Oil Giant Predicts Carbon Will Harm Economic Growth, Calls For Renewables

Climate change will hinder global economic growth within the next 25 years, according to the Norwegian oil giant Statoil, unless societies achieve the 2-degree limit on warming that many climate scientists already consider unrealistic.

The world can achieve the strongest economic growth, Statoil Chief Economist Erik Wærness reiterated this morning in Washington D.C., by embracing renewable energy and limiting carbon emissions. 

"The consequences of climate change will impact economic development and welfare for all, regardless of sector and geography," Wærness said in a statement accompanying Statoil's "Energy Perspectives" report for 2015.

"In this year's analysis we have therefore revised down economic growth up to 2040 in the scenarios that do not meet the 2-degree target."

Statoil was one of six European oil giants that issued a joint statement last week calling for a price on carbon. In that statement, the six chief executives called for an even-handed, international price on carbon because it would resolve uncertainty as those companies plan investments.

Other signatories included Royal Dutch Shell, Total, BG, Eni and BP, which released its own Statistical Review of World Energy this week.

But the joint statement stopped short of predicting scenarios that might unfold in the absence of a carbon price. Statoil took that step three days later in its annual projection of economic scenarios over the next 25 years, and in doing so, Statoil helped explain why the European oil sector appealed for a carbon tax.

"Our analysis stops in 2040," Wærness says, "but the negative consequences of climate change in these kinds of scenarios may well become even stronger in the following decades."

Statoil predicts Gross Domestic Product will grow the most—2.9 percent—through "a sustainable energy system in 2040 where global CO2 emissions have been reduced by 39 percent from 2012 and are still declining, through even greater improvements in energy efficiency and a strong increase in renewable energy, primarily at the expense of coal."

GDP is lowest—about 2 percent—in a world "dominated by conflicts, power struggles and inability to resolve common challenges. This scenario outlines a more polarised, disorderly world and has the lowest global economic growth, the highest consumption of coal and the least growth in renewable energy."

Statoil expects oil to lose market share in all of the scenarios it considers, but in the greenest scenario, natural gas gains market share.

In his appearance in Washington this morning, Wærness reiterated Statoil's contention that the world still can limit the rise in average global surface temperature to 2 degrees Celsius.

That's an optimism not shared by all climate scientists, including a group who argued in 2012 that the 2-degree limit required "immediate and sustained global mitigation," which has not materialized in the ensuing three years.

"A delay in starting mitigation activities will lead to higher mitigation rates, higher costs, and the target of remaining below 2 °C may become unfeasible," the scientists wrote in 2012.

More recently, some scientists have asserted that keeping warming below 2ºC means keeping fossil fuels in the ground.

"A third of oil reserves, half of gas reserves and over 80 percent of current coal reserves globally should remain in the ground and not be used before 2050 if global warming is to stay below the 2°C target agreed by policy makers," according to a study by the University College London Institute for Sustainable Resources.

That's a dire outcome for an oil company, but Statoil identifies opportunities for oil and gas companies including a shift—although it may have to be temporary—from coal to natural gas, and a new impetus for efficiency.

"Statoil supports efforts to meet 2-degree target, and we believe that carbon efficiency will be an important competitive advantage in our industry," said Statoil President and CEO Eldar Sætre.

In Washington this morning, Wærness said there are encouraging signals that the world may adopt what Statoil calls the "Renewal" scenario, shifting to renewable energy and maximizing economic growth.

"We had a handshake between Obama and Xi, and we had signals from the G7 as well that there might be an attitude change toward global climate goals, and that could lead to an increase in the probability of the Renewal scenario," he said.

But the most important signals may be ahead:

"The Paris meeting and the aftermath of the Paris meeting—I think we should be careful about overstating the importance of the meeting itself, but things that happen around the Paris meeting could be important. The presidential election here might be an important signal as well, one way or the other."