carbon bubble

By R.C. Smith - PhD Dissertation, September 1, 2022

Oil and finance have long played central roles in defining how the global economy has developed and this is especially true of the modern neoliberal economic system. One factor of their relationship that is often unexamined is how oil industry profits and liquid capital influence the developments of finance. Understanding their relationship during the modern period first requires understanding this petrocapital cycle, how it influences economic development, and the ways that its rise to prominence in the 1970s transformed the global capitalist financial system.

We are living in a world that has been shaped by the demands of oil and finance. Under the neoliberal capitalist order these two sectors enjoyed central roles in setting the pace of the global economy. Shocks in the price of oil, as recent events like the record-high oil prices experienced following Russia’s 2022 invasion of Ukraine have reminded us, tend not to stay confined to the fuel pump and radiate throughout our economic system. One particular avenue of influence that is often not seen but is widely felt is the reinvestment of oil profits in global financial markets. This question was first thoroughly examined in Mahmoud el-Gamal and Amy Myers Jaffe’s Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold which traced the relationships that formed the endogenous petrocapital cycle, which is the reinvestment of the profits reaped by oil exporters in financial markets and how this changed global credit and financial markets. The Real Oil Shock builds on their earlier work by digging deeper into the birth of this process in the Oil Shocks of the 1970s. It will do this by examining how OPEC’s windfall capital fundamentally changed financial markets, practices, and the creation of money.

What The Real Oil Shock is examining is not a new phenomenon in economic history. The human experience abounds with instances where dramatic redistributions of wealth and resources created significant changes in the existing social and economic order. An excellent example comes from the Spanish colonization of the Americas. Exploitation of gold, silver, and other precious metals in the Americas provided the Spanish monarchy with an enormous windfall of liquid capital. This was spent by the Spanish monarchy on projects of the state, fighting wars, and expanding their influence in Europe. This put increasing quantities of Spanish doubloons in circulation outside of domestic markets. Spanish gold had become the capital for Dutch, English, and French merchants for financing their own commercial, industrial, and colonial enterprises whose activities were the foundation of early modern capitalism in Europe.

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By Clark Williams-Derry - Montana Environmental Information Center, April 7, 2022

By Kay Brown, Carly Wier, et. al. - Alaska Climate Alliance, March 21, 2022

Alaska has a vast endowment of renewable energy resources that can be tapped in its transition to a renewable energy future. Benefits of accelerating the energy transition in Alaska include more jobs, lower energy prices, higher energy security and the potential for renewable resources to support zero carbon hydrogen-based fuels for the aviation and maritime industries.

The state has already begun to develop its renewable energy resources and continues to support renewable technology development for Alaska’s challenging environment. The scale of Alaska’s vast undeveloped renewable energy resource endowment remains more than 14 times the total U.S. energy consumption.

Renewable energy technologies, including wind, solar, geothermal, and ocean and river hydrokinetic, along with complementary energy storage technologies, are continuing to exhibit declining costs which make them increasingly attractive as a primary energy source to substitute for fossil fuels in the electric sector and to support the electrification of buildings and the transformation of the transportation sector to electrification and renewable hydrogen-based fuels.

As local fossil fuel costs escalate across Alaska, from 2.5X higher in the Railbelt to as much as 4X higher in Rural Alaska (as compared to the U.S. average), renewable energy technologies are increasingly attractive investments and are poised to affordably replace legacy fossil fuel energy systems in the 2030-to-2050 time horizon while providing greater energy security, increased energy resiliency especially in rural Alaska, and broad environmental, economic and health benefits.

Independent studies have confirmed that the development of Alaska’s renewable energy potential will generate thousands of jobs – at least comparable in magnitude to the fossil fuel jobs that may be displaced by the transition to a clean renewable energy sector.

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By C.J. Polychroniou and Robert Pollin - Truthout, February 24, 2022

Since mid-2020, inflation has been rising, with the level of average prices going up at a faster rate than it has since the early 1980s. In January 2022, prices had increased by 7.5 percent compared to prices in January 2021, and it now looks like the U.S. may be stuck with higher inflation in 2022 and even beyond.

Why are prices rising so dramatically? Are we heading toward double-digit inflation? Can anything be done to curb inflation? How does inflation impact growth and unemployment? Renowned progressive economist Robert Pollin provides comprehensive responses to these questions in the exclusive interview for Truthout that follows. Pollin is distinguished professor of economics and co-director of the Political Economy Research Institute at the University of Massachusetts at Amherst.

C.J. Polychroniou: Back in the 1970s, inflation was the word that was on everybody’s lips. It was the longest stretch of inflation that the United States had experienced and seems to have been caused by a surge in oil prices. Since then, we’ve had a couple of other brief inflationary episodes, one in the late 1980s and another one in mid-2008, both of which were also caused by skyrocketing gas prices. Inflation returned with a vengeance in 2021, causing a lot of anxiety, and it’s quite possible that we could be stuck with it throughout 2022. What’s causing this inflation surge, and how likely is it that we could see a return to 1970s levels of inflation?

