America’s first climate bankruptcy

Wildfire in Kaibab National Forest, Arizona. Dylan Bone, US Forest Service

Shakespeare said, “What’s past is prologue.” If the looming climate change related bankruptcy of the America’s largest utility is a precursor of things to come, the most damaging storms of our future will not be reported by meteorologists, but by economists.

California’s PG&E provides electricity and natural gas to 16 million customers -- more than any US utility. The company just fired its CEO; saw its share price cut in half; and is preparing to declare bankruptcy in the face of massive liabilities related to unprecedented catastrophic wildfires of the past two years. Of course bankruptcy does not mean the end of the business, but with $15 billion in assets and now likely twice that in liabilities, the ratepayers in PG&E territory will be paying for this mess for a long time to come.

There is general scientific consensus that these fires, a natural occurrence over a typical six month fire season in decades past, have now become more frequent, intense, and widespread throughout the western US -- and in recent years, burn all year long -- because of climate change.

So combine PG&E’s financial difficulties with fires exacerbated by climate change and we are witnessing the first major climate bankruptcy in America. I say “major”, because it is not actually the first.

Merced Property & Casualty, a California insurance company with assets of about $23 million, declared bankruptcy upon facing claims of nearly three times that sum after the recent Camp Fire that left 84 dead and wiped out almost the entire town of Paradise, CA. How many small businesses in the same community disappeared with less fanfare in the press than PG&E? And how much more catastrophic loss of life, property, and business value are we prepared to absorb before accepting the fact that a price on carbon, a solution to climate change that is embraced by the Right and Left sides of the political aisle, will be cheaper to all concerned?

A price on carbon pollution (greenhouse gases emitted from burning fossil fuels primarily) with a cap on those emissions that is reduced over time, could more quickly transition our country to clean energy sources that reverse global warming and the impacts we’re currently suffering (and could lead the world in a new Industrial Revolution).

Some oil companies and a number of high-profile Republicans have lately advocated for a carbon tax, which could be revenue-neutral by rebating a similar amount in the form of dividends to taxpayers or reductions of payroll taxes. Advocates for this approach want regulations on carbon emissions from vehicles, power plants and other sources eliminated first. But any public policy with the “t” word will face insurmountable political opposition, especially if set high enough to have a meaningful effect in reducing fossil fuel consumption, and taxes imposed are even more easily erased by a future Congress, meaning we might be left with no curb on emissions at all (a cynic might say that’s what fossil fuel companies and conservatives were planning all along).

The other problem with a carbon tax is we have no experience with setting the level at anything that would meaningfully reduce fossil fuel consumption and the resulting emissions. The latest scientific predictions (not to mention the current reality of more numerous damaging storms, wildfires and droughts) warn us that we have barely a decade to peak carbon emissions and begin to reduce them dramatically -- or face irreversible, uncontrollable future impacts.

A better approach is one that is already working in California, ten northeastern states, Europe, and soon in China - - a cap on emissions with tradable credits that allow polluters to share the burden of cutting carbon and the benefits of industrial efficiencies achieved, aka “cap-and-trade”. The cap ensures that emissions are reduced over time consistent with goals set forth in global agreements such as the one reached in Paris in 2015, but the trading of credits gives polluters the ability to find the most cost-effective way to cut carbon.

In addition to the urgency of addressing climate change, continuing to ignore the problem is ceding our future economic well-being to China and other competitive nations. China has already taken the lead in strategically important renewable energy deployment, reducing dependence on foreign oil and creating valuable exports of its own, and is poised to lead the world in new technologies and products such as battery energy storage and electric vehicles.

Does that matter? According to a report from the International Renewable Energy Agency, yes. The report makes the case that the rapid growth in these low-carbon sectors will create a global shift in economies as dramatic as the energy transition from biomass to fossil fuels during the Industrial Revolution, creating new super-powers and leaving fossil fuel dependent nations to face potentially violent instability.

Bankruptcy or global economic domination? The tools to avoid one of those futures and secure the other are here today, so the choice is ours. Let PG&E’s current struggles serve as prologue to the “new normal” of a warming planet and stimulate our political and business leaders to respond before the decision will no longer be ours to make.

Last updated January 25, 2019

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