The Hidden Climate Impact of Natural Gas
Investing For a Better World – Spring 2013
Energy is big business in the U.S. and is also—by far—the biggest contributor to greenhouse gas emissions. In the hunt for lower-carbon energy investments, investors have flocked to natural gas. And why not? It’s half as carbon intensive as coal, which has traditionally been the fuel of choice in the electric power sector. But a closer look at natural gas reveals a hidden and heavy carbon footprint from “fugitive” emissions.
The primary component of natural gas is methane, the simple hydrocarbon compound you learned about in chemistry class. What you may not know is that methane has 72 times the climate impact of CO2 over a 20-year period, and it’s leaking into the atmosphere throughout the natural gas product cycle—from the time gas is drilled to the time it’s delivered. This impacts not just the climate, but also the operator’s bottom line as gas that leaks into the atmosphere cannot be sold.
Up to this point, companies and regulators have failed to systematically manage methane risk, provoking concern among investors like my colleagues at Trillium Asset Management. Last year, we joined the Investor Network on Climate Risk and an international coalition of investors representing more than $20 trillion in assets under management in a call for action on fugitive methane. Rather than a passive concern, an issue of this magnitude requires persistence.
As active investors looking for positive returns and a positive impact on the planet, we at Trillium file shareholder proposals and engage with companies to reduce risk exposure while improving shareholder value creation. Fugitive methane is a marquee example of our filing activity.
For over a decade, Trillium has pressed companies to address their direct impact on climate change—including filing the first proposal on environmental risk in the Canadian Oil Sands and persuading utility companies to shift from coal to more renewable energy sources. This year we are tackling methane risk in our filings, asking Spectra Energy, Range Resources, and Oneok to implement programs of measurement, mitigation, disclosure, and target setting.
Natural gas assets are developing rapidly, and—with regulators racing to catch up—it’s no surprise that companies have prioritized growth over operational efficiency.. But in light of recent scientific findings, it’s time to pull the ostrich up for air. Academic studies published in the National Academy of Sciences in 2012 identified methane leakage rates of up to 9%, over 3 times original EPA estimates, and 5 times industry estimates. This dissonance is particularly troubling since the short-term climactic benefit of natural gas over coal disappears when leakage rates exceed 3.2%.
The big picture: Oil and gas sector emissions are growing rapidly, and anthropogenic—that is, human generated— methane emissions are estimated to contribute 20% to the short-term global warming impact. And with measurement methodologies under question, estimates may be grossly underestimated. In fact, the EPA’s own watchdog group has highlighted the “questionable quality” of current estimates and called for a closer study of fracking emissions after their auditor concluded that current data is insufficient to make policy decisions.
In the meantime, regulatory risk is mounting on a number of fronts: companies are required to report the methane emissions of their largest facilities for the first time; seven states are suing the EPA for failing to regulate methane; public and investor awareness is increasing; and the EPA’s own watchdog group is pushing for greater inquiry.
As sustainability-focused investors we pride ourselves in recognizing emerging environmental risks for the benefit of our clients and the climate. Filing a shareholder proposal leverages that skill to sharpen management’s focus. The threat of regulation alone is reason to give a company pause as they weigh the strength of their environmental strategy. But in this case, there is also a clear profit motive to detect and capture leaking gas using currently available technologies.
We hope our engagement with companies will help protect their bottom lines and the climate. In the case of leaking natural gas, it’s a no-brainer—there is already a bounty on fugitive emissions, companies just need to claim it.
A version of this article was originally published at www.guardian.co.uk.