SECTORAL SUSTAINABILITY & SUSTAINABILITY ASSESSMENT

METHODOLOGIES:A review of methodology in light of collaboration with the UK oil

and gas sector

Professor Paul Ekins Robin Vanner

Policy Studies Institute

Offshore ForumDTI, January 24th, 2006

Contents

1. Introduction to the project2. Sectoral Sustainability strategies3. Application – Decommissioning4. Methods of assessment

Background to studyUKOOA

[UK Offshore Operators Association]

James Firebrace

Policy Studies Institute

Material flow and sustainable development work

Paul Ekins & Robin Vanner

Study objectives:1. Direct benefit to oil and gas sector

• Four industry issues covered2. Develop a methodology for sectoral sustainable

development strategies more generally. This presentation reports results against this objective

Collaborative two year study under DTI LINK programme funded by EPSRC

Industry case studies1. Decommissioning of offshore structures

Material value of recycling, combined with implicit social valuation of non-financial outcomes

2. Produced Water Material implications of end-of-pipe cleanup technologies, stakeholder perception of harm and the precautionary principle

3. Energy use offshoreLife of field view of energy use and material flows leading to indicators and ultimately efficiency measures

4. Corporate relationshipsThrough a number of case studies, seek to understand stakeholder issues and relationships in the context of an industry in transition.

Approaches used•Material flow analysis (environmental)•Energy flow analysis (environmental)•Environmental impact and sustainability analysis (environmental)•Value chain analysis (economic)•Relationship analysis (social)

•Four industry issue ‘case studies’

•No attempt to value/weight and aggregate different impacts

Types of corporate responsibility/sustainability

1. Charitable type giving – Often motivated by the ethical stance of the chairman. Does not build relationships

2. Sponsorship type giving – Primarily to promote positive image of corporation. Relationship with range of stakeholders

3. Sustainability strategies – Embedded and central part of the operations of the business. Essential for a businesses ‘licence to operate’ and brand through relationships.

Sustainability strategies

• UK Government’s 1999 Sustainable Development strategy, Trade Associations encouraged to:– develop Sectoral Sustainability strategies which would

provide a framework for “integrating action and setting priorities to improve business performance on economic, environmental and social aspects” (DETR 1999, p.35)

• Pioneers Group established– 18 strategies posted on website– 11 reviewed for this work

A range of sustainability strategies

Strategy shaped by the sector which produced it

• Small homogeneous sectors (e.g. Brick)– strategy with a short supply chain focus

• Large heterogeneous sectors (e.g. food and drink)– Wide scope but limited commitment due to limited

shared interest (food safety is different)• Large homogeneous sector with brand (e.g. cars

and oil)– wider scope and deeper commitment

Motor manufacturers (SMMT)[A generic approach]

Oil and gas (UKOOA)[Stakeholder approach]

The UKOOA Wheel

“The Wheel captures the full range of current key sustainable development issues for the industry; it provides a format to enable industry leaders to debate trends, it points to where

action needs to be taken and most importantly signals which players need to be involved to improve performance”.

Personal correspondence with: James Firebrace, UKOOA consultant working on sustainability issues.

• Four concentric circles reflecting industry influence– Industry determined– Partnership– Contribution– Broader issues

The decommissioning challenge (1)

• 266 structures on the UKCS • 33 large fixed structures (topside, jacket,

footings, drill cuttings, pipelines)• Post Brent Spar, OSPAR presumption of

removal of structure• Estimated total real term costs of £8.8

billion (UKOOA in 2002) • UK tax payer to pay ~50% via offset

revenues

The decommissioning challenge (2)• Such debates are based on stakeholder values. Numbers

can only ever inform such debates• Rank order depends on stakeholder perceptions,

preferences and priorities

Technical

feasibility

Safety

CostEnvironmental impacts

Regulatory

framework

Political environme

ntReputati

on

Methods for (SD) assessment

• Four possible methods of assessment:1. Cost benefit analysis (the SAM model)2. Weighting of

– Money values to reflect distributional concerns– Impact dimensions according to their perceived importance

3. Implicit valuation (the ‘PSI methodology’)4. Indicator framework (e.g. as developed by Arthur D Little)

• Three named methods were presented at the 3rd Annual Conference on Sustainable Development in the Oil & Gas Industry held in Aberdeen on the 1st of December 2003

Sustainable Assessment Model [SAM] & SAMi

• Developed by Genesis Oil & University of Aberdeen• Places a monetary value on all costs• Uses 4 SD pillars (Social, economic, environment and

resources)• Generates a SAM ‘Signature’ which presents an

assessment for each of the 4 SD pillars• Sum of percentages generates a SAM indicator (SAMi)

– A SAMi of 100% would indicate that a project has no negative assessment results for the 4 SD pillars

– Can also be applied to overall sectors to track progress over a number of years

SAM ‘signature’ for hydrocarbon use

The PSI methodology• Developed with UKOOA and DTI• Uses material flow analysis to track

environmental, resource and value outcomes• Places these within a framework of stakeholder

relationships• No attempt to value/weight and aggregate

different impacts– Implicit valuation of non-financial issues– i.e. if the social preference is for a given regulatory

measure, this implies a certain minimum social valuation

– Allows for a range of stakeholder values

Reference - Typically no or minimum actionFinancial cost of reference £

t toe £ t toe £Material 1 Material 1Material 2 Material 2Material 3 Material 3

Totals Totals

Scenario one - e.g. Business as usual or regulatory complianceFinancial cost of scenario £

t toe £ t toe £Material 1 Material 1Material 2 Material 2Material 3 Material 3

Totals TotalsCost £ OR Minimum Social Implicit Value (MSIP)Cost to tax payer £

Scenario two - e.g. Full cleanupFinancial cost of scenario £

%t toe £ t toe £

Material 1 Material 1Material 2 Material 2Material 3 Material 3

Totals TotalsCost £ OR Minimum Social Implicit Value (MSIP)Cost to tax payer £

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The Arthur D Little framework• Developed by Arthur D Little (consultancy) for

BP• Aim: to provide a way for project managers to

translate the statements made by their organisations “into action at the project management coal face” (Thompson 2003)

• Project team assessment of impacts based around 69 indicators under the 4 SD pillars

• Used as much as a management tool as it identifies areas for mitigation

• Intended to be used throughout the project cycle

The assessment output

4 ‘pillars of SD

69 indicators

37 Sub criteria

Score for project phase Overall score

e.g. Design Supply Construction Operation Decommissioning Taxes Economic Jobs Health Social Safety Waste Environmental Risk Energy Natural

resources Water

Score for each indicator: The scoring is done using a scale from 1 to 5, where 1 represents weak, and 5 represents strong alignment with the principles of

sustainable development.

For e

ach

sub-

crite

rion

What lies behind the assessments?

• SAM – Valuation techniques• PSI – Non-commensurable assessment

allowing different stakeholders to come to different conclusions, but giving implicit valuation of different social choices

• Arthur D Little - Project team and professional assessments

When are the different techniques appropriate?

• SAM – non-controversial valuations, i.e. simple contexts mainly involving monetary values

• PSI – complex contexts characterised by a range of stakeholders with deeply-held and differing values

• Arthur D Little - expert project team assessments across four SD pillars, seeking to ensure alignment of decisions with corporate values

www.psi.org.uk