Project name: Extractive Contracts Transparency and Energy Transition
Objective of the Study
The ongoing global transition to clean and low carbon energy sources is resulting in fundamental changes in the levels and modes of production, distribution, and commercialization of extractive resources worldwide. As countries, businesses, and other stakeholders adopt policies and targets aimed at constraining investments and actions that contribute to the adverse effects of climate change, risk in the energy sector is on the rise. These include financial risks, governance risks and social risks. Such risks affect different stakeholders including host governments, energy investors and communities. For instance, financial risks negatively impact both host governments and energy investors, especially with constraints on oil and gas project financing. Social risks negatively impact both host governments and local communities. For instance, energy access and energy security social risks have not only led to the global current energy crisis, but it has also led to increased social protests in the different parts of the globe. This is as a result of the hiked oil and gas prices, which have caused a lot of discontent to the local communities, hence leading to protests. Consequently, this has exacerbated governance risks which have made it hard for countries to meet their net zero targets due to the need to invest in more fossil fuel projects as a way of addressing the energy security issues. The 21st century dilemma therefore relates to how we can address climate change and at the same time tackle energy security challenges. Therefore, existing and new contractual arrangements in the oil and gas sector will need to respond to the challenges of the energy transition risks identified above.
Whereas there are various issues associated with the energy transition, this report is focused on transparency. The primary focus of the study therefore, is to review and assess contracts and governance frameworks in EITI implementing countries to identify clauses that may constrain the pace and sustainability of the net-zero transition. This research is part of the efforts to strengthen the capacity of governments and citizens to align contractual stipulations with planned or ongoing reforms on energy transition in their country.
The scope of this study therefore is to:
- Conduct a high-level review of oil and gas contracts published under the disclosure requirements of the 2019 EITI Standard, as well as model contracts, to determine a typology of contractual provisions that are ‘climate relevant’;
- Conduct country-level analysis of the potential impacts of such contractual provisions, in terms of their economic impacts, their impacts on domestic energy and climate policy, and any legal risks they present related to stranded assets or bankruptcies;
- Set out recommendations for EITI implementing countries, including technical recommendations for how contracts can be drafted and/or amended to reduce risks and enhance resilience, and policy recommendations for how EITI multi-stakeholder groups (MSGs) and civil society actors can monitor contracts and engage government and industry on them.