Congress: No fossil-fuel bailouts

The Guardian, a British newspaper, reports the world’s biggest fossil energy companies are planning scores of oil and gas projects that would push global carbon emissions beyond the limits of the Paris climate accord. The UnitedNations concurs, saying the world’s governments plan to produce more than double the amount of fossil fuels by 2030 than would be consistent with limit of 1.5 degrees Celsius of warming above preindustrial temperatures.

“These firms are in effect placing multi-billion-dollar bets against humanity halting global warming,” The Guardian says. “…The lure of colossal payouts in the years to come appears to be irresistible to the oil companies.”

The International Energy Agency (IEA) says the path to net-zero carbon by 2050 depends on no new oil and gas fields or coal mines beyond those already committed last year. So, most of the world’s underground reserves of fossil fuels must stay there.

If oil companies can’t resist big new bets on fossil fuels, the world’s governments and investors must insist. Economic security is also at risk. Analysts have warned for some time that the fossil energy sector is creating a “carbon bubble” not unlike the real estate bubble that triggered the Great Recession.

As governments put more constraints on carbon pollution and as the use of cost-competitive renewable energy surges, today’s supply-side investments in fossil energy will be stranded. In other words, the industry will have to abandon new wells, pipelines and other infrastructure long before investors recover their capital and expected profits.

When the bubble bursts, fossil-energy companies are likely to appeal for rescue like those the federal government gave financial institutions during the Great Recession. U.S. taxpayers spent nearly $500 billion to bail out the financial industry. The principal beneficiaries were large institutional investors.

It’s not too soon for Congress to prevent a similar bail-out of fossil-energy investors.

Acute risks

Oil companies and investors are well aware of the risks involved in new supply-side spending. HSBC, one of the world’s largest banking and financial-service institutions, warned clients in 2015 about “growing risks of their fossil fuel assets becoming useless.” It recommended that investors divest from fossil fuels.

Carbon Tracker, a British think tank, warns that current high oil prices encourage over-investment in production. It estimates significant investments in fossil fuels this decade could waste $530 billion in capital expenditures. “The oil industry has a $500 billion bubble problem,” says the science and technology website Gizmodo. “Prices are soaring. But if Big Oil takes the bait in pursuit of profits, it could end up screwed.”

Like other public officials, members of Congress have a broad fiduciary duty to manage the nation’s tax revenues “in a manner that is faithful to the public trust.” They would fail in that duty if they approved another massive bailout to save an industry that took irresponsible risks. Instead, Congress could do a few things immediately.

First, it should pass a law that forbids the use of public funds to bail out fossil energy companies and investors when their assets become worthless. Private industries should not count on the American people to be a safety net for reckless corporate behavior.

The same is true globally. Carbon Tracker estimated two years ago that the world’s fossil-energy supply chain — power plants, vehicles, steel, cement and other fossil-dependent industries — was worth $32 trillion. It concluded that further investments in the supply chain are not worthwhile. The study’s co-author recommended instead that nations conduct a “regulated exit from fossil capital” and prevent any further investments in fossil fuels to “preserve the unsustainable.”

No more subsidies

Next, Congress should finally stop subsidizing fossil fuels. Taxpayers have subsidized oil for more than a century. Today, fossil energy subsidies cost the nation more than $20 billion a year, or $662 billion annually when we count social and environmental costs. That’s more than $2,000 annually for every American. Taxpayer subsidies make us all accessories to climate change.

Third, as the IEA points out, “Governments need to provide credible step-by-step plans to reach their net-zero goals, building confidence among investors, industry, citizens and other countries.” So, Congress should direct the Department of Energy and the federal Global Change Research Program to lead the development of a U.S. roadmap to net-zero carbon no later than 2050, drawing on the many transition plans already proposed by the IEA, think tanks, universities, advocacy organizations, national laboratories and the National Academies, plus the regulatory approaches of other nations.

The roadmap should rely on carbon-free and cost-effective energy resources ready for rapid deployment now. It should identify near-term research priorities for technologies that allow markets to deploy clean energy quickly and widely. Examples might include:

• More effective energy storage
• High-voltage DC power
• Advanced nuclear power
• Substitutes for rare-earth minerals
• Grid security from hackers, saboteurs and electromagnetic pulses
• Renewable energy to produce green hydrogen, concrete and steel

Importantly, the roadmap should include a detailed exit ramp for fossil fuels based on the limits identified by science and including a moratorium on new supply-side investments.

If we don’t control greenhouse gas pollution, it will control us. If traditional energy companies won’t join the transition to carbon-free energy voluntarily, lawmakers, investors and regulators should make them an offer they can’t refuse. This time, it’s the planet that’s too big to fail.

William S. Becker is a former U.S. Department of Energy central regional director who administered energy efficiency and renewable energy technologies programs, and he also served as special assistant to the department’s assistant secretary of energy efficiency and renewable energy. Becker is also executive director of the Presidential Climate Action Project, a nonpartisan initiative founded in 2007 that works with national thought leaders to develop recommendations for the White House as well as House and Senate committees on climate and energy policies. The project is not affiliated with the White House.