According to a UNEP report, the key step toward closing the production gap is for countries to recognize the substantial discrepancy between fossil fuel production plans and global climate goals – and then to enact policies that bring production plans in line with climate efforts. Their policy toolkit can include not only “demand side” policies, such as renewable energy and energy efficiency measures, but also those that focus explicitly on reducing the supply of fossil fuels, reports Safety4Sea.
Supply-side climate policy
Policies to address fossil fuel supply are often missing from the climate policy toolkit. Most climate policy interventions seek to address the consumption, rather than the production, of coal, oil and/or gas, through measures such as pricing carbon, fostering alternative energy sources, and improving energy efficiency. Climate policy need not be limited to interventions on the demand side, however. In many other areas of public policy, governments recognize that tackling supply and demand for a product at the same
time is the most effective way to limit its use (Green and Denniss 2018). This is true for a diverse range of policy goals, including efforts to reduce the consumption of tobacco, the selling of illicit drugs, and the trafficking of endangered species. The continued growth in fossil fuel extraction suggests that there may be value in similarly seeking to limit the upstream production of such fuels, in addition to their consumption (Green and Denniss 2018;Lazarus and van Asselt 2018).
For governments interested in restricting fossil fuel supply as part of their broader climate strategy, a range of policy options exist (Table 5.1.). These “supply-side” climate policy
tools include economic instruments, such as fossil fuel subsidy reform and taxation on the production or export of fuels. Governments may also use their regulatory authority
to limit extraction, for instance by banning new permits for exploration or extraction, or by limiting or rescinding existing fossil fuel licenses.
Policymakers can also turn to their provision of goods and services, by redirecting public
finance away from the fossil fuel sector, setting long-term goals to wind down extraction, and developing strategic transition plans to support fossil-fuel-dependent workers
and communities. And governments can raise awareness and increase transparency by requiring fossil fuel companies to report on their production plans, and by reporting
on their own progress in closing the “production gap.”
Taxonomy of supply side policy
Governments Already Acting on the Policy Gap
Lessons from first movers
Some of the earliest efforts to limit the production of oil and gas on environmental grounds originated in Latin America and the Caribbean. The most prominent moratorium effort is probably the Yasuní-ITT project, launched in 2007 in Ecuador, which sought international compensation for banning the extraction of oil in a national park (Finer et al. 2010).
While this initiative was ultimately unsuccessful (Sovacool and Scarpaci 2016), later efforts to limit oil extraction without a condition of compensation fared better. In 2011, Costa Rica announced a temporary moratorium on offshore oil exploration, which was later extended to 2050 (Government of Costa Rica 2019). In 2016, former Mexican President Enrique Peña Nieto signed decrees banning oil and gas activities in areas of high natural value, mounting to approximately 1 million square kilometres of protected area (Government of Mexico 2016). And in December 2017, the Belize government unanimously approved a moratorium on petroleum-related activities in maritime areas (Government of Belize 2017).
These governments have shown that starting with small steps — a temporary ban, or limits on extraction in a restricted area — can help build momentum for expanding constraints on production. While climate change was occasionally raised as a motivating factor, the protection of biodiversity, ecosystem services, and eco-tourism were the main rationales
underpinning all of these initiatives. An emphasis on the measures’ potential benefits helped increase the viability of their adoption, suggesting more attention needs to be paid to the wider sustainable development benefits of closing the production gap.
Support for just transitions
Policies that constrain fossil fuel production — either directly through supply-side policies, or indirectly by reducing fuel demand — can be coupled with transition support to aid those currently reliant on fossil fuel development for their livelihoods. All governments, as Signatories to the Paris Agreement, have recognized the need to “[take] into account the imperatives of a just transition” and the impacts of response measures; this implies the need to plan to minimize disruption for workers, communities, and consumers who may be disproportionately affected by a shift to a low-carbon economy (ITUC 2017;
UNFCCC 2016). Some countries have already embarked on such planning.
For example, the governments of Canada (Government of Canada 2018), Germany (Wehrmann 2018), Spain (MITEGO 2018), Scotland (Scottish Government 2018), and New Zealand (MBIE 2018) are all developing or implementing new transition planning processes
and support programs to help oil, gas, and/or coal workers and communities adjust as their industry declines.
While transitions away from fossil fuels will affect many across society, two groups are typically the focus of transition planning efforts in the fossil fuel production sector: workers and fossil-fuel-dependent communities and regions (Sartor 2018). Both workers and communities want to be consulted on the transition and want meaningful social dialogue to take place concerning their future. Once dialogue takes place and workers’ concerns are
heard, a range of solutions can be negotiated to facilitate a transition that different parties perceive as fair.
Commonly employed transition provisions include: facilitating local development planning; ensuring workers’ existing legal entitlements (e.g. to pensions and healthcare) are
maintained; ensuring social protection and insurance measures for workers; supplementing local government revenues; creating job training programs; restoring industrial sites; and investing in new community facilities to revitalize social and economic development (Green and Gambhir 2019). There is no “one-size-fits-all” approach to transition
planning; the choice of transition support should reflect the desires and opportunities that make the most sense for individual workers and communities, as well as the government capacity, institutions, and wider conditions in the relevant jurisdiction (Green and Gambhir 2019).
