Nationalizing Fossil-Fuel Companies: For Better or For Worse?
Jacquie Sandler
February 11th, 2020
The beginning of a new decade brings with it the ever-growing and unprecedented impacts of carbon pollution and climate change. While the proof is in the pudding, and scientists are confident that the climate crisis will continue to produce grave environmental outcomes, the optimal policy strategy for limiting the energy sector’s immense contribution to global emissions is far more uncertain. One potential option recently popularized as a step towards decarbonization is the nationalization of fossil-fuel assets. A number of left-wing media outlets have flirted with the potential benefits of this approach. To further explore and explain the ‘buzz’ on this topic, The Observer brings you a recap of Queen’s University’s Department of Global Development Studies and School of Environmental Studies Professor Kyla Tienhaara’s fascinating talk ‘Nationalization: A Strategy for or Against Decarbonization?’ to clarify the push and pull involved in nationalizing fossil-fuel companies.
It is widely understood that the production of oil, coal, and natural gas, known as fossil fuels, are increasing the presence of greenhouse gas in the atmosphere. These gases increase the Earth’s temperature, resulting in various ecological impacts such as extreme weather, droughts, heatwaves, and the destruction of wildlife. However, the fossil fuel industry continues to explore for more oil, coal, and gas to burn.
Tienhaara stressed there is a clear reluctance to address climate change. To demonstrate this blatant lack of global action, she pointed to the United Nations Production Gap Report, which annually assesses the incredibly wide gap between countries’ promised limits of fossil fuel emissions and the much higher amounts that are actually being released.
Tienhaara walked her listeners through multiple suggestions political actors and policy analysts have raised to combat this mass production of fossil-fuels. Firstly, many promote the idea of making the energy sector uneconomic. This would include completely removing fossil-fuel subsidies, imposing carbon taxes, and switching to a ‘disinvestment’ system which would remove energy companies’ access to finance and insurance. Secondly, another possible tactic is regulating the freedoms of fossil-fuel companies. This would take the form of imposing certain bans on coal plants, cars, and gas usage, revoking companies’ exploration or extraction licenses, and disapproving or shutting down mass extraction projects. That being said, the term ‘regulation’ has become a dirty word in capitalist and neoliberal societies, so many political leaders are avoiding this tactic.
According to Tienhaara, a third recent approach that has sparked widespread interest and debate across the political spectrum is the nationalization of fossil-fuel companies. She explained that nationalization is the act of transferring the control of an industry from the private organization itself to the federal government; in other words, the government buys out or seizes a company without any form of compensation and decommission.
Some policymakers argue that these assets need to be nationalized because as the world transitions into a low-carbon economy and increasingly favours renewable energy, fossil-fuel assets will decline in value and will struggle to earn profits. As these energy companies become unprofitable, their eventual collapse would cause a significant spike in unemployment and could risk a global financial crisis. Tienhaara explained that this phenomenon is known as the burst of the ‘carbon bubble’. Nationalization, according to this perspective, would protect and sustain these companies as they would be government mandated.
Tienhaara stated that policy experts say that nationalization would be beneficial because it would achieve decarbonization. With the assets of these companies shifted into the government’s hands, political actors could neuter the power of industries and dismantle their opposition to climate action. Governments would act on behalf of public interest and adopt strategies such as keeping fossil fuels in the ground and transitioning these industries’ assets towards renewable forms of energy. The government’s abilities to act against market incentives and ensure that the transition away from fossil fuels is managed appropriately are crucial in creating a low-carbon, sustainable global economy
Tienhaara then addressed the flip side. Critics raise some worrying possibilities that could render nationalization problematic. One of these is the question of whether nationalization is an appropriate strategy for countries in the Global South. There are numerous examples of Western governments implementing systems of nationalization within the developing world that have resulted in extremely dangerous economic consequences. It is important to realize that the Global South’s tactics for combating climate change is a whole other ballgame; successful strategies for improvement in the developed world are not ‘one size fits all’ approaches that can be identically replicated in weaker economies. Tienhaara reminded listeners that governments in the Global South may not have the capacity to adequately control and transform national energy companies.
Additionally, a pressing question remains regarding nationalization – how much should states pay for a company’s assets? Many policymakers argue that there are serious problems with coming to an appropriate value of assets. Should the state be paying market value if that value is based on a future of fossil-fuel extraction that should not exist after nationalization?
While nationalization can be used to move towards decarbonization, Tienhaara stressed that it can also be used to prevent decarbonization. In 2018, the Trump administration showed interest in nationalizing coal power plants in an effort to keep them running.
Public ownership of energy does not always have to come in the form of fossil fuels either. Bernie Sanders has proposed creating a publicly owned renewable energy that can compete with the fossil fuel industry.
Tienhaara also discussed the Government of Canada’s approval of the Trans Mountain Expansion Project - an effort to triple the amount of oil taken from Alberta’s tar sands and shipped worldwide. The industry is claiming that expanding its oil extractions will allow it to ask for higher oil prices from buyers in Asia. However, this has been discredited by researchers, and said that the implementation of this project will simply increase approvals of similar projects. There is a large degree of support for climate action in Canada; however, this advocacy is constantly butting heads with the extensive support for the expansion of Alberta’s oil industry (Tienhaara 2020).
In her talk, Professor Tienhaara asks multiple critical questions on the topic of nationalization that have yet to be confidently answered. Is ecological nationalization realistic? Is this approach more beneficial than market-based approaches? Such inquiries continue to create considerable upheaval within media outlets, political parties, and debates on national climate policies. It is therefore questionable if the future of climate action will include greater participation in nationalization efforts, as even the world’s most notable political figures have incredibly different stances. Meanwhile, one thing most political actors, policy experts, and citizens can agree on is that the increasing severity of climate change and carbon pollution is worrying. To avoid humanity’s disastrous fate, it is necessary to begin prioritizing economic strategies that privilege environmental sustainability and equity.
“Dr. Kyla Tienhaara is a Canada Research Chair in Economy and Environment and Assistant Professor in the School of Environmental Studies and Department of Global Development Studies. Her research examines the intersection between environmental governance and the global economic system. Her most recent book Green Keynesianism and the Global Financial Crisis explores the lessons learned from green stimulus programs in 2008/09 and how a comprehensive Green New Deal could help to deliver a Just Transition to a low carbon economy.”