[Congressional Record Volume 164, Number 116 (Wednesday, July 11, 2018)]
[Senate]
[Pages S4904-S4906]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                             Climate Change

  Mr. WHITEHOUSE. Mr. President, I spoke before the Fourth of July 
recess about two financial risks that are coming our way thanks to not 
getting anything done on climate change.
  One, of course, is the risk to coastal properties--not something the 
Presiding Officer has to worry too much about given his home State but 
something that Rhode Island, the Ocean State, has to care a lot about 
and that the distinguished Senator from Florida and his constituents 
have to care a lot about.
  There is a point where rising sea levels intrude on the saleability, 
the mortgageability, and the insurability of houses. None other than 
Freddie Mac, the huge Federal housing corporation, is predicting that 
there will be a coastal property meltdown.
  The other risk is that of a carbon bubble. There is a lot of talk in 
the economic literature about a carbon bubble. One recent financial 
study reports that ``the potential effects of a carbon bubble on 
financial stability have been recently discussed in the academic 
literature and are increasingly on the agenda of [bank] regulators and 
supervisors.'' Indeed, in an official statement, the Bank of England 
has warned that ``investments in fossil fuels and related technologies 
. . . may take a huge hit.'' That huge hit is the other side of a 
carbon bubble: It pops, and you have a crash. So let's look at the 
prospects for not just a carbon bubble but a carbon crash.
  There are several elements in the runup to a crash. Some of these we 
witnessed in the crash of the housing bubble back in 2008. When these 
conditions exist, we should take warning.
  One condition is whether you can trust the players. In the housing 
crash, the rating agencies were in bed with the banks, and you couldn't 
trust their risk evaluations. The whole thing was cooked. The big fees 
the rating agencies were taking also took their eye off the ball, and 
they gave wildly erroneous ratings to high-risk investments. So at the 
heart of the 2018 housing crash was a failure of trustworthiness.
  Can we trust the fossil fuel industry any better than those rating 
agencies? There is no reason to think so, and there is plenty of reason 
to think not. This is an industry that has been lying about fossil 
fuel's effect on our climate for decades, and once you get used to 
lying about one thing, it is hard to contain the spread of the rot. 
Exxon even once gave its CEO the infamous, phony Oregon Petition, which 
urged the United States to reject the Kyoto Protocol, to cite to 
shareholders at an annual meeting.
  I have spoken before about what I consider to be the 
untrustworthiness of Exxon's response to the BlackRock shareholder 
resolution, which required Exxon to report the predicted effect of 
climate policies on Exxon's business model. As fossil fuels are priced 
out of the market by renewable energy and as nations enact carbon 
emissions restrictions, fossil fuel reserves now claimed as assets by 
energy companies may become undevelopable stranded assets.
  In a nutshell, Exxon seems to have wildly--indeed, so wildly, you can 
only conclude deliberately--overestimated the adoption of carbon 
capture utilization and storage, wildly underestimated the adoption of 
electric vehicles, and wildly underestimated renewable energy growth, 
all to reach its rosy conclusions that its assets were more or less 
secure.
  On the subject of trustworthiness, right now big oil companies are 
still being untrustworthy, telling the world they want a price on 
carbon, while at the same time telling their political fixers in 
Congress to kill any such thing. Who knows how much they push around 
their analysts and others who

[[Page S4905]]

