1、SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESINDUSTRY AND MARKET TRENDSTABLE OF CONTENTSWhile ABS uses reasonable efforts to accurately describe and update the information in this publication,ABS makes no warranties or representations as to its accuracy,currency,or completeness.ABS assumes no liabi

2、lity or responsibility for any errors or omissions in the content of this publication.To the extent permitted by applicable law,everything in this publication is provided“as is”without warranty of any kind,either expressed or implied,including,but not limited to,the implied warranties of merchantabi

3、lity,fitness for a particular purpose,or noninfringement.In no event will ABS be liable for any damages whatsoever,including special,indirect,consequential,or incidental damages or damages for loss of profits,revenue or use,whether brought in contract or tort,arising out of or connected with this pu

4、blication or the use or reliance upon any of the content or any information contained herein.INTRODUCTION AND INDUSTRY TRENDS .31.0 CURRENT SUSTAINABILITY STATUS OF THE OFFSHORE INDUSTRY .41.1 ESG TRENDS OFFSHORE OIL AND GAS INDUSTRY .51.2 DECARBONIZATION .62.0 PRESSURE ON THE INDUSTRY FOR EMISSION

5、QUANTIFICATION AND DISCLOSURE .82.1 ENVIRONMENTAL CONCERNS .82.2 EMISSIONS PROFILE AND FUTURE PROJECTIONS .92.3 CARBON EMISSION ACCOUNTING SCHEMES AND METHODOLOGIES .93.0 CARBON PRICING.113.1 ADOPTION OF DIRECT CARBON PRICING .133.2 CARBON PRICING TRENDS .173.3 RISING ENERGY PRICES CHALLENGES AND OP

6、PORTUNITIES FOR CARBON PRICING .203.4 VOLUNTARY CARBON CREDIT MARKETS AND CREDITING MECHANISMS .204.0 MARKET TRENDS ON OFFSHORE ASSETS .214.1 SERVICE(SUPPORT).214.2 PRODUCTION .224.3 EXPLORATION .225.0 SUSTAINABLE FINANCING .235.1 TYPES OF SUSTAINABLE FINANCE INSTRUMENTS .235.2 GENERAL REQUIREMENTS

7、OF SUSTAINABLE FINANCE .245.3 GREEN LOANS .245.4 GREEN BONDS .265.5 EXTERNAL REVIEW .276.0 FUTURE CONCERNS AND PROJECTIONS .277.0 PREVIEW OF NEXT RELEASE .27REFERENCES .28INTRODUCTION AND INDUSTRY TRENDSAs a route for international shipping and as a source for energy supplies,the ocean is fundamenta

8、l to the worlds economy.According to the United Nations(U.N.),three billion people depend on marine resources and coastal biodiversity for their livelihoods,driving the market value of the ocean to$1.5 to$3 trillion per year.1 An awareness of the health of our society and planet,through technology a

9、nd communication,has raised expectations for people,governments,and industries to end harmful practices and support the development of sustainable methods of doing business.Energy demand and energy inequity2 continue to grow as the energy transition looks to explore and develop renewable sources.App

10、roximately one billion people do not have access to electricity and another 2.6 billion do not have access to clean fuels for cooking.Additionally,the population of earth is expected to grow by another two billion people by 2050.Almost one-third of the energy used on our planet is produced in the of

11、fshore environment.Oil and gas account for more than 99 percent of the offshore energy produced.Growth in oil,gas,wind,and subsea mining is projected to continue through 2040 in all scenarios of the energy transition.Renewable energy sources are projected to grow significantly during this time,but o

12、il and gas will still represent 40 percent of the energy consumed3.The leaders of oil and gas companies are keenly aware of the need to improve sustainability in their operations and are now addressing it4.Within these companies the view towards sustainability has changed from being good corporate c

13、itizens to being critical elements for future long-term business competitiveness.A survey by Systems Applications and Products(SAP)and Oxford Economics indicated that energy and utility executives made more sustainability-related changes in their operations than other industries.Of these executives,

14、79 percent indicated that sustainability was a major concern in all phases of their operations and 47 percent of the executives noted they were committing to a net-zero carbon goal.4Significant advances in oil and gas sustainability efforts are often overlooked due to the greenhouse gas(GHG)emission

15、s related to the industry.The oil and gas industry contributes the second highest amount of GHG emissions on our planet,emitting 13 million metric tons of methane per year,with a global warming potential of 28-32 times greater than carbon dioxide.3 Expanding energy supplies,while increasing efficien

16、cy,developing decarbonizing operations,and lessening impacts from human activities,requires a comprehensive suite of solutions to understand,conserve,and sustainably use the marine environment.1.0 CURRENT SUSTAINABILITY STATUS OF THE OFFSHORE INDUSTRYThe offshore oil and gas market is transitioning

17、to more sustainable forms of energy.Beginning with the Paris Accords of 2015,ratification at the 21st session of the Conference of the Parties(COP21),this transition has gained momentum and has taken on a new visibility and scale in the aftermath of the COP26 climate summit.The culmination of these

18、efforts was the ratification of the Glasgow Climate Pact,an agreement of almost 200 nations to hold the global average temperature increase in 2050 to 1.5 C.Signers of the pact publicly committed to accelerate the transition to sustainable energy from renewable sources and to lower carbon emissions

19、by reducing fossil fuel use.5 However,since COP26 in Glasgow and the holding of COP27 in Sharm el-Sheikh,only 29 of 194 countries have publicly reported on tightened national plans for decarbonization.6 Sustainability is a significant global issue and all industries are impacted,especially the oil a

20、nd gas sector since it is a hydrocarbon-based industry.External stakeholders,whether it is the financial community,or the general public,are growing increasingly more concerned and therefore more interested in how the oil and gas industry is addressing this issue.Energy Producedin OfshoreEnvironment

21、EnergyProducedOnshore30%70%Figure 1:World energy production(all types).020406080100Oil and Gas ContributionEnergy Produced OfshoreFigure 2:Oil and gas contribution to offshore energy production.INDUSTRY AND MARKET TRENDSPage 3The oil companies,whether they are international oil companies,national oi

22、l companies,or independents,face external pressure to perform their activities in a more sustainable way in order to avoid the risk of limited access to investment(which is usually is linked to sustainability performance)necessary to develop oil and gas fields.This pressure will formally and informa

23、lly flow to their entire supply chain since any sustainability initiative will require a holistic approach and support.Environmental Issues Climate ChangeEmployee,Customer and Community DemandsOil and Gas CompaniesSupplyChainGovernment Policiesand RegulationsInvestorPressuresFigure 3:The flow of int

24、erest and pressure for sustainability in the oil and gas sector.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 41.1 ESG TRENDS OFFSHORE OIL AND GAS INDUSTRYEnvironmental,social and corporate governance(ESG)factors are considered when investing in a company.ESG criteria is a critical component wh

25、en analyzing and reporting on how a company serves all stakeholders,including workers,communities,customers,vendors,shareholders and the environment.ESG is important for the oil and gas industry as momentum continues to build to promote renewable energy,sustainability and the energy transition,as in

26、vestors,governments and individuals remain focused on issues such as climate change,labor standards,diversity and corporate governance.Most oil and gas companies have been implementing ESG strategies for years through initiatives to reduce emissions,responsible water use and disposal,and research an

27、d development into renewable energy programs.The current push to track and report ESG programs is seen as an opportunity for oil and gas companies to promote,validate and expand upon these efforts.There is a correlation between the sustainable focus business practices and the successful financial pe

28、rformance of companies.A lack of an ESG strategy will ultimately affect a companys access to public,and increasingly private,capital.7Mergers and acquisition(M&A)activity is below pre-pandemic levels even as oil prices have rebounded.This is not typical for a rebounding oil market.Increased capital

29、discipline is the primary reason for the decrease in M&A activity but so is the lack of clarity in the carbon profile of sellers and their assets.Company growth strategies are now more often centered around the acquisition of low-carbon-intensity barrels and divesting of high-intensity ones,a strate

30、gy to support ESG goals.8KEY MACROECONOMIC TRENDS91.The Paris Agreement This international treaty and subsequent required reductions in GHGs will cause governments to take measures to discourage emissions,harming the economic viability of the oil and gas industry.2.Carbon Pricing Oil and gas compani

31、es will need to be cautious and strategic about their operations in nations with strict climate ambitions and associated carbon taxes.3.Renewable Energy Mandates As the world continues to recover from the COVID-19 pandemic,nations are seeing higher percentages of energy demand met by renewables.The

