The Haircut

The Tide is Turning

The tide appears, finally, to be turning.

On carbon mitigation, I mean. Eventually, of course, the climate situation will become obvious enough that most people will want to address it, and restraint on carbon will happen. Indeed, there have been enough major weather-related disasters of late in the US, some rather bizarre, to make the American people sit up and take notice at last.

Yesterday I was at a meeting yesterday of the Austin chapter of the Citizens Climate Lobby, a grass roots organization with chapters in the US and Canada.

It was encouraging. The group is impressive, both locally and nationally. Its mission is very specifically to affect the legislative process. The push in the US is for a revenue neutral carbon tax, pretty much on the lines that Jim Hansen has been pushing for quite some considerable time.

Senator Whitehouse (D – RI) spoke on a conference call. He allowed that conditions for passage of carbon restraint measures were not in place in the US but expressed a conviction that this could change quickly. Admittedly even Democrats from coal-dependent states would not align behind a carbon tax. His belief is that it is necessary to get Republicans on board, some of whom are not so tied to the Inhofe position that they are completely painted into the corner. As Hansen has always pointed out, revenue neutrality for any carbon measure is crucial. Any expansion of government on the backs of fuel usage will be met with hostility and suspicion from great swaths of the American public.

I don’t agree with the libertarian argument that this is the ideal approach to the problem. But it is a whole lot better than nothing, and there’s an increasing sense that it is achievable. So it’s probably best not to speak against it.

There’s a great gap between discourse and politics.

I was somewhat uncomfortably reminded, in the meeting yesterday, of the gap between the cultural inclinations of scientists and those of activists. Scientists want to analyze, to criticize, to have constructive arguments, to work through to an optimum view of the truth. The journalistic culture at its best is the same, though it has resorted to mindless difference-splitting all too often in practice. This is among the distinctions I was trying to make in my ten camps taxonomy. Meanwhile, the politically motivated want to pull together a rough majority and get a change to happen.

There is work to do. At some point we have to come together on particular ideas that might lead to significant political change. At that point, it is best to shut up.

When the Waxman-Markey version of cap and trade was close to passage, I had many problems with it. It was David Roberts who convinced me to STFU about it. I am still not sure it would have been better than nothing, if only because it was likely to be reversed (as Obamacare, despite all the noise, is not).

My inclination is to look for interesting conversation, and failing success in looking for it, to start some up. But when there’s legislation with some chance of passage that moves in the right direction, the activist impulse has to prevail. There’s a better chance for a revenue neutral carbon tax in America than for any alternative. Politically, it’s best to support it, and not raise any caveats. So to the extent that I have caveats, you may have to go digging in other articles to find some of them.

Introducing myself at the meetup

I am not especially willing to be the guy pounding the pavement – my role is here behind the glowing phosphorescent wall.

So it was sort of awkward, showing up unannounced to a political activists’ meeting, and having a plausible claim to being “a climate scientist”. There really was no slot for me to say anything. I felt awkward through the whole meeting, something like a fish out of water. Here the thing I’ve been advocating for twenty years was before my eyes, and here was no obvious role for me.

I felt I needed to say something to add value to the conversation other than “yeah, go get ’em, letter to the editor, right on!” So I talked a bit about what appears to be the topic of the week among the most engaged, the “carbon bubble”. I pointed out that there was a possibility of a huge write-down on the books, and that it might be big enough to affect all of us, not just the fossil interests.

One woman responded simply and with dignity. “It seems to me that if it’s between losing some money and leaving a world to our grandchildren it’s a no-brainer. Or it should be, anyway.”

It was a wonderful moment. I don’t remember exactly how I reacted. I did not say “amen” that I recall. I should have.

I think I just kept pointing out how the resistance goes deeper than foregoing future profit – this is a huge loss of book value we are talking about. Capitalism does not know how to do anything but resist such a thing, fiercely, and, to coin a phrase, “by any means necessary”.

So let me just say “amen” here and now.

Getting a haircut

Screen shot 2013-05-05 at 8.02.29 PM

Nevertheless, it will be very surprising if we succeed in implementing a mitigation policy with a chance of working. It’s encouraging that an economist like Richard Tol does not believe it will bring down the whole economy.

” Fossil fuel companies are among the largest companies in the world, but their total market capitalization is small relative to the total stock market. Even if they were wiped out completely, the world economy would shrug its shoulders and move on. We have witnessed rapid falls in the stock market value of fossil fuel companies – of all companies as the oil price fell, or of particular companies as disaster struck – and we know from those episodes that the economic impact is limited.”

This is somewhat reassuring, though not as much so as I’d like. As usual with Tol (except when he tries to paint me as a totalitarian) I wish he were right though I think he isn’t. In the present case, perhaps it is best not to do the numbers, to stay quiet, to support the legislative initiative, and to just quote Tol. But I can’t resist.

Let’s compare the shock to the US real estate shock of 2008-2009 which seems to have kicked off our recent economic woes in the West. In a conversation on another thread, my old college buddy Rob (aka King of the Road) estimates the writeoff in that case as 7 trillion dollars. That’s seven million million.

We are looking at something on the order of a trillion tons of CO2 equivalent already on the books. According to the calculations here, we are talking about three barrels of oil per ton.

So if all the reserves were petroleum already at the surface, we’d be talking about a writeoff of 300 trillion dollars, 40 times that of the 2008 real estate write-off.

That’s a high estimate. Now consider if it were all coal, the least valuable fossil fuel. Coal is priced at about $100 per ton of carbon, or $33 per ton of CO2. This is neatly about a tenth of the above figure. Now we are down to about four or five times the real estate write-down of 2008. This is now accounted as wealth and will not be wealth when a serious policy is in place.

Unless I messed up my sums, then, we are looking at a disruption comparable to four to forty times as large as the one that kicked off the crises of 2008-2009 and the aftermath. That seems like quite a bubble.

Who Takes the Haircut

As Tom Athanasiou points out

In short, Carbon Tracker has been arguing that “governments will limit carbon emissions, so if your business model is based on burning it, you are overvalued and at risk – sitting on a bubble. BAD haircut coming.”

But whose hair is really cut? Yes, the fossil fuel businesses that have stubbornly refused to diversify (remember “Beyond Petroleum”? Whatever happened to that company?) will be in dire straits. In general, many uber-rich people will become very rich, and many very rich people will become merely wealthy.

No, ironically it is retirees and people nearing retirement who have the most to lose from a collapse. Agh! It’s people like me who have the most at stake. Those of us with nest egg money in pension funds, investment funds, and real estate; in what passes for “the bank” nowadays. We are the ones who are most dependent on the growth economy to care for us in our dotage.

It’s weird that those of us who entered adulthood rather eccentrically refusing to go to the barber are the ones who will have to step up and take the haircut. In the end, it is still a no-brainer. But it could be a hell of a haircut.

Brush cut, then?

You can pitch in. If you find Climate Citizens Lobby of interest, look them up ; to get an idea what they are up to look at this month’s “action sheet“.

It’s finally time for that haircut y’all. Step right up.


UPDATE: No, my quantitative estimates are quite wrong. It’s not anywhere near as bad as that.

The production cost has to be written off, and the resources that will not be exploited are those with the highest cost meaning relatively small writeoff. Thanks to Paul Baer for pointing me to this article which clarifies.

On the other hand, the valuation of minimg support corporations like Schlumberger and Halliburton will pick up some of the slack. It’s still a huge number.

We note that we are a bit out of the ballpark: “The top 100 coal and top 100 oil & gas companies have a combined value of $7.42 trillion as at February 2011.”

“If a conservative
estimate is used which reduces the contribution from mining companies, then we believe 20 – 30% of the market
capitalisation is linked to fossil fuel extraction in on the Australian, London, MICEX, Toronto and Sao Paulo
exchanges. Paris, Shanghai, Hong Kong and Johannesburg are currently less exposed with less than 10% market
capitalisation linked to fossil fuel extraction.”

So we are now down to a couple of trillion, smaller than the US housing bubble and spread over the whole planet. Not insubstantial (well, not negligible anyway; in a sense two trillion dollars is about as insubstantial as a substance can be…) but not, actually, a crash to dwarf 2008.

Image of a barber by dave416 is in the Creative Commons (CC by 2.0)


  1. The money that will not be going to fossil fuel companies is money that will stay in consumers pockets until it is spent on something else. Since the FF companies simply sit on a lot of their wealth,and don't redistribute it, it would seem to me that our economy will only improve as we phase out fossil fuels.

    But Exxon will not be out of business if we became 100% green tomorrow. We use and need lots of petroleum for legitimate uses that don't involve burning it. Plastics, for example.

    Really do not understand your post at all. We are supposed to worry about the economic effects of not burning FF's? The economic costs of adaptation required by continuing to burn FF's at our current arc has been estimated to be $1204 trillion dollars at year 2100. And then, it gets worse from there exponentially.

    The real threat to our economy is the breakdown of society when supermarket shelves go bare, when there isn't enough fresh water evrywhere, when the average Joe can not afford to feed his family, when New York City is under 10 to 20 feet of water for the first time.

    Not whether several large FF corporations who are sitting on trillions in cash have a reduced income flow.

    Am I missing something here? - macroeconomics is not my bag.

  2. Pingback: Another Week of Anthropocene Antics, May 12, 2013 – A Few Things Ill Considered

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