10/28/2015 02:22 pm ET Updated Oct 27, 2016

The Paris Agenda: Leave Fossil Fuels in the Ground, Auction Permits, Protect People

Climate campaigners have adopted a slogan for the lead up to the international climate change conference (COP-21) in Paris this December: "Leave it in the ground." The UN's climate chief Christiana Figueres told the fossil fuel industry, "Three-quarters of the fossil fuel reserves need to stay in the ground." The slogan illustrates how the discourse is moving "upstream," from controlling emissions at the smoke stack or tailpipe to limiting the production of fossil fuels at the coal mine or oil well.

Three years ago Bill McKibben laid out the "terrifying math" behind the "excess fossil fuels," which if unearthed, would push the planet past the safe carbon budget as calculated by scientists. It starts with two degrees Celsius, the maximum level of acceptable temperature change that the world's nations agreed to above pre-industrial levels. From there, estimates of the world's remaining carbon budget vary depending on the level of acceptable risk. On the low end is McKibben's relatively risk-averse estimate of 565 gigatonnes (GT) CO2. A 2013 report from Carbon Tracker put the number at 975 GT for an 80% probability of remaining below 2 degrees C. The Intergovernmental Panel on Climate Change (IPCC)'s proposed a budget of 1000 billion tonnes (Gt) of CO2 starting from 2011 that would give the planet a 66% chance of avoiding 2 °C warming. But Kevin Anderson of the Tyndall Centre for Climate Change Research notes that between 2011 and 2014 CO2 emissions from energy production amounted to about 140 GT of CO2, and when he subtracts emissions from deforestation and cement production through the year 2100 (60 Gt and 150 GT), then at the current global rate of 35 GT per year, the remaining 650 GT would be used up in just 19 years! This puts the climate talks in Paris in perspective. There is no time for low initial national "contributions" with "ratcheting up ambition" after 5 or 10 year review periods. The entire carbon budget will be gone by 2034!

The countries of the world have agreed to 2 degrees C, but they have yet to agree on an approach to leaving the excess fossil fuels in the ground. The most obvious approach is to simply announce a ban on fossil fuel production starting in 2034, and let that market signal filter through the economy over the next few years. The fossil fuels divestment campaign is aligned with this approach, since the investors are basically saying they are moving their money into other industries that will be around for more than 19 years into the future.

Less heavy-handed than an outright ban would be a steadily rising carbon price. The case can be made to countries, industries, and companies that this would help them do a "managed retreat" instead of waiting around for the market to crash. A carbon price could be implemented through either a tax or a permit system. Economists see it as a matter of regulating price or quantity and letting the other fluctuate. Advocates of the fee and dividend model rightly state that the funds raised by a carbon tax can be returned to people as a climate dividend, and recipients of dividend payments could become a constituency for higher and higher carbon prices. Unfortunately, without a production (quantity) limit, the wealthiest companies would be able to afford to continue to pollute, and may simply pass the cost on to their customers. So it is possible that the main result of a tax with no cap may be just raising funds.

If an outright ban is politically unfeasible and the goal is really to leave the fuels in the ground, then the global community must set an internationally agreed-upon limit that countries could sign on to, and to create an institution to regulate the budget under a declining permit system. This is the approach advocated by the group CapGlobalCarbon. The permits would be sold to the upstream fossil fuel companies, and the scarcity rent would be returned to the public as climate dividends. Representatives from CapGlobalCarbon will be attending the climate conference in Paris, and will call for the creation of a Global Climate Commons Trust to set up a science-based permit system that follows the Cap & Share model. Whereas the UNFCCC is comprised of countries, the Trust would represent all of humanity on the basis of "one person, one share."

The math is clear: there is a fossil fuel bubble. There is more coal and oil in the ground than we can safely burn. In this framing, the Paris climate conference is really an economic conference, perched on the brink of a market crash in the fossil fuel sector. The solution is to leave the fuel in the ground, and set up a price signal to allow a managed retreat from an obsolete industry, and protect the public by sending climate dividends back to households.