Should someone else take control of O&G companies?

Jan 02, 2022

A radical solution is needed for the climate emergency - so what about nationalising oil and gas companies to accelerate the energy transition?

Government intent, regulation and the impact of pricing will eventually lead to change - but if recent experience is an indicator, the abandonment of fossil fuels is not going to happen quickly.

Energy companies currently operate in a market economy, and have the commercial needs of their shareholders to satisfy. With near term supply shortages, increasing demand and rising prices, very attractive returns from fossil fuel remain for the forseeable future - it is almost inevitable that those companies that profit from hydrocarbons will have a different view on the optimum speed of transition from society as a whole.

During the Christmas break, I enjoyed listening to the Reith Lectures given by Stuart Russel which are available on BBC Sounds (including transcripts for those who prefer to read rather then listen!). Among many interesting points and arguments, he made reference to the energy industry, describing it as an 'intelligent machine' :

"Climate is a really interesting case because one could argue, and in fact some people have written articles saying this, that we don’t need to wait 20 or 30 years to see what happens with a superintelligent machine, that corporations function as machines. They optimise and misspecified objective which is, let’s say, quarterly profit, ignoring the externalities, ignoring all the problems that they cause for the rest of the world, and the fossil fuel industry has outwitted the human race, right. We have lost. I’m sorry. We have lost. Even though we all know what needs to be done, we have lost because they figured this out 50 years ago and have developed a strategy that has outwitted the rest of us. "

Elsewhere in his lectures he references the imperative to give machines the correct objectives. This has undoubtably contributated to the problem - energy companies were set a profit maximisation objective, with no consideration for the other consequences.

The oil and gas companies are expected to have a huge influence and potentially will drive the change to a low carbon future - not least because of their huge investment budgets. Many major oil and gas companies are committed to low carbon solutions - for Shell this means that capital investment in renewables solutions is increasing to $2-3bn pa - but this figure does not compare favourably with the $8bn pa earmarked for upstream investment. While they remain primarly accountable for delivering profits to their shareholders, their motivation and investment choices of oil and gas companies will remain open to question.

So how about introducing direct government control of the fossil fuel industry through nationalisation? With direct influence over investment and supply, governments would be able to accelerate decline in fossil fuels, whilst concurrently implementing policies that wean society from its current reliance on it. Investment could be directed towards new techologies and solutions (or reducing demand). Ministers would be held accountable by the electorate for the choices and trade offs they would inevitably have to make between accelerating CO2 reduction and consequences.

The executive would be presented with an extremely challenging and difficult task as there are many different views of how fast the transition should be. However with greater ability to directly control and implement choices, the pace of change to a low carbon future would have the potential to be greatly increased.

And while intervention in a sector in this way is unprecedented, and turning the Energy sector into a centrally managed industry would be extremely difficult, there is no issue that is more important than the "climate emergency" - for which such radical solutions may be warranted.

Wouldn't "global nationalisation of fossil fuel companies to accelerate the energy transition" be an astonishing result from COP26?

[The Reith lectures can currently be found here: https://www.bbc.co.uk/programmes/m001216j

#energytransition #fossilfuels #COP26 #energy