Climate Change at Crossroads
Big-oil titan ExxonMobil became the first company to locate the long sought-after oil wells off the coast of Guyana in 2015, and they found it in abundance; an estimated 5bn barrels of oil lie beneath the seabed off the coast of the small, poor Latin American country. Exxon Mobil stands as a model for competitors and a target for critics; a fuel-extracting mammoth that has notoriously provided ample fuel to activists in the fight against emission-producing activities, e.g. in 1989 spilling 11m gallons of crude oil onto Alaskan shores when the Exxon Valdez ran aground.
Amidst rising climate change concerns and Democrat-led campaigns on Capitol Hill, the industry titan declared that oil and gas production will be 25% higher in 2025 than in 2017.
Meanwhile, proponents of a “Green New Deal”, led at the forefront by New York congresswoman Alexandra Ocasio-Cortez, are soon to release draft legislation expected to propose a move to 100% clean and renewable energy within one or two decades, and to zero net emissions by 2050. In fact, according to the IPCC, oil and gas production need to fall by about 20% by 2030 and 55% by 2050 to stop global warming from exceeding 1.5°C above pre-industrial levels. The two sides are at stand-off centred around a divisive issue, the approach to which will shape the future of the world in the decades to come.
Exxon Mobil and the oil majors look to expand output at a time when fossil-fuel production and greenhouse-gas emissions must be controlled to ensure the preservation of the planet. But the majors are simply responding, as enforced by their shareholders, to economic incentives set by society worldwide, with demand for oil growing steadily by 1-2% a year; the problem goes beyond the “evil” energy titans of the world and therefore cannot by resolved only by restricting them (this in itself proving a considerable challenge given the majors’ deep pockets and lobbying power). With lawsuits unlikely to stymie the expansionary ambitions of big-oil giants, and sustainable investing and corporate self-interest unwilling or unable to singlehandedly curb fossil fuels, the burden will fall to some extent on policymakers and politicans.
From an economic perspective, climate change represents a market failure. The private benefits of environmentally harmful activities outweigh the private costs. However, these emission-intensive activities also impose a social cost – e.g. reduced air quality, or the contribution towards climate change – that is not effectively factored into the private cost, thus not influencing agents’ decisions to carry out harmful actions. The straightforward approach to resolving these negative externalities appears then to be, to include the social cost of emission-producing activities into the prices people pay for them. By imposing a levy on emissions, fossil-fuel-intensive activities become more expensive and people respond to the higher private cost by reducing their emissions. Although elegant in theory, carbon taxation, to the extent to which it is needed to have the desired positive effect, is an elusive solution in reality. Politicians are reluctant to push legislation for restrictions on carbon emissions. Oil companies are held by large indices that generate strong returns and have the reach and lobbying power to obstruct efforts to mitigate climate change. Exxon Mobil stated in October that they were dedicating $1m to the advocacy of a certain carbon tax. In the same year, they spent over ten times that sum on federal lobbying against emission restrictions.
The Green Deal, instead, endeavours to create a greener and more equitable economy through a massive overhaul of energy and transport infrastructure, an expansion of green industries and wide efforts to implement robust vocational training systems. But, large
ambitions are only tenable with large sums, some of which will come from borrowing and some from taxes on the rich. The deal hopes to mobilise organised interest groups into a winning coalition against fossil fuel firms; after all, a feasible deal has to display the potential to succeed not only economically, but also politically. Yet, the Green New Deal would also create opportunities for rent-seeking and protectionism, whilst deepening the U.S.’s already vast current account deficit and hampering growth through tax rises. All this and no real guarantee of any tangible positive impact on the planet, with the Deal itself being founded on an approach to climate change not seen as orthodox in economics, because it does not in fact focus on economics at all; the Green New Deal sees climate change as the more deeply rooted social issue it may well be, and with its unorthodoxy comes an unpredictability as to what it will bring in the future.