Why Denmark Must Phase out North Sea Oil and Gas Extraction

THE SKY’S LIMIT DENMARK: WHY DENMARK MUST PHASE OUT NORTH SEA OIL AND GAS EXTRACTION

1 This report was researched and written by Bronwen Tucker with contributions from Kelly Trout and Greg Muttitt. It was edited by Collin Rees. All are with Oil Change International.

The author is grateful for feedback from the following reviewers: Lorne Stockman and Greg Muttitt of Oil Change International, Jens Mattias Clausen and Tarjei Haaland of Greenpeace in Denmark, and John Nordbo of CARE Denmark.

Design: [email protected] Cover Image: Platforms in Esbjerg offshore oil harbor, Denmark. ©Frank Bach/Alamy Stock Photo.

September 2019

This publication is part of an Oil Change International series of national and sub-national reports based on our global analysis, The Sky’s Limit: Why the Paris Climate Goals Require a Managed Decline of Fossil Fuel Production, released in September 2016.

Oil Change International is a research, communications, and advocacy organization focused on exposing the true costs of fossil fuels and facilitating the coming transition towards clean energy.

Oil Change International 714 G Street SE Washington, DC 20003 USA www.priceofoil.org

Published by Oil Change International, in collaboration with: Greenpeace in Denmark, www.greenpeace.org/denmark

2 “The new Danish government will have the ambition to be among the governments of the world that are doing the most — both at home and internationally — to counter climate change,”

A FAIR DIRECTION FOR DENMARK, JUNE 2019.1

“Dear young people, you made this election the first climate election in Denmark’s history,”

PRIME MINISTER METTE FREDERIKSEN IN HER ELECTION VICTORY SPEECH, 5 JUNE 2019.2

“If we succeed, it will be because we hurried,”

A FAIR DIRECTION FOR DENMARK, ON LIMITING CLIMATE CHANGE TO 1.5 DEGREES CELSIUS (°C), JUNE 2019.3

“It is absolutely crucial that we do everything we can to get the last drops of the oil,”

FORMER MINISTER OF ENERGY, UTILITIES, AND CLIMATE LARS CHRISTIAN LILLEHOLT, APRIL 2016.4

1 SUMMARY

Over the past thirty years, Denmark This report applies these stark global There is a cumulative 665 million tonnes

has positioned itself as a global climate carbon budget limits to the outlook for oil (Mt) of CO2 associated with Danish oil and leader through its policies to support and gas production in Denmark. We find gas between 2019 and 2050. Of these

wind power, district heating, and energy that Denmark’s plans to allow new North potential CO2 emissions, 401 Mt of CO2 efficiency, amongst other actions.5 Sea oil and gas projects in the 2020s and would come from new projects yet to be Building on this, in June 2019, the newly 2030s would undermine its aspirations developed that would peak between the elected Danish government committed of climate leadership. The carbon mid-2020s and mid-2030s. This means

to a new climate target of reducing dioxide (CO2) emissions from burning over 60 percent of anticipated emissions emissions 70 percent below 1990 levels Danish-produced oil and gas would be related to Denmark’s oil and gas by 2030, surpassing its previous goal of substantial, overtaking Denmark’s total extraction in the coming decades are not

6 40 percent by 2020. expected domestic CO2 emissions from yet committed — the projects they are energy by mid-2025 (see Figure 1, with associated with will either require new However, Denmark’s plans to expand details on the domestic reduction curves licenses from the Danish government North Sea oil and fossil gas extraction in Section 1). In other words, if current or final investment decisions (and final undermine this record of climate plans to expand North Sea extraction government approval) to be developed. action. This is because the potential are left unaddressed, Denmark will either carbon emissions from the oil, gas, and (a) meet its domestic emissions targets A phase-out of Denmark’s oil and gas coal in the world’s currently operating but export oil and gas with associated industry would not just have domestic fields and mines would already fully emissions that overshadow this domestic implications, but international ones. exhaust and exceed carbon budgets progress, or (b) fail to meet its emissions There is a misconception that if Denmark consistent with the Paris goals.7 Simply targets and continue to consume more (or any other country) extracts less oil put, we cannot afford to bring new oil and gas domestically than is Paris- and gas, another country would extract extraction online — in Denmark or aligned. the same amount instead. However, the anywhere else. “leakage” effect is only partial: Only some

