The political economy of leaving fossil fuels underground: The case of producing countries

After 30 years of failed attempts to establish an effective global climate policy regime, world leaders have started to acknowledge that fossil fuels must stay underground to make any conspicuous progress towards greenhouse gas emissions reduction. The fact that most fossil fuel reserves are ‘unburnable’ is the corollary of the relationship between the remaining carbon budget and the emissions embedded in existing fossil fuel reserves. Nevertheless, companies and countries are planning to extract quantities of fossil fuels well above those compatible with the 1.5 °C, and even 2 °C, global warming targets. Changing course will have vast implications for the global economy and require that fossil fuel-producing countries forgo substantial rents – the extranormal profits associated with fossil fuel extraction. In this conceptual and theoretical contribution, we discuss the political economy of fossil fuel supply phase-out. We focus on economic rents and investigate strategies to align phase-out feasibility with justice. These strategies include stripping companies of their entitlements to future rents, the possible use of compensation in favor of producing countries and ensuring long-term commitment from these countries.