Fossil fuel supply and climate policy: exploring the road less taken

This paper advocates for supply-side policy measures to address climate change. The paper first observes that a broad range of solutions are needed to achieve the deep emissions cuts required to address climate change.  

It suggests that supply-side policies have many benefits as complementary policy measures compared with demand-side policies. First, addressing both supply and demand-side measures together increases the scale of emissions reductions available at a given marginal cost. Supply-side policies will also slow investment in carbon-intensive infrastructure, avoiding further lock-in to fossil fuel dependency. Supply-side policies may increase moral pressure for climate action because such measures are more readily observable and involve more readily identifiable actors when compared with disparate demand-side measures/actors. Supply-side measures can also be economically attractive, for example because they have lower transaction and administrative costs than demand-side measures. Finally, it notes supply-side policies may help avoid the ‘Green Paradox’, whereby resource owners anticipating future carbon policies and high carbon prices accelerate current production.  

The paper canvasses a range of supply-side measures, including direct regulation that sets limits on fossil fuel production. It highlights literature that suggests a global moratorium on new coal mines could induce a pathway of coal consumption consistent with the temperature targets under the Paris Agreement, whilst increasing the rents of owners of current coal resources, providing an incentive for them to support such a policy. Another measure discussed is requiring explicit consideration of climate change in environmental impact assessments of proposed fossil fuel projects. 

The paper supports arguments to restrict fossil fuel projects ‘upstream’ to address climate change. It could be used to challenge the idea that supply-side measures are ineffective or otherwise inappropriate.