Figure 1: Projected CO2 emissions from Danish oil and gas, compared to the CO2 emissions goals for all domestic energy set by government and 92 Group NGOs, 2019-2050. 35

Producing Under Development Government CO2 Reduction Curve

Undeveloped Undiscovered 92 Group CO2 Reduction Curve 30

2 20

Mt CO 15

0 2020 2025 2030 2035 2040 2045 2050 Source: Oil Change International analysis based on data from Rystad UCube, Danish Energy Agency, and 92 Group.8

2 of the reduced extraction is compensated renewable energy and energy efficiency KEY RECOMMENDATIONS by increases elsewhere.9 A 2017 study by leading by example,11 it could do the led by Taran Fæhn found that, after same for supply-side climate action. Our findings mean that in order to ensure taking leakage into account, the most Denmark meets its Paris commitments economically efficient approach would Delayed action — or no action — to phase and leverages its position as a wealthy be for two-thirds of Norway’s climate out extraction is likely to be much more fossil fuel producer to build global mitigation efforts to take place on the disruptive for Denmark. Creating a phase- supply-side climate ambition, the Danish supply side, through cuts to oil and gas out plan will help ensure a just transition government must build off its existing extraction.10 Additionally, there are a plan is implemented with input and buy-in climate leadership and: number of other mechanisms through from impacted workers and communities. which continued Danish extraction acts to It will also help avoid the potential f Immediately freeze the granting of increase net global emissions, including stranded assets of an unmanaged further leases or permits for new carbon lock-in and lower fossil fuel prices decline, and the public liabilities of oil and gas extraction projects or that encourage higher consumption and delayed action. In Section 3, we estimate transportation infrastructure that make renewables less competitive (see these possible liabilities in the case that would enable additional exploration; Section 3). Denmark continues to approve new licenses in the near term, but eventually f Revoke undeveloped licenses and In the context of global plans for acts to end extraction. If Denmark review whether existing facilities extraction that extend far past safe continues to approve licenses until 2030, should be phased out early in order to climate limits and a shortage of then takes actions that revoke them, we contribute to the achievement of the appropriate action from fossil fuel estimate possible liabilities of DKK 59 Paris Agreement; and producers, Denmark is exceptionally billion. In comparison, revoking existing well-positioned to chart a new course undeveloped licenses today instead f Plan and implement a just transition and clearly signal to other governments would incur a much lower possible for affected workers and communities that now is the time to stop expanding compensation claim of approximately in consultation with trade unions and fossil fuel production. Just as Denmark DKK 8.2 to 9.7 billion. community leaders. has increased international ambition on

3 1. OIL AND GAS EXTRACTION IN A WARMING WORLD

Climate science has established that Past research by Oil Change International It is important to emphasise that the cumulative carbon dioxide emissions over compared global carbon budgets to the left-hand bar in Figure 2 does not include time will determine roughly how much carbon dioxide emissions from fossil fuels undeveloped reserves, which are roughly average global temperatures will rise.12 in already-operating fields and mines, twice as large as the developed reserves To keep warming within any particular using optimistic estimates of emissions shown, or an even more vast quantity of limit — all else being equal — there is reductions from land use change and fossil fuel “resources” (i.e. undiscovered a maximum amount of carbon dioxide cement.15 Figure 2 displays a summary of and uneconomic sources). that may be emitted. This is the world’s this research using updated budgets from carbon budget. the IPCC’s 2018 Special Report on Global The developed reserves shown are in Warming of 1.5°C, and shows that: already-operating projects, meaning The 2015 Paris Agreement aims to infrastructure has already been built, hold this global average temperature f The oil, gas, and coal in existing fields capital invested, and workers employed. increase to well below 2 degrees and mines would push average global This creates “carbon lock-in,” and means Celsius (°C) above pre-industrial levels, temperature rise far beyond 1.5°C, that it is more difficult, both politically and pursue efforts to limit it to 1.5°C.13 and nearly exhaust a 2°C carbon and economically, to limit extraction from The importance of aiming for the budget. these projects relative to those not yet 1.5ºC target was underscored by the built.17 Intergovernmental Panel on Climate f If global coal use were phased out Change’s (IPCC) 2018 Special Report, overnight, the developed reserves This overshoot of our global carbon which found that limiting warming to of oil and gas — taking into account budgets mean we face a collective choice 1.5°C would significantly reduce impacts cement and land use change — would between managed decline, unmanaged on the most vulnerable communities still push the world beyond 1.5°C of decline resulting in stranded assets, or and reduce risks of systemic collapse, warming. climate catastrophe (Figure 3). Given compared with 2°C.14

Figure 2: Carbon dioxide emissions from developed global fossil fuel reserves, compared to carbon budgets within range of the Paris goals.

