Supply-side Climate Policy Research Articles

Economic development and known natural resource endowment: Discovery rate differentials of oil

The location of oil reserves plays an essential role in policymakers’ incentives to coordinate supply-side climate policy. In this paper I use data on the location of all historic onshore petroleum discoveries to establish a new stylized fact: Economically developed areas are many times more likely to contain an oil or gas discovery, compared to undeveloped areas. I show that this result is not driven reverse causality or confounding geology. By implication, there exist large additional undiscovered oil and gas deposits in currently undeveloped areas, mainly located outside of Europe and North America. I quantify these deposits to be about 40% of total discovered onshore oil reserves.

The atlas of unburnable oil for supply-side climate policies

To limit the increase in global mean temperature to 1.5 °C, CO2 emissions must be drastically reduced. Accordingly, approximately 97%, 81%, and 71% of existing coal and conventional gas and oil resources, respectively, need to remain unburned. This article develops an integrated spatial assessment model based on estimates and locations of conventional oil resources and socio-environmental criteria to construct a global atlas of unburnable oil. The results show that biodiversity hotspots, richness centres of endemic species, natural protected areas, urban areas, and the territories of Indigenous Peoples in voluntary isolation coincide with 609 gigabarrels (Gbbl) of conventional oil resources. Since 1524 Gbbl of conventional oil resources are required to be left untapped in order to keep global warming under 1.5 °C, all of the above-mentioned socio-environmentally sensitive areas can be kept entirely off-limits to oil extraction. The model provides spatial guidelines to select unburnable fossil fuels resources while enhancing collateral socio-environmental benefits.

Reconciling Ireland’s climate ambitions with climate policy and practice: challenges, contradictions and barriers

Often perceived as a green nation, Ireland’s climate action reputation ranges from being regarded as a climate ‘laggard’ to being applauded as one of the first states to introduce supply-side ‘keep it in the ground’ (KIIG) legislation. In line with UNFCCC and IPCC advice, Ireland has committed to reducing greenhouse gas (GHG) emissions by 51% by 2030 and reaching net zero by 2050. However such ambitions have not yet translated into sufficient transformations required to achieve the goals of a Paris Agreement compliant pathway. Major challenges surround Ireland’s transition to net zero, for example, the country’s fossil fuel dependency means oil and gas (mostly imported) account for around 80% of primary energy while emissions from agriculture, transport and electricity generation are increasing, rather than decreasing. Ireland is failing to meet national and EU GHG reduction targets, has had to buy emissions quotas to comply with legal requirements, and its interim 2030 target is below the EU’s Climate Law ambition. Contradictory policies, especially those influenced by ROI’s neoliberal orientation, undermine climate action and mean Ireland struggles to achieve GHG reductions, despite the state’s climate change legislation and policies. Concentrating on supply-side climate policy, this article examines key issues hampering Ireland’s ability to reconcile its climate ambitious with policy and practice. Adopting a critical political economy analysis, we explore multi-level drivers of climate and energy policies, examining challenges like the war in Ukraine, which prompted the Irish state to re-consider where and how it sources gas and oil, in turn threatening existing KIIG measures. In critically analysing challenges and contradictions, we identify multiple ideological, political and economic factors, in particular, the neoliberal, globalised economic model influencing the State’s current unsustainable, risky and contradictory policy direction. We conclude by articulating specific barriers hampering Ireland’s climate ambitions that must be addressed to enable a just transition to a sustainable future.

Correction: Understanding supply-side climate policies: towards an interdisciplinary framework

Correction: Understanding supply-side climate policies: towards an interdisciplinary framework

Understanding supply-side climate policies: towards an interdisciplinary framework

Once marginal in climate governance, supply-side policies which seek to restrict the production of climate warming fossil fuels are now gaining greater prominence. From national level bans and phase out policies to divestment campaigns and the creation of ‘climate clubs’ such as the Beyond Oil and Gas Alliance, an increasing number of such policies are being adopted by governments, cities and financial actors around the world. But why would states voluntarily relinquish potentially profitable reserves of fossil fuels? How can we account for the rise of supply-side policies, the form they take and the sites in which they are being adopted? What conditions and contexts are most conducive to the adoption and sustainability of ‘first mover’ bans and phase out policies? This paper seeks to build an interdisciplinary account fusing insights from diverse theoretical traditions from international political economy, political science, sociology and the literature on socio-technical transitions in order to capture the interaction of political, economic and socio-cultural drivers in national and international settings which can provide the basis of a more integrated and multi-dimensional understanding of supply-side policies. Such an account, we suggest, helps to understand the origins and evolution of supply-side policies and, more critically, the conditions which might enable the expansion of supply-side climate policies to new sites.

