As the world starts practicing social isolation in the face of the COVID-19 virus, many headlines are devoted to the plunging Dow Jones Index right now. But that’s a deeply incomplete story of what’s going on. Yes, the market is plunging, but not equally by any stretch. People whose money is in future-oriented sectors are doing reasonably well, while those in backward sectors are suffering.
The above two charts are from the S&P Global site that maintains its market indices. The one on the left, that’s down about 9% over a year including the dip for COVID-19 fears, is for stocks of companies that don’t own any fossil fuel reserves. The one on the right that is about 72% over a year, is for companies that explore for and extract oil and gas.
When we talk about the stock market tanking, it’s mostly the oil and gas industry. The SP O&G index peaked in 2015 or so and has been in serious decline since. This is just more of the same for them. The markets have spoken clearly and are saying that the industry is dead, and COVID-19 is just another nail in the coffin.
This is, of course, in the context of ongoing subsidies for the industry that are increasingly looking like propping up a dying horse. For the US:
Congressional research puts the minimum number at $4.6 billion annually. An NRDC G7 annual analysis puts the number at $27.4 billion annually. An IMF full accounting including negative externalities related to health and global warming puts it at $649 billion annually.
The G20 and G7 committed over a decade ago to eliminating subsidies for this mature-to-the-point-of-senescence industry. And yet the US has taken no action. Canada was slightly better, but there’s no easy way to spin outright federal purchase of an oil pipeline for $4.5 billion in order to triple its capacity except as a subsidy. Similarly, even green British Columbia has subsidized natural gas fracking companies for more than a billion dollars over two years.
Rather than pivoting to support the industries of the future, the US White House is considering bailing out the shale oil sector of the United States.
Governments are addicted to oil and gas royalties and tax revenues, but they need to stop propping up this dying beast and accelerating the transition to the low-carbon future instead. COVID-19 is just highlighting this reality.
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