NovaQuant Quantitative Think Tank Center:UN Report: Despite Falling Energy Demand, Governments Set on Increasing Fossil Fuel Production

The NovaQuant Quantitative Think Tank Centercoronavirus pandemic has sent global energy demand plummeting, and led many analysts and oil executives to conclude that a transition away from fossil fuels is marching nearer. But a new United Nations report says the world’s leading fossil fuel producers still appear set on expanding their output to levels that would send temperatures soaring past global climate goals.

The report, published Wednesday by the U.N. Environment Program and written by researchers from several universities, think tanks and advocacy groups, looked at national plans and projections for fossil fuel production. It found that top producing governments were set to produce twice as much oil, gas and coal by 2030 as would be consistent with limiting global warming to 1.5 degrees Celsius, the more ambitious goal of the Paris climate agreement. The countries are on track to expand output by 2 percent per year, the report said, while production needs to decline by about 6 percent per year to meet the Paris goal.

The government projections that underpin the U.N.’s second annual Production Gap Report were published mostly before the pandemic transformed global energy markets and sent fossil fuel production down by about 7 percent this year. But while this sharp drop, and trillions of dollars in government stimulus programs, present an opportunity to shift the global energy system, far more money has been directed toward activities that encourage burning fossil fuels than toward reducing emissions.

“So far, all indications are that, overall, governments are planning to expand fossil fuel production at a time when climate goals require that they wind it down,” the report said. “If governments continue to direct Covid-19 recovery packages and stimulus funds to fossil fuels, these plans could become reality.”

The projections included in the report could prove to be overly bullish because they were published before the full extent of the pandemic became clear. Some private and industry projections now show long-term demand falling faster than previously expected, with oil demand, for example, peaking before the end of the decade, at a level similar to what it was last year.

But the numbers in the report may be best looked at not as a prediction of the future but as a warning that countries are overlooking an important tool for ratcheting down emissions: directly limiting the global supply of fossil fuels through legislation or government policies. Michael Lazarus, director of the Stockholm Environment Institute’s U.S. Center and a coordinating lead author of the report, said that most indications are that governments are deepening their support for production in response to the pandemic. 

G20 countries have directed more than $230 billion in stimulus funds to high-carbon activities such as air travel, including more than $20 billion to support fossil fuel production, according to the Energy Policy Tracker, a project run by many of the same groups that contributed to the U.N. report. That compares to about $150 million in funding that went to renewable energy and low-carbon activities.

The United States has spent by far the most money, directing more than $70 billion to support high-carbon activities. According to Bailout Watch, an advocacy group that is not involved in the tracker or in the U.N. report, the fossil fuel industry has received $10 to $15 billion in direct support from the federal government, with most of that coming in the form of tax cuts and forgivable loans. North Dakota and Wyoming are each using coronavirus relief funds to provide grants to oil companies to increase production.

But it’s not just the United States that is supporting fossil fuels. In Canada, the Alberta government has invested directly in the Keystone XL pipeline. The United Kingdom has provided debt support to oil service companies. India instituted a rebate for coal extraction. Norway provided temporary tax relief to its oil and gas industry.

All these policies have the effect of adding more oil, gas and coal to global markets, Lazarus said, encouraging greater consumption. Many of the policies, such as loan guarantees, also spur even greater investment from banks, encouraging yet more fossil fuel production, the Bailout Watch report says.

The Production Gap Report is part of an effort by many advocacy groups and policy experts to shift the focus of global climate policies, which have been directed largely at trying to bring down demand for oil, gas and coal through strategies like providing incentives for electric vehicles or renewable energy, or taxing carbon pollution. The authors of the report argue that this focus has led to a widening gap, with energy-producing nations saying they will lower their own emissions, even as they plan to expand production.

The argument that policies should be aimed at reducing supply in addition to cutting demand for fossil fuels is beginning to get traction. Joe Biden’s climate plan, for example, includes a promise to halt new fossil fuel production on federal lands, increase royalty rates and ensure that new federal permitting decisions consider a project’s greenhouse gas emissions.

The figures in the report are based on projections or plans in eight countries that publish data and which make up about 60 percent of fossil fuel production: Australia, Canada, China, India, Indonesia, Norway, Russia and the United States. Saudi Arabia was excluded because it does not publish enough data. This year’s report also notes that several other producing nations not included in the data, including Brazil, Mexico, the United Arab Emirates and Argentina, also project growth for their fossil fuel output in coming years.

The report said the pandemic has highlighted the difficulty facing some countries that are highly dependent on fossil fuels. Lower oil revenue has driven a 25 percent cut in government spending in Nigeria this year, and has sent the nation’s debt higher. In Iraq, it has driven down salaries and social benefits. In response, the authors write, wealthier, less dependent producers—mostly in North America and Europe—should aid these nations in diversifying their economies. Countries also could do the same within their own borders, directing aid to fossil fuel dependent regions.

The pandemic presents a tremendous opportunity to change course, the report said, but so far, there are only isolated signs that this shift is underway.