1200 PA 2°C RI S

1000 GO

Coal AL S 800

DEVELOPED 2 600 RESERVES Gas

CO CARBON BUDGET

Gt 1.5°C

400 Oil CARBON BUDGET 200 Land use change Cement 0 Emissions1.5°C (50% chance) 2°C (66% chance)

Source: Oil Change International analysis based on data from Rystad Energy, IEA, World Energy Council, and IPCC.16 4 Figure 3: Logic tree of fossil fuel supply vs. emissions restrictions

ECONOMIC CHAOS YES Eventually limit emissions? NO YES Continue expanding CLIMATE fossil CHAOS extraction? NO

MANAGED DECLINE

Source: Oil Change International

these choices, a managed decline is BOX 1: GAS IS NOT A BRIDGE FUEL20 clearly the safest choice for a liveable future and a stable society. 1. Gas breaks the carbon budget: As shown in Figure 2, the economically recoverable oil, gas, and coal in the world’s currently producing and under Against this backdrop of an urgent need construction extraction projects would take the world far beyond safe climate for a managed decline of extraction and limits. Further development of untapped gas reserves is inconsistent with the just transition to renewable energy, the climate goals in the Paris Agreement. global upstream oil and gas industry is planning to invest nearly EUR 4.5 trillion 2. Coal-to-gas switching doesn’t cut it: Climate goals require the energy sector in expanded extraction through 2030, to be decarbonised globally by mid-century. This means that both coal and undermining all other efforts to reduce gas must be phased out. Replacing coal plants with new gas plants will not cut emissions in Denmark and elsewhere.18 emissions by nearly enough, even if methane leakage is kept to a minimum.

There is a clear need for governments to 3. Low-cost renewables can displace coal and gas: The dramatic and ongoing intervene, and quickly. For fossil fuel- cost declines for wind and solar disrupt the business model for gas in the power producing countries such as Denmark, sector. Wind and solar will play an increasing role in replacing retiring fossil this means immediately ceasing the fuel capacity. issuing of licenses, leases, and permits for new fossil fuel projects, in order to 4. Gas is not essential for grid reliability: Wind and solar require balancing, but stop pushing the ‘developed reserves’ bar gas is not the only, nor the best, resource available for doing so. Battery storage on the left side of Figure 2 even higher. is fast becoming competitive with gas plants designed for this purpose (known Governments must also examine revoking as “peakers”). Wind and solar plants coupled with battery storage are also undeveloped licenses and phase out a becoming a competitive, “dispatchable” source of energy. Managing high levels significant number of existing projects of wind and solar on the grid requires optimising a wide range of technologies ahead of schedule in order to achieve the and solutions, including battery storage, demand response, and transmission. Paris goals. There is no reason to favor gas as the primary solution.

Given their access to resources and 5. New gas infrastructure locks in emissions: Multibillion-dollar gas infrastructure historical responsibility for the climate built today is designed to operate for decades to come. Given the barriers to crisis, Denmark and other relatively closing down infrastructure ahead of its expected economic lifespan, it is critical wealthy countries should be the first to to stop building new infrastructure whose full lifetime emissions will not fit within implement these limits to extraction and Paris-aligned carbon budgets. transition away from a fossil fuel economy most rapidly.19 In Section 3, we expand on this concept with principles for managing the transition in a justice-based manner.

