 Good morning everybody. I'm Richard Dennis from the Australia Institute and I'll be chairing this morning's session. It's a jam-packed session up the front and it's pretty crowded at the back too, which is great. So all of our speakers are going to stick to their 10 minutes ruthlessly, or I will, because we've got five presentations to get through, which is one more than four, which means it's going to be tight. So thank you everyone for coming along. Our first speaker isn't here with us yet, so we're going to start off with Ingrid, forgive me, we haven't had a chance for me to check your pronunciation of your surname Ingrid, but Ingrid is going to be talking about using the carbon take-back obligation to help phase out fossil energy production. So over to you Ingrid. So I'm Ingrid, I'm here with University of Oxford and Oxford Natsira, and I'm here to talk about using carbon take-back obligation to help phase out fossil energy production. This is a concept that's based on a few other papers by, by Allen, Miles Allen and Jenkins, to name a few, and reports in Netherlands, but this is sort of a conceptual think piece that we've been working on. So we propose a carbon take-back obligation to help us do two things. So phase out fossil fuel production and basement certainty and insurance. And I'm going to explain why. So I'm the first one with phase out production, and it's based on producer responsibility. And the rationale behind this is, we've all seen it before, we're increasing with higher fossil fuel prices, more extraction and more consumption, especially the rebound consumption after COVID now. And one other rationale is that we're also seeing increasing support for fossil fuel subsidies, surging, this is obviously from the last, during COVID, where it's almost doubled in fossil fuel subsidies across 51 countries. And lastly, the fossil fuel profits have also increased massively over the last year, a dollar a billion. And what to do with this is what carbon take-back is supposed to help with. But the second rationale is, is abatement certainty. And we know that fossil fuel production or fossil fuel supply needs to go down. We know that demand needs to be reduced of such goods. But in certain estimates, we can come up to sort of 75% without carbon capture and storage, or without carbon removal. And 70, this is in 108 of 116 of the AR5 IPCC scenarios, CCS was included. And this is something that we try to tackle. Just to say that 75 of those 75 to 25 ratio can obviously be discussed. And there's a lot of uncertainty there. But even in a 90 to 10 scenario, we still need carbon capture and storage. So this is not right now being incentivized by the carbon prices. The carbon prices, as we see, is much lower than both CCS and direct air capture. So we're not seeing large scale deployment right now. And I also want to highlight this number that only 0.3% of energy transition investments went into CCS, which is, I guess, up here somewhere. And that's worrying when we know that that's the last maybe 10 to 20% of our emission reduction or capture to reach 1.5. So we are proposing that we need to actively do something with fossil fuel production, and actively manage this. And this is the current scenario. We have no CCS integrated into the supply chain. There's no accountability or producer responsibility. Hence, we are proposing a carbon capture, carbon take back obligation, where you have extended the supply chain to produce a responsibility. And it's a new license to operate. So if a producer wants to extract fossil fuels from the ground, then they need to capture and geologically store an equivalent amount of CO2 emissions. This is done by paying geological storage operators or buying carbon certificate units. And you can see the loop. And it would start with a small fraction and leading after a while to a higher incentivization of also direct air capture. And you see the process there. And as you see, I also want to highlight that there is a demand effect depending on the elasticity and how much is handed over to consumers. So this is, as I said, this is an active regulation or market regulation. And it's a new license to operate. And that's what we're proposing. Quickly to go through our sort of think piece is how do you get to face out? And the first thing would for us be a step one would be to create a CTO club with a few leading countries. So a climate storage club, maybe most relevant would be North Sea in the beginning, because there's a lot of storage capacity and also producer countries. The second step would be to include CTO requirements into exports and imports deals. This is to both pressure companies to include scope three emissions, but also countries to include this in their trade calculations. And you can then start regulating which regions you're trading with and how you're adjusting the sort of price of those fossil fuels. The fourth, the third step would be worldwide CTO policies and thus increasing the storage fraction, because that's one you can have or don't get disadvantaged in competitiveness when you have enough CTO countries or regulated countries, and that's get to 100%. This is step four. 100% storage obligation is geological net zero achieved. So storage out of the ground equal amount into the ground. So there's a geosphere balance, but some fossil fuels are still used. This is quite a few scenarios where fossil fuels are still used at net zero capacity. So we include the step five and step six, where step five says we go above 100% to include overshoot or historical responsibility, and this can incentivize and make sure that we get to step six, whereas this phase out is complete of fossil fuels, and it's a very regulated and managed process. So lastly, I just want to highlight why CTO. I think this is a new kind of supply side policy. What it does is really focus on producer responsibility, including obviously the phasing out of fossil fuels in the long run. But producer responsibility with active regulation and active management, and we've talked about that for the last two days is how that managed out has to be gradual. It has to also take other things into consideration and CTO does that in a supply side way. I also think this or we think this is complementary with other supply side policies. So you can have bands on certain unconventional sources, you can obviously everything on demand side is included, and this is up to design choice and the individual countries or regions that are going into these clubs. But what I think is also really important is that it is an enabler for geologically capture or carbon storage, which is a risk. And that's going to be my final point. This is one policy that sort of accepts or not accepts, but it's a risk that even though we do a lot of face out of a lot of demand reduction, this is there is still a risk that we will generate more CO2 than we can afford to dump in the atmosphere. And this is the insurance to make sure that even in such a case, we can get to 1.5. And at that point, we can choose between publicly funded, government funded carbon capture and storage or direct air capture. We can have an industry funded CTO or we can not meet the climate targets. And for us, the industry funded CTO is the best option. So even in a situation with higher renewable energy and demand reduction, this is the way to get the fossil fuel companies and producer countries to include and join the cleanup of their waste, which is their CO2. So that's it. Thank you, Ingrid, with 60 seconds to spare. So we all appreciate that come question time. Our next presentation is coming from Mark Campanale and Mike Coffin, and I understand that Mark's going first. Just going to do some opening remarks. So why is our community losing so many analysts into the finance sector, the banks on ridiculous salaries? The answer to that question is because I think even the biggest banks and shareholders of the fossil fuel system know is coming to an end. And they're just having to try and figure out what this means for their balance sheets and their equity exposures. So Carbon Tracker, a non-profit, many of my colleagues have, like myself, have come from finance or for the investment banks or as analysts or portfolio managers. And we look at everything through the lens of financial markers. Mark is going to do the bulk of this presentation, but I just want to give you some quick, some highlights, is new methodologies are being developed for coal retirement and for oil and gas retirement. And don't underestimate the significance of initiatives such as