Climate Change

Our Policy

INPEX recognizes that climate change is a critical business issue. To achieve the long-term goals of the Paris Agreement, an economy wide transition to a low carbon society is under way.

Global climate change response requires action by all members of the international community; governments, businesses and civil society. Governmental policy measures, technology development, industry response, and other long-term initiatives are particularly pertinent. We are committed to fulfilling our role in addressing climate change as a responsible member of the oil and natural gas industry. Furthermore, we comply with national regulations of each country in which we operate business, including those introduced to support the Paris Agreement. Our businesses will work with governments and other stakeholders to address the two societal demands of meeting increasing energy needs and reducing greenhouse gas (GHG) emissions; to achieve a balance between the two.

In our actions towards achieving a low-carbon society, we will strengthen initiatives on promoting natural gas development and renewable energy as a means to reduce the emissions associated with INPEX’s value chain. In addition, we will properly manage GHG emissions from our operations and proceed with technology development for practical application of Carbon dioxide Capture Storage*1 to capture and sequester GHG emissions. We shall also undertake analysis and initiatives in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and seek to complete disclosure of exposure to climate-related risks as well as information on climate related opportunities. Based on this policy, we developed our “Corporate Position on Climate Change” and “INPEX’s Current Initiatives”[PDF:667KB], which is available on our website.

  1. *1CCS
    Carbon dioxide Capture and Storage
Kimihisa Kittaka
Director, Senior Managing Executive Officer in charge of Corporate Strategy & Planning

To enhance our response to climate change as a responsible oil and natural gas company, we published our position paper entitled “Corporate Position on Climate Change” in December 2015 and most recently updated it in February 2020. As detailed in INPEX’s “Vision 2040” and “Medium-term Business Plan 2018-2022” announced in May 2018, we are also implementing ongoing measures to enhance our initiatives addressing climate change and to disclose information in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). These measures are positioned to help us contribute proactively to developing a low-carbon society based on the long-term targets outlined in the Paris Agreement.

Specifically, our Board of Directors seeks to maintain its oversight and expand its involvement in governance. When developing our business strategies, we assess our ability to respond to multiple climate-related scenarios, including the IEA*2 WEO 2°C scenario (The IEA SDS*3 is consistent with the Paris Agreement’s target of keeping average global temperature rise well below 2 degrees Celsius compared to pre-industrial levels, and pursuing efforts to limit it to 1.5 degrees Celsius), to evaluate our business portfolio. Regarding risk and opportunity assessment, we have an annual assessment and management cycle where risks and opportunities are explored in detail. We then implement measures and work plans developed from that process. As for the management of greenhouse gas (GHG) emissions, we are considering target-setting methods in line with international standards while complying with each country’s national regulations and GHG management frameworks. We are also improving information disclosure regarding exposure to climate-related risks in line with the recommendations set out by the TCFD.

To apply industry best practices to these activities in a timely manner, we disseminate and gather information as a member of the Executive Committee of IPIECA, the global oil and gas industry association for advancing environmental and social performance. INPEX hosted the first IPIECA extraordinary general meeting and executive committee meeting in Japan in November 2019. We will continue our efforts to proactively promote sustainability.

  1. *2International Energy Agency
  2. *3Sustainable Development Scenario

Sustainability Initiatives on the TCFD Recommendations

Disclosure in Line with TCFD Recommendations

Governance Framework for Climate Change Response

As we recognize that climate change is a critical business issue, the Board of Directors seeks to maintain its oversight and expand the Company’s involvement. Specifically, our “Corporate Position on Climate Change” was resolved by the Board of Directors and then published in 2015, with a revision in February 2020. As a rule, the Board will review this corporate position on a yearly basis. The outcomes of assessments of climate-related risks and opportunities, and important target settings relating to climate change, are approved by the Management Committee and then reported to the Board of Directors. Finally, we have tasked the Climate Change Strategy Group, within the Corporate Strategy & Planning Unit of the Corporate Strategy & Planning Division, to address climate change issues across the entire company.

Governance Framework for Climate Change Response

Climate Change Response and Director Compensation

Our “Medium-term Business Plan 2018-2022” sets out the climate-related targets in the areas of governance, business strategies, risk and opportunity assessment, GHG management and disclosure. These targets are integrated into executive bonuses. Bonuses for representative directors and other directors are also set according to a range of factors, including the performance of main businesses in terms of current year net profits, and HSE performance including ESG and climate change response.

