Briefing by Greenpeace, the International Institute for Sustainable Development (IISD) and Oil Change International
February 2022
The International Energy Agency’s new Net-Zero Emissions by 2050 scenario, published in May 2021 and incorporated in the World Energy Outlook, sparked wide debate on the future of oil and gas.
It made headlines with the finding that oil and gas in already-producing or under-development fields will be sufficient to meet demand in a world that limits warming to 1.5ºC. There is no need for any new oil or gas fields to be developed after 2021.
This briefing aims to give financial institutions an overview of the new scenario and what it means for corporate, investor and lender capital allocation decisions and engagement, especially in oil and gas.
Until publication of the NZE, the IEA’s previous climate scenario, known as the Sustainable Development Scenario (SDS), was designed to align with the upper limit of the Paris goals: keeping warming well below 2°C. The emissions trajectory of the SDS does not match what is needed to meet the 1.5°C ambition, but the NZE’s does (with a 50% probability of limiting warming to 1.5°C). That is not to say that the NZE is without flaws – like the SDS, it relies on some questionable assumptions (on which more below) – but rather that its ambition is correctly aligned.
Key messages:
- The IEA has published a scenario aligned with 1.5°C for the first time: financial actors should use this scenario as a new minimum standard for guiding decision-making, in place of other less ambitious scenarios.
- Oil and gas production must decline by about 3-4% per year; this leaves no room for new oil or gas fields to be developed after 2021.
- The conclusion about ending new oil and gas field development is not a product of scenario design; it’s the arithmetic of 1.5°C. Limiting emissions at this level requires global oil and gas use to fall 3-4% per year – including in IPCC scenarios – which is roughly equal to the expected decline of production from existing fields.
- The only 1.5°C scenarios that require new oil and gas fields rely on future deployment of carbon dioxide removal (CDR) or carbon capture and storage (CCS) technologies to a greater extent than is plausible.
- If anything, the IEA’s conclusion may be a conservative one. The NZE scenario itself relies on extremely rapid growth in CCS, breaking with current trends. If we are more cautious about the likelihood of very large-scale CCS or CDR, or if we aim for a greater than 50% probability of limiting warming to 1.5°C, some existing fields will have to close early.
- All sectors must rapidly decarbonise.
- Limiting warming to 1.5°C requires a transformation of the energy system, not just incremental emissions reductions. This has implications across investment portfolios, including rapid decarbonisation in power, vehicle manufacture, buildings and heavy industry.
- Conversely, NZE indicates a market exceeding USD 1 trillion per year by 2050 – comparable to today’s global oil market – in wind turbines, solar panels, lithiumion batteries, electrolysers and fuel cells.
- The financial sector can play an essential role in ensuring oil and gas company investments are aligned with the Paris goals.
- The NZE is a vital tool for financial institutions to assess alignment of their portfolios with the Paris goals, and the transition risks they face. We suggest some topics financial actors can ask
investees and borrowers about to judge their alignment. - Financial actors should consider incorporating the issue of new oil and gas licences and development into their public policy work on climate change; and support calls on governments to cease issuing new licences and approvals for extraction projects.
- The NZE is a vital tool for financial institutions to assess alignment of their portfolios with the Paris goals, and the transition risks they face. We suggest some topics financial actors can ask
On July 16, 2021 the Chatham County Board of Commissioners [in Georgia] voted to change the zoning of a portion of the historic Bethesda Academy’s 635-acre tract of rural land to allow for the construction of a gas station. Despite appreciable opposition from neighboring residents, the vote was unanimous. There was no indication that anyone (other than Enmarket and the Bethesda Academy Board of Governors) wants or needs another gas station in this picturesque corner of Chatham County.
There are many reasons to object to the depressingly routine practice of changing zoning for the sole purpose of accommodating a landowner’s speculative attempt to maximize the financial rewards of land ownership – often by proposing unneeded projects. However, I would like to focus on the folly of defacing a treasured landscape with, of all things, a gas station.
In the not-too-distant future, gas stations will become obsolete, and thousands of abandoned stations will blight the country. As hard as it is to imagine the disappearance of this ubiquitous fixture of American life, the writing is on the wall due to the widely anticipated rapid adoption of electric cars.
General Motors recently announced that by 2035 all their vehicle models will be electric. By 2030, VW expects 50% of US sales to be electric vehicles, and Ford says all their cars sold in Europe will be electric. Be ready for more such announcements as car companies scramble for a share of a burgeoning global market for electric vehicles.
Here in Georgia, the Korean automaker, Kia, which produces 340,000 vehicles a year at their Troup County factory, is investing $25 billion to transition their production to electric cars. Encouraged by this development and the in-state presence of several related businesses, Governor Kemp launched a new initiative to boost the expansion of the industry in Georgia.
“Georgia has a proven track record of investing early in the resources and infrastructure needed to connect it to the world and develop jobs of the future,” Kemp said. “The Electric Mobility and Innovation Alliance will ensure that our state is positioned to continue leading the nation in the rapidly growing electric mobility industry.”
Pat Wilson, Commissioner of the State Department of Economic Development, said “We’re probably going to see more change in the next 20 years in the auto industry than we’ve seen in the past 100 years.”
