A new, and more serious, round has begun in the climate fight. Fossil fuel giants are starting to fight each other for the world's dwindling carbon budget.

At stake are trillions of dollars.

As the world's best climate science makes crystal clear, to preserve any safe and sane climate the vast majority of fossil fuels will have to stay in the ground.

The owners of those fossil fuels have now begun fighting over who gets to sell their fossil carbon, and who doesn't.

Every single percentage point of the global 2°C carbon budget that is won or lost is worth 20 billion barrels to Big Oil. At today's prices that is more than a trillion dollars.

Unfortunately for Big Oil, King Coal has been relentlessly grabbing a significant, and ever growing, share of the remaining carbon budget away from them. But now Big Oil is uniting and starting to fight back in earnest.

As the climate crisis grows more pressing, these fossil-vs-fossil battles over the remaining carbon budget will likely intensify.

To give a sense of the emerging fight, I'll first turn to global energy experts for their analysis of King Coal's recent winning form. Then I'll highlight three major body blows that Big Oil has recently landed on King Coal.

King Coal is winning.

In recent years, King Coal has been digging and burning their fossil carbon much faster than Big Oil. As a result, our carbon budget is being spent ever more on coal, leaving less for oil.

The International Energy Agency (IEA) highlights coal's dramatic recent surge in comparison to oil:

"The fossil fuel mix changed significantly in the last 10 years, with coal replacing oil as the largest source of CO2 emissions." — (IEA 2014)[i]

Their data shows that coal has grabbed a six per cent CO2 share away from oil in just the last decade. Six per cent of the remaining 2°C Carbon Budget is ~ 60 billion tonnes of CO2 (GtCO2). Here's what each combatant could do with that:

  • Big Oil could sell another ~ 120 billion barrels of oil, worth $7-trillion at today's prices
  • King Coal could sell another ~ 30 billion tonnes of coal, worth $1- to 2-trillion at today's prices

You might notice a critical fact in those numbers: each tonne of CO2 is far more valuable to Big Oil than to King Coal. Or put another way, society places more value on what oil delivers per tonne of CO2.

The latest International Panel on Climate Change (IPCC) report also highlights King Coal's surge and says that our failure to limit climate pollution has been giving coal the upper hand:

The last decade has seen "increased use of coal relative to other energy sources." Delays in climate mitigation "lead to higher utilization of… coal in particular, in the short run… To compensate… particularly oil and gas would need to be reduced much more strongly in the long run." — (IPCC 2014)[ii]

Big Oil starts fighting back.

On the ropes and facing trillions of dollars in lost prize money, Big Oil has started fighting back. Here's the blow-by-blow commentary on three prime examples:

Exhibit A — API throws coal to the climate wolves

The American Petroleum Institute has represented the US oil and gas industry for nearly a century. Their 2015 energy report is an eye-opening example of how serious Big Oil is getting about throwing coal under the climate bus.

For the first time the API opens their report to many other forms of energy. But they only choose competitors of King Coal.

They lead off with oil, of course. And there is no mention of pesky low-carbon competitors of oil... and no mention of climate change either. Next, however, they hand over most of their annual oil report to the electricity sector. If that seems an odd choice, read on.

The oil industry lines up seven of coal's low-carbon electricity competitors and let each industry tell their own story. Unsurprisingly all seven of coal's competitors talk about climate threats and the need for low-carbon electricity. Even natural gas piles on.

Carbon pollution is mentioned 37 times. "Climate change" gets brought up 13 times. Everyone wants to talk about how great the new EPA carbon regulations are for power plants. Towards the bottom "threatened" coal gets to try to respond.

To give a quick snapshot of this amazing oil-sponsored smackdown of King Coal, here are some money quotes from each of the different energy industries in the order they appear (emphasis added):

  1. NUCLEAR ENERGY brags about being "America’s Leading Low-Carbon Power Source ... potential replacements for coal-fired plants ... prevents carbon emissions and provides clean air compliance."
  2. HYDROPOWER sells itself as "a sustainable resource, which, in an era of concern over climate change and emissions, is an integral part of the solution to address climate issues."
  3. SOLAR industry leads off with: "Few things threaten America’s future prosperity more than climate change." Yes, that line actually appears in the oil industry's energy report.
  4. GEOTHERMAL points to its advantage as a "clean and reliable source of renewable electricity ... to power their economies and combat climate change."
  5. NATURAL GAS spreads the climate love too: "U.S. carbon dioxide (CO2) emissions are near 20-year lows, and a major reason for that progress is... a continued shift to less carbon-intensive fuels, such as natural gas."
  6. WIND industry knows which way the climate winds are blowing: "Wind turbines offer zero emissions... to meet pending EPA regulations on carbon emissions from power plants."
  7. COAL then pleads that it is "vital but threatened." The industry spends most of the time talking about how they can't cut their toxic mercury pollution or their climate pollution enough to meet clean air requirements. Seriously.
  8. BIOMASS follows up, talking about how their industry is "a carbon-mitigation energy resource benefiting rural communities."
  9. ENERGY EFFICIENCY industry closes the deal by highlighting how it "plays a leading role in the fight against climate change."

