6 minute read 12 Jan 2021
Woman controlling charging of electric vehicle with phone

How tech will enable the energy transition and purpose-led consumption

Carbon credits could bring energy producers and retailers closer to customers while driving sustainability and protecting ancillary revenue.

In brief
  • Consumers could buy, earn and trade carbon credits to better track the impact of their energy-related purchases and behavior.
  • Oil and gas companies would benefit from a more predictable revenue stream and better insights into consumer behavior.
  • Fuel retailers would also benefit from consumer insights, helping them ultimately reimagine the business model of a “gas station.”

Oil and gas companies don’t typically have direct access to end consumers at fuel stations, which are mostly owned by branded or unbranded franchisees. But diminishing demand for fuel, volatile oil prices amid the fallout from COVID-19 and the rise of eco-friendly vehicles are exposing the downsides of this arrangement.

As oil and gas companies and franchisees re-examine the nature of their relationship, they are looking to digital solutions. The right technology promises to preserve revenue streams, promote sustainability and bring both parties closer to their customers.

Missed opportunities

Whether a sole proprietor or national conglomerate, today’s franchisees enter a long-term purchase contract for fuel with oil companies and then sell the fuel to end consumers at gas stations. In most cases, the franchisees own and maintain the infrastructure and technology related to the forecourt, fueling pumps and convenience stores. They employ the labor and enter partnerships with branded franchisees, while the oil companies manage the branding and marketing.

Fuel retailer profits

60%

of a fuel retailer’s profit stems from convenience stores and ancillary services, such as car washes and vehicle maintenance.

These fuel retailers earn most of their profit (about 60%) from convenience stores and ancillary services, such as car washes and vehicle maintenance. Thus, they have a strong incentive to promote the retail store and other services to consumers. Oil companies, on the other hand, do not benefit from these additional services. They have little direct involvement with convenience store operations and don’t connect with their customers.

In this partnership, suppliers and franchisees aren’t collaborating effectively and therefore miss out on potential synergies and new revenue streams. Despite having the necessary scale and capabilities, oil companies lack the motivation to generate and provide consumer insights and other business operations support to retailers. And without this additional support, franchisees face greater hurdles in developing targeted services and promotions and better pricing models.

Growing threats

Perhaps in a steady market, these missed opportunities could be overlooked or brushed aside. But today, the economic landscape across the oil and gas sector is far from stable. The pandemic and subsequent drop in oil prices have made it more necessary than ever for oil companies to generate alternate revenue streams.

The consequences of the energy transition pose an even greater threat. By some estimates (LMC Automotive and Bloomberg), electric vehicles (EVs) will make up half of global vehicle sales within 10 years. In tandem with this paradigm shift, regulators, policymakers and investors are pushing a decarbonization agenda.

Perhaps most crucially, the rising demographic tide of Generation Z (Gen Z) will set the pace for change in all industries. A majority (61%) of Gen Z feels “very or extremely” worried about the future, citing global worries such as climate change.

Generation Z outlook

61%

feels “very or extremely” worried about the future, citing concerns such as climate change.

Those sentiments will have a profound effect on the oil and gas sector. Gen Z sees car ownership and driving as a means to an end and increasingly prefers eco-friendly mobility options (including EVs) or subscription services. Taken together, these trends will continue to put pressure on the present economic model for oil and gas companies and franchisees.

  • Lessons from other sectors

    Other sectors struggling with building meaningful relationships with consumers while supporting their intermediaries have developed digital platforms to collect and leverage customer data.

    Automotive

    Traditionally, the original equipment manufacturer (OEM) controls the consumer relationship before and after the sale — but not the sale itself. It’s a gap that leaves OEMs ignorant of a crucial aspect of their business.

    In response, one auto retail company created a third-party digital platform that both sold cars directly and managed servicing. With it, the company can own the complete journey of car ownership and interact with consumers more effectively.

    HVAC manufacturing

    In the heating, ventilation and air conditioning (HVAC) industry, manufacturers lose their connection to the end consumer because dealers typically sell directly into homes. That makes it difficult to address unmet needs.

    One manufacturer created a direct touch point with its customers through the HVAC system itself. With better consumer data, the company better understands market opportunities.

    Power and utilities

    Delivering power and utilities (P&U) is a complex process distributed across producers and suppliers. To manage its customer journey, a P&U company built a non-regulated, consolidated platform that helps companies meet their clean energy targets.

    The app-based solution allows customers to control on-premises power sources to optimize energy usage. It displays real-time energy usage and provides real-time reporting for compliance with multiple green energy initiatives and goals.

The carbon credit platform

A digital solution for these energy-related challenges must offer value to oil and gas companies, fuel retailers and, of course, the consumer. The foundation of this transactional platform could be the concept of “carbon credits” that are bought, sold, exchanged and traded across the oil and gas economy. The insights and data gathered by the platform would benefit each set of stakeholders.

Consumers

Rather than purchase fuel, consumers could use an app to purchase carbon credits (at a fixed price point or via subscription) that could be applied toward any type of energy. The consumer could track the impact of these purchase decisions on the environment and trade credits with others in the system.

Users could receive additional credits for making decisions that promote a more sustainable world. For example, using a ride-share pool could be worth an additional 20 credits, while decreasing home energy use could be worth 5 credits.

Essentially, the platform would offer numerous opportunities to incentivize behavior around energy consumption. The model would also help consumers benefit from better, more individualized goods and services.

Rather than purchase fuel, consumers could use an app to purchase carbon credits (at a fixed price point or via subscription) that could be applied toward any type of energy.

Oil and gas companies

The up-front purchase of the carbon credit would create an immediate, measurable and more predictable revenue stream for an oil and gas company (or whoever owns the platform). Slices of each carbon credit could be transferred to any partnering company in the ecosystem.

And with end consumers using the app directly, oil and gas companies would gain individual consumer data to better support new businesses and services.

Fuel retailers

The insights and data collected from the platform could be pushed to fuel retailers, giving them the opportunity to make better decisions on how to target their customers with more relevant products, services, deals and discounts, and experiences.

Carbon credits could be available for special deals that promote items in convenience stores. For franchisees struggling to stay relevant as “gas stations,” the credits can provide valuable insights on customer behavior, boosting revenue and loyalty.

A purpose-driven digital solution

Beyond each set of stakeholders, a carbon credit platform would deliver holistic benefits to the oil and gas ecosystem. If participating companies in this ecosystem bind together, they will know how consumer behavior is driving energy efficiency — and potentially claim it on their books.

Ultimately, the carbon credit platform changes the conversation for oil and gas companies from “fuel” to every type of “energy.” And it offers a straightforward, everyday way to unite consumers in the clean energy cause. 

Summary

The right technology, such as a carbon credit transaction platform, could unite the divergent interests of fuel franchisees and oil and gas companies, helping them collaborate more effectively and better connect with consumers. And as the shift from internal combustion to electric vehicles accelerates, the technology could help oil and gas companies and fuel retailers transition to a new economic model.

About this article

By EY Global

Ernst & Young Global Ltd.