Scrutiny, Scope 3 and Asian realities: Petronas sustainability chief on climate action at COP28

Blockbuster Big Oil earnings last year amid high fuel prices have led to profiteering accusations, while environmentalists suspect that fossil fuel lobbyists blocked more ambitious targets at last year’s COP27 in Egypt.

Joining the Eco-Business podcast to discuss the role that fossil fuel firms will play at COP28 is Charlotte Wolff-Bye, the chief sustainability officer of Petronas.

Petronas is Malaysia’s state-owned energy company, and one of the country’s biggest financial contributors. It has operations around the world, and its daily production averaged 2.4 million barrels of oil equivalent last year.

The company has also been present at past COP summits, where it has pledged action in areas such as better managing methane emissions.

Charlotte Wolff-Bye is the Chief Sustainability Officer at Petronas. Image: Petronas.

Tune in as we discuss:

• What Petronas will bring to COP28
• Can there be greater action on the fossil fuel sector’s sizeable Scope 3 emissions?
• How Petronas aims to build trust with sceptics
• What a “responsible phase-down” of fossil fuels – as floated by COP28 leadership – entails
• The ideal outcomes from the climate summit

Edited transcript

What will Petronas be bringing to COP28 in terms of activities and messaging? Who will be attending?

Petronas does not have a formal role in the COP process. We will just join the thousands of other observers representing businesses, cities and non-governmental organisations. It is an important forum for accelerating climate action, where like-minded people get together, form new insights and broaden our network.

We will engage specifically on topics such as energy transition, transition finance, just transition, carbon pricing, voluntary carbon markets, nature-based solutions and biodiversity.

It is about how to scale up our efforts on climate action and to support Malaysia and other host nations that have pledged goals towards the Paris ambitions.

We have a small delegation of leaders who will be joining and some of my team members who are experts in specific areas of sustainability such as biodiversity and carbon markets. They will follow specific negotiation strands and programmes at the various pavilions.

I plan to go as well, and unfortunately we can’t stay for very long due to other business duties to attend to in Malaysia. But we are truly looking forward to COP28 because it is promoted as being very inclusive. Dubai can really host big events, so the usual issues around lack of accommodation won’t be there so COP28 can really be inclusive.

How do you interpret COP28’s message of having oil and gas companies work together to achieve climate targets? What specific action does this entail for Petronas?

I understand that there is concern and a sort of distrust in the system towards many entities in society because we have a climate crisis on our hands. However, inclusivity is important because we must now move from talk to action, and that means bringing the real economy to the table.

About three quarters of man-made carbon emissions come from the global energy system, so it is essential to have the energy system represented at a COP. The situation has kind of changed over the years. In the past a great focus of the COPs was the negotiated outcomes – we needed strong policy signals and for governments to come together. But I would say now, since COP 21 in 2015, we have a very clear signal of where the world wants climate action to go. So now it is more about how you do it, who do you partner with, and how can you accelerate climate action. So COPs have become a bit of a climate trade fair, maybe the world’s biggest climate trade fair.

Many groups want the oil and gas industry to tackle Scope 3 emissions, since up to 95 per cent of emissions from the sector comes from fuels sold to and used by customers. Is there an opportunity for any breakthrough agreement here at COP28, and what would that look like?

For us to achieve with our climate ambitions globally a whole systems transformation that’s required. We must change both how we produce energy and consume energy.

Scope 3 is an important topic. It is like you driving a car with my petrol in it – you produce my Scope 3 and your own Scope 1 emissions. I don’t really have control or whether you’re driving your car or not, and whether you are speeding, and so on. So Scope 3 is complicated because you don’t have direct control of it.

That is why in Petronas we are right now focusing on Scope 1 and 2 [operational emissions]. We have been working on this for well over a decade, and our net-zero plan has been in place for about two years now – we’re really doubling down on this, but that doesn’t mean we shouldn’t mature our approaches around Scope 3.

What can the [oil and gas] industry do? For Petronas, we are, for instance in Japan, looking at how can we decarbonise the value chain by combining our gas delivery with carbon capture and storage from the power sector.

Many other oil and gas companies are also investing heavily into other low carbon energy solutions as well as renewables. While we are trying to decarbonise our existing system, we also investing in the next generation of energy.

I would not be able to deliver on scope three targets without all of society wanting to do that too. A carbon price is quite an effective way of decarbonising economies as a whole. It incentivises manufacturers, for instance, to really focus on energy efficiency. Scope 3 is an important topic, but we all need to work together to deliver on it.

Do you see the momentum across the oil and gas industry to address Scope 3, perhaps in terms setting a concrete target or timeline?

As I mentioned, it is not within my control necessarily to reduce Scope 3 emissions. However, you can certainly work with customers in helping them decarbonise – this is something that Petronas is very much focusing on, by providing renewable energy solutions, or hydrogen, or perhaps combining efforts with hydrogen and carbon capture and storage. We have a memorandum of understanding here in Malaysia with Tenaga Nasional, for instance.

