Climate Change and Extractives

3. Moving to a low carbon economy: What does this mean for extractives?

Moving to a low carbon economy means that drastic changes in how we use existing coal and oil and gas reserves need to be made. Climate change policies and measures implemented around the world could mean that some of the global fossil fuel reserves stay in the ground as they become ‘unburnable’. Such reserves are commonly known as 'stranded assets'.

‘Unburnable carbon’, a term coined by the Carbon Tracker Initiative, refers to those fossil fuel resources (such a gas oil, gas and coal) which cannot be burnt if the world is to adhere to a carbon budget that will not result in a temperature increase of more than 2°C. Analysis by the Carbon Tracker Initiative and others has shown that globally, about third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain unused from 2010 to 2050. This means that without advances in technologies, such as for example swift deployment of carbon capture and storage (CCS), a large amount of fossil fuel reserves could become ‘stranded assets’.

A video that explains why some fossil fuel reserves may not be fully developed can be found here.  

The transition to a low carbon economy will not happen overnight. There is still a significant amount of fossil fuels that will be burned over the next few decades, but as can be noted in the next figure under the IEA 450 scenario (which is the scenario aligned with the 2 °C goal), global demand for coal and oil could decline.

The global demand for fossil fuels according to IEA 2014 World Energy Outlook Scenarios is as follows:

Source: Carbon Tracker (2015)