Our strategic response to climate-related risk
Our strategy and Climate Roadmap form the basis for how we respond to climate-related risks and opportunities. As part of this we have embedded climate considerations into our incentives, reporting and decision-making, and have targets in place to measure progress and incentivise performance across the entire company – starting at the top. CO2 intensity (upstream) is a key performance indicator and influences executive pay.
Our investment principles take climate into account. We require all potential projects to be assessed for carbon intensity and emission reduction opportunities, at every decision phase – from exploration and business development to project development and operations. We apply an internal carbon price of at least USD 55 (real 2018) per tonne of CO2 in investment analysis. In countries where the actual or predicted carbon price is higher than USD 55, we apply the actual or expected cost, such as in Norway where both a CO2 tax and the EU Emission Trading System (EU ETS) apply.
Our energy scenarios inform the economic planning assumptions used in our investment decisions and the formulation of our strategy. Our Energy Perspectives 2018 report illustrates that there is significant uncertainty around the future energy mix and the exact pace and scale of the energy transition. In that report we also assess sensitivities to our Renewal scenario related to potential disruptive technologies, CCS and climate policy action.
Portfolio stress test
Equinor annually conducts a price sensitivity analysis for our project and asset portfolio against the assumptions regarding commodity and carbon prices in the range of energy scenarios of the International Energy Agency (IEA), as presented in their World Energy Outlook report. This analysis is used to assess energy transition-related risks. The practice is in accordance with a shareholder resolution passed in 2015, suggesting that stress testing should be done against third-party scenarios to allow for comparability.
The “project and asset portfolio” entails equity production, excluding exploration activities1. However, our investment decision criteria, including the internal carbon price and discount rates, apply also to exploration projects.
In 2018 we tested our portfolio against the IEA’s Current Policies, New Policies and Sustainable Development scenarios. The scenarios and assumptions are presented in the World Energy Outlook 2018 report (IEA). Equinor has not tested our portfolio against a 1.5°C scenario, as the IEA has so far not published such a scenario with corresponding oil, gas and carbon price assumptions. The four illustrative model pathways presented in the International Panel on Climate Change’s special report on the impacts of global warming of 1.5°C2 indicate that oil and gas demand would have to be significantly lower than in a 2°C scenario, and as such the potential downside for Equinor in a sensitivity analysis could be expected to be more significant. However, our sensitivity analysis does not take into account the fact that our portfolio would change to be more robust as the different scenarios unfold and materialise.
1. Exploration activities are not included due to significant uncertainty regarding discoveries and development solutions. This is a change from previous years’ analysis, which have included exploration activities.
2. IPCC (2018): Special Report: Global Warming of 1.5oC