The energy transition and extractives governance

The transition to a sustainable, low carbon economy is gaining momentum and will reshape the extractive industries. It has profound implications for the kinds of data, disclosures and dialogues required to support accountability and good governance in resource-rich countries.

The role of the EITI in the energy transition

The EITI sets a global standard for transparency in the oil, gas and mining sector. Countries implementing the EITI draw on revenues from oil, gas and minerals to meet the energy and development needs of their citizens.

As the energy transition gathers pace on a global scale, governments of resource-rich countries face important decisions about the management of the natural resource wealth. There is a substantial opportunity to make use of data generated through the EITI – potentially in combination with other datasets – to inform public debate and policy decisions on transition pathways.

“The authors of the EITI Principles stated in 2003 that a public understanding of government revenues and expenditure over time could help inform the choice of appropriate and realistic options for sustainable development. In the context of the energy transition, this has proved to be far sighted.”
Rt Hon. Helen Clark, EITI Board Chair

How the EITI will support the energy transition

The EITI will support implementing countries and multi-stakeholder groups in building awareness of the transition to come, making use of data that is available, and working with supporting countries and partners to achieve sustainable outcomes.

In October 2020, the EITI Board agreed on four ways to work with implementing countries, supporting companies, civil society organisations, financial institutions and others to build awareness on how EITI data can support debate, namely:

  1. Collaborating with a group of countries to analyse how disclosures can inform debates on the energy transition and pilot new disclosures. 

  2. Supporting multi-stakeholder groups in engaging on issues related to the energy transition as part of the EITI’s broader capacity building activities.

  3. Considering how to integrate transparency on energy transition into the EITI Standard and guidance. The 2019 EITI Standard currently requires implementing countries to undertake environmental reporting. Considerations relating to the energy transition have also been integrated in guidance on various aspects of the EITI Standard, including state participation, off-budget expenditures by state-owned enterprises, contract transparency and subnational revenues.

  4. Continuing to engage industry and institutional investors in inclusive discussions on industry trends. This will improve the EITI’s understanding of how the energy transition may affect extractive sector transparency and how the EITI can contribute.

In addition, the EITI will seek to build on and complement the substantial work being undertaken by expert and partner organisations in this area.

Using EITI data to inform debate on the energy transition

Phasing out coal subsidies in Germany

In 2007, the government decided to phase out subsidies to the coal sector by the end of 2018. EITI reporting has shown that subsidies to the coal sector totalled nearly EUR 1.3 billion in 2016 and EUR 1.05 billion in 2017, compared to total gross government revenue from the extractive sector of less than EUR 500 million a year.

Even though these subsidies are recorded in Germany’s national budget, data on the extent of the subsidies is relevant for EITI reporting. It supports public debate on the continuation of coal production in light of the country’s progressive climate change agenda.

Developing an approach to reporting on climate impacts in Trinidad and Tobago

In Trinidad and Tobago, successive governments have been hesitant to address the issue of energy subsidies. A 2016 survey found that less than 5% of the population and less than 3% of industry saw climate change as a major challenge.

Trinidad and Tobago EITI is encouraging civil society to use EITI data beyond financial reporting to look at the wider impacts of the extractive industries. It has established an environmental subcommittee on environmental reporting and developed a voluntary template for reporting resource impacts, including electricity, water usage and emissions. The long-term aim is to incorporate environmental and climate impacts in sector reporting, to support a broader approach towards the governance of natural resources.

Calculating discounts on thermal coal supplies to domestic power plants In Mongolia

The majority state-owned coal producer Baganuur JSC sells thermal coal to state-owned power plants for below-market prices. As the government does not compensate Baganuur JSC for the foregone revenues due to these regulated prices, the cost of these subsidies to power plants is not recorded in the national government budget.

Mongolia’s EITI reporting has provided valuations of subsidies on Baganuur’s thermal coal sales to power plants. By calculating the discount in the unit price of thermal coal sales to the power plants, and comparing these to prevailing market prices for Mongolian coal exports, EITI disclosures have enabled oversight of both the unit cost and total value of these off-budget subsidies. This data can provide insight to policy makers assessing options for the future of such subsidies.

Expanding EITI coverage to the renewable energy sector in Albania

Electrical power ranks as the second most important energy source in Albania after petroleum.  Hydropower plants provide the main source of zero-carbon electricity generation. Albania EITI reporting goes beyond the EITI Standard with a detailed section on hydro energy. The most recent report presents the legal and regulatory context of hydropower, disclosure of production and revenue data, and reconciliation of subnational payments. This analysis identified significant power distribution system losses, which Albanian authorities are working to address.

Albania EITI intends to build on this work with a scoping study to evaluate other renewable energy technologies. The context for this effort is the government’s programme to expand clean energy production, including an innovative new floating solar demonstration.

Future EITI reporting could align with this trend to take a broader view of the energy transition in Albania.

Transparency in the supply chain for critical minerals

The shift from fossil fuels to renewable energy will lead to increased demand for critical minerals such as cobalt, copper, lithium, nickel and vanadium. Heightened demand has the potential to exacerbate existing risks of corruption and revenue loss related to the production and supply of these minerals.

The EITI Standard provides for data that will support a fair and sustainable supply of critical minerals from the point of exploration and production. It includes disclosures on beneficial ownership of companies, contracts, environmental reporting and the monitoring of licenses, production and exports.

The EITI Standard complements OECD and EU due diligence reporting guidelines and standards for companies by providing key information from countries that produce critical minerals, so as to facilitate the responsible sourcing of those minerals.

Helpful resources for implementation

  • EITI guidance: Our Guidance Note on Requirement 6.1 on environmental expenditures by extractive companies provides step-by-step guidance for implementation of requirements related to environmental reporting.

  • EITI policy brief: The EITI’s policy brief outlines the different types of fossil fuel subsidies, the EITI’s requirements on quasi-fiscal subsidies and examples of related disclosures from EITI implementing countries.  

  • International Energy Agency: The World Energy Outlook Special Report provides a comprehensive analysis of the complex links between critical minerals and the prospects for a secure, rapid transformation of the energy sector.

  • World Bank:The World Bank issued guidance on environmental assessments and commitments for borrowers, aiming at informing the mitigation of environmental risks and impact.