2 – Effects of climate change and the energy transition

OMV has considered the short- and long-term effects of climate change and the energy transition in preparing the consolidated financial statements. They are subject to uncertainty, and they may have a significant impact on the assets and liabilities currently reported by the Group.

The Group is exposed to physical climate risks as well as risks associated with the energy transition, including risks for stranded assets, decrease in demand for fossil products, and regulatory risks. The risks from climate change and their management are described in the Directors’ Report, section Risk Management.

OMV’s targets and commitments to decarbonization

In 2022, OMV defined quantitative short-, medium-, and long-term targets for its emissions reductions and committed to becoming a net-zero emissions company by 2050 (Scopes 1, 2, and 3). For Scope 1 and 2 emissions, OMV is aiming for an absolute reduction of at least 30% by 2030 and of at least 60% by 2040. For Scope 3 emissions, OMV is striving for a reduction of at least 20% by 2030 and of 50% by 2040.*The following Scope 3 categories are included: category 11 – Use of sold products for energy supply, category 1 – Purchased goods (feedstocks), and category 12 – End of life of sold products for non-energy use. These absolute GHG emissions reductions and the increase in zero-carbon product energy sales are the key to reducing the carbon intensity of OMV’s energy supply, pursuing a decline of at least 20% by 2030 and of at least 50% by 2040.*The base for the emissions reduction targets are the Group’s emissions in 2019 adjusted for the emissions of Borealis in which OMV acquired a majority stake in 2020.

Voluntary carbon offset credits are only used to a limited extent. The maximum acceptable GHG emission reduction contribution from carbon offsets to achieve the absolute 2030 and 2040 GHG targets is 5% of the total absolute required emissions reduction. To achieve the net-zero status by 2050, carbon offsets shall only be used to neutralize the remaining gross emissions that can otherwise not be eliminated.

According to the most recent mid-term planning, OMV plans to invest organic capital expenditure in excess of EUR 8 bn in 2024–2028 for projects relating to sustainable business transformation, development of low-carbon business solutions, and energy efficiency measures.

Effects on estimation uncertainty

The significant accounting estimates performed by management incorporate the future effects of OMV’s own strategic decisions and commitments to having its portfolio aligned with the energy transition targets, short and long-term impacts of climate risks and the energy transition to lower carbon energy sources, together with management’s best estimate on global supply and demand, including forecast commodities prices.

Nevertheless, there is significant uncertainty surrounding the changes in the mix of energy sources over the next 30 years and the extent to which such changes will meet the ambitions of the Paris Agreement. While companies can commit to such ambitions, financial reporting under IFRS requires the use of assumptions that represent management’s current best estimate of the range of expected future economic conditions, which may differ from such targets. These assumptions include expectations about future worldwide decarbonization efforts and the transition of economies to net zero emissions.

OMV uses two different scenarios: the base case and the “net zero emissions by 2050” case. The scenarios differ in the underlying expectations of the pace of the future worldwide decarbonization and lead to different assumptions for demand, prices, and margins of fossil commodities.

The base case is built on a scenario developed by the internal Market Intelligence department and assumes that all decarbonization pledges announced by governments around the world will be implemented in full and on time. In this scenario, the temperature increase by 2100 will be limited to 1.7°C with a probability of 50%. The underlying demand and price developments of fossil commodities are in line with the Announced Pledges Scenario (APS) which was modeled by the International Energy Agency (IEA).*Based on the World Energy Outlook 2022 report published by the IEA. The base case is used for mid-term planning as well as for estimates relating to the measurement of various items in the Group financial statements, including impairment testing of non-financial assets and the measurement of provisions.

The “net zero emissions by 2050” case which is based on a faster decarbonization path than the base case is used for calculating sensitivities in order to recognize the uncertainty of the pace of the energy transition and to better understand the financial risk of the energy transition on the existing assets of OMV. The assumptions used in this case are in line with the Net Zero Emissions by 2050 (NZE) scenario modeled by the IEA.*Based on the World Energy Outlook 2022 report published by the IEA. It shows a pathway for the global energy sector to achieve net zero GHG emissions by 2050 and is compatible with limiting the temperature increase to 1.5°C.

