In January 2021, INPEX announced “Business Development Strategy,” which is our corporate management policy for a net-zero carbon society by 2050, and we simultaneously revised our “Corporate Position on Climate Change.”
Based on these policies, we actively pursue reform of energy structure in order to achieve a net-zero carbon society by 2050 while still fulfilling the responsibilities of energy development and stable supply to meet the continually-increasing energy demands in Japan and around the world for the long term. Also, to contribute to the achievement of the Paris Agreement goals, we have established the climate change goals of net-zero Scope 1+2 emissions by 2050 as the main pillar.
In order to address the two societal demands of meeting increasing energy needs and reducing greenhouse gas (GHG) emissions in a balanced manner, we are committed to conduct our business while appropriately assessing and managing climate change risks and opportunities.
INPEX’s information disclosure related to climate change is in line with the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations as always. The “Corporate Position on Climate Change” (issued in December 2015, last revised in January 2021) is available on our website*1.
MESSAGE FROM THE DIRECTOR IN CHARGE OF CLIMATE CHANGE RESPONSE
In the “Business Development Strategy,” our corporate management policy towards a net-zero carbon society by 2050 issued in January 2021, we determined our climate change goals, in which net-zero in Scope 1+2 emissions by 2050 is the main pillar for contributing to the achievement of the Paris Agreement goals. Concurrently, we revised our “Corporate Position on Climate Change” to reflect these goals, and we will continue advancing our initiatives to disclose climate-related information in accordance with the TCFD Recommendations.
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 change scenarios, including the IEA*2 WEO Sustainable Development Scenario (SDS*3:scenario consistent with the Paris Agreement’s goals of keeping average global temperature rise to well below 2 degrees Celsius compared to preindustrial 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 GHG emissions, we will strive to manage the progress while advancing efforts to achieve established climate change goals.
Facilitating CO2 absorption through forest conservation is one of the five pillars of achieving climate change goals. By supporting Indonesia’s Rimba Raya Biodiversity Reserve REDD+*4 Project, INPEX came to an agreement with InfiniteEARTH in February 2021 on acquiring 5 million tons of carbon credits over 5 years starting in 2021.
We will continue advancing our efforts to achieve climate change goals.
- *2International Energy Agency
- *3Sustainable Development Scenario
- *4A concept defined in the Cancun Agreement (2010) aiming at reduction of CO2 emissions by controlling deforestation and deterioration through forest management and actively increasing carbon stock through afforestation
Climate Change Milestones
Efforts in Setting and Achieving Climate Change Goals
INPEX has established three goals in an effort to contribute to achieving a net-zero carbon society in accordance with the Paris Agreement goals (keeping average global temperature rise since preindustrial levels to well below 2 degrees Celsius, and to further limit it to 1.5 degrees Celsius).
The first goal established was achieving net-zero emissions by 2050 in accordance with the Paris Agreement goals. The second is reducing the net carbon intensity by over 30% (compared to 2019) by 2030 as a process. Scope 1+2 emissions, which are emissions from INPEX’s business process, are subject to these goals. The third is cooperating with all relevant stakeholders to work on the reduction of Scope 3 emissions associated with combustion of sold oil and gas across the value chain.
Additionally, the specific countermeasures for achieving net-zero goals include (1) promotion of Carbon Capture Utilization and Storage (CCUS), (2) strengthening in renewable energy initiatives, (3) promotion of CO2 absorption through forest conservation, (4) maintenance of methane emissions intensity (methane emissions / natural gas production) at its current low level (about 0.1%), and (5) zero routine flaring.
|Scope1*1||8,557||7,328||thousand tons- CO2e|
|Scope2*1||204||179||thousand tons- CO2e|
|Net carbon intensity*2||41||35||kg-CO2e/boe|
|Scope3*3||82,626||77,305||thousand tons- CO2e|
|Methane emissions intensity*4||0.10||0.07||%|
INPEX’S Net Carbon Intensity
Our net carbon intensity in 2020 was 35kg-CO2e/boe, a reduction of 15% compared to the previous year.
