Tying Their Hands? How Petroleum Contract Terms May Limit Governments’ Climate Policy Flexibility

  • Sep 2021
  • Nicola Woodroffe

 , with significant economic implications for countries dependent on oil and gas revenues. The Intergovernmental Panel on Climate Change has warned that global warming will exceed 1.5 and even 2 degrees Celsius without deep emissions cuts. At the same time, the International Energy Agency has proposed a freeze on new development approvals for oil and gas fields from 2021 if we are to limit the global temperature rise to 1.5 degrees Celsius.

 and build climate resilience in their own petroleum sectors. Yet the long-term contracts governments sign with companies for petroleum exploration and production may significantly limit this flexibility for decades.

Have producer countries begun to modify petroleum contract terms in response to climate change and energy transition risks?

To explore this, the author of this briefing reviewed 34 contracts and model contracts from 11 countries, signed or issued since the Paris Agreement. This review focused on stabilization, arbitration, and force majeure clauses.

The contracts reviewed do not yet indicate a shift in these clauses to respond to climate change risks, and the need for government flexibility to take climate policy action. 

Key messages:


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