Curbing fossil fuel supply to achieve climate goals

Curbing fossil fuel supply to achieve climate goalsFull Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=tcpo20
Climate Policy
Curbing fossil fuel supply to achieve climate goals
Georgia Piggot, Cleo Verkuijl, Harro van Asselt & Michael Lazarus
To cite this article: Georgia Piggot, Cleo Verkuijl, Harro van Asselt & Michael Lazarus (2020) Curbing fossil fuel supply to achieve climate goals, Climate Policy, 20:8, 881-887, DOI: 10.1080/14693062.2020.1804315
To link to this article: https://doi.org/10.1080/14693062.2020.1804315
Published online: 01 Sep 2020.
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aStockholm Environment Institute, Seattle, USA; bStockholm Environment Institute, Oxford, UK; cCentre for Climate Change, Energy and Environmental Law, University of Eastern Finland Law School, Finland; dCopernicus Institute of Sustainable Development, Utrecht University, The Netherlands
1. Introduction
By signing on to keep global warming well below 2°C through the Paris Agreement, governments have implicitly agreed to dramatically reduce the use of fossil fuels, the predominant contributor to climate change, over coming decades. What is missing from international climate deliberations and from most dom- estic climate mitigation plans, however, is a strategy for phasing down fossil fuel production. This has led to a vast disconnect between climate goals and energy production plans: a 2019 analysis of national energy plans found that governments are collectively intending to produce 50% more fossil fuels by 2030 than would be consistent with limiting warming to 2°C, and 120% more than could be safely burned while keeping warming below 1.5°C (SEI et al., 2019).
Governments continue to plan on, and invest heavily in, the expansion of fossil fuel production for the purposes of economic development and revenue generation, and also as a geopolitical strategy. However, the 2020 crash in oil prices, driven by oversupply and collapsing demand following the COVID-19 pandemic, highlights why betting on continued growth in fossil fuel demand is a risky strategy. Workers and communities in fossil fuel dependent regions can be left stranded when the industry contracts, and governments who rely heavily on fossil fuel revenue streams may find themselves facing a crisis as their budgets diminish. While the sharp drop in oil demand in 2020 reflects exceptional circumstances and specific dynamics in oil markets, it signals why careful planning for a managed decline in fossil fuel production needs to be part of the climate conversation.
A small, but growing, number of governments are beginning to recognize the need to reconcile their climate mitigation plans with their energy production strategies, and are enacting new forms of ‘supply-side’ climate policy to limit coal, oil and gas production (Erickson et al., 2018; Gaulin & Le Billon, 2020; SEI et al., 2019; Tudela, 2020). This can take the form of bans on exploration and extraction, removal of fossil fuel production subsidies, restrictions on finance for fossil fuel projects, and transition planning for workers and communities (Lazarus & van Asselt, 2018). Such initiatives are involving not just governments, but also an array of non- state actors, with investors divesting from fossil fuels, communities developing transition plans, and even some fossil fuel companies1 redefining themselves as ‘energy’ rather than oil or coal companies, to enable them to move into a post-fossil fuel era (SEI et al., 2019).
The academic literature has, for the most part, lagged behind this policy shift, with limited attention paid to the design and implementation of supply side climate policies. In particular, there is still little understanding of their feasibility and effectiveness, and how they might complement more traditional ‘demand-side’ policies. Moreover, the reasons why some jurisdictions are willing to pursue limits on supply, while others race to extract, are not well explored.
This special issue brings together pioneering new work on supply side climate policy. The contributions span across disciplines, geographies and scales of governance, to bring to light some of the barriers to, and oppor- tunities for, supply side action. An important theme running through the special issue is that a new ‘anti fossil fuel norm’ is emerging in climate policy (Green, 2018). While governments are still far from aligning energy
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CONTACT Georgia Piggot [email protected]
2. What is supply-side climate policy?
Fossil fuels account for more than three-quarters of the anthropogenic GHG emissions driving climate change (IEA, 2019), and thus have been a key focus for climate policymakers. Overwhelmingly, mitigation policy has tended to emphasize reducing demand for fossil fuels, through measures such as carbon pricing, or supporting the development of alternative energy sources to displace fossil fuels. More recently, however, a new suite of policies has emerged that focuses attention upstream, on fossil fuel supply (Erickson et al., 2018). This so- called ‘supply-side’ policy emphasizes limiting the exploration, extraction and transport of coal, oil and gas in the name of combatting climate change (Green & Denniss, 2018; Lazarus & van Asselt, 2018).
