Climate Brief: Is it selling out to buy them out?

Addendum 1:

I’ve corrected my natural gas numbers to reflect the proper units conversion from cubic feet to MMBtus.

Also important, I’ve not taken into account that some, if not most, of the proven reserves are not owned by anyone. A bunch, as found in the comments by Mark Lippman, is on (in?) government land and should not be included unless and until the reserves are leased by a fossil fuel production entity. If we assume about 50% is unowned, we can divide the $$ amounts by 2.

I’ve also not assigned ownership of the proven fossil fuel reserves to governments or private corporations. AramCo is a Saudi Arabian government company, for example, which owns 4.4% of the total proven reserves (both owned or unowned). It’d take awhile, but a breakdown by entity ownership could be constructed. I set out to see whether the world’s wealthier countries could afford to buy out fossil fuel ownership. Who gets the money doesn’t change the answer to that question.

Introduction

While we were writing about COP-26 and our ultimate disappointment in its final agreement, I began wondering if there were any way to coopt capitalist greed to end the use of fossil fuels as an energy source. I came up with a possible, though unsavory, idea and emailed to our climate brief group. I quote it below.

Question for you all. Do you think greed can be used to get us where we need to go with respect to global warming? Of course, rewarding greed is always unfair just by its nature, but desperate times require desperate measures. So here goes:

1. Pay the fossil fuel industries for whatever known assets are still in the ground, less their removal cost, in installments, negotiated as some kind of annuity.
2. Ex-fossil fuel industries are required to retool as renewable energy companies. They'd have to compete with or buy up the existing companies for a fair market price to maintain equity in the renewable energy capital market.
3. Existing anti-trust laws would need to be rigorously enforced to prevent anti-competitive behavior and price fixing.
4. If they misbehave (which I'm sure they'll do), they would be subject to breakup into smaller companies to insure competition.

I'm sure there are important rules and caveats I've not thought of, but there it is. Sounds a bit (well, more than a bit) like surrender to the fossil fuel oligarchs, but we'd have a shot at saving the planet, perhaps?

I’m not an economist (I used to be an accountant, but no more), so if there’s anything I’ve not thought of here, please let me know in the comments.

What Would We Need to Consider in a Buyout of Fossil Fuels?

First, we need to know the total proven fossil fuel reserves, and who holds them. It’s not as easy to get those figures as you might think. After some research, I found some decent numbers to use for oil, coal, and natural gas. The table below shows those quantities, their cost per unit, and the total gross value for each fossil fuel.

¹This is a ballpark estimate based on an average price over the last several years.

²MMBtu equals 1 million British thermal units

Then we’d want to subtract from the gross value the cost of fossil fuel extraction per unit, to get a net income that the fossil fuel companies would forgo by leaving them in the ground.

Let’s say we have a net profit margin of 10% once extraction and refining costs are deducted.  Oil net value would be $7.5 Trillion, coal $15.2 Trillion, and Natural Gas $32.2 Billion.

Now let’s place these assets in an annuity with a payout over the years remaining before that fossil fuel is depleted, We need an interest rate for the payout, maybe 5% per year. Now we have all we need to determine an annual payment to those holding the proven fossil fuel reserves.

Them’s some big numbers, especially for coal. As I understand it, coal is the biggest offender per unit energy, so stopping its use would be priority #1. But, we need to give these number some perspective.

First, what is the sum of all GDPs over the globe? It turns out to be $93.86 trillion. So only 1.26% of current world GDP is needed for the buyout. But not all nations should be required to contribute. We can consider at least two metrics as to who should pay:

1. Ability to pay (i.e. above a certain GDP per capita and/or above a certain ranking in world GDP
2. Contribution to the global increase of CO₂

If we just looked at a subset of nations that brought the problem of global warming upon us, we’d get a somewhat different story. Here are the contributions by country of the 20 largest CO₂ emitters since 1850. The emission calculation includes fossil fuel burning, making of cement, and changes in land use (e.g. deforestation, agriculture).