pension333: Investors tackle hidden climate impact of natural gas

Natural gas may be half as carbon intensive as coal but a closer look reveals a heavy carbon footprint. Now sustainability-focused investors are calling for action on 'fugitive methane'

Energy is big business in the US, but it's also by far the biggest contributor to greenhouse gas emissions. And 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 equates to a double whammy on the climate and the operator's bottom line, because 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 such as Trillium Asset Management. Last year, Trillium Asset Management LLC joined the Investor Network on Climate Risk and an international coalition of investors, representing more than $20tn (�20tn) in managed assets, in calling for action on fugitive methane. But an issue of this magnitude requires persistence. As active investors looking for positive returns and a positive impact on the planet, Trillium files shareholder proposals and engages with companies to reduce risk exposure and improve shareholder value creation. Fugitive methane is a key example of why we file.

For more than a decade, we have pressed companies to address their direct impact on climate change ? including filing the first proposal on environmental risk on Canadian oil sands and urging utility companies to shift from coal to more renewable energy. This year, our filings tackle methane risk, and we have asked Spectra Energy, Range Resources, and Oneok to implement programmes of measurement, mitigation, disclosure, and target setting.

Natural gas assets are developing rapidly, and it's no surprise that companies have prioritised growth over operational efficiency, as regulators race to catch up. But in light of recent scientific findings, it's time to pull the ostrich up for air. Academic studies have identified methane leakage rates of up to 9%, over three times the original US Environmental Protection Agency (EPA) estimates, and five times industry estimates. This dissonance is particularly troubling since the short-term climactic benefit of natural gas over coal disappears when leakage exceeds 3.2%.

Oil and gas sector emissions are growing rapidly, and human-generated methane emissions are estimated to contribute to 20% of short-term global warming impact. But, the reality could be worse. Measurement methodologies are under question and 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 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 recognise emerging environmental risks for the benefit of our clients and the climate. Filing a shareholder proposal sharpens management's focus. The threat of regulation alone is reason to give a company pause as it weighs the strength of its 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 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.

Natasha Lamb is vice president for shareholder advocacy and corporate engagement at Trillium Asset Management LLC

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Source: http://www.guardian.co.uk/sustainable-business/investors-tackle-hidden-climate-impact-natural-gas

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