O&G ACC Final Flashcards
What was the definition of Sustainability in 1987?
Meeting the needs of the present without compromising the ability of future generations to meet their own needs
What does Sustainability mean today?
Matters affecting the well-being of the environment, society, and/or economics
What is Double Materiality? (2 key points)
How a business impacts sustainability AND how sustainability consequences impact a business.
What are the 3 pillars of sustainability?
Environmental, Social, and Economic
Environmental Pillar - Areas of Focus
- Ecosystem services: protect natural habitats
- Green Engineering & Chemistry: chemicals to eliminate toxic hazards
- Air quality: maintain AQ & reducing pollutants
- Water Quality: Reduce exposure to contaminants
- Stressors: Reduce effects by stressors to env (GHG, pollutants)
- Resource Integrity: Minimize waste generation
Social Pillar - Areas of Focus
- Environmental Justice: Protecting the health of communities burdened by pollution
- Human Health: Protect, sustain and improve human health
- Participation: Use open & transparent process to engage SH
- Education: Enhance education about sustainability of the general public
- Resource Security: Protect, maintain, & restore access to basic resources for current and future generations
- Sustainable Communities: Promote the development, planning, building, or modification
Economic Pillar - Areas of Focus
Jobs: Strengthen & maintain current & future jobs
Incentives: Promote incentives that work w/ human nature to encourage sustainable practices
Supply & Demand: Promote informed accounting & market practices to promote env health and prosperity
Natural Resource Accounting: Improve understanding & Quantification of ecosystem services in cost benefit analysis
Costs: + impact costs of processes thru full lifecycle - waste free processes
Prices: Promote cost structures that reduce risk and premium for new techs
What term do businesses use for the 3 pillars of sustainability?
ESG (Environmental, Social, & Governance)
What does the term Governance in ESG mean?
Reflects the responsibility and efforts of a business’ Management & Board to manage sustainability issues
What has happened to the term ESG as of recently?
Has become controversial due to anti-sustainability pushback
Les Frequently used now
What has become a common reporting practice for public O&G companies and why?
What: Issuing ESG/sustainability reports
Why:
1) ESG disclosures and performance a growing factor of importance to investors & lenders
2) Some orgs issue ESG ratings for use but inv and companies want to avoid poor rating, relative to industry peers
How does issuing a ESG report help companies?
Raises the company’s own awareness and governance of sustainability factors like
- Climate related risks & opportunities
What UN conference occurred in 1992 and what is referred to as?
United Nations Conference on Environment & Development (UNCED)
AKA:
- Rio Conference
- Earth Summit
2 Key Elements of Earth Summit
- Agenda 21: Whereby 178 states agreed to coordinate efforts for sustainable development
- United Nations Framework Convention on Climate Change (UNFCCC): Whereby approximately 190 parties/states have agreed to coordinate efforts to combat climate change and its adverse effects
What was the original plan for Agenda 21?
Achieve global sustainable development by 2000 - 21 represents a sustainable beginning by the 21st century
What arose from agenda 21?
Sustainable Development Goals for 2030
What are the 17 sustainable development goals and which are most related to O&G?
- No Poverty
- Zero Hunger
- Good Health and Well being *
- Quality Education
- Gender Equality
- Clean Water & Sanitation*
- Affordable & Clean Energy*
- Decent Work & Economic Growth*
- Industry, Innovation, & Infrastructure *
- Reduced Inequalities
- Sustainable Cities & Communities
- Responsible Consumption & Production
- Climate Action*
- Life Below Water*
- Life on Land*
- Peace, Justice, and Strong Intuitions
- Partnership for the Goals
What does the term climate change refer to:
Long-term shifts in temperatures & weather patterns
What does global warming referring ?
The significant rise in global temperatures since the beginning of the industrial age
Rising temperatures have had negative consequences - expected to intensify if the trend continues
Measurements of Temp Changes reference what baseline and why?
Pre-industrial levels because it was an inflection point in the use of fossil fuels
When fossil fuel consumption began to grow
What is believed to be a major contributor to increased global temps and how are they produced?
An increase in Greenhouse Gases
GHG’s are produced through the production and combustion of fossil fuels such as coal, oil, & gas
What is the primary GHG emitted from fossil fuel combustion?