I think global industries probably don’t have targets on anything, but we have to start somewhere. If the industry can start with a common approach on Scope 1 and Scope 2, it will go a long way. The challenge is that today, not every oil and gas company is focusing on reducing emissions and building new low-carbon energy solutions. We need the whole industry to embrace this agenda.

Advocacy groups such as Rimbawatch have been calling for Petronas to halt upstream developments, and in COP28 there will likely be similar calls by other groups. How do you intend to engage with them?

Engagement is absolutely critical. We don’t all have to agree, but we have to come to the table. I can see that people are very concerned about climate change and so is everybody at Petronas.

Exploring for new oil and gas is absolutely critical, because every year these fuels need to be replenished. Existing sources don’t provide indefinitely.

Some observers would say that just prolongs the life of fossil fuels. Well, that’s not quite the case. First of all, what is important is to bring new gas finds to the market. That’s very important because the real issue right now is that we need to transition – just moving from coal to gas would go a long, long way, so that is absolutely critical.

Petronas’ portfolio is very gas heavy. Many other progressive oil and gas companies would like to have a similar portfolio to us, and they are trying to build a gas portfolio, but Petronas is already in that situation.

Another point is that, the more mature an oil field is, the more energy it takes to get fuel up from the Earth’s crust. Sometimes you find lighter barrels, lower-carbon barrels. Not every barrel is equal. Everybody is looking for the lower carbon barrels around the world.

And you would see this the strategies of all the progressive oil and gas companies. For Petronas as a national oil company, we must keep in mind affordability as well. If there’s not enough to supply the market, the prices will be very unaffordable as we’ve seen over the last year and a half around the world. That has really forced Bangladesh, for instance, to consume more coal than it was planning to.

Affordability is critical, but we should never lose the goal of sustainability, of reducing the emission intensity of our barrels. The energy system is complex, there’s no silver bullet solution to solve all the challenges, but the engagement and the debate is important, so we do welcome that. I hope COP28 will be a mutual ground to have those conversations in a respectful manner.

Scientists and the International Energy Agency (IEA) say a sharp drop in fossil fuels is needed to reach net-zero emissions by 2050. But some countries and the oil and gas sector does not want to cut supply and are banking on technologies such as carbon capture to make up for excess emissions. What is keeping Petronas from moving its business model towards the IEA’s model for net-zero?

There are many scenarios out there and and no scenario is correct. You are referring to the IEA’s 1.5^oC updated scenario, which is a back-casted scenario that starts with the end-goal and then looks at where we are today, and what is required to reach net-zero.

At the same time, the IEA has also said in its latest World Energy Outlook that you can’t just simply cut spenidng on oil and gas, because it won’t help the world reach 1.5^oC. The IEA issues a lot of analyses and it doesn’t always give the same message. I think that is important to note, and so to pull out just one scenario in isolation is not always conducive.

I was listening recently to a webinar from the Japanese government’s research agency, which had also issued new scenarios recently. It suggested that even where there are strong policy signals towards climate action in developing countries and especially Southeast Asia, there will still be about 50 per cent oil and gas consumption come 2050. It also talks about not every geography being that conducive for renewables, so different regions will need different solutions.

This is everything that you need to consider. From a company perspective, we’re here to serve the region and regions beyond Southeast Asia. This really means driving down the emissions from the oil and gas we produce, and investing in the next generation of energy solutions.

We’re also looking at biofuel, circular economy, specialty chemicals, hydrogen and electric vehicle charging. We are really investing broadly into the new energy space as well.

Last year, Petronas recorded a net profit of about 100 billion ringgit (US$20 billion), which was double of 2021. Can Petronas say that it is doing just enough to keep the world running with the upstream oil and gas activities while planning and financing for a low-carbon future?

Petronas as a national oil company shoulders much broader responsibilities than any market player. First I would say that we do live in a commodity space and only a few years ago, we had no profits at all. So profits are good because that keeps the system running and we can invest into new and better solutions.

As I mentioned, we shoulder broader responsibilities. We are not here only to produce energy – that is important – but we also here to support new value chains and industrialisation of the nation. Just as we have done with the oil and gas services and equipment sector here in Malaysia, going forward, we need to do the same around hydrogen, carbon capture and storage and so on.

Profits are also very important to the shareholder, which is Malaysia and the people of Malaysia. They benefit from the dividends that come from Petronas when we have a profitable year.

COP28 president-designate Dr Sultan Al Jaber has said that we need to prepare for a “responsible phase down” of fossil fuels. How does Petronas see this message; do you have a plan to responsibly phase down oil and gas – what would such a business model look like?

The challenge is that the region we sit in is probably one of the fastest growing regions in the world. Again, back to scenarios, one of them shows energy consumption in the region might go up by 60 per cent in the next few decades.

I think for Malaysia it is about 3 per cent a year because of population growth and development. Typically, that means you have more emissions. What is important is to decouple economic growth from emissions growth.

For Petronas, we don’t have plans for phasing down or phasing out [supply], but like I mentioned, we have a gas-heavy portfolio, which will stand the test of time going forward. The region is still very much dependent on coal and gas could bring down the emissions down by by half.

