Introduction by Roger Annis, August 1, 2017
The following two essays examine two important aspects of the fight to mitigate the global warming emergency.
The first essay (along with several, recommended, related readings) is part of the growing body of study in political economy examining the consequences of ‘stranded assets’ in the global-capitalist fossil fuel industries. Whereas the book value of the assets of corporations in the industry is in the billions and trillions of dollars, much of that is as about as valuable as the paper it is written on. What will happen to that paper value if or when the cost of producing energy from alternative energies approaches that of fossil fuels? What if human society decides that an emergency transition away from fossil fuels is required in order to mitigate global warming? These and other hypothetical scenarios are examined in the first essay below. The essay provides compelling evidence that a global financial collapse is threatened by this vexing problem facing the capitalist order.
The second essay engages in the debate as to whether and how a societal transition is possible from fossil fuel and nuclear energies to renewable energies (potentially less polluting and less dangerous).
What is valuable in both essays is their argument that the most compelling option for tackling the global warming emergency is to lessen all the wasteful and excessive production and consumption of energy and resources. Terms such as ‘powering down’ and ‘retraction’ are used to describe this imperative. It is the glaring conclusion to draw from the article published in New York Magazine on July 10, 2017 and titled ‘The uninhabitable Earth’.
That article is posted here, on A Socialist In Canada. My introduction to my website posting of the article reads:
… If author David Wallace-Wells’ presentation of the facts of global warming is accurate, then it is clear that much of the mainstream environmental movement is failing to advance what human society needs to do in the face of all the greed, excess and waste inherent to the global capitalist system…
Capitalism is a system driven by an incessant drive to growth and expansion. Nothing less than a large retraction (retrenchment) of all the waste and excess is required in order to mitigate the large-scale disruption and humanitarian emergency which is already upon us due to rising temperatures…
Fighting climate change could trigger a massive financial crash
The great crash of 2023 made the 2007 financial crisis look like a blip. It was triggered by U.S. president Bernie Sanders signing emergency measures to slash carbon emissions. Investors started panic-selling stocks in fossil fuel companies. Trillions were wiped from the stock markets within days – and hundreds of millions of people around the world lost their pensions.
Impossible? Not according to financial regulators, who are so concerned about the prospect of climate-related financial crashes that they are already taking action to stop them happening. They want all big organisations to start assessing and disclosing their climate-related risks.
“The whole point of this exercise is to avoid that kind of crash happening,” says Michael Wilkins of credit rating agency S&P Global Ratings, a member of the Task Force on Climate-related Financial Disclosures, which unveiled its guidelines last week.
But the guidelines are voluntary. They will work only if they are widely adopted, and the companies facing the biggest risks will be the most reluctant to disclose them. So can we really prevent a financial crash when we get serious about limiting global warming? Or does saving the planet inevitably involve a very bumpy economic ride?
The rapid warming of the planet poses two related threats to the financial system. There is the cost of physical damage inflicted by a changing climate, which is already high and climbing. For instance, insurance market Lloyd’s of London estimates that sea level rise due to climate change increased the losses from Superstorm Sandy by a third, adding around $5 billion to the cost.
“The increase in the severity and the frequency of losses incurred due to climatic events such as floods, heatwaves and so on, let alone the damage caused by rising coastal waters, is causing billions and billions of losses to economies right now,” says Wilkins.
The costs could rise so high that insurers either go bust or drastically limit what they cover. This could lead to existing properties becoming unsellable and a halt to further developments in at-risk areas. “We believe absolutely as an insurance company that climate risk presents an existential crisis for the insurance sector north of 4°C [of warming],” says Steve Waygood of Aviva Investors, another member of the task force.
The second threat is the fact that the financial industry – almost certainly including your bank and pension fund – is betting heavily on things carrying on as they are now. They are investing in companies trying to find yet more oil and gas, in car firms with no plans to switch to electric vehicles, in real estate threatened by rising seas and more.
