Wall Street to Earth: ‘We don’t mind and you don’t matter’

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The stock market’s non-response to the IPCC report on climate change exposes the inability of capitalists to address or even worry about the climate crisis

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by Chris Williams

Chris Williams, a frequent contributor to Climate & Capitalism, is the author of Ecology and Socialism: Solutions to Capitalist Ecological Crisis (Haymarket, 2011). He is chair of the Science Department at Packer Collegiate Institute and adjunct professor of Chemistry and Physical Science at Pace University.

More Future Less Capitalism

“The conventional wisdom on the world’s stock markets is that all listed reserves will be exploited and burnt.” – Unburnable Carbon 2013: Are the World’s Financial Markets Carrying a Carbon Bubble,  Carbon Tracker Initiative

“Developing new green technology, hiring workers and investing in new productive facilities involves a real risk: it may not be as profitable as purely speculative investments. With derivatives and the implicit backing of government removing the fear of failure for the world’s biggest corporations, there simply isn’t an economic incentive to make investment decisions that would help to avert climate catastrophe.” – David Ravensbergen, DeSmogBlog.com

Friday, September 27, 2013.  For the first time in my life, I awoke to a most peculiar sensation: an intense desire to monitor the opening of New York’s stock market.

What would happen as that annoying bell signaled the onslaught of another day of financial wheeler-dealing in the world’s most devastating house of ill repute?  I pictured stock market spivs falling over each other in a frantic fire sale of fossil fuel assets.  Desperate phone calls from modern day oil, coal and gas protégés of Gordon Gekko, furiously dialing their proxies on the floor of Wall St and screaming into them: “Sell, Sell, Sell!”

Surely, the release this morning of the fifth climate report from the Inter-Governmental Panel on Climate Change (IPCC) would presage a veritable deluge of garage sale sell-offs of now valueless oil, coal and gas stocks?  Realizing the worthlessness of formerly expensive scraps of paper denoting fossil fuel reserves held by Exxon, BP, Chevron and other luminaries of the stock market, the impact on their stocks would indubitably prove catastrophic.

After all, seven years on the latest assessment from the IPCC panel, the synthesis of several hundred of the top climate scientists in the world, paints an “unequivocal” portrait detailing that, “Human influence on the climate system is clear. This is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system.”

The IPCC report removes any ambiguity from which specific types of human activity lie at the root of these changes:

“The atmospheric concentrations of carbon dioxide (CO2), methane, and nitrous oxide have increased to levels unprecedented in at least the last 800,000 years. CO2 concentrations have increased by 40% since pre-industrial times, primarily from fossil fuel emissions and secondarily from net land use change emissions. The ocean has absorbed about 30% of the emitted anthropogenic carbon dioxide, causing ocean acidification”

Even were we to stop emitting greenhouse gasses today, industrialized human civilization, based on burning fossil fuels for energy, has set in motion changes to the earth that are essentially irreversible and can only be measured on time-scales which are difficult to comprehend:

“A large fraction of anthropogenic climate change resulting from CO2 emissions is irreversible on a multi-century to millennial time scale, except in the case of a large net removal of CO2 from the atmosphere over a sustained period. Surface temperatures will remain approximately constant at elevated levels for many centuries after a complete cessation of net anthropogenic CO2 emissions.”

As the entire planet is an interlinked set of ecosystems which together form the biosphere, changes in the composition of the earth’s atmosphere and its ability to retain the sun’s heat inevitably lead to disruptive changes elsewhere.  Loss of polar ice, leading to sea level rise (up to 1m by 2100, assuming some reduction in emissions), will threaten the existence of low-lying island nations as well as major cities; the continuing acidification of the oceans (killing off the basis of the food web: coral, phytoplankton and shellfish) and more climate disruptions, an increased number of hotter days and extreme weather events.  Even with some real action to reduce emissions, scientists predict that the earth will very likely overshoot what is considered to be the “safe” limit of average temperature increase of 2 degrees Celsius.

But, if the world continues with business as usual, average global temperature between 2080 and 2100 is predicted to be 2.6-4.8C higher than today.  At the higher end, this would make life for many species, including us, untenable across significant areas of the globe and cause the disintegration of complex ecosystems.  It’s important to remember that the IPCC has been criticized for being too conservative in its estimates, because of the consensus nature of decision-making imposed by national governments on the UN body.

