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The oil and gas industry will confront two major environmental issues in the coming decade-the prospect of policies to combat climate change and constrained access to oil and gas reserves. These issues have the potential to affect companies' sales, operating costs, asset values, and shareholder value.

In a case study of 16 leading oil and gas companies, we find that companies are very differently positioned to deal with these 2 issues, virtue of different asset bases and distribution of reserves. Using a methodology previously developed by WRI in a case study of the pulp and paper industry, we estimate the impacts of these issues for shareholder value within the industry.

Across the industry, we find that companies' shareholder value could fall by between 1 and 6 percent if investors were to account for these environmental risks.

In some scenarios, companies could gain if natural gas prices rise and if permits to emit greenhouse gases are grandfathered to companies.

Although these issues prove to be financially significant and a source of competitive advantage within the industry, it is not clear that investors currently take account of them.