Carbon Dioxide (CO2)
What has the measurement station in Hawaii observed and since when?
It has been monitoring atmospheric CO2 levels since 1958 and has reflected a substantial rise in CO2 levels
How much have CO2 levels rise since the beg of the industrial revolution?
50%
What happens to CO2 naturally?
It is emitted and absorbed naturally in both terrestrial and ocean environments.
The balance of CO2 fluctuates naturally over time
How do current CO2 level changes compare to scientist estimates going back in time?
The rate and degree of change are unprecedented - a large spike since 1950
What is the scientific consensus of why the rate of change in unprecedented?
Rising CO2 levels are human-caused from fossil fuel consumption
How does the O&G industry affect emissions and is anything being done?
The generate CO2 emissions from production, flaring, and machinery combustion
Industry taking steps to reduce CO2 emissions substantially
What is the atmosphere mainly composed of
Nitrogen, Oxygen, and Argon
Acronym: (NOA)
What is CO2’s presence in the atmosphere?
4 hundredths of 1% .041%
What is the most abundant GHG in the atmosphere by %?
C02
Presence in the atmosphere: .0407%
Characteristics of CO2 in the Atmosphere
(potency & abundancy)
Least potent GHG
High abundance in atmosphere
What is CO2 equivalence, why is it important, and how is it calculated?
A way to rank GHG for their global warming potential
CO2 is given a value of 1
Calculated based on a combination of potency and duration over a 100 year period
- multiply mass of gas * global warming potential
Why is CO2 equivalence important? (use methane example to explain)
2021 methane only 11.5% of US emissions vs 79.4% for CO2
But Methane emissions worse for the planet because of the 28 multiplier (Co2 Equivalence)
How have atmospheric methane level measured over time?
Atmospheric methane levels have been measured since 1983 and risen significantly over time - not as much as co2
Methane is responsible for how much of global temperature rise and why?
30% since the Industrial Revolution because of its high GHG potency
Explain the natural occurrence of methane in the environment
Emitted and absorbed naturally
Emitted from wetlands where carbon is stored and released from decomposing plant life and rich soils
Where does the majority of current methane emissions come from?
Human-caused arising from agricultural and organic waste related to the growing world population
Does fossil fuel production and consumption affect methane emissions? If so, by how much?
Yes, the energy sector responsible for a large portion of methane emissions that arise from human activity - 40%
What changes has the O&G industry made in regard to methane emissions?
Major progress in reducing methane emissions from factors such as leaks, tank venting, and pneumatic controls
- EPA has also issued tough methane regulations
What is the primary focus of the United Nations Framework Convention on Climate Change?
Stabilize greenhouse gas concentrations in the atmosphere
What are the the conferences held by the UN framework Convention on Climate Change called and what do they work on?
Conferences of the Parties (COP)
Held annually to work on coordinating issues, establishing commitments, and monitoring progress
What was the first agreement made during the UN Conferences of Parties?
(Discuss US involvement)
Kyoto Protocol which was never ratified by the US and superseded by the Paris Agreement
- individual emission reduction targets
- lots of pushback
- exempted 80% of the world
- Bush withdrew US participation in 2001
What was the agreement that superseded the Kyoto Protocol?
Paris Agreement
Compare when the Paris Agreement was reached cs when it went into force
Agreement reached in 2015 in Paris
Entered into force in 2016
What was the Paris agreement about and who joined?
Stronger measures because global progress was deemed insufficient
- Aims to keep the global temperature rise in this century below 2°C above pre-industrial levels
- Pursue efforts to limit the increase to 1.5°C
- Ratified by essentially all countries
What does the Paris Agreement require of Participating parties?
- Put forward their best efforts through nationally determined contributions (NDC) and to strengthen efforts
- Report regularly on emission status and nds
What is a global stock take and what was the conclusion of the 1st one?
A meeting every 5 years to assess collective progress
1st meeting in 2023 in Dubai - concluded global efforts not on track to meet goals
What has been the result result of increased awareness and mitigation efforts?
Global GHG emissions have continued to grow despite these efforts
Compare the growth of Renewable Energy to the growth of Energy Demand
Renewable energy sources have grown, but growth has been outpaced by overall growth in energy demand
What % of global energy consumption does coal account for and why is this bad?
