FinancingReductionsinOilandGasMethaneEmissionsAWorldEnergyOutlookSpecialReportontheOilandGasIndustryandCOP28TheIEAexaminesthefullspectrumofenergyissuesincludingoil,gasandcoalsupplyanddemand,renewableenergytechnologies,electricitymarkets,energyefficiency,accesstoenergy,demandsidemanagementandmuchmore.Throughitswork,theIEAadvocatespoliciesthatwillenhancethereliability,affordabilityandsustainabilityofenergyinits31membercountries,11associationcountriesandbeyond.Thispublicationandanymapincludedhereinarewithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.Source:IEA.InternationalEnergyAgencyWebsite:www.iea.orgIEAmembercountries:AustraliaAustriaBelgiumCanadaCzechRepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIrelandItalyJapanKoreaLithuaniaLuxembourgMexicoNetherlandsNewZealandNorwayPolandPortugalSlovakRepublicSpainSwedenSwitzerlandRepublicofTürkiyeUnitedKingdomUnitedStatesTheEuropeanCommissionalsoparticipatesintheworkoftheIEAIEAassociationcountries:ArgentinaBrazilChinaEgyptIndiaIndonesiaMoroccoSingaporeSouthAfricaThailandUkraineINTERNATIONALENERGYAGENCYFinancingmethaneemissionsreductionsPAGE2IEA.CCBY4.0.AbstractTheoilandgasindustryhassomeofthebestandmostcost-effectiveopportunitiestoreducemethaneemissions.Thepotentialtodosoisclear.Somecountriesandcompanieshavealreadydemonstratedthatachievingnear-zeroemissionsfromoilandgasoperationsistechnicallyandeconomicallypossible.Thereareagrowingnumberofinitiatives,policiesandregulationsaimingtoreduceemissionsglobally,andmanyreductionscanberealisedwhilesavingmoney.However,overallprogresshasbeenmuchtooslow,despitetherecordprofitsthattheoilandgasindustrysawin2022.Thisreportlooksindetailattheinvestmentrequirementstodeliverasharpreductioninoilandgasmethaneemissionsto2030,andhowthesecouldbefinanced.TheanalysisisintendedtoinformdiscussionsintherunuptoCOP28andhelppromptthenecessaryactionstoacceleratethepaceofchange.FinancingmethaneemissionsreductionsPAGE3IEA.CCBY4.0.ExecutivesummaryTacklingmethaneemissionsfromoilandgasoperationsisoneofthemostimportantmeasurestolimitnear-termglobalwarming.IntheIEA’sNetZeroEmissionsby2050(NZE)Scenario,energy-relatedmethaneemissionsfallbyaround75%to2030–two-thirdsofwhichcomesfromreducingemissionsfromoilandgasoperations–andthiscontributesmorethan15%oftotalenergy-relatedgreenhousegas(GHG)emissionsreductionsto2030.JustoverUSD75billionincumulativespendingisrequiredto2030toachievethesereductionsinemissions.Therequiredspendingvarieswidelybygeography,operator,andpartofthevaluechain:aroundUSD55billionisneededinupstreamoilandgasfacilitiesandjustoverUSD20billionindownstreamoperations.MethaneabatementintheoilandgasindustryisoneofthecheapestoptionstoreduceGHGemissionsanywhereintheeconomy.AbatementmeasureswouldgeneraterevenuesofaroundUSD45billionfromthesaleofcapturedmethane.Thismeanstheaveragecostofmethanereductionsto2030islessthanUSD5/tonneCO2-equivalent.Eveniftherewasnovaluetothecapturedgas,almostallavailableabatementmeasureswouldbecosteffectiveinthepresenceofanemissionspriceofaboutUSD20/tonneCO2-equivalent.Oilandgascompaniescarryprimaryresponsibilityforabatement.ThespendingrequiredtocutmethaneemissionsintheNZEScenarioislessthan2%ofthenetincomereceivedbytheindustryin2022.Privatesourcesoffinancecanprovidecapitalwhereinternalfinancingoptionsarelimited.Regulationsandpoliciesonmethaneabatementareessentialtodrivedownmethaneemissions.Thesecanbepairedwithpublicfinancing,eitherdirectlyfromgovernmentsorthroughmultilateraldevelopmentbanks,tohelpcatalyseprivateinvestmentsandfillgapswhereprivatesourcesoffinancemaynotbewillingorabletoinvestatthelevelsneeded.Ofthetotalspending,weestimatethataboutUSD15-20billionneedsparticularattentiontoensurethatadequatesourcesoffinanceareavailable.Thisincludesthespendingrequiredtocutemissionsinlow-andmiddle-incomecountries,especiallythosewithoutstrongmethanereductionpoliciesandregulations,atfacilitiesownedandoperatedbynationaloilcompaniesandsmallerindependentcompanies,andformeasuresthatdonotgeneratemeaningfulreturnovertheirlifetimes.Thisisanappropriateareaforfocusedinternationalaction.Therehavebeenseveralnotableeffortsinthepasttofinancemethaneabatement.Theseincludeinternationalemissionspricingschemes,regionalemissionstradingmarkets,sustainability-linkedfinancing,anddirectpublicfunding.Financinginitiativesshouldbetailoredtofittargetedprojectsandreductiongoalsandbepairedwithclearaccountabilityframeworks.FinancingmethaneemissionsreductionsPAGE4IEA.CCBY4.0.RecommendationsTheoilandgasindustrymustleadeffortstotacklemethaneemissionsbyadoptingazero-toleranceapproach.ReducingoilandgasmethaneemissionsisoneofthecheapestoptionstoreduceGHGemissionsanywhereintheeconomy.TheCOP28ClimateChangeConferenceinDubaithisyearisauniqueopportunityfortheoilandgasindustrytoshowitisseriousabouttacklingitsmethaneemissions.Itistimeforboldandambitiouscommitments,focusedondeliveryby2030.Policymakersshouldimplementandenforceeffectivemethanepoliciesandregulationstoincentiviseearlycompanyactions.Manyoptionsareavailable,includingtheadoptionoftechnologyandequipmentstandards,enforcingbansonnon-emergencyflaringandventing,andofferingtargetedfinancialincentives.Measuresshouldbepairedwitharobustmeasurementandreportingregime.Investorsandinsurersshouldincorporatemethaneabatementintotheirengagementwiththeoilandgasindustrywiththeaimtopromotestrictperformancestandards,verifiablemethanereductions,andtransparentandcomparabledisclosuresonmeasuredemissions.Anewinternationaleffortisneededfromgovernments,industryandphilanthropytofillthefinancinggapsidentifiedinthisreport,notablytheUSD15-20billionofspendingrequiredinlow-andmiddle-incomecountries.Publicandphilanthropicactorscanplayacatalysingrole,supportingprojectidentificationandcapacitybuildingandunlockingadditionalprivatesourcesoffinance.Leadingcompaniesneedtostepuptosupporthigherperformanceacrosstheentireindustry.Financingeffortsshouldensurerapiddeliveryofthemostcost-effectivemitigationopportunities.Morethan40%oftheemissionsreductionsto2030intheNZEScenariocanbeachievedwithmeasuresthatwouldresultinoverallsavingsgiventhevalueofthecapturedgas.Alongsidemechanismstodetectandimmediatelytacklelargeleaks,theseoptionsincludereplacingpneumaticsandpumps,installingrecoverysystems,andimplementingleakdetectionandrepairprogrammes.Thesemeasuresrequirejustover10%ofthetotalspendingonmethaneabatementandcanproduceresultsquickly,layingthegroundworkforfurtherreductions.Investingininstitutionalcapacityforabatement,especiallyinlow-andmiddle-incomecountries,isavitalpartofthesolution.Regulatorystructuresandframeworksformethaneabatementshouldbecreatedorfurtherdevelopedbyincreasingdedicatedstaff,buildingtechnicalknowledge,anddevelopingmorerobustmonitoringandreportingsystems.FinancingmethaneemissionsreductionsPAGE5IEA.CCBY4.0.IntroductionMethaneisresponsibleforaround30%oftheriseinglobaltemperaturessincetheIndustrialRevolution,andrapidandsustainedreductioninmethaneemissionsarekeytolimitingnear-termglobalwarming.Theenergysectoraccountsfornearly40%oftotalmethaneemissionsfromhumanactivity,andithasthelargestpotentialforabatementinthenear-term.Oilandgasoperationsareresponsiblefor80milliontonnes(Mt)ofmethaneemissionsandtacklingtheseisoneofthemostimportantmeasurestolimitnear-termglobalwarming.MainsourcesofmethaneemissionsandabatementpotentialbasedoncurrenttechnologiesIEA.CCBY4.0.Notes:Methaneemissionsandabatementpotentialforoil,gas,andcoalisbasedontheIEA’sGlobalMethaneTracker;abatementpotentialforbioenergyisconsistentwithachievinguniversalcleancooking;agricultureandwasteisbasedontheGlobalMethaneAssessment.Emissionsfrombiomassburning,whichtotalaround10Mtofmethaneperyear,arenotshown.TheIEA’sNetZeroEmissionsby2050(NZE)Scenariomapsoutacompleteandrapidtransformationoftheenergysectortoachievenetzeroenergy-relatedCO2emissionsby2050.Thescenarioalsoencompassesrapidreductionsinenergy-relatedmethaneemissions,consistentwiththeoverallgoaloflimitingthetemperatureincreaseto1.5°C.Energy-relatedmethaneemissionsfallbynearly100Mtor3billiontonnesCO2-equivalent(GtCO2-eq)to2030intheNZEScenario,two-thirdsofwhichcomesfromreducingoilandgasmethaneemissions.1Thetotal1Onetonneofmethaneisconsideredtobeequivalentto30tonnesCO2basedonthe100‐yearglobalwarmingpotential(IPCC,2021).050100150WasteEnergyAgricultureMtMainsourcesofmethanefromhumanactivitiesBioenergy050100150WasteEnergyAgricultureMtAbatementpotentialOilGasCoalFinancingmethaneemissionsreductionsPAGE6IEA.CCBY4.0.reductioninmethaneemissionsaccountsformorethan15%ofallenergy-relatedGHGemissionsreductionsintheNZEScenarioto2030.WeestimatethatjustoverUSD75billionincumulativecapitalandoperatingexpenditureisrequiredgloballyovertheperiodto2030toachievethisreductioninoilandgasmethaneemissions.Tacklingmethaneemissionsisoneofthemostcost-effectivewaysofreducingGHGemissions,notleastbecausetheabatementmeasuresdeployedwouldgeneraterevenuesofaroundUSD45billionfromthesaleofcapturedmethane.Yettherearechallengestomobilisingthislevelofinvestment,includingalackofawarenessaboutemissionsandthecost-effectivenessofabatement,theopportunitycostofinvestmentinmethanereduction,alackofinfrastructure,ashortageoffundsinsomecases,capacitygapsinimplementation,andeconomicandinstitutionalbarriers.Alongsideadeterminedindustryfocusonthisissue,increasedpolicyandregulatoryactionisessentialtomobilisethislevelofspendingatthepaceandscaleneeded.Norway’smethanetaxhaslongbeenapowerfulcatalystforactionandothergovernmentsarebeginningtoact,includingthroughtheInflationReductionActintheUnitedStatesandtheEmissionReductionFundinCanada.2Engagementbyinternationalactors,includingbanksandinvestors,isalsokey.Externalfundingandblendedfinancecanremoveorreducebarrierstoactionandde-riskabatementmeasures.Thereareseveralinternationalinitiativesandorganisationsinthisarea,includingtheWorldBank’sGlobalFlaringReductionPartnership,theGlobalMethanePledgeEnergyPathwayandtheGlobalMethaneHub.Inthisreport,weexaminehowthespendingonmethaneabatementintheNZEScenarioissplitbetweenregions,typesofcompany,andsegmentsoftheoilandgassupplychain.Weprovideanoverviewofthedifferentfinancingmechanismsthatcouldbeusedtomobilisethislevelofspending.Finally,weexamineanumberofcasestudiestohighlightexamplesofhowmethaneemissionsreductionscanbefinanced,showcasebestpracticesandsuccessfulexamples,anddrawoutlessonsforfutureefforts.2Canada’sEmissionsReductionFundmadearoundUSD610millionavailabletofinancemethaneabatementprojects.TheUnitedStatesInflationReductionActcreatedaUSD1,550millionMethaneEmissionsReductionProgramformethaneabatementintheoilandgassector.FinancingmethaneemissionsreductionsPAGE7IEA.CCBY4.0.AbatementopportunitiesandspendingneedsA75%reductioninoilandgasmethaneemissionsisachievedby2030inourNZEScenarioIntheIEA’sNetZeroEmissionsby2050(NZE)Scenariomethaneemissionsfromoilandgasoperationsfallfrom80Mtin2022to17Mtin2030.Thisresultsmostlyfromtherapiddeploymentofemission-reductionmeasuresandtechnologies,includingastoptoallnon-emergencyflaringandventinganduniversaladoptionofregularleakdetectionandrepair(LDAR)programmes.By2030,alloilandgasproducersintheNZEScenariohaveanemissionsintensitysimilartotheworld’sbestoperatorstoday.OilandgasmethaneemissionsintheNZEScenario,2010-2030IEA.CCBY4.0.TheNZEScenarioseesamajorrampupincleanenergyinvestmentwhichresultsinanear-25%declineinoilandgasdemandbetween2022and2030.Thisresultsinaroundone-quarter(17Mt)oftheoveralldeclineinoilandgasmethaneemissionsto2030.Theremainingreduction(46Mtto2030)stemsfromdeliberateeffortsbytheoilandgasindustrytoreducetheemissionsintensityofitsoperations.Around21Mtofmethaneisavoidedbyreplacingpumps,controllers,compressorsandotherequipmentwithlow-orzero-emissionsalternatives,suchasinstrumentairsystems2040608010020102015202020252030MtmethaneUpstreamoilUpstreamgasDownstreamgasDownstreamoilFinancingmethaneemissionsreductionsPAGE8IEA.CCBY4.0.andelectricpumps.Another13MtisavoidedthroughregularorcontinuousLDARprogrammesthatensurethatfugitiveleaksareaddressedrapidlyandpreventlargeemissionseventsbyidentifyingmalfunctioningpartsorprocessesbeforetheyfail.Around6Mtisavoidedusingvapourrecoveryunits,whichdirectwasteflowsofmethanetoproductiveuses,enablingtheendofroutineventingandflaring.Thefinal6Mtisavoidedthroughadditionalprocessesandmeasuressuchasblowdowncapture,reducedemissionscompletion,androutingtankventstorecoverysystems.Methaneemissionsreductionsbetween2022and2030intheNZEScenarioIEA.CCBY4.0.Notes:LDAR=LeakDetectionandRepair.VRUs=VapourRecoveryUnits.Replaceleakyequipmentincludesinstrumentairsystems,electricpumps,andothermeasuresthatinvolvereplacingexistingequipment.Newprocessesandequipmentincludesblowdowncapture,routingventstorecoverysystems,andrelatedmeasures.JustoverUSD75billioninspendingisrequiredto2030toachievetheneededreductionsinmethaneemissionsRoughly70%ofthisiscapitalexpenditureonnewequipmentand30%isoperatingcosts,thelattermainlyrelatedtoLDARprogrammes.TheseestimatesarebasedonoilandgassupplyandpricesintheNZEScenario,ourestimatesofmethaneemissionsasdescribedintheGlobalMethaneTracker,andourdetailedmodellingof45methaneabatementtechnologiesandtheircountryandregion-specificcosts.JustunderUSD34billionspendingisneededinhigh-incomecountries,USD27billioninupper-middleincomecountries,USD13billioninlower-middleincomecountries,andUSD3billioninlow-incomecountries.3Despitehighercapitalcosts,thecostofabatementisgenerallysmallerinlow-andmiddle-incomecountriesbecauseofmuchlowerlabourcosts.Abatementmeasureswould3Countriesaregroupedbasedonthe2022categorisationprovidedbytheWorldBank.