DFAN, the Glasgow Finance Alliance of Venezuela. I'm on the advisory board and they've got two working groups, one on coal retirement finance mechanisms, which has been developed by Rocky Mountain Institute, Climate Bonds Initiative, and a few others. It's been really driven by the banks, particularly the likes of JPMorgan and Citi and HSBC. The other is the Oil and Gas Retirement program. And then you've got other initiatives from like Climate Action 100 is really important if you're not familiar with it. If you go on to our website, on to the company profile section, we've given retirement schedules for power utilities and also for oil and gas. And this is a $60 trillion coalition that's taking on the world's top 200 polluters. They're using data from the Transitions Pathway Initiative. They're using it from Influence Map and from other NGOs, including Carbon Tracker. And then you've got the Science-Based Targets Initiative. You've also got the World Benchmarking Alliance, Oil and Gas Guidelines. Well, I don't mention all of this. It's incredibly complicated. And in it, if there is such a thing as another side, they're using their influence to try and change outcomes. So they're picking scenarios that allow for huge amounts more oil and gas, although picking dates that don't make any sense on the retirement. And the reason for that is because of there's a huge amount of money at stake. That's what I want to say. I want to talk about it afterwards if we get the chance. But Mike's going to get into some of the detail. And particularly he knows there's one slide that's really critical. I hope you spend more than a minute on it. So how long do I have left? So I think I've got about eight minutes left. So we'll go for that. Perfect. So what I'd like to do today is just really give a bit of a high level overview of some of our work and our approach. And increasingly the work we do is focusing around obviously the raising awareness of, well, sorry, our core mandate is to raise awareness of the financial risks of climate change and policy change and the risks that places to investors and to companies. But increasingly we're factoring in the role of the energy transition and the new technologies and the risks that those pose to. So it's sort of a two pronged approach. I'd really like to give a high level overview of some of our work and how we're integrating a bit more of the sort of that energy transition side of things and the new technologies, particularly for example electric vehicles. Some highlights of some of the work that we published this year and sort of a sort of, I suppose, a taster of some of the things that we're going on to do coming up. Okay, so that doesn't work. Okay, so this won't be used to anybody in the room to limit global warming to 1.5 degrees C. 90% of fossil fuels reserves must stay in the ground as unburnable carbon. And Kristoff covered that very well yesterday. I think if we look at the middle column there, and so this is just in the gigatons of CO2 of embedded emissions. On the left you've got the sort of total improved reserves and the middle column you've got the listed reserves in gas, oil and coal. So the reserves owned by the listed companies. So and on the right you've got the remaining carbon budget to 1.5, 1.75 and then and then 2 degrees C. So very broadly the listed company reserves alone would take us to 2 degrees C. So this is not just a national oil company problem, this is very much a problem for listed companies. And I think that's the key takeaway from here. So we talk about reaching some climate goals from the IEA scenarios and we saw a great presentation yesterday from Kristoff on that. But we're also thinking about, okay, so there's the policy action on climate, but what about the technology trends? And so this is a slide some of my colleagues put together looking at EV sales. And so on the left you've got that sort of S-curve of EV deployment, so electric vehicle sales. And it's broadly equivalent to market penetration. And we're at the very early point on the curve, perhaps you can't see the back, but sort of around 10% of global sales. And actually over the coming years to the end of the decade we'll come. But in the start of the 2030s the vast majority of new vehicles globally being EVs under some scenarios. What does that do to total oil demand? On the demand well, peak and plateau right now, and then plunging through the late 2020s into the 2030s as a result of obviously road transport being around 50% of global oil demand. So clearly that's a non-linear transition and I think if we look at some of the IEA scenarios they're very useful for all sorts of purposes, but actually and other scenarios don't necessarily always factor that shape in. So it's increasingly something we're trying to integrate into our work and understand the various implications for that. So I think the point we're really trying to press here is whether the path is low carbon or a climate path or it's a fast transition path through new technologies. The result actually for investors is kind of the same, it's demand that falls. And I won't go through this slide in massive detail other than to say the gray is the future supply from existing projects that we use data for price adding. This is just oil and we model global oil and gas markets. The 1.5 net zero emission scenario is in green, so clearly we sort of broadly consistent with the IEA's no new projects in a 1.5 world. Under a slightly slower transition, SDS sustainable development scenario, there's a small gap, but companies are broadly planning on business as usual. Something around the stated policy scenario, 2.7 degree, a kind of you could call that a slow transition. So clearly if the world follows a, I'm sorry the master's work, if the world and companies plan on building infrastructure for a slow transition, a high temperature outcome, but actually the world does follow a faster transition, then they'll invest a load of assets that ultimately are not needed. And I think the word stranded assets has been used a lot over the last couple of days. We're trying, we use it in the context of the building of the stuff, it's the infrastructure that then becomes financially stranded, rather than the resources in the ground itself. So just sort of a piece on terminology there. I know this is blindingly obvious, but low and expected demand impacts future returns, but there's two main things, but the main impacts actually through price. So lower demand, fewer new projects, your marginal cost needed to incentivize new production is lower, lower pricing, and that impacts the production revenues from existing projects, and also you need fewer projects. So it's critical that companies plan for this long-term demand, but it's particularly critical they plan for the rapid changes. So that S curve of EV development, the pace and time frames is something that we think is really important to push here. Overinvesting now based on long-term demand, and that's the real issue. And it's that different, the difference in the time scales between the short, sorry, between oil and gas projects versus the pace of change. So we write for a broad range of financial stakeholders, and so sort of three main groups of stakeholders here. You've got the asset owners, the asset managers, and the policy makers. So for the asset owners, its understanding will actually do oil and gas investments match their asset and their low abilities. Does the strategy of oil and gas companies support the beneficiaries wishes? So for example, if you're a pension fund manager, do oil and gas companies strategies actually fit what your beneficiary is looking for, both from investing sustainably, sustainably, sorry, but also investing for impact? For asset managers, actually is continuing to invest in oil and gas or have funds that invested in oil and gas companies, does actually fit what the asset owners you're working for actually want. Are you using appropriate indices? So are you benchmarking yourself or tying yourself to an index, which is totally inappropriate for the energy transition? And then from the policy maker perspective, looking at the loss of future national revenues or expected revenues, and we talked about there was a lot of discussion on that yesterday, role of subsidies obviously, but then finally obviously the compatibility with national climate commitments. So I'm going to skip through that slide in the interest of time to get to the slide that Mark asked me to present. So we use a cost curve, so everyone just saw that cost curve approach, contrast