Christophe McGlade on who gets left with the unburnable carbon
By rob hopkins 6th February 2015
Christophe McGlade is a research associate in energy materials modelling at the UCL Institute for Sustainable Resources. He recently co-authored, with Paul Ekins, a paper called “The geographical distribution of fossil fuels unused when limiting global warming to 2°C”, a paper whose stark call to leave the substantial majority of fossil fuels in the ground generated a lot of media coverage in recent weeks (see for example here and here). I started by asking him to give an overview of the paper and of its key findings:
“The paper is looking at the optimal use of fossil fuels if we want to have a good chance of staying below the agreed 2°C threshold. Within that, it breaks down the amount of oil, gas and coal reserves that are used and aren’t used at a regional level, so it points out or suggests the countries that would have to sacrifice a large proportion of their fossil fuel reserves if we want to have a good chance of 2°. The headline findings on a global level are that around 80% of coal reserves, 50% of gas and one third of oil reserves need to remain unburnt if we are to have this chance of 2°C.
How has the paper been received since it came out?
Generally it’s been received fine. It goes in cycles according to who’s reading it. There’s been a good bit of press interest which has been good to see, who have generally just reported on the findings and the general disconnect that exists between what policy makers are saying and the implications of what they’re saying. In the next cycle I suspect we’ll be getting a bit more feedback from academic circles and potentially some response from some of the companies that are affected by this, but we haven’t really got a huge amount of critical feedback just yet.
In the paper, you say “large portions of the reserve base and an even greater proportion of the resource base should not be produced if temperature rises remain below 2°C.” Given that governments appear to be prioritising growth above all else at the moment, what are the implications of your paper and its findings for the future of economic growth or not?
It’s important to go back to the model itself and how it functions. One of the key inputs to the model is GDP growth, and then what’s associated with that is the amount of energy services that are required, so for example how far are people likely to drive in the future, how much heating will be required in people’s houses, how many tonnes of steel we produce and that kind of thing. The model has to ensure that all of the energy service demands are satisfied, while also ensuring on the other hand that temperature rise doesn’t go above 2°C.
What the paper goes on to show is really that this disconnect exists and the inconsistencies between current policy makers’ positions. On the one hand, I think pretty much every country in the world has signed up to limit global warming to 2°C but at the same time, all policy makers are very keen on exploiting all their domestic reserves and burning new resources of fossil fuels wherever they can. Really what this should highlight is that those two things are mutually exclusive. You can’t do both.
It’s really just to flag up to policy makers that once you’ve got tangible figures that you can put on the fossil fuels that have to stay in the ground, it really emphasises the message to policy makers of the implications of what they’ve agreed to.
One of the things that you do in your paper is you actually set out a list of who can and who can’t burn certain amounts of reserves that they have. Given that everyone will want to burn their own oil rather than other people’s, because it’s more politically popular and more financially lucrative to do it, how’s that going to work? What do you propose as a mechanism for that, and what drove your process of selecting who can and who can’t?
So to answer the second part of that first, the who can and who can’t, again that’s part of the model that we use. That’s one of the results of the model. I mentioned that the model has to ensure that all the energy service demands are satisfied, and also that the temperature rise doesn’t go above 2°C. The model has a number of options of making sure how to heat homes. It has a number of technology options and a number of sources of energy that can be used to satisfy those energy service demands. For example, it could use gas as we currently do for a large part in the UK, or it could use shift to heat pumps. Or it could go to bio-energy. If it goes to heat pumps it can produce electricity using renewable sources or fossil fuel sources or nuclear or whatever it chooses to do.
The way the model chooses to do this is in a cost optimal manner. It says what the cheapest way is of ensuring that both the energy service demands are met and ensuring that the 2°C limit isn’t exceeded. Once you’ve got that, once the model has solved and found the cost optimal manner in which you can do this, you can then compare the levels of production on each of the cumulative levels of production of all of the fossil fuels with the amount of reserves that we think exist within each of the countries. On that basis you can then look at what is used, and that is what we classify as unburnable if you want to have a good chance of 2°C.
