The mutually assured destruction of the fossil fuel ecnonomy
Reading time: 2 minutesTL;DR
The global economy runs on fossil fuels and the industry is not going to relax it’s grip willingly. We’ve arranged our world in the perfect way to prevent it being easily dismantled.
Explanation
The fossil fuel industry is deeply entwined in our economy, just they way they like it. Not only are their products a major part of how we run our world, our financial systems are also caught up in this.
The stock market, that great chart of rich people’s feelings, values companies not just on their current profit or loss, but also their potential. That includes future earnings. Fossil fuel companies are valued on the amount of fossil fuels they have claim to that are still in the ground. If we actually committed to no new oil or gas, then the oil and gas in untapped reserves becomes a stranded asset - worth nothing. The stock market value of these companies then rapidly declines because a whole lot of future profits were just locked away.
Being so large, and over the years good investments, fossil fuel companies fortunes have a big impact on our overall stock market situation. A lot of pension funds are tied up in general stock market index funds. Countries like Norway rely on tax revenue from their fossil fuel industry.
So in addition to immediate job losses in the fossil fuel industry, a massive devaluation of the stock market would follow, decreasing the retirement funds of many millions of people.
Likewise any move to nationalise and shut down the fossil fuel industry destroys a lot of wealth in the process. There’s a challenge this transition that needs to be managed.
The resistance to climate change action is largely tied to this financial inertia. Not only do these massive fossil fuel companies have the resources to spread propaganda and pay for armies of lobbyists to influence politicians and their policies, politicians don’t have a serious answer for how to unwind ourselves from this mutually assured destruction.
But guess what? If we continue business as usual, and the climate crisis gets out of control requiring emergency intervention then the destruction of wealth is also likely to be forced upon us.
We can try and wind things down now gracefully, or we continue to try and make dollars until the very last minute it’s going to lead to a great disruption. Disruption is coming in one form or another.