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“Think tank calls for more transparency from private investors in the energy transition, including regulation of emissions compensation and decarbonization.”
O Carbon tracker warned investors about the financial risks associated with the energy transition and reduced demand for fossil fuels. The report published by the think tank highlights the importance of considering the impacts of the energy transition on investments in oil and gas, pointing to the possibility of sudden drops in prices of fossil commodities.
The think tank Carbon Tracker analyzed the energy transition and the impacts on oil and gas investments, warning about the financial risks associated with reducing emissions. Reduced demand for fossil fuels could affect project return rates and cash flow, highlighting the importance of considering the financial risks associated with the transition to a low-carbon economy.
Carbon Tracker: Energy Transition and Financial Markets Analysis
Based in London, the Carbon tracker publishes a series of analyzes related to energy transition and impacts of climate change on financial markets.
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Institute of Thought: Fundamental Role in Energy Transition Analysis
It is a movement to pressure the market to review its investment strategies and, ultimately, stop financing fossil fuels.
Impacts on Oil and Gas Investments: Carbon Tracker Alert
In the view of think tanks, fossil project partners need to consider more accelerated transition scenarios when calculating future cash flow estimates. This becomes even more relevant in the context of interest rates higher, which tends to be the reality of the industry from now on, he points out.
Reducing Emissions: Focus on the Energy Transition
By choosing to maintain a strategy of expansion of production, both private investors (private equity) and public bond holders would be exposing themselves to the risk of an erosion in financial returns as the energy transition progresses.
To prevent risks from becoming systemic and spreading across the financial market, Carbon Tracker suggests that it is important that regulators begin to monitor transactions in more detail to emissions compensation and examining assessments to ensure they consider the impacts of the energy transition.
Fossil Commodities: Challenges in the Energy Transition
The think tank analyzed the effects of the transition on ten companies with exploration and production licenses in the North Sea in the United Kingdom and Norway.
Impact of the Energy Transition: Strategies for exiting the Oil and Gas Sector
Practically all companies have fields that will enter a phase of production decline until the next decade, so they will have to choose whether to keep the assets in the portfolio during this phase or whether to look for new projects to maintain production.
Challenges in Decarbonization and Corporate Strategies
The conclusion is that, even in a moderate transition scenario, the cash flow of the assets analyzed may decline by up to 60%. Furthermore, in this scenario, projects under analysis that have not yet made a final investment decision may no longer be profitable.
Regulators and Financial Market: Role in the Energy Transition
Another challenge is meeting decarbonization targets. Efforts to reduce emissions in production may require high investments that are not viable, leading to the early end of activity in some fields.
Impacts on Oil and Gas Investments: Carbon Tracker Alert
Even in cases where companies choose to dispose of assets, the study highlights difficulties: strategies for exiting this sector are increasingly challenging, as the number of potential buyers of fossil assets decreases.
The Future of the Oil and Gas Sector: Carbon Tracker Analysis
Recently, another study by Carbon Tracker pointed out that governments also need to adapt revenue expectations from the oil and gas sector to the transition scenario. In total, 28 countries could lose more than half of their expected fossil fuel revenues by 2040.
Source: EPBR
