12. Climate regulation
Under the inter-governmental Paris Agreement on Climate Change, member countries have committed to the goals of keeping global temperature rise at below 2 degrees Celsius above pre-industrial levels, and to pursuing efforts to limit increases even further to 1.5 degrees Celsius above pre-industrial levels. This will be achieved through an ambitious reduction of greenhouse gas (GHG) emissions, and as it happens, most GHGs are in the EI sector (carbon and methane).
Countries commit to have a more robust transparency networks, encourage new technology and improve capacity building and support for developing countries.
Countries are required to put forward nationally determined contributions (NDCs) and to have a stock-take every five years, the first one being in 2023. Emission reduction commitments have led governments to make ambitious country-specific regulatory and policy changes. For instance, the UK has committed to a 57% emission reduction from 1990 levels by 2030 (the EU has committed a 40% reduction), and Scotland aims to have 100% renewable energy by 2030.
As reduction commitments have been made by governments, it is expected that EI projects owned or operated by NOCs will be the first casualties of regulatory changes and enforcement, even before IOC projects, since states will need to have “skin in the game” and show commitment by their state-owned companies.
IOCs, unlike NOCs, The IOCs, unlike the NOCs, have options to manage future climate regulation, such as a managed decline where capital is returned to shareholders as existing reserves are used up or diversification and transformation of the company. Traditional IOCs have been gradually diversifying into other sectors. NOCs options are somewhat restricted, or could take longer to accomplish, as these would largely depend on government policy, which is likely to take on a much broader focus, rather an individual NOC policy.
NOCs will need to actively consider diversification strategies in order to cater for changes that will arise due to climate change commitments.
Explore the Climate Change & Extractives topic overview to learn more about this subject.