Firing up a cigar at lunch a century or so ago, just as the gasoline-burning car began its ascent to preeminence, Thomas Edison lamented the primitive aspects of lighting stuff on fire for energy:
Sunshine is a form of energy, and the winds and tides are manifestations of energy. Do we use them? Oh no; we burn up wood and coal, as renters burn up the front fence for fuel. We live like squatters, not as if we owned the property.
Edison had some skin in the game, given Henry Ford’s Model T was running over the early market for electric vehicles. Still, his words have newfound relevance as we reckon with the deferred costs of modernization powered by fossil fuels. Like burning the fixtures, we are also using up the planet’s finite capacity to absorb emissions without catastrophic consequences.
Yet the intangibility of this resource has obscured its value. In our quest for growth, we often treat the atmosphere, among other natural systems, as bottomless landfill. Testifying at a recent hearing of the House Select Committee on the Climate Crisis, Andy Karsner, a technology entrepreneur and former energy policymaker, summed it up like this:
Today, the erroneous presumption, built upon prior generations’ thinking, that the world provides unending resources is why we tend to measure and fully account for certain things (like the processed and manufactured goods we consume) and not others (the natural resources required to produce these material comforts).
In the classic “tragedy of the commons,” we pay willingly for the gasoline we burn yet incur no charge for releasing carbon emissions that inflict a cost on everyone. It’s like dumping your trash on your neighbor’s lawn secure in the knowledge you’ll never pay a fine. In other words, we price the fuel like a scarce commodity and the atmosphere as an infinite one, ascribing it a value of zero. Pricing environmental goods is critical to redirecting our capitalist impulses — and the ingenuity they foster — toward more sustainable ends.
It just so happens we have a recent example of a commodity flipping the other way, from scarcity to abundance: oil. Fears of peak supply have given way to expectations of peak demand. Naturally, prices, and price expectations, have fallen and, as you would expect, spurred demand.
The other thing that flip from scarcity to abundance has impacted: investment. Global spending on upstream oil and gas has dropped more than 40% since 2014.
Oil majors are responding to price signals for barrels but also for their own securities. If investors now price the commodity as abundant, then the last thing they want is to encourage more of it. So big capex budgets are out and dividends are in.
Oil’s switch from scarce to abundant resource makes the creation of “natural currency,” as Karsner puts it, even more imperative, as the well-being of our ecosystem now competes with seemingly cheaper fossil fuels. That switch also raises some useful pointers.