If we're to tackle climate change in any serious way, one thing is certain: We're going to need to leave a lot of fossil fuels in the ground. Even with technologies like carbon capture and storage, we're not going to stay within safe CO2 limits unless we do without some reserves.
The International Energy Agency says known fossil fuel deposits contain the equivalent of 2,860 gigatons of carbon dioxide. To keep global temperatures from rising no more than 2°C—the level set by various international agreements—we can only afford to emit about a third of that, or 1,000 gigatons.
The big oil and gas companies don't even dispute this, at least not in public. Rather, they say government restrictions on drilling aren't likely in the foreseeable future, and that we need fossil fuels anyway. ExxonMobil put it this way in a recent message to investors:
Our Outlook for Energy does not envision the "low carbon scenario" advocated by some because the costs and the damaging impact to accessible, reliable and affordable energy resulting from the policy changes such a scenario would produce are beyond those that societies, especially the world’s poorest and most vulnerable, would be willing to bear, in our estimation.
Similarly, Shell writes:
...changes in regulatory priorities could well be relatively sudden. However, because of the long-lived nature of the infrastructure and many assets in the energy system, any transformation will inevitably take decades. This is in addition to the growth in energy demand that will likely to continue until mid-century, and possibly beyond.
The debate is at cross-purposes. Environmental groups and agencies like the IEA point to what scientists say there are the physical limits for the atmosphere. Oil companies say the science doesn't matter, because we need the stuff anyway and there is no alternative. It's the sort of argument that could go on for years, unless, of course, investors intervene.
Reading the latest analysis from Carbon Tracker, a campaign group, could sway a few fund managers. The report says $1.1 trillion in oil investments in harder-to-reach reserves, such as the Arctic and deepwater offshore, could become cost prohibitive by 2025 without an oil price of at least $95 a barrel, and that some reserves will require prices of $120-$150 per barrel to justify removing them from the ground. Given a 360 gigaton CO2 budget for oil between 2013 and 2050, its says only barrels costing a break-even $60—or $75 on the open market—will be viable. Effectively, that means only conventional oil production, not the more risky projects many majors (particularly publicly-listed companies) are now pursuing.
Alberta, the province in Canada that is the center of the oil sands extraction boom, has the most oil in the $95-plus per barrel range. It accounts for $400 billion of the $1.1 trillion at risk. "The oil sands of Alberta remain the prime candidate for avoiding high cost projects. The isolated nature of the market with uncertainty over export routes and cost inflation brings risk," the report says.
What's changed in the last year or two is that we've gone from saying fossil fuels are damaging to the atmosphere, to saying how much fossil fuel is really too much. The danger is being quantified, and that potentially allows investors to treat the future as something tangible, rather than something distant and imaginary. If governments aren't going to intervene to halt climate change, perhaps the markets will.