Nationalize the Fossil Fuel Industry

For a big problem, we need big solutions.

Carla Skandier November 17, 2017

The Exxon Mobil refinery in Baton Rouge, La., is one of the largest in the country. It stands at a stretch of the Mississippi River known as "cancer alley" for its high number of oil and gas industry sites. To shut down the industry for good, the government must buy out privately owned fossil fuel reserves. (Julie Dermansky/Corbis via Getty Images)

We are sit­ting on a time bomb: more than 500 giga­tons of car­bon diox­ide in the Unit­ed States com­plete­ly under the con­trol of unac­count­able fos­sil fuel cor­po­ra­tions. These com­pa­nies have so many incen­tives to turn their reserves into prof­itable returns on invest­ment — are we real­ly ready to stake our col­lec­tive future on the hope that these com­pa­nies go green in time to avert cli­mate cat­a­stro­phe? As the Trump admin­is­tra­tion con­tin­ues to run down the car­bon clock as quick­ly and as irre­spon­si­bly as it can, the time has come to pro­mote solu­tions that can deal with this mas­sive pri­vate con­trol of fos­sil fuel reserves. A future gov­ern­ment may have no choice but to de-pri­va­tize con­trol of these reserves, which would detach them from sin­gle-mind­ed prof­it inter­ests and take fos­sil fuel com­pa­nies, pow­er­ful forces of cli­mate oppo­si­tion, out of the equa­tion as we gen­uine­ly fig­ure out the rest of the green transition.

We need systemic solutions that address this dynamic of profit and control head-on and rapidly phase out fossil fuel production.

The 2017 Atlantic Hur­ri­cane sea­son kicked-off with a series of record-break­ing storms hit­ting the Unit­ed States, leav­ing behind scenes of com­plete destruc­tion in large areas of Texas, Flori­da, Puer­to Rico and the Vir­gin Islands. It has been scary to see cli­mate sci­en­tists’ pre­dic­tions unfold before our eyes, and real­ize that this is our new nor­mal.” But the lack of debate around real solu­tions to mit­i­gate fur­ther cli­mate impacts is even scari­er — as we’ve seen this week at the UN cli­mate con­fer­ence in Bonn, Ger­many, where the Unit­ed States attempt­ed to pro­mote fos­sil fuels as the answer” to the cli­mate prob­lem, an ini­tia­tive that for­mer New York may­or Michael Bloomberg has com­pared to pro­mot­ing tobac­co at a can­cer sum­mit.” This sea­son made crys­tal clear we need a game-chang­ing solu­tion to ensure that fos­sil fuels remain unburned and in the ground.

Many efforts have been pur­sued over the years seek­ing to decrease fos­sil fuel extrac­tion and pro­duc­tion. On one side are ini­tia­tives aimed at reduc­ing demand for fos­sil fuels: increas­ing the demand for renew­ables, improv­ing effi­cien­cy, adopt­ing a car­bon price, or ban­ning future pro­duc­tion and sale of gas-pow­ered cars, as Chi­na, Britain and France have recent­ly done. Oth­ers have worked on the sup­ply side, work­ing with pri­vate landown­ers to lock out extrac­tion, or push­ing the gov­ern­ment to increase reg­u­la­tion and to end leas­ing of reserves on fed­er­al lands. In the final years of his pres­i­den­cy, Barack Oba­ma made advances on some of these fronts — efforts that were soon reversed by Don­ald Trump’s administration.

But even if these efforts were suc­cess­ful, they would still be too lit­tle, too late, as they fail to deal with the ele­phant in the room: who real­ly con­trols the major­i­ty of U.S. fos­sil fuel reserves. Although fed­er­al lands pro­duced almost 376 mil­lion tons of coal, 755 mil­lion bar­rels of oil, and close to 5 tril­lion cubic feet of gas in 2015, these account­ed for only around 40 per­cent of coal pro­duc­tion and less than a fifth of oil and gas pro­duc­tion in the coun­try. That means that the major­i­ty of coal and more than 80 per­cent of all com­bined oil and gas pro­duc­tion in 2015 came from resources locat­ed out­side of fed­er­al con­trol. In most coun­tries, such reserves remain by and large under pub­lic con­trol through state-owned com­pa­nies — but in the Unit­ed States the oppo­site is the norm, with most proven reserves con­trolled by pri­vate interests.

This is a seri­ous road­block for any effec­tive green tran­si­tion, and per­haps one rea­son why the Unit­ed States is the only coun­try opposed to the Paris Agreement.

