Crises were everywhere in 2020, and the fossil fuel industry was hardly exempt. West Texas Intermediate – the US oil benchmark – turned briefly negative this spring, something many industry watchers thought was impossible. It seemed to signal the start of a reckoning many had seen coming for years. The question now is when, not if, the fossil fuel age will end. What’s not at all clear is who’ll come out on top.
A shake-up has been a long time coming. Low interest rates after the 2008 financial crisis made debt cheap, and polluters binged. Signs of wear were already starting to show as early as 2018, when investors began losing patience with oil and gas drillers that routinely failed to deliver profits and have burned through cash and prodigious rates. Covid-19 – and the travel shutdowns put in place to stop its spread – dealt another blow, putting hundreds of thousands of people out of work, and gravely threatening the budgets of resource dependent states the world over.
The array of new tools unveiled by the US Federal Reserve in response to the crisis this spring have been good news for struggling fossil fuel producers. Privately held oil and gas companies sold off an astounding $100bn worth of bonds between April and September 2020. Besides their inclusion on the BlackRock-devised index for which bonds the Fed would purchase, fossil fuel producers have reaped handouts from Paycheck Protection Program loans and generous tax breaks – on top of the roughly $20bn they receive in state and local aid from state and federal governments in the US each year.
Coal is unlikely to rally in the US or UK. Yet given generous state support, it’s not hard to see a future in which the oil and gas industry comes back, at least for a while. Smaller firms will go under. Companies with bigger balance sheets – that have invested in automation to boost and extend yields with fewer workers – will eat up some of their less fortunate former competitors. That interest rates are still low could see investors open their pockets again once there’s a vaccine and fuel demand surges back as economies re-open. Governments that have pledged to “build back better” will pour money into things like expanding electric vehicle production with incentives for automakers, and retrofitting homes by funding new training programmes. Building clean energy creates jobs and carbon savings and helps get economies going again. Yet as millions navigate towards recovery – thrown out of jobs that simply don’t exist anymore – constraining a culturally important industry that helped undergird the last recovery won’t seem too popular. That’s only more true in parts of the US that have been hard hit by this recession and are politically sensitive for Democrats eager to retain and expand democratic majorities, from Pennsylvania to Texas.
But even if a fossil fuel comeback happens, instability lurks. In the summer, ExxonMobil was knocked off a spot on the S&P 500 that it had held for nearly a century; oil and gas companies have written down tens of billions of dollars worth of assets, and European producers are starting to sound like latter day environmentalists, debating whether the era of ‘peak oil’ (demand) may have finally arrived. There’s an enormous amount of debt coming due for drillers with negative cash flows in the next decade, and few look poised to turn any more profits than they were before the pandemic. Eager to save their own skins, fossil fuel executives based in countries that haven’t been ruled by climate deniers for the last four years have ramped up their paens to the planet: advertising token green investments in carbon capture and storage to hydrogen, all of which come up short. BP has put out a more substantive pledge to cut production by 40% by 2040. That’s well and good – and a testament to climate activists’ work these last few years – but it’s not nearly enough.
Weaning society off fossil fuels requires a careful balance. The 2020 UN Production Gap Report finds that averting climate catastrophe will require coal, oil and gas production to decline by 11%, 4% and 3%, respectively, each year between now and 2030. By contrast, aggregate fossil fuel production is now projected to increase by 2% each year over the same period. Existing wells naturally produce less fuel over the course of their lifetimes, although technological advances in recent years have kept them more productive for longer. This means some very limited amount of new oil and gas production is needed while the industry as a whole shrinks dramatically in the coming decades to meet existing energy demand.
There’s simply no reason to trust today’s privately held fossil fuel companies to oversee a transition off fossil fuels that stands directly at odds with their indefinite profits, much less to wind down in a way that will protect the workers who have built their fortunes. Coal, oil and gas companies in the US have used bankruptcy courts to sew themselves golden parachutes and gut employee healthcare costs and pensions. Worse still might be the private equity firms salivating at the prospect of extracting as much value as possible from struggling companies before letting them go belly up – pensions and tax bases be damned.
