This paper focuses on the strategic direction of EITI and its implementing countries. Its findings may also help inform debate as governments and their development partners seek to support a recovery in line with a ‘well below 2°C’ world.
4. Conclusion
This paper finds that, as the central governance standard for the extractive industries, EITI has an important role to play in the transition to a sustainable, decarbonized world. Calls for better understanding of the implications of transition for the extractive industries are growing louder across government, business and civil society. The economic impacts of the transition away from fossil fuels and carbon-intensive sectors are increasingly clear, as are the opportunities for a domestic energy transition, yet levels of awareness and capacity in producer countries remain low. These countries will face different risks and opportunities, shaped by both their national context and international progress towards transition. While the transition is not currently on track, emissions are now expected to decline in 2020 due to the impact of the COVID-19 pandemic, and the shape of the global recovery will have profound implications for its future trajectory. Producer countries with high levels of economic, energy and industrial dependence on the extractive industries will be among the most vulnerable in a late and disorderly transition, and the least resilient to economic and climate shocks.
The economic impacts of the transition away from fossil fuels and carbon-intensive sectors are increasingly clear, as are the opportunities for a domestic energy transition, yet levels of awareness and capacity in producer countries remain low.
Within this wider context, this paper has explored two broad areas of opportunity:
First, the potential for EITI data, disclosures and dialogues to help countries assess both their exposure to the economic risks associated with transition, and their progress on energy transition. Better understanding of the issues introduced in this paper – from the resilience of revenues and the commercial viability of projects under different transition scenarios, to the extractive industry’s energy sources and emissions – will be crucial for sound policy development and decision-making. In many cases, existing EITI data and disclosures and publicly available information could support such analysis. In others, additional disclosures could enhance EITI’s relevance and impact.
Second, the potential for EITI to contribute to improved national and international governance through transition. Where national governance is concerned, EITI is well positioned to provide a forum for informed debate around the risks and opportunities associated with transition. With the right data and guidance, MSGs could help ensure that policies and decisions relating to the extractive industries are aligned with national sustainable development, including energy transition and climate goals. It could highlight economic and energy dependencies on the extractive sector that may increase national exposure to climate-related economic risks or present a barrier to domestic energy transition.
Better coordination with international governance mechanisms can help ensure that international best practice is shared with producer countries and put to use, and that EITI data, disclosures and dialogues contribute to international efforts to support an orderly transition. Effective partnerships with international mechanisms that are designed to manage climate-related economic risks, such as the NGFS and TCFD, and those such as the UNFCCC that are designed to guide emissions reductions, could help avoid the duplication of efforts and encourage these processes to reflect the needs of emerging and developing countries, as well as demonstrating EITI’s relevance and impact beyond the extractive industries.
Without better information and capacities, developing and emerging economies may be exposed to unnecessary economic risks and be left further behind by energy transition.
Underpinning each of these areas is the imperative to support an equitable and just transition. It has long been accepted that national decision-makers face asymmetries of information and capacity around the extractive industries, compared with international companies and investors in the sector. Indeed, the focus of much donor and MDB assistance to the sector, and of governance standards such as EITI, has been on addressing information gaps and building the institutional and civil society capacity required to ensure the good governance of extractive resources. Similar asymmetries are now emerging around climate risk and energy transition, with an increasingly sophisticated understanding of risks and opportunities at the international level, but few comparable discussions or mechanisms at national level. Without better information and capacities, developing and emerging economies may be exposed to unnecessary economic risks and be left further behind by energy transition.
As an organization, EITI will have to decide how to respond to this changing global context for the extractive industries, while balancing the interests and needs of its stakeholders. Its emphasis on multi-stakeholder engagement means that the process of integrating new issues within the EITI Standard is typically a slow one. At the same time, there is growing interest in energy transition among implementing countries, and some MSGs are already integrating issues related to transition in their EITI processes. As the world responds to the COVID-19 crisis, the need for a transition towards more sustainable, equitable and climate-resilient growth could not be clearer. The impacts of COVID-19 have highlighted the speed with which systemic shocks can affect economic stability, and the need for real-time data and forward-looking analysis to inform sound policy- and decision-making.
There is now a live debate about the extent to which recovery measures might accelerate the transition to a sustainable, low-carbon economy, or reinforce carbon-intensive economic models. Many producer countries are already facing severe economic downturns because of the crisis, and the decisions their governments take now regarding debt, spending and investment will have long-term implications for their resilience to future systemic shocks – including those related to climate change – and their ability both to manage climate-related economic impacts and to make progress on domestic energy transition. As national governments and international development assistance focus on greening economic recovery, EITI’s response both to the current crisis and to longer-term climate and energy transition trends will be crucial to its continued relevance. It must now consolidate the progress that it has made on transparency and against corruption, while keeping pace with global developments.
Recommendations
Make a high-level policy commitment to mainstreaming transparency on energy transition and climate risk through the next EITI Standard: This commitment should come from the EITI Board and should recognize both the economic and energy impacts of transition, and their wider implications for the good governance of natural resources and for public financial accountability. EITI’s approach should be one of mainstreaming transition requirements through existing data, disclosures and dialogues, and where appropriate, considering additional requirements. It should treat transition as a cross-cutting issue for extractives governance, rather than as an additional area of reporting. Such a commitment would provide a clear strategic direction for EITI’s longer-term policy response, and a mandate for EITI’s more immediate practical steps towards it.
Identify practical next steps towards the use of EITI data and disclosures: There are many opportunities to leverage existing EITI data and disclosures to analyse the implications of transition for producer countries, and for the good governance of extractive resources. There are also a number of challenges, not least the significant time and investment that will be required to build awareness and capacity, especially at national level. The International Secretariat should work in partnership with national secretariats, MSGs and other partners to:
- Develop analysis of existing data and disclosures – EITI summary data include disclosures relating to production and revenues, contracts and state participation in the sector, and could already help build a picture of national and aggregate exposure to risks and opportunities, including exposure to certain commodities. EITI reports contain disclosures and contextual information that may help set the wider context for energy transition and provide quick insights into the areas of interest and current levels of reporting across countries. The International Secretariat could explore opportunities for the analysis of EITI summary data, and consider how these data could be structured to support comparative as well as country analysis.
- Advance national analysis and reporting – Some EITI-implementing countries are already exploring issues relating to transition, and others have stated their interest. Pilot studies with small groups of volunteer countries could test analytical approaches and reporting in new areas, from the resilience of revenues, the viability of projects and the scale of public finance at risk, to subsidies and emissions reporting. Each area will raise different challenges, including the relevance of existing EITI data and the need for additional information or disclosures, as well as the capacity of key stakeholders to use them. Support for studies and peer dialogue could help accelerate learning.
- Provide clear guidance and requirements for countries – Where levels of awareness are low among national secretariats and MSGs, and where data and capacity gaps are identified, there will be value in developing guidance notes and in packaging (or linking to) relevant data. The International Secretariat could develop guidance notes on priority issues such as revenue resilience and project viability (linking to mainstream scenarios and best-available data on the cost of production) and contract analysis (with detail on risky clauses and amendments). These should clearly communicate risks and opportunities, and questions for MSGs to explore.
Enhance dialogue and coordination at national and international level: Some of the issues introduced in this paper lie beyond EITI’s traditional areas of competency, but they will inevitably affect the extractive industries, and would benefit from enhanced transparency and greater scrutiny. Doing this without overstretching national secretariats and MSGs – or duplicating efforts elsewhere – will require effective stakeholder engagement and the development of new partnerships at national and international level. EITI’s national and international stakeholders should work to:
- Integrate transition within the mandate and membership of MSGs – Effective discussion of the economic and energy implications of transition will require a clear mandate and wider MSG engagement, particularly with departments that have responsibility for energy and climate policy, and with processes such as the development of NDCs. This can be encouraged from the top down, with the EITI Board putting the implications of transition on the agenda for MSGs to discuss as part of their mandate, and from the bottom up, with MSGs integrating transition in their mandates and work plans and widening stakeholder engagement.
- Share international best practice with producer countries – Developing links to international governance mechanisms – such as the UNFCCC, where the reporting of emissions is concerned, the TCFD and the NGFS for climate-related economic risks, and the G20 and the OECD for the reporting of fossil fuel subsidies – could help raise national awareness and build the capacities required to apply the principles of such mechanisms in the domestic context. Effective MSG engagement could help ensure that country decision-makers and civil society have full sight of the economic and energy implications of transition, and of national exposure to/readiness for them.
- Explore EITI’s contribution to international processes – EITI’s International Secretariat could initiate further studies – in partnership with the relevant international stakeholders and national secretariats – to identify where EITI data could contribute to international processes, and how EITI summary data could be structured to facilitate easier access and wider use. The findings could be presented in time for the UN Climate Change Summit (COP26) in 2021, alongside EITI’s progress in the other areas outlined above. The EITI Board could also encourage supporting companies to support the TCFD and provide links to their disclosure of climate-related financial risks.
Act fast: EITI should recognize that political and societal sentiment on climate change and energy transition are evolving rapidly. The EITI Board should explore the potential for ‘quick wins’ that can help support both longer-term policy debates regarding the economic risks associated with transition, and the opportunities for domestic energy transition, in the context of national SDG and climate commitments and urgent interventions in response to the COVID-19 pandemic, including borrowing and state support for the extractive industries, and their implications for national climate resilience and energy transition. While a policy commitment to mainstreaming transparency on transition through the next EITI Standard could set the direction here, practical steps towards the use of EITI data and disclosures in priority areas and the integration of transition within MSG mandates and membership could be advanced immediately by interested EITI stakeholders. This could encourage recovery measures that support sustainable economic development and energy transition.