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What Would It Cost to Buy Out the Fossil Fuel Industry?

Ted F

Admin
I am interested in Richard Smith's proposal of a possible buy-out of the fossil fuel industry (in order to manage its decline and a just transition for the workforce). Here is what Richard wrote about the cost:

Of course politicians will holler about the cost. The cost is significant but affordable, a bargain actually. The ten largest American oil and gas companies claim a combined value in 2018 of $968.1 billion (Exxon Mobil is valued at $344.5 billion, Chevron $239 billion, ConocoPhilips $79.3, and the others from $68 to $33 billion).[28] The two major coal companies have trivial net worth (Peabody at $3.6 billion, Arch at $1.5 billion). But the IEA says that in truth, the world’s fossil fuel industries are worth a fraction of their claimed value because most of their assets – the oil and gas and coal in the ground -- are fast becoming valueless “stranded assets” as electric utilities and vehicle manufacturers shift to renewable power and because of growing political pressure to “leave it in the ground.”[29] Given their looming existential profits crisis, the companies might actually welcome a buyout. But if society is to pay a fair price for those companies, their nominal retail value would have to be discounted by the harm their production has already done to people and planet. On any fair assessment, that would leave these companies owing the government, not the other way around. Yet even at their current retail value, just under a trillion dollars, by the standards of wasted U.S. expenditures, this is affordable. President Trump just gave away $2.3 trillion in tax cuts to the rich this year alone.[30] Just rescinding that inexcusable giveaway would cover the cost of nationalizing the entire fossil fuel producing industry and leave enough left over to buy up the bulk of America’s fossil fuel-burning industries as well including Boeing, the major airlines, the American auto industry, the worst polluting chemical industries, and leave billions to spare. Boeing’s net worth is $95 billion, the seven largest U.S. airlines have a combined market capitalization of $130 billion, the American auto industry, Ford, GM and Tesla (excluding Chrysler which was bought by Italy’s Fiat in 2011), has a combined value of $277 billion, the big dirty three of Dow-Dupont, Monsanto, and 3M combined are worth $225 billion. The government could buy all these companies, even without discounts for their social and environmental crimes, for a paltry $727 billion. Add in the bulk of private and shareholder-owned gas and electric utility sector, 20 companies with a combined market value of $557 billion, and the government could buy up all of America’s fossil fuel producers and the bulk of its fossil fuel-burners for $2.26 trillion and still have some pocket money left after rescinding Trump’s tax giveaway to the rich.[31]

But in trying to persuade friends that this proposal is not pie in the ssky, I've encountered objections that Richard's arithmetic must be off because, well, isn't the fossil fuel industry the richest industry in the world and wouldn't it cost more than we could possibly afford to expropriate it with compensation to the owners (as would be required unless we were actually in a revolutionary situation). I raised this with Richard and he welcomes further efforts to check his work. Before publishing his article, \hHe ran the numbers by an economics prof at CUNY and, "so far, so good." I'd be happy to help but I think having a mathematician or scientist check Richard's figures would be reassuring. Next step after that might be to ask well-known leftish economists like Stephanie Kelton and James Galbraith to weigh in.
 

David Klein

Moderator
I trust that Richard found the right numbers and did the arithmetic correctly for the buyout of fossil fuels corporations, but I'm not completely convinced about the politics of this part of Richard's important and well thought out proposal. If the U.S. working class had enough power and unity to force a massive buyout by the government of the entire fossil fuel industry, wouldn't it also have enough unity and power to nationalize these industries by fiat without payment? Pension plans held by these industries could just be folded over to social security.

