Cooking the Books I: Not for the squeamish

According to a report in City AM (19 December), the Bank of England is planning to stress-test banks in 2021 to judge to what extent they can withstand a climate-related crisis. Apparently this is to see if they are over-reliant on investments in businesses that contribute to global warming, in particular fossil fuels, which could lose value or even collapse if a climate crisis forced the government to suddenly curb their activities.

This could just be the personal whim of the outgoing governor, Mark Carney, who is leaving next month to become UN Special Adviser on Climate Change and Finance. But it does tell us something about capitalism: action on a threat to business-as-usual such as climate change is only going to be taken if there is some threat to profit-making, whether short or long term. Capitalism runs on profits and decisions as to what is produced, and how much, how and where, are taken by capitalist enterprises according to what they calculate is profitable for them in the relatively short-term. Looking after the longer-term prospects for profit-making is left to the state.

Global warming, if it gets out of hand, will represent a threat to profits, not so much in terms of reduced profit-making opportunities as in terms of the taxes the state will have to levy, ultimately on profits, to pay, for instance, for building seawalls and other defences against a rise in sea level or to move people from flooded areas.

Mitigating global warming will provide some new profit-making opportunities, as from investing in the technologies of alternative ways to generate energy; of extracting carbon dioxide from the atmosphere; and of alternative uses for fossil fuels. This is the logic behind those who argue that the way to deal with the threat of global warming is ‘more capitalism’, i.e., leave things up to private capital in search of profits.

But, even from capitalism’s point of view, this won’t do. As long as generating energy by burning fossil fuels is profitable it will attract capital investment, and it will be profitable as long as the alternative methods of generating energy – nuclear and renewable – are more expensive, and so burned they will be, fuelling global warming.

This was neatly illustrated by an article in the Times the day of the Bank’s announcement. Entitled ‘If you’re not squeamish, Big Oil pays’, it explained:

‘On environmental grounds, some readers may be uncomfortable buying Shell shares, as this columnist is. But they are pretty compellingly valued, trading at just over 11 times forecast earnings for a divided yield of 6.5 per cent. In every other way they are an obvious buy’ (18 December).

Small investors being squeamish won’t alter this. Only the state, acting in the longer-term overall capitalist interest, can do anything about it, as by subsidising alternative methods until they become the more profitable. Only then can the naked capitalist pursuit of profits take over. It’s not the rational way to deal with the problem but it’s the most that will be attempted under capitalism.