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Framework of Energy Policies

Discuss about the Energy and Climate for Industrialization and Society?

Environment is changing rapidly over time, which is continuously affecting every field including industrialization and society in overall. Arguably, the oil and gas industries are the main reasons to this change that needs mitigation to protect the environment. Due to carbon intensity, climate changes consistently, which nowadays has become a vital concern to global economy. The United Nations Framework Convention on Climate Change (UNFCCC) is an international entity established in the year 1992 that came under force in 1994 to reduce the impact of climate change in the industrial sector. UNFCCC has aimed to stabilize the rate of greenhouse gas to develop the atmosphere. The framework has around 196 parties and it had a positive feedback regarding legitimacy due to the universal membership (UNFCCC, 1992). Additionally, it does not implement any limits to greenhouse emission for the countries; rather it focuses on negotiating the restrictions on greenhouse emission (UNFCCC, n.d.). Contextually, the essay has focused on the impact of the decisions implemented in the conference of Paris, France in 2015, December. To evaluate these influences, first the challenges that global oil and gas industries have faced need mentioning, along with the certain factors affecting in long-term process.

Presently, every country in the world has concentrated on protecting the environment from human interferences and other factors to increase the global economy. UNFCCC has therefore concentrated on negotiating the agreements of countries to reduce bindings on limits of greenhouse emission. Arguably, the oil and gas industries have realized that climate change is continuously affecting its business, and if not prevented then it will face huge barrier to sustainable development. UNFCCC, COP 21 was held in the year 2015 in Paris, where there has been a global negotiating agreement to prevent climate change. To create legal enforcement of the agreement, minimum 55 countries need to contribute in 55% of emission. Additionally, these nations need to sign in the agreement to consider it as legal and further include in the legal system of such nations as well. The objective of the agreement is to reduce global warming by maximum 2°C comparing to the previous level. Arguably, the agreement further aims that the human greenhouse emission will reach up to zero net by the end of the 21st century. Based on the numerous studies, different scientists estimated that around 1.5°C will be required for zero net release between the years of 2030 to 2050 (IISD, 2015). Prior to UNFCCC COP21, around 146 parties have submitted a draft named Intended Nationally Determined Contributions (INDCs), where it has been mentioned that the above-mentioned suggestion will help to reduce global warming by 2100 to 2.7°C. Specially mentioning, European Union (EU) has suggested reducing 40% greenhouse gas emission in INDC commitment by 2030 comparing to the previous emission rate. The overall objective of this agreement has been to implement a global agreement in the history of UN negotiation since its establishment (IISD, 2015; The Guardian, 2015; UNFCCC, 2015).

Current Scenario of Oil and Gas Industries

On the other hand, UNFCCC has further focused on several other policies to reduce global warming. Furthermore, UK has strictly considered the emission reduction and targeted to reduce it by around 40% within 2030. EU along with other parties has also implemented several policies to reduce greenhouse-gas, as it has become a global issue in current scenario. The framework has further conducted wide range of research to reveal the probable ways through which the nation are successfully practicing climate actions such as solid waste management, energy, urban planning, adoption in finance and transport. More than 200 countries has involved in the agreement to contribute in emitting greenhouse gas however, there are further countries who still oppose the agreement. The president of the United State has stated that those countries are continuously reducing future opportunities will affect their economic growth as well (Ramirez, 2015). The UNFCCC has introduced C40, which is consistently focusing on providing better medium to climate action, for instance C40 clean bus declaration is a project, which 26 cities adopted and more than 175,000 buses will be manufactured by the year 2040. In the annual report of CDP, it has been apparent that in the year 2015, approximately 92% of the cities throughout the world have revealed information regarding climate action so that the other cities can follow the successful actions thus the factors that proved to be ineffective can further be tracked (1Statista, 2016; C40 Cities, n.d.).

Largest Producers of CO2 Emissions Worldwide in 2015

Figure 1: Largest Producers of CO2 Emissions Worldwide in 2015

Source: (1Statista, 2016)

Traditionally, Global warming is a natural-cycle of variation in temperature. However, in the recent decades, the increase of temperature associates with the rapid increase in CO2 rates in the atmosphere. This increase is the outcome of global industrialization, therefore UNFCCC not only attempted to implement the agreement, it further concentrated on providing guidance to the nations to reduce the increasing rate of CO2 and further protect the environment. Although several nations has contributed largely in the reduction of greenhouse gas emission to develop sustainable environment and stabilize the temperature of atmosphere however, China and the United State are the top most country that have reduced up to 28.03% and 15.9% respectively (Figure 1). In this perspective, the below-mentioned chart  (Figure 2) can be highlighted, where the reduction of global greenhouse gas emission has increased visibly from 1990 and it has further planned to emit up to 20.6 billion metric tons from burning coal by the year 2040 (3Statista, 2016). 

Global CO2 Emissions from 1990 to 2040

Figure 2: Global CO2 Emissions from 1990 to 2040

Source: (3Statista, 2016)