On paper, these investments are worth trillions. But their value depends on investor confidence in the status quo. If that changes, their value will plummet.
The low-carbon transition will lead to the reallocation of a significant fraction of the world’s capital. If this happens suddenly, it could lead to “a rapid system-wide adjustment that threatens financial stability”, the Bank of England warned in June.
This is what happened in 2007, when it became clear banks had been making high-risk loans that would never be repaid. The end result, of course, was the worst crash since the 1930s and the loss of trillions of dollars of wealth as the value of stock-market listed firms was rapidly reassessed.
The danger could be more immediate than many think. In June, one real estate investment company started recommending against investing in property in South Florida because there is no way to protect most of it against rising seas and storms. If enough follow suit, property prices in the area will fall.
The risks are certainly worrying Mark Carney, governor of the Bank of England and chair of the Financial Stability Board, an international body that aims to identify and address financial vulnerabilities. It was the FSB that set up the Task Force on Climate-related Financial Disclosures, at Carney’s instigation. Already, institutions responsible for $25 trillion in assets have said they support the initiative, including Barclays, Morgan Stanley and PepsiCo.
Ignoring the risks
Unsurprisingly, some in the fossil fuel industry dismiss the idea that they are exposed to any risks, let alone that they should have to disclose them.
For instance, a recent report from the Independent Petroleum Association of America claimed pension funds would lose trillions if they sold all their shares in oil firms. But the report is based on the assumption that oil companies will do as well over the next 50 years as they did in the past 50 years. That’s laughably absurd.
Last year, another report for the oil industry attacked the idea of a carbon bubble – that the value of oil and gas companies depends on reserves that they will be unable to sell as we shift away from fossil fuels. It claims 80 per cent of the value of oil and gas companies depends on reserves that they will be able to sell in the next 10 to 15 years.
However, the issue for fossil fuel companies isn’t just whether they will be able to sell their products in future; it’s whether they can make a profit. The U.S. is still using lots of coal, but since 2010, three of the top five coal companies have filed for bankruptcy. Cheap gas is killing coal’s profits in the U.S., and cheap renewables could do the same to fossil fuel profits globally – even if they are only supplying a small proportion of overall energy.
“The oil majors clearly have a vested interest in the status quo not being changed as far as disclosure is concerned,” says Wilkins. But pretending the problem doesn’t exist will lead to far greater shocks down the line.
“The risk of panic is far greater, as we have seen with the credit crunch, when there is no information out there,” says Waygood.
Disclosing companies’ exposure to climate-related risks is just the first step, however. Investors and companies need to act on these disclosures by taking steps to minimise the risks.
Oil companies have already found more reserves than future climate laws may allow them to sell. These firms must accept that they cannot keep growing and instead focus on downsizing to maximise revenue from their existing reserves, says Anthony Hobley of the Carbon Tracker Initiative, a think tank set up to highlight financial risks from climate change.
If they do, they could remain profitable and valuable for decades to come. “They have to go ex-growth,” says Hobley. “The growth mentality no longer applies in this new world.”
Instead, fossil fuel companies are borrowing to find further reserves. According to a report in June, banks are pouring about $100 billion a year into “extreme” fossil fuel projects – those most likely to be targeted by climate action. These include coal mining and power plants, and oil from tar sands, the Arctic and deep offshore.
These sectors are already high risk. In 2015, Shell had to write off $2.6 billion after withdrawing from the Arctic, and another $2 billion on a suspended tar sands project, for instance. China has suspended more than 100 planned coal power plants.
“They are betting on an increasingly risky house,” says Johan Rockström of the Stockholm Resilience Centre, who studies sustainable development.
Then there is Donald the denier. President Trump’s attempt to turn back the tide on climate action in the U.S. will probably have little effect on the country’s emissions, but it could delay the transition to a low-carbon global economy if lots of the developing countries that signed up to the Paris climate agreement scale back action too.
