Environmental policy and the evolution of revenue efficiency in global oil and gas companies

The transition from producing and consuming fossil fuels to using low-carbon and renewable energy solutions is a complex challenge for global oil and gas (O&G) companies. In navigating the dilemma of sustaining their core business while investing in energy transition and decarbonization, O&G companies adopt different business models that affect their competitive advantages and chances of survival in the face of the existential threat posed by climate change. This study aims to investigate the relationship between the evolving institutional context and business environment, resulting from the sustainable energy transition, and revenue efficiency in global O&G companies. Revenue efficiency, the ability to maximize revenue based on inputs and output prices, has become increasingly critical due to rising regulatory pressures for energy transition, growing renewable investments, and disruptive technologies reshaping the energy system. This study contributes to the literature by investigating the revenue efficiency of the 83 largest O&G companies from 23 countries from 2010 to 2021, a period during which the global energy system transformation accelerated. Three key results emerge. First, stricter environmental regulations, a larger share of renewable energy in the total primary energy supply, and a higher number of patents in environment-related technologies all contribute to increased revenue efficiency. Second, there is a wide range of efficiency scores across companies, countries, and regions. Europe hosts O&G companies with the highest revenue efficiency, suggesting that more demanding climate policies in Europe may contribute to improving revenue efficiency in the core business operations of the O&G companies. O&G companies in emerging countries, however, exhibit the lowest revenue efficiency, likely due to significant gaps in climate-related financial and human resource capacities in these countries. Third, the results highlight the impact of organizational differences, capabilities, and resources on the performance of O&G companies amid the energy transition. National Oil Companies (NOCs), particularly, resource-seeker NOCs, are found to be less revenue efficient. Overall, the results confirm the importance of the institutional context and the business environment as critical determinants of revenue efficiency of global O&G companies and suggest that higher revenue efficiency could be a critical factor enabling companies to undertake more climate-friendly actions.Stringent environmental regulations enhance the revenue efficiency of oil and gas companies in the transition to a low-carbon economy.Policies should focus on expanding renewable energy and promoting environmental technologies, driving innovation, and creating competitive pressure on oil and gas companies to improve revenue efficiency.Resource-seeking National Oil Companies need governance reforms to foster market-driven revenue efficiency, which would help balance national needs with the challenge of diversifying and greening operations.Emerging economies can adapt regulatory frameworks based on the experiences of developed countries to improve revenue efficiency of their oil and gas companies and support energy system transformation.