Considering that a large percentage of its value is based on fossil fuel reserves, all of this should be very bad news for Wall Street.  The stock exchanges of London, Sao Paulo, Australia and Toronto have 20-30% of their valuation from fossil fuels.  As of 2011, the top 100 coal and top 100 oil corporations are collectively valued at $7.42 trillion, or half the annual GDP of the United States.  If these stock markets suddenly lost up to a third of their value, the effect on the world financial system would be cataclysmic – previous largest drops, in 1987 and 2007/8 have not exceeded 20%.

But what really hammered the last nail into the coffin labeled “fossil fuel corporations” and presumably stock markets the world over, and the reason I was so avidly fixated on the opening of Wall Street, was for the first time, the IPCC report put a budget on carbon.

The report indicated that, if we are to have any chance of staying below the crucial limit of two degrees Celsius of warming, we can only burn a maximum of 800-880 gigatonnes of carbon (GtC).  As we had already set fire to 531 GtC by 2011, we’re only left with approximately 350 GtC leeway.

How does that number compare to how much we’ve discovered, calculated in the reserves of fossil fuel companies and those held by governments, and hence the basis for their valuation on stock markets around the world?  According to the Carbon Tracker Initiative report cited above, that number is 2795 GtCO2, 65% of which is from the most abundant and polluting source, coal.

The portion of reserves controlled by the top 100 coal and top 100 oil and gas companies is 745GtC02.

In other words, the overwhelming majority of oil, coal and gas reserves can never be fracked, drilled or mined,  even though they are worth trillions of dollars on the balance sheets of those corporations.  A suitably devastating prognosis for corporate survival that it would surely have to be reflected in market valuations the second the IPCC report went public.

Of course, that is not what happened.  Wall Street, to my dismay but no great surprise, opened normally and with barely a ripple.  There was clearly no expectation from fund managers, investors and assorted other masters of the universe that the devastating IPCC report had anything to do with their business models.

Furthermore, last year fossil fuel corporations spent $674 billion scouring the earth for new deposits of coal, oil and gas.  As the International Energy Agency’s World Energy Outlook 2012, reported:

“Despite the growth in low-carbon sources of energy, fossil fuels remain dominant in the global energy mix, supported by subsidies that amounted to $523 billion in 2011, up almost 30% on 2010 and six times more than subsidies to renewables”

In contrast to what the IPCC says needs to happen, the IEA described the most probable path for the United States: “By around 2020, the United States is projected to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s).  With increased oil and gas production from fracking, deep off-shore deposits and exploiting reserves in the Arctic, “North America becomes a net oil exporter around 2030.”

In other words, despite another report showing that by 2050 the world will need to spend $1 trillion annually to protect low-lying cities like New York and Shanghai from the rising oceans, it’s very much business as usual. The inexorable logic of capitalist market relations, and its fixation on short term profitability, trump commonsense and the physical constraints of the universe.

Where do the recently announced carbon emission limits proposed by the EPA on new coal and gas plants in the United States fit into this picture? Despite the fact that they were heralded by major “green” groups such as the Sierra Club and the Environmental Defense Fund, they come nowhere near close enough to doing anything to alter the situation.

Defending Obama and the claim that his administration is seriously tackling the coal lobby, on September 21 the New York Times noted:

“The Obama administration on Friday announced that it was not backing down from a confrontation with the coal industry and that it would press ahead with enacting the first federal carbon limits on the nation’s power companies. The proposed regulations, announced at the National Press Club by Gina McCarthy, the administrator of the Environmental Protection Agency, are an aggressive move by Mr. Obama to bypass Congress on climate change”

The first thing to say about these new, supposedly “aggressive” regulations is that they have already been watered down from the ones first proposed a few months ago.  Second, they only apply to new coal plants (only 8 are being built) and gas plants (91 new ones), not the hundreds of older plants, some of which are well over 50 years old and far more inefficient. They can carry on spewing out unlimited amounts of carbon pollution unimpeded.  Third, in another concession to the coal industry, any new plant will have up to 7 years to comply, which will take them well into the 2020s.

Gina McCarthy gave the game away, when she said, “I believe the proposal, rather than killing future coal, actually sets out a pathway forward for coal to be part of the diverse energy supply in the future.”

As part of its gambit to protect coal and natural gas from competition from wind and solar, the Obama administration is reviving the government’s controversial loan guarantee program for clean energy,  the one implicated in the bankruptcy of solar panel maker Solyndra, which became such a talking point for Republicans because it lost the government $500 million.  As a point of reference, compare $500 million to the $20.2 billion/year that the Pentagon spends on air-conditioning alone in Afghanistan.

