Alex Steffen - Trump, Putin and the Pipelines to Nowhere
If you’re an American,
you’re likely misinformed about the most dire crisis in our world.
American journalists,
pundits and media executives have largely convinced themselves that climate
change is not a serious political issue, because they think the polls tell them
that. A majority of American voters regularly tell pollsters they don’t
think climate change is a critically important election issue, so
therefore the media decides it must not be an important
political issue at all.
Unfortunately, that
conventional wisdom blinds us to both to the actual bedrock reality of this
era, and to - as I see it - the defining aim of the in-coming Trump
administration: delaying climate action.
Trump has surrounded
himself with more oil industry and oil industry connected people than any
president in history (even George W. Bush). You can’t understand what’s going
on with Trump unless you understand the oil industry… and you can’t understand
the oil industry without understanding climate change.
Understanding
Climate Change: In case you’re just
joining us here on Earth, we’re making the planet hotter. The science is
incontrovertible that by burning fossil fuels, we’re changing the planet’s
climate. Because the consequences worsen dramatically as we emit more climate
pollution and the planet gets hotter, every nation on Earth agreed last year in
Paris to hold that temperature rise to two degrees Celsius (2ºC). This means we must
limit the total amount of CO2 and other greenhouse pollution we put into the
sky: we have to meet a “carbon budget.” To meet that budget, we have to
radically cut greenhouse gas emissions - burning way less oil, coal and
gas - in the next two decades, and set the global economy on a steep path to
zero emissions.
Again, the American
media has failed to convey the magnitude of the costs of unchecked global
warming. Those costs are profound already, today, as the
Arctic heatwave, Syrian civil war, bleaching of the Great Barrier Reef,
worsening storms, droughts, wildfires and freak weather events all show. Those
costs will only grow, and they will grow more dire, more quickly as the planet
heats.
At the same time, the
innovations we need to create zero-carbon prosperity are already here. From
plummeting costs for solar, wind, electric vehicles and green buildings to
better approaches to urban planning, agriculture and forestry, we already have
the tools we need to start building a much more prosperous world, producing
hosts of new companies and millions of jobs. Indeed, a giant building boom is what successful climate action looks
like.
Because we have no
real choice but to act — and, in fact, climate action will make most people not
only safer, but better off — big changes are coming, far sooner than most
Americans understand.
But some people
totally understand: the ones who stand to lose money from these changes.
The
Carbon Bubble: The need to keep
within our global carbon budget means we must leave most of the coal, oil and
gas on the planet unburnt. But also, we’ve already set
in motion extremely serious climate change. Even if we act decisively now, we
will be wrestling with the impacts of that pollution for centuries. So one half
of our task is to become zero-carbon societies, but the other is to ruggedize in the face of worsening problems, in many
cases by abandoning places that cannot be saved and practices that cannot be
continued.
Here’s the blunt
reality: the pressure to cut emissions and respond to a changing climate are
going to alter what we do and don’t see as valuable. Climate action
will trigger an enormous shift in the way we value things. If we can’t burn oil,
it’s not worth very much. If we can’t defend coastal real estate from rising
seas (or even insure it, for that matter), it’s not worth very much. If the
industrial process a company owns exposes them to future climate litigation,
it’s not worth very much. The value of those assets is going to plummet,
inevitably… and likely, soon.
Currently, though,
these assets are valued very highly. Oil is seen as hugely valuable, coastal
real estate is seen as hugely valuable, industrial patents are seen as hugely
valuable. When there’s a large
difference between how markets think assets should be valued and what they are
(or will) actually be worth, we call it a “bubble.” Experts now call the
differences between valuations and worth in fossil fuel corporations,
climate-harmful industries and vulnerable physical assets the “Carbon Bubble.”
It is still growing. And here’s the thing
about bubbles: they always pop.
People whose job it is
to measure risk in financial markets are extremely concerned about the
magnitude of the Carbon Bubble and the damage it will do as it bursts. Because
when it bursts, trillions of dollars of imaginary assets will simply vanish in
a very short time… read more:
Mark Carney, the
Governor of the Bank of England and chair of the Financial Stability
Board — the global institution designed to try to prevent market panics and
crashes — gave a bombshell talk at Lloyds last year, saying he
thought letting the Carbon Bubble continue to grow exposed global markets to a
risk on the level of the 2007 subprime crisis.
In other words, one of
the most knowledgeable financial authorities on the planet has come to think
that the difference between what the high-carbon part of the economy is priced
at and what it’s worth is so enormous that letting it grow and then suddenly pop
could crash financial markets worldwide.
