Climate change

Key Climate changes and results in the reporting year
RESPONSIBILITY FOR CLIMATE CHANGE ISSUES IS A PRIORITY AT THE BOARD OF DIRECTORS LEVEL
LUKOIL GROUP’S CARBON MANAGEMENT SYSTEM CONTINUED TO IMPROVE
LUKOIL GROUP’S GHG EMISSIONS FROM FLARINGAt stationary units in the Exploration and Production and Refining, Marketing and Distribution business segments. DECREASED BY 56 PERCENT COMPARED TO THE 2016 LEVEL
Contribution to implementation of SDG


  • Controlled GHG emissions (Scope 1 + Scope 2) reduced by 2.15 million tonnes of СО2E between 2016 and 2019 and by 4.78 million tonnes of СО2E in 2020 compared to 2019.
  • The volume of GHG emissions was reduced to 340 thousand tonnes of СО2E in 2020 by selling electric power generated from renewable sources and by substitution of grid electricity used internally.
Plans for 2021 and the midterm outlook

Development and implementation of the Decarbonization Program and the Climate Adaptation KPIs.

Development of the Energy Conservation Program for 2022–2024, taking into account the climate adaptation strategy.

Further development of renewable energy sources projects.

Context

The COVID-19 pandemic took center stage for much of the year, reducing the attention to climate change issues for many months. However, this was a temporary phenomenon and the attention of both countries and companies is now intensely focused on next steps. At the Global Economic Forum in Davos in 2021, for the first time all discussions of “risks”Source: The Global Risks Report 2020. World Economic Forum, 2021. were related to climate change and the human impact on the global ecosystem.

In 2020, the downturn in economic activity and transportation, complete or partial shutdowns in a number of industries, and the general decline in consumption ledSource: The Global Risks Report 2020. World Economic Forum, 2021. to reduced anthropogenic GHG emissions, clearly illustrating the scale of human impact on the climateSource. According to the forecastsSources: Climate Gap Report. UN Environmental Program, 2021; The COVID-19 Effect on the Paris Agreement. Nature, 2021., however, the effect of this reduction will be short-lived, and emissions are forecast to increase in 2021 as national economies recover. Experts estimatedSource: Report “Global Climatic Threat and Russian Economy: Searching for the Way”. Moscow School of Management SKOLKOVO, 2021. that the lockdown period only slightly affected global warming, reducing the temperature increase expected by 2030 by only 0.001 °C. Reductions of a much greater magnitude are required every year for the next decadeSource: The Global Risks Report 2020. World Economic Forum, 2021. just to avoid the worst effects of climate change.

On the other hand, some countries have not only kept their commitments to reduce GHG emissions, but have announced more ambitious emission goals, committing themselves to pursue long-term breakthrough solutions.

The EU has presented plans to accelerate the transition to a net-zero development pathSource under the Green Deal, aiming to reduce GHG emissions by 55 percent by 2030 as compared to 1990 levels. The European Union Emissions Trading System (EU ETS) is one of the instruments to stimulate change: cutting down the emission allowances for major industrial enterprises will increase the cost of purchasing them. It is also planned to add maritime and road transport to the EU ETS.

In March 2021, the European Parliament adopted a resolution supporting the implementation of another instrument — a carbon border adjustment mechanism for imported carbon products from countries that do not have national GHG emissions regulation systems in place. Later in the year, the European Commission will consider four possible options for a mechanism compatible with WTO principles.

Expanded economic mechanisms, tied to EU direction, will require specific actions from oil and gas companies among others to ensure sustainability in the long term.

The EU and other countries, including Japan, India, and the UK have committed to ambitious goals concerning carbon neutrality first by 2050, China — by 2060. US policy has already changed dramatically. One of the first steps of the Biden Administration was to rejoin the Paris Agreement and a series of far reaching domestic and international initiatives have been proposed.

International cooperation on the climate agenda will intensify, and, if the steps outlined are implemented, more than half of the world’s GHG emissions will be controlled through decarbonization projects by mid-century.

Russia has set a national goal to reduce emissions to 70 percent of the 1990 level by 2030Source: Decree No. 666 of 04 November 2020 “On Reducing Greenhouse Gas Emissions”., and a Strategy for Socio-Economic Development as a Low-Carbon Country up to 2050 is being developed. Governments and experts are discussingSource: Report “Russia’s Climate Agenda: Responding to International Challenges”. Center for Strategic Research, Analytical Center of the Fuel and Energy Complex of the Russian Energy Agency of the Ministry of Energy and Situation Center LLC. the prospects of creating a national trading system for GHG emission quotas or ‘low-carbon’ certificates. A pilot project with special regulation of GHG emissions is already being implemented in the Sakhalin Region. This pilot may result in establishing a national GHG emissions trading system and its integration with international systems.

Russia’s two year chairmanship of the Arctic Council in 2021-2022 will also bring renewed attention to issues of climate change in the North – the area of the planet that is warming most rapidly and is most likely to be affected by the melting of permafrost.

Among the significant external factors for oil and gas companies, in 2020For example, Oil and Gas after COVID-19: The day of reconning or a new age of opportunity. McKinsey & Company, 2021 was the COVID-19 pandemic, which significantly influenced the structure of supply and demand in 2020, exacerbating operational and financial efficiency issues. This is considered as the beginning of a long-term trend, which will inevitably lead oil and gas companies to change their strategies and business models. Guided by the accumulated experience of structural transformation and innovation, companies will need to find solutions in line with their objectives to reduce GHG emissions.

LUKOIL contributes to SDG 13 (Climate action), consistently reducing GHG emissions and developing projects with low carbon footprints.