There’s a Dangerous Bubble in the Fossil-Fuel Economy, and the Trump Administration Is Making It WorseBy Carolyn Kormann
October 19, 2017
By prolonging the inevitable death of the coal industry, federal officials are inviting not only environmental but also financial disaster.Photograph by Peter van Agtmael / Magnum
Last year, shortly after the election, the coal baron Robert Murray received a phone call from President-elect Donald Trump. “He said, ‘Tell your coal miners I got their backs,’ ” Murray later reported to Fox News. “Then he said, ‘I love you, man.’ ” Murray, who is the chairman and C.E.O. of Murray Energy, the largest private coal company in the country, was one of the first fossil-fuel executives to support Trump’s candidacy. Prior to the Republican National Convention, he hosted a fund-raiser for Trump in Charleston, West Virginia, attracting nearly five hundred thousand dollars in donations and contributing hundreds of thousands more from his own pocket. “It was eight years of pure hell under the Democrat Party and Obama,” Murray recently told “Frontline.” He added, laughing into the camera, “But we won! It’s a wonderful victory!”
Now Murray and his ilk have scored another victory. Last Tuesday, Scott Pruitt, the head of the Environmental Protection Agency, filed a proposal with the Federal Register to formally repeal the Obama Administration’s Clean Power Plan. Finalized in 2015, the C.P.P. was designed to hasten state utilities’ adoption of renewable energy, improve air quality and public health across the nation, and, most notable, insure that the United States met its commitments under the Paris climate accord—a minimum twenty-six-per-cent reduction in greenhouse-gas emissions by 2025, based on 2005 levels. In a statement on the proposed repeal, Pruitt criticized the plan’s “devastating effects” on the American people. “The CPP ignored states’ concerns and eroded longstanding and important partnerships,” he said. The day before, in a speech to a group of miners in Hazard, Kentucky, Pruitt had echoed Murray’s triumphalist tone, declaring, “The war on coal is over.”
There is little doubt that one of the “important partnerships” Pruitt had in mind was with Murray Energy. His current second-in-command at the E.P.A., Andrew Wheeler, was a lobbyist for the company until mid-August, and when Pruitt was attorney general of Oklahoma, Murray was a top donor to his super PAC. The C.E.O. was also a co-plaintiff in eight of the fourteen lawsuits that Pruitt brought against the E.P.A. before Trump put him in charge of the agency. One involved the C.P.P. According to Murray and Pruitt’s interpretation, the plan was a classic case of governmental overreach; the E.P.A., they claimed, did not have the regulatory authority to impose emissions targets on individual states. Thanks largely to their efforts, the C.P.P. never actually went into effect. It remains tied up in federal court.
Yet Pruitt’s proposed repeal is itself a kind of overreach. The E.P.A. can no more stop the decline of coal than Trump can prove that climate change is a hoax perpetrated by the Chinese. As Jim Krane, an energy researcher at Rice University’s Baker Institute for Public Policy, told me, “The federal government has only tertiary influence over the U.S. energy sector, which responds foremost to market signals and secondarily to state-level regulation.” In reversing many of Obama’s keystone climate and environmental policies, Pruitt and Trump are conveniently ignoring these market signals in order to help out the fossil-fuel millionaires and billionaires who put them in office. Their actions could have disastrous consequences, not only for the climate but also for the global economy.
In the past several years, investors have increasingly recognized the long-term instability of high-carbon industries. Many of their concerns were first summed up in a 2011 report by the Carbon Tracker Initiative, a project started by the financier and environmentalist Mark Campanale. The report identified a significant problem with the way in which fossil-fuel stocks were priced. It began with the idea that humanity has a finite “carbon budget”—that if we are to avoid the most catastrophic effects of climate change, we must limit our emissions such that the world’s average temperature rises no more than two degrees Celsius above pre-industrial levels. (This was the same target agreed upon in Paris.) Campanale looked at the planet’s known fossil-fuel reserves—its savings account, basically—and calculated how much carbon would be released if they were burned. The resulting figure, 2.8 trillion tons, was five times greater than Earth’s carbon budget for the next forty years. If civilization as we knew it were to survive, as much as eighty per cent of all remaining oil, gas, and coal needed to stay in the ground. Campanale called it “unburnable carbon.”
