Four carbon policy developments set to impact E&P decision-making in H2

As we wrote in April, the broadening scope and reach of emissions regulations means they are no longer just a compliance or environmental, social and governance issue, but a key commercial decision variable for energy-intensive businesses. For oil and gas exploration and production (E&P) firms, a solid understanding of policy developments is vital. 

Our analysts have looked at the four carbon policy developments most likely to have implications for   asset value, final investment decision (FID) risk and portfolio resilience in the second half of this year.  

The new SBTi corporate net zero standard could push offset demand to new heights 

The Science Based Targets initiative (SBTi) has finalised version 2 of its corporate net zero standard (CNZS), covering over 5 billion tonnes of scope 1 and 2 emissions. It impacts the decarbonisation and climate action of nearly 11,000 firms, so will have a major influence on the carbon offset market, including carbon removals.  

Version 2 introduces two key changes: 

• Carbon offsets: Part of newly published ongoing emissions responsibility (OER) guidance. While it does not count towards targets directly, OER expects companies to take responsibility for their ongoing emissions through climate funding where carbon offsets are the most readily available and scalable way to do so. 

• Carbon removal: A mandatory requirement to cover 1% of ongoing emissions with carbon removal from 2035, rising to 100% by the net zero target year. 

The OER guidance boosts offsets from carbon avoidance or reduction projects, which are not part of mandatory carbon removal requirements. Companies choosing not to partake must publicly state why. Pressure from shareholders, consumers and others could be crucial in determining corporate uptake levels. Relatively small uptake could still materially impact offset demand.  

For carbon removal, the guidance is a mixed bag. The 2035 start date leaves a problematic financing gap for developers who need capital near term. While removal buyer numbers are rising, few buy enough for developers to leverage when raising funds. Carbon removal’s inclusion in compliance markets, as well as policy and financial support, will be key.  

Get more insights 

Fill in the form at the top of the page to receive a complimentary copy of our insight, which includes our take on another three important policy developments: 

• ICVCM’s expansion of CCP coverage across sectors, registries and geographies 

• China’s first provincial assessment framework for carbon emissions peaking and neutrality 

• The GHG Protocol’s proposed new reporting structure to capture the impact of company climate actions