Why is it so hard to stop global warming? A political and technical analysis.
David Schimel: Good afternoon, everybody. I'm Dave Schimmel and it's my pleasure to introduce David Victor from the School of Global Policy and Strategy at UC San Diego. David is trained as a political scientist. He's been working in trying to understand the policy, economics and regulatory issues around climate change for many years. I met David first sometime in the 1990s, at an Aspen Global Change Institute. I don't know if this is true for everybody on the call, but I don't remember very many talks that I heard 25 years ago, but I could recite the punchline of David's talk even today. He spoke about his dissertation research on what made for effective treaty instruments and the role of verification, a topic that has really influenced my thinking about the societal side of climate change ever since. We also shared a wonderful afternoon or two,
knee-deep in the Frying Pan River in the Aspen Valley, a place I've gone back to many times since then. I won't take any more of David's time. His title is, "Why is it so Hard to Stop Global Warming?" A question that I think, has been debated on the JPL mall more times than I can remember. David, over to you. David Victor: Well thank you very much, Dave and thank you to JPL for the invitation. It's really terrific to be with you and have a chance to talk about these issues. They don't sit neatly in disciplinary
boxes. So I'm trained as a political scientist. My degree is from MIT and I think one of the things that I got from MIT was a good dose of some neglect and they said, "Work on problems and wander around." So I wandered around and I spent much of my time with people like Ron Pren and Jake Tacoby and folks from other disciplines, working on the climate problem in the early days and so it's really a pleasure to have a chance to look back on that and talk about what it is that we've learned so far. So I'm going to share my screen here. There we go. And one thing. I just want to make sure that you can see the screen. The full size, is that right now? Wing Sze Lui: Yes.
David Victor: Okay, great. Thank you very much. So I want to talk today about four things. First I want to talk a little bit about what we can learn from the pandemic. The pandemic is one of those big economic experiments that we don't want to repeat. But it was so expensive we might as well learn something from it. We learned a lot about emissions from the pandemic. I'm going to talk about what has actually worked, in terms of emission control strategies.
I'm going to take a deep dive into the situation with oil and gas. The oil and gas industry, in terms of the value to society right now, is the most exposed to the regulation of climate initiatives associated with climate change. So how that industry responds is not the whole picture, but it's a bellwether for learning about how different kinds of industries are going to respond over time. Then I want to
talk about what all those needs for climate diplomacy later this year, there's going to be a big meeting on climate change in Glasgow. I'd say there's a high probability it's going to happen. You never quite know what's happening with the pandemic. Already, we're going to have someone next week in fact with the G7 meetings. We're going to have a lot of attention
to climate change. So this is a big year of diplomacy and I'll talk a little bit about what to expect in this year. So first, what can we learn from the pandemic? So this is my paper published almost exactly a year ago, that looks, there's a lot of background noise from a video user. If video user could de-audio that would be great. That looked at what we learned from
previous economic recessions. You'll recall that a year ago, we had just plunged into this extraordinary economic recession, but we didn't quite know what the outcome was going to be. To this day, we don't know whether some of the activities that have moved online, like travel, will stay online, or come off line. So there's a lot of uncertainties. But Ryan
Hanna, Yingling Xu and I, did some work on what we can learn from past recessions and depressions and then coupled it to a climate model, to get a sense of what all this means for emissions concentrations in the atmosphere. So the first intuition to take from this is that when you look in history, you see emissions rise as a general rule with the global economy. That's this steady line right here. Then when you have an economic recession, you have an economic recession like the first oil crisis, you have a temporary drop in emissions and then they go back to a previous trajectory. The trajectories in recovery vary a lot here and there. So the second oil crisis, which really was not just an oil crisis, but was an inflation and agri-economic crisis, induced by shock and agri-economic [inaudible 00:05:34] in particular with the U.S. economy. We had
a big decline in emissions for a couple of years and then a recovery. Then we had the collapse of the Soviet Union and then a recovery. With the financial Asian crisis, very brief and then a massive recovery and then re-carbonization of the Chinese economy. Then we had the 2007/8 crisis here and then we've had a recovery since then.
The recession that we're just coming out of right now and the economy's coming out of, even though the global health recovery is far from achieved, at the time, we thought it was going to be about an 8% decline in emissions. Recovery happened a bit faster and so it's really closer to a 7% decline in emissions, it looks like from last year. Then we have a lot of uncertainties about the kind of recovery that we're seeing, coming out of the pandemic. If you have a green recovery, something that's along the lines of the greenest recoveries that we've seen in history, then you have this smaller line here. If you have a [inaudible 00:06:34] recovery like after the Asian financial crisis and carbonization of the global economy, you have something up here. As well as you know better than I,
it's the area under the curve that matters for climate change. It's not any individual years of emissions. Why do you care about this? You care about this because, the kind of spending going on, is going to have an impact on the shape of the recovery line. It's the shape of the recovery line that to first order, is going to be crucially important for understanding the impact to the year 2050 on global concentrations. From today's vantage point, not from this study done a year ago, we are now rebounding kind of in the middle and frankly, the economic activities that were crushed in the early days of the pandemic, are coming back very, very quickly. Jet fuel consumption, for example, is basically almost at pre-pandemic levels,
by some measures, exceeds pre-pandemic levels. Same for diesel fuel. Gasoline's coming back very quickly. Coal, enormously on and on and on. So the picture overall, based on the pandemic is not an encouraging picture for global emissions. We as everyone knows, we're at 1.2 degrees and warming and we have been accelerating and there's nothing in the post-pandemic recovery to suggest that in fact, the curves have departed from plausible baselines pretty much. One of the ways you can look at this, is look at where the money goes, when governments decide to put together big economic recovery packages. There's a lot of different ways of measuring this. I like this website here,
called energypolicytracker.org, because it's an independent group that's been looking country by country, all around the world at where government spending goes and in particular, distinguishing between whether money is going into green recovery, or whether money is going into fossil fuel-based recovery. So the incumbent industries and so you see India, depending on how you measure, India has a massive economic recovery package. A lot of it actually going into things other than energy, or nuclear energy. That's shown in these bars right here and then a little bit into energy sources. The United States recovery package until the Biden Administration came in, was dominated by in effect, helping incumbent industries just recover. Think about
