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 Forum DTI, January 24 th, 2006

Contents 1.Introduction to the project 2.Sectoral Sustainability strategies 3.Application – Decommissioning 4.Methods of assessment

Background to study UKOOA [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 covered 2.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 studies 1.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 offshore Life of field view of energy use and material flows leading to indicators and ultimately efficiency measures 4.Corporate relationships Through 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 Cost Environmental impacts Regulatory framework Political environment Reputation

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 3 rd Annual Conference on Sustainable Development in the Oil & Gas Industry held in Aberdeen on the 1 st 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

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

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