32、European Union(EU)has dedicated 30 percent of its recovery package to green and digital transitions.Many U.S.states are requiring utilities to purchase between 10 percent and 20 percent of their power from renewables.4.China and India Both countries are primary contributors to the growth in global e

33、nergy demand.Currently their power mixes are far more hydrocarbon-heavy than those of Western nations.Supplying demand while meeting reductions in GHG emissions will be challenging.5.Investor Pressure In May 2021,ExxonMobil shareholders removed much of the companys board and installed new directors

34、to aggressively pursue lower emissions.Chevron investors challenged executives by setting the companys first emission target.Shell was ordered by a Dutch court to reach a 45 percent reduction by 2030.6.Scope 3 Emissions Emissions are categorized as either Scope 1,2,or 3.Scopes 1 and 2 are emissions

35、that are owned or controlled by an organization.Scope 3 emissions are a consequence of the activities of the company but occur from sources not owned or controlled by it.Especially from an investors point of view,Scope 3 emissions are an important source of risk since these most often account for th

36、e largest share of all emissions(Scopes 1,2,and 3)from an organization.There are arguments against10,and for,reporting Scope 3 emissions but the momentum is swinging strongly“for reporting.”The ability to understand climate related financial risks,reducing actual Scope 3 emissions,preventing compani

37、es from outsourcing carbon intensive activities(moving Scope 1 and 2 emissions to Scope 3),and preventing companies from being fully transparent to their shareholders is trending towards more complete reporting.Scope 3 emissions are simply too important to omit.11 INDUSTRY AND MARKET TRENDSPage 51.2

38、 DECARBONIZATIONA clean energy future is underway,and the transition process will change most every aspect of energy companies assets and operations.Leading drivers of decarbonization include:2 Equipment,technology,and operational cost reductions Government policies and regulations Employee,customer

39、,and community demands Investor pressuresFor the world to reach climate change goals,the oil and gas industry will have to play a major role in reducing its own GHG emissions.Oil and gas industry operations account for nine percent of all human generated GHG emissions(Scopes 1 and 2).The fuels manuf

40、actured by the oil and gas industry create an additional 33 percent of global emissions(Scope 3).Therefore directly,and indirectly,the oil and gas industry contributes 42 percent of global emissions.13 Of all the drivers to decarbonize,investor pressure has been particularly direct and intense.UBS a

41、nnounced in March of 2020 that it would no longer fund offshore drilling in the Arctic.Other U.S.banks,including Wells Fargo and Goldman Sachs have also announced similar policy shifts.14 In a world seeking to limit the increases in global temperatures,investors want to understand the long-term inve

42、stment strategies of oil and gas companies as well as risks and possible opportunities.Scope 1Scope 2Scope 3Source:Data is from CDP.Research and analysis of the data was conducted by Concordia University.0%Financial ServicesCapital GoodsTransport OEMSReal EstateConstructionMetals and MiningOil and G

43、asChemicalsCoalPaper and ForestryElectric UtilitiesTransport ServicesSteelCement10%20%30%40%50%60%70%80%90%100%99%98%93%92%92%92%89%87%76%65%59%49%33%27%16%100%5%6%6%7%10%7%17%33%31%50%64%67%79%10%6%4%World BankAgriculturalCommoditiesFood,Beverageand TobaccoFigure 4:Share of scope 3 emissions to tot

44、al emissions by sector.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 6Scope 1 and 2 emissions produced during oil and gas operations are generally under the control of the company.Companies seek to lower the carbon intensity of these operations by the following mitigation strategies.Reducing ro

45、utine flaring Electrifying operations and incorporating renewable energy to fulfill power requirements Adopting the use of low or no emission fuels(hydrogen,biofuels,ammonia,e-fuels/synthetic fuels)Employing methane mitigation and capture(fugitive emissions,venting)Enhancing energy efficiency and re

46、ducing energy intensity through common standards and practices Optimizing production and reservoir management by using digital tools like the Internet of Things(IoT),sensors,digital twins,and virtual reality to track emissions and energy use,monitor operations,model scenarios,and proactively maintai

47、n equipment Calling upon the principles of a shared economy to improve logistics for more efficient fuel consumption(e.g.,sharing trucks,marine vessels,and helicopters)Increasing carbon capture,utilization,and storage(CCUS)The reality of decarbonization is that many companies are at different stages

48、 of preparing their GHG reduction plans.In planning a decarbonization strategy,a company could ask the following questions.171.What are our goals and targets for GHG reductions?a.Next three to five years?b.Five to 10 years?c.Out to 2050?2.What is the most effective way,considering cost and performan

49、ce improvements,to decarbonize our various sources of emissions?3.How do we manage the process?a.The right organizational setup?b.Allocating funds for decarbonization across the entire enterprise?c.Measuring success?4.How do we involve all stakeholders to support our decarbonization strategy?a.Inves

50、tors?b.Employees?c.Customers?d.Governments?5.How do we align our decarbonization goals with the larger energy transition?0%20%40%60%80%100%All Human GeneratedEmissionsOil and Gas Scope 3ContributionsOil and Gas Scope 1and 2 ContributionsFigure 5:Oil and gas direct and indirect GHG emissions.INDUSTRY

51、 AND MARKET TRENDSPage 72.0 PRESSURE ON THE INDUSTRY FOR EMISSION QUANTIFICATION AND DISCLOSUREWhile the oil and gas industry is concerned with climate change and is taking steps to reduce its GHG emissions,the real pressure to adapt and disclose is coming from the investment industry.Investors stru

52、ggle with the lack of uniform standards for measurement and disclosure of emissions from the oil and gas industry.18 The regulatory landscape is rapidly changing,and the result is that there is collective pressure being placed on asset managers,financial institutions and companies to calculate,manag

53、e and report their GHG emissions.Some of the pressures include the following:Carbon disclosure mandates Increased consumer awareness around climate issues Growing climate risks associated with investments Growing critical need to measure,manage,and report Scope 3 emissions due to the reality that,es

54、pecially for the oil and gas industry,Scope 3 emissions make up the bulk of all emissions from these companies.Asset managers will play a pivotal role in the energy transition process by mitigating and adapting to climate change by directing the flow of capital towards a decarbonized economy.Their g

55、oal will be to maximize economic opportunities in the transition process and mitigate risks in their portfolios from negative climate-related impacts.2.1 ENVIRONMENTAL CONCERNSThe primary environmental concern related to GHG emissions is an increase in global temperatures.Carbon dioxide(CO2),methane

56、(CH4),nitrous oxide(N2O)and fluorinated gas emissions all impact the earths atmosphere,along with the greenhouse effect that makes life possible on our planet.Human activities,specifically the burning of fossil fuels,have intensified the greenhouse effect causing global warming.Other effects of GHG

57、emissions include ocean acidification,smog pollution,ozone depletion as well as changes to plant growth and nutrition levels.20A research team from Princeton University performed a survey using laser-based instruments of facilities producing oil and natural gas in the North Sea and found that there

58、was far more leakage of methane than was being estimated by the U.K.government,0.13 percent of production by U.K.estimates.The survey identified an additional 0.19 percent occurring from normal operations(equivalent to 330,000 cars on the road).21This disparity between estimated and measured emissio

59、ns becomes critical when considering global emissions inventories and the mitigation of climate change.The researchers are raising concerns that policymakers might not be receiving accurate estimates for methane leakage and therefore cannot determine accurate policies for reducing emissions.Addition

60、ally,the researchers hope that the methods they used to measure leakage can be used by the offshore oil and gas industry to actively measure emissions to identify leaks,reduce emissions and improve company profits.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 82.2 EMISSIONS PROFILE AND FUTURE P

61、ROJECTIONSFrom a report issued by the Oil and Gas Authority(OGA)of the U.K.in October 2021,emissions coming from the U.K.Continental Shelf(UKCS)offshore production area have the following profile:88 percent of all GHG emissions were CO2 with three quarters originating from fuel combustion.Out of 125

62、 facilities on the UKCS,most were powered by gas supplemented with diesel.70 percent of emissions were associated with on-site power generation.Rules and regulations Design considerations Ship arrangements Methane(CH4)comprises around 10 percent of emissions on a CO2 equivalent basis.Roughly five pe

