Managing Risks & Opportunities
The effect of many current and potential greenhouse gas (GHG) regulations will be to establish a price or cost for a unit of GHG emission. The introduction of a cost of greenhouse gas emissions could also increase demand for less carbon-intensive energy sources and technologies such as natural gas and renewable energy. There are both risks and opportunities in a lower carbon business environment.
A holistic description of our approach to climate change risk is contained within our Climate Change Strategy section.
Opportunities in a Lower Carbon Business Environment
Potential business opportunities related to anticipated climate change regulatory requirements include:
- Opportunities associated with increased demand, and value of lower carbon energy sources and technologies associated with our existing business such as natural gas.
- Opportunities to extend the life or increase the value of our existing assets and business, for example through the potential application of CO2 capture and storage or reuse.
There are potential opportunities to increase revenues, decrease expenses, expedite business development, and to grow our business.
Greenhouse Gas Regulatory Risk
There have been a broad range of proposed or promulgated state, national and international laws focusing on GHG reduction. These proposed or promulgated laws apply or could apply in countries where we have interests or may have interests in the future.
While it is not possible to accurately predict the timing, implementation details, or financial cost associated with new or changing regulation, we recognize the potential impact on our costs, demand for fossil fuels, the cost and availability of capital and exposure to litigation. Such laws and regulations could also increase demand for less carbon intensive energy sources, including natural gas. The long-term impact on our financial performance, either positive or negative, will depend on several factors, including but not limited to:
- Extent of legislation or regulation.
- Timing of legislation or regulation.
- Nature of the legislation or regulation (such as cap and trade or an emission tax system).
- GHG reductions required.
- Price placed on GHG emissions.
- Price and availability of offsets.
- Amount and allocation of allowances.
- Technological and scientific developments leading to new products or services.
- Potential significant physical effects of climate change (such as increased severe weather events, changes in sea levels and changes in temperature).
- Extent to which increased compliance costs are ultimately reflected in the prices of our products and services.
The long-term financial impact from GHG regulations is not possible to accurately predict, but is expected to rise globally.
Operating in a Physically Changing World
Our operations can be exposed to impacts related to a changing physical environment caused by various factors. Several years ago, we co-led the development and publication of the World Business Council for Sustainable Development (WBCSD) report "Adaptation — An Issue Brief for Business." The report concluded that changes in the Earth’s climate system could have repercussions on how business operates. The magnitude and frequency of impacts are uncertain, but consequences with negative effects on business could include:
- Higher temperatures, which could affect the location, design, efficiency, operation and marketing of business infrastructure, products and services.
- Water scarcity, which could disrupt business operations, particularly those of water-dependent industries.
- Rising sea levels, which could affect the location of business operations, submerge or complicate access to raw materials or natural and human resources.
- Increased frequency of extreme weather events, which could damage business infrastructure, disrupt logistics, and affect business continuity and costs.
- Changes in the distribution of vector-borne disease (e.g., malaria) and greater population migration, with their attendant socio-economic impacts on workforces and markets.
Building Resiliency to Climate Change
Business resiliency planning is a process that helps us prepare to mitigate potential impacts of a changing climate in a cost-effective manner. The key elements of this process include identifying:
- Risks and business opportunities associated with the physical impacts of changing climate.
- Physical impacts of greatest concern.
- Potential technologies and solutions to mitigate risks and take advantage of opportunities.
We conducted workshops on resiliency risks in key business units to establish future actions based on projected physical changes to the operating environment. Business units in Texas and the Gulf Coast, Arctic Canada, Canada Oil Sands, Australia North and West (including offshore), and North Slope Alaska participated. These business units are integrating results into their climate change management plans.
Progress on our multi-year plan includes:
|Managing Risks & Opportunities|
Integrate resiliency planning throughout the company
|Review non-operated asset climate change plans|
|Revise and update business unit climate change management plans|
|Address stakeholder questions and concerns regarding climate change risks|
|Develop corporate carbon scenarios to inform strategy options|
Integrate resiliency — We held workshops, documented risks, generated reports for review and comment, and built mitigating actions into business unit (BU) climate change management plans.
Non-operated climate change plans — A risk analysis item was added to some business unit climate change management plans to determine whether non-operated assets carry unmitigated risks. Some business units have developed plans to influence non-ConocoPhillips operators on addressing climate change issues. Further work on this subject is expected to continue.
Revise and update business unit climate change management plans — The review and revision of climate change management plans is tied into the long-range planning process to ensure any actions or investments can be considered in the corporate budget and long-range planning cycle.
Climate-related risk – We met with external consultants to consider management approaches and took part in the IPIECA task force to develop an industry response. We developed a strategy to mitigate risks arising from our analysis of carbon asset risk and have expanded reporting of our risk management approach in our Sustainability Report.
Develop GHG scenarios and strategy options – We have completed our plan to develop GHG scenarios, GHG strategy options and a Scenario Monitoring System.