By Richard Heinberg
Jun 1, 2016
On the surface, things appear normal. The status quo of life in America circa 2016 isn’t to everyone’s liking, but at least the system is still working after a fashion. The price of oil is going up a bit: that means the cost of driving is also creeping higher, but steeper prices provide a little welcome relief for an oil industry otherwise teetering on the brink of financial ruin. There are tiresomely long lines at airports, but that means people have the wherewithal to pay for plane tickets. Most people are disgusted with the presumptive U.S. presidential candidates, but at least the machine of electoral politics is still marginally functioning. The stock market is up, unemployment is down. We’re muddling through.
Or are we? Beneath the lid, a pot of trends is coming to a boil. If Carl Jung was right about the existence of a collective unconscious, it must be seething with nightmares right about now.
So far, 2016 is the hottest year in history. And not by just a smidgen: every single month so far has set a record. This handy little animation has been making the rounds of environmental websites in the last couple of weeks; it shows a climate system that is shooting off the rails.
Slow, linear change is giving way to self-reinforcing feedbacks and non-linear lurches. Last December (just 6 months ago), delegates to climate talks in Paris agreed to try to limit global warming to 1.5 degrees centigrade. Extend the temperature trend shown in that animation for just another few months and we may well be beyond that threshold. How long until we get to two degrees? Three?
Arctic sea ice this month is by far at the lowest extent ever recorded and temperatures in Siberia are rising four times faster than in the rest of the world, releasing enormous amounts of methane and carbon stored in permafrost.
In the energy world, the growth of unconventional oil and gas supplies appears to have postponed peak oil for a decade (conventional oil production flatlined starting in 2005; all the supply increase since then has come from tight oil, tar sands, heavy oil, and deepwater oil)—but at what cost? Unconventional oil production carries higher environmental risks, including increased greenhouse gas emissions per liter of finished fuel.
And it took massive investment to finance the surge in unconventionals. If it hadn’t been for easy-money central bank policies in the wake of the 2008 global financial crash, it’s likely the fracking boom would have been an unnoticeable blip. A few years of sky-high oil prices were also necessary. But high prices weakened demand for oil, just as drillers flooded the market with the wrong grades of crude in the wrong places at the wrong time. The result: an oil price crash (starting in mid-2014) and financial bloodletting within the industry.
We appear to be in a new era in which oil prices are either high enough to stimulate new supply, in which case they are also high enough to cripple the economy; or they are low enough to stimulate the economy, but also so low as to decimate the industry. There is no longer any tenable middle ground.
Today’s price of $50 per barrel is high in historic terms, but still too low to allow the industry to recover from the past two years of staggering losses. The trouble is, the unconventional production binge required a lot of cash, and most of it was borrowed. According to data compiled by FactSet and Yahoo Finance, the U.S. energy sector is drowning in $370 billion of debt, double the amount a decade ago. Just to make interest payments, energy companies shelled out $16.7 billion in 2015—half of their total operating profit. And despite rebounding oil prices, the situation is getting worse, with over 86 percent of energy sector operating profits going to interest payments in the first quarter of 2016. Unless prices zoom back past $100 a barrel, the tens of billions of dollars in debt coming due between 2017 and 2020 will likely trigger a wave of defaults and bankruptcies.
That could spell serious trouble for an economy that has been on life support for eight years now. After the nearly catastrophic crash of 2008, low interest rates, bailouts, and quantitative easing succeeded in restoring a sense of economic normalcy, though at the cost of more financial bubbles (in housing, fracking, and tech) and increased economic inequality. But what will the wizards of finance do when things turn ugly again—as they inevitably will, sooner or later? Negative interest rates will prove more than a little unpopular with savers, and throwing trillions more at banks and investors won’t help the masses afford to pay interest on their mounting debt or to buy more consumer goods.
A pressure cooker needs an escape valve, and this year politics is serving that function for the pressure cooker that American society has lately become. Bernie Sanders is giving voice to popular anger at increasing economic inequality, and at Wall Street’s immunity from being held culpable for the 2008 crash and its continued predation on the rest of the economy. Donald Trump is a megaphone for the blind fury of the wage class at its ongoing destruction by globalization and immigration. There is a heavy scent of anti-establishmentarianism in the air; that leaves poor Hillary Clinton, the consummate establishment politician, trying desperately to sound like an outsider and a critic of the globalized, financialized governmental megamachine she has labored for decades to help build, manage, and sell to voters.
For the next six months the upcoming U.S. presidential election will probably be the main focus of discussion for both the media and Main Street. A lot depends on the outcome, but a good outcome is hard to imagine; only shades of bad. Sanders is the only candidate with a sound energy and climate policy, but he has a vanishingly small chance of actually becoming the next president. Clinton is the odds-on favorite: she has the backing of Wall Street, the Washington foreign policy establishment, and the military-industrial complex. She would doubtless continue most of the current administration’s domestic policies (including its confused and largely self-defeating climate and energy policies), but her stance toward Russia, China, and the Middle East would likely be far more combative—hardly what we need at a moment when global tensions are likely to be exacerbated by weakened economies.
But don’t count Trump out. Riding on a tide of white working-class wrath, he has managed to surpass the expectations of all of his critics. While it is next to impossible to divine actual policy proposals from his muddled, self-aggrandizing speeches, he did manage to give broad hints at his energy and climate intentions in a talk in North Dakota last week, where he made it fairly clear that he just doesn’t care about climate change, that he really likes fossil fuels (including coal), that he doesn’t like wind or solar that much, and that he understands so little about the country’s resource reserves and energy production statistics that he somehow thinks it physically possible for the U.S. to become a significant net exporter of oil and gas. As to his likely foreign policies, your guess is as good as mine.
A Trump presidency could lead to a nearly unprecedented period of turmoil for the nation: blue states and red states would be at each other’s throats. The fallout for relations with other countries are unknown, but the implications for climate and energy would clearly be horrific.
“Blowing off steam” is a phrase often used to describe the harmless pranks of teenagers, though it could also apply to a continent-destroying super-volcano. In the American political context, the scale of the impending steam and magma release is uncertain. But pressure is building and the available outlets are few.
Whoever the next president turns out to be, her or his term in office will likely coincide with another financial crash, which could well turn out to be much worse than the 2008 debacle. Social pressures from rising inequality and dashed expectations will build to explosive levels. And climate impacts may well take forms that even a Donald Trump cannot ignore.
Altogether, the next eight years are unlikely to be as safely corked and bottled as the last. They say crisis is opportunity. We may be facing more opportunities than we know what to do with; may we seize them skillfully!