“A banking crisis worse than 2008” could face the world economy, caused by measures to deal with climate change, a Guardian (London) newspaper headline warned in January 2023. The article outlined economic losses worldwide, often referred to as ‘stranded assets’, as high as $6.8 trillion (about £5.6 trillion). To get a feel for the size of this, the GDP of the UK in a year is currently about £3.2 trillion. About 13.6 million jobs internationally were estimated to be at risk in one case, and 18.7 million in another. Given the critical necessity to deal with global warming, is this a real threat and if it is, how can it be dealt with?
The report highlighted a key issue. To meet even the limited targets set by the Paris Agreement in 2015, which set an upper limit of a 2.0°C rise in global temperatures and hope to achieve one of 1.5°C, greenhouse gas emissions have to peak by 2025 and fall by over 40% by 2030. By 2050, nearly 60% of oil and natural gas and 90% of coal would have to remain unextracted.
Authors of the report ‘One for One’ implied that the necessary move towards net zero would mean “the price of fossil fuel assets could plummet”. The world’s banks hold fossil fuel assets worth about $2 trillion, according to the report’s estimates. Would massive bank losses require similar bailouts to those made in 2008? In the UK, this amounted to £457 billion – which was ultimately paid for by us of course. To prevent this from happening again, one of the policies it suggested was that banks and other financial institutions should be required to hold one pound in reserve for every pound they invest in fossil fuel projects.
It’s not just banks, fossil fuel assets are owned by any number of financial institutions, and even nations too. A study into where ownership ultimately lay, and who would face potential losses, found unequal distribution. In the US, for example, it was estimated that the wealthiest 10% of households would sustain about 82% of losses. But such is the scale of their wealth overall, it was found they would face insignificant effects. Poorer oil-rich nations such as Nigeria and Kazakhstan would be affected – mitigated by the fact that much of these nations’ wealth is owned externally by capitalists based in richer capitalist nations.
In the UK, the risk to pension funds and other investments was noted. However, this must be put into perspective. When BP and Shell argued that tougher taxes on their profits would affect ordinary people’s pension funds, the Common Wealth think-tank responded to show that less than 0.2% of their shares were held by UK pension funds!
Banks and other institutions have started to ‘stress test’, trying to simulate different possible climate change policies and outcomes. Even taking up the banks and financial institutions within their own economic framework, capitalism, one important point is that not dealing with climate change will lead to far greater losses and stranded assets!
As one major insurance firm put it in the title of a report: “No action not an option”. This report went on to state that, “The world stands to lose close to 10% of total economic value by mid-century if climate change stays on the currently anticipated trajectory”. Projections in the longer term, if climate change is ignored, are rather more alarming. As one bank put it, the situation would be such that “all financial and real assets would likely be worthless”. Another analysis wittily observed that global warming would mean that many ‘assets’ would be physically ‘stranded’, with major cities situated by the sea flooded.
Fundamentally, global energy needs can be met by renewables. “The land required for solar panels alone to provide all global energy is… less than the current land footprint of fossil fuel infrastructure”, according to the climate think tank Carbon Tracker.
According to the International Energy Agency, in its last review in November 2022, record-high energy prices mean “Global net income from oil and gas production is anticipated to reach nearly $4 trillion in 2022, which is double the level in 2021. If the global oil and gas industry were to invest this additional income in low-emissions fuels, such as hydrogen and biofuels, it would fund all of the investment needed in these fuels for the remainder of this decade” to achieve net zero emissions by 2050.
In fact, the soaring profits of fossil fuel companies give them even less incentive to invest in renewable energy. As Tyler Hansen at the Technical University of Denmark concluded in a detailed analysis of energy profits: “The fossil fuel industry, in general, has enjoyed substantially greater profit margins than the renewable energy industry over the past decade”. To add insult to injury in the case of the UK’s limited ‘windfall tax’, companies get a 90% reimbursement if they make investments in the UK, not in renewable energy, but in fossil fuel production!
But shouldn’t the fossil fuel companies at least fear the future threat to their profits from stranded assets and act accordingly?
A few years ago, J.P. Morgan explored the ‘stated policies scenario’, based on the policies governments said they would implement. Global temperatures could still rise by 3oC, with catastrophic implications – and even these policies aren’t being adhered to! The analysis found that, although there were stranded assets for coal, there were none for oil or natural gas – and in fact, extraction could be expanded! At the same time, Fatih Birol, the executive director of the IEA, was saying in 2021 that: “If governments are serious about the climate crisis, there can be no new investments in oil, gas, and coal, from now”, fossil fuel companies were committing to $58 billion worth of new investment!
Oil and gas companies start with what is ‘acceptable’ for their profits, and then formulate their climate policies accordingly, whatever the consequences to humanity – with governments accepting or even endorsing this.
A network of international legislation exists to obstruct countries carrying out measures to deal with climate change that threaten profits. For instance, under the Energy Charter Treaty (ECT), which over 50 countries are signed up to, five energy groups are suing four European governments for nearly €4 billion. Even if countries withdraw from the treaty, they are legally bound to its conditions for 20 years under a so-called ‘sunset clause’.
