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dodgy deals
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oil and gas Open pipeline on Sakhalin island (source: www.pacificenvironment.org)
what is at stake
The oil and gas industry plays a key role in exacerbating global climate change. To address the threat of climate change, sustainable energy investment must be quickly ramped up, and the oil and gas industry as it is currently operating must be fundamentally transformed. The main challenge for the oil and gas industry is to use its knowledge of energy technologies to reinvent itself into renewable energy suppliers. During this transition process, oil and gas operations should minimise environmental, social and biodiversity risks and impacts. Climate impact aside, the oil and gas sector poses major hazards to the environment in various ways. Drilling platforms, oil and gas production facilities, flaring installations and refineries pollute land, air and water. In the quest to replace reserves, oil companies are exploring ever more remote and sensitive environments, from the Amazon to the Arctic. Ruptures of pipelines, through earthquakes and other natural causes as well as through sabotage, can lead to serious oil spills and even to life-threatening fires and explosions. Accidents with oil tankers regularly pollute large sea areas and vast shorelines. -readmore- With increasing demand and high oil prices, unconventional oil reserves such as Canadian tar sands, U.S. oil shale, and Chinese coal to liquids have become economically attractive, despite the high level of ecological damage they cause. Extracting these fuels is highly CO2-intensive and disastrous for the global climate. Moreover, these extraction techniques are very water intensive, which affects water supplies in the extraction areas, and cause a loss of boreal and other forests. The social impacts of the oil and gas industry can also be severe. Pollution and pollution-related diseases affect the health of indigenous peoples and local communities, as well as their culture and livelihoods. Often, oil and gas companies claim the land of local inhabitants, depriving them of their source of food or income. Moreover, oil and gas extraction and transportation have often fuelled conflict and contributed to repression and abuse of human rights. Particularly in cases where companies collaborated with the military or local militias, humanitarian impact has been large. See the issue page on Operation in conflict zones. Finally, the extractive industries can distort macroeconomic development in developing countries. Developing countries that lack a sound political or legal systems may suffer a resource curse in which the exploitation of metals, minerals (and also oil and gas) leads to corruption, lost revenues, increased risk of social conflict, and unequal distribution of social and environmental benefits and costs to the local communities. As a result, mining activity often leaves a country no better off, and the local the area mired in controversies and conflict between mining corporations, communities and governments. Combating climate change by developing a low-carbon economy that relies upon renewable energy technology and suppliers is a major challenge. The oil and gas sector will have to take its responsibility in this task. Banks that invest in the oil and gas sector should develop a comprehensive oil and gas policy that deals with issues described above.
selected standards and initiatives
International standards for the oil and gas industry dealing with the following specific issues include: Emergency response and prevention In the wake of the Exxon Valdez disaster in 1989 the International Maritime Organisation (IMO) revised the requirements for oil transport. The 2003 amendment to Annex I of MARPOL requires that new oil tankers should be double-hulled, and that large single-hull tankers are to be phased out by 2010. The IMO Protocol on Preparedness, Response and Co-operation to pollution Incidents by Hazardous and Noxious Substances, (OPRC-HNS Protocol, 2000) aims to provide a global framework for international co-operation in combating major incidents or threats of marine pollution. Parties to the HNS Protocol will be required to establish measures for dealing with pollution incidents, either nationally or in co-operation with other countries. Ships will be required to carry a shipboard pollution emergency plan to deal specifically with incidents involving HNS. -readmore- Waste management The Convention for the Protection of the Marine Environment of the North-East Atlantic (known as the OSPAR Convention) is the basis for national laws governing the discharge of offshore drilling wastes in the waters of the OSPAR signatory states. Norway applies an even stricter national standard for processing waste from offshore-oil production; the so-called Zero environmentally hazardous discharges standard. This standard requires the purification of the drilling mud, so that it can be re-injected in the oilfield. One type of ‘waste' is natural gas that comes to the surface in the process of crude oil extraction. This natural gas is frequently released into the atmosphere (venting) or burned directly (flaring), and as such contribute to a significant amount of greenhouse gases and result in losses of potential energy. The Global Gas Flaring Reduction Public-Private Partnership (GGFR) developed by the World Bank has set out flaring and venting measuring guidelines, best practices and implementation guidelines, with the ultimate goal to minimise flaring and venting of associated gas. The 2006 European
directive on the management of waste from extractive industries requests from Member States to ensure that
extractive waste is managed without endangering human health or the
environment, and in particular water, air, soil and fauna and flora. Member
States shall also take the necessary measures to prohibit the abandonment,
