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Unburnable Fossil Fuels and Climate Finance: Compensation for Rights Holders

Abstract:

To limit the increase in global mean temperature to 1.5°C, CO2 emissions should be capped at 440 gigatons. To achieve this, about 89 percent, 59 percent, and 58 percent of existing coal and conventional gas and oil reserves, respectively, need to remain unburned. This implies an economic cost for fossil fuel rights owners, and any successful climate policy will rely on resolving the distributional challenge of how to allocate the right to use the remaining burnable reserves. We discuss the possibility of compensating rights holders of unburnable oil and gas reserves, producing the first estimates of the financial resources needed to secure full compensation. We estimate that approximately US$ 5,400 billion (109) would be needed. Despite the vast amounts required, compensation is nevertheless economically feasible. We suggest a Keynesian “whatever it takes” approach for climate action, combining partial compensation for unburnable fuels and investment in low-carbon technologies to drastically reduce emissions in the rapidly closing window of opportunity before 2030.