January 2, 2021
Carbon charges are currently being considered, and they will transform the upstream sector, affecting both asset values and the industry’s economics.
At present, few countries require producers to either pay a carbon tax or participate in an emissions trading scheme (ETS) - But as governments seek to meet decarbonisation targets, that could soon change.
More than 60 carbon charge regimes currently exist at international, national and subnational levels, but very few affect major oil and gas producing areas at a rate above US$20 per tonne.
In 2020, the Canadian government announced its carbon tax rate would rise to the equivalent of around US$135 per tonne by 2030
Norway is the standout country for upstream carbon charges: as well as having levied a tax on CO2 since 1991, it is a member of the EU’s ETS.
Norway’s new carbon plan aims to reduce emissions from sectors such as waste and agriculture. The proposals would see the combined Norway CO2 tax and EU ETS price reach US$262 per tonne by 2030 – nearly a three-fold increase compared to today’s price.
E&P companies have been including carbon pricing assumptions — usually between US$40 and US$100 per tonne — in their financial models for some time.
WoodMac analysis indicates that at US$40 per tonne, most asset values are relatively insensitive to the carbon charge, although even that rate could wipe out the remaining value of some assets.
But at US$200 per tonne – a lower rate than Norway is proposing for 2030 – a third of all assets would have at least 50% of their remaining value transferred in carbon charges.