Proponents of a supply-side approach emphasize its value as a complement to existing policies aimed at reducing fossil fuel demand. Clearer signals on the future of fossil fuel production can help prevent the construc- tion of new infrastructure that locks in future emissions growth (Erickson et al., 2015). This, in turn, reduces risks of asset stranding if climate or financial imperatives force the early retirement of fossil fuel assets. The combi- nation of supply and demand side measures can help reduce the overall cost of achieving emission reduction goals, and provide an insurance policy if any individual policy measure fails (Asheim et al., 2019; Green & Denniss, 2018). Moreover, constraining supply brings a range of additional sustainability benefits, such as redu- cing biodiversity loss, and localized pollution and health impacts associated with fossil fuel production (Epstein, 2017; Harfoot et al., 2018; Tudela, 2020).
Governments are beginning to recognize the additional value of limiting fossil fuel supply, in addition to reducing demand. In this issue, Tudela (2020) charts some of the pioneering attempts to constrain fossil fuel production with explicit environmental rationales and offers early examples from Latin America. He highlights the case of Costa Rica, for instance, which has had a ban on oil extraction in place since 2002. While this ban was initially enacted for reasons of biodiversity conservation, rather than climate change, it now forms a pillar of the country’s climate strategy, alongside its carbon neutral goals.
To examine the prevalence of these types of policy innovations more broadly, Gaulin and Le Billon (2020) have compiled a new ‘Fossil Fuel Cuts Database’ to collect examples of supply-side policies worldwide. They identify more than 1300 supply-side initiatives implemented between 1988 and 2017 by governments, civil society and financial funds worldwide. This growth in new policies suggests that ‘supply-side’ policy is moving closer to the mainstream of climate change policymaking.
3. Barriers to enacting supply-side policy
While the work of Gaulin and Le Billon (2020) and Tudela (2020) highlights a growing momentum, policies to limit fossil fuel supply are still the exception rather than the norm, particularly in countries that are major fossil fuel producers. Several contributions to this special issue highlight the challenges to enacting supply- side policies faced by governments.
Most major fossil fuel producing nations suffer from the problem of ‘carbon entanglement’, where depen- dence on fossil fuels generates a vested interest in bringing fossil fuels to market, making it both politically and economically challenging to step away from production (Gurría, 2013). This is evident in the Norwegian case, highlighted by Bang and Lahn (2020), where oil and gas has provided a major source of welfare funding for the state. Through prudent management of oil and gas revenues, Norwegian oil wealth has trans- lated into prosperity and long-term security for its citizens. At the same time, it has created a deep dependence on these revenues, which has made it difficult for the government to reconcile oil production with its climate leadership ambitions.
As a consequence of this ‘carbon entanglement’, many governments have created institutional and financial support systems for the fossil fuel industry, which enable continued production. Gençsü et al. (2020) draw atten- tion to the issue of fossil fuel production subsidies in the European Union, showing how governments continue to make climate goals harder to reach by providing €21 billion per year of support for oil, gas and coal
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production (with €2.6 billion of this amount allocated to the transition away from coal). Indeed, this subsidization continues despite international agreement to ‘mak[e] finance flows consistent’ with the Paris goals of decarbo- nization (UNFCCC, 2015; Article 2.1), aided by a lack of transparency around fossil fuel financing.
Government support for industry expansion continues, in part, because of the political power of the incum- bent fossil fuel industry in many jurisdictions. Curran (2020) provides a powerful description of how this operates in Australia, where the coal industry holds sway over aspects of decision making in both the financial sector and the political system. As Curran highlights – and as reflected in several papers in this issue and beyond (see for example: Bang & Lahn, 2020; Graham et al., 2019; Stokes, 2020; Strambo & González Espinosa, 2020) – close net- works between fossil fuel industry actors, financiers, and political elites have helped the industry perpetuate fossil fuel dependence, hindering the clean energy transition. Reducing the influence of these vested interests on climate policy remains a significant task.
