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THE PRINCIPLE OF SUSTAINABILITY

PROTECTING THE ECOSYSTEM AS THE FOUNDATION OF LIFE

The Federal Reserve’s power to finance ecological transition

“I didn’t want people to think I was this lone crazy woman from Brazil,” Carla Santos Skandier said with a laugh, “when in fact I have this whole organization behind me.” She was recalling the presentation she’d made to a group of environmental funders, some of whom didn’t realize she was part of The Democracy Collaborative. But she needn’t have worried. What Carla had to say, in her five-minute pitch, caused a stir in the room. “After the presentations, they gave each of us a table so people could follow up individually. My table was full from beginning to end,” Carla said. “It seemed I had more than any other table. I had people coming before I even got there.”²

The lead funders present that morning were on an urgent quest: “Ending the Age of Oil.” They were part of the Climate Change Accelerator (later renamed the Climate Breakthrough Project), which was in search of breakthrough ideas—“novel and potentially game- changing strategies”—to dramatically cut carbon emissions over a decade. The project was an initiative of the David and Lucile Packard Foundation, in partnership with the Oak Foundation and the Good Energies Foundation. These and other funders had come to this breakfast meeting at The Battery in San Francisco on September 6, 2017, to hear from eight Oil Lab Fellows, selected out of more than 500 applications, from 89 countries. Carla was one of the eight. By the end of the day, she was one of three to receive funding.³

As people crowded Carla’s table, they were coming to hear about a crazy idea: having the federal government buy out oil companies and wind them down, using the same technique the Federal Reserve used to bail out big banks in 2008: quantitative easing (QE)—conjuring money out of thin air, without a dime of cost to taxpayers.

Carla and The Democracy Collaborative’s team at our Next System Project call this QE for the planet. Maybe not the sexiest moniker, but hey.

Funders that day took an unusual step in funding Carla. While they’d intended to fund only two ideas—ready to roll out—they made an exception for Carla. Her concept was so enormous and out of left field, they greeted it with both skepticism and hey- what- if enthusiasm. The Climate Strategies Accelerator Fund, wrote Walt Reid of Packard in an email, was “trying something different, and decided to create a matching grant opportunity for Carla,” to support her team in developing the concept. If Carla could find $100,000, the CSA Fund would match it.

It took seven months, but Carla found that funding and got the match. This environmental attorney from Brazil—formerly with the Rio de Janeiro Environmental Protection Agency—set to work.

LARGE-SCALE SYSTEM DYNAMICS

Movement into a next economic system can’t wait for the long, slow process of building community wealth. To create space for alternatives to flourish, we must confront huge and immediate issues like climate change. Building a democratic economy may begin at the local level, but it requires tackling large system dynamics as well.

The world has a dozen years to prevent global warming catastrophe, warned the October 2018 report from the United Nations Intergovernmental Panel on Climate Change (IPCC), speaking in more dire terms than earlier. Previous reports from the IPCC had focused on keeping global temperatures below 2 degrees Celsius warming over preindustrial levels, but this report focused on keeping warming under 1.5 degrees. On that one- half degree difference hangs the fate of millions of lives.⁴ If the planet is to stop short of 1.5 degrees, carbon emissions must be slashed 45 percent by 2030 from 2010 levels, then crushed down to net zero by 2050. This requires a transformation in civilization for which “there is no documented historic precedent,” the panel wrote.⁵

Every year through 2035, the IPCC said, the world must invest $2.4 trillion in clean energy. That’s a sevenfold increase from the $333.5 billion that Bloomberg estimates was invested in renewable energy in 2017.⁶

We must also invest massively less in fossil fuels, winding them down nearly entirely. But nations are doing the reverse. According to Oil Change International, G20 governments and multilateral development banks from 2014 to 2016 invested more than three times as much in oil and gas as in renewables—paving the path to disaster.⁷

Oil companies blithely pretend it isn’t so. ExxonMobil in early 2018 announced plans to increase output 25 percent and double its earnings by 2025.⁸

“Global Warming’s Terrifying New Math,” as a Bill McKibben article termed it, shows why this growth must not materialize. Writing in 2012, he used the previous threshold of 2 degrees of warming. (A 1.5-degree threshold makes the math even more terrifying.) If the planet is to stay within a 2-degree threshold, it must stay within a carbon budget of 565 gigatons. But “the fossil fuel we’re currently planning to burn” (currently proven reserves) is 2,795 gigatons—five times higher than the carbon budget. That means 80 percent of reserves must stay in the ground. It’s unburnable carbon. In financial terms, stranded assets. ⁹

John Fullerton, a former managing director at JP Morgan who now runs the Capital Institute, calculated that those stranded assets, at current market value, add up to $20 trillion. Keeping that carbon in the ground means writing off $20 trillion in assets. “[W]e might well burn all that carbon, in which case investors will do fine,” McKibben wrote. “But if we do, the planet will crater.”

