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Illustration: Shoshana Gordon/Axios

Cutting oil production before we cut our demand for oil could undermine much of the progress that needs to be made on climate change.

Why it matters: If companies cut back on producing oil but consumers don’t cut back on consuming it, demand will exceed supply and prices will shoot up. That’s bad for our pocketbooks and risks the transition to cleaner energy.

Driving the news: This appears to be the track we’re on. Lurking in the shadows of the pandemic-induced roller coaster of oil prices we’re on now is a deeper, systemic shift within the oil industry and its investors.

  • Buoyed largely by politics and growing activism, Wall Street is demanding that oil companies invest less in new oil discoveries and more in cleaner energy (and pay off debts).
  • In response to that pressure and the collapse in oil prices starting in 2014, overall industry investments in new oil and gas resources have collapsed in recent years, according to Bob McNally, president of consulting firm Rapidan Energy Group.

Yes, but: Despite ambitious goals to reduce heat-trapping emissions, most countries have actually not passed laws that significantly reduce oil demand by targeting consumers through taxes or mandates.

  • Instead, most countries are pursuing less politically toxic options, like regulations that indirectly (and slowly and unevenly) reduce oil consumption.
  • “If we curb supply but not demand, oil prices will spike well into the hundred-dollar range,” said McNally. “Gasoline prices would follow. Such an oil price spike would harm the economy, the political careers of elected officials, and the energy transition.”
  • He projects that such a scenario is likely to start unfolding within the next five years.

By the numbers: The average price of a gallon of U.S. gasoline is $3.17 as of July 30, according to AAA. That’s the highest in seven years, though prices are fluctuating as the pandemic stamps down oil demand again with the Delta variant.

Where it stands: The International Energy Agency, an intergovernmental group launched in 1974 to ensure global oil security, issued one of its most impactful reports in May. It declared that no new oil and gas discoveries would be needed in a future that reaches net-zero greenhouse gas emissions by 2050.

What they’re saying: “Needing no more oil and gas is only true if previous actions by governments happen and demand follows that trajectory,” Laura Cozzi, the IEA’s chief energy modeler and lead author of the report, told me. “The sequencing is important.”

  • In its report, the IEA identified 400 milestones that need to occur to achieve the net-zero goal, and 95% of those should be driven by policy changes affecting demand, not supply, said IEA executive director Fatih Birol, per Reuters.
  • This includes imposing carbon pricing and phasing out fossil-fuel subsidies, both which have direct impact on consumers’ demand for those fuels.

How it works: Public sentiment generally skews toward concern about energy affordability during periods of economic recessions and instabilities. A recent Gallup survey shows that playing out in the wake of the pandemic.

  • That sentiment creates headwinds for any type of policy that could be even perceived as raising the cost of energy — a key reason President Biden and other administration officials insist they’re not going to support a gasoline tax increase or any other tax on energy.
“If there is increased oil demand and if we don’t have technological innovation and policy driving a transition to clean energy, you will get higher prices for oil and gas, and that will create all kind of dynamics, including political ones.”
— Richard Newell, former administrator of the U.S. Energy Information Administration under Barack Obama and current president of think tank Resources for the Future

The other side: Environmentalists have helped propel a social movement around climate change by fighting projects producing and moving fossil fuels around (remember the Keystone XL pipeline?). In other words, they have focused on supply, not demand of those fuels.

  • Tzeporah Berman, international program director at group Stand.earth, says some countries are now beginning to impose demand-side policies, like pledges to ban internal combustion engines cars within the next 15 years.
  • But she is cognizant of the risks our world faces if demand reduction doesn’t follow soon after.

The bottom line: “Without political leadership and courage, a lot of this could be at risk,” said Berman. “The challenge for policymakers is to move quickly putting in infrastructure for electrification and efficiency.”

Editor's note: Amy Harder is vice president of publishing at Breakthrough Energy, a network of investment vehicles, philanthropic programs, policy advocacy, and other activities committed to scaling the technologies needed to reach net-zero emissions by 2050. She is launching a new journalism initiative there. Previously full time at Axios, Amy is now writing her Harder Line column as an outside contributor.

Go deeper

Net-zero emissions fight breaks out before COP26

Illustration: Sarah Grillo/Axios

Here's a sign of how tough it'll be to win new emissions-cutting moves at COP26: Big developing nations are refusing to commit to net-zero emissions by 2050.

Driving the news: That's spelled out in a new statement from countries including China, the biggest greenhouse gas emitter by far, as well as India and Indonesia.

White House unveils landmark reports on climate links to security, migration

Photo Illustration: Shoshana Gordon/Axios. Photo: John Moore/Getty Images

The Biden administration on Thursday released a sweeping set of assessments on climate change's threat to national security and its role in fueling migration.

Why it matters: One of the key products, a formal National Intelligence Estimate on climate change, marks the first time all 18 elements of the U.S. intelligence community have released a consensus report on the topic.

Report: Climate change is an "emerging threat" to U.S. economic stability

A firefighter watches an airplane drop fire retardant ahead of the Alisal fire near Goleta, California, on Oct. 13. Photo: Luis Sinco/Los Angeles Times via Getty Images

A top U.S. financial coordinating organization took several steps on Thursday to manage the growing risks that climate change poses to the U.S. financial system.

Why it matters: While the Biden administration has been taking an all-of-government approach to climate change, like factoring climate risk into planning at the Treasury Department, today's moves by the politically independent Financial Stability Oversight Council (FSOC) carry significant weight.