Climate change, asset risk, and the green paradox

Climate change threatens Earth’s life-supporting primary production upon which all civilization and public welfare relies. Study of the drivers of climate pollution is critical to informing policy interventions to combat climate change. Interdisciplinary studies such as this dissertation are key to “mainstreaming” attention to the climate crisis across departments, professional communities, and social discourses2. Mainstreaming means reaching beyond traditional bastions of attention to the climate change problem - such as environmental studies and policy programs - to engage future leaders in business schools and social scientists outside the worlds of environmental politics and economics. This work bridges schools of environmental economics, organizational management, and security studies in order to broaden the audience for climate-related social science. Each of these three essays shares a common focus on a single phenomenon, the rate of carbon extraction, while they vary in the theory and empirical treatment with which they engage carbon extraction as a market response to understudied pattered of regulatory and security risk. ❧ The first essay, Digging in or Digging out: The Green Paradox and the US Oil and Gas Sector, examines alternative strategic responses of fossil fuel owners in the form of 1) accelerated extraction and 2) portfolio diversification. It argues for an informative/accelerative role for firm lobbying, and hypothesizes that policy-induced responses will be strongest among firms that lobby because this behavior should increase firm awareness of policy processes. The essay lays out empirical shortfall of green paradox literature, and proceeds to produce the first empirical test of green paradox theory in US oil and gas. It does so by merging oil firm investment and reserve data from the Oil and Gas Journal and Opensecrets.org data so as to enable a robust panel analysis. It produces material results regarding policy-induced firm behavior using an additional and unique innovation in measuring environmental energy policy risk based on the production of renewable energy and air pollution regulation bills by liberal legislators at the “upstream” committee level of the US house of representatives. The work concludes by directly informing policy design changes to the Carbon Dividend plan being advanced by the conservative Climate Leadership Council, arguing to replace existing proposals for rising carbon taxes with interventions whose taxes start high and then fall to incentivize postponed extraction. ❧ The second essay, titled Policy Risk and Strategic Behavior in the US Petroleum Sector, expands upon the first essay to theorize non-accelerative, self-regulatory responses to policy-based asset risk by strategically motivated fossil fuel owners. The analysis solves construct validity problems of existing green paradox literature (Merrill Essay 1, Di Maria et al, 2014, etc.) with confidential firm-level data from the US Energy and Information Agency’ Financial Reporting Survey. The FRS’s highly Congressionally- protected and government-vetted data on leading oil and gas majors enables the analyst to produce a unique measure of firm-level investment in upstream petroleum. The analysis confirms Merrill’s essay 1 primary finding of capacity-attenuated green paradox response. The essay concludes with an estimation of welfare impacts of unrealized policy efforts at carbon regulation and a discussion of the heretofore under-discussed costs of climate policy obstructionism by the US oil and gas sector. ❧ The third and final essay, titled Oil at Risk: Asset Risk, Terrorism, and the Acceleration of Fossil Fuel Extraction in the Middle East and North Africa, extends the discussion of the Green Paradox developed in previous essays to theorize accelerative impacts of terrorist violence as an important but un-studied form of property-rights risk that may accelerate carbon extraction. A novel empirical strategy measures impacts among territorially-bounded national oil monopolies to solve the carbon leakage problem that would stymie efforts at studying asset-risk responses among multinational conglomerates. The essay further theorizes cross-border accelerative impacts of violence in adjacent states, and manipulates longitudinal data on sub-state violence in the MENA region to produce an original dataset on terrorism in adjacent states. The analysis finds robust accelerative impact of increasing frequencies of within-state terrorism on the oil production of sovereign monopolies, but finds no impact of cross- border property-rights risk. The essay concludes with a discussion of understudied consequences of state destabilization in Mesopotamia and the Arabian Peninsula for the global climate system. ❧ The author’s intent in developing this work has been to fill an empirical gap within the theoretical literature on the Green Paradox and to extend the discussion of the rate of carbon extraction into conversations in management and security studies. Climate policy, as the hybrid union of both energy and environmental policy, forms the explicit and implicit backdrop to this effort to join the three fields in a unified discussion of climate-relevant market behavior. It is the author’s hope that these essays serve as starting points for protracted study into policy levers and security initiatives that may now aid in mitigating the climate crisis.