I've got two minutes left. So company risk exposure varies significantly. Now what this chart is showing, and hopefully everyone can still hear it in the back, is the 100% is your business as usual capex under the stated policy scenario. So if you're planning on that level of demand, what projects will you plan when companies invest? And we model global all the gas supply and demand at the asset level, and then using data from Reichstadt energy or EASTAD, and then aggregate that back up at the company level. The most exposed company is at the top of the top 30 companies by I think Mark and Captain on the universe, the least exposed at the bottom. This is just looking at their new projects. So this is about just looking at their project options. Which of those what sort of would go ahead and economically rational basis under business as usual? So that's 100%. But which of those are then compatible with a low demand scenario? You could say they're lying with. Sustainable development scenario, which in the blue, so if you've got a big yellow bar, basically none of your new project options are compatible with a low demand scenario. Conversely, if you've got a larger blue bar, more of your projects are compatible. You can look at this both from a risk perspective. So the loss of potential for stranded asset risk. That's my own. Look at it from a stranded asset risk perspective, but you can also look at it in terms of companies alignment. So the degree of company sanctioning decisions, where are they investing their capital as to actually whether companies are aligned or not. And just say what the red is. Oh sorry, so the red, you see on the right here, there are these projects that are even higher costs that are not compatible even with a business as usual 2.7 degree scenario, particularly, say for example some there are some oil sounds and some oil sounds projects, which are not even compatible. We see on a mechanical basis with even 2.7. So the key takeaway is really there are fast transition, reduced demand, low revenue news. Companies must plan for the peak and transition away from oil and gas. And there's no one size fits all strategy. I think that's really, really critical message that it's not that oil and gas companies must transition to renewable energy. It's just they plan for that peak and the slide I've just skipped there was looking at the different shapes of some of these scenarios, looking at for example the forecast policy scenario from the Neversal Policy Response, where you have short-term growth in oil demand and then a rapid decline. And then the final piece is really around asset owners and whether actually oil and gas investments now actually fit from a risk return perspective with their investment strategies. Yep, Mark you want to add something? It is an obvious what the banks and the shareholders are doing that is allowing a huge amount of CAPEX into projects which are not only outside 1.5, they're totally outside of steps which we know is closer to 2.5s, 2.7. And that's really where the battleground is being fought right now is can we get the pension funds and the banks to cut back the funding. And on that basis it's not clear that that's actually happening. Thank you and on behalf of Australia let me assure you that in Australia we are full steam ahead, we are the world's third largest exporter of fossil fuels and I was glad to see that Woodside was the third worst. Bang on brand for Australia. We have 114 new coal and gas projects seeking approval in Australia today. 114, they will go ahead. A lot of you met me when I was here campaigning against the Adani coal mine a long time ago, it went ahead. Remember everyone said it wouldn't? It did. So let's hope that the let's hope that the compelling finance arguments against overwhelming wealth and power fire up soon. Now our next speaker is Leonard Stern from the Paris School of Economics and his talk is called proportionately matching voluntary contributions to institutions rewarding countries for reducing the supply of demand and coal and oil. Thanks Leonard. Let us define global public good institutions to be institutions with the mandate to contribute to particular global public goods in a rules based way. So here's the inventory of current institutions. They overall receive 14 billion per year in voluntary contributions by governments. The existing institutions for environmental causes are all focused on the demand side and it would be natural to create a new institution, for example, that would reward countries based on the tax rates that they have in place on the extraction of coal, thereby reducing supply of coal worldwide. And so the idea would be to have it rules based. So the mandate would be to maximize the supply reduction and with a given budget that the institution has. Similarly, on the on the demand side, an institution could be created rewarding countries based on the tax rates that they have in place on the combustion of coal. And once such institution exists, there could be simple matching mechanism that would run as follows. So at the beginning of the year, a proportional matching fund would accept donations and at the end of the year, it would look at the voluntary contributions made to the supply reduction reward fund and the demand reduction reward fund and then split its budget in proportion to these donations. So this would incentivize countries in the first stage of this game. So over the course of the year to donate to the institution that they prefer. And here's the result of a simple modeling exercise where the countries act as unitary players and it turns out that in the first stage of this game, the US is incentivized to give to the proportional matching fund because this will in the second stage incentivize the exporters and the importers, the largest ones, to donate to the respective institutions. So what we see here in the first line is the total contribution that the US makes. And in the second line on the left is Australia's contributions or Australia donates purely for self-interested reasons in this model to the fund that globally rewards all countries for reducing the supply of coal. And Japan on the other hand donates to the corresponding institution on the demand side. Japan being the largest importer of coal. So they have an interest in globally reduced demand for coal. And so anticipating this response, this is why the US has here strong incentives to give to the proportional matching fund because it reads to overall enhanced climate change mitigation. Now if countries instead manage to coordinate so that the largest players in each of these three categories act together, we get a quadrupling of funding at the equilibrium reaching almost 16 billion per year. Now Desiderata for international mechanisms here at least this at least one that this mechanism satisfies namely it incentivizes fossil fuel exporters to participate. Another desideratum is to reduce the rents accruing to fossil fuel exporters given the resource curse and with the Russian invasion of Ukraine this has arguably become a pressing priority. The mechanism just outlined is ambiguous in terms of the second desideratum. It depends on how well the exporters of the fossil fuels coordinate versus the importers. So what I'll present for the rest of the presentation is a mechanism that satisfies both desiderata in a robust way. So here are six institutions for global public good provision and what is shown is an estimate of how countries are affected given a dollar that is added to the budgets of the different institutions. So all these are according to these estimates all these gains are below one so any of these players when they give one dollar to an institution they derive less than one dollar of benefit. So without any mechanism we should self-interested players we should expect them to not donate. Another thing to note here is that the Middle East is and Russia and Eurasia they're all adversely affected by the clean development mechanism and a proposed carbon pricing reward fund because they reduce the demand for for fossil fuels and it's very significant. So this is the motivation for the mechanism I will now outline. The proposal is to create a club where members would be obliged to tax the international flights that depart from the territory and also all the international flights that arrive from non-participants. Secondly, they would have to allocate the collected tax revenues to institutions of their choice. They would also have the option to instead retain a certain fraction of the revenue but in