This is the extraordinary end game of the extractive economy, which in its infancy did not shrink from commodifying human beings, in its maturity did not blink at dumping billions of gallons of toxins into oceans, and now in its aging fullness contemplates causing irreversible damage to life on earth, and shrugs.

A NEW MOONSHOT

If there is to be a twist in the plot, it may be the Green New Deal. It’s a legislative suite of government action akin to Franklin Roosevelt’s New Deal in the 1930s, which is serving as a collective vehicle for thinking imaginatively about scaling this hurdle unprecedented in human history.

As Saikat Chakrabarti, Representative Ocasio- Cortez’s chief of staff, put it, “It is sort of like the moonshot. When JFK [John F. Kennedy] said America was going to go to the moon, none of the things we needed to get to the moon at that point existed. But we tried and we did it. [The Green New Deal] touches everything—it’s basically a massive system upgrade for the economy.”¹⁰

The Green New Deal is at once a strategy for deep decarbonization, a jobs creator, an infrastructure bill, and a reconvening of the commons. It could be a massive demonstration project for a democratic economy operating within planetary boundaries. And it might potentially create the public mobilization needed, because it’s not just about surviving climate change but about inspiring people to realize we all can thrive.

One United Nations official described the 1.5-degree report as “a deafening, piercing smoke alarm.”¹¹ When a smoke alarm goes off, you don’t keep doing what you were doing. Yet funders, nonprofits, and policy-makers cling to the same established, incremental strategies. We need breakthroughs. The Green New Deal could be one. QE for the planet could be another; conversations about combining the two approaches are underway. A key contribution of QE for the planet is that it points toward the deep institutional changes required for a democratic economy—a flag marking the territory we must ultimately claim.

THE HEART OF THE MATTER: THE DESIGN OF OWNERSHIP

Buying out oil companies is a strategy targeted directly at the design of ownership and control of corporations in the extractive economy. With maximizing short-term gains for shareholders considered the immutable aim, most established strategies operate within this aim: tax carbon to drive corporate profit-making the right direction; persuade companies of the business case for sustainability; invest in renewables to make big returns for investors.

All fine steps. Yet these approaches demonstrate how little we even dream of challenging capital’s seeming right to eternal, maximum wealth extraction. The legitimacy of this right is rarely questioned, much as the absolute power of the monarchy and aristocracy was not questioned, before the advent of democracy. In a previous book, Marjorie termed it The Divine Right of Capital.

This unalterable scheme can be altered, virtually overnight, by buying a controlling interest in oil companies like ExxonMobil, Chevon, and ConocoPhillips—then installing a new board and embedding a new purpose: wind down production to safeguard life on earth. What this concept demonstrates—even as a thought experiment—is how the principle of sustainability must move inside ownership design. It shows us what it means to make preserving the ecosystem a new first principle of our political economy.

Democratic economy design recognizes the rights of property but balances them with other rights, including the right to planetary flourishing. No one’s property is taken away in a buyout. Indeed, such a move might be welcomed by shareholders, once they recognize company assets will become stranded.

FROM REGULATION TO TAKEOVER

A public takeover becomes a logical answer, when we recognize that regulation is likely to be subverted, as corporate power continues to dominate decision making through lobbying, uncontrolled political contributions, and regulatory agency capture. Publicly listed corporations are subject to Wall Street’s first commandment: grow or die. This mandate—and the increasing carbon emissions it demands—is today in the driver’s seat economically, politically, and ecologically.

What prevents rapid action on climate change is the grip that fossil fuel corporations have on politics. ExxonMobil’s scientists decades ago understood climate science, yet the company publicly manufactured doubts. BP and other large European emitters have made substantial donations to prominent climate- deniers in US Senate elections. The Koch brothers—oil barons of Koch Industries—have donated at least $100 million directly to 84 groups denying climate change science since 1997, according to Greenpeace.¹² In the US 2018 midterm elections, Colorado activists for a proposal to limit fracking were outspent forty to one.¹³ As Bill McKibben put it, environmentalists must “focus fire on the fossil fuel industry,” to see if “its political power can be broken.”¹⁴

A government buyout of fossil-fuel companies may seem radical, but the US has a long history of such actions in a crisis. With the 2008 financial crisis, Presidents George W. Bush and Barack Obama in effect nationalized AIG and General Motors. Ronald Reagan in 1984 seized 80 percent of shares in Continental Illinois National Bank and Trust Company, when it was failing. Dozens of firms were nationalized during World War II, to ensure war production needs were met. In World War I private railroads—crucial to the transportation of war materials—were taken over by Woodrow Wilson and operated by the government until 1920.

