The organization in brief:
Repsol is an energy company operating globally with net average production of over 700,000 barrels of oil equivalent per day. Repsol’s mission is to be an energy company committed to a sustainable world. Environmental and social sustainability is a strategic pillar in all decision-making processes for Repsol. Repsol often operates in highly sensitive social-ecological contexts, especially in exploration and production activities. The company is committed to be at the forefront of the energy industry in its efforts to measure, mitigate and minimize the negative impacts of its projects and operations on society and the environment.
Repsol intends to gradually acknowledge, along its value chain, the interplay between its business activities, the integrity of ecosystems, and the well-being of current and future generations. The company aims to explicitly incorporate the social, economic and environmental trade-offs derived from its business activities into its decision-making processes. To achieve this, Repsol is working with external experts to develop a novel methodology for the comprehensive valuation of the environmental impacts and dependencies of its projects and operations worldwide. This methodology is called the Global Environmental Management Index (GEMI).
Why was this undertaken?
Repsol are adopting a biodiversity-inclusive natural capital approach for environmental decision-making because it enables them to clearly link ecological systems with their contributions to human well-being. The fundamental goal of including natural capital in decision making is to support management strategies that safeguard the benefits provided by ecosystems for present and future generations. Framing ecosystems as capital enables them to be valued and accounted for alongside other socio-economic assets, facilitating management decisions that are based on the balance between costs and benefits.
Repsol anticipates multiple business benefits through application of the GEMI methodology. These include:
- Enhancing the company’s contribution to the Sustainable Development Goals;
- Easier communication of the company’s sustainability plan;
- First mover advantage;
- Improving environmental performance;
- Being better prepared to deal with uncertainties;
- Access to financial, technological and expertise support;
- Improved ability to obtain licenses to operate;
- Reputational benefits.
For more than 20 years, Repsol has been performing exploration activities in the main Amazon basins of Peru. Repsol is the operator at Block 57, located in the Amazonian region of Cusco. In 2008, Repsol discovered the Kinteroni field, and started to produce natural gas and associated liquids in 2014. Repsol discovered the nearby Sagari gas field in 2012, and production began in 2017.
The Sagari field is located in one of the richest areas for biological diversity in Peru. It is also one of the least studied territories in the Amazon from a scientific perspective. Before the work in such a sensitive area began, Repsol conducted several studies analyzing the potential impacts of their operations. These included an Environmental Impact Assessment, and development of an environmental management plan and biodiversity action plan. The plan focused on maintaining the integrity and quality of the forest, and protecting habitats, particularly in the area where an 18km long pipeline connecting the Kinteroni and Sagari fields was to be constructed.
Building on these studies, Repsol is applying a natural capital approach at Block 57. This is enabling the company to understand and value its impacts from the perspective of ecosystem services on which local communities living in the concession depend. Repsol have carried out several natural capital studies for Block 57, including application of the GEMI methodology. These are outlined in more detail in the next section.
What was the scope?
The scope of Repsol’s natural capital analysis for Block 57 has expanded through a series of studies, linked to informing effective and cost-efficient mitigation of the company’s impacts at the site. This has included evaluation of ongoing good practices for management of biodiversity and ecosystem services, and analyzing the potential benefits of new or alternative approaches. Key natural capital analyses carried out for Block 57 between 2015 and 2020 include:
- An ecosystem services assessment for the Sagari Field, carried out with Fauna and Flora International, that involved a review of the environmental management systems at Block 57 and provided a series of recommendations aimed at strengthening Repsol’s environmental systems to incorporate ecosystem service reviews (2015).
- An ecosystem services valuation for the Machiguenga Reserve (which lies within the area of influence of the Sagari field), that used interviews and other environmental data to identify and qualitatively assess the importance of ecosystem services on which local communities depend.
- An ecosystem services valuation, carried out with the University of Salamanca, that estimated monetary values for ecosystem services in 2018 USD per hectare per year (2019).
- Applying the GEMI methodology to estimate monetary values for the impacts of Repsol’s direct operations on ecosystem services in the Sagari field (natural capital loss valuation), working with Advisian (2020 – ongoing).
The most recent work (as of August 2020), focusses on estimating monetary values associated with the impacts of Repsol’s direct operations on ecosystem services on which local communities depend. This builds on the natural capital studies that have been ongoing since 2015.
How did you measure and value your impacts and/or dependencies?
