Production Gap
The Production Gap report was released on 20 October 2021 outlining that Governments’ fossil fuel production around the world remains out of sync with Paris Agreement limits. Limiting global warming to 1.5 C or less requires reduced production.
“Governments still plan to produce more than double the amount of fossil fuels in 2030 than what would be consistent with limiting global warming to 1.5°C, in stark contrast to increased climate ambitions and net-zero commitments.” - productiongap.org
A presentation was held on 21 October 2021, by the panel of authors and contributors to the report.
“Governments still plan to produce more than double the amount of fossil fuels in 2030 than what would be consistent with limiting global warming to 1.5°C, in stark contrast to increased climate ambitions and net-zero commitments.” - productiongap.org (Photo by Unsplash)
~~~The Plan~~~
A review of different mitigation strategies was completed with all relevant data from national energy regulators and administrators by Peter Erickson of SEI. The review of proposed energy production outlooks showed a distinct difference in countries’ plans and projections compared to their own climate pledges and production benchmarks consistent with limiting warming to 1.5 C or 2.0 C. In general, most nations plan to increase production of fossil fuel resources. While each nation has individual energy agency regulators, the International Energy Agency (IEA) provides a good overview of energy resources on a global scale.
The review of proposed energy production outlooks showed a distinct difference in countries’ plans and projections compared to their own climate pledges and production benchmarks consistent with limiting warming to 1.5 C or 2.0 C. (Photo by Unsplash)
~~~Investment~~~
High levels of investment in fossil fuel production have been seen around the world as part of covid-19 financial support. Although there has been money invested in clean energy, financial support was greater for fossil fuel production.
State-owned coal, oil, and gas companies control approximately half of the global production of fossil fuels, which provides an opportunity and challenge for reform according to researcher Lucile Dufor with the IISD.
An increased number of Multi-level Development Banks (MDB) and Development Finance Institutions (DFI) have begun to adopt policies that exclude future investments in the production of fossil fuels. Approaches like this will be needed in order to tip the scales in closing the production gap.
~~~ Transparency~~~
The report presented an in depth review of 15 of the largest fossil-fuel producing countries: Australia, Brazil, Canada, China, Germany, India, Indonesia, Mexico, Norway, Russia, Saudi Arabia, South Africa, United Arab Emirates, United Kingdom, and United States. Although each country has a different approach to coal, oil, and gas, the chart summarizing the projected changes in national fossil fuel production for 2030 relative to 2019 show a general increase in fuel production overall. Government will play a big role in changes to production gaps around the world. Miquel Munoz Cabre of SEI and his team showcased what is happening in the planning stages of energy production, but transparency is not easy to achieve.
The main challenge with transparency initiatives is they are scattered across various organizations. According to Harro Van Asselt, there is no central database. A central repository of information would make decision making and international cooperation much easier, if audited information was available for policy makers.
~~~What’s Next?~~~
There is a common story told that investment is needed in fossil fuels to transition a developing country into a developed country, sometimes referred to as an “investment gap in low cost energies.”
While this is the approach that many countries took through the industrial revolution, this is not the same path that countries must take now. Fossil fuel based energy rarely gets delivered to serve poor and remote communities, because it is often costly to extend the distribution networks to these areas.
Countries need to align their approaches with future production reductions. By planning for transitions companies can reduce the “Last Man Standing” approach that drives financial markets. (Photo by Unsplash)
The role of central banks could have profound impacts on a timely transition to alternate fuel sources while reducing consumption. Central Banks could require carbon liabilities to be disclosed not only to banks, but to shareholders as well in financial reports.
Policy measures related to reducing consumption (behavioral changes) are not always popular since there are “political costs” associated with reducing demand for particular goods and services like energy. There are numerous other policy mechanisms at the disposal of governments including trade agreements, tariffs, and taxes. While sound of taxes make the ears of business cringe, the sound of subsidies tend to have an alluring jingle to them. Ultimately, we need to take into account the full cost of doing business. Carbon has avoided the balance sheet thus far, but it can not escape forever.
The one thing every business person agrees on, is that a balance sheet must balance. Oil has long been viewed as an asset, but it might just be the greatest liability of all time.
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