At the COP28 climate summit this week, Canada released its much-anticipated draft regulations for oil and gas methane, which are expected to result in a more than 75% reduction in methane emissions by 2030. As national and international policies impel fossil fuel companies to reduce emissions of the potent greenhouse gas (GHG), and as lower-carbon energy products become increasingly competitive, it’s important for the public to have accurate information about companies’ emissions.
Yet if we achieve these dramatic reductions, it won't necessarily mean that every company has reduced its methane emissions by 75%. Some companies are likely to perform better than others. The need to distinguish leaders from stragglers means accurate and transparent emissions reporting is essential.
With climate disclosure rules from Canadian Securities Administrators expected in the first half of 2024, there is hope for improved corporate transparency and accountability on environmental, social and governance (ESG) standards. But a gaping loophole in the proposed standard will mean that investors won’t get accurate information about Canadian oil and gas companies’ emissions, particularly when it comes to methane.
Barriers to informed investing
Since reducing methane emissions is a quick and cost-effective way to curb emissions and mitigate warming, investors will want companies to move especially fast on this potent GHG. Right now, if you want to base investment decisions on methane performance, the information you need is strewn across various sources, including the federal government’s Greenhouse Gas Reporting Program, Petrinex, provincial reporting programs such as Alberta’s OneStop, and producer websites. Some of that data is publicly accessible and some not. What is accessible is sometimes contradictory, often incomparable and consistently inaccurate.
It shouldn’t be this hard for investors to find the facts.
An end to the “Wild West”
The International Sustainability Standards Board’s (ISSB) reporting standards are designed to establish a “global baseline” for sustainability reporting and require that companies disclose climate-related governance, strategy, risk management, and metrics and targets. They should help end what has been described as the “Wild West” of sustainability reporting, where voluntary reporting enables companies to “cherry-pick” favourable ESG frameworks from more than 600 choices. Greater standardization will make the information available to investors more consistent, comparable and meaningful.
While the ISSB rules establish a baseline for international reporting requirements, it is up to national regulators – like Canada’s CSA – to determine legally binding requirements in their jurisdictions. The CSA’s proposed National Instrument 51-107 – Disclosure of Climate-Related Matters sets forth the rules for disclosure that will apply to all publicly traded Canadian companies.
Out of step with global standards
While a growing number of companies are disclosing environmental data, the majority still don’t, including 1,600 of the most environmentally harmful companies in the world, such as ExxonMobil, Chevron and Glencore. A study by researchers at St. Francis Xavier University found that, of 70 Canadian oil and gas producers surveyed, only 49% had sustainability reports or ESG indicators posted on their websites – and only 32% reported methane intensity.
The proposed CSA rules don’t actually get rid of voluntary reporting – at least not where it counts. They require publicly traded oil and gas companies to disclose Scope 1 (direct), Scope 2 (indirect, from energy purchased for production) and Scope 3 (indirect, from downstream consumption) emissions . . . unless they choose not to.
The proposed rules include a permissive opt-out clause, which allows companies not to report, so long as they provide a reason. The text does not require that the reason be legitimate or define “legitimate reason.” Moreover, the text recognizes that this flexibility renders the GHG reporting requirement “not mandatory.” The choice to opt out of reporting takes the Canadian rules, in the words of one legal expert, “wildly out of step” with U.S. and international requirements.
The CSA indicates that it is consulting on an “alternative” rule that would require Scope 1 reporting while keeping the “report or explain” requirement for Scope 2 and 3 emissions. This would be preferable for the purposes of corporate transparency and accountability – but even still, large emitters should not be able to opt out of any aspect of emissions reporting.
Accuracy
Then there’s the thorny issue of inaccurate methane quantification. The official federal inventory and ESG metrics alike are based on estimation and self-reporting, which are known to under-represent emissions. The StFX study shows that modelling methane intensity based on field data results in an intensity rate that is more than twice that of the official methane inventory.
The new Canadian disclosure rules do nothing to address the underestimation problem. They specify that companies that choose to report should follow the GHG Protocol (or a comparable method), which involves status quo accounting using emissions factors, with no integration of measurement and verification.
Stronger requirements needed
Canadian investors deserve clear, accessible, comprehensive and accurate data regarding oil and gas methane and other GHG emissions. In Canada, that can become a reality only if:
- The CSA aligns with international standards by eliminating the permissive opt-out clause for emissions of all scopes.
- Oil and gas companies are required to adhere to international best practices for measurement, monitoring, reporting and verification, such as the Oil and Gas Methane Partnership 2.0 backed by credible and transparent measurement standards, such as GTI Veritas or MiQ.
Lax emission-reporting standards mean Canadians don’t have the information they need to judge companies’ environmental performance, make informed investment decisions and hold heavy emitters accountable.
Amanda Bryant is a policy analyst working to advocate for strong regulations to effectively reduce methane emissions from oil and gas activity.