63、rcent of such emissions are associated with venting.The remaining five percent coming from flaring due to combustion inefficiency or cold flaring.Nitrous oxide(N2O)makes up two percent of emissions.90 percent of N2O emissions are from fuel consumption with the remainder due to flaring.aining five pe

64、rcent coming from flaring due to combustion inefficiency or cold flaring.As one could surmise,higher production levels coincide with higher emissions.To consider future emission projections,the U.K.s overall emissions dropped 12 percent from 2019 to 2020 and an OGA report estimates a steady decline

65、to 2024.From 2025 to 2040,emissions are expected to fall,after which they are projected to level out and remain steady at an annual value of one to two million metric tons of CO2 equivalent.GHG emissions from the U.K.s oil and gas offshore production is widely consistent with the rest of the offshor

66、e oil and gas industry.Therefore,the emission profile identified in the U.K.report is expected to be very similar to other offshore drilling and production areas globally.2.3 CARBON EMISSION ACCOUNTING SCHEMES AND METHODOLOGIES23All stakeholders interested in understanding and quantifying carbon emi

67、ssions generated by companies would prefer to have one method to measure and document carbon emissions.Having one method to document emissions would allow for easier comparisons between similar companies.However,the current situation for collecting carbon emission data includes many schemes used to

68、accomplish this task.The following list details some of the most commonly used:10%2%88%Carbon DioxideMethaneNitrus OxideFigure 6:Emissions from the UKCS offshore production area.INDUSTRY AND MARKET TRENDSPage 91.IPIECA,2011,Petroleum Industry Guidelines for Reporting Greenhouse Gas Emissionsa.GHG ac

69、counting and reporting should be based on the following principles:i.Relevance:Set boundaries that accurately reflect the GHG emissions and decision-making needs of the organization.ii.Completeness:Include all GHG emissions within the operational boundary.iii.Consistency:The methods and measurements

70、 should be standardized so that meaningful comparisons can be made over time.iv.Transparency:Be factual and clear with data collection and reporting.Indicate any assumptions made and include references to calculation methods used.v.Accuracy:Strive to neither over nor underestimate emissions based on

71、 actual emission levels.Ensure that the accuracy of data is such that users of the data can have confidence in the integrity of the information.2.The Greenhouse Gas Protocol(GHGP),1997a.Created following the Kyoto Protocol and guides organizations in developing inventories of their GHG emissions.Des

72、igned to simplify,improve consistency in carbon accounting,and provide organizations with a method to report and manage their emissions.b.In GHGP,all emissions fall into 1 of 3 Scopes.Scopes 1 and 2 are required to be measured,Scope 3 is optional.i.Scope 1:Direct emissions from an organizations oper

73、ations.ii.Scope 2:Indirect emissions such as purchasing electricity,heating,and cooling.iii.Scope 3:All other indirect emissions from a companys value chain.The result of assets not owned or controlled by the reporting organization(e.g.,suppliers,use of sold products).3.ISO 14064,2006a.An internatio

74、nal standard for measuring and reporting GHG emissions.b.Part of the International Standardization Organization environmental management standards and broken down into three parts,each with a different technical approach:i.Part 1:Is guidance of quantifying a GHG inventory using a bottom-up data coll

75、ection approach.ii.Part 2:Is the quantification and reporting of emissions from individual projects.iii.Part 3:Establishes a process to validate an organizations emissions.c.ISO 14064 is consistent with and derived from the GHGP.4.The Task Force for Climate-Related Financial Disclosures(TCFD),2015a.

76、Developed to assess economic instability due to climate-related disruptions of organizations.b.Designed to apply to all organizations in any part of the world to give reliable,comparable,and forward-looking information to investors to base their investment decisions.c.Provides investors with relevan

77、t information they can use to understand opportunities and risks associated with climate risk in a market.d.The focus is on four main recommendations for disclosure.i.Governance:Disclose how a company is organized to respond to climate-related risks and/or opportunities.ii.Strategy:Disclose the actu

78、al and potential impacts of climate-related risks and opportunities on the organizations strategy and financial planning.iii.Risk Management:Disclose how the organization identifies,assesses,and manages climate-related risks.iv.Metrics and Targets:Disclose the metrics and targets used to assess and

79、manage relevant climate-related risks and opportunities.5.The Partnership for Carbon Accounting Financials(PCAF),2015a.Created by Dutch banks to assist financial institutions with aligning their financed emissions with net-zero targets by 2050.b.Developed to be a disclosure standard for financed emi

80、ssions.c.Provides guidance to measure and disclose the GHG emissions of eight asset classes(expected to grow)i.Listed equityii.Corporate bondsiii.Business loansiv.Unlisted equityv.Project financevi.Commercial real estatevii.Mortgagesviii.Motor vehicle loansSUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SER

81、IESPage 103.0 CARBON PRICING24Over the past few years,efforts have increased to tackle the climate crisis as the effects of climate change are getting severe and the issue is gradually moving to top of political agendas now.According to the latest IPCC sixth assessment report,global emissions would

82、need to fall by 43 percent by 2030 to limit temperature rise to 1.5 C.25 Over the past two years,many countries have made significant announcements and improvements to their Nationally Determined Contributions(NDCs).While these improvements are encouraging,analysis of NDCs,longer-term net zero targe

83、ts and global initiatives show that a significant gap exists between current policy mechanisms and expected outcomes.26 While carbon prices over the past few years have reached record highs across emission trading systems(ETSs)and carbon tax,most prices are below what will be needed to achieve net z

84、ero by 2050.Increased ambitions in carbon pricing will play a key role in closing the policy gap.Carbon pricing is a cost-effective tool that governments can use in their broad climate strategy.Incorporation of climate change costs into economic decisions can help shift production,consumption,and in

85、vestment patterns towards low-carbon growth.“Put a price on carbon”is a phrase that is well known with momentum growing amongst countries and businesses to put a price on carbon pollution to create an incentive mechanism to not only drive emissions down,but also push them to invest into cleaner opti

86、ons.The concept of carbon pricing aims to externalize the costs of carbon emissions,i.e.,the cost that external stakeholders(public/society at large)pay due to damage to crops,health care costs due to heat waves and damage to property due to sea level rise.27The aim is to shift the costs back to the

87、 responsible party and act as an economic signal to help polluters decide how to reduce their burgeoning carbon emissions,and related costs.Carbon pricing also helps stimulate clean technology,since over the long term,the low-carbon alternative will be attractive as market behavior takes over and re

88、wards low-carbon products and services.This will create a virtuous cycle of carbon pricing leading to development of low-carbon technology and consumer behavior shifting towards greater consumption of those products and services.28INDUSTRY AND MARKET TRENDSPage 11Carbon pricing can be typically grou

89、ped into two categories:1.Direct Carbon Pricinga.Carbon pricing incentives that apply a direct price incentive proportional to GHG emissions generated by a given product,primarily through a carbon tax or an ETS.i.Carbon tax is a policy instrument which typically only a government(federal or state)ca

90、n levy to provide a financial incentive to lower emissions.Under a carbon tax,the price is set by the government and the market mechanisms will work their way to determine the level of emission reduction possible.ii.An ETS involves creating an artificial limit or cap on the volume of GHG emissions i

91、n one or more sectors by the government.The government will then auction or trade these allowances and the total allowances will equal the cap or limit.Based on the level of economic activity,the value of these allowances will either go up or down,but the total emissions will stay constant over the

92、time.Over multiple years,the cap will gradually reduce leading to an increase in allowance costs,forcing many sectors to decarbonize,since it will make more economic sense over the long-term.Additionally,it will incentivize low-carbon alternatives as they will have no carbon allowance costs.iii.ETS

93、may also use a“baseline and credit”system,where a limit will not be created,but a baseline can be set and entities operating below the baseline,can earn credits which then can be traded between covered entities.b.Carbon crediting mechanisms are another mechanism and operate differently from regulato

94、ry credits or ETS as they are voluntary and offer subsidies for certain abatement activities.Instead of creating a cost signal for the entity,this mechanism will help create a revenue stream when emission reductions are demonstrated,and credits generated.2.Indirect Carbon Pricing are instruments tha

95、t can impact the price of products and directly impact the consumer,and thereby impact demand.Examples include fuel and commodity tax for high carbon products,i.e.,if a flat tax was levied per liter of gasoline proportional to its carbon emissions,this creates a pricing signal and over a period of t