The main reason behind climate change is the consistent increase of industrial sectors and fossil-fuel combustion over time. The oil and gas industries are in centre of such challenges, which simultaneously affecting the global economy. Several sectors have adopted to use less carbon-produced products to increase greenhouse emission, which has considerably affected the oil and gas industries. The United State has successfully adopted several policies to develop the atmosphere, which is visible in the above chart. Additionally, the nation has accepted renewable energy consumption to contribute more in the global Greenhouse gas emission rate. It has further accepted several innovative facilities in the operation of oil and gas industries such as petrochemical facilities and refinery operations among others. The U.S. is among the top most country in reducing greenhouse from it industries in worldwide (Figure 1). Furthermore, the country has declared greenhouse emission as essential and every company are significantly concentrating on this concern. The intergovernmental panel has target to reduce the greenhouse gas emission by 50% annually globally from the previous level to control the climate change in an acceptable rate (Kete & Petkova, 2001). To achieve the target, the greenhouse gas emission based on the utilization of fossil fuel needs to be drastically reduced by the year of 2020. Furthermore, climate change rapidly causes shortage of water, drought, poor quality water, and changes in rainfall certainly increase the demand of water in the future in global context. The president of the United State has stated in this context, that after 6 years of practicing the UNFCCC has become successful in gathering all countries and every nation now is targeting the similar concern (Ramirez, 2015). Hence, due to the oil and gas industries, environmental resources are continuously reducing. Therefore, the agreement includes certain limitation to the industries regarding production and operation based on which the country has aimed to develop atmosphere and simultaneously continue industrialization to maintain economic growth. On the other hand, most of the plants and operational equipments are manufactured based on the previous condition which in current situation affecting more to the environment. Currently, there are several innovative technologies and equipments, which is comparatively less affective for the environment. Through this practice, companies can easily balance with the requirement of current environment as well as company growth. Significantly, the need of these activities in such conditions in US has successfully realized by companies and implemented accordingly (Kete & Petkova, 2001).

Arguably, the investors and other stakeholders are continuously increasing the importance to oil and gas industries due to the climate change policies that simultaneously increase the risk of profitability and revenue. Thus, oil and gas industries are continuously failing to meet with the demand. Moreover, in case the companies fail to maintain the policies relating to greenhouse gas emission, it further hampers its reputation and the respective company might licence to operate. The companies in the beginning have utilized the resources haphazardly, which now affecting it as well as society and become a barrier for further development. Therefore, many companies have successfully concentrated on innovation so that it can provide such products that will prove helpful to environment as well as business prospective (Nastu, 2009).   

The decision made in the COP21 of UNFCCC in Paris agreement was to negotiate the emission of greenhouse gas without any limitation. Based on this decision, the environment could easily be protected and global warming can be reduced as well. According to this agreement, UNFCCC commitment include where every country will target to reduce a particular percentage of emission by 2020. Hence, renewable energy consumption is one of the most important factors that the United State has accepted as a prior action. Based on the above-mentioned chart (Figure 2), the U.S. is in the top position in consuming highest rate of renewable energy. In this prospect, the oil and gas industries are facing huge downturn in economic growth due to the less consumption of less carbon-produced products. Additionally, the agreement has included that the industries have to utilize innovative equipment in production process therefore, the cost factor will increase which simultaneously reduce the profitability. On the other hand, as US has implemented the policies more effectively, then company goodwill will also increase, which create competitive advantages in global market. However, on a critical note, few oil and gas companies are neglecting the agreement and indicating that they are not facing any issues regarding resources currently. Thus, this evolves as the major concern that contributes in global greenhouse-gas emission, indicating the failure of the UNFCCC decision to some extent (The Guardian, 2016).

Share of Renewable Energy Consumption 

Figure 3: Share of Renewable Energy Consumption

Source: (2Statista, 2016)

Furthermore, the U.S. government has declared that by 2040, the U.S. Energy Information Administration will reduce CO2 emission by 46% and to implement such objective, U.S. has adapted renewable energy consumption (UNFCCC, 2015). In the above chart, it has further been mentioned that the country is consuming highest rate of renewable energy, based on which the countries significantly provide huge contribution in global greenhouse gas emission. US have successfully adapted the renewable energy consumption by implementing several policies in transport, finance, and urban planning (2Statista, 2016). Therefore, the Paris agreement will affect the oil and gas industries in both manners positively as well as negatively. The agreement will force to change the business model of the respective companies, which will not be preferable for the industry. Hence, changes in business model and continuously concentrating on reduction of greenhouse emission will reduce the business process (Hardcastle, 2016). Simultaneously, investors will not be interested to invest on the industries due to high risk factor. Currently, the World Bank has taken an initiative of ‘Zero Routine Flaring by 2030’ to group oil industries, government and those companies who are focusing on reducing the routine flaring after the year of 2030. Additionally, the Environment Protection Agency (EPA) has further taken initiatives to reduce the methane emissions from the oil and gas industries. Moreover, it will focus to implement legislation to limit the release (Hardcastle, 2015). Furthermore, the Oil and Gas Climate Initiative (OGCI) is a group of 10 biggest oil companies, which has aimed to contribute in the sustainable policy. Hence, the oil and gas industries have successfully adopted the decision and focused to increase further operations by increasing the rate of reduction of CO2 emission (United Nations Climate Change Secretariat, 2015). Maximum investors are concerned about the reputation of the companies based on the operations such as upstream and downstream visible in the below chart (Figure 4). The market value of the oil and gas companies differs based on the operations of value chain (IIGCC, n.d.)    

Value through Oil & Gas Industry Value Chain    

Figure 4: Value through Oil & Gas Industry Value Chain

Source: (IIGCC, n.d.)


Based on the above discussion, it can be affirmed that the decision implemented by UNFCCC in COP21 has been proven effective for the oil and gas industries in the US. Due to the climate change and global warming, every industries are facing huge challenges regarding continuing the business with profitability. However, the oil and gas industry has faced more challenge to reserve its resources, as it purely focused on the environmental resources. Although the country have significantly concentrated on reduction of greenhouse-gas emission, still the environment is not considered as safe due to the previous actions. The intergovernmental panel has therefore targeted to reduce high rate of greenhouse-gas emission across the world. Simultaneously, the countries further contribute significantly to the reduction based on which it can be expected that within a decade the temperature will be in control based on which the policy makers successfully continue business with the help of innovation and technology.


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