When Mark Carney resigned as Governor of the Bank of Canada and became Governor of the Bank of England it seemed, on the face of it, he was just making a good career move. A recent speech by Mr. Carney to a World Bank seminar, however, reveals what may be a different motivation. In this speech, he laid out an analysis of the world’s energy future that it is hard to imagine he could have articulated as Governor of the Bank of Canada. Speaking of the world’s oil reserves, Mark Carney told the assembled investment professionals that “the vast majority are unburnable if the world is to avoid catastrophic climate change.”This is not an analysis that is easy to imagine the Governor of the Bank of Canada making – at least not with the Harper government in power. As the Governor of the Bank of England, Mr. Carney, apparently, has a professional and political context for speaking plainly and with integrity about the world’s energy future. He is not shy in using a powerful economic metaphor to describe what is happening to the hydrocarbon industry: He warns of “stranded assets” – oil reserves that cannot be extracted, sold, and burned. But Mark Carney goes further. His speech to the World Bank seminar introduced a new expression that indicates the peril he sees ahead if business does not fundamentally reform its approach to decision making with regard to the human future. He speaks of a “tragedy of horizons” – by which he means that market failures are in store because investors, companies, and governments are simply not looking far enough ahead, or adequately gauging the scope of environmental problems. Ramping up production of Alberta oil sands and installing the Energy East pipeline through New Brunswick is a preeminent example of the short-term thinking that Carney warns will lead to a“tragedy of horizons.” The more business and government push the short-term inflation of the hydrocarbon industry, the greater will be its vulnerability to market failure when shrinking investment, rising cost of production, and receding demand converge, as they now are. Prudent financial analysts are now comparing the current hydrocarbon bubble to the dot com bubble, and are warning of a comparable, or worse, collapse. The collapse of an industry that traded in relatively ephemeral goods and services is one thing, but the market failure and collapse of the hydrocarbon industry is a much higher risk circumstance. Real harm may be done to many people and to society as a whole if Canada hangs on to the hydrocarbon ring as long as possible instead of mounting a full tilt advance into the renewable energy future. The worry is this: Prudent investors are already backing away from hydrocarbons; the cost of production for tar sands, tight shale, and deep sea oil requires a high market price; over supply and receding demand are now deflating oil prices. OPEC has just refused to reduce production, which is likely to further undercut the tar sands and fracking boom. The hydrocarbon business, once the mainstay of industrial civilization, may now be courting market failure. And that is why Mark Carney’s public pronouncements on this situation are quite extraordinary. No one can accuse him of being anti-business or a radical environmentalist. He is trying to save the market structure of business and business investment. The big question is, will his counsel penetrate the business and political leadership of this country in a way that effects a turn around on our energy future, or will he be ignored? Will short-term thinking continue to expand the tar sands and build more pipelines, such as the one proposed for New Brunswick? Or will long-term thinking in the public interest make the turn to renewable energy?
Carney Calls Fossil Fuels Unburnable ‘Tragedy of Horizons’2 12 2014
TJ DEC 2
Mark Carney, pipelines and climate change
KEITH HELMUTH COMMENTARY
KEITH HELMUTH is a member of the Woodstock Sustainable Energy Group