An oil rig off Cape Town harbour, June 2018. Photo: Clyde Thomas/Unsplash
- The United Nations’ new ‘Production Gap Report’ was published on October 18.
- The world’s countries appear to be making little effort to actually reduce the production of fossil fuels, irrespective of demand, the report finds.
- The world is on track to producing 110% more fossil fuels in 2030 than would be consistent with the 1.5º C threshold – and the gap only keeps growing.
- Despite the Paris Agreement, international public financial institutions have directed $294 billion since 2016 towards fossil fuels.
Every year since 2009, the UN Environment Programme (UNEP) has been publishing its ‘Emissions Gap’ report, which estimates the difference between countries’ emissions mitigation plans and the emissions trajectory needed to limit the global mean surface temperature rise to the critical thresholds of 1.5º C or 2º C.
Despite years of climate negotiations and pledges made by countries, especially under the Paris Agreement, carbon emissions after a decade of publication of the first report were exactly what it predicted they would be under a business-as-usual scenario – meaning we made little progress.
Further, there was a belief among international policymakers that efforts to reduce emissions had focused exclusively on decreasing the demand for fossil fuels, by improving energy efficiency and innovating renewable power sources, while supply side measures were also necessary but relatively sidelined. In short, we skipped the active measures that we needed to take to actually reduce the production of fossil fuels, irrespective of demand.
To measure our progress to that end, the UNEP, along with the Stockholm Environmental Institute, launched a ‘Production Gap Report’ in 2019 – to measure the gap between projected future fossil-fuel production and the maximum allowable production, to stay within the Paris Agreement’s temperature thresholds. This is the so-called production gap. The third edition of the report was released on Wednesday, October 20, 2021.
The data in the report makes for sobering reading, especially the fact that little has changed since 2019, when the first edition was published. The world is on track to producing 110% more fossil fuels in 2030 than would be consistent with the 1.5º C threshold, and 45% more fossil fuels than would be consistent with the 2º C threshold. More worryingly, the gap actually grows beyond 2030, further departing from the low-carbon pathways the planet demands.
By 2040, the world is set to produce 190% more fossil fuels than would be consistent with 1.5º C of warming and 89% more than would be consistent with 2º C of warming. The report further finds that projected fossil fuel production exceeds countries’ stated climate ambition by 10% (see figure 1).
The fossil fuels
Global coal and oil production must peak in 2020 and decline thereafter to stay within either temperature threshold. Gas is allowed a modest rise under the 2° C-warming pathway until 2030, and must decline after.
However, the report estimates a big increase in global oil and gas production and only a small decline in coal production. By 2030, this trajectory is expected to lead to 240% more coal production, 57% more oil production, and 71% more gas production than is consistent with the 1.5º C limit, and to 120% more coal, 14% more oil, and 15% more gas than is consistent with the 2º C limit (see figure 2).
The report takes a closer look at 15 countries that account for 75% of the world’s fossil-fuel production. The decline in coal production is slated to be led by China and the US – but much of that will be nullified by higher production in India, Russia and Australia.The increase in oil production is expected to be led by Saudi Arabia, the US and Brazil, while the increase in gas production is led by Saudi Arabia, China, Russia and the US (see figure 3).
The pathways consistent with 1.5º C and 2º C of warming – as the report assumes – are based on scenarios that experts of the Intergovernmental Panel on Climate Change analysed – and so necessarily dependent on the assumptions therein. In particular, these scenarios depend on the different extents to which technologies like carbon dioxide removal, afforestation, bio-energy carbon-capture and storage (BECCS), and carbon capture and storage are deployed.
Afforestation and BECCS require large tracts of land. More broadly, the technical, economic and social viability of these technologies hasn’t been proven at scale either. So the Production Gap Report emphasises that its estimates of excess production are highly conservative.
Fuel finance
In 2019, fossil-fuel subsidies totaled around $468 billion (Rs 35 lakh crore). The report also notes that a lot of the post-COVID stimuli of governments around the world have been directed at fossil-fuel producing and consuming activities. (The organisation known as Climate Action Tracker estimated that since January 2020, G20 countries had pumped $297 billion of new public money into such activities.)
Governments have also supported fossil-fuel production through new tax incentives, guarantees, regulatory changes and forms of other financial support, and to the neglect of social, economic and environmental concerns. Such commitments may have long-lasting impact – especially by locking in fossil-fuel-intensive energy systems with long equipment lifetimes, thus exacerbating the climate crisis or resulting in stranded assets if decarbonisation proves successful.
Despite the Paris Agreement, international public financial institutions have directed $294 billion since 2016 towards fossil fuels. From 2017 to 2019, international public finance for fossil fuels from major multilateral development banks and G20 countries averaged$62 billion a year. Oil finance has stayed relatively stable over the 2014-2019 period, while gas finance has grown, receiving more international money than any other source of energy: $16 billion a year from 2017-2019.
Unlikely as it seems, coal provided something of a small silver lining on this count: G20 nations’ and multilateral development banks’ financing of this fuel totaled $14 billion a year from 2014 to 2017, dropping to$8 billion a year in 2018 and 2019. And the Production Gap Report expects international coal finance to continue this decline, given commitments by the G7, China and South Korea to not build or finance overseas coal assets.
Nevertheless, the report demonstrates an unmistakable dissonance between rhetoric and reality. For example, while the International Monetary Fund emphasises the need to diversify away from fossil fuels, its country monitoring reports – the so-called Article IV consultations – promote fossil fuels.
(While the UK has become the first country to exclude all fossil-fuel production from support from its export credit agency, it approved support for a massive gas project in Mozambique shortly before the new policy was announced.)
Finally, what does the report say about India? It notes that ‘Atmanirbhar Bharat’ seeks to “unleash the power of coal” and expand production by nearly 60% between 2019 and 2024. The Indian government plans to achieve this through “a paradigm shift” – maximising revenue from coal to “making maximum coal available in the market at the earliest” by easing land acquisition.
In response to the COVID-19 crisis, the government provided a 50% rebate on coal revenue and $7.1 billion (Rs 53,128 crore) for coal extraction infrastructure, and opened up the sector to foreign investments.
The government also aims to increase oil and gas production by over 40% between 2019 and 2024 through accelerated exploration licensing, faster monetisation of discoveries, and gas-marketing reforms. Estimates of support to oil and gas production in India are as high as $249 million in 2020.
Also read: India Is One of the Last Big Markets for Fossil Fuels – and It Is Cashing In
The report notes that the Government of India has no policy to wind down fossil-fuel production nor any timeline. It also takes note of the fact that the government has no policy to enable a just transition away from fossil fuels – that is, one that protects the well-being of, say, coal-mining communities through state support.
In its recommendations, the report emphasises transparency and reporting, and calls for verifiable and comparable information on fossil-fuel production and support from governments and companies. It recommends that governments disclose their fossil-fuel production plans and set out how these align with climate goals in their submissions under the Paris Agreement.
It also asks that governments require companies to disclose their plans, emissions and climate-related financial risks, and for restrictions on fossil-fuel exploration and extraction. In addition, it recommends phasing out government support and financing for fossil-fuel production, and the provision of local and international support for economic diversification and a just transition.
Only a handful of countries have clearly acknowledged the need to produce less and less fossil fuel to achieve the objectives of the Paris Agreement. None of them are among the top fossil-fuel producers. As such, the goal the report sets for the world is necessarily hard to achieve.
Kapil Subramanian is a climate policy expert. He tweets at @kapilsubramani1.