Paycheck Protection and so on. So we don't tend to think of those as fossil fuel policies, but in fact they are policies that aim to build back the same, as opposed to build back better. So there's a huge amount of talk these days about build back, build back better. But when you look at the data, outside of the Indian recovery package, outside of the Canadian recovery package and outside of the recovery packages in Europe, most recovery packages around the world, have in effect, been just trying to reflate and rebuild the economy and with that, has come significant expenditure on incumbent industries, including fossil fuel industries. You see there's been an uptick in approvals for new coal plants, in a variety
of countries, including in China. We're not yet back to the kind of 2014 levels of coal construction, but we've seen roughly a doubling against the previous trends. In the last year, we could go out and measure numbers of coal plants that have approval for construction and so on. So the global economy is recovering very quickly and I expect emissions are going to do the same. This raises for us some very interesting questions about, when will occur, such as the famous Keeling Curve, when if we started getting serious about the climate change problem, given all the noise in the global carbon cycle and when will the Keeling Curve tell us that we've actually reduced emissions? The Keeling Curve last year, does not know that we were in a global pandemic, that we saw an unprecedented decline in emissions. There's a handful of
papers that have now been looking out into the future, to draw out the question of, how many years would it take before we would be able to detect a departure from the saw-toothed noisy patterns that we see in the Keeling Curve? When will we be able to say definitively, that efforts to control emissions, have definitively departed from previous trajectories. The answer is, 10, 15, maybe 20 years, depending on [inaudible 00:11:05]. If there's less aggressive policy efforts, it's going to be even longer. Why do we mention that? Because, this is fundamental to understanding the politics of the climate change problem. It's a stock problem. It's caused by principally the build of up carbon dioxide in the atmosphere ocean system and that stock is very slow to change. Geophysical properties tell you something about the politics
and the politics are that the benefits, whenever you're dealing with a big stock problem like this, the benefits arise as the stock departs from previous trajectories and in the case of a global stock problem like climate change, the benefits are in the future. They're mainly in other countries around the world and the costs are concentrated in industries who know who they are and are harmed today. So the structure of a problem like this, is almost bound to fail and failure is over determined. A huge part of the last 30 years of diplomacy, have either been a record of failure to recognize that political reality, I would say the [inaudible 00:12:07] protocol among other efforts in that category. And what's new and encouraging frankly, about the Paris Agreement, which I'll talk about at the end of my remarks, what's encouraging about it is, that the Paris Agreement reflects an effort to redo the geometry and redo the politics of climate change to create more upfront benefits, to create smaller groups of countries and firms, that all band together and do things and change facts on the ground and by doing that, alter the politics to move us away from the nasty politics, which in some sense are revealed by the Keeling Curve, high up front costs with benefits that are only far in the future and mainly in other parts of the world. We do need some realism around what is achievable. There's been a handful of studies, more than a handful.
A very large handful of studies done around the question of, what are the kinds of goals that are achievable? I want to just show you results from one of those studies, which is typical of the genre, but is particularly striking. This is a study Robbie Andrew at University of Oslo, puts together on a periodic basis, connected to the Global Carbon Project. A fantastic institution the Global Carbon Project, that shows historical emissions over time, the solid black line and then shows the rate of emissions reductions you would need to have about an even chance of stopping warming at 1.5 degrees. As everybody knows, there's no lock step relationship between the emissions that go into the atmosphere and the temperature, the globally average temperature. It's one of the reasons why globally average temperature is actually a very bad way to measure policy goals, because it's disconnected from the things that the policy makers actually have some control over.
But I'll set that aside and had we started back in the year 2000, a significant departures in emissions, whoops. Significant reductions in emissions. Had we started back then, we would have needed to reduce global emissions on the order of 4% per year, to have an overall build up of carbon dioxide in the atmosphere, consistent with better than even chance of stopping global warming by 1.5 degrees. What's 4% per year? 4% per year is almost the rate the French economy controls its emissions, during the period of the most rapid build out of nuclear power. Of course, the French government was not building nuclear power and replacing oil in its electric power fleet, because it was worried about global warming at the time. It was worried about energy security. But that gives you a sense of what a large economy with a highly motivated and highly capable government, is willing and able to do, in terms of emissions reductions, which is 4% per year. But this of course, would imply 4% per year for all countries on the
entire planet, sustained over multiple decades. It's a little hard to see that that happens, that's why Charlie Canel and I wrote a paper in Nature, about a year or so before the Paris conference thing, we should stop talking about two degrees is a target, because two degrees is not feasible. Of anything I've written in my entire lifetime, I've never received more hate mail than I received for writing that article, because people don't want to believe it, but all of you know instinctively as you know the geophysics and the chemistry of the problem, know how difficult it is to turn the atmosphere ocean system on a dime.
We didn't start in the year 2000. But we waited and waited and waited and waited. So here we are now, we've just had this big drop in emissions, associated with the pandemic and now we're back. So the emission reductions now needed are 10% or more, are effectively astronomical and it is impossible to stop warming at 1.5 degrees from today's vantage point. Pessimism is not the same thing as defeatism. So I think recognizing that we are in for a lot of warming, is crucially important, because among other things, it means that we need to start planning for impacts of the climate change. We need to start helping investors for example, understand
which kinds of assets are exposed to the consequences of climate change, the physical consequences of climate change. I'd be happy to talk more in the Q & A period about that. We've done a huge amount of work around what the financial markets know about these physical impacts, very heavily involved in the current security exchange commission process, that'll change hopefully notes of disclosure related to this. But the overall picture, is one of a lot of warming baked in and the need to grapple with that as a matter of policy.