Robert Pollin: For the 12-month period ending this past January, inflation in the U.S economy was at 7.5 percent. This is the highest U.S. rate since 1981, when inflation was at 10.3 percent. Over the 30-year period from 1991 to 2020, U.S. inflation averaged 2.2 percent. The inflation rate for 2020 itself was 1.2 percent. Obviously, some new forces have come into play over the past year as the U.S. economy has been emerging out of the COVID-induced recession.

To understand these new forces, let’s first be clear on what exactly we mean by the term “inflation.” The 7.5 percent increase in inflation is measuring the average rise in prices for a broad basket of goods and services that a typical household will purchase over the course of a year. At least in principle, this includes everything — food, rent, medical expenses, child care, auto purchases and upkeep, gasoline, home heating fuel, phone services, internet connections and Netflix subscriptions.

In fact, prices for the individual items within this overall basket of goods and services have not all been rising at this average 7.5 percent rate. Rather, the 7.5 percent average figure includes big differences in price movements among individual components in the overall basket.

The biggest single factor driving up overall inflation rate is energy prices. Energy prices rose by 27 percent over the past year, and within the overall energy category, gasoline rose by 40 percent and heating oil by 46 percent. This spike in gasoline and heating oil prices, in turn, has fed into the total operating costs faced by nearly all businesses, since these businesses need gasoline and heating oil to function. Businesses therefore try to cover their increased gasoline and heating oil costs by raising their prices.

By Carlos Davidson - Common Dreams, November 22, 2021

Shareholder engagement promotes the image of fossil fuel companies as good corporate citizens, and strengthens their political power to fight climate legislation.

What should pension funds, university endowments and other institutional investors do to help address climate change? The fossil fuel divestment movement calls on funds to divest from fossil fuel companies. Fund owners and managers often oppose divestment, preferring "shareholder engagement"--that is, owning fossil fuel company stocks and voting at shareholder meeting and urging companies to change. While shareholder engagement with fossil fuel corporations on climate change is well intentioned, I will argue that it harms rather than helps efforts to address climate change.

Shareholder engagement is detrimental to winning needed government climate action

The pace and magnitude of emissions reductions needed to respond to the climate crisis will not come from voluntary actions by companies, but only from strong government regulations, programs and public investments. Shareholder engagement is aimed solely at getting companies to change and does nothing to get needed government climate action. Tariq Fancy is BlackRock's former chief investment officer for sustainable investing. He writes in BlackRock hired me to make sustainable investing mainstream. Now I realize it's a deadly distraction from the climate-change threat that "Only governments have the wide-ranging powers, resources and responsibilities that need to be brought to bear on the problem." The perception that shareholder engagement is moving companies to address climate change weakens public support for the need for government action. Fancy calls sustainable investing a "deadly distraction" and argues that it is "harming the world by creating a societal placebo that delayed overdue government reforms."

More importantly, shareholder engagement promotes the image of fossil fuel companies as good corporate citizens, and strengthens their political power to fight climate legislation. This is exactly opposite the strategy of divestment, which aims to weaken the political power of fossil fuel companies by calling them out as bad actors, and thereby win climate legislation. Former SEC commissioner Bevis Longstreth in Climate Change and Investment in Fossil Fuel Companies: The Strategy of Engagement Won't Work explains it this way:

"Indeed, engagement is likely to assist Big Oil and Big Coal in postponing the day when governments limit the burning of fossil fuels. The International Energy Agency reckons that, if governments act to compel adherence to the carbon budget, necessary to have a chance of holding the planet to only a 3.6 F rise in temperature from pre-industrial levels, it will cause Big Oil and Big Coal to lose about $1 trillion a year. Engagement with institutional investors like Harvard gives the fossil fuel giants the protective cover they need to stretch out the transition process to renewables for as long as they can. It legitimizes talk over action."

By Elizabeth Perry - Work and Climate Change Report, September 7, 2021

An Insecure Future: Canada’s biggest public pensions are still banking on fossil fuels  was released by the Corporate Mapping Project in mid-August . It examines the investments of the Canada Pension Plan Investment Board (CPPIB) and the Caisse de dépôt et placement du Québec (CDPQ) over a five-year period from 2016 to 2020 – the two together manage $862.7 billion, which fund the pensions of over 26 million Canadians. The report finds that, despite public declarations and climate strategies, CPPIB increased the number of shares in oil and gas companies by 7.7 per cent between 2016 and 2020. The CDPQ in 2017 pledged to increase its low-carbon investments by 50 per cent by 2020, but the authors calculate there was only a 14% drop in fossil fuel investments between 2016 and 2020, and also note that overall, the CDPQ holds over 52 per cent more fossil fuel shares than the CPPIB. The paper also highlights the funds’ investments in individual fossil fuel companies, including ExxonMobil ; TC Energy ; Enbridge; the world’s highest-producing coal companies, and in companies that are members of the Canadian Association of Petroleum Producers. The numbers are startling, and demonstrate a high potential for stranded assets which will threaten Canadians’ pension security.

