In America, the world’s largest economy and second biggest polluter, climate change is becoming hard to ignore. Extreme weather has grown more frequent. In November 2018, wildfires scorched California; in January 2019, Chicago was colder than parts of Mars. Scientists are sounding the alarm more urgently, and people have noticed—73 percent of Americans polled by Yale University in late 2018 said that climate change is real. The left of the Democratic Party wants to put a “Green New Deal” at the heart of the election in 2020. As expectations shift, the private sector is showing signs of adapting. In 2018, around 20 coal mines shut down. Fund managers are prodding firms to become greener. Warren Buffett, no sucker for fads, is staking $30 billion on clean energy, and Elon Musk plans to fill America’s highways with electric cars.
Yet amid the clamor is a single, jarring truth. Demand for oil is rising, and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25 percent more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.
ExxonMobil shows that the market cannot solve climate change by itself. Muscular government action is needed. Contrary to the fears of many Republicans (and hopes of some Democrats), that need not involve a bloated role for the state.
For much of the 20th century, the five oil majors—Chevron, ExxonMobil, Royal Dutch Shell, BP, and Total—had more clout than some small countries. Although the majors’ power has waned, they still account for 10 percent of global oil and gas output and 16 percent of upstream investment. They set the tone for smaller, privately owned energy firms (which control another quarter of investment); millions of pensioners and others savers rely on their profits. Of the 20 firms paying the biggest dividends in Europe and America, four are majors.
The key will be to show centrist voters that cutting emissions is practical and will not leave them much worse off. Although the Democrats’ emerging Green New Deal raises awareness, it almost certainly fails this test as it is based on a massive expansion of government spending and central planning (see Free Exchange). The best policy, in America and beyond, is to tax carbon emissions, which ExxonMobil backs. The gilets jaunes in France show how hard that will be. Work will be needed on designing policies that can command popular support by giving the cash raised back to the public in the form of offsetting tax cuts. The fossil-fuel industry would get smaller, government would not get bigger, and businesses would be free to adapt as they see fit—including even ExxonMobil.