With climate change, “we are confronted with an existential crisis that requires radical action if we are to respond with adequate scope and scale,” Andrew J. Hoffman and Douglas M. Ely argue in the Stanford Social Innovation Review (“Time to Put the Fossil-Fuel Industry Into Hospice,” fall 2022).
Human activity is causing global warming, and we are struggling to contain continued warming to 2°C by mid-century. Such a temperature rise will lead to “global economic damage at an estimated present-discounted value as high as $22.5 trillion by 2100 in lost labor productivity, declining crop yields, food shortages, early deaths, property damage, breakdown of infrastructure networks, water shortages, air pollution, flooding, fires, and more,” Hoffman and Ely write.
“Even if we stopped increasing CO2 today, the temperature would still rise as previously released emissions continue to overheat the atmosphere. In the end, the scientific and pragmatic reality dictates that we stop burning fossil fuels. This change must happen far more quickly than economic policy solutions alone can realize,” they write. “Responsible fossil-fuel companies face the pragmatic reality that the sector as we now know it must end.”
They liken the need to sunset the fossil-fuel industry to caring for someone with a terminal condition—helping them through the inevitable end. “Amid such a grim prognosis, three possible forms of treatment are available: triage, euthanasia, and hospice,” the authors say. Here are the “treatment options” Hoffman and Ely lay out:
Triage: Difficult decisions need to be made—with conflicting priorities and limited resources. But sometimes, “triage can also bring about a new kind of entity, becoming truly transformative,” the authors say, citing investor Third Point calling for Royal Dutch Shell to be split into “multiple stand-alone companies,” separating sustainable business lines from legacy fossil fuel lines, ultimately allowing the fossil-fuel lines to atrophy and end.
Euthanasia: The fossil-fuel sector may need to be brought to a more deliberate end—but compassionately and thoughtfully. Hoffman and Ely point out: “The idea is not alien to economics. John Maynard Keynes once called for ‘the euthanasia of the rentier’ class, those who extract profits or rents but do not create wealth in the aggregate economy and who, in the words of Joseph Stiglitz, ‘destroy wealth as a byproduct of their taking it away from others.’ At present, fossil-fuel companies produce petroleum that is burned to support our economy but create greenhouse-gas emissions that are destroying wealth for others.”
Hospice: If the patient and caregivers in this scenario accept their terminal condition, hospice is a viable option. Like doctors caring for a dying patient, business leaders must plan for a dying industry, “determining when there exists no viable path that can balance the needs of the Earth and humanity against those of the corporation.”
With any of these treatment options, the industry will not simply disappear. It and the people in it will transition to something else. “Just as in organ donation, some of the sector’s economic and human assets may be redeployed toward some new purpose. People working in the industry have incredible financial, analytical, and geophysical expertise that can (and should) be recognized as a potential asset for a sustainable future,” the authors argue.
Hoffman and Ely offer 10 critical considerations in four categories to manage this transition:
Manage business strategy
1. Bring about the end of the entire sector through corporate collaboration.
2. Protect workers and avoid labor flight during transition.
3. Overcome the imminent political and social resistance to change.
Manage broader economic impacts
4. Manage the full scope of the financial impact of the transition.
5. Control the fate of products both used and unused.
6. Protect indirect workers in related industries.
Manage societal and policy issues
7. Maintain justice and equity for all communities.
8. Decommission, remediate, and repurpose dedicated infrastructure.
9. Leverage the power of government.
Manage the role of corporate leadership
10. Overhaul business education as if people and the planet really matter.
In the end, Hoffman and Ely say, their goal in writing this article was to “provoke a discussion of a very real dilemma that we face as a society.” In response to comments, they added, “Our article seeks to lay out the full complexity of accomplishing such a task. We cannot, as some suggest, simply end the oil industry today; it is far too interconnected within our economic, social and political institutions. Conversely, we cannot, as others suggest, calmly assume that the market will take care of it on its own. It will not happen fast enough, if it can happen at all.”
Because sunsetting the fossil-fuel industry is a monumental challenge, “It will require strong and thoughtful leadership from all within the fossil-fuel sector, as well as from leaders in business, government, and civil society,” and it will also require business education to be reformed. “Business schools teach students how to launch, grow, and maintain companies, but not how to sunset them.” A new form of corporate leadership and a new form of business education are needed.