The overarching goal of this study is to introduce the concept of the Carbon Dependence of Investment (CDI). CDI is a decision-making tool that measures the amount of carbon (in CO2 equivalent) that needs to be emitted over a period of time to avoid economic loss. Essentially, CDI provides a quantitative assessment of the financial aspect of carbon lock-in. CDI differs from carbon accounting, risk, and life cycle assessment as it focuses on the financial interest created by an investment in an asset whose performance inevitably leads to carbon emissions. CDI is a multi-purpose tool. It can be used to inform investors and lenders about a company’s commitment and readiness to transition to a low-carbon economy. It helps policy makers design climate change controls without incurring economic waste. Finally, it allows a state to coordinate its domestic and international climate change mitigation policy by making better-informed investment decisions. To illustrate a possible application of CDI, I explore the development of new oil production capacity in the Russian Arctic. In particular, I analyze the CDI implications of the failed partnership between the oil supermajor British Petroleum (BP) and Russian state oil champion Rosneft to develop three license blocs in the South Kara Sea. I also highlight possible uses of the decision-making tool as well as potential challenges of its implementation. The need for a tool like CDI emerges from the conflict between fossil fuel production and climate change policies. If we are to separate climate change talk from the actual carbon emissions data, an unpleasant picture emerges: energy-related CO2 emissions have increased globally by over 40 percent between 1990 and 2008. The carbon emissions curve follows the global increase in production of oil and other fossil fuels. This should not come as a surprise – almost all extracted crude ends up in internal combustion engines and, eventually, in the atmosphere in the form of greenhouse gases (GHGs). The status quo is unlikely to change as long as oil remains the backbone of the world’s economy. In fact, according to some forecasts, oil production will be on the rise for several decades. Significant financial investments will be required to accommodate this trend. Investments in oil production are often heralded as the means of achieving important and even noble goals, such as providing jobs and ensuring energy independence. However, there is another dimension of investing in seismic studies and productions platforms – every dollar creates a financial incentive for keeping the economy’s carbon content high and GHG emissions steady. As the 40 percent increase in emissions illustrates, the current domestic and international regimes have thus far failed to end our dependence on fossil fuels. They lack universal emissions controls, creating an opportunity for carbon “leakage.” As a result of the COP17 meeting in Durban, South Africa, more than 190 nations agreed to negotiate a new climate agreement that would remedy this monumental flaw. However, the global landscape is a complex system where some non-state actors have more control over carbon emissions than some states, and where some states with aggressive emission reduction goals have strong incentives to continue the status quo. Therefore, until universal emission controls are adopted, implemented and enforced, any approach to reducing GHGs that focuses predominately on the demand side of the equation is unlikely to propel the world toward a low-carbon economy
