The environmental and economic effects of international cooperation on restricting fossil fuel supply

Abstract

Achieving the Paris Agreement’s global temperature goal of keeping warming well below 2 °C and ideally 1.5 °C requires limiting fossil fuel production. In the United Nations climate change negotiations, this need is only beginning to be acknowledged. Nevertheless, as some countries have already adopted supply-side climate policies, initial cooperative activities have started, and calls grow for a fossil fuel treaty, questions arise about the prospects and possible effects of international cooperation on limiting fossil fuel supply. Combining qualitative insights on possible participants in a supply-side coalition with a quantitative analysis based on integrated assessment general equilibrium modelling, this article addresses these questions. Through k-means clustering based on fossil reserves per capita, fossil fuel rents and existing supply-side policies, we first identify which (groups of) countries are most likely to lead the formation of an international supply-side coalition, and which (groups of) countries are likely to follow. Drawing on these insights, we develop several scenarios for the evolution of international supply-side coalitions and compare these to a business-as-usual scenario. By doing so, we demonstrate the global and regional environmental, trade and macroeconomic effects of international cooperation on limiting fossil fuel supply and combining fossil supply restrictions with carbon pricing to meet the Paris goals. Our findings underscore the importance of pursuing supply-side and ambitious demand-side climate policies in parallel, and identify the scope and coverage, size of the coalition, and incentives for participation as key design elements for an international supply-side coalition.