Supply-side climate policy and fossil fuels in developing countries: a neo-Gramscian perspective

This article examines the perspectives of low- and middle-income countries (LMICs) on climate change mitigation and fossil fuel supply within the UN framework convention on climate change (UNFCCC). Achieving the temperature targets of the Paris Agreement requires leaving fossil fuels underground (LFFU), which presents challenges for LMICs due to their significant fossil fuel reserves. This dilemma raises equity concerns as these countries must balance climate action with their Right to Development (RtD). Against this background, through a content analysis of documents submitted to the UNFCCC and triangulation with ownership structures of extraction projects, this paper explores how ten LMICs define their roles in addressing climate change and LFFU, with a focus on mitigation policies and the energy sector. Drawing on Gramscian concepts such as hegemony, common sense, historical bloc, war of position, passive revolution, and trasformismo, this paper presents a non-exhaustive neo-Gramscian perspective for the analysis of supply-side climate policy in developing countries. The analysis reveals that LMICs’ development paths have been characterized by fossil fuel expansion, energy addition, and carbon lock-in, grounded on energy security reasons, export dependencies, or equity and responsibility. From these findings, the paper argues that the global energy transition can be interpreted as a passive revolution: the fossil historical bloc, through the interdependencies between states, national oil companies, and fossil capital, maintains its hegemonic position by aligning material, organizational, and discursive resources around fossil fuels, with the RtD serving as a discursive tool to perpetuate fossil dominance in energy systems, agreeing to the legitimate demands for development. One of the trasformist tactics deployed is the bridge narrative of gas, which accommodates and neutralizes the challenge posed by renewables. Nonetheless, there are opportunities for Southern leadership to contest the bloc with potential counter-hegemony. This paper contributes to the ongoing debate on supply-side mitigation policies and distributive justice issues in the North–South context, focusing on the need and potential for an inclusive and just energy transformation. There are avenues of research to analyse how the challengers’ war of position will bear fruit in coalition building and the establishment of a new, just, and inclusive common sense.

The environmental and economic effects of international cooperation on restricting fossil fuel supply

Achieving the Paris Agreement’s global temperature goal of keeping warming well below 2 °C and ideally 1.5 °C requires limiting fossil fuel production. In the United Nations climate change negotiations, this need is only beginning to be acknowledged. Nevertheless, as some countries have already adopted supply-side climate policies, initial cooperative activities have started, and calls grow for a fossil fuel treaty, questions arise about the prospects and possible effects of international cooperation on limiting fossil fuel supply. Combining qualitative insights on possible participants in a supply-side coalition with a quantitative analysis based on integrated assessment general equilibrium modelling, this article addresses these questions. Through k-means clustering based on fossil reserves per capita, fossil fuel rents and existing supply-side policies, we first identify which (groups of) countries are most likely to lead the formation of an international supply-side coalition, and which (groups of) countries are likely to follow. Drawing on these insights, we develop several scenarios for the evolution of international supply-side coalitions and compare these to a business-as-usual scenario. By doing so, we demonstrate the global and regional environmental, trade and macroeconomic effects of international cooperation on limiting fossil fuel supply and combining fossil supply restrictions with carbon pricing to meet the Paris goals. Our findings underscore the importance of pursuing supply-side and ambitious demand-side climate policies in parallel, and identify the scope and coverage, size of the coalition, and incentives for participation as key design elements for an international supply-side coalition.

Investment law v. supply-side climate policies: insights from Rockhopper v. Italy and Lone Pine v. Canada

AbstractNew fossil fuel developments are inconsistent with keeping global warming below 1.5 °C, and while most climate policies focus on reducing demand for fossil fuels, an emerging transversal consensus promotes efforts to simultaneously reduce supply. In this article, we discuss the obstacles to effective supply-side climate policies posed by international investment treaties that protect corporations against state interventions through investor-state dispute settlement (ISDS). We focus on two recently concluded ISDS cases (Rockhopper v Italy and Lone Pine v Canada) that concern prohibitions on fossil fuel development in ecologically sensitive areas. Italy was ordered to pay a British firm approximately € 250 million in compensation for a ban on offshore oil developments along the coastline, whereas Canada successfully defended Québec’s ban on gas development in the St. Lawrence River. Arbitrators in both cases reasoned that investors should be compensated when oil and gas exploration permits are revoked (even if such a remedy is not available under domestic law) and expressed antipathy towards civic engagement in the policy process. As companies can seek lost future profits through ISDS, these cases show that the system can engender material costs for states enacting supply-side policies. The threat of ISDS can generate a chilling effect, limiting the potential for supply-side initiatives, particularly in the Global South. Initiators of global efforts to limit further fossil fuel developments must consider the obstacles posed by international investment treaties, support efforts to abolish ISDS, and as an interim measure, promote the interpretation of treaty protections in line with climate objectives.

