The ESG perspective: Living in interesting times

MARK PATTON, CONTRIBUTING EDITOR 

Living in interesting times 

I’ve used this phrase before, but if I look at the ESG landscape, I can only think about how interesting things are getting and where exactly we are going. With a new incoming President Donald Trump and his pro-oil stance and his previous record on the Paris Treaty, we have a new Secretary of Energy candidate in Chris Wright, who has opposed much of the ESG movement and with Liberty Oil suing the SEC for overreach with their new climate disclosure rules. Are we seeing the end of the ESG movement? 

On the other hand, we have ExxonMobil CEO Darren Woods stating that we need to stay in the Paris Agreement, while the majority of Major Oil has embraced many parts of the SEG movement and invested billions individually towards low-carbon business units. Additionally, at a recent conference, many oil executives felt that many of the emission requirements will remain and are consistent with their future plans. This leaves us in interesting times, indeed. What path will we take, business as usual on the emission regulations, or a roll back? 

Decarbonization. I’ve long discussed how decarbonization is here to stay. First, the tax credit program in the U.S. was established in 2008 and survived many administrations and has only increased over time and expanded. We don’t expect this to change, especially when Major Oil has invested billions into this market. Decarbonization will become a for-profit venture and is emerging as a new and growing industry. And new and growing industries are important to improving the U.S. economy. With the Tech industry, the EU and other countries showing an appetite for low-carbon energy, combining oil and gas with decarbonization makes sense. 

What about methane? Methane gets a little messier. The EPA has some newly adopted rules and fees that apply to excess methane. Typically, I would say some of these new rules will get rolled back, but I’m not sure. You see, the EU has adopted a new methane rule that we have previously discussed that requires natural gas to meet, if it’s to be sold in the EU. The EU is an emerging market for Major Oil, and we should see an increase in LNG capacity under a Trump administration and likely a fast tracking of permits. It is this emerging market that puts pressure on the U.S. to keep many methane rules in place. We have already seen companies pay a premium for responsibly sourced gas, and these new methane rules are consistent with Responsibly Sourced Gas requirements. We have already seen many new companies emerge, along with new technologies that support a growing methane control industry. 

I expect we will see some changes here and some roll-back, but we do need to keep a methane emission program that is consistent with the EU, if we expect to sell into that market. Then there is the geopolitical motivation. Russia has long had leverage over the EU as a major supplier of natural gas and has imposed that leverage over individual member countries and nonmember countries. Becoming a major supplier of natural gas improves our geopolitical position in the area and reduces Russia’s influence while increasing ours. I’m sure President Trump would appreciate the leverage he can have by offering or withholding natural gas to EU countries as part of any negotiations. The key is to increase our LNG capacity, to make this a reality. 

COP29 -Background. At the writing of this column, COP29 is coming to a close. The host country this year was Azerbaijan, and the event was held in Baku. As an oil-producing country, this selection was not without controversy. In December 2023, Azerbaijan was announced. This was a surprise, because the host was expected to be an Eastern European country, but at the previous COP28 in Dubai, an agreement was reached to allow Azerbaijan to host. This selection created quite a backlash, from human rights violations to claims of ethnic cleansing against Armenians, as well as concerns as a fossil fuel producer and claims of corruption and crackdowns on journalists. These types of claims also preceded COP28, when Dubai was selected, 

More importantly, this points to a transition in the COP program, allowing oil producing countries to participate while allowing offset natural gas as an energy source. A testimony to this is the increase in oil lobbying delegates represented at COP29, which was reported to be 1,773 larger than any other delegation except that of the host country with 2,229. Boy how have times changed; previously, these groups were not allowed or didn’t participate. 

Focus. This year, COP29 put a focus on Climate Finance and developing financial targets to help support smaller developing countries with their climate goals. A critical part of this was developing carbon credit quality standards. This is critically important to the development of the Voluntary Carbon Markets (VCM). The expectation is the VCM will grow in value and fund much of the decarbonization work planned worldwide.  

The problem is not all carbon is the same. Although it is simple to monitor how much carbon is sequestered, it is much more difficult to monitor carbon offsets from tree planting. Tree growth has to be measured, as do trees dying or damaged from weather impacts or fires. If there isn’t a consistent and accurate measurement taken, then these types of offsets become less reliable. Developing a carbon valuation standard becomes critical to developing a stable and reliable VCM. There are already organizations developing to establish rules and requirements for VCMs, so developing carbon credit quality standards is a step in the right direction. 

More controversy. Venue and oil lobbyists were not the only COP29 controversies. As discussions were held about financial pledges from member countries, developing countries were asking for more aid. The controversy here is that only traditional industrialized countries are contributing, while emerging economies do not. Under a 30-year-old UN definition, countries like China, India and the Gulf Cost nations are considered “developing nations,” which makes them eligible to receive aid but not required to give any. Adding to the frustration is that China, India and the Gulf Coast countries are significant emissions sources, while not contributing financially to the COP financial pledges or required to do so. At the writing of this column, this issue was still unresolved. 

So where does that leave us? Well, in interesting times. I expect decarbonization and most of the methane emission regulations to remain, but there is still some uncertainty. I think the SEC disclosure rules are in trouble, but that doesn’t mean that the ESG movement will go away. And what will Chris Wright’s impact be? I am excited to see how all this develops, and, as always, change only brings new opportunities. See you next month. 

About the Authors

Mark Patton

Hydrozonix

Mark Patton is president of Hydrozonix and has more than 30 years of experience developing water and waste treatment systems for the oil and gas industry. This includes design, permitting and operation of commercial and private treatment systems, both nationally and internationally. He has seven produced water patents and two patents pending. He earned his B.S. in chemical engineering from the University of Southern California (USC) in 1985.