5 2. DANISH OIL AND GAS VS THE PARIS AGREEMENT

In Summer 2019 the new Danish In contrast to this ambitious record and of the country’s oil and gas resources government helped further establish admirable future mitigation targets, are offshore.26 Production peaked from its reputation as a climate leader by Denmark is poised to significantly expand the mid-1990s to the mid-2000s, but is committing to a greenhouse gas its North Sea oil and gas extraction from poised to grow again over the next 15 emissions target of 70 percent below now through the early 2030s. This course years unless action is taken to carefully 1990 levels by 2030, bolder than its of action alone threatens to overshadow phase out extraction. previous goal of 40 percent by 2020.21 the important steps Denmark is taking in This builds on past mitigation progress other areas. Figure 5 and 6 show projected extraction from Denmark like its commitment to from producing fields, undeveloped net-zero emissions by 2050, its soon- Denmark’s oil and gas extraction takes fields, and anticipated new discoveries to-be completed transition away from place in the Danish section of the North as calculated by the UCube database coal for electricity generation, its Sea, with 11 operators — including and model of Rystad Energy, an oil commitment to phase out the sale of new government-owned Nordsøfonden, industry consultancy based in Norway. It fossil fuel-powered vehicles by 2030, which holds one-fifth of each license — is worth noting that the 2018 models for and its rapid growth of wind power and and 19 active fields in 2019.25 Onshore future gas production from the Danish district heating through targeted policy extraction was banned in 2018, but this Energy Agency differ from the Rystad support.22 was largely symbolic, as the vast majority UCube projections used, with Rystad

Figure 4: Danish license area for its 8th licensing round in 2018, with existing licenses shown in blue. Denmark’s North Sea extraction is planned through licensing rounds that occur every two years. The 2018 licensing round, whose applicants were not yet approved as of Fall 2019, wouldDanish grant concessions licence for extraction area until- April 2056, six2019 years after Denmark has committed to reach net- zero emissions — and 16 years after 2040, the date Danish NGOs have calculated is necessary to live up to the global 1.5°C target.23

3° 6° 9° 12° 15°

58° 58°

57° 57° 6° 15'

56° 56°

55° 55°

54°

Source: Danish Energy Agency24 Existing licences. Licences with crosshatching are 6 delineated in terms of depth. Figure 5: Danish past and projected gas production, thousand barrels of oil equivalent per day, 2015-2050. 90 Producing Under Development Discovered Undiscovered 80

kboe/d 40

0 2015 2020 2025 2030 2035 2040 2045 2050 Source: Rystad UCube

Figure 6: Danish past and projected oil production, thousand barrels of oil per day, 2015-2050. 180 Producing Under Development Discovered Undiscovered 160

140

120

100

kbd 80

0 2015 2020 2025 2030 2035 2040 2045 2050 Source: Rystad UCube

projecting 74 percent higher eventual future oil and gas extraction well above potential CO2 emissions, 401 Mt of CO2 gas production, largely in the Tyra Field’s what would be Paris-aligned for a wealthy would come from new projects yet to be ‘undiscovered’ category.27 The projections country like Denmark. For added context, developed that would peak between the for oil extraction are consistent between the cumulative emissions that would mid-2020s and mid-2030s. This means the two sources. This analysis employs result from the production under Danish 60 percent of these cumulative emissions Rystad UCube models because they Energy Agency models are provided in are not yet committed — the projects are updated monthly, use bottom-up Footnote A. they are associated with will either require modelling on a field-by-field basis, new licenses from the Danish government and are used by industry and financial Figure 7 shows a cumulative 665 Mt or final investment decisions (and final institutions for planning. Regardless of of CO2 associated with Danish oil and government approval) to be developed. which model is used, both anticipate gas between 2019 and 2050.a Of these

a If 2018 Danish Energy Agency projections for gas are used instead, there is a cumulative 554 Mt of CO2 .

7 Figure 7: Projected cumulative CO2 emissions from Danish oil and gas, by reserve category, 2019-2050. 450

Gas Oil 401 Mt CO 400 2

350

300 Undiscovered

264 Mt CO2

2 250 Under Development

Mt CO 200

150

100 Producing Undeveloped

0 Committed Projected Expansion

Source: Oil Change International analysis based on data from Rystad UCube

Of the future extraction in Figure 7 that would overshadow otherwise ambitious it will either (a) meet its domestic is projected rather than committed, 193 action from Denmark in reducing its emissions targets but start exporting oil

Mt CO2 is associated with ‘undeveloped’ domestic consumption of fossil fuels. and gas with associated emissions that fields that have been awarded licenses Danish civil society coalition 92 Group’s overshadow this domestic progress, or

already, and the other 208 Mt CO2 with recommended emissions curve is also (b) fail to meet its emissions targets and ‘undiscovered’ fields that will require included in Figure 8.b The 92 Group has continue to consume more oil and gas

