A recent study published in the journal Nature Communications, conservatively estimated that extreme weather alone costs $16 million in damages an hour, amounting to a total of at least $2.8tn in damage from 2000 to 2019. The annual average cost of damages from extreme weather has increased from an average of $140 billion in the first 2 decades of the millennium to $280 billion in 2022. However, these figures do not include climate change-related declines in crop yields, which are driving up food prices,
Inflation is among the raft of adverse economic impacts associated with fossil fuels. According to a Resilience article written by policy expert Nafeez Ahmed, the inflation crisis is a symptom of the demise of the Oil Age system. “We are sleepwalking into a global energy crisis that will, without accelerating the clean transformation of the energy system, create severe economic and financial consequences,” Ahmed wrote. Many others have also warned that failure to move away from fossil fuels will augur an economic collapse.
Oil, gas, and coal are not only costly they are also deadly. Air pollution from the old energy economy already causes millions of premature deaths each year, and the World Health Organization (WHO) estimates that between 2030 and 2050, climate change will cause approximately 250,000 additional deaths per year. The human toll also has economic repercussions which are projected to be around $3 billion per year by 2030. But that is only the tip of the proverbial iceberg.
From a purely economic point of view, phasing out fossil fuels will save the global economy trillions of dollars in energy costs and trillions more in averted climate impacts. A cost-benefit analysis reveals that the benefits of a low-carbon energy economy far outweigh the costs. A recent Tesla report indicates that over 2 decades, the conversion to a clean energy economy will cost $10 trillion while continuing our reliance on hydrocarbons will cost $14 trillion. A Stanford University study indicated that a clean energy transition would save trillions every year and an Oxford University study found that a fast transition away from fossil fuels would save around $12 trillion.
In total, the savings could amount to more than a hundred trillion if we factor in biodiversity loss and ecosystem services which according to a 2021 BCG report, are estimated to be worth as much as $159 trillion. The report concluded that human activity is already costing the global economy $5 trillion a year. According to a 2022 report from Deloitte, climate change could cost the global economy $178 trillion over the next 50 years. When the costs of climate inaction are factored the economic logic of carbon neutrality is irrefutable. The rapidly declining costs of renewables embolden a strong business case. An Energy Innovation report affirms this point with the finding that it costs more to operate coal-fired plants in the U.S. than it does to replace them with renewables.
BIG OIL BIG PROFITS
As we teeter on the cusp of a climate catastrophe, Big Oil is raking in record profits. Earnings show that 2022 was the most profitable year in history for the fossil fuel industry. ExxonMobil posted $55.7 billion in net earnings in 2022, which is a record for any publicly traded oil company. It translates to $6 million per hour and a 25 percent increase over what was previously their best year. Shell earned $40 billion, and the three remaining in the top five all doubled their earnings year over year in 2022. TotalEnergies’profits climbed to $36.2 billion, Chevron took in $35.5 billion, and BP made $27.7 billion, the company’s highest annual profits ever. According to UN Secretary-General António Guterres, all together the oil and gas industry netted $4 trillion last year and 2023 is looking as though it will be another banner year.
Russia’s war in Ukraine is one of the reasons given for the increase in profits and this has led to accusations of war profiteering. Despite these massive profits–or perhaps because of them–big oil is reneging on its climate commitments and divesting from renewable energy.
TRANSITION AWAY FROM OLD ENERGY
The UN’s recently released synthesis report on the global stocktake indicates that emissions need to peak by 2025 and fossil fuel exploration must end by 2030. The report also indicates that we are falling far short of goals laid out in the Paris Climate Agreement, specifically keeping temperatures from heating beyond the 1.5-degree C upper threshold limit. This report will be the basis of discussion for the forthcoming climate talks (COP28) scheduled to commence at the end of November in Dubai. This is the second of two documents, both of which called for the phasing out of oil, gas, and coal. Commenting on the report in the Guardian, Catherine Pettengell, the executive director of Climate Action Network UK, said, “An agreement on ending fossil fuels must be at the heart of the outcome for COP28 to be a success.”
