This Changes Everything (24 page)

And it’s these “unconventional” methods of extracting fossil fuels that are the strongest argument for forceful regulation.
Because one of the greatest misconceptions in the climate debate is that our society is refusing to change, protecting a status quo called “business-as-usual.” The truth is that there is no business-as-usual. The energy sector is changing dramatically all the time—but the vast majority of those changes are taking us in precisely the wrong direction, toward energy sources with even higher planet-warming
emissions than their conventional versions.

Take fracking. Natural gas’s reputation as a clean alternative to coal and oil is based on emissions measurements from gas extracted through conventional drilling practices. But in April 2011, a new study by leading scientists at Cornell University showed that when gas is extracted through fracking, the emissions picture changes dramatically.
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The
study found that methane emissions linked to fracked natural gas are at least 30 percent higher than the emissions linked to conventional gas. That’s because the fracking process is leaky—methane leaks at every stage of production, processing, storage, and distribution. And methane is an extraordinarily dangerous greenhouse gas, thirty-four times more effective at trapping heat than carbon dioxide,
based on the latest Intergovernmental Panel on Climate Change estimates. According to the Cornell study, this means that fracked gas has a greater greenhouse gas impact than oil and may well have as much of a warming impact as coal when the two energy sources are examined over an extended life cycle.
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Furthermore, Cornell biogeochemist Robert Howarth, the lead author of the study, points out
that methane is an even more efficient trapper of heat in the first ten to fifteen years after it is released—indeed it carries a warming potential that is
eighty-six times
greater than that of carbon dioxide. And given that we have reached “decade zero,” that matters a great deal. “It is in this shorter time frame that we risk locking ourselves into very rapid warming,” Howarth explains, especially
because huge liquid natural gas export terminals currently planned or being built in Australia, Canada, and the United States are not being constructed to function for only the
next decade but for closer to the next half century. So, to put it bluntly, in the key period when we need to be looking for ways to cut our emissions rapidly, the global gas boom is in the process of constructing a network
of ultra-powerful atmospheric ovens.
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The Cornell study was the first peer-reviewed research on the greenhouse gas footprint of shale production, including from methane emissions, and its lead author was quick to volunteer that his data were inadequate (largely due to the industry’s lack of transparency). Still, the study was a bombshell, and though it remains controversial, a steady stream
of newer work has bolstered the case for a high rate of methane leakage in the fracking process.
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The gas industry isn’t the only one turning to dirtier, higher-risk methods. Like Germany, the Czech Republic and Poland are increasingly relying on and expanding production of extra-dirty lignite coal.
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And the major oil companies are rushing into various tar sands deposits, most notably in
Alberta, all with significantly higher carbon footprints than conventional oil. They are also moving into ever deeper and icier waters for offshore drilling, carrying the risk of not just more catastrophic spills, as we saw with BP’s Deepwater Horizon disaster, but spills that are simply impossible to clean up. Increasingly, these extreme extraction methods—blasting oil and gas out of rock, steaming
oil out of tarlike dirt —are being used together, as when fracked natural gas is piped in to superheat the water that melts the bitumen in the tar sands, to cite just one example from the energy death spiral. What industry calls innovation, in other words, looks more like the final suicidal throes of addiction. We are blasting the bedrock of
our continents, pumping our water with toxins, lopping
off mountaintops, scraping off boreal forests, endangering the deep ocean, and scrambling to exploit the melting Arctic—all to get at the last drops and the final rocks. Yes, some very advanced technology is making this possible, but it’s not innovation, it’s madness.

The fact that fossil fuel companies have been permitted to charge into unconventional fossil fuel extraction over the past decade
was not inevitable, but rather the result of very deliberate regulatory decisions—decisions to grant these companies permits for massive new tar sands and coal mines; to open vast swaths of the United States to natural gas fracking, virtually free from regulation and oversight; to open up new stretches of territorial waters and lift existing moratoriums on offshore drilling. These various decisions
are a huge part of what is locking us into disastrous levels of planetary warming. These decisions, in turn, are the product of intense lobbying by the fossil fuel industry, motivated by the most powerful driver of them all: the will to survive.

As a rule, extracting and refining unconventional energy is a far more expensive and involved industrial process than doing the same for conventional
fuels. So, for instance, Imperial Oil (of which Exxon owns a majority share) sank about $13 billion to open the sprawling Kearl open-pit mine in the Alberta tar sands. At two hundred square kilometers, it will be one of the largest open-pit mines in Canada, more than three times the size of Manhattan. And it is only a fraction of the new construction planned for the tar sands: the Conference Board
of Canada projects that a total of $364 billion will be invested through 2035.
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In Brazil, meanwhile, Britain’s BG Group is expected to make a $30 billion investment over the next decade, much of it going into ultra-deepwater “subsalt” projects in which oil is extracted from depths of approximately three thousand meters (ten thousand feet). But the prize for fossil fuel lock-in surely goes to
Chevron, which is spending a projected $54 billion on a gas development on Barrow Island, a “Class A Nature Reserve” off the northwest coast of Australia. The project will release so much natural gas from the earth that it is appropriately named Gorgon, after the terrifying, snake-haired female monster of Greek mythology. One of Chevron’s partners in the project is Shell, which is reportedly spending
an additional
$10–12 billion to build the largest floating offshore facility ever constructed (longer than four soccer fields) in order to extract natural gas from a different location off the northwest coast of Australia.
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These investments won’t be recouped unless the companies that made them are able to keep extracting for decades, since the up-front costs are amortized over the life of the
projects. Chevron’s Australia project is expected to keep producing natural gas for at least thirty years, while Shell’s floating gas monstrosity is built to function on that site for up to twenty-five years. Exxon’s Alberta mine is projected to operate for forty years, as is BP/Husky Energy’s enormous Sunrise project, also in the tar sands. This is only a small sampling of mega-investments taking
place around the world in the frantic scramble for hard-to-extract oil, gas, and coal. The long time frames attached to all these projects tell us something critical about the assumptions under which the fossil fuel industry is working: it is betting that governments are not going to get serious about emissions cuts for the next twenty-five to forty years. And yet climate experts tell us that
if we want to have a shot at keeping warming below 2 degrees Celsius, then developed country economies need to have begun their energy turnaround by the end of this decade and to be almost completely weaned from fossil fuels before 2050.
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If the companies have miscalculated and we do get serious about leaving carbon in the ground, these huge projects will become what is known as “stranded assets”—investments
that lose their projected value as a result of, for example, dramatic changes in environmental policy. When a company has a great deal of expensive stranded assets on its books, the stock market takes notice, and responds by bidding down the share price of the company that made these bad bets.