And he’s far from
alone. Scores of experts warn that the Carbon Bubble is one of the biggest threats to the global economy. The way to increase the resilience of
global markets, they say, is to act on climate, but to do so with
bold-yet-predictable pacing. If we do that — they say — we will still see the
Carbon Bubble deflate, but markets should be able to adjust, and panic can be
avoided. Climate action will stave off financial disaster as well ecological
catastrophe.
This is a win-win for
everyone, except those heavily invested in those Carbon Bubble assets now. For
these investors, the Carbon Bubble is a good thing: the longer
it lasts, the more they reap the benefit of high valuations and large
dividends. For them, the larger the Carbon Bubble swells, the more money they make.
The Perception War
There is no long game
in high-carbon industries. Their owners know this. They don’t need a long game,
though: their investment horizons are years (or even months), not decades.
Investors don’t even need successful companies, actually — as we’ve seen time
and time again with hostile takeovers, pump-and-dumps, stock buybacks and other
financial looting tactics. All they need is the perception of
the inevitability of future profit, today. That’s what keeps valuations high.
Here’s something
critical it took me a long time (and the patience of a few smart friends) to
understand: the Carbon Bubble will pop not when
high-carbon practices become impossible, but when their profits cease to be
seen as reliable. As it becomes clear
that these assets will not produce profit in the future, their valuations will
drop — even if the businesses that own them continue to function for years. The
value of oil companies will collapse long before the last barrel of oil is
burned; the value of beachfront hotels will collapse long before rising tides
flood their lobbies.
Put another way: The
pop comes when people understand that growth in these industries is over and
that, in fact, these industries are now going to contract. That’s when
investors start pulling out and looking for safer bets. As investors begin to
flee these companies, others realize more devaluation is on the way, so they
want to get out before the drop: a trickle of divestment becomes a flood and
the price collapses. What triggers the drop is investors ceasing to believe the
company has a strong future. Because that risk
already exists, the pop is way closer than most people understand. A crisis in investor
confidence is the biggest threat to fossil fuel companies — not
environmentalists, regulations, clean energy competitors or climate agreements.
The Carbon Lobby
and the Trump Gang
For high-carbon
industries to continue to be attractive investments, then, they must spin a
tale of future growth. They must make potential investors believe that even if
there is a Carbon Bubble, it is decades away from popping — that their high
profits today will continue for the foreseeable future, so their stock is worth
buying.
How would you maintain
this confidence?
- You’d dispute climate science - making scientists’
predictions seem less certain in the public mind - and work to gut the
capacity of scientists to continue their work (by, for instance, defunding
NASA’s Earth Sciences program).
- You’d attack global climate agreements,
making them look unstable and weak, and thus unlikely to impact your
businesses.
- You’d attack low-carbon competitors
politically, attempting to portray the evidence that they can replace
high-carbon industries as fraudulent (or at least overly idealistic).
- You’d use every leverage point to slow
low-carbon industrial progress — for example, by continuing massive
subsidies to oil and gas companies, while attacking programs to develop
new energy sources.
- You’d support putting a
price on carbon, since this makes you look moderate and engaged, but you’d
make sure that the definition of a “reasonable” price on carbon was so low
and took so long to implement that it was no real threat to your business,
and at worst would replace the dirtiest fossil fuels with others
(switching for example from coal to gas).
- You would ally with extremists and other
sources of anti-democratic power, in order to be able to fight democratic
efforts to cut emissions through the application of threats, instability
and violence.
- Most of all, you’d invest as heavily as
possible in new infrastructure and supply. For oil and gas companies, this
means new exploration and new pipelines. Why would you do this, if you
know you may have to abandon these assets before they’ve paid off? Two
reasons: First, it sends a signal of confidence to markets that you expect
to continue to grow in the future. Second, it’s politically harder to
force companies to abandon expensive investments than it is to prevent
those systems from being built in the first place - the mere existence of
a pipeline becomes an argument for continuing to use it. This, too,
bolsters investor confidence. (Note that whether these assets are
eventually abandoned or not is of little concern to current investors
looking to delay devaluations).
Here’s the kicker: If
you were going to put in place a presidential administration that was dedicated
to taking these actions, it would look exactly like what we have now: a cabinet
and chief advisors in which nearly every member is a climate denialist with
ties to the Carbon Lobby. Trump wants ExxonMobil
CEO Rex Tillerson to be his Secretary of State. You might remember that Exxon
has been a main driver of climate denialism, as well as being one the largest
polluters in history. Tillerson also has close ties with Vladimir Putin.