28 new licenses. This provides a clear shown that CO2 emissions will need to domestically than is Paris-aligned. path forward for a careful phase- reach zero by 2040 — rather than 2050 out of extraction. If Denmark opts to — for Denmark to be in line with the 1.5°C In either scenario, Denmark will fail to pursue a managed decline of its fossil aim of the Paris Agreement.29 do its fair share in addressing the global fuel production, the ‘undiscovered’ climate crisis. If Denmark is to align with production could be stopped by ceasing These extraction plans mean that the necessary global trajectory for 1.5°C to grant new licenses. The ‘undeveloped’ Denmark is set to become a net exporter or even 2°C, it must not develop new production could be stopped through of oil and gas emissions, even while it reserves, and must manage the decline early retirements of existing licenses. pledges “climate leadership” on the of existing production. By expanding Finally, for ‘committed’ production, global stage. If domestic emissions production while reducing domestic Denmark could phase out existing or from oil and gas consumption fall at consumption, Denmark risks exporting under construction projects early. least as fast as the Denmark’s overall an increasing share of its contribution greenhouse gas emissions targets — a to the climate crisis and undermining its

Figure 8 shows that if domestic climate pace even less ambitious than the CO2 commitment to leadership. action targets are achieved but oil and emissions reduction curves shown in gas expansion is allowed to continue Figure 8 — it would mean Denmark would unfettered, emissions from oil and gas be exporting cumulative emissions of

extracted in Denmark would surpass at least 40 Mt of CO2 from oil and gas Denmark’s overall domestic emissions between 2019 and 2030, and at least 354 from energy use by 2025. This means Mt between 2019 and 2050.31 If Denmark the emissions from Danish oil and gas does not curtail its North Sea extraction,

b The government’s domestic emissions reduction curve shown in Figure 8 assumes CO2 emissions from ETS sectors fall to near zero by 2030, except for some transit and the already-committed domestic emissions from North Sea extraction. This is in line with what 92 Group analysis has shown is necessary for the government to meet the stated 2030 goal for overall domestic greenhouse gases. The 92 Group emissions reduction curve shown follows this trajectory up until 2030 but falls to zero by 2040 rather than 2050, as civil society analysis has shown is necessary for Denmark to have a chance at upholding its 1.5°C commitment (on a per-capita basis rather than an equity or “fair shares” basis).

8 Figure 8: Projected CO2 emissions from Danish oil and gas, compared to CO2 emissions goals for all domestic energy set by government and 92 Group NGOs, 2019-2050.

Producing Under Development Government CO2 Reduction Curve

Undeveloped Undiscovered 92 Group CO2 Reduction Curve 30

2 20

Mt CO 15

0 2020 2025 2030 2035 2040 2045 2050 Source: Oil Change International analysis based on data from Rystad UCube, Danish Energy Agency, and 92 Group.30

9 3. THE GLOBAL AND LOCAL IMPACTS OF PHASING OUT DANISH NORTH SEA EXTRACTION

The June 2019 agreement document I. DANISH LEADERSHIP CAN Likewise, there is modest but growing for the Social Democrat government CREATE MOMENTUM FOR momentum for similar phase-outs of oil led by Prime Minister Mette Frederiksen, FOSSIL FUEL PHASE-OUTS and gas. The World Bank announced “A Fair Direction for Denmark,” is clear ELSEWHERE. in 2017 that it will phase out finance on the need for Denmark to act as an for oil and gas extraction by 2020, and international leader on climate, stating Climate crisis is encroaching rapidly, Swedfund and the French Development “the new government will strengthen yet there exists a yawning gap of true Agency (AFD) have made similar green diplomacy and thus increase climate leadership. Supply-side action commitments.37 A growing number of Denmark’s international contributions.”32 from wealthy fossil fuel producers governments, including Costa Rica, like Denmark is desperately needed. France, New Zealand, and Belize, have For the past three decades, climate A recent Science article determined implemented full or partial bans on new policy globally has focused primarily that wealthy, well-organised, fossil oil and gas licensing.38 Similar measures on regulating fossil fuels at the point of fuel-producing countries announcing are under consideration in Spain, Ireland, combustion. This limited approach is moratoria on fossil fuel exploration in Iceland, and Sweden.39 not working — emissions are still rising, their jurisdictions is the lever most likely and time is running out to avoid climate to create the political preconditions Given this context and the nascent group breakdown. Continued investment in necessary for significant fossil fuel of ‘first-movers’ on oil and gas, Denmark fossil fuel extraction leads to higher reserves to remain unextracted.34 The has a historic opportunity to accelerate emissions through the ‘lock-in’ of article’s authors — alongside a growing this progress by becoming the largest infrastructure, perverse political and chorus of observers, including more than fossil fuel producer to date to announce legal incentives, and lower fossil fuel 500 civil society organisations who have its intention to manage the decline of prices. Supply and demand interact in signed the Lofoten Declaration and more current and planned extraction based on global markets and need to be addressed than 100 economists backing the Not climate limits. in parallel. A comprehensive policy a Penny More Declaration — argue that approach to limit extraction and lower actions like these to restrict fossil fuel II. DANISH EXTRACTION RAISES demand together — to “cut with both supply could be pivotal in creating the GLOBAL EMISSIONS. arms of the scissors” — will be necessary cooperative spirit needed to ensure the for the world to close the dangerous world achieves the Paris Agreement’s There are four primary mechanisms gap between current action and what is targets.35 through which continued Danish required to meet the Paris goals.33 extraction acts to increase net global The Powering Past Coal Alliance emissions: Even for a relatively small fossil fuel catalysed a similar cascade of action producer like Denmark, there would when it was formed two years ago. f More extraction induces higher global be significant direct emissions impacts Combined with other trends, the Alliance consumption of oil and gas: There is associated with a North Sea phase-out, has achieved the nearly unthinkable a misconception that if Denmark (or as well as additional political impacts that since it was formed in 2017, prompting any other country) extracts less oil and would help build momentum for climate 30 countries — including Denmark — to gas, another country would extract leadership elsewhere. Denmark is well- commit to phase out coal use.36 the same amount instead. However, suited to supply this leadership for several reasons:

10 this “leakage” effect is only partial: f Oil and gas suck investment away and supply-side action – two-thirds of only some of the reduced extraction from clean energy: Investments in Norway’s contribution to global emissions is compensated by increases clean energy are falling well short of reductions should come from measures elsewhere.40 Additionally, if Denmark what would be needed to achieve the to restrict oil and gas extraction. The reduces its oil and gas consumption Paris goals. One reason for this is that study concludes that prioritizing supply- while maximising extraction, the effect too much energy investment is going side measures, achieving a 3 percent will be to increase consumption in into oil and gas rather than the clean annual cut in oil extraction, would other countries due to lower prices energy solutions that will be needed to maximize global climate benefits at and the elasticity of demand for oil align with the Paris Agreement.43 lowest cost to the Norwegian economy.45 and gas.41 This means that to minimise These conclusions reinforce that supply- leakage, the best approach is to f Carbon lock-in: Once a piece of fossil side measures should be considered simultaneously reduce both fossil fuel infrastructure is built, it is extremely a core and necessary part of climate demand and supply. difficult to take offline, because policy in Denmark and other fossil fuel- the infrastructure and its decades- producing countries. f More oil and gas make renewables long lifespan creates economic less competitive: While the costs incentives to keep it operating, gives III. DENMARK HAS A MORAL of wind and solar power have fallen it a competitive advantages over OBLIGATION TO TRANSITION dramatically over the past decade, alternatives, and erects political and QUICKLY. these technologies remain similar legal barriers to policies that threaten in price to fossil fuels. As a number it.44 In the same way that wealthier countries of studies modelling the U.S. power like Denmark that are more historically sector have found, lower gas prices A 2017 study in The Energy Journal, led responsible for climate damages must induced by increased extraction have by Taran Fæhn of Statistics Norway, set more ambitious domestic emissions strengthened the competitiveness of modelled many of these effects as reduction targets in order to be in line gas against clean energy.42 Similarly, well as the overall economic costs of with the Paris Agreement’s aim of 1.5°C of cheaper oil makes the infrastructure policies for Norwegian oil extraction. warming, they must also lead in phasing transition to electric vehicles and Faehn found that – after accounting out fossil fuel extraction. transit less attractive. for the relative leakage from demand-

Oil storage tanks with wind turbines in background, Frederikshavn, Denmark. ©Thomas Kyhn Rovsing Hjørnet/Alamy Stock Photo

