vision with Mark Boling, President – V+ Development Solutions at Southwestern Energy, over breakfast. Before the food had even arrived, Mark committed to Southwestern’s participation. We had our first partner. And this was just the beginning.

A Partnership Blooms

In the months that followed, we recruited partner after partner: Apache, Anadarko, BG Group, Hess, Noble Energy, Shell, Southwestern and Statoil. We found experts willing to lend their knowledge, from places like the Environmental Protection Agency, the Department of Energy, and the University of Houston.

We launched a series of gatherings that brought stakeholders together in Houston to define the problem and develop a shared plan of action. We got to know one another and to develop a common empathy for the challenges we all shared.

At the end of our first Steering Committee meeting, one of our corporate partners came up to me and said, “Great meeting today, but one thing you should change. Don’t call it the EDF Methane Detectors Challenge. Just call it the Methane Detectors Challenge. We’re all in this together.”

In March 2014, our jointly developed request for technology proposals was out in the world, and we soon reviewed twenty proposals from four different continents. The surge of market interest was incredible, and the best of the proposals inspired excitement among all partners.

By the end of 2015, in partnership with the independent non-profit Southwest Research Institute, we had conducted rigorous indoor and outdoor controlled testing of nearly a half dozen technologies. Two technologies performed excellently, catching leaks of various sizes in various wind conditions. Next step? Industry pilots.

When Challenge Strikes

As the Methane Detectors Challenge shifted from third-party evaluation to piloting, there were increased expectations of our oil and gas partners. They had already helped inform the project’s direction and shared invaluable technical input about their technology needs. The next step was a higher bar – purchasing one or more units and committing organizational resources for pilot testing.

And then a challenge struck.

In 2015, the oil and gas commodity markets fell off a cliff. Oil nose-dived from over $100 a barrel to as low as $29 a barrel. Natural gas prices crashed. Before we knew it, our partners were making layoffs, in some cases as large as 40%, and cutting capital expenditure by as much as 80% for the year ahead.

As the markets sunk and companies down-sized, our effort became much more challenging, but the foundation of trust and the value of our common mission remained unchanged. And so we persevered.

Over the course of 2016, dialogues continued between the leading entrepreneurs and a number of our industry partners. The unglamorous, but necessary issues were resolved: contracts, prices, disclosure and data sharing agreements.

And then one day, I came into my office to find a note from my colleague. “We have a deal”, it said. A large energy producer and Methane Detectors Challenge partner, Statoil, agreed to purchase a methane detection system and host a pilot with Colorado based start-up Quanta3.

Weeks later, we got more good news. Following a successful pilot test, Pacific Gas & Electric (PG&E) (an enthusiastic recent addition to the Methane Detectors Challenge), agreed to send a device from Acutect, the other leading entrepreneur, to an operating facility in California for real-world testing.

In praise of an unexpected partnership

In the coming months, we will learn much more about how the technologies developed for the Methane Detectors Challenge perform in the trials with Statoil, PG&E, and likely others. It’s too soon to know whether these technologies will provide the needed breakthrough for continuous methane detection, whether they will require additional development, or whether other advances from the marketplace will propel methane management forward.

But it’s not too soon to appreciate this unexpected partnership.

pge-methane-sensor-3828-300dpiWe have demonstrated that there is a vibrant global marketplace of entrepreneurs eager for the chance to accelerate a clean energy future and willing to take risks along the way. And, we have shown that diverse groups can come together over a shared vision.

Most of all, I hope we have proven that even in this era of divisiveness, partnerships are not just possible, they are powerful. Our door is always open to new partners.

 

EDF is grateful to our partners and hope the Methane Detectors Challenge is the beginning of something even bigger.


Follow @RatnerBen on Twitter


 

The Value of Pursuing a Rational Middle in Polarized Times

rational-middleAt Energy Dialogues’ North American Gas Forum last month, I had the opportunity to participate on a panel moderated by Gregory Kallenberg of the Rational Middle. While the panel pre-dated the presidential election, the topic of constructive engagement through rational discourse is now more important than ever.

We explored how environmental groups, industry, and other stakeholders need to come together to rationally discuss and collaboratively act on the challenges of meeting rising energy demand while addressing real and growing environmental risks.

The still principally fossil-based energy system, which includes natural gas, is not the only cause of climate change, but it is the largest. And so a range of stakeholders, from protesters holding signs, to investors with a long term interest in the future of natural gas, to industry consumers, are looking with increasing criticism at fossil fuels. That was true before the election, and it’s true today. They’re asking: How can we reconcile the environment we want to protect for the future with the traditional energy and feedstock resources we are using now?

