Opportunities and Challenges

The most recent report from the Intergovernmental Panel on Climate Change (IPCC) on “The Physical Science Basis” indicated that the existing attempt on greenhouse gas emission control cannot achieve the goal under the Paris Agreement. Thus, every sector is working together to raise the bar by setting a more challenging goal in greenhouse gas reduction, including setting a carbon neutral goal and net zero greenhouse gas emission at both national and organizational levels. This collaboration aims at controlling temperature rising. Thailand, as a member of United Nations Framework Convention on Climate Change, pledged that Thailand will fully raise the level of solutions to Climate Change issues. Thailand already pledged to achieve carbon neutral by 2050 and to achieve net zero greenhouse gas emission by 2065. PTT, as a national energy company, with its mission to balance all stakeholders and the climate change is one of the most important corporate issues. The opportunities and challenges must be concretely included in setting the directions of strategy, long-term goal and corporate plan of the organization as a mechanism to drive the country towards low carbon society, stably and sustainably

Management Approach

Climate Management and Governance Structure

Climate change issues in PTT has been integrated into the strategic direction, corporate plan, and risk management plan driven by governance in various dimensions, including the overview lens of sustainability management and specifically in relevant functions of the organization, as follows.

• Governance on climate change (Climate governance) is one of the major sustainability issues. At management level, the climate governance is overseen by PTT Governance Risk and Compliance Management Committee (GRCMC), who quarterly reports to the Corporate Governance Committee (CGC). PTT Group Sustainability Management Committee (GSMC) supervises on framework and work in compliance within PTT Group.

• In order to achieve a long-term goal and the net zero greenhouse gas emission target, PTT Group Net Zero Task Force (G-NET) was formed to set a clear goal in raising the climate solution level to support Thailand’s goal on carbon neutral; to achieve the net zero greenhouse gas emission, which complies  with the policy of Ministry of Energy; and to enhance a modification of business model in the same direction as the set strategy and corporate plan.
• A challenge in climate risk management is one of the corporate-level risk items. It requires risk measure/ control plan and mitigation plan, including leading/ lagging key risk indicators. A progress report must be presented to the Corporate Plan and Risk Management Committee (CPRC) at the management level, and to the Enterprise Risk Management Committee (ERMC) at the board level, quarterly.

At the functional level, the Executive Vice President of Sustainability Management, is the major responsible and coordinating unit in setting policy, goal, strategy, operation’s indicators, and management process, including operational plan in working with other units, either at corporate level, business groups, business units or other related teams within the organization, e.g., PTT Innovation Institute, New Business and Infrastructure Business Unit, Gas Business Unit, etc.

Climate Change Management Process^GRI201-2

PTT’s climate change management is in line with the sustainable development approach and relevant  international standards and guidelines. The following demonstrates PTT’s climate change management process.

1. Collecting greenhouse gas emissions data and data related to climate risks and opportunities management has been put in place according to PTT Standards and Tools for Greenhouse Gas Inventory.
   
2. Monitoring and assessing global and local climate change situation with potential impacts to sustainability, covering different laws and regulations, GHG emission management mechanisms (i.e., carbon tax, cap and trade), other approaches and standards related to climate change at an international level (i.e., WBCSD, CDP, DJSI, GRI). This includes participation in conferences and seminars on climate change, hosted by the public sector, private sector, and others.
   
   
3.  Identifying climate change risks and opportunities at corporate level by considering these factors :
   
   • Risks and opportunities from regulatory change 
   • Risks and opportunities from physical changes  
   • Other risks and opportunities
4. Integrating risks and opportunities into the business scenario analysis during the strategic direction process. This process also includes related financial impact assessment through a financial projection and financial plan. The analysis is conducted based on the information of climate change situation from a monitoring process, at both global and local levels that have impact on the organization’s sustainability performance. The action plans cover 2 dimensions, which are: 
   
   • Mitigation Action: This action is to control, mitigate and store greenhouse gases to reduce impacts of climate change. 
   • Adaptation Action: This action is to adapt to handle with climate change impacts to ensure that business can sustainably maintain its competitiveness.
5. Deploying to corporate plan and set up State Enterprise Assessment Model KPI (SE-AM KPI), and corporate KPI for executives. The KPIs must be deployed and delivered to related functions in the form of functional KPI.
6. Monitoring and revising work progress according to corporate plan, strategy and KPIs and quarterly report the progress to the committees according to the governance structure for the management level and board level.
7. Summarizing the performance for disclosing to both internal and external stakeholders transparently through 56-1 One Report form and on PTT website.