-20-15-10-50EurasiaNorthAmericaMiddleEastAfricaAsiaPacificCentralandSouthAmericaEuropeMtReductioninproductionReplaceleakyequipmentLDARVRUsNewprocessesandequipmentFinancingmethaneemissionsreductionsPAGE9IEA.CCBY4.0.generaterevenuesofaroundUSD45billiongloballyfromthesaleofcapturedmethane.Emissionsreductions,spending,andrelatedrevenueto2030intheNZEScenariobycountryincomegroupandindustrysegmentIEA.CCBY4.0.NearlyUSD36billionisneededtoaddressmethaneemissionsfromNationalOilCompanies(NOCs),whoareresponsibleforthemajorityofemissionsinEurasiaandtheMiddleEast.AroundUSD12billionofthisspendingisneededatfacilitiesownedbyNOCsinlow-andlower-middleincomecountries.Methaneabatementspendingto2030intheNZEScenariobyregionandcompanytypeIEA.CCBY4.0.Notes:C&SAm.=CentralandSouthAmerica.Eur.=Europe.NorthAm.=NorthAmerica.Eurasia=CaspianregionalgroupingandtheRussianFederation(Russia).Investmentrequirementsareallocatedonthebasisoftheequityownershipofproducedoilandgasratherthanoperator.-30-20-10010203040HighUpper-middleLower-middleLowBillionUSD(2022)CapitalinvestmentOperatingcostsRevenue-30-20-10010203040OnshoreDown-streamUncon-ventionalOffshoreNOCs36billionUSDIndependents37billionUSDMajors4billionUSDAfrica12%MiddleEast31%MiddleEast4%Africa5%AsiaPacific11%Eur.2%Eurasia31%C&SAm.10%NorthAm.3%NorthAmerica60%C&SAm.4%Eurasia15%AsiaPacific9%Eur.3%FinancingmethaneemissionsreductionsPAGE10IEA.CCBY4.0.AboutUSD4billionisneededtoaddressmethaneemissionsfromtheoilandgasownedbytheMajors(includingproductionfrombothoperatedandnon-operatedassets),4ofwhichUSD2billionisneededinlow-andmiddle-incomecountries.Thesecompaniesarewellplacedtoacceleratemethanecutsinlow-andlower-middleincomecountrieswhereregulationsoftentakelongertobeestablishedandenforced.Theycanalsohelpbringmethaneabatementtechnologiestothesecountriesandspreadbestpractices.AnotherUSD37billionspendingisneededtoaddressemissionsfromindependentoperators.5TheseemissionsareheavilyconcentratedintheUnitedStates,whereUSD22billionspendingisneededto2030intheNZEScenario.Morethan40%oftheemissionsreductionsto2030comefrommeasureswithnonetcost(assumingan8%rateofreturnoverthelifetimeofthemeasure).6Thisisbecausethecapitalandoperatingcostsoftheabatementmeasuresarelessthanthemarketvalueoftheadditionalgasthatiscapturedandcanbesold.Theyincludesolutionssuchasreplacingpneumaticsandpumps,installingrecoverysystems,orimplementingLDARprogrammesacrossupstreamoperations.Theseno-net-costmeasureshavelowerspendingrequirements:theyprovide40%oftheemissionsreductionsto2030withjustover10%ofthetotalspendingoverthisperiod.TheyalsoresultinUSD25billionofrevenueintheNZEScenarioto2030fromthegasthatiscapturedandcanbesold.Spendingonmethaneabatementmeasuresto2030withnegativeandpositivenetcostsintheNZEScenariobyincomecategoryandindustrysegmentIEA.CCBY4.0.4bp,Chevron,ExxonMobil,Shell,TotalEnergies,ConocoPhillipsandEni.5IndependentsareupstreamoperatorsorfullyintegratedcompaniesthataresmallerthantheMajors.Theyencompassawiderangeofcompanies:Lukoil,Repsol,manyNorthAmericancompanies–includingshalegasandtightoilplayers–suchasMarathonOil,ApacheandHess,anddiversifiedconglomerateswithupstreamactivities,suchasMitsubishiCorp.6SeeTechnicalAnnexfordetailsonthecostandrevenuecalculationsforthesemeasures.010203040HighUpper-middleLower-middleLowBillionUSD(2022)<0USD/tCO₂-eq0-10USD/tCO₂-eq>10USD/tCO₂-eq010203040OnshoreDown-streamUncon-ventionalOffshoreMeasurescostingFinancingmethaneemissionsreductionsPAGE11IEA.CCBY4.0.Someofthelargestopportunitiestodeployabatementoptionswithnonetcostareinmiddleincomecountries,especiallyinEurasia,theMiddleEastandtheAsiaPacificregion.Theseareoftenassociatedwithcountriesthathavehighlevelsofemissions,flaring,andsatellite-detectedlargeleaks.Forexample,around1.4Mtofmethanecouldbereducedin2030inTurkmenistanwithmeasureswithnonetcost;inIraq,whichflarednearly18billioncubicmetresofnaturalgasin2022resultinginalargelevelofmethaneemissions,emissionsin2030couldbecutbymorethan0.6Mtatnonetcost.Reducingoilandgasmethaneisoneofthemostcost-effectivemeasurestocutGHGemissionsbutnewsourcesoffinancingarelikelyneededGlobally,abating1Mtofmethaneinconventionaloilandgasproductionin2030requiresjustoverUSD1billionofspendingalthoughthisvariessubstantiallydependingonsitecharacteristics.Inthedownstreamsegment,abatementismorecostlyasoperationsspanawideareaanditisoftenhardtoaccessequipment:USD22billionspendingisneededtoreduceannualemissionsin2030by7Mt.Unconventionaloperationsalsorequiremoreinvestmentasthesetendtohaveahighercomponentcount:forevery1Mtofmethaneavoidedin2030,nearlyUSD2billionspendingisrequired.Spendingonoilandgasmethaneabatementto2030bycountryincomegroupintheNZEScenarioIEA.CCBY4.0.Consideringcumulativereductionsinemissionsbetween2023and2030,aroundUSD315spendingisneededpertonneofmethanereduced,equivalenttoaglobalaveragecostofUSD11/tonneCO2-eq.ThecapturedmethanethatcanbesoldwouldgeneratearoundUSD45billionrevenueto2030.Takingthisintoaccount,theaveragenetcostofmethanereductionsto2030islessthan-20-1001020-40-2002040HighUpper-middleLower-middleLowHighUpper-middleLower-middleLowUSD/tCO2-eqBillionUSD(2022)SpendingRevenueAveragecost(rightaxis)Measureswithnet-positivecostsMeasureswithnet-negativecostsFinancingmethaneemissionsreductionsPAGE12IEA.CCBY4.0.USD5/tonneCO2-eq.Inlow-andmiddle-incomecountries,theaveragecostisaroundUSD2/tonneCO2-eq.Eveniftherewasnovaluetothecapturedgas,almostallavailableabatementmeasureswouldbecosteffectiveinthepresenceofanemissionspriceofaboutUSD20/tonneCO2-eq,meaningthatmethaneabatementintheoilandgasindustryisoneofthecheapestoptionstoreduceGHGemissionsanywhereintheeconomy.Giventheoverallcost-effectivenessofmethaneabatement,theoilandgasindustryshouldbeinapositiontofinancemanyabatementmeasuresfromitsowncashflows,especiallyifenvironmentalandreputationalissuesaregivendueweightinproducers’capitalallocation.Nonetheless,newsourcesoffinancewilllikelyberequiredtomobilisealloftheinvestmentneededintheNZEScenario