HC 171 Protecting the Arctic

Supplementary written evidence submitted by Cairn Energy PLC


The supplementary memorandum answers a number of additional questions posed by the Committee following the oral evidence session on 14 March 2012. We would be very happy to answer any further questions that the Committee may have.

Question 141. How do Cairn’s business plans reflect the impacts of approaching climate change?

Cairn’s Business Principles, which are available in the Responsibility section of our website at http://www.cairnenergy.com include the company’s climate change strategy which is aimed at ensuring a capacity to adapt to current and anticipated future climate change drivers. It should be noted that Cairn while exploring for oil and gas is not currently responsible for any operated oil and gas production.

The Business Principles relating to climate change are as follows:

1.2 (Extract) Principle – We will operate to minimise our carbon and water footprint 

"Our activities produce emissions of methane, carbon dioxide and oxides of nitrogen – gases which are recognised as greenhouse gases. We acknowledge that there is a growing consensus about the reality of global warming and the contribution of human activity.

Energy is essential to social and economic progress but we recognise that we have a responsibility to take a precautionary approach to climate change and seek to minimise our own emissions of greenhouse gases. We will do this by:

· Measuring, verifying and reporting on greenhouse gas emissions in line with the GHG Protocol methods and oil and gas sector disclosure initiatives (note Cairn has been reporting its emissions data in its annual CR Reports since 2001);

· Working to understand our future energy requirements and emissions;

· Identifying and evaluating opportunities for energy efficiency and emissions reduction. Developing and implementing management solutions by embedding climate change in our CR Management System; and

· Contributing to programmes that address environmental and social impacts of climate change within our sphere of control and reasonable influence."

1.3 Putting the climate change strategy into practice during our business planning process is the management responsibility of the HSE and asset team and means we take account of the business risks from the potential impact of climate change and costs of carbon in the Cairn Project Delivery Process and Investment Proposals. In addition, where development of hydrocarbons occurs the long-term societal benefits are also taken into account.

1.4 As Cairn’s current portfolio contains interests in licences in the exploration, appraisal or pre-development phases we do not have producing assets which may contribute GHG emissions.

Question 152. What is your view on whether a ‘carbon bubble’ is developing in financial markets, where the carbon dioxide emissions potential of investments in fossil fuels reserves exceeds the UK’s statutory carbon emissions targets? Is this an issue that your company factors into its business planning?

There are a number of factors which currently support the global price of carbon. We believe that this is an important issue for Government and business.

1.6 We recognise that the EU Emissions Trading System (EU ETS) is by far the largest player in carbon markets and, since it is established by EU law, it will continue to operate, regardless of the status of global negotiations for a successor to the Kyoto Protocol. The EU ETS also trades in other forms of carbon credits, so it is likely to support the global price of carbon. In addition, the UK’s intention to establish an escalating floor price for carbon, and to a lesser extent the EU, will also drive up the price of carbon and should lead towards driving emissions reduction.

1.7 In the EU, Phase III of the EU ETS will operate on the basis of auctioning emissions allowances, with some free allocation. This will have implications for the onshore and offshore operation of combustion plants, especially for electricity generation. Free allowances for electricity generation will be withdrawn, imposing substantial costs.

The EU ETS is not enforced in Greenland, but the Government there has made commitments to meeting international expectations post 2012 and therefore carbon emissions reduction or fiscal measures may be introduced. There are no imminent developments anticipated in climate change legislation that are considered likely to impose significant costs in other jurisdictions where Cairn is proposing to operate.

To what extent is the Arctic Council able to ensure that a consistent regulatory regime for oil and gas exploration and extraction is adopted across the Arctic?

Cairn welcomes the principle of a consistent high standard regulatory regime across the region. The Arctic Council produces guidance and positions on various environmental and social matters which are taken into account in developing any projects in Greenland. The Government of Greenland is a member of the Arctic Council and the Council’s participating governments remain sovereign. Therefore it is up to them to decide the sort of role the Council should play in regulating oil and gas exploration

How do the UK Government and UK authorities get involved in reviewing or auditing your operations in the Arctic? Would you welcome further scrutiny from the UK Government?

Cairn is obliged to work under the regulations laid down by the sovereign states in which we operate. In Greenland, for example, scrutiny is already at a very high standard, provided by the Greenland government’s Bureau for Minerals and Petroleum and the Danish Centre for Environment and Energy. In future, we may also have to consider forthcoming EU legislation on health & safety in the industry over and above the existing regulations. Regulatory frameworks in many other Arctic states where oil and gas explorations exist are also highly regulated (e.g. United States, Norway, Canada and Russia). These states apply regulations according to their own legal codes which are not identical to those in the UK.

Cairn already applies UK standards as a minimum in its operations and is happy to answer questions about its operations wherever they may be in the world. However, it is our view that it would be unusual for another country to be responsible or have a significant say in the scrutiny of operations where another state rightly has jurisdiction over its regulatory process.

Who are you answerable to on protecting wildlife in international seas?

In international seas there are many well-known International Conventions which focus on pollution and on resource protection. In the Greenland situation, the various seas lie between Canada and Greenland and the relevant governments are responsible. The relevant bodies are dependent on location. International agreements exist often between neighbouring states. Some have a more global/inter regional reach such as UN or International Maritime Organisation (IMO) Conventions whereas others are more regional (e.g. Barcelona Convention, EU Conventions, JNCB, Agreements for Cooperation Relating to the Marine Environment).

Such Conventions are promulgated on an international basis between one or more sovereign states and the signatories are obliged to enforce them within their jurisdiction. Indeed the UK Government is signatory to many of these. Typically those on the high seas fall under maritime law.

2.2 Oil and gas exploration activities typically fall in one or two jurisdictions (for transboundary matters), but vessel movements in transit fall under internal conventions governing shipping. It should not be overlooked that there is an interface here with communities and social well-being in terms of wildlife protection (e.g. hunting and fishing conventions).

Cairn is happy to provide this supplementary memorandum and to answer any additional questions that the Committee may have.

26 April 2012

Prepared 22nd June 2012