A Comparison of Options for the US Petroleum Industry in Dealing With Climate Change – Regulations, Carbon Fees, or “Business as Usual”

Abstract

This study examines three options going forward for the US petroleum industry in dealing with climate change prior to 2050, a period in which ~200 nations agreed to limit their CO2 emissions to prevent an increase in global temperatures 2°C (3.6°F) above pre-industrial levels. The options explored are: 1) regulatory controls on emissions, such as the “US Intended Nationally Determined Contributions” pledge from COP21 (US INDC); 2) implementation of a national fee on carbon with fees returned to taxpayers as monthly dividends (CFD); 3) business-as-usual (BAU) but with accompanying decline in global gross domestic production (GDP) due to the negative effects of climate change. The analyses presented herein utilize government reports, professional publications, and publicly available policy studies, such as from Regional Economic Models, Inc. (REMI). Both US INDC and CFD plans reduce CO2 emissions ~80% from 2005 levels by 2050. REMI analysis of a 20 year CFD plan (initial $10/ton CO2 fee with annual increases of $10/ton) indicates US energy producers are incentivized to replace coal-sourced power with natural gas (NG) and renewables by 2030. By 2035, CFD drives 80% of NG power usage to employ carbon capture and storage. Published models indicate increasing temperatures with BAU decrease GDP (~1% GDP/+1°C). EIA reported reductions in carbon emissions due to the Great Recession period (2005-2012) equaled ~4% with a drop in ~1% GDP. Since maximum temperatures are projected to be “only” +2.9°C (5.2°F) by 2050 with BAU, GDP should drop less than 3% and fossil fuel use drop ~15%. This is a fraction of US INDC mandated reductions or those induced by CFD. Obviously, a desire for short-term economic gains favor fossil fuel producers promoting BAU. But even assuming a catastrophic climate tipping point is avoided, other industries (and the general public) will increasingly grow weary of a deteriorating economy on a warming planet. In contrast, a REMI study of CFD indicates most regional economies within the US are improved (0.35% to 0.65% above baseline GDP) by redistribution of carbon fees to taxpayers. So the choice for the petroleum industry appears to be between a slow decline with BAU, which in turn will bring down the rest of the economy (at the very least), or choosing a reasoned path to a low carbon future that preserves the overall economy but with a much transformed or a much diminished role for itself.

AAPG Datapages/Search and Discovery Article #90291 ©2017 AAPG Annual Convention and Exhibition, Houston, Texas, April 2-5, 2017