The size and scope of these plans depends on the current footprint of the industry: countries and regions that are heavily dependent on fossil fuel production will need extensive industry transition plans, whereas more diversified economies may have relatively minimal transition needs. Providing assistance to those impacted by a transition
away from fossil fuels is almost certainly a necessary precondition for ambitious climate policy. Absent a clear plan to support those affected by a low-carbon transition, governments are likely to face social and political resistance to any efforts to limit fossil fuel production or use.
Addressing supply and demand
New Zealand is a relatively small fossil fuel producer. However, the country faces similar challenges to those of most producing countries. Oil production is highly concentrated in one region, Taranaki, and forms an important part of the regional economy, accounting for 28% of the region’s economic output (Make Way for Taranaki 2017). The New Zealand government has recognized the challenge that the global phase-out of fossil fuels represents for Taranaki, and the need for a managed transition that protects jobs and supports regions and local communities (NewZealand Government 2018a).
In April 2018, the New Zealand government announced that it would cease granting offshore oil and gas exploration permits, a ban that was subsequently passed into law in the Crown Minerals (Petroleum) Amendment Act 2018 (New Zealand Government 2018b). The policy protects existing jobs and exploration and extraction rights: it does not cover the country’s 22 existing offshore exploration permits, and new onshore exploration permits can still be granted. As Prime Minister Jacinda Ardern highlighted, the policy aims to provide certainty for industry and communities to plan for the future, and to kick-start the managed transition (New Zealand Government 2018c).
The exploration ban fits within a wider, comprehensive climate strategy that aligns demand, supply, and transition measures. In May 2019, the government proposed legislation that would set a target of net-zero carbon emissions by 2050, and establish an independent climate change commission (New Zealand Government 2019a). Alongside this policy,
the government has created a Just Transitions Unit to aid the transition process (MBIE 2018).
A key element of New Zealand’s climate strategy is supporting the Taranaki region as it transitions its economy away from fossil fuels. The government is investing NZD 20 million (USD 13 million) in local infrastructure and clean energy projects to diversify the region’s economy (New Zealand Government 2018d), and in 2019 it hosted a Just Transition Summit to discuss the steps needed to realize a low-emissions future (New Zealand Government 2019b). The government has also helped the Taranaki region to develop a
2050 Roadmap, co-designed with local communities and stakeholders (Venture Taranaki 2019).
The role of subnational and non-state actors
National governments are not acting alone to limit fossil fuel production and support a just transition. Many city and regional governments are putting in place policies to constrain fossil fuel supply, and help communities move into alternative economic development models. Dozens of municipalities, counties, and regional governments have, for example, enacted bans on hydraulic fracturing (Carter and Eaton 2016; KTWS 2018); subnational governments, such as Scotland and Alberta, were also among the first to announce just transition policies to support oil and coal workers, respectively (Government of Alberta 2017; Scottish Government 2018).
Beyond governments, a range of other non-state actors are helping to facilitate the transition away from fossil fuel extraction, including companies, investors, trade unions, and civil society organizations. Through fossil fuel divestment campaigns and other efforts, civil society groups and investors have placed social, political, and economic pressure on governments and companies to move away from supporting fossil fuel production (Healy
and Barry 2017). To date, more than USD 11 trillion in fossil fuel divestment pledges have been made by over 58,000 individuals and more than 1,100 institutions (Fossil Free
2019).
Civil society has also been leading the call for governments and corporations to take action on fossil fuel supply. More than 500 non-governmental organizations, for instance, have signed the “Lofoten Declaration” calling for an end to fossil fuel development and the managed decline of existing production (The Lofoten Declaration 2017). Collectively, campaigns like this are helping to change the discourse, norms, and attitudes around ongoing fossil fuel production in a climate-constrained world (Cheon and Urpelainen 2018; Green 2018; Piggot 2018).
Fossil fuel companies could also play important roles in closing the production gap. A handful of fossil fuel companies are already moving their investments towards lower-carbon options. For example, in 2017, the Danish Oil and Natural Gas company (DONG) sold off its oil and gas business, and announced a name change to Ørsted to reflect its exit from the fossil fuel business (Spector 2017). While this is a step in the right direction, the industry as a whole has not yet signalled a commitment to a long-term transition away from fossil fuels, with only 1.3% of oil and gas companies’ total capital expenditures (USD 22 billion)
invested in low-carbon energy since 2010 (Fletcher et al.2018).
Historically, fossil fuel industry associations aiming to reduce emissions — such as the Oil and Gas Climate Initiative and IPIECA (the oil and gas industry association for environmental and social issues) — have primarily focused on improving the reporting and the emissions intensity of production, rather than on limiting investments in projects that are incompatible with a 1.5°C or 2°C pathway (Carbon Tracker Initiative 2019b; Grant 2018).
Going forward, these organizations could be instrumental in managing an orderly wind-down of fossil fuel production by helping companies align their portfolios with Paris
Agreement goals and by moving away from investments that could stand in the way of meeting the world’s climate change objectives.
While such actions by civil society, governments, and some businesses are promising, the shift away from fossil fuel production and use is not yet happening at the speed or magnitude needed to limit dangerous global warming (Muttitt et al. 2016). Greater ambition and coordination by state, subnational, and non-state actors will be required to
align fossil fuel supply with Paris goals (Piggot et al. 2018). The next chapter details how the policies and initiatives outlined in this chapter might be scaled up internationally.
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Source: Safety4Sea
