Sylvie Willis
The vast majority of fossil fuel reserves must remain in the ground to limit global warming to 1.5°C and avoid the most catastrophic impacts of climate change. According to the Paris Agreement, countries must take steps to reduce carbon emissions and limit global warming to well below 2°C, with an ideal target of 1.5°C. To achieve this, more than half of all fossil fuels must stay in the ground, including 60% of oil and gas reserves and 90% of coal. This means that countries and companies that rely heavily on fossil fuel revenue, such as Saudi Arabia and Nigeria, will need to diversify their economies and transition to renewable energy sources. The alternative is a future of severe climate disruption, with rising sea levels, extreme weather, biodiversity loss, and worsening health and poverty for millions worldwide.
| Characteristics | Values |
|---|---|
| Percentage of fossil fuels that need to stay in the ground | 50% to 60% |
| Percentage of oil reserves that need to stay in the ground | 58% to 60% |
| Percentage of gas reserves that need to stay in the ground | 59% |
| Percentage of coal reserves that need to stay in the ground | 89% to 90% |
| Year by which the above numbers need to be achieved | 2050 |
| Annual decline in oil and gas production required until 2050 | 3% |
| Year by which emissions need to peak | 2025 |
| Year by which emissions need to be reduced by 43% | 2030 |
| Percentage of energy derived from fossil fuels in 2024 | 81% |
| Amount fossil fuel production will exceed the limit required to keep warming within 1.5°C by | More than double |
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What You'll Learn
Fossil fuel extraction and the Paris Agreement
Fossil fuels account for approximately 86% of global greenhouse gas emissions over the last decade, making them the primary cause of the climate crisis. To achieve the goals of the Paris Agreement, countries will likely need to set hard limits on the extraction of fossil fuels in addition to supporting the deployment of clean energy. The Paris Agreement is a legally binding international treaty on climate change that was adopted by 195 Parties at the UN Climate Change Conference (COP21) in Paris, France, on 12 December 2015. It entered into force on 4 November 2016. Its overarching goal is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.
To limit global warming to 1.5°C, greenhouse gas emissions must peak before 2025 at the latest and decline by 43% by 2030. A global energy system model finds that planned fossil fuel extraction is inconsistent with limiting global warming to 1.5°C, because the majority of fossil fuel reserves must stay in the ground. To meet the Paris target, a study finds that more than half of all fossil fuels must stay in the ground. The study found that in order to have a 50% chance of achieving this target, 58% of known oil reserves, 59% of natural gas reserves, and 89% of coal reserves cannot be extracted.
The world is nowhere on track to achieve the production cuts consistent with this analysis. Investors need to recognize that further investment in fossil fuel extraction is not only incompatible with the Paris Agreement but will also become increasingly risky as countries become more serious about climate change and enact policies that reduce demand. The Paris Agreement provides a framework for financial, technical, and capacity-building support to those countries that need it. It also reaffirms that developed countries should take the lead in providing financial assistance to countries that are less endowed and more vulnerable, while also encouraging voluntary contributions by other Parties.
The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations together to combat climate change and adapt to its effects. Implementation of the Paris Agreement requires economic and social transformation, based on the best available science. The Agreement sets long-term goals to guide all nations to substantially reduce global greenhouse gas emissions and hold global temperature increases to well below 2°C above pre-industrial levels, pursuing efforts to limit it to 1.5°C.
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The disconnect between fossil fuel companies and climate goals
The Paris Agreement's climate goals are clear: to limit global warming to well below 2°C and pursue efforts to limit the increase to 1.5°C. To achieve this, a sharp decline in fossil fuel use is essential, with most reserves needing to stay in the ground. However, there is a significant disconnect between these climate goals and the actions of fossil fuel companies, who continue to expand their operations and pursue new extraction projects.
Fossil fuel companies, such as ExxonMobil, have been accused of discouraging climate action and engaging in subtle forms of climate propaganda and "delayism". They have shifted their language from blatant climate denial to more nuanced discourses that delay action and obscure the truth. This includes focusing on consumer energy demand, representing climate change as a "risk", and promoting natural gas as part of their corporate response to climate change. These tactics create a perception of addressing climate concerns while maintaining their core business model.
Additionally, fossil fuel companies have been accused of spreading disinformation and obstructing climate policies. They have a long history of downplaying and distorting climate science, influencing politicians and regulators, and funding climate disinformation campaigns. Despite their advertisements touting renewable energy, these companies have not contributed meaningfully to climate change solutions or updated their business plans to reflect climate realities. Their expansion plans and continued pursuit of new extraction projects demonstrate a disconnect from the urgent need to reduce fossil fuel use.
To bridge this disconnect, fossil fuel companies must acknowledge the harmful effects of their products and commit to swift and deep reductions in global warming emissions. They should also support the deployment of clean energy alternatives and ensure a fair transition for their workers. International cooperation is necessary to manage the decline of the fossil fuel industry and provide support for nations heavily reliant on this sector. By recognizing the urgency of the climate crisis and aligning their actions with the Paris Agreement's goals, fossil fuel companies can play a constructive role in mitigating climate change.
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The need for clean energy and renewable sources
The world is facing a climate crisis, and to end it, most fossil fuel reserves must remain in the ground. Research has found that 90% of coal and 58-60% of oil and gas reserves cannot be extracted if there is to be a chance of keeping global heating below 1.5C, the temperature beyond which the worst climate impacts will occur. This is a sharp decline in the use of fossil fuels, which currently dominate the global energy system, accounting for more than 80% of global energy production.
To meet the Paris Agreement's climate goals, countries will need to limit fossil fuel extraction and support the deployment of clean energy. Clean energy is essential for a sustainable, healthier, and economically stable future. It helps address climate change and air pollution, which is a significant cause of health issues. Every dollar of investment in renewables creates three times more jobs than in the fossil fuel industry, and the transition towards net-zero emissions will lead to an overall increase in energy sector jobs.