Repsol has identified ecosystem services on which local communities around Block 57 depend, and estimated economic values (in USD/ha/yr) for these ecosystem services. Repsol has applied the GEMI methodology to estimating changes in these values as a result of the impacts of its direct operations at the site.
The values were estimated using a value transfer approach involving collation of 119 values for similar ecosystem services from 27 studies, then applying site-specific adjustments for bioclimatic, biophysical, biological and social variables. Biodiversity is incorporated in the estimated values implicitly as part of biotic ecosystem services.
Changes in these values as a result of Repsol’s direct impacts at the site are estimated through applying the GEMI methodology. This methodology is intended to align with the Natural Capital Protocol, the IPIECA guidelines for Ecosystem Services Assessments, the EEA Common International Classification of Ecosystem Services (CICES), and ISO 14008:2019 for the Monetary valuation of environmental impacts and related environmental aspects. The methodology analyses improvements (impact reductions) derived from application of the mitigation hierarchy (avoidance, minimization, restoration, offsetting). It follows a four step process as follows: 1) Identification of relevant aspects of Repsol’s activities to assess; 2) Quantification of environmental impacts in ‘Biophysical Impact Units’ (e.g. area, mass, volume); 3) Valuation of impacts, primarily through ecosystem services detraction, in monetary units; 4) Modulation of economic values to measure the environmental impact in dimensionless ‘Impacts Units’. Repsol is applying this approach to the ecosystem service values obtained for Block 57, using value transfer to estimate monetary values for impacts, then modulating based on local environmental and socioeconomic data for Block 57.
Note that Repsol has not yet estimated dependencies of its operations at Block 57 on natural capital (see the ‘Next Steps’ section of this case study for more information on consideration of dependencies). The way in which dependencies are considered in the GEMI methodology will continue to be developed in 2021.
What was the Biodiversity Guidance used for?
Repsol’s natural capital valuation work for Block 57 was reviewed against the Biodiversity Guidance to assess its alignment, and identify any further areas in which Repsol could focus to strengthen understanding of the value of biodiversity into their natural capital assessment. Three focus areas were identified through the review, which are outlined in the ‘Next steps’ section of this case study.
In Repsol’s analysis, biodiversity is considered as part of biotic ecosystem services. Valuation is carried out at the level of ecosystem services. Biodiversity is considered separately when comparing impacts between a counterfactual scenario (no mitigation measures) and a projected scenario with implementation of mitigation measures.
Some initial analysis was undertaken, based on the Natural Capital Protocol and Biodiversity Guidance, to begin to explore how existing tools and research might be applied to strengthen understanding of the role that biodiversity plays in the generation of ecosystem service values, and how the estimated economic values might change with changes in biodiversity at Block 57. Two approaches were used:
- The first approach used relative valuation (see the Protocol, Table 7.1 for more information). Information about ecosystem services in the ENCORE tool was used to quickly assess the importance of biodiversity for delivery of different ecosystem services in a qualitative (high/medium/low) manner. A category for each ecosystem service was assigned based on the proportion of all natural capital assets contributing to equivalent/similar ecosystem services in ENCORE that are directly composed of biodiversity (i.e. ‘Species’ and ‘Habitats’ in ENCORE) with thresholds in equal thirds (i.e. >66.7% = high, 33.3-66.7% = medium, <33.3% = low).
2. The second approach was a production function technique (see the Valuing Guidance, Table 10 for more information), based on the relationship between biodiversity (measured through Mean Species Abundance) and ecosystem service values presented in ‘The Cost of Policy Inaction’ by Braat, Brink (eds.) et al. Economic values for ecosystem services previously estimated by Repsol were assumed to apply with biodiversity in a ‘natural’ condition. Anticipated changes in these economic values as a result of changing biodiversity in Block 57 were estimated relative to these values based on the functions in this paper.
What were the results?
Economic values for various provisioning, regulating and cultural ecosystem services in Block 57, and an indication of the relative importance of biodiversity for each ecosystem services (derived from ENCORE), are presented in Table 1.
Table 1. Economic values for ecosystem services in Block 57, and the relative importance of biodiversity for delivery of each ecosystem service derived from ENCORE.
*Note that monetary values were not estimated for some cultural ecosystem services due to a lack of data and ethical considerations.
**The relative importance of biodiversity for cultural ecosystem services has not been assessed as cultural ecosystem services are not included in ENCORE.
The functions showing the relationship between biodiversity and ecosystem service values from the Cost of Policy Inaction paper indicate how the economic values for ecosystem services may change if biodiversity and land use at Block 57 changes (Figure 1).
