What a win-win on unburnable carbon looks like

Jay Owen Green Prosperity, SRI/ESG News

The recent IPCC report is clear: We need a dramatic change in the design of the global economy to avoid climate catastrophe and we need it now.

The International Energy Agency estimates that to stay within 2 degrees Celsius of atmospheric warming, the global economy will have to avert emitting the carbon from roughly 80 percent of world’s proven reserves of fossil fuels. This is called unburnable carbon. It does not include the carbon from shale oil and gas being extracted through fracking.

John Fullerton, president of the Capital Institute, working with the Carbon Tracker Initiative and other data sources, estimated the approximate value of that unburnable carbon in the neighborhood of $20 trillion. This is an order of magnitude estimate to illustrate the choice: You can have a livable climate or you can have your old economic engine, but you cannot have both.

Many observers believe unburnable carbon is the real obstacle to progress on climate change. To stay within planetary limits with a simple cap on emissions would mean destroying trillions of dollars of the market value of publicly traded and state-owned enterprises woven deeply into the fabric of our retirement systems and global security calculations. They also wield extraordinary power because of their earnings, giving them trillions of reasons to fight.

What if there was another option? What if there was a way to get oil and gas out of combustion and preserve the lion’s share of their asset valuation? There is.

Call it the Feedstock Shift: Instead of burning hydrocarbons, we build with them. Oil and gas contain some of the most sophisticated polymers available in bulk and our society has chosen to burn most of them. With the rest, approximately 18 percent currently, we make plastics, carbon fiber, 3D printing “ink” and advanced fabrics — essential elements of our global economy for which demand only will increase.

However, given the industry’s current business model and its hard-wired market for fuels, natural demographic increase in demand for materials will not be sufficient to attract all the petroleum and gas products we cannot burn to stay within the necessary 1.5 degrees of warming.

To do that, we will need to make a conscious, aggressive shift, not unlike the one Winston Churchill executed when he shifted the Royal Navy from coal to oil: Britain was not at risk of running out of coal; rather, oil offered strategically superior characteristics and important advantages that Britain wanted to exploit. Today the United States and the major economies have a similar strategic opportunity. Executing the Feedstock Shift removes the primary political obstacle to dealing with climate change and minimizes the risk of market shocks, while removing oil and gas as a geopolitical Achilles’ heel for the world’s major economies. For the United States, Europe, Japan, China and India, all facing different combinations of climate and energy security issues, this is only a crisis or two away from being a strategic no-brainer.

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Back here at home, the policy pathway is straightforward. Instead of a cap-and-trade system or the simple, more aggressive carbon tax, a Feedstock Shift policy would make fossil fuels too expensive to burn and very attractive to make things with. The key is introducing a policy that creates sufficient space in the materials sector to allow oil and gas reserves to be valued above the price at which the Middle East blows up and below the price at which fracking makes sense, in effect leaving a strategic material reserve in the ground for future generations. The final policy package likely will include a price on carbon, a price on non-municipal water withdrawals and a price on ecosystem services, especially forests.

Instead of stranding hydrocarbon assets, such a policy will reduce the amount of lumber, cement and steel in the materials sector. Each material is significantly more carbon intensive today than the alternative product produced from hydrocarbons, and structurally inferior. For example, carbon fiber reinforced plastic is now the premier material for high-performance vehicles and engineering applications. BMW’s new i3 passenger module uses no structural steel, has increased strength and dramatically reduced weight — reducing the size of the battery needed to move the car the same distance.

Boeing is using carbon fiber and advanced composites for 50 percent of the structural components of its 777 and 787 airframes. Similarly, plastic and composite wood products are commonly used in both structural and decorative applications for most exterior and many interior uses, exhibiting superior weathering and durability and requiring no special tools. Cement, too, is in line for a transition, as it comprises fully 5 percent of worldwide carbon emissions. Promising new polymer-and-sand composites are under development that offer faster curing times and increased stability without compromising on speed and design flexibility.

This transition will not be bottom-up. Given the global aspects of the oil and gas markets, these policies will need to be synchronized among major economies. But with Europe worried about both Russia’s control of its energy supply and the effects of climate change, with Japan needing to wean itself off imported energy and surrounded by a rising ocean, and China needing to create sustainable economic opportunities for another billion citizens or face a revolution driven by ecosystem collapse — the table is already well set.

The best recommendation for this course of action is that it is already underway. Policy need only accelerate the shift and ensure that it benefits the greatest number while anticipating unintended consequences. To do this will require a smart coalition of economic and political leaders. But really, the question is not how we do this with the technologies already on the shelf — but when. Waiting until we lose another city or two or we head into a second dip of the Great Recession is too late. Nothing will be orderly and much value will be destroyed.

Paul H. Ray