- *1INPEX’s equity share emissions
- *2Net carbon intensity including offset
- *3For details, please refer to P92 of ESG Performance Data
- *4Methane emissions intensity: calculated by methane emissions / natural gas production (%), using the similar method adopted by Oil and Gas Climate Initiative
- *5The offset include reduction contributions from renewable energy as well as CO2 absorption through forest conservation. Contributions from renewable energy are calculated based on the “Guidelines for Measurement, Reporting and Verification of GHG Emission Reductions in JBIC’s GREEN” (the J-MRV Guidelines)
Supply Chain Emission Reduction Initiatives - Towards Scope3 Reduction
GHG emission data from LNG carriers, chartered by our wholly-owned subsidiary INPEX Shipping, are disclosed as INPEX Scope 3 emissions*5. These carriers are used primarily for shipping LNG from Ichthys LNG project.
Additionally, we are promoting sales of “carbon-neutral LNG and natural gas” to our clients. “Carbon-neutral LNG and natural gas” refers to LNG and natural gas which is not considered to emit GHG in its lifecycle*6. It involves offsetting the GHG emissions across the entire process, from exploration of natural gas to shipping and combustion, with equivalent of CO2 credit (carbon offset) in the sale of LNG and natural gas by INPEX. Along with our clients, we take the initiative on low carbon business through by providing carbon-neutral products like these.
Furthermore, we are working with contractors and suppliers towards reducing GHG emissions. In our “Health, Safety and Environment Policy,” we have declared that “we pursue every effort to reduce GHG emissions and adhere to the GHG emission management process.” We incorporate clauses requiring compliance with the “Health, Safety and Environment Policy” into our construction and procurement contracts, and we promote emission reduction efforts across the supply chain.
- *5ESG Performance Data
- *6Total Amount of Emissions from Production of LNG Gas to Combustion
The INPEX Low-Carbon Society Scenarios
With regard to outlook for business environment such as energy demand and supply toward a low-carbon society by 2040*7, INPEX refers to the Stated Policies Scenario (IEA-STEPS) and the Sustainable Development Scenario (IEA-SDS) of the International Energy Agency (IEA)’s World Energy Outlook (WEO). Additionally, centering on these scenarios, we further assume INPEX’s own scenarios: Technology Progress Scenario (scenario featuring significant growth in demand for renewables and electric vehicles (EV) spurred by cost reductions based on market principles), and a Wake-up Scenario (scenario featuring further strengthening of climate change policies in each country based on the Paris Agreement). We use these four scenarios to examine our business strategies in the period of transition to a low-carbon society. Once a year, we review the scenarios in coordination with the timing of IEA WEO updates, and examine the direction of our strategies.
In January 2021, we formulated “Business Development Strategy: Towards a Net Zero Carbon Society by 2050” as a long-term business strategy utilizing these scenarios. Moving forward, we will continue quickly adapting to the changing business environment while utilizing the scenario reviews, and revising our business strategies and plans in conjunction with the trends in society.
- *7IEA WEO offers a full view of international energy situation up until 2040
The INPEX Low-Carbon Society Scenarios
Overview of IEA WEO 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 WEO2020, the world’s primary energy demand will continue to grow through 2040, with oil and natural gas together accounting for 54% 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 forecasted to grow about four-fold in the period from 2019 to 2040.
IEA WEO Sustainable Development Scenario (SDS)
The IEA WEO Sustainable Development Scenario is a decarbonization scenario that assumes energy related targets of the United Nations 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 goals (keeping average global temperature rise to well below 2 degrees Celsius compared to preindustrial levels, with efforts to limit temperature rise to 1.5 degrees Celsius).
Energy efficiency will be improved significantly and 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 46%. Also, demand for renewables will increase about nine times the 2019 level by 2040.
Continuous Initiatives on the TCFD Recommendations
Governance Framework for Climate Change Response
INPEX recognizes that climate change is a critical business issue, and the Board of Directors maintains its oversight and expands its involvement. Specifically, the “Corporate Position on Climate Change” is a matter for resolution by the Board of Directors. In January 2021, we announced “Business Development Strategy: Towards a Net-zero Carbon Society by 2050”, establishing the goal of net-zero emissions by 2050, in line with the Paris Agreement goals. Accordingly, we completely revised our “Corporate Position on Climate Change”*8 in January 2021 and disclosed it externally. Further, we added “INPEX’s Current Initiatives,”*8 which describes specific progress status for climate change measures based on our policy, and disclosed it externally in February 2021. In principle, “INPEX’s Current Initiatives” will be updated on a yearly basis.
