2022-04-27 Fossil Fuel Companies’ Self Interests

<< Finally, techno-centrism fails to address one of the key issues with respect to climate: who benefits from carbon pollution and land use changes? Who pays the cost? The conventional approach has favored people with the means to produce new green technologies, not the billions who don’t.

Now, the second flaw in the conventional approach is its misdiagnosis of the problem. Scholars and economics and political science have mainly settled on collective action failure as the explanation for climate inaction. The argument is that actors, in this case countries, can’t come together to solve the market failure because they’re worried about each other not cooperating. This is called defecting and freeriding, to use the language of game theory.

When there are a lot of players in the game, as there are countries, each player thinks their non-cooperation, or freeriding will matter, and they’ll get the good outcome, rescuing the climate without having to pay for it. So the problem is that the collective good – climate action – isn’t lined up with the incentives faced by individual countries. This is a classic market failure which can only be solved by a powerful entity who can force a solution. In this case, it would be a global government: something that doesn’t exist. This rarely questioned diagnosis dominates scholars’ ideas about why global climate change hasn’t been seriously tackled.

William Nordhaus, who received the Nobel Prize in economics in large part for his work in climate change, began his lecture with this diagnosis: “Why have landmark agreements such as the Kyoto Protocol and the Paris Accord failed to make a dent on emissions trends?” he asked. His answer: “The reason is freeriding.” This analysis of the failure to enact serious climate mitigation is pervasive in the academy and beyond. For example, a Google scholar search for climate change and freeriding yields more than 20,000 unique hits. But this is a misdiagnosis. One obvious point is that a very small number of countries do the vast majority of the world’s emitting. The top5 emitters, China, the US, European Union, Russia and India, are responsible for two thirds of total emissions. It’s not so difficult to get five countries together as it is to corral a hundred and ninety-three.

Furthermore, as scholars Mikhail Milken and Matthew Mildenberger have argued, there is considerable evidence that freeriding is not a barrier to climate action. The European Union proceeded on its own to set up emissions trading; quite a few countries enacted carbon taxes on their own; the state of California and the northeast states in the US also enacted emissions trading, even though most other states haven’t. Subsidies for renewables have been enacted all over the world.

When the US, at that point the world’s largest emitter, pulled out from Kyoto, it didn’t prompt other countries to pull back on their climate commitments. Nor did the Trump administration’s withdrawal from the Paris treaty. If anything, countries responded with increased activity. Chinese action on climate, which is very vigorous, given where the country started, is frequently unilateral.

So if it’s not a coordination problem, what is it? It’s an interest problem. And specifically, a self-interest problem. The absence of climate action is not because countries or groups within countries want it, but can’t figure out how to cooperate to get it. It’s because there are powerful interests, including countries, who really don’t want to decarbonize. Climate change introduces a whole new calculus into economic behavior, and creates new winners and losers. Economic development has been based on fossil fuels since the second half of the nineteenth century, with the shift to coal, first in Britain and then elsewhere.

Fossil fuel companies have been massive beneficiaries with enormous power and influence during most of the last fifty years since climate change was first publicly identified. For example, in 1988, the year James Hansen first testified to congress about the dangers of greenhouse gases, six of the top ten companies were fossil fuel or automotive entities, and eight of the top ten globally were the same. Twenty years later not much had changed. In the US there were still five of ten in this category and globally, eight of ten. Now these numbers dropped during the pandemic, in part because of the collapse of the economy. But also because the fossil giants are on the defensive, in part due to social movements to address climate change. In the US, Exxon Mobil is the only one remaining in the top ten. Hey! We’ve made some progress.


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