Risk Management

PTT has developed a risk management system throughout the organization. It lays out a risk management framework that is in line with recognized international standards, COSO ERM 2017 and ISO 31000:2018. The risk management system, which is linked to the strategic and enterprise planning process, is essential to enable the organization to achieve its vision, mission, and goals and reduce risks that may affect the achievement of the organization’s goals.

During the strategic planning period, risk identification in corporate, business/support, and operation level must cover various factor such as external, internal, key organization strategy and gold, and stakeholders’ expectations in order to determine risk universe in both short-term and long-term in a complete and comprehensive manner.

During the enterprise planning period. PTT will determine the corporate risk profile which consolidates from business units, support functions, and all risks from external factors that may have positive or negative impacts to the organization. This will mitigate impacts or reduce potential roadblocks and may create upside opportunities to the organization. In addition, to ensure the successful implementation, PTT will develop risk management plans, set key risk indicators, and assign risk owners in accordance with the corporate risk profile.

The corporate risk profile and its management plan, which are approved by the Enterprise Risk Management Committee (ERMC), will be integrated with the enterprise plan and be approved by the board of directors. Thus, the risk management plan will align with business strategies and goals. After the board of directors approves the profile and plan, it will be deployed to related management positions and risk owners in order to monitor and prepare business risks readiness in all aspects.

PTT Climate Risk and Opportunity Assessment^GRI201-2

PTT integrates climate risk and opportunity analysis into the strategic planning and enterprise risk management processes. PTT is using climate-related scenario analysis to explore and develop an understanding of how the physical risks and transition risks of climate change might impact the business over time. Physical risks and transition risks assessment cover 3 business units including upstream, downstream and new business & infrastructure.

• Policy and Legal: qualitative assessment  are  conducted and mainly focus on Thailand’s NDC target and policy, Thailand’s climate change act (draft) with corresponding of carbon taxation, and trading system for emission rights, encompassing risks from policy, targets, strategic plans, and laws stipulated by Thai government.
• Market: quantitative assessment is conducted and mainly focus on volatility of product price and demand shift in each scenario, refers to customers' changing behavior, such as reduced fossil fuel demand. 
• Technology: qualitative assessment is conducted and mainly focus on low-carbon technology or future energy that will replace fossil-fuel business such as renewable energy, electric vehicles and highly efficient batteries.
• Reputation: qualitative assessment is conducted and mainly focus on needs and expectations of investor which mostly concern about climate change management and transition to low-carbon business.

• Acute risks, including increasing severity of extreme natural disasters
• Chronic risks, including gradual climate change impacts, such as increasing temperature and rising sea level

• Technology with greater energy efficiency at a lower price
• Opportunity to invest in alternative energy or renewable energy, which is becoming more economically viable
• Accessibility to cleaner and more environmentally friendly energy markets and products
• Accessibility to funds supporting environmental works, both nationally and internationally

For risks and opportunities arising from climate change at the operational level, appropriate actions are taken to minimize the impacts of such risks. Preparation in prevention and mitigation against these risks is achieved through the implementation of Business Continuity Management System (BCMS). This system covers an emergency response plan for incidents which may occur naturally or anthropogenically. Each business unit is responsible for monitoring and ensuring business continuity on a quarterly basis. The plan with specific targets to implement adaptation measures for physical climate risks to existing and new operations will be carried out within a 5-10 year-timeframe.

Climate Change Management Strategy

Since 2018, PTT Group has established a climate change strategy. The strategy has been implemented rigorously, as a result, the group can achieve the greenhouse gas emission reduction goal, which is aligned with the national goal.

PTT realizes that climate change remains an important sustainability issue and has a significant impact on petroleum and petrochemical business. Therefore, climate change issues have been considered as a main factor in analyzing and assessing the strategic direction and long-term goal, including corporate plan. The directions are also in compliance with PTT’s new vision of ‘Powering Life with Future Energy and Beyond’. The highlight performance in 2021 is as follow.