dumping or uncontrolled depositing of extractive waste. Standards for decommissioning offshore oil
platforms are set by regional agreements such as OSPAR
Decision 98/3 on the Disposal of Disused Offshore Installations of the
OSPAR Convention. Following this decision, oil companies should
select the least environmentally damaging option of breaking down their facilities,
and must take sufficient measures to prevent any environmental damages during
the demolition process. In the offshore oil and gas industry in the United Kingdom Continental
Shelf, the JNCC
guidelines were developed to reduce the damage done by seismic surveys to
whales and other marine mammals. These guidelines include minimum standards for
operators in order to reduce the damage for marine mammals by noise from
construction, and collisions with ships. In any of the protected areas covered by the categories I-IV of the IUCN, by the UNESCO World Heritage Convention and by the Ramsar Convention on Wetlands special measures must be taken to conserve biodiversity. To assist the industry in earlier identification of areas that are highly valuable from an ecological and social perspective, IHS Energy, the World Conservation Monitoring Centre UNEP-WCMC and WWF have developed a Biodiversity Module. This module is a tool for oil companies to recognize and preserve respect these sensitive areas. See the issue page on Biodiversity. The Extractive Industries Transparency Initiative (EITI), supported by a coalition of governments, companies, civil society groups and investors, is a voluntary process that has established criteria for full publication and verification of company payments and government revenues from oil and gas. The Publish What You Pay coalition, which includes more than 300 civil organisations, further calls for extractive industry companies to publish their tax payments, royalties, etc. It also calls on them to publish the terms of important contracts and agreements between governments and oil and gas companies and all bank investments related to resource exploitation. This subject is
also discussed on the issue page on Taxation and on the issue page on Corruption. To avoid or at
least minimise the negative impacts of the resource
curse, it is important that the development of the oil and gas industry
goes hand in hand with the development of good, capable and trustworthy
governance. The Extractives
Industries Review (EIR) commissioned by the World Bank recommends that
private investments in extractive industries should not be promoted in
countries where governance is inadequate. The review also states that the
quality of public governance should meet certain explicit requirements before
the World Bank invests in extraction projects. The legislative framework covering (the use of) natural resources varies from country to country. At the international level however, it is agreed that oil and gas companies should acknowledge the sovereignty of states over their own natural resources. This concept (Permanent Sovereignty over Natural Resources) was enshrined in a number of United Nations resolutions. The 1962 UN Declaration on Permanent Sovereignty over Natural Resources gave producing countries the right to make decisions about the management and extraction of their natural resources, and the right to expropriate or nationalise land areas, if it is in the public interest to do so and compensation is paid. Amending this declaration, the 1966 UN Resolution 2158 (XXI) dealing specifically with developing countries, recommended public-private joint ventures as the most appropriate model for development. Respect for the national sovereignty over resources needs to be
balanced with respect for the rights of indigenous peoples. Oil and gas companies must acknowledge and respect the rights of indigenous peoples, acknowledge their sovereignty and self-determination, and allow them decide themselves on the future use of their lands. In order to do the latter, indigenous peoples should always be informed in a full and timely manner in any prospective business, this in order to obtain their Free Prior Informed Consent for any planned activity. See the issue page on Indigenous peoples. Like other companies, also oil and gas companies need to respect, promote and secure the human rights of those affected by their operations, especially the rights of women. See the issue page on Human rights.
content of a bank policy
A bank's policy for the oil and gas sector needs to emphasize that the main challenge and ultimate goal for the oil and gas industry is to use its knowledge of energy technologies and markets to reinvent itself into renewable energy suppliers. The following elements should be incorporated in the banks' oil and gas policy: essential elements
The bank will only invest in oil and gas companies that:
additional elements
The bank will only invest in oil and gas companies that:
scores
how do we score this?
analysis scores oil and gas
As with the mining sector, most banks have received one point as a signatory of the Equator Principles and/or Extractive Industries Transparency Initiative. Compared to earlier research of BankTrack, more banks have developed their own policy for this sector, but most of them are not accredited additional points because their criteria for lending do not cover the essential elements. Only Rabobank has developed its own policy that is accredited two points for including at least half of the essential elements. The policies of the Japanese bank Mizuho are also worth mentioning. Mizuho has compiled 35 Environmental Guidelines by Industry Sector of which only the Checklist for Oil and Gas Development (Offshore) is disclosed. This document presents a range of criteria, based on the IFC Performance Standards, but as it is solely used for project finance activities it is rewarded only one point.
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