Transparency in transition

This latest report from UK think tank Chatham House focuses on the strategic direction of EITI and its implementing countries. 

Transparency has long underpinned efforts to support the good governance of oil, gas and mineral resources, and to avoid the negative impacts of the ‘resource curse’. The transition to a sustainable, decarbonized economy is now reshaping these extractive industries, and in turn the risks and opportunities they present for producer countries. This will have profound implications for what the good governance of extractive resources looks like, and for the kinds of data, disclosures and dialogues that will be required to support accountability. Transparency is also central to international efforts to support transition, including the reporting of greenhouse gas (GHG) emissions and the disclosure of climate risks. To date, however, there has been little consideration of how extractives transparency may be affected by these trends, or of its the role in supporting an orderly transition. As the global standard for transparency in extractives, the Extractive Industries Transparency Initiative (EITI) will have to respond to this changing global context, and to the evolving needs of producer countries. Transition will present different risks and opportunities for producer countries, depending on the type and scale of their resources, their stage of production, and the extent of their economic, energy and industrial dependence on the sector. While EITI dialogues are framed in terms of sustainable development, their engagement with energy transition and climate change has so far been limited. With effective engagement, EITI could help ensure that implementing countries have full sight of the risks and opportunities in their national context, and access to the information required to navigate them. Without it, EITI risks becoming less effective as a governance standard, and less relevant to implementing countries and supporters. EITI’s existing Requirements offer several entry points for engagement with transition. In many cases, better use could be made of existing disclosures, alongside publicly available information. The analysis of revenues and revenue forecasts, for instance, could help identify economic risks including lower-than-anticipated revenues, and stranded assets. The disclosure of state participation in the sector could help estimate the full scale of public finance ‘at risk’ under different transition scenarios. Contract analysis could help identify early signs that a shrinking market is driving a ‘race to the bottom’ between producer countries. In other cases, additional disclosures could support the use of EITI data to analyse the commercial viability of projects and the carbon intensity of exports, and the impact of subsidies and GHG emissions on domestic energy transition, for example. EITI also has potentially transformative reach. Its national secretariats and multistakeholder groups (MSGs) span 53 implementing countries, with a combined population of almost 1.8 billion. As a result, EITI is well positioned to raise awareness around the risks and opportunities associated with transition, and to build the capacity of stakeholders in government, business and civil society to engage in informed debate on these issues. In this context, MSGs can play an important role in assessing whether policies and decisions relating to the extractive sector are aligned with wider sustainable development goals – including energy transition policies and Nationally Determined Contributions (NDCs) under the Paris Agreement; and in highlighting where corruption and state support for the extractive sector may act as a barrier to transition and increase its costs. Extractives transparency could also play a role in international efforts to manage an orderly and equitable transition. EITI could both leverage and contribute to international processes such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Network for Greening the Financial System (NGFS), and the UN Framework Convention on Climate Change (UNFCCC). It could focus on addressing asymmetries of information between national and international stakeholders where discussions relating to energy transition and climate risks are concerned, by making international best practice accessible to producer countries, and considering the relevance of EITI disclosures for international processes. The development of partnerships in these areas could avoid the overburdening of already stretched EITI stakeholders, or the duplication of efforts at national or international level. Balancing the urgency of action with the importance of a stakeholder-led approach and broad consensus among EITI stakeholders will not be without challenges. There is already great uncertainty around the speed and shape of transition, and the COVID-19 crisis has exacerbated this. While a ‘green recovery’ could accelerate transition and the decline of global fossil fuel demand, this crisis has already pushed many EITI-implementing countries into severe economic distress. Their immediate economic needs may set back climate considerations and extend the life of fossil fuels and high-carbon infrastructures. While this paper focuses on the strategic direction of EITI and its implementing countries, its core themes and findings may also help inform debate as governments and development partners seek to support a recovery in line with a ‘well below 2°C’ world.



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