The authors propose a number of policy changes, including a call for Canadian public pension fund trustees/investment boards to “ Immediately design a plan to phase out fossil fuel investment in alignment with targets set by the Paris Agreement to limit global warming below 1.5 degrees Celsius” and re-invest in renewables. Recommendations for the federal government include : “mandate a clear timeline for public pensions to withdraw from all fossil fuel investments. Define reinvestment criteria that support a just and equitable transition to a renewable-based energy system” .

The report is summarized in “For climate’s sake, Canada Pension Plan needs to take a serious look at its investments” (National Observer, September 7th), which also summarizes the “oily” corporate connections of the decision-makers of the CPPIB, and highlights the current election promises related to financial regulation of our pension funds.

By Marcy Winograd - Common Dreams, August 26, 2021

The kids are mad as hell—and so are teachers who want their California teacher pension fund, CalSTRS, to join 1,000 other institutions collectively divesting $14.5 trillion from the fossil fuel industry that threatens climate catastrophe. The retirement fund divestment fight, led by retired teachers in Fossil Free CA and students from Youth vs Apocalypse and Earth Guardians, estimates CalSTRS' portfolio investments in fossil fuels at $16 billion, mostly in oil and gas delivery systems, but $6 billion in direct investments in oil behemoths, with $400 million in Exxon-Mobil, $350 million in Chevron, $250 million in BP and $108 million in Enbridge Inc. This is the same corporation sending attack dogs to maul water protectors protesting drilling at river crossings on indigenous land, where Enbridge's Line 3 pipeline will send sludgy tar sands through Minnesota. The estimated pollution from the pipeline is equivalent to 50 coal powered plants running for 50 years.

Fossil Free CA and other divestment advocates, including this author, warn that CalSTRS, the nation's second largest pension fund with a $310 billion dollar portfolio, just behind CalPERS' $444 billion in holdings, risks sticking its members, over 700-thousand active and retired California teachers, with stranded assets—unless the pension fund moves the money before it's too late, too late for the portfolio, too late for the planet.

CalSTRS's resistance to divestment from Big Oil comes at a financial cost to rank and file public school teachers. In 2019, the Corporate Knights, a Toronto-based research firm, published a study showing that had CalSTRS divested during the last decade the teacher retirement fund would have generated an additional $5.5 billion. Forbes reports that during that same decade, the energy sector of big fossil fuel companies, such as Exxon (ejected from the Dow in 2020), Chevron and BP, shrunk to the smallest investment sector in Standard and Poor's (S & P) index of the 500 largest US publicly traded companies. This year oil companies underperforming the index saw their credit ratings cut in half.

By Elizabeth Perry - Work and Climate Change Report, June 16, 2021

UPDATE: As reported by CBC News on June 16 in “New hope for Terra Nova as Suncor announces tentative deal to save N.L. oilfield” , and by a Unifor press release, an agreement in principle has been reached to restructure ownership of the Terra Nova oil fields, offering a path forward which may save the jobs of the workers. Details are not yet available, but Suncor will increase its equity stake and previous owners may participate in the new structure, contingent on the province honouring its commitment to provide $205 million from the oil industry recovery fund, and some $300 million in royalty relief .

Workers demonstrated outside the Newfoundland legislature on June 14 and 15 , as politicians debated inside about the fate of the Terra Nova oil field and an ultimatum from Suncor Energy, asking for the government to buy the assets of the Terra Nova FPSO, an offshore production and storage platform which employed nearly 1,000 workers in 2019, which is the last time oil was produced. Suncor is the last company remaining in the consortium which owned the oil field. The complexity of the situation is described in several CBC articles, including: “Talks to save Terra Nova oilfield collapse after N.L. government rules out equity stake” (June 10), and “As deadline for Terra Nova approaches, pressure mounts to save troubled oilfield” (June 11). To date, the government has refused to buy the asset, saying that the risks are too great because the oilfield is estimated to be 85% depleted. Instead, it has agreed to provide about $500 million in cash and incentives to the company. As of June 16, Suncor Energy has still not announced a decision, as reported by CBC in “Terra Nova deadline comes — and goes — without word of its fate” .

Unifor Local 2121 represents the workers at Terra Nova, and organized the demonstrations at the legislature. Unifor describes the rally here, and in this press release asserts that the Terra Nova decision is a harbinger of the future of the Newfoundland oil and gas industry.