In January 2023, the prestigious academic journal ‘Science’ published an article analysing documents that the oil company, Exxon (now ExxonMobil) had produced in the past on climate change, and concluded that: “Since the late 1970s and early 1980s, ExxonMobil predicted global warming correctly and skilfully”. The article also stated that other documents had shown that the “US oil and gas industry’s largest trade association had likewise known since at least the 1950s, as had the coal industry since at least the 1960s”. The twist was that these were internal documents kept secret, that was only unearthed by investigative journalists. Exxon, for example, just from documented sources, has spent around $40 million financing scores of climate denial organisations and disinformation campaigns.
Even where there is no direct individual connection with fossil fuel interests, capitalism as a whole and the political parties which accept it can be relied on to support the quest for profit and all that it entails. The German firm Volkswagen (VW), once the highest-valued company in the world, was slow to get into electric or hybrid cars, compared to rivals like Toyota. When it came up against emissions regulations, it decided that the cheapest and most profitable way to meet these was to cheat. It fitted a mechanism to 11 million cars to fool testing equipment. Emissions were up to 40 times the legal limit. Studies estimated that about 1,200 premature deaths could be attributed to VW’s actions. But although the company was fined heavily and a VW executive arrested and subsequently jailed for seven years, the German government and establishment rallied around to protect VW, and nobody was found legally culpable in Germany.
Of course, the fossil fuel industry and other industries connected to it will talk the talk of environmentalism, while undermining measures to combat climate change in practice. Similarly, because of public concern about global warming, political leaders want to display their green credentials and make grandiose proclamations, as we saw with Boris Johnson at the COP26 summit in 2021. This hypocrisy was also demonstrated by Canadian prime minister Justin Trudeau, who has boasted about his commitment to the ‘green agenda’. However, speaking to a conference in Texas which included energy company executives, he stated: “No country would find 173 billion barrels of oil in the ground and just leave them there” – referring to Canadian fossil fuel reserves.
Any realistic strategy to combat climate change must therefore be willing to challenge the agenda of the fossil fuel companies and political forces and parties that openly or tacitly accept it. This is what is missing in proposals such as the one made by the ‘One for One’ campaign.
Their suggestion, that financial institutions set aside $1 for every $1 invested in fossil fuels, and others like it, are interesting theoretical possibilities but are ultimately utopian. What motivation is there for these capitalists to take such measures?
Capitalism is based on private ownership of production, for profit rather than for need. Even though, in the relatively near future, it is apparent that climate change risks the survival of humanity, short-term profit motivation means that the necessary and feasible measures to deal with climate change are not carried out.
Taking the energy industry out of private hands, by nationalising it under democratic working-class control and management, would make it possible to plan investment and a transition to renewable energy production. With a democratic say in the measures taken, workers in the existing industries could have confidence in a future with a well-paid secure job for them and future generations.
Organised on the basis of competing nation-states, themselves acting in the dominant interests of their own capitalist classes, capitalism undermines the international collaboration needed to tackle climate change.
There are huge inequalities between nations’ contributions to fossil fuel emissions, their consumption of energy, their capacity to take measures to deal with climate change, and their vulnerability to the effects of climate change.
China has the most greenhouse gas emissions, followed by the US, India, Russia, and Japan. When looking at per capita, Canada takes the top spot. Although these leading fossil fuel users are not immune to the effects of climate change, the league table of countries that are most affected is quite different and includes countries that could disappear entirely under projected sea level rises, such as Kiribati or the Maldives, and countries like Pakistan where one-third of the country was under water during floods in 2022. The contradiction this leads to is that, as one newspaper put it: “Nations most responsible for the problem have the least incentive to solve it”.
Increasing conflict worldwide, itself is driven by rival capitalist nations seeking to extend their influence and maintain the best possible conditions for their own capitalist classes to make profits, which makes the situation even worse. One report described how “as Europe scrambles to replace the Russian natural gas that funds Moscow’s war effort, fossil fuel companies are using this moment to push for new gas projects all over the world”.
Dealing with climate change needs global collaboration impossible under capitalism. Collaboration between nations can only be on the basis of the shared interests of the international working class. Democratic workers’ states, with nationalised banking systems and publicly owned, democratically run planned economies, would be able to write off so-called ‘stranded assets’, without fear of financial meltdown – the other assets of the big capitalists incorporated into the planned economy and the wealth used to meet the needs of people and planet.
Numerous reports have emphasised the economic and social breakdown that the worsening effects of climate change are creating relating to food, water, health, and living conditions generally. These crises will compel the working-class and poor masses into struggle, increasingly drawing conclusions about the type of social and economic change needed – socialist change.
Research has shown that every degree that the earth warms means that a further billion people are unable to live where they currently are, threatening them with destitution and the need for mass migrations. The political implications of this were highlighted by a study led by Stanford University in the US, which estimated that “climate has influenced between 3% and 20% of armed conflict risk over the last century and that the influence will likely increase dramatically”. Rosa Luxemburg’s phrase, “Socialism or Barbarism”, has never been more relevant and it is a race against time to build the movement which can create a socialist world.
•Global Warning: Socialism and the climate crisis – Socialism Today issue 262