Just stop oil production — and, for that matter, gas and coal supply. Then there will be hardly any greenhouse gas emissions. Mission accomplished.
It’s a seductive theory. With global emissions still rising and the northern hemisphere suffering the hottest summer on record, many climate change activists want companies to stop pumping crude. They also want investors to stop funding the fossil fuel industry — and to put an end to coal, gas and oil-fired power generation.
Campaigners are, of course, right that the world needs to cut its use of fossil fuels. But focussing on curbing supply is not as effective as pushing for measures that cut demand - such as carbon taxes, faster permissioning of renewable energy and green subsidies.
International climate negotiators are also wrangling over whether to “phase down” fossil fuels. The diplomatic texts don’t spell out whether it is supply or demand that should be cut. Though politicians sometimes talk about phasing down “use”, which puts the emphasis on reducing consumption, the ambiguity of the official language may not be helpful.
After all, big fossil fuel producers such as Saudi Arabia and Russia are opposed to any suggestion that they need to cut production. They have so far stymied various attempts to get a global deal to phase down fossil fuels, including at COP27, last year’s United Nations climate change conference and last weekend’s Group of 20 summit.
Of course, the likes of Saudi Arabia still wouldn’t be happy at the prospect of falling demand for their products. But even if they block a global deal on phasing down consumption, other countries could press ahead and do it anyway as that is within their control.
DEMAND CREATES ITS OWN SUPPLY
Some climate campaigners don’t like anything that would let the producers off the hook. They argue it is necessary to have a pincer movement - driving down both supply and demand.
In theory, this sounds right. After all, if there was no production, there could be no consumption. But how feasible is that? At current rates of consumption, the world has 139 years of proven coal reserves - and enough oil and gas to last 57 and 49 years respectively.
Of course, it is foolish for companies to pump oil when there’s going to be no market for it. But consider a fantasy scenario, where Canada and the United States, the two Western countries with the largest reserves, cut oil production while consumption remains high. The OPEC countries and Russia, the other countries with big reserves, could just pump more oil to fill the gap. After all, most have low costs of production.
This wouldn’t help the planet. Indeed, emissions might go up. After all, gas flaring - the burning of natural gas associated with oil extraction - is rife in many Opec+ countries, albeit not Saudi Arabia.
There’s another scenario. Opec+ might refuse to fill the gap if Western countries curbed production. Greenhouse gas emissions would, indeed, fall. But prices would sky-rocket, causing economic havoc and hardship across the world.
In either scenario, Opec+ would make massive profits. But enriching these countries is not a desirable outcome, as few are champions of freedom.
Insofar as governments are willing to push up the costs of energy for their consumers, it would be better to tax consumption of fossil fuels more. That way, they would capture the extra revenues. They could use the money to cushion the blow for their most vulnerable citizens - and help poorer countries grow in a green way. — Reuters
Hugo Dixon
The is a British business journalist and the former editor-in-chief and chairman of the financial commentary website Breakingviews which he co-founded.
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