.Spendingonoilandgasmethaneabatementto2030intheNZEScenarioNote:ValueforRussiaandIranincludesnetpositivecostmeasuresonly.IEA.CCBY4.0.Itwillbemostchallengingtofinancemethaneabatementinlow-andmiddle-incomecountries,especiallythosewithoutstrongmethanereductionpoliciesandregulations,atfacilitiesownedandoperatedbyNOCsandsmallerindependentcompanies,andformeasuresthatdonotgeneratemeaningfulreturnovertheirlifetimes.Insuchacontext,weestimatethatnewsourcesoffinancecouldberequiredtomobilisearoundUSD15-20billionofspendingtodrivemethanereductionsatthepaceandscaleseenintheNZEScenario.ThisestimatedoesnotincludespendingrequiredforabatementmeasuresinRussiaandIran.Ourestimatesofemissionsandcostsdonotincludeabandonedandorphanedoilandgaswells.ThesecouldrepresentasignificantsourceofemissionsbutdataoutsidetheUnitedStatesandCanadaistoosparsetomakeareliableestimate.WithintheUnitedStates,theEnvironmentalProtectionAgencyindicatestheyareresponsibleforcloseto5%ofUSmethaneemissionslinkedtotheenergysector.34151927High-incomecountriesRussiaandIranNewsourcesoffinancingMajorsoutsidehigh-incomecountriesNonetcostmeasuresinlow-andmiddle-incomecountriesUSD77billionFinancingmethaneemissionsreductionsPAGE13IEA.CCBY4.0.Itwillalsobenecessarytoensurefundingforprojectidentificationandregulatorydevelopment,asthiswillhelptofacilitatefinancingforabatementactions.Ourestimatesofcostsdonotincludecapacitybuildingandtechnicalsupporttodevelopandimplementsoundmethanepoliciesandregulations.Asmanycountriesdonotyethavearegulatorystructureinplaceformethane,itwillbenecessarytodevelopcapacitywithinlocalregulatorybodies.Thespecificneedswilldependontheparticularcase,butthiscouldincludeincreasingstaffresources,developingpracticalknowledge,creatingsystemstoenablereporting,orprocuringequipmentneededforindependentinspections.FinancingmethaneemissionsreductionsPAGE14IEA.CCBY4.0.FinancingoptionstoaccelerateactionArangeofdifferentpotentialsourcesoffinancingareavailabletosupportmethaneabatementactivities.Thesehavedifferentrolestoplay,andamixtureofapproacheswillbeneeded,especiallyiftheUSD15-20billionfinancinggapinlow-andmiddle-incomecountriesto2030istobefilled.TheCOP28ClimateChangeConferenceinDubaioffersauniqueopportunityforallpartiestocometogetherandagreeonhowtocatalysethisnecessaryinvestment.Oilandgascompaniescanchannelrevenuefromoilandgassalestowardsmethaneabatement.Equipmentandpetroleumserviceprovidersarealsoincreasinglyprovidingup-frontfinancing.Commercialbanksandprivatecapitalfundscanalsosupportmethanereductions.Theworld’s60largestinvestmentandcommercialbanksprovidedUSD780billionoffinanceeachyearonaveragetotheoilandgasindustryfrom2016to2022andthereareclearopportunitiestolinkthisfundingdirectlyorindirectlytomethaneabatement.Securities,whichcanbetiedtosustainabilityperformance,canalsobeusedtoraisemoneyfromcapitalmarkets.Developmentfinanceinitiativescanprovideequityinvestments,long-termloansandguaranteestosupportinvestmentinemergingmarketanddevelopingeconomies.Whilesomehaveadoptedpolicieslimitinginvestmentinoilandgasprojects,anumbercouldstillprovidefinanceandadvicetomethaneabatementprojects.Governmentscanprovidefinancialincentivesintheformofgrants,loans,orotherfinancialmechanismstoaccelerateaction.Theyalsohaveakeyroleinprovidingthesupportneededtostrengthenregulatorycapacitytoensureadequateoversightandcompliance.Philanthropicinitiativeshaveariseninrecentyearsthatsupportmethaneabatement.Forexample,theGlobalMethaneHubhasraisedoverUSD300millionsinceitslaunchanddonatesfundstomethaneemissionsreductioninitiatives.FinancingmethaneemissionsreductionsPAGE15IEA.CCBY4.0.OilandgascompaniescarryprimaryresponsibilityforabatementTheprofitsfromoilandgassalesgeneratedbytheindustrycouldbereinvestedtofinancemethaneabatement.Globally,oilandgascompaniesearnedrecordprofitsin2022andtheindustry’snetincomedoubledtonearly4trillionUSD.Just2%ofthiswouldbesufficienttoprovideallthespendinginmethaneemissionsreductionmeasuresacrossthesupplychainintheNZEScenariothroughto2030.Netincomefromtheoilandgasindustryfrom2015to2022andtotalspendinginmethaneabatementrequiredto2030intheNZEScenarioIEA.CCBY4.0.Investinginmethaneabatementcanrequiresignificantupfrontcapitalexpenditure,andthisoftenfacescompetitionwithincompaniesforhowtouseavailablefunds.Ifmethaneabatementprojectshavelongpay-backoptionsorlowinternalratesofreturn,theymayloseouttootherinvestmentsdeemedmoreimportanttothecompany’scorebusiness.NOCsfaceadditionalconstraintsgivencompetingprioritiesfordomesticspending,especiallyinlow-andmiddle-incomecountries,potentiallylimitingtheamountsavailabletoinvest.Companiesneedtoadoptamoreproactivecorporatepolicytoincreaseinvestmentinmethaneabatement.Iftheindustrydoesnotsignificantlyreduceitsmethaneemissions,oilandgaswouldneedtobephasedoutmuchfasterthanintheNZEScenariotolimitthetemperatureriseto1.5°C.ManycompanieshavesettargetstoreduceGHGemissionsfromtheirownoperationsandtacklingmethaneemissionsisthesinglemostimportantmeasuretoachievethese.0150030004500201520162017201820192020202120222023-2030NetincomeMethaneabatementcostBillionUSD(2022)FinancingmethaneemissionsreductionsPAGE16IEA.CCBY4.0.The40%ofemissionsthatcanbeavoidedatnonetcostshouldbethefirstport-of-callforallcompanies.Buteffortsshouldgobeyondthis.Tacklingmethaneisoneofthemostreadilyimplementableandcost-effectivemeasuresavailableinanysectoroftheeconomytoreduceGHGemissions,andforward-leaningcompaniesshouldaimtotackleallemissionsfromtheiroperations,notjustthosethatwouldresultinapositivepayback.Companiesthattaketheleadintacklingmethaneemissionscouldgainacommercialedgealongsidethereputationalandenvironmentalbenefits.Regulationstoreducemethaneemissions–includingfinancialpenalties–arelikelytomultiplyinthefuture,especiallyineconomieswithnetzerotargets.Oilandgasimportersandconsumersareincreasinglylookingtoaddressmethaneemissionsfromtheirsuppliers.Forexample,ajointdeclarationfromenergyimportersandexportersin2022calledforaninternationalmarketforfossilenergythatminimisesflaring,methane,andCO2emissionsacrossthesupplychaintothefullestextentpracticable.Publicvisibilityandscrutinyonemissionsfromoilandgassupplyisalsosettoincreaseastheuseofsatellitesandotherremotemeasurementsystemsandrelateddatabecomesmorereadilyavailable.Anumberofcompanies–includingthoseintheOilandGasClimateInitiative–haveshownitispossibletomakeacommitmenttoachievenearzeromethaneemissions.Equipmentsuppliers,petroleumserviceproviders,andprojectdevelopersarealsoincreasinglyadoptingbusinessmodelsthatputthemeffectivelyinthepositionofinvestors.Someprovidershavebegunofferingtheinitialcapitaltodeployreductiontechnologieswithaflexibleremunerationmodelthatallowsoperatorstopaythembackfromthereturnsoverthelifeoftheproject.Thistypeofmodelwillbeespeciallyrelevantforprojectsthatarecost-effective.Wherethereturnsmaynotcovertheinitialcapital,additionalfinancingmayberequired.PrivatefinancecanhelpsupportrobustmethaneabatementprojectsPrivatesectorfinancinghasbeenamajorsourceoffundingforoilandgascompaniesinrecentyears.Thissuggeststhatsufficientcapitalcouldbeavailabletomakethenecessaryinvestmentsinmethaneabatement,whetherthroughdirectfinancingbycommercialbanksandprivatecapitalfunds,orthroughsecuritieslistedoncapitalmarketsthataretiedtosustainabilityperformance.Investorsandinsurerscanestablishmethaneperformancerequirementsforfuturelending,requestimprovementsondisclosuretopromotetransparencyonemissionsreporting,andsetupunderwritingstandardsthatincludemethanereductions(e.g.Chubb’sinsurancecoverageiscontingentonclientadoptionofevidence-basedplanstoreducemethaneemissions).FinancingmethaneemissionsreductionsPAGE17IEA.CCBY4.0.Manyprivatesectorbanksandfundshavetheirsettheirownclimategoalsandsomehaveadoptedpoliciesthatrestrictorlimitinvestmentinfossilfuelcompanies.TheNZEScenariorequiresalargelevelofinvestmentinto“transition”areas,includingmethaneabatementintheoilandgassector,thatmaybeprecludedbytheserestrictions.Channelsforthisinvestmentneedtobekeptopen,althoughthisshouldnotbecomealoopholeforinvestmentsthatarenotalignedwiththeParisAgreementorthatallowforgreenwashing.Newprivate-sectorfundscouldensurethatfinanceisavailableforoilandgascompaniesthatmightotherwisestruggletoinvestinmethaneabatementmeasuresofftheirbalancesheet,especiallythoseinlow-andmiddle-incomecountries.Companieswouldneedtosignalinvestmentinthesecategoriesbysettingcredibletargetsalignedwithnet-zerogoalsonemissionsreductions,measurement,andtransparency.Thiswouldprovideconfidencetoprivatefinancialactorsthatinvestmentinmethaneabatementisconsistentwiththeirownclimate-relatedcommitments.Thereareseveralmarket-basedoptionsavailablethatcouldpotentiallybeusedtofinanceinvestmentinmethaneabatement.Thisincludesgreenbonds,sustainability-linkedbonds,andtransitionbonds,althoughsomestandardsandtaxonomiesexcludeoilandgasrelatedinvestments.Asaresult,itisunclearwhetheroilandgascompaniesareeligibletoissuegreenbonds,andbyextension,sustainability-linkedbonds,underexistinginternationalstandards.Carbonmarketscouldalsoprovideopportunitiestoraisefinanceformethaneabatement,althoughtherapidtransitionrequiredacrosstheenergysectorintheNZEScenariomeanstheavailabilityanduseofoffsetsshouldbelimited.Privatesectorfundsoftencollatefinancingfrommultiplecompaniesandactors,andthesemayhavedifferentrestrictionsandlimitationsonthetypesoffinancingactivitiestheycansupport.Itisthereforeessentialthatthelendingconditionsforfundsareagreedfromtheoutsettoensureitssmoothfunctioningandabilitytoprovidefinancialsupportwhenitisneeded.Inallcases,privatesectorfinancingofmethaneabatementneedstobetiedtopropertechnicalimplementation,operationalbestpractices,andconsistentreportingandmeasurementofmethaneemissions.Financinginstrumentsshouldalsoconsiderthatcompaniesmayfacebarrierstooperationalisingmethaneabatementcampaignsbeyondalackofcapital.Thesecouldincludealackofcapacityorskillsandresourceswithintheirorganisation.Developmentoffinancinginstrumentsshouldconsiderthesebarriers,potentiallytyingsomeofthefundstothebuildingofthesecapacitiesandpairingthemwithotherformsofsupportsuchastrainingormonitoringframeworks.FinancingmethaneemissionsreductionsPAGE18IEA.CCBY4.0.PublicfinancingcancatalyseprivateinvestmentandfillgapswheretraditionalfinancestrugglesRegulationsandpoliciesonmethaneabatement–includinglimitsonflaringandventing,measurementandreportingrequirements,ormandatingLDAR–areessentialtodrivedownmethaneemissions.Publicfinancing,whetherdirectlyfromgovernmentsorthroughmultilateraldevelopmentbanksorphilanthropicfunds,canalsohelpcatalyseprivateinvestmentsandfillingapswhereprivatesourcesoffinancemaynotbewillingorabletoinvestatthelevelsneeded.Therehavebeensomeexampleswheregovernmentshavemadefundingdirectlyavailabletosupportprojectsthatreduceemissions.Forexample,Canada’sEmissionsReductionFundmadearoundUSD610millionavailabletofinanceprojectstobringdownmethaneemissionsandtogobeyondwhatwasrequiredinregulations.TheUnitedStatesInflationReductionActcreatedaMethaneEmissionsReductionProgrammakingUSD1.55billionavailabletoprovidefinancialandtechnicalassistanceformethaneabatementintheoilandgassector.Publicfinancingmaybeparticularlyimportantwhereprivateactorswouldstruggletobenefitfromabatement,suchasreducingemissionsfromorphanedwellsorwherethecostoftheabatementmeasureislargerelativetotheemissionsthatwillbeavoided.TheUnitedStateshasallocatedUSD4.2billionaspartofitsMethaneActionPlantoclean-upandplugorphanedwellsandCanadahasannouncedasimilarfundofaroundUSD1.4billion.Publicorphilanthropicfundscanprovidefinancialsupportinotherareaswhereprivatefundsorbanksarelesslikelytogo,suchascapacitybuildingandresearchandtechnologydevelopment.Theycanalsoplayaroleininvestinginpublicgoodsthatcanhelpwithmethaneabatement,suchasfundingsatellitestomonitormethaneemissionsanddetectleaks.Multilateraldevelopmentbanksandpublicstrategicinvestmentfundscouldbeanimportantsourceoffinancingformethaneabatement,especiallyincaseswherede-riskingofinvestmentisrequired.Someoftheseinstitutionshaveannouncedthattheywillstopfinancingoilandgasprojects,althoughitisnotclearinallcasesifthesepoliciesalsoprohibitfundingmethaneabatementprojectsthatdonototherwiseresultinanincreaseinproduction.Further,eventhosewithoutthisrestrictionmaystillbeabletoprovidetechnicalassistanceorothersupport,separatefromfinancing.TheWorldBank,forexample,organisestheGlobalGasFlaringReductionPartnership,whichprovidestechnicalandregulatorysupporttoreduceflaringandmethaneemissions.Notalldevelopmentfinanceinstitutionshaverestrictionsonoilandgasfinancing–includingtheAfricanDevelopmentBankandtheInter-AmericanDevelopmentBank.Others,suchastheAsianDevelopmentBankandtheInternationalFinanceFinancingmethaneemissionsreductionsPAGE19IEA.CCBY4.0.Corporation(IFC),havepoliciesallowingfinancingofoilandgasprojectsonlyunderspecificcircumstances–e.g.supportonlyformid-anddownstreamprojects.Manyoftheseinstitutionsmaystillbeabletofinancemitigationprojectsundertherightcircumstances.TheIFC,forexample,hasbeenabletocontinueprovidingfinancingandadvisoryservicestomethaneandflaringreductionprojectsatexistinginstallationsconsistentwiththeselimitations.Evenforthosewithbroaderrestrictions,mechanismsmaystillbeavailableforthemtosupportmethaneabatementactivitieswithoutdirectlyfinancingreductionprojects.Forexample,theEuropeanBankforReconstructionandDevelopment(EBRD),whichhasannouncedthatitwouldmoveawayfromfundingfossilfuels,hascontinuedtooffergrantsdirectlytogovernments,includingKazakhstanandUzbekistan,todevelopmethaneemissionsreductionprogrammes.National-levelstrategicinvestmentfunds,suchasthoseinChina,Nigeria,theUnitedArabEmirates,SaudiArabia,andelsewherehavemoreflexibilitytofundprojectsandcouldadoptastrategicpolicytoprioritisethem.Publicfinancingcanalsohelpregulatorsinlow-andmiddle-incomecountriesdevelopthecapacityneededtodraft,adopt,andimplementnewandenhancedregulations.Germany’sNitricAcidClimateActionGroupdoesthisinthecontextofN2Oabatement,providingbothfinancialsupportforabatementtechnologiesandsupporttogovernmentstodevelopregulatorycapacity.Technicalassistancethroughbilateralormultilateralcapacitybuildingprogrammeswouldalsobehelpful.FinancingmethaneemissionsreductionsPAGE20IEA.CCBY4.0.CasestudiesTherehavebeenseveralnotableeffortsinthepasttofinancemethaneabatement.Hereweexamineaselectionofexamplestodrawoutlessonsthatcanhelpinformfuturefinancingefforts.Thisisnotintendedtobeexhaustive,butratherfocusesonexampleswhereinnovativefinancingmechanismshavehelpedtoraisefundsformitigationprojects,eitherintheoilandgassector,orinareasthatcouldholdlessonsforoilandgasmethanemitigation.InternationalemissionspricingschemesTheWorldBank’sPilotAuctionFacilityforMethaneandClimateChangeMitigation(PAF)wasa“pay-for-performance”mechanismthatdisbursedinvestmentbasedonthedeliveryofpre-determinedandindependentlyverifiedresults.ThePAFusedfundsfrombothprivateandpublicsourcesandwasbackedbyseveraldonors,includingGermany,Sweden,Switzerland,andtheUnitedStates.Itwasnotusedforoilandgasmethanebuthelpedsupportprojectstoreducemethanefromlandfills,animalwaste,andwastewatersites.ThePAFusedcompetitiveauctionswherecompaniesbidontherighttosellfutureemissionscreditsatapriceestablishedthroughtheauction.Projectdeveloperswerethensecuredaminimumpriceguaranteeforthecreditstheygainedfrommethaneabatementprojects.Investorsreceivedpaymentonlyafterachievingindependentlyverifiedmethaneemissionsreductions.However,themechanismalsoallowedinvestorstoselltheirbondstoothercompaniesiftheycouldnotdelivertherequiredemissionreductions,de-riskingtheinvestment.Therewereatotaloffourauctions,threethataddressedmethaneabatementfromlandfills,animalwaste,andwastewatersitesandonethataddressednitrousoxideemissionsfromnitricacidproduction.TheauctionshadatotalbudgetofUSD62millionwith83biddersand41winners.AtotalofUSD54.7millionwaspaidtoinvestorsinexchangeforemissionscredits,avoidingaround19MtCO2-eqofmethane.Anotheremissionstradingscheme,theCleanDevelopmentMechanism(CDM),providedfinancetomethaneabatementprojectsintheoilandgassector,althoughtheimpactoftheCDMinthissectorhasbeenverylimited.TheCDMallowsadvancedeconomiestopartiallymeettheiremissionsreductiontargetsbypurchasingcertifiedemissionsreductioncreditsfromprojectsindevelopingcountries.OilandgasmethaneprojectscancreatethesecreditsthroughtherecoveryandutilisationofassociatedgasorLDARinnaturalgasfacilities.Therehavebeen45oftheseprojectssincetheinceptionoftheCDM–includinginFinancingmethaneemissionsreductionsPAGE21IEA.CCBY4.0.Bangladesh,IndiaandOman–althoughonly7projectshavebeenregisteredsincethecrashinthepriceofCDMcreditsin2012.ThefutureoftheCDMisuncertainpendingtheoutcomeofnegotiationsunderArticle6oftheParisAgreement.LessonslearnedTheWorldBankhasexploredthesuitabilityofthePAFmodelformethanereductionsintheoilandgassectorandindicatedthatitcouldhelpremovebarriersinthesector.Tobemosteffective,theWorldBankhighlightedthatanyfuturefacilitywouldneedtocarefullyconsiderthesizeandscaleofprojectsintheirdesign,useexistingverificationstandardsforresourcesaving,andensurethattheyarewellmarketedtoattractawideinvestorpool.LDARprogrammesandequipmentinvestmentsarelikelytobethemostsuitableprojectcategoriesforanyfuturereplicationinthemethaneabatementforoilandgassector.IfemissionsmarketsincludedifferenttypesofGHGemissions,akeyissueistheconversionrateofonetonneofmethanetoCO2equivalent.Thereisnouniversally-recognisedstandardforthisandthespecificchoicecanhavelargeimplicationsfortheattractivenessofmethaneabatementcomparedwithotheremissionsreductionmeasures.TheAlbertaEmissionOffsetSystem:asub-nationalemissionspricingschemethathasstimulatednewmethaneabatementfinancingInCanada,theprovinceofAlbertahasagoaltoreducemethaneemissionsfromupstreamoilandgasoperationsby45%by2025(relativeto2014levels).Tomeetthisgoal,Albertaisusingacombinationofregulatoryrequirementsandeconomicinstrumentstocreateincentivesforcompaniestoreduceemissions.Alberta’sregulatoryschemerequirescompaniestoimplementLDARprogrammes,placeslimitsonflaring,andsetsspecificemissionslimitsfordifferenttypesofequipment.Ifregulatedentitiescandemonstratethattheyhavereducedtheiremissionsbeyondwhatisrequiredbyregulation,theycangeneratecreditsundertheAlbertaEmissionOffsetSystem(AEOS),whichcanbesoldontheopenmarket.Togeneratetradeableoffsets,companiesmustbeevaluatedusingAlberta’squantificationprotocols,undergoathird-partyverificationprocess,andberegisteredintheAlbertaEmissionOffsetRegistry.Sinceitsinduction,therehavebeen560projectsinwhichoperatorsconvertexistingpneumaticequipmenttomoreefficientoptionsand230projectsthatcaptureorreduceventedgas.Thesehaveavoidedaround9MtCO2-eqmethaneemissions.Thesystemencouragesthirdpartycompaniestoprovidefinancingforemissionsreductionswithoutimposinganydirectcostsontheassetowneroroperator.OneFinancingmethaneemissionsreductionsPAGE22IEA.CCBY4.0.exampleistheMethaneReductionProgramdevelopedbyBluesource.Bluesourcecreatesamethanereductionplanforaspecificsiteandoutsourcestheinstallationofequipmentandlogisticsforinstallingnew,lower-emittingequipment.UpfrontspendingispartlyfinancedbyATBFinancial,apublic-ownedfinancialinstitutioninAlberta,withprojectsgeneratingrevenuebothfromsellingemissionscreditsandfromsellingcapturedmethanethatwouldhaveotherwisebeenlost.Onceithasrecuperatedtheupfrontcapitalexpenditureortheprojectbreakseven,proceedsaresharedwithotherprojectpartners,includingtheassetowner.Around200projectshavebeendevelopedfor35companiesinAlbertasinceitscreationin2017,savingaround1.7MtCO2-eqmethaneemissions.LessonslearnedTheAEOSprovidesflexibilitytooilandgascompaniestoreduceemissionsinacost-effectivemannerwhilefosteringinnovationandtheadoptionofnewtechnologies.ItiscomplementedinAlbertabyregulatorystandards,includingbothcommand-and-controlrequirementsandaprovince-wideemissions-reductiontargettoensurereductionsaremadeacrossthesector.TheAEOSentailssometransactioncosts,anditrequirescarefulmeasurementandquantificationofsavings.However,sinceitispairedwithanotherclimatefinancemechanism(theAlbertacarbonoffsetmarket),ithasencouragedspecialistbusinessesandnewsourcesoffinancetoenterthemarketasserviceproviders.Theseprovidershavebeenabletoassistoilandgasoperatorsthatwouldotherwisestruggletofinancethedeploymentofemissionsreductionmeasuresorthatdonothavethenecessarytechnicalexpertiseorcapacity.Thespecialistproviderscansignificantlyreducefinancingrisksandremovecapacitybarrierstoimplementation.Thisapproachmaybeofvaluetocompanieswithlimitedinvestmentcapacity,includingNOCsandcompaniesinlow-andmiddle-incomecountries.Salesofemissionscreditsalsoprovideanadditionalsourceofrevenuefortechnologiesthatmayotherwisestruggletogenerateapositiverateofreturn.Transitionbondsandsustainability-linkedfinancingarehelpingtofillthegapwithprivatefundingGlobalbondmarketsareahugepotentialsourceofclimate-relatedfinancing.TheyarethelargestassetclassinglobalfinancialmarketswithmorethanUSD110trillioninvalueoutstandingasof2021.Green,social,sustainability,andsustainability-linkedbondshavebeengrowingaswell,reachingUSD860billionin2022;withinthis,therewereUSD3.5billiontransitionbondsissuedin2022.Thesebondsarelinkedtothesustainabilityperformanceofacompanyorbycompliancewithexternalthird-partycriteria.IfthecompanyfailstomeetthegoalsFinancingmethaneemissionsreductionsPAGE23IEA.CCBY4.0.outlinedinthebondissuance,thentheinterestrateonthebondincreasesandthecompanyisrequiredtopaymoreuponmaturity.Greenbondsareusuallytiedtospecificprojectswhiletransitionbondsandsustainability-linkedbondstendtobemoreflexible.Thereareanumberforexamplesofoilandgascompaniesusingthesebondstoraisecapitalformethaneabatement.Repsol,theSpanishenergycompany,issuedthefirstgreenbondinthesectorin2017forEUR500millionwithafive-yearmaturity.Theproceedswerelinkedtoenergyefficiencyprojectsandlow-emissiontechnologies,includingmethaneemissionsmitigationandreductionsinflaring,andaimedtoavoidaround1.2MtCO2-eqemissions.Followingmaturityofthebond,thecompanyissuedaFinalReportthatdescribeshowtheproceedswereusedtoachievethegreenbondobjectives.Thefindingswereindependentlyverifiedbyathird-party.SNAM,theItalianinfrastructurecompany,issuedaEUR300millionClimateActionBondin2019withafour-yearmaturity.Thebondisbeingusedtohelpachieveitstargettoreduceitsmethaneemissionsby40%from2016levelsby2030byreplacingoldgenerationheatersandimplementingacampaignforidentifyingandrepairingmethaneleaks.CadentGas,theUKgasdistributioncompany,issuedatransitionbondin2020forEUR500millionwitha12-yearmaturity.Itisbeingusedtoretrofitandrepairthecompany’sgasdistributionnetworkstoreducemethaneleakage.Eni,theItalianoilandgascompany,issuedasustainability-linkedbondforEUR1billionwitha7-yearmaturity.Thebondwasissuedforgeneralcorporatepurposesbutislinkedtothecompany’sachievementoftwoSustainabilityPerformanceTargets:increasinginstalledrenewableenergycapacityandloweringnetGHGemissionsfromupstreamactivities.Activityunderthebondisoutlinedinthecompany’sSustainability-linkedFinancingFramework,whichincludesmethaneemissionsreductions.LessonslearnedThepotentialofclimatebondstofinancemethaneabatementissubstantialbuttheireffectivenessisheavilydependentontherobustnessoftheframeworkstowhichtheyarelinked.Toensuremeasurablereductions,theuseofproceedsneedstobetiedtocredibleandclearperformanceindicatorsthatcanbeobjectivelyandindependentlyevaluated.Externalauditorscanhelpbyreviewingplansbeforeabondisissuedandverifyingthatobjectiveshavebeenmetwhenitmatures.Therehasbeensomecriticismaboutthelabellingofthesebondsasgreen,transition,orsustainability-linked.DiscussionsareongoinginthisareaandtheClimateBondsInitiative(CBI),aninternationalorganisationworkingtomobiliseFinancingmethaneemissionsreductionsPAGE24IEA.CCBY4.0.globalcapitalforclimateaction,releasedaGreenBondDatabaseMethodologyin2022thatlistsmethaneLDARasaninvestmentcategorythatrequiresfurtherreview.Financialtaxonomiescanprovideguidancearoundbestpracticesforinvestorsandbondissuers.Thesecanencouragedebtmarketfinancingformethaneabatementbyprovidingatooltoinvestorsandbondissuerswhileensuringthatgoalsformethaneemissionreductionareclearlydefinedandimplemented.Manycurrenttaxonomiesdonotspecificallyallowfinancingformethaneabatementintheareaswhereitcouldbemostrelevantandimpactful.Canada’sEmissionsReductionFund:directpublicfundingforemissionsreductionprojectsTheEmissionsReductionFundinCanadaprovidesfundingthroughrepayableandnon-repayablecontributionagreementsfromthegovernmenttocompaniestoundertakeoilandgasmethanemitigationprojects.TheUSD610millionfundhadtwokeyobjectives:toensurecontinuedprogressonmethaneemissionsmitigationandtomaintainjobsforoilandgasworkers.Fundingwasavailableinthreeintakeroundsfrom2020to2022toonshoreandoffshoreoilandgascompaniesformethaneabatementprojectstobecompletedbyMarch2024.Thefundingforonshoreoperationswasdistributedthroughpartiallyrepayablecontributionagreementstoberepaidoverfiveyearsthatcouldcoverupto75%ofeligiblecostsofaproject.Thepercentageofthecontributionthatthecompanyisrequiredtorepayisbasedonthepertonnecostofabatement:projectswithlowerabatementcostsarerequiredtopaybackasmallerpercentageoftheinitialcontribution.Companiesreceivingfundsareineligibletoretainanyemissionscreditsgeneratedbytheproject,althoughcompaniesthatchosetoforgothepartialrepaymentcouldthenretainanygeneratedcredits.93projectswerefundedfrom28companiesinthefirsttwofundingroundsfortheonshoreprogramme,withmostprojectsimplementingreductionsthatwentbeyondtheminimumlevelsrequiredbyregulations.NaturalResourcesCanadaestimatedthattheseprojectsavoided4.7MtCO2-eqofmethaneinthefirstyear.Theresultsaresubjecttochangependingthefinalassessmentoftheprogramme.Allcompaniesreceivingfundingundertheprogrammearerequiredtoinstallmeterstocontinuouslytracktheamountofemissionsavoidedbytheprojects.Companiesarerequiredtoreportthisdataannuallyforfiveyearstoenablethevalidationofemissionsreductions.NaturalResourcesCanadawillreleasetheaggregateddatapublicly.FinancingmethaneemissionsreductionsPAGE25IEA.CCBY4.0.LessonslearnedDirectpublicfundingforemissionsabatementcanhelpmobilisetheindustryandreducepotentialregulatorycosts.IntheCanadiancontext,whenthefundwasannounced,thefederalandprovincialgovernmentshadforthcomingcompliancedeadlinesandthefundinghelpedcompaniesmeet–andgobeyond–theirregulatoryobligations.Governmentsareoftenreluctanttoprovidedirectfundingtotheoilandgasindustry,andthosethatexistareofteninthecontextofabandonedororphanedwells.Tomitigatethesedifficulties,theEmissionsReductionFundtiedperformancetogoingaboveandbeyondcomplianceandthegovernmentjustifiedthemeasureinpartasanefforttomaintainjobsintheindustryatatimeoflowprices.Byprovidingrepayableandnon-repayablecontributions,thefundhelpstooffsetalargeportionoftheupfrontcostofabatementprojects.Theoptiontoforegothepartiallyrepayableportionofthecontributioninexchangefortherighttokeepanygeneratedemissionsoffsetshelpstoensurethatcompaniesstillhaveanincentivetoaccessalternativesourcesoffinancing.Thefundingincludesaclearrequirementandmechanismtoquantifyemissionsreductionsandensureadditionality.Therequirementthatcompaniesmustmeasureandannuallyreportemissionsreductionsachievedwillhelptoimprovethestateofdata.Therewerestillquestions,however,fromlawmakersinCanadaabouthowemissionsreductionswerequantified,particularlyforestimatesofreductionsthatwereadditionaltoregulatoryrequirements.Thegovernmenthascommittedtopublishareportinmid-2023withadditionaldetailsonthis.FinancingmethaneemissionsreductionsPAGE26IEA.CCBY4.0.TechnicalannexOurestimatesofmethaneemissionsfromoilandgasoperationsrelyongeneratingcountry-specificandproductiontype-specificemissionintensitiesthatareappliedtoproductionandconsumptiondataonacountry-by-countrybasis.MoreinformationabouttheapproachtakenisavailableintheIEA’sGlobalMethaneTrackerDocumentation.Emissionsfromonshore,offshore,unconventionaloilandgasproduction,anddownstreamoperationsareallocatedto91equipment-specificsources.ThisisgenerallybasedonproportionsfromtheUnitedStates,withmodificationsmadeforcountrieswhereotherinformationisavailable,includingdiscussionswithrelevantstakeholders.AbatementcostsformethaneemissionsfromoilandgasproductionarealsobasedontheIEA’sGlobalMethaneTracker.Ourapproachlookstoreconcileallavailableinformationinaconsistentmanner,recognisingthatthereisrelativelylimitedpubliclyavailabledataonmethanemitigationcostsglobally.Atotalof45optionsareavailabletoreducemethaneemissions,eachwithanapplicabilityandreductionpotential,capitalandoperationalcosts,andtechnicallifetime.CostsarebaseduponinformationfortheUnitedStatesmodifiedaccordingtolabourcostswithineachcountry,whethertheequipmentisimportedormanufactureddomestically(whichimpactsthecapitalcostsandwhetherimporttaxesarelevied),andothercountry-specificorregion-specificinformation.EmissionlevelsintheNZEScenariotakeintoaccountchangesovertimeinoilandgassupplyineachcountry,withabatementmeasuresdeployedgraduallyovertimeuntilthecurrenttechnicalabatementisachievedinfullby2030.Allnon-emergencyflaringiseliminatedby2030intheNZEScenario,reducingmethaneemissionsduetotheincompletecombustionofnaturalgasinflares.Naturalgasisavaluableproductandmethanerecoveredthroughsomemeasurescanbesold.Thesemeasurescanthereforeresultinoverallsavingsifthevalueofthemethanesoldisgreaterthanthecostofdeployingthemeasure.Thevalueofthemethanecapturedisbasedonwell-headpricesconsistentwiththegaspricetrajectoryoftheNZEScenarioineachcountry.Costsandsavingsexaminemethaneabatementfromaglobal,societalperspectivemeaningthatwell-headgaspricescanbesubstantiallydifferentfromsubsidiseddomesticgasprices.Noexternalemissionspricesareincludedintheestimatesofcostsandsavings.Arateof8%isusedtodiscountcostsandsavingsoverthelifetimeofeachabatementmeasurewhencalculatingnetpresentvalues.FinancingmethaneemissionsreductionsPAGE27IEA.CCBY4.0.RegionIncomebracketEmissionsin2022(Mt)Spendingto2030(billionUSD)Majors(billionUSD)NOCs(billionUSD)Others(billionUSD)NorthAmerica1824.31.01.122.2CanadaHigh22.60.10.12.4UnitedStatesHigh1420.90.90.219.8MexicoUpper-middle10.80.00.80.1CentralandSouthAmerica65.70.43.71.6ColombiaUpper-middle00.20.00.10.1BrazilUpper-middle11.20.10.80.3ArgentinaUpper-middle11.10.10.40.6EcuadorUpper-middle00.20.00.20.0TrinidadandTobagoHigh00.20.00.00.2VenezuelaLow32.40.12.00.2Europe22.00.40.80.9RomaniaHigh00.30.00.30.0UnitedKingdomHigh00.20.00.00.1UkraineLower-middle00.20.00.10.1Africa96.80.94.11.8AlgeriaLower-middle32.30.11.90.2EgyptLower-middle10.80.20.20.4LibyaUpper-middle21.30.20.90.2AngolaLower-middle10.20.10.10.1CongoLower-middle00.10.00.00.0GabonUpper-middle00.10.00.00.1NigeriaLower-middle21.50.30.70.5MiddleEast1613.30.711.21.5IranLower-middle64.00.04.00.0IraqUpper-middle31.50.20.90.3KuwaitHigh11.50.01.50.0OmanHigh10.80.10.10.5QatarHigh11.00.20.70.2SaudiArabiaHigh32.60.02.60.0SyriaLow00.20.00.20.0UAEHigh11.30.20.90.2Eurasia2117.30.611.15.6RussiaUpper-middle1312.90.07.85.0AzerbaijanUpper-middle00.20.00.10.1KazakhstanUpper-middle21.40.50.60.3TurkmenistanUpper-middle52.30.02.20.1UzbekistanLower-middle10.50.00.30.2FinancingmethaneemissionsreductionsPAGE28IEA.CCBY4.0.RegionIncomebracketEmissionsin2022(Mt)Spendingto2030(billionUSD)Majors(billionUSD)NOCs(billionUSD)Others(billionUSD)AsiaPacific87.60.44.03.2AustraliaHigh10.50.00.00.4ChinaUpper-middle32.70.02.00.7IndiaLower-middle10.80.00.50.4IndonesiaLower-middle11.00.10.40.5MalaysiaUpper-middle00.20.00.10.1ThailandUpper-middle00.30.00.20.1BangladeshLower-middle00.30.20.10.0PakistanLower-middle00.70.00.40.3World80774.335.936.8High-income2633.71.96.825.0Upper-middleincome3426.81.317.38.2Lower-middleincome1713.41.09.13.2Low-income33.20.12.70.4InternationalEnergyAgency(IEA).ThisworkreflectstheviewsoftheIEASecretariatbutdoesnotnecessarilyreflectthoseoftheIEA’sindividualMembercountriesorofanyparticularfunderorcollaborator.Theworkdoesnotconstituteprofessionaladviceonanyspecificissueorsituation.TheIEAmakesnorepresentationorwarranty,expressorimplied,inrespectofthework’scontents(includingitscompletenessoraccuracy)andshallnotberesponsibleforanyuseof,orrelianceon,thework.SubjecttotheIEA’sNoticeforCC-licencedContent,thisworkislicencedunderaCreativeCommonsAttribution4.0InternationalLicence.Thisdocumentandanymapincludedhereinarewithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.Unlessotherwiseindicated,allmaterialpresentedinfiguresandtablesisderivedfromIEAdataandanalysis.IEAPublicationsInternationalEnergyAgencyWebsite:www.iea.orgContactinformation:www.iea.org/contactTypesetinFrancebyIEA-June2023Coverdesign:IEAPhotocredits:©GettyImages