IF WE CAN BAIL OUT THE BIG BANKS, HOW ABOUT THE PLANET?

A federal buyout would not burden taxpayers if the Federal Reserve Bank infused new money through the monetary policy of quantitative easing. In such a method, funds are directly created by a central bank, which is one way big banks were bailed out in the 2008–2009 mortgage meltdown. Following that crisis—created by the reckless loans and investments of big financial players—central banks worldwide pumped the equivalent of $12.3 trillion of new money into the financial system, including around $3.5 trillion by the US Federal Reserve between late 2008 and 2014. By taking toxic assets off the hands of failing financial institutions, the Fed gave those firms and their investors a parachute for a soft landing.¹⁵

It’s a bit like if you or I loaned a friend $10,000 and found him unable to pay, only to have a kindly uncle pay off the loan in full. This is how Uncle Sam made trillions of dollars available to aid capital—even as regular folks (many of them people of color) struggled under mortgages suddenly larger than the sinking value of their homes. No kindly uncle for us.

Around the world, the European Union and Japan have recently been operating QE programs. In 2017, the European Central Bank was injecting more than $60 billion into financial markets monthly; it ran a four- year QE program that ended in December 2018 (and was revived in March 2019).¹⁶ Balance sheets at central banks today are five times precrisis levels. None of this is “paid for” through taxes or borrowing.¹⁷ Moreover, dire predictions of runaway inflation have yet to materialize.

“It’s not tax money,” former Federal Reserve Chairman Ben Bernanke explained in one TV interview. “The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”¹⁸

That central banks can create new money is difficult for most people to grasp. But it’s reality. That’s not to say such power is limitless. Hyperinflation can set in, as well as other problems. You can’t call on your uncle every day. But in times of necessity, and within limits, it can be done. It’s done all the time.

Theorists and policymakers today—including the Labour Party’s Jeremy Corbyn in the UK, Alexander Barkawi of the Council of Economic Policies in Switzerland, and experts at the International Institute for Sustainable Development—have been calling for “Green QE,” in which monetary creation by governments directly finances green infrastructure.¹⁹

“Leading central bankers are increasingly clear that dealing with the financial risks of climate change is part of their job,” wrote Barkawi in the Financial Times. “Making sure that monetary policy is pointing in the same direction is a logical and necessary next step.”²⁰

What would it take to buy out major US oil and gas companies? At market value from mid-year 2018, purchasing 51 percent of the top 25 US publicly traded oil and gas companies would take around $700 billion.²¹ Not a small sum. But over seven years, it’s $100 billion a year, far from impossible. By comparison, the wars in Iraq and Afghanistan will have cost something in the range of $4–7 trillion, when future costs for veterans are included. Not to mention Trump’s tax cut of $1.5 trillion.²²

WHAT COUNTS AS A CRISIS?

If we know money creation is an option in a crisis, the question becomes this: What counts as a crisis? Potential losses by big banks—from their own reckless actions—now that’s a disaster. Who can forget the indelible image of US Treasury Secretary Hank Paulson, former CEO of Goldman Sachs, on bended knee before House Speaker Nancy Pelosi in 2008, begging for a federal bailout of $700 billion.

How about a warning from climate scientists that we have twelve years to avert global calamity? Yawn. Click to the next story. Interesting how $700 billion is the ticket for both crises.

Plenty of technical questions remain about a fossil fuel buyout, and Carla’s team is working on them. But the real question is what we value. Hank Paulson got his bailout in the blink of an eye—followed by far more. Central banks didn’t dither about technicalities and inflation risk. They acted, because what they valued was at risk.

