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11. Facing the Future: What National Oil Companies Say About the Energy Transition

Author:
Andrea Furnaro and David Manley
Publication Date:
11-2023
Content Type:
Special Report
Institution:
Natural Resource Governance Institute
Abstract:
National oil companies (NOCs) should publicly acknowledge the risk of the energy transition, assess this risk, and act by implementing mitigation plans. Only 9 out of 21 NOCs analyzed acknowledge the risk of the energy transition, 4 have mentioned the use of transition risk assessments, and 5 have explicitly mentioned strategies to mitigate the risk. None of the NOCs have published “just transition plans” detailing how they will help workers and communities. NOCs do not plan to decrease investments in risky oil and gas assets. Petrobras (Brazil), Petronas (Malaysia) and Sonangol (Angola) are divesting from less valuable assets, but not necessarily to mitigate transition risk or downsize operations. Some NOCs, such as NNPC (Nigeria) and GNPC (Ghana), want to expedite drilling before oil and gas demand falls and acquire assets divested by other companies. At least six NOCs intend to increase oil and gas investment to secure energy supplies. Most NOCs intend to diversify, especially into gas, oil refineries, petrochemicals and renewable energy. However, it is unclear how much NOCs are spending on diversification or whether these are effective mitigation strategies. NOCs can learn from each other. Two NOCs—Ecopetrol (Colombia) and Petrobras—are clear leaders in terms of recognition of energy transition risk. However, NOCs disclosing more transition risk information are not necessarily also those reducing higher-risk investments.
Topic:
Oil, Business, Investment, and Energy Transition
Political Geography:
Africa and Global Focus

12. Riskier Bets, Smaller Pockets: How National Oil Companies Are Spending Public Money Amid the Energy Transition

Author:
David Manley, Andrea Furnaro, and Patrick Heller
Publication Date:
11-2023
Content Type:
Special Report
Institution:
Natural Resource Governance Institute
Abstract:
Expecting a slow energy transition away from fossil fuels, national oil companies (NOCs) will likely invest USD 1.8 trillion in upstream oil and gas developments and expansions over the next 10 years. But $425 billion—a quarter of the NOCs’ planned investment—will be unprofitable if oil demand falls to 55 million barrels a day, in line with the International Energy Agency’s Announced Pledges Scenario. This is the highest risk portion of the portfolio and has doubled since the Russian invasion of Ukraine. NOCs will only profit from around $1.2 trillion of investment (71 percent of the total NOC investment) if humanity fails to contain global temperature rise to below 1.5°C, pushing the world toward climate catastrophe. While NOCs are making riskier bets, their debt is rising in some regions. Between 2011 and 2022, the average debt to total asset value of NOCs in sub-Saharan Africa, the Middle East and North Africa, and Latin America rose by a third. Governments’ financial pockets are shrinking. Between 2011 and 2021, the average government debt as a proportion of gross domestic product doubled. Yet many NOCs have not publicly acknowledged the growing risks of the energy transition. They and their governments must examine how they can generate sufficient revenue and energy for citizens without making even riskier bets with public money.
Topic:
Oil, Business, Public Spending, and Energy Transition
Political Geography:
Global Focus

13. Assessing ESG Risks in National Oil Companies: Transcending ESG Ratings with a Better Understanding of Governance

Author:
Luisa Palacios and Catarina Vidotto Caricati
Publication Date:
05-2023
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
National oil companies (NOCs) produce about half of the world’s oil, hold more than half of its refining capacity, and own the bulk of oil and gas reserves. Most of these companies come from emerging markets and depend heavily on international capital to finance their operations. As financial institutions consider more carefully environmental, social, and governance (ESG) risks in their investment decisions, an accurate assessment of the ESG performance of NOCs will be vital. Assessment of ESG risks in NOCs is currently hobbled by both the considerable divergence in ESG ratings for any given company and the complex nature of NOCs’ state ownership structure, which isn’t always readily encapsulated in ESG scores. A clearer picture of these companies’ ESG performance could be useful to investors. This paper, part of the Financing the Energy Transition initiative at the Center on Global Energy Policy at Columbia University SIPA, aims to provide a better understanding of what impacts the ESG performance of NOCs in emerging markets. The authors survey ESG ratings of the largest national oil and gas companies in emerging markets for which such ratings are available, alongside the scores of some of the largest integrated oil and gas companies from advanced countries. The authors find a significant divergence in ESG scores for each single company, which raises questions about their individual stand-alone value in assessing the relative ESG performance of companies in the integrated oil and gas space. An analysis of average NOC ESG ratings—imperfect as they are—against those of international oil companies (IOCs), however, indicates much lower performance of NOCs on governance specifically (i.e., the G in ESG). Ownership by a state creates unique governance challenges—which, in turn, affect environmental and even social efforts—and deserves further exploration to determine which factors within state-owned companies can improve or impair ESG performance, to facilitate a more reliable understanding of NOCs’ ESG risks.
Topic:
Oil, Governance, Fossil Fuels, Energy Transition, and National Oil Companies
Political Geography:
Global Focus