Specifying a Clean Growth target to reduce PTT Group’s greenhouse gas emissions (scope 1 and scope 2 covering domestic and international operations) by 15% reduction in 2030 compared to the 2020 level of greenhouse gas emissions. Adjusting PTT’s targets and disseminating the targets to PTT Group companies in the form of PTT Group carbon emission budget to limit greenhouse gas emissions, directly and indirectly. For the total PTT Group emission, the target is to not exceed 234.45 million tonnes of CO2 equivalent in 2022 – 2026 in Phase 1, and not to exceed 148.69 million tonnes of CO2 equivalent in 2027-2030 in Phase 2. Adjusting the strategy, long-term strategic targets for 2030, as well as the 2022 - 2026 corporate plan, by specifying the shift in the business model to the country’s target industries, which includes investing in the future of energy, such as renewable energy, energy storage systems, and electric vehicles. Besides, PTT also invests in businesses beyond energy, such as life science consisting of medicine, food and nutrition, medical supplies and others, logistics and infrastructure businesses, artificial intelligence and robotics businesses, and digital technology businesses, In addition, the petrochemical businesses will expand to high-value products with advanced technology. The oil business will be transformed into a mobility and lifestyle model. On the other hand, environmentally polluted businesses will be diverted such as coal, which is clearly specified in the long-term targets and corporate plans. Adjusting the strategy, long-term strategic targets for 2030, as well as the 2022 - 2026 corporate plan, by specifying the shift in the business model to the country’s target industries, which includes investing in the future of energy, such as renewable energy, energy storage systems, and electric vehicles. Besides, PTT also invests in businesses beyond energy, such as life science consisting of medicine, food and nutrition, medical supplies and others, logistics and infrastructure businesses, artificial intelligence and robotics businesses, and digital technology businesses, In addition, the petrochemical businesses will expand to high-value products with advanced technology. The oil business will be transformed into a mobility and lifestyle model. On the other hand, environmentally polluted businesses will be diverted such as coal, which is clearly specified in the long-term targets and corporate plans.

Various supporting factors and mechanisms to reach the targets are as follows.

• Lay out the “3P Decarbonization Pathway”  to serve as the operational approach for PTT Group, consisting of:

	Conducting projects and activities to reduce greenhouse gas emissions in line with the Clean Growth target such as carbon capture and storage projects, carbon utilization project, hydrogen energy projects, energy conservation projects, and carbon offsetting with carbon credits.
	Adjusting the plans to invest in future energy businesses and other new low carbon businesses. This links up with the goals to generate growth from future energy businesses, by setting the target to achieve 32% of PTT Group’s investment budget in 2021 – 2030 and 9 million tonnes per annum of LNG portfolio by 2030.
	Increasing carbon sequestration levels and natural carbon capture and storage, through reforestation and conservation of forests, as well as various green spaces by planting an additional one million Rai of forests and mangroves by 2030, and continuously implementing plans for conservation.

• Establish “PTT Group Net Zero Task Force (G-NET)”  which consists of executives of Senior Executive Vice President level. PTT Group has clearly set the targeted framework to leverage the climate change tacking actions to achieve the national target of carbon neutrality and net-zero greenhouse gas emission reductions as indicated in the Ministry of Energy’s policy. G-NET is also continuously monitoring the implementation of Decarbonization Projects under 3P Decarbonization Pathway. 
• Expand the results of Internal Carbon Pricing (ICP) by utilizing it in the investment screening process in projects to reduce greenhouse gas emissions both direct and indirect at USD 20 per tonnes of CO2 equivalent. In 2021, we have applied the system in projects to dispose of industrial waste and introduce the energy for reuse, a process by which the heat leftover from industrial waste is reused to produce steam. When compared to waste landfills, which can reduce greenhouse gas emissions by 17,734 tonnes of CO2 equivalent per year, and by using Internal Carbon Pricing, the project sees to gain benefit equivalent to THB 11,704,470 per year, which is expected to be considered for final investment decisions in 2022.
• Establish the PTT Net Zero Framework to serve as a guideline in considering the determined scope, calculations, and assessment of various operations, which are relevant under to the international standards, and which can be adapted to various levels, such as, corporate level, business unit, and business area etc.

Performance against Targets

PTT Standards and Tools for Greenhouse Gas Inventory

PTT Group has continuously provided inventory and report on emission, absorption and storage of greenhouse gases since 2016. The inventories and reports include direct greenhouse gas emission (Scope 1), indirect greenhouse gas emission (Scope 2) and other indirect greenhouse gas emissions (Scope 3). GHG data is annually verified by external independent third-party organization. The system boundary of greenhouse gas inventory is modified, to provide the data for the PTT Group, for both domestics and international businesses, by following the Greenhouse Gas Protocol. PTT will start using the modified system boundary in 2022. Nevertheless, PTT Group Environmental Master Plan 2021-2030 will be modified in align with the nation’s net zero greenhouse gas emission goal.

