Decoding carbon footprints: insights for the lubricants industry

On November 14, the Asian Lubricants Industry Association (ALIA) hosted an enlightening webinar titled “Clearing the GHG Reporting Cobwebs.” Moderated by Keith Schulz, chief sustainability officer at Motul Asia Pacific, the session featured CK Chung, founder of Smart Tradzt, an expert in carbon footprint, decarbonisation, and supply chain management. With more than 25 years of consulting experience, including leadership roles at Accenture, Deloitte Consulting, and Shell Eastern Petroleum, Chung delivered actionable insights for the lubricants industry.

The webinar aimed to tackle the growing complexity of GHG reporting standards and the increasing focus on carbon footprint quantification. As companies in the lubricants sector face demands for transparency and sustainability, Chung’s expertise shed light on corporate and product carbon footprinting, emerging frameworks like OGMP 2.0, and strategies for decarbonisation.

The challenge of GHG reporting  

Greenhouse gas (GHG) reporting remains a significant challenge for many organisations. Standards like GRI, IFRS/ISSB, CDP, and TCFD—and frameworks like OGMP 2.0—demand precise measurement of Scope 1, 2, and 3 emissions.*  

“Understanding these frameworks and their purposes is essential,” Chung remarked, especially for the lubricants sector operating downstream in the oil and gas value chain.

Chung highlighted the critical distinction between corporate carbon footprints (CCF) and product carbon footprints (PCF). Corporate models often aggregate emissions across Scope 1, 2, and 3 categories, while product models focus on lifecycle stages such as raw material acquisition, production, and end-of-life treatment.  

Using a practical example of a lubricant blending plant, Chung demonstrated how companies can trace material flows and allocate emissions accurately to calculate PCFs. He introduced frameworks like the Partnership for Carbon Transparency (PACT) by the World Business Council for Sustainable Development (WBCSD), which prioritise the use of primary data for precision in Scope 3 reporting.  

Decarbonisation as a business strategy  

Chung underscored that GHG quantification is only the first step. To combat climate change effectively, companies must develop decarbonisation pathways. This includes setting science-based emission reduction targets, prioritising initiatives like renewable energy adoption, and tracking progress against baselines.  

“Decarbonisation isn’t just about compliance; it’s an opportunity to differentiate in a voluntary environment,” Chung said, emphasising that early adopters can leverage low-carbon products to gain a competitive edge.  

RRBO and product carbon footprint  

During the Q&A portion, a question was raised about re-refined base oils (RRBO) and how emissions are allocated among collectors, refiners, and lubricant blenders. Chung explained that using RRBO reduces a lubricant’s PCF by replacing virgin base oils.  

“While the API and European methodologies provide clear standards for quantifying PCF, there is no established framework for apportioning carbon credit within the RRBO value chain,” Chung said. He suggested that as voluntary carbon markets evolve, stakeholder collaboration will be essential to create a fair allocation framework.  

Decarbonisation and project financing  

The webinar also delved into practical aspects of decarbonisation, including marginal abatement cost curves and project financing. Schulz queried the granular data required to develop a decarbonisation pathway. Chung responded by emphasising the importance of having detailed baseline emissions data to identify hotspots and prioritise initiatives effectively.  

“For example, aggregate data on electricity usage won’t help prioritise emission reduction projects. You need emissions data for specific plants or equipment to determine where investments will yield the greatest reductions,” Chung explained.  

Project financing emerged as another critical consideration. Chung outlined the importance of calculating key financial metrics, such as net present value (NPV), by factoring in capital expenditures (CapEx), operational expenditures (OpEx), and the project’s lifespan.  

“In countries with carbon taxes, decarbonisation can yield financial savings by reducing tax liabilities,” Chung said, reinforcing the link between environmental responsibility and financial performance.  

Methane reporting: A growing priority  

Though methane emissions are primarily an upstream concern, their implications for downstream industries, including lubricants, are significant. “Methane is 80 times more potent than carbon dioxide over a 20-year period,” Chung explained, highlighting frameworks like OGMP 2.0 that help companies improve methane monitoring and reduce underreporting risks.  

As the session wrapped up, Chung addressed a common question: Why should companies invest in PCF quantification when it’s not yet mandated?  

He identified four key drivers:  

1. Scope 3 Reporting: From 2025, companies will need cradle-to-gate PCF data to fulfil their Scope 3 reporting obligations, particularly in global markets.  

2. Environmental Responsibility: Quantifying PCF projects a company’s commitment to sustainability.  

3. Marketing Advantage: Demonstrating low emissions helps differentiate products in competitive markets.  

4. Regulatory Trends: While currently voluntary, PCF labels are gaining traction and could soon become mandatory in certain regions, as seen in the U.S. building materials industry.  

A call to action  

The webinar highlighted the urgency for lubricant companies to embrace carbon footprinting and decarbonisation strategies. As consumer preferences shift and regulations tighten, early adopters have a unique opportunity to differentiate themselves and lead the industry toward a sustainable future.  

Schulz summed it up perfectly: “This is more relevant than ever. Voluntary action now allows us to differentiate ourselves rather than waiting for regulatory mandates to define our path.”  

By adopting robust frameworks, leveraging granular data, and integrating financial considerations, the lubricants sector can tackle the challenges of climate change while uncovering new opportunities for growth.  

*Here’s a breakdown of the acronyms mentioned:

GRI – Global Reporting Initiative

Purpose: A widely used international standard for sustainability reporting. It provides guidelines for companies to disclose their environmental, social, and governance (ESG) impacts.

Focus: Helps organisations measure and communicate their sustainability performance, including GHG emissions and broader impacts on stakeholders.

IFRS/ISSB – International Financial Reporting Standards / International Sustainability Standards Board

Purpose: The IFRS Foundation established the ISSB to develop global standards for sustainability disclosure. These aim to provide consistent, comparable, and reliable sustainability information for investors and other stakeholders.

Focus: Harmonises financial and sustainability reporting by integrating ESG risks and opportunities into financial disclosures.

CDP – Carbon Disclosure Project

Purpose: A global non-profit organisation that runs an environmental disclosure system for companies, cities, and governments to report their environmental impacts.

Focus: Encourages transparency and accountability on climate change, water security, and deforestation, enabling stakeholders to assess environmental performance.

TCFD – Task Force on Climate-related Financial Disclosures

Purpose: Created by the Financial Stability Board, the TCFD develops recommendations for consistent climate-related financial risk disclosures.

Focus: Helps companies and investors understand the financial risks and opportunities posed by climate change, promoting informed decision-making.

OGMP 2.0 – Oil and Gas Methane Partnership 2.0

Purpose: An initiative by the United Nations Environment Programme (UNEP) to improve methane emission measurement and reduction in the oil and gas sector.

Focus: Provides a comprehensive framework for methane emissions reporting and mitigation, emphasising accuracy and transparency across the supply chain.