If, as sug­gest­ed by the think tank Car­bon Track­er, 80 per­cent of proven reserves need to be kept in the ground, that means that any efforts at cur­tail­ing U.S. fos­sil fuel extrac­tion have to go beyond lim­its on fed­er­al­ly con­trolled reserves — and this means con­fronting the basic eco­nom­ic dri­vers of the extrac­tive econ­o­my. Pri­vate com­pa­nies’ val­ues are deter­mined by their assets and their capa­bil­i­ty to turn those assets into prod­ucts and ser­vices demand­ed by soci­ety. In the case of fos­sil fuel com­pa­nies, their assets are com­posed main­ly of proven fos­sil fuel reserves — reserves that are eco­nom­i­cal­ly and tech­ni­cal­ly recov­er­able under cur­rent con­di­tions. To main­tain their val­ue, and ongo­ing invest­ments, fos­sil fuel com­pa­nies must con­tin­ue turn­ing these assets into prod­ucts and replace any extract­ed assets with an equal or high­er amount of new reserves. Fail­ure to do so neg­a­tive­ly impacts their mar­ket val­ue — and threat­ens their survival.

How do we break this vicious cycle of inevitable extrac­tion in time? We need sys­temic solu­tions that address this dynam­ic of prof­it and con­trol head-on and rapid­ly phase out fos­sil fuel pro­duc­tion. Some peo­ple are will­ing to take the chance that such pro­duc­tion will become unfash­ion­able or even unprof­itable as the costs of renew­ables con­tin­ues to drop. But the most direct and only guar­an­teed way to do so is to change the rules of the game by tak­ing con­trol of U.S. fos­sil fuel reserves out of cor­po­rate hands through nationalization.

Such de-pri­va­ti­za­tion could be accom­plished through a buy­out of fos­sil fuel reserves’ top con­trollers: fos­sil fuel com­pa­nies. While the U.S. has hun­dreds of such com­pa­nies, the real­i­ty is that only a few of these togeth­er con­trol the vast major­i­ty of proven reserves in the coun­try. Take oil and gas, for exam­ple: Ten U.S.-based, pub­licly held com­pa­nies con­trol close to a quar­ter of all Amer­i­can proven oil and gas reserves. A tar­get­ed buy­out of fos­sil fuel majors would not only make up for lost time, but it could pre­vent vast amounts of CO2 from enter­ing into the atmos­phere through a man­aged decline in fos­sil fuel pro­duc­tion, pro­vide a break­through solu­tion capa­ble of deal­ing with the pri­vate and fed­er­al reserves already leased to pri­vate com­pa­nies, remove pow­er­ful oppo­si­tion to cli­mate action from the polit­i­cal equa­tion and unlock the pos­si­bil­i­ty of a just ener­gy tran­si­tion in the U.S., espe­cial­ly if the buy­out was struc­tured in a way that encour­aged or man­dat­ed rein­vest­ment in renew­ables and resiliency.

While many may fear that a buy­out is unlike­ly in the present polit­i­cal con­fig­u­ra­tion, there are sev­er­al his­tor­i­cal prece­dents that show that such a deci­sive step is not as for­eign to the Amer­i­can polit­i­cal expe­ri­ence as one might sus­pect. We could go as far back as WWII, in which wartime mobi­liza­tion took over vast swaths of the nation­al econ­o­my, but in the 21st cen­tu­ry alone Amer­i­cans have expe­ri­enced buy­outs and de-pri­va­ti­za­tion of major indus­tries more than a hand­ful of times — under both red and blue administrations.

Take, for exam­ple, the tobac­co buy­out. After rec­og­niz­ing the mag­ni­tude of the impact smok­ing has on pub­lic health, the George W. Bush Admin­is­tra­tion decid­ed to cut the sub­si­dies giv­en to tobac­co pro­duc­ers while pro­vid­ing a $10 bil­lion buy­out to help farm­ers replace lost income, retire or tran­si­tion to grow­ing dif­fer­ent crops. In the after­math of the 2007 – 2008 finan­cial cri­sis, both Bush and Oba­ma Admin­is­tra­tions de fac­to nation­al­ized a num­ber of com­pa­nies, includ­ing finan­cial insti­tu­tions, insur­ance com­pa­nies and even Gen­er­al Motors, to bring back sta­bil­i­ty to the finan­cial markets.

A future in which the dynam­ics baked into our cur­rent sys­tem of own­er­ship, con­trol and invest­ment are allowed to run their course is one in which the kinds of cli­mate cat­a­stro­phe we saw this hur­ri­cane sea­son will be mul­ti­plied many times over. As vast amounts of green­house gas­es con­tin­ue to be released into an already car­bon-con­strained atmos­phere, secur­ing pub­lic con­trol of America’s proven fos­sil fuel reserves can buy us the pre­cious time we need to avert disaster.

Car­la Skandi­er is a Research Asso­ciate with the Next Sys­tem Project, work­ing on address­ing cli­mate change through sys­temic solutions.
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