Global carbon budgets and the viability of new fossil fuel projects

Article

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%.

Keywords

Carbon budget 2 °C Oil sands Oil pipelines Oil price models Energy-economy-emissions models 

Notes

Acknowledgments

We acknowledge helpful comments from Jotham Peters, Nic Rivers, Tiffany Vass, Duncan Noble, Michael Lazarus, Harro van Asselt, and the anonymous reviewers.

Supplementary material

10584_2018_2206_MOESM1_ESM.docx (394 kb)
ESM 1 (DOCX 393 kb)
10584_2018_2206_MOESM2_ESM.xlsx (54 kb)
ESM 2 (XLSX 54 kb)

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Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of Resource and Environmental ManagementSimon Fraser UniversityVancouverCanada

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