For example, it’s been found that although the Middle East has a lot of very cheap oil, it still has to leave a huge proportion of that in the ground. It has to leave at least 40% of its current oil reserves in the ground. That’s broadly equivalent to all of the reserves held by Saudi Arabia, which is obviously a very large number.
The mechanism by which this might happen, that’s obviously beyond the scope of the paper itself. The paper is merely here to provide the evidence, and hopefully this evidence will feed into the negotiations towards the end of this year in Paris on how they will implement the already agreed 2°C target. One might expect, if countries or regions are going to be penalised in some way for having to keep to 2°C by leaving some of their reserves in the ground, they might be compensated for that in some way.
This is really just to provide more evidence. If the Middle East is going to have to leave a lot of oil in the ground, how is that going to be resolved? Another thing that comes up through this is, as you mentioned, politicians always want to develop their indiginous production when they can, and when you’ve got figures on who has to leave stuff in the ground, if say the UK wants to develop new sources of shale gas, it may be able to do that and still stay within 2°C.
But as a result, someone else’s reserves somewhere in the world are going to have to stay in the ground. You can therefore pose the question to policy makers – whose fossil fuel reserves are staying in the ground as a result of you wanting to develop new resources?
Does the current very, very low oil price help or hinder this? The Guardian reported last week that “price crash threatens job on North Sea oil fields” Is this good news?
I think it’s a mixed blessing, and the balance is still uncertain as to what it means. Three important things to highlight: one is the discussion of the implication of the oil price for climate change are not actually being mentioned too much in the press so far that I’ve seen, which has struck me as a little bit strange given the importance of this year for climate change, particularly with the negotiations at the end of the year.
But I think two things are worth pointing out. One is that undoubtedly, given the reduction in oil prices, gas prices are likely to follow to some extent, and therefore subsidies will seem more expensive for renewable sources. But on the flip side, a low oil price for a net importer such as the UK means that growth in the UK will be greater, people will have more disposable income because they’re paying less for their petrol at the pump. If that additional wealth is used in the correct way, if it was to be channelled to, let’s say, renewable sources, there’s no reason why this can’t be seen as a good thing.
The other thing that a low oil price gives you is space in which to operate. The political space is to implement a carbon tax. Economists have been saying for decades the importance of properly pricing carbon, and that’s one of the best ways of managing climate change and ensuring that we can force coal out of the system.
By having a low oil price, it’s possible to share some of the benefits if at the same time there’s a low oil price, a carbon tax is brought in. It won’t seem too bad to consumers if prices at the pump are still falling. They won’t be falling as quickly if a carbon tax is put in place, but at least we will be shifting in a suitable way towards implementing a carbon tax.
What’s your sense of the implications of this on the financial sector? I suppose Bill McKibben and people have made the point for a long time that that unburnable carbon is the “carbon bubble” Jeremy Leggett’s written about as well. What are the implications for pension companies and banks of what’s in your paper?
As you mentioned, it’s been known for a while, the Carbon Tracker initiative has been very active in this space in terms of highlighting that if there is a 2°C target, a number of the fossil fuel companies might be overvalued. This analysis hopefully adds to that conversation in terms of providing more tangible figures. Some of the things just to highlight are that fossil fuel companies are spending an awful lot of money, I think the Carbon Tracker initiative came up with the figure of around $670 billion was spent in 2013 exploring for and developing new resources.
In a climate-constrained world, a lot of that may well be self-defeating because new resources don’t necessarily lead to new sources of production. Even if you discover something, it doesn’t necessarily mean that you can produce it, because there may well be insufficient demand for it.
So investors in fossil fuel companies may well start to question whether such budgets are really justified, and whether there might be other ways in which you can generate shareholder values. They may well just appreciate the dividends, much more than potentially throwing lots of money at new sources of exploration. At the limit, they may even regard these companies as too risky, as not delivering long-term returns in a sufficient way, so they might start to push their investment portfolios towards a more mixed basket with some of the low-carbon companies included.
There are some stark messages in there for companies and investors in those companies. The potential for a carbon bubble will continue for a long time into the future.