that case they wouldn't be able to decide where the rest is allocated to. This is here for the case of international aviation emissions and the simulations I'll show are based for that but it's equally applicable to maritime emissions. Here is a representation of the mechanism so in the first line is a representation of the tax revenues that the different regions of the world collect by participating in this mechanism and therefore taxing the emissions from international flights. In the second line is their strategy. So here it turns out that Africa gives all the money it collects to the global funds for 18 TB in malaria because it's the one that it gains most from and the EU in this case donates a part to the international thermonuclear reactor but the remaining part that is not in colors is not allocated by the EU and therefore the EU can retain a certain fraction of that revenue for itself that's the part in black but the gray part the EU no longer gets to decide where it goes. So let us collect all the direct contributions made by countries to the different institutions and here is a collection of all the this gray money that hasn't been allocated by countries the mechanism now divides this great money between the different institutions in proportion to how much they've received in the context of this mechanisms by the different countries so this enhances countries incentives to give to their preferred institution because now part of the gray money also gets allocated there and this is the final allocation once we add up these indirect contributions and the direct ones what's shown here is turns out to be a Nash equilibrium in this game now here's a simple modification of the mechanism that builds on the idea introduced initially this proportional matching fund idea and now countries would have an additional option namely to give to proportional matching funds so they could say they could support a subset of institutions and that's what the Middle East does here for example they give to a matching fund that supports all the institutions that don't drastically reduce the demand for fossil fuels and China does a mixture they give a part to the clean development mechanism and then they support a matching fund supporting the clean development mechanism but also the carbon pricing reward fund that equally reduces the demand for fossil fuels here is just a collection of all these contributions and the rules of the mechanisms are now as follows the gray money that hasn't been allocated gets matched to the matching funds so on the basis of how much the matching funds have received the gray money is split now we can collect these indirect contributions to the matching funds and the direct ones that's shown here and in the last stage the each of the matching funds splits its budget in proportion to the direct allocations that have remained to the institution that it supports so the matching fund supporting the blue and brown gets split between blue and brown in proportion to the direct allocations made to blue and brown and similarly for the other matching fund here's the final allocation that results from that what's shown here turns out to be a natural equilibrium again and what's striking is that the middle east donates all its money to this proportional matching fund shown here let us see what happens if the middle east instead doesn't allocate any of its money so here is the situation where they instead retain as much money as they can which is 45% of the tax revenue but then they don't get in a sense don't get a say about where the other money goes and if we compare the two allocations that result we see that there's a drastic increase in the allocations for the institutions that reduce the demand for fossil fuels because by not donating to the matching fund all the gray money gets allocated to the matching fund that supports the institutions that reduce the demand for fossil fuels and then that translates into this change that we see here so we see that the blue and the brown are drastically increased if the middle east doesn't exercise its right to influence the allocation and that's why it's actually better off to not retain any of the tax revenue it collects and instead to donate it all to the proportional matching fund supporting all the institutions that it doesn't dislike so even without having any supply reduction reward fund in the mix we get the oil exporters to participate now we can simulate what would happen if the EU and China were to initiate the mechanism and afterwards in countries asynchronously decide whether to join or not so I run a simple algorithm where at each stage at each step a random country is selected a random player and the player gets to gets to decide how to adjust the strategy and I assume that each player just plays in a self-interested way a best response given what the others are currently doing and we see that here the results as a function of the retention rate parameter that is how much can countries retain if they don't exercise the right to influence if they don't allocate the money and if it's at least 40% we always converge to a situation where all countries participate and we can directly compare here in yellow and red the two mechanisms that I've outlined so having the proportion of matching funds in the mix so that's the yellow one we get drastically better performance we can raise much more revenue for global public good institutions of all thank you oh thank you our next speaker is Ian Stede from Aconeas and his talk is entitled so you want to quit producing fossil fuels yes putting the manage into managed decline just while you're doing that so thank you Richard and thank you to the Stockholm Environment Institute for inviting me to a conference on fossil fuel supply and climate change when I am neither an expert in fossil fuel supply nor climate change so we'll try and figure out why I'm here so my background is in economics and fiscal policy so I am a former senior tax policy advisor to the UK Treasury and after last week's budget I very much stress the word former advisor and more recently over the last sort of six or seven years or so I have been advising developing country governments on how to negotiate better contracts for extractives projects focusing on getting them a higher share of the financial benefits through better fiscal regime design and tackling international tax avoidance and one of our key partners is an organisation called Connex Connex is a German led initiative that GIZ the German Development Agency runs and Connex aims to sort of level the playing field in negotiations between developing countries and extractives companies by providing expert legal, financial and industry advisors Connex do not support negotiations for fossil fuel projects I should emphasise that point but what they've done recently is they've asked us to think about how could we use the kinds of analysis and techniques we use in negotiations for projects to a slightly different question is how could you apply that to the question of keeping fossil fuels in the ground so you know can you construct deals with countries that would help them to keep fossil fuels in the ground and compensate them for that so I won't go through the points that have already been excellent made by Christoph yesterday and by Mark and Mike this morning over the need to keep fossil fuels in the ground what I will say is we've been asked to sort of think about three questions first how would you go about a macro level identifying potential fossil fuel projects to keep in the ground secondly at a sort of micro project level how would you evaluate the cost and benefits of that and then third are there any sort of low hanging fruit where you could start sort of piloting deals about keeping it in the ground now there are already some currents and past initiatives in this space you are probably all more familiar with these than I am so I won't go through them now we may if you want to talk about them afterwards in the Q&A or in the coffee break we can talk about them then so firstly the sort of macro question how do you identify potential projects so we have considered firstly very simple taxonomy over two axes firstly whether the project is primarily for export or for domestic supply and we think that dealmaking is probably a little bit easier for exporters than it is for domestic supply primarily because you have fewer players involved you're basically talking about the host government and the international companies and secondly you have fewer criteria to evaluate because it