Governance Framework for Climate Change Response
Climate Change Response and Directors’ Compensation
Regarding INPEX’s climate change measures, we establish qualitative goals for risk management and information disclosure in accordance with the TCFD Recommendations based on our “Medium-term Business Plan 2018-2022.” The evaluation of the level of achievement are reflected in the bonus for the director in charge. Bonuses for representative directors and other directors are also calculated by comprehensively taking into considerations a range of factors such as ESG and HSE performance including climate change response, in addition to performance in main business operations based on net profits for the period.
Assessing and Managing Climate-related Risks and Opportunities
FY2020 Workshop for Assessing Climate-related Risks and Opportunities
INPEX in principle assesses and manages climate-related risks and opportunities in an annual cycle. The promotion of climate change measures across the Company is handled by the Climate Change Strategy Group within the Corporate Strategy & Planning Unit of the Corporate Strategy & Planning Division.
Regarding climate-related risks, the “Climate Change Strategy Working Group (WG),” composed of about 30 members representing each of the divisions, implements assessments and formulates preventive and mitigation measures.
The process of risk assessment adheres to procedures in ISO31000 (2009) (Figure A), an international risk management standard. We update external and internal factors, share INPEX situations with the WG members. We then identify risks and analyze their causes, preventive measures, mitigation measures, and residual risks (Figure B). The residual risks are assessed using the “Risk Assessment Matrix based on TCFD Recommendations” (Figure C) created by INPEX.
Regarding climate-related opportunities, based on the “Business Development Strategy”, we are working across the whole Company through creation of new divisions such as the Hydrogen & CCUS Development Office. We will add persons in charge of these divisions as WG members, and effectively, efficiently assess and manage climate-related opportunities in INPEX’s corporate policy.
Furthermore, WG evaluation results will be discussed in a CSR committee meeting as “INPEX’s Current Initiatives” and reported to Executive Committee and the Board of Directors upon receiving approval from the CEO (Figure D).
Figure A. ISO31000 Process
Figure B. Risk Analysis Process
Figure C. Risk Assessment Matrix based on TCFD Recommendations
Figure D. Process of Assessing and Managing Climate-related Risks and Opportunities
FY2020 Status of Climate-related Risks: Assessment Coverage, Expected Timing and Action Plans
|Risk category||Risk description||Expected Risk Timing||Action plan|
||Potential for increased costs due to introduction and strengthening of regulation that applies a direct or indirect price on carbon||Medium-term||
||Risk of decrease in oil and gas demand and prices due to decrease in the cost of renewable energy, electric vehicles and/or storage battery, or preference for low carbon energy in the market||Long-term||
||Stakeholder concerns about Scope 1 emissions||Short-term||
||Stakeholder concerns and a deteriorating image of the oil and gas industry due to Scope 3 emissions||Medium-term||
||Potential adverse impacts on financing activities due to a perception of insufficient information disclosure from investors and financial institutions||Medium-term||
|Physical risks||Acute risks||Risk of adverse impacts on operating facilities by extreme weather events||Medium-term||
|Chronic risks||Risk of adverse impacts on operating facilities by long-term increase of average temperatures, changing precipitation patterns, and rising sea levels||Medium-term|
- *9Representative Concentration Pathways
- *10Intergovernmental Panel on Climate Change
FY2020 Status of Climate Change Opportunities: Assessment Coverage, Expected Timing and Action Plans
|Opportunities||Opportunities covered||Expected opportunity timing||Action plan|
|Opportunities in resource efficiency||
||Energy efficiency improvements in production processes||Short-term||
|Opportunities in energy sources||
||Utilization of renewable energy sources in production processes||Long-term||
|Opportunities in products and services||
||Supply of cleaner energy by reducing CO2 in upstream business operations||Medium-term||
||In anticipation of the coming hydrogen society, develop towards production and supply of hydrogen||Long-term||
||Accelerate efforts in geothermal power and offshore wind power business in Japan and abroad||Medium-term||
