Carbon budgets and Canada’s share of global reserves

The idea of a global carbon budget is not new, but has been growing in prominence. Carbon Tracker picked up on it in its seminal Unburnable Carbon report, and Bill McKibben amplified that message in his landmark Rolling Stone article, Global Warming’s Terrifying Math, which launched the fossil fuel divestment movement. Then more recently, the Intergovernmental Panel on Climate Change for the first time set out a carbon budget (or a few possible budgets with associated probabilities of staying below 2 degrees C). This carbon budget is, for all intents and purposes, forever – at least until we can figure an efficient way of pulling carbon from the atmosphere besides trees. In personal life and government fiscal planning, budgets are more likely to annual in nature; so a more accurate analogy for climate policy might be a carbon “trust fund”.

My own work has been to consider the implications of this for Canada. In Canada’s Carbon Liabilities and post-IPCC opeds I have considered a plausible range of carbon budgets for Canada. I started with Canada’s share of world population and GDP as anchor points, but another approach would be to look at Canada’s share of global fossil fuel reserves. I recently went back and laid out all of these possible scenarios, including a look at the 2013 BP Statistical Review of World Energy, which has international rankings of proven fossil fuel reserves. There are also broader categories, probable reserves and possible reserves, but BP does not include them; suffice it to say that the negative implication of carbon budgets for proven reserves is even starker if you consider the bigger categories.

Canada has just under half of one percent of world population; 2.5% of world GDP (1.7% if calculated at purchasing power parities); and based on the BP data, about 3.3% of world fossil fuel reserves (by category: 10.4% of oil reserves; 1.1% of gas reserves; and 0.8% of coal reserves). It is worth noting that Canada’s reserve profile overall is heavily weighted to bitumen and coal, which are dirtier sources of energy more likely to be targeted by a carbon-constrained world. But assuming that Canada got its share of reserves the resulting carbon budget would be 30.1 billion tonnes of carbon dioxide (Gt CO2). This is substantially more than what it would get as a share of GDP (23.4 Gt) and population (4.5 Gt), and given the role of historical emissions as a factor in international negotiations there is good reason to believe Canada would come out somewhere in this range. Nonetheless, even at 30 Gt, two-thirds of proven reserves would need to stay in the ground.

That’s all for a global carbon budget of 921 Gt, which would provide a 66% chance of staying below 2 degrees C. A larger budget of 1068 would lower that probability to 50%, which is probably not the wisest choice, but hey, we’re human and that’s how we roll. With the higher global carbon budget, Canada’s estimated carbon budgets are: 5.2 Gt (population); 27.1 (GDP); and 34.9 (proven reserves).

Of course, we could also consider a lower carbon budget that gives us a higher probability of staying below 2 degrees. The IPCC does not give such a number, but based on work by the Potsdam Institute (we drew on this in Canada’s Carbon Liabilities), the carbon budget is about 500 Gt for an 80% chance. Carbon Tracker notes that the IPCC number has some different assumptions, and now puts estimates a global carbon budget of 800 Gt for an 80% chance. And perhaps up to 900 if aggressive action on other non-CO2 greenhouse gases is taken that would give more space for CO2 (note: their budget is from 2012 on; I have deducted emissions for 2012 and 2013, so my numbers are 2014 onward). Based on 800 Gt, Canada’s estimated carbon budgets are: 3.9 Gt (population); 20.3 Gt (GDP); and 26.2 Gt (proven reserves).

This is all essentially an exercise in sensitivity testing. But the basic argument holds for all cases because Canada’s reserves are much larger. Based on the 2013 BP statistical review, converted into CO2 emissions, Canada’s proven reserves are estimated at 96.7 Gt.

Economists, to date, have generally ignored that carbon budget constraint, assuming an unlimited trust fund from which to keep the party going. But overall this poses a good question for economists: how should we go about maximizing utility subject to a budget constraint, in this case a carbon budget constraint. We can burn fossil fuels but only so much so how should we strategically use up that budget?


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