Here’s the problem in a nutshell. In its latest assessment (AR 5) the IPCC found that in order to have at least a sixty-six percent chance of limiting global warming to +2° Celsius, no more than one trillion metric tons of carbon can be released into the atmosphere. We have already used up 531 billion tons of that budget as of 2011 by burning fossil fuels for energy as well as by clearing forests for farming and myriad other uses. That means we only have 469 billion tons left in our account. The terrifying math of global warming is that at our current increasing rate of fossil fuel burning we will blow through this budget in about twenty years. The International Energy Agency says that to have a fifty-fifty shot at meeting the 2° Celsius target, two-thirds of all known fossil fuel reserves must remain in the ground.
Who owns these assets? According to Carbon Tracker, just the top 200 companies listed on the world’s stock exchanges have enough carbon on their books to generate around 750 billion tons of CO2, more than enough to overshoot the 2° Celsius guardrail. And these companies are busy looking for more. Last year they spent $674 billion finding and developing more reserves. That amounts to $6.74 trillion over the next decade that might be better spent on cleaner, more efficient, and arguably more profitable energy technologies like those described in Reinventing Fire.
To make matters worse the vast majority of fossil fuel reserves are owned by state controlled entities. According to the World Energy Outlook 2012, the total oil, coal, and gas reserves including state owned assets are equivalent to 2860 billion metric tons of CO2—more than enough to take us beyond 3° Celsius of warming. Many of these entities are serving developing countries that are facing severe problems of poverty, malnutrition, polluted water, a shortage of electricity, and other deprivations. The reality is that, for now at least, “cheap” fossil fuels will be needed to address these problems. This puts the burden on developed nations to make deeper cuts in carbon pollution while providing greater levels of financial and technical assistance to help developing countries leap-frog the energy transition.
What to do? The divestment campaign spearheaded by 350.org, though great for mobilizing the grassroots, is not enough to change Wall Street. Institutional investors, which own the majority of stock in publicly traded companies, are beginning to have some impact on corporate carbon polices. A coalition of seventy institutional investors, representing about $3 trillion in assets, recently sent letters to forty-five companies asking them to examine and disclose their “exposure to the risks associated with current and probable future policies for reducing greenhouse gas emissions by eighty percent by 2050.” Some of the world’s leading companies are increasingly including climate risk in their supply chains and recognizing that investment in emissions reductions programs must be increased.
Some argue that rapid commercialization and deployment of carbon capture and sequestration (CCS) would allow continued reliance on fossils for many decades. However, even the International Energy Agency’s idealized scenario for scale-up of CCS technology would only extend the carbon budget by about ten percent. CCS is not considered suitable for use with oil in transport. CCS is also very expensive and not viable without significant government subsidies in competition with other cleaner energy technologies like solar and wind.
In sum, the problem is not that we are running out of fossil fuels. The problem is that we are running out of atmosphere. Incremental changes are not going to be enough to bend the emissions curve. We need game changing policies from government and bold innovations from the private sector. We cannot afford the carbon lock in that will result from investing trillions in more fossil fuel infrastructure. We need to end subsidies for fossils and put a price on carbon large enough to drive the market towards cleaner technologies across the economy. In my view, a well-designed carbon tax is the best way to do this. A recent study by the Carbon Tax Center concludes that a carbon tax of $61 per metric ton in the electricity sector and at $113 per metric ton in the transportation sector would cut emissions by 959 million metric tons annually by 2024. The tax could be 100 percent revenue neutral or a portion could be used for deficit reduction and investments in carbon reduction and renewable energy programs.
Granted, there is no current prospect for enacting a carbon tax at the national level. For now, the best means of reducing carbon is through aggressive implementation of the Clean Air Act and other federal laws. But it is also encouraging to see some U.S. states moving ahead with renewable energy standards, regional carbon trading regimes like Regional Greenhouse Gas Initiative and a host of other climate mitigation and adaptation strategies.
The challenges are huge and time is short, but failure is not an option.
This piece is part of The Fletcher Forum of World Affairs’ 2014 Global Risk Forum. The Global Risk Forum is an effort to convene conversations around some of the most pressing issues we face as a global community in the year ahead: the breakdown of climate change negotiations; the spread of sectarian violence in the Middle East; the credit crisis and economic slowdown in China; the growth of cyber espionage; and the unraveling of Africa’s economic boom. We encourage you to read the conversations, participate with written responses or on social media, and help us work together to produce constructive ideas that will reduce the aggregate risks we face.