For investment decisions, business cases are calculated using the price and demand assumptions according to the base case. These assumptions are the same as for mid-term planning and impairment tests. In addition, a stress test based on the commodity price assumptions of the “net zero emissions by 2050” scenario is mandatory for all investment decisions in order to assess the risk of stranded assets in this decarbonization scenario.

Recoverability of assets

The following table summarizes the carrying amounts of the Group’s intangible assets (incl. goodwill), PPE, and at-equity-accounted investments disaggregated according to the type of assets as at December 31, 2023:

Commodity price assumptions have a significant impact on the recoverable amounts of E&A assets, PPE, and goodwill. For the impairment tests, the price set as defined for mid-term planning and derived from the base case as described above was used. Costs for CO₂ emissions are taken into account to the extent that carbon pricing schemes are in place in the respective countries. Disclosures on the impairment tests are included in Note 3.2j – Accounting policies, judgments, and estimates and Note 8 – Depreciation, amortization, impairments and write-ups.

The base case price assumptions and the EUR–USD exchange rates used for impairment testing are listed below (in 2023 real terms for 2023 and 2022 real terms for 2022):

Sensitivities based on the “net zero emissions by 2050” climate scenario have been calculated to test the resilience of assets against risks from the energy transition. The assumptions used in the sensitivity analysis are included in the table below (prices in 2023 real terms):

The “net zero emissions by 2050” sensitivities were calculated using a simplified method and are based on a DCF model in line with the impairment testing calculations. The cash flows of oil and gas assets are based on adjusted mid-term planning for the next five years and life of field planning for the remaining years until abandonment. The “net zero emissions by 2050” case does not include any changes to input factors other than prices and volumes. The calculation considers an earlier economic cut-off date for oil and gas fields if the revenues impacted by lower prices are not sufficient to cover the costs. But it especially does not take into account any restructurings, cost reduction measures, divestments or other changes in the business plans that are not included in the base case. The amounts presented therefore should not be seen as a best estimate of an expected impairment impact following such a scenario.

The CO₂ costs considered for oil and gas assets are based on the CO₂ prices in the IEA NZE by 2050 scenario and 100% of OMV’s share of direct emissions from 2031 onward.

The sensitivities calculated based on the “net zero emissions by 2050” case indicate that there is a risk of impairments of oil and gas assets. The carrying amounts of the oil and gas assets with proved reserves (incl. E&P at-equity investments) would have to be decreased by EUR 4.4 bn and goodwill would decrease by EUR 0.3 bn. In addition, all oil and gas assets with unproved reserves would be abandoned with a pre-tax loss of EUR 0.3 bn. Total post-tax impact on profit or loss would be EUR 3.6 bn.

As far as the C&M segment is concerned, management would not foresee negative effects on the overall demand of polyolefin solutions in the accelerated decarbonization scenario. Pricing of polyolefins is mainly driven by base chemical markets like naphtha, ethane, and propane. An accelerated change in the world’s energy landscape might lead to different price movements in those relevant base chemicals, temporarily affecting the profitability of some assets in the polyolefin value chain. Driven by the expected strong demand of polyolefin solutions, management does not foresee any substantial negative effects on the overall integrated value chain.

OMV plans to transform its European refineries so that they will stay competitive as the decarbonization of the fuels and chemical sector progresses. Crude oil distillation throughput will be decreased. The product mix will be adapted to reduce heating oil and diesel output while increasing the chemical yield. In parallel, a production portfolio of renewable fuels and sustainable chemical feedstocks will be developed. Taking into account these transformation plans, management does not foresee a significant risk that the existing refinery assets in Europe would not be recoverable in the “net zero emissions by 2050” scenario.

It is expected that declines in demand for fossil products caused by the energy transition will progress more slowly outside the European Union. The investment in ADNOC Refining is assumed to be resilient also in a Paris Agreement-aligned energy transition scenario thanks to its access to markets in the Middle East and Asia.

For retail, cash flows of less than ten years were sufficient to demonstrate the recoverability of the carrying amounts of the currently existing assets. Consequently, there was no need to perform a calculation under the “net zero emissions by 2050”.

