Local Impacts & Benefits of Energy Extraction
Economic Impacts & Benefits
What are the Issues?
Energy companies can provide substantial benefits to the local communities where they operate but this linkage can be complex and challenging. For example, the impact of an energy company’s contribution to community development in its areas of operations is dependent on how payments to the government are structured, local economic conditions, the presence of tri-sector partnerships involving the private sector, civil society and government working together (which can sustain development efforts), and even the phase of the project’s life cycle.
What are the Challenges?
Local economies are not always prepared to serve the highly technical needs of an energy company. This can present a challenge to companies that want to offer employment to local workers and contracts to local suppliers. In addition, there are risks that company sponsored investments in local content – local hiring and the procurement of local goods and services – can lead to an economic dependence that is not sustainable beyond a given project life cycle stage. Government and company support for the diversification of local businesses can reduce this sort of dependence.
What are the Solutions?
Procuring goods and services – also known as "local content" - when well executed, is one way in which energy companies can foster direct economic benefits for the countries and communities in which they operate. A company’s use of local content provides benefits to the local economy as well as to company reputation. Using local suppliers and employees can create long term cost savings through a combination of lower labor and logistics costs.
Energy companies can continue to help build the capabilities of local companies that provide higher-skilled services such as information technology and equipment maintenance through training, mentoring and technology transfer. Energy companies are working to build sustainable businesses that will last beyond the given project lifecycle so that when the company leaves the country, the local businesses can continue to prosper and grow.
International oil and gas companies are increasingly developing and implementing strategies for local content as a means to meet host country requirements on employment and to gain a competitive advantage by distinguishing themselves as partners that will contribute to broad economic development.
Environmental Impacts & Benefits
The way in which an energy partnership manages the environmental impacts of its physical operations can also influence the quality of life for those living in host communities. During every phase of the extraction of oil and gas, including exploration, drilling, refining and transport, experienced operators are needed to ensure proper steps are planned and taken to minimize or prevent negative environmental consequences. Energy partnerships must effectively manage a host of potential environmental issues, such as water quality, use of mercury, waste disposal, land grading, deforestation, gas flaring, and oil spills, to ensure that local people’s health and livelihoods are not negatively impacted by operations. Some companies are finding unique opportunities to conserve ecosystems with high biodiversity value, to enhance local capacity to conserve local ecosystems, or even to leave ecosystems in better condition than before their operations began. (See Energy & the Environment)
Social Impacts & Benefits
What are the Issues?
Given the long-term nature of extractives operations, the social impacts on surrounding communities can be significant. Companies, governments, and civil society must work together to manage these impacts and to leverage opportunities for local community development.
What are the Challenges?
Promotion of Human Rights
Energy companies are at times faced with complex human rights issues, including: local conflict, corruption, resettlement, indigenous rights, and relationships with state and private security forces.
Indigenous rights are a human rights issue that is of particular relevance for companies that explore for and produce energy resources in more remote locations and difficult terrain. Indigenous rights are individual and collective rights that establish indigenous peoples’ self-determination, rights to culture, identity, language, employment, health, and education, and their freedom to make decisions on issues such as management of land which they traditionally occupy. The defining role that the land plays for most indigenous peoples can create challenges when energy partnerships want to develop land. Companies and their state partners can take steps to ensure the interests of indigenous peoples are respected by "recognizing rights to land and natural resources, ensuring culturally appropriate procedures for consultation and communication, and building on the strengths of traditional lifestyles and institutions (councils, etc.) for decision-making." (Source: CommDev, The Oil, Gas and Mining Development Fund, "Indigenous Peoples").
In order to maintain the security of operations, assets, and employees, energy companies – especially the exploration and production sectors of these companies - often work with public and private security forces. Through voluntary partnerships and principles, energy companies are making sure their contractors and government partners are maintaining the safety and security of their operations within an operating framework that ensures respect for human rights and fundamental freedoms.
What are the Solutions?
Partnerships for Sustainable Development
Energy partnerships often invest in community development projects through partnerships with NGOs or government agencies, or through direct assistance; this is a particularly important role for companies to play given that conventional oil and natural gas resources are mainly located in non-OECD countries. Energy companies commonly invest in partnerships and related initiatives aimed at poverty alleviation; health and education improvements; business and supply chain development, and capacity building. Collectively, these efforts support human development and a more stable operating environment.
When private energy companies enter into an area that is rural and undeveloped, they will often invest in necessary infrastructure, such as roads, to be able to transport workers and supplies. This investment benefits the surrounding communities but also must be carefully planned and managed with community input in order to avoid environmental degradation and/or disruption to communities.
Many oil and gas partnerships are also designing pipeline routes such that they avoid impacts on biodiversity, human settlements and cultural heritage. Companies are using environmental impact assessment (EIA) tools to assist them in minimizing and mitigating the environmental impacts of operations, pipelines, and refineries. The IFC (International Finance Corporation) has created a policy on involuntary resettlement that provides guidelines for designing resettlement action plans when physical operations are going to displace individuals or communities.
Global Partnerships
In terms of security and human rights concerns, companies, governments, and NGOs are currently working together on the Voluntary Principles on Security and Human Rights, a global dialogue that guides companies on maintaining the safety and security of their operations within an operating framework that ensures respect for human rights and fundamental freedoms.
Host countries are playing a role too – in order to effectively provide oversight on environmental impacts, they must regulate and monitor operations to reduce impacts on ecosystems and public health. The Global Gas Flaring Reduction public-private partnership (GGFR) brings together host governments, national oil companies, and private international oil companies to share best practices and to develop strategies for reducing flaring such as developing local infrastructure so that gas can be used locally rather than flared and wasted.