Should international institutions tackle fossil fuel production?

The extraction of fossil fuels, as opposed to their emissions, has barely made it on relevant international policy agendas as the issue is closely intertwined with sensitive energy supply decisions that are usually left to national-level policymakers. The case can be made, however, that there is scope for international institutions – including but not limited to the UN Framework Convention on Climate Change (UNFCCC) and the WTO – to take action to address fossil fuel extraction.

In 2013, International Energy Agency (IEA) Chief Economist Fatih Birol warned that about two-thirds of oil, gas, and coal reserves will have to be left underground if we are to achieve an internationally agreed goal of staying below a global temperature increase of two degrees Celsius from pre-industrial levels. Although unexpected technological developments, such as a sudden and rapid scaling up of carbon capture and storage could alter this picture, the fact remains that the focus of climate and energy policies at global and national levels remains squarely on reducing emissions from fossil fuels rather than avoiding the extraction of such fuels in the first place.

This is unsurprising. Most of the world’s energy still comes from fossil fuels and fossil resources remain abundant. Moreover, large public and private investments continue to be channelled to traditional energy production and consumption, notably through significant amounts of fossil fuel subsidies. For instance, the latest World Energy Outlook finds that governments shelled out some US$550 billion in 2013 on fossil fuel consumption subsidies. Fossil fuels are still seen as essential to economic development in many countries, including in relation to energy poverty. Fossil fuel producers also account for some of the largest corporations in the world and wield enough political influence to stymie energy and climate policies not to their liking. In short the barriers to a transition away from incumbent energy sources are high.

Various national-level policy options do exist that could help limit fossil fuel extraction and facilitate the move to a low-carbon economy. These include compensation for not developing reserves, such as in the failed Yasuní-ITT initiative in Ecuador, or the phasing out of fossil fuel subsidies, as G20 leaders agreed to do in 2009. However, such options will be challenging to implement in practice, and will need to be carefully designed taking into account domestic politics. Yet the nearly complete absence of any discussion on options to address fossil fuel extraction in multilateral forums is a missed opportunity.

International climate negotiations

Most strikingly, questions related to fossil fuel extraction have barely made it onto the agenda of the international climate change negotiations. This is in part the product of a policy architecture based on territorial emissions accounting. While there are good reasons to stick with this type of accounting – not least data availability – this does not mean that alternative forms, such as extraction-based accounting, cannot be implemented in parallel. At the very least progressive countries could help develop such an accounting system by adopting it on a voluntary basis.

Parties to the UN climate regime could also take further action related to fossil fuel subsidy reform. Options include a simple reiteration of the phase out goal already agreed in the G20, and using the flexibility in reporting systems of UNFCCC to increase the transparency around fossil fuel subsidies, as well as reform policies. Fossil fuel subsidy reform could further be considered a Nationally Appropriate Mitigation Action (NAMA) in developing countries, another UNFCCC mechanism geared towards tackling the causes of climate change, or such reform could be included under the Intended Nationally Determined Contributions (INDCs) set to be the national building blocks of the global climate deal countries are hoping to agree to by the end of next year. Whereas some of these options are constrained by the consensus-based decision-making process of the climate negotiations, some options could be adopted by one country or a small group of countries under the current rules.

Compensation for leaving fossil fuels undeveloped could be explored in the UN climate talks. Following the introduction of the Yasuní-ITT initiative, Ecuador raised this issue in the climate negotiations, but the idea has not received the in-depth discussion it deserves. Such compensation does raise a host of difficult political and technical issues, including calculating the environmental benefits, ensuring that fossil fuels remain underground permanently, and attracting the necessary finance for such initiatives. Yet similar questions have arisen in the context of REDD+ – reducing emissions from deforestation and forest degradation – and, over time, countries have made significant progress in addressing these issues.

International trade talks

Like the climate negotiations, international trade talks have largely eschewed energy-related questions, even though energy clearly falls under the scope of the WTO Agreements. Fossil fuel subsidies, in particular, are covered by the WTO’s Agreement on Subsidies and Countervailing Measures. And while international disputes related to renewable energy have reached the global trade arbiter, fossil fuel subsidies remain unchallenged.

Perhaps more importantly, however, notification rates of subsidies have generally been low. Changes in this area could be implemented without requiring changes in the WTO’s legal framework, such as establishing a new subsidiary body under the Committee on Subsidies and Countervailing Measures to examine whether notifications are in line with the actual support provided by governments, adopting a new notification template providing further details on subsidies, and allowing non-governmental organisations to report on the level of subsidies.

None of these discussions are going to be easy and reaching agreement among countries with wide-ranging interests is likely to remain elusive. Nevertheless, even an incremental increase in attention paid to the supply side would acknowledge that addressing fossil fuel extraction is an undisputable part of tackling climate change, and would allow for international cooperation between countries on addressing fossil fuel development in line with existing climate and development goals.

This article is published in collaboration with The e15 Initiative. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Harro van Asselt is a Research Fellow at Stockholm Environment Institute.

Image: An aerial view of the Oseberg oil platform in the Norwegian sea prior the visit of  Austrian President Heinz Fischer and  Norwegian King  Harald.   REUTERS/Helge Hansen/Scanpix