This is from the business section of the New York Times on the exact same day as that paper labeled the Obama regulations an aggressive anti-coal move:

“The revived program is broader than its predecessor, which focused on capturing carbon emissions from coal plants and on turning coal into gas. Mr. Davidson [executive director of the loan program office at the Energy Department] said officials were looking for projects that reduced carbon and other gases along the various stages of energy production, like cutting methane emissions or water usage in the natural gas extraction process known as “fracking” as well as retrofitting existing coal-fired power plants.”

In other words, the new loan program will be broadened to try to find a solution to the pollution generated by burning coal and fracking for natural gas. But the acceptable solurions will not include the most obvious and effective one, shutting down the coal plants, banning fracking, and retraining the skilled miners and power plant workers to build and operate a new clean energy infrastructure.

On the perversity of trying to develop a technology which currently doesn’t exist and will require more coal to be burnt in order for coal not to pollute, the Times quotes Michael E. Webber, deputy director of the Energy Institute at the University of Texas at Austin: “If you do coal the right way, it’s so expensive that wind and solar beat it on the markets, and that’s why the guys who want to do coal the right way need their policy support,” with loan guarantees, research assistance and tax incentives. “Wind and solar are big kids and almost competitive on their own already, but the advanced fossil and small nuclear are still years away.”

In other words, rather than aggressively attacking the coal industry, the Obama administration is ensuring its survival.  The only thing they’re aggressively pursuing is more oil, coal and natural gas, as depicted in numerous government reports and statements.

In response to the IPCC report, one wonders how John Kerry, who’s State Department is still mulling over approving the Keystone XL tar sands pipeline, can have the gall to say this:

“The United States is deeply committed to leading on climate change. We will work with our partners around the world through ambitious actions to reduce emissions, transform our energy economy, and help the most vulnerable cope with the effects of climate change. We do so because this is science, these are facts, and action is our only option.”

Meanwhile, this year the Environmental Protection Agency gave a Climate Leadership Award to Raytheon, a company which calls itself “the world’s premier missile maker, providing defensive and offensive weapons for air, land, sea and space.”

In presenting the award,  now-EPA head Gina McCarthy said, “Our Climate Leadership Award winners are leading by example with their outstanding actions to reduce carbon pollution… These organizations are tackling the challenge of climate change with practical, common-sense, and cost-saving solutions to improve efficiency and cut waste.”

For the apologists of capitalism, the insanity goes even deeper than the concept of environmentally friendly missiles. As a recent special report on Biodiversity in The Economist notes, “More growth, not less, is the best hope for averting a sixth great extinction.”  In particular, what offers species desperately clinging on to survival the best hope, is more rich people:

“Greater human prosperity now offers other species their best chance of hanging on…when people start to reach middle-income level, other species start to benefit. That is partly because as people get richer, their interests begin to extend beyond necessities towards luxuries: for some people that means expensive shoes, for others a day’s bird-watching…

“Growth also has indirect benefits for biodiversity. People clean up their environment in ways that help other species: through building sewage-treatment plants, for instance, and banning factories from pouring effluent into rivers. Prosperity and peace tend to go together, and conflict hurts other creatures as well as man, as the wars in the Congo have shown.”

I’ll leave it to readers to decide exactly which incorrect or misleading statement in that passage is the most egregious.

Meanwhile as The New Yorker highlighted in an analysis of income inequity by subway stop, if Manhattan were a country, the income disparity between the top 20% and the bottom 20% would be comparable to Sierra Leone, Namibia and Lesotho.  This fact is not unrelated to the location of Wall Street.

To Wall Street, which sorts risk by its ability to maximize profit, “adaptation” to climate change simply means learning how to make profit from it.  As David Ravensbergen writes:

“Even as extreme weather wreaks havoc on crop yields and threatens coastlines, new custom-made financial instruments offer the savvy investor the chance to profit from destruction. Weather derivatives offer both a profitable investment today and an insurance policy against future damages by flooding or drought. While the estimated costs of climate change continue to climb, the profits to be made by betting on those costs keep growing faster.

“In effect, what we have is a situation in which investors are busy betting on what’s going to happen with the climate. Depending on how they invest, they can make money if things get worse or if they get better. If they pick the wrong horse, their bad investments can also be insured by purchasing still more derivatives.”

The financial system, profit-based production and the growth imperative of capitalism are three of the core reasons why capitalism cannot prevent ecological disaster.  The fourth Horseman of the Climate Apocalypse is the inter-state competition system known as imperialism, which acts as the international counterpart to domestic competition between corporations, and prevents binding and effective international agreements on climate change.

