Stranded Assets

  • BoE Central Banker Addresses Stranded Assets

    September 30th, 2015 by designburd
    Screen Shot 2015-10-01 at 9.42.09 AM

                                             Video courtesy of Bloomberg.com

    We were very encouraged to hear Bank of England Governor Mark Carney address the financial market stabilization risk of “stranded assets,” the risk that if we are to avoid 2 degree warming, we will need to leave up to 80 percent of proved oil, gas, and coal reserves in the ground, echoing the important message that has been promoted tirelessly by our friends at the Carbon Tracker initiative. (Read Carney’s full speech here)

    Capital Institute’s 2011 post, “Our $20 Trillion Big Choice” addressed this issue not just as a financial market stabilization issue. Approximately three quarters of these fossil reserves are owned and controlled by national oil companies.  Exxon and BP are relative bit players in this game. The REAL risk and challenge is perhaps the largest geopolitical one ever to face the modern world.  Rapid drops in solar costs, and other technical revolutions could render much of these fossil fuels obsolete, resolving the problem, although with profound ramifications for fossil- fuel-dependent economies and their societies, with spillover affects throughout the world.  More likely, a comprehensive and highly complex international policy regime will be required far beyond what is currently even contemplated with voluntary “pledges” by nation states negotiating from the perspective of their national interests.

    Great progress this week.  The hard work lies ahead.

  • How About a ‘Not-So-Fast’ Track for the Trans-Pacific Partnership?

    December 19th, 2014 by John Fullerton
    Photo Credit: AFGE

    Photo Credit: AFGE

    The Trans-Pacific Partnership, a potentially historic trade agreement being aggressively pursued by the Obama administration, represents a cornerstone in its strategic pivot to Asia. If ratified by all 12 Pacific Rim countries currently engaged in the negotiations, it would create the largest free-trade zone in the world, accounting for some 40% of global GDP and a third of global trade.

    President Obama’s trade representative (and Harvard Law classmate) Michael Froman is aligned with pro-free-trade ideologues on both sides of the aisle and much of the Republican-controlled Congress in his desire to “fast-track” the partnership. This would reduce Congress’ role to an up-or-down vote on the pact without the possibility of amendments or even debate on the floor.

    What few seem to realize is that this agreement, if approved as is, could make it virtually impossible for the United States to meet its current and future climate pledges – including those made in its historic climate accord with China last month – without exposing the nation to unprecedented legal and financial risks.

    How about a “not-so-fast” track instead?

    Trade agreements are largely negotiated behind closed doors, and this one is no exception. While very limited information about its terms have been shared with the public, the media or policymakers so far, it’s concerning – though unsurprising – that some 600 corporate trade advisers, with names like Halliburton and Caterpillar, are listed on leaked drafts published by WikiLeaks earlier this month.

    Based on those drafts, we also know that the draft agreement includes a provision for what’s called “investor-state dispute settlement.”

    This little-known mechanism was initially created to protect corporate investments in countries where the rule of law is immature or at risk. In reality, it often empowers corporations to sue sovereign nations over any policies that conflict with their supposed right to the profits of free trade – including health and environmental policies designed to serve the democratically determined public interest.

    If that sounds far-fetched, one need look no further than the Lone Pine Resources Inc v The Government of Canada lawsuit, filed in 2013, which arose out of Quebec’s moratorium on hydraulic fracking. Lone Pine claims that the moratorium is “in violation of Canada’s obligations under Chapter 11 of the Nafta”. The case is under arbitration.

    Or consider Phillip Morris’ multibillion-dollar lawsuit against the Australian government over cigarette-packaging regulation, which uses an investor-state-dispute-settlement clause established in a 1993 free-trade agreement between Australia and Hong Kong.

    These corporate-friendly provisions in trade agreements can and have been used on far-ranging issues, from minimum wage laws in Egypt to environmental remediation in developing countries. The troubling, explosive growth of such cases point to a litigious future where corporate interests increasingly appear to trump national sovereignty with billions of dollars at stake.

    That’s not to say that those business interests aren’t legitimate. Trade can only flourish where the rule of law cannot be compromised by capricious actions of sovereign states when the political winds shift.

    Global trade is a complex subject where economics and geopolitics converge. When managed thoughtfully, expanded markets for producers and enhanced choice for consumers on each side are achievable, but not inevitable, as some free-trade ideologues would like us to believe.

    Unfortunately, as Nobel laureate Joseph Stiglitz explains in Globalization and Its Discontents, powerful corporations have been the primary beneficiaries of global trade, often at the expense of society at large and the environment.

