Five Ways the Paris Agreement can Address Oversupply of Fossil Fuels

December 1, 2016

NOTE: Images in this archived article have been removed.

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The World Energy Outlook 2016, released last week, is just one among an increasing line of studies showing how nations need to slow and, ultimately, phase out investment in new fossil fuel supply infrastructure – from oil fields and pipelines to coal mines – if they are serious about keeping warming to 2C or less.

At the same time, Norway is making licenses available for offshore drilling in the Arctic. New pipelines from the Canadian oil sands would enable the export greater amounts of highly polluting oil. The Australian government has approved large new coal mines to supply the Asian market. These types of investments only make economic sense in a future with 4–5C of warming.

While these and other governments have adopted nationally determined contributions (NDCs) under the Paris Agreement that promise to reduce their own territorial emissions, their plans are silent on slowing the production and export of fossil fuels. “Fossil fuels” still seem to be taboo words at the UN climate talks.

Yet as evidenced by the packed room and intense discussion at a side-event we co-hosted at the Marrakech climate change conference, there is growing recognition that the oversupply of fossil fuels is an urgent problem. And although the Marrakech talks skirted the topic, the Paris Agreement does offer opportunities to limit future fossil fuel production. Here are five ways to do so:

First, governments can use the agreement’s overarching goal to keep warming “well below 2C” as the basis for a “climate test” to be applied to major new permit requests or proposed investments in fossil fuel infrastructure. Are these projects consistent with a 2C pathway, or will they make it harder to reach by making fossil fuels cheaper and creating new vested interests in continued production?

We have the tools and techniques for such a test, and some US government agencies have even begun using them – most notably in the review of the proposed Keystone XL pipeline and the programmatic Environmental Impact Statement process for the federal coal leasing program.

At the international level, a similar test could be applied as part of the “facilitative dialogue” to be held in 2018, and the five-yearly “global stocktakes” starting in 2023. Countries could be asked to report on existing and planned fossil fuel production, so the parties can assess whether, as a whole, this is in line with global climate goals.

Second, parties to the Paris Agreement can incorporate trajectories for fossil fuel production and investment as they prepare low-emission development strategies to 2050, as called for in the agreement. For example, studies suggest that to stay below 2C, the US would need to cut aggregate fossil fuel production by 40–60% from current levels by 2040.

Third, parties can integrate fossil fuel production phase-out targets, as well as policies and measures to constrain investment in fossil fuel supply, into their next round of NDCs. A good start would be to pledge to remove the tens of billions of dollars in direct taxpayer subsidies for fossil fuel exploration and extraction.

A forthcoming paper from the Stockholm Environment Institute and EarthTrack shows that in the US, in particular, production subsidies can spur otherwise uneconomic investment, lead to significant added emissions, and also transfer taxpayer resources to company profits.

Other potential measures to consider are moratoria on new coal mines, such as those that China and Indonesia have already enacted (on a temporary basis), or coal export taxes and royalty increases that others have suggested. Although countries’ own domestic emissions may not be significantly affected by such measures, NDCs could indicate the global emissions benefits provided by reducing fossil fuel supply.

Fourth, to further encourage supply-side action, parties should support the adoption of new emissions accounting approaches that make it easier for countries to measure and claim credit for supply-side actions. One possible approach is extraction-based accounting, a very simple way to calculate and track the emissions associated with the fossil fuels produced in a given country. This would be a valuable complement (though not alternative) to the territorial accounting used to date.

A fifth, crucial step that governments can take is to actively support a “just transition” to a low-carbon economy for communities (and countries) that now depend on fossil fuel production. As Samantha Smith, director of the Just Transition Centre, stressed at another side-event we co-hosted, this requires close engagement with communities to build trust and plan together for a different future, backed by strong investment.

On an international level, it is important to recognize that countries with fossil fuel resources have not benefited equally from extraction activities to date, nor will they be affected equally by future production constraints. Some countries are counting on fossil fuel revenue to fund basic development. They may need additional international finance to support a low-carbon transition.

The “response measures” track of the climate negotiations has the mandate to address these concerns. While in the past it has been used by petro-states as a vehicle for obstructing the negotiations, it is increasingly starting to focus on the need for economic diversification and just and orderly transitions, particularly in developing countries.

The Marrakech talks may not have tackled the gap between global climate goals and fossil fuel production, but individual governments don’t need to wait to show leadership.

Feature image: Streaks of bitumen on bituminous sand face on Steepbank River. Source: Wikimedia.

Tags: climate change policy, COP 21 agreement, environmental effects of fossil fuel extraction, fossil fuel extraction, world energy outlook