Equinor ASA will need to expand its climate goals to make any meaningful emissions cuts and keep pace with competitors, but doing so could take years, analysts said.
The Norwegian state-controlled oil company intends to slash emissions from its owned or controlled operations, known as scope 1, and those that come from the electricity they purchase and use, known as scope 2, by 40% by 2030, 70% by 2040 and to near zero by 2050. The reductions will only occur from Equinor's Norway operations and do not include scope 3 emissions, or those that occur in its value chain.
"[Equinor] speaks about neutral emissions rather than emissions free, which basically means they can easily be achieved with spending cash on offsetting factors," S&P Global Ratings analyst Edouard Okasmaa said in a Jan. 7 email. "Scope 3 neutrality will be a completely different target, much more difficult to achieve, and not on the table for a while under business as usual conditions."
Scope 1 and 2 emissions each account for about 5% of an oil major's impact on climate, while scope 3 emissions generally make up the remaining 90%, Morningstar analyst Allen Good said in a Jan. 7 email. Equinor will need to include scope 3 emissions in its ambitions to catch up with the goals of many of its peers, Good said.
"I imagine [Equinor] will eventually incorporate scope 3 into some sort of target, though it could be some time," Good said. "Without including scope 3, they lag behind the more encompassing targets of Royal Dutch Shell PLC, Total SA and Repsol SA."
The largest integrated oil and gas companies have been under mounting pressure from activist investors and environmental groups to reduce emissions and move their business models into alignment with the goals of the Paris Agreement on climate change.
Shell, BP PLC and Italy's Eni SpA have outlined short-term emissions reductions goals, but it was Spanish oil and gas company Repsol that was the first to set long-term targets, unveiling in December 2019 an ambitious plan to be reached by 2050. Repsol's plan includes scope 3 emissions in the target.
From a 2016 baseline, Repsol is planning to reduce its carbon intensity by 10% by 2025, 20% by 2030, 40% by 2040 and to net zero by 2050.
"Repsol is the world's only oil company to include scope 3 emissions in its full decarbonization target," Raymond James equity analyst Pavel Molchanov said in a Jan. 6 email. "The trend is for industry players to ratchet up the ambition level of their targets over time. I think there is a good chance that Equinor will eventually move towards adopting the same approach as Repsol."
In March 2019, Anglo-Dutch major Shell said it also plans to reduce its scope 3 emissions, but its goals are short term. Shell, which could become the world's largest power company by the early 2030s as it increases its investments in non-oil businesses, outlined in March 2019 a three-year carbon emissions reduction target of 2% to 3% through 2021 from 2016 levels.