According to a recent International Energy Agency (IEA) report, to achieve net zero emissions globally, oil demand will need to fall to 77 million barrels per day (BPD) by 2030 and 23 million BPD by 2050. This represents a 25 percent reduction in oil demand by the end of this decade and 80 percent by midcentury.
British Prime Minister, Rishi Sunak is among those who argue that market forces will end big oil. This view is shared by Mike Coffin, senior analyst at the climate and financial think tank Carbon Tracker Initiative. As quoted by Inside Climate News, Coffin thinks the reckoning will come because the fossil fuel industry business model is not viable. “The drastic change that’s going to have to happen is going to make those business models unviable,” Coffin said.
The end of fossil fuels is coming, the only question is when. As Ahmed explained, the clean energy transformation is unstoppable. Ahmed predicts a new system will emerge making the oil industry economically unsustainable by around 2030 which will result in stranded assets and trillions of dollars in losses. He references a RethinkX report that anticipates the collapse of many traditional industries by 2040, however, as Ahmed says, “This is not fast enough to avoid dangerous climate change.”
OLIVE BRANCH SUBTERFUGE
While there may be some reason for optimism, the energy transition is too slow to keep us below upper-temperature threshold limits. Predictably, the old energy economy is reluctant to leave so much money on the table, so they are ramping up production and actively undermining sustainability efforts to slow the transition. Citing concerns about energy security the Organization of the Petroleum Exporting Countries (OPEC) vociferously disagreed with the IEA’s prediction that we will reach peak oil demand in 2030. Recently the Saudi oil minister, Prince Abdulaziz bin Salman, said OPEC, ”would not forfeit the precautionary approach to oil output”. In simple terms, this means they intend to keep extracting hydrocarbons.
In a move that many dismiss as a craven attempt to fabricate a pretext to continue extracting hydrocarbons, oil companies are advancing flawed arguments and lobbying to keep the investment dollars flowing. They argue that if supply does not meet demand, prices will skyrocket creating pervasive adverse economic impacts. The IEA argues that the shortfall can be made up by renewables and efficiency. However, this is a moot point because a world ravaged by runaway climate change will decimate the economy doing far more damage than the economic impacts of dwindling fossil energy supply. The oil industry’s assessment ignores the far greater costs associated with failing to curtail emissions. There are also incalculable costs to human life and all the biodiversity on Earth. So, while we need to carefully plan the energy transition, there is no alternative to ending fossil fuels.
The industry’s willfully myopic recalcitrance is a recipe for disaster. For this reason, former U.N. Secretary-General Christiana Figueres said oil companies should be excluded from COP28. Figueres was a central player in the forging of the landmark Paris Climate Agreement, she spoke to reporters after the United Nations climate ambition summit in September. In June she explained her position in an Al Jazeera op-ed titled: “I thought fossil fuel firms could change. I was wrong.”
As part of what many climate activists view as the final straw, they have reneged on their climate pledges. So, rather than slowing the rate of production as promised, they are ramping up their extraction efforts to cash in on a surge of demand. As Dan Cohn, global energy transition researcher at the Institute for Energy Economics and Financial Analysis, explained in a Guardian article, the public distrust of the fossil fuel industry is well warranted. “They have left no doubt that their pledges were deployed for cynical political purposes, only to be ditched when they no longer suited the industry’s strategic position,” Cohn said. The industry has “done everything they can to block climate action and keep us dependent on their products”, said Naomi Oreskes, an oil scholar and professor at Harvard University.
Timmons Roberts, professor of environment and sociology at Brown University, said the industry is using discourses of delay to keep extracting hydrocarbons for as long as they possibly can. That is because “they’re motivated by profits,” Roberts said. He acknowledges that this is at least partly due to the fact that oil CEOs have a fiduciary responsibility to maximize profits. Roberts says we must put to rest the belief that energy companies will voluntarily change their business model. We must also contend with an economic system that richly rewards those who destroy our climate.
