Financing the collapse
How financiers, investment groups and shareholders are responsible for the approaching collapse
Complicit within the corporate, neoliberal quest for short-term profit over the existence of a stable climate or even a viable future for life on earth, is an often overlooked, but critically important group who must be identified and challenged: the financial industry; specifically within relation to their continued support for the fossil fuel economy.
Central banks, institutional investors, commercial banks, asset managers, insurance funds and private equity all facilitate the continued funding and expansion of oil, gas and coal, and have adopted several strategies to bypass regulation and accountability. Stakeholders within the financial industry (such as insurance and pension funds, sovereign wealth funds and institutional investors) who invest significantly in oil and gas companies, have considerable control over these companies, and are able to steer these companies as they choose in order to maximise profitability. Therefore, it is within the interests of not just oil companies but a variety of financial actors that the fossil fuel industry is perpetuated, and that the subsidised revenue derived from maintaining the status quo continues.
In many ways this is why the system has been so difficult to regulate — with so many vested interests and routes to bypass regulation it is almost impossible to contain climate-destructive pathways. Add to this government policy entanglement and political sponsorship and the route forward becomes even more challenging.
Government authority and the democratic process is key, however deregulation has characterised economics since the 1970s, and neoliberalist doctrine has greatly decreased the chances of limiting fossil energy development in favor of alternatives. The financial industry is in most cases free to regulate itself, and a number of tactics are used to maximise profitability for financial industry players.
One critical issue is the system of financial modelling and risk evaluation, which can affect credit ratings and other metrics. Within this system, climate is often considered a non-issue because many mainstream models heavily downplay risk in order to maximise short-term profitability, instead promoting a narrative of ‘climate change only effects the global south’. For example, the previous World Bank president David Malpass who resigned in June 2023, was grilled on the subject of climate change and repeatedly dodged the line of questioning, claiming that he ‘didn’t know’ if he agreed with or understood the scientific consensus because he ‘wasn’t a scientist’. While high-level financiers may not take the unfolding climate crisis seriously, it will become obvious that this perception is seriously flawed.
Fashioning the ‘scientific consensus’
As presented in the introduction, the problem starts with the scientific data itself, because this is the only genuine backstop to keep climate denial and special interests from disregarding the evidence, and working directly counter to efforts to limit warming. But unfortunately, this is precisely what they are doing — because they are fully involved in determining what the ‘scientific consensus’ is from the outset.
It should be understood that the world’s leading climate advisory body, the IPCC, is in fact subject to the influence of both oil companies (for example, a Saudi Aramco employee was a lead author of the latest IPCC report) and more importantly global financial institutions which closely shape the overall outcome and messaging of the reports, to ensure efforts to limit investment in fossil fuels are minimised, and genuine risks are overlooked. In simple terms, unrefereed economists are cancelling major components of these reports, while also taking lead roles throughout the organisation including the Integrated Assessment Modelling (IAM) process.
As professor and policy analyst Jessica Weinkle explains in detail, the organisational structure of the IPCC has arrived at the point where various conflict of interest issues are now obvious throughout the scenario development and governing processes which underpin the reports. As she observes, and others have pointed out, a select team within the IPCC chooses the scenarios that they want outside any scientific or formal process, who then ensure the messages of these scenarios are repeated throughout the different groups making up the body, while working directly with the world’s most influential financial organisations via a closed-door committee.
As she explains
“All of the researchers that govern the IAMC through its Scientific Steering Committee are also on the Climate-related Financial Analysis Committee and work directly with the world’s largest and most influential financial institutions.”
In this way the common thread that links the entire organisational structure of the IPCC via its steering committee, is that they work with financiers with absolutely no accountability, and under the backdrop of known conflict of interest concerns.
“It’s the same people over and over again. This is concentrated power; a handful of people that shape the entire world of climate change research.
It is clear that the same researchers that organize, develop, prioritize, and select scenarios for global climate science are doing the same for major financial institutions and regulators. The same people are also authoring IPCC reports.
There should be great concern that the way the world understands the collective climate future prioritizes special business interests particularly, financial institutions.”
And this is precisely the point: every government, industry and financial institution in the world looks to the IPCC and its reports as the definitive voice on climate science, risk and scenario modelling. For example, new rules for financial disclosure which will (hopefully) be mandatory, as prescribed by the European Central Bank and regulators in the US, initially relied on IPCC data to determine the climate-aligned creditworthiness of various assets and investments. While this situation is changing as knowledge of climate risk becomes more fluent — notably the adoption of a much higher 14% GDP loss by 2050 now referenced by the ECB (rather than the 10–23% GDP loss by 2100 arrived at by the IPCC findings) — climate risk is still being dangerously underestimated and a fundamental rethink is required by regulators and governments to correctly portray these massive approaching losses.
Others too have pointed to the failure of the IPCC to make publicly accessible known conflict of interest issues and value disputes (such as entire chapters authored by Saudi Aramaco employees) to deal effectively with underlying structural issues.
In a recent article published in The Guardian, researcher and IPCC contributor Adam Standring has highlighted the decision by thirty leading scholars who study the IPCC to lay out the case for institutional reform, as published in the journal Nature Climate Change, identifying possible scenarios the organisation could take.
