How to relate to climate change and climate policy if you earn your living from oil?
Denial is one option. You could say that climate change is not man-made. You could claim that all the climate scientists in the world and the 195 countries that agreed to a new climate treaty in Paris are wrong and that you, and a handful of climate denialists, have it right. Good luck with that strategy. Your club has very few members left.
There is the ostrich strategy. You recognize that climate change is a real threat and that the science is right, but you believe that nothing will ever be done about it. Business as usual means global warming of four degrees Celsius. Researchers at the London School of Economics have recently estimated the economic losses from climate change. The most pessimistic scenario predicts a collapse of the world economy and a loss equal to 24 trillion dollars, or seventeen percent of the world’s assets. Increasingly, assets will be at risk of destruction by extreme weather events, and owners will see their earnings reduced by high temperatures, drought and other climate change impacts.
The third option is being optimistic. After the Paris Agreement, it is a lot more likely that we will keep global warming below two degrees. Investors, politicians and people are becoming increasingly aware of the huge costs it represents. Perhaps the rest of the world is not willing to risk losing 24 trillion dollars, just to allow the fossil fuel industry to continue with business as usual? The loss can be reduced to 315 billion dollars if we stick to the below two degrees scenario.
Is it possible to safeguard job security, income and welfare under the latter scenario? What is a reasonable climate policy for people, companies and countries that are dependent on oil and gas?
Before the Paris talks, some progressive oil companies argued strongly for a global carbon tax. Such a tax would favour less-emitting energy sources over dirtier ones. It would give natural gas a competitive advantage over coal in the transition from a fossil to renewable world. Yet a global carbon tax is not a very realistic scenario. Countries with large coal reserves are not likely to sign up to a carbon tax. Nevertheless, various carbon taxing systems, including emissions trading, already cover 14 percent of global carbon emissions. Investors increasingly use a shadow price on carbon when calculating the return on potential investment. This will make coal investments less profitable. So, it is smart for the oil addicted to support high carbon taxes.
Many oil and gas companies argue that the world will need oil and natural gas for decades to come and therefore continue planning large-scale developments. While low oil prices have dampened the appetite for investment, the misconception that it is possible to support the Paris Agreement and at the same time extract more oil and gas, is still wide-spread. This does not add up. If we are to keep global warming below two degrees, two thirds of all known fossil reserves must remain in the ground. It is hardly realistic to assume that the remaining budget will be used exclusively for oil and gas while all coal is kept buried.
The possibility of continued oil and gas production hinges on large-scale carbon capture and storage. The world has not made much progress here. Oil and gas companies are shockingly passive despite having the skills to realize this technology. In Norway, we have some experience from Sleipner and Snøhvit. However, technological innovation alone is not enough. We should identify economic incentives that make CCS work. It is clearly in the companies’ self-interest to invest in CCS.
Another option is investing in renewable energy. However, years of experience in the oil and gas industry does not automatically give you the skills to build solar panels and windmills on land. Many voices in the climate debate have a too simplistic view of this transition. Nevertheless, new renewable technologies could spring out of the competences of the oil and gas sector. It makes sense for oil and gas companies to transform into more diversified energy companies, even though this will require recruitment of people with different skills.
Workers, companies and countries that dependent on oil and gas are facing a range of dilemmas where jobs, welfare and money are at stake. If you want to navigate safely through turbulence, you need to pay attention. You have to understand climate science, climate policy, the geo-political developments, markets and technological progress. The oil and gas industry employs many sharp minds that have brought us innovation and great progress. Now it is time for these bright minds to turn to other problems than how we can get our hands on the last drop of oil.
This is a transcript of a speech held by Kristin Halvorsen at the International Conference and Exhibition on Health, Safety, Security, Environment, and Social Responsibility, 11 April 2016, in Stavanger.