Renewable energy sources are available in abundance all around us, provided by the sun, wind, water, waste, and heat from the Earth. They are replenished by nature, emit little to no greenhouse gases or pollutants into the air, and are the cheapest power option in most parts of the world today. Prices for renewable energy technologies are dropping rapidly, making renewable energy more attractive to countries, including low- and middle-income nations.
While initial investment costs can be high, clean energy sources often become more affordable over time, leading to lower energy expenses. Additionally, renewable energy sources can create a system less prone to market shocks and improve resilience and energy security by diversifying power supply options.
The transition to clean energy is vital to address the climate crisis and promote a sustainable future. It offers environmental, economic, and social benefits, including reduced pollution, job creation, and improved energy security.
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The impact on countries with nationalised oil companies
To limit global warming to 1.5 degrees Celsius, a target named in the Paris Agreement, a majority of fossil fuel reserves must remain in the ground. This will have a significant impact on countries with nationalized oil companies, as they will have to leave a significant portion of their wealth untapped.
For instance, Middle Eastern states, which have more than half of the world's oil reserves, will need to keep almost two-thirds in the ground. Similarly, 83% of Canada's oil from tar sands and virtually all unconventional oil or gas from fracking must remain untouched. This will result in a substantial decrease in the value of national and natural wealth for these countries, as the value of their fossil fuel deposits plummets.
Countries with nationalized oil companies face a unique set of challenges. Firstly, they have a higher proportion of their national wealth tied to fossil fuel reserves, making them more vulnerable to a permanent decline in prices or demand. Secondly, they often have limited ability to diversify their economies and revenue streams, and it will take them longer to do so compared to countries less dependent on fossil fuels. This is partly due to the pressure to spend revenues rather than save them. Additionally, these countries may face stranded assets if there is a downward deviation in demand or price, relative to their investment and production choices.
The transition away from fossil fuels will also impact employment in these countries. Ensuring a fair transition for workers in the fossil fuel industry is vital, as their livelihoods may be at risk. However, the shift to clean energy can also create new job opportunities in the renewable energy sector, which can help mitigate the negative effects on employment.
While the impact on countries with nationalized oil companies is significant, it is important to note that the alternative is a continuation of the climate crisis, which will disproportionately harm poorer countries. The global energy transition is already affecting fossil fuel exporters, and policymakers must step up their efforts to monitor and mitigate fiscal risks associated with this transition. International cooperation is crucial to managing the decline of fossil fuels and supporting nations heavily reliant on the industry.
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The role of private companies and investors in the transition
The transition to a fossil-free energy system requires the involvement and commitment of both private companies and investors. The role of these entities is crucial in several key areas.
Firstly, private companies and investors have a significant influence on the pace and direction of the energy transition. Their investment decisions can either accelerate or hinder the adoption of renewable energy sources. For instance, oil and gas companies that choose to diversify their energy portfolios by investing in renewable energy projects can drive innovation and scale-up solutions. This is evident in the actions of some major oil companies that have started investing in solar and wind energy projects, as well as acquiring stakes in large solar developers.
Secondly, private companies and investors play a pivotal role in financing the transition. Shifting to a renewable energy system requires substantial upfront investments in technology and infrastructure. While the cost may be daunting for some countries, attracting private investment can help bridge the financial gap. Additionally, private companies and investors can contribute to the development of new technologies and innovations in the renewable energy sector. Their risk appetite and financial resources can be channelled into exploring and commercializing sustainable solutions, such as electric vehicles, hyper-efficient appliances, and hydrogen technology.
Moreover, private companies and investors have a responsibility to ensure a just transition for workers in the fossil fuel industry. As the energy landscape evolves, it is essential to consider the social implications and ensure that no one is left behind. This includes providing support, retraining, and new opportunities for workers in the industry, as well as creating new jobs in the renewable energy sector. According to the IEA, the transition to net-zero emissions is expected to result in a net gain of 9 million jobs in the energy sector.
It is worth noting that the profitability of renewable energy projects compared to fossil fuels has been a key consideration for private companies and investors. However, the recent analysis challenges the assumption that fossil fuels are more profitable in the long term. As countries become more committed to tackling climate change and enacting policies to reduce demand for fossil fuels, the risk associated with investing in this sector increases. Therefore, private companies and investors need to recognize that further investment in fossil fuel extraction is incompatible with the goals of the Paris Agreement and increasingly risky.
In conclusion, private companies and investors have a crucial role in driving the transition to a fossil-free energy system. Their investment decisions, financial resources, and global reach can accelerate the adoption of renewable energy sources, while also ensuring a just transition for workers and communities impacted by the shift away from fossil fuels.
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Frequently asked questions
According to a study published in the journal Nature, to limit global warming to 1.5 degrees Celsius above pre-industrial temperatures, nearly 60% of the planet's remaining oil and natural gas and 90% of its coal reserves should remain in the ground by 2050.
Warming above 1.5°C risks further sea level rise, extreme weather, biodiversity loss, species extinction, food scarcity, worsening health, and poverty for millions of people worldwide.
Countries have pledged to reduce carbon emissions and transition to renewable energy sources. For example, Costa Rica and Denmark have formed an alliance to ask states to stop issuing fossil fuel exploration permits. Additionally, cities and sub-national governments have signed a fossil fuel nonproliferation treaty to support the phase-out of fossil fuels.
Individuals can advocate for policies that limit fossil fuel extraction and support the transition to renewable energy sources. They can also reduce their own fossil fuel consumption by conserving energy, using public transportation, and choosing energy-efficient products.