Demand- Versus Supply-Side Climate Policies with a Carbon Dioxide Ceiling

Abstract In a Hotelling model with a climate coalition and a free-riding fringe, we compare demand-side and supply-side climate policies aimed at keeping CO$_2$ concentration below a ceiling equivalent to global warming of $2^\circ{\rm C}$. With the demand-side policy, the coalition caps its fuel demand. The corresponding allocation is intra-temporally distorted. With the supply-side policy, the coalition purchases deposits. The corresponding allocation is inter-temporally distorted and the fuel extraction path can be discontinuous. In an empirically calibrated economy, a medium-sized (the grand) coalition is stable with the demand-side (supply-side) policy. If the coalition acts strategically, the stable grand coalition implements first best.

Investor-state dispute settlement: obstructing a just energy transition

ABSTRACT Governments that revoke licenses and permits or take other measures to restrict the development of oil and gas in their territory will face claims from investors for compensation. When investors are foreign, they can seek compensation for ‘lost future profits’ in investor-state dispute settlement (ISDS), even if they had not commenced production. ISDS cases are likely to obstruct a just transition by chilling supply-side climate measures and diverting public funds away from climate change mitigation and adaptation efforts. Using a dataset of ISDS-protected assets in the upstream oil and gas sector, we demonstrate that the global distribution of legal and financial risks is highly unjust. More than two thirds of the net-present value of 1.5°C-incompatible and treaty-protected oil and gas assets are found in low- and middle-income countries, including those highly vulnerable to climate change. The Energy Charter Treaty (ECT) is the most significant single treaty obstructing the transition. While protection of fossil fuels in some countries may soon be phased-out of this treaty, the protection of the assets identified in our study will remain for at least ten more years. To limit ISDS risk, states should: (1) immediately cease the issuance of new permits/leases for oil and gas developments; (2) terminate investment treaties (including the ECT) and (3) develop binding rules that cap the amount of compensation that can be awarded to investors.

Supply-Side Climate Policies in Major Oil-Producing Countries: Norway’s and Canada’s Struggles to Align Climate Leadership with Fossil Fuel Extraction

AbstractThis article considers the puzzle of Norway and Canada, two countries that have adopted ambitious Paris Agreement targets yet are also major fossil fuel exporters. To date, both countries have taken full advantage of the international convention that assigns responsibility only for emissions within a country’s borders. However, climate activists, First Nations, and green politicians increasingly have challenged fossil fuel production via campaigns centered on issues salient to voters in nonproducing regions: opposing new exploration licenses in Norway and pipelines in Canada. While supply-side campaigns have sometimes succeeded in ending expansion, neither country has seriously entertained restricting current production. We attribute these outcomes to continued public support for fossil fuel–driven prosperity; institutions that assign responsibility for production and climate to different government agencies; and the success of counternarratives that unilateral supply restrictions are futile, prosperity from petroleum exports will fund domestic clean-energy transitions, and gas exports advance global climate action.

Phase-out or lock-in fossil fuels? Least developed countries’ burning dilemma

The Group of Least Developed Countries (LDCs)—motivated by the climate crisis that disproportionately affects them and is predominately driven by fossil fuels—has taken a lead role in pressuring the Group of Twenty (G20) states to phase-out the production of fossil fuels. This effort is central in the development of new “supply side” climate politics. Yet, many LDCs are at the same time receiving assistance from G20 nations to expand their domestic fossil fuel production. In short, LDCs are at a crossroads of leading supply-side climate policies that are essential in the climate mitigation effort, while also actively using G20 investment and capacity to extract fossil fuels. Resolving this tension is critically important for LDCs to meet their sustainable development goals and in the global effort to reduce emissions dramatically by mid-century. Here we trace the implications and dynamics of this phase-out/lock-in tension and possibilities for redirecting G20 investment toward low-carbon developments in LDCs.

The supply-side climate policy of decreasing fossil fuel tax profiles: can subsidized reserves induce a green paradox?

Fossil fuel producers develop too many reserves for combustion due to subsidies for upfront development costs. The conventional wisdom is that downward-sloping tax profiles avoid green paradox outcomes by reducing present extraction. This paper shows that accounting for subsidized reserves development can induce green paradox outcomes for downward-sloping income tax profiles. A theoretical model linking reserves development and extraction with climate change damages is developed to explore conditions for the weak and strong green paradox outcomes of higher present extraction and cumulative damages. We find that the weak green paradox arises under higher and flatter income tax profiles. The strong green paradox is an ambiguous outcome without subsidized reserves development. Quantitative examples demonstrate the effect of downward-sloping tax profiles on crude oil extraction and how the strong green paradox arises when delayed emissions are less relevant for damages.