We don’t yet extend this level of care to the natural world. Conservationist Aldo Leopold talked about why, in A Sand County Almanac, published in 1966, in an era when ecological concerns often went by the term “conservation.” He wrote

All ethics rests on the premise “that the individual is a member of a community of interdependent parts,” Leopold wrote. “The land ethic simply enlarges the boundaries of the community to include soils, waters, plants, and animals, or collectively, the land.” The land ethic, he continued, changes humanity “from conqueror of the land- community to plain member and citizen of it.”²⁴

We lack such an ethic because we view land as property, a relationship that entails “privileges but not obligations,” Leopold wrote. A privilege of extraction; no obligation to protect.²⁵ Indigenous communities embody a different relationship to the land. As Julian Brave NoiseCat, a member of the Canim Lake Band Tsq’escenemc in British Columbia observed, indigenous peoples do not view land and water as property, but as “sacred, living relatives, ancestors, places of origin.”²⁶

This principle became law in New Zealand, where the Whanganui Maori, after a 140-year legal battle, succeeded in having their ancestral Whanganui River win legal rights equal to a human being. As this was enacted in 2017, two guardians were created on behalf of the river, one from the crown, one from the iwi.²⁷

In the same spirit, US Ojibway leader Walt Bresette helped lead a movement in the 1990s that drafted a proposed amendment to the US Constitution. He pointed out that concern for future generations was already in the Constitution, where the Preamble speaks of securing “the Blessings of Liberty to ourselves and our Posterity.” Building on this, the proposed Seventh Generation Amendment reads:

This amendment, the New Zealand victory, QE for the planet—all of these are acts of imaginative excellence, envisioning how the wealth of the earth might be decolonized from corporate control. They’re not about incrementally less harm, but making the sustaining of life a first principle.

AN ETHICAL ECONOMY IS A RESILIENT ECONOMY

Ethics and finance are bending toward one another these days, as the carbon bubble is making the climate crisis an economic crisis. In 2015, Citigroup estimated the value of stranded assets could exceed $100 trillion—massively more than the stranded assets of the housing bubble.²⁹ Mark Carney, governor of the Bank of England, calculated that of all global wealth, fully one- third is invested in “carbon- heavy” companies, including fossil fuel and many other industries.³⁰ If many of these assets turn out to be worthless, the damage could be volcanic.

According to Carbon Tracker, we have four years before demand for fossil fuels peaks, in the year 2023.³¹ After coal reached its peak in 2014, four major US coal companies filed for bankruptcy in the following three years. Things unravel fast.³² The energy sector plummeted 20 percent in 2018, even as the Standard & Poor’s 500 Index was down just 6 percent.³³

A fossil fuel wind- down is coming. Yet it’s not coming fast enough. “Once climate change becomes a defining issue for financial stability, it may already be too late,” warned Mark Carney.³⁴ If we hope the short-term mindset of finance will wake up in time, we’re in trouble. The alternative is to act through government, protecting our common good first—knowing that in the not-so-long run, this will protect us all, including finance.

THE PENNY DROPS

When Carla made her pitch at The Battery in San Francisco, she encountered lots of skepticism and questions about QE for the planet. Will QE cause inflation? That’s a topic that Gar Alperovitz, political economist and cofounder of The Democracy Collaborative, addresses. Gar, earlier a legislative director in the US House and Senate, dreamed up the idea of QE for the planet—“It was hatched in my living room,” Gar said—while Carla has led in developing it. Would QE for the planet lead to inflation? Not given the level of real unemployment in the US, he said. The idea that “we’re at a limit of productive capacity where prices have to go up, that’s almost certainly wrong.” Wealthy stock owners receiving the buyout won’t go out and buy a lot more, triggering inflation, Gar said. They’ll invest the money.

At first, people thought a government takeover of oil companies “was a silly idea,” Carla said. “Now people seem somewhat comfortable with that.” It could be because urgency is now greater; it could also be because Trump talked about nationalizing the coal industry (not to wind down fossil fuels but ostensibly to protect jobs).

At the Beacon Hotel in Washington, DC, where Gar has always held court, we slid into a booth and asked Gar about all this. The deeper issue is getting the oil companies out of politics, he said. “There’s a whole series of environmental issues they stand in the way of.”³⁵

What about trade and leakage issues; will the oil simply be produced somewhere else? His answer was the same. “The strategy is almost entirely political in nature, not economic.” What stopped the Obama Administration’s climate change legislation was powerful lobbying, mostly by Big Oil. The goal of the QE for the planet strategy is to get control of fossil fuel companies, “and thereby to stop the massive political opposition to doing the right thing on climate change.”³⁶

As for quantitative easing, he admitted it strikes people as odd. “Creating money out of nothing?” he said. “Then the penny drops: ‘Yeah, we could do that.’”