Recent events in North Dakota are a poignant reminder both of the local injustices that so often accompany fossil fuel extraction, and of the power of ordinary people to resist them.
But they have also been a dispiriting reminder of the extent to which powerful economic incentives all but guarantee that corporate actors will continue to invest in these projects, running roughshod over the objections of local people to the maximum extent the law allows, until those incentives change.
Case in point: in a statement responding to the US government halting construction of limited parts of the Dakota Access pipeline, a spokesperson for a coalition that supports the pipeline noted that Energy Transfer Partners – who are building Dakota Access – had already invested more than $1.4 billion in the project.
Which raises the obvious question: how, in 2016, could a publicly traded company like Energy Transfer Partners – whose strategic decision-making is constantly assessed and priced on the New York Stock Exchange – consider an oil pipeline to be an investment worth sinking 1.4 billion perfectly good American dollars into?
In 2013, the Economist magazine assessed Carbon Tracker’s groundbreaking “carbon bubble” analysis and concluded that, essentially, the market wasn’t buying it: “[fossil fuel] companies are betting that government climate policies will fail; they will be able to burn all their reserves, including new ones, after all.”
Such a bet, the Economist wrote at the time, seemed “rational”, because “so long as governments are ambivalent about [emission reduction] targets, it seems fruitless to demand more of companies and markets”.
Fast forward to this time last year and, for the most part, little had changed: while governments were talking a big game about reaching an agreement in Paris, there was no guarantee it would happen – things had fallen apart before – and even if an agreement did emerge, that it would be anything more than a vague and toothless document.
Certainly, there was no prospect that it would enter into force before 2020 at the earliest.
What a difference a year makes. Not only was an agreement reached in Paris, but it was a detailed and ambitious one, containing a legally binding requirement for every country to set an emissions reduction target and take steps to achieve it (Article 4.2), as well as establishing a rigorous transparency system for ensuring that they did so (Article 13).
— Climate Home (@ClimateHome) September 20, 2016
Language delaying entry into force to 2020 was removed in the final hours of negotiations, and with Chinese, American and Brazilian ratifications now in the bag, it is increasingly likely the Paris Agreement will enter into force this year.
How have the markets responded? Undoubtedly, they are paying attention. In June, as the number of countries pledging to ratify the Paris Agreement in 2016 edged to within striking distance of crossing the necessary thresholds, Moody’s Investor Services announced they would begin including “carbon transition risk” in their rating assessments; in other words, one of the most powerful institutions of international finance is now taking the “carbon bubble” seriously.
So too is Blackrock, the world’s largest (multi-trillion dollar) asset manager, who recently burned climate deniers as dumb investors (in polite corporat-eze, of course) thusly:
Investors can no longer ignore climate change. Some may question the science behind it, but all are faced with a swelling tide of climate-related regulations and technological disruption… we believe all investors should incorporate climate change awareness into their investment processes.
Then there is the growing movement, both internationally and within the US, to make climate-conscious investment easier, through mandating the disclosure of companies’ climate risks as financially-relevant information. Doing so would require companies to much more explicitly “own” their emissions, and with that, their exposure to regulations that put a price on carbon.
All of this is very encouraging, and it is undoubtedly satisfying to see the titans of global finance embrace positions previously the championed chiefly by student divestment activists. But getting the market to pay attention is different from actually moving the money. And what often goes unsaid – but is unpleasantly obvious to anyone who is paying attention – is that the world faces two very different energy futures, and we won’t know for sure which one we are in until 9 November.
While there is good reason to doubt his word on a great many other things, when it comes to climate change, it seems safe to trust that as President of the United States, Donald Trump would be an existential threat to the world’s climate.
Some note that if the Paris Agreement entered force before he took office, he would not be able to withdraw the United States until 2020. This is technically true. In reality, however, by explicitly disavowing any intention to live up to US obligations under the pact, Trump would render the Paris Agreement dead on arrival., even without the formalities of withdrawal.
