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Is demonizing “big carbon” a strategy or a copout?

Are we really being tricked, bullied or seduced into burning fossil fuels?  That seems to be the message behind two arguments made recently by prominent advocates for climate action: we should blame the producers of fossil fuels for the failure to make progress on reducing greenhouse gas emissions.

The Union of Concerned Scientists made a splash last week publicizing new research that traces at least 63% of the GHG released since 1751 back to 90 companies.  In case you missed what you are to make of this finding, the UCS article says “And I bet you already know who’s most responsible—Chevron, ExxonMobil, and Peabody Coal are all among the top producers, along with state-owned organizations such as Saudi Aramco. This new research can be a game changer in our efforts to reduce global warming emissions…”

Really?  If those evil fossil fuel companies would just stop producing their energy poison, the problem would be solved?  Of course, if they did greatly reduce their production, the cost of gasoline, heating oil, electricity and natural gas would soar.  How would consumers respond?  I bet it wouldn’t be with a collective “thank you.”  In fact, consumers (and government agencies) seem a lot more concerned that energy prices are too high already than that companies are producing abundant fossil fuels and keeping prices too low.

The UCS media push is just feel-good advocacy that obscures the fundamental problem: fossil fuels are cheap.  Individually we each like to have cheap energy, but collectively the impact of burning all those fossil fuels may be devastating to the earth’s climate and its inhabitants.

Even if UCS doesn’t get this, it appears from the comments on their Facebook page that readers do.  Many of the contributors identify themselves as supporters of UCS, but say that the real problem is us, the people who buy all those products that big carbon produces.  They’re right.  It’s just a copout to blame the producers of products that we have demanded, and benefitted from, for more than a century.  We haven’t been misled or forced into buying those carbon-rich goods. [Late Addition: The Onion made this point nicely a couple weeks ago in their own story.]

I am sympathetic to the concern that some of those big carbon companies have financed and touted the junk science that has been used to undermine climate change policies.  But that’s not all of them and that’s an issue quite apart from their role in producing fossil fuels.  Any supporter of junk climate science deserves our scorn, whether they are producers or consumers of fossil fuels.

At first glance, the UCS approach may not seem that different from the movement for divestment of financial interest in fossil fuel companies.  Divestment has gotten some traction at Berkeley where there is an online petition for members of the community to demand UC end its investments in big carbon businesses.  My Berkeley colleague, Professor Dan Kammen, last week championed it in an op-ed in the campus paper.

Kammen doesn’t present this as shaming, but as a moral imperative not to have a financial stake in burning more fossil fuels.  I get that, though there is an obvious inconsistency when we refuse to be investors in these companies, but steadfastly remain their customers by driving, flying, heating and electrifying our lives with fossil fuels, and consuming products that do the same.  Using less fossil fuel energy is what will actually reduce greenhouse gases.

What will divestment do?  Probably nothing at all.  There is a big financial world out there that will seamlessly substitute for our capital if we refuse to invest in these companies.  The South Africa divestment movement had impact in the 1980s only when a large share of the financial world bought into the cause.  That seems very unlikely to happen in the case of fossil fuel companies, especially when we continue to be their best customers.

But what if divestment spread enough to make it harder for the dirty-200 (the companies that the petition targets) to access funds, effectively raising their cost of capital.  That would lead them to invest less in finding and producing fossil fuels.  Less investment means lower supply, which would cause energy prices to increase.  And that would reduce the quantity of fossil fuels burned.

But wait! If that’s where we’re going, there is a much more direct and satisfying route:  a tax on greenhouse gases.  The tax would make it less profitable to sell dirty energy and less attractive to buy it.  And here’s another big advantage: if divestment were to lower supply and raise prices, the extra money would go to energy company shareholders.  When a carbon tax reduces supply and increases price, the extra money goes to the government coffers, where it can be used to invest in alternative energy or to lower regressive levies like the payroll tax.

Some may say that there just isn’t sufficient support for a tax on GHGs.  Maybe, but it seems more likely than divestment to have a real impact on the production of fossil fuels.   Perhaps a divestment petition has greater symbolic value than fighting for a GHG tax – it certainly identifies tangible “enemies” in the fight — but a GHG tax would do more to actually address climate change.