So I want to talk about, in the rest of my talk though, I want to talk about controlling emissions and what is at stake and how we would actually control emissions and which kind of policy transactions do effective work? So there's been a lot of talk, if you want to back up a second. There's been a lot of talk about the need to use market-based instruments. Carbon taxes [inaudible 00:16:46] example. One of the things that a colleague Danny [inaudible 00:16:51] and I have done for the last couple of years, is gone off and looked empirically at whether those policy instruments in fact are having a big impact on emissions, or whether other kinds of policy instruments are having a bigger impact and should get more attention, from policymakers.
So I want to show you over a couple of slides, the essence of what we've learned, looking at that experience and draw out what that means for, what we should be arguing in favor of for policy instruments going forward. So there has been a huge rise in the use of market-based instruments. Whether it's called cap and trade systems, this is where you put a limit on emissions and then you allow companies to buy and sell the right to pollute under that limit. That's the system that California has at the California Cap and Trade System. That's the system that Europeans have in place. The Emissions Trading Scheme system, ETS. Or you
can put in place a carbon tax. That's a system that Sweden has. That's a system that the UK government had for a while. Many companies now in effect, have internal carbon taxes, where they put a price on emissions. They don't fix the quantity of emissions, but they put a price on emissions and then that creates an incentive to internalize those costs and alter behavior. This slide here, shows on the left, this panel right here, shows on the left, over time, which is the horizontal axis, shows the percentage of global annual emissions, which is the vertical axis, shows the percentage of global annual emissions, coming from places that have a market-based instrument. A cap and trade system, or a carbon tax. What you see is, early on there in 1990s, there were a couple. Poland actually had a tiny carbon tax for a little while. There's
a big increase in 2005, with the creation of the Emissions Trading System in Europe, then the California system came along and so on. If you look at today, the most interesting new systems are emerging in China, with a series of pilot projects being developed in a series of Chinese provinces, that eventually will spread, or so the Chinese government claims will eventually spread across the entire Chinese economy. Today, about 25% of global emissions come from places that have a carbon tax or a cap and trade system. But in that correlation have led a lot of people to the conclusion
that as the world gets more serious about doing something about climate change, which is seriousness has increased over time, that we have also relied more heavily on market-based instruments. A lot of people are thrilled about that, because they take that correlation as evidence that we are relying wherever possible on market forces to identify which technology should be adopted? How to cut emissions and so on. There are a lot of benefits of using market-based systems. They're flexible in principle. They lower costs and so on. So that's the starting point for this study that Danny and I did. We released it in the U.S. late last year in a book from Polity Press. As everyone knows, correlation is not causation.
You can begin to see the problems of that argument, when you look at the right hand panel here. The right hand panel shows the same data set. This is an amazing data set the World Bank organizes. Then anyone who's interested in emissions trading and carbon tax systems, should come to this study that comes out every year. The next one's going to come out at any moment now, which is a carbon pricing trend study, that the bank releases and the horizontal axis here, is the percentage of global emissions and the vertical axis is the price level. So 85% of global emissions are coming from places that some of them have cap and trade systems or carbon tax systems in place, but because of the way they're designed, price level is effectively zero. Some places have carbon tax or cap and
trade systems with price levels on the order of $10 or less. The Northeastern states of the United States are an example of that. There's a scheme up there called RGGI and several states are in the process of trying to change RGGI and basically there's a huge amount of political pushback against that, Connecticut in particular. It's a major item that everybody in Connecticut, or almost everybody in Connecticut is talking about, when they're not talking about the pandemic. Then we have systems that have price levels on the order of $10 to $20 a ton. California for example,
$18 a ton is our cap and trade system right now. This is the European Emissions Trading Scheme right here, which is now trading at about $50 a ton. Then you have a tiny number of systems, a tiny fraction of global emissions, where the price levels are very high, above $50 a ton. Let me put some of these numbers into perspective. $10, $20 a ton is what we sometimes see equivalent in the oil markets, over a week of volatility. It's what's called the social cost of carbon, which is the overall cost to society of emitting one ton of carbon, where you go off and you measure all the possible impacts, everywhere in the world of that ton of carbon, as you calibrate through the climate system and discount them back to the present day and you say, "How much does that cost society overall?" Today it's about $50 a ton. There's a whole series of studies about to be published. Some
of them are starting to come out partially, that suggest the social cost of carbon might be much higher, like $100 to $150 a ton. Almost no place in the world is charging to its cap and trade system, or its tax system, prices at that level. That's the core problem that we need to grapple with here, which is that we've gotten very good at using these policy instruments, but not very good at designing them in such a way, that they actually cause the emissions reductions that are consistent with the costs of that pollution and that's the puzzle that Danny and I work on through the book. The key point is not that governments aren't doing anything. In fact, a lot of governments are doing a huge amount. What they're doing though, is
not using these market instruments. They've all learned the logic of the market instruments, but everything that we as economists who design these instruments like, the flexibility, the [inaudible 00:23:10] across different sectors and so on, those kinds of attributes are horrifying to politicians, who are in the business of getting elected and staying in office. That requires the capacity to figure out and manage actively, who pays the cost of different kinds of policy instruments? So policy instruments that are designed for flexibility and [inaudible 00:23:30], are actually politically huge liabilities. That's the core insight that's come out of this work and the reason the insight matters is, because almost all the advice that expert policy analysts have been giving governments, has been whenever possible, use a market-based instrument. When you go look at the data, which we've now done for the first time systematically all around the world in this book, when you go look at the data, the data show you that if you follow that advice, you're going to end up with policies that systematically under deliver, because they're political liabilities. It's not the case that places aren't doing anything though. So let me just show you in one slide.
