War and peace: Where does oil fit in?

Don't blame renewable energy proponents for the economic consequences of cutting off Russian oil

For 1,000 years, the same question has persisted inside the fluid borders of Russian control: “Embrace the West or shun it?”

The answer changes, generation to generation, authoritarian regime to authoritarian regime. With its full-scale military invasion of Ukraine this month, Vladimir Putin’s Russia has savagely answered that question for Ukraine: Do not embrace the West.

This has left pundits, politicians and citizens in the West with a question of how we got to this point and what role Western powers and industries played in these geopolitical dynamics.

Chiefly, the role of the oil industry, and the growing push away from it and toward renewable energy sources have been under scrutiny.

Some may say Europe’s push toward renewables empowered Putin and that this green movement furthered the continent’s dependency on Russian oil that is at the heart of the energy crisis today. But, common sense and a look at the oil industry’s actions of the past several decades suggest it is the opposite.

The movement toward renewable energy

The argument being made is that in the quest to avoid the calamitous environmental consequences of climate change, a coalition of Western liberals and climate scientists pushed for the development of renewable energy at the expense of more oil and gas drilling. Europe provided world-leading support for renewables and managed to cut emissions from the grid by 23% between 1990 and 2018.

At the same time, however, absolute demand for energy outpaced local supply, from any source. For Europe, and particularly Germany, it was oil and gas-rich Russia that filled the void.

The obvious obfuscation here is the 40 years of climate denying and pro-oil policy that preceded this crisis. Energy transition, unlike deforestation or melting glaciers, happens slowly. Europe leads the developed world in renewables but still only produces 32% of its energy from wind and solar.

Why wasn’t more capacity in renewables developed to neuter the totalitarian oil regime to the east? Dependency on Russian oil in 2022 is as much about slow progress on energy transition in the 1990s and 2000s as it is about finally challenging the false economics of oil still prevalent in the 2010s.

Political and economic strength of the oil industry

The capitalist democratic system favors the strong. And the oil industry in the developed world is strong. Strong enough to influence energy policy since oil started gushing from the west Texas plains in the early 20th century. Strong enough to stall the development of alternatives for decades after the United Nations Intergovernmental Panel on Climate Change (IPCC) and the world’s scientific community emphatically reached consensus that this should be done. Strong enough to fund lobbying groups to create disinformation and misdirect the public on the harms of burning fossil fuel.

The strategy was summed up well in the lawsuit filed by the State of Minnesota in 2020 against Exxon Mobil, the American Petroleum Institute and Koch Industries after internal documents revealed the industry had its own scientific evidence that corroborated the findings of the IPCC.

“(The) defendants did not ever disclose to the public … their actual knowledge that would confirm the very science they sought to undermine,” the complaint from that lawsuit read. “Instead, defendants, both directly and through proxies, engaged in a public-relations campaign that was not only false, but also highly effective.”

Among those proxies were elected officials and conservative thinktanks with healthy skepticism about governmental solutions to environmental problems and regulation of any kind. These allies were particularly effective in the US. As of 2022, the Securities and Exchange Commission still hasn’t developed standard disclosures on greenhouse gas emissions for public companies.

Slow progress leading to the present crisis

Despite rapid adoption of things like cell phones and the internet, the slow adoption of alternatives defies logic. Wind and solar still only account for 5% of the global energy consumption, according to figures from JP Morgan. So where were the leaders all this time? Where they have always been – providing nearly $500bn globally in direct subsidies for oil and gas production each year.

This unique political inertia helped shape the second half of the last century in favor of oil. Europe’s dependence on Russian oil did not happen in a vacuum. And it wasn’t caused by misguided environmentalists. Powerful lobbies and industry groups derailed and debunked climate science while getting direct subsidies and hard-coded accounting rules that benefited the industry.

Cutting off Russian oil will hurt Europe economically as the West sacