Category: Economics

Matters of money

Liquified natural gas (LNG) and climate change

Natural gas is often held up as a solution to climate change, or at least a transition in the right direction, on the basis of producing less CO2 per unit of energy than oil or coal. Other factors are also relevant, however. Natural gas is mostly methane (CH4) which is a much more powerful greenhouse gas than CO2. If just a few percent of the methane extracted is leaking in the form of ‘fugitive emissions’ from production facilities and pipelines that alone can make it a worse energy source than coal. Methane also has a different atmospheric lifetime. It’s actually much much worse than CO2 in the short term, but unlike CO2 which largely endures for centuries methane breaks down comparatively quickly. This may be relevant to global temperature pathways as the frontloaded impact of methane may make the peak of warming worse and raise the risk of positive feedback effects where the warming we cause induces further greenhouse gas emissions and warming which we cannot control.

There are more complicated arguments about long-term infrastructure, with some arguing that gas is substituting for worse alternatives and others saying big new gas investments are locking in our fossil fuel dependence for decades to come. There’s also always the debate about any prospective energy source versus renewables, with some arguing that options like gas or nuclear are not needed because renewables are becoming cheap so quickly, and others arguing that energy sources like gas or nuclear complement renewables. With gas, the argument is that it’s a deployable energy source you can activate only when renewables don’t supply demand (many gas plants are peaker plants that only run at times of peak demand); with nuclear, people say it’s always-on baseload energy that would provide at least something during renewable dips.

All this is highly relevant because gas production is exploding, especially because of North America’s hydraulic fracturing (fracking) boom. A new Global Energy Monitor report describes $1.3 trillion being invested in gas infrastructure around the world. In particular, massive investments are being made in liquified natural gas (LNG) infrastructure, since unlike gas in pipelines it can be exported by ship intercontinentally.

Canada is hosting a very disproportionate amount of this investment: 35% of the global total, despite our much smaller global population and domestic share of world greenhouse gas production.

Related:

Open thread: 2019 federal election

The CBC is reporting on polling results pertinent to this fall’s federal election: CBC News poll takes snapshot of Canadians ahead of fall election.

They say the cost of living was the top concern identified, followed by climate change. This suggests a familiar Canadian dynamic: being notionally concerned about climate change, but rejecting action on the necessary scale because of a perceived threat to short-term economic growth and personal financial well-being.

This integrated nicely with Andrew Scheer’s Conservative climate plan, which follows the traditional formula of expressing concern about climate change, proposing only speculative and painless long-term measures to deal with it while insisting that the fossil fuel industry can keep growing, and vaguely hoping that the rest of the world will solve the problem while Canada changes little and continues to actively make it worse.

There’s so much about this election that is depressing: how Trudeau and his government have done a poor job but remain the only non-abominable party with a chance of winning, how the discussion on the left will largely remain a squabble about blocking each other which the progressive parties cannot overcome, and ultimately Canada being carried forward by inertia and the defenders of the status quo into an unliveable and chaotic future.

Nuclear papers

Over the years I have written a variety of academic papers on various aspects of nuclear weapons and nuclear power:

1) Written for an undergrad international relations course at UBC and subsequently published in a journal and given an award:

“The Space Race as ‘Primitive’ Warfare.” UBC Journal of International Affairs. 2005. p. 19-28.

2) Written during my M.Phil at Oxford:

“Climate Change, Energy Security, and Nuclear Power.” St. Antony’s International Review. Volume 4, Number 2, February 2009. p. 92-112.

3) Written as part of my PhD coursework at U of T:

Climate change and nuclear power in Ontario (self-published on Academia.edu)

Canada’s mixed nuclear policy experiences.

Threatening clawback

A central aim of the climate change activist movement is to discourage further investment in fossil fuel projects. This is closely tied to economic analyses showing that the total cost of the transition depends critically on how quickly it starts and how effectively long-term high-carbon projects are avoided. It’s also the inverse of a frequent claim made by pro-fossil proponents: that investor confidence is necessary to keep billions flowing into fossil fuel infrastructure investment. That was the logic that made Canada’s federal government buy the Trans Mountain pipeline, in order to demonstrate to investors that Canada still has a legal and economic climate in which major fossil fuel projects are possible.

A potential strategy that could help avoid further fossil fuel infrastructure investments is the threat that profits earned in the near-term will be clawed back in the longer term to pay for some of the damages arising from climate change. It’s not something that today’s governments in North America are willing to threaten (not least because the longstanding purpose of corporations is to protect investors from personal liability for the actions of the firms they invest in). Nonetheless, it’s something that can be emphasized as a risk in the future in order to increase investor reluctance.

One practical way could be to begin tracking which entities large enough to be worth targeting in the future are profiting from fossil fuels today: fossil fuel corporations directly, but also major stockholders receiving dividends. Having some claim to being able to credibly track the flow of profits is essential to this strategy; otherwise investors will likely believe that they will have spent the profits by the time there is any demand for compensation, or that they will have shifted them through so many other investments as to have ‘cleaned’ them in a sense akin to money laundering.

The threat of clawback could be an argument to use when advocating divestment from the fossil fuel industry, since it would protect the institutional investor from such future claims of compensation, at least as far as future fossil fuel profits go.

It may seem pointless to suggest an idea like this when it is so far outside the political mainstream today, but a central point in the entire stranded assets / carbon bubble argument is that the political possibilities of the future will be different, and governments may grow far less accommodating of fossil fuels as decarbonization proceeds and the impacts of climate change worsen. Putting a little asterisk beside fossil fuel profits (* may be clawed back in the future to pay for climate damages) would both be a fair representation of a reasonable prospect, which can be made more probable through activist effort, and a way to make fossil fuel related returns seem less valuable and more tenuous than returns from alternative investments.