96、ime negatively impacts consumption.On the other hand,subsidies may have the reverse impact and support consumption,leading to negative indirect carbon pricing.23Agreements were reached in COP26 to sustainably phase down fossil fuel subsidies that are deemed inefficient and are considered a milestone

97、 step.Steps that support negative indirect carbon pricing are being discouraged on a global scale.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 123.1 ADOPTION OF DIRECT CARBON PRICINGGlobally,the adoption of carbon pricing continued but the overall coverage remains low.The volume of global emis

98、sions covered by direct carbon prices have not changed much over the past year,but many countries are considering new Carbon Pricing Instruments(CPIs).As of April 2022,there were 68 CPIs operating with three more scheduled for implementation.This includes 37 carbon taxes and 34 ETSs including subnat

99、ional jurisdictions in North America(Oregon),New Brunswick,and Ontario.The state of Washington,as well as Indonesia and Austria have CPIs scheduled for Implementation.Figure 7 shows the map of carbon taxes and ETSs.About 23 percent of global GHG emissions are covered by operating CPIs.Figure 8 shows

100、 the gradual rise of global GHG emissions covered by CPIs.Figure 7:Map of carbon taxes and ETSs currently in force around the world.ETS implemented or scheduled for implementationCarbon tax implemented or scheduled for implementationETS and carbon tax implemented or scheduledETS implemented or sched

101、uled,carbon tax under considerationCarbon tax implemented or scheduled,ETS under considerationETS or carbon tax under considerationIndonesiaSingaporeBruneiSouth AfricaBotswanaNew ZealandMexicoKazakhstanPakistanCanadaThailandVietnamMalaysiaTurkeyEUChinaColombiaChileSenegalBrazilCte dIvoireMoroccoIsra

102、elIcelandArgentinaUruguayCalifornia JapanRepublic of Korea NorwayUKSwedenSpainRomaniaPortugalPolandNetherlandsUkraineLithuaniaLatviaItalyIrelandGreeceGermanyFranceFinlandEstoniaDenmarkBulgariaBelgiumLuxembourgLiechtensteinCataloniaSloveniaAustriaSwitzerlandHungarySerbiaMontenegroSakhalinOregonJalisc

103、oHawaiiWashington Taiwan,ChinaShenyangTokyoTianjinShenzhenShanghaiSaitamaHubeiGuangdong(except Shenzhen)FujianChongqingBeijingZacatecasTamaulipasPennsylvaniaMassachusettsBaja California TCIRGGIManitobaSaskatchewanQubecOntarioNova ScotiaAlbertaPrince Edward IslandNorthwest TerritoriesNewfoundlandand

104、LabradorNew BrunswickBritish ColumbiaCarbon pricing initiatives are considered“scheduled for implementation”once they have been formally adopted through legislation and have an ofcial,planned start date.Carbon pricing initiatives are considered“under consideration”if the government has announced its

105、 intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by ofcial government sources.TCI refers to Transportation and Climate Initiative.RGGI refers to the Regional Greenhouse Gas Initiative.World BankINDUSTRY AND MARKET TRENDSPage 133.1.1 U.

106、S.A.The U.S.currently does not have a carbon tax,but there have been numerous proposals at the federal level,ranging from$20 to$160(2020$/ton).(Columbia|SIPA Center on Global Energy Policy,2022).Carbon tax as a policy is difficult to legislate in many jurisdictions because it is a regressive tax tha

107、t will disproportionately impact relatively poorer people.While the U.S.does have a cap-and-trade program in a few of the sub-national jurisdictions(California,Massachusetts,Virginia,Oregon,and Washington),there is no federal cap-and-trade program,nor is there a federal mechanism for carbon taxes.Ca

108、rbon pricing is a market-based mechanism which creates financial incentives to reduce GHG emissions.Nearly twelve states are home to over a quarter of the U.S.population and account for 33 percent of the U.S.gross domestic product(GDP)and have active carbon pricing programs.The Regional Greenhouse G

109、as Initiative(RGGI)includes 11 northeastern states and Pennsylvania joined in April 2022.RGGI is the first mandatory cap-and-trade program in the U.S.to limit CO2 emissions from the power sector.Californias program was the first multi-sector cap-and-trade program in North America.Massachusetts also

110、has implemented regulations to setup an additional cap-and-trade program for its power sector in parallel with RGGI and extends out to 2050.In 2021,the state of Washington passed the Climate Commitment Act(CCA),which established a comprehensive,market-based program to reduce carbon emissions.The pro

111、gram started in January 2023 and the first allowance auction occurred on February 28th,2023.Four auctions will be held each year,and each consists of a single round of bidding by the auction participants.The first auction offers 6,185,222 allowances of the 2023 vintage and future vintages will be of

112、fered in future auctions.The annual auction floor price was set at$22.20 for the 2023 vintage.The cap and invest program set a limit on overall carbon emissions in the state and requires businesses to buy allowances equal to their covered GHG emissions,which will be sold in quarterly auctions and ca

113、n be bought or sold on a secondary market.Roughly 75 percent of the statewide emissions will be covered under this program,covered businesses include fuel suppliers,natural gas and electric utilities,waste to energy utilities and railroads.26In 2021,ETS permit prices covered about 6.4 percent of GHG

114、 emissions.About 34.2 percent of GHG emissions in the U.S.are subject to a positive net effective carbon rate up from 31.6 percent in 2018.The share of emissions covered by an explicit carbon price has increased by 0.8 percentage point since 2018.Fuel excise taxes are an implicit form of carbon pric

115、ing which covers nearly 28.4 percent of emissions.Fossil fuel subsidies cover 4.5 percent of emissions in 2021.Share of global GHG emissions25804200520062007200820092000002225%20%15%10%5%0%Number of ca

116、rbon pricingmechanisms in operationOntario Emissions Performance Standards(0.08%)Oregon ETS(0.05%)Uruguay CO2 tax(0.01%)New Brunswick ETS(0.01%)68645855454340383635421923 World BankFigure 8:Share of global GHG emissions covered by carbon pricing instruments.SUSTAINABILITY INSIGHTS:OFFSHOR

117、E ENERGY SERIESPage 143.1.1.1 SOCIAL COST OF CARBON The Resources For Future(RFF)and University of California,Berkeley(UC Berkeley)have released an updated social cost of carbon estimate that aims to reflect the latest methodologies and other scientific advancements.The study finds that each additio

118、nal ton of carbon dioxide costs society about$185 per ton which is 3.6 times the current estimate of$51 per ton.The concept aims to highlight the costs of a high carbon economy.Social Cost of Carbon(SCC)is a critical metric that aims to quantify economic damage caused by every incremental ton of CO2

119、.The SCC is an estimate and aims to put the effects of climate change in economic terms to push policy makers and other decision makers to understand the economic impact of high emissions.The SCC is used by local,state,and federal governments to inform major investment decisions.SCC is a powerful to

120、ol in policy analysis and can be used in policy design for cost-benefit analysis and has been a part of regulatory analysis at the federal level since 1981.Figure 9 shows how SCC can be used to calculate costs and benefits of changing emissions.Figure 9:Social cost of carbons impact on policy decisi

121、ons.In this example,the social cost of carbon has been calculated to be$50 per ton of CO2.Policy A Scenario500,000 tons CO2 x$50 per ton CO2 =$25,000,000Increase inemissions dueto Policy AIncrease inemissions dueto Policy ASCC500,000 tons CO2 x$50 per ton CO2 =$25,000,000Policy AIncreases emissionsb

122、y 500,000 tonsDecreases emissionsby 500,000 tonsPolicy BPolicy B ScenarioBaseline ScenarioINDUSTRY AND MARKET TRENDSPage 15At a high level,the following steps(see Figure 10)are completed to estimate the SCC and are completed using computerized models.Overall,SCC is a very important tool used by the

123、government to decide where investments will flow,as the present U.S.administration reinstated the Obama administrations central case value of$51 per ton of CO2.3.1.1.2 IRA AND CARBON PRICINGThe U.S.Inflation Reduction Act(IRA)signed into law in 2022 offers substantial subsidies for investment in ren

124、ewable sources of clean energy.It commits nearly$369 billion to those investments and is expected to reduce roughly 40 percent of GHG emissions when compared to a baseline of 2005 by 2030.The IRA does not explicitly price carbon at the point of its use but surely acts as an industrial policy acceler

125、ator for low-carbon investments.The IRA does increase tax credits for capturing and sequestering CO2 at industrial facilities and power plants.The increase is from$50 per ton to$85 per ton for carbon stored by industry and from$35 to$60 if used for Enhanced Oil Recovery(EOR)and in the case of Direct