    US secretary of state John Kerry appears to live in an airplane shuttling from crisis to crisis. He may have missed the legal and financial quagmire risk the Trans-Pacific Partnership poses to his hard-won vital progress towards a comprehensive climate treaty, intended to be signed in Paris next year, which would put stringent carbon emission restrictions in place.

    To avoid unintended policy conflict, here are some scenarios Kerry should urgently discuss with US trade representative Froman:

    • The US may need to impose sharply escalating mileage standards on automobiles and trucks that all but make combustion engines a relic of history. Would the trade agreement – with the settlement provision – give Toyota and other companies the legal standing to claim that such mileage standards breach their right to sell gas-powered cars in the US?
    • The US may decide to place an outright prohibition on dirty tar sands oil being used in any US refinery. In that case, would the trade agreement enable Suncor or other Canadian tar sands operators to sue the US government for unfair trade practices?
    • The stranded-asset issue is perhaps the largest geopolitical challenge of all time. I’m referring to our need, according to the International Energy Agency, to leave the majority of existing fossil fuel reserves “stranded” or unburned if we are to avoid catastrophic consequences from climate change. I call the decision our “$20tn Big Choice.” How might this and other trade agreements compromise our ability to tackle this unprecedented challenge?

    Can Americans fully appreciate the irony that our president and many parts of the Republican-controlled Congress appear finally to agree on one thing: fast-tracking the Trans-Pacific Partnership with no open debate on its threat to our sovereignty and to our democracy?

    Against these threats, it would seem that the only clear beneficiaries of this ideologically driven brand of “free trade” are the corporate influencers with an inside seat at the table, and the Harvard lawyers that craft them.

    Doesn’t sound “free” to me.

  • Capital Institute’s “Dog Days of Summer” Reading List

    August 15th, 2014 by designburd

     

    Summer Reading List

     

     

     

     

     

     

    Are you looking for summer reading recommendations? We humbly suggest looking back on these recent posts from John Fullerton’s Future of Finance blog – we’re calling them our “greatest hits” based on how many visits, comments and syndications they received. They are all rooted in our core belief that finance is inextricably linked to the environmental and social crises we face.

    Posts on Carbon & Climate’s Connection to Capital:

    1. Harvard and Brown Fail Moral Leadership Exam
    2. The Big Choice
    3. Beyond Divestment

    Posts on the Unfinished Business of Financial Reform:

    1. The Six Root Causes of the Financial Crisis
    2. What JPMorgan’s Recently Released Internal Reports Unintentionally Say
    3. Why We Need a Financial Transactions Tax

  • The Central Contradiction of Capitalism that Piketty Overlooked

    May 21st, 2014 by John Fullerton

     

    It is instructive to observe the reaction to the Piketty phenomenon — a 700-page treatise on political economy that became an overnight Amazon bestseller deserving, according to Larry Summers, of a Nobel Prize. It is similarly instructive to note the spectacle of the viral Russell Brand interview with theBBC’s Jeremy Paxman in which Brand pretty much shreds Paxman and calls for revolution. I can’t claim to have actually read Piketty’s tome, but I’ve read a lot of the reviews, and I have watched the Russell Brand video. Regardless of where you come down on their arguments, the response to Piketty’s book and the wide appeal of Brand’s rant taken together tell us that trouble is brewing.

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    Image Courtesy of Amazon.com

    However, the trouble is far deeper than what the media is currently hyping.  While it is true that the long-term dynamics of unequal wealth distribution are indeed unsustainable and unconscionable as Piketty highlights in Capital in the 21st Century, a reality much less obvious, and yet more “terrifying” (to use a Piketty expression) is buried in the data of those 700 pages.

    In the concluding section of his book, Piketty calls r > g the “central contradiction of capitalism,” where r is the return on capital invested and g is the economy’s growth rate. The latter, Piketty suggests, is what determines wage growth rates. The central contradiction, he elaborates, is that since returns to capital exceed returns to labor is hard-wired into the system, so too is rising inequality, absent wars or depressions.

    I for one fail to see how this is the “central contradiction of capitalism.”  Piketty’s discovery, out of his exhaustive search and analysis of the data, is that Nobel prize winning economist Simon Kuznets and his hypothesis of a “Kuznets Curve” was wrong.  Income inequality does not, Piketty asserts, first increase as a country develops and then reverse course and decline along some inverted U-shaped curve as Kuznets suggested.

    Turns out “the rich just keep getting richer” after all.

