Norwegian’s provocative plan to curb climate change wins EU prize

Paying Canadians to keep their oil sands in the ground to curb climate change might not sound like an obvious vote winner to a cash-strapped European government.

But it makes more economic sense than people realise, according to Bård Harstad, a Norwegian academic who has just won a prestigious environmental economics prize for a provocative paper suggesting just such a move.

Mr Harstad, 40, has been awarded the Erik Kempe prize, worth SKr100,000, by the European Association of Environmental and Resource Economists for a study called “Buy Coal! A Case for Supply-Side Environmental Policy”.

It shows that countries eager to tackle climate change – including much of the EU – would find it cheaper to pay other nations to keep their fossil fuels in the ground rather than try to cut their own greenhouse gas emissions with measures such as carbon markets or taxes.

That is especially the case for fossil fuels that are difficult or expensive to extract, he says, such as Canada’s oil sands or Arctic oil.

“It sounds weird,” Mr Harstad said in an interview with the Financial Times, conceding that some people might have “digestion problems” with the idea of paying a wealthy country such as Canada to stop extracting its oil.

But it has to be seen in the context of the way climate-conscious countries have failed to make headway in UN-backed international climate negotiations during the past 20 years, he said.

So far, the main result of these discussions has been the Kyoto protocol, a treaty obliging nearly 40 wealthy countries to cut their greenhouse gas emissions, but not China or the US, the world’s biggest and second-biggest emitters respectively.

UN climate talks are now aiming to produce a more comprehensive successor to the Kyoto deal by 2015.

But one of the problems they face is so-called “carbon leakage”, where tough climate policies in one country encourage companies to move to places with less onerous rules, which end up using or extracting more fuel. That means overall emissions are not cut by much, and punitive policies such as carbon border taxes are sometimes mooted.

Mr Harstad’s research suggests UN climate negotiators should look at a system in which countries can buy the right to extract fossil fuels such as coal, oil or gas from others, and then conserve the fuel. If a big enough coalition of pro-climate countries did this, the carbon leakage problem could be avoided, his paper suggests.

This is because countries outside the coalition would not be able to dig up fresh deposits of fuel in response to rising global prices, having already sold the extraction rights to their least profitable supplies to other nations. So the greener countries could pare back their own use of fossil fuels without worrying that others would increase their supplies.

Still, it might take an adroit politician to sell such a plan, even in Mr Harstad’s home country of Norway, which is already sympathetic to the principle after agreeing to put $1bn towards helping Indonesia stop chopping down its trees. (Deforestation is estimated to account for at least 17 per cent of global greenhouse gas emissions because trees store carbon that is released when they are logged.)

Mr Harstad, who is affiliated with both the University of Oslo and Northwestern University in the US, said he had received a sympathetic hearing from some Norwegian politicians, but others seemed fearful about a policy that could affect the North Sea oil that has underpinned his country’s economy for decades.

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Letter in response to this report:

A measure to make dirty fuels less attractive to investors / From Ms Nusa Urbancic