Closing the gap between Paris goals and fossil fuel production

It is time to get serious about supply-side climate policies, write experts from the Stockholm Environment Institute

A ruling by India's Supreme Court makes the business case for coal imports tougher (Pic: Smeet Chowdhury/Flickr)


The speed with which world leaders ratified the Paris Agreement shows there is a real momentum to tackle climate change. Yet investment in fossil fuel extraction continues unabated, at about US$1 trillion per year.

How can we keep warming well below 2C (much less 1.5C) while continuing to produce ever-more coal, oil and gas? For many years, policy-makers have mostly ignored that question, focusing climate change mitigation measures almost entirely on fossil fuel consumption.

Now attention is increasingly turning to fossil fuel supply and the disconnect between producers’ ambitions and climate goals. Late last month in Oxford, we gathered more than 100 leading thinkers from academia, civil society, and business to discuss the way forward.

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We focused on three overarching themes: the risks of continued investment in fossil fuel production; the role of supply-side policies in mitigating these risks; and the political and equity challenges of a transition away from fossil fuel production.

The discussions underscored the large gap between plans for new coal mines, oil rigs and pipelines, and the goals of the Paris Agreement.

For example, the forthcoming World Energy Outlook of the International Energy Agency suggests that there is still scope for sizeable fossil fuel supply investments, but at a reduced scale, with little risk of stranded assets if well managed.

In contrast, a recent Oil Change International analysis suggests that the oil, gas, and coal in already-producing fields and mines are more than enough for a 2C world, so there is no room left for new fossil fuel infrastructure.

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At the conference, we heard from Norway’s Statoil that while the company is contemplating new Arctic oil fields, it is also including a 2C scenario in its planning.

As a scorecard presented by the Union of Concerned Scientists shows, other oil majors still have a long way to go in aligning their practices with the Paris Agreement. Indeed, as an analyst from Nordea Markets noted, oil companies continue to focus on amassing more reserves, mostly ignoring the changing policy environment and the risks it poses to their business model.

But what kinds of “supply-side” policies could resolve those contradictions? Our discussions offered up several ideas.

First off, decision-makers and regulators could apply a climate “stress test” to new fossil fuel investments to assess whether they are consistent with a 2C pathway. Second, there are several proposals around the world for measures to limit the fossil fuel supply, some of which are already gaining traction.

For instance, Pacific Island nations have proposed an new international treaty that would ban new coal mines, and indeed moratoria on new coal mines though temporary are now in place in China and Indonesia, and on federal lands in the United States. Taxes or increased royalties on coal and oil production and exports are under discussion as ways to both disincentivize fossil fuel production and raise public revenues that could assist with worker transitions.

Similarly, the elimination of subsidies for fossil fuel production could lead to significant benefits for both the climate and the public purse. Some have even suggested creating a new fund to compensate actors for not developing deposits in biodiversity-rich areas in developing countries.

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Together, these supply-side policy options offer important new levers that could yield important climate and social benefits. A key question is how they can best support and complement demand-side climate policies such as carbon pricing or support for renewables.

Supply-side climate policies also raise questions of equity and efficiency: Which resources should be kept in the ground, and under what conditions? Or, as one conference participant put it, “who will get to sell the last barrel?” Should the market decide? Or should developing countries take priority?

Norway, for instance, has sought to position itself as an efficient, environmentally conscious oil producer, but it is also a wealthy, industrialized country. Yet other nations see coal and oil as key sources of revenue for development (even if, in practice, they do not always yield the expected benefits). We talked about Colombia, which has traditionally viewed resource extraction as an economic growth engine, and South Africa, where coal production is associated with black empowerment.

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Conference presenters also discussed ways to achieve a “just transition” that ensures that coal miners, oil workers and others dependent on fossil fuel production will still have well-paid jobs in a new economy.

Fossil fuel production is still a long way from being phased out. But norms are changing: from divestment campaigns, to proposed coal moratoria, to legal actions against oil and coal companies, there is a growing push to recognize that continued fossil fuel production is incompatible with a safe climate.

An important next hurdle is to “mainstream” these supply-side perspectives in the traditional for climate policy-making arenas. Fossil fuel production has been a difficult, mostly avoided topic in the UN climate negotiations, including in Paris. But if world leaders are serious about the 2°C goal, this hurdle must be overcome.

A first step is for countries to acknowledge the supply-side steps they have already taken (such as the Obama administration’s rejection of Keystone XL on climate grounds). They can also examine the potential for supply-side policies to increasing the ambition of their climate pledges, and agree on ways to account for supply-side measures. With the Paris Agreement entering into force, there is no time to waste.

Michael Lazarus and Harro van Asselt are co-leaders of the Stockholm Environment Institute’s initiative on fossil fuels and climate change. They were also co-organizers of the International Conference on Fossil Fuel Supply and Climate Policy, held 26–27 September in Oxford.

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