THE FUTURE OF FINANCE

Time to Plan: The Climate Crisis is Here

This is what the fight over Stranding Assets will look like.

The spotlight on “stranded assets” is growing brighter, and that is good.  The idea was brought to our attention when Carbon Tracker released their report, “Unburnable Carbon,” on the growing asset bubble in global fossil-fuel-company public shares, and called for greater transparency and regulatory oversight.

Our take on the issue was to highlight the systemic “$20 Trillion Big Choice” between burning the world’s proven fossil fuel reserves already on company and sovereign balance sheets, and preserving a planet that can support life as we know it.  The potential stock market bubble, while a real issue, is the least of our problems in my view, and certainly ignored by the market.  It’s the financial interests and power of the forces aligned behind the continued extraction and therefore burning of the reserves, both corporate and governmental (think Russia, China, Saudi, Canada, and of course, the US), that poses such a daunting task to humanity’s need to radically limit carbon emissions, not just “put a price on carbon.”  Governments are the biggest worry, the ones whom we count on, theoretically, to protect from human interference the critical ecological function of the biosphere upon which our security depends. Governments collectively own about 74% of the proved fossil fuel reserves in the world, according to Carbon Tracker, and they generate substantial tax revenues from production owned by the private sector as well.  So the big fossil fuel producer countries are addicted like a heroin addict, and the collective scale of the addiction threatens the global economy $20trillion loss, should they muster the courage to go cold turkey.

About a week after our piece appeared on Climate Progress, Joe Romm’s widely read climate blog, Lord Nicholas Stern, author of the Stern Report, weighed in with a piece in the Financial Times in which he too focused on the “Big Choice,” referring to it with typical British eloquence and understatement as a “profound contradiction.”  Stern writes:

There is therefore a profound contradiction between declared public policy and the valuations of these listed companies, based on their fossil fuel reserves, which appear to assume that the world will not get anywhere near its targets for managing climate change.

He goes on to say, “We should recognise that this kind of tension affects not only producers of fossil fuels, but…the fiscal position of governments holding large reserves.”

Then last week in their “Manifesto for Sustainable Capitalism,” Al Gore and David Blood urged companies, investors, and others to “[i]dentify and incorporate risk from stranded assets” as their number one recommendation.  It turns out Al Gore first compared stranded assets to the sub-prime bubble in a speech several years ago.

Now we have a real world experience of what dealing with the stranded asset problem is going to look like.  It’s called the XL Pipeline.  Strong transnational financial interests, both companies and governments, want it approved.  Politicians are willing to play political games to allow them to get their way.

The stated environmental concerns about the pipeline include the spill risk over the Ogalala Aquifer, which (unsustainably) waters America’s breadbasket.  But the real issue is perhaps the world’s first attempt to proactively strand some assets, the Tar Sands in Canada, by cutting off their route to market, and thereby keep vast quantities of carbon in the ground, a sink of carbon that pre-eminent climate scientist Jim Hanson says will be “game over for the climate” if it is released.  Welcome to the “Big Choice.”  It’s uncomfortable.

The “Big Choice” will go beyond important corporate disclosure and transparency issues.  It will go beyond the happy talk of “Environmental, Social, and Corporate Governance (ESG)”.  It will be about making choices, with profound political and economic consequences.  The XL Pipeline choice is about expanding our climate footprint.  Wait until it’s about sharing the need to reduce production, leaving already proved reserves in the ground, and leading to large-scale economic loss, not opportunity losses like XL.  Sometimes there will need to be losers, or we will all lose in the long run.  People learn about such choices in a lifeboat, or on a mountain.

What will these choices look like in the future?  Will the “big choice” impact our individual freedom?  Who will do the choosing?  With our government in the United States virtually captured by powerful special interests first and foremost being energy and finance, the situation poses a grave national security threat.  We had better get used to an escalating series of harder and harder choices coming our way. Ready or not.

It is time to plan, a lost art in American politics.  Fortunately, the US military and intelligence community gets it.  They do planning well.  Stay tuned.

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