Climate Change Milestones

Annual cycle of assessing and managing climate-related risks and opportunities

INPEX generally assesses and manages climate-related risks and opportunities in an annual cycle (Figure A). During the 2019 financial year, the Climate Change Strategy Group prepared a draft action plan against climate-related risks and opportunities, and the Climate Change Strategy Project Team discussed and evaluated it. The revised action plan was reported to the Management Committee and Board of Directors. In February 2020, the project team was changed into a Climate Change Strategy Working Group to act as an advisory body to the CSR Committee, which is chaired by the President and CEO. The working group is composed of about 25 members from each division to enable discussions on a company-wide basis in line with discussions, investigations, and proposals from each division. The company’s processes for assessing and managing climate-related risks and opportunities were also clarified and documented in the form of guideline.

The INPEX risk assessment process follows the international risk management standard, ISO 31000:2009 (Figure B). By updating the external environment and internal factors, and sharing the situation at INPEX, the risks are identified, and the causes, preventive measures, mitigation measures, and residual risks are analyzed (Figure C). Finally, those residual risks are assessed using a TCFD Recommendations Response Risk Assessment Matrix developed by INPEX (Figure D).

Workshop to share details of INPEX business environment in FY2019

Managers from each division met to review future business environment changes resulting from climate change based on the INPEX low-carbon society scenario.

FY2019 Status of Climate-related Risks: Assessment Coverage, Expected Timing and Action Plans

  Risk category Risk description Expected Risk Timing Action plan
Transition risks
Policies and regulations
(Scope 1 emissions)
Potential for increased costs as a result of regulation that applies a direct or indirect price on carbon Medium-term
  • Monitor policy frameworks in the countries in which INPEX operates business
  • Include internal carbon pricing in economic evaluation of projects
(Financial impact)
Stakeholder concerns about increasing Scope 1 emissions Short-term
  • Ongoing management of GHG emissions and identification of emissions reduction activities
(Scope 3 emissions)
Stakeholder concerns and a deteriorating image of the oil and gas industry due to Scope 3 emissions Medium-term
  • Promote development of natural gas as the low carbon energy option for customers
  • Strengthen renewable energy business in the company energy portfolio
  • Promote development of technologies for practical application of carbon capture and storage
(Financial impact)
Potential downside impacts on access to credit and/or equity due to a perception of insufficient information disclosure from investors and financial institutions Medium-term
  • Disclose information on climate-related risks and opportunities in accordance with the recommended framework by the TCFD
Market and technologies
(Decrease in oil and gas demand and prices)
  • Continuous decrease in demand and prices for oil and gas due to changing market preference to low-carbon energy
  • Decrease in the cost of renewable energy, electric vehicles or battery storage
  • Conduct scenario-based monitoring of market and technology trends Financial assessment of portfolio using oil and carbon prices according to the IEA WEO 2°C scenario
  • Conduct economic evaluation of projects using the supply cost curves
Physical risks Acute risks Risk of adverse effect on operating facilities by extreme weather events Medium-term
  • Conduct trial risk assessment of operating facilities due to increasing average temperatures, changing precipitation patterns, rising sea levels and other climate change factors up to the mid-21st century according to the RCP*4 8.5 scenario in the Intergovernmental Panel on Climate Change (IPCC*5) Fifth Assessment Report
Chronic risks Risk of adverse effect on operating facilities by long-term increasing average temperatures, changing precipitation patterns, and rising sea levels Medium-term
  1. *4Representative Concentration Pathways
  2. *5Intergovernmental Panel on Climate Change

FY2019 Status of Climate Change Opportunities: Assessment Coverage, Expected Timing and Action Plans

  Opportunities Opportunities covered Expected opportunity timing Action plan
Resource efficiency
(Energy conservation)
Energy efficiency improvements in production processes Short-term
  • Design facilities with high energy efficiency and follow through maintenance plan to improve energy efficiency on a routine basis
Energy sources
(Utilization of renewable energy sources)
Utilization of renewable energy sources in production processes Long-term
  • Consider the potential of solar power generation for projects established in sunbelt regions of the world that receive high amounts of sunshine
Products and services
(R&D and innovation)
Research and development of technologies that contribute to building electricity, hydrogen and methane value chains Long-term
  • Conduct joint industry-academia development of CO2 methanation technologies as a carbon recycling technology that converts CO2 to methane for reuse as an energy source
  • Participate in the Research Association of Artificial Photosynthetic Chemical Process (ARPChem), a joint industry-academia-government project that uses hydrogen produced from sunlight and water using photocatalysts with the aim of manufacturing core chemical products from carbon dioxide, and promoting development of artificial photosynthesis technologies
Low-carbon products
(Expansion of renewable energy businesses)
Enhancement of initiatives for renewable energy businesses: Increase to 10% of business portfolio Medium-term
  • Survey geothermal resources in Hokkaido, Akita and Fukushima Prefectures and develop investment cases for prospective resources where appropriate
  • Participate in the Sarulla Geothermal IPP Project in Indonesia, the world’s largest geothermal power generation business with a total installed capacity of 330 MW (110 MW each from Units 1, 2 and 3)—Currently operating commercially
  • Develop an onshore wind power generation business in Japan
(Expansion of natural gas sales)
Build a global gas value chain Medium-term
  • Investigate participation in LNG receiving terminal businesses, gas-fired power station businesses, and LNG bunkering businesses overseas, particularly in Asia
  • Establish a joint smart energy company with gas cogeneration facilities in Mizuho Town, Nishitama District, Tokyo in a four-company collaboration (July 2019)
(development of low-emission energy source)
Promote oil and gas exploration Long-term
  • Push ahead with the Abadi LNG Project, Indonesia

