The future of the energy system is uncertain. New technologies, changing energy services, rising efficiency, competitive resource landscapes, and policy and regulatory changes all have potential to disrupt energy industry business models, strand assets, and destroy shareholder value. Investors and companies alike must deliver a managed transition to business models compatible with a 2oC warming limit. We have created a decision support tool to help companies, investors, and other actors successfully navigate the energy transition.
The project has been developed by the Sustainable Finance Programme at the University of Oxford Smith School of Enterprise and the Environment (the ‘Oxford Smith School’), E3G, and Chatham House. It examines scenario-driven decision making by oil and gas companies in energy transitions. This web tool allows interested parties to roleplay company and investor decision making through the energy transition.
The 2 Degree Pathways decision support tool is under development and will create a simulated ‘wargame’ within which to explore energy transitions. Assets contained within the tool include oil and gas reserves and resources of varying cost, energy company equity, generalised 'green assets', generalised 'diversified assets', and cash. In the tool players interact in asset marketplaces, discovering asset values and buying and selling strategically.Players roleplay oil and gas company capital allocation decisions to maximise shareholder returns through to 2040. Strategies include exploring for and buying and selling oil and gas assets, diversification to 'green' investment, and setting dividend policy. Players allocate capital with limited information, guided only by informational 'sign-posts' at each time step.
Players roleplay investors seeking to maximise their returns through the energy transition. Investors may allocate capital to 'green' investment or diversified portfolios, and may also buy and sell equity of the roleplayed companies. Companies declare their capital allocation strategy to investors who have similarly limited information about the future of the energy system.
The 2 Degree Pathways decision support tool is a joint project between the Sustainable Finance Programme at the Oxford Smith School, E3G, and Chatham House. It is supported by the European Climate Foundation, Tellus Mater, and the ClimateWorks Foundation. Phase I examines the decision making of international (listed) oil and gas companies (IOCs) and their investors. Phase II will consider additionally the decision making of national oil and gas companies (NOCs) and governments.
Chatham House, the Royal Institute of International Affairs, is an independent policy institute based in London.
E3G - Third Generation Environmentalism - are independent experts on climate diplomacy and energy policy.
The Sustainable Finance Programme at the Oxford Smith School was established in 2012 (originally as the Stranded Assets Programme) to understand how finance and investment intersects with the environment and sustainability. The Programme is based in a world leading university with a global reach and reputation. We work with leading practitioners from across the investment chain (e.g. asset owners, asset managers, banks, ratings agencies, stock exchanges), with firms and their management, and with experts from a wide range of related subject areas (e.g. finance, economics, management), within the University of Oxford and beyond.