As he notes, the current system of IPCC governance is heavily biased towards rich industrial countries who for the most part are resistant to change, and as we now know are even putting themselves gravely at risk by simply editing out the science that doesn’t suit them. If the world’s largest insurance and reinsurance companies, who depend on accurate data for the functioning of their businesses are producing figures that diverge wildly from the economist-authored ‘guesses’ that habitually form substantive components of IPCC messaging; such as the minimal or even positive effects of 6°C of warming, then reform is almost certainly warranted. IPCC reports that severely underrepresent risks and carry with them well-known and easily identified conflict of interest issues need much greater scrutiny or as is now being put forward: genuine structural reform.
Similarly, within his book, Why are We Waiting?: The Logic, Urgency, and Promise of Tackling Climate Change, author and economist Nicholas Stern spends a chapter examining the use of Integrated Assessment Models within the IPCC assessment reports, highlighting the inherently flawed basis of their construction. Nicholas Stern, who is the author of a number of books focusing on climate change, including the first exercise in rigorously tackling the economics of climate change as presented in the Stern Review of the Economics of Climate Change (2006), has consistently warned of the huge danger posed by increased levels of warming. As he writes
“The people of the world are gambling for colossal stakes. Two centuries of scientific enquiry, founded in basic physics and powerful evidence, indicate that risks from a changing climate over the next hundred years and beyond are immense. There is a strong possibility that the relationship between humans and their environment would be so fundamentally changed that hundreds of millions of people, perhaps billions, would have to move. History tells us that this carries serious risks of severe and extended conflict.”
Particularly examining Bill Nordhaus’s DICE models, Nicholas Stern finds the results implied by these models to be extremely implausible. As he writes when describing the potential for uncertainty within the probability curves used in these models
“I would suggest there are immense problems arising from the middle of distributions (say 4°C on some extrapolations of emissions): such problems are not tail effects. The tail is even worse: at 8–10°C, possible a couple of hundred years from now under high emissions scenarios, we might have to recognize possibilities of extinction of much of the human race. It is simply daft or worse to present that as a 15–20% loss to GDP as portrayed in [figure 4.1].
Taken together, the assumptions in most IAMs that we have highlighted lead not just to low estimates of the social cost of carbon but to recommendations that we should head for concentrations of, say, 650 ppm CO2e. The science tells us there are immense risks at these concentrations; but some economic models apparently tell us that heading for these concentrations is optimal. It is not “economics” that is saying this but the peculiar assumptions generally used in a very narrow class of models.“
He goes on to write, and as a theme reiterated by various recent reports such as The Emporers New Climate Scenarios and Loading the DICE on Pensions
“Combining climate science and modeling economic impacts from climate change is a useful endeavour, but most integrated assessment models (IAMs) mislead and misguide policy discussions because they assume damages from given temperature increases which appear to be implausibly small. For example, a number of models assume damages from a temperature increase of 5°C as 5–10% of GDP or lower when such temperatures have not been seen for tens of millions of years and could be devastating for much of the planet, with consequences including vast movements of populations and severe conflict.”
The list of those detracting IPCC assessment reports and indeed the entire UNFCCC Conference of Parties process (recently presided over by an oil CEO at COP28 in the UAE, and hosted by another petrostate, Azerbaijan, in 2025), is climate scientist, Professor Kevin Anderson. As he comments on Twitter
“The invidious tendrils of Big Oil are everywhere, from the arts to sport and from the media to politics. But perhaps their greatest success is in having co-opted the ‘expert’ community, the academics and even the highest ranks of the IPCC.
At COP28 the IPCC chair claimed that a flip of a coin chance of not exceeding 1.5°C of warming is compatible with 60% of current global gas use and 40% of oil, in 2050! Utter nonsense … yet barely a murmur of disquiet from academics“
The problem for financiers is that because climate science now effects almost every part of the global economy, changing key components of the IPCC data representation process — such as being honest about what hazards are now guaranteed — would dramatically affect how investment groups and shareholders can operate. With accurate and unbiased data, a legal basis could therefore be made for ongoing investment practices and financial agendas to be prohibited or severely restricted. This would mean that many unscrupulous institutional investors, asset managers and their shareholders would potentially be subject to immediate profit losses and asset devaluations. However, the reality becomes clear — if these investment groups continue investing in fossil fuels, then climate goals are lost, and catastrophic warming is guaranteed. There is a direct line between financiers, emissions and climate impacts. It is impossible to avoid or overlook, if the scientific data and assumptions are not misleading from the outset.
And this, ultimately, is why such an overhaul of the IPCC is now necessary.
But it is not just the IPCC and its oversight committee in isolation that is guilty of ‘cooking the data’ to facilitate ongoing profiteering by fossil fuel shareholders.
Looking at the structure of the global financial industry and its components
The financial industry is complex, and includes a range of actors such as central banks, commercial banks, development banks and other semi-public institutions, followed by non-bank financial institutions which include institutional investors, asset managers, pension funds and insurance corporations, as well as hedge funds, private equity and others. The labels for many of these stakeholders are often interchangeable (large asset funds such as BlackRock and Vanguard can be labelled as institutional investors, asset managers or some other bracket), and a considerable level of overlap often exists where the line between investor, bank and insurance company for example can be difficult to discern.
Obviously not all of these institutions are morally at fault, recognising that the possibility of investing in completely net-zero infrastructure from the outset is extremely limited, and energy is vital to the functioning of an economy which means that fossil energy investment is often unavoidable. It is understandable that investments in fossil fuel infrastructure and upstream investment will need to continue until we are no longer dependent on a fossil fuel-dominated global economy for virtually all energy and transport needs.
