How Soon Dead is Coal?

When Dirk Adams, a recent Montana candidate for U.S. Senate, said that coal is dead, he cheered greens who see coal as a threat to the environment, and killed any chance of votes from the Montana hopefuls who see coal as a path to riches. But his three-word summary of coal’s likely future comes close to a recently growing consensus in the world of business and finance. The environmental side of this story is one of three. The other two stories are economic, together telling a story of a headon showdown in the moneyed world, about the future of fossils fuels, of course including coal.

The environmental story, covered in the science journals with increasing frequency since the link from greenhouse gasses to global temperature was first raised by Joseph Fourier almost two centuries ago, is that we’ll wreak havoc on glaciers and sea levels, farms and forests, snowfalls and oceans, rivers and trout if we keep on burning fossil fuels as fast and furiously as we have been. Climate’s impact on species and environments, says biologist Camille Parmesan, “is not a new topic in biology.” She goes to say that reports of species moving off to new range in response to some change of climate date back to the 17th Century.

In recent years, an increasing number of environmental groups have shown increasing interest in what science has been saying. The environmental story has even shown up in Montana’s daily newspapers, for example with news articles about the recent FWS decision about the wolverine’s susceptibility to climate change. All this is pretty much standard fare for the local dailies.

The other two stories fall squarely under the economic rubric. One of these is that investors in fossil fuels are at risk of losing mountains of money if society puts limits on burning the stuff. The estimated losses here range from $1 trillion to twenty times that much.

The more recent and bigger economic story is that that we’ll get business, economic, and financial catastrophe if we don’t put limits on combustion. The economic stakes are serious enough that institutional investors controlling $87 trillion of investment money have asked the world’s 500 biggest corporations to ‘fess up about climate change as a threat to their sustainability.

The First Economic Story

In 2009, Nature published a densely written technical paper describing what the world must do to avoid cranking up the heat to a dangerous 2 Celsius above pre-industrial levels. Not all scientists agree that we will be safe just by stopping short of 2C. Some cite evidence that safety is more likely if we stop short of 1.5C, and many in science take this scenario seriously. Actually, trends becoming evident at the current 0.8C have prompted some to say we could already be in or near the danger zone from the varied consequences of rising heat from our combustion of natural gas, oil, and coal. In their report for Nature, a research team led by Malte Meinshausen didn’t join this debate, but, in settling on the 2C danger limit, they got both economic stories off on new footing.

Subsequent media reports on the Meinshausen team’s paper said it was so technical that it was all but incomprehensible. But the staff of a little known financial analysis group, the Carbon Tracker Initiative, saw exactly what this paper had to say, and in 2013 produced its own plain-language report — “Unburnable carbon.” The gist of this story is that the world must let as much as 80% of fossil fuels stay in the ground, unburned.

The Carbon Tracker’s finding gave new life to McKibben’s, which had argued that the world should yank its investments in fossil fuels for moral reasons, much the same as the world had withdrawn investment from South Africa as protest against apartheid. But now, with evidence that money invested in fossil fuels that must never be burned, could argue that investment in fossil fuels was a great way to lose a lot of money. How much?

The losses may be as little as a cool trillion bucks, which still amounts to some serious money. But maybe the money at risk is twenty times that much. On May 8, 2014, the Guardian reported that the Carbon Tracker Initiative had issued a report that “connects the economics of oil production with the limit on carbon emissions needed to avoid dangerous climate change,” and that “The analysts found even when focusing only on the high-cost end – oil costing more than $95 a barrel – $1.1tn was at risk from 2014-2025.”

Looking ahead to 2050, CTI estimated that $21 trillion worth of investment, even in oil it could sell at high prices, could be wasted money. Much the same could be said of money dumped into coal.

This message gained further traction in a recent draft IPCC report prepared for a major climate summit in 2015. In its draft, IPCC scientists concluded that about 75 percent of the fossil fuels must stay in the ground. Which immediately implies that the coal, oil, and gas economy must die before we’ve burned 25 percent of the stuff we haven’t burned already.

To those expecting that they make loads of money in the fossil fuel business, the Financial Times’ economic columnist Martin Wolf has warned “Investors’ Beware.” In his June 17, 2014 column, Wolf says investors in fossil fuels have been making “risky bets in the climate casino.” He adds that he thinks we’ll keep making them, but says that fossil fuel investors face “ruin” if the world “wakes up.”

The Second Economic Story

The second economic and more compelling story is that the world of business, finance, and the economy as a whole face risk of catastrophic ruin if we don’t wake up. That is, an increasingly hotter world will be bad – even very bad — for business.

