Oil is Bankrupt (If We Want It)
Albert’s oil-patch is a zombie, the walking dead. The companies that extract oil there owe more money than they can pay, more than they can borrow, more than they can earn. If they were made to pay their lawful debts, they would all go bankrupt, and, in so doing, would end the extraction of one of the dirtiest, worst sources of oil in the world.
Now, there’s an argument that all the oil companies are busted, Alberta or no. If they were made to pay for the damage they’ve done to our world, the millions their deadly products have killed and the billions they threaten, they would all be cleaned out.
But that argument depends on making those companies pay for those debts, which are not legal debts, but moral ones. Big Oil has proven itself remarkably adept at avoiding those moral debts . The costs that Big Oil imposed on all of us are diffused, the profits they gained through their crimes are concentrated into their hands, so it’s very hard to hold them to account.
In his essay, Fix examines the power relationships that have allowed the oil companies to go on risking our civilization and our species with impunity. He observes that many environmentalists claim that if the true costs of the oil industry were borne by the extraction companies, they’d all be bankrupt already.
But, Fix says, “Costs exist not because they are ‘true’, but because someone has the power to enforce them” (emphasis mine). This is the crux of Fix’s economic outlook, a school called “Capital As Power” that seeks to understand economic outcomes through the lens of power.
This may seem commonsensical (“The Golden Rule: Whoever Has the Gold Makes the Rules”) but the mainstream economics is pretty indifferent to power, insisting that markets can be understood without delving into the squishy, uncomfortable business of asking whether rich people can boss us around because they’re rich, preferring to believe that this is dictated by a vast, distributed, scrupulously fair computer called “The Invisible Hand.”
For Fix, the right question isn’t how much do the oil companies owe? but rather, how do we get the oil companies to pay? He has a concrete suggestion: “look for under-enforced legislation that if fully enforced, would make the fossil-fuel business go bankrupt.”
And he’s got legislation in mind: Alberta — like many other places —requires oil companies to pay for cleanup of their decommissioned wells, a law that has been heretofore woefully underenforced, due to a seven-part procedure grounded in magical thinking:
- Drill a well.
- Record the cleanup cost.
- Throw this liability in a file drawer and forget about it.
- Drain the well and distribute the profit to shareholders. Save nothing.
- Assume that future income will magically cover the cleanup costs.
- Realize that your well has run dry and there is no future income.
- Declare bankruptcy and (magically) walk away.
This is such an obviously ineffective regulatory system that you might well ask how it came to be. Turns out there’s a simple explanation: the Alberta Energy Regulator is 100 percent funded by the industry it regulates, and has a history of appointing ex-energy sector lobbyists to its top leadership roles (once again showing why it’s foolish to talk about economics without talking about power!).
The thing is, Alberta has solid law on its books making energy companies liable for the cleanup of oil wells, but because of the magical-thinking-based enforcement regime, the province is pockmarked with festering, toxic, abandoned holes that ooze and seep waste into the lands around them and the sky above, to the great detriment of the people of Alberta and the rest of planet Earth.
Alberta’s energy regulator is so captured that it doesn’t maintain an accurate record of these weeping sores, which is why the Alberta Liabilities Disclosure Project created its Big Cleanup Report, which documents the full scale of the liabilities Alberta’s energy sector has on its balance sheet.
Fix argues that there is no way that the oil companies could meet these liabilities. They don’t have the cash on hand, and if they tried to generate the cashflow to pay up, they could only do so by drilling thousands of new wells that each came with its own cleanup price-tag.
What’s more, the new wells that are drilled in Alberta cost more to operate and generate less profit because all the shallow reservoirs of oil have already been extracted, leaving oil companies to sink deeper wells that pump less oil. It’s a Red Queen’s Race: to pay their bills, Alberta’s oil companies have to dig more wells, but the more wells they dig, the more they owe.
Alberta’s oil companies’ debt to assets ratio isn’t a close-run thing: per Fix, “the bankruptcy that awaits Alberta’s oil patch is so complete that it boggles the mind…as the cleanup insolvency ratio heads upward, it does so at an exponential pace. The results are catastrophic. In the not-so-distant future, there will come a day when the oil industry’s cleanup liabilities exceed its future income by a thousand-fold (or more).”
Which brings me back to Fix’s core theory of change: prices aren’t determined by market dynamics — what people are willing to pay and what people are willing to sell — but by power.
So far, we have not been able to muster the political will to force the costs of oil extraction up high enough to include the harms it imposes on the rest of us. As Fix writes, “many environmentalists feel that we have a moral obligation to end the fossil business. But for the bulk of the population, this moral is a hard sell.”
But (Fix concludes), the moral case for making oil companies pay to clean up their messes is a lot clearer, and enforcing cleanup laws would be an easier sell:
Ironically, the fossil-fuel industry has backed itself into a corner where it is vulnerable to a much more pervasive moral: the belief that you should cleanup your own mess. If we enforced this moral (which, conveniently, is also the law), the fossil-fuel business would likely be in deep trouble. It has dug its own grave and now stands on the edge. We just need to give it a push.
Cory Doctorow (craphound.com) is a science fiction author, activist, and blogger. He has a podcast, a newsletter, a Twitter feed, a Mastodon feed, and a Tumblr feed. He was born in Canada, became a British citizen and now lives in Burbank, California. His latest nonfiction book is How to Destroy Surveillance Capitalism. His latest novel for adults is Attack Surface. His latest short story collection is Radicalized. His latest picture book is Poesy the Monster Slayer. His latest YA novel is Pirate Cinema. His latest graphic novel is In Real Life. His forthcoming books include Chokepoint Capitalism (with Rebecca Giblin), a book about artistic labor market and excessive buyer power; Red Team Blues, a noir thriller about cryptocurrency, corruption and money-laundering (Tor, 2023); and The Lost Cause, a utopian post-GND novel about truth and reconciliation with white nationalist militias (Tor, 2023).