So although some kind of recovery is likely on the horizon for oil and gas companies, the death knell is ringing and the vultures are circling. With over 100,000 people thrown out of work in the US oil and gas industry this past year, and more than one million oilfield services workers set to lose their jobs by the end of 2020 globally, a transition away from fossil fuels is already happening. It’s entirely too slow to avert catastrophic levels of warming, and could leave millions out of work with few other prospects on offer and scant safety nets to catch them. There is a way to prevent this already painful process from wreaking untold havoc – but it won’t run through executives desperate to maximise their profits before jumping ship. It’s time to nationalise the fossil fuel industry.
With so many firms already begging for bailouts, governments could simply demand equity in exchange for aid, making full use of the powers that the Obama administration wilfully abandoned when it bailed out the auto industry in 2009. Especially for the US, even buying up a 51% stake in the country’s largest coal, oil and gas producers, as suggested by researchers at the Democracy Collaborative, would be relatively cheap; the total market capitalisation of ExxonMobil yesterday was just $173bn. BP was worth just $73bn. Housing these newly purchased firms under a national energy company could set out clear goals from the outset: to begin a managed decline of the coal, oil and gas industries that meets the country’s energy needs as clean energy is scaled up, while ensuring the workers and communities are provided for in that transition. Given such a clear mandate, new national energy companies – governed at least in part by extractive sector unions – could act as coordinating hubs for employees to stay on the payroll and find new jobs as production phases down. There’s no reason to throw engineers and roughnecks out of work when they could be helping to build a low-carbon world. Workers in the US, for example, could plug up the estimated 3.2 million abandoned wells now leaking greenhouse gasses into the atmosphere with abandon.
What’s more, researchers already exploring low-carbon fuels could partner with the US Advanced Research Projects Agency–Energy (ARPA-E) to develop breakthrough carbon capture and sequestration techniques that could be deployed in the public interest, rather than being held hostage to the profits of fossil fuel industry shareholders. Geothermal energy – which could meet an estimated 20% of US energy demand – can similarly benefit from additional public sector research. Bringing that new power onto the grid requires much of the same equipment and expertise that today’s shale drillers already hold. The vast amount of public money now directed toward propping up fossil fuels indefinitely, moreover, can be redirected toward building up all manner of no-carbon power.
Still, this transition can’t happen just in one or two countries. Armed with innovative, future-oriented national energy companies, the US and UK could go a step farther and join or at least coordinate in good faith with the Organisation of the Petroleum Exporting Countries (Opec), advocating for a new era of energy multilateralism capable of meeting the unique challenges of the 21st century.
Since it first emerged as a bulwark against imperialism, Opec has been a cross-partisan boogeyman in the West. Decades of nationalistic fervour from US policymakers, in particular, has fostered an image of nationalised fossil fuel production as ugly as any war on terror fear-mongering: of brutal and conspiring, corrupt dictators who hate our freedoms. The only alternative for as long as I’ve been alive has been an ideology Donald Trump aptly characterised as “energy dominance”: to spur on American extraction by throwing boatloads of public money and diplomatic resources at fossil fuel companies. If we don’t, politicians here have long argued, the terrorists win.
What’s indisputably true today is that the vast majority of oil production now happens under the auspices of state-owned companies. Those enterprises generally aren’t keen to lead the sort of rapid transition away from fossil fuels that science suggests is necessary to avert catastrophic warming. Petrostates have indeed given way to ugly domestic and foreign policy, though resource sovereignty can’t be neatly understood as the main driver of such developments. Even in the hands of egalitarian-minded left-wing governments, oil wealth has not paved a reliable path toward broad-based, sustainable prosperity. That Opec members’ export revenues are expected to end at their lowest levels since 2002 this year isn’t helping make the case for the clean energy future among its members.
It’s not as if today’s petrostates – varied as they are – haven’t done plenty to earn bad reputations, then. But public ownership should be seen as a technology like any other. It can be wielded toward egalitarian and low carbon ends, or kleptocratic and carbon-intensive ones. The objective constraints on the US and the UK are simply not what they are in the places where sovereign oil wealth has nurtured noxious domestic politics; neither country is principally dependent on fuel exports to keep their economies going. And any leaders with the foresight to bring fossil fuel assets under public ownership likely wouldn’t do so with the intention of crafting a petrostate. Crucially, the governments of the US and UK aren’t likely to face US and UK-backed coups should they nationalise their natural resources.
State management of fossil fuels and even nationalised fossil fuel companies have storied histories in the US and UK. The Texas Railroad Commission’s (TRC) collaborative cartel with the Seven Sisters oil companies – including the remains of the broken up Standard Oil empire – served as a model for Opec. The TRC enforced stringent well-by-well production quotas to stabilise prices and conserve resources, even bringing in the National Guard to stop drilling. And it was only in the late 1980s that Margaret Thatcher privatised British Petroleum and the UK’s coal industry. For a whole host of reasons explored in depth by recent histories of oil, the period since the mid-1980s has seen a radical market-based experiment in carbon management. While ‘Opec+’ (including Russia) can still deal heavy blows to US producers, as it did this spring, there’s no true ‘swing producer’ left to fill the role the US and Opec members have played at various points throughout the last century. In an era of climate chaos, continuing on with energetic anarchy could spell chaos at the national and global level. The alternative wouldn’t be easy, but Opec acting as a functional, multilateral body aimed at equitably managing the world’s carbon budget – reaching back toward its conservationist, internationalist roots – could have enormous power to transition the world off fossil fuels.
Absent meaningful resource transfers, the countries most dependent on oil revenues – often those most vulnerable to climate change, and on the losing end of predatory structural adjustment packages – will look to ramped-up drilling to quickly service both sovereign debt and climate damages. Oil and gas-rich Mozambique’s IMF-financed response to Cyclone Idai offers a chilling preview for what’s to come. In the US and UK, decades of declining public investment have left communities whose livelihoods once depended on fossil fuels – from English coal country to West Virginia – to drift toward the right, seeing little reason to support centre-left parties who’ve offered them next to nothing in return for their votes. By allowing for an orderly and managed decline of production, public ownership and global management could prevent this death spiral toward deepening debt traps in the South and growing revanchist political movements in the North. With urging from like-minded nations pushing for a stable climatic and economic future, Opec, optimistically, could be a critical forum to keep the world from crashing out of the carbon economy.
A new energy multilateralism can set the stage for what rules will govern a low-carbon global economy. As Thea Riofrancos and Harpreet Kaur Paul (among others) have written, ending fossil fuel production won’t end extraction. The rosy, techno-utopian visions of swapping out internal combustion powered cars for Teslas threatens new extractive horizons which replicate the sorts of social and ecological destruction that have defined the fossil age. As wealthy Global North countries look to both shrink and decarbonise their energy demand, national energy companies can work to develop green technology with whatever metals it’s possible to harvest domestically through mining and recycling. Respecting the basic principle of resource sovereignty can mean Bolivia’s lithium deposits, for instance, aren’t raided by Elon Musk, but instead spur broad-based low-carbon development there. Crafted with care – and newfound humility from wealthy nations – a greener society could be a more decent one, too.
Obviously none of this can or will happen in a vacuum. As the energetic basis of the global economy changes, robust safety nets will be the best protection for the many workers who stand to be displaced. Those are likely impossible in countries struggling to pay off sovereign debts that should be cancelled. The Bretton Woods institutions that can effect such changes need to be reimagined, along with the dominance of the US dollar; this is a far cry from the reigning consensus in London and Washington, to say the least. Given the ubiquity of state-managed energy around the world, though, public ownership of BP or ExxonMobil may prove surprisingly low-hanging fruit. If nationalising or renationalising fossil fuels seems worlds away from today’s politics in the US and UK, the alternative is hell.
Kate Aronoff is a staff writer at The New Republic and the author of Overheated: How Capitalism Broke the Planet – And How We Fight Back (2021).
- The Climate Focus is part of Novara Media’s Decade Project, an inquiry into the defining issues of the 2020s. The Decade Project is generously supported by the Rosa Luxemburg Foundation (London Office).