On the cusp of the next Trans Mountain decision

Canadian politics has an unhealthy fixation on the profits associated with fossil fuel production and use. It’s the threat of losing those that is always evoked by pro-fossil interests when they are asserting that this or that piece of new fossil fuel infrastructure (this pipeline, that bitumen mine or in situ extraction project) needs to be built.

This analysis of course misses the climatic impacts on third parties. Oil advocates want to think of the transaction as just a happy buyer and a happy seller, ignoring the people losing their homes, financial security, and even their lives because the climatic stability that we have depended on for millennia is being disrupted and destabilized by fossil fuel use. These risks aren’t notional or set in the future, but happening now as this CBC article illustrates: ‘It’s a problem for society’: Climate change is making some homes uninsurable.

Tomorrow the Trudeau government is expected to announce the Trans Mountain pipeline expansion into B.C. Whether it is later stopped by public protest, the courts, or other means or not, I think it will cement the view that rather than trying to seek a sensible compromise the Trudeau Liberals chose a fundamentally incoherent strategy. It makes no sense to try to gently decrease economy-wide oil demand with a carbon price as a route to decarbonization while simultaneously approving projects that would only have a viable role in a future where we choose to ignore climate change. If we end up with an Andrew Scheer Conservative government it will be even worse, both for a fossil fuel industry which misunderstands the fundamental problem it is facing and to Canada’s economy as a whole, but that’s not necessarily enough to save Trudeau, especially while Canada’s relatively pro-decarbonization left is fragmented into support for Greens, the NDP, and Liberals.

Related:

Canada’s oil and pipeline controversy in a line

In an article called “Oilpatch in open rebellion as Ottawa ignores industry’s input on Bill C-69” Chris Varcoe notes:

The uproar over the bill came as CAPP released its annual outlook, forecasting oil production will grow by a tepid 1.4 per cent annually — less than half the pace anticipated five years ago — by 2035 with total output reaching almost 5.9 million barrels per day.

This is unhappy news for pro-oil advocates because Canada’s oil production is growing more slowly, and it is bad news for climate advocates because it is continuing to grow at a time when we desperately need it to shrink.

Phasing out an industry is never easy, but it’s necessary here. The alternative of unconstrained climate change is awful to contemplate, and would be a grave injustice to all those who will come after us and to non-human nature. If we want the world as a whole to dismantle the suicide pact which we have established through ever-rising fossil fuel production and use, countries like Canada cannot continue to hope to enlarge their fossil fuel industries. We have already taken way more than our fair share, and neither Canada nor any province in it has the right to demand any more.

Shareholder activism and fossil fuel corporations

One argument routinely used against divestment from fossil fuels is that, as investors, institutions like universities and pension funds might be able to discourage the most wasteful and damaging new fossil fuel investments and encourage fossil fuel corporations to use their resources and expertise to advance decarbonization.

In the U of T divestment brief we explained our doubts about this justification. Nonetheless, it remains an approach that some are trying:

Bruce Duguid of Hermes Investment Management, who worked with bp on behalf of Climate Action 100+, says that disclosure will help investors understand if the billions which bp continues to spend on oil and gas creates too much risk. bp will describe how big new capital projects stack up against the Paris goal of keeping warming “well below” 2°C relative to preindustrial times. Equinor, Norway’s state behemoth, agreed to something similar in April. As with Shell, bp’s resolution does not require it to cut oil and gas output. Greenpeace, a combative ngo, blocked entrances to bp’s headquarters in London ahead of its annual meeting on May 21st.

…

For the time being, though, Shell, bp and ExxonMobil remain members of the American Petroleum Institute, which has sought to ease rules on emissions of methane, a potent greenhouse gas. They also maintain links with the Western States Petroleum Association, which last year fought a carbon tax in Washington state. bp spent over $13m directly to help defeat a ballot initiative in favour of the levy.

…

Others are beginning to question the value of shareholder engagement. The Church of England has said it will divest by 2023 if no advances are made. “Investors’ patience is not limitless,” says Mr Logan. “It’s going to be measured in years, not decades.”

There are many reasons to doubt how meaningful shareholder activism can be, and to ask whether it’s a “shadow solution” that creates the impression that action on climate change will happen, while really justifying the continuation of the status quo. These firms have an enormous financial interest in keeping the fossil fuel reserves they own usable, which in turn means blocking climate change action. Furthermore, neither executives nor shareholders can be expected to meaningfully support a transition to decarbonization which would make these firms irrelevant.

Delaying climate action is the most expensive thing we will ever do

Figure from my 2009 blog post, showing why delaying the global peak year for greenhouse gas pollution emissions means having to cut emissions much faster in the 2020s and 2030s to achieve the same temperature target:

Emissions pathways to give 75% chance of limiting global warming to 2ºC

Tweeted by Greta Thunberg today:

All this delay mutually reinforces the risks of catastrophes. People keep investing in fossil fuels, so they have more to lose from decarbonization. We keep putting off emission cuts, meaning that their eventual rate will need to be much more draconian than if we had started promptly when the risk of catastrophic climate change became well-recognized in the 1990s. We’re committing ourselves to more severe climate change effects, meaning more forced relocation, severe droughts, extreme weather events, and adaptation costs in general measured in both wealth and lives. We’re missing the chance to build global cooperation and overcome the parochial one-country-mindset mentality that makes global environmental problems into collective action problems.