First, the good news. We have enough fossil fuel to survive until the century's end. Today's proven reserves of coal, oil and gas combined is about 83 years (at current usage rates), so Spaceship Earth could make 2100 – the exact date that IPCC scientists have set for mankind's plan to moderate carbon emissions.

To have a 50% chance of keeping global warming within 2°C in that time, the UN Framework gives us a budget of just under 3500 gigatonnes (GT) of atmospheric CO2. We have already spewed out about 2000 GT, so we have 1450 GT left.

Now the bad news. That target requires a huge correction in energy consumption patterns: we must emit one-quarter less CO2 than in 2000 (before China took off). More important, it means much of those identified reserves can never be consumed: about 42% is 'unburnable', a recent Bernstein report calculates (subscriber access only). A lot of extant energy resources will become stranded assets, raising the troubling possibility that desperate producers dig and drill to a 'carbon race.'

The greatest impact will be in coal, 60% of which is unburnable. About 20% of proven oil reserves will be stranded. Multinational companies may be dry long before 2100, so the greatest challenge awaits those nations with very long reserve life but high costs. Canada and Venezuela have vast hydrocarbon endowments which must stay in the ground, their value forfeited.

The winner is natural gas. It is 100% burnable. It is 2-3 times less carbon intensive for electricity generation than coal. Whatever gas can be found should be used to substitute for coal.

Renewables will be vital as well, but have so far barely kept pace with our orgy of fossil fuel burning. Bernstein says that 'even after the enormous investment in technology and capacity over the past two decades, the share of the energy mix from renewables is relatively unchanged since 1990', at barely 10%. Without a breakthrough in storage technology and nuclear cost, this will only change slowly. Bernstein calculates that world GDP growth matches closely with primary energy growth (65% annual correlation), and CO2 emissions growth in turn have a 97% correlation with that.

To grow sustainably therefore requires parsimonious use of fossil fuels for energy. Not much else matters. We made modest gains in efficiency before 2000, but little since, so it's clearly time for another burst of effort.

The key to incentivise economisation is always price. Those efficiency improvements made in the 1980s and 1990s were a direct consequence of the OPEC shock. The subsequent stasis was the result of exploiting cheap coal from the Chinese interior. Some large countries (notably the US and China) have already volunteered to impose certain limits. But these hardly level out global annual emissions; they are not nearly enough to bend them down. Hard economic tools (i.e., price) must be wielded for that. As the world enters COP21 in later this year in Paris, carbon tax is on the agenda. Oil companies themselves are petitioning for it.

Targeting the 2°C pledge, the International Energy Agency developed its 450 Scenario, which requires a reduction in annual emissions from 32GT to 20GT by 2040. Such an outcome could only be achieved through a steep increase in carbon tax, currently at about $7/tonne CO2 levied on only 11% of emissions. The tax will need to go immediately to $40 worldwide, and then possibly to $100 or even $200. The IEA reckons that to hit its 450 Scenario, $140 tax is needed. This would be a huge amount: several trillion dollars annually or 3-4% of global GDP.

Taxes like that could make activities like driving and flying several times more costly than today. Consumers necessarily bear the cost. There are net losses incurred with such taxes but there would be some winners, especially governments globally which would have huge new revenue sources. Natural gas would boom. A $100 carbon tax would add about $6/mmBtu to the price of gas, but almost $10 equivalent to coal, giving gas a $4 advantage. This would be enough to tip coal heavyweights China and India to consume energy more like the gas-intensive US and Russia do today.

So the problem definition is simple. We have a fixed bucket of carbon units left and we must ration them. But in reality the solution will be preposterously difficult to implement. It will hurt everyone. It will only work if the whole world can coordinate on a tax mechanism, or there will be huge incentives to cheat. Harder still, countries like Venezuela must be convinced to leave buried their troves of devil's excrement.

What are the chances for such an elaborate coordination? The history of nation-states working for a common good is mixed. When benefits and punishments are clear, as in the WTO, collective action works well. We have the United Nations Security Council, but generally what deters nations from aggression is not diplomacy, but a punch in the face. With climate change, we might yet achieve a scientific and political consensus, but we are asking humanity to make costly but indeterminate sacrifices for future generations.

In the meantime, hope for nuclear fusion. Our track record in technological revolution is pretty good.

Photo courtesy of Flickr user Pete Markham.