Assessment of Financial Impacts of Climate Change Risks

INPEX used three methods to assess the potential financial impact of climate-related risks.

The first method is to assess the financial impact of relevant policy and regulatory risk that the introduction and enhancement of carbon pricing policies pose to our projects. According to a report from the World Bank*6, 96 of the countries participating in the Paris Agreement report using or considering the introduction of carbon pricing policy (such as cap-and-trade or a carbon tax) for their Nationally Determined Contributions (NDCs). We are applying an internal carbon price (US$35/t CO2-e) as part of the economic assessment of existing and potential future projects. The level of internal carbon price used is reviewed each year in line with IEA WEO carbon prices.

The second method is to analyze the financial impact of potential changes in oil and carbon prices resulting from the various climate scenarios and the impact those changes may have on our portfolio. By applying changes in oil and carbon prices, as presented in the IEA WEO Sustainable Development Scenario, to the net present value (NPV) formula for projects, we calculate the rate of change against a base NPV as the impact on our portfolio. (The IEA SDS is consistent with the Paris Agreement’s target of keeping average global temperature rise well below 2 degrees Celsius compared to pre-industrial levels, and pursuing efforts to limit it to 1.5 degrees Celsius.) We have been using this method in our internal assessments since FY2018. We will continue efforts to enhance the operating standards of this method and to improve the competitiveness of our portfolio.

The third method is to assess the financial impact of market risk that oil and LNG supply/demand forecasts according to the 2°C scenario pose to our projects. In FY2019, we conducted assessments using the supply cost curve (Figure) as part of our financial impact assessments according to the 2°C scenario. In this method, future increases in demand for oil and gas are limited due to the expansion of the low-carbon economy. Under this hypothetical premise, project investments are determined in order from the lowest per-unit production costs and subsequently meet future demands. This assessment method enables us to assess future competitiveness by comparing per-unit production costs for our projects to costs for other company's projects. The method is useful for improving the competitiveness of our portfolio as it enables us to review business plans under a range of demand scenarios and reduce production costs as necessary.

When making the actual investment decisions, we consider many different factors other than production costs. Our investment criteria come first, and then, in addition to the production cost, the other factors such as country risk, impacts on the environments, and strategic importance for INPEX would be considered.

  1. *6World Bank – 2019 State and Trends of Carbon Pricing (June 2019)

Three Approaches to Financial Assessment Response

Illustrative Supply Cost Curve

  • Sort all projects around the world into order according to per-unit production costs
  • Represent total production volume up to 2040 for each project by length of line
  • Indicate total demand volume up to 2040 according to the 2°C scenario by a red dotted line
  • Take projects to the left of the red dotted line as having per-unit production costs suited to the 2°C scenario

Development of a Physical Risk Assessment Process

During FY2018, we examined assessment processes of our physical risks and established a road map for both operator and non-operator projects. In the early 2020s, we aim to assess all facilities as early as possible. During FY2019, we also conducted trial physical risk assessments of our major operator facilities. We initially used published external data to specify climate variables including mid-21st century’s average temperature, precipitation pattern, and sea level rises for Niigata Prefecture in Japan and Darwin in Australia. We followed the RCP8.5 (Representative Concentration Pathways 8.5) scenario in the IPCC fifth Assessment Report (AR5), which is a “Business as usual” scenario. Using the same data, we identified risks at our major facilities in Japan and Australia. In terms of chronic risk, there may be impacts to our operational efficiency, though our assessment indicated that there was no immediate need for facility repairs. On the other hand, when looking at acute risks, our attention is focused on natural disasters, which appear to be occurring in Japan with greater frequency and force. As countermeasures move forward on the national level, we focus on the risk management within the conventional framework including promotion of pipeline risk assessment and the formulation of countermeasures.

Physical Risk Assessment Roadmap

The INPEX Low-carbon Society Scenarios

With regard to energy demand forecasts toward a low-carbon society by 2040, we are conducting analysis using four different scenarios. Our base case scenario is the Stated Policies Scenario (STEPS) of the International Energy Agency’s World Energy Outlook (IEA WEO). In the Technological Progress Scenario, we assume a large growth in demand for renewables and electric vehicles (EV), spurred by cost reductions based on market principles. In the Wake-up Scenario, we assume further enhancements to climate change policies in each country in line with the Paris Agreement. We use these scenarios as well as the IEA WEO 2°C scenario (SDS), when examining our business strategies in the period of transition to a low-carbon society.

The IEA WEO revises the scenarios once a year to reflect changes in society.

We conduct a signpost analysis regarding the main indicators of the IEA scenarios and actual events as signposts*7 to assess which one of our scenarios has already started to play out. The outcome of this analysis is used to review the consistency of our future strategic direction with society.

  1. *7Signposts
    Signposts are early indicators of future scenario directions. INPEX identifies multiple elements as signposts including the energy mix, advances in electrification, and the spread of EV and low-carbon technologies. We closely watch these trends and the likelihood of certain developments.

The INPEX Low-carbon Society Scenarios

Overview of IEA scenarios

IEA WEO Stated Policies Scenario (STEPS)

The IEA WEO Stated Policies Scenario (STEPS) of the International Energy Agency’s World Energy Outlook assumes implementation of all currently announced policies. According to the STEPS in WEO 2019, the world’s primary energy demand will continue to grow through 2040, with oil and natural gas together accounting for 53% of the total demand. Although the share of renewables (excluding hydropower and biomass) in the energy mix is smaller than that of oil and gas, that share is forecast to grow about four-fold in the period from 2018 to 2040.

IEA WEO Sustainable Development Scenario (SDS)

The IEA WEO Sustainable Development Scenario is a decarbonization scenario that assumes energy targets of the international Sustainable Development Goals (SDGs) are achieved. Under this scenario, electrification on a global level and reductions of GHG emissions contribute to achieving the Paris Agreement’s target (keeping average global temperature rise well below 2 degrees Celsius compared to pre-industrial levels, with efforts to limit temperature rise to 1.5 degrees Celsius).

Energy efficiency will be improved significantly with broad implementation of strong low-carbon policies as its backdrop. Primary energy demand will decrease towards 2040. On the other hand, the share of oil and natural gas in the total demand will remain at 47%. Also, demand for renewable energies will increase about eight times the 2018 level by 2040.

Plan for Transitioning to a Low-carbon Society

For this scenario entailing a further shift from the IEA WEO Stated Policies Scenario to a low-carbon society, we acknowledge the uncertain prospects for a large increase in oil prices. Under these conditions, as presented in the Medium-term Business Plan 2018-2022, we will work to reduce production costs to $5/bbl (excluding royalties) for oil and gas in upstream businesses, and to improve the efficiency of our operations.

Meanwhile, we aim to reduce our carbon footprint. In addition to managing emissions from our operations appropriately, promoting the development of natural gas, for which robust demand is anticipated under both the STEPS and the SDS, is an important mean to drive down the emissions. In parallel, we enhance renewable energy initiatives and participate in Proof of Concept trials for CCS, which captures and stores CO2.

In Vison 2040, we further promote a low-carbon footprint in operations. We aim to be a key player in natural gas development and supply, mainly focusing on Asia and Oceania. Meanwhile, we will seek to expand our domestic gas supply chain on which our development and supply of natural gas have so far been centred, and create a global gas value chain. In the field of renewables, we aim for renewable energy projects to account for 10% of our project portfolio in the long-term. As for CCS, we will develop technologies for its practical application.

Accordingly, while reducing our carbon footprint in each of our business activities, we will work to continuously increase corporate value by maintaining a business portfolio with the flexibility to respond to changes in the business environment towards 2040.

Supply Chain Initiatives

In our Health, Safety and Environmental (HSE) Policy, we have pledged that we will pursue every effort to reduce our carbon footprints and adhere to the GHG emissions management process. In our Contractor HSE Management Manual and Domestic Procurement Guidelines, we have included articles requiring compliance with this pledge in both work and procurement contracts, with compliance extending to the contractors and suppliers as well.

For example, we are tracking emissions from LNG carriers, chartered by our wholly-owned subsidiary INPEX Shipping for better understanding of our overall emissions and future improvement, and disclose the information as our Scope 3 emissions. These carriers are used primarily for shipping LNG from Ichthys LNG project.