John Buell

Financing Our Extinction

As extreme weather events become the new normal, it is all the more imperative that, as such scholar-activists as Bill McKibben and Naomi Klein have argued, policy makers and grass roots organizations do everything in their power to keep the remaining fossil fuels under ground. That the fossil fuel companies are the enemies of such an agenda goes without saying. What is less obvious is the role of the major investment banks in sustaining fossil fuels well beyond their shelf life.

Even in the face of growing resistance to fossil fuel development and economic turmoil within the industry itself. Big finance continues to fund fossil fuel extraction and refining. A report recently released by the Rainforest Action Network and other environmental organizations shows that Citigroup, topping the list with $24.06 billion of coal power plant funding, and Bank of America “are the Western world’s coal banks.” At the same time, JPMorgan Chase, Barclays, and Bank of America—with a respective $37.7 billion, $26.49 billion and $24.85 billion in high-risk financing—”are the bankers of extreme oil and gas.”

The key phrase in this report is “high risk.” Banks making these loans are betting that prices in this volatile commodity sector will stabilize at a sufficiently high level to enable payment of principal and interest. Advocates of these banks will argue that the market is the best judge of the viability and desirability of this transaction. Governments should leave well enough alone. Yet contrary to the traditional language of markets, these deals implicitly depend on the power of governments in several ways.

The investments banks are funding now include some of the most vulnerable areas in the world, from deep- water explorations to mountain top removal. The potential damage is great, and it is far from clear that the companies involved would be able to pay for the full range of damages. These costs would then become a burden for state and national government, just as the extreme weather events now led both to higher insurance premiums and more federal disaster assistance. But then when public costs and deficits increase dramatically, media and conservatives accuse governments of inefficiency and profligate spending and demand austerity.

In addition, as Klein points out, the sacrifice areas are becoming ever broader and include communities of middle class citizens who have more capacity to resist. To overcome resistance a heavy police presence and a strong state are required.

The report also points out that the “global banking sector is no stranger to breathtakingly cynical and short-sighted financing practices, having precipitated a global credit crisis in 2008 that brought the global economy to its knees before governments and central banks stepped in with a bailout.”

That credit crunch also exposed another way in which global financial practices and the climate crisis interacted. As part of its faith in the market as a perfect information processing machine neoliberal economists and even some environmental organizations had devised a scheme of marketing pollution entitlements. That system had many flaws, which are discussed in detail by Klein. Foremost among these was the volatility of the pollution entitlement market. This market experienced a rapid decline in the cost of permits when the world financial crisis and accompanying recession followed. The incentive to switch out of fossil fuels collapsed.

The very ability of the megabanks to lend such vast sums to high- risk ventures is premised on their continued too-big-to-fail status. Should activists succeed in keeping all the dangerous fossil fuels underground, economic damage would likely extend well into the financial sector. This is no reason not to do all in our power to end the fossil fuel era, but it does suggest that finance reform is just as key to an energy transition as grass roots efforts to curb fossil fuels. Breaking up banks that are too big to fail and stronger banking regulation would be a good place to start.

Too big to fail banks and a highly concentrated energy sector have more than economic implications. Banks that commit tens of billions are unlikely to sit idly by and watch their investments. They exert political pressure to maintain the high carbon economy and to bail out those who have benefited from it.

Major investments in coal, tar sands and fracked natural gas even in the midst of a climate crisis reflect an economy in which entrenched powers remain confident they can pursue lucrative business as usual. That business is, however, a disaster for most of us. Fiscal instability and misappropriation of both capital and human talent slows our transition to a safer energy and transportation system.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@acadia.net.

From The Progressive Populist, November 15, 2016

Populist.com