I have a comment about another topic, transportation and electric cars, also discussed in An Ecosocialist Path to Limiting Global Temperature Rise to 1.5°C. I agree with Richard's overall conclusion that electric cars have about half the total carbon footprint, from cradle to grave, of gasoline vehicles, and I think his accounting of the carbon sources in production, disposal, and use are right, but one significant feature in that accounting was left out (unless I missed it). Namely, electric motors are much more energy efficient than gas engines. According to the U.S. Department of Energy, electric vehicles convert over 77% of the electrical energy from the grid at the wheels, whereas gasoline powered cars convert only 12% to 30% of the energy stored in gasoline to power at the wheels (ref. here). Most of the energy from gasoline is wasted heat, which, as an aside, increases the urban heat island effect in traffic more than electric vehicles do. This energy efficiency comparison could be included in the paper (if there is a revision) in the context of the average energy mix of the U.S. electric grid and relative weights of electric vs gas cars given in the paper. Still, as Richard says, the bottom line is that massive sales of electric cars can only make the climate crisis worse, and electrified mass transportation is the only realistic solution.
 

Ted F

Admin
I trust that Richard found the right numbers and did the arithmetic correctly for the buyout of fossil fuels corporations, but I'm not completely convinced about the politics of this part of Richard's important and well thought out proposal. If the U.S. working class had enough power and unity to force a massive buyout by the government of the entire fossil fuel industry, wouldn't it also have enough unity and power to nationalize these industries by fiat without payment? Pension plans held by these industries could just be folded over to social security.
Here's where my training as a constitutional lawyer might come in handy. (I was the editor of the Constitutional Law Quarterly once upon a time. :)) The Fifth Amendment of the United States Constitution includes a provision known as the Takings Clause, which states that "private property [shall not] be taken for public use, without just compensation." Unless you mean to say that a massive buyout by the government could only occur if there were a revolution that tore up the U.S. Constitution, there is a possibility of a buyout short of the working class having enough unity and power to nationalize by fiat without payment. Just compensation might be a lot less than we think. That's why vetting Richard's proposal is worth some effort.
 

David Klein

Moderator
Very good point, thanks Ted. As to vetting the cost figures, I really don't think it matters. Who cares how much it costs to save the planet? If it's too expensive, should we not do it and instead give in to mass extinction? Whatever it costs, no matter how many trillions of dollars, that much must be paid.

In this regard, here's a question worth pondering: what do you suppose is the total net debt of the entire world at any instant in time? Give up? The answer is $0. Why? Because for every dollar owed, a dollar is credited to someone else. It all zeros out and no money ever leaves the planet. Debt and credit just shifts money around. If shifting it around a lot saves the planet, that is the way to go. It can always be shifted back through taxation, or better yet, revolution, after which the whole concept of money can be re-evaluated.
 

Ted F

Admin
"Who cares how much it costs to save the planet?" Actually, quite a lot of people. Some are those who are deeply depressed because they think the situation is impossible and can't imagine that human race can survive without a rescue mission from a distant planet showing up to lead us out of darkness. Some are those who want to build a movement in 2020 (not 2030) for a far-reaching economic transformation. You and I and Richard Smith know will be impossible to complete under capitalism, but I believe that we need to be organizing for bold steps like the buy-out that Richard is proposing that can undermine the entrenched forces that will otherwise spend freely to crush us, by violent means if necessary. Short of a revolution, nationalization of the fossil fuel industry cannot be achieved without a buy-out so saying to potential allies that it doesn't matter what it costs is like telling people to get lost unless they are willing to sign a blank check for this particular approach. The moral argument moves many, but we should not shy away from debating the practicality of our proposals. For this reason, I would like to see a leftist Manhattan project to examine and extend Jacobson's work.

Debt ... is a whole 'nother discussion, but a very important one that I have only begun to understand. Go Astra Taylor!
 

David Klein

Moderator
The ten largest American oil and gas companies claim a combined value in 2018 of $968.1 billion (Exxon Mobil is valued at $344.5 billion, Chevron $239 billion, ConocoPhilips $79.3, and the others from $68 to $33 billion).[28] The two major coal companies have trivial net worth (Peabody at $3.6 billion, Arch at $1.5 billion).
Since the proposal is to do this within a capitalist framework, what about the effects of a government buyout of these corporations on the stock market? How much money is tied up in futures derivatives and other hedge fund schemes on capital investment and ownership of fossil fuel based industries? Could these investors sue the government for losses?
 