    Has this ever really been a subject for serious debate?  Nothing in my adult experience on Wall Street and the decade since contradicts the “rich get richer” hypothesis.  But the story goes beyond r > g.  For example, Marisa Meyer’s $200mm worth of stock options value (thank you, Dan Loeb, thank you, Alibaba, sorry Yahoo! shareholders) on no initial investment and little tangible progress turning around the operations of Yahoo! is another important part of the story.

    I’m delighted to see Piketty reinvigorate the serious discussion on inequality that the Occupy Movement began but didn’t know what to do with.  But as is typical of mainstream economists of all political stripes, Piketty misses the true contradiction of capitalism (and socialism for that matter), which is the assumption that exponential growth can continue forever on a finite planet.  It is an assumption that is based on the flawed theory, in direct conflict with the laws (not theories) of thermodynamics, that the economy is somehow separate and apart from the biosphere.  How is it that we continue to ignore the expanding literature on this obvious contradiction, even as accelerating climate change events are now everyday front-page news?

    Actually, Piketty unwittingly and indirectly helps to illuminate that fundamental contradiction in a chart that reports the concentration of “slave capital” in the south when slave labor was the “energy source” that powered that region’s dominant agricultural economy.

    pikettytwo.preview

    According to Piketty’s data, it was neither land nor financial capital but slave capital that comprised the largest share of all wealth, a stunning 40% of it. Not surprisingly, that wealth was highly concentrated. If we ignore for the moment the obvious ethical implications of what Piketty’s chart reveals – inequality driven to its most violent extreme – we see through to another deeply troubling revelation.  Just as the growth of the South’s agricultural economy rested on the exploitation of slave capital, as if there would be no negative consequences to the health of the whole, so our current economy’s exponential growth depends upon our exploitation of fossil fuel assets and the over taxing of the earth’s resources and waste sinks as if there would be no consequences to the health of the whole.  The former violated the requirements of a healthy social system; the latter violates the requirements of a healthy planet.

    Fossil fuel assets, in particular, are the modern day equivalent of slave capital.  Previously, I estimated that we are facing a $20 Trillion Big Choice, the ethical challenge of our era.  The assumption of ever-expanding use and abuse of numerous material resources (including fossil-fuel-based energy), and the overuse and pollution of the earth’s natural waste sinks as the core operating characteristic of our economic system—this is the real central contradiction of our modern capitalist system.

    Facing a loss of 40 percent of their “capital assets,” the South fought a horrific Civil War.  It took the immense courage of a moderate Republican president to see our nation through that moral and economic crisis.

    Where is our modern day Abe Lincoln?

  • Harvard and Brown Fail Moral Leadership Exam

    November 19th, 2013 by John Fullerton

    At a time when institutions of business and government continue to fail society, two of our leading academic institutions missed the opportunity to provide essential moral leadership on the most pressing challenge ever faced in the history of human civilization.

    Harvard President Drew Faust issued her October statement >> Read more

  • Beyond Divestment

    March 28th, 2013 by John Fullerton

    Two years ago, students at Swarthmore College began a fossil fuel divestment campaign, initially focused on coal. Last November, 350.org, the grassroots activist NGO dedicated to reducing carbon in the atmosphere to 350 parts per million joined the fight with a nationwide “Do the Math” campus tour. The movement spread to cities, and soon to >> Read more

  • Why I Marched Against the XL Pipeline

    February 19th, 2013 by John Fullerton

    My daughter and I joined an estimated 50,000 demonstrators in Washington, D.C. marching against the XL Pipeline that would connect the Canadian Tar Sands to American refineries.  After a half century on this planet, I took to the streets.  Here’s why.

    The “business as usual” arguments in favor of building the pipeline as articulated by the liberal and >> Read more

  • Reimagining Capitalism in Post Sandy America

    November 6th, 2012 by John Fullerton

    No scientist will tell you with certainty whether doping was the reason Lance Armstrong won any particular leg of his seven Tour de France titles. You know where I’m headed with this reasoning.

    Bloomberg Businessweek put it rather succinctly on this week’s cover: “It’s Global Warming, STUPID.”

    For the first time since 1984, not one challenge >> Read more

  • Ending the Debate on Keystone

    February 13th, 2012 by John Fullerton

    In his February 10th essay, New York Times columnist Joe Nocera asked a simple question: “Can a person support the Keystone XL oil pipeline and still believe that global warming poses a serious threat?” Joe answers “yes,” with >> Read more

  • The Big Choice

    July 19th, 2011 by John Fullerton

    – A $20 trillion “externality” appears to present civilization with its BIG CHOICE: economic destruction or ecological destruction, both with chilling global security implications.  Here’s why, along with a practical and more hopeful alternative to “Sophie’s Choice.”

    Carbon Tracker has released an illuminating report >> Read more