Evaluating Transition Plans in Japan’s High Emission Sectors 2025 Oil and Gas Sector
Background and Objective
In 2023, KSI conducted a study to assess the extent to which Japanese high-emitting industries and the banking sector have advanced the formulation of transition plans and published a report “Evaluating Transition Plans in Japan’s High Emission Sectors”. The results showed that while disclosure of historical emission data is progressing, there are challenges in setting 1.5°C-aligned science-based targets, presenting corresponding emission pathways, establishing short-term implementation plans to achieve reduction targets, and defining Scope 3 reduction targets. In the coming years, attention will increasingly focus not only on revising targets to be more ambitious, but also on verifying implementation and actual achievement.
Building on these findings, this study, while following the perspective of the previous one which focused on providing an overview of corporate transition plans, gives greater emphasis on examining the implementation status of transition plans, actual emission reduction performance, and the consistency of business portfolio and capital allocation plans with the stated transition strategies. The study also compares Japanese companies with their international peers to identify current trends and challenges.
Coverage
ENEOS Holdings, Inc.
Idemitsu Kosan Co.,Ltd.
COSMO ENERGY HOLDINGS CO., LTD.
INPEX CORPORATION
Japan Petroleum Exploration Co., Ltd.
(Overseas peer companies)
BP.p.l.c (U.K)
TotalEnergies SE (France)
Chevron Corporation (U.S.A)
ExxonMobil Corporation (U.S.A)
- Key findings
-
Analysis
- ・No clear direction for exiting fossil fuel businesses
- ・Methane emission reduction measures and more disclosure are needed
- ・Greater emission cuts are required to achieve targets
- ・Efforts to reduce Scope 3 emissions remain a challenge
- ・Four key points expected to gain importance in disclosure and stakeholder communication on oil and gas sector transition plans
KEY FINDINGS
Scope 1 & 2 Emission Reduction Target (Indicator 1.1.1)
All five companies aim to achieve net zero Scope 1 and 2 emissions by 2050.
Two companies have set methane emission reduction targets for upstream development.
Scope 3 Emission Reduction Target (Indicator 1.2)
Two companies have set intensity targets (emissions per unit of energy supplied) covering Scope 1–3 and one company targets net zero Scope 1–3 emissions by 2050, but avoided emissions are taken into account.
Two of four overseas companies have set absolute emission reduction targets for Scope 3 Category 11, the largest source of emissions in the oil and gas sector.
Level of Ambition of Emission Reduction Target (Indicator 1.3)
In the emissions reduction trajectory to 2050, two of the five companies align with the National Pledges scenario level, while one company falls outside the scenario range.
None are found to be aligned with the 1.5°C scenario or the Below 2°C scenario.
Business Portfolio Plan (Indicator 1.4)
Three companies express intentions to expand their natural gas and LNG businesses as “the energy needed during the transition period”.
Only one company reduces fossil fuel businesses in both scale and ratio in operating profit.
Scope 1 and Scope 2 Absolute Emissions Reduction Performance (Indicator 3.1)
Three out of five companies need to reduce emissions at a faster pace than before in order to achieve their 2030 targets.
Four companies do not disclose emissions based on the equity share approach, hence there is a possibility that projects where they hold equity interests are not included in the aggregation.
Methane Emissions Performance (Indicator 3.1)
Over the past three years, the total methane emissions have decreased at two companies, while it has increased at other two companies.
The methane emissions have decreased at all four overseas companies.
Scope 3 Category 11 Absolute Emission Reduction Performance (Indicator 3.2)
Looking at the three-year emissions performance for Scope 3 Category 11, three of the five companies show an increasing trend.
Among overseas companies, two companies show a decrease.
Application of Internal Carbon Pricing (Indicator 3.3)
All five companies apply an internal carbon price in the analysis of costs associated with emissions.
Three companies apply it for investment decisions.
Implementation Plans and Progress (Indicator 2.1)
ENEOS has the largest scale of renewable energy development plans, while Cosmo allocates resources to the development of wind power generation.
All five companies participate in the Japanese Advanced CCS Project and plan to commence CCS businesses in 2030.
Capital Allocation (Indicator 2.4)
Three out of five companies increase the investment in carbon-intensive businesses.
In the current medium-term business plans of all five companies, the investment in carbon- intensive businesses exceeds that in decarbonization solutions.