Symbolic actions have their place, I suppose.   At this point, I’m not opposed to divestment, but indifferent. (See Rob Stavins’ blog post a couple months ago for a slightly different take on divestment at Harvard.)  Still, to the extent that it takes organizational energy away from the real changes we need to make in order to reduce GHG emissions – on both the demand and the supply side — it could do more harm than good.

So, to fellow members of the UC community, I say sign the petition or don’t, but then quickly return to the important matters of creating science and policy changes that can make a real difference to the climate.

Severin Borenstein View All

Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.

18 thoughts on “Is demonizing “big carbon” a strategy or a copout? Leave a comment

  1. Some Responses to the many comments this post has elicited (including the thoughtful blog post by Adrienne Alvord at UCS)
     Yes, I realize that fossil fuels aren’t really cheap when one accounts from their full external costs. That’s my point. Producers and consumers should have to face the full cost they are imposing on society. A carbon tax can do that. Symbolic divestiture or attempts at shaming won’t.
     Subsidies to fossil fuel producers are stupid policy, but they have almost no impact on the cost of oil products or electricity. Oil prices are set in the world market where U.S. subsidies have negligible impact. In a recent paper (see page 77), I showed that the impacts of subsidies on electricity prices in the U.S. amount to about one-tenth of a cent per kWh, a tiny fraction of the cost differential between conventional and renewable energy. Subsidies to fossil fuel production should end because it’s a waste of money, but they aren’t the reason fossil fuels are cheap.
     No, I don’t believe polls in which people say we should require oil companies to reduce transportation emissions suggest the public is willing to take responsibility for the role they play in creating the emissions. The outcry I hear every time the price of gasoline rises – especially blaming it on US oil companies when the price is set in a world market – suggests that consumers want cheap energy more than they want to address climate change. That is very frustrating to me, but I think asking the public to blame big carbon is going in the wrong direction.
     No, I don’t think the UCS study is just holding fossil fuel producers “accountable.” If so, then why not also hold consumers accountable for demanding cheap energy, driving big cars, expecting to be able to fly across the country or world at the drop of hat, etc.? Why not call out consumers and politicians who throw fits when the price of gasoline rises?
     Yes, many big carbon companies are fighting attempts to address climate change. When a big carbon company (or anyone else) sets up roadblocks to policy progress – through junk science, political contributions, or other activities – call them out on that. I have been and will be 100% behind that. But focusing on their fossil fuel production without placing as much or more blame on the buyers is just giving consumers a pass. And, by the way, some of the proposed climate policies are open to serious debate among people who care deeply about addressing climate change. I’m one of those people and I think the Low Carbon Fuel Standard is misguided policy.
     No, I don’t think it is worth our time to vilify big oil for not being the leaders in inventing alternatives to oil. They have entirely the wrong incentives, at least until we put a serious price on GHG emissions. I think alternatives are much more likely to come from scientists and entrepreneurs who don’t already have billion dollar stakes in the status quo.
     No, I don’t think it is appropriate to state an adversary’s views in quotes when the person whose views you are characterizing never said the sentence in quotes. I’m looking at you Adrienne. 😉

  2. A lot of good points made by Severin and others. But there’s one salient issue conspicuously absent from the discussion. I refer to Severin’s statement of: “the fundamental problem: fossil fuels are cheap.” Fossil fuels are NOT cheap. Their prices may be cheap, but their costs are not, and the disparity between prices and costs means that markets and individuals’ market-based choices cannot lead to societally optimal results. Moreover, by failing to distinguish between prices and costs in our own minds and our conversations, we contribute to sustaining the delusion that energy is cheap. And while we can blame ourselves and consumers in general for over-consuming cheap energy, the market framework in which consumer choices occur is skewed by the massive subsidies that suppress fossil energy prices and the exercise of political and economic influence by fossil energy companies to obscure the impacts of their products and impede the development of non-fossil alternatives. Something desperately needed, then, is for all the experts involved in these discussions to start talking and writing about the real, total costs of the various types of energy. This would mean adding in all the explicit subsidies like tax breaks, as well as the implicit subsidies euphemistically referred to as “externalities.” If coal producers were required to clean up the mountain tops they dumped into streams and restore the streams and habitat areas to pre-mining conditions, the price of coal and coal-fired electricity would be more realistic. Similarly for the impacts of coal burning on local public health, the impacts of fracking on water and soil, methane emissions in gas production, damages from pipeline breaks and other spills, subsidized liability insurance for nuclear plants and the as-yet unsolved problem of what to do with nuclear waste, and more. Most of us learned as children that we had to be responsible for cleaning up our own messes. Well, if corporations are people, shouldn’t they have the same responsibility? And if their political influence means they can escape accountability, then our academics and other industry experts should be helping to restore a more honest and meaningful public discourse that builds on the actual costs of our energy choices.