126、 Air Capture(DAC),the increase is from$50 to$180 per ton.Additionally,IRA does create a shadow carbon price since it incentivizes low carbon options and pushes them ahead of high carbon sources of products and services.While the IRA does not create a stable carbon pricing environment and can cause s

127、ome distortions,it is something that cannot be ignored by incumbent industries that are addressing the challenge of a low carbon energy transition and can be an opportunity for a soft-landing.3.1.2 CHINA China has the worlds largest carbon market by emissions and 2021 was the first full compliance c

128、ycle.The program reported a compliance rate of 99.5 percent with over 2,100 liable power stations participating during this cycle,covering over 4.5 billion metric tons of CO2 equivalent per year,which represents over 30 percent of Chinas total GHG emissions.The closing price for the year for the all

129、owances was 54.2 yuan($8.5)per metric ton but indicates a 13 percent increase from the start of trading.A record 179 million tons of allowances were traded in 2021,representing a turnover close to 7.7 billion yuan($1.2 Billion),and while small,it is not insignificant.35,36,373.1.3 EU ETSLaunched in

130、2005,the EU ETS is the worlds first transnational ETS,which includes 27 EU member States and three states from the European Economic Area-European Free Trade Association(EEA-EFTA):Iceland,Liechtenstein,and Norway.While refineries are explicitly mentioned as a source covered under the program,emissio

131、ns from upstream production and exploration,which includes gas flaring,are covered under the category of combustion installations.Additionally,emission from transportation of the crude oil,natural gas and fuels are covered,for example,emissions from fuel use at pumping and compression facilities,and

132、 gas processing facilities.From 2024,amendments have been proposed to cover marine specific emissions from offshore installations,including movements and work done by offshore support vessels(OSVs).This is expected to cover vessels of 400 gross tons(gt)and above from January 1,2024,and for vessels a

133、bove 400 gt and below 5000 gt,“shall only be required to report the information which is relevant for the inclusion of such ships within the scope of the EU ETS from 1 January 2027”,purportedly to ensure there is a proportionate administrative burden for these vessels.Predict future emissions based

134、on population,economic,growth,and other factors.Step 1Model future climate responses,such as temperature increase and sea level rise.Step 2Assess the economic impact that these climatic changes will have on agriculture,health,energy,use,and other aspects of the economy.Step 3Convert future damages i

135、nto their present-day value and add them up to determine total damages.Step 4Figure 10:SCC estimation steps.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 16The largest carbon market by traded value is the EU ETS and saw record trading activity and prices in both spot and futures market and over

136、 15 billion allowances were traded in the intercontinental exchange.The EU climate law came into force in 2021,which set the binding new EU-wide climate target of 55 percent reduction by 2030 in comparison to a baseline of 1990(Fit for 55).,The Fit for 55 program also includes the addition of a new,

137、separate ETS which will cover transport and buildings.The requirements are expected to be gradually phased in during 2023 to 2025.ETS market stability reserve will be amended to enable a smoother intake of allowances to the reserve and hence,from 2023,allowances above the level of auction volume of

138、the previous year will be invalidated and the Market Stability Reserve(MSR)will be limited to 400 million tons.Additionally,a separate self-standing ETS for fuel distribution for road transport and buildings will be established starting 2025.The regulated entities will be expected to report the amou

139、nt of fuels placed on the market starting 2024 and from 2026,they would have to surrender a corresponding amount of allowances.The EU ETS is one of the EUs key policies for reducing carbon emissions.It has already completed three phases from 2005 to 2020;the fourth phase started in January 2021.The

140、history is briefly recapped in Figure 11.It is a typical cap-and-trade system,covering CO2 emissions from industry,power and aviation sectors,nitrous oxide(N2O)from certain chemical sectors and perfluorocarbons from aluminum production.Like other cap-and-trade systems,the legislation for the EU ETS

141、sets the annual cap,which in turn determines the number of allowances in this market;the cap is also designed to be reduced each year to gradually cut the emissions.These allowances are allocated to participants for free or sold through auctions.The free allocations are given to the sectors(such as

142、industry and aviation)based on benchmarking and historical data.Then,the EU ETS allows participants to trade their allowances on the market to ensure their compliance with the regulation.Fines and penalties are applied to participants who failed to comply with their allowance limit at the end of the

143、 year.3.2 CARBON PRICING TRENDSThe figure below shows the absolute emission coverage,share of emissions covered and prices for CPIs across jurisdictions.It is clear that the China National ETS program and the EUETS program have been the most successful in terms of volume of GHG emissions.The EU ETS

144、program seems to be operating like an efficient market as one would expect and the cost of allowances is high enough to cause market behavioral shifts.Figure 11:EU ETS Phases.Phase 1 worked as a pilot phase to test price formation and build up the monitoring,reporting and verification schemes for em

145、issions.The cap of the emission was estimated due to lack of data.Phase 1 was aimed to ensure EU member States met their commitments under the Kyoto Protocol.Business could only trade on units generated under the Kyoto Protocol mechanisms clean development mechanism(CDM).Phase 2 had the same period

146、as the first commitments period under the Kyoto Protocol.Aviation emissions were included in EU ETS at the end of this period.Phase 2 allowed trading on both CDM and joint implementation(JI)emission reduction units.Phase 3 had the same period as the second commitments period under the Kyoto Protocol

147、.An EU-wide cap replaced the previous national caps.During Phase 3,auctioning was set as the default method for allocating allowances instead of free allocation.More sectors and gases were included in this phase.A more ambitious cap of EU ETS was initiated by announcement of the European Green Deal

148、recovery package and new 2030 mitigation targets.EU ETS planned to include the marine transport sector,and possibly road transport and buildings.Phase 120052007Phase 220082012Phase 320132020Phase 42021nowINDUSTRY AND MARKET TRENDSPage 17The carbon prices are rising,but in general across jurisdiction

149、s except EU,are very low.Record prices were seen in ETS,particularly in advanced economies,where the market responds to price signals and high compliance programs.High prices were seen in the EU and Swiss ETS markets,the linked California and Quebec markets,the RGGI and the New Zealand ETS.In Februa

150、ry 2022,the republic of Korea ETS was edging back towards the record high witnessed in early 2020.Carbon taxes increased during 2021 and 2022,but less than ETS prices and have increased on an average by$6 per metric ton of CO2 equivalent in 2021 and by an additional$5 per metric ton of CO2 equivalen

151、t as of April 2022.43,44,45,46As seen in the figure above,several jurisdictions have established more ambitious price trajectories,for instance,Singapore proposed to progressively increase the carbon tax rate from SGD 5 to SGD 25($18)in 2024 and 2025,and SGD 45($33)per metric ton of CO2 equivalent i

152、n 2026 and 2027 with a view to reaching SGD 50-80($37 59 per metric ton of CO2 equivalent)by 2030.South Africa has also announced a proposal to increase the carbon tax rate from current levels of$10 per metric ton CO2 equivalent to$30 per metric ton of CO2 equivalent by 2030 and$120 per metric ton o

153、f CO2 equivalent beyond 2050.Canada announced that minimum carbon prices will be increased by CAD 15($12)per metric ton of CO2 equivalent and it will increase the prices to CAD 170($136)per metric ton of CO2 equivalent by 2030.In April 2022,Indonesia announced the delay of introduction of carbon tax

154、es due to economic impact of high energy prices caused by the Ukraine conflict.47,48,49 Mexico*Rep.of KoreaUkraineCarbon taxETSCarbon price USD/tCO2eShare of GHG emissions covered in the jurisdiction60402000%20%40%60%80%Uruguay*Luxembourg*Canada*SloveniaIcelandLiechtensteinSwitzerlandSwit

155、zerlandSwedenSpainLatviaRGGINetherlandsPolandUnited KingdomUnited KingdomNew ZealandEU ETSFranceIreland*ColombiaNorway*ChileArgentina*Finland*Denmark*GermanyKazakhstanSouth AfricaSignaporeJapanChina National ETSPortugal World BankFigure 12:Emission Coverage and Prices Across Jurisdiction.SUSTAINABIL

156、ITY INSIGHTS:OFFSHORE ENERGY SERIESPage 18Some of the trends that were seen over the past year include:50,51,52,53 1.Spikes in ETS prices were driven by more ambitious targets and tightened ETS rules,which is an expected response to target-setting,which made CO2 allowances more expensive.2.COVID-19