Ted F

Admin
I am a lawyer, which actually makes me reluctant to spout off about specific legal issues that I haven't researched. Nevertheless, here's my initial view: I don't think the government would owe anything to other investors beyond the shareholders. This online annotation reflects my understanding: "The Fifth Amendment requires compensation for the taking of 'property,' hence does not require payment for losses or expenses incurred by property owners or tenants incidental to or as a consequence of the taking of real property if they are not reflected in the market value of the property taken." I think hedge fund operators and derivatives traders would be SOL for consequential losses and their suits would be summarily dismissed.
 
David, in response to your question, Pollin's call for nationalizations via buyout of the fossil fuel producers is congruent with my call for the same in my article. But there are several differences between my arguments and those of Pollin.

First, Pollin like nearly every other proponent of nationalization treats fossil fuels pretty much in isolation from the rest of the economy whereas I contend that if we nationalize the fossil fuel producers in order to suppress fossil fuel consumption then we would have no choice but to nationalize most of the downstream industrial fossil fuel consumers including electric generating utilities, most transportation (autos, aviation, airlines, rails, shipping), petrochemicals, plastics, synthetic textiles, some construction, tourism, and others because without fossil fuels most of those industries would immediately go bankrupt as there's no immediately available alternative to fossil fuel for many industries, aviation for a start (Boeing, United Airlines etc.), shipping for another (including Amazon, FedEx, UPS, DSL and so many other industries whose whole business plan is based on rapid, even overnight, delivery via air shipment, often from China -- and there's no way to suppress fossil fuel emissions if we don't suppress aviation), petrochemicals (Dow, Dupont, Monsanto -- just to name US companies), mass tourism industries that are based on cheap package flights and/or grossly polluting cruise boats, etc. etc. In his truthout interview, Pollin specifically rejects nationalization beyond the fossil fuel industries: "I don’t think we should assume that a transformation of the U.S. economy to advance equality, economic stability and ecological sanity necessarily requires public ownership across the board." But fossil fuels are embedded in, if not the basis of, most industries in the US. If we rapidly suppress fossil fuels, masses of industries from airlines to retail would go bankrupt overnight. I don't see how large scale "across the board" nationalization can be avoided if we're to simultaneously suppress emissions without collapsing the economy. We may not have to nationalize the entire economy, but we would be obliged to nationalize nearly all the corporate economy, which is most of the economy.

Secondly, Pollin is a capitalist economist who like all capitalist economists cannot imagine an economy that's not built on perpetual growth. So in his plan for Colorado (Robert Pollin et al., “A green growth program for Colorado,” Political Economy Research Institute, April 2019), he says "The program is specifically designed to reduce Colorado’s CO2 emissions by 50 percent as of 2030 and by 90 percent as of 2050 relative to the state’s 2005 emissions level while the economy grows at an average annual rate of 2.4 percent." Same for California and the US in general: PERI - Robert Pollin. But the problem, as I see it, is that to suppress emissions we would need to abolish or downsize many entire industries from repetitive consumption disposable products (from plastic junk to iPhones, Chevrolets, etc.), to needless transportation (overtourism, overnight air delivery), to needless construction of ever-more luxury condos and resorts, to all kinds of dangerous and harmful chemicals, pharmaceuticals, plastics, synthetics, to pointless production of needless luxuries, to the arms industries, and so forth. Pollin just does not grasp this. He seems to think that we can drive emissions down by 90 percent by 2050 without really changing our economy and overconsumption very much at all except for its energy inputs -- a solar powered capitalism of perpetual growth. This vision is delusional in my view.

One could say more (by, for example, addressing his untenable assumptions about carbon taxes in his Colorado paper, and other points), but these are a couple of major failings in my view.
 
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