The problem however, is that much of the investment that is still flowing to fossil energy projects globally is not at all aligned with Paris Agreement goals, and in fact these investments already bring the planet far beyond the 2°C upper guardrail; all the way to 2.8°C by some estimates. Mostly, these banks and institutions are betting on other fossil energy investments becoming unviable before their own investment starts to lose value, which today means it appears that they are hoping that the possibility of asset stranding can be avoided indefinitely. It becomes obvious that even the task of correctly identifying what asset stranding risk exists is going to become difficult, as data is patchy at best and now, banks and investors are hiding potentially suspect fossil investments via the services of third-party intermediaries to avoid regulation and present clean scorecards to risk assessors. But even the nominal responsibility of risk disclosure is being shirked by financial institutions, and many are now leaving the net zero and transition-aligned affiliations that were designed to initiate the process of limiting or reducing fossil energy investment.
These financial institutions are now almost solely driven by the neoliberal doctrine of capital accumulation over any other consideration, where regulation is avoided or paid for, even though this regulation is designed to avoid systemic failure; mostly because in the event that a failure occurs, it is the taxpayer who pays rather than ultimate responsibility falling on shareholder or financier. So governments have a choice: they either step in and impose significant legislation to limit profiteering in some way — either taxes, profit-capping, fossil energy bans or some other method — or the financial industry continues to evade regulation and the fossil fuel asset bubble keeps growing. Regulation needs to be well thought through and structured, because the financial industry is already operating a few steps ahead of what any potential regulator might wish to impose: the IPCC and annual COP process as orchestrated by the UNFCCC is already very much in the hands of the financial industry and oil companies, and the IEA and others are doing what they have always done which is to gaslight effective pathways away from fossil fuels while the ‘UAE Consensus’ remains the same — that real change is many decades away if even possible at all. Fossil fuel companies and their shareholders and investors — mostly focused on oil — control the entire narrative, from public institutions to policy groups and NGOs, media, academia, and climate science.
Progress made by the financial industry to date
Many financial industry affiliations have sprung up in recent years, with numerous pledges and aspirations to instil confidence that progress is being made. On examination however, most of these groups have made little if any progress in achieving their aims; GFANZ for example (Glasgow Financial Alliance for Net Zero) has a far lower level of investment in net-zero related activities than their non-net zero counterparts. Overall, commercial banks have spent vastly more on fossil fuels than on renewables in the years following the Paris Agreement declaration, and by looking at the financial industry data that exists, fossil investment continues to dwarf renewables everywhere.
While the IEA likes to note that overall fossil fuel capital investment in 2023 was approximately $1 trillion, which compares — depending on the metrics in place — to $1.7 trillion in the clean energy economy (including battery-electric cars for example), raw spending including subsidies on renewables is far less than fossil fuels, as fossil energy subsidies alone in 2023 surpassed $1 trillion (mostly consumption subsidies in the case that fossil fuel companies were profiting from excessive price hikes), and overall oil revenue rose to $4 trillion. This $1.7 trillion is a positive development on the $500 billion afforded to clean energy only five years ago, but fossil energy consumption is still increasing nonetheless.
Overall, about half of global fossil energy investment comes from banks, including commercial banks, development banks such as the IMF and World Bank, and investment banks in different regions supplying finance to large infrastructure projects — the AIIB in Asia and the EIB in Europe for example. The other half of investment to fossil fuels comes from the NFBIs — ‘shadow banks’ or institutional investment groups who are less regulated than traditional banks, and often less well supported by central banks in the case of failure — although this trend has reversed somewhat as many non-bank investment institutions were bailed out following the Global Financial Crisis. Mostly, the trend today is that rather than banks issuing loans, bonds are issued directly by fossil energy companies and these are bought by institutional investors such as the main groups in the US (Vanguard, State Street and Blackrock) or other large investors such as Norges Bank or a sovereign wealth fund.
Because banks are subject to more regulation, the trend for fossil fuel investment has shifted sharply towards institutional investors, where the fund holds shares in thousands of companies and shareholders passively accrue revenue as each company grows. This system has proven very popular, but because of the very large nature of the fund, and the control these investment groups have, the profit motive outstrips the motivation to act in the interests of the ongoing sustainability — financial or otherwise — of the companies being invested in. Where banks previously have acted as patient investors, ensuring the long-term viability of the companies invested in; the onset of shadow banking has meant there is far less corporate responsibility, and much less accountability. While institutional investors can still to a large extent control the outcome of company strategy, as they often hold the largest amount of shares within the company and can therefore overrule or block motions that may interfere with the neoliberal values extolled by these groups, they can also still walk away from the company in question as their portfolios are so large that no one company makes a significant difference to their overall profitability.
In this way, regulation and accountability get more difficult to impose, and the risk of systemic shocks increase — particularly those caused by policy measures that would strand assets.
While the main trend today is a shift away from the speculative finance practices that characterised the onset of the financial crisis originating in the US; which mostly consisted of large amounts of highly unstable securitized debt and other asset classes, todays bubble is very obvious: fossil fuel investment and revenue held by a wide variety of financial institutions and banks. In total, the potential stranded asset risk is not impossible to estimate, and various reports have attempted to provide workable figures; either connected to banks or NBFIs.
