IEA’s Ambitious Climate Scenario Underscores Need for More Transparency on Fossil Fuel Projects

Yesterday, the International Energy Agency (IEA) released a highly anticipated report outlining changes in the global energy system needed to reach global net-zero emissions by 2050. The analysis is based on an economic model that is more ambitious on reaching 1.5 °C climate targets than prior scenarios from the agency—a shift for which many climate advocates have campaigned for some time.
 
The IEA experts have articulated several dramatic milestones that would be necessary to reach this critical goal, including:

• no approvals of new oil and gas field development and no new coal mines or mine extensions by this year
• electric vehicles reaching 60 percent of global car sales by 2030
• nearly 70 percent of global electricity generation produced from solar and wind by 2050. 

Given that government and industry leaders rely on IEA scenarios in their planning, many hope that these urgent targets will spur much-needed climate action.
 
Beyond these headline prescriptions, the IEA makes another critical point: changes brought by the clean energy transformation will be challenging to implement, so decisions must be transparent and just. As the gap grows between government and company plans for future production and the levels consistent with a Paris-compliant world, there is increasing attention on how supply-side commitments from oil-producing countries might shape net-zero ambitions. These countries face significant economic shocks as the world decarbonizes: the IEA estimates that per capita income from oil and gas in producer countries would fall by 75 percent under its new net-zero scenario. Even if the world falls somewhat short of the Paris goals, governments in these countries face the prospect of dramatically lower revenues and public assets wasted by excessive concentration in a declining sector. Against this backdrop, citizens in low- and middle-income producer countries will inevitably face major uncertainties in the race to net zero. Access to basic information about how their social and economic prospects are shifting should not be one of them.
 
Governments and companies must disclose more information of relevance to the billion people that live in poverty in oil- and mineral-rich developing countries, and engage impacted citizens in producer countries as core stakeholders in energy transition policy dialogues. Despite the urgency of the economic challenge they face, many fossil fuel producers have not done enough to develop strong plans for economic diversification or inclusive development in a lower-carbon future.
 
The allure of oil and gas has thus far been powerfully addictive. Open dialogue between governments, companies, and citizens on the role of fossil fuel production in national economies will facilitate meaningful climate action and improve the prospects of countries that remain hooked on oil and gas. Globally inclusive dialogue is also needed around which countries should reduce production first; developing and emerging market producers are already calling on wealthy countries to lead the decline.
 
Today, too much information that is necessary for just and effective transition discussions remains hidden from view. Increasingly, debates will center on whether specific fossil fuel projects are viable or not—from both economic and climate perspectives. In many producer countries, the decision to halt or continue one or two key projects can affect the whole economy. Project-focused transparency efforts could support a just transition by helping citizens in producer countries assess the impacts and effectiveness of divestment and economic diversification plans. Greater transparency at this level would also help citizens hold government officials, multinational decision-makers and industry executives accountable for an equitable and well-managed process.


Governments and companies should disclose the following information about fossil fuel projects:

1. Exposure to climate-related financial risk. To hold governments and companies to account and determine whether continued extraction or particular project configurations are in the national interest, citizens need: information about the viability of projects and national budgets under various transition scenarios (including the IEA net zero scenario); break-even prices, reserves and potential emissions of current and pending fossil fuel projects; and price and revenue forecasts used by financial authorities. The Extractive Industries Transparency Initiative (EITI) encourages the governments of its 55 implementing countries to disclose information that will further public understanding and debate around issues of revenue sustainability and resource dependence, including official production, commodity price and revenue projections. In practice, however, few countries publish this information, which must change. The EITI Standard should require, rather than merely encourage, these disclosures. The Standard should also require EITI supporting and member companies to disclose their own scenarios, assumptions and projections. United States and European regulators, who are also considering this issue, should also require this project-level information of fossil fuel companies globally.
2. Plans for energy transition and production. Governments in producer countries should disclose information about their project divestment (and investment) and energy transition plans, and invite public debate on these topics. Oil companies—both private and state-owned—should also disclose production, energy transition, and responsible exit plans for their projects. They should also engage with stakeholders on the social and economic impacts that project continuation, wind down, or transfer would have on host governments and communities (e.g., impacts on payments to government and local employment, timelines and decommissioning plans). Governments and companies must also disclose the contracts that govern projects so that oversight actors can assess exploration and production rights, project amendment conditions, and adherence to decommissioning and asset sale obligations. At a minimum, both government and company actors should account for how much proposed projects will cost, their carbon footprints, and whether they align with climate goals.
3. Financing and subsidization of carbon-intensive projects. Countries should disclose current and proposed spending on fossil fuel projects by national oil companies, public investment in fossil-fuel linked infrastructure, and the value of tax incentives and other subsidies they provide to support fossil fuel projects. They should also disclose the impact various transition scenarios would have on the return on public investment.
4. Carbon intensity of production and reserves. Officials and executives should disclose the levels of greenhouse gas emissions (scope 1 and 2 emissions) associated with a project, as well as information necessary to assess the emissions associated with the eventual burning of those fuels, including emissions made abroad after export. This information is critical for informed public debate about the climate impact of a country’s extractive activities. In addition to disclosures around current production, citizens and investors need reliable information about undeveloped fossil fuel reserves, their embedded carbon content and the costs necessary to extract them to make equitable decisions about which countries need to phase out production fastest.
5. Influence of fossil fuel interests on policymaking. In some producing countries, political leaders use fossil-fuel revenues to maintain their positions and power, giving them strong incentives to continue production. In others, fossil fuel companies enjoy considerable influence over policymakers. Governments and companies should disclose information that enables accountability actors to monitor channels of influence by vested interests. This information includes the identity of politically exposed beneficial owners with stakes in extractives projects, details about industry lobbying activities and political donations, and corporate reporting on compliance with “revolving door” policies and other integrity measures.

The IEA report makes the case for decisive and immediate climate action. The many necessary steps will require complex negotiation and coordination. But extractive sector companies and governments of producing countries can rapidly implement a core set of project-level, supply-side disclosures that would enable impacted stakeholders to assess project viability and contribute to energy transition plans. Increasing production-related commitments in nationally determined contributions is a clear opportunity. Reporting entities should leverage the readymade platforms and multi-stakeholder networks offered by transparency-oriented forums like the EITI and the Open Government Partnership, and draw on the considerable thinking that already exists on many of the key technical components and data standards that would be central to such disclosures.
 
What remains unclear, however, is whether an actor or group will take up the mantle of making this critical transparency a global priority and realizing it. We are working with partner organizations to explore how we can jointly push global leaders to step up. With more than 50 global and regional climate-focused gatherings taking place in the next six months, culminating in COP26 in November, the time is ripe.
 
 
Erica Westenberg is the director of governance programs at the Natural Resource Governance Institute (NRGI). Patrick Heller is an advisor at NRGI and a senior visiting fellow at the Center for Law, Energy & the Environment, University of California, Berkeley.