This second, greater risk, according to a Columbia Journalism Review article of September 2, 2014, is a game-changer not only for the financial world, but also for journalism, because a new awareness  “that doing nothing to mitigate climate disruption carried major financial risk” has “upended the usual cycle of debate.” CJR quotes Stephen J. Adler, editor in chief at Reuters, as saying that climate change’s growing danger to the economy is an issue with “enormous business and economic consequences.”

What are the risks? In a word, many. For an example close to home, imagine the problem for you and your banker if you borrow a pile of money to buy one of Montana’s irrigated farms, only to find that drought shuts off the water. For just one more example, ponder the economic repercussions if, as one scientist recently commented, severe and persisting drought forces so many to fleeing Arizona cities that their exodus dwarfs the exodus forced by the old Dust Bowl days.

CJR credits the 2014 Risky Business Report with forcing the news business to face these and other new economic risks of climate change. But while Risky Business brought these worries to a boil, the dangers were simmering before then. For over a decade, PricewaterhouseCoopers, a heavyweight in the world of corporate finance, has been pushing corporations to disclose their exposure to a threatening new climate. By 2013, PwC had asked hundreds of corporate heads if their companies were vulnerable. 77 percent said they were already feeling it, and that extreme weather topped the list of threats to business.

That finding seemed to show a change in the corporate world’s grasp of the situation. In a 2010 article for a little known journal, The Corporate Board, PwC staff reported that  “many boards remain unaware of what constitutes a ‘material’ climate risk, or just how broad the scope and potential impact truly are.”

There’s a lot at stake, and serious money is growing impatient for some progress. As PwC notes, “So far, there are few signs that either companies or countries have been able to decouple economic growth from carbon emissions growth.” So, a heavyweight group of 722 institutional investors representing $87 trillion of assets asked the world’s 500 largest companies to measure, and to report, what climate change means for their business.

Retirement Dreams at Risk

The same request might be asked of pension funds. Among other things important to millions of ordinary people, risk that pensions might be in peril as we crank up the heat. As PwC points out, pension funds’ portfolios “are weighted towards carbon-intensive stocks such as energy, utilities, transport, mining and metals”.  However, PwC added “the potential carbon liabilities of these companies are not reflected either on their balance sheets or in their share prices.”

Forbes picked up on the liabilities for pensions on February 2, 2014, saying that “A growing number of investors recognise the danger that climate change risks pose for the companies they invest in” and “therefore to the pensions they are able to provide for their beneficiaries even though some 55% of the average portfolio is exposed to climate risk.”

On June 22, 2014, the Financial Times opened an article on pension funds’ risks by saying “There are growing calls for pension funds to publish their carbon exposure.”

But you won’t see much of this reported in Montana’s daily newspapers. Instead, we see the familiar stories centered around the increasingly irrelevant dichotomy of environmental protection v. the jobs and the economy.

Montana is Not an Island

As many of our fellow Montanans now see it, all this talk of climate as a risk to the economy is economic heresy. They argue that, instead, the economic skies will fall if limits are placed on combustion of the fossil fuels. This is a tempting view for Montanans in general, and for our politicians in particular. After all, Montanans sit on so much coal that a Rand Corporation study once referred to us as “blue-eyed Arabs.”

And they’re not entirely wrong about the link from combustion to the economy. After all, it’s become pretty plain that GDP, a commonplace measure of the economy, has risen and fallen in tandem with levels of CO2 from the burning of fossil fuels.

Authors of a 2012 report in Environmental Science and Policy conclude that “Changes in world GDP (WGDP) have a significant effect on CO2 concentrations, so that years of above-trend WGDP are years of greater rise of CO2 concentrations. Measuring WGDP in constant US dollars of 2000, for each trillion WGDP deviates from trend, the atmospheric CO2 concentration has deviated from trend, in the same direction.”

That analysis from 2012 thus confirmed a Nature Geoscience report from 2010: “The growth in CO2 emissions closely follows the growth in Gross Domestic Product (GDP) corrected for improvements in energy efficiency.”

These findings illustrate how fully the contemporary economy and the combustion of fossil fuels are coupled. Much like coupled railroad cars, we can’t pull one without pulling the other, and, equally, we can’t pull the other without pulling the one. Thus, the kind of climate we get depends on the kind of economy we get, and, equally, and plausibly even more importantly, the kind of economy we get depends on the kind of climate we get.

So, what kind of economy do we get with the developing new climate? As CJR reported in summing up the business world’s response to 2014’s Risky Business Report, “As extreme weather events become more frequent and intense, there’s a growing understanding that the costs could be catastrophic.”

As that understanding sinks in, it becomes clear that the sooner coal dies the better. The alternative, it seems, is to bring the environment and the economy down together.

Lance Olsen is a native Montanan. For the past 10 or more years Olsen has run a restricted listserv for climate and wildlife researchers, agency staff, grad students, and staff of NGO’s operating from local to global scale.