Responsible Carbon Resource Management through Input-Oriented Cap and Trade (IOCT)

Fossil fuels store primary carbon. When they are combusted, CO2 is released into the atmosphere. The accumulation of CO2 in the atmosphere causes the anthropogenic greenhouse gas effect, which has led to the existing climate crisis. Academic literature, international climate deliberations and most domestic climate mitigation plans have so far focused primarily on reducing emissions (output orientation) and have paid little attention to supply-side climate policies. Thus, this study shows that output-oriented literature is heavily overweighted with over 7000 publications compared to input-oriented literature with just 107 publications (equivalent to 1.5% percent). The overall scope of this review article was therefore to identify the gaps of output-oriented mechanisms such as the European Union Emissions Trading Scheme (EU ETS), and to point out how an Input-Oriented Cap and Trade (IOCT) system might overcome those gaps. IOCT refers to limits to the carbon input into the global fossil fuel trading system instead of limiting only the emissions caused by already burned fuel. For this purpose, a global cap on the extraction of coal, gas and oil must firstly be defined. Accordingly, IOCT provides for the allocation of allowances for the extraction, processing and trading of carbon-based products. IOCT is a source-oriented approach that refers to a joint allocation of the resource consumption responsibility to the fossil fuel producer and consumer as well. This review represents a unique, comprehensive and current collection of supply-side literature that can be used as a starting point for further applied research on this topic.

Governing fossil fuel production in the age of climate disruption: Towards an international law of ‘leaving it in the ground’

To achieve the long-term temperature goals set by the 2015 Paris Agreement and avert climate disruption, fossil fuel production cannot continue to proceed unabated. This dawning realisation has led to calls to ‘leave fossil fuels in the ground’. While a growing body of scholarship on ‘supply-side climate policies’ shows how policies curbing fossil fuel production can contribute to climate objective, there has been scarce attention to the role of law in regulating fossil fuel production. With a view to filling this gap, this article investigates the changing role of international law in addressing fossil fuel production to achieve climate change goals. The limitations of the siloed thinking in international law are illustrated with reference to international climate change law, human rights law, and investment law. The normative guidance emerging from these bodies of law for governments and fossil fuel companies regarding the transition away from fossil fuel production is unclear, and at times conflicting. The article thus calls for a rethinking of international law in supporting the shift away from fossil fuel production to achieve climate goals.

A subnational carbon curse? Fossil fuel richness and carbon intensity among US states

The “carbon curse” theory proposes that fossil fuel richness leads countries to have more carbon intensive development trajectories than they would otherwise. This article tests this theory at the subnational level through an analysis of the 50 US states. Drawing on energy and emissions data from US government sources, descriptive statistics and regression analyses show clear correlations between states’ production of coal, oil, and gas and higher carbon intensities. Evidence is also provided for four carbon curse mechanisms that drive this: extractive emissions, fuel-related crowding out, weaker incentives to invest in energy efficiency, and pressure to subsidize fuel consumption. These mechanisms highlight both new avenues of impact for supply-side climate policy and the difficulty of implementing it. Overall, this article makes the case for further attention to the carbon curse, which could serve as an important analytical bridge between supply and demand-side approaches to climate and energy policy. By demonstrating the likelihood of a subnational carbon curse, it also greatly extends the scope of its potential applicability. Countries that are not fossil fuel rich at a national level but have fuel rich subnational regions should also take heed.

Progressive supply-side policy under the Paris Agreement to enhance geological carbon storage