Our international operations are producing some very low-carbon gas; for oil production, we are looking at decarbonising it as much as we can. It is about responsibly producing oil and gas and abating emissions as much as we can, and we leave no stone unturned. if you go on our website, you will see dozens of memorandum of collaborations with partners across value chains and governments.

We are working very hard on making sure that energy of the future has a better carbon intensity than it has now, and I think we’re making very good progress.

How do you see the opportunity cost of continuing to invest in gas and carbon capture compared to a faster scale-up of renewables? Could our use of gas for energy security prevent a transition towards renewables that may also be feasible?

I hear this argument a lot actually. Does carbon capture and storage just prolong oil and gas production and consumption indefinitely?

The reality is that the global energy system is incredibly complex. There’s no binary switch from yesterday to tomorrow, to something green. Developing renewables does not mean just putting some solar panels on roofs and windmills somewhere. It really requires a whole support ecosystem.

You also require regulation and value chains around it. We see now, for instance, the offshore wind industry is struggling in other parts of the world. But because of supply chain issues and the high interest rate environment, it has become difficult to drive the development forward. So value chains will take time to form and they will need adjustment over time.

But there is a lot of effort and intent. We need to learn from various parts of the world about what has worked, what hasn’t worked. Of course, the Malaysia government is very proactive in this field and we are very supportive of that.

But there is no single overnight shift from the existing system to a totally renewable system. A lot of investment is going into this, and investments into low-carbon solutions is already surpassing investments into fossil fuels, and this is unprecedented. We’ve never been in the space before.

It will be difficult because value chains don’t just land on you and everyone profits and it works. The whole ecosystem needs to be duilt, and who pays for what? Do we have the right legislation, regulation, tax incentives in place? All that will evolve over time.

Do you feel if the world is ready now, on the eve of COP28, to work together?

I’m not part of the process, I’m an observer and we hope to engage and build our network at COP28.

Will the world come together? It seems quite fractious right now, but we do need the world to come together. It’s urgent, we must address address climate change and scale up our actions right away, and for that you need cooperation. It is the only way.

What really brought the Paris Agreement over the line was that strong collaboration between China and the United States, so let’s hope we will see some similar moves before COP28, and I believe there has been a lot of effort to get to that point.

Right now, geopolitically, we are in quite a difficult situation around the world. But the good thing with COPs is there is a lot of noise and strong winds before COP starts, but it actually gets going, the momentum tends to take over, other things fall away and people tend to focus on what they are there for.

So I’m hopeful. And the fact that everybody is welcome can only be a good thing. As COP28 president-designate Dr Sultan Al Jaber is saying, the 27 COPs until now haven’t achieved what we need to do, so if the oil and gas industry and other industrial sectors can really back the momentum that’s being presented by the presidency this year, that could really move the needle faster than before.

What would be an ideal outcome from COP28 for you?

We hope that countries could ratchet up their commitments and other things would fall into place. I think for us, the article six negotiations are quite important. We really want to see a strong movement towards voluntary carbon markets that would benefit Malaysia hugely. This would be about trading carbon credits from nature-based solutions, which would be important because it would bring a market mechanism to facilitate transfers of proceeds from developed countries into developing countries.

On the oil and gas sector specifically, the COP 28 presidency has been very busy throughout the year corralling the industry across the world to commit to a way forward and to reduce emissions. And I think this is quite momentous because there are a lot of progressive oil and gas companies, but they don’t constitute the whole industry.

We need to get the rest of the industry into the tent and through a little bit of peer pressure and encouragement, we should as an industry really live up to the challenge and double down on efforts.

And finally, what is your message to those who are still sceptical of the benefits of having the oil and gas sector at COP28?

First of all, it’s, it’s okay to scrutinise us and hold us accountable, but also, look at what we are doing.

In the past two years, we had set up the Asean energy sector methane roundtable, and as part of this, we launched the Methane Leadership Programme. We’re soon going to run a second workshop involving 100 technical specialists from national oil companies across Asean, on how to reduce methane emissions, which is such a potent greenhouse gas.

So there is real action in the making. This region is taking great strides, so much that I have heard requests for the Methane Leadership Programme to be replicated in Latin America. Perhaps that’s an opportunity to share our insights at COP28.

I think we need to be open and respectful towards people’s different perspectives and opinions. COP is an opportunity to come together. Why are we there? We’re there because we all care about the climate.

Sometimes you hear about oil and gas lobbyists wrecking the negotiations. There are no oil and gas lobbyists there. We are nowhere near the negotiations. We are there just like other observers, to observe what’s going on and engage in the very rich programme of hundreds, if not thousands, of sessions run at the various country, industry and non-governmental organisation pavilions.

I would say, let’s come together and hear those different perspectives because we do need them. One perspective will not bring us over the line. We need to work together.

Correction note (14 Nov 2023): A previous version of the podcast transcript misstated that “Petronas has a formal role” in the COP process. It has been corrected to “Petronas does not have a formal role”. We apologise for the error.