Finally, several contributions to this issue highlight that a key barrier to supply side policy includes our cul- tural discourses around the role of fossil fuels in society. In Colombia, for instance, Strambo and González Espi- nosa (2020) illustrate that the government itself often perpetuates the idea that fossil fuelled development is both inevitable and necessary for economic growth. This is echoed in the Norwegian case, where the industry has successfully propagated the idea that oil is an indispensable source of welfare for the country (Bang & Lahn, 2020). This narrative about the importance of fossil fuel production for economic growth is rarely challenged; its dominance helps explain why many countries continue to subsidize and support the industry past the point where it clearly makes more economic sense to look to alternative sources of energy.
4. Moving forward: domestic opportunities to manage supply
Despite these barriers, some countries have taken steps to wind down their fossil fuel production. From devel- oping nations, such as Belize and Costa Rica, to industrialized countries such as Denmark, France, New Zealand and Spain, supply-side approaches are increasingly being adopted in the real world (Gaulin & Le Billon, 2020; SEI et al., 2019; Tudela, 2020). These ‘first movers’ in the area of supply-side action are critical for their demonstration effect, which suggests that such approaches can form a practically and politically feasible component of the climate policy toolkit. Studying these experiences also provides important lessons to inform future action.
One clear message that cuts across several contributions is the importance of transition planning and assist- ance to ensure a low-carbon transition that is just, equitable and smooth. Such efforts are necessary to minimize the potential disruptions and losses faced by consumers, workers, communities, and others heavily dependent on fossil fuel assets, and help build support for climate action.
From a literature review of past and current transitions in the energy sector and beyond, Green and Gambhir (2020) identify the key agents and groups that may be adversely affected by structural change associated with decarbonization and thus warrant particular consideration in any transition planning. The authors emphasize the importance of going beyond addressing only the potential financial losses associated with transitions, and looking to a larger set of possible transitional assistance policies, including support for worker re-training, community development, and other ‘forward looking’ approaches to help push new models of post-fossil fuel development. Distilling ‘best practice’ lessons for transition planning in the short, medium, and longer term, they note that comprehensive and adaptive support strategies have the greatest potential for ensuring successful transitions – but that such strategies are costlier and more complex to implement.
Offering lessons from the hard coal mining phase-out in Germany’s two largest hard coal mining areas, the Ruhr area and Saarland, over the 1950–2018 period, Oei et al. (2020) reflect that, in both cases, protection of the industry through subsidies led to a lengthier and more costly transition. Among policy recommendations for successful transition planning, the authors emphasize the need for decision makers to take into account long-term effects and impacts beyond local communities; the value of economic diversification; and the impor- tance of listening both to external, independent experts, and of involving local stakeholders for locally-adapted solutions and higher acceptance.
In addition to careful government planning and support, civil society can play an important role in steering a transition away from fossil fuels. For instance, Tudela (2020, p. 927) credits civil society mobilization with being ‘the crucial driver’ of moratoria on oil exploration adopted in both Belize and Costa Rica. Curran’s (2020)
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contribution similarly describes how the divestment movement played a critical role in reducing the scope and scale of the proposed Adani Carmichael coal mine through sustained pressure on national and international financiers. Rafaty et al. (2020), in turn, highlight a key role for litigation, often championed by civil society, in challenging coal mining permits across the world. They argue, for instance, that a strong legal case can be made for the revocation of permits for Europe’s largest opencast lignite mine situated at Germany’s biodiverse and historically significant Hambach Forest.
At the same time, powerful incumbent forces can pose a significant challenge to civil society’s ability to effect change. In the case of Australia’s Carmichael mine, Curran (2020) demonstrates how the resilience of the current energy status quo has seen the substantial mining project be approved with significant support from the Aus- tralian federal and Queensland governments in the form of tax exemptions, deferrals and capital subsidies, despite civil society opposition. Popular efforts can also pull in the opposite direction. In Costa Rica, a citizen group recently initiated a referendum initiative, which, if successful, would see the country’s 18-year-old mor- atorium on petroleum exploration overturned (Tudela, 2020).
In this contested space marked by competing interests and narratives, one important avenue for supporting action to limit or curtail fossil fuel production may lie in cultivating a stronger appreciation of its broader econ- omic and sustainable development benefits. Indeed, as Tudela (2020) shows, rather than being linked to climate change concerns, the overriding considerations for the adoption of oil moratoria in Belize, Costa Rica, and parts of Mexico were protection of the local environment and biodiversity, and relatedly, safeguarding of critical econ- omic sectors such as (eco)tourism and fisheries.
