Even fossil fuel producers need a carbon price!
Fossil fuels can't wind back without a robust, comprehensive and popular carbon price - a ‘climate dividend’.
The fossil fuel industry desperately needs a predictably-rising carbon price to smooth their inevitable phase-down. Mostly they don't know it and the few companies that have supported a carbon price have been rather half-hearted about it. This is understandable given the enormous investments they have made, the fabulous wealth they have generated over the past century and the hope that the profits will continue to flow for another half century or so.
So why do they need a carbon price?
Simply that without a carbon price they cannot wind back voluntarily. Only government regulation or a collapsing market can enable them to phase down. Companies are planning for continued expansion and "having a role to play for many decades to come". But a combination of renewable energy, accelerating planetary warming and extreme weather events make market crashes almost inevitable. The resulting collapse for the industry will inevitably impact much of the global economy in which it is embedded. And the IPCC's latest report makes it very clear that there is a narrow path to avoiding climate catastrophe, but only through immediate, deep and sustained emissions reductions.
Fossil fuel companies, their employees and their shareholders will all suffer the shocks and disruptions of an unregulated decline of the industry and the accelerating effects of climate change. The decline won't be smooth. It is likely to be a series of crashes that will also be destructive for the whole economy. They need a rapid transition to a safe climate just as much as we all do, for the sake of their business, the economy they operate in and the society they are part of. And most of all, for themselves and their families.
Why does the industry need regulation?
The primary reason is that the current economic system requires the industry to keep growing, keep extracting rent from the fossil resource and keep delivering for their shareholders. Companies can't unilaterally slow down while other companies keep expanding. Without a uniform external stimulus, like some form of government regulation, it is almost impossible for the industry to phase down.
There are several other factors that keep them producing and resisting all calls to phase down.
Profit. Fossil fuels are extremely profitable and have generated enormous wealth over the past century, for the industry itself, for banks and other investors, for the wider economy and for the governments of many nations. For many others the industry provides well paid jobs and financial stability. The finance industry will continue to fund them for as long as there is reasonable prospect of profit.
Wealth. Whilst wealth is by definition valuable, fabulous wealth can be powerfully addictive and easily blinds us to the enormous damage that can be done by generating that wealth. It seems it is hard to give up wealth, even when it is clear that it has severe, even fatal consequences, for ourselves and our descendants, now and in the near future.
Inertia. The industry and the many interests it serves has enormous inertia and it is very difficult for its leaders to slow down or change course without a powerful external incentive. Large investments, some that will take decades to pay for themselves, make it imperative to keep going at least until the profits begin to flow. The careers, skills, and knowledge of millions of personnel are invested in the continuation of the industry and its many subsidiary industries.
Subsidies. The lack of a carbon price acts as an implicit subsidy by making fossil fuels artificially cheap and therefore more attractive to consumers - and even more profitable for producers. Explicit subsidies give further encouragement that keep the industry determined to keep going past all the hazard signs and warnings from science and ecology. These combine with the verbal support and encouragement from governments enabling the industry to continue business-almost-as-usual, endangering itself and the global economy.
Power. A further complication is the industry's political power which leaves the government feeling understandably wary about the risk of an industry backlash and populist opportunism from other political players. Political donations to major parties and deep access into ministers' offices give the industry powerful leverage. The threat of a damaging media campaign, more ‘climate wars’ and opposition attacks all act to make governments cautious about implementing effective policy.
Powerlessness. Decades of powerful lobbying and climate wars have scarred the political landscape leaving varying degrees of trauma and powerlessness. The result is cautious, incremental and piecemeal climate policies where the situation requires strong comprehensive policies capable of bringing emissions down rapidly and redirecting financial flows decisively towards clean energy. Finance continues to flow to fossil fuels, despite the increasing risk of a downturn that will leave many stranded assets.
Contradictory Policy. Australia's climate policies revolve around assisting both clean energy and fossil fuels in what appears to be an each-way bet, despite it being obvious that there can only be one winner. Supporting two competing sources of energy can only slow down the transition that is essential if we are to end global warming. This will not happen while the government is sitting on the fence and waiting for clean energy to win the race.
Helping government to help industry
Only government regulation can provide the incentive for the industry to slow down, phase out and reinvest. But the government lacks the confidence to do so. Although no one party has a mandate in its own right, the Australian parliament does have a mandate to act on climate, and is very likely to increase as younger voters join the electorate. The government stood its ground last year when it imposed a cap on energy prices and was challenged by the industry. It should be confident of the community's support in exercising the parliament's mandate to give the industry the carbon price it needs. Especially if it returns the revenue to citizens as a dividend - a climate dividend.
Climate Dividends put a predictably-rising fee on the carbon contained in fossil fuels. This provides the price signal that enables all stakeholders - producers, investors and consumers, to plan ahead and transition to clean energy with as little disruption as possible. Returning the revenue to households as a monthly dividend further stimulates the low-carbon economy while the predictably-rising price signal guides finance, production and consumption steadily towards zero carbon.
A Carbon Border Adjustment Mechanism (CBAM) evens the playing field between nations and encourages other governments to price carbon rather than have Australia price the carbon emissions for them. This helps create the global carbon price that multinational corporations often call for.
Tough love
The millions of people and their families who are directly and indirectly engaged in the industry need a safe climate to live in. Any financial profit they derive in the short term is worthless in the face of the destructive power of impending climate disaster. And yet, the circumstances described above virtually lock them into creating an unlivable climate. Governments must push through their caution and apply the ‘tough love’ of a carbon price to enable the industry to phase down and reinvest in a liveable future.
