Question: What are the predicted consequences of legislation for global warming on the industry?
Carbon capping on Oil Exploration Companies:
In recent times there is the possibility of a carbon cap for offshore and onshore oil exploration in the North Sea. The cap is expected to prevent oil exploration from exceeding a certain level of carbon dioxide emissions, which is set to be 469 million tonnes this year. In addition, this year, a number of nations are taking measures to slow down the number of emissions they are producing. Some nations have already begun to reduce their emissions by using alternative fuels such as ethanol.
Impact of CO2 capping on Industries:
For oil industry, this could include changes in work practice and some steps towards new practices to cut carbon emissions. This would have an impact on the budget of the industry. For the industry the implications are important as lower budgets may result in reduced production, which may, in the end, have serious consequences for the world. However, changes in work practice are only the tip of the iceberg.
It may also include changes in operations and technology as companies try to reduce CO2 emissions in oil production.
New Strategy by Oil Companies to ensure their Profit:
The implications for the industry are that companies may need to invest in new technologies to reduce emissions and to make oil more efficient. The implications for the company are that revenues and earnings would be reduced while stocks would be affected, which would eventually hit the bottom line.
The consequences of this small Change is Large:
The changes proposed, although relatively small in magnitude, are significant in their consequences and hence the significance is given to the report on carbon emissions as an indicator of oil demand, last year. There are several other implications for the industry such as carbon caps, taxes, and limits on emissions to prevent global warming from making oil more expensive and therefore less available.
But perhaps the most significant implication is that the future of the industry and indeed the ability of the industry to continue in the future will be determined by the ability of the industry to reduce emissions and limit global warming to below the target of the Kyoto Protocol.
I was a bit surprised by that when I first read it. What is the relevance of 500 parts per million of CO2 in terms of the industry?
Measurement of Carbon emissions due to Oil Production:
The 500ppm figure is the equivalent of burning only about 2 gallons of oil per day. So, it's a rounding error for the industry.
The 500ppm figure of CO2 is the amount of carbon dioxide that can be produced if all the coal burned in a given year. In 2009, burning coal produces 7.5 billion tons of carbon dioxide or about 50,000 gallons per day.
But that figure of 50,000 gallons of oil per day is only the amount of oil used to produce the fuel to run the turbines on the oil drilling rigs. There is more oil used to process the oil, which has to be moved to the refinery, and then more oil used to refine the oil, and so on.
Small emissions have no impact:
But 500ppm of CO2 is a meaningless number as long as the world doesn't burn all the fossil fuels in existence, such as oil and coal. The 500ppm figure does not mean anything unless we burn all the fossil fuels in existence. And that is unlikely.
The 2.5 billion tons of carbon dioxide we emit in a year is only half of the 500ppm figure we must emit to equal the 500ppm of CO2 that the world can absorb.
Expenditure by Industries to reduce emissions:
And that is where a reasonable agreement exists. The oil industry acknowledges that CO2 emissions are a problem. They've agreed that 500ppm is a significant amount and therefore they've agreed that they will spend money trying to offset it.
That's good. That's a good start. It will have an effect, which is good. But it's not good enough. And so, we continue our disagreement on this point.
Balancing natural carbon cycle:
The 500ppm of CO2 we must emit is more than enough to balance the effects of the natural carbon cycles. And the global carbon cycle will dissipate the carbon dioxide so that it can be absorbed by plants, animals, and then people.
The consequence of more Co2 emissions:
But what if we don't offset it? What if we allow the carbon dioxide to build up and build up, and then we unleash it. If we build up enough carbon dioxide in the atmosphere, where does it go? It goes into the oceans, it goes into the caves in the mountains, it goes into clouds, it goes into thunderheads, it goes into hurricanes, it goes into tornados, it goes into flash floods, it goes into drought, it goes into fires. And then what?
If we don't offset the 500ppm of CO2 we must emit, the consequences are almost limitless. It's like if we try to stop a runaway train.
The futility of Agreements:
And so we keep our disagreement. And there will be more disagreements. And then it will be time to make real efforts to fix the problem, and then the agreements will be ignored, and then the agreements will be broken.
Agreement to fix the carbon emissions:
Let's get back to the agreement. The agreement is that we must fix the problem of carbon emissions. It is good that we agree to fix it. But it is not good enough to get the agreement that we are trying to get. The agreement is that the oil industry must help to offset 500ppm of CO2, that the agriculture industry must help by offsetting 30ppm, and the coal industry must help by offsetting 10ppm. And the automotive industry must help by providing a contribution of 0.5ppm, and so on. Now, this might be a valid agreement for a while. However, eventually, when the oil industry is producing 500ppm of CO2 each year, and the coal industry is producing 30ppm each year, and the agriculture industry is producing 10ppm each year, and the automobile industry is producing 0.5ppm each year, and so on, then the impact will be 0ppm, and then the agreement will be broken.
Carbon offset methods:
So we must make greater efforts to offset emissions. That is very important, and the good news is that we can easily make greater efforts, and there are lots of ways to make greater efforts. Of course, carbon offsets are one way to make greater efforts. Carbon offsets can be used for many different purposes. There are carbon offset plants located in many different regions around the world. There are carbon offset trailers that travel around the world, picking up carbon offsets and bringing them into the country. There are carbon offset scholarships that give scholarships to poor people to attend these offset farms, where they work and produce the carbon offsets. There are carbon offset conventions, where they trade the carbon offsets that they produce, to offset the emissions that they have offset. And there are carbon offset auctions, where they bid carbon offsets for sale against emissions that they have offset.
The negative side of Carbon offsets:
Okay, now let's look at the negative side of carbon offsets. Okay, as I mentioned there are many ways to offset emissions, and there are many negative sides to offsets.
Compelling people to balance their emissions:
The first negative side of offsets is that they enable people to offset their own emissions, they are able to offset their own emissions, and thus allow themselves to emit more emissions than they otherwise would be able to emit. That is a very bad thing.
Carbon offsets done by developed countries:
The second negative side of offsets is that they are made by powerful countries that are polluting the air in the developing world and causing it to breathe polluted air. Now, this is a global problem. If the developing world developed, then developing countries would be responsible for the emissions that the advanced countries produce. The developing countries should strive to produce as few emissions as possible, and then purchase credits from the advanced countries to compensate for that. The poor should be able to produce emissions on a level playing field with the wealthy countries. And there should be no economic advantages in producing emissions, and then all countries should be able to offset their emissions the same way. The developed countries should reduce their emissions, as much as possible, and then all countries should be able to offset their offsets the same way. The developed countries should bear their fair share of the responsibility for cleaning up the air that the poor nations produce.
Harm in Carbon credits:
And finally, let me point out the harm in carbon credits. Each time a country offsets its carbon output with a credit from a developed country, the credits become cheaper, because the buyers are getting less credit for that input. Now carbon credits are a bad solution to this problem. And that is why the UN has proposed the carbon market. Carbon credits would be a better solution.
