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How the Oil & Gas Industry and Carbon Credits are Both Differentiating. By Samantha Holroyd

Article Aug 23 Large (2)

How the Oil & Gas Industry and Carbon Credits are Both Differentiating

By Samantha Holroyd 

From aviation to fuel to steel to hydrogen to electrons, traditional commodities have been differentiating with growing momentum. Often that differentiation is happening along the spectrum of green attributes: sustainable aviation fuel, green steel hydrogen, renewably generated electricity. Suppliers looking to differentiate their offering and byers looking for a cleaner version of a product have both been taking a closer look at the upstream emissions associated with producing one unit of it. 

Now, that some movement has arrived in force within oil and gas (O&G). In the modern era of climate-differentiated O&G, i.e., O&G that looks beyond just the downstream combustion-related emissions and takes into account the upstream supply chain emissions associated with extraction, production, refining, and transport, too. Similarly, voluntary carbon markets are starting to discriminate between various types or classifications of carbon credits, which are no longer the fully fungible commodity they once were.

In this article, we'll take a closer look at the factors behind the varying carbon intensity of barrel to barrel of oi, cubic foot to cubic foot, as well as how this is paving the way to a superior carbon credit.

Wide variability in upstream O&G supply chain emissions.

Not every barrel of oil and standard cubic foot of natural gas is created equal, particularly in terms of embodied carbon emissions. While the carbon emissions from combusting one barrel of, say, conventional light crude oil is a known and relatively stable quantity, the upstream emissions associated with extracting, refining, and transporting that barrel can vary widely — from basin to basin, operation to operation, and even within an operation, as a given well moves into later stages of its lifecycle and/or wells target formations that are more difficult to extract.

O&G-associated emissions can vary by as much as five times between different barrels when taking into account lifecycle emissions (especially upstream production and refining emissions) of a given resource or product. “There is an even greater difference in the industry’s emissions responsibility depending on how oil and gas are extracted, processed, refined, and transported,” notes energy transition think tank RMI. “The share of emissions from oil and gas production, refining, processing, and shipping can rival that from petroleum end-use consumption.”

The lowest-rate producing wells are also the least-efficient contributors to the overall energy system. And, as it turns out, these low-rate producers, which are approaching their economic limits, are generally the most polluting and have the highest emissions impact across their operations, too. According to the most-recent U.S. EIA data from December 2022, the United States has just under one million wells. About 80% of those produce less than 15 barrels of oil equivalent per day (BOE/d). Such wells are often maintained less frequently than the higher-rate, higher-value wells within an operator’s portfolio, leading to frequent hydrocarbon leaks into the environment and atmosphere.

Decommissioning oil and gas systems can impose prohibitive costs at the wrong time, when they have little to no financial return on investment, but assets that are beyond their useful lifetimes can have outsize climate impacts,” notes RMI in its 2022 report Know Your Oil and Gas: Generating Climate Intelligence to Cut Petroleum Industry Emissions. “This mismatch between cash flows, company valuations, and lifecycle emissions underscores why incentives are needed for operators to safely and properly decommission old assets.”

Moreover, research published in 2022 in the journal Nature Communications found that lower-rate O&G wells (<15 BOE/d) accounted for just 6% of U.S. production and resulted in 50% of methane emissions from the sector. This suggests an outsized opportunity for beneficial climate impacts: retire and permanently decommission less-efficient, higher-polluting wells. In fact, that’s the very focus of ZeroSix’s first wave of carbon credit projects.

Carbon credits based on decommissioning less-efficient, higher-emitting wells.

Just as the O&G sector is evolving — in the context of climate-differentiated upstream supply chain emissions — so, too, is the voluntary carbon market (VCM).

Traditionally, one carbon credit has equaled one tonne CO2e. At least in name, that still remains true. But carbon credit differentiation is beginning to materialize. This differentiation is manifesting due to 1) the emergence of a higher-quality class of credits, based on principles of accuracy, additionality, permanence, and transparency, and 2) an intensifying demand and valuation for the highest quality carbon credits from buyers.

Carbon credit buyers are increasingly looking for higher-quality credits that meet criteria that go beyond pure “nameplate” CO2e, such as confidence in a project’s additionality. On the other side of the same coin, project developers (i.e., carbon credit suppliers) are looking to offer credits that stand out amidst a sea of historically commoditized carbon credit options.

At least two other differentiation factors are also gaining traction quickly.

First, there’s the question of where a carbon project intervenes in the supply chain. Is it focused on downstream atmospheric carbon removal, trying to “undo” emissions that have already happened? Is it focused on upstream avoided emissions, to prevent would-be emissions from having a climate impact in the first place?

Second, there’s the question of co-benefits, which refers to ancillary benefits above and beyond the 1 tonne CO2e a carbon credit represents. Such co-benefits could include positive impacts on human health, environment, air quality, or social or community impacts, etc. They could also include things like tackling fugitive methane emissions, a global priority issue given methane’s global warming potency over shorter time frames.


ZeroSix carbon credits shine on both of these fronts. Because we are focused on early well retirement and permanent abandonment of associated reserves, we’re leaving fossil fuels in the ground where they’ve already been for millennia and where they can’t negatively impact the climate. And furthermore, because we’re targeting less-efficient, lower-producing wells, we’re also by default abating a disproportionately high source of methane emissions. For buyers looking to maximize the climate benefit of their carbon credit investments, and for suppliers looking to offer a superior carbon credit option in the VCM, the ZeroSix protocol is defining a new high mark for quality. It’s a greener, cleaner carbon credit.

Growing market momentum for reducing O&G carbon intensity

The idea of climate-differentiated O&G is not “pie in the sky” thinking. Market demand and regulatory tailwinds are already here, and voluntary market appetite is fast on the rise.

For example, state initiatives such as California’s Low Carbon Fuel Standard (LCFS) and Washington’s Clean Fuel Standard are aimed at decreasing the carbon intensity of transportation fuels — including improving the efficiency and decreasing the upstream embodied emissions of fuel production processes such as O&G extraction and refining. Meanwhile, perspectives ranging from S&P Global Commodity Insights to the International Energy Agency (IEA) to McKinsey & Co. agree that reducing the O&G sector’s upstream carbon intensity is a crucial piece of the broader energy transition.

The O&G sector itself is also leaning in with upstream decarbonization efforts. The Oil and Gas Climate Initiative (OGCI)  — a consortium of 12 member companies with combined crude oil output of approximately 25 million BOE/d — in July 2020 announced a target to reduce the collective carbon intensity of upstream operations by 9% by 2025. Last year they also announced the Aiming for Zero Methane Emissions Initiative.

In addition, third-party initiatives such as the Oil Climate Index plus Gas (OCI+), a recent evolution of the Carnegie Endowment’s original Oil-Climate Index (OCI), is making upstream O&G emissions intel transparent and actionable for market participants.

The differentiated, decarbonized road ahead

Against this backdrop, the benefits of the ZeroSix fully integrated Protocol and Digital Solution become crystal clear for O&G operators. By prematurely decommissioning the less-efficient, higher-emitting wells in their portfolio, they’re reducing the carbon intensity of their own operations in line with industry targets and a growing landscape of low-carbon regulations. Meanwhile, they’re converting the abandoned fossil reserves into high-quality carbon credits the market wants.

For carbon credit buyers, the benefits are equally compelling. ZeroSix carbon credits go straight to the core of high-impact climate action, helping to mitigate a disproportionate source of methane emissions amidst the energy transition.

Learn more about ZeroSix and how we’re raising the bar on carbon credits.


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