I think this is the last slide that I have for this part of the talk. It's not the case that, I'll show you the one slide that shows what's happening in California. There's a little thumbnail sketch down here of this book that we just had come out called, "Making Climate Policy Work" in Polity Press. So I'm going to use the example of California and in California, we have a cap and trade system, as I mentioned earlier, where prices are bouncing around between $10 and $18 a ton. Now roughly $18 a ton and stable, because there's a regulation in place that sets that at the floor level. What's called removable portfolio standard,
which is the policies in California that require the use of renewable electricity. Solar and wind principally, a bit of geothermal. They cost the economy about $60 to $70 per ton. Our low carbon fuel standard, which is the principal strategy by which California controls emissions in the transportation sector, is operating at just about $200 a ton. There's a variety of other policies in what's called scoping plan and then there are even more policies where the money that comes from the California cap and trade system, when the permits are auctioned off, that generates a lot of money and some of that money gets spent on climate projects. Some of those climate projects have a cost of more than $10,000 a ton, on average about $500 a ton. So what's my point here? My point here is that California
is an emblematic example, of a real political jurisdiction, with policy leaders, who are under pressure to do something about climate change, who are using a market-based instrument. But when you look behind the curtain, behind the fa ade, at what's doing the work, it's almost all regulatory instruments. It's not because California's policymakers are stupid, or they were asleep during Economics 101 and they didn't learn how to use market-based instruments and the beauty of using the market, it's because they were wide awake in Economics 101 and they were horrified by what they saw, because everything that we love about these flexible market-based instruments, makes their job as politicians harder, because their job as politicians is to manage the incidents of cost and benefits, across different groups, according to what they're willing and able to pay and frankly, what they're willing to bear politically. So this is a very important
set of insights and the reason I wanted to include those in the talk today, is because as the world gets more serious about climate policy, it's going to be paying a lot of attention to which instruments really work and almost everything you hear about the kind of accepted wisdom on the policy instruments that work best, is going to be market-oriented and almost all the data suggests that that's wrong. So I want to talk for a little bit about what all this means for technological change. The reason we have to pay attention to technological change, is because the ultimate solutions to the climate problem are going to be technological in nature. They are going to be technologies that allow us to continue to prosper economically, while decoupling that economic prosperity from emissions. Strategies that involve using less, traveling less, hardship and so on,
those strategies are interesting to some people. They are almost guaranteed to fail politically. So if we're going to put together and hold together a political coalition that's in favor of deep de-carbonization, not 10, 20% cuts in emissions, like we've seen in the United States since 2005, but deep cuts in emissions. 80%, 100% cuts of emissions. That's going to be expensive and people are going to need to see those costs minimized and they're going to need to see wherever possible that's not harming a near term economic welfare. That means technology. Technological change that allows activities to continue, but decouples them from emissions. When we study the history of technology, which is an area where I do a lot of work, we see some common patterns and so I want to draw out a couple of patterns that you should look for, when people start talking about technological change, because these patterns, when you start looking for them, you're going to see them everywhere and they're going to tell you a lot about how quickly the technologies can change. So
let me talk about one episode in history to just illustrate the patterns that we tend to see. This is the replacement of horses by automobiles, on American roads. [inaudible 00:28:30], in the late 1980s on this question and so here we have the number of vehicles in the vertical axis, over time, which is the horizontal axis and the red are horses, whoops. I'm not sure why it keeps doing that and the red are horses and the blue are automobiles. So here you have replacements, one technology for another, within a roughly common road infrastructure. They had different fueling infrastructure of course, horses don't eat gasoline and cars don't eat hay, but they had a common road infrastructure, which meant that the diffusion from horses to cars, could be faster. Those of you who have spent time in Boston know that it not only was a common road infrastructure, it was identical road infrastructure. It feels like nothing has changed since 1900 in the quality of Boston and straightness of Boston roads. So the horses get out-competed by cars, which are offering
mobility at ultimately lower cost and initially higher cost, lower cost and greater performance. A greater speed, flexibility and so on. Standard measures of performance. The total number of vehicles continues to rise, on the logarithm as the horses are replaced from the roads and put on [inaudible 00:29:43] and the cars rise and then ultimately take over the market place. So we see this a lot, where the total growth in the service, remains constant and where a single technology is replaced and then you can look at the time rises over here and get an intuition about how quickly, using a common infrastructure, how quickly one technology can replace another, which is only about 20 or 30 years if were going from 10% to 90% completion. We see this all over the place and typically, we measure this with S-shaped curves, where early on you have a technology that's occupying a small niche and getting better in that niche and improving daily market share, coming down in cost and improving in performance. Then as it breaks out of that niche, it engages in widespread diffusion and then eventually, as it becomes pervasive across an economy, it rewrites the rules, such that the old technologies can no longer come back. This is a process that's both technological, it depends on the
performance of the technologies. It's a process that's regulatory in nature, it depends on the nature of the regulations that are in place and so on, where regulations initially block new technologies from entering into the market place. Take for example some of the [inaudible 00:31:00] rules that people have tried to use against new technologies. The example of the automobiles I mentioned earlier, famously in Britain, when automobiles were first introduced, the horse lobby was not very happy about that, so the horse lobby organized to require anybody who had an automobile, to have somebody walking in front of the automobile with a flag. Thus making sure that no horse could possibly be scared by the automobile. They might have been scared by the flag I suppose, but guaranteed
through a regulatory measure, that the automobiles could not do what automobiles were going to be best at doing, which is to drive quickly. So those are lock out, early stage regulations that then over time, as the automobiles gain power politically, they then rewrite the politics. So you've got, whenever you see these big technological changes, you see it as a combination of technology performance change, administrative and regulatory change and political change.