By Johanna Bozuwa and Olúfẹ́mi O. Táíwò - The Guardian, June 7, 2021

It has been a bad month for big oil. A Dutch court just ruled that Shell must cut its carbon pollution by 45% by 2030. The court’s decision has rightly been celebrated: it is a much more stringent requirement than the ineffective regulations imposed to date. Meanwhile, shareholders are waging rebellions at various oil giants – ExxonMobil shareholders won two seats on the board to pressure the oil company towards a greener strategy, and shareholders at Chevron and ConocoPhillips passed nonbinding resolutions pressuring the companies to disclose their lobbying efforts and emissions amounts.

Private oil and gas companies are finally up against the wall. Shell has promised to appeal the Dutch court decision, but oil prices went negative last year and put companies on bankruptcy notice, and last week the International Energy Agency said to stop digging. Politicians have floated the idea of oil and gas magnates becoming “carbon management companies” as a way for those companies to have a “future in a low-carbon world” while retaining control over oil, gas, and profit in a planet increasingly aware of and hostile to their emissions-generating activity.

But as far as the Dutch court’s ruling or the new bout of shareholder activism goes, neither go far enough. Nor should Shell be turned into a “carbon management company”. Like all private oil companies, Shell should not exist.

Oil and gas companies are a political structure: they possess private, authoritarian dominion over the pace and volume of oil and gas production, and thus of important determinants of global emissions. These emissions and their consequences do not respect any sort of public/private distinction, nor borders, nor the rights to clean air or clean water. For decades, private oil companies have intentionally and recklessly obscured their role in the destruction of countless local environments as well as their role in the global climate crisis.

Private oil companies have propped up an ever-failing business on a complex system of national and international government subsidies, all of which function to privatize the benefits of oil and gas production while socializing its financial, environmental, and social costs – making the public pay in tax dollars, human rights abuses, and an unlivable climate. Now that these companies fear being left behind by a changing political context, their public relations strategy is to insist to a public increasingly aware of the dire need to stop carbon emissions that there is still a place for private oil companies in a “green” world.

There is a role for the workers, their skills and knowledge, and the equipment and infrastructure of oil and gas companies. But there is no longer a role for companies or profit-seeking as an organizing principle of this aspect of human society – not if we want to continue to have human society...

Read the rest here.

By Staff - United Mine Workers of America, June 1, 2021

Clearly, the UMWA's positions on carbon capture and storage (CCS) and so-called "clean coal" stand in contrast (and, for the most part, opposition) with the entirety of the climate justice movement, ecosocialists, green syndicalists, and a good deal of rank-and-file union members not involved in resource extraction (including the more than 60-70% who support something like the Green New Deal). That said, at least the UMWA finally accepts that coal is a dying industry and a just transition is needed. Therefore, this is presented to show where the UMWA stands, not as an endorsement of their positions.

At the end of 2011, there were nearly 92,000 people working in the American coal industry, the most since 1997. Coal production in the United State topped a billion tons for the 21st consecutive year. Both thermal and metallurgical coal were selling at premium prices and companies were making large profits.

Then the bottom fell out. Over the next 4 years, coal prices cratered, especially in metallurgical coal but also in thermal coal. The global economy slowed, putting pressure on steelmaking and metallurgical coal production. Foreign competition from China, Australia, India and elsewhere cut into met coal production.

Domestically, hydraulic fracturing (fracking) of shale formations opened up previously untapped natural gas fields, caused the price of gas to drop below that of coal for the first time in years. Utilities began switching the fuel they used to generate electricity from coal to gas. Environmental regulations coming from the Obama administration also impacted coal employment. By 2016, just 51,800 people were working in the coal industry. 41,000 jobs had been lost.

Companies went bankrupt. Retirees’ hard-won retiree health care and pensions were threatened. Active miners saw their contracts, including provisions that had been negotiated over decades, thrown out by federal bankruptcy courts. From 2012 to today, more than 60 coal companies have filed for either Chapter 11 reorganization bankruptcy or Chapter 7 liquidation. Almost no company has been immune.

“Just since 2015 we have had companies like Peabody, Arch, Alpha Natural Resources, Walter Energy, Westmoreland and Murray Energy all go bankrupt,” President Roberts said. “Patriot Coal went bankrupt twice. Retirees’ health care was on the brink, but we were successful in preserving that in 2017. The 1974 Pension Fund was on the path to insolvency, but we were able to save that in 2019.

“Even though our contracts were thrown out by bankruptcy judges at company after company, we were successful in preserving union recognition, our members’ jobs and reasonable levels of pay and benefits at every company as they emerged from bankruptcy,” Roberts said. “But in no case has the contract that came out of bankruptcy been the same as the one our members enjoyed when a company went into bankruptcy. This has been extremely painful all the way around.”