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It’s time for EITI to tackle the energy transition

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Changes in the global energy landscape present both opportunities and challenges for countries reliant on the extractive sector. For countries producing oil, gas and coal, there is uncertainty about the long-term viability of projects and potential declines in government revenues. For producers of transition minerals, there are prospects for new investments and revenue streams, but also challenges related to market volatility. Beyond affecting public finances, the energy transition poses corruption risks as well as social and environmental impacts.

These opportunities and challenges are not new. But the unprecedented speed and scale of change underscores the urgency of strengthening governance. Only by doing so can the world achieve its decarbonisation goals while benefitting resource-rich countries and their citizens.

Data is needed to inform forward-looking analysis, policy responses and public debate, as well as dialogue on the energy transition’s implications. The EITI’s latest policy brief details how EITI implementation can help stakeholders navigate the energy transition in five important ways:

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1. Supporting policy coherence and coordination

National climate policies can significantly impact the extractive industries. Conversely, extractive sector policy can either support or hinder climate change mitigation. Building a clear picture of the policy landscape is important for ensuring government action is coherent and serves public interests over the long term.

The 2023 EITI Standard requires the disclosure of national energy transition commitments, policies and plans. It also encourages the disclosure of information on carbon pricing, carbon taxes, subsidies, tax deductions and incentives. This information helps stakeholders understand whether the government is promoting or discouraging extractive activities. It can also reveal instances of policy incoherence, such as where licensing decisions or fiscal policies are at odds with projected demand for oil, gas or minerals.

Building a clear picture of the policy landscape is important for ensuring government action is coherent and serves public interests over the long term.

For example, Germany uses the EITI to report on its national energy transition policies, which include aspects like coal phase-out, environmental protection, support for coal regions, and the growth of its renewable energy sector.

2. Managing public finance risks and economic vulnerabilities

The energy transition is causing shifts in global supply and demand patterns for fossil fuels and minerals, impacting investment decisions, project viability, government revenues and the extractive sector’s broader economic contributions.

Data disclosures in line with the 2023 EITI Standard, including project-level disclosures on current and anticipated production levels, costs and assumptions around future commodity prices, can help identify economic opportunities and challenges. These could include risks of “stranded assets” and government revenues that are vulnerable to changing market conditions.

Such disclosures can support better revenue management and long-term economic planning. For example, the EITI in the Republic of the Congo used data on past trends to conduct an analysis of potential future revenues from its oil sector under different market scenarios. EITI data can also shed light on investments from state-owned enterprises (SOEs) and inform debate on whether these align with long-term public interests.

3. Advancing anti-corruption efforts

The energy transition is reshaping corruption risks in the extractive industries. Rapid deal-making, coupled with expectations of high profits, can drive corruption, especially licensing decisions, procurement contracts and commodity trading deals, including those involving SOEs.

A key risk area relates to licensing decisions in the minerals sector, where growing demand is prompting many governments to streamline or expedite license awards. EITI disclosures can unveil cases where practices deviate from established rules, potentially signalling instances where governance safeguards were circumvented. For example, the EITI in the Philippines used a corruption diagnostic tool to conduct an in-depth investigation of integrity risks, including in the licensing and contracting procedures for large-scale nickel mines.

The energy transition is reshaping corruption risks in the extractive industries.

The EITI Standard also encourages SOEs to disclose beneficial ownership information on their agents, intermediaries, suppliers or contractors, as well on companies buying oil, gas or minerals, allowing stakeholders to identify potential conflicts of interest.

4. Strengthening the voice of communities

The energy transition has profound implications for communities living near energy and mining projects. In regions experiencing increased investment, local governments and communities stand to gain from new revenue streams, jobs and community spending by companies. However, they also face the potential for environmental harm and/or disruptions to traditional livelihoods. EITI countries can draw on a new provision to disclose information on free, prior and informed consent (FPIC) and community consultations, where this is mandated, to improve public oversight of how community priorities are accounted for.

The energy transition has profound implications for communities living near energy and mining projects.

EITI reporting can provide insights into how the extractive industries impact communities, offering data on subnational revenues, social spending, jobs and environmental impacts. It offers a model for community dialogue with government and companies, the value of which is illustrated in the “Engaging communities in a just transition” project undertaken in Colombia, Ghana and Indonesia.

5. Shedding light on greenhouse gas emissions

Reducing greenhouse gas emissions is a central objective of the energy transition. The extractive industries contribute to greenhouse gas emissions through emissions directly associated with their operations and, in the case of oil, gas and coal, emissions that may be released during the combustion of these resources.

A new provision in the EITI Standard encourages companies to disclose emissions in line with existing standards. The EITI in Trinidad and Tobago has pioneered emissions reporting for oil and gas companies, aiming to enhance natural resource governance by integrating environmental and climate impacts into their EITI reporting.

Moreover, data on exploration, reserves and production provides a vital source of information that can be used to estimate emissions from potential fossil fuel combustion. Transparency in this regard can support greater accountability around the climate commitments of governments and companies.

Breaking new ground

The use of these aspects of the 2023 EITI Standard will vary among EITI implementing countries, as the EITI is adapted to meet national priorities. Their inclusion in a global standard such as the EITI creates a valuable opportunity for countries to exchange learnings in the changing context for extractives governance. We look forward to sharing knowledge and facilitating peer exchanges as countries break new ground in EITI implementation.

 

Source: Eiti

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