Can we equitably manage the end of the fossil fuel era?

The paper considers the challenges of finding an equitable way to end fossil fuels, while also accounting for economic efficiency. It addresses the emerging consensus that those who have benefited most from fossil fuels and who have the greatest capabilities to transition away from them should lead the way in ending fossil fuel extraction, as per the Lofoten Declaration. However, it highlights the trade-off between considerations of equity versus economic efficiency when considering who should produce fossil fuels, given the remaining carbon budget aligned to Paris Agreement goals, which implies that fossil fuel reserves must remain in the ground. It raises questions as to which fossil fuels should be unextracted across developed and developing countries. 

Trade-offs are minimised where equity considerations and cost-efficiency considerations converge – i.e. where inefficient reserves exist in high-income countries. In these cases, the paper argues, a strong equity and economic case can be made to keep those fossil fuels in the ground. An example would be Canadian oil sands that are high cost, and which are located in a high-income country. 

The paper addresses the difficulties with achieving equity when equitable considerations diverge from cost-efficiency. For example, where a least developed country has higher-cost reserves. In such cases, where low-income countries would forego considerable economic benefits from their reserves, proposals have been put forward to compensate those countries for foregone economic benefits. However, the paper observes the lack of buy-in for such proposals, noting they are unlikely to gain traction in future.  

The paper also considers the challenges to adopting the compensatory approach to equity, including difficulties with defining the parameters of the policy, determining the baselines and thresholds for compensation, and reasons why the policy should trigger compensation. It also addresses the ‘Resource Curse’, the phenomenon whereby countries with significant natural resources tend to have less economic growth, problematic governance and poor development outcomes, raising questions as to what compensation is owed if communities may benefit more from reduced fossil fuel production. 

The paper acknowledges the fairness issues that arise with demanding an end to fossil fuel production in developing countries when rich countries continue to refuse to do so. It ultimately reinforces the need for all countries to eventually phase out fossil fuels in accordance with climate goals in the Paris Agreement. It therefore concludes that discussions on stranded assets should not derail progress on this overall objective.  

The paper reinforces the need to phase out fossil fuel extraction, irrespective of where the reserves are. It can therefore be used to challenge an argument that seeks to justify further extraction, particularly where cost-efficiency converges with equity (e.g. inefficient reserves in high income countries).