Your paper is based on an assumption of a 50% chance of staying below 2°C. Those aren’t great odds, are they?! I wonder what your paper would have said if we actually wanted something like an 80% chance, which is what we might want in our daily life to feel a bit more secure about things.
The actual modelling is a 60% chance of 2°C, the way the model is set up. But yes you’re right, 60% is still not amazing odds, and the carbon budget gets much, much tighter as you go towards an 80% chance. I don’t have the exact figure with me, but I think it’s closer to a 2010-2050 carbon budget of around 600 tonnes if you want an 80% chance, and around 900 billion tonnes for a 60% chance. So you’re talking about an awful lot less carbon that could be emitted.
Yes, the numbers would become even more stark if you wanted to have an 80% chance. But even achieving a 60% chance of 2°C is looking pretty ambitious. Indeed, the 2°C threshold which is still frequently quoted is a political agreement. It was based on what was seen to be an OK level of damages that might result. Those damages that were seen at 2°C, and the later analysis of a slightly lower temperature rise, but yes the 2°C level still remained.
So it’s important to recognise what 2°C means. There will still be climate impacts, and the percentage of chances of staying that could get pretty stark. What I’m trying to say is that 2°C is very ambitious, and still carries an awful lot of risks. So maybe it is worth being even more ambitious, but that would be pretty difficult.
What would an agreement at COP 21 that legislated support of your findings look like?
There would almost certainly be a number of elements to such an agreement. I’ve never been at any of the previous COPs but the papers that come out subsequently seem to be multi-faceted with a lot of different levels of detail and complexity. One of the key things that would have to come out is do we disallow the markets to leave the fossil fuels in the ground? For example, by implementing a carbon tax around the world, or do we have to regulate on some of this stuff.
I wouldn’t want to speculate what would be a more politically feasible option for that, as all options are going to upset a lot of people. Even the idea of carbon budgets themselves are not liked by some countries in the COP negotiations, mainly because they don’t attribute any previous historical contributions to emissions in the atmosphere. They’re a purely forward-looking mechanism of looking at climate change and what might happen, and so some countries don’t even like talking in terms of carbon budgets.
I would have thought any negotiations would have to perhaps attribute a little bit more contribution to those countries that let all of the emissions into the atmosphere that we currently have.
The UK currently has its Infrastructure Bill going through, which seems to be predicated on the idea that the UK could be home to a “shale gas revolution”. You mentioned that before – could you just say a little bit more about your sense of the implications of your research for that idea?
There are two separate things. There was the Wood Review carried out not too long ago. It looked at how to maximise economic recovery with North Sea oil and gas. This is very much what we were just talking about in terms of the politicians always wanting to exploit all of their domestic reserves and resources. Surprisingly, as part of that review, climate change didn’t really enter into the thought process at all. We had this inconsistency whenever there was that public consultation – is it right that climate change isn’t even a consideration when you’re talking about maximising the economic recovery of the North Sea?
In terms of shale gas in the UK, the first thing to point out is currently that it’s still a complete unknown, that the government may have said it’s going all out for shale, but that was on the basis of very little real evidence and there still hasn’t been a huge amount more evidence presented on how much gas can be recovered and at what costs. Until those things are really resolved to a much greater extent, shale gas in the UK is a huge unknown.
Obviously if the costs of production are a lot higher than the gas price, no-one’s going to produce anything because they can’t make any money. We still don’t know whether that is the case. So I think the government had a lot of rhetoric about shale gas a few years ago, and I think whenever they saw what was happening in the United States. They’ve come back from that slightly, maybe because they’ve seen that there hasn’t been the revolution that was once touted.
That was always going to be the case. There was a huge amount of evidence saying that the differences between the US situation for shale and the UK situation for shale and that it’s not possible within a couple of years for there to be a huge shale gas industry in the UK.
But bringing it more down to the climate change impacts of UK shale gas, it may well be possible that some UK shale gas can occur. Obviously disregarding any of the justified concerns about the local environmental impacts of shale gas production, this paper doesn’t discuss those in any great detail, it’s focusing on the economic and the climate side of things.