That's the key to understanding what's about to happen in climate change, is that as the new technologies take over market share and they start to diffuse into service, they're also going to get more powerful politically and they're going to rewrite the rules of the road, if you like and thus change the politics and make the politics easier. So from today's vantage point, a lot of the politics of climate change looks hard, precisely because the performance of the technologies that one needs, isn't great enough yet and the political power of those new industries is not great enough yet. So that's the intuition behind people starting to talk about climate change as a technological problem and one where we have to think about, how are our technologies doing and the key sectors that cause emissions in the economy? This study here, which I'm showing on this chart, which is a big study that we released at COP25 in Madrid, just before the pandemic became widespread and it's informed a lot of the thinking in the UK government, as they host the next climate change conference. This study went off and looked at all 10 of the major emitting factors in the global economy today. Asked the question of, where are the technologies along this S-shaped curve? Are they early stage niches? Think for example, cement. We know five or six different ways
of making cement, or cement replacement, that don't have very many emissions, but none of them are ready for prime time. They're somewhere between lab and early stage demo projects, there's been 30 or 40 start ups with green cement. Most of them have been stop ups. They start, they die financially and then they don't go anywhere. One or two of them will succeed. Nobody knows which ones they'll be. So cement is an example of an early stage, or steel, or aviation, when we're talking about advanced sustainable fuels, or hydrogen powered aircraft, a topic I've done a lot of work on. The second that's furthest along is electric power sector. That's thanks mainly to wind and solar. A little bit batteries and integration for grids and so on. This
is encouraging news, because almost every energy model that looks at how are we going to make de-carbonization a reality, comes to conclusion that you should electrify as much as possible and then decarbonize the electric power sector. So we've had some significant advances in electrifying as much as possible, light duty vehicles for example. Light duty trucks to some degree. Some services in homes and buildings and then we've made a lot of progress in some parts of the world in decarbonizing the electric power sector. A lot of projects though means we're at kind of 20% along the curve, as opposed to 100% along the curve. Almost no place in the world right now, has been able to demonstrate a fully decarbonized electric power system, for reasons of concerns of climate change, there are few places, think for example, a bazillion power market where hydro-electricity dominates, where they happen fortuitously to be low carbon. You look at the picture
globally, we're maybe 20 or 30% along the way. Why do you care about this? You care about this because this tells you that if you want to make really serious progress on the climate change problem, we can't think about this as a global general problem. We have to think about it sector by sector.
We have to build a coalition that changes the facts on the ground and thus over time, changes the politics on the ground around each of these sectors. We're doing pretty well in the case of power and light duty vehicles. Not so well in most of the other sectors of the economy. You're going to see a lot of attention to this way of thinking, of course in the next year. Just in the last few days, we saw a new set of announcements around an organization called Emission Innovation, which is designed to put a lot more money into early stage research and development and it's being organized in exactly this way. Stop thinking
about this as a global problem, which is true of the geophysics of climate. You've got to think about this as a sector by sector technological revolution problem. You've got to create different kinds of revolutions in each sector. Ryan Hanna and I have an article in today's Nature Energy. It was released a few hours ago, that has a little more detail
on this way of thinking and some empirical information about where we are exactly, sector by sector. I want to talk briefly about what all this means for the industry, that it's going to be most affected, which is the oil and gas industry, not because everything is oil and gas. If we were in Houston, everything would be about gas. But we're not in Houston. But because it's a window into what to expect and how to develop a spidey fence for what's serious and what's not serious when it comes to the climate change policy and strategy. So the first thing that's interesting about oil and gas, is that business financially, is dominated by oil production. If you really take the climate change problem seriously, the conventional oil industry gets crushed. That's the technical term for it. Just completely crushed. So I want to illustrate that with one slide that came out of a study that was
released about 10 days ago, by the International Energy Agency in Paris, they asked a question, "If we had net zero emissions globally by 2050, what would need to happen in order to get to net zero?" Net zero's an interesting concept, because zero is a small number and because so many governments and so many firms have announced a net zero target, such that about 70% of global emissions today, come from jurisdictions that have net zero by mid-century targets. Most of them are 2050, China is 2060. But that is a huge departure from where we were in the past. So the International Energy Agency said, "Okay, what does that mean for different industries? What does that means for different countries? What does it mean for investment patterns? And so on. I wanted to show you one conclusion from this study, which is shown in the left panel right here and this shows you what happens in a world of net zero emissions by 2050? What happens to the production of oil? So today, we're almost 100 million barrels a day of oil. Those of you who follow this industry closely, will see that the IEA data are about 92, 93 million barrels a day. That's because what counts as oil, is actually highly contested and so there are different liquids and other data sets to suggest that we're now closer to 100 million barrels a day. Let's just call it 100. You go from being 100 today, to being
20 roughly in the year 2050. So a four to five fold crush in reduction, in consumption and what's left over here. The oil's being consumed here, almost none of it goes into today's dominant world [inaudible 00:38:40]. Refining into diesel and then jet and gasoline and so on. It almost all goes to the plastics and other forms of petrol chemicals, because there's just no substitute for oil right now. We've been working on that. So that's a question. The other part of this
that's even more devastating for Western oil companies, is that the share of oil production dominated by OPEC, which is currently about one third of global production comes from OPEC, doubles, almost doubles to more than half. That's because the OPEC countries led by Saudi Arabia, but Abu Dhabi is similar, Kuwait's similar, Iran's kind of a train wreck. So we'll just set Iran aside for a moment. The OPEC countries have very low lifting costs and very low risks for taking existing fields, expanding them and increasing [inaudible 00:39:26]. So what happens in effect is that total wealth consumption craters and then what's left over, is dominated by the lowest cost producers in the world, who are systematically the countries that are endowed with vast easy to tap oil resources and that those are exactly the countries and markets where the Western oil companies had essentially no role to play. So the Western oil industry gets destroyed. That's one interesting implication of this. The other interesting
