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Giving Up Fossil Fuels to Save the Climate: The $28 Trillion Writedown

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Giving Up Fossil Fuels to Save the Climate: The $28 Trillion

Obama effectively agreed that most of the world’s oil, gas, and
coal reserves must remain underground and unburned

By Mark Hertsgaard
     June 26 (Bloomberg Businessweek) -- “We’re not going to be
able to burn it all.” With those 10 words, Barack Obama uttered
one of the most stunning, far-reaching statements ever made by a
U.S. president. He also completely contradicted his own energy
policy. Yet no one seemed to notice.
     In an interview that Showtime television’s climate
documentary series Years of Living Dangerously aired on
June 9—which also ran in the New York Times —Obama was asked
about the international goal of limiting global temperature rise
to 2 degrees Celsius (3.6F) since the start of the industrial
era. Going past 2 degrees, noted the interviewer, columnist
Thomas Friedman, would “cross into some really dangerous,
unstable territory: Arctic melting, massive sea-level rise,
disruptive storms.” The International Energy Agency has concluded
that meeting the 2C target will require leaving two-thirds of the
earth’s known reserves of oil, gas, and coal underground,
unburned, Friedman said. Did Obama agree with that conclusion?
     “Well, science is science,” the president replied. “And
there is no doubt that if we burned all the fossil fuel that’s in
the ground right now, that the planet’s going to get too hot and
the consequences could be dire.”
     “So we can’t burn it all?” Friedman asked.
     Obama agreed, effectively affirming the two-thirds estimate,
before adding, “I very much believe in keeping that 2 degrees
Celsius target as a goal.”
     This new scientific imperative—to leave the bulk of earth’s
fossil fuels in the ground—has not yet penetrated most government
or private-sector policy discussions, much less mainstream media
coverage or public awareness. Its political and economic
implications, however, are huge.
     First, it’s worth clarifying that the International Energy
Agency is no den of Greenpeace radicals; the U.S. and other
advanced capitalist countries established the organization in the
wake of the OPEC oil embargo in 1973. The IEA’s analyses of
global energy trends and technologies have been relied upon by
government finance ministries, corporate planners, and academic
specialists throughout the world for decades. The two-thirds
imperative was enunciated in the 2012 edition of the IEA’s annual
World Energy Outlook : “No more than one-third of proven reserves
of fossil fuels can be consumed prior to 2050 if the world is to
achieve the 2 degrees C goal, unless carbon capture and storage
(CCS) technology is widely deployed. This finding is based on our
assessment of global ‘carbon reserves,’ measured as the potential
CO2 emissions from proven fossil fuel reserves.”
     Leaving two-thirds of the earth’s fossil fuel reserves in
the ground would revolutionize global energy practices. It would
mean that over the next 30 years the nations of the world,
especially the U.S., China, and European countries, have to
decarbonize their economies almost entirely. By 2050 they’d have
to produce electricity, run vehicles, heat and cool buildings,
and grow food, not mainly with oil, gas, or coal but rather with
solar, wind, and other methods that emit few greenhouse gases.
     Enforcing the two-thirds cutoff would also invalidate the
business plans of some of the richest and most powerful
enterprises in history: the international oil companies.
Exploring for more oil and gas would have to stop. Why spend tens
of billions of dollars a year to look for fuel that will not be
burned? Also ruled out would be fracking, the whole point of
which is to access deposits that conventional drilling can’t
reach—some of the very deposits the two-thirds imperative puts
     If the world goes along with the 2C ceiling, a huge amount
of prospective profits will vanish. Today’s fossil fuel reserves
represent trillions of dollars of wealth, both on the balance
sheets of companies such as ExxonMobil and in the asset
valuations that inform investors the world over. Being unable to
sell most of those reserves would translate into a massive
markdown on this wealth ($28 trillion according to one estimate).
Its holders would surely resist mightily; ExxonMobil declared in
April that it plans to find and market as much petroleum as it
can, regardless of the 2C limit. The two-thirds imperative would
therefore trigger titanic political battles as well.
     Which may begin to explain why Obama’s words provoked so
little comment. Is the notion of walking away from fossil fuels,
which have been the lifeblood of the global economy for
200 years, simply inconceivable to most people?
     Certainly the president’s own policies clash with leaving
fossil fuels underground. His “all of the above” energy strategy
has dramatically increased federal support for improving energy
efficiency and developing solar, wind, and other low-carbon
technologies. Their market share has grown rapidly: Renewable
energy sources have accounted for 54 percent of new U.S.
electrical generating capacity in 2014; in May, their share was
88 percent. But Obama’s “all of the above” policy has at the same
time showered much more lavish support on oil, gas, and coal. As
Obama boasted while running for reelection in 2012, his
administration has helped open up millions of acres for oil and
gas exploration. “We’ve quadrupled the number of rigs to a record
high [and] added enough new oil and gas pipeline to encircle the
earth and then some,” he said. Fracking has expanded so much,
especially in Texas and North Dakota, that the U.S. has almost
surpassed Saudi Arabia and Russia as the world’s leading producer
of oil and gas.
     Still, for the president of the U.S. to acknowledge the need
to abandon fossil fuels creates political space for others to
press further. Advocates can now invoke Obama’s words to pressure
him and other public and private officials to bring their
policies in line with the new scientific requirement. The
campaigners urging universities, pension funds, and other
institutions to divest their fossil fuel stocks—as Stanford
University, which boasts the nation’s third-largest endowment,
has begun to do—have received powerful ammunition.
     Meanwhile, Obama’s call in the Showtime interview to put a
price on carbon—which could be done directly through a carbon
tax, or indirectly through a cap-and-trade system of emissions
permits—was echoed on June 24 by Michael Bloomberg, the former
New York City mayor (and the founder and majority owner of
Bloomberg  LP, which owns Bloomberg Businessweek ); Tom Steyer, a
former hedge fund manager turned climate activist; and Henry
Paulson, the Treasury secretary under President George W. Bush.
“Putting a price on emissions will create incentives to develop
new, cleaner energy technologies,” Paulson wrote in a New York
Times editorial on June 21. He concluded, “We’ve seen and felt
the costs of underestimating the financial bubble [of 2008].
Let’s not ignore the climate bubble.”
     Alarmist. Radical. Unrealistic. For decades, defenders of
the status quo have thrown those accusations at anyone who
suggested a transition away from fossil fuels. Now, because the
status quo prevailed for so long, humanity must make this
transition with unprecedented speed or face unprecedented
catastrophe. President Obama and leaders everywhere dare not
forget: Science is indifferent to half measures and
rationalizations. It cares only about results.

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