The onset of some form of financial crisis occuring is essentially inevitable as only two outcomes are possible, and that is either the economy suffers considerably as a result of climate impacts (the cost of climate impacts will rise to $23–38 trillion per year by 2050 [Swiss Re, NGFS, ECB, UK IFoA, Potsdam Institute]) or an asset stranding event occurs where the consumption of fossil fuels that would bring us to 2.6°C and above are avoided and therefore their value decreases dramatically, thus becoming debt. What is almost becoming obvious is that banks are now desperately avoiding the latter of these two options instead hoping to delay any genuine regulation from impairing these fossil energy asset values, and thus any structural changes that this would imply. Primarily these changes could consist of differentiated interest rates and targeted monetary policy as implemented by central banks, and later the wholesale adoption of the hydrogen economy; from gas networks, industry or widespread hydrogen refuelling for trucks, shipping and aviation fleets, which require far higher levels of government support, rather than the continued support offered to fossil energy shareholders.
This would be the logical progression from fossil fuels with regulation in place, however governments are reluctant to be ‘first mover’ on such infrastructure changes being mandated and lobbying against such moves usually swings the argument quickly around, despite the vast cost of inaction this implies.
Central Banks
Central banks’ primary function is to maintain stable prices (the primary mandate), and to support commercial banks within the economy to ensure that the monetary system operates smoothly (e.g., in the event of a crisis). The conventional means within which they achieve this is by trying to lower inflation by setting interest rates, while also providing liquidity via tools such as bond purchases (quantitive easing). Central banks maintain a degree of independence from governments, while also adhering to their second mandate which is to maintain continuity with fiscal policy.
Central banking policy is often criticised however, mostly because of the profiteering that is often engaged in, where interest rate increases during times of high inflation mean a direct transfer of wealth from the economy to banks, while policy tools to effectively deal with the specific causes of high inflation are overlooked or avoided.
These criticisms are usually well-founded: the recent period of high inflation in Europe and elsewhere following the Corona virus pandemic (as well as the war in Ukraine causing increased fossil energy prices) meant that the period of low interest rates charged by banks on loans came to an end, and instead rates went up. Central banks increase interest rates with the objective of cooling the economy and eventually reducing prices.
However this is rarely the result, as often inflation is not caused by an overheating economy, with excessive spending pushing up prices; but instead by supply chain issues such as increased energy prices or food prices — the primary drivers of inflation historically as is well documented. This means that as inflation rises, these costs effect those in lower-income wage brackets rather than higher earners, and increased interest rates further depress the economy while profits are transferred to banks and their shareholders.
These various forms of inflation are well understood, however it’s becoming increasingly obvious that climate change and its corollary effects on both fossil and renewable energy, as well as it’s physical impacts, are already becoming significant if not the main cause of price increases.
Unfortunately, by simply raising interest rates across all asset classes, the cost of renewable energy projects rises dramatically (e.g., 50% or more cost increase at 4% interest over 20 years, which is locked in at the time of purchase), while making fossil fuels more attractive in comparison. The subsequent shift in investment means more dependence on fossil energy which then drives both climate-based costs and energy price fluctuation. The result is bad all around: locked into volatile fossil fuel prices with worsening climate impacts which push up inflation within a doom-loop which causes more inflation and thus higher interest rates.
As David Barmes and Simon Dikau from the Grantham Research Institute at the London School of Economics write
“Central bankers will have to look beyond interest rate hikes as a price stabilisation tool or they will face repeated charges that they are feeding inequality, exacerbating debt distress, stalling the green transition and threatening financial stability, resulting in further deterioration of the public’s trust in central banks.”
The options available to central banks are well known: dual interest rates for renewables and fossil fuels, as well as targeted monetary policy (lending to zero carbon energy investors rather than fossil energy). Problems with central banks are often framed as an issue of inequality rather than just profiteering — wealth is maintained by the rich while the poor suffer, mostly innecessarily. But a further reason exists for central banks to avoid diversifying lending away from fossil fuels by making renewables affordable — the growing fossil asset bubble that is forming, which financiers and investors are currently profiting from and which could be hugely destabilising; potentially much worse even than the Global Financial Crisis.
The response to current central bank policy in the US and the EU has been unanimous: as democratic Senators Elizabeth Warren and Sheldon Whitehouse warned the Federal Reserve Chair Jerome Powell, interest rate hikes have “completely tanked major renewable infrastructure projects across the country.”
In a speech made at the COP28 climate summit in December 2023 in Dubai, French president Emmanuel Macron reiterated the sentiment: there is no way to believe in the success of the energy transition if interest rates mean that the price of renewables increase dramatically and become unaffordable. As he states
“Our private investment market is massively dysfunctioning. In the coming years there has to be a green interest rate of some sort; and another interest rate for brown investments”
A major theme presented at the COP28 conference in the United Arab Emirates was the growing need to transform the global financial system, and this was arguably one of the few areas where corporate capture of the narrative — mostly oil company led — was not completely glaring. It must be said, presenting the reform of the financial industry openly as a major theme of the conference says a lot about the state of banks and finance today, although concrete progress at the conference in this regard was decidedly lack-lustre.
President Macron continued the theme of financial reform via an article in the Project Syndicate website in December 2023
“We must also put private financing and trade at the service of the Paris agreement. The cost of investment must be higher for players in the fossil-fuel sector. We need a green interest rate and a brown interest rate. Similarly, we need a climate clause in our trade agreements, because we cannot simultaneously demand that our industries become greener while supporting the liberalization of international trade in polluting products.”