Without US leadership (and with the EU still lacking the coordination required to even join the Agreement it was instrumental in creating), none of the countries in the developing world – where the majority of emission reductions must be secured – will feel under any responsibility to make the cuts required. And rightly so.
The unfortunate reality for those on the North Dakota plains, therefore, is that both the leadership and the shareholders of Energy Transfer Partners will currently be “pricing in” the non-zero possibility that Trump will win in November; that the fragile, hard-won consensus on global climate action will evaporate soon after; and that investments in oil, gas, and even (God-f#%*king-help-us) coal might not be such bad bets after all.
The good news is that the gulf between this scenario and the outlook under a Clinton administration is, quite simply, vast. Consider: Clinton has pledged to cut U.S. emissions 30% by 2025. The US’s current pledge under the Paris Agreement is a cut of 26-28% over the same time period.
In other words, Secretary Clinton is undertaking not only to hit Obama’s target – she is offering to beat it. If her administration formalized that commitment by updating the US INDC (its pledge under the Paris Agreement) to reflect it, there are signs that China might be willing to increase its own pledge as well.
Such a move would not only cement recent US-Chinese climate cooperation across American administrations; it would put serious pressure on other major emitters to increase the ambition of their targets, too.
Domestically, however, would a President Clinton be able to credibly deliver a 30% emission reduction, considering the Clean Power Plan (CPP) has been stalled by the Supreme Court? The answer is almost certainly ‘yes’.
Most obviously, any Clinton appointee to replace the recently deceased Justice Antonin Scalia is much more likely to rule in favor of the CPP than is… Peter Thiel, or whomever else Trump might nominate. Perhaps just as importantly, an in-force Paris Agreement would trigger an effective legislative backstop for a Clinton administration, allowing them to hit the necessary target even if the CPP (or parts of it) was struck down by the Supreme Court.
As detailed in a comprehensive report by legal academics from Columbia, NYU and UCLA law schools, in circumstances where other countries are taking reciprocal action to cut emissions, Section 115 of the Clean Air Act (the CPP is based on Section 111 of the same Act) grants EPA authority to establish an “economy-wide, market-based approach for reducing GHG emissions”.
Considering Article 4.2 of the Paris Agreement binds all parties to set an emission reduction target and take steps to achieve it, this requirement for reciprocity would easily be satisfied. Thus even if the CPP were to be partially or completely invalidated, an in-force Paris Agreement would allow a Clinton administration to proceed under Section 115 instead.
(Indeed, there are good reasons why a Clinton EPA might want to invoke Section 115 even if the CPP withstands judicial review; for one thing, it would allow for the establishment of a nationwide emissions trading scheme, which the CPP does not.)
In the last eight years, the Obama Administration has overseen the construction of a regulatory environment, both domestically and internationally, in which investing in fossil fuels will become a progressively worse idea. Unfortunately, before we see the full impact of that policy architecture on the world’s financial markets – the “Paris Dividend”, if you will – we need to get past the last person who would have the ability and inclination to tear it all to pieces: Donald Trump.
Secretary Clinton may not be the perfect climate candidate, and she lacks the uncompromising urgency that Bernie Sanders promised to bring to the issue. But she can be relied upon to – at the very least – inherit and entrench President Obama’s climate legacy, and with the right prodding, to take it much further. For that reason alone, it is absolutely essential that she win this election.
Finally, it is perhaps worth reflecting on the political consequences that might flow from the financial ramifications of a Clinton victory.
Climate denial is and always has been a political, rather than scientific, phenomenon: a morally despicable but economically rational service provided by Republican politicians in return for financial support from what has been, historically at least, an immensely wealthy and powerful special interest: the fossil fuel industry.
It is a deeply cynical embrace of calculated irrationalism that ought to be profoundly embarrassing for anyone with Ayn Rand or Milton Friedman on their bedside table. And yet, here’s the thing: if things do come out the right way on 9 November, then pretty soon, it might not even be that worthwhile of an investment.
Bubbles are like that.
Michael Dobson is a PhD student in Global Politics at the New School for Social Research, and a former climate advisor to the Marshall Islands. Follow him on twitter @michaeldobsonNZ