157、did not have a major impact on prices and most governments did not allow the pandemic to shift their stance on the importance of carbon pricing.3.Speculations from participants have also led to ETS price increases.4.The opening of the ETS market to non-liable entities i.e.,those entities that do not

158、 directly require allowances but purely act as speculators can influence the dynamics.5.As prices have increased in the EU market,speculators are coming under closer scrutiny as concerns of a“Carbon Bubble”grow.Additionally,few other jurisdictions want to open carbon trading to financial players to

159、add liquidity to the market for example.,the Republic of Korea opened trading to a limited number of financial entities.6.Rising energy costs also pushed up ETS prices as the need for carbon allowances increased.This is most notable in Europe where increase in natural gas prices exist amid tight sup

160、plies from Russia.7.The carbon price corridor(50-100 per metric ton of CO2 equivalent)is the price needed by 2030 to keep global heating at 2 C,but less than four percent of global emissions are covered by a direct carbon price at or above the range required.8.Carbon pricing,in tandem with other gov

161、ernmental support policies for research,development and demonstration,capital and operational subsidies,will need to be implemented to help support the net zero journeys.Figure 13:Global carbon prices,as of April 2022.2030 carbon price corridor*Carbon taxETSCarbon price(USD/tCO2e)General tax rate Re

162、duced rate for Liquified Petroleum Gas and natural gas in the greenhouse industry9-88Transport fuelsOther fossil fuels59-85Other fossil fuelsTransport fuels37-45F-gases19-34Fossil fuelsFossil fuelsF-gases22-27UpperLower0.4-3.7GasolineAll other fossil fuels28-43Nominal prices on April 1,2022 are show

163、n for illustrative purposes only.Prices are not necessarily comparable between CPIs because of(for example)diference in the sectors covered andallocation methods applied,specific exemptions and compensation methods.*The 2030 carbon price corridor is based on the recommendation in the report of the H

164、igh-Level Commission on Carbon Prices.*Seveal jurisdictions apply diferent carbon tax rates to diferent sectors or fuels.In these cases,we have indicated the range of tax applied,with the dark blue shading showing thelower rate and the combined dark blue and light blue shading representing the highe

165、r rate.020406080100120140PolandMassachusettsShenzhenUkraineKazakhstanFujianJapanSingaporeMexicoTianjinTokyoChileColombiaArgentinaChongqingBeijingHubeiChinaShanghaiSouth AfricaGuangdongRGGITamaulipasSpainLatviaKoreaSloveniaBritish ColumbiaUnited KingdomPrince Edward IslandPortugalDenmarkCaliforniaQub

166、ecNorthwest TerritoriesGermanyIcelandCanadaAlbertaNew BrunswickNewfoundland and LabradorSaskatchewanCanadaBritish ColumbiaNew BrunswickNewfoundland and LabradorLuxembourgIrelandNetherlandsFranceNew ZealandSwitzerlandFinlandEuropean UnionNorwayUnited KingdomSwitzerlandLiechtensteinSwedenUruguay131420

167、153233107 762 2130 130 13040 40 40 40 40 40 40 40 4017 1719 1924 2431 31261 1 1 14 4 45 5 59 913799World BankINDUSTRY AND MARKET TRENDSPage 193.3 RISING ENERGY PRICES CHALLENGES AND OPPORTUNITIES FOR CARBON PRICINGOil prices have increased sharply over the past year,fueled by a slingshot

168、rebound of demand post-COVID-19,and supply challenges due to conflicts in Europe.As the EU commitment to reduce reliance on Russian oil and gas progresses,it will put an inflationary pressure on the prices.The price increase will force governments to shield their consumers by regulating or capping e

169、nergy prices and subsidizing costs.Over the short term,as the need for energy increases with supply reducing and energy prices being subsidized,the incentive for emission reduction may be delayed at least over the short-term.54 The geopolitical context presents several challenges and opportunities f

170、or carbon pricing.In economies that depend on imported oil and gas such as the EU,carbon prices push up the cost of energy and may reduce demand,but investors in low carbon projects will require a stable carbon price to make long-term decisions on investments.High carbon prices can be used by govern

171、ments to help domestic low-carbon energy producers subsidies,which will help reduce reliance on foreign energy and provide protection against shocks.55 Carbon prices will be a useful tool in achieving a“Just transition”i.e.,creating reliable work and quality jobs and ensuring at-risk regions,industr

172、ies,communities,workers,and consumers share in the low-carbon economy transition.In the EUs Fit for 55 packages,a few measures have been introduced to help with a transition such as utilizing the social climate fund to help alleviate financial pain to vulnerable households,micro-enterprises,and tran

173、sport users.56 3.4 VOLUNTARY CARBON CREDIT MARKETS AND CREDITING MECHANISMSThe global carbon credit market has a wide range of sources of supply and demand,and multiple trading frameworks.Each of the crediting mechanisms has specific purposes and covers different jurisdictions.The table below summar

174、izes the crediting mechanisms:SUPPLY CREDITING MECHANISMJURISDICTIONSKyoto Protocols Clean Development Mechanism(CDM),Paris AgreementInternational crediting mechanism established under international treatiesCalifornia Compliance Offset Program and Australia Emission Reduction FundDomestic crediting

175、mechanisms established by regional,national,sub-national governmentsVerra and Gold StandardsIndependent crediting mechanisms which include standards and crediting mechanisms managed by independent,non-governmental entities.Demand for credits come from a range of different buyers and can be divided i

176、nto four major broad segments.The table below summarizes the demand segments.DEMAND SOURCEBUYERSInternational Compliance MarketThese are markets that primarily respond to commitments made under international agreements.They primarily consist of countries voluntarily purchasing/utilizing credits or m

177、itigation outcomes and recognized under international treaties to meet their reduction goals.Domestic Compliance MarketsCompanies purchasing credits that are required to meet their obligations under domestic law,usually an ETS or a carbon tax.Voluntary Carbon MarketsMostly private entities purchasin

178、g carbon credits for complying with voluntary mitigation commitments.Largely consist of credits under independent crediting standards.Results-Based FinanceGovernments or international organizations for incentivizing climate change mitigation or meeting national targets.They could also be payments in

179、 return for achieving emission reductions,without any transfer of credits or other ownerships.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 20Carbon credit markets have grown over the past year with issuances,transactions,and prices rising sharply.Carbon credit markets grew by 48 percent in 202

180、1,and the total number of credits issued from international,domestic,and independent credit mechanisms increased from 327 million to 478 million which is one of the biggest year over year increase since 2012.The total number of credits issued since 2007 is around 4.7 billion metric tons of CO2 equiv

181、alent.573.4.1 SUMMARYCarbon pricing as a concept will impact all carbon intensive sectors of the global economy as many major economies outside the U.S.have made rapid progress in executing some of these concepts(cap-and-trade and carbon taxes).It is likely that,in the U.S.,the driving factor will b

182、e sub-national regulatory action,but not at the federal level.As of the end of 2022,listed below are important data points indicating the general direction in which the carbon pricing markets are moving.Most new issuances were from projects registered under independent credit mechanisms.Issuances fr

183、om international and domestic crediting mechanisms increased at a slower pace.74 percent of credits were from independent standards which total 352 million credits.CDM represented 11 percent and grew by 25 percent with no new registered projects in 2021 due to uncertainty over the mechanisms future.

