Most utility companies are not including Scope 3 emissions from the corporate value chain in their net zero climate targets. Yet, emissions from customers’ use of natural gas for heat and other applications, purchased power emissions, and methane leakage from the production and distribution of natural gas can amount to as much as half of a utility’s total emissions.
The most glaring absence is customers’ use of natural gas in buildings. According to the EPA, commercial and residential sectors account for 12.3 percent of greenhouse gas (GHG) emissions nationwide with 80 percent coming from natural gas combustion. More than 60 percent of homes use gas or other fossil fuels for heating. The IEA net-zero scenario would require a 95 percent reduction of CO2 emissions from buildings.
Companies invest billions annually to build and support natural gas infrastructure, tying millions of homeowners and businesses to this fossil fuel. Such investment locks in building sector emissions for decades, exposes citizens to harmful air pollution, and increases stranded asset risk.
Purchased power emissions come from electricity purchased for customers’ use. These, plus customers’ natural gas use, can account for 30 percent to 50 percent of total emissions. These numbers do not include methane leaked during gas production and distribution, which further drives up emissions not covered by companies’ current net-zero reduction targets.
Utilities have trumpeted emissions reduction progress in the last decade through fuel switching from coal to natural gas power generation. But, much of the emissions saved from fuel switching are lost from upstream natural gas leakage. U.S. production-stage methane emissions vary geographically, ranging from 0.9 percent to 3.6 percent of natural gas withdrawn, which adds 16 percent to 65 percent to gas combustion CO2 emissions. Studies also highlight that natural gas system methane emissions could be underestimated by more than 60 percent, making the carbon footprint even heavier.
To achieve the emissions reductions needed to address climate change, companies must pursue the most robust and cost-effective solutions. Piecemeal efforts will waste time and capital with only marginal emissions reduction improvements, without a clear pathway to the ultimate goal of achieving economy-wide net-zero emissions by 2050. Utilities must set science-aligned net-zero targets that cover all material emissions. More inclusive targets can guide effective internal strategy and capital allocation and help companies seize opportunities and avoid risks during the clean energy transition.
Hybrid power and gas utilities clearly face challenges and opportunities as the world moves to a net-zero economy. Shareholder resolutions this year ask CMS Energy, Dominion Energy, DTE, Duke Energy, MGE Energy, and Southern to update their net-zero emission reduction targets align with science and the demands of the Climate Action 100+ Benchmark, incorporating Scope 3 value chain emissions. Only through setting science-aligned near- and long-term emissions reduction targets and taking advantage of the most cost-effective solutions such as building electrification can hybrid utilities assure investors they are reducing their outsized contribution to the material risks of the climate crisis.
Daniel Stewart
Energy and Climate Program Manager, As You Sow
Frank Sherman
Executive Director, Seventh Generation Interfaith Coalition for Responsible Investment