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Executive Perspectives

EXECUTIVE PERSPECTIVE: Follow the Flare

Lauren Silva Laughlin

09 Feb 2019

In this piece from Reuters BREAKINGVIEWS’ columnist Lauren Silva Laughlin, we are reminded of the critical importance of industry leadership in reducing methane emissions.  Left unchecked with its super-potent warming capacity, methane vented from oil and gas fields will substantially offset the benefits from reductions in other greenhouse gases such as CO2.  Timothy Nixon, Managing Editor, Thomson Reuters Sustainability.


Source: Breakingviews

Chevron is laying down a climate gauntlet. The $230 billion oil giant on Thursday said it is linking executive pay to emissions, the first of its U.S. peers to set such tangible goals, responding in part to shareholder pressure. The details look less ambitious than the plan Royal Dutch Shell outlined in December. Chevron’s scheme, though, has a number of advantages.

Anglo-Dutch rival Shell aims to reduce its carbon intensity from the moment it starts drilling to the moment it delivers its fossil-fuel products to customers. That’s laudably broad, but pay is tethered to production levels, and most other details are lacking.

Chevron’s Chief Executive Mike Wirth is only including emissions from methane and flaring, the burned natural gas that is a byproduct of fracking. But unlike Shell, he added specific targets: Reduce methane emissions by up to 25 percent and flaring emissions by up to 30 percent from its 2016 levels through 2023 – and specifically linked the timing of the milestones with the 2015 Paris climate accord.

That, though, could have a big short-term impact. Flaring has become a big problem. In 2017 drillers in the Permian Basin in Texas burned enough gas to serve all the heating and cooking needs of the state’s seven largest cities, according to the Environmental Defense Fund.

Second, while methane overall accounts for perhaps 10 percent of global greenhouse emissions, it is up to 100 times more potent than carbon dioxide at trapping heat in the atmosphere in the first five years after it’s released.

Third, Chevron says “nearly all other employees” will have their compensation tied to its emissions-reduction goals, not just executives. That should focus the collective Chevron mind. It also allows the company to maintain its leadership status on smart changes to compensation: Two years ago it more closely aligned its pay with performance after shareholder pressure; rivals soon copied the change.

Chevron’s plan should persuade some of its competitors to follow suit. It could go even further, though. Production increases still factor into compensation for senior executives. It is an oil company after all. But if it is truly basing its future on international climate agreements like the Paris accord, that needs to be ditched – or else the company could face more shareholder ire.

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