Commentary

Donald Trump’s “carbon bubble” economy is bound to pop — the only question is how bad it will be

(SALON.COM) , March 13, 2017 — Donald Trump’s “policies” don’t really exist in any conventional or coherent sense, but his promises, pledges and appointments so far tell us enough to know that he’s devoted to the kind of bubble economics that ultimately can only burst. First, there’s the “carbon bubble,” pursuing economic growth through fossil fuel investments that can never pay off because 80 percent of the fuel can never be burned. (Sean McElwee wrote about it here three years ago.)  Second, there’s Trump’s reliance on vastly accelerated economic growth to wave away budget concerns and other reality-based question about what he wants to do on multiple policy fronts. Third is a more fantastical bubble — the imagined resurgence of traditional working-class jobs in mining and manufacturing, at a time when even China is losing manufacturing jobs to cheaper labor markets.

Each of these bubbles just might expand for a while in the short run — which so-called balanced and objective journalists will report as signs that Trump’s policies are “working.” But they’ll have to join with Trump in denying reality in order to do so. Let’s examine each of these bubbles to see why.

The most troubling aspect is Trump’s commitment to the “carbon bubble,” a commitment to expanding the production of fossil fuels, despite the fact that 80 percent of existing reserves are unrecoverable or unusable —worth absolutely nothing — if we’re to survive as a civilization. Treating those reserves as if they will actually be used vastly overvalues them, creating a carbon asset bubble, just as multiple factors overvalued housing in the Bush years, in turn creating strong incentives for a wide range of foolish, destructive and even criminal acts.

The carbon bubble does exactly the same thing. It’s not just fossil fuel reserves that are overvalued by the bubble, but everything associated with the sector — pipelines, power plants, refineries, etc. — as well as assets at risk from climate change, such as waterfront property (see Miami Beach, still in deep denial).

The carbon bubble risk is only made worse by the fact that renewable energy costs have dropped dramatically in recent years, and become increasingly competitive. Thus, even if those reserves were not unburnable because of their potential impact on climate change, they will become so for economic reasons in the next few decades. For example, the World Economic Forum’s recently released “Renewable Infrastructure Investment Handbook: A Guide for Institutional Investors” reported:

[T]he unsubsidized, levellized cost of electricity (LCOE) for utility scale solar photovoltaic, which was highly uncompetitive only five years ago, has declined at a 20% compounded annual rate, making it not only viable but also more attractive than coal in a wide range of countries. By 2020, solar photovoltaic is projected to have a lower LCOE than coal or natural gas-fired generation throughout the world.

Add to this the fact that renewable energy — particularly solar and wind — is a new technology sector, in which large efficiency gains are to be expected. That’s quite unlike the fossil fuel industry, whose costs are increasing because the cheap, easy-to-get fuel has already been burned. By 2030, renewables could well leave fossil fuels in the dust. Which is why Trump’s embrace of the carbon bubble is particularly foolish.

Source: Donald Trump’s “carbon bubble” economy is bound to pop — the only question is how bad it will be – Salon.com