Phaseout Profit Theory Is an Exit Strategy

Rainer Baake, State Secretary at the German Ministry for Economic Affairs and Energy, wrote an article at the Guardian titled “Industrialized nations must lead an exit strategy for fossil fuels”.

There are two reasons I was interested.

One is this paragraph:

In fact, the progress made on energy efficiency and renewables can actually exacerbate the problem. An oversupply of fossil resources lowers the price and makes it even more tempting to use them. And the temptation is great: the fossil energy industry offers profits, jobs and low energy prices.

This is true. As the share of renewable grows, demand for fossil fuel goes down. All things equal, that would mean lower prices for fossil fuel.

But if climate regulation puts caps on fossil fuel consumption, that means less supply and therefore higher prices. This may be the only way to avoid price reductions from lower demand.

The other reason are the words “exit strategy” in the title.

It is clear that the transition from fossil fuel will happen. It is highly advisable to have it happen sooner rather than later.

For that, the fossil fuel industry needs an exit strategy. How can they stay profitable? How can they manage the transition to a future where no fossil fuel is burned and all fossil fuel on the market is used as raw material in the chemical industry?

My answer would be: Become allies of the climate movement. Ask for aggressive caps on fossil fuel use. And hope that these work well enough to reduce supply faster than the transition to renewable reduces demand.

Update: Influence Map says that big oil companies spend $115 million a year trying to slow down climate policy, outspending the other side by at least a factor of 20. Those $115 million spent for advocacy in the other direction may have an impact in speeding things up.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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