Besides, PTT had developed the PTT Group GHG Project Standard based on ISO14064-2. The standard is integrated with PTT's GHG emission inventory and is used as the standard for the PTT Group to assess and analyze GHG reduction efforts in accordance with international standards.

• Direct GHG Emissions (Scope 1) and Indirect GHG Emissions (Scope 2)
  
  • Direct GHG emissions (Scope 1) encompasses operational activities from combustion, carbon dioxide separation, release of hydrofluorocarbons (HFCs) and sulfur hexafluoride (SF6), fugitive emissions, vented emissions, flares, and other process emissions.
  • Indirect GHG emissions (Scope 2) refer to the release of GHG from the consumption of purchased energy, such as electricity, heat and steam in PTT's business operations.
  • PTT has an approach in GHG emission reduction, either direct GHG emission (Scope 1) or indirect GHG emission (Scope 2), by focusing on management process to increase energy efficiency, alternate fuel used, generate electricity from co-generation power plants, and utilize waste heat. These are the efforts taken to facilitate progress towards the set goals.
• Other Indirect GHG Emissions (Scope 3)
  
  • The greenhouse gas emission comes from the activities related to the product use and product combustion that PTT sold to end user both stationary fuel combustion and mobile fuel combustion, from the raw material and product transportation to external operator, from employees’ flight, etc. The GHG number Scope 3 disclosed in our website, shows only the greenhouse gas emission from fuel combustion of Use of sold products by PTT and PTT Oil and Retail Public Limited Company, allowing them to improve their efficiency and disclose to relevant stakeholders.
  • PTT's approach for reducing other indirect GHG emissions focuses on reducing product carbon footprints through product research and development to meet market needs in correspondence with vision and strategic direction and Alternative Energy Development Plan (AEDP). In addition, PTT plans to expand manufacturing of biofuels in order to serve the increasing demand for biofuel in Thailand.
• (Revenue from the sale of low carbon products & avoided emission products in the range of production or service, and products that help customers or users reduce greenhouse gas emissions) facilitate measurement of the PTT Group's operation in reduction of Scope 3 GHG Emissions induced from the PTT Group's goods and services, as well as businesses, by measuring GHG Emissions from use of sold products.
  
  • Low Carbon Product refers to products (goods or services) of the PTT Group that emits lower greenhouse gas emissions during production or services compares to other products (goods or services) that serve the same functions, as follows;
    
    • Renewable Energy such as wind energy, solar energy, and hydropower ect.
    • Green Building & Green Service refers to buildings or services with reduced greenhouse gas emissions during the period of service, such as LEED-certified at Platinum level
    • Electricity generation from Co-generation system’s stream
    • Bioenergy
    • Energy Efficient Products refers to products whose production process has efficient energy usage and has lower carbon emissions (such as certified for greenhouse gas emission reduction, meaning it has reduced over 2% of its emissions)
    • Products from Cogeneration/ Tri-generation/ Combined Heat and Power
    • Products from Waste Heat Recovery
    • Products certified for Carbon Footprint Reduction Label from the Thailand Greenhouse Gas Management Organization (TGO)
  • Avoided Emission Product refers to products (goods or services) of the PTT Group that allows clients or users of products (goods or services) to reduce the amount of greenhouse gas emissions, compared to other product (goods or services) that serve the same functions. This may refer to both direct and indirect usage. Examples are as follows;
    
    • Gasohol E10, E20, E85 sold to car users
    • Biodiesel, Premium Diesel sold to car users
    • Natural Gas sold as fuel for electricity generation plant
    • Products (goods or services) whose Product Carbon Footprint during usage is lower than the Default value in the SimaPro database, or prior to improvement
    • Products certified for EGAT Energy-Saving No.5 label
    • Products (goods or services) of the PTT Group which are environmentally friendly, are labelled under GREEN FOR LIFE for environmental aspects and refers to the following.
      
      • Reduced Energy Consumption during usage
      • Products or packaging with whose carbon footprint (net greenhouse gas emissions throughout a product’s life cycle) is zero, or those already offset all carbon emissions.

Key Performance

By considering opportunities and challenges management from climate change to formulate corporate strategic direction, in line with new vision and national policy and target to prepare for Low-carbon Society. In 2021, PTT  has changed its organization’s structure to enhance more tangible actions and investment in EV business. New Business and Infrastructure Business Unit are established aiming partly to act on EV value chain business. Examples of actions are MOU signing with Foxconn to conduct a feasibility study on an establishment of EV manufacturing plant in Thailand, the establishment of Arun Plus Company to operate EV business, the establishment of EVme platform to provide service, rent an EV car or test drive an EV car for consumers to test and experience EV and the establishment of Swap&Go to provide battery swapping for electric motorcycle, etc.