are curious about a carbon bubble. What we know is that trusting this 
industry is asking a lot. That is condition one for a bubble in a 
crash--untrustworthy actors.
  Condition two is market failure. Markets usually correct and have a 
smoothing effect. If there is market failure, markets can go off course 
until the correction comes, and then the correction is so immediate and 
so big that it amounts to a crash. There is market failure in fossil 
fuel that props up this bubble. Indeed, there are several. The biggest 
is that the fossil fuel industry rides on what the IMF calculates is a 
global multitrillion-dollar annual subsidy: $700 billion in subsidy 
every year in the United States alone, says the International Monetary 
Fund. That subsidy massively warps the operation of the market.
  There is also what appears to be a methodological issue. The oil 
industry is ordinarily measured financially by net asset value 
analysis. As one paper noted, this is an ``industry valuation 
methodology [that] assumes full extraction of fossil fuel reserves.'' A 
methodology that assumes full extraction of fossil fuel reserves 
becomes a problem when the question is whether extraction of those 
reserves is even possible.
  There is also what I would call a ``massiveness factor'' at work 
here. Lehman Brothers and Bear Stearns were so massive that it was hard 
to imagine them vanishing, but they did. The market value of fossil 
fuel reserves that can't be burned is around $20 trillion, according to 
the World Bank. That is such a big wipeout that it is hard to 
comprehend, let alone anticipate. People wait until tomorrow. Then, the 
tomorrows pile up into a bubble, and then the crash comes when the 
first person panics and everybody runs.
  One other market failure is actually how the crooked political 
pressure of this industry is causing us not to focus on the 2-degree 
Celsius ceiling that scientists warn us about for global warming, or, 
actually, safer yet is the 1.5-degree Celsius ceiling, which burning 
existing reserves will blow us through. We cannot have both a safe 
planet and full extraction, and the fossil fuel industry is choosing 
extraction.
  That political castle of climate denial will fall sooner or later. It 
is false. Not only is condition one met--untrustworthy players--but 
condition two is met: There is a massive, multiple market failure in 
fossil fuel awaiting correction, which brings us to condition three: 
The energy market is undermining fossil fuels as a technology.
  We are reaching a tipping point. Here is Lazard's cost curve for 
onshore wind energy. It shows, over 8 years, a 67-percent decrease in 
cost. This line shows the cost of wind energy steadily declining from 
2009 until 2017.
  At the same time these wind costs were dramatically declining, 
utility-scale solar costs and rooftop solar costs also declined 
dramatically. This line represents rooftop solar costs. This line below 
it represents utility-scale solar costs. Again, there was a percentage 
decrease of 86 percent.
  New solar and wind energy projects are already becoming more 
economical than existing coal plants, as we just saw in Colorado. New 
solar and wind projects now compete on price with new natural gas 
plants, as a recent auction in Arizona showed.
  The cost trajectory for renewables continues steeply downward. When 
you compare U.S. wind and solar to other energy sources, you see the 
trend is clear, and here is the result. On cost, the lowest cost 
providers are onshore wind and utility-scale solar. More expensive than 
them is natural gas. More expensive is coal. More expensive still is 
nuclear. That is not counting the subsidy. That is apparent price.
  This same trend is also happening globally. This graphic is prepared 
by the World Economic Forum, and it shows the same thing for 
renewables. In particular, here is the rapidly declining cost of solar 
photovoltaic. Here is the cost of coal, and here, right now, they cross 
over. We are at the tipping point, where it is cheaper worldwide to 
develop solar and wind than it is to burn coal.
  Stanford economist Tony Seba studies economic disruptions, and he 
likes to see these two photographs. It will be hard to see from where 
you are. This is Fifth Avenue in New York City in 1900. If you look at 
the photograph, you can see that every vehicle there is drawn by a 
horse. In 1900, every vehicle was drawn by a horse. If you look very 
closely, it appears there is one leading-edge, non-horse-drawn vehicle. 
The whole street is filled with horse-drawn carriages and wagons in 
1900. Thirteen years later, on Fifth Avenue in New York City, every 
single vehicle in that street is now an automobile. In only 13 years, 
there was a complete transition in transportation. If you were a 
harness maker, this was a tough transition for you. In just 13 years, 
the world changed, illustrating the point that major economic 
disruptions can take place fast. Think land lines and cell phones, if 
you want a modern example.
  People still ride horses, and they probably always will, but our 
transportation sector shifted rapidly from horse-drawn conveyance to 
automobiles because horse-drawn conveyance was an antiquated technology 
that got left behind. People still have landlines. I have one at home. 
We hardly ever use it. The communications industry shifted rapidly, as 
antiquated landline technology got left behind.
  As the energy market shifts to cleaner, cheaper, more efficient 
renewable technologies, fossil fuels soon will not compete in the 
marketplace. There is our third condition: not just untrustworthy 
players, not just market distortion, but also a technological tipping 
point making the fossil fuel technology obsolete.
  There is a fourth condition. This fourth condition basically puts an 
accelerator on condition three in certain sectors of the energy market. 
Condition four is based on the fact that the marginal cost of 
production of a unit of fossil fuel energy varies considerably. Some 
fuels are low cost and high cost to produce. Some geographical 
locations are low cost and high cost locations. In this variance, coal 
is pretty much dead already at the hands of oil and gas, purely because 
of cost. We can set coal aside for a moment.
  In the world's oil markets, much of this cost of production variant 
is masked right now by energy cartels that prop up the price of oil. 
Cartel behavior to prop up the price of your product makes economic 
sense if you can maintain monopoly pressure to prop up the price, but 
it also only makes sense for the cartel participants if you can 
anticipate that you can sell your product out into the future. You hold 
back your output to drive up price and to maximize your return in the 
hopes that in the future you will be able to keep doing the same thing 
and you will be able to sell your product.
  If you are not sure that there will be another day to sell your 
product at the propped-up price, you start to get anxious about your 
product becoming stranded and about your product becoming valueless. At 
that point, it doesn't make sense to engage in cartel behavior. What 
makes sense is to maximize your output and to sell as much as you can 
while your commodity still has value--basically, to have a fire sale.
  Low-cost fossil fuel energy producers would be rational to drop their 
prices and maximize their market-share, fire-sale pricing while their 
fossil fuel still has value. Get the dammed stuff out the door while 
you still can. That behavior--dropping the cost, pricing at your 
marginal cost of production, and selling as much of your product as you 
can--will fend off the inevitable for low-cost producers for a while. 
However, for those producers that can't match that fire-sale price, the 
downward trajectory of their crash steepens catastrophically. As soon 
as you can't produce not at the cartel price but at the lowered fire-
sale price--as soon as you cannot meet that price--you are out of 
business. There still is a fossil fuel market. You are just not in it. 
The bad news for the United States is that this is where much of our 
market is. Economists looking at this carbon bubble mess warn that 
high-cost regions like the United States could ``lose almost their 
entire oil and gas industry.'' Let me quote that again: ``lose almost 
their entire oil and gas industry.''
  To recap about a fossil fuel ``carbon bubble,'' the players aren't 
trustworthy; the fossil fuel markets aren't efficient in the economic 
sense; fossil fuels as a technology are now tipping into being 
obsolete, priced out by renewables; and our U.S. industry is 
particularly vulnerable to an accelerated market meltdown when the tide 
shifts.

