The road to carbon neutrality for EU oil and gas companies: carbon capture and storage and profit margins

What the paper says

Purpose This study assesses how financial and carbon capture and storage (CCS) metrics affect oil and gas (O&G) firms’ profit margins in Europe between 2013 and 2023. The effects of CO2 emissions, both direct and from suppliers and conventional profitability-related financial indicators are examined using panel data and regression analysis to verify whether emission-reduction strategies can align with financial performance. Design/methodology/approach O&G companies’ profit margins are examined using panel data analysis of two models, incorporating CCS-linked factors and conventional financial indicators (e.g. capital intensity, cash flow and Tobin’s Q). The effects of direct and indirect CO2 emissions on profitability are also evaluated. This dual-model method comparatively assesses the environmental and financial drivers of company performance. Findings Profit margins and CO2 emissions show strong direct and indirect relationships, indicating that emission-reduction policies can potentially counteract profit-margin reductions. These results demonstrate that a low-carbon transition is feasible without sacrificing financial results, whereas inaction has pernicious effects. Research limitations/implications From the point of view of the techniques used, the study follows a path already taken in other studies. However, in terms of the set of variables considered in the study, it is innovative. The results are encouraging, which means that this new combination of variables has greater explanatory potential. Practical implications The results clearly indicate that inaction with regard to the energy transition has negative implications for companies and that, on the contrary, investing in initiatives to reduce emissions is comparatively a better option. These results allow companies to view efforts to reduce emissions with greater confidence. Social implications There is a broad consensus on the need to address the energy transition. The division that exists over the energy transition is not about its necessity, but about how to achieve it and make it compatible with wealth creation. This work brings new insights to the discussion of this issue. The transition is feasible and compatible with other economic objectives. Originality/value By incorporating CCS-related indicators, a factor normally neglected in profitability evaluations, into a financial analysis of O&G firms, this study offers a deeper understanding of how environmental factors affect financial performance by examining direct and indirect CO2 emissions. The results show that initiatives to reduce emissions can align with profitability, providing important information for managers, investors and politicians. Furthermore, the results show that proper analyses of O&G companies’ profitability and risk must include data on emission reduction.