The Paradox of Good Intentions: Why Every Delay Makes Climate Change Worse
Today's Twitter thread shows how Congressional inaction does more than just maintain the status quo of environmental destruction: It accelerates it...
After decades of fighting to reduce greenhouse gas emissions, would you believe the very policies we’ve been promoting have actually had the opposite effect? Ryan Merrill’s new findings in the Academy of Management Proceedings may surprise you… https://t.co/MpmkLiEP5e 1/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
The theory goes like this: When you propose a carbon tax or a cap-and-trade program, fossil fuel producers get scared because they expect prices to rise and demand to fall in the future, so they pump it out of the ground even faster to get while the getting is still good… 2/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
And the faster they extract, the more climate change accelerates, raising the discounted value of the damage as it shifts from the future to the present—and even possibly exhausting the supply of fossil fuels before we can replace them with clean energy technologies… 3/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
.@HansWernerSinn called it the “Green Paradox” when he first raised the concern over a decade ago, but until now, nobody’s been able to measure whether his nightmare scenario has come true or not… 4/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
The trick is, you need upstream oil revenues—separated from transporting, refining, and other activities—in order to measure carbon extraction when it happens at the well, and corporations usually consolidate it all together when they file public disclosures… 5/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Enter the Energy and Information Agency (EIA), gathering these confidential data since the 1973 oil embargo—and along comes Merrill with access to their private terminals, where he can crack open the black box of Big Oil’s lines of business… 6/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Sidenote: The Trump administration promptly purged much of these data when they took over the EIA in 2017.
Without telling Merrill.
If he hadn’t done most of his analysis before then, we wouldn’t be having this conversation.
So, you know, remember to vote on Tues.
Anyway… 7/— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
The other trick is, you need to figure out a way to measure the “policy risk” that these firms are worried about… How do you know when they’re feeling more pressure to extract carbon? 8/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Merrill creates a clever measure of regulatory risk by counting all the environmental and energy bills proposed by legislators whose ideology (DW-nominate score) is at least one standard deviation to the “left” of the average in Congress… 9/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
And voila! He finds that oil firms extract significantly more oil—both in terms of reserves and upstream revenues—in the year after liberal legislators signal a higher risk of intervention! And that’s not all… 10/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Which firms, he wondered, react the strongest to this “policy risk”? Now you’ll see why this paper won the Academy of Management’s Newman Award for uncovering a significant organizational phenomenon… 11/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Big firms often have a whole arsenal of strategies they can use when their revenues are threatened. They can shift priorities, reallocate resources, and reduce their reliance on the risky sector. Merrill wanted to know: Does Big Oil cut and run when the going gets tough? 12/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Yes, indeed! Firms with higher “carbon vulnerability”—higher value-at-risk in upstream oil investments—are less likely to extract and more likely to change gears. It’s small- to medium-sized firms that can’t reallocate their cash so easily. So we’ve got good news & bad news… 13/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Bad news: The more we threaten without delivering—as we’re currently doing—the longer we delay substantial action, the faster we perversely race toward the outcome we’re actively fighting to avoid… 14/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
Good news: The market leaders can afford to embrace a clean energy world, and they’re already taking steps in that direction. If we don’t want to accelerate to the point of irreversible catastrophe, they need to embrace that world sooner rather than later. In other words... 15/
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018
The time for talk is over. Only immediate, binding action can help us now. 16/16
— Anthony W. Orlando (@AnthonyWOrlando) October 26, 2018