A similar trend is observed in four global peers.
Oil & Gas Production Plans and New Development Plans (Indicator 2.6)
By 2030, three out of five Japanese and all four overseas companies plan to increase their oil and gas production.
Four companies except Cosmo have development plans in which they have participated or acquired interests since 2023.
Analysis
The five assessed companies target net zero Scope 1 and 2 emissions by 2050. This requires early commercialization of low-carbon energy and a shift away from fossil fuels as agreed at COP28 in 2023(*1). In this assessment, we examined whether each company’s fossil fuel business aligns with the 2050 net-zero goal, reviewing their transition and carbon neutral plans, medium-term business plans, and other IR materials. The findings are summarized below.
Regarding the continuation of fossil fuel businesses, three companies (ENEOS, INPEX, and JAPEX) plan to expand natural gas and LNG operations, positioning them as“the energy necessary during the transition period.”
Four companies except Cosmo are involved in or have acquired interests in new development projects since 2023.
In terms of oil and gas production plans through 2030, three companies (ENEOS, Cosmo, and INPEX) plan to increase production. However, Cosmo has no new development projects since 2022.
Looking at business portfolio beyond 2030, three companies (ENEOS, Idemitsu, and Cosmo) state that they will reduce the proportion of fossil fuel businesses. However, a clear reduction in the overall scale of such businesses can be confirmed only for Idemitsu.
As for investment plans, four companies except Idemitsu allocate more capital to carbon-intensive businesses than to decarbonization-related ones under their current medium-term business plans. It should be noted, however, that since there are currently no financial reporting standards defining “carbon-intensive” or “decarbonization” categories, this assessment is based on companies’ voluntary disclosures.
Overall, only Idemitsu aligns with the direction towards 2050 goal, planning to shrink its fossil fuel business and prioritize decarbonization investments (however, it acquired an interest in a Norwegian project in January 2025). The other four companies are expected to expand fossil fuel businesses beyond 2030.
The argument that natural gas and LNG are “essential transitional energy sources” appears to be based on the premise that they emit less CO₂ than oil. However, natural gas consists primarily of methane, which is emitted during extraction and production processes and its global warming potential is 28 times greater than CO₂ over 100 years and 84 times over 20 years.
While methane risks have been widely recognized, the three companies planning to expand natural gas and LNG businesses still lack sufficient reduction targets, disclosures, participation in initiatives, and emissions performance. INPEX keeps a low methane intensity (<0.1%) but its total emissions rose 45% over the past three years, while all four global peers show declines.
Among the five companies, ENEOS, Idemitsu, and INPEX are evaluated by the TPI Carbon Performance Assessment and they all fall outside the scenario range for their 2035 mid-term targets, meaning they do not meet even the National Pledges scenario. For 2050 long-term targets, ENEOS and Idemitsu align with the National Pledges scenario, while INPEX remains outside the range. Although Cosmo is not covered in the TPI assessment, as its 2030 target is weaker than those of ENEOS and Idemitsu, it’s fair to say that the company’s ambition level is also outside the range. We cannot compare JAPEX’s target level as the company is not covered by TPI and also its target base year differs from the others.
To meet their 2030 targets, ENEOS, Idemitsu, and Cosmo need to accelerate emission cuts; INPEX and JAPEX cannot be assessed due to limited data. (for INPEX, because its absolute target is only for the parent company and for JAPEX, because significant reduction was recorded in 2021 due to its withdrawal from the Canadian oil sands business)
CCS appears the main option for faster cuts without reducing fossil fuel businesses, with government support aiming for commercialization by 2030. All five companies have joined “Japanese Advanced CCS Projects” and three of them set annual capacity targets. INPEX and JAPEX particularly put importance on CCS solution as they aim to expand natural gas and LNG businesses.
Progress has been made in developing next-generation energy sources. Cosmo already met its FY2025 renewable energy capacity target as of March 2025. ENEOS expects steady medium- to long-term growth in the domestic renewable market and is expanding its initiatives. Project related to hydrogen, ammonia, and synthetic methane are advancing toward commercialization around 2030, with facility construction underway.
For all five companies, Scope 3 Category 11 (Use of Sold Products) accounts for more than 70% of total emissions. While two of the four global peers (BP and Total) set reduction targets for absolute Category 11 emissions, the targets of the Japanese companies are based on either emissions intensity per energy supplied for total Scope 1-3 emissions or absolute Scope 1-3 emissions with offsets.
