Environmental Target Setting and Ranking (ETSAR)
Authors: Bulovas B.J. 
Published: December 2007

Ranking of environmental projects in relation to other projects in a company's portfolio of business has posed problems for years. Substantial effort has been spent toward developing systems or methodologies to overcome this problem but have been met with limited success. To be accepted as a responsible industry and manage the environmental discharge issue, the oil industry should through a process of continuous improvement minimise effluents and discharges that are known to harm the environment.

Many oil companies have already made substantial headway in reducing discharges through low cost operational changes and better awareness. However these are often not enough and environmental projects requiring capital investments are needed. These projects will normally proceed when regulatory driven, but they have more difficulty proceeding if they are not regulatory driven and must rely on meeting the economic criteria applicable for approval. So how is a company to decide which environmental projects to do? In the absence of legislation, it is evident that, as more involved and expensive options are required to achieve this goal, the need for a method to rank environmental expenditures for the industry is necessary. In addition, the concept of basing the decision solely on the environmental effects and economics of a discharge must be expanded. Other considerations which drive the industry towards improved environmental performance such as public perception must be considered.

This paper outlines a methodology that allows for the ranking of environmental proposals at a company level taking into account factors such as public perception and possible future legislation and enables the use of the 80/20 rule. The methodology has been applied by Shell U.K. Exploration and Production, operator in the U.K. sector of the North Sea for Shell and Esso, and is applicable to most industries.

Introduction

In many countries the oil industry is forced to accept the Government's approach of prescriptive regulation of environmental discharges (e.g. United States). Here the regulators set the specific discharge standards for each waste stream. In the UK there is a mix of prescriptive legislation and goal setting being applied. In other countries (e.g. The Netherlands) a National Environmental Policy Plan, NEPP, has been passed which sets levels, for waste streams. To achieve these levels, the industry sector and the government both agree on a covenant to achieve longer term environmental discharge reductions. This covenant approach or the prescriptive approach both make a company's decision for them on where to spend their environmental money but in fact may provide a small benefit for the environment at a high cost. If companies were empowered to reduce emissions and with their knowledge of the process, they could allocate their expenditures better and thereby provide a much higher environmental benefit.

In addition to compliance and efficient spending of the environmental funds, the oil industry must be able to assure investors that they are handling the environmental risk in a financially constructive way. Short term approaches are not considered acceptable. Operators must be seen to be improving their environmental performance just like their safety and financial performance. Excessive discharges or contributions to long term environmental liabilities are viewed as poor company management. Management of the environment by industry is becoming increasingly a public concern. Environmental external reporting is becoming more prevalent to meet this concern. A methodology which achieves this helps to lend credibility to the effort. In addition a company (or industry) which is proactive towards the environment is one that may avoid prescriptive legislation and possible future criminal or financial liabilities. Therefore a methodology must be in place in order to efficiently achieve these needs. The Environmental Target Setting and Ranking (ETSAR) methodology achieves this and embraces these goal setting approaches by setting objectives often beyond the legal requirements.

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