The end of oil

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Oil producers are the largest greenhouse gas emitters in the world. They accounted for 30 per cent of Canada’s total emissions in 2023, according to the Government of Canada. And by some estimates, as few as 36 companies around the world were responsible for half of global emissions.

The International Panel on Climate Change (IPCC) calls on the world to become carbon neutral by 2050 to offset the worst effects of climate change. Ending oil production – or at least significantly reducing it – will be a key part of that.

But is this a realistic expectation?

“That seems wildly ambitious,” said Ryan Kellogg, Professor from the Harris School of Public Policy at the University of Chicago.

He recently sat down with Professor Javad Nasiry, Director of the Sustainable Growth Initiative at McGill University, on the McGill Delve podcast. They discussed potential pathways towards ending oil production over the next 75 years – a timeframe Kellogg believes is more realistic, based on the world’s current and growing energy needs.

Most cars in the United States are currently propelled by internal combustion engines, which depend on gasoline to run. Fossil fuel-based power plants continue to account for over 60 per cent of all electricity generation in the world. And other industries, like air transport and agriculture, don’t yet have viable alternatives to fossil fuels for their energy needs.

“Emissions are not going to fall to zero overnight,” said Kellogg. “That’s simply not practical.”

Divestment vs. the green paradox

While fossil fuels remain highly in demand, they may not be forever. Electric cars are growing in popularity, even if they haven’t yet overtaken combustion-powered vehicles, said Kellogg. Renewables are also becoming a mainstream form of power generation. These developments happened in part thanks to climate-friendly public policy around the world.

What’s less clear is how oil companies will react to declining demand for their product.

In a 2024 working paper, Professor Kellogg weighs two possible outcomes. The first is called a “green paradox,” where oil companies ramp up their production to maximise their short-term profits, before demand drops significantly. This would be a tragic backfiring of climate-friendly initiatives, he said. The expedited oil production would cancel out any progress towards lowering emissions in other parts of the economy.

In a second possible outcome, knowing that oil demand will drop consistently over the next few years, oil companies might slowly divest from production. Kellogg thinks this is more probable than the green paradox. He cites a few reasons, the biggest relating to capital investment.

“The oil industry, like all fossil fuel industries, is extremely capital-intensive,” he said.

Oil wells, surface facilities, pipelines, and other critical oil infrastructure require a mix of short and long-term investments. If oil companies know that demand for their product is going to decrease, making those investments seems a lot less appealing.

An imperfect world

Kellogg’s analysis assumes a world in which everyone agrees that oil demand will decline in the medium- to long-term.

“I don’t think that’s the world we’re in right now,” he said.

For him, the journey towards oil divestment will hinge heavily on emerging economies. In places like India, energy demand is rapidly growing. The country likely won’t meet its power needs without expanding its electrical grid.

“Are we going to build that grid on clean energy or are we going to build it on coal?” said Kellogg.

The increasingly extreme effects of climate change also complicate things, he said. Excessive heat, in countries like India that are already sweltering, makes air conditioning more than just a luxury – it’s a survival tool. But if these cooling units pull energy from a fossil-fuel powered electrical grid, they’ll contribute even more planet-warming emissions, exacerbating the very issue they’re meant to mitigate.

Kellogg doesn’t know what will happen in these emerging economies, but he’s leaving room to be pleasantly surprised. Solar power is cheaper than it has ever been. Almost half of China’s car sales were electric in 2024, representing almost two thirds of electric car sales sold globally. And investors are continuing to put money in green funds to develop climate-friendly innovations.

“There’s a continued march of these newer technologies that I don’t think was foreseen 10 years ago,” he said.

Listen to the McGill Delve podcast for Professor Ryan Kellogg’s full thoughts and insights. He answers questions from Professor Javad Nasiry, director of McGill University’s Sustainable Growth Initiative, about the next 75 years of energy production. Search “McGill Delve” in your favourite podcast player.