This briefing note focuses on a key concern with ongoing investments in fossil fuel supply and the technologies that use these fuels: ‘carbon lock-in’.
A transition to a low-carbon economy is essential to ensuring a safer climate, but it will not be easy. Despite the well-documented benefits of decarbonizing energy systems, the declining costs of renewable energy and high-efficiency technologies, and the promise of further innovations, the world continues to rely heavily on an abundant and growing supply of fossil fuels.
A key concern with ongoing investments in fossil fuel supply and the technologies that use these fuels is “carbon lock-in” – that, once certain carbon-intensive investments are made, and development pathways are chosen, fossil fuel dependence and associated carbon emissions will be “locked in”, making it more difficult to move to lower-carbon pathways.
The authors propose a two-step approach to gauging the relative lock-in risks of investments in fossil fuel exploration and extraction:
• First, identify investments in fossil fuel resources and infrastructure that are likely to be inconsistent with climate protection objectives, as reflected in a metric of “over-produced” fossil fuels that captures the scale of lock-in effects.
• Second, evaluate the strength of this lock-in – i.e. the extent that, once such investments are made, they may be difficult to move away from, or “unlock” in the future. The strength of lock-in is assessed by two metrics: the relative amount of capital invested in these over-produced resources, and the relative amount of economic “rents”, or profits, likely to accrue from them.
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