mostly comes down to money you know what are the cash flows that the company would kind of achieve after tax what are their future profits what can the government collect through fiscal revenues and a small number of sort of direct jobs and indirect benefits whereas if you're talking about domestic supply I think it becomes a lot more complicated you have more actors involved because you have to think about domestic energy supply companies you move downstream you have to think about consumers and the household and industrial sectors and you have to think about other issues that aren't money right so you have to think about supply security you have to think about direct jobs indirect jobs down supply chain indirect benefits it just becomes a lot more complicated however if it's easier to construct deals in the export sector there is a big caveat which is the risk of carbon leakage is much greater because you can stop one field being developed but the importers of fossil fuels can simply go to another field so you're not necessarily securing additional carbon savings the second axis is whether you're looking at projects that are in the planning stage or projects that are already producing again similar issue we think at the planning stage it's much harder to prove the additionality of any carbon savings the valuation is probably more difficult as well because there's greater uncertainty and you probably create a set of perverse incentives both for governments and for companies to prove up resources so that they can then get involved in deals not to extract them and take the money that's on the table to keep it in the ground so a lot of issues around doing this at the planning stage but if you were trying to decommission a project that's already producing earlier than it would automatically be decommissioned then you probably have a much harder to achieve deal because you've got issues around incumbencies so states are already dependent on the oil and gas revenues the companies have already sunk the investment costs so they're now already at the profitable stage and you have incumbency issues around sort of political elites who benefit from oil and gas who benefit from coal projects and are in control of public policy so much more harder to achieve and potentially less value for money because with the investment costs already sunk you're compensating just for the profits and the future cash flows so no real easy answers there another way of thinking about this again at the macro level is to look at the rents from different projects so the rents are plotted on the vertical axis and then the sort of income level of the country so we've got GDP per capita on the horizontal axis and then the size of the bubbles are the amount of production and you've got three colors you've got light blue which is cold dark blue which is gas and orange which is oil and a couple of obvious sort of results from this kind of analysis firstly coal rents are uniformly lower than oil and gas which I think was a fairly well known finding which suggests that there's better VFM if you were to decommission coal earlier and secondly this is cluster in the bottom right of relatively low rent projects in high income countries and they would be an obvious place to start if you were looking to keep it in the ground not necessarily area that we would get involved in as people who advise lower income countries so then at the micro level well how do you go about assessing individual projects and whether this makes sense or not so firstly we've got a very simple economic framework in which we say the costs are local and by costs I mean the opportunity costs of not developing or not producing so for the host countries there's an opportunity cost in terms of the fiscal revenues foregone in terms of jobs in terms of indirect economic benefits and for the companies and the investors there's an opportunity cost in terms of the unrealized future cash flows and profits secondly the benefits in this framework are obviously the carbon saved from not from keeping the fossil fuels in the ground those benefits are global rather than local benefits although they're not felt evenly around the world because estimates of loss and damage vary by country and region nevertheless there's a mismatch between where the benefits accrue and where the costs accrue in a sort of spatial sense and that suggests that you would really be looking for sort of global regional actors to be compensating specific countries to keep fossil fuels in the ground because of that mismatch of the costs and the benefits and actually interesting there was a plenary session on Indonesia earlier where even within a country the costs exceed the benefits the upfront capital needed to transition so to decommission coal in that instance is so high that they still seek international support to make it happen so even if the cost benefits stack up there's likely to be a role where you need inward flows of capital from international organizations and then quantification of this is very challenging so the way that we would approach this is a pretty standard cost benefits analysis in this case the costs are the financial benefits if the project goes ahead because the costs are the opportunity costs of not doing that so this is fairly standard stuff for those of us who work in kind of investment appraisal or forecasting tax revenues you can develop a model of a project a cash flow model you can estimate the fiscal take from that you can estimate the investor returns in this framework they become the costs of keeping fossil fuels in the ground the benefits are the emissions that are not produced the emissions that are saved which would be both the sort of supply chain emissions and the combustion emissions and then you can use a carbon price to attach a financial value to that and then again in standard cost benefit analysis we're looking at cash flows over a long period of time so you can use a discount rate to collapse all of that into a present value if the costs exceed the benefits you have a negative net present value it doesn't look like it's a good project to do this kind of keep it in the ground approach for if the benefits outweigh the costs then there's something there but this is of course very challenging because we know that commodity prices are very volatile and they're very difficult to forecast so if you're doing this at point in time with a specific oil price well if the oil price changes it increases or it decreases then the fundamentals of the cost benefit change that's also a problem for deal making because if you're trying to fix compensation up front which was the case with the Yusuni National Park in Ecuador then when oil prices change the value of compensation suddenly looks like a better or worse deal depending on which side of that deal you're on and similarly carbon prices are volatile as well so lots of movement in the cost and benefits secondly there's uncertainty in the key data particularly around supply chain emissions and combustion emissions there are some areas where you think actually emissions are likely to be high these are older, more depleted oil fields or light gassy fields with high flaring and then thirdly there's contestability over discount rates so we know that lower income countries tend to have higher country risk premium which means that if you're discounting it implies that you're going to pay less compensation to lower income countries than you would pay to higher income countries which I think is problematic from an equity perspective and then risk premium really should vary depending on where you are in the project life cycle so you should have a higher discount rate for early exploration and a lower discount rate for production assets so just very quickly to finish are there any low hanging fruit and I'm relatively pessimistic on this one I'm afraid because every time you see an opportunity you very quickly see a counterargument so projects with low financial benefits would imply lower compensation costs but those are the projects that are least likely to get developed anyway secondly higher potential emissions saving some decommissioning the late stage fields but the investments have already sunk the discount rates are lower so the costs of compensation are higher third you have higher discount rates at the exploration stage which again implies lower compensation costs but all you're doing there is preventing future emissions you're not doing anything about the current stock of emissions from fossil fuels and again it's harder to