Valero Energy Corporation is a publicly listed midstream oil and gas company headquartered in the USA. In 2020, it had USD 108.32 billion in revenue and a reported 10,000 employees*. Valero is the largest global independent refiner and second-largest global renewable diesel and corn ethanol producer. The company’s low-carbon activities are still negligible in scale compared to its oil refining.
Valero plans to reduce its scope 1 and 2 emissions intensity by 20% and its scope 1 and 2 absolute emissions by 63% by 2025 compared to 2011. For its absolute emissions target, Valero discloses the emissions reductions it plans to achieve without offsets, which is the only part of the target that could be assessed, and which makes the target much less ambitious.
Without offsets, Valero only aims at a 4.4% decrease in absolute emissions by 2025, as opposed to the overall stated decrease of 63%, through efficiency improvements. To align with its 1.5°C pathway, the company should develop targets that include scope 3 emissions intensity and do not make use of offsetting.
As a midstream company, 100% of Valero’s oil and gas product output comes from the midstream processing stage. Between 2014 and 2019, the company has been increasing its use of the less emissions-intensive cracking technology for its refining processes, from 43% in 2014 to 47% in 2019, instead of the more emissions-intensive coking technology. These changes have led to a marginally decreasing trend in the company’s scope 1 and 2 emissions intensity. However, this trend is not sufficient to drive alignment with Valero’s 1.5°C pathway, which requires an annual reduction of 7% in scope 1 and 2 emissions intensity between 2019 and 2024.
Valero has not disclosed the share of its capital expenditure (CapEx) dedicated to low-carbon and mitigation technologies in 2019 but has stated an intention to invest 16% of its overall CapEx in 2020 and 2021 in renewable diesel projects. Although this is a step in the right direction, it remains too small a proportion of Valero’s overall spending and is still far behind the sectoral expectation for oil and gas companies to invest 77% of their CapEx in low-carbon projects to align with a 1.5°C scenario. Valero can improve its performance on material investment by ramping up its current CapEx share allocated to low-carbon and mitigation technologies and investing in carbon removal technologies.
Valero is involved in several activities to increase the share of low-carbon business activities in its operations. This includes the development of renewable diesel made from recycled animal fats, used cooking oil and fuel-grade corn oil, which should reach a production capacity of 675 million gallons in 2021 compared to 275 million gallons in 2019. It also includes the company’s tallow-based renewable diesel plant and its work on advanced biofuels. In addition, Valero operates 33 wind turbines in Texas having a total capacity of 50 megawatts (MW). However, these operations remain negligible in scale and revenue compared to Valero’s refining activities.
Valero does not have company-wide policy for engaging suppliers on climate change issues or emissions reductions through strategies, initiatives or partnerships. The company also does not include climate-related issues in its supplier selection processes. However, Valero’s Code of Conduct and Ethics, which applies to all its suppliers, mentions preventing emissions and releases as part of the environmental stewardship process. As a midstream company, Valero has the ability to influence suppliers. It should use this influence to partner with suppliers to develop low-carbon products and finance low-carbon innovation in the supply chain.
Valero has a publicly available policy to engage with trade associations and ensure their positions are aligned with the company’s climate change strategy. Despite this policy, Valero’s CEO is an executive committee member of American Fuel & Petrochemical Manufacturers (AFPM), which is reported to have opposed multiple climate policies in the USA.
The AFPM is reported to have given USD 1.25 million to the campaign that successfully defeated a Washington State referendum to institute a carbon tax. It is also reported to have legally, though unsuccessfully, challenged California Air Resources Board against regulations aimed at cutting greenhouse gas (GHG) emissions from cars and trucks by 20% by 2030. Valero has also provided funds amounting to USD 995,000 to the AFPM to lobby against the carbon fee initiative implemented by the Washington State in 2018.
Valero receives a trend score of -. If the company were assessed in the near future, its score would likely decrease. Valero has set a target for 20% reduction in scope 1 and 2 emissions intensity by 2025, but it does not have longer-term targets or a scope 3 emissions reduction target. As such, Valero is unlikely to see significant emissions reduction.
The company is undertaking renewable diesel, biofuels and wind power projects, which could improve its alignment with its 1.5°C pathway. However, it is yet to implement these projects at scale, and currently, its renewable fuels production remains negligible compared with the size of its oil and gas operations.
Valero focuses on the short term with plans to reduce its scope 1 and 2 emissions intensity by 20% and its scope 1 and 2 absolute emissions by 63% by 2025 compared to 2011. The company’s absolute emissions target may be raised up to 72%, subject to board approval. However, this absolute target could only be assessed on the part that does not contain offsets and thus is assessed as much less ambitious, only aiming at a 4.4% decrease in absolute emissions by 2025.
Valero plans to increase its renewable diesel production to 675 million gallons per year in 2021 compared with 275 million gallons in 2019. Valero also relies on offsetting its absolute emissions through ethanol and renewable diesel production and the purchase of renewable fuels credits.
Between 2014 and 2019, Valero has seen increasing refining volumes and no significant changes in its refining technologies or in its sold product mix. This means that Valero’s scope 1, 2 and 3 emissions intensity has remained stable, leading to a further divergence from the company’s 1.5°C pathway.
Despite Valero’s investments and strategy to further develop its renewable fuels production, the company’s low-carbon transition is undermined by its opposition to climate policies, its short-term targets and the lack of significant scope 1, 2 and 3 emissions reductions.