Climate Change Concerns and the Impacts to Oil and Gas Economics

Aside from global political tensions impacting oil and gas economics, what other stipulations have affected the demand and supply side of oil and gas markets? While culminating over a long period of time, in recent years the scientific community has converged on the conclusion that climate change is occurring and a significant cause is the burning of fossil fuels that has occurred since the beginning of the Industrial Revolution. One approach is that the only solution  is to stop using fossil fuels; however, an immediate shut off in this energy resource would lead to huge changes in peoples lives. What are those changes and are we as a society ready to pay a heavy price to meet this challenge? Those are difficult and complex questions to answer. Eliminating the use of fossil fuels gradually may be another solution, but there is a risk that there will be no significant difference to the climate in the end. 

Fossil fuel consumption continues to increase on a global scale and that consumption comes with a price. When fossil fuels (coal, oil, natural gas) are refined, or burned, they release greenhouse gases into the atmosphere, including carbon dioxide, nitrogen oxides, and methane. Larger amounts of greenhouse gases negatively impact the environment through increased warming as sunlight is reflected back to the Earth’s surface. As you can see in the chart below, greenhouse gas emissions in the United States associated with electricity generation peaked at ~2.5 billion tonnes in 2007, and are slowly declining. The cause for this decline is likely due to the shift away from highly carbon intensive fossil fuels, such as coal, and increased use of natural gas, commonly touted as a “bridge fuel,” along with increased use of renewables for electricity generation. In spite of this decline, the United States continues to be the second largest global emitter of carbon dioxide, following China, the greatest contributor at 10.17 billion tonnes of CO2 in 2019 alone. The Energy Information Agency expects total energy-related CO2 emissions in the United States to increase to 4.8 billion tonnes in 2021 and 4.9 billion tonnes in 2022.1U.S. Energy Information Administration independent statistics and analysis. After 2020 decline, EIA expects energy-related CO2 emissions to increase in 2021 and 2022. Today in Energy. U.S. Energy Information Administration (EIA). (n.d.). Retrieved October 4, 2021, from

Once you have reviewed the map displaying annual CO2 emissions across the globe, refer to the map below, reporting fossil fuel consumption per country. How do higher emitting countries relate to fossil fuel consumption? 

As the world continues to face potentially severe impacts from climate change, how can people be convinced to burn less fossil fuels? One way is to simply mandate a change in government policy, which was done as part of the change in the U.S. administration in early 2021. By executive order, President Joe Biden stated that ‘climate considerations shall be an essential element of United States foreign policy and national security.2The United States Government. (2021, January 27). Executive order on tackling the Climate Crisis at home and abroad. The White House. Retrieved October 4, 2021, from When the United States reentered the Paris Agreement in January of 2021, the Biden Administration committed to a neutral carbon economy by 2050, which will include a pathway to decarbonizing the electricity and transportation sector, with a stark increase in renewable energy.

Another method to change behavior related to fossil fuel consumption is to mandate changes overseen by various government agencies. For example, agencies may require a much higher fuel economy standard for automobiles. Or regulatory agencies may prolong the permits granted for new fuel pipelines and coal fired power plants. While these mandates will have an impact on the demand and supply side of fossil fuels, there are trade offs to consider. For example, we require a certain amount of electricity generation, and without satisfying that demand before eliminating fossil fuels, such as natural gas, we risk being in the dark. 

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