||Research and development of carbon recycling technology||Long-term||
||Accelerate creation of business in new fields||Long-term||
||Promoting sales of carbon-neutral LNG and natural gas||Medium-term||
||Build global gas value chains||Medium-term||
||Promote oil and gas exploration||Long-term||
- *11Enhanced Oil Recovery including enhanced gas recovery
Development of a Physical Risk Assessment Process
During FY2018, INPEX examined assessment processes of physical risks and established a road map for both operator and non-operator projects for which facilities exist. In the early 2020s, we aim to assess all facilities as early as possible. During FY2019, we conducted trial physical risk assessments of our major operator facilities. We initially used external data published in the RCP8.5 (Representative Concentration Pathways 8.5) scenario, which assumes most progressive global warming, in the IPCC fifth Assessment Report (AR5) to identify climate variables including mid-21st century’s average temperature and sea level rises. Using such data, we identified risks at our major facilities in Niigata Prefecture, Japan and Darwin, Australia. In terms of chronic risks, while there may be adverse impacts to our operational efficiency, our assessment indicated that there was no immediate needs for facility repairs. In terms of acute risks, we focus on natural disasters, which appear to be occurring in Japan with greater frequency and force. While measures are being taken on the national level, we also examine our own measures using existing risk management framework. We currently focus on conducting pipeline risk assessment and formulating necessary countermeasures.
Additionally, we established a Climate Change Task Force in July 2019 as part of the technology roadmap for strengthening our technical capabilities. This task force is composed of about 15 cross-organizational engineers as members, and it assesses physical risks. In FY2021, INPEX will evaluate the implementation status of physical risk assessment of climate change in non-operator projects.
Physical Risk Assessment Roadmap
Assessment of Financial Impacts of Climate-related Risks
INPEX uses two methods to assess the potential financial impact of climate-related risks.
The first method is to assess the economic impact of internal carbon pricing on each of our projects. Since FY2021, we have implemented economic assessment using carbon pricing as a base case instead of using carbon pricing in a sensitivity analysis. This is because over 120 countries worldwide have already declared Net-Zero 2050, and it is considered likely that carbon pricing will be introduced in many of those countries as climate change policies are further strengthened. The INPEX’s internal carbon price used is reviewed each year with reference to the carbon prices in the IEA WEO Stated Policies Scenario (STEPS). In FY2020, we adjusted our internal carbon price from US$35/tCO2-e to US$40/tCO2-e to reflect the IEA WEO carbon price forecast.
The second method is to assess the financial impact on our business portfolio. This is a financial assessment of the market risks on our portfolio due to the oil and carbon prices in the IEA WEO Sustainable Development Scenario (SDS: scenario consistent with the Paris Agreement’s goals of keeping average global temperature rise to well below 2 degrees Celsius compared to pre-industrial levels, and pursuing efforts to limit it to 1.5 degrees Celsius). By applying trends in oil and carbon prices, as presented in the IEA WEO SDS, to the net present value (NPV) calculation for projects, we calculate the rate of change against a base case NPV as the impact on our portfolio. This method has been utilized in internal assessments since FY2018, and we acknowledge it to be an effective method for financial assessment of our portfolio while assumptions for the NPV calculation are difficult to make. We will continue efforts to elaborate the implementation standards of this method and to improve the competitiveness of our portfolio as we incorporate changes in the business environment.
Two Approaches to Financial Assessment
|Financial assessment method||Economic assessment of projects using internal carbon price (US$40/tCO2-e)||Financial assessment of the portfolio due to application of oil prices and carbon prices according to the IEA WEO Sustainable Development Scenario (SDS)|
|Metric||NPV due to application of internal carbon price (base case NPV)||Rate of change in NPV due to application of IEA WEO SDS indicator prices (sensitivity analysis)|
|Status||Assumed as base case since FY2021||Implemented since FY2018|
Disclosure in Line with TCFD Recommendations