Climate conference in Copenhagen How can oil &gas exporters be effected?

1. Climate conference in Copenhagen How can oil &gas exporters be effected? Fourth presentation - Day Two of Global Gas Flaring Workshop 4th -6th October 2009 in Doha, Qatar

2. Overview The Bali Roadmap to Copenhagen Managing expectations for Copenhagen Level of ambitions and pledges to cut emissions Carbon Capture and Storage (CCS) and the CDM New mechanisms for trade in emission reductions Summary: messages for oil exporters and petroleum companies Carbon Limits AS

3. From Bali to Copenhagen • Bali (2007): “A shared vision for long term cooperative action, including long term goal for emission reductions, to achieve the ultimate objective of the Convention” • Convention track – AWG-LCA : • “comprehensive process to enable the full, effective and sustained implementation of the Convention” and to reach an agreed outcome and adopt a decision at COP 15 (Copenhagen 2009) • Building blocks: Mitigation, adaptation, technology and financing; supported by a “shared vision” • Kyoto track - AWG-KP • Detailed work programme for further work to agree on further commitments for Annex I Parties (industrialised countries) under the Kyoto Protocol

4. Important issues for the Copenhagen meeting? • The wording of the Bali Action Plan is not “crystal clear”: • The process is to prepare ”agreed outcome” and ”decision” – will this be a new legal instrument? • Will the two processes (Kyoto track and Convention track) be integrated to prepare one new legal instrument? • Or is an amended of Kyoto Protocol and a set of decisions under the Convention a more likely agreed outcome? • Requirements for a successful Copenhagen agreement • Emission targets for Annex I Parties • Meaningful efforts by major developing countries to limit emissions growth • Financial and technical support to developing countries for mitigation and adaptation • Clarity on governance

5. The Kyoto Track – AWG KP • Main challenges • Definition of the mandate of AWG-KP (only new targets or can we also make other amendments?) • Links (real or mental) to AWG-LCA – some examples: • Reluctance to agree on numbers (aggregate and/or individual quantitative commitments) when the largest Annex I emitter is not taking part in the negotiations and actions by developing countries are unknown • Improving CDM and other mechanisms without knowing how LCA will handle the carbon market (So far, significant problems in including CCS in CDM also for a second commitment period.)

6. The Convention Track – AWG CLA • Achievements • The work of LCA has significant political attention • 2008 used as an exploratory phase – collecting views and proposals, workshops on key issues, and preparing documents containing various views • Entered negotiation mode in 2009; first focus text introduced by the Chair in March, then negotiating text (50 pages) by the Chair in mid-May for negotiations at AWG-LCA 6 in Bonn in June. • After first and second reading, where Parties were invited to include their proposals, the text had expanded to >200 pages • August informal meeting used to “consolidate” the text to facilitate negotiations • Mitigation • Will USA take on commitments? If so, in which form? How to ensure comparability of efforts with Annex I Parties in the Kyoto Protocol? • Contribution from important developing countries (“emerging economies”) – what will their “actions” be? • Nationally appropriate mitigation actions - NAMA - registry? • Implementation of “measurable, reportable and verifiable” (MRV)? • REDD- Reducing emissions from deforestation and forest degradation in developing countries • Emissions from international transport

7. Emission reductions -ambitions and pledges Pledges selected countries • Main focus on the lowest IPCC scenario: • Annex I: -25 to -40% in 2020; 80- -95% in 2050 (relative to 1990) • Developing countries: ”substantial deviation from baseline” • Proposals by various groups of developing countries: Annex I countries should (before 2020) reduce by • at least 40%, • or at least 45% compared to 1990 • Broad support for a long-term goal to reduce global emissions by 50 % in 2050

8. Copenhagen outcome • The time to COP 15 is very short (two weeks of negotiation before Copenhagen) and the tasks are formidable • A successful outcome depends heavily on the political will, particularly from the major players. (But US position may not be ready in time for COP 15.) • Unlikely that definite quantitative commitments will be decided • Without quantitative commitments it will be difficult to decide on reforms to the CDM and other “flexible mechanisms” • Perhaps not a legal documents with emission reductions targets before 2011 • But: • Increasing number of statements in support of long term mitigation efforts • Strong support for carbon markets being an important factor in climate policies and programmes • Climate policies will most certainly have major impacts on international energy markets and cost and benefits for petroleum sector operators

9. Climate Change International & national policies Technological development & trends Consumer & corporate responses Carbon Markets Corporate Focus • Carbon Footprints • GHG accounting • Life cycle analysis • Carbon intensities • Risks & opportunities • Liabilities • Affiliated markets • Carbon trading • Response Options • Own reductions • Offsets • Voluntary • Mandatory • Adaptation Strategy & Plan of action Carbon Management for petroleum companies External Forces

10. 550 ppmstabilisation scenario (energy related CO2 emissions) Gt CO2e 50 45 CCS power generation Reference scenario 40 Renewables and nuclear El end use eff < 35 End use efficiency 30 550 Policy Scenario 25 20 15 10 0 2000 2010 2020 2030 Source: World Energy Outlook, 2008. IEA

11. CCS and the CDM • Need to distinguish between: • CCS from petroleum upstream • CO2 for storage only - may become CDM eligible, abatement costs make them good candidate projects • CO2 for EOR – more difficult to obtain approval for methodology • CCS in the power sector • High abatement cost means they will be insignificant in the CDM (short and medium term) • Why are they not CDM eligible? • 2005: CDM EB referred the case to COP 11, has stayed at the political level ever since • Two issues: • “permanence”: liability and monitoring • “will flood the carbon market with CERs” • (When) will it be resolved? • When will they be resolved?

12. How to scale up mitigation efforts in the O&G sector? SCALING UP Gas flaring: (400 million tCO2e) AMs rAMs NMs PoAs Sectoral approaches Methaneemissions: (1,200 million tCO2e) AMs rAMs NMs PoAs Sectoral approaches Process venting of CO2: (~500 million tCO2e?) NMs PoAs Sectoral approaches Energy provision: (magnitude unknown) * The division of potentials for various sources is illustrative at this point Carbon Limits AS

13. Conclusions – opportunities and risks for Qatar • CDM • Probably large opportunities but also great challenges • Opportunities • Flare reduction - requires careful analysis of additionality and “methodology fit” • Avoid methane emissions - requires new methodologies • Injection of gas and CO2 – requires new methodologies • Challenges • Methodology development takes time and outcomes are uncertain • Value of post 2012 CERs are uncertain – Europe and USA will regulate their CER imports: • New climate policy regime - post 2012 • Be prepared for new and actively pursue new ways of trading emission reductions • Reformed CDM, including “programmatic CDM”, new trading regimes linked to “NAMAs” (national appropriate mitigation actions) • Understand the broader implications of climate policy on international energy markets • Essential to have in-depth knowledge of own “carbon footprint” and mitigation options