There is currently no guideline that requires Scope 3 target setting. However, the Net Zero Standard for Oil and Gas Assessment Framework (*4), developed by IIGCC and TPI for investors, emphasize on Scope 3 target setting, indicating heightened investor interest.
Two companies were observed incorporating avoided emissions into their targets rather than Scope 3 emission reduction. However, as there is still no internationally unified guidance for avoided emissions, companies using them need to clarify the scope and calculation methods. INPEX, which newly set an avoided emission target, has yet to disclose such details. Cosmo intends to set its targets by subtracting avoided emissions from Scope 1 and 2 emissions. However, referring to domestic and international guidance, the use of avoided emissions as offsets is not permitted (*5).
Internal Carbon Pricing
On March 25, 2025, during the preparation of this report, JAPEX announced the transfer of all shares of its consolidated subsidiary JAPEX UK E&P LIMITED, which had been involved in oil development in the United Kingdom. JAPEX said that an increase in UK oil field taxes made it difficult to maintain business profitability. Looking ahead, internal carbon pricing (ICP) will become increasingly important for the oil and gas sector as preparation for carbon pricing schemes. In Japan, under the GX Promotion Act, a “fossil fuel surcharge” will be applied in FY2028. ICP is expected to attract more attention from shareholders and investors to evaluate climate transition risks with potential financial impact.
In this assessment we found that all five companies apply ICP to assess costs associated with emissions, while Idemitsu and INPEX also use it to analyze investments. The status of internal carbon pricing implementation and its price are included as disclosure items in the Sustainability Disclosure Standard, the final version of which was published on March 5, 2025. These standards will be phased in from the fiscal year ending March 2027 according to market capitalization.
Investment Plans
Asset allocation and investment plans are important indicators of the effectiveness of a company’s decarbonization strategy. Disclosure is recommended in various guidelines on transition plans, such as TPI and TPT(*6), and the EU disclosure standards explicitly require disclosure of capital allocation to carbon-intensive and decarbonized businesses(*7). Demonstrating alignment between transition plans and investment plans and results is important to avoid the risk of greenwashing.
In Japan, the current reporting regulation does not require such disclosure, making it difficult to obtain information on investment in carbon-intensive versus decarbonization businesses or their share of total investment. However, the Sustainability Disclosure Standards published in March include, under climate-related capital expenditure, figures for capital expenditure, financing, or investment deployed to climate-related risks and opportunities. Although the timing for mandatory application of the standards has not yet been finalized (though it is expected to phase in from the fiscal year ending March 2027), voluntary application is possible from fiscal year ending March 2025.
Oil and gas companies are expected to disclose information proactively, without waiting for the implementation of the standards, given the critical role they play in energy decarbonization and the high level of interest from shareholders and investors. (It is also expected that the “figures” in the standards will be interpreted as “monetary amounts” in disclosures.)
Boundary of emissions accounting
The oil and gas companies operate globally in exploration, development, and production. Some of these operations involve holding equity interests through investment without exercising operational or financial control. Therefore, the IPIECA GHG emissions reporting guidance and the GHG Protocol recommend that a company selects either the operational control or the equity share approach, or both for determining reporting boundaries, considering GHG inventory.
Among the assessed companies, INPEX specifies for each dataset which approach it follows, and ENEOS adopts the operational control approach. However, while the other three companies report on a consolidated basis, it is impossible to verify which subsidiaries are excluded. It makes it difficult to confirm whether major development, production, or manufacturing operations are all included or omitted. Given that the four overseas companies disclose emission results under both approaches, there appears to be room for improvement for the Japanese ones.
Oil and gas production plans
Production plans for oil and gas are critical information for evaluating the effectiveness of transition plans. The Net Zero Standard for Oil and Gas Assessment Framework (*4) also calls for the disclosure of medium- to long-term plans. However, only Cosmo disclosed production plans for 2030, and no company provides plans for oil and gas separately.
Internationally, oil and gas majors—including the overseas companies—position LNG as a necessary transitional energy source and are expanding their operations. However, as noted earlier, natural gas carries a warming risk due to methane emissions. How each company plans its production and how this aligns with their corporate transition strategies will likely draw increasing attention going forward.