Oil and gas reserve classification systems today are focused on the value oil and gas has when burnt. Devised in the first part of the last century, they are motivated by financial impact – how much oil or gas does a company, or a government, have access to produce and sell. They do not consider environmental impact – how many new emissions those reserves will release when they are burned.

The latest estimates show that there are far more reserves of fossil fuels than can safely be burned. The Global Registry of Fossil Fuels has shown there are nine times more proven reserves than can be burnt if the goal of keeping temperature rises to an average of 1.5 degrees is to be met, corroborating Carbon Tracker’s work.[1]  As the energy transition advances, a large part of these reserves will become worthless.

The ‘reserves’ classification is intended to reflect economically producible quantities of oil and gas and to allow companies to define inventories of future production to investors. However, it is evident that they are not currently impacted by the energy transition, since there is massive oversupply relative to net zero and low-overshoot scenarios.  Those scenarios would suggest that reserves – counted as oil and gas to be produced in the future – should be going down reflecting that some portion of reserves would no longer be economically producible in a carbon-constrained future.

But in fact, more new oil and gas resources are being added to the stockpile for production and combustion than these numbers suggest, because, from a climate standpoint, the reporting of ‘net’ reserves  (i.e., the resulting balance of reserves reflecting increases and decreases from a prior reporting period) both omits produced volumes, which have reduced the remaining carbon budget, and obscures the development of ‘new’ reserves, which have replaced reserves which have been produced.

In short, we have a system of measuring reserves that was fit for a world focused on discovering and developing new fossil fuels; that system is not fit for a world that must cease adding new reserves and manage a decline in the rate of production of existing reserves.

[1] See: https://carbontracker.org/reports/unburnable-carbon-ten-years-on/ (2022).

Key Findings

  • Fossil fuel “reserves” are the subset of oil and gas in the ground that are deemed geologically recoverable under reasonably anticipated economic conditions.
  • “Reserves” represent those volumes that may reasonably be expected to be extracted and combusted.
  • It has been well established that current reserves far exceed any carbon budget that is aligned with the Paris agreement. The IEA has indicated that no new greenfield projects would be needed in a low carbon scenario and no new exploration needed even without it.
  • Fossil fuel reserves create two expectations: sources of future revenue for corporations and states and sources of future greenhouse gas emissions in a world with a limited carbon budget.
  • The current reserves reporting systems focus heavily on net changes to reserves balances year over year to present those volumes still available for sale. This is relevant for understanding the financial dimension of reserves, but not the emissions dimension.
  • A system focused on the resulting emissions would provide information on New Reserves and Resources (through extensions, discoveries and otherwise) since the prior reporting period. These volumes represent new expectations of production, and therefore emissions.
  • Expectations on new production need to be tempered to meet climate targets, but the current reporting system does not even measure, much less manage, the addition of future emissions to the reserves balance.
  • Fortunately, doing so does not require overhauling the current reserves reporting system, indeed, many shortcomings could be remedied by governments simply providing information on reserves that are collected from national and private companies that are currently providing reserves reporting to national governments and multilaterals.
  • Relying on examples from the corporate record, this paper proposes a means by which governments can publish ‘new’ reserves and address the emissions gap in reserves reporting.