184、This was clarified at COP26 with a new agreement(Article 6)which allows countries voluntarily cooperate with each other to achieve reduction targets.Issuances from domestic mechanisms represented 15 percent of total issuances,led by the California compliance offset program and Australias emissions r

185、eduction fund.The total value of voluntary carbon market exceeded more than$1 billion in November 2021 and grew to over$1.4 billion as of April 2022.Demand from domestic compliance markets such as carbon taxes and ETS remains small but could change with agreement on article 6 rules.Demand from inter

186、national compliance markets has not changed much over the past year,but is expected to grow once travel rebounds post COVID-19.In 2021,countries agreed at COP26 on rules for international carbon trading under Article 6 of the Paris Agreement.These agreements provide greater certainty.Voluntary marke

187、ts are the main driver of growth due to growing corporate net-zero commitments.Large purchases of credits come from energy companies,mainly large oil and gas companies,food/beverage and tourism companies have also purchased credits.Additionally,the financial sectors also increased their carbon credi

188、t purchase to meet their climate targets.58,59,60,61,62,63,644.0 MARKET TRENDS ON OFFSHORE ASSETSThe offshore oil and gas industry had been in a deep slump from the price collapse in 2014 through the pandemic in 2020.During this time,there was a high degree of volatility and heavy pressure on the ma

189、rgins that could be made(low profits).In 2021 the tide turned with a powerful surge in demand with corresponding increases in the price per barrel.In the first half of 2022,oil prices averaged$110 per barrel.The strong energy environment during that time was boosted by the Russia-Ukraine war,Organiz

190、ation of the Petroleum Exporting Countries(OPEC+)unwillingness to alter its timeline for easing quotas,and difficulties many OPEC countries had meeting the quotas that were in place.66Looking at the first part of 2023,oil prices have moderated in the$75 to$85 per barrel range,which is still a price

191、point where oil and gas companies can expand their operations and work on projects(e.g.,sustainability initiatives).Risks still exist including possible inflation-induced recession impacting demand.Other risks include potential COVID-19 outbreaks reducing demand and eased sanctions on Iran and Venez

192、uela,which could add to the global supply and weaken prices.For now,the overall market for oil and gas production is good and should provide opportunities for all industry participants.4.1 SERVICE(SUPPORT)Beginning in 2021,the support sector started on an improved trajectory and during the first hal

193、f of 2022,the improved trajectory continued.Global support vessel utilization went from 57 percent at the start of 2021 to 68 percent at the start of 2022.Solid demand and utilization have increased the day rate and value of the vessels in this sector.Additional progress is expected through the rema

194、inder of 2023 and the outlook is optimistic.18 INDUSTRY AND MARKET TRENDSPage 21The support sector is well on its way to reducing the emissions generated from their operations.This sector continues to increase its use of natural gas and battery power to fuel their fleets.In addition to servicing the

195、 oil and gas industry,opportunities to gain business in offshore wind turbine installation and service,and supporting subsea construction of carbon injection wells have high potential.2022 SUPPORT VESSEL NEW BUILDSTypeQuantityAnchor Handling Tug Supply(AHT/AHTS)Offshore Service Vessel(OSV)1Platform

196、Supply Vessel(PSV)PSV-Crewboat6Column Stabilized Unit/Self Elevating Unit(CSU/SEU)7Barge/Heavy Lift1Single Point Mooring(SPM)Underwater SystemsOther4Total194.2 PRODUCTIONOffshore production vessels/units have little opportunity to diversify into other offshore businesses(e.g.,wind,carbon injection i

197、nstallations).With one of the highest GHG emissions in the offshore sector,production operations will likely need to focus on their existing carbon emissions to reduce their carbon footprint through equipment and operational improvements.Approximately 65 percent of the production sectors emissions c

198、ome from power generation and looking for alternative fuel sources could yield significant emission reductions.The production sector should continue to generate solid growth in the short to medium term.Twenty-five percent margins can be expected as oil and gas companies increasingly favor floating p

199、latforms over stationary facilities for their offshore projects.672022 PRODUCTION NEW BUILDSTypeQuantityFloating Production Storage Offloading(FPSO)New/Conversions7Floating Storage Offloading(FSO)Floating Liquid Natural Gas(FLNG)CSU/SEUSingle Point Anchor Reservoir/Tension Leg Platforms(Spar/TLP)Fix

200、ed PlatformOther1Total84.3 EXPLORATIONThe exploration(drilling)sector has fewer opportunities for diversification than the support sector but more than the production sector.There may be opportunities to apply its experience,assets,and technologies for carbon capture and storage(CCS)or to access geo

201、thermal resources(GR).While additional opportunities may exist,the exploration sector must still focus on emission reduction initiatives.These initiatives could come from operational efficiency improvements and seeking less carbon intensive forms of extraction.The offshore exploration sector has str

202、uggled with lowering revenues and margins since the 2014 crash left an oversupply of rigs.This oversupply has impacted new build orders.However,increasing utilization and day-rates have started to recover with help from the 2021 oil price rally.The need for drilling rigs is expected soon in the Nort

203、h Sea,Gulf of Mexico,Latin America,West Africa,Mediterranean,India,and Australia.Demand should continue to increase until peaking in 2025 before the next predicted decline.Despite the forecasted decline in 2025,consolidations,asset retirements,and financial restructurings should have this sector on

204、solid financial footing.68SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 222022 EXPLORATION NEW BUILDSTypeQuantitySelf Elevating Drilling Units(SEDU)Column Stabilized Drilling Unit(CSDU)Drill ShipDrill BargeTotal05.0 SUSTAINABLE FINANCINGThe oil and gas industry,onshore and offshore,is having mo

205、re difficulty in securing financing for projects because the industry is perceived as being a large emitter of GHGs.Lenders are being pressured by investors to reduce the amount of high-carbon intensity companies in their portfolios,including oil and gas companies.One source for lending that is beco

206、ming more prevalent is from sustainable finance instruments that come in the form of bonds or loans.The use of these instruments often provides oil and gas companies with greater,and easier,access to funds.A bond is a type of debt instrument where a government or company(the issuer)raises money,sell

207、ing in effect IOUs.Bonds typically have lower interest rates than loans.A loan is a debt instrument provided by a lender(e.g.,bank,credit union)and typically has higher interest rates.5.1 TYPES OF SUSTAINABLE FINANCE INSTRUMENTSSustainable finance refers to the process of taking ESG considerations i

208、nto account when making investment decisions in the financial sector,leading to more long-term investments in sustainable economic activities and projects.The following list describes the primary types of sustainable instruments that are available.1.Green/climate bonds and loansa.Proceeds must go to

209、 projects that improve carbon emissions or make other environmental improvements(e.g.,emission control equipment,reduction in waste discharged).2.Sustainability bonds and loansa.Proceeds go towards a combination of green and social projects(e.g.,green energy projects,investing in companies that make

210、 a positive contribution in relation to people,the environment,and society).3.Sustainably linked bonds and loansa.These bonds and loans are linked to a borrowers ability to meet sustainability targets.Meeting the agreed upon targets often improves the interest rate charged.4.Social bonds and loansa.

211、Proceeds for projects that address or mitigate a specific social issue or to achieve positive social outcomes(e.g.,improving access to essential services such as health,education,affordable housing).A nuance to green lending is Climate Transition Financing(CTF).Typically,CTF is used for“high-carbon”

212、industries to help in their transition towards net-zero emissions.Usually,these industries need to undertake complex transformations to reduce their carbon emissions.CTF bridges the gap between traditional and sustainable financing.INDUSTRY AND MARKET TRENDSPage 235.2 GENERAL REQUIREMENTS OF SUSTAIN

213、ABLE FINANCEJust like with ESG reporting,sustainable financing has organizations that have developed frameworks to follow when applying for funding.Most have one form or another of the following requirements.1.Use of Proceedsa.The fundamental determinant of obtaining a sustainable financial instrume

214、nt(SFI)is the ultimate utilization of the proceeds.It must be for projects that are green or improve social outcomes.2.Process for Project Evaluation and Selectiona.The borrower should clearly communicate the following to lenders:i.Sustainable objectives.ii.The process used to determine the eligibil

215、ity of the project.iii.The eligibility and exclusion criteria used.3.Management of Proceedsa.The proceeds received should be credited to a dedicated account and tracked by the borrower so that transparency and integrity are maintained.4.Reportinga.Borrowers should make and keep available current inf

216、ormation on the projects for which the funds are used.Its a good idea to report this information to the lender annually until the funds are fully drawn.Internationally,banks have done their part by pledging to expand sustainable finance solutions.This has been realized through the establishment of g

217、reen loans and green bonds,both of which can be utilized to move a low-carbon project into economic feasibility.The magnitude of pledges has continued to balloon over the last few years.For example,JPMorgan Chase plans to facilitate more than$2.5 trillion to address climate change68 and Citi Bank ha

218、s a$100 billion sustainable finance goal.69 Green loans and bonds should make up the bulk of sustainable financing for the offshore oil and gas industry.5.3 GREEN LOANSA green loan is a form of sustainable financing that requires the borrower to use the funds towards projects that have a direct envi

219、ronmental objective.The overall process for obtaining the loan will be established by the issuing entity,who may have its own requirements or may lean on a green loan framework.The European Investment Bank(EIB),the lending arm of the EU is an example of an entity with its own framework while the Gre