Unfortunately, industry, when pressed with concerns and asked to act, has often come up short. For example, with precious few exceptions, oil and natural gas companies have declined to set quantitative methane reduction targets – of their own choosing, and for their own product. And they have declined to join their counterparts’ support for a 2 degree limit on temperature rise. Too often, industry has failed to engage with the real concerns of their customers and communities.

But there’s a better way.

As Sarah Sandberg, from the Colorado Oil & Gas Association, said on the panel, “You’re either at the table or on the menu.” As panelist Michael Crothers from Shell observed, industry must engage directly and responsively with the legitimate climate concerns of the general public. And they’re right.

At Environmental Defense Fund, we work to create opportunities for diverse stakeholders to come to the table and have the conversations that feed the actions – whether establishing public policy, catalyzing technology innovation, or making best practice standard practice – to address environmental challenges and protect our future.

There have been bright spots of industry leadership, like energy companies joining the table in Colorado to help craft the first methane regulations, or Shell Canada supporting Alberta’s new climate strategy, including a methane goal backed by regulations. Unfortunately, such constructive engagements have been the exception to the rule. All too often, industry’s response to environmental concerns and opportunities has amounted to “Just Say No”.

A better response? “Just Say How.” For example:

  • How will operators demonstrate that they hear and are addressing in practical terms, the air and groundwater pollution concerns of the 15 million Americans who live within a mile of a well?
  • How will industry leaders acknowledge and finally engage on public policy to reduce their contribution to climate change?
  • How will they make unnecessary methane emissions a thing of the past, by finding and fixing leaks?
  • How will the companies that do step up and lead on these issues maximize the competitive advantage of being cleaner companies in a world that demands it?

Let’s hope industry can take the real issues head on and start showing how we can make positive changes by working together. Pressure on industry is not going away, and rational engagement can help cut a productive path through polarization.

America knows better: Addressing climate change is good business

President-elect Donald Trump made claims of his own business smarts a cornerstone of his campaign. Vote for him, the logic went, and send a first-rate businessman to the Oval Office to apply business acumen to make America great. Unfortunately, Trump’s actions to date on climate and energy – notably charging a climate change denier with leading the EPA transition and signaling desire to abandon the historic Paris climate accords – send a message of business obliviousness.

In contrast, a smart business approach would embrace tackling greenhouse gas emissions and supporting clean energy. Here are four reasons why:

  1. Create American jobs – The opportunity to create new American jobs in the transition to clean energy is tremendous. There are now more jobs in solar energy than in coal mining, and the number of solar jobs has grown more than 20 percent in each of the last three years. States like Florida and Nevada are bountiful in sun and can contribute to American energy self-sufficiency.Moreover, just as smart action to nurture domestic clean energy can accelerate jobs in the renewable sector, there are jobs on the line helping the oil and gas industry reduce its air pollution in a cost effective way. Environmental Defense Fund found that there are over 70 American firms employing Americans to help keep potent methane emissions in natural gas pipelines and out of the atmosphere. These jobs, thriving in states like Texas and Pennsylvania, are mainly small business and above average wages – exactly what we all want to see more of. Of course, it’s a competitive global economy, and taking our foot off the pedal in creating green jobs could well cede the space to others like China, which already leads the United States in clean energy investment. Whatever a politician’s personal views on climate change, it is undeniable that global demand is growing for clean energy solutions. Growing demand means growing commercial opportunity for the United States in terms of innovation and exports. But only if we seize it.
  1. Listen to leading American businesses – Savvy business people listen to each other. So Mr. Trump should be interested to learn that 154 American businesses supported the American Businesses Act on Climate Pledge in the run-up to the Paris climate accords. These businesses are a part of the backbone of the American economy, employing nearly 11 million people across all 50 states, with a then market capitalization of over $7 trillion. Participating companies of particular interest: 21st Century Fox, Dupont, Wal-Mart, even a name that will be familiar to any casino magnate – MGM Resorts.These companies not only voiced support for a strong Paris outcome, they committed to increase their low-carbon investments in line with the direction of America’s leadership. Pulling out the rug from American businesses investing in low-carbon would send a destabilizing signal to the market. More recently, 365 companies including Unilever, Intel, General Mills and others reinforced that “implementing the Paris Agreement will enable and encourage businesses and investors to turn the billions of dollars in existing low-carbon investments into the trillions of dollars the world needs to bring clean energy and prosperity to all”. In sum, the overwhelming voice of businesses who have weighed in on the Paris talks are supportive of climate action. This business groundswell cannot be ignored. Nor should Trump ignore his own prior signing of a 2009 letter that failure to act on climate and the environment would cause “catastrophic and irreversible consequences for humanity and our planet.”
  1. It hits home – Continued American leadership on climate change can help mitigate physical risks to some of Mr. Trump’s most cherished investments, for example the Mar-a-Lago golf club in Palm Beach. NOAA found that “tidal flooding is increasing in frequency within the U.S. coastal communities due to sea level rise from climate change and local land subsidence.”Just a week before the election, the Palm Beach Daily News reported that the local Shore Protection Board unanimously recommended a six-figure “coastal vulnerability evaluation” as flooding has remained long after high tide in certain cases.
  1. Voters want clean energy – One of many things that will change for Donald Trump is that going from CEO to President means having a boss – actually about 300 of million of them. A recent Gallup poll found that 64% of Americans worry “a fair amount” or “a great deal” about climate change, an increase from last year, and including 84% of Democrats, 64% of independents, and 40% of Republicans. Clean energy is also wildly popular, with over 80% of Americans saying they support increased wind and solar, according to a recent Pew Poll.