Useful lives

The pace of the energy transition may have an impact on the remaining useful lives of assets. Fixed assets in the C&M business will be fully depreciated over the next 5 to 15 years. The depreciable fixed assets in the refineries will in average be fully depreciated over the next 9 years and in retail over the next 5 to 10 years. Demand for petroleum and chemical products is expected to stay robust over this period of time. It is therefore predicted that the energy transition will not have a material impact on the expected useful lives of property, plant, and equipment in the F&F and C&M segments. 

In the Energy segment, oil and gas assets are depreciated using the unit-of-production method as described in Note 3.2h which is based on proved reserves. According to the current production plans, 40% of proved reserves as at December 31, 2023, will be left by 2030, 9% by 2040, and less than 2% by 2050. The existing oil and gas assets with proved reserves (without considering any future investments) will therefore be significantly depreciated by 2030 and, with the exception of one field, fully depreciated by 2050.

Decommissioning provisions 

The carrying amounts and maturity profile of decommissioning provisions are as follows:

The speed of the energy transition influences the timing of the decommissioning of oil and gas facilities. In the “net zero emissions by 2050” scenario, some oil and gas fields could be shut down earlier. Given the low real interest rates used in the calculation and assuming a similar yearly abandonment capacity, there would not be any material impact on the book value of the decommissioning provisions.

For refinery and chemical sites built on owned land, no decommissioning provisions are recognized because these plants are long-lived assets that will continue to be used in an energy transition scenario. For OMV’s European refinery sites, there are significant investments planned in the next years with the goal of transforming them in the direction of renewable fuels and chemical feedstock production with deeper chemicals integration. Furthermore, ADNOC Refining is expected to continue to operate under a Paris-aligned scenario because of its favorable positioning in the market.

Deferred tax assets

In the “net zero emissions by 2050” scenario, deferred tax assets related to additional impairments would for the most part be considered recoverable. No material effects with respect to the net deferred tax asset position of the Austrian tax group would be expected.

Impact on ability to pay dividend

The management assessed the impact of the “net zero emissions by 2050” scenario on the ability of OMV Aktiengesellschaft to pay dividend. The potential impairment loss in this scenario 2023 would not impact the ability to pay dividends in 2024 because of the strong result and financial reserves at the level of the stand-alone financial statements of OMV Aktiengesellschaft which are the basis for dividend payments.

Emissions certificates and CO₂ costs

Directive 2003/87/EC of the European Parliament and the European Council established a greenhouse gas emissions trading scheme, requiring member states to draw up national plans to allocate emissions certificates. Under this scheme, affected OMV Group companies are entitled to a yearly allocation of free emissions certificates.

The New Zealand government established a greenhouse gas emissions trading scheme under the Climate Change Response Act 2002. Under this scheme, New Zealand companies are not entitled to receive free emissions certificates. OMV has purchased certificates to meet its own use liability. Apart from purchased certificates, each sale of gas to domestic customers in New Zealand creates an obligation for OMV. To meet this obligation, OMV receives emission certificates from these customers. The certificates received are treated as pass-through items.

In Germany, the Fuel Emissions Trading Act (BEHG; Brennstoffemissionshandelsgesetz) is the basis for the national emissions trading scheme for the heating and transport sectors. It obliges companies that place fuels on the market to acquire fee-based certificates from the German Emissions Trading Authority (DEHSt, Deutsche Emissionshandelsstelle). The certificates are currently not eligible for trading and there are no free allocations.

Total expensed CO₂ costs and carbon taxes amounted to EUR 368 mn in 2023 (2022: EUR 392 mn). The provisions for CO₂ emissions are presented within current other provisions and amounted to EUR 437 mn in 2023 (2022: EUR 469 mn). The accounting policies for emissions certificates are described in Note 3 – Accounting policies, judgments, and estimates.

In 2024, OMV expects to surrender 7,614 thousand emissions certificates from European Trading Scheme, 3,708 thousand BEHG certificates and 2,769 thousand NZ certificates for (not yet externally verified) emissions, of which 2,671 thousand emissions certificates are expected to be received from customers in New Zealand.