  3. Consumers want cheap energy and producers want high prices and high profits. But while we in the USA want low prices for ourselves, we are happy if other countries have to pay higher prices. For one thing this situation helps our exports. On the other hand, if we in the USA succeed in using less carbon intensive energy, we will inevitably make the high carbon energy sources less expensive elsewhere, thereby creating a competitive disadvantage for ourselves. Not much is gained from a climate point of view either.

    However, the world is not a single market in coal or in natural gas.

    To be specific, the US has 13% of the world’s coal and our market is largely isolated from other coal markets. We are reducing our use of coal in power generation and will continue to do so. So, in this case, we do indeed want to have US coal producers “just stop producing their energy poison.” If, instead, we allow all that US coal and associated CO2 emissions to be exported, we will reduce prices in the rest of the world, and again place ourselves at a competitive energy cost disadvantage.

    Why would we allow that to happen? The reason is that the coal and rail companies will profit from it and without some serious political push back from the public they will have their way.

    A carbon tax with border tariffs might also address the competitive situation, but the political fight still has to take place because of opposition from the energy companies.

  4. Hello – Glad to see you picked up on this research, but I think you’re missing a few key points related to this work. To be clear, this is an additional way to think about how we can deal with climate change. We’re certainly not suggesting that it should negate other efforts being made at the individual, state, national and international level to reduce emissions. We also agree with you on the need for carbon pricing and internalizing the costs of pollution from fuels. At the same time, we know that the largest investor-owned “carbon major,” Chevron, has spent a lot of time and money pushing back on carbon pricing, especially in California. I’ve posted a blog with some fuller responses if you care to read more and take a look at a few references. Link here: http://blog.ucsusa.org/holding-big-carbon-accountable-response-to-severin-borenstein-345. My colleague Angela Anderson will have more later in response to some similar questions and comments we’ve received.

    We follow your work here at UCS’s California office quite a bit. If you ever wanted to meet to discuss this – or our other work in California – we’d be very open to it.

  5. Professor Borenstein is an excellent teacher. In this post, however, he misses the point. What is becoming apparent to anyone who cares about strong climate policy is that a handful of fossil fuel companies have outsized power and can block any action one would choose, having done so for at least 20 years. (Who are the primary opponents of a carbon tax?) One cannot analyze this strictly through an economic lens–it is a political problem, or a political economic problem. The hydrocarbon companies oppose strong climate policy, such as (any) carbon tax, and essentially refuse to allow it in the US. Thus political pressure must be brought to bear. The Union of Concerned Scientists gets this, as does Professor Kammen and a growing global movement, as evidenced by the discussions at the Radical Emissions Reduction conference that took place at the Royal Society in London last week. We must not confuse opposition with “demonization.” As logical as acting only through a carbon tax would be in a perfect world with perfect markets, we have not achieved such a world yet, and so must trudge on through imperfect political economic means, such as divestment.

  6. Roger, I’m inclined to agree with Severin that reducing supplies will put more money in the pockets of oil company shareholders, because the tendency seems to be for relatively small reductions in supply to drive relatively larger increases in price. On the other hand, I’d agree that with few exceptions, standards and education are going to be more effective and more cost-effective than “incentives”.