14. A Potential Path for Alleviating Currency Risk in Emerging Market Green Bonds

Author:
Gautam Jain
Publication Date:
09-2023
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
A large gap exists between the financing needed for the energy transition and what is being invested. Green bonds are flourishing as one of the main sources to close this financing gap, with over $2.5 trillion issued globally thus far. However, emerging market and developing economies (EMDEs) haven’t fully capitalized on the growth of this asset class: the share of EMDE (excluding China) green bonds denominated in local currencies within the total green bond universe remains minuscule. While some EMDE issuers can sell a bond denominated in dollars and hedge by swapping the dollar exposure into the local currency of the underlying projects, the cost of doing so is usually prohibitive. This report, part of the Financing the Energy Transition initiative at the Center on Global Energy Policy at Columbia University SIPA, adds to ongoing discussions of how to encourage a greater flow of green financing from international investors to emerging economies. Toward that end, it explores a blended finance structure wherein an intermediary takes on the local currency risk of an EMDE green bond, effectively converting it to a dollar bond that settles internationally, to potentially stimulate more issuances and expand the pool of international investors with access to these bonds.
Topic:
Climate Finance, Currency, Bonds, and Energy Transition
Political Geography:
Global Focus

15. How renewable energy transitions impact power structures in local communities

Author:
Maria-Louise Clausen
Publication Date:
03-2022
Content Type:
Policy Brief
Institution:
Danish Institute for International Studies (DIIS)
Abstract:
International donors often see renewable energy transitions in fragile and conflict-affected states as a building block for peace and development. But donor-supported transitions to small-scale renewable energy generation can both mitigate and exacerbate local conflict dynamics and undermine the central state. In fragile and conflict-affected states, it is often difficult for the central authorities to protect large-scale energy infrastructure from attacks and sabotage, and thus guarantee long-term stability. Moreover, local communities often use fuel-driven generators to supplement the state-driven national grid, but national diesel supply lines are also vulnerable to disruptions. Consequently, international donors increasingly support small-scale renewable energy generation as a climate friendly alternative to centralised and state-led energy generation. Solar photovoltaic (PV) in particular has become a widely promoted, affordable and accessible technology for local energy generation.
Topic:
Security, Climate Change, Development, Water, Non State Actors, Governance, Inequality, Renewable Energy, and Energy Transition
Political Geography:
Global Focus

16. Preventing Corruption in Energy Transition Mineral Supply Chains

Author:
Natural Resource Governance Institute
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
Experts have issued an urgent call for reforms to tackle the pressing issue of corruption in transition mineral supply chains. Corruption undermines key safeguards that protect local communities and the environment, redirects public money into private hands, and disrupts and delays production just when responsibly produced minerals are urgently needed to meet climate goals. Corruption in mineral supply chains threatens a just energy transition and risks derailing global efforts to fight climate change. The global fight against climate change relies on our ability to scale up low-carbon infrastructure, which requires more minerals than fossil-fuel-based systems.
Topic:
Corruption, Supply Chains, Minerals, and Energy Transition
Political Geography:
Global Focus

17. Financial Innovation for Energy Innovation

Author:
Ashby Monk and Soh Young In
Publication Date:
03-2020
Content Type:
Journal Article
Journal:
Brown Journal of World Affairs
Institution:
Brown Journal of World Affairs
Abstract:
The move toward a global energy transition is underpinned by the collec- tive need to limit the most severe impacts of climate change as well as to foster more sustainable economic growth. Floating photovoltaic power stations on Chinese lakes, integrated carbon capture technology on large-scale power plants in Canada, and decentralized urban wind turbines on Singaporean rooftops are just a few examples of how radical innovations in clean energy technology are fueling the global energy transition.1 Bringing cutting-edge technology from the lab to the global energy market requires a supportive ecosystem. Innovation must be matched by market readiness to adopt disruptive technologies, local capacities to scale up new energy projects, energy policies with climate objectives, technological development, and sufficient and “aligned” investment capital. This article focuses specifically on the last requirement: the characteristics of investment capital needed to support clean energy innovation. Investors are key players in the future of energy, as they must drive innovation in the financial system to meet the scale of capital needed to transform the energy industry. Both a lack and misalignment of investment capital have hindered important technological leaps in sustainable energy.2 One such example is the severe financing shortage in commercializing novel clean energy technology. The most prominent financing issue associated with commercializing novel clean technology (cleantech) has been termed the “valley of death,” which refers to the pattern in which most early-stage cleantech is severely underfunded, resulting in innovation being abandoned before reaching full-sized deployment. There are many causes of this “valley of death,” but the common threads among them are the sheer number of financial risks in the energy industry and the inability to fully understand and manage these risks within the energy ecosystem.3
Topic:
Finance, Investment, Innovation, Energy, and Energy Transition
Political Geography:
Global Focus

18. Ownership in the Electricity Market: Property, the Firm, and the Climate Crisis

Author:
Gregory Ferguson-Cradler
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
Electricity is a key area in climate mitigation. The sector needs to significantly expand while transitioning to renewable production, all in an extremely short timeframe. This paper focuses on ownership and control in the electricity sector in an era of climate change. Borrowing substantially from classical American Institutionalism, heterodox theories and histories of the firm, and legal institutionalism, this paper discusses the historically constituted nature of the categories of property, capital, and the firm and how these literatures provide helpful frameworks for analyzing the recent history and possible futures of electricity sectors. A short discussion of the recent history of the German electricity sector, particularly the large utility RWE, will briefly illustrate the approach. Climate change mitigation will require revised notions of ownership and an updated theory of the firm, property, and corporate governance for the Anthropocene.
Topic:
Climate Change, Electricity, Property, Anthropocene, and Energy Transition
Political Geography:
Europe, Germany, and Global Focus