The essence of any successful market is transparency – where sellers provide complete information about their product, and buyers know exactly what they’re getting. Not only does this maximize efficiency in the marketplace, it also builds credibility.
Participants in the nascent but growing certified gas market must demand the same. Buyers should fully understand and have faith that the natural gas certificate they’re buying or trading is credible.
Certified gas is differentiated from traditional natural gas that leaks methane at high rates. Differentiating natural gas based on methane performance creates a new market, and at the same time takes dramatic steps towards decreasing greenhouse gas emissions. A defendable certification process for natural gas involves:
- A producer using a publicly available standard against which all its potential emission sources are assessed, and methane abatement practices tracked.
- A commitment to no conflicts of interest.
- The use of a digital registry to track the certified gas bought and sold, and to prevent double counting.
A functional certified gas standard – such as the one developed by MiQ – must be applied on a facility-wide basis, meaning it must be representative of all equipment and all wells in a producer’s operating basin. Some organizations, however, review only a subset of equipment or wells within a facility as part of their ostensible certification process. This is known as ‘cherry-picking.’
Operators that self-select a subset of wells or equipment within a basin – and certifiers that allow this – undercut their own results, as well as the overall industry’s movement towards certification. Not insignificantly, it also impairs the development of a functioning, credible, and efficient certified gas market.
But the question remains – if some gas is being certified and the market is young, what’s the problem with cherry-picking?
Cherry-picking stands to undermine the entire certified gas marketplace. It’s not just a matter of a limited sample of wells being certified, rather, it creates a whole host of other problems:
Informational Inefficiencies – A buyer should be able to immediately ascertain whether all the gas produced from a given operational basin is certified or not. Cherry-picking makes the certification status of a given producer’s gas ambiguous – resulting in confusion. This subsequently results in an inefficient marketplace and increased informational transaction costs for buyers.
Self-selection Bias – The self-selection of high-performing equipment and wells can give a skewed or misleading impression to the public of the overall methane emissions performance of that facility.
‘Separation of Church and State’ – Coordination that does occur between the certifier and the producer as to the specific wells and equipment that should be chosen – i.e., those which will produce the highest certification results – is tantamount to collusion between certifier and producer. Not only does this belie the independence that a certifier should represent, it also engenders cynicism regarding credibility of the marketplace.
Unabated Methane Emissions – In addition to creating new market opportunities, certified gas dramatically lowers methane emissions from producer operations. If only a few wells are being certified in a facility, we can expect to see unabated methane emissions occurring across the rest of the facility.
Greenwashing – Certifying gas from only part of a facility, especially if it is directed towards the highest performing equipment and wells, will be subject to accusations of greenwashing. In addition to reputational risks to the operator, greenwashing erodes the credibility of the entire market.
Currently, some environmental groups are assessing emissions from well pads or equipment adjacent to certified wells. Their justified criticism concerning a lack of transparency and reporting, as well as ongoing emissions, will only increase over time.
Only facilities, in their entirety, should be considered eligible for certification. Certifiers and standard-setting organizations like MiQ, the Oil and Gas Methane Partnership, ONE Future, and Equitable Origin have all committed to facility-level reporting. The application of an independent certification standard across all equipment and wells in a facility is a minimum criterion for an effective certified gas marketplace. Adoption of this practice by both the production and the certification communities will develop the necessary transparency to construct a credible certified gas market, which is good for the planet and for economic opportunity.
While some certifiers and producers would claim that cherry-picked certifications are an adequate market practice, we know from well-publicized failures in the financial sector and carbon offsets space that any advances that are made in building markets can be undone at a faster rate than they were built.
In the interests of lower methane emissions and increased economic opportunity, let’s not go the way of market failures of the past and end up cutting corners for the short-lived sugar high of a cherry-picked certification.