Limiting carbon dioxide emissions — the future for oil

CGES | OCTOBER 2009 | SOURCE: Global Oil Insight

On December 7th, UN climate negotiations will begin in Copenhagen under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC). This meeting will be the climax of years of negotiations that have been attempting to find acceptable terms for an international agreement to control global warming by stabilising and then reducing concentrations of greenhouse gases in the atmosphere.

The objective at Copenhagen is to reach a broad international agreement, involving the emerging and developing economies as well as the industrialised ones, which will set out well-defined targets for emissions reductions by 2050.

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A number of strategies have been proposed that will affect the oil industry, while other regional and national policies that are already, or soon to be, in place will regulate GHG emissions regardless of whether an international agreement is reached in December.

Global CO2 emissions from fossil fuel burning in 2007 were 29 bn tonnes of CO2 equivalent (CO2e), according to IEA data, and increased by 20% between 2002 and 2007, the equivalent of just under 1mn tonnes a year of CO2e. In 2007, oil burning accounted for 10.9 bn tonnes (38%) of these emissions, coal for 12.2 bn tonnes (42%) and natural gas for 5.7 bn tonnes (20%).

While the burning of coal, particularly in the power sector, will provide most of the cheapest and easiest options for the first round of carbon reduction, this bi-monthly focus will concentrate on the emissions from the combustion of oil.

In the oil sector, combustion fuels are likely to be hit first and hardest, since they are substitutable by natural gas, which emits around half as much CO2 per unit of energy as oil, and by non-carbon energy sources such as nuclear power and renewables.

Only 6% of global electricity output is now generated by burning oil, equivalent to 4.5-5 mbpd, and all of this demand is vulnerable, either to a switch to natural gas, which would cut annual CO2 missions by 300 mn tonnes a year, or to substitution by nuclear or renewable electricity, which emit no carbon and therefore would cut emissions by 750 mn tonnes a year.

The transport sector relies almost entirely on oil, and the share of this sector in total oil-related emissions is now just over 60%. Emissions from vehicle use have doubled since the early 1970s and the average per capita use has risen from 750 kg to 1000 kg in the last 25 years.

While the market for passenger vehicles may be close to saturation in the mature OECD economies, the potential for expansion in the emerging economies is huge as rising personal incomes boost car ownership.

Limiting transport emissions will therefore be challenging and will require a range of measures such as improving vehicle fuel efficiency, encouraging a switch to hybrid and electric vehicles, and increasing the use of biofuels. The key to future emissions trends in this sector is the US, which in 2007 accounted for 54% of global CO2 emissions from transport.

If a new international agreement on limiting emissions is to be agreed, China, as the largest GHG emitter, will need to be part of it. The most likely outcome is an agreement for China to limit and improve energy intensity (energy use per unit of output) that will in turn reduce carbon intensity (emissions per unit of output).

Energy policies that are now in place, or likely to be embodied in legislation soon, are already putting limits on future oil demand growth. However, a new international agreement on climate change, which would include the richest emerging economies as well as the OECD, will — if successful, and it is a big 'if' — make substantial in-roads into oil demand by 2030 and beyond.

Rising carbon prices will in turn stimulate lowcarbon technologies such as carbon capture and storage and hybrid/electric vehicles, neither of which is expected to make a significant impact for at least another 10 to 15 years.

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