An equitable redistribution of unburnable carbon

The paper addresses how equity considerations could influence the geographic distribution of fossil fuel production under stringent climate targets, and whether equitable redistribution conflicts with cost-optimal (least-cost) pathways. Prior work shows that cost-optimal allocations imply substantial unburnable reserves with clear winners and losers. Equity concerns arise because market-driven or least-cost outcomes may disadvantage lower-income, lower-capacity producer countries and perpetuate historical inequities. The study explores two equity-based criteria for allocating production: (1) current development need, proxied by the Human Development Index (HDI), and (2) accrued historical benefits from past fossil fuel production (resource rents per capita). Using a global energy systems model (TIAM-UCL), the authors compare a cost-optimal allocation of production under 1.75°C and 2°C carbon budgets to scenarios in which a differentiated carbon tax on production shifts output from higher-development or historically high-benefit producers toward lower-development regions. The purpose is to quantify the feasibility, costs, and consequences of an equitable redistribution of production for both producer and consumer countries.

The paper situates its work within debates on equity in climate policy and the emerging focus on supply-side measures. Critiques of integrated assessment models highlight that cost-optimality often ignores political economy and equity in production. Equity principles considered in the literature include development stage, capacity to pursue non-fossil alternatives, and historical responsibility/benefits. Calls for supply-side action include subsidy removal, production taxes, tradable production allowances, exploration restrictions, and even supply-side treaties to complement Paris Agreement demand-side commitments. Prior qualitative arguments suggest high-income, high-capacity countries should phase out production first (e.g., Lofoten Declaration), but quantitative analysis of equitable production allocations and their tension with economic efficiency has been lacking. The paper builds on McGlade and Ekins (2015) by quantitatively testing redistribution mechanisms tied to HDI and historic rents.

Model: TIAM-UCL (TIMES Integrated Assessment Model at UCL), a technology-rich, least-cost global energy system model with a 16-region representation, covering primary energy through end-use demands and trade. It includes detailed fossil resource characterizations (conventional and unconventional oil and gas categories, associated supply cost curves), upstream emissions, and endogenous energy prices reflecting production costs, scarcity rents, constraints, and transport costs. Negative emissions technologies (BECCS) are available subject to a global sustainable biomass limit of 110 EJ/yr. The climate module (calibrated to MAGICC) constrains temperature outcomes; scenarios use carbon budgets consistent with IPCC SR1.5.

Demands and horizon: Energy service demands follow SSP2, with sensitivity cases under SSP1. Time horizon extends to 2100 with climate stabilization constraints, including CH4 and N2O trajectories consistent with 2°C pathways for non-energy sectors and endogenous mitigation in energy supply (e.g., methane leakage reductions).

Climate ambition: Two global carbon budgets from 2018 onward: 800 GtCO2 (1.75°C, 66% probability, with overshoot allowed but not exceeding 2°C) and 1170 GtCO2 (2°C, 66% probability). The model ensures temperatures meet the targets by 2100 and do not exceed 2°C.

Equity criteria and groupings:

• HDI-based development need: Regions grouped into LMHD (<0.7; Africa, India, Other Developing Asia), HHD (0.7–0.8; Middle East, Mexico, South & Central America, China, Former Soviet Union), and VHHD (>0.8; Western Europe, Eastern Europe, UK, Canada, USA, Australia, Japan, South Korea). For multi-country regions, population-weighted mean HDI determines grouping; some high-HDI Gulf states fall into HHD because of regional aggregation.
• Accrued benefits: Countries grouped by cumulative fossil fuel rents per capita (1970–2017; World Bank): low (<$5,000; India, ODA, China, Japan, South Korea, Eastern Europe), medium ($5,000–$20,000; Africa, Mexico, S&CA, Western Europe, UK), high (>$20,000; Canada, USA, Australia, Middle East, Former Soviet Union).

Redistribution mechanism: A differentiated carbon tax applied to fossil fuel production based on carbon content, varying by equity group. Purpose is illustrative, to move production away from cost-optimal allocation and assess impacts; not proposed as policy. Tax does not apply to all extraction-associated emissions except fugitive CH4 from natural gas production. Two trajectories are defined:

• Group 2 (highest development or highest accrued benefit): Start $100/tCO2 in 2020, then increase 7% (high variant) or 5% (low variant) per annum to 2050, reaching $750/tCO2 (high) or $375/tCO2 (low); levels held constant thereafter.
• Group 1 (intermediate development/benefit): 50% of Group 2 levels (e.g., $98/$375 by 2030/2050 in high variant; $78/$188 by 2030/2050 in low variant). Group 0 (LMHD/low benefit) is exempt (0 tax).

Scenarios: Cost-optimal 1.75°C and 2°C; HDI-based redistribution with low and high tax variants under both temperature targets (and SSP1 sensitivities); accrued-benefit-based redistribution with low/high tax variants under both temperature targets. Outcomes compared in terms of production shares/levels by region and fuel, system costs (investment and operating), and net commodity trade costs.