ABSTRACT As the Paris Agreement moves towards implementation, we explore opportunities it presents to move part of the climate change mitigation challenge upstream into supply-side climate policy. Supply-side climate policies have been sparsely employed to date, although interest is growing in approaches that can curtail and end fossil fuel production. Rather than focussing on fully eliminating fossil fuel production, we set out an alternative supply-side approach that involves fossil fuel producers taking progressive action to reduce and eliminate the climate impacts of their products. Our proposal uses the Paris Agreement’s framework for finance and international cooperation to establish supply-side climate action that supplements demand-side climate policies, and thereby enhance climate ambition. The concepts presented rely on large-scale geosequestration technologies that can deposit carbon into geological reservoirs at rates progressively aligned to those at which carbon is being extracted by fossil fuel producers. Convergence of extraction and deposition rates is a necessary condition for achieving net-zero CO2 emissions while still enabling some essential uses of fossil carbon. We propose an evolutionary approach to policy development, starting as a technology-support mechanism using results-based finance before transitioning into systematic measures under, firstly, Article 6 of the Paris Agreement, and, ultimately, decarbonised fuel standards. Collectively these could incentivise fossil fuel resource holders to manage both outflows and inflows of carbon in the geosphere, and in doing so, create, foster, accelerate and maintain an urgently needed market for geological CO2 storage. Key policy insights Balancing rates of carbon extraction from the geosphere (e.g. fossil fuel production) and rates of carbon deposition in stable geological reservoirs can achieve net-zero emissions alongside efforts to reduce emission flows to the atmosphere. Framing the climate mitigation challenge around carbon stock management on the supply-side of fossil fuel markets offers new ways to enhance climate ambition by mobilizing the financial and technical resources of fossil fuel producers in deploying carbon capture and storage. International cooperation under the Paris Agreement offers a powerful opportunity to establish tradeable units that support establishment of a liquid market in verified carbon storage.

Supply-Side Climate Policy: On the Role of Exploration and Asymmetric Information

In the world economy with interdependent markets for fossil fuel deposits and extracted fossil fuel, a coalition of countries may fight climate change by purchasing fossil fuel deposits for preservation. Harstad (J Polit Econ 120:77–115, 2012) has shown that the coalition’s supply-side climate policy implements the first-best. The present paper focuses on the role exploration and asymmetric information with respect to climate damage plays for the efficiency of unilateral supply-side climate policy. Under the assumption of non-strategic exploration and truthful reporting of climate damage, the deposit policy turns out to be efficient. If exploration is used strategically or the coalition misreports its climate damage, however, the deposit policy becomes inefficient.

Testing supply-side climate policies for the global steam coal market—can they curb coal consumption?

The achieved international consensus on the 1.5–2 °C target entails that most of current fossil fuel reserves must remain unburned. A major contribution has to come from coal as both the most abundant and the most emission-intensive fuel. Currently, a majority of climate policies aiming at reducing coal consumption are directed towards the demand side. In the absence of a global carbon-pricing regime, these policies are prone to carbon leakage and other adverse effects. Supply-side climate policies present an alternative and increasingly discussed approach to reduce the consumption of fossil fuels. In this article, I employ a numerical model of the international steam coal market to examine two supply-side policies that are currently discussed in academic literature and by policy-makers, alike: (1) a production subsidy reform introduced in major coal-producing countries and (2) a globally implemented moratorium on new coal mines. The model simulates global patterns of coal supply, demand, and international trade, with endogenous investment in coal production and transportation capacities. I find that mere production subsidy removal, while associated with a small positive total welfare effect, leads to a minor reduction of global emissions. By contrast, a mine moratorium induces a much more pronounced reduction in global coal consumption by effectively limiting coal availability and strongly increasing prices. Depending on the specification of reserves, the moratorium can induce a coal consumption path consistent with the 1.5–2 °C target.

Cutting with both arms of the scissors: the economic and political case for restrictive supply-side climate policies

Proponents of climate change mitigation face difficult choices about which types of policy instrument(s) to pursue. The literature on the comparative evaluation of climate policy instruments has focused overwhelmingly on economic analyses of instruments aimed at restricting demand for greenhouse gas emissions (especially carbon taxes and cap-and-trade schemes) and, to some extent, on instruments that support the supply of or demand for substitutes for emissions-intensive goods, such as renewable energy. Evaluation of instruments aimed at restricting the upstream supply of commodities or products whose downstream consumption causes greenhouse gas emissions—such as fossil fuels—has largely been neglected in this literature. Moreover, analyses that compare policy instruments using both economic and political (e.g. political “feasibility” and “feedback”) criteria are rare. This article aims to help bridge both of these gaps. Specifically, the article demonstrates that restrictive supply-side policy instruments (targeting fossil fuels) have numerous characteristic economic and political advantages over otherwise similar restrictive demand-side instruments (targeting greenhouse gases). Economic advantages include low administrative and transaction costs, higher abatement certainty (due to the relative ease of monitoring, reporting and verification), comprehensive within-sector coverage, some advantageous price/efficiency effects, the mitigation of infrastructure “lock-in” risks, and mitigation of the “green paradox”. Political advantages include the superior potential to mobilise public support for supply-side policies, the conduciveness of supply-side policies to international policy cooperation, and the potential to bring different segments of the fossil fuel industry into a coalition supportive of such policies. In light of these attributes, restrictive supply-side policies squarely belong in the climate policy “toolkit”.