Figure 1. Potential changes in economic value of ecosystem services with changing intensity of biodiversity and land use at Block 57, derived from the relationships in ‘The Cost of Policy Inaction’ by Braat, ten Brink (eds.) et al. 2008. Values are summed across all ecosystem services within a section (i.e. provisioning, regulating, cultural). In 2a, the ‘provisioning’ relationship from the Cost of Policy Inaction is applied to the provisioning ecosystem services. In 2b, the ‘general’ relationship from the Cost of Policy Inaction is applied to the provisioning ecosystem services.
The functions in the Cost of Policy Inaction consider a trajectory from natural ecosystems to agriculture, and so the delivery of provisioning ecosystem services identified as important for local communities in Block 57 (e.g. materials, nutrition and energy) might be expected to increase as development proceeds. However, this development scenario may be unrealistic for Block 57, where increasing land use is likely to be for oil and gas activities as opposed to agriculture. Therefore, Figure 2b, in which the general relationship is applied to provisioning ecosystem services, may be a more realistic projection of changes in economic value in Block 57 if biodiversity changes.
Estimates for how the economic values for ecosystem services might change as a result of the impacts of Repsol’s direct operations in Block 57, derived from application of the GEMI methodology, have been undertaken in 2020. The GEMI methodology adjusts ecosystem service values for specific biodiversity features. In the valuation step, where Environmental Economic Values are calculated, adjustments are made for ecosystem service materiality, intra-biome adjustments and recovery time. In the modulation step adjustments are made for abundance and livelihood dependency, biodiversity and genetic provisioning, crops and protected flora abundance, and habitat loss and fragmentation, to derive the dimensionless Impact Units.
What were the outcomes and learnings?
The ongoing application of the GEMI methodology by Repsol at Block 57 links mitigation measures targeting biodiversity to reduced impacts on ecosystem services on which local communities depend. This demonstrates the strength of biodiversity-inclusive natural capital approaches in understanding the interrelatedness between natural resources and human well-being. The good practices for biodiversity impact mitigation at the site included, but were not limited to: rescuing and relocating orchids, bromeliads and sensitive flora; controlling exotic species; protecting sensitive trees, seed trees, vulnerable wild fauna and areas of importance for them, including modifying helicopter routes to avoid flying over sensitive areas; maintaining forest connectivity by means of canopy bridges; and reinjection of drilling waste to reduce environmental pollution. Compliance with these environmental measures allowed Repsol to implement the first three stages of the Mitigation Hierarchy (avoid, minimize, restore) within the company’s sustainable management policy at the site, positioning Repsol at the forefront of the oil and gas industry in site-level biodiversity impact mitigation. Repsol have calculated that implementation of these biodiversity management practices will reduce the impact of the gas pipeline and drilling pads required for the Sagari project by 55% over a baseline scenario with no mitigation measures. This will avoid a loss of ecosystem services amounting to US$ 8.5 million over a 20-year period.
Application of the GEMI at Block 57 also demonstrates that generalized natural capital valuation methodologies, that are broadly applicable across different sites around the world, can provide useful insights at the project level. Estimated values for biodiversity and ecosystem services can be tailored using site-specific adjustments, as is the case when following Repsol’s GEMI methodology. To inform these adjustments, data can be drawn through comparisons with similar sites for which more data is available, and refined through data from other site-specific studies such as work on the measurement of natural capital and/or Environmental Impact Assessments (where these are available).
There are various simple ways to explore the contribution of biodiversity to ecosystem service values, for example by using pre-existing tools, research and databases. However, these approaches suffer from numerous limitations, for example use of ENCORE assumes that biodiversity’s value is entirely represented through habitats and species. In reality, further value is realized through biodiversity’s interactions with other natural capital assets, for example biodiversity’s role in underpinning the quantity, quality and resilience of ecosystem services delivered from abiotic natural capital assets such as water, soils and sediments, and the atmosphere. Biodiversity also plays an important role in the stability and resilience of ecosystems, so changes in the status of biodiversity can affect the likelihood of benefits being delivered through these assets in the future. Primary data on the relationship between biodiversity and ecosystem services is also sparse. The Cost of Policy Inaction paper, published in 2008, is still used as a key reference for more recent scientific research on this subject, such as a paper published in Science Advances in 2020 by Paul et al.: ‘On the functional relationship between biodiversity and economic value’. Papers on this topic largely call for collection of more primary data to better understand this relationship. While this information is lacking, adjustments to values based on biodiversity measurements at the site-level, or from other site-level studies in ecologically similar environments, as applied by Repsol for Block 57, offers a way forward. It is important that the wide range of values that biodiversity has are incorporated either within or alongside these kinds of adjustments including values that are difficult to monetize, such as intrinsic value. While limitations and challenges associated with incorporating biodiversity should be acknowledged, they should not prohibit application of biodiversity-inclusive natural capital assessment methodologies where they have potential to assist understanding of business impacts and dependencies on people and nature.
