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Today's Oil Drilling Fuels Tomorrow's Political And Economic Problems

As Obama opens the Arctic for oil drilling, is he also making it harder for America to wean itself from its dependence on fossil fuels?

Earlier this month, the fossil fuel economy was confronted with two stark reality checks. The first, a scientific study on the effects of fuel combustion, showed that if we burned all the fossil fuels in the world, roughly 10 trillion tons of carbon would be released, causing global temperatures to soar. The Antarctic ice sheet would melt, the study reported, releasing enough water to raise global sea levels by 58 meters. The effects would be felt for millennia.

The same day that the fossil fuel study came out, Goldman Sachs warned that the oil market is “even more oversupplied than we had expected”, and that the oil surplus is likely to continue in 2016.

These two stories broke just days after the Obama administration gave Royal Dutch Shell final approval to drill for oil in the Arctic – a move for which the president faced charges of hypocrisy when, shortly afterward, he visited Alaska to raise awareness of climate change. Obama has justified his decision as a strategy to help reduce the US reliance on oil imports. The US economy still runs on oil and gas, he pointed out, adding that, “as long as that’s the case, I believe we should rely more on domestic production than on foreign imports”.

In an unexpected reversal on Monday, Royal Dutch Shell voluntarily ended almost a decade of exploration in the Alaskan Arctic, saying the amount of fossil fuels found were not worth the cost.

It would be naive to assume that the US, or any country, could stop using oil anytime soon. But as Obama himself suggested, where the oil comes from matters a great deal. Critics of the Obama administration’s decision are correct in their assertion that the Arctic is a particularly dangerous place to drill: the area’s ecosystems are very delicate, and it would be extremely difficult to respond to oil spills there.

But there’s another reason future drilling in the Arctic is a bad idea: the economics are perverse. The truth is, the fossil fuels study released earlier this month was shocking to no one. Researchers have known for many years that we can’t possibly burn all the world’s oil, gas and coal.

Fatih Birol, executive director of the International Energy Agency, warned more than two years ago that to keep global warming below 2C, two-thirds of proven fossil fuel reserves would have to stay in the ground. This warning, combined with Goldman’s assessment of the oil glut, makes it clear that it is far wiser to use the lower-cost oil we are already producing than to waste capital exploring for new, expensive resources.

There’s another reason to stay away from high-cost resources like offshore oil reserves in the Arctic: carbon lock-in. This is the process by which investment in carbon-intensive assets entrenches dependence on fossil fuels, commits economies to higher emissions, and makes emission-reducing policies and practices much harder to enact.

In a report released earlier this year, we showed that carbon lock-in can be measured both by strength and by scale. Scale relates to the extent to which a given fuel is likely to be produced at levels beyond what might be compatible with a low-carbon future. By this measure, coal poses the greatest concern and most urgently needs to be phased down to meet carbon constraints. After coal comes oil. In fact, nearly half of all new offshore oil production expected by 2030 would be unnecessary if we are planning to meet global climate protection goals.

The strength of carbon lock-in measures the degree to which new machinery, infrastructure and even political institutions must be put in place for the development of a new fossil fuel resource. Consequently, strength also measures how hard it will later be to change course when the time comes to abandon the fuel resource. Here, oil wins over other fuels, hands down.

The oil industry is capital-intensive, but has relatively low operating costs, and historically very high profits. This means that, once oil fields are brought online, it’s remarkably difficult to turn them off. This is particularly true for very capital-intensive fields, such as offshore oil. In fact, research suggests that some operators will keep pumping even when prices are so low that they’re incurring a net loss.

Of course, no one sets out to lose money on oil, but with the prospect of more stringent climate policies that could limit future oil field development, producers may be looking to stake out their territory now. That means near-term investment in these resources could be substantial. The risk of carbon lock-in from these investments – not just economic, but political and institutional – is substantial as well.

In other words, not only will these new sources of oil increase carbon emissions in the short term, but, in the longer term, they will make it harder, and more expensive, to scale down oil production to help stabilize the climate. To protect the climate, Obama and other government leaders would do well to discourage further offshore drilling, particularly in the Arctic.

The Guardian
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