The European Central Bank
A very large number of articles, research papers and other documented evidence exist to confirm that the financial industry have very clear routes to enabling an effective and successful shift from fossil energy investments to renewables, but despite a lot of talk from those such as the ECB, they remain entrenched in a battle against any realistic reform. This is mostly under the guise of deregulation and adhering to neoliberalist doctrine, despite its ongoing failure to maintain stability or act in the interests of anyone except financiers. The lack of action by the ECB could not be more blatant. Concerning the interest rate issue — which is undoubtedly the primary tool that the ECB wields to reduce inflation, despite its generally accepted lack of actually being effective in achieving this goal — many commentators are becoming more vocal.
An open letter published in national French newspaper Le Monde in March 2024 by a group of nearly 30 economists, investors, business leaders and associations reiterated the call for the implementation of differentiated interest rates in favor of “green” investments in order to counter the deleterious effects of rising rates set by the ECB.
The skewed, openly biased, rampantly profiteering nature of the financial industry came under continued pressure in 2024, as the ECB’s lack of any meaningful progress on the core issue of climate started to raise questions concerning the legitimacy of the ECB’s governing council, most notably ECB president Christine Lagarde.
The ECB working body in January 2024 leaked an internal poll which found Lagarde had reached an approval rate of less than half of all employees. Of course, it is not just Lagarde but the ECB governing council who actually decide policy, and Lagarde herself has no formal economic training. But the possibility of returning to price stability is unlikely considering the focus on fossil fuels rather than renewables and the subsequent noticeable effect of climate impacts on food price stability, which will now intensify. Her affirmation that price stability is her core goal could not be more strongly disproven; the ECB consistently undermines this goal, purely in the service of banks and their shareholders.
Understanding Lagarde’s chequered, ‘rock star’ history; at one point accused of “negligence by a person in a position of public authority” in a scandal involving massive payouts to a public figure linked to political bribery while working as president of the IMF, it could be argued she was specifically chosen to facilitate certain banking practices at the ECB.
The system as we now understand is heavily weighted in favor of financial institutions rather than in maintaining a stable economy, and this stability — both price stability and financial stability — are constantly at risk from ECB monetary policy. Because interest rates are used to fix inflation even though in most cases it is not an inflation caused by too-high wages leading prices to increase (despite the ECB claiming this is true in the face of zero and opposing evidence), but from supply chain and other causes, high interest rates end up being a tax on the poor, and a direct subsidy to the rich — precisely when this is likely to have a highly destabilising effect.
This has resulted most recently in payouts from the ECB to the commercial banking community in the EU via interest rates reaching €140 billion in 2023. This has fuelled steady criticism directed at ECB president Christine Lagarde by MEPs for what is in effect massive profiteering at the expense of European taxpayers and national budgets.
As Socialist and Democrat MEP Paul Tang told Lagarde at a debate in the European Parliament
“It is an extraordinary act of generosity towards bankers at the expense of taxpayers”
It has now been stated that nearly all of this money — €120 billion — will go directly to shareholders in profit, rather than in shoring up banks for potential shocks down the line, such as stranded asset risks and other liabilities which are now an obvious danger and in most cases guaranteed. This cost has already been attributed to the taxpayer via a separate ruling, where no capital requirements are necessary for the highly risky fossil fuel lending practices which continue.
The fact remains that the ECB, commercial banks and the financial industry in general are all trying to escape the same reality: a vast, growing asset bubble made up of fossil energy investment which must at some point depreciate in value if we are going to reduce emissions to zero. While the argument exists that domestic fossil energy production and supply is necessary to counterbalance potential Middle Eastern domination of the energy system, by now the ECB have completely undermined the financial viability of renewables (a fact they are aware of but continue after over two years not to act on) and have proven that they do not care at all about their mandates and are now simply focusing on profits for shareholders despite the obvious result this will have — to them and society. Because the crash when it happens will be paid for by taxpayers it doesn’t really matter; in effect this crash will be just a continuation of normal monetary policy — a transfer of wealth to banks from the taxpayer.
So today, this seems to be the standoff — net zero-aligned observers and stakeholders focusing on the financial industry, recognising the mutually worsening outlook for both the climate and the renewables industry as a result of central banking policy choices — are waiting for some policy or regulation change to enable finance to start working for the energy transition. But instead we are met with the usual ECB charade whereby half-hearted ‘acceptances of what should be done’ are offered, while no real action is taken, and no change in direction away from fossil fuels is made
In effect, the banking community, led by financiers and enacted by the vast network of influence the combined finance/fossil energy system holds power over, is taking the world hostage. They are unwilling to oversee the kind of integrated, far-reaching and forceful policy measures or even the minor regulation necessary to see through change, and begin the path to net zero. The cost of asset stranding, depending on the source referenced, is potentially very small — only about $2 trillion for private companies to get within approximately 2°C by 2050 (thus excluding NOCs such those within OPEC, for example) according to the IEA’s recent Oil and Gas Industry in Net Zero Transitions report. Even less than this, most institutional investment portfolios such as Vanguard, State Street or Blackrock do not hold more than 17% of their assets as fossil fuels. This is the case throughout the financial system, as identified in a number of reports: fossil energy is not the primary driver of overall returns, but within specific sectors these returns are still very much prized and investors do not want to budge. Beyond stranded capital investments, the IEA report still disregards ongoing fossil energy revenues, which far exceed this rather modest $2 trillion sum — global oil revenues averages $3.7 trillion annually, and consumption in the EU alone reaches about $400 billion per year — meaning losses to specific groups depending on future fossil rents could be extreme.