11 A forthcoming paper by Oil Change IV. DENMARK HAS A HIGH there is not very much oil and gas left out International and the Stockholm CAPACITY TO TRANSITION. there. So, no matter what, the North Sea Environment Institute proposes five key is not especially important for Denmark ethical principles by which we might aim In 2017, the latest year for which all data economically.”51 to fairly manage the transition from fossil are available, Denmark’s oil and gas fuels worldwide:46 production accounted for 0.4 percent Compared to 12,700 jobs in the Danish of its gross domestic product (GDP), oil and gas sector, there are already a) Curb total fossil fuel extraction at a 0.5 percent of government revenue, and 76,000 green jobs in Denmark, and an pace consistent with climate limits, as 0.2 percent of employment.47 estimated 25,000 to 95,000 more could defined by the Paris goals; be created by 2035 with concerted Figure 9, which examines oil extraction policy action.52 b) Ensure a just transition for fossil alone, helps puts these figures into fuel-dependent workers and their global context and shows the extent to Adding to this high capacity to transition communities; which Denmark is well positioned to take is widespread and long-standing public leadership on a just transition away from pressure for climate action among the c) Respect human rights by prioritising fossil fuel production. Danish population, with climate being for closure any extraction activities the top priority for voters in the 2019 that violate rights, especially of poor, Due to the declines in oil and gas election.53 marginalised, ethnic minority, and production since the mid-2000s and Indigenous communities; cuts to royalties in 2017, Denmark has V. FREEZING FOSSIL FUEL already done much of the difficult work EXPANSION NOW WILL HELP d) Transition fastest where it is least eliminating its reliance on oil and gas DENMARK AVOID BILLIONS socially disruptive, particularly in production. Government revenue from IN FINANCIAL SHOCKS AND wealthier, less extraction-dependent oil and gas has dropped from DKK 36 LIABILITIES. countries; and billion (EUR 4.8 billion) in 2008 to DKK 5 billion (EUR 674 million) in 2017.49 The Section 2 shows how Denmark rejecting e) Share transition costs fairly, providing 2019 financial statement from the Danish new license applications would not mean poorer countries with support for an Ministry of Finance estimated that 2019 turning off the taps overnight. Rather, a effective and just transition. oil and gas revenue would be about managed phase-out would mean taking 0.2 percent of GDP in 2019, and 0% in climate limits seriously and intentionally 2020.50 As Danish economic advisor planning to wind down North Sea Lars Gårn Hansen stated in Information extraction at the pace required to meet in July 2019, “The latest tax reform was the goals of the Paris Agreement and a reduction in already low taxation. And confront climate crisis.

Figure 9: Relative challenges of just transition away from oil extraction: Oil’s share of government revenue versus per-capita GDP, selected countries, 2016 (or nearest year for which data available).

80000

70000 Norway

60000 USA Denmark 50000

Canada 40000 UK UAE

30000 More difficult Kuwait Brunei GDP per capita (USD) transition 20000 Saudi Arabia for transition Oman More resources resources More 10000 Russia Equatorial Guinea Iran Azerbaijan Angola Iraq Algeria Nigeria Timor Leste 0 Chad Congo 0 10 20 30 40 50 60 70 80 90 100 Oil Share of Government Revenue % Source: World Bank, Danish Energy Agency, International Monetary Fund.48

