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.

CURBING DEMAND CURBS SUPPLY
Curbing demand is the best way to cut supply. Investors and banks would stop funding the industry because they would lose money from doing so – not because they thought it bad for the planet. The fossil fuel industry would cut back on production.

On a sectoral basis, energy accounts for three-quarters of the total greenhouse gas emissions. Three big sub-sectors use the bulk of the energy: transport, buildings, and industries such as steel. The other major cause of emissions is agriculture.

Meanwhile, four countries or groups account for half global emissions: China, the United States, India and the European Union, in that order. The U.S. has a particular responsibility to curb consumption of fossil fuels as its emissions per capita are more than double the global average.
The top priorities for action on demand are these four sectors and countries. But global action to curb consumption of fossil fuels is needed across the board.

Many economists favour taxing greenhouse gas emissions – on the “polluter pays” principle. Demand for fossil fuels will fall if they are more expensive – and economies will have a strong incentive to switch to renewable energy.

The EU has the world’s most ambitious carbon pricing scheme. The United Kingdom also had a strong regime, though it recently loosened it, with a result that the UK carbon price is now 40% lower than the EU one.

In total, around 50 countries, including China, tax carbon. The global shipping industry is also promising to do so – while African leaders last week called for a global carbon tax. But in most cases, the prices are low – and there’s precious little chance that the United States will follow suit. The more carbon is taxed, the better.

Regulation is another method for driving down demand for fossil fuels. There are two main options: banning dirty technologies and encouraging clean ones. Many governments need to do more of the latter – for example, by making it easier for companies to build solar and wind farms and then connect them to the grid. It’s not possible to phase down fossil fuels unless alternatives are available.

Subsidising clean technologies is the other main way to stop demand for dirty technologies, as consumers will embrace green alternatives if they are cheap. The U.S. Inflation Reduction Act is the world’s most ambitious scheme. Countries need to do more of this, even though it costs money.

Such measures are cutting fossil fuel use from what it would have been. But it’s too little, too late. Maybe it’s time for climate campaigners to chain themselves to their countries’ parliaments and demand higher carbon taxes.
Source: Reuters (Editing by George Hay and Thomas Shum)