The implications of stringent national decarbonization pathways on global energy trade flows: A multi-scale analysis

Steve Pye, Christophe McGlade, Chris Bataille, Gabrial Anandarajah, Amandine Denis-Ryan and Vladimir Potashnikov

The role of fossils fuels in countries’ economies will change radically over the next 40 years under a strong climate regime. Capturing this changing role through national-based analyses is challenging, however, due to the global nature of fossil fuel demand and resulting trade patterns. This paper sets out the limitations of national-scale decarbonization analyses, which will be the critical basis for implementing the Paris Agreement, in adequately capturing global conditions. It explores how the introduction of a global modelling framework could provide vital insights, particularly for those countries dependent on fossil fuel exports or imports. This matters for governments, which need to develop coherent policy in relation to fossil fuel sectors and their role as drivers of economic growth and in providing for domestic energy needs. The paper shows that under a 2°C objective, fossil fuel use will significantly decline by 2050, although gas will play an important transition role. This leaves large fossil exporters exposed, the extent to which is determined by mitigation action in different regions, and particularly the pathways adopted by the larger Asian economies. We find that global-scale models provide critical insights that complement the more detailed national analyses, often with a less optimistic outlook for these industries. They should therefore play a stronger role in informing deep decarbonization pathways. They also provide an important basis for exploring key uncertainties around technology uptake, mitigation rates, and how this plays out in demand for fossil fuels. However, the use of global models also calls for improved representation of country specifics in such models, which now can overly simplify national economic and political realities. Using both model scales provides important insights that are complementary but which can challenge the other’s orthodoxy. However, neither can replace the other’s strengths.   

Resilient and adaptive long-term decarbonization GHG policy for a major fossil fuel producer – the case of Alberta

Chris Bataille and David Sawyer

Alberta is major producer of both oil products and natural gas. These industries have been a major part of its economy for over 80 years. The Alberta provincial government has recognized the implications of the long-term need to decarbonize the global economy, and has established short-term policy to 2030 to start the transition. This policy package includes energy efficiency programmes, a coal phase-out in electricity, a general carbon tax. Most interestingly from the perspective of supply-side climate policy for large emitters (including oil sands), Alberta is transitioning to a domestically run, intensity-based, output-based allocations cap-and-trade system with a total cap of 100 Mt for oil sands. This paper shows that this policy package, in the event of either high and low oil prices through 2030, protects against jumps in emissions while defining a clear innovation and operating environment and investment trajectory for new facilities, allowing an orderly transition to a lower emissions future. The checks and balances in this policy package won it support from Alberta environmental NGOs and the larger oil sands producers, key to its survival through the political process.

Asian coal at the pivotal point

Mark Fulton

The coal industry expects Asia to be the driver of demand for the next 20 years. Recent data show Chinese demand potentially peaking and imports falling. Meanwhile, India still pursues an expansive coal use and supply strategy. This paper explores the demand dynamics of the power markets for China and India, with particular reference to super-critical coal, which could drive a new phase of coal demand. This is placed in the context of fuel source cost structures and subsidies for coal and incentives for renewable energy. Importantly, the policy and political decision-making processes surrounding the different fuel sources are outlined at what is a critical juncture for power and energy markets. The potential these trends pose for stranded assets in future years is brought out. Finally, implications for key suppliers of fossil fuels to Asian power markets are examined. Policy and financing decisions remain crucial in China and India and need to be appropriately set for a carbon-constrained world, even with technology driving relative costs in the right direction.