In summary, the US oil industry's lobbying arm suddenly decides to hand over most of their report to the electricity sector. And they apparently have no problem with "climate change" and "carbon emissions" becoming a major theme in the energy discussion (more than 50 mentions in 50 pages).

Well, at least they don't mind when it's aimed at King Coal.

Exhibit B — BP, Shell and Exxon target coal

The Big Oil super majors are increasingly speaking out about the need to stop burning coal:

  • ExxonMobil is blunt: "The shift away from coal… is expected to be an important contributor to the projected slowdown in global energy-related CO2 emissions." The company advocates: "Strategies should promote… more prominent use of fuels with lower carbon intensity — such as natural gas, nuclear energy and renewable fuels — within the overall energy mix."
  • BP's Energy Outlook 2035 worries that "carbon emissions are rising too fast for comfort." Their potential solutions lead off with: "limit emissions from coal in the power sector".
  • Royal Dutch Shell CEO Ben van Beurden urges companies to shift away from coal to energy sources that have fewer climate emissions.

And all three Big Oil corporations now advocate for a price of carbon as the best way to manage the climate crisis.

  • BP's Energy Outlook 2035, for the second year, calls for a "meaningful global carbon price" as the best way to reduce climate emissions.
  • Royal Dutch Shell CEO Ben van Beurden recently urged the oil industry to support a carbon pricing system to address climate change.
  • ExxonMobil agrees: "It is rare that a business lends its support to new taxes. But in this case, given the risk-management challenges we face and the policy alternatives under consideration, it is our judgment that a carbon tax is a preferred course of public policy action"

Certainly all three Big Oil companies are keenly aware of what carbon pricing will do to King Coal. For example, take a look at what the US Government's Energy Information Agency (EIA) says a carbon price will do:

US coal and oil demand projections under carbon pricing. EIA data.
CHARTS: US EIA projections for future oil and coal consumption with and without carbon pricing. Charts by Barry Saxifrage.

The upper red lines in those two charts are the EIA "reference case" that lacks carbon pricing. The blue lines are what EIA says will happen with a slowly rising price on carbon. Notice anything different between the coal and oil forecasts?

A rising carbon price drives down coal use by a jaw-dropping 75 per cent in a single decade while oil use is barely affected.

That is because, as noted above, oil delivers much more value to society than coal does per tonne of CO2. So putting a price on CO2 and letting the marketplace pick winners and losers will KO coal.

In the high-stakes fisticuffs for the remaining carbon budget, a price on carbon quickly leaves King Coal flat on the mat in the world's second-biggest coal market. In contrast, Big Oil is barely affected in the world's largest oil market.

And that combination is exactly what Big Oil needs to maximize how much of their oil gets out of the ground.

Exhibit C — Canada targets coal to protect oil

The Canadian federal government under Prime Minister Stephen Harper seems to have no problems enacting federal climate regulations that target coal pollution, boasting:

"We’re the only country in the world that’s committed to getting out of the dirty coal electricity generation business."

Can you imagine Stephen Harper talking about getting out of the "dirty oil" business? NFW. (That stands for No Freakin' Way, by the way.)

Instead, when it comes to Big Oil, the Harper government has repeatedly delayed— for seven years and counting — their promised climate regulations on the oil sector. Finally, a few months ago, Prime Minister Harper emphatically insisted that it would be "crazy, crazy" to regulate climate pollution from the oil sector.

In Canada, Big Oil is driving national climate failure with its soaring levels of climate pollution. Yet it continues to be exempted from responsibility for its surging emissions. To make up for it, "dirty" King Coal is getting tossed overboard.

The real "war on coal" is just getting started.

This fossil-vs-fossil fight between King Coal and Big Oil is just getting started. As noted, trillions of dollars are at stake over these small percentage swings. As climate impacts continue to roll in with greater intensity, the risk that most fossil carbon will become worthless grows ever more real. And every day the world's remaining carbon budget gets smaller.

And here's the kicker: even if humanity is reckless and immoral enough to blow past the 2°C roadblock and cook the planet by 3°C or 4°C, there are still huge amounts of known oil, coal and natural gas resources that will have to stay in the ground. Blowing past 2°C doesn't make the fight go away. In fact it radically increases the economic value of each percentage point share of the eventual carbon budget.

The fight is on. Any bets on who ends up flat on the canvas?

Notes and sources

[i] IEA CO2 EMISSIONS FROM FUEL COMBUSTION Highlights (2014 Edition) iea.org publications freepublications publication CO2EmissionsFromFuelCombustionHighlights2014.pdf

[ii] ipcc.ch report ar5 syr (working group 3 pg 445)

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