Environmental Policy: Effect on Oil and Gas Sector

Abstract

Inclination for green deeds has been demonstrated repeatedly despite global distress over the energy crisis of winter 2021. Accordingly, the question of energy security is by far neglected in favor of environmental issues, threatening to harm the oil and gas sector in terms of its financial results. This study, thus, aims to gauge the effect of environmental regulation on the financial functioning of companies in the fossil fuel sector, employing panel data for 72 oil and gas companies drawn from the top 200 largest fossil fuel firms by market capitalization in 21 countries during a three-year period (2018-2020). Results of the study demonstrate that oil and gas companies have been exposed to financial risks provoked by government’s regulatory framework of environmental related issues, impacting the fossil-based companies’ financial performance as a consequence, albeit only at a moderate level. On the basis of the research findings, the study also discusses some possible implications for countries in terms of their environmental policy in accordance with the corresponding economic-specific characteristics: developed and energy-import dependent (Western Europe, Japan, South Korea), developing and energy-import dependent (China), developed and energy-import independent (the United States, Canada).