    • Let’s assume we have a can opener. Unfortunately, demonizing or selectively targeting any industry typically does not stop at divestment or in this case a carbon tax. If reduced supply does drive higher shareholder profits that fact won’t be lost on either the climate-based groups or legislators. A logical and expected government reaction would be a higher targeted income tax, reduced deductions, increased lease payments, etc. anything to drain away and transfer that “windfall” to the public sector. In any case the result is higher costs.
      Why stop at restrictions on the fuel source? Why not go to the cause of energy usage and pursue legislation very similar to what was done to eliminate incandescent light bulbs – restrict the supply of energy consuming devices. Let’s take a cue from the holiday season and create a list of good and naughty devices. Limit refrigerators only to those that are in the top 10 of annual usage/cubic foot of storage. Put “guzzler” penalties on all freezers, ovens, ceiling fixtures, televisions, whirlpools, spas, and private homes that consume more than a target threshhold?

  7. Neither divestment nor a carbon tax will be effective solutions. As your article properly states, divestment just reduces the supply and raises the costs. However your logic comes up short when you claim that the “extra money” would go to shareholders. What extra money? In the face of a declining demand, reduced sales and increased price may not produce more revenue or more profit. Furthermore, any profit oriented going concern when faced with declining demand might actually be expected to redirect their investments to those fuels or energy sources with a profitable future. As for a carbon tax, why would anyone assume that (1) any new source of revenue would be used by the government to reduce any existing tax, (2) any government either has the skill set or track record to produce any alternative or real value. What is certain is that divestment or a carbon tax will increase consumer costs and more than likely create new government entitlements to help low and middle income individuals pay their utility and transportation bills. Why not consider a long-term solution that combines energy efficiency, building standards, better energy pricing, and education to transition the entire economy to a more viable position?

  8. I think you may be missing the point. Of course taxes or limits on carbon emissions are preferable. So, who opposes that? The carbon-200. Were it not for their opposition, we’d have governments focused on effective policies to cut greenhouse pollution. The point of “blaming” is not for them to “just stop” — they will keep growing until political opposition is mobilized. Identifying the organizations that block effective policies is crucial, whether for divestment, for mitigating lobbying, for identifying sham think tanks like Heartland, etc.

    Also, I see a straw man argument that ought to be avoided. “If they stopped, prices would spike and we’d all be unhappy” is a meaningless point. No one advocates sudden and catastrophic change. Any feasible policy has a gradual effect, and with it gradual price adjustments (carbon prices up, non-carbon energy prices down, efficiency increasing). Scare tactics about sudden changes are just a distraction.

  9. Are gun manufacturers morally responsible for the deaths caused by their products? Seriously, I think you miss the point. We don’t have an alternative to the gasoline-powered internal combustion engine. Why? Is it because “consumers aren’t demanding it?” We have this enormous legacy power plant fleet that is largely fossil-powered. How do consumers cause this to be shut down? You could argue that we don’t invest in no-brainer efficiency measures. But that misses the point doesn’t it? At some point the producer of a commodity does have to take responsibility for the consequences of the use of their product. They can only hide behind “the market made me do it” for so long. What is less clear is when and how they take responsibility. Probably the moral thing for the oil companies to do would be to put a significant amount of their profit from gasoline sales into research on developing vehicles or transportation systems that don’t use gasoline. But companies aren’t “moral” are they?

  10. We as a nation, and perhaps as a species, look at the symptoms and not the underlying causes or behaviors. There is such waste of ‘resources’ in the US [and many other countries], of energy in all its forms, that if we only cut back on the waste we would be a large part of the way ‘there’.
    I am not talking of these feel-good energy efficiency efforts, but of simple reduction. Shift the HVAC temp a little higher in the hot season and lower in the cold season [rather simple to do by adjusting what you wear], optimize driving [combine trips, usually one can avoid short trips], take shorter showers [take showers together, as we used to say in the day], certainly buy less junk, waste less food, etc. What we often dont realize is that water also takes a lot of energy to get to our faucets.
    Simple economics: when demand drops, prices will usually come down.
    There was a recent report of Americans driving less. Part of the reason has to be that we are buying a lot on line, which is then being delivered by large trucks, and the overall gas consumption may be no less due to the mpg difference.

    Look at the problem holistically, not in isolation as we usually do. Certainly academics are guilty of that … we adjust for other effects-causes, and make studies of the impact of various factors. We find correlations, and often claim causality, or the reader does.

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