12 However, Denmark runs the risks of much calculations described in Footnote C. a just transition plan to be developed in higher and more disruptive transition Arbitration tribunals may use different cooperation with unions.59 costs if it waits and delays policy action assumptions, including those resulting to limit extraction in line with Paris goals. in even higher compensation awards. With two-thirds of its overall workforce If the Danish government continues to For example, the case between Process unionised, and the oil and gas sector approve licenses, and then later identifies and Industrial Development Limited and representing 0.2 percent of all jobs,60 a need for more robust climate action — the Government of Nigeria established Denmark is well-poised to set a global either by revoking licenses or enacting compensation based on a dramatic 2.65 example for a fair and effective just other policies that companies can argue percent discount rate for future profits, transition away from oil and gas diminishes their value — Denmark could compared to the 10 percent used here, extraction. face compensation claims from the resulting in an overall DKK 60.4 billion companies.54 Such claims could be made compensation cost from one single Past research from trade union meetings in international investment tribunals cancelled Nigerian project.57 and academic literature has determined under bilateral or multilateral investment a set of minimum safeguards that a just treaties, many of which constitute an In contrast, a managed phase-out of fossil transition strategy should aim to deliver, extensive set of protections for company fuel production would better allocate including:61 profits at the expense of the public money toward climate solutions while interest.55 So while we contend that fossil ensuring that government, financial f Accountability to worker fuel companies do not have a moral case institutions, workers, and communities representatives and affected to be compensated for the effects of would have time to plan for an orderly communities; climate policy, they may nonetheless have and equitable wind-down of offshore a legal case to demand recompense, and extraction. It would also help avoid f Long-term investment into industry the Danish public may suffer as a result. shocks to the Danish economy in the form cluster locations such as Esbjerg; of potential devaluation of stranded oil Based on principles of global arbitration and gas assets from climate action being f Creation of new jobs with equivalent law and past precedents,56 we used taken in other jurisdictions. terms and conditions and permanent Rystad projections of Danish oil and gas contracts where jobs are lost; expenditures and discoveries to estimate VI. FREEZING EXPANSION the approximate value of compensation NOW GIVES DENMARK TIME TO f Support for workers’ education, claims that could be expected if Denmark ENSURE A JUST TRANSITION. relocation, and retraining, along with decides to pursue policies that act to wage and pension protection; and effectively revoke licenses in 2030 after Both morally and for continued political approving new ones up until then. We support for climate action, it is imperative f Trade union rights for workers affected found that compensation in 2030 for that the transition to a zero-emissions by energy transitions, including union new licenses awarded during 2020 to economy protects the workers and recognition and sectoral bargaining. 2029 could be around DKK 8.9 to 11.2 communities most impacted by the shift, billion (EUR 1.2 to 1.5 billion). Additionally, within Denmark and around the world. It is critical that a just transition be whereas revoking existing licenses in This requires a “just transition” plan planned at the community level, not 2020 might lead to a compensation that is built with full participation from solely for individual workers or the claim of DKK 8.2 to 9.7 billion (EUR 1.1 to worker representatives and impacted sector as a whole. Esbjerg would likely 1.3 billion), doing so in 2030 after more communities. be the Danish region most impacted by installations, wells, and pipes have already a managed phase-out of extraction, as been built could be roughly DKK 47.7 Trade unions have been early and vocal it has the highest proportion of oil and billion (EUR 6.4 billion).c This means that supporters of a just transition away from gas jobs, with 8 percent of its 115,000 by failing to act in line with climate goals fossil fuels around the world. When New residents employed in the industry.62 today, Denmark could incur liabilities Zealand announced the end to offshore However, Esbjerg is also expected to of an additional DKK 51 billion (EUR 7 oil and gas exploration, it was done with experience the highest sea level rise billion) more than if immediate action full support of the New Zealand Council of major Danish cities. This means we was taken. of Trade Unions, because a just transition can expect an added need for climate plan had already been crafted with adaptation and resilience work in Esbjerg, These estimates are based on Rystad’s affected regions.58 Similarly, the Danish in addition to new green energy and projections of oil and gas prices and the Trade Union Confederation has called for infrastructure jobs.63

c We considered two possible bases for compensation claims: (i) total past expenditures by companies prior to the policy implementation, plus a 10% (nominal) interest rate, or (ii) present value (at 10% nominal discount rate) of companies’ assets at the time of policy. The resulting estimates are as follows:

13 4. CONCLUSION AND RECOMMENDATIONS

As a country with a strong legacy of As soon as possible, Denmark should: climate leadership, a public keen to see strong climate action, and a relatively f Immediately freeze further leases low dependence on fossil fuels for or permits for new oil and gas employment, gross domestic product, extraction projects, or transportation and government revenue, Denmark infrastructure that would incentivise is well suited to lead on supply-side additional exploration; climate policy. f Revoke undeveloped licenses, and The climate science is clear that there review whether existing facilities is no room to build any new fossil fuel should be phased out early in order to developments. Put another way: contribute to the achievement of the When you are in a hole, you should Paris Agreement’s goals; and stop digging. f Plan and implement a just transition Climate science is also clear that the for affected workers and communities, actions we take in the next decade will in close consultation with trade unions have a decisive impact on our collective and community leaders. fate — to have a decent chance at limiting warming to 1.5°C, we must reach peak emissions by 2020 and cut emissions 45 percent globally by 2030.

Our immediate actions also have critical importance for the politics of climate change. Communities, institutions, and states are increasingly mobilising for climate justice. This has created a situation in which seemingly singular actions can gain momentum and become pathbreaking. The Powering Past Coal Alliance has gained 30 nation- state members in less than two years. A lone striking student has inspired a global general strike in the course of a single school year. Danish supply-side climate policy has the same potential to cascade, raising the bar for global climate leadership by showing that oil and gas production must be wound down everywhere if we are to avoid the worst of the climate crisis.

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