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Global carbon budgets and the viability of new fossil fuel projects

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  • Mark Jaccard

    (Simon Fraser University)

  • James Hoffele

    (Simon Fraser University)

  • Torsten Jaccard

    (Simon Fraser University)

Abstract

Policy-makers of some fossil fuel-endowed countries wish to know if a given fossil fuel supply project is consistent with the global carbon budget that would prevent a 2 °C temperature rise. But while some studies have identified fossil fuel reserves that are inconsistent with the 2 °C carbon budget, they have not shown the effect on fossil fuel production costs and market prices. Focusing on oil, we develop an oil pricing and climate test model to which we apply future carbon prices and oil consumption from several global energy-economy-emissions models that simulate the energy supply and demand effects of the 2 °C carbon budget. Our oil price model includes key oil market attributes, notably upper and lower market share boundaries for different oil producer categories, such as OPEC. Using the distribution of the global model results as an indicator of uncertainty about future carbon prices and oil demand, we estimate the probability that a new investment of a given oil source category would be economically viable under the 2 °C carbon budget. In our case study of Canada’s oil sands, we find a less than 5% probability that oil sands investments, and therefore new oil pipelines, would be economically viable over the next three decades under the 2 °C carbon budget. Our sensitivity analysis finds that if OPEC agreed to reduce its market share to 30% by 2045, a significant reduction from its steady 40–45% of the past 25 years, then the probability of viable oil sands expansion rises to 30%.

Suggested Citation

  • Mark Jaccard & James Hoffele & Torsten Jaccard, 2018. "Global carbon budgets and the viability of new fossil fuel projects," Climatic Change, Springer, vol. 150(1), pages 15-28, September.
    • Handle: RePEc:spr:climat:v:150:y:2018:i:1:d:10.1007_s10584-018-2206-2
    DOI: 10.1007/s10584-018-2206-2
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    References listed on IDEAS

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    Cited by:

    1. Kathryn Harrison, 2020. "Political Institutions and Supply-Side Climate Politics: Lessons from Coal Ports in Canada and the United States," Global Environmental Politics, MIT Press, vol. 20(4), pages 51-72, Autumn.
    2. Truzaar Dordi & Olaf Weber, 2019. "The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks," Sustainability, MDPI, vol. 11(11), pages 1-20, June.
    3. Yeltsin Tafur & Eric Lilford & Roberto F. Aguilera, 2022. "Assessing the risk of foreign investment within the petroleum sector of South America," SN Business & Economics, Springer, vol. 2(6), pages 1-32, June.
    4. Garth Day & Creina Day, 2022. "The supply-side climate policy of decreasing fossil fuel tax profiles: can subsidized reserves induce a green paradox?," Climatic Change, Springer, vol. 173(3), pages 1-19, August.

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