Are PCF and Scope 1-3 Becoming New Investment Metrics Alongside NPV and IRR in Chemicals and Oil & Gas?

Author: Stanislav Koshkin

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For decades, investment decisions in refining and petrochemicals were driven primarily by economics: IRR, NPV, payback period, and EBITDA.

These metrics remain fundamental. However, the investment decision-making framework is evolving.

GHG regulation continues to expand globally. According to the OECD, more than 50 countries have already introduced some form of GHG regulation. At the same time, consumer-facing companies such as IKEA and LEGO have announced ambitious carbon neutrality targets supported by increasingly demanding interim milestones.

This shift is already influencing and will likely further reshape project configuration, technology selection, feedstock sourcing, and investment decisions across the chemicals and oil & gas industries.

Alongside traditional economic metrics, investment committees are increasingly required to assess:

• Product Carbon Footprint (PCF)
• Scope 1–3 emissions levels
• Long-term carbon competitiveness of products and assets
• Exposure to future carbon-related regulations and market requirements

In many cases, these factors are beginning to influence not only whether a project moves forward, but also which technologies are selected and what product slate is ultimately approved.

The Fourth Dimension of Competitiveness

Historically, product competitiveness was determined primarily by cost, quality, and reliability. Increasingly, a fourth dimension is emerging: carbon competitiveness.

Major oil and chemical companies are positioning projects through a lower-carbon lens, seeking to attract customers willing to pay a premium for products with lower embedded emissions or to secure access to markets where carbon performance is becoming an important purchasing criterion.

As a result, a market is gradually emerging where, alongside traditional physical and chemical product specifications, carbon footprint may become an additional differentiating characteristic.

Reducing PCF: Approaches and Trade-offs

Today, key approaches to reducing PCF through lower Scope 1 and Scope 2 emissions include:

• Deployment of advanced technologies
• Deep energy integration and efficiency improvements
• Utilisation of renewable electricity and low-carbon energy sources

However, these approaches often require higher CAPEX and, in many cases, higher OPEX. The underlying investment thesis is that these costs may ultimately be offset through green premiums, improved market access, enhanced financing conditions, or reduced exposure to future carbon-related costs.

A practical example is INEOS Project One, which is being positioned as one of Europe's lower-carbon ethylene crackers. The project illustrates how carbon performance is increasingly becoming part of the overall business case rather than simply an environmental consideration.

The Scope 3 Challenge in Petrochemicals

At the same time, reducing PCF is increasingly becoming a Scope 3 challenge, particularly in petrochemicals, where Scope 3 emissions often represent the majority of lifecycle emissions and, in some cases, such as polyethylene (PE) production, can exceed 70% of the total carbon footprint.

For polyolefin producers, lowering PCF may increasingly require not only efficient monomers (ethylene and propylene) production but also access to feedstocks with lower embedded emissions.

This creates a potentially important strategic implication for global feedstock markets. According to studies conducted by NOIA and other organisations, crude oil produced in the US and Arabian Gulf, for instance, are among the lowest upstream carbon intensity crudes globally. Consequently, intermediate products derived from these feedstocks, such as naphtha, could become increasingly attractive for future lower-PCF petrochemical projects.

If carbon competitiveness becomes a significant purchasing criterion, feedstock carbon intensity may evolve from a sustainability metric into a source of competitive advantage.

The Measurement and Standardisation Challenge

However, an important challenge remains.

Unlike traditional financial metrics such as NPV and IRR, PCF calculations are not yet fully standardised across the industry. Different methodologies, allocation approaches, system boundaries, and assumptions can produce materially different PCF values for the same product.

As a result, one of the key questions facing the industry is not only how to reduce emissions, but also how to measure, allocate, certify, and commercialise carbon reductions in a transparent and auditable manner.

An interesting example is the collaboration between Dow and BCG on the Carbon Footprint Ledger (CFL). The initiative highlights how the industry is attempting to address carbon accounting challenges through standardised methodologies, digitalisation, and transparent allocation mechanisms.

Perhaps even more importantly, the CFL demonstrates the growing role of digital platforms in carbon management. As PCF increasingly influences investment decisions, customer purchasing behaviour, financing conditions, and regulatory compliance, companies will require systems capable of calculating, verifying, allocating, and reporting product-level emissions at scale.

In this context, digital carbon accounting platforms may gradually become as important as MES and ERP systems for managing financial and operational performance. Carbon data may increasingly need to be managed with the same rigour as production, commercial, and financial data.

The Broader Implication

Investment decision-making in chemicals and oil & gas is evolving. Traditional project economics, IRR, NPV, payback period, and EBITDA, remain essential, but they are no longer the only metrics influencing investment decisions.

PCF and Scope 1–3 emissions are increasingly becoming additional investment metrics affecting technology selection, feedstock sourcing, financing attractiveness, market access, and long-term product competitiveness.

At the same time, the industry continues to develop robust methodologies and digital capabilities required to measure and manage carbon performance consistently across increasingly complex value chains.

The future winners may not be those producing at the lowest cost alone, but those able to combine cost competitiveness with carbon competitiveness while providing customers with transparent, trusted, and auditable carbon footprint data.

The question is no longer whether carbon metrics will influence investment decisions. The real question is how quickly they will become as embedded in capital allocation discussions as traditional financial metrics are today.

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References

1. OECD: Climate Change and GHG Regulation Overview: https://www.oecd.org/en/topics/climate-change.html
2. IKEA: Climate & Energy Sustainability: https://www.ikea.com/global/en/our-business/sustainability/climate/
3. LEGO: Environmental Sustainability: https://www.lego.com/en-us/sustainability/environment/
4. INEOS Project One: Lower-Carbon Ethylene Cracker: https://www.ineos.com/businesses/ineos-olefins-and-polymers-europe/ineos-project-one/
5. NOIA: Upstream Carbon Intensity Research: https://www.noia.org/research/
6. BCG & Dow: Carbon Footprint Ledger: https://www.bcg.com/publications/2022/enabling-the-chemical-industry-to-decarbonize