25%
Important because coal is the highest GHG Emitting Fossil Fuel
Where is coal consumption the highest?
Developing Asian nations
What is the Climate Finance Plan discussed at COP29 at Baku?
Whereby developed nations provide grants and loans to help developing countries to cut emissions, by moving away from high emission coal
Under Climate finance, what is the current aid provided and what will it be in 2035>
Agreement to triple current aid of $100B per year to $300B by 2035
- help raise outside sources of clean energy investment
What is Shareholder Capitalism?
Focus on generating returns to SH within the confines of the law/regs and norms
- only go beyond if benefits for the Corp
- traditional view of Corp Responsibility
What is Stakeholder Capitalism?
Notion that business should voluntarily protect and advance the broader interest of society in its pursuit of profit
- Evolving view
What is a Non-Governmental Organization (NGO)? How do they view the O&G industry?
An advocacy or service group, usually withing an environmental and/or social objective
- Many oppose O&G industry activities
Common NGO’s
- Sierra Club: Explore, enjoy, and protect the Earth’s wild places
- Green Peace: Ensure the ability of Earth to nurture life and all its diversity
- World Wildlife Fund
- Center for Biological Diversity
- Environmental Defense Fund
What do Multi-Lateral Organizations do?
Group of countries that work together on issues for common interest
Involved in energy and sustainability issues that affect the O&G industry
Examples of Multi-lateral Organizations
- United Nations
- World Bank: long term economic development and poverty reductions
- International Monetary Fund: focus on macroeconomic & financial stability
- World Trade Organization
- Organization of Economic Cooperation & Development
What role do Governments/Regulators play in O&G industry and what consequences does it have?
Multiple agencies create and/or enforce regulations that impact the O&G industry
Regulations can restrict operations, increase compliance costs, & result in fines
Examples of Regulating Agencies
- SEC
- Bureau of Land Management
- Bureau of Ocean Energy Management
- Environmental Protection Agency (EPA)
- Federal Energy Regulatory Commission (FERC)
- State O&G regulatory and environmental agencies like Texas Railroad Commission
How does public perception impact businesses and its practices?
Can impact its standing in the community, its ability to hire & retain talent, ability to gain needed cooperation & approvals
How can consumer perception of company, its industry and its products affect business?
Can affect product demand & pricing
Can change consumer patterns and preferences can also create product risks and opportunities
What is Investors view on sustainability efforts?
Investors have increasingly demanded sustainable behavior and reporting from public companies
Why did companies start issuing ESG reports and when?
Larger companies began ESG report to satisfy investor demand around 2005
Where did the term “greenwashing” arise from?
Many initial reports lacked thoroughness and substance and included false or exaggerated claims
What did the demand for improved sustainability lead to?
Emergence of Orgs that proposed standards or frameworks to be used by reporting companies
Voluntary: GRI, SASB, CDP, TCFD
Mandatory: EU CSRD, IFRS/ISSB, SEC
Changes and Characteristics of Reporting Standards
Changes:
- Started of voluntary but moved to more mandatory
Characteristics:
- Reporting focused on topics material to a company
-Some had climate only focus vs. broad coverage of sustainability topics
- Some standards organized by topic, some by industry, and some incorp both
What is the difference between outward orientation vs. inward focus?
Outward-oriented: Focus on a company’s impact on the environment & society
Inward Focus: Investor-oriented and focus on how the environment and society impact a company
Double Materiality: A mix of both
How have Investment practices changed over time?
Bulk of investments held in broad fund managed by asset managers
- Hard to Cherrypick individual comps and not direct ownership with voting rights
What do investors demand of asset managers and what has occurred in response?
Sustainability minded investors pressure asset managers to be sustainability watchdogs
Some sustainability instruments and funds have been created
- Funds now allow partial exclusions from a broad index
Blackrock’s Asset Manager Sustainability Story
2020: Made strong sustainability in a letter to clients and investors - wanted portfolios to be ESG-integrated
2020: CEO Larry Fink demanded CEO demanded other CEOS improve sustainability performance and reporting - request for companies to report using SASB & TCFD
2023: Faced pushback over its demand, from republican reps and states producing hydrocarbons
–> Result: Blackrock less vocal on sustainability topics and Larry Fing said he’ll cease use of term ESG
How have companies responded to ESG controversy and what is it nicknamed?
Continue addressing ESG in a way that suits investors but downplay efforts to avoid criticism
Greenhushing
Why did the term alphabet soup arise?
Arose from the use of acronyms by organizations and their standards
How are organizations addressing alphabet soup chaos?
Some organizational consolidations
Remaining orgs working to align their required content and formats to similar topics
Are sustainability reporting standards the same as financial reporting standards?
No they are not
Financial reporting standards:
- For public companies, issue financial statements by FASB ASC and GAAP
- For non-U.S. companies, issue financial reporting in accordance with IFRS
What is GRI, its focus, and its topics?
Most widely used voluntary standard that covers a wide range of env, eco, and social topics.
Outward focus: How companies impact the environment and society
Topic: Multiple topic standards and developing industry standards, few industry standard currently, O&G one
What is the GRI O&G industry standard?
GR11
What is SASB, its focus, and its standards? Consolidated?
Widely used voluntary standards covering sustainability topics
Inward focus: how the environment and society can impact company operations and value
Topics: Standards organized by the industry
SASB consolidated into IFRS/ISSB
What are the 4 SASB Sectors used for O&G industry
- Exploration & Production
- Upstream operations - Midstream
- transport or store of natural gas - Refining & Marketing
- Services
- drilling under contract, manufacture equip, support services
What are the SASB top 4 topics for upstream O&G?
- Greenhouse Emissions
- Air Quality
- Water Management
- Biodiversity Impacts
What is the TCFD, its focus, and its standards? Is it consolidated?
Voluntary climate-focused standards are widely referred to by other standards for guidance on climate-reporting topics
Focus: Inward, investor-oriented focus
Standards: requires reporters to address governance, strategy, risk management, and metrics and targets around climate issues
Consolidated with IFRS/ISSB
How does TCFD organize climate related risk?
1.Transitory risks are risks related to the energy transition to a lower carbon economy
- Ex: Policy/regulatory/legal, technology, market and reputation changes
- Risks related to physical impacts of climate change
- Ex: Damage to assets & supply chain disruptions due to:
*acute events such as extreme events
*chronic degradation by rising temps (drought or sea level rise)
How is the GHG Protocol important?
Referred to by TCFD and other standards for guidance on how to measure & report GHG
How does the GHG Protocol allow measurement (2) of GHG emissions?
1) Operated basis (Control): assets company operates even if partly owned by other companies
2) Equity Basis (Ownership): Assets the company owns, does not have to operate, in proportion to share of equity
What are Scope 1 Emissions?
Direct GHG emissions that occur from sources that are controlled or owned by any organization - Direct
Ex: Company facilities and Company vehicles
What are Scope 2 Emissions?
Indirect GHG emission associated with the purchase of electricity,steam, heat or cooling
What are Scope 3 Emissions
Indirect GHG emissions that occur in the value chain
Upstream (Suppliers and employees)
- purchase of goods, capital goods, transportation and distrib, waste generated, business travel, employee commuting, leased assets
Downstream (Distribution and customer)
- transportation and distribution, processing of sold prods, use of sold prods, end-of-life treatment of products, leased assets, franchises, investments
What did IFRS announce Nov 2021?
Establishment of an International Sustainability Standards Board to strengthen and consolidate reporting standards
What has the ISSB done since its establishment?
Taken over operations of SASB and TCFD
- Other IIRS and CDSB
2023: issued two new sustainability reporting standards that will be mandatory for IFRS filers
Progress of mandatory standards in the US
March 2024, SEC issued climate related reporting rule to be used by US public companies - pending cour challenge and review
FASB wanted to be involved in sustainability reporting SEC discouraged
European progress on Sustainability Reporting
- EU issued comprehensive SR reqs in 2023 under Corp Sust Reporting Directive
- Reporting standards to be used called European Sustainability Reporting Standards, incorp double materiality
- EFRAG: Standards developed by org called EFRAG
What are some California Climate Disclosure Laws?