Repsol will carry out a Biodiversity Monitoring Program and Revegetation Monitoring Programme to review the effectiveness of the implemented actions for biodiversity impact mitigation. These programs will assess features such as relocated species of orchids and bromeliads, connectivity through canopy bridges, and biologically sensitive areas and species (for example the ocelot, Leopardus pardalis). The follow-up and monitoring will allow identification of biodiversity recovery indicators, and determine biodiversity loss or gain associated with each action. It will inform at adaptive management approach, based on the results of the verification and monitoring, to allow continuous improvement in impact management.
Furthermore, the review against the Biodiversity Guidance identified three focus areas that can be seen as potential next steps for Repsol’s natural capital valuation work at Block 57, listed below. These will allow Repsol to continue strengthening their understanding of the value of biodiversity and ecosystem services at Block 57 for different stakeholders, to support their impact mitigation and management strategies.
- Continue to strengthen consideration of biodiversity in ecosystem service values. As outlined previously in this case study, biodiversity is incorporated in the estimated ecosystem service values as part of biotic ecosystem services. The Framing stage of the Biodiversity Guidance provides information about the values of biodiversity that may be overlooked in a natural capital assessment that focuses on flows of benefits (ecosystem services) but does not consider the contribution of biodiversity stocks to these flows. To make the role of biodiversity in contributing to ecosystem services clearer, Repsol could explicitly consider the importance of biodiversity for delivery of different ecosystem services. Repsol could also consider measuring the status and trends in biodiversity at the site, to strengthen understanding around if and how ecosystem service values are likely to change over time. Some initial analysis starting to explore how existing tools and data could be applied to explicitly understanding the role biodiversity plays in generating ecosystem service values is outlined previously in this case study. There is considerable potential to develop these approaches further to obtain more accurate and informative values for biodiversity’s role. Adjustments based on biodiversity features are made as part of Repsol’s GEMI methodology, which capture to an extent the contribution of biodiversity to ecosystem service values, and could be used to make the contribution of biodiversity more explicit in economic values for ecosystem services.
2. Continue to build the scope of valuation studies for Block 57, for example to include consideration of Repsol’s own dependencies on biodiversity and ecosystem services. The Scoping stage of the Biodiversity Guidance provides information on selecting an appropriate scope to meet biodiversity objectives. It recommends that dependencies on biodiversity should be included within the scope of a biodiversity-inclusive natural capital assessment, due to the relationship between biodiversity and the quantity, quality and resilience of ecosystem services delivered. Repsol’s work at Block 57 considers impacts on the ecosystem services on which local communities depend. This is in line with the Biodiversity Guidance, reflecting how many values of biodiversity accrue to society rather than businesses directly. Nevertheless, Repsol’s business operations at Block 57 are likely to also have material dependencies on biodiversity. Repsol could continue to strengthen their understanding of the importance of biodiversity at Block 57 by continuing to build on the scope over time, to include consideration of their own business dependencies on biodiversity and ecosystem services. This would build on work Repsol have done to identify potential ecosystem services on which they might have dependencies in the Machiguenga Reserve, which lies within Block 57.
3. Ensure that the framing of biodiversity values consistently recognizes the limitations in valuation techniques and associated implications for how the results should be interpreted and used. It is important that when Repsol present estimated biodiversity values, they are accompanied by an outline of the assumptions and limitations in the valuation techniques used. The Valuing stage of the Biodiversity Guidance provides information on biodiversity-specific considerations associated with different valuation approaches, key potential limitations, and how they might be addressed. It discusses considerations including the social and economic context of the study, factors that can inform the selection of valuation approach, baselines, spatial and temporal boundaries, the range of stakeholders engaged, and potential limitations associated with subjectivity, incommensurability, economic uncertainty, and commoditization of biodiversity. The Framing and Scoping stages of the Guidance also provide information on the values of biodiversity that are likely to be underestimated or overlooked when valuing biodiversity. Repsol is working to ensure that these considerations are integral to the GEMI methodology.