The historically contingent reason is that capitalist growth for the last 150 years has been based on fossil fuels and the corporations which extract and process them; these entities are now some of the largest economic, and thereby political, actors on the planet, with a multi-trillion dollar vested interest in preventing change.

On top of that, consider the infrastructure of fossil-fuel dependent capitalism: hundreds of thousands of miles of oil pipelines snaking across every continent; over 200,000 gas stations in the United States alone; the roads and refineries; the pharmaceutical and petro-chemical complexes; the factories that manufacture 70 million new cars every year; the concrete, rubber and asphalt manufacturers and the vast military-industrial complex that ensures the control and flow of oil continues unabated at increasing rates; as fossil fuel extraction and refining technology is further perfected.  By the laws of capitalism, these investments represent trillions of dollars in sunk capital that cannot simply be written off until their depreciation costs become acceptable to the original investors.

Science tells us what must happen; capitalism tells us that it doesn’t matter.  Such is the psychosis buried at the heart of a system whereby money overrides physics. The fact that continued operation calls into question, in its current form, the sustained existence of our entire biosphere, still cannot overcome the remorseless logic of capital accumulation.  Not for nothing did Marx declare the motto of every capitalist, “Après moi, le déluge!”

This should not be taken as an argument against fighting for meaningful reforms to make our lives less polluted, to buy time to slow down carbon pollution, and to build our confidence and organization.

Charles Sherrod, a key member of the Student Non-Violent Coordinating Committee and its first field organizer in the 1960s, recalled the police chief of Albany, Georgia, Laurie Pritchett dismissing even the existence of African-Americans by saying, “You know Sherrod, it’s just a matter of mind over matter. I don’t mind and you don’t matter.” But militant organization, resolve and passion for justice of tens of thousands of marchers, picketers and demonstrators proved Pritchett wrong: Jim Crow was smashed.

A similarly tenacious and independent mass movement for climate justice should fight for a comparable level of change now.

But we also know that while racism may no longer be official government policy, it persists everywhere because capitalism requires racism.  The system acts to perpetuate and constantly reinvent it in the same way it requires sexual oppression and war.

So we also need to recognize the need to replace capitalism with a more rational, cooperative, democratic and humanistic system in sync with our “species being” and nature.  If we don’t, we will lose our only home.

1 Comment

  • This is an excellent exposition of why capitalism continues to be unable to deal with the climate change crisis. I have a little quibble with the figures that are presented and a comment on how socialists have difficulties in formulating an alternative.

    Firstly, it is stated above that it is only possible now to burn 350Gt carbon more if catastrophe is to be avoided, then carbon reserves are quoted as 2975Gt of carbon dioxide, of which 60% are coal. This doesn’t make a lot of sense. Surely reserves have to be expressed in unburned fossil fuel, i.e. carbon, not CO2? Assuming this is just a typographical error (although repeated later on), it is stated that 65% of these reserves are coal, the worst form of fossil fuel. If your reserves are measured as “carbon”, they are all effectively equivalent to coal already: the relative “goodness” of oil and gas is reflected in an adjusted carbon equivalent figure, so it seems misleading to separate out the different fuels in this way.

    The second point is about how to overcome the climate crisis. In most other aspects of the class struggle, socialists do not shy away from stating, or at least speculating, on what a socialist, post-revolutionary government would do to pursue the interests of the working class and its allies. However, on climate change, it is rare to see much more than a few statements about renewables and perhaps some genuflections towards energy-saving, home insulation and so forth. Some socialists even place their faith in projects like Desertec, or even worse, go on about electric cars as a means of reducing carbon emissions.

    This approach ignores the likely catastrophic situation a socialist government is likely to inherit. Real action against climate change will involve closing down large swathes of the economy and measures that will – at least for an indeterminate transition period – limit peoples’ access to a series of consumer goods, certain foods (meat, in particular), car and air travel. There may be rationing of electricity, home heating and air conditioning and other potentially very unpopular measures. This of course raises issues about socialist democracy and equality.

    Of course capitalism uses the market to limit some people’s access to these things already and it is not above further limitations through “adjustments” to market mechanisms, such as carbon taxes. It has even been shown to resort to rationing in the past, though whether it will ever challenge the fossil fuel industry using such measures is a moot point. If it ever happens, we can be sure that the approach will be thoroughly anti-working class and will protect the interests and comforts of the ruling class.

    The policies needed to combat climate change could presumably be implemented in a fair and egalitarian way by a workers’ government. But can these policies ever garner the necessary majority support inside the working class prior to such a workers’ government being formed? This is a genuine question, to which I do not know the answer.