4 carbon policy developments that impact E&P decision-making

As carbon policy evolves, the increasing scope and reach of emissions regulations makes them not just a compliance or ESG issue but a key commercial decision variable for energy-intensive businesses. For oil and gas exploration and production (E&P) firms, a solid understanding of policy developments is therefore vital to address the potential implications for asset value, final investment decision (FID) risk and portfolio resilience.  

European Commission proposes act to boost production of low-emissions technologies 

The facts: In March, the European Commission published its much-anticipated plan to increase demand for European-made low-emissions technologies. The Industrial Accelerator Act (IAA) is intended to strengthen production and boost the falling GDP share of strategic, energy-intensive sectors. 

The proposal aims to use public procurement commitments to address supply-chain vulnerabilities, derisk investment and facilitate funding to build lead markets for low-emissions industrial products. If approved, the Commission estimates the Act will eliminate over 30 MtCO2e of greenhouse gas emissions. 

Our take: The IAA fits with an emerging EU shift towards making emissions reduction more politically palatable and economically viable. The Act focuses on strategic manufacturing capacity and technological sovereignty as a solution to the “weaponisation of economic dependencies”. 

The Act also moves away from regulation towards incentivisation through green public procurement. It states that 25% of steel and aluminium for public construction and transport projects and 5% of cement must meet low-carbon standards. A shift to cleaner processes has clear implications for oil and gas demand, although these requirements may be too low to rapidly accelerate carbon markets.  

We expect cement and steel to pay US$160 per tonne of carbon dioxide equivalent (tCO2e) under the EU Emissions Trading Scheme (ETS) by 2034. With energy-intensive industries already experiencing strong inflationary pressures, the IAA will need to work effectively in conjunction with the ETS and the Carbon Border Adjustment Mechanism (CBAM) to have an enduring impact on the wider economy. 

Get more insight 

Fill out the form at the top of the page to download the complimentary insight, which covers three further key emissions-related policy developments: 

• UN authorisation of the first carbon credits under the Paris Agreement 

• Formal US and Indian responses to the EU’s Carbon Border Adjustment Mechanism (CBAM) 

• Labelling and registration of the first eligible insurance-protected credits under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)