prove the additionality and then finally this point about compensating lower income countries where country risk premium are higher would lower income countries accept that you know would they accept lower compensation on the basis that they are high risk countries and is that equitable when you have I think might have been Kristoff said yesterday lower income countries in Africa account for about three percent of the stock of emissions and even if they were to develop all of their known assets they would only contribute three and a half percent so you know it doesn't seem particularly fair to be compensating them less for this problem so that's where we've got to in our thinking I'm not presenting any results because we've not actually done the analysis yet if people are interested it'd be great to have a chat afterwards if you have any feedback on the methodology that would be brilliant thank you thank you it's it's nice to think that it's that wealthy countries know how to tax these things but Australia's the largest exporter of LNG in the world and Qatar comes in second but collects 20 times more tax than Australia maybe we haven't noticed or maybe we didn't want to okay our final speaker is from is Klaus Eisenhack whose speech is entitled buy coal and gas interfuel carbon gas leakage on deposit markets with market power class so you're something yeah so you can read it as a kind of it resonates with just the last talk so this is another addition to the theory on deposit markets so where you buy those kinks I just learned this term from you so you buy coal or gas or whatever fossil fuel assets in another place in order not to burn them so I think I don't need to repeat this basic idea here today there is some theory on how this might work but the theory is done with a single fuel and we know there are more than one fuels in the world and they do not look too much into how this might be these kind of markets might be implemented at all so only if countries that sell and buy deposit agree to installing such a market it would be there and who would be the winners and losers of such a kind of policy this is what we want to address here with multiple fuels and there's another challenge with multiple fuels so suppose you have installed one deposit market say for coal say for dirty coal and then you say okay now go on to another fuel also do something for say oil or gas it might be that the first market already shifts the terms of trade in such a way that the second one becomes less profitable and that might be even more challenging if we know that there's a lot of leeway here for strategic action here I mean that we basically can create a kind of state monopoly if there are states buying deposits they rise the price of this fuels this gas or coal fuels and then they can shift the terms of trade and the question is whether you can do or want to do this multiple times so I think in this group I spare the technical details of the model you can read this in the paper but since this is abstracting away a lot of details the basic ingredients you should know so we're considering here basically two representative countries or maybe two groups of countries one is caring for climate change this is M the other group of countries is not caring for this at all they have both own fuels they differ those fuels differ in their carbon intensity and in their extraction costs and there are some other details with this we compare different settings so as a kind of benchmark we can say okay let's stick to a case where we just have domestic policies no kind of deposit markets running or a social planner that is globally optimal but the more interesting scenarios are those where we have a deposit market just for the dirtier fuel that is coal here okay or just for the cleaner fuel that is G here or both at the same time this is D for deposit with these assumptions we find certain sets of difficult effects you have different leakage effects because now these two fuels become independent if one becomes more expensive the other might become more expensive as well and those more leakage effects from one fuel to the other might be gained by the participants in such a market so let's get to the situation where we have market power so we assume that for example one government is willing so this government of country M is willing to buy more deposits in the other country to raise the price for say coal in order to maybe that the exporters or producers of this coal can sell it at a higher price and this can be to the benefit or this benefit of coal producers in M in the country M or in the country N depending on how deposits are shared and what we can say here under some technical conditions that it's a setting where you have both deposit markets global welfare in the country that cares for climate will be improved and harm H stands for the damages from climate change they will be also reduced although they will be not down to the level of of the first best the global first best so here in this setting if you look on the country M as an aggregate they gain from having both both deposit markets at the same time but we can also spread this up if you have just one or more and we can look into what is happening in those different countries so we can see here that both the countries that cares for climate change and the other country group prefer having complete deposit markets over just having one for coal or just having one for gas so they are both willing to agree under this conditions here there would be both both country types would be willing to agree to such a kind of treaty which will also reduce as harm most compared to the other the other deposit market options this still not answer whether um uh two deposit markets can exist in parallel at all so this is the lower part of the slide here what we in this in a special version of this model we can show that it might indeed work with two markets in parallel but only if the cleaner fuel gas here is not too clean if gas would be very clean compared to coal and depending on the other parameters shaped by demand and so on then it might be that one market will crowd out the other so then it does not work as I've shown on the previous slides but if they work we can also show an additional effect that if you have both deposit markets then the fuel mix that is extracted is shifted more towards to have a larger share of extraction of the cleaner fuel so the overall thing at least gets a little bit cleaner in both countries so both in the climate and in the non-climate interested country group um finally um we dig into more detail on these different uh subpluses for different kind of producers so these are the consumers these are the producers of coal these are the producers of gas and then things become interesting here because you can see that even the uh the coal producers would prefer having a deposit market for the own fuel or was the situation where we have deposit market for both fuels while for the producers of the cleaner fuel the gas produces the situation is different so they have a different strategic position where they want to support or oppose those different kinds of settings the upper line shows the situation for the consumers they pay the price so if uh if fossil producers can gain from such arrangement someone needs to pay and these are the customers so that is it's a very general finding independent of all different kind of parameterizations you can do here but you can see maybe predict here how how the game might be played out so these different to conclude these different types of leakages between fuels between countries and so on forth um complicates the situation there is leeway for strategic action to play this out it these strategic effects might still make multiple deposit market coexist uh and to the benefit at least of all countries if you take them as an aggregate um and also you know with different benefit ranking for the different types of or prefer or or profit rankings for the different types of fossil fuel produces um uh when you want to garner support for this so this is it thank you very much oh thanks everybody for sticking pretty much to time um we've got 15 minutes for questions and um i see uh maybe this the woman in front of the mask yep hello uh thank you so much for the presentations i have a question for the carbon tracker methodology and i'm interested in knowing because i guess for every fossil fuel producer they want to be the last one right they want to be the last one a producer of oil of everything and you have per company