While it is still not known (as a result of negligent and in some cases fraudulent bank practices) what the precise nature of this asset stranding event will be, despite repeated calls for disclosure and transparency, the potential to contain the ongoing spread of defaults arising from a reduction in fossil asset values does exist. As former head of the Bank of England, Mark Carney, has often quoted — “what can be measured, can be managed”. But without a clear picture of the costs and no regulatory structure in place to oversee a semblance of order, the potential for the stranded asset bubble to grow only increases, and the risk only grows larger.
But regardless of these costs, the financial industry is not budging — they know the danger, they know the unavoidable outcome of continuing to profit from fossil fuels at the expense of a functioning economy, and still they do nothing to realistically change course. Neoliberal economics have led them to believe that the market itself — essentially, the pursuit of profit above ongoing stability — is their guiding light, and if a crash should occur then it is fair that the losses should be borne by the taxpayer, without much fanfare and without much resulting change. The faith in the logic of the neoliberalist doctrine itself propels them ever forward.
As proof that bankers and economists are still rooted in this doctrine, Christine Lagarde began a recent speech (just yesterday, at the time of writing) titled “Central banks in a changing world: the role of the ECB in the face of climate and environmental risks” with a short homage to Maurice Allais, who promoted the central tenets of neoliberal ideology through neoclassical economic science via general equilibrium theory, with its central focus on ‘market efficiency’ rather than regulation or any adherence to societal objectives. This singular hypocrisy runs as a theme throughout the speech; as though the pursuit of profit alone is justification for the blatantly climate-averse policy prescriptions the ECB are now famous for. It is now fully understood that the deregulated, ‘efficiency first’ economic models celebrated by neoclassical economists were precisely the cause of the 2008 financial crisis, but despite this the magical thinking of profit over accountabiity prevails within the financial industry as a whole. And we are now headed directly towards an infinitely larger crisis, as many observers are only starting to realise.
Returning again to the more practical nature of the energy transition, I will explore how ‘profit-over-accountability’ economists and financiers are operating in developing economies in a behavior that seeks to compound the threat of climate impacts by not prioritising low emissions technology, with no thought for future generations or indeed the viability of much of life on earth.
Profiteering investment practices and their threat to emerging economies
A primary example of fossil versus renewable energy financing that is starting to gain more attention is the understanding that emerging economies should ideally not be locked into fossil fuel consumption as their economies develop. These economies will develop with or without climate impacts but there exists a pathway to industrialisation that can bypass the carbon-intensive model of developed economies and implement more renewables rather than being forced to burn gas or coal which then reduces our collective carbon budget. It makes much more sense for these emerging and developing economies to be offered low interest rates and other incentives to avoid fossil fuels and develop clean economies from the outset.
The problem with pursuing low-emissions development even in developed nations however is that a number of barriers exist in the way of ‘fully renewable’ energy systems, and these barriers are often obscured, even by NGOs. Reasons for this span a number of issues, such as regulatory and permitting procedures slowing implementation of projects, additional costs and red tape associated with renewables, the need for complementary technologies such as storage and retrofitting use cases, systems integration issues and policy gaps — on top of other issues such as the ongoing subsidy imbalance which is still prevalent globally.
As we can see, in many cases it isn’t always possible to make immediate investments in renewable energy. But this is further exacerbated by the relatively quick returns that conventional investments can make; plus the familiarity of fossil energy projects, and the huge lobbying contingent that has built up to persuade policymakers and investors that fossil fuel projects can be completed and make the guaranteed profits advertised.
However it shouldn’t really be this way. The lobby groups that ensure funds and support from policymakers are lobby groups paid for by fossil fuel companies and shareholders — investors — themselves. The monopoly that the fossil energy and financial industry maintains creates the optimum set of circumstances to promote fossil fuel investment and support, and conversely to crowd out potential competitors who pose a threat — to funding, to engagement with policymakers, and to various supports. While electrification is slow, expensive, and has obvious and immediate difficulties, often simply being impossible to implement in place of fossil fuel applications, such as aviation, seasonal energy storage or heavy industry; the true threat — hydrogen — is carefully lobbied into obscurity. It’s a basic fact that hydrogen could be implemented just as fossil fuels are today, with the same investment strategies and government supports to speed up development.
But this would mean the end of the monopoly, and therefore the end of the preferential treatment afforded to incumbent industries, with huge subsidies flowing unavoidably to shareholders each year. Instead, while hydrogen would be ubiquitous, subsidies would be minimal because no huge workforce or balance sheets are needed to build oil rigs or refineries, and hydrogen can be supplied by a broad variety of sources such as wind, solar, geothermal, nuclear, biomass, waste plastic, fossil methane etc; both domestically and via imports.
So yes, we could move quickly with decarbonisation even in developing countries if hydrogen became a priority, but lobbying and special interests have ensured that hydrogen has been in many cases silently shelved, while the technical and planning difficulties associated with electrification are talked over and given special status despite being in most cases a functionally non-viable pathway to decarbonisation independent of any other consideration.
So what we are left with is a financial sector with almost no accountability. The fossil fuel industry remains a cash machine for investors who maintain its monopoly status by undermining alternatives, and co-opting policy via lobbying in Brussels (and elsewhere).
Before people like David Malpass can say he ‘didn’t know’ if he agreed with or understood the scientific consensus, and before regulators can start making solid, fact-based assumptions about specific outcomes related to fossil energy consumption, realistic scientific data is needed.