SYSTEMIC CHANGES TO THE ECONOMIC SYSTEM
It is a truism to say that what we are doing is not working. We know we must slash emissions but with the exception of a brief period during the COVID pandemic we keep extracting fossil fuels and emissions keep increasing. In 2022 carbon emissions reached a new high (36.8 billion tonnes) and emissions from crude oil rose by 2.5 percent. At the forthcoming climate talks oil companies and fossil fuel lobbyists will join the COP28 President Sultan Al Jaber in arguing the merits of the free market to unleash “trillions of dollars” of private sector climate investments. However, market forces cannot deliver the change we need to see at the speed we need to see it. That is because private sector investments are attracted by the potential of returns, not a science-based assessment of the net ecological costs or the benefits for the planet.
Free markets do not allocate capital where it is needed. Profit is the driving force, it is also a fiduciary responsibility embedded in law. In such a system the areas that most need financing support are often the least likely to get it. The structure of our economic system favors the interests of polluting industries over the public’s interests. While some investors are looking to reduce their carbon exposure, many are working to squeeze every last dollar they can out of oil and gas.
According to the Brookings Institutes Samatha Gross, our biggest challenges are political. Governments have the power to reduce the production of dirty energy through a combination of taxation and regulation. However, many researchers have concluded that what we need cannot be achieved within the existing paradigm. Researcher Jonathan T Park believes the problem is even deeper. As Park explains in an article published in The Journal of Sustainable Development, our economic system is to blame. ”The capitalist system as it currently stands is neither designed for nor capable of consciously inhibiting its own propensity for unsustainable growth. The basic assumptions under which neoliberal capitalism operates render it incapable of correcting climate change,” Park wrote.
We require systemic thinking to develop a holistic interdisciplinary approach capable of dealing with the complex interconnected challenges of our times. We can’t fix the problems with the broken logic that created the polycrises in the first place. A holistic interdisciplinary approach suggests that we need environmental governance, and ecological economics that respects planetary boundaries by embedding the economy in biophysical and social processes. Research also reveals that we need to examine the broken assumptions that have prevented us from understanding that our economic and social well-being flows from our ecological well-being.
The hold of fossil fuels on our economy is a function of favorable financial flows within the existing economic system. The problem is that the economic paradigm in which the old energy industry exists prioritizes profits and ignores environmental and social costs. The market system misallocates capital sending it to places with the greatest return potential rather than where it is needed most. So private investment can’t save us from the polycrises nor can we afford to leave climate action in the hands of the capricious whims of market forces.
Many of the impediments to scaling climate action are built into our economics. As long as there are profits in the offing, the fossil fuel industry can be expected to unrelentingly use its considerable wealth, power, and influence to advance its interests. Oil companies won’t stop the world from warming, nor can the system within which they operate hope to augur the kind of systemic change we require.
BINARY CHOICE BETWEEN REFORM AND RUPTURE
As Guterres said in June, fossil fuels are “incompatible with human survival”. The UN chief accused the industry of undermining efforts to transition to clean sources of energy saying they must, “cease and desist influence-peddling and legal threats designed to kneecap progress.” He also accused them of betraying future generations saying, “The fossil fuel era has failed, “ and he added, “Trading the future for thirty pieces of silver is immoral”.
In September, Guterres opened the 78th Session of the General Assembly of the United Nations saying we need reform. He called for a “redesign of international financial architecture“ and stressed the need for post-colonial modern multilateral systems and institutions based on equity, solidarity, and universality. He called on the world to, “come together for the common good.”.
The Secretary-General told the industry to either change or die: “I have a special message for fossil fuel producers and their enablers scrambling to expand production and raking in monster profits” Guterres said, adding, “If you cannot set a credible course for net zero with 2025 and 2030 targets covering all your operations, you should not be in business.”
We are on the road to ruin and fossil fuels are the primary cause. There is no future for a world powered by hydrocarbons, but we can’t seem to stop this runaway train because it is protected by an economic system that it helped to shape. We need transformative change and we need it now, as the U.N. Chief explained, we face a binary choice between reform and rupture.