so i guess you have some sort of carbon budget that you divided in some sort of way um for the companies and i guess that brings you again to the typical questions of equity who should face out first and who is allowed to keep the last parts of the carbon budget which is a very political and very hard question so i'm wondering how you dealt with that in your methodology thanks yeah so i'll go first um can you hear me at the back yep so so the short answer is no we don't take the carbon budget approach what we're doing is we're saying okay if you take a scenario there's basically this much space for this volume of fossil fuels and we're saying you have this much from your existing supply and um and then you have a supply gap and then who from a lease cost basis so just looking at the cost curve i showed who from a if you just take a very economically rational approach it's the lowest cost hydrocarbons that go ahead factoring in applicable um carbon pricing under uh well uh sorry applicable carbon pricing so it's very much just that approach so we're not trying to say you get to do x or you get to do right this is this is how it would play out market of course that that's that's a net that is one viewpoint but um that's that's how our model works but there's a there is an economic principle of utility and you have and i'm not arguing a moral case here i'm just sort of saying hey look it if the global price is 50 bucks and your projects have a break even of 60 bucks are either out of the money why should we why is a remaining carbon budget going to a high-cost producer it'd be far better to give the carbon budget to a producer of five bucks who sells a 50 and you distribute the 45 bucks and that's the reason why carbon trackers partner with the global registry of fossil fuels which i chair and the fossil fuel treaty is we need an international mechanism that figures this out uh markets aren't going to be able to figure figure this out it's but it is true who is the low-cost producer will probably get to market first if you've got declining demand we anticipate not just us but rise to many others lower oil prices so we're going to enter into a period of 25 30 bucks a barrel um if if you're tied to a country that it costs 60 to get it out who's going to who's going to who's going to pay for the other 25 bucks of losses who's going to cover the losses so the justice and equity principles should also think through about the effects on poorer countries you're going to have to subsidize high-cost producers because they've claimed a right to be the last producer uh yeah prank oh sorry it's for ingraded for the first presentation so thanks for the presentation it's a simple question uh in terms of co2 capture there is a difference between the avoided co2 emission and the co2 that is captured because you have huge energy penalties and in the days of direct are captured huge energy and exegesis penalties related to the process so are you planning to use lca analysis or so on because if you are simple using the co2 capture you are not here accounting for the co2 emitted for the process because of the process of the co2 capture transportation and storage but the most important thing here is the co2 capture you talked about direct air culture and there is a lot of energy to do that yeah um so first of all i won't pretend to be an expert on the process of capture and storage um i'm not a technical expert but i will say that uh conceptually uh this is obviously a market that that will the ccs and what the energy that will be spent on on the capture element and also going into the storage that can be obviously fed in by the fact there is higher uh efficiency of the of each reserve being used and probably the energy will come from gas then right or it could be electrified uh electrified calving capture and storage yeah but i mean that maybe maybe don't know truly the co2 that is avoided it is less than the co2 that is captured so it's important to have a certificate that is based on the lca analysis life cycle analysis or so on but if you simple use there is no neutrality in this case there will always be a co2 that is emitted because of the co2 capture mostly it's your transportation injection and storage but mostly because of the co2 captain and when he goes to direct air capture there are some estimates depending on the origin of the electricity and the thermal energy you can emit more co2 than to your country so you have to do this i completely agree and the whole the whole idea here is obviously that it should be a major issue here is to certificate the co2 avoided emissions this is a major issue now for some trade schemes just behind to mike i'll just indulgence from the chair god bless australia we've just created the first carbon capture and storage credit system in australia government regulated where if you were when the gas industry releases a hundred tons if they capture one we'll credit them for the one the 99 are free we will issue a credit for the one they capture and then they can sell that credit to someone else who can then claim to be net zero my kid you're not so yeah there's also it's linkage is not just a physical problem linkage is an accounting problem but but can i just meant i i'll just want to say that that i think this is the really important part of this talk is that this is an idea right now which is purely academic it's discussed this like we need producer accountability and i think there's a huge risk that at the rate we're going now we don't have the technology ready to potentially mitigate that 10 to 25 percent risk at the end the loopholes that you're talking about richard 100 percent we need to cover that those loopholes are not there in a policy like this if it's implemented it's not a loophole it's a design feature it's uh no like let's stop pretending like let's not pretend that this accidentally happened mike so fascinating connections between all these ideas and there's a parallel conversation going on about uh international cooperation which is about who really pays right embedded in all these ideas that you're all raising is an idea that somebody is going to figure out who redistributes what mark was talking about um you know if the lower cost producer ends up producing so i guess my question is perhaps for our our our panelists from aconyas which is and i think you know if i'm not mistaken the carbon take back obligation places the the obligation to pay on the producer right and so if you're a producer in a low income country you come with that obligation in a sense how do we create the equity here so i'm just curious who is potentially paying in these ideas that you are exploring in aconyas and is that something that can create the basis for others to pay and contribute in this kind of equity framework and i open it up to anybody who wants to engage on that question here um that's a really good question thank you um i don't have an immediate answer and i think that is obviously part of the problem here is that in the sort of conceptual framework we've got um it isn't going to be the lower income countries that are paying for their transition it's not going to be the lower income they cannot compensate themselves for the missed opportunity of of not developing their fossil fuel industries so it has to come externally um i think there were some interesting ideas mentioned earlier around the link between developing country fossil fuel revenues and debts and whether the scope for deals where debt forgiveness could be one way of paying lower income countries not to produce fossil fuels um i think the scale of the challenge financially is so large that you're really going to be looking at IFIs or regional banks to put some of the money into this um interestingly if you look at the usuni deal there are actually you know um ordinary households and consumers could buy um whatever the obligations were called in the in the usuni deal now there are various reasons why that failed including the the price that they fixed out and including actually i think genuine questions over the additionality of the the carbon savings but i think we probably need to be quite creative about where the money comes from and you know IFIs might be a bit of a stodgy obvious answer and maybe debt forgiveness is in that camp as well but you know there are lots of interesting ways of raising funding for these kinds of initiatives and we probably need to be quite creative about thinking where the money comes from. Can i just quickly comment on this it's i'm going to make an obvious statement