“Avoiding carbon lock-in is crucial to addressing climate change. Avoiding carbon lock-in is a well-established imperative in climate policy and sustainable finance, but tackling it through policy is harder than it seems”, write Jared Forman and Jonathan Arnold in their two-part report on Locking Out Carbon Lock-In found on the Canadian Climate Institute website.
(This piece is sourced from the Canadian Climate Institute articles: Locking Out Carbon Lock-In, Parts I and II.)
Locking Out Carbon Lock-In
At first glance, carbon lock-in is a simple concept: things that we buy, build, or invest in today—whether it’s a new industrial factory or a new household furnace—often come with long lifespans that effectively “lock in” their associated greenhouse gas emissions for years or decades to come. And when all these choices are added together, they can create sticky social, political, and technological constituencies that have a vested interest in extending the status quo, making future emissions reductions even harder.
But taking carbon lock-in beyond the conceptual level—and implementing climate policy to avoid it—is an entirely different beast. It raises complex questions around timing: policies must prevent locking in pathways that make it harder or more expensive to hit Canada’s climate targets, while simultaneously encouraging climate-aligned investments that generate economic prosperity. A project today may align with net zero pathways, but the same project proposed years from now may not.
In the first installment of this two part series, we dig into the meaning of carbon lock-in and the threat it represents to Canada’s climate goals and its economy. In the next installment, we’ll apply these lessons to one sector of the economy that’s at particular risk of carbon lock-in.
In Part II, Forman and Arnold take a deep dive in Canada’s oil and gas sector which exemplifies the challenges with carbon lock-in.
Canada’s oil and gas sector runs a high risk of carbon lock-in. The sector’s emissions profile, average asset lifespan, and global market and policy uncertainty for its products all combine to make carbon lock-in a uniquely severe risk.
Oil and gas carbon lock-in conundrum
Furthermore, despite recent projections showing that global oil and gas demand will peak in the near future and decline thereafter, even under more conservative scenarios, there is still considerable uncertainty about the exact timing and scale of the transition. That uncertainty generates inertia that encourages the industry and politicians to advocate for and consider expansion in the sector which might not align with the sector’s net zero pathway.
For oil, carbon lock-in risk mostly arises from upgrades to existing assets because few new, “greenfield” oil projects are slated to come online as the energy transition accelerates. While there are promising technologies under consideration that could significantly drive down Scope 1 emissions, Canada’s oil sands heavy crude is currently the fourth most carbon-intensive oil globally, and many of the best available technologies cannot be applied to existing facilities.
As multiple large oil sands producers acknowledge, they currently have enough proven and probable reserves to continue producing for almost three decades. That already stretches to 2050—and that’s without including “possible” reserves. Upgrading current facilities to either increase production in the near term or unlock new reserves in the long term could generate more lock-in.
For gas, lock-in risk might be more likely to arise from new facilities. Gas demand is expected to decline at a slower pace than oil in net zero scenarios, and gas can sometimes be a less carbon-intensive energy source than coal and oil. That seemingly makes it an attractive investment opportunity, especially with many European allies expressing short-term interest in Canadian gas. However, gas could be a “dead-end pathway,” delivering short term emissions reductions at the expense of long term net zero goals. It could also carry significant economic risk.
The remainder of Part II exposes the challenges of oil and gas lock-in:
- costs of oil and gas lock-in
- Oil sands projected emissions trajectory (Scope 1 and 2) relative to a net zero pathway
- Putting a cap on emissions
- There’s a better path
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