implication of this, is what happens to natural gas? Until and this is from the paper that came out, that I wrote, that came out connected to this initiative that Engine No. 1's organized. Exxon was very much in the news last week. So until two years ago, almost all mainstream projections for consumption of tetrahydric carbons, they said, "Hey, oil consumption might go down a little bit. Coal consumption's probably going to go down a lot in the future, but gas is robust. The future is bright for
gas. Gas is a transition fuel." That's because gas has a very high power density. It's clean, compared to other fossil fuels. Half the emissions bring energy, compared with coal, for example and extremely easy to store, when it's used in electric power systems. So if you think the world is going to become more dependent on electricity, you would think that the world would also become a lot more dependent on natural gas, because natural gas is so flexible, the power generator and it can help integrate renewables in the power grid and so on. So that's the logic that people used. That logic is starting to fray. That to me, is what is most interesting and if I were in management of a big oil and gas company, or a gas and oil company, that's what I would be most concerned about. So these colored
lines are projections into the future, from different groups, like the IEA in Paris. This is BP. It used to be British Petroleum, now it's just BP. For a while, it was Beyond Petroleum and then it was Burn Petroleum and now it's just BP. Here's Shell, which does some scenarios. Here's Exxon's projections here. I'll just focus on the IEA projections. So here is typical. Here are the projections done five or six years ago, where even their
lowest projection still saw an increase in natural gas consumption over time. If you look at the IEA projections that start from today, you start to see projections that have a reduction in natural gas consumption and net zero by 2050 CD rater reduction in natural gas consumption at the time. This is the key strategic challenge. If I had to identify one issue that is the single most important unknown about the future of the energy system, what are we going to do about natural gas? Will we use more of it, or the same amounts, because we're going to be moving to a lot of electricity and need it to help integrate renewables? Or are we going to be in effect cratering natural gas, not quite as quickly as oil, not quite as quickly as coal, but cratering natural gas. Nobody really knows at this stage. Finishing exercise to ask yourself, which companies
are getting ready for this change in the future? So this chart here shows you one way to think through that question, which is to show in the vertical axis here, the targets that companies have set for themselves. So some companies have gone off and set targets that cover all the emissions of their own operations, called Scope 1. All the emissions associated with energy of services they buy. For example, you buy electricity or other forms of energy services when you're doing a frack job and a horizontal drill and fracturing operation. So that's called Scope 2 emissions. Then Scope 3, is the gorilla in the room, which is the emissions caused by the way your product gets used and in oil for example, typically 85-90% of the total emissions associated with burning oil, are Scope 3 emissions. So companies can do all they want to make oil production as green as possible, but 85-90% of the total emissions are still going to come from the fact that the oil is burnt.
So the vertical axis is showing that the target's being set. Other firms have set either no target, or they've lonely set intensity targets for their Scope 1 emissions, or trying to green up their inside the fence line operations, but then said nothing basically about what's happening to the way their product is used. Then the horizontal axis here shows whether companies are doing the single greatest indicator that a company is taking a problem seriously, is they alter their capital expenditure budget. So on the right hand side here, we have large
shifts relatively speaking, nobody's made massive shifts yet. Large shifts in capital budgets, or small shifts in capital budgets shown on the left hand side here. To me what's interesting is the Western industry is bifurcated right now. You've got all these firms up here, wraps all the Spanish firm, even the E&I the Italian firm and so on. You've got all these firms up here, that have aggressive targets. They don't have a clue how they're going to actually meet their targets, but their aggressive targets and they're starting to move capital into decarbonized industries. Then you have these firms down here. Which
are modest targets and basically not shifting the capital budget. These firms are big Europe, where they're under existential pressure to do something, lest they disappear and lose license to operate. These firms are based in the United States. They have a different set of political pressures, at least until last week and what you're going to see, is these firms in different ways move, to the upper right hand quadrant. Last thing I want to say and then I'm going to stop is, what does all this mean for climate diplomacy? I've already suggested a little bit. One of these I've suggested along the way, is that your measure of whether COP26 later this year is a success, should not just be whether everybody leaves with some kind of grand global agreement and countries have updated their pledges for what they're going to do to control their emissions at home, so called nationally determined contributions.
They'll do that. That'll be in the news. Your measure for success for COP26, should be whether there are concrete plans and major emitting factors, who are causing and sustaining these technological revolutions we need [inaudible 00:45:30]. That's what the UK government's trying to push really hard and it's exactly the right strategy and there are some signs, some early signs of success in that regard. What I want to talk about with regard to COP26 is the basic math of the climate problem. First this is the U.S. pledge, which was announced at the end of last month, to 52% reduction in emissions below the 2005 level. I don't think anybody really knows how you're going to make
that goal. The rest of the world is so thrilled the United States is back, people aren't paying close attention to that question. But where I want to close is on the question of leadership. So a lot of places in the world are claiming they're leaders on climate change. Here in California, we claim we're a leader on climate change. So what I did in this chart here, is went back to the year 1990, when diplomacy on climate change began. So we're now past
the 30 year mark and asked myself, where do emissions come from? Normally, when you see a pie chart with emissions, you have the names of countries associated with different slices of the pie. So I'm going to show you something different, which is I want to show you not the names of countries, but I want to show you the interests. So here, we have the emissions that come from countries, or portions of countries, that would turn out to be reliable leaders on climate change policy. Think Europe, think the coast
of the United States, think most of the coast of Canada, think Costa Rica, think New Zealand, think Japan and so on. That's the picture for the reliable leaders. The blockers at the time are going to be a fifth of global emissions. Think Russia, think Saudi Arabia, think Kuwait and so on.