economics and finance are not the same discipline the world of investment banking corporate finance capital markets equity debt capital markets is not the same as as an economic idea and and yet and it's not really addressed here we should at this event we should have come back to it is the investment banks are all over this like a rash how to retire coal what's going on all the old companies have to negotiate they've got governments involved we've got g fans at the highest levels talking with the you know with the IEA and others about and the reason for this is because the banks have got a huge exposure to the coal-fired power to to the coal production facilities and and the oil and gas projects my concern is is that the private sector and the investment banks are not democratically accountable who they're not accountable to anybody and then they're making this up they have engaged civil society groups and i mentioned a few early you know Rocky Mountain Institute carbon tracker climate bonds initiative but that's not the same thing and there is isn't really a voice from the global south in negotiating what this transition is going to look like we should come back next year and and actually interrogate these plans and review these plans and methodologies because they're creating them for real and we saw the huge deal from Prudential and the Asia Development Bank and core retirement we had Trafagura running around with a massive deal on core retirement and we're going to come up with a set of financial mechanisms for core retirement that are going to be published in the couple of months time which the big banks are going to probably come behind and we should be scrutinizing these in detail with with with vigor i mean i get the papers because we're in the working groups and there's i can't say too much about it but there's some some really shocking stuff in there really shocking stuff maybe time for one last question at the front thank you thanks for the very inspiring presentations i think there's some great thinking about smart mechanisms that can develop dynamics i have a question for Ian and then one for all of you for Ian it's whether you have considered some kind of bidding mechanism where whoever is ready to keep something in the ground would bid on a certain amount of money i believe Mia Motley the Barbados Prime Minister has suggested setting up as such a fund in Glasgow with 500 billion per year financed by the central banks and i imagine that could solve some of the issues the challenges that you are mentioning and the question for all of you is there is obviously huge climate damages associated with fossil fuels and whether in the context of your proposals there are ways to bring these climate damages into those calculations or do we need some kind of shadow price which just quantifies the the the the damages which i believe you know social cost of carbon globally is like 400 tons and for a barrel of oils like 175 dollars a barrel of oil that's the that's the damages we're creating and how how can we bring these damages into these calculations or at least make them visible just quick answers from everybody thanks yeah okay so quick answer i mean i think bidding mechanisms are very interesting i think that was part of the the german coal program was a sort of reverse auction to decommission coal i think you know you then have a question about well how much people willing to pay and how much are people willing to accept i think you would still want in the world of scarce resources a good sort of analytical basis for you know which projects are being put up for bid in which countries you know do we really think we're getting value for money i don't think an auction guarantees in any sense value for money in economic terms and i think you still have those commitment issues over you know if you have an auction and someone pays an upfront amount to to not develop fossil fuels what happens when the economics change and the prices change and how do you stop people reneging on those deals so i think a lot of the problems still exist even if you go down the bidding route okay quick answer on damages so carbon take back obligation uh simply no there is nothing there on the cost of a damage for fossil fuel production it's about incentivizing and and phasing out but i do think and this is just for inspiration for the room this idea of obligating on certain uh elements of damage for example like you could you could incorporate that and in addition to that i really want to emphasize that there are certain projects in fossil fuel industry that are much more damaging to local environments to communities thus thus projects or those projects can obviously be be banned on on individual country basis or or or in in other decisions but the carbon take back obligation is more of a a bigger mechanism for that process that i showed yeah i think all what we have seen here is a version of the beneficiary pays principle someone is willing to pay because he or she is damaged or potentially damaged and so the then the question is how to channel this the funds to avoid or reduce those damages in which ways to which actors to achieve the capacity reduction or or or production less reduction so in a sense it's essential to i would say the damage with auctioning mechanisms so um i agree that's a short answer but i see more problems but uh let's maybe that's for the coffee break yeah but i say there's some really good stuff being done by ca 100 and g fans not all of it's bad but um on the question of socialization of costs uh given the size of the private sector exposure there's going to be huge resistance to this and in carbon truckers work on what we call asset retirement obligations when a company comes to the end of its life and more than gas has got a whole load of sites that need remediating what they're doing is are putting it into dud companies that then go bankrupt and then the state is picking up the cleanup cleanup costs and we reckon there's 200 billion bucks of unfunded liabilities in the us alone that's just a classic stout stark it's on carter's website stark reality as the house of these costs are socialized on the broader public and it's the taxpayer who pays it's not the company pollutes that pays i mean all i'd say is that it's kind of the model we're proposing not the model we're proposing we're highlighting the risks the investors and so ultimately that will come through in a different policy action and different environmental costs burden onto the individual projects and will impact their relative positioning that the cost care of i suppose we're not trying to factor in for that that piece but it but it's certainly certainly the model will take account on the sort of the approach we're looking at will take account of such such things as they change i mean so it's not incompatible i suppose what i'm trying to say on the social cost of carbon so just to clarify i um took a just um positive approach trying to see what happens even if countries are very short termist and that they use a very low like 36 dollar cost of social cost of carbon and to show that despite that we can get cooperation under the mechanisms i proposed of course there's no no way a normative statement we shouldn't discount the future just because it's a future it's just i'm assuming that that countries do so in the simulations and yet we get some cooperation now i stand between you and lunch the the organizers did ask me to end on a positive note indeed a highlight from me from the conference today perhaps because i'm renowned for always being negative uh so so my positive is that i've really detected a high degree of cynicism and skepticism like i haven't got to the joke yet um like we're all used to techno optimism and at this conference i felt very comforted by the degree of uh skepticism about optimism the idea that dodgy carbon credits and offsets and all this net zero stuff the imaginary creative accounting is is going to fix things and i think a fossil fuel supply conference is the perfect foil to that because if we're still expanding fossil fuel production guess what we're not doing like if we're actually increasing coal and gas production guess what we're not doing we're not heading for net zero so there's truth in talking about this stuff this is where the rubber hits the road and all of the bullshit accounting concepts used to offset this and generate that like if we're not actually measuring those real emissions well we're going to be in trouble so yeah it's nice to be surrounded by a bunch of cynics there's my