• Redistribution occurs in a shrinking fossil market under stringent climate targets, limiting potential gains for LMHD producers. Under 1.75°C, by 2060 global production declines relative to current levels by approximately 59–62% for gas, 59–62% for oil, and 87% for coal. Under 2°C, declines are about 48–54% (gas), 51–60% (oil), and 75–80% (coal).
• Continued oil and gas production at modeled levels is contingent on rapid coal declines and availability of BECCS. In 1.75°C cases, BECCS provides 2.7–3.7 GtCO2 of negative emissions in 2060, offsetting roughly 80–90% of CO2 from unabated gas or 40–60% from oil.
• Large disincentives are required to shift production towards LMHD regions (Africa, India, Other Developing Asia). Significant LMHD gains in gas market share appear mainly after 2040, requiring HHD group production taxes of about $188–$375/tCO2 by 2050 and thereafter. Under 1.75°C, LMHD gas production is similar to the cost-optimal case in 2040 but 2–3 times higher by 2060; under 2°C, LMHD increases are marginally higher in levels but lower in share due to a larger overall market and sustained HHD shares.
• For oil, LMHD regions gain market share by 2040 relative to cost-optimal under 1.75°C, but at production levels similar to 2020, primarily displacing HHD producers. Under 2°C, patterns are similar with lower LMHD share because of higher global production and HHD retention of share.
• Moving away from cost-optimal allocation increases total energy system costs. Additional costs borne by HHD and VHHD regions outweigh LMHD benefits. Higher-cost resources and added infrastructure raise system costs; benefits to LMHD accrue later when taxes are highest, and are uneven across LMHD regions.
• Trade cost impacts: LMHD regions see reduced net commodity trade costs (more exports, fewer imports), while HHD and VHHD see increases; however, these trade benefits do not account for higher production investment and operating costs, which can offset or exceed trade gains. In accrued-benefit cases under 1.75°C, the low-benefit group increases production but also increases domestic system costs, as more high-cost domestic fuels are consumed rather than exported.
• Overall, the economic case for HDI-based equitable redistribution is weak: it requires strong disincentives, yields limited and delayed production gains for LMHD, raises global system and trade costs, and can disadvantage LMHD import-dependent countries.

The study quantitatively examines the tension between equity-motivated redistribution of fossil fuel production and economic efficiency. Results show that, within stringent carbon budgets, reallocating production toward lower-development or historically low-benefit regions demands large producer-specific carbon taxes and occurs in a contracting market, limiting benefits. The increased system costs and higher import costs for consumers, including some LMHD countries, create trade-offs between equity in production and equity in consumption. Accrued-benefit and HDI criteria both present operational challenges and potential unintended consequences, challenging the practicality of redistributing production rights as a primary equity mechanism.

Despite weak economic justification for redistribution, equity principles remain important to guide supply-side policy. Advanced economies with high development or historically high benefits should lead in phasing out production, addressing production subsidies and market distortions, aligning new supply investments with national climate commitments, and clarifying timeframes for managed decline. Recognizing LMHD perspectives is essential: international cooperation can shift finance from inefficient fossil projects to low-carbon energy systems, support economic diversification where production exists, enable upstream emissions mitigation, and provide alternatives for access to energy and development where new production is being considered. Embedding such supply-side commitments within the Paris Agreement’s pledge-review-ratchet framework can help avoid distributional conflicts while advancing least-cost pathways consistent with climate goals.

The paper contributes the first quantitative assessment of equity-driven redistribution of fossil fuel production under stringent climate targets, comparing HDI- and accrued-benefit-based mechanisms to cost-optimal allocations. It finds that substantial taxes are needed to shift production toward LMHD regions, benefits materialize late and are constrained by shrinking markets and reliance on negative emissions, and global system and trade costs increase—often disadvantaging some LMHD importers. Therefore, while redistribution has limited economic merit, equity principles should inform supply-side policies: prioritizing phase-out leadership by high-development/high-benefit producers, removing production subsidies, avoiding new high-cost supply, supporting LMHD countries with clean energy finance and technology, and facilitating economic diversification and just transitions. Future work could deepen analysis of policy instrument design for supply-side equity, explore alternative demand pathways and tighter biomass/CCS constraints, and examine country-level heterogeneity within aggregated regions to refine equity groupings.

• The redistribution mechanism is a stylized carbon tax on production used for modelling purposes only; it is not a proposed policy and omits institutional, political, and legal feasibility considerations.
• Regional aggregation (16 regions) can mask intra-regional heterogeneity (e.g., high-HDI Gulf states within a broader HHD Middle East region), potentially affecting group assignments and outcomes.
• Results depend on demand pathways (SSP2 baseline; SSP1 sensitivity) and on availability of BECCS with a capped sustainable biomass resource; outcomes would differ under alternative assumptions for demand, biomass, CCS deployment, and non-CO2 mitigation.
• The climate module is simplified (calibrated to MAGICC) and aims to match temperature outcomes by 2100; the 1.75°C case allows overshoot and does not model 1.5°C budgets where TIAM-UCL struggled under chosen constraints.
• Valuation excludes fiscal regimes and does not include tax revenues from the production tax; focus is on techno-economic system costs, which may not capture distributional fiscal impacts.
• Uncertainties in future market sizes, technology costs, and resource availability remain, and translating modelled production shifts into real-world investments involves additional constraints (finance, capacity, governance).