If those can all be resolved, if it can be shown that shale gas is cheaper in the UK than other reserves, if the fusion of emissions can be restrained in a suitable way, and if the government is able to say that by our developing shale gas we can re-identify which reserves elsewhere in the world are not going to be produced, it is possible that shale gas could come through, even while staying at 2°C.
But there’s a huge number of caveats to that. One of the key reasons for that is that when you look at the global perspective, imported gas quite often has higher life cycle emissions associated with it, especially if it’s coming from liquefied natural gas, than domestic sources of production. So once you have a global agreement in place for reaching 2°C, every tonne of carbon counts and the model wouldn’t particularly want to be transporting gas all around the world as LNG if there are cheaper domestic sources available for the UK to produce.
Does the model take any account of the concept of Energy Return On Investment (EROI)? Would it make sense that actually the first oil that gets burnt is actually the stuff with the highest energy return on investment and then you work your way down from there?
Certainly the energy inputs for different sources of production are included, and that is an important consideration for the model. If we take, for example, the Canadian oil sands which require a lot of heat to produce, the model does of course take that into account. It doesn’t necessarily choose solely on the basis of the energy inputs. Because it’s an economic model, it chooses on the basis of the costs of those energy inputs.
Also, once you have a restraint on the level of carbon that can be emitted, once you have a carbon budget, a tonne of carbon also has a cost associated with it, so sources of production which require more energy to produce, especially if energy is dirty energy, will be penalised. So it doesn’t directly use EROI as a metric, but it converts any energy which is required into an economic consideration and then optimises on that.
It’s not just the regions themselves, the reserves and resources which we suggest should stay in the ground. Also, we look at somewhere specific, we looked at Arctic resources. Arctic resources in the model, once you go through a high temperature scenario, for example if we don’t care about carbon at all and we assume that we can allow as much emissions as we want, we’re on course for a 4 or 5°C temperature rise.
There is development of oil resources in the Arctic because oil demand is so much higher. Under a 2°C scenario, there is no development of Arctic resources, and this has obviously important implications for the companies that are currently exploring there. But also to us it just suggested that really the Arctic should perhaps just be classified as unburnable if we have a good chance of 2°C.
Anything which is discovered is likely to be very expensive to bring to market. There are other sources which are sufficient to make sure we meet energy service demands and we can continue to drive cars as we want and stay within 2°C without having to go into the Arctic. Similarly, the discussion can be made about the oil sands in Canada. The Canadians have picked up on this paper and have interpreted it in different ways, but the key message from this is that it is possible for there to be some level of unconventional oil production in the oil sands in Alberta.
However, that’s only possible if they completely decarbonise the energy inputs required for that, and even then, the level of production from Canadian oil sands is a lot lower than some of the reserve estimates which are coming out. The rates of production are way, way below what is projected might happen in Canada over the next 20 or so years. So again, it’s just to offset the majority of the oil sands which would also be classified as unburnable under 2°C.
But given the amount of investment into that, and that Canada’s not really playing its part in international legislation, how might that be achieved beyond a very powerful popular movement, a “keep it in the ground” movement putting pressure?
It’s important to recognise that Canada has signed up to 2°C. It’s one of the signatories to the Copenhagen Accord. The question therefore has to be asked – if you want to have this huge growth in all your domestic resources, are you giving up on the 2°C threshold which you’ve agreed to?
You can ask these new questions once you’ve had these numbers in front of you. If they say that they’re giving up on 2°C, well then you say “do you understand what this means, politically and for the world itself, the risks that are available to you?” At the same time, it may well be sensible for countries to start to diversify their economy in terms of not being so reliant … I don’t know the exact figures on how reliant Canada is on the oil sands production, but they’re incredibly expensive to produce, and whether it’s yielding a huge amount of GDP is uncertain to me, mainly because I don’t have the numbers in front of me.
But it may well be sensible to look at alternative sources which may be more in line with 2°C. Canada opened the first CCS – Carbon Capture and Storage – plant for which it should be commended. It was incredibly expensive, and demonstrated to a large extent that carbon capture is not yet commercially deployable, but actions like that show that there are other options for Canada and not just relying on the oil sands.
Below you can listen to, or download, the podcast of our conversation: