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How oil and gas extraction undermines the climate policies of rich nations

The UK, Norway, the US and Canada like to present themselves as climate leaders, but their strategies around oil and gas tell a different story.

Joe Biden’s virtual climate summit in April 2021 was awash with green rhetoric as the 40 world leaders in attendance jostled to position themselves at the front of the clean energy pack.

“Canada is a committed partner in the global fight against climate change, and together we will build a cleaner and more prosperous future for all,” announced Canadian Prime Minister Justin Trudeau. British Prime Minister Boris Johnson, meanwhile, urged leaders to “get serious” about climate change, and to come to COP26 later in the year “armed with ambitious targets and plans”.

oil-sands-Alberta-Canada
An oil sands mine near the town of Fort McMurray in Alberta, western Canada. (Photo by Mark Ralston/AFP via Getty Images)

“The fact Norway has been invited to this Summit confirms we are in the international forefront as regards our climate policy,” said the country’s leader Erna Solberg, and President Biden proclaimed: “The US isn’t waiting: We are resolving to take action.”

Pledges were made. Trudeau said Canada would reduce emissions by 40–45% below 2005 levels by 2030, trumping an existing 30% target. Biden vowed to double former President Obama’s climate pledge by cutting US emissions by 50–52% of 2005 levels by 2030. The UK government set a new legally binding carbon budget to cut greenhouse gas emissions by 78% by 2030 compared with 1990 levels.

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Norway, meanwhile, has a Nationally Determined Commitment (NDC) to the Paris Agreement to cut emissions by at least 50% and towards 55% below 1990 levels by 2030. The country is a climate leader in many areas, generating 98% of its electricity from renewables (the lion’s share of which comes from hydropower), and recording 54% of new car purchases in 2020 as being electric.

Increasingly, however, there appears to be a blind spot in these countries’ clean energy policies. All four are major producers of oil and gas, and none have a phase-out plan in place that would align with genuine global net-zero ambitions.

“For countries like the UK, there is a fundamental tension between domestic oil and gas policy and their international rhetoric on climate change, which undermines their climate credentials on the world stage,” says Euan Graham, a senior researcher at climate think tank E3G. “If a country with ambitions to be seen as a leader on climate views unabated extraction of fossil fuels as acceptable, that is effectively giving license for international extraction.”

Bård Lahn, a researcher at the Norway-based Centre for International Climate and Environmental Research (CICERO), says the “international climate regime has since the 1990s focused exclusively on territorial emissions, and therefore excluded fossil fuels exported to other countries”.

He adds: “This has no doubt suited oil-producing countries like Norway and allowed them to combine continued oil production with a claim to climate leadership. Over the last ten years, however, it has become increasingly difficult to uphold this distinction.”

Maximising extraction

Data reveals the extent to which these four countries are continuing to maximise oil and gas extraction as they plan for the future. In 2013, the UK, Norway, Canada and the US produced 1.1%, 2.1%, 4.2% and 12.2%, respectively, of the world’s oil, shows data from the US Energy Information Administration. This increased to 1.2%, 2.1%, 5.6% and 19.7% in 2020.

Oil field data from GlobalData shows each country has operating or planned oil fields that are set to continue producing billions of barrels of oil into the 2070s, 80s and 90s. Each country also has more than 150 “discovered” oil fields for which there are no concrete extraction plans as yet, and the full extent of the recoverable reserves within these fields remains unclear.

Extraction policy in the UK revolves around the notion of ‘Maximum Economic Recovery’ (MER), as outlined in the 2015 Infrastructure Act. In practice, this means the UK’s long-term strategy for oil and gas is to continue to seek as much profit from them for as long as possible.

Oil and Gas UK, an industry body, has a strategy called ‘Roadmap 2035’. Backed by the UK government, it calls for the “production of over one million barrels of oil a day in 2035, extending the life of the [North Sea] basin to 2050 and beyond”.

“While the oil and gas industry anticipates a decline in oil and gas production in the UK, if [the MER] approach were taken by every country around the world, the 1.5C° global heating target would be rapidly overshot,” says a December 2020 report from think tank the Institute for Public Policy Research.

The UK government has also maintained generous tax breaks and subsidies to support companies when the oil price falls below the price needed for them to break even. Oil researcher Juan Carlos Boué from the Oxford Institute for Energy Studies says the UK effective tax rate since 1990 has averaged 18%, compared with 31% for Germany, 33% for Denmark, 46% for Norway and 48% for the Netherlands.

Over the period 1990–2017, the UK government collected £181bn in revenues. If the tax rate on extraction had been the same as Norway’s, Boué estimates, it would have been about £437bn.

Across the North Sea, Norway was 15th in the world for oil production and eighth for gas production in 2019, says the International Energy Agency (IEA). Since it was established in 1990, the bulk of oil and gas revenues has been channelled into the country’s sovereign wealth fund. It is now worth more than $1trn, which – split between the country’s five million citizens – equals more than $20m each.

The risks around future oil extraction are such that the fund has now divested from upstream oil and gas activity to make the Norwegian economy less reliant on future oil prices. “There has been a growing conversation about climate risk and stranded assets in Norwegian oil production as well over the last few years, but so far this has not led to any major policy shift,” adds CICERO’s Bård Lahn.

The Norwegian government handed out a record number of exploration licences in 2019, not only in the North Sea but also in the Barents Sea and Arctic Circle. The inauguration of the massive new Johan Sverdrup field in January 2020 was attended by the king and prime minister. State oil company Equinor believes the field will provide 2.7bn barrels of oil during its 50-year lifetime.

As a result of selling its oil and gas, Norway is the world’s seventh-largest exporter of emissions, reports climate NGO Oil Change International (OCI) in a 2017 report. The country exports ten times as much emissions as it produces domestically, and OCI estimated in 2017 that proposed and prospective new oil and gas fields would produce 150% more emissions than currently operating fields.

Lahn adds that, while Prime Minister Solberg has previously said Norway will keep drilling for oil as long as it is profitable, “several political parties in both the major coalition blocs have adopted policies of reducing or halting further exploration. This means the issue of future exploration activity is likely to be among the most contentious in negotiations to form a new government after this year’s parliamentary election”.

Across the Atlantic

The change a new political administration can bring to environmental policy is being witnessed in real time in the US. President Biden is reintroducing curbs on methane leakages in the oil and and industry after Trump relaxed the rules. Methane accounts for about 10% of man-made emissions in the US and is of particular concern given it has a warming power 80 times greater than carbon dioxide over a 20-year period.

Biden has also paused leasing new oil and gas permits on federal lands, to the immense anger of Republicans. This is significant: a 2018 US Geological Survey reported that about one-quarter of national carbon emissions come from fossil fuels extracted from public lands. The move was described as a “critical first step [to] ending this programme once and for all” by senior OCI campaigner Collin Rees.

Nevertheless, the impact of the moratorium is limited. It does nothing to change drilling on private lands, and has no impact on existing operations or the issuing of permits on lands already leased. Oil and gas companies already hold leases for 13.9 million acres that are undeveloped.

Oil and gas production has soared in the US over the past decade as the country has embraced the shale gas revolution. The US is set to export more oil than Russia and will come close to the exports of Saudi Arabia by 2024, predicted the IEA in 2019. The agency also estimates that under stated policies, 85% of the increase in global oil production over the next decade will come from the US.

While the politics around environmental measures are increasingly progressive in the US, this is not the case in Canada. When asked whether the country’s new April 2021 climate target went far enough, Heritage Minister Steven Guilbeault said: “Like it or not, we are a large producer of oil and gas, that is part of our reality. We have to deal with it, we have to address it. We think 45% is as far as we can go.“

The country has no plans to limit oil and gas extraction. An April 2021 report from Canadian research centre the Cascade Institute warned that planned oil and gas production between 2021 and 2050 would exhaust about 16% of the world’s remaining carbon budget, and that the sector will “emit some 200 megatonnes of CO2 equivalent in 2050, the year Canada has committed to achieving net-zero emissions”.

The authors add that the oil and gas lobby maintains a hugely influential role in government policy. In the year since the onset of the Covid-19 pandemic, fossil fuel industries and associations met with government officials a total of 1,224 times, equivalent to 4.5 times per working day.

Climate responsibilities

Wealthy nations defend their oil and gas policies with various arguments. Equinor highlights how Norwegian platforms extract with a much lower carbon impact than in other parts of the world, while all four countries are betting on carbon capture and storage (CCS) technology to allow oil and gas production to remain viable in a low-carbon future.

Emissions from oil extraction remain significant – around 5% of the global total according to a 2018 study – but this pales in comparison to the emissions impact of burning oil and gas. Meanwhile, billions have been pumped into CCS research but the prospect of neutralising significant shares of global oil and gas emissions remains elusive.

“I think CCS has not been successful,” said Francesco Starace, CEO of the Italian utility Enel, in 2017. “It doesn’t work, let’s call it what it is – it is simply too expensive, too cumbersome, the technology didn’t fly.” Three hundred climate and environmental groups, including Friends of the Earth, sent a letter to the US Congress in March 2021 warning that “subsidies for CCS …. could entrench the fossil economy for decades to come”.

To stand a chance of limiting global warming to 1.5°C, the Intergovernmental Panel on Climate Change estimates global oil and gas demand must fall by approximately 60% by 2040. If countries do not align their energy policies to this reality, they either risk stranded assets, or the continued unabated fossil fuel extraction would cause the world to experience the worst effects of climate change.

A further key principle of the 2015 Paris Agreement is that countries have ‘common but differentiated responsibilities’ when it comes to tackling climate change. This means wealthier countries like the UK, Norway, the US and Canada have a greater responsibility to tackle emissions than others.

The evidence suggests we have to embark on a phase-out trajectory, says Lisa Fischer at E3G. “The fact countries that have recognised the importance of the climate challenge are struggling to define a phase-out trajectory for oil and gas production and instead revert to business-as-usual scenarios with a CCS band aid, shows oil and gas industries are deeply entangled in the decision-making of many of these countries.”

Bronwen Tucker, an analyst at OCI, adds that Denmark, France and New Zealand have banned new licences for oil and gas, and are phasing out existing extraction projects, while California, Spain and Ireland are set to follow suit. “There is a growing list of first movers taking action,” she says. “If this is paired with diplomacy and the growing democratic desire to tackle climate change, these early movers can create a new norm towards phase-out.

“Wealthy countries should be moving first and fastest in phasing out fossil fuels, and on top of that, paying their fair share in climate finance for others to pursue a just transition,” says Tucker.

Nick Ferris

Nick Ferris is a data journalist based in London.