[Read more of this extremely interesting article here]
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.
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.
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.
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 it’s 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.
This is a most interesting article. I urge you to read in in full. It explains very clearly that the denialists are neither quixotic nor demented. They know exactly what they're doing. And they want us to pay, through financial losses and climate disasters.
We must not let them get away with it.