Had we gotten serious about the climate change problem in 1990, a third is not everything, but a third would have been a big down payment. But we really didn't do very much. In the middle here, we have the picture in the year 2005. So the global economy especially the Western nations expanded rapidly. We didn't do very much about controlling emissions and so the reliable leaders' share of the total didn't change very much. Here's the picture
today, essentially today, [inaudible 00:47:36]. Which is the fraction of global emissions has shrunk, coming from the leaders. Where the blockers remain the same. That's the core strategic problem in climate change and the deep irony around the climate problem. Which is, the more that the leaders do, the more that Europe does, the more that California does, to address the climate problem, the less relevant you become to the problem, because your emissions go down, while the emissions of the rest of the world go up. So leadership has a role to play, but only if leadership generates followership. Not I think because it lessens than lost a lot [inaudible 00:48:13] politics of climate change and so leaders often have meetings with other leaders and they tell everybody how thrilled they are that they're leaders, but it's actually convincing the followers. Driving down the cost of technology
so that technologies are easier to adopt in the rest of the world. If that's what leaders end up doing, then leadership will generate followership. We in California probably need to do a little more thinking along these lines, as the U.S. government regains the mantle of leadership around climate change and as Europe continues to hold the reliable global leader position on climate change, they too need to pay more attention to this, because if the leaders get thrilled with themselves about all the things they're doing, but the followers don't follow, then the problem just gets worse and ultimately we don't actually achieve the goals we're trying to achieve. With that, I'm going to stop and look forward to a discussion. Margaret Srinivasan: Well thanks so much. That was very interesting.
Like I said, departure from our normal kind of talk we have in these and it was really fascinating, in many ways. Let's see. We have a person in the chat. We have a couple of other questions I'm sure and if, Lee, if you want to unmute yourself, you're welcome to ask it, or I can read it. Lee Fu: Okay. Hi, can you hear me? Margaret Srinivasan: Yes, we can hear you. David Victor: It's loud and clear. Lee Fu: Yeah, thank you very much for this very informative talk. I learned a great deal. You did not
mention negative emission technologies and investments. So I don't know how much you have researched or considered the trade off investment of negative investment, with decarbonizing society. Was it a good mix and given the tremendous resistance to the latter. David Victor: Yeah. So I think it's an astute question.
There is no doubt in my mind that there's going to be a big role for negative emissions, especially as we try to get to zero, because we're not going to be able to decarbonize all of the industrial sources and there are going to be parts of the world that aren't going to decarbonize for various reasons. So that's going to mean we're going to need find ways to suck carbon dioxide out of the atmosphere. The part of that equation that my group's done the most work on, is on engineered systems. So like with carbon engineering,
Climeworks and others have been doing, building machines to at low concentrations, suck carbon dioxide out and put it underground or utilize it for purposes. My guess is, in the next few decades, that the role there, in terms of the total absorption, is going to be relatively small. We published a paper, I think it was in Nature Communications in January and I'm the senior author on it. I don't remember who the first author is on it. Either Rinehand or Amabadula, where we did, we asked the question, suppose
we had a crash program to spend war-like money on negative emissions technologies. How quickly could those technologies scale up, given what we know about the history of other technologies scaling up quickly? The rate and scale, even if you spend massive amounts of money, the rates of scaling are slow enough that it still takes several decades before they end up having a huge impact on the global concentration and over the next three to four decades, the dominant factor explaining the variations in global concentrations, is going to be how much we as a society control our emissions, as opposed to how much we suck out of the atmosphere. Margaret Srinivasan: Okay, thank you for that. Interesting. We have a couple of hands raised. We have a couple
of chat questions. So I think I'm going to go and let, Peter, if you want to unmute yourself and ask your question? Peter: Hi. Thanks. This is pretty interesting, pretty discouraging talk, I have to say. I'm curious to know if you have looked at the carbon tax with a dividend approach. If you think that
has any prospects for success? You know there is legislation now in Congress to have a rising carbon tax that will eventually turn to American households. [crosstalk 00:52:35]. David Victor: Yeah, so it's a very interesting opportunity and let me just say, one of my mentors at Stanford, where I was before I was here at UCSD, George Schultz, was until he died, very heavily involved in that and I have an enormous amount of respect for George and his efforts to occupy the center on American politics, which is a dangerous place right now. I think the prospects for a tax and dividend right now are extremely dim. Partly because the politics of getting the tax part in place, even though you promise to give all the money back, the politics are what I said earlier. It's the transparency and the flexibility of the tax, that we love as analysts, that is just politically very toxic, because you have to put a tax in place that would double the price of oil roughly, or oil products, in order to have a significant impact on behavior.
The dividend part of it is interesting, but politically very, very expensive, because you take all the money and you give it back. One of the things we learned from market instruments around the world, is that if some of the money is held back and used for worthy purposes, like new technology and so on, it can have a much bigger impact on emissions and then you get into a nasty fight about how much of the money are you going to hold back and so on. Then what happens is the coalition in favor of your tax and dividend then explodes. So I think it's interesting that there's a Citizen Climate Lobby, the Climate Leadership Coalition and a handful of other groups and as you mentioned, legislation that's in draft form as it were. So people talking about it. I see zero traction outside of kind of elite
circles for that idea right now. Margaret Srinivasan: Okay. Thank you. We have one more question and then I'll just read some of these. Allah, do you want to unmute yourself? Ala: Yes, thank you very much and thank you for fascinating talk. In your very last slide,
is it correct to assume that the gray area in those pie charts, were basically the rest of the world economies that have been growing over that time period? They're neither leaders, nor blockers? So they're mostly outside of Europe and North America. Now taking you to another very interesting slide that you've shown earlier, the S-shaped diffusion of technology. Would that evolution of technology diffusion, is it safe to assume that that sort of evolution would also apply to such economies in such countries. I hope this makes sense. David Victor: Yeah, not only does it make sense, it's several elements of the strategy that's going to make us actually decarbonize. So Peter said this is a very pessimistic talk. I think yes, in the sense that it's realistic about what kinds of aggressive goals that politicians have announced, that won't be achievable. But the
talk reflects a new way of thinking about the politics in this problem, which are to identify these sectors, to identify the sectors, the technologies, the firms, the governments that are on the left side of the S-shaped curve and build a coalition where they benefit from investing in new technologies and bringing down the costs, gaining market share and then becoming politically more powerful as a result of that. To me to Allah's point here, to me what's so interesting is, that members of our coalition, aren't just going to be the Western governments and Western firms. So take the Chinese for example. On electrification and mobility, China is a world leader. They have buses, light duty trucks at least, light duty vehicles certainly. Batteries, you've got Korea and China both way out in front right now. Deployment of solar and wind, but
especially solar. Integration of solar on grids. You've got a tremendous success story in India. So the strategy won't be to try and get all governments to agree on some kind of global package, because that'll never happen. But it'll be to identify a limited number of countries and firms that really matter and then put the coalition together that way and the S-shape curve logic. You see them everywhere in technological change and it
applies as much to the emerging economies as it does to the advanced, mature economies in the West. So that's my source of encouragement. Allah: Thank you very much. David Victor: Thank you. Margaret Srinivasan: Okay, let's go on. If you want to ask a question that you have in the chat, put your hand up. Joseph Rydell? We can't hear you. You may be double muted, Joseph. In the interest of time, let's go on to Sarah Malberg and Joseph, we'll come back to you, if you can [inaudible].
