Coal being excavated at the Jim Bridger Mine outside Point of the Rocks, Wyoming, (Photo: Reuters / Jim Urquhart)

Building on previous blogs, colleagues from Oxfam and Columbia University sat down to run some more scenarios around stranded assets through an equity lens. They make the case for a focus on stranding thermal coal first.

In order to avoid dangerous climate change the world will need to leave large amounts of known fossil fuel reserves in the ground – a process known as ‘stranding assets’. However unlike most questions about climate change, conversations about stranded assets have paid little attention to issues of equity, or who should sell the last of the fossil fuels. In a previous blog asking that exact question we showed that if developing countries (excluding China[1]) were given priority to develop their fossil fuel reserves, they could fully exploit all of their fossil fuel reserves and the world would still stand a 50 percent chance of keeping global temperature rise below 1.5^oC – the widely-accepted ‘safe’ threshold for warming. The opportunity to exploit these assets was estimated to be worth tens of trillions of dollars – dollars which could go a long way in the fight against poverty.

So the big question now is, if we allow developing countries develop their reserves, what’s the best way to go about doing that? First, we have to understand where we’re starting from.

What did last year’s emissions do?

The figure below compares the global carbon budgets[2], for both 1.5^oC and 2^oC with the potential emissions stored in proven fossil fuel reserves.

What is immediately clear from this graph is that there is far more carbon in the world’s global reserves than could possibly be burned safely – hence the need to keep some of them in the ground. This finding is even more concerning as it ignores the likely CO₂ contribution from non-fossil sources such as land-use change and concrete.

A second point is that the reserves in developing countries are now slightly larger than the 1.5^oC budget. In 2014, the 1.5^oC budget and the potential CO₂ in developing country reserves were almost exactly equal – indicating that you could burn all the reserves in developing countries and still keep global temperature rise below 1.5^oC, as I stated previously. However the estimated 39.9 gigatons of CO₂[3] that we emitted in 2015, means that if we now burned all the reserves in developing countries we would likely increase global average temperatures by more than 1.5^oC.

If we look at the 2^oC however (see the dotted green line added to the graph below) we find that even in 2015 we can still add Tunisia, Colombia, Thailand, Libya and China[4] to the list of developing countries that could safely burn all of their existing reserves while still maintaining an 80 percent chance of keeping global temperature rise below 2^oC. As was previously the case, these resources are estimated to be worth tens of trillions of dollars that could be spent on human development.

While it is clear, therefore, that we need to advance this issue quickly, can we be smarter about the way we strand fossil fuels?

What if we focus on stranding coal?

There are a number of reasons to consider focusing on stranding coal (or at least thermal coal which is used in electric power stations) before oil and gas. First, coal is a particularly high-carbon form of energy. Burning it gives off a lot of carbon dioxide for relatively little energy. Second, thermal coal is not particularly valuable as an export (certainly not when compared to oil and gas) and so the opportunity cost of stranding it (in terms of foregone revenue) is not very large. Third, while coal does have significant value as a reliable source of cheap energy, coal is poorly suited to integrating with renewable energy sources due to the amount of time it takes to get a coal-fired power station fully operational. The result is that coal power cannot respond quickly enough to account for the sudden drop off that can occur with renewable energy sources – when the wind stops blowing or the sun stops shining.

To explore the impacts of stranding coal we stacked the gas, oil and coal reserves and then compared them with the two carbon budgets (see the graph below). What is immediately clear is just how large a proportion of potential emissions are contained in global coal reserves.

What is also interesting, however, is that the world’s oil and gas reserves are only a little bit larger than the 2^oC global carbon budget. This means that provided all world’s coal reserves remain in the ground, almost all the countries in the world could exploit their existing oil and gas reserves and the world would still stand an 80 percent chance of keeping global temperature rise below 2^oC (though, again, this ignores non-fossil fuel emissions).

Looking at the actual country data under this scenario it turns out that the only countries that also need to strand all of their fossil fuels are those with a Human Development Index above 0.85. There are only 12 countries with proven reserves of hydrocarbons that fall into this category: Qatar, Brunei, Italy, Israel, the UK, Canada, the US, Germany, the Netherlands, Denmark, Australia and Norway.

It is worth saying that the above points need not suggest that developed countries have to literally strand all of their assets while developing countries continue to exploit theirs. There are good grounds, for example, to focus on extracting resources in the geographies where they are the cheapest, and then engaging in some sort of post-extraction redistribution system.

While the details of any policy on how we might go about incorporating equity into discussions of stranded assets remains unclear, a focus on equity points not only asks us who should sell the last of the fossil fuels but also how we should strand them. Focusing on coal is important because it reduces overall emissions, and it also means that only a very small group of the world’s richest countries needs to forego their fossil fuel revenues entirely.

Oxfam intends to continue discussing these different perspectives on stranding assets and development in a subsequent blog post about the challenge of de-carbonization. We also look forward to engaging in the conversation at the 11th Annual Columbia International Investment Conference on “Climate Change and Sustainable Investment in Natural Resources: From Consensus to Action.”

EDITOR’S NOTE: Supporting calculations for this blog can be found here.

[1] We defined developing countries as per the UNDP which uses a cut-off of HDI scores below 0.7. China had an HDI score of 0.72 in 2015.

[2] These are calculated at a 50% confidence for 1.5^oC and 80% confidence for 2^oC. The reason for the difference is that we have already gone beyond standing an 80% chance of remaining within 1.5^oC. We use the most risk averse percentages still available to us as published by Carbon Tracker.

[3] Which is approximately equal to the potential CO₂ stored in all of the proven reserves of the United Arab Emirates

[4] Note that we have just ranked countries based on HDI – where countries with the highest HDI get the least preference when it comes to benefitting from global fossil fuel reserves. In our research report, the author suggests a more complicated process for stranding based on some mix of HDI, historic benefit from fossil fuels and alternative development options. For a future blog we may well consider what a reorganization of these countries would look like if we were to generate a more complex index for ranking countries.