Author: Mathias Lund Larsen
Green finance policies and regulations by country
As background for the analysis of individual companies, this section provides an analysis of the environmental policy and regulatory regimes of different countries around the world. It identifies what countries have so far adopted the most ambitious approach to enforce climate change regulations and which green financial instruments produce the best results. To conduct this research, we studied the environmental regimes and green financial systems of fifteen countries that concentrate most of the largest and highest-impacting oil, gas, and coal companies around the world. Our analysis has revealed that while some European countries are taking the lead in enforcing effective environmental measures, other countries such as the USA, India, and Russia, among others, are lagging behind. China has made some concrete efforts to reduce its environmental impact, but further efforts are needed, and the European model might offer some useful insights.
Table 1 summarizes the frequency and efficiency of the implementation of environmental laws and green financial policies in the fifteen countries considered by this study. The countries have been selected following the geographic distribution of the largest and highest-impacting fossil fuel companies around the world. While many oil, gas, and coal companies have expanded their operations globally, the jurisdiction hosting the legal office determines the conduct of the whole group as it dictates regulations in terms of reporting requirements, most carbon taxes, and environmental liabilities. At the same time, stakeholders’ groups have different roles in each region, impacting the intensity of fossil fuel divestment campaigns and the pressure coming from rating agencies.
The table analyses the usage of six green financial instruments in the fifteen countries selected for the research. The instruments listed in the table represent the most efficient set of measures that governments can apply at the national level to encourage an energy diversification process. We therefore conducted thorough research to check the degree to which those instruments have been planned, implemented, and enforced in each jurisdiction. The cells corresponding to each tool have been labeled in green if a country have successfully made use of that instrument, in yellow if the usage of one tool has been poor or if the results are unsuccessful, and in red if the tool has not been used or considered in that jurisdiction.
Europe: differences among European countries
To date, European countries have so far adopted the most ambitious set of green financial policies and environmental regulations. In terms of carbon markets, the European emission trading system (ETS) is the largest carbon market in the world by volume and value. While the price per emission is not high per se (going from EUR9 to EUR40 from 2018 to 2021), the ETS is still forcing all the oil, gas, and coal companies to pay a price on carbon[1]. Since 2014 the European non-financial reporting directive (NFRD 2014/95/EU) is also requiring companies in EU jurisdiction to disclose non-financial information according to European or national guidelines[2], while the environmental liability directive (ELD 2004) requires industries to be held accountable for environmental damages, even if subscribing a pollution liability insurance is not yet mandatory[3]. At the same time, not all the jurisdictions in the EU have implemented the same approach. In terms of subsidies, for example, there is a great difference between different countries. While in Denmark the government has committed to reduce the dependency on fossil fuels promoting new investments in renewable energies, and diminishing fossil fuels subsidies[4], other countries such as France or Italy are still subsidizing fossil fuels companies, and while green incentives are present, these are not enough to determine a switch to renewables as in Denmark. At the same time, NGOs are extremely important in mobilizing public opinion and civil society, resulting in strong environmental movements in Denmark but failing to promote important divestment campaigns in other countries of the Union.
Environmental regulations and green finance outside of Europe
Outside of the EU, our analysis covered another ten countries hosting the headquarters of some of the highest-impacting oil, gas, and coal businesses in the world. While the set of environmental measures adopted by the European Union has shown its own fallacies and the efficiency, as we have seen, varies from country to country, the success of some European companies like Ørsted (DK), Iberdrola (SP), and Engie (FR) together with the extensive coverage of environmental regulations set the bar for analyzing the situation in other countries. Looking at table 1, we can see that almost every country outside the EU has to some extent implemented regulations for non-financial data disclosure, although companies can choose to disclose information following internationally recognized frameworks such as the TCFD and the GRI in order to enhance their transparency and facilitate the country’s overall efforts to combat climate change. The table also reveals that in almost every country around the world, investors and rating agencies are putting some pressure on oil, gas, and coal companies to diversify their energy sources and release non-financial data to assess environmental risks. This has been particularly true since last January 2020, when BlackRock[5] has launched a new equity global index excluding fossil fuel-related companies from it and potentially triggering others to do the same.
However, major changes are still needed. Countries like Russia and Saudi Arabia are deeply rooted in the oil business, and environmental laws are loose or non-existent. At the same time, even countries that do not find the backbone of their industrial sector in fossil fuels have done little to meet the Paris Agreement targets. Pollution liability is still inefficient in the USA and in Canada, while fossil fuel subsidies are still higher than green subsidies in countries like Brazil or Australia, where the recent wildfires showed the great threat posed by climate change in those regions. Carbon markets and carbon taxes have gained momentum, growing for three years, straight reaching a total value of EUR196 billion globally. However, the EU ETS rose by 30% in 2020, making up for EUR169 billion over the total value of carbon markets worldwide[6]. North America has launched two carbon markets that rank second when combined (EUR 22.37 billion), and other pilot projects are under development in several countries, including China. At the same time, some projects like the Australian Carbon Pollution Reduction Scheme have failed to take off after several attempts[7].
References:
[1] Carbon Pulse (2020). World’s carbon markets grow 34% in value to $215 billion in 2019 -report. Retrieved from: https://carbon-pulse.com/90631/
[2] European Commission (2020). Non-Financial reporting. Retrieved from: https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/non-financial-reporting_en
[3] European Commission (2020). Environmental liability. Retrieved from: https://ec.europa.eu/info/energy-climate-change-environment/implementation-eu-countries/environmental-liability_en
[4] State of Green (2018). New Danish Energy Agreement Secured: 50 per Cent of Denmark’s Energy Needs to Be Met by Renewable Energy in 2030. Retrieved from: https://stateofgreen.com/en/partners/state-of-green/news/new-danish-energy-agreement-a-green-focus-towards-2030/.
[5] Natural Resources Defense Council (2014). NRDC, BlackRock and FTSE Jumpstart Mainstream Climate-Conscious Investing. Retrieved from: http://www.nrdc.org/media/2014/140429.asp
[6] Carbon Pulse (2020). World’s carbon markets grow 34% in value to $215 billion in 2019 -report. Retrieved from: https://carbon-pulse.com/90631/
[7] Renew Economy (2019). Five Years after Carbon Price Repeal, Australia Remains in Policy Abyss. Retrieved from: https://reneweconomy.com.au/five-years-after-carbon-price-repeal-australia-remains-in-policy-abyss-43066/.