Any delay is bad news. A late and abrupt transition away from fossil fuels is much more likely to trigger a financial crash than a gradual one, according to a report last year from the European Systemic Risk Board, set up in 2010 to try to avert financial crashes. “The adverse scenario for the EU financial system is one of late adjustment, resulting in a ‘hard landing’,” the report says.
Despite all these issues, Waygood thinks we can avoid another big crash. Few people predicted the credit crunch, he says, but this time lots of big institutions are saying there is a problem. The task force’s recommendations should smooth the transition, if widely adopted.
But investors still have to bet on what they think are the most plausible scenarios. There could be trouble ahead if lots of them get it wrong – perhaps because of an unexpected technological revolution, like turning solar power into petrol, or some climate tipping point kicking in early, such as the Gulf Stream grinding to a halt.
Rockström is optimistic, though. “There may be a sudden shock, no doubt, but there’s growing global preparedness,” he says. “There will be a quick bounceback.”
But by a quick bounceback he means a recovery like the one after the 2007 crisis. To the millions of austerity-hit people around the world who are still suffering as a result of that crash, that’s not exactly comforting.
Fossil fuel subsidies are a staggering $5 trillion per year, by John Abraham, published on the ‘Climate Change’ feature of The Guardian, Aug 7, 2017
A new study finds 6.5% of global GDP goes to subsidizing dirty fossil fuels
Fossil fuels are expensive. Much of their costs are hidden, however, as subsidies. If people knew how large their subsidies were, there would be a backlash against them from so-called financial conservatives…
It’s time we all burst our carbon bubbles, New Scientist leader, June 30, 2017
How British Columbia’s liquefied natural gas (LNG) fisasco went so wrong, by Andrew Nikiforuk, The Tyee, July 31, 2017
The future of Canada’s oil sands in a decarbonizing global economy, by Jeff Rubin, published in Policy Alternatives (Canadian Center for Policy Alternatives, July 2016 (three page pdf)
‘Whatever ultimate target for global warming is pursued, the route to keeping carbon out of the atmosphere is to keep fossil fuels in the ground.’
Scientists warn of ‘biological annihilation’ as warming reaches levels unseen for 115,000 years, by Dahr Jamail, Truthout.org, July 31, 2017
Controversy explodes over renewable energy
A heated debate in the pages of one of the country’s most renowned scientific journals has gained national attention. The debate is over whether a combination of wind, solar, and hydroelectricity could fully power the U.S. But both sides of the debate are completely missing half of the equation.
In a series of papers published over the last few years, Mark Jacobson of Stanford University (along with co-authors) has offered a series of transition plans for achieving a 100 percent wind-solar-hydro energy economy. These include comprehensive blueprints for the United States, for each individual state, and for the world as a whole. His message is clear: such a transition is not only possible, it’s affordable—cheaper, in fact, than maintaining the current fossil fuelled-system. There is no technical or economic barrier to an all-renewable future—only a political one, resulting from the enormous influence of fossil fuel companies on Congress and the White House. Jacobson’s plans have been touted by celebrities (Leonardo DiCaprio and Mark Ruffalo) and at least one prominent politician (Bernie Sanders).
However, during the past two years a group of scientists unconvinced by Jacobson’s arguments has labored to craft a critical review of his plans, and to get it published in the same journal that printed Jacobson’s own most-cited paper. They voice a concern that the growing popularity of Jacobson’s plans could lead to critical mistakes in policy making and investment choices. The lead author, Christopher Clack, and his 20 co-authors, attack Jacobson’s assumptions and highlight what they call serious modeling errors. Much of their criticism has to do with Jacobson’s ways of getting around solar and wind power’s most notorious drawback—its intermittency. Jacobson says we can deal with cloudy and windless days by storing energy in the forms of underground heat and hydrogen. Clack et al. point out that doing so on the scale Jacobson is proposing is unprecedented (therefore, we really don’t know if it can be done), and also argue that Jacobson made crucial errors in estimating how much storage would be needed and how much it would cost.