Carbon Disclosure Project (CDP) Participation

Intensity of GHG emission from activities of PTT Group, both direct and indirect GHG emissions (Scopes 1 and 2)^{1, GRI305-4}
(Kilogram CO₂  per barrel of crude oil equivalent)

Greenhouse gas emission intensity of direct and indirect GHG emissions from PTT Group activities and the
combustion of fuel products sold by PTT Group (Scope 1, 2, and 3)^{1, GRI305-4}   
(Kilogram CO₂  per barrel of crude oil equivalent)

Remarks:
1. The scope of data covers the companies in Thailand in which PTT holds more than 20% of their shares and is their major shareholder or indirectly holds 100% of their shares.
2. The PTT Group's 2018 - 2020 data has been adjusted to account for the increased organizational boundary resulting from the merger of TOP and Thaioil Power, as well as an increase in the Operational Boundary of IRPC reporting of GC, IRPC's
    Inventory and Tank Yard, and LPG Cylinder Songkhla of OR in 2020, as well as additional LNG-related activities by generators. It's also due to capacity increases and a change in fuel type due to cost control in 2021.
3. PTT's two-year emissions data for 2018 - 2020 has been updated using EPPO 2021 emission parameters.
4. PTT will improve in line with increased activity and reporting in the next years, as stated within the initial scope of action, which excludes the increase in activities as specified in item 2.

Direct and indirect GHG emissions of PTT Group (Million tonnes of  CO₂ equivalent) ^{GRI305-1, GRI305-2, GRI305-3}

Direct GHG emissions (Scope 1)	Indirect GHG emissions (Scope 2)5
GHG emissions from the combustion of fuel products sold by PTT (Scope 3) (2,3)

Total direct methane emissions (Metric tonnes)	Total non-renewable energy consumption (MWh)GRI302-1
Total renewable energy consumption (MWh)GRI302-1

Energy Production from Renewable Sources

Carbon Pricing Mechanism for PTT’s Investment Consideration^GRI305-5

Carbon pricing mechanism, used as part of PTT’s investment consideration criteria, serves as one of the tools to expedite investments in greenhouse gas reduction projects. Such projects may help reduce impacts from climate change and facilitate PTT’s business operations towards low-carbon society. The projects must be approved by the Strategic Investment Management Committee (SIMC) and PTT Management Board. In 2021, the project that applied the carbon pricing mechanism and was approved for investments was the project on industrial waste disposal with energy recovery process. Excess heat from the industrial waste disposal was utilized to generate steam for other useful purposes. In comparison to a waste disposal by landfilling, the method used in this project can reduce GHG emissions by 17,734 tCO2e/Yr. In addition, based on ICP, the benefit of this project is 11,704,470 THB/Yr. The final investment decision of the project is expected to be reached in 2022.

The Utilization of Carbon Pricing Mechanism in PTT’s Investment Consideration Process can be concluded as follows:

• Carbon pricing mechanism in PTT’s investment consideration process will be used with projects that can either reduce direct or indirect GHG emission of PTT business operation.
• Carbon pricing mechanism will be used in a shadow price format, which will aid in the decision-making process of PTT Investment Management Committee for a project investment with carbon price of 20 USD/tCO2e.

Benefits for PTT from Applying Carbon Pricing Mechanism

• Helping PTT in doing their business to achieve low-carbon society. The mechanisms will also help PTT in reducing risks while offering opportunities related to climate change in a long run.
• Building stakeholder trust, particularly, investors, through PTT’s determination in doing their business to achieve low-carbon society. 
• Increasing investment opportunities in businesses and projects that create business advantages along with an indirect benefit by reducing greenhouse gas emission of PTT Group by applying internal carbon price (ICP). ICP can be used in an investment decision-making process of a project such as an industrial waste disposal and energy recovery project. The project recovers and utilizes excess amount of heat generated from industrial waste disposal process to generate steam for other benefits.

Future Plan

Drive implementation of projects to follow the strategic direction for the environment as prescribed in the Master Plan on Sustainability Management, including the 3P Operating Guideline, in order to short and long-term reduction targets of greenhouse gas emissions, as well as carbon neutrality and net zero emissions, by focusing on augmenting operations throughout the Group’s value chain, while also focusing on building a solid and amicable network in the country and abroad, to drive humanity towards the power of the future.