4 reasons to give up defending fossil fuels

There are at least four reasons that businesses, asset managers, individual investors and governments should avoid fossil fuels:

• They are unacceptable risks. Coal, oil and natural gas are dead industries walking. They are threatened by the international commitment to end carbon pollution, competition from cleaner and cheaper renewable fuels, and the conclusion of climate scientists that most of their remaining underground reserves must stay there.

• They can’t be trusted. Big Oil denied for decades that global warming was real and a consequence of burning carbon-based fuels, even though their scientists told them differently. In October 2021, executives from four of the biggest oil companies reportedly testified to Congress that they had never approved disinformation campaigns about global warming, even though investigations show they spent millions on such campaigns.

• Fossil fuels have sacrificed their social licenses to operate. Companies must work in socially acceptable ways to earn and keep a social license. They must maintain the ongoing support of their stakeholders and the communities in which they operate. But pollution from power plants and vehicles still makes it dangerous for 40 percent of Americans to breathe. In addition, an upcoming government report concludes the U.S. is getting warmer 68 percent faster than the planet as a whole, and climate change is causing “far-reaching and worsening” disasters in every region of the country.

• Fossil fuels can’t compete with renewable energy. They periodically damage the economy with price and supply shocks. Taxpayers defer taxes revenues of more than $20 billion annually to support fossil energy production.When we include environmental and social costs, the Group of 20 (G20) countries subsidize fossil-fuel subsidies with nearly $600 billion annually, according to the International Monetary Fund.

In addition, “Subsidies have sizable fiscal costs (leading to higher taxes/borrowing or lower spending), promote inefficient allocation of an economy’s resources (hindering growth), encourage pollution (contributing to climate change and premature deaths from local air pollution), and are not well targeted at the poor (mostly benefiting higher income households),” the IMF points out.

For reasons like these, more than one-third of the world’s publicly traded companies have resolved to achieve net-zero carbon pollution by 2050, the goal of the Paris climate agreement. In addition, nearly 300 asset managers have promised to allocate funds in line with this goal.

These commitments are having an effect. Analysts report that renewable energy and energy efficiency have dominated global investments in the power sector in recent years. In contrast, oil, gas and coal investments remained below their levels before the pandemic in 2019.

Nevertheless, several Republican governors and attorneys general appear to be bullying companies and investment managers into keeping or putting money into fossil fuels. Some are threatening to stop contracting with businesses that don’t invest in fossil energy and withhold pension funds from those companies. They also ridicule and punish companies that have adopted climate-conscious policies known as ESG (referring to environmental, social and governance), which obligate corporations to be attentive to social and environmental problems.

For example, Florida Gov. Ron DeSantis (R) has publicly ridiculed companies with ESG policies. Florida is withdrawing $2 billion of its retirement funds from the prominent asset manager BlackRock because of its involvement in ESG-type investments. Nineteen Republican state attorneys general have accused BlackRock of “collusion” because it participates in a global climate-action initiative.

In Congress, five Republican senators reportedly notified the nation’s largest law firms that they are at risk when participating in “climate cartels and other ill-advised ESG schemes.”

Kentucky’s Attorney General is reportedly trying to get hold of documents identifying corporations that have joined Climate Action 100+, an initiative in which some of the world’s largest corporate greenhouse gas emitters are taking action to mitigate climate change.

However, environmentally and socially conscious investing is a profitable growth sector that’s “crushing the traditional investment benchmarks,” according to Bloomberg analysis.

The professional services company Deloitte says corporate ESG policies respond to customer demand and the “goals of most stakeholders, which includes leaders, employees, customers, investors, communities, and regulators.”

Deloitte predicts the demand for “ESG-aligned investment strategies” will continue expanding. By 2024, it says, ESP policies will apply to more than half of professionally managed assets, and more firms will prioritize this type of reporting in 2023. (Professionally managed assets reached a record $123 trillion worldwide as 2022 began.)

Interestingly, the GOP’s “war on woke” revealshow two-faced some Republicans are about these issues. On the one hand, they say they believe market forces rather than government policy should shape the economy. Free-market capitalists point out that government energy subsidies distort market signals.

On the other hand, Republicans and Democrats both have faithfully supported fossil-fuel subsidies for more than 100 years. Republicans in the 117th Congress ignored President Joe Biden’s budget proposals to end several tax giveaways for fossil fuel producers. Their repeal would have saved taxpayers $121 billion over the next decade.

To be fair, the government subsidizes renewable energy, too, and has since the 1970s oil crises. Most recently, the Inflation Reduction Act of 2022 contains $325 billion in tax incentives for solar, wind and other renewable resources over the next 10 years. But because mitigating climate change is so urgent, federal help for zero-carbon energy is necessary to accelerate its market diffusion faster than market forces alone would do.

It’s easy to understand the reluctance of oil companies to walk away from trillions of dollars’ worth of technically recoverable oil and gas reserves. But climate scientists warn that most of those reserves must remain in the ground to keep climate change from becoming irreversible.Fossil energy companies and their investors need not go broke if they turn to the limitless technically recoverable reserves above ground: sunlight, wind and water. Scientists expect the sun to keep burning for another 5 billion years.

These Republican governors and attorneys general are engaged in the antithesis of free-market capitalism. It seems they are willing to use the tactics of thugs, with a strategy of coercion and heading toward social extortion.

Real free market capitalists would conclude that if fossil fuels can’t sustain their social licenses and their appeal to investors, they no longer belong in America’s energy portfolio.

William S. Becker is a former U.S. Department of Energy central regional director who administered energy efficiency and renewable energy technologies programs, and he also served as special assistant to the department’s assistant secretary of energy efficiency and renewable energy. Becker is also executive director of the Presidential Climate Action Project, a nonpartisan initiative founded in 2007 that works with national thought leaders to develop recommendations for the White House as well as House and Senate committees on climate and energy policies. The project is not affiliated with the White House.