Phase Out Fossil Fuel to Save the Industry

Hans-Josef Fell just documented how bad the fossil fuel industry is doing right now (in German).

The oil and gas industry is big, but not actually making profits. There have been many bankruptcies already in the United States shale gas sector. And big oil companies like Exxon pay out much more to their shareholders than they make in profits, financing the difference with new credit, which has reached a sum of over 100 billion dollars. BP needs a oil price of $65 to break even, but the price has gone down to about $50. Prices for gas also have gone way down because of too much production in the shale gas boom, leaving investors with much less than they were expecting a couple of years ago.

Why is someone like Fell worried about the fossil fuel industry? Of course having all those companies going bankrupt may be good news for the climate.

He is worried because at the scale of their problems, this may well trigger another Lehman shock to the world economy.

If so, there is a simple fix for this problem. Production schedules.

Allow only as much oil and gas to be produced world wide as is compatible with the goals of the Paris Agreement. Have long-term and reliable production schedules like the one for new bitcoins. Have a good mechanism to enforce that schedule.

In the short term, even announcing plans to do something like that would help prices.

In the long term, it would provide security for the whole sector in the remaining couple of decades before fossil fuel is completely phased out.

And it would of course help getting political support from the industry, if actually doing something about the climate emergency would also help their bottom lines.

Published by kflenz

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

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