Climate Policies Will Not Strand Oil and Gas Reserves

Climate campaigners claim a large percentage of already known oil, gas and coal reserves must remain unburned if the rise in global temperatures is to remain below two degrees Celsius.

 

The two-degree target has been endorsed by government leaders from around the world and was made even more ambitious at the climate summit in Paris in 2015.

 

The Paris agreement commits the signatories to holding the rise in average global temperatures "well below 2 degrees C" and "pursuing efforts to limit the temperature increase to 1.5 degrees C".

 

But the problem with the concept of "unburnable carbon" is that it confuses what campaigners would like to happen in an ideal world with what is actually likely to happen in the real one.

 

Fast-growing demand for energy from countries in the developing world is likely to ensure increased consumption of both fossil fuels and cleaner energy from renewables over the next 20 years.

 

As more households in developing countries reach middle-class status, their demand for work and leisure travel, electrical appliances, consumer products and services are all set to grow, and with them total energy demand and most likely greenhouse emissions.

World primary energy consumption is projected to increase to more than 800 quadrillion British thermal units in 2040, up from 550 quadrillion in 2012, according to the U.S. Energy Information Administration.

 

Consumption in countries within the Organisation for Economic Cooperation and Development is projected to grow by just 44 quads or 0.6 percent per year.

 

But consumption in the rest of the world is projected to increase by 222 quads or around 1.9 percent per year between 2012 and 2040 ("International Energy Outlook", EIA, 2014).

 

Energy consumption in developing countries is forecast to grow three times faster than in the advanced economies over the next two decades.

 

The resulting INCREASE in energy demand from developing countries will be very nearly equal to the TOTAL energy consumption of the advanced economies in 2012.

 

The consequence is an increase in all forms of energy consumption, though renewable fuels will claim an increased share of the larger total.

 

According to the Energy Information Administration, global consumption of wind, solar, hydro and other renewable energy will increase by 2.6 percent per year or by a total of 67 quads.

 

Gas consumption will rise by 1.9 percent per year or 87 quads. Oil consumption will rise 1.1 percent per year or 62 quads.

 

In more familiar terms, global oil consumption is projected to rise from around 90 million barrels per day in 2012 to 120 million barrels per day by 2040.

 

Global gas consumption is projected to grow from 120 trillion cubic feet to 203 trillion over the same period.

 

Projections by the U.S. Energy Information Administration and its OECD-based counterpart the International Energy Agency have been criticised by climate campaigners for relying on business-as-usual assumptions.

 

Many projections suffer from "straight-line syndrome" which causes them to miss "dramatic changes in policy or technology which cause non-linear change in trends", according to the Carbon Tracker Initiative.

 

Climate campaigners challenge assumptions about population growth, economic growth, energy intensity, deployment of clean technologies and fossil fuel demand ("Lost in transition: how the energy sector is missing potential demand destruction", Carbon Tracker Initiative, 2015).

 

If population and GDP per capita grow more slowly, and energy intensity and carbon intensity both fall, energy demand and fossil fuel consumption could end up being much lower than the official projections.

 

The problem is that this is not the most likely outcome and it is hard to see how it could become the central scenario without some very large transitions in the energy system that are currently beyond the horizon.

 

The scope for using energy more efficiently in both the advanced economies and the developing world is significant.

 

The scope for transitioning from fossil fuels such as coal, gas and oil to cleaner sources of energy including wind, solar, hydro and nuclear is also significant.

 

But unmet demand for energy in developing countries is enormous and satisfying it is likely to offset or even dominate efficiency improvements and the transition to clean energy sources for at least the next 20 years.

 

Catching Up

 Energy consumption in middle-income countries was equivalent to just 1,263 kilograms of oil per person in 2011, according to the World Bank.

 

In lower middle income countries energy consumption was equivalent to just 636 kilograms of oil ("World Indicators", World Bank, 2016).

 

By contrast, energy consumption in the OECD countries averaged almost 4,200 kilograms of oil equivalent per person.

 

Per capita consumption in India (600 kilograms of oil equivalent), Brazil (1,400) China (2,200) is very low compared with the United Kingdom (3,000), France and Germany (3,800) and the United States (7,000).

 

As these countries become richer, the implied increase in energy consumption over the next 20-30 years is very large (http://tmsnrt.rs/290JNnT).

 

In theory, it could all be offset by an increase in energy efficiency in both the developed and developing world plus a transition from fossil fuels to cleaner energy.

 

In practice, the transitions are unlikely to occur fast enough and there is set to be a large increase in fossil fuel consumption, especially oil and gas, at the same time as wind, solar, hydro and nuclear are also increasing.

 

The corollary is that the probability of meeting the two-degree target is currently low.

 

Climate campaigners are pressing oil, gas and coal companies to stress-test their business plans against the two degree target to discourage them from exploring and developing more reserves.

 

In practice, the target is probably unachievable without a much faster deployment of electric vehicles, wind, solar, nuclear power, energy efficiency measures, and carbon capture and storage technology.

 

The most realistic scenario is that fossil fuel consumption seems set to continue increasing through at least 2030 and probably 2040, which makes the debate over "stranded assets" misleading.