Even before the rise of the electric car, the tightening of fuel efficiency standards and other factors have triggered a downward trend in the total number of gas stations operating in the US since 1994. According to the management consulting firm, Boston Consulting Group, 80% of gas stations could be out of business by 2035.
Converting gas stations to electrical charging stations will not save them since people charge their batteries at home, work, or other places where they typically park. There will be no need to drive somewhere special just to recharge. Pasquale Romano, CEO of the electric car infrastructure company, ChargePoint, Inc., told the Wall Street Journal that gas stations are “an artifact of the fuel choice that we’ve used for the last 100 years.”
Local governments should become aware of these developments and adopt policies to prevent the overbuilding of gas stations within their jurisdictions. Overbuilding retail space, especially gas stations, causes blight. Gas stations are particularly notorious for clustering together on intersections to compete for a share of a dwindling market. The losers in these competitions become eyesores and often leave a toxic legacy from leaking underground storage tanks. This has been an ongoing problem across the US for a long time and will only worsen as gas station closings accelerate.
Nevertheless, the impending disappearance of gas stations is a good thing that must happen for there to be any hope of preventing a catastrophic overheating of the Earth’s climate. The climate crisis is an unprecedented threat that will require government officials at all levels to think aggressively about how to plan for a fossil-fuel-free future.
There are encouraging signs that people are waking up to the fact that we are in a climate emergency and that the only way to avoid catastrophe is to abandon fossil fuels as quickly as possible. Local governments across the country, including Savannah, have pledged to transition to 100% clean energy – not just for buildings but also for transportation.
Given these realities, it’s hard to think of something more wasteful and irresponsible than abrogating an established land use designation to build another gas station.
WHY ARE WE STILL BUILDING GAS SATIONS? On July 16, 2021 the Chatham County Board of Commissioners [in Georgia] voted to change the zoning of a portion of the historic Bethesda Academy’s 635-acre tract of rural land to allow for the construction of a gas station. Despite appreciable opposition from neighboring residents, the vote was unanimous. There was no indication that anyone (other than Enmarket and the Bethesda Academy Board of Governors) wants or needs another gas station in this picturesque corner of Chatham County.
There are many reasons to object to the depressingly routine practice of changing zoning for the sole purpose of accommodating a landowner’s speculative attempt to maximize the financial rewards of land ownership – often by proposing unneeded projects. However, I would like to focus on the folly of defacing a treasured landscape with, of all things, a gas station.
In the not-too-distant future, gas stations will become obsolete, and thousands of abandoned stations will blight the country. As hard as it is to imagine the disappearance of this ubiquitous fixture of American life, the writing is on the wall due to the widely anticipated rapid adoption of electric cars.
General Motors recently announced that by 2035 all their vehicle models will be electric. By 2030, VW expects 50% of US sales to be electric vehicles, and Ford says all their cars sold in Europe will be electric. Be ready for more such announcements as car companies scramble for a share of a burgeoning global market for electric vehicles.
Here in Georgia, the Korean automaker, Kia, which produces 340,000 vehicles a year at their Troup County factory, is investing $25 billion to transition their production to electric cars. Encouraged by this development and the in-state presence of several related businesses, Governor Kemp launched a new initiative to boost the expansion of the industry in Georgia. Pat Wilson, Commissioner of the State Department of Economic Development, said “We’re probably going to see more change in the next 20 years in the auto industry than we’ve seen in the past 100 years.”
Even before the rise of the electric car, the tightening of fuel efficiency standards and other factors have triggered a downward trend in the total number of gas stations operating in the US since 1994. According to the management consulting firm, Boston Consulting Group, 80% of gas stations could be out of business by 2035.
Converting gas stations to electrical charging stations will not save them since people charge their batteries at home, work, or other places where they typically park. There will be no need to drive somewhere special just to recharge. Pasquale Romano, CEO of the electric car infrastructure company, ChargePoint, Inc., told the Wall Street Journal that gas stations are “an artifact of the fuel choice that we’ve used for the last 100 years.”
Local governments should become aware of these developments and adopt policies to prevent the overbuilding of gas stations within their jurisdictions. Overbuilding retail space, especially gas stations, causes blight. Gas stations are particularly notorious for clustering together on intersections to compete for a share of a dwindling market. The losers in these competitions become eyesores and often leave a toxic legacy from leaking underground storage tanks. This has been an ongoing problem across the US for a long time and will only worsen as gas station closings accelerate.
Nevertheless, the impending disappearance of gas stations is a good thing that must happen for there to be any hope of preventing a catastrophic overheating of the Earth’s climate. The climate crisis is an unprecedented threat that will require government officials at all levels to think aggressively about how to plan for a fossil-fuel-free future.
There are encouraging signs that people are waking up to the fact that we are in a climate emergency and that the only way to avoid catastrophe is to abandon fossil fuels as quickly as possible. Local governments across the country, including Savannah, have pledged to transition to 100% clean energy – not just for buildings but also for transportation.
Given these realities, it’s hard to think of something more wasteful and irresponsible than abrogating an established land use designation to build another gas station.