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OIL IN AMERICA:  Too Rigged to Fail

OIL IN AMERICA: Too Rigged to Fail

By Michael Bufano

Fossil fuels are environmentally harmful, and the industry they represent is well-established and profitable.  Yet, the US government subsidizes that industry to the tune of $21 billion per year.  Although President Barack Obama and his allies in congress have made notable efforts to increase subsidies for alternative energies, continued support for petroleum-based products threaten to hamper the development of green technology. The immense expenditures of the fossil fuel lobby is only one political motive behind these preferential policies. The petroleum industry is also intimately connected into every major facet of the American economy and political system, including major banking institutions, infrastructure, and state pension plans. As a result of these connections, companies in this industry are often said to be “too big to fail” since their failure would, so the argument goes, almost ensure the catastrophic destabilization of the economy. It is precisely this special status that blocks the potential for badly needed energy reform.

The heart of the problem is that most of the country’s energy infrastructure remains dependent on petroleum. In 2014, Americans consumed over 19 million barrels of oil a day to operate their homes, businesses, and automobiles. Seventy-one percent of all energy consumption came from fossil fuels in 2014 despite over a decade of intense investment in renewables. Discouraging investment in fossil fuels and subsidizing alternative energy is critical if the United States intends to play its part in the global effort to limit climate change. However, fossil fuels are such a deeply enmeshed component of the economy that short-term costs for the public seem unavoidable. Building the necessary renewable energy infrastructure will require a financial investment by the American public that many may not be willing to stomach.

The US economy’s dependency on fossil fuels over the last century has also made the industry a very safe investment for banks and mutual funds. A review of the ownership structure of America’s largest fossil fuel corporations such as Exxon Mobil, Conoco-Phillips, and Chevron reveals extensive interconnections with the financial sector. Almost all of America’s major banks, including Morgan Stanley, Bank of America, and Citigroup, have large investments in the industry. Furthermore, dozens of major mutual funds run by large companies such as Vanguard Group, IG Investments, and Blackrock group have a large portion of their investments in fossil fuels. What this means is that average Americans with savings accounts or with money invested in mutual funds are helping prop up this system whether they know it or not—and whether they like it or not.

The interconnection between fossil fuels and the broader economy goes even further. Large corporations as diverse as PepsiCo, IBM, and Proctor & Gamble have vast sums of capital invested in the industry. The fossil fuel companies, in turn, have their money in other parts of the economy. For example, Warren Buffet’s Berkshire Hathaway, which owns and operates gas fields, pipelines, and power plants throughout the United States, also owns Geico Auto Insurance, BNSF Railway, Kraft Heinz, several newspapers and dozens of other companies. Buffet also owns minority shares in enterprises like Coca Cola, IBM, and Wells Fargo. Not surprisingly, Buffet is currently the world’s third richest person and his company is the fifth largest globally. This same type of horizontal diversification can also be seen with Koch industries, which, along with its investments in oil refineries on the Gulf of Mexico, also owns companies in the fields of ranching, minerals, fertilizer, paper manufacturing, and electronics. If the stock prices of oil companies decline, these large companies, which employ millions of Americans, will also be negatively impacted.

The interconnection of fossil fuels within the US economy extends even to the pension plans of public workers, particularly in seventeen specific states. For example, the retirement systems for teachers, firemen, policemen, and other bureaucrats in large states such as California, Ohio, and New York are heavily invested in the industry, and as a result, approximately one third of Exxon Mobile’s ownership consists of the pension plans of workers in both the public and private sectors. If the stock prices of oil companies were to decline, so too would the retirement savings of America’s public workers.

Given this interconnectivity, it stands to reason that a key component of energy reform would be to gradually break apart these companies and divest America’s pension plans from these industries.

However, fossil fuel companies and banks wield extensive economic influence over the state. In 2015 alone, companies in the petroleum industry donated over $107 million to presidential candidates, representing one fifth of the total campaign financing that year. Republican presidential candidate Ted Cruz received $25 million from pro-fracking companies such as Barnett Shale and Frac Tech. On the Democratic side, Hillary Clinton received $4.5 million or 7 percent of her total campaign financing from a diversity of companies such as BP, Enbridge, Exxon Mobil, and many others. Additionally, oil companies have spent tens of millions of dollars to finance the campaigns of a majority of Republicans and a minority of Democrats at the state and federal level, ensuring their influence over a majority of the nation’s political representatives, including state governors. In 2014 alone, Exxon Mobil alone spent approximately $860,000 on financing the campaigns of congressmen and governors.

In addition, many former politicians and government officials now work for these companies as lobbyists and CEOs.  This has strengthened personal relationships between state representatives and the oil industry. In 2015, 54 out of 66 of lobbyists from Berkshire Hathaway had previously worked for the government. Furthermore, eighteen Democrats and twelve Republicans currently sitting in congress owned stake in the company. Similar figures can be found for the other major oil companies as well; one prominent example being former Georgia Senator Charles Shoemate, who is currently on the management board of Chevron.

Due to these interconnections with the state, the fossil fuel industry has been able to effectively lobby for tax breaks, environmental deregulation, permission to use fracking technology, and the privatization of public land for oil speculation.  Most of these large fossil fuel conglomerates have used their wealth to spread disinformation on environmental issues such as global warming. According to Think Progress, “59 percent of the Republican House Caucus and 70 percent of Republicans in the Senate deny the scientific consensus that climate change is happening and humans are the main cause.”

Further compounding the problem is the fact that green energy companies simply cannot keep up in terms of campaign financing. For example, Clinton’s Presidential campaign received $4.5 million from fossil fuel companies compared to only $110,000 from alternative energy companies. Although both Republican and Democratic congressmen received approximately $3.33 million in 2014 from green energy, the amount paled in comparison to the tens of millions of dollars donated to them by fossil fuel companies. Alternative energy companies have certainly received a significant increase in the amount of subsidies they’ve received. They have also seen their share in the economy increase to 11 percent per year thanks to public and private investment, but despite such advances, the situation remains stark. While alternative energy received $12.2 billion in subsidies from 2002 to 2008, fossil fuel companies received $70.2 billion.  Funding for green energy has increased significantly under Barrack Obama’s presidency, but the same can also be said of the fossil fuel industry.

As long as oil companies remain too big to fail, politicians and businessmen who understand the long term dangers of dependence on fossil fuels find it difficult to move away from the resource. While Buffet’s Berkshire Hathaway has invested significantly in renewable energy, it also continues to invest in natural gas. Buffet himself has personally praised Clinton and Bernie Sanders for their stances on green energy and global warming, but his company has, nonetheless, made contributions to Republican candidates who oppose energy reform. After all, it’s what’s best for his company’s board of directors.  There are many examples of leaders in both politics and business with the right mindset, but short-term economic goals and a myriad of other obstacles make a break from the industry a difficult task in the short-term. 

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