Exploring the case for supply-side climate policies

Written by Marion Davis

Thursday, 17 December 2015 17:20

SEI 2015 news FossilfuelsA march across Paris on 12 December. Climate activists have led the push to stop developing fossil fuels. Flickr / Takver

The Paris Agreement makes no mention of fossil fuels, but speakers at two events hosted by SEI at COP21 emphasized the need to end subsidies and limit new oil and coal production.

Richard Denniss, of the Australia Institute, says it’s simple: His country wants to build massive new coal mines. World leaders want to reduce carbon emissions. “One of us is going to have to lose.”

SEI 2015 news Fossilfuels CarmichaelThe proposed Carmichael mine in Australia, overlaid on a map of Paris. Click to enlarge.At the Paris Climate Change Conference and at countless rallies and demonstrations, activists made it clear that they see growing fossil fuel supplies as a major threat to the climate, and they want governments to stop subsidizing fossil fuel production, stop investing in infrastructure that supports fossil fuel industries, and stop new mines and oil fields from being developed.

Yet, as Harro van Asselt, co-leader of SEI’s Initiative on Fossil Fuels and Climate Change, notes, the term “fossil fuel” does not appear once in the Paris Agreement. Even a line urging the Parties to “reduce international support for high-emission investments” was cut from the final text.

Are policy-makers ignoring a key part of the solution to the climate problem? And if they did want to tackle the fossil fuel supply, how would they go about doing it? That was the focus of two events hosted at COP21 by the fossil fuels initiative.

The first, on 3 December, brought together a group of about 35 experts and policy-makers to explore supply-side climate policy options, including potential benefits, limitations, and opportunities for and barriers to their implementation. The second, on 4 December in the Climate Generations space set up for civil society, drew more than 150 people from a broad range of backgrounds.

SEI 2015 news Fossilfuels Lisa MichaelModerator Lisa Friedman, editor of ClimateWire, and SEI's Michael Lazarus at the 4 December event. All event photos by Marion Davis.

Scoping out the options

“Supply-side” climate policies can take many forms. A key first step – and the one most widely discussed in policy forums such as the Organisation for Economic Co-operation and Development (OECD) and the G20 – is to understand the extent to which governments now support fossil fuel production through subsidies and public-sector investments, and reduce that support.

SEI 2015 news Fossilfuels ShelaghShelagh Whitley, of the Overseas Development Institute, discusses her report.Shelagh Whitley, a research fellow at the Overseas Development Institute, presented a recent analysis showing that the G20 alone provide US$452 billion per year in producer subsidies, public finance and investments by state-owned enterprises, which Whitley identified as a key challenge in tackling fossil fuel supply worldwide.

“70% of fossil fuel production is government-owned globally,” she noted, “and a lot of this is overseas.” The UK, for example, is financing fossil fuel production in 38 countries, and Japan and China in almost 30. “This is an uphill battle. This is not going to be easy,” she concluded.

Frank Jotzo, of the Australian National University, spoke at both events, focusing on the case for a coal export tax. If the tax revenue stayed in the coal-producing countries, he said, it could be attractive to governments and help support a low-carbon transition. However, implementing such a tax would require international coordination.

Carlos Larrea, of the University of the Andes, discussed the Yasuní-ITT initiative, in which Ecuador sought to raise funds from abroad to fully cover the potential revenue from developing oil fields in ecologically sensitive areas. The project failed and was halted in 2013, but Larrea said there are still merits for establishing a mechanism that results in payments for leaving fossil fuels in the ground, particularly in biodiversity hotspots. “It will be a tool to save the most sensitive areas,” he said.

SEI 2015 news Fossilfuels YasuniAn advertisement for the Yasuní-ITT initiative urges donors to "buy a barrel" of oil to keep in the ground. Click to enlarge.

Anthony Hobley, of the Carbon Tracker Initiative, explained how his team has identified the fossil fuel resources that pose the highest financial and climate risks, “so we can start prioritizing and focusing our efforts”. Only a fraction of total fossil fuel resources can be developed in a 2°C world, he stressed, but many investors are still in denial. “There is a fossil fuel risk premium that the financial markets still haven’t fully seen or understood,” he said.

Are perspectives changing?

Yet turning these insights into policy action is no easy task. Most of the potential measures discussed at the two events have yet to be implemented, though speakers noted that some countries, such as France and Germany, have made strides in reforming producer subsidies.

SEI 2015 news Fossilfuels UptonSimon Upton, of the OECD, offers his views on potential supply-side measures.Simon Upton, environment director of the OECD, said it is important to increase transparency about both public- and private-sector investment in fossil fuel production, and removing subsidies should be a priority. However, he warned, “carbon entanglement will not be easily undone, particularly where governments are key players.” He also stressed that he sees demand-side policies as most crucial.

Helen Mountford, programme director of the New Climate Economy project, said the better that countries understand the full implications of fossil fuel investments – including the environmental and health damages – the more attractive that low-carbon alternatives will seem. She offered the example of Turkey, where some 8,000 people die prematurely from diseases linked to pollution from coal, and where solar and geothermal energy resources are as plentiful as coal.

SEI 2015 news Fossilfuels HelenHelen Mountford, programme director of the New Climate Economy, argues for a "just transition".Mountford also noted that while many fossil fuel companies continue to lobby against climate action, “quite a few are starting to see that they’re going to have to shift. They see decarbonization as inevitable, and that if they want to survive, they are going to have to be out front in this transition.”

In a comment from the audience, Donna Kennedy-Glans, a former oil industry executive and past government official in Alberta, said people in her province know that change is coming, and many will lose their jobs. But they want to be seen as “part of this transition”, she said, not as the enemy. “We get it. We know that change is inevitable.”

May Boeve, of 350.org, said that even in poorer countries where fossil fuels are seen as important for development, the momentum is building to block new fossil fuel projects. “We’re seeing increasing momentum, and it’s truly global,” she said. “Developed countries, developing countries, all of these groups working together… we’re united in wanting to keep carbon in the ground.”

Plenty of work still ahead

Michael Lazarus, director of SEI’s U.S. Center and co-leader of the fossil fuels initiative, said it’s clear that designing and implementing effective supply-side climate policies is not easy, but it’s also very much worth exploring. “Our research shows it can expand the portfolio of options and offer lower-cost ways of reducing emissions and help avoid carbon lock-in, among other benefits,” he said. “They also have a unique ability to rally popular support and make a moral case for climate action.”

SEI’s work on these issues will continue in 2016. Ongoing studies are exploring the emissions implications and political economy of supply-side measures in countries such as Norway and South Africa. SEI is also co-hosting an expert workshop on the politics of fossil fuel subsidies in June in Stockholm, as well as a conference on fossil fuels and climate change in Oxford in September.

Learn more about the SEI Initiative on Fossil Fuels and Climate Change »

See more stories and opinion from SEI at COP21 »