STOP FUNDING FOSSILS: WHY THE FINANCE SECTOR MUST FOLLOW THE WORLD BANK’S LEAD

            Achieving the goals of the Paris Climate Agreement will require action across all sectors of the economy, and the finance sector is clearly fundamental. In fact, one of the Paris Agreement’s three objectives is “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. Recent announcements by some of the world’s largest financial institutions reveal an emerging consensus that all fossil fuel investment and financing risks both climate security and economic value. The finance sector has an important role to play in ending further exploration and the expansion of fossil fuel production.

            Last December, at the One Planet Summit in Paris, the World Bank announced that it would no longer fnance oil and gas extraction after 2019. To date, no other international financial institution has this kind of commitment on its books, but for how long?

            The World Bank’s decision to cease funding oil and gas extraction sets a standard to be matched and bettered. When the World Bank established a policy to restrict coal financing in 2013, dozens of other institutions — public andprivate — followed suit. But the World Bank is not the only government-controlled fnancial institution to shun fossil fuel investment. Norway’s central bank has proposed to the fnance ministry that the country’s trillion-dollar sovereign wealth fund, the Government Pension Fund Global, sell off its oil and gas stocks. City and municipal pension funds across the United States and beyond are already doing this, as is the Republic of Ireland.

            In December 2015, world governments agreed in Paris to limit global average temperature rise to well below 2 degrees Celsius, and to strive to limit it to 1.5 degrees Celsius. In September 2016, Oil Change International released a seminal report, The Sky’s Limit, Why the Paris Climate Goals Require a Managed Decline of Fossil Fuel Production.38 The report analyzed what a Paris-aligned carbon budget would mean for fossil fuel production globally. The key fndings, shown in the graph, include:

      ·         The potential carbon emissions from the oil, gas, andcoal in the world’s currently operating felds and mines would take us beyond 2 degrees Celsius of warming.

     ·         The reserves in currently operating oil and gas feldsalone, even with no coal, would take the world beyond 1.5egrees Celsius of warming.

As such, exploration for and expansion of new reserves areincompatible with the Paris climate goals. Additionally, someproduction will require a managed decline faster than naturaldepletion rates, such that some reserves are not fully extracted.

Given that the fossil fuel reserves delineated in this chart are entirely within oil, gas, and coal mines and felds that are currently producing or under construction (at the time of publication), development of new production is incompatible with Paris-aligned carbon budgets. Despite this, the global oil and gas industry today holds around 311 billion barrels of oil and 1.8 quadrillion cubic feet of gas in projects that are as yet unsanctioned (that is, the operating company has not yet made a fnal investment decision on the project) and still spends over $60 billion annually exploring for more.Sanctioning and combusting all the currently unsanctioned oil and gas reserves would add over 240 billion metric tons of CO₂to the planet’s atmosphere. Any fnance provided to oil and gas companies that enables these reserves to be extracted and burned goes beyond the limits set by the Paris goals. Financing expansion into these reserves, or those acquired through ongoing exploration, is financing climate disaster.

While both developed and undeveloped coal reserves are vast, the pace of production decline is slow, and only a handful of misguided plans to open new mines remain. Projects such as the Carmichael coal mine in Australia (see page 56) struggle to fnd fnancing amid the interrelated pressures of climate policy and market decline. It is the oil and gas sector that is still aggressively pushing for expanding extraction despite clear signals that it is time to stop digging.

With the potential emissions of currently in-production reserves already exceeding our carbon budgets, the carbon intensity of one fossil fuel source compared to another cannot be considered a sufcient criterion for judging whether an investment is compatible with climate action. The expansion of any fossil fuel production fails that climate-compatibility test.

While ending expansion of the fossil fuel sector is critical, it will also be necessary for some existing production to be phased out in a managed decline. Though this will be a challenge for many companies and nations dependent on fossil fuel production and consumption, a carefully managed decline and a just transition for workers and communities is far preferable to an unmanaged decline if necessary action is ignored or delayed. This is why nearly 500 organizations and ofcials from more than 70 countries have signed the Lofoten Declaration calling for a halt to fossil fuel development and a managed decline of existing production.

Climate leadership is being redefned, and the fnance sector has an opportunity to recognize, adapt, and even lead in the transition away from the fossil fuel era. In order to do so, banks must put an urgent end to fnancing fossil fuel expansion of all kinds, and ultimately plan for a decarbonization of their entire portfolios in line with global climate goals.

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