Not long ago,
Tillerson was quoted as saying “The world is going to have to continue using
fossil fuels, whether they like it or not.” Think that one over. This is the
man who would be America’s face to the world. Trump has also put
forward a host of other appointees who are overt climate denialists and
generally also have financial ties to industries threatened by the Carbon
Bubble. These include Rick Perry, Trump’s choice for Secretary of Energy and a
close ally of Big Oil; Scott Pruitt (EPA Administrator — a virulent climate
denialist); Nikki Haley (U.N. Ambassador, also known for suppressing climate
science as Governor); Steve Bannon (Chief Strategist, and just generally
gross); Ryan Zinke (Secretary of Interior — who strongly supports more oil and
gas exploration on public lands): Jeff Sessions (Attorney General and climate
regulation opponent); Elaine Chao (Secretary of Transportation, who will be
tasked with getting a huge fossil fuel infrastructure plan through Congress,
working with her husband, Mitch McConnell); James Mattis (Secretary of Defense,
who is not a denialist but does have oil industry ties); Michael Flynn
(National Security Advisor — and former oil industry lobbyist); Larry Kudlow
(Council of Economic Advisors — a climate denialist and frequent defender of
the Koch brothers); Wilbur Ross (Commerce Secretary — holds “hundreds of
millions of dollars” in oil and gas investments); even Betsy DeVos (Education
Secretary) is sister to Blackwater founder Erik Prince, who is investing
heavily in African oil and gas fields, “places where he thinks his expertise in
providing logistics and security can give him a competitive edge.”
This is a cabinet
custom-built to protect carbon industry investors… especially, perhaps, one.
No One Cares More
about the Carbon Bubble than Putin
Trump’s ties to
Russian espionage suddenly make more sense in this light. If you were going to
ask why a country like Russia would risk a war to interfere with American
politics, look at what the Russian economy is. Russia is a
petrostate. It’s the number one gas exporter and number two oil exporter in the
world, but its economy is otherwise stagnant and out-of-date. Those oil and gas
assets are controlled by a small number of oligarchs gathered around Putin, the
former head of the KGB. Those oligarchs may be the one group of investors who
stands to lose the most from the popping of the Carbon Bubble.
Russia’s major
national asset is their potential to develop Arctic oil fields opened up by
climate change — which won’t happen if investors pull out of oil. If it’s
obvious that this oil is unburnable, there’s no point in building all those
oil-drilling platforms and pipelines. But if the perception is that the Carbon Bubble
won’t pop for decades, then getting one’s hands on millions of barrels of
Arctic oil will pump valuations way up. By one estimate, these oil fields could
be worth at least $500 billion.
I don’t have any
special insight into what Russia did or didn’t do, but if you’re looking for a
reason why they would want to disrupt our election, there’s 500 billion of
them. Now, add in all the
other Bubble-expanding projects and ploys, pipelines and hotels, and you begin
to see the magnitude of the scam here. The difference between the Carbon Bubble
deflating rapidly now and popping spectacularly in a decade or more could mean
literally trillions more dollars in profits for the kind of people now
helicoptering into Washington.
But that same delay
would also bring on climate catastrophe, damage our democracy and bring
financial ruin for the investors who are left holding those assets when the
bubble pops. If history is any guide, those investors will be pensions and
mutual funds and small timers - in other words, regular people. It is not hyperbole to
say that swelling the Carbon Bubble is not only not in the
interests of the United States, it increases threats to our economy and
national security, puts Americans at risk, undermines our prosperity and
weakens our nation. It’s hard to call defending high carbon interests anything
but unpatriotic. People who are looking
to understand what the Trump gang is up to would do well to consider his gang’s
actions through the lens of the Carbon Bubble. Understand that the amounts of
money at stake are vast, nearly inconceivable to most of us, and highly
concentrated in the hands of the people in Trump’s cabinet and their close
friends and business allies.
Journalists are unused to thinking about climate
change as being an economic and financial issue - much less the core political
issue of our day - so for a lot of us this whole problem is invisible, despite
the credibility of everyone pointing it out. It sounds like a conspiracy
theory, frankly, because we are so cognitively unprepared to see the Bubble in
front of us. That we are so blind to these risks is a tragedy. We need to focus: The
most serious political fight on the planet - the need to end use of coal, oil
and gas - is at the center of America’s current political crisis.
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