Early on the campaign trail, Donald Trump often used his association with his alma mater, the Wharton School at the University of Pennsylvania, as Exhibit A in establishing his business smarts. Political leaders including Mr. Trump must learn from experts like Wharton’s Professor Eric Orts, who noted that moving away from President Obama’s climate change polices would come with stiff costs.

From missing out on job creation to ignoring business leaders who have studied the issue and have a stake in its resolution, and from fueling risk to Trump’s own business interests to overlooking voter desires, the case is clear that the costs are stiff indeed. Climate action is good business, and the smart money says it’s time to stay the course.

As Investors Benchmark Methane Management, Where Will Companies Stand?

Ben Ratner headshotGlobal attention on oil and gas methane emissions is taking off. The International Energy Agency has recognized that  “the potential for natural gas to play a credible role in the transition to a decarbonized energy system fundamentally depends on minimizing these [methane] emissions.” North American heads of state recently committed to reduce oil and gas methane emissions 45% by 2025. And the U.S. Environmental Protection Agency has issued standards for methane from new sources, while Canada and Mexico begin executing their commitment to develop regulations necessary to achieve waste-cutting emission reductions.

With a rising wave of public and policy maker scrutiny, it’s no surprise that methane has become a hot topic in investor circles. A group of 76 investors representing $3.6T assets under management publicly supported the North American methane announcement. And a much broader set of investors, from large institutional investors to private equity, and socially responsible investors to large banks, are turning their attention to reading up on the issue and engaging operator management in quiet but important conversations on managing this rising risk. As leading global asset management company Allianz Global noted to its clients, methane emissions are “the next frontier for the Oil & Gas industry” and there is an “urgent need to act."

EDF has long recognized the power of stakeholders with an economic incentive to drive progress that helps people and nature prosper. That’s why we are devoting a growing effort to educate oil and gas investors on why methane risk matters and what they can do to address it through constructive engagement with operators across the world.

In a post-Paris, carbon constrained world where investors constantly demand more and better information on all manner of corporate responses to climate risk, it’s only a matter of time until investors have the data at their fingertips to use the quality of methane management as one additional input in decision making processes, even including which companies to buy or sell.

If that seems like a stretch, just consider: an operator managing methane aggressively is better poised for smooth regulatory compliance, while also reaping operational efficiencies through waste reduction, providing evidence they can be part of the transition to a lower carbon energy economy, showing neighbors they are helping to reduce air pollution, and even appealing to top talent in an environmentally conscious workforce.

investorguide_cover

In the meantime, EDF has released a new resource in partnership with the Principles for Responsible Investment: “An Investor’s Guide to Methane: Engaging with Oil and Gas Companies to Manage a Rising Risk”, which builds on our landmark report “Rising Risk: Improving Methane Disclosure in the Oil and Gas Industry.” While the primary audience is investors who represent growing demand for improved methane management (and indeed gave us the idea for creating a guide in the first place), the Guide is public for a reason – operators who want to get ahead of the curve can review it for themselves.

Our Guide is based on three simple ideas. 1) Methane poses a material risk, in the form of financial, reputational, and regulatory risk. 2) Managing the risk well requires directly measuring emissions, transparently reporting the plan of action and its results, and actively reducing emissions. 3) Continuous improvement is key: each company can advance along the spectrum from beginner, to intermediate, to advanced, on each dimension of measure, report, reduce.

As operators review the Guide, they can use it to benchmark where they are today, prepare for dialogue with investors, and develop an action plan for continuous improvement. Whether motivated by investor relations, operational enhancements, regulatory positioning, or simply doing the right thing, we hope operators will find the guide to be a useful tool. Competitive advantage is at stake, and there’s no time to waste.


Follow Ben Ratner on Twitter, @RatnerBen