SB253 - Climate Corp Data Accountability Act
- requires public and private US conducting business in Cali that have total annual rev in excess of $1b to report S1 and S2 GHG emissions beginning 2026. S3 not determined
- Public disclosures must be verified by 3rd party assurance provider
- Can be consolidated at the parent level
What are the beliefs of shareholder capitalism advocates on law and regs?
Businesses should comply with laws and regs but disagree over what the law and regs should be
laws lead to undesirable shareholder capitalism
Why may regulations be inadequate?
- One size fits all can be problematic
- Inadequately designed: vague or loopholes
- Design and implementation weakened by lobbying
- Inadequate enforcement and monitoring - lead to low compliance
- Regulatory capture: Regulators unduly influenced by the regulated
- Late Implementation - reactive rather than proactive
- Stale - underlying methods or tech change
- Shift of jurisdiction to circumvent regulations
Objectives of Sustainability Reporting Standards, like GRI
Improve business behavior through increased transparency to move close to stakeholder capitalism
- Identify areas where they have a material impact on the env, society, or eco and make standardized disclosures
- Disclosing risk and opportunities & strategies
- Setting performance targets and showing progress, using metrics
- Require governance disclosures to show commitment
What can sustainability standards lead to in terms of regulation?
Enhanced regulations by highlighting areas of needed improvement
What is the Objective of investor-related standards, like SASB?
Highlight the risks to a business of continuing to engage in unsustainable practices in a changing world
- declining rev, higher costs, higher capital costs
- Demonstrate risks to a business caused by climate change - transition and physiscal
US Wind Categories
- Land-based: 136 GW installed - utility based
- Off-shore 40 GW planned
- Distributed: 1GW installed for small and local use
Are all areas good for wind generation and issues arising?
No, not all areas are good
Distance between generation and consumption locations create grid requirements
Who is the #1 country and #1 state in wind capacity?
China and Texas
US comes in second
Components of a wind turbine and domestic content
70% of the nacelle and tower equipment for US windmills manufactured domestically
Domestic content for blades is less than 25%
Rotor blade
Gear Box
Generator
Nacelle
Power Cables
Tower
Transformer
Switch yard
What parts of windmills have been increasing in size?
Turbine capacity, rotor diameter, hub height
What’s the deal with US Offshore Wind Projects?
Unconstructed projects have become unprofitable due to
- rising costs,
-supply chain constraints, &
permitting delays
Result:
- little interest in bid licenses
- cancellation of projects
US solar energy sources include…
1) Photovoltaics
- Large utility-scale
- small scale (rooftop)
2) Solar Thermal - very small amount
- parabolic troughs
- solar towers
What is Photovoltaic technology (PV)?
Panels that convert light (Photons) from the sun into electron/electricity flows (Voltage)
What are Concentrating Solar Power (CSP) systems?
Use lenses or mirrors and tracking systems to focus a large area of sunlight into a small beam
Concentrated heat is then used as a heat source for a conventional power Plant
What is the main purpose of the Inflation Reduction Act?
Includes diverse tax incentives & benefits
Some highly subsidizing energy and climate-related provisions
How do IRA incentives compare to existing tax incentives?
- Extends existing credits
- Increases some existing credits
- Adds new types of credits
What new mechanisms does IRA use to deliver it’s incentives?
- Direct Payments: credits that can be claimed for cash even if the entity has no TI
- Tax credits: Can be transferred/sold to other TP who are able to use them
How does the IRA make tax credits easier than before?
Before new ventures wanting to direct credit benefits to party’s able to use them, they had to create complicated tax-equity Partnership
Do FASB standards provide comprehensive guidance on how to account for all types of IRA incentives?
No, but they do provide a variety of ways to treat them
What can be the potential ACC treatments for credits under ASC 740?
Some incentives can be treated as income tax items, addressed in ASC 740 - Income taxes
What would be the treatment of direct-pay credits?
Treated as government grants
- Realization not directly related to taxable income
What would be the treatment of transferrable credits?
Could be treated either as gov grants or taxable income
Where can you find guidance on how to account for government grants?
- IFRS: IAS 20
- FASB: none currently - using IAS 20 until ten
Does FASB have plans to address the treatment of government grants?
Yes, has proposed a standard update
- Comments due March 31. 2025
