Who regulates the regulators in oil and gas? The win-win that comes from greater global collaboration

The oil and gas industry has long been marred by a troubling contradiction: the existence of anti-flaring regulations that are barely enforced. In major oil-producing nations such as Nigeria and Algeria, flaring penalties are ostensibly on the books but rarely bite. Why? Because the regulators responsible for enforcement are often inseparable from the state-owned oil companies they oversee. This structural conflict of interest leaves environmental promises as hollow platitudes, while flaring – a practice that wastes valuable gas and exacerbates climate change – continues unabated.

At its core, this is an issue of governance and accountability. National oil companies (NOCs) in these regions are not just businesses; they are extensions of the state, often generating a substantial portion of government revenue. Regulators, instead of acting as independent watchdogs, become enablers of bad behaviour, ensuring that penalties remain toothless or unenforced. For a short-sighted government reliant on oil rents, turning a blind eye to flaring is an easy trade-off. Why antagonise the cash cow when you can pocket the revenues?

Yet this myopic approach comes at an enormous long-term cost. Flaring not only squanders a resource that could be monetised – providing energy, jobs, and economic diversification – but it also pollutes the atmosphere with potent greenhouse gases such as methane. In an era where the global economy is pivoting towards decarbonisation, this failure to act is increasingly untenable.

The scale of uncollected penalties is staggering. Take Algeria: if the existing anti-flaring penalties already enshrined in law were fully applied, they would amount to $900 million annually. In Nigeria, the government has publicly stated that flaring should generate penalties, but the amount collected is three times less than what it should be based on official rates. These figures are not just a reflection of enforcement failure but of vast untapped financial potential that could be redirected towards solving the very problem they were designed to address.

This is where innovation could create a win-win. What if the penalties collected – both domestically and internationally – were hypothecated to flare reduction projects? Instead of disappearing into general government coffers, where they risk being misspent, these funds could be used to finance gas capture infrastructure, support electrification projects, or incentivise cleaner technologies. Such an approach could form the basis of an innovative finance mechanism, creating a self-sustaining cycle of investment and impact.

The question then becomes: who regulates the regulators? If domestic systems are too compromised to enforce their own rules, the international community must step in. Multilateral development banks (MDBs), investors, and international financial institutions wield considerable influence in shaping behaviour. For countries that rely on external capital, these bodies could make adherence to anti-flaring commitments a condition for financing.

Shareholders, too, have a pivotal role to play. Institutional investors are increasingly demanding transparency and environmental accountability, and they must use their voting power to push for stricter oversight of NOCs and joint ventures with international oil companies. Publicly listed oil majors operating in flaring-prone countries should be held accountable by their investors for enabling or tolerating poor practices.

Moreover, the rise of extraterritorial measures offers a promising pathway for change. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is an early example. By imposing tariffs on imports based on their carbon footprint, CBAM effectively externalises the cost of emissions onto exporters, including those that flout flaring rules. If Europe, a major importer of energy products, expands this framework to target flaring-derived emissions explicitly, it could create a powerful economic incentive for compliance.

Credible independent satellite data has emerged as a vital tool in this landscape. With increasingly abundant and precise data, global observers can track flaring in near real-time, bringing transparency to what was once hidden. Services such as Capterio‘s award-winning FlareIntel Pro platform leverage this satellite data to provide actionable insights, enabling companies to identify flaring hotspots, quantify emissions, and benchmark performance. By adopting such tools, companies can not only reduce their environmental impact but also get ahead of regulatory risks and align with emerging global standards. These technologies shift the conversation from reactive enforcement to proactive change, putting data and solutions directly in the hands of those who can make a difference.

Such measures are not merely punitive; they are corrective. By embedding environmental standards into trade and investment frameworks, they level the playing field and reward those who align with global decarbonisation goals.

Critics might argue that this smacks of climate imperialism – a case of rich nations dictating terms to poorer ones. But in reality, the greatest beneficiaries of stronger flaring enforcement are the nations themselves. Captured gas can be used domestically to fuel power generation, support industrial growth, and provide cleaner cooking solutions for millions of households. It is a win-win scenario: reducing emissions while unlocking economic potential.

The global community faces a choice: continue to tolerate regulatory failure and watch as valuable gas goes up in smoke, or use the tools at its disposal to drive meaningful change. The latter requires political will, financial ingenuity, and a recognition that short-term expedience is no match for long-term sustainability. Regulators may be compromised, but regulation itself need not be. The world is watching – and it must act.