The stakes in this controversy are high enough that the New York Times and other mainstream media have reported on it. One pro-renewables scientist friend of mine despairs not just because of bad press about solar and wind power, but also because the reputation of science itself is taking a beating. If these renowned energy experts can’t agree on whether solar and wind power are capable of powering the future, then what are the implications for the credibility of climate science?
Jacobson and colleagues have published what can only be called a take-no-prisoners rebuttal to Clack et al. In it, they declare that, “The premise and all error claims by Clack et al. . . . about Jacobson et al. . . . are demonstrably false.” In a separate article, Jacobson has dismissed Clack and his co-authors as “nuclear and fossil fuel supporters,” though it’s clear that neither side in this debate is anti-renewables.
However, Clack et al. have issued their own line-by-line response to Jacobson’s line-by-line rebuttal, and it’s fairly devastating.
This is probably a good place to point out that David Fridley, staff scientist in the energy analysis program at Lawrence Berkeley National Laboratories, and I recently published a book, Our Renewable Future, exploring a hypothetical transition to a 100 percent wind-and-solar energy economy. While we don’t say so in the book, we were compelled to write it partly because of our misgivings about Mark Jacobson’s widely publicized plans. We did not attack those plans directly, as Clack et al. have done, but sought instead to provide a more nuanced and realistic view of what a transition to all-renewable energy would involve.
Our exploration of the subject revealed that source intermittency is indeed a serious problem, and solving it becomes more expensive and technically challenging as solar-wind generation approaches 100 percent of all electricity produced. A further challenge is that solar and wind yield electricity, but 80 percent of final energy is currently used in other forms—mostly as liquid and gaseous fuels. Therefore the energy transition will entail enormous changes in the ways we use energy, and some of those changes will be technically difficult and expensive.
Our core realization was that scale is the biggest transition hurdle. This has implications that both Jacobson et al., and Clack et al. largely ignore. Jacobson’s plan, for example, envisions building 100,000 times more hydrogen production capacity than exists today. And the plan’s assumed hydro expansion would require 100 times the flow of the Mississippi River. If, instead, the United States were to aim for an energy system, say, a tenth the size of its current one, then the transition would be far easier to fund and design.
When we start our transition planning by assuming that future Americans will use as much energy as we do now (or even more of it in the case of economic growth), then we have set up conditions that are nearly impossible to design for. And crucially, that conclusion still holds if we add nuclear power (which is expensive and risky) or fossil fuels (which are rapidly depleting) to the mix. The only realistic energy future that David Fridley and I were able to envision is one in which people in currently industrialized countries use far less energy per capita, use it much more efficiently, and use it when it’s available rather than demanding 24/7/365 energy services. That would mean not doing a lot of things we are currently doing (e.g., traveling in commercial aircraft), doing them on a much smaller scale (e.g., getting used to living in smaller spaces and buying fewer consumer products—and ones built to be endlessly repaired), or doing them very differently (e.g., constructing buildings and roads with local natural materials).
If powerdown—that is, focusing at least as much on the demand side of the energy equation as on the supply side—were combined with a deliberate and humanely guided policy of population decline, there would be abundant beneficial side effects. The climate change crisis would be far easier to tackle, as would ongoing loss of biodiversity and the depletion of resources such as fresh water, topsoil, and minerals.
Jacobson has not embraced a powerdown pathway, possibly because he assumes it would not appeal to film stars and politicians. Clack et al. do not discuss it either, mostly because their task at hand is simply to demolish Jacobson. But powerdown, the pathway about which it is seemingly not permissible for serious people to speak, is what we should all be talking about. That’s because it is the most realistic way to get to a sustainable, happy future.[See the very extensive discussion on nuclear energy and contamination contained in the ‘comments’ section of this article at the original weblink.–Roger Annis]