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Energy and climate change The energy context: the climate change challenge

The energy context: the climate change challenge

Society needs more and more energy as the population grows and economies develop, but this energy must be provided in a sustainable manner, reducing the effect of GHG emissions on climate change as much as possible. In order to overcome this double-faceted challenge, we need a new model for approaching the reality of climate change, in which growth and competitiveness can coexist with emissions reduction. In this new model, industry and private companies assume a leading role based on innovation and technology. 

The Paris Agreement represents a historic advancement in climate change, since it is the first time so many developed and developing countries are committed to the fight against climate change. As signatories of the"Paris Pledge for Action,"we support the agreement and work so our Company forms part of the solution to the climate change problem. 

The objective of the agreement is to limit the increase in average global temperature to 2 ºC with respect to pre-industrial levels. This scenario implies that by 2100, net CO2 emissions into the atmosphere must be zero. 

It is a very ambitious and challenging goal, and one that will no doubt require large doses of innovation and technology, key elements to ensuring that an increasing number of people have access to all the resources they need in an efficient and sustainable manner. 

The Oil & Gas sector currently supplies more than half of the energy needed by our economies and will continue to play a relevant role in the future of energy. The projections of the International Energy Agency for 2040, in a scenario consistent with the commitments made by the signatory countries of the Paris Agreement, predict that oil and gas will supply 45% of the world's required energy. Additionally, oil and gas will be indispensable for the production of most plastics, solvents, and some materials. 

Our operations represent approximately 5% of the total GHG emissions produced by man. The use of our products by other sectors such as energy, industry, and transportation represents an additional 32%. Undoubtedly, the oil and gas industry plays and will continue to play a key role in the short and medium term. 

The transition towards an economy with less emissions will take place over the coming decades and, during that time, hydrocarbons will continue to play a relevant role in the energy mix.

In this context, we will continue to strive to improve energy efficiency, find ways to further reduce GHG emissions and promote the use of natural gas as a fuel for the generation of electricity, an energy source that will play a relevant role in fulfilling the sustainable development goals.

Climate change risk management

We believe it is essential to integrate energy and carbon management into our business model and risk management system. Climate change is another variable that must be taken into account when making strategic decisions. 

We have an Integrated Risk Management System (IRMS) that allows us to identify, manage, and control the risks and opportunities arising from climate change. We classify the identified risks and opportunities as legislative, physical, reputational, or market related.

As regards legislative risks and opportunities, after the Paris Agreement, the commitments taken on by the signatory countries will have a significant impact on climate policies. We already operate in areas with strict legislative energy and carbon requirements (approximately 60% of our direct CO2 emissions come from our units in Europe, USA, and Canada). For instance in Europe, the 2020 climate and energy package currently in force is associated with various directives, such as the Energy Efficiency Directive, and the Emissions Trading System (ETS). In the United States, there are regulations related to the national methane emissions plan, and in Canada we are affected by the implementation of climate legislation in Alberta. Furthermore, in Europe, a new 2030 energy and climate package has been agreed on, which includes specific objectives for emissions, energy efficiency, and renewable energy sources, and the corresponding new directives are currently being discussed.

As for physical phenomena, our management is aimed at minimizing the risks and magnitude of the possible impacts that climate change can have on the natural resources we depend on and the weather phenomena we are exposed to (extreme droughts, tornadoes, temperature changes, etc.). 

Lastly, in the reputational or market risk and opportunity category, we analyze how the changes in consumer behavior, loss of share value, or fossil fuel disinvestment affect us.

Our Company is managing these risks and opportunities in a coordinated manner in all the business units involved.