220、en Loan Principles is a framework established by the Loan Market Association(LMA).Although how the project is evaluated varies,the general process is similar.The process typically includes a screening in which the potential borrower submits project details such as the environmental benefit of the pr

221、oject,how the project fits into the applicable framework/requirements,and the proposed success criteria.It also includes periodic reviews of the project against proposed success criteria.This is a critical component of the overall process,which empowers banks to continually manage the sustainability

222、 performance of their portfolio.It can also be a step that is mutually beneficial,in which proposed criteria could be tied to financial incentives(and conversely to financial consequences).In addition to the overall green loan process,there are multiple ways in which the green loan can be structured

223、 by the issuing entity.The entity could use a fixed term loan in which there is a flat or adjustable interest rate.Alternatively,there could be a revolving credit facility whose interest rate is adjustable.An adjustable interest rate(as it relates to sustainable financing)can also be called a“sustai

224、nability-linked market ratchet,”which means that the interest rate can go up or down depending on the level of success the borrower has had against the proposed success criteria.SBM Offshore is one such example,where it re-financed its revolving credit facility with a new facility including a margin

225、 ratchet.70 The margin ratchet was a success metric that linked the companys sustainability performance to the interest rate.Therefore,it is critical that the potential borrower conducts due diligence and establishes a robust governance structure to guarantee project success.Establishing these proce

226、sses and policies will mitigate financial risk associated with not meeting success criteria and material environmental risks.The governance structure should consider the following elements:1.Internal project creation and screening process2.Internal accounting policies to track green loan spending3.P

227、rocess for monitoring and validating success criteria4.Policy for implementing remedial action as necessary to meet success criteriaSUSTAINABILITY INSIGHTS:OFFSHORE ENERGY SERIESPage 24A further example is detailed in Table 1.FrameworkGreen Loan PrinciplesBorrowerExploration and Production CompanySe

228、ctorOil and GasProjectEnergy Efficiency retrofitsProject DescriptionThe borrower is seeking$100M to retrofit its existing assets with energy efficient devices.These may include,but are not limited to,energy efficient lighting,an advanced control unit for the power generation system,an advanced flare

229、 monitoring system,and an upgraded energy efficient flare.Success CriteriaReduce annual emission intensity by eight percent across the fleet.Interest RateThe bank proposed a 4.25 percent adjustable interest rate.For the life of the loan there would be an annual third-party review to determine if the

230、 success criteria are being met.If so,the rate would go down by 0.05 percent.If not,the rate would go up by 0.05 percent.Governance StructureThe borrower has previously established a workstream to conduct a cost-benefit analysis,which concluded that the energy efficient devices listed should achieve

231、 an eight percent reduction in emission intensity at a price of$95M.The borrower requested an additional$5M to cover variances in cost and to allow for minor additions as necessary to achieve reduction.The borrower then requested a consultant review,who provided a second party opinion on the approac

232、h.Accounting StructureThe borrower prepared an accounting process to handle and track the funds from the green loan,ensuring that the funds were not accidently misused.ReportingThe borrower established a sustainability team to manage the project and its success.The team tracked fuel consumption and

233、flaring volumes onboard to track emissions.The team lead had the authority to consider additional alternatives as the budget allowed to meet the success criteria.Table 1:Green loan example.INDUSTRY AND MARKET TRENDSPage 255.4 GREEN BONDSGreen bonds are the other instrument by which sustainable finan

234、cing is secured.Green bonds,a form of debt securities,are issued by borrowers to raise money from investors.This money is then paid back after a certain amount of time.Like green loans,there are multiple frameworks for green bonds.One example is the Green Bond Principles by LMA and another is the Gr

235、een Bond Framework by the International Finance Corporation(IFC).Under the Green Bond Principles there are a handful of different bond types,these include:The process of issuing these bonds is like that of loans,where the objective is defined within the framework scope.As investors become more focus

236、ed towards sustainability,its objectives,and potential greenwashing scenarios,issuers will be required to mature as well.This maturity process will involve considering perceived social risks and lingering environmental impacts.It will also involve effectively conveying the necessity for project exec

237、ution considering any environmental impacts,with justification that industry leading mitigation techniques have been implemented.Simply put,the offshore industry needs to take the steps it can to reduce energy intensity while conveying the need to meet the energy demands of the world as it transitio

238、ns to net-zero.Incorporating this into a submission will increase the probability an investor will consider the bond,especially as some issuers begin straying away from the oil industry.The EIB is one example of this,where it is tightening its financing by no longer considering new financing for una

239、bated fossil fuel energy projects.71The governance for green bonds is equivalent to that for green loans.The issuer should ensure they have a rugged accounting system in place to manage and report funds transparently to investors.They also need to have processes in place to monitor success.This may

240、be realized through emission monitoring software,emission calculations,waste consumption monitoring,or by another means.One real life example of a green bond is for Eni SpA.In 2021,it was the first oil and gas company to issue a sustainability linked bond.The success metrics for the bond are to incr

241、ease An unsecured debt obligation with full recourse-to-the-issuer only and aligned with the GBP.Standard Green Use of Proceeds BondsA non a non-recourse-to-the-issuer debt obligation aligned with the GBP in which the credit exposure in the bond is to the pledged cash flows of the revenue streams,fe

242、es,taxes etc.,and whose use of proceeds go to related or unrelated Green Project(s).Green Revenue BondsA project bond for a single or multiple Green Project(s)for which the investor has direct exposure to the risk of the project(s)with or without potential recourse to the issuer,and that is aligned

243、with the GBP.Green Project BondsA secured bond where the net proceeds will be exclusively applied to finance or refinance either:a.The Green Project(s)securing the specific bond only(a“Secured Green Collateral Bond”);orb.The Green Project(s)of the issuer,originator,or sponsor,where such Green Projec

244、ts may or may not be securing the specific bond in whole or in part(a“Secured Green Standard Bond”).A Secured Green Standard Bond may be a specific class or tranche of a larger transaction.Secured Green BondsFigure 14:Bond types under the Green Bond Principles.SUSTAINABILITY INSIGHTS:OFFSHORE ENERGY

245、 SERIESPage 26renewable energy installed capacity to at least 5 GW by the end of 2025 and lower net GHG emissions of upstream activities to at least 7.4 million tons by the end of 2024.In the case Eni SpA does not reach the success metrics,then the interest will increase by 0.25 percent on the bond.

246、725.5 EXTERNAL REVIEWExternal review is a key component of managing the issuer/borrower relationship,where success criteria are objectively verified by a third party.Issuers and/or borrowers may also use external services during the loan evaluation process.The borrower may use a consultant to determ

247、ine the most effective projects and success criteria.The issuer may require the borrower to have the project rated by a rating company,have the project certified against a green loan framework,or have the submission verified by an auditor.6.0 FUTURE CONCERNS AND PROJECTIONSThe world is moving toward

248、s renewable and/or lower carbon energy sources and the pressures on oil and gas companies to reduce GHG emissions and other environmental releases are ramping up quickly.These pressures are coming from consumers,investors,employees and governments.Because of this,oil and gas companies realize the ne

249、ed to advance their sustainability efforts,and are working hard to digitize operations,develop new technologies to decarbonize and encourage their supply chain partners to do the same.As discussed in section 2.0(pressures on the oil and gas industry),the regulatory landscape is rapidly changing with

250、 Europe leading in the pace of changes.Governmental interventions such as European Commissions Green Deal as well as the U.N.Paris Agreement have caused oil and gas companies to look for emission reduction opportunities to meet sustainability targets.As one can see,many factors must be considered as

251、 oil and gas companies transition towards more sustainable operations.These companies are trying to become more sustainable with help from governments,internal governance and strong senior leadership.73 7.0 PREVIEW OF NEXT RELEASEIn this paper,we addressed the sustainability and market trends of the

252、 offshore oil and gas industry.What we found were pressures on the industry to improve its carbon footprint were coming from all directions,with the investment community being the loudest voice for change.In our next installment of this paper series,we will examine the technologies and operational i

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279、s,Feb 2022 2022 Offshore Oil&Gas Report.68.https:/ INSIGHTS:OFFSHORE ENERGY SERIESPage 3069.https:/ Nov 2021 Where is Sustainability on the Oil and Gas Agenda?.74.https:/ AND MARKET TRENDSPage 31CONTACT INFORMATIONGLOBAL SUSTAINABILITY CENTER1701 City Plaza Dr.Spring,Texas 77389,USATel:+1-281-877-60

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