Rafaty et al.’s (2020) natural capital accounting approach demonstrates how significant the economic benefits of supply-side action can be. When accounting for the environmental, societal, and health costs of Ger- many’s Hambach lignite mine, they estimate that the province of North Rhine-Westphalia could save in the region of €100–200 billion over the next three decades by ceasing mining operations immediately. In light of these findings, the authors make a persuasive case for the modification of legal criteria for coal mining permits to reflect considerations such as climate change, local ecology and human health; and for making natural capital assessments part of the standard protocol in the consideration of fossil fuel exploitation permits.
5. Scaling up: opportunities for international cooperation
International cooperation can strengthen the effectiveness of supply-side approaches to limit fossil fuel pro- duction (SEI et al., 2019). Collective action not only increases the scale of action, but also can give countries the confidence and trust that others are taking reciprocal action. Moreover, cooperation can reduce the risk of carbon leakage through the international fossil fuel market (Asheim et al., 2019). International cooperation on supply-side climate policy can further send an important signal to policymakers, investors, companies, con- sumers and civil society, that the world is moving beyond a fossil fuel economy. Crucially, as Muttitt and Kartha (2020) and Newell and Simms (2020) emphasize in their contributions to this issue, international cooperation is also needed to ensure that such a transition takes place in an equitable way.
One way to elevate actions to curtail fossil fuel production internationally that has recently gained increased attention is to incorporate supply-side action into the existing UN climate process (Piggot et al., 2018; SEI et al., 2019). Despite the UN climate regime’s historical focus on demand-side action – the Paris Agreement makes no direct mention of fossil fuels – actions to limit fossil fuel supply can support achievement of the treaty’s long- term goals of limiting the global average temperature to well below 2°C above pre-industrial levels, and pursu- ing efforts to stay below 1.5°C, as well as making finance flows consistent with a pathway towards low green- house gas emissions and climate-resilient development. Various opportunities exist to integrate supply-side elements into the Paris Agreement’s architecture, including through the Agreement’s transparency framework, commitment setting, financial support and capacity building, the global stocktake, and sharing of experiences and lessons learned (Piggot et al., 2018). Many of these approaches could initially be pursued by one country or a small group of countries, thus side-stepping the need for buy-in from all major fossil-fuel-producing and export- ing nations, many of whom have traditionally been reluctant to embrace ambitious climate action (Depledge, 2008).
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But despite existing possibilities to integrate supply-side action into the UN climate regime, this approach has gained little traction to date. For instance, a 2019 assessment of 53 fossil fuel producing nations’ nationally determined contributions (NDCs) found that only two countries had included any supply-side measures in their climate pledges (Verkuijl et al., 2019). It remains to be seen whether countries’ second round of NDCs, as well as long-term low-emission development strategies – both due for submission in 2020 – will pay more attention to this crucial dimension of climate action.
It is against this backdrop that calls have recently emerged for international cooperation to achieve the imperative of leaving most fossil fuels in the ground. Indeed, supply side policies can complement existing approaches, acting as a form of ‘insurance’ against the possibility of the global community’s failure to meet the Paris Agreement’s goals (Asheim et al., 2019). Reflecting the role of coal as the most carbon-intensive fossil fuel, and its relatively easy substitution in many cases with alternative sources of energy, several of these calls have focused on the curtailing or elimination of coal production as a starting point (Burke & Fishel, 2020; Christoff & Eckersley, 2013; PIDF, 2015).
Yet as Newell and Simms (2020) note in their contribution, the majority of proven oil and gas reserves must also be left unburned to stay below the Paris Agreement’s temperature limits, and it is questionable whether this will be achieved through existing forms of cooperation. The authors thus argue that the time is ripe for an inter- national ‘fossil fuel non-proliferation treaty’ to manage a global winddown of coal, oil, and gas extraction. Drawing parallels with the 1968 Treaty on the Non-Proliferation of Nuclear Weapons (NPT), they argue that both the speed at which NPT was concluded and the treaty’s three-pillar structure offer an instructive precedent to ensure a fossil fuel phase-down that is in line with science, and takes into account the development needs of the world’s poor.
Indeed, any international effort to stem the supply of fossil fuels will need to grapple seriously with questions of equity and fairness. While such issues have long been debated in the context of greenhouse gas emissions reductions, the conversation is more incipient on the supply-side, yet no less compelling. As Muttitt and Kartha’s (2020) contribution demonstrates, the picture is far from straightforward. The authors cast light on…