For fossil-fuel companies, petrostates, and investors, unburnable carbon is, of course, useless—a stranded asset, in financial parlance. And since assets, or the promise of future assets, are what help determine a firm’s value, Campanale argued, most petroleum companies appeared to be grossly overvalued by the market. When C.E.O.s told shareholders about moneymaking prospects in Canada’s oil sands, or Venezuela’s Orinoco Belt, or Alaska’s environmentally fragile Smith Bay, they were touting stranded assets. Eventually, the report predicted, investors would spot a bubble. They would wake up to the fact that the carbon economy is quickly becoming a zero-sum game—that any measure of climate relief hurts fossil-fuel production, and vice versa. Then they would divest. In 2015, Mark Carney, the governor of the Bank of England and the chair of the Financial Stability Board, an international monitoring body, said that allowing the carbon bubble to grow would expose markets to a risk on par with the subprime-mortgage crisis that tanked the global economy in 2007.
The Carbon Tracker Initiative’s analysis depends, of course, on the premise that climate change is real, and that it will inexorably shape the future of the world financial system. For policymakers to safely deflate the carbon bubble, they must face these facts—something that Trump, Pruitt, and their industry allies appear categorically unwilling to do. Trump himself has said that climate change is “bullshit.” Pruitt has claimed, falsely, that there is “tremendous disagreement” among scientists about its causes. Kathleen Hartnett White, whom Trump nominated last Friday to lead the White House Council on Environmental Quality, has called fossil fuels “the wellsprings of mankind’s greatest advance” and carbon dioxide “the gas of life.” In a recent interview with “PBS NewsHour,” Robert Murray expressed a degree of climate denialism that was nearly Dadaesque. “I listen to four thousand scientists, who tell me that mankind is not affecting climate change,” he said. “The Antarctic ice field is larger than it has ever been right now. The Earth has cooled for the last nineteen years. It’s a natural cycle.”
When I ran Murray’s claims by Michael Mann, the director of the Earth System Science Center, at Pennsylvania State University, he debunked each of them in turn. And when I asked a spokesman for Murray Energy who, exactly, the four thousand scientists were, he e-mailed me three links. The first was for the International Climate Science Coalition, a team of four men, only one of whom has an advanced degree in climatology. (Two others are mechanical engineers, and the fourth is a wine expert.) The second link was for the office of John Christy, Alabama’s state climatologist, who told me that the “global climate is not nearly as sensitive to these extra greenhouse gases as the modeling community has reported.” The third link was for the Global Warming Petition Project, which states that 31,487 American scientists, “including 9,029 with PhDs,” have signed a document disputing the risks of climate change. The article attached to the petition, as evidence of its reasoning, comes from the Journal of American Physicians and Surgeons, a conservative publication known for its studies reporting that H.I.V. does not cause AIDS and that there is a link between abortion and the risk of breast cancer. (There isn’t.)
But the members of the Trump Administration haven’t stopped at denying the existence of a carbon bubble; they are also, perhaps unwittingly, working to inflate it. Although they have so far failed to get many of the President’s signature initiatives off the ground—the border wall, the Obamacare repeal, tax cuts for the middle class—in this arena, at least, they have been ruthlessly efficient. A few days before Pruitt announced the C.P.P. repeal, Rick Perry, the head of the Department of Energy, proposed a new rule that would force utilities in certain markets to cover the operating costs of some coal and nuclear-power plants. The measure would guarantee these aging facilities “a fair rate of return,” regardless of whether they are able to compete with cheaper alternatives such as natural gas, wind, and solar. Perry couched the new policy in terms of national security, but it amounts to a subsidy. (David Roberts, writing in Vox, called it “the crudest imaginable intervention on coal’s behalf.”) Many energy analysts have condemned the proposal, and even petroleum companies have questioned its legality. If passed, the rule would cost American taxpayers an estimated $1.4 billion per year.
According to Stephen Heintz, the president of the Rockefeller Brothers Fund, which divested from coal and oil sands in 2014, actions like Pruitt’s C.P.P. repeal and Perry’s coal-industry bailout maintain the false perception that high-carbon industries will always be profitable. “They create inertia, and they create some uncertainty in markets, just at a time when we need a government to be creating confidence, continuity, and urgency,” Heintz said. The longer this fallacy persists, and the longer state governments delay the transition to renewables, the more sudden the carbon bubble’s burst could be. By prolonging the inevitable death of the coal industry, the Trump Administration virtually insures an even more painful reckoning to come. In the worst-case scenario, Campanale explained, the planet makes the decision for us. “Climate chaos happens,” he said. “Extreme weather events, the destabilization of the Artic. Governments wake up one morning, and it’s all gotten so bad that, overnight, the stuff is no longer burned. It’s a huge catastrophe for investors, and everybody.”
