Buoyed by climate politics, companies compete for cleaner fuels

Why it matters: Data usage is the most important foundation for any effort to reduce emissions, whether through government policy or private-sector efforts.

• “One of the basic theories of management practices is that you can’t manage what you can’t measure,” said Steven Rothstein, an expert at Ceres, a nonprofit urging more sustainable investing. “If you don’t know what your emissions are, then how do you measure them?”

The intrigue: A recent diplomatic rebuff illustrate these trends.

• After the French government last fall blocked a $7 billion deal to import U.S. natural gas over concerns about that fuel's role in causing climate change, a little-known company called Xpansiv got an influx of worried calls from energy companies that wanted its services.
• The firm uses data and technology to enable companies to buy and sell products, including natural gas, based on how clean they are.
• “Responsible natural gas producers have been trying to figure out a way to get paid for the good stuff they’re doing,” said John Melby, Xpansiv's president.

The big picture: The French government’s move and Xpansiv’s growing business are real-world examples of what I called the game of “crude musical chairs” in a 2019 column.

• The world’s oil, natural gas and coal producers are, metaphorically speaking, encircling a bunch of chairs. As the world tightens its grip on heat-trapping emissions, the use of these fuels drops — and so does the number of chairs.

Catch up fast: Since I wrote that column, China, Europe, America (under Biden) and elsewhere have committed to goals that would slash emissions by 2050. It’s the strongest signal yet that nations are getting serious about taking out more chairs more quickly.

• As the number of chairs drops, the companies producing the dirtiest fossil fuels will lose out first. The ones with relatively cleaner fuels will last longer.
• That’s where companies like Xpansiv come in, along with the overarching trend of disclosing data and exploiting it with new technologies.

What they’re saying: “There’s growing competition around how you can be more green,” said Brian Stafford, CEO of Diligent, a software firm that helps companies navigate governance issues, including environmental ones.

• Diligent, founded in the 1990s, is being joined by a crop of tech startups, such as Persefoni and Project Canary, looking to capitalize on this trend of data collection and exploitation. Salesforce has also expanded into this area.

Where it stands: Biden’s aggressive and sweeping climate plan includes a goal to require “public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.”

• Such an effort would likely be led by the Securities and Exchange Commission, an independent federal agency that nonetheless pursues priorities generally in line with the president.

• The status quo of disclosing climate data is a messy mix of overlapping and voluntary standards. Some organizations involved are trying to work together to come up with one process.

How it works: I’m melding two essential and connected ideas: Disclosing greenhouse gas emissions and then using that data to differentiate products (like natural gas) in a way that ensures that cleaner ones carry a financial premium.

• “A while ago we came to the thesis and strong belief that people will care how a barrel of oil is produced and a bushel of corn is grown," said Melby. "We set out to develop a [digital] platform that supports that and enables differentiated commodities to be priced differently.”
• Xpansiv, which was founded in 2016 and whose investors include BP and S&P Global, focuses on more than just natural gas. Using production data to create digital versions of a variety of commodities, it enables similar transactions on oil and plans to eventually do the same with water, cement, steel, hydrogen and sustainable aviation fuel.

What we’re watching: Natural gas is the first commodity facing this data-driven scrutiny.

• The Rocky Mountain Institute, an environmental nonprofit, is helping to develop a new methane standard to help ensure the gas used is the cleanest.
• “We don’t believe that gas has a role long-term in the energy system but we’re quite grounded in the reality there is quite a bit of gas being sold today,” says Ned Harvey, the nonprofit’s managing director.

What’s next: Xpansiv is announcing today a partnership with Validere, an oil and gas data platform, which will allow Xpansiv’s technology to scale from mostly a pilot phase to tapping into nearly five million barrels of crude oil production a day, and similar gas production amounts.