A Moderate Proposal: Nationalize the Fossil Fuel Industry

March 18, 2020

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by Kate Aronoff (The New Republic) ... For the last week, the White House has reportedly been exploring low-interest loans to a struggling fossil fuel industry. Talk of a bailout is in the air, spurred on in part by longtime Trump ally and fracking magnate Harold Hamm. In the first concrete move on this front, Donald Trump promised to have the Department of Energy buy up oil for the Strategic Petroleum Reserve and “fill it right up to the top,” although that didn’t do much to stop oil prices from sinking to below $30 a barrel on Monday; there’s only so much it can hold, after all.

None of the options being floated by the administration will fix the lingering crisis facing America’s unconventional oil and gas sector. At best, they’ll stave off a reckoning for a little while longer. Kathy Hipple, a financial analyst at the Institute for Energy Economics and Financial Analysis, has been tracking evolving trends in the debt-ridden oil and gas sector for the last decade. “A bailout of a once-thriving industry that needs some help during a downturn is one thing,” she said. “But we’ve got evidence that this industry has failed to produce a positive cash flow for a decade. The logic of bailing out a failing industry, that has failed even when oil prices were much higher, would be political. It would not be economic.”

Sold on the promise that improving efficiency would eventually yield big profits, investors on Wall Street gave shale drillers improbable quantities of cash for nearly a decade after the last recession, loading companies up with the debt made possible by federal policy responses to it. Those expected profits never materialized, and the sector has seen a rash of bankruptcies in the last several years. By last summer, it had effectively lost access to the cheap credit that enabled the boom.

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Nationalization might be the best way out.

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The Democracy Collaborative’s Carla Skandier, on the other hand, has suggested a “51 Percent Solution for the Climate Crisis,” in which the government takes a majority stake in privately owned fossil fuel firms, winding down production along a science-based timeline and giving workers a dignified off-ramp into other well-paid work, all the while muting the industry’s enormous influence over our political system. “Only democratic government can ensure the planned wind-down of fossil fuel production in accordance with climate safety goals,” she writes. “With room for private profit cut out of fossil fuel extraction and production, the powerful entrenched opposition of the energy sector would crumble.”

For the 1.6 million workers currently in the oil and gas sector, government leadership of the industry might be the only way they avoid crashing out of the carbon economy and facing mass unemployment during the (likely) recession. Otherwise, what has happened with coal bankruptcies, where executives take whatever money is left and run, could play out with fracking. The economic shocks could spread to other industries, starving local and state tax bases of sorely needed revenue.

“As this bust unfolds, we’re going to see layoffs quite possibly reaching into the hundreds of thousands,” said New College of Florida economist Mark Paul. “Policymakers don’t have plans in place to protect those workers.” Now working on a paper with Skandier on the prospects for nationalizing fossil fuel companies, Paul argues that instead of a bailout for oil and gas magnates, “What we should be talking about is a bailout for fossil fuel workers who have put their lives on the line to make sure we can charge our cell phones and laptops.”

By taking fossil fuel companies under public ownership while they’re cheap to buy, the U.S. could ensure the country’s energy demands are met responsibly as it transitions to a net-zero-emissions economy, without the need to appease those companies’ shareholders. Instead of giving up the decision-making power such a big share purchase would ordinarily entitle them to, as in a bailout, policymakers would use their new equity stake to begin a managed decline of fossil fuels and guarantee workers full pensions and wage parity. As The Atlantic’s Annie Lowrey pointed out on Twitter yesterday, the government could snap up the country’s four biggest oil producers for just over $300 billion.

The alternative, Paul said, may well be corporate raiders—private equity and hedge funds—swooping in to cash out, leaving mountains of layoffs, devastated communities, and reckless excess production in their wake.

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As the economic basis of unconventional oil crumbles—and seemingly invulnerable players like ExxonMobil and Saudi Aramco falter—stimulus spending may be our last best shot to transition the whole of the economy away from fossil fuels in a way that avoids disaster and economic chaos, in time to avert worst-case-scenario levels of warming.

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We know the fossil fuel industry needs to be rapidly wound down, and we know private capital has no interest in winding down their own business. Their interest is in trying to extract as much as possible in order to maximize short-term profits and rents to their shareholders. And we’ve seen time and time again that nationalization can be a really powerful tool to reorient business toward the social good rather than short-term maximization of profit.”

In a way, nationalization would merely involve the government correcting for nearly a century of its own market intervention.

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City University of New York economist J.W. Mason, who has studied the domestic economic mobilization around World War II, told me that one of the big lessons from that era is that “the more rapid the transformation of the economy that you’re looking at and the more you’re talking about new technologies, the more direct the role of the government has to be.” READ MORE