ENVIRONMENTAL ACCOUNTING PRACTICES AND FINANCIAL REPORTING IN OIL AND GAS INDUSTRY

CHAPTER ONE/INTRODUCTION

The demand for environmental accounting is now being addressed by responsible corporate management and national governments. It rose to the top of governments’ and businesses’ priorities earlier in the 1990s as a result of a number of internal and external causes, particularly on a global scale (Okoye and Ngwakwe:2004:220-235). Nigeria is one of the many nations in the world that have enacted several environmental protection laws and rules. As people became more conscious of the need to protect the environment, laws like the Environmental Impact Assessment Act of 1992 and the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN: 2002) were enacted. These encourage company managers to consider the environment while making all internal decisions. All organizations under the direction of the Nigerian environmental policy agencies are also urged to give their judgments great consideration. Environmentalists agree that it may be more profitable and cost-effective for firms to invest in clean technology or pollution prevention measures rather than pollution cleaning methods. Additionally, it has been highlighted that market-driven environmental regulations are substituting pollution prevention strategies for ‘command and control’ methods of pollution control. As a result, management may need to make further decisions after choosing the optimum pollution avoidance method. Such choices may entail selecting capital expenditures, according to Shield, Beloff, and Heller (1996:5). For instance, the emergence of markets for emissions permits may force companies to choose between purchasing and selling these allowances based on the cost of avoiding the covered emissions.
Environmental issues for economics and cost accounting have also been a point of contention during the last forty years. This is because there isn’t broad agreement on how to value unmarketed, unmonetized resources and the influence they have on externalities.

Commercial concerns used to be ranked in order of importance by corporate organizations. Businesses also categorize all indirect expenses as overhead without taking the environment into account. Conventional accounting practice does not take into consideration environmental accounting for the usage of materials, water, energy, and other natural resources.
Furthermore, standard accounting does not yet contain such an approach, particularly the accounting for the effect on externalities. B. Field and M. Field (2002) claim that it wasn’t until a few well-intentioned people in industrialized countries realized that it was futile to have large corporate profits and material well-being if they came at the price of a significant portion of the ecology that sustains us. Rapid ecosystem degradation, pollution, biodiversity loss in non-renewable areas, and ecological decline all become clear dangers to human survival. According to Field & Field in 2002, “What once were restricted environmental harms, simply repaired, have now acquired wide implications that may very well turn out to be permanent.”

Globally, there is a need to study, evaluate, and put into practice accounting reporting for raw materials, energy consumption, and use of natural resources that has been slowly destroying the environment. International law has also been developed as a result of the need for governments to protect the environment and the negative consequences that industrial and human activities have on biodiversity. These regulatory environmental standards, however, just mandate the voluntary disclosure of environmental data including industrial emissions, degradations, wastages, and any other activities that have a negative impact on the environment in financial statements. The Niger Delta’s significant ecological impact on the area’s oil and gas producing environment in Nigeria has led to political unrest in the area. According to Owolabi (2007:63), the political unrest in the Niger Delta cannot be solved by wishing away environmental issues from the country’s oil and gas sector planning, management, and decision-making. “Costs and benefits need to be accurately ascribed, a clear contrast made between the creation of income and the drawing down of capital assets through resource depletion or deterioration,” he concludes in regards to environmental costs.

Notable studies in environmental accounting include the Ontario Hydro Full Cost Accounting (1993) and the AT & T Green Accounting of the United States Environmental Protection Agency (1993). Additionally, commercial organizations have been required to carefully consider and take action on their capital projects and investments as a result of the Kyoto Protocol’s (December 1997) penalties and industrial emissions of green substances (carbon dioxide, methane, and hydro fluorocarbons).

In light of growing environmental consciousness and the fact that the production of the oil and gas sectors has a considerable environmental impact, the study explores environmental accounting practices and financial reporting in the oil and gas business.

 

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