The OECD is of course a keystone institution of the wealthy world. And yet its new report, Climate and carbon: Aligning prices and policies, and in particular this speech by Angel Gurria, its Secretary General, is excellent, concise, and surprisingly frank.
I’ve come here today to argue that whatever policy mix we cook up, it has to be one that leads to the complete elimination of emissions to the atmosphere from the combustion of fossil fuels in the second half of the century . . . We don’t need to get to zero tomorrow. Not even in 2050, although we should be a long way down the track by then. But sometime in the second half of the century we will need to arrive there.
How are we going to do so? With a policy mix designed to price carbon, phase out coal, increase the ambition of the current pledges, get beyond policy wobbles on renewables, and phase-out fossil-fuel subsides.
And how about this, from a section of the speech called “Swimming against the tide of fossil fuels”:
A first tide is a shift to resource abundance. A few years ago, the tide of opinion was that scarce oil and gas would keep prices rising and make the switch away from fossil fuels inevitable. High oil prices lulled some into the belief that the push to decarbonise was running with the grain of resource scarcity and that policy seemed to be going with the tide. That has proved illusory. The tide has changed. We have moved from a world of threatened scarcity to one of potential abundance. US crude oil production is currently growing sharply and the country is expected to become a net exporter of natural gas by the early 2020s. Oil and gas production is being ramped up in Brazil, Canada and Kazakhstan, huge conventional reserves remain to be tapped in Iraq and Saudi Arabia together with huge recoverable shale resources in Russia, US, China, Argentina and Algeria, to name a few.
Certainly, rising costs of extraction pose a challenge but the recent advances in exploiting tight oil suggest that the technological opportunities for continued exploitation will almost certainly continue to surprise us. Listed companies alone spent USD674 billion in 2012 on finding and developing new sources of oil and gas. The fact is that there are more than enough reserves to raise temperatures way above levels that even the most reluctant climate regulator would feel comfortable about.
A second strong tide is the fact that low-carbon technologies are facing an array of incumbent technologies that have a huge advantage based on vast investments over decades. Those investments are very profitable and easily attract new capital. More than half of the new capacity in electricity generation installed in 2012 was still fossil fuel-based. According to one estimate by the World Resources Institute (WRI), around 1200 new coal-fired power plants (with a capacity of about 1400GW) are at the planning stage. Not all of those will come to fruition. But those that do will run for a very long time. And the owners of these assets aren’t going to take kindly to their value being impaired by policies designed to tackle climate change. The Carbon Tracker Initiative estimates that at the current rate of capital expenditure, the next decade will see over $6 trillion allocated to developing fossil fuels.
If policy makers cap carbon emissions, the risk of “unburnable assets” could have a significant impact on the valuation of some companies. It is worth recalling that the investors are in so many cases people like you and me. The Asset Owners Disclosure Project estimates an average of over 55 per cent of pension funds’ portfolios is being invested in high carbon assets or sectors greatly exposed to climate change physical impacts and climate change-related regulation. The looming choice may be either stranding those assets or stranding the planet.
There’s a lot more to say about this report, and this speech in particular — let’s just say that the section on policy incoherence and its causes are not quite as frank as it might be. But all told, this is as clear a sign as we’re likely to find that the secret is out. Big changes are necessary, and — one way or another — they are on the horizon.
Now, if only the sane people were in charge . . .