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Concentration of CO2 in the Atmosphere

Too Big to Fail – Too Big to Save

Image: Shutterstock

Image: Shutterstock

By George Harvey

For those who are interested, two books that describe economic bubbles are Extraordinary Popular Delusions and the Madness of Crowds, by Charles MacKay (Richard Bentley, London, in 1841, currently in print from various publishers and at Project Gutenberg, gutenberg.org/ebooks/24518), and The Big Short, by Michael Lewis (W. W. Norton & Company, New York, March 15, 2010). The Big Short was also produced in a somewhat fictionalized form as a movie.

We do not have to go out and buy a DVD or a book to see a bubble first hand, however. We are living in one. It is called the carbon bubble (en.wikipedia.org/wiki/Carbon_bubble). It is much bigger than the housing bubble that was the subject of The Big Short. The housing bubble only caused household losses in the United States of $19.2 trillion and put 8.8 million people out of work, according to a Treasury Department report (http://bit.ly/treasury-housing-crisis-report).

In case you are wondering, $19.2 trillion is about six times the federal budget or about half again as large as the national debt. It is also just shy of $60,000 per person in the country. It seems hard to imagine that two people, working at minimum wage, supporting a family of four, could have lost even a tenth of their $240,000 share. But what they lost ranged from retirement fund losses to increased taxes to cover an increase in the national debt. It was all pretty much invisible, except to those who were trying to sell real estate, followed the stock market, or were out of work.

The housing bubble was small, however, compared to the losses we can foresee in the carbon bubble. According to a report from Citigroup, if we are to deal with climate change, the fossil fuels industry will lose $100 trillion in stranded assets over the next thirty-five years. (http://bit.ly/stranded-assets). That is the value of assets they will have to write down. It will be reflected in the value of the shares of their stock. It is five times the housing bubble, though it is stretched over a longer time.

In the housing bubble, some banks were considered too big to fail. The fossil fuel companies are far bigger, however. Unless they change, they are far too big to save.

We might reflect that there is another side of the story, however. Estimates of external costs of fossil fuel, ranging from crop damage to health costs, range from $1.7 trillion to $7 trillion every year, worldwide. That is $250 to $1,000 per person. In dealing with climate change, these external costs will be eliminated, saving everyone a good deal of money. In thirty-five years, this means ordinary folks may save more than the fossil fuels industry loses, if they can avoid entanglement.

Another piece of good news is from the International Renewable Energy Agency, which estimates that increasing the global share of renewable energy to 36% by 2030 would increase the gross world product by about $1.3 trillion. (http://bit.ly/increased-gwp).

I am not a financial advisor, and am not qualified to offer financial advice, but I am entitled to make an observation. If the fossil fuel companies are to fail because they insist on sticking to their ways, it behooves us stay out of the way. They will be too big to save, and their fall will come hard.

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