[[Page S4906]]

  Those four conditions don't make a great scenario. That is a warning 
we need to start considering. What should we do?
  Everyone seems to agree on two safety measures. First, there is one 
sensible hedge: Don't invest all in fossil fuel. Invest more in 
renewables. Be on the winning side of the shift. Start making 
carburetors, not just a mule harness. There is also one important, 
sensible economic strategy; that is, to manage the transition.
  As one paper on this subject concluded, ``The issue of concern is the 
lack of any transitional strategy. . . . Inadequate, conflicting or 
slow responses to climate change in investment and finance can entail 
risks that could be avoided under a more orderly transition.''
  You could equate it to jumping out of an airplane. You are going to 
end up on the ground anyway. Wouldn't you like a parachute to make it a 
gentler and more survivable voyage? What is the parachute but a 
transition plan for managing this shift? The best one is a price on 
carbon.
  This takes us back to the discreditable conduct of the fossil fuel 
industry, which, far from leading through this transition, far from 
trying to build itself a parachute, is busily still trying to deny that 
there is any such transition, including, in my view, their falsely 
reporting to shareholders that this is all going to be OK, and we are 
going to be able to extract and sell all of our reserves. This is an 
industry that is still fighting like a wounded bear to prevent anyone 
from organizing the orderly transition they need.
  At some point, there has to be a grownup in the room. The fossil fuel 
industry has shown no capacity for that role, which makes it up to us 
in Congress to help America prepare for both the predicted crash in 
coastal property values, as sea level begins to enter the mortgage and 
insurance horizon for those properties, and the predicted carbon bubble 
we see coming and that economists write about coming that we can manage 
our way through if we are responsible. In that regard, it is time for 
us to wake up.
  I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Lee). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Ms. HIRONO. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.