Reducing fossil fuel emissions isn’t enough: We must aim for their complete elimination by the second half of the century
Today’s post is from OECD Secretary-General Angel Gurría who this morning is presenting a major address on the Organisation’s analysis of climate change, investment and energy policies at an event in London co-organised with the London School of Economics and the Climate Markets & Investors Association (CMIA),
We need to come to grips with the risk of climate change. While many countries have announced ambitious targets to reduce fossil fuel emissions by 2020, and even mid-century, further efforts are needed. UNEP estimates that current pledges will only get us between a quarter and half way of the goal to limit the increase in global average temperature below 2oC. To combat climate change, reducing emissions will simply not be enough! We need instead to eliminate them altogether.
“Zero net emissions” might sound extreme. Why not just simply reduce them? The problem is accumulation. Carbon dioxide is a long-lived gas: almost half the CO2 emitted this year will still be around 100 years from now. Carbon dioxide concentration, and its warming potential, will therefore increase over time, unless the rate of accumulation falls to zero.
Ending our reliance on fossil fuels was never going to be an easy task. Two-thirds of all the electricity generated and 95% of the energy consumed by the world’s transport systems still rely on fossil fuels. The good news is that the bulk of fossil fuel emissions are energy-related and could be completely eliminated using existing technologies. Carbon pricing is a powerful tool to encourage this transformation, either through taxes or by means of emissions trading schemes.
For these efforts to bear fruit, the whole range of price and non-price measures that can be put in place by governments must be mutually supportive and consistent. This is not the case now. For example, coal releases far more CO2 per unit of energy than oil or gas but is taxed at lower rates than most fuels used to generate electricity. Diesel, which emits around 18% more CO2 per litre of fuel than gasoline, is taxed in OECD countries on average a third less than gasoline. Likewise, many countries have tax breaks to support biofuels, even though in most cases these are costly and often of questionable, if not negative, environmental value.
Even worse, some countries still engage in “negative carbon pricing”, more commonly known as subsidies. The IEA estimates that subsidies to fossil fuel in developing and emerging economies totalled $523 billion in 2011. Approximately $55- $90 billion per year are spent in support of the consumption and production of fossil fuels in OECD countries. The net effect of this massive misallocation of resources is to tilt the playing field in favour of a continued reliance on fossil fuels.
A coherent approach to carbon pricing is thus needed to ensure that price signals sent to consumers, producers and investors alike are consistent and facilitate a gradual phase-out of fossil fuel emissions.
Pricing carbon is also essential to encourage the development of alternative technologies, including for carbon capture and storage (CCS). Progress in this area is badly needed. Even if all currently planned CCS capacity were to be built today, only 90 Mt of CO2 would be captured per year, which represent less than 1% of the current power sector CO2 emissions in 2012.
The building of a post-carbon world will offer new economic opportunities, but the transition will not be costless. Governments must be frank about this fact. The commitment to limit the increase in global average temperature below 2oC will require expensive mitigation and adaptation investments. This is a manageable and affordable target, and certainly much less costly in human and economic terms than the alternative of unmitigated climate change
Thus, the goal for governments is to develop a policy mix that, over time, remains credible given the scale of the transformation needed. In doing so, governments should address four key policy challenges:
First, the lack of strong, consistent carbon pricing signals. Up to now, when carbon prices have been imposed, exemptions and carve-outs have combined with very low prices to make the overall impact of pricing marginal at best.
Second, there is an urgent need for fossil fuel subsidy reform. One would imagine that twenty years into the climate debate, countries would at least have made progress in removing subsidies to fossil fuels that encourage carbon emissions. Unfortunately, subsidies continue to exist, not only for consumers (which often end up benefiting higher income households), but also in the form of official support to oil and gas companies for the exploration and exploitation of new fossil reserves.
Third, government needs to avoid mixed messages and stop-go policies in supporting renewable energy. What is required are consistent and coherent signals to encourage greater investor confidence, which in the past has been badly shaken.
Finally, governments need to tackle regulatory and market rigidities which continue to favour the use of fossil fuels in the electricity sector. Thus, governments should encourage demand-side options and increased consumer choice over energy sources.
Tackling these challenges is as much a political issue as an economic one. Businesses simply don’t believe that governments are committed, and their investment choices reflect this lack of confidence, perpetuating activities that bring fossil fuel to the market.
We are neither on track to achieve internationally agreed goals nor managing to execute existing policies in a cost-effective way. Every government needs to take a hard look at its policy mix and determine if it is consistent with a path that eliminates emissions from fossil fuels sometime in the second half of the century.
It will not be enough to cherry-pick a few easy measures, there has to be progress on every front, but notably in respect to carbon pricing. The OECD is committed to assist countries in this process, in order to design, promote, and implement better policies for better lives!
The climate challenge: Achieving zero emissions Full text of the OECD Secretary-General’s speech