Yet there are signs that, no matter what environmental regulations the Trump Administration eliminates, the energy sector will continue moving in a climate-friendly direction. Even ExxonMobil is beginning to come around. In 2015, a little over a year before Trump chose the company’s longtime C.E.O, Rex Tillerson, as his Secretary of State, ExxonMobil was accused of having conducted and then suppressed decades’ worth of global-warming research. (The company, which is reportedly under investigation by the Securities and Exchange Commission, denies the claim.) But this spring, at ExxonMobil’s annual shareholders’ meeting, in Dallas, sixty-two per cent of investors demanded that the board do a better job of addressing climate risk. Specifically, they wanted an accounting of how efforts to meet the two-degree warming limit would affect future returns. (Last year, only thirty-eight per cent voted in favor of a similar measure.) Though the resolution was nonbinding, the Harvard Business Review called it a “monumental event,” one suggesting “that we have reached a tipping point within the investment community in the recognition of climate risks.” The following month, Norway’s nearly trillion-dollar sovereign-wealth fund declared that it would require some of its partners to disclose what influence their lending practices have on carbon emissions.
When I spoke with Campanale, earlier this year, he sounded hopeful. Clean-energy technology, he noted, has advanced “much, much faster than even the most optimistic people were projecting four to five years ago,” a trend that the Trump Administration is unlikely to curtail. As a result, Campanale added, “many developing economies are choosing clean energy straight away—they’re going from no electricity straight to solar. They didn’t put telephone wires across cities, but went straight to mobile, and the same thing is happening with energy.” (Bill McKibben reported on Africa’s solar boom for this magazine in June.) Elsewhere around the world, countries are insulating themselves from the carbon bubble. Britain, China, France, and India all recently set deadlines for the elimination of gas and diesel cars from their roads. In August, South Korea announced that it will no longer give licenses to build or run coal plants. And just last week, the Dutch government pledged to close all coal-fired power stations by 2030.
Still, it is important not to underestimate the repercussions of Pruitt’s proposed C.P.P. repeal. According to the Rhodium Group, an economic-research firm, twenty-five states are already on track to beat the emissions-reduction targets established under the Obama Administration. For them, a repeal wouldn’t make much difference. But between twelve and twenty-one other states are not yet in compliance with the plan. One of them, Texas, puts out the most carbon dioxide of any state in the country, almost twice as much as California, the next state down the list. Another, West Virginia, has the nation’s third-highest carbon emissions per capita. For the foreseeable future, as Pruitt’s proposal undergoes a several-months-long public-comment period, followed by a likely spate of legal challenges—the attorneys general of New York, California, and Massachusetts have already promised to file suits—these states are free to regulate their utilities and power plants as they please.
For the relatively small population of coal miners left in this country—Arby’s employs a larger workforce—this may sound like good news. But Pruitt’s claim that “the war on coal is over” is already looking like a false promise. Last Friday, days after he spoke in Hazard, Texas-based Vistra Energy announced a new round of coal-plant closures, citing low natural-gas prices and “an oversupplied renewable generation market.” The closures are expected to eliminate at least eight hundred and fifty jobs. Trump’s proposed federal budget for fiscal year 2018, meanwhile, would do away with hundreds of millions of dollars in funding for programs and grants to support laid-off coal miners, their families, and their communities. If, or when, the carbon bubble bursts, how will these workers cope? For some of them, a successful future may lie in renewables. In Wyoming, a major coal-producing area, the American arm of a Chinese wind-turbine manufacturer is offering training to former miners. And in Appalachia, an outfit called Coalfield Development is attempting to revitalize the region’s economy with workshops in solar installation or woodworking, and programs to reclaim mines and remodel dilapidated buildings.
Last summer, the billionaire entrepreneur Richard Branson held an innovation summit in New York to discuss the private sector’s response to climate change. (He was also keen to race a few battery-powered Formula E cars through Brooklyn.) At one point in the afternoon, Branson and another Virgin executive, Alex Tai, began talking about unburnable carbon and stranded assets. Branson seemed confident that the carbon bubble will not cause a global collapse, thanks to new clean-energy companies replacing the dirty old ones. He also cited Saudi Arabia’s recently announced plan to become carbon-neutral within a couple of decades. “They are going to use their deserts, fill ’em up with solar, power their country from the sun, save themselves a lot of money,” he said. “And so, as oil comes down and down in price, it won’t hurt as much.”
Tai remarked that the conversation reminded him of an old story. Some years before, he and Branson had been in Africa, supporting a company that cleared land mines. A man had come up to them, Tai recalled, and said, “ ‘You know, you’re putting my company out of business. It’s terrible and you shouldn’t be doing this.’ ” Branson asked the man what he did. “His company was making prosthetic limbs,” Tai said. “Sometimes companies just shouldn’t be around anymore.”