The first problem — that lending of any kind is not available to emerging economies — should be avoidable as renewables projects are generally lower risk than fossil-based projects, and lending will be vital if the world wants to avoid expanding carbon-intensive pathways overall. However, potential foreign investment without robust regulation might for example be induced to finance a gas-fired power plant in an emerging economy, which then locks them into gas purchases for 25 years, rather than a solar plant that requires no further fuel cost — especially if the potential investors are also invested in fossil gas assets. Looking further than this, we can see that of course, for 24–7 availability, a solar plant is not optimal. Yes, gas is used for back-up, but solar alone is not going to be enough. In this situation, investors may be more focused on preserving the viability of oil assets. This might therefore conflict with the development of the emerging alternative; hydrogen value chains — by stalling the adoption of hydrogen, any significant shift towards low carbon fuel throughout the system is negated, and any fear of the huge stranded asset risk that might imply is averted. So what we see instead is patchy, sub-optimal progress to fully net-zero value chains, and as Justin Guay from non-profit the Sunrise Project states, this is on top of the currency and interest rate premiums that are paid by emerging economies.
In sharp contrast to the ‘low cost, easy to build 100% renewable energy systems’ that some analysts like to promote as a way to leap-frog the carbon intensive economies prevalent in the developed world, there are extremely large hurdles in the way, and the regulatory and commercial environment is still very much aligned to fossil fuels. In combination with a lack of accountability, it’s easy to see why emissions are still rising, despite the extremely low material cost of renewables, and the lack of fuel they require over their lifespans.
Realistically, developing countries need to build economies that are resilient enough to external shocks so that they can start to rely more on their own central banks which can then be used to supply credit; and therefore finance more of their own development. If these countries did not rely on imports and were mostly self-sufficient, then governments could print money relatively safe in the knowledge it would be paid back. The systems of electricity and hydrogen production necessary for a self-sufficient zero emissions economy would then be paid for by themselves, with no need for creditors.
The same can be said for developed economies, which is why renewables are such a good idea: they provide a stable economic platform for development, and offset rising inflation, which many economists point to as an upcoming feature of our rapidly heating world. The emergence of the US Inflation Reduction Act should go some way to highlight the fact that renewables reduce inflation and keep the economy stable. The less economies are reliant on imports, especially for key commodities such as fuel, the better. It may be useful to point out however that if such a commodity is ubiquitous, such as hydrogen, then imports probably have less of an inflationary effect, and as many have argued, probably have a geopolitically stabilising effect.
The inevitability of a finance- or climate-led economic collapse
In Europe as in the US, it is obvious that the finance industry is not focusing on reducing liabilities which are fuelling an ever-increasing asset bubble, which at some point must be addressed, and which will have devastating consequences if costs are transferred to the broader economy. By not implementing specific policies which promote investment in renewables; specifically dual interest rates and targeted lending to enable the rollout of low-cost renewables which are inherently low-risk and reduce inflation (as exemplified by the Inflation Reduction Act in the US) — the finance industry is making it’s objectives obvious. Those objectives are very basically the pursuit of short-term profit, rent seeking and capital accumulation, at the expense of any other consideration. The finance industry is not focusing on the $23–38 trillion in annual climate losses which will occur by 2050, which will require structural change in order to avoid.
At the same time as the cost of climate impacts are starting to stack up, the finance industry is trying to avoid a wholesale shift away from fossil fuels because this comes with costs and will effect short-term profits. If policy and investment were to start focusing on phasing out fossil fuels completely, the small but influential group of shareholders invested heavily in fossil capital infrastructure, and the ongoing revenue they derive, would lose substantially. This could occur by finance being made available to capital-intensive renewable energy and hydrogen development, which they consistently block, as I examine in this book. The result of such a shift would mean significant losses for specific investors, and could potentially lead to a financial collapse if other problems compound, as they are very likely to do as climate costs escalate.
As Durwood Zaelke, president of the Institute for Governance and Sustainable Development and Stacy A. Swann, founder and CEO of Resilient Earth Capital write
“These will be the combination of factors that cause the fossil bubble to burst, and it will affect everyone, not just fossil fuel investors, since uncovered risks will revert to the public balance sheet for all taxpayers to pay off.”
Potentially, a shift to renewables and hydrogen could occur without significant costs to the broader economy if the shift were managed well, and risks were limited by effective regulation. But this is not occuring, and instead the industry is playing a game where they are not motivated to act in the interests of a stable economy because should a crisis eventuate, they will be fully compensated by the taxpayer — and therefore they can continue profiteering at the expense of climate or economic stability until forced to change.
Ultimately, it should be recognised that the finance industry is not actually usefully contributing to the overall economy, and by blocking finance to the energy transition is actively working to undermine stability, or even a basic level of economic viability during the long term. For this reason, if the industry does not or cannot regulate, governments should work to reduce taxpayer support for the industry in the event of a crisis. By winding in taxpayer underwriting of extremely high-risk and non-viable fossil energy investment, the industry may be forced to reform its investment and lending strategies. In this way, and as reports conclude, a financial crash could be limited to shareholders without overly effecting the general public; most losses would only be felt by the wealthiest 10% (65% of total shareholder losses in the US and 75% on average in the EU). As the report shows, compensating for stranded asset losses incurred by the poorest 90% in the US would cost 0.06% of national income per year over a 10-year period. The reluctance of governments and regulators to implement necessary change therefore highlights the extreme class divide that the climate crisis is predicated on: it is only the profits and dividends paid out to the wealthy elite that are really at risk by an effective transition, and not the viability or functioning of society or the economy as a whole.