Sarah? Sarah: Yeah, my question I put in the chat. It was at the beginning, you said the government should not be the main motivator to push climate change, due to the political motive, which makes a lot of sense. So it's not technically their fault entirely. So then I think my concern if you said [inaudible 00:57:41], well what does the data say we should push that objective? David Victor: Yeah so, let me set aside the issue of who's fault it is and whether they're feeling guilty and so on. It's a larger discussion there that might need to involve alcohol. But I think to me what's interesting, having looked at this question now, over several decades is, there is a really, really important role for activism here. This comes from somebody who does a lot of work with companies, trying
to figure out strategies and so on. When I ask myself, "Why are firms really motivated? Why would all those European oil and gas companies in the upper right hand corner of that chart that I showed?" It's not just because they see regulation happening and they speak carbon taxes potentially and a variety of other [inaudible 00:58:31]. It's that the leadership of these firms is concerned that some horrible existential harm is going to come to the firm, or to the whole industry, if they don't get serious about the problem. Then they totally change strategies and they start searching for alternatives.
They collaborate with other firms and with governments in search for alternatives. That's what we're seeing in Europe right now, for example, Equinor, which is the lead on a big carbon capture and storage project called, Northern Lights, which will move carbon dioxide in liquid form by ship, all around the North Sea, inject it underground. It's the initiatives to reduce fugitive methane emissions that many oil and gas companies now are pursuing, because they see if they don't get their act together on that problem, they're going to get crushed politically. So there's a lot that motivates firms to invest in innovation and change technologies and so on. Some of it is classic regulation, as I talked about. But the role of these existential threats has been under appreciated, I think, by people who study policy, because when the firm sees people super gluing themselves to the front door of the firm in protest, they react very, very differently and it's very hard for us as political scientists to measure that systematically, because it's all kind of a little crazy and hard to pin down numerically.
But the impact, the behavioral impact of those kinds of actions, is really, really huge. Sarah: So you're saying that once the company sort of sees the threat to themselves, that's when they start changing, rather than anyone pushing it on them? David Victor: Corporate leadership that sees that they have a problem that they can manage with small changes in behavior and treat it as a compliance problem, they treat that as a normal kind of operational compliance problem. They see a problem that threatens the existence of the firm or the industry existentially, they alter their strategy and they over invest in radical solutions and they invest in searching often with other firms, for those kinds of solutions. That's going to be what opens up these new niche markets and new technologies and brings them into the [inaudible 01:00:44]. Sarah: That's awesome. Thank you so much. Margaret Srinivasan: So we are at four o'clock. I don't know if you want to take it two more minutes?
David Victor: Yeah, let's take a couple more and then I'm happy to stay for a couple of minutes. Margaret Srinivasan: Great, thank you. Kyle, do you want to ask a question? Unless we have Joseph. Let me just see. Joseph, are you unmuted now? No, Kyle go ahead. Kyle Johnson: Thank you, Professor Victor, for the excellent talk. My question's a bit of an extension upon what we talked about here, which is that with the coming crises associated with climate change, such as famine, natural disasters, displacement, do you think that these challenges will bring countries together, or drive them further apart? David Victor: That's a good question. My sense is that they will mostly drive them apart and that's because
the crises associated with the impacts of climate change, will have cross border consequences, that will require the countries for example, to grapple with issues of immigration, that they're also already grappling with and often, very poorly. It's possible that in a world we had much stronger international institutions and trust that some of these problems would bring countries together, in a greater degree. But I think that's not the world we live in right now. We live in a world where trust levels overall are low. Trust in government
is relatively low. Where the premium on uni-lateral solutions, or solutions that governments can control that premium, is relatively high. So in terms of the overall impacts of climate change, my guess is that it's mostly going to drive countries apart. That's one of the
reasons why the national security community, my colleague at Brookings, John Allen, used to be head of U.S. forces in Afghanistan. He and I have spent a lot of time on these issues, in the national security context, in the [inaudible 01:02:35] community. That's one of the reasons why those communities are now very focused on climate, to varying degrees, because it multiplies if you like, some threats, in particular transport of threats. Last thing I'll say very briefly is, it's an open question right now, I believe, as to whether the solutions to the climate change problem will bring people together, in the sense that it'll create bigger markets for technologies that will then get better because of bigger markets and then those technologies will get bigger and bigger market shares. The history so far, suggests that's good news for de-carbonization.
So think about solar power, for example. In the early days of the solar industry, it was the [inaudible 01:03:13]. So the early days of solar, spoke German. Then as it scaled up for production, it spoke Mandarin. Now, with de-globalization, there's this effort
to onshore production lines and to have it speak lots of different languages, all of which will reduce the power of solar and also frankly, will reduce the competitiveness of solar, relative to what it could be otherwise, because t
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