This problem goes well beyond a few specific projects and is integrated into the way that the market
assigns value to companies that are in the business of extracting finite resources from the earth. In order for the value of these companies to remain stable or grow, oil and gas companies must always be able to prove to their shareholders that they have fresh carbon reserves to exploit after they exhaust those currently in production. This process is as crucial for extractive companies as it is
for a company that sells cars or clothing to show their shareholders that they have preorders
for their future products. At minimum, an energy company is expected to have as much oil and gas in its proven reserves as it does in current production, which would give it a “reserve-replacement ratio” of 100 percent. As the popular site Investopedia explains, “A company’s reserve replacement ratio
must be at least 100% for the company to stay in business long-term; otherwise, it will eventually run out of oil.”
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Which is why investors tend to get quite alarmed when the ratio drops below that level. For instance, in 2009, on the same day that Shell announced that its reserve-replacement ratio for the previous year had ominously dipped to 95 percent, the company scrambled to reassure the
market that it was not in trouble. It did this, tellingly, by declaring that it would cease new investments in wind and solar energy. At the same time, it doubled down on a strategy of adding new reserves from shale gas (accessible only through fracking), deepwater oil, and tar sands. All in all, Shell managed that year to add a record 3.4 billion barrels of oil equivalent in new proven reserves—nearly
three times its production in 2009, or a reserve-replacement ratio of 288 percent. Its stock price went up accordingly.
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For a fossil fuel major, keeping up its reserve-replacement ratio is an economic imperative; without it, the company has no future. It has to keep moving just to stand still. And it is this structural imperative that is pushing the industry into the most extreme forms of dirty
energy; there are simply not enough conventional deposits left to keep up the replacement ratios. According to the International Energy Agency’s annual World Energy Outlook report, global conventional oil production from “existing fields” will drop from 68 million barrels per day in 2012 to an expected 27 million in 2035.
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That means that an oil company looking to reassure shareholders that
it has a plan for what to do, say, when the oil in Alaska’s Prudhoe Bay runs out, will be forced to go into higher-risk, dirtier territories. It is telling, for instance, that
more than half
of the reserves Exxon added in 2011 come from a single oil project: the massive Kearl mine being developed in the Alberta tar sands.
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This imperative also means that, so long as this business model is in
place, no coastline or aquifer will be safe. Every victory against the fossil fuel companies, no matter how hard won, will be temporary, just waiting to be overtaken with howls of “Drill, Baby, Drill.” It won’t be enough
even when we can walk across the Gulf of Mexico on the oil rigs, or when Australia’s Great Barrier Reef is a parking lot for coal tankers, or when Greenland’s melting ice sheet
is stained black from a spill we have no idea how to clean up. Because these companies will always need more reserves to top up their replacement ratios, year after year after year.

From the perspective of a fossil fuel company, going after these high-risk carbon deposits is not a matter of choice—it is its fiduciary responsibility to shareholders, who insist on earning the same kinds of mega-profits
next year as they did this year and last year. And yet fulfilling that fiduciary responsibility virtually guarantees that the planet will cook.

This is not hyperbole. In 2011, a think tank in London called the Carbon Tracker Initiative conducted a breakthrough study that added together the reserves claimed by all the fossil fuel companies, private and state-owned. It found that the oil, gas,
and coal to which these players had already laid claim—deposits they have on their books and which were already making money for shareholders—represented 2,795 gigatons of carbon (a gigaton is 1 billion metric tons). That’s a very big problem because we know roughly how much carbon can be burned between now and 2050 and still leave us a solid chance (roughly 80 percent) of keeping warming below 2
degrees Celsius. According to one highly credible study, that amount of carbon is 565 gigatons between 2011 and 2049. And as Bill McKibben points out, “The thing to notice is, 2,795 is five times 565. It’s not even close.” He adds: “What those numbers mean is quite simple. This industry has announced, in filings to the SEC and in promises to shareholders, that they’re determined to burn five times
more fossil fuel than the planet’s atmosphere can begin to absorb.”
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Those numbers also tell us that the very thing we must do to avert catastrophe—stop digging—is the very thing these companies cannot contemplate without initiating their own demise. They tell us that getting serious about climate change, which means cutting our emissions radically, is simply not compatible with the continued
existence of one of the most profitable industries in the world.

And the amounts of money at stake are huge. The total amount of carbon in reserve represents roughly $27 trillion—more than ten times the annual GDP of the United Kingdom. If we were serious about keep
ing warming below 2 degrees, approximately 80 percent of that would be useless, stranded assets. Given these stakes, it is no mystery
why the fossil fuel companies fight furiously to block every piece of legislation that would point us in the right emissions direction, and why some directly fund the climate change denier movement.
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