Overall, these facts underline the growing consensus opinion that it will take another financial crisis to implement the reform of the global financial system that is now so urgent. And, in order to speed up the onset of such an event, deliberately stranding assets by implementing bold climate action leads to second-order effects such as financial restructuring that is now crucial to ensure that economies do not continue to be steered by those who wish to block the transition, extracting continued profits to shareholders, until there is no possible way out and the entire system becomes non-viable as the planet dies.
In very simple terms, it is easy to determine the value of stranded assets, being precisely the value of fossil energy revenues today on an annual basis.
Signs of economic collapse are already present: the US
As an example to highlight that economic collapse has already started, we can see that high debt and inflation are now inherent to the US economy. Interest payments on national debt now exceed $1 trillion in 2023, which is three times the value of the Inflation Reduction Act — the largest suite of green US policy measures in history — and still larger than the enormous annual US military budget; while being a figure that is likely to continue growing this decade at least. Such a gargantuan debt is not easily paid off and in fact at this stage is such a problem it is no longer being discussed openly by most economists — even the giant ‘debt clock’ which shows the zeros clocking up on an outdoor display has been quietly moved to a back street where it isn’t so noticable. At 97% of GDP ($34 trillion), some commentators such as the IMF and others are getting worried. It is expected the US will have three times the debt of most advanced economies by 2025, but what makes the situation precarious is that if other countries do not continue to buy US-issued debt, then the value of currently held debt could come into question. This would essentially mean another financial crisis, but the resolution to this crisis may not be as smooth as the 2008–2009 episode, and in combination with the looming fossil energy asset bubble, could entail far more profound consequences. Hyperinflation and other economic effects would then halt hopes of the ‘orderly transition’ prescribed by the central banking supervisory network, the NGFS, and as the data shows, real US inflation has now reached approximately 11% in 2024. Official inflation figures show that prices are increasing at the highest rate in 40 years, and Federal Reserve chair Jerome Powell does not believe inflation rates are guaranteed to reduce
“There’s a risk that the high inflation we are seeing will be prolonged. There’s a risk that it will move even higher.”
If lost fossil energy revenues derived from petrodollar-funded debt servicing or the loss of oil and LNG exports where to increase, this could have dramatic consequences for the US economy and those stakeholders dependent on a dollar-based economic system.
Contrived and avoidable climate cataclysm
Putting these facts together, a picture starts to emerge of a climate collapse scenario that is at a deeper level contrived and avoidable. Shareholder profits in the immediate term have been prioritised over climate and economic stability, and faith in neoliberal doctrine has precluded the grave reality that as climate impacts start to compound, these profits will simply be impossible to sustain — and indeed, will lead to the end of the entire financial system itself.
The financial industry has co-opted and bought out most of the public institutions and governance mechanisms that should in fact be steering us away from this approaching cataclysm, but instead are doing the opposite: to ensure funding for shareholders and avoiding at all costs any accountability for their actions. From the IPCC facilitating fossil investment expansion by severely underreporting risk, to the UNFCCC CoP process now being run by oil companies themselves, to the IEA offering obviously flawed and misleading forecasting to sustain oil revenues, to the ECB blocking renewable energy finance while maintaining an ever-increasing fossil asset bubble — the entire system of oversight is working solely for shareholders to keep deriving fossil energy profits until the system conclusively terminates.
Crucially, these shareholders also fund and co-opt the NGOs, think tanks and policy groups who should be offering new strategies to bypass continued fossil energy investment, but in fact only work to reinforce the status quo and block policy and investment focus on fossil energies’ only realistic competitor — hydrogen. Having highlighted the developing gap between the transition narrative offered by these groups — eg behavioural change, electric vehicles and housing renovation for example; versus the rapidly expanding policy and industry developments expediting the hydrogen economy, the next chapter looks in closer detail at these groups and what their true motivations are.
Within the context of a contrived and avoidable climate cataclysm, it becomes apparent that in order to facilitate the continued fossil fuel monopoly while pretending that progress is being made, shareholders extracting profits must ensure that any genuine alternative to the monopoly system they control is undermined to the point of irrelevance within the social narrative that exists regarding the energy transition. This is achieved with the considerable help of ideologic bias against hydrogen (mostly manifested by the ‘EVs vs fuel cells’ debate, although this is just the tip of the iceberg) and so even today, with enormous volumes of hydrogen production in planning, and entire hydrogen value chains either commercially viable today or within very few years, almost no mention is made of the necessary shift from fossil fuels to hydrogen that is required. In combination with electrification, and as report after report highlight in detail, the net zero economy does not have to cost more than the present system, regardless of the mounting cost of climate impacts that are approaching. The only genuine loss incurred by shifting to net zero will be felt by the shareholders and the systems of control they operate, that facilitate the flow of revenue from consumers and taxpayers via an energy system that is doomed and will collapse completely within decades, potentially leaving a lifeless and hostile planet in it’s wake.
It is vital that for this induced civilisational collapse to proceed, that the possibility of a viable alternative does not exist. For the cost of the oil rigs, refineries, pipelines and petrol stations; global economies can and must decarbonise — and it will start becoming more and more imperitive that hydrogen attains the central role it must adopt in this process.
Financiers and neoliberal economists will continue to push the idea that collapse is fully predestined and should be welcomed, but in fact this is not the case: it is only neoliberal economics and it’s unregulated, rapacious profiteering that is at fault, and not an inherent flaw within humanities endeavor to continue surviving on planet earth.
This is a chapter from my new book, Scheduled Collapse: Who is Blocking the Transition to Net Zero and Why. The complete book will be available this autumn in paperback or digitally
