Naomi Klein has quoted free market economist Milton Friedman as saying, “Only a crisis—actual or perceived—produces real change.  When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”

Well, we definitely have a crisis—both a health emergency and a collapsing economy.  One idea that is “lying around” is, in time of crisis, to nationalize a company, rather than bailing them out.  This is not an idea outside of US experience.  During World War I, the government nationalized railroads, telegraph lines and the Smith & Wesson Co. During World War II, it seized railroads, coal mines, Midwest trucking operators and many other companies including, briefly, retailer Montgomery Ward. (CBS News)

In 2009, the U.S. bought controlling interest in the auto companies to stabilize them, but did not attempt to run the companies.  President Obama did get the automakers to agree to significant improvements in fuel efficiency, which some of the companies are now suing to reverse.

Why Nationalize?

The main reason to nationalize the fossil fuel companies was cited by Eric Hetzel in 2017— “we  need to nationalize our fossil fuel industries with the eventual goal of shutting them down entirely.”  This would solve two major problems—just transition to a clean energy economy and an end to fossil fuel money corrupting our political process.

Just Transition--One big challenge for phasing out fossil fuels is to ensure that coal miners and oil workers have secure pensions, job training, and placement into good paying jobs.  If the government owns the companies, this will be easier to ensure. Similarly with environmental clean-up for all the messes they have created.

End Political Pollution–Another big problem is the money that fossil fuel companies pump into the political process.  If the oil, gas & coal companies are government owned, such contributions would be illegal.  This would clear the way for politicians to support climate action without fearing retribution from the oil lobby.  Certain simple pubic information measures would be easily implemented such as no more fossil fuel advertising and adding gas pump warning labels advising motorists that gas use is causing climate disruption and providing information encouraging alternatives to gas cars.

Why Now is a Good Time–

There are also other important considerations supporting nationalization.  One is that the Wall Street Journal reports that $137 billion worth of oil and gas debts will mature between 2020 and 2022.  (quoted in Kate Aronoff’s New Republic article).  This will lead to bankruptcies by many small oil and gas companies.  Rather than bailing them out, the government could buy them out to protect their workers. 

This leads to a related point, which is that fossil fuel stock prices have plummeted in the past five years (see graph below).  This means that the government could buy these stocks for a fraction—less than half—of what they would have cost five years ago.  So the time to nationalize is now, while the companies need to be stabilized, and phased out in an orderly manner.

Five Year Comparison of Fossil Fuel Stocks (XLE) with S&P500 (INX)  — March 19, 2020

The drop in stock values of fossil fuel companies means that they would be fairly cheap to nationalize right now.  The table below shows that all the major oil and coal companies are now only worth $360 billion.  Compare this to the $1.5 trillion tax cut that congress enacted in 2017, or the $500 billion bank bailout in 2009, or the U.S. government budget of $4.4 trillion.

Even more notable is the extremely low value of coal stocks.  The total market value of coal company stocks is less than $2-3 billion.  Nationalization seems like an obvious solution for the thousands of coal miners who are losing their pensions as well as their jobs and healthcare.  Again, an orderly phase out would benefit all the workers and the climate.

US oil companies market value as of 3/19/20
(billions of $)
Exxon 145
Chevron 108
Enterprise Products 27 (production and trade of natural gas and petro- chemicals)
Conoco Phillips 24
Phillips 66 21
Schlumberger 17 (oil services and equip- ment)
Valero 15
Marathon 3
$360
10 largest US Coal Companies
Market
Value
(millions)
Peabody Energy Corp 319
Arch Coal Inc 513
Cloud Peak Energy 55
Murray Energy Corp
Alliance Resource Partners LP 399
Revelation Energy LLC/Blackjewel LLC
NACCO Industries Inc 174
CONSOL Energy Inc 192
Foresight Energy Labor LLC
Contura Energy Inc 60
$1712
I couldn’t find the value of the companies left blank perhaps because they have declared bankruptcy.–
JLF

Can it Happen?

Of course, politically, this is highly unlikely to happen with the current occupants of Congress and the White House.  But we are in a crisis, and urgent action is required.  Perhaps even the Republicans in Congress will not want to be compared to the inaction of Herbert Hoover when he let the economy sink into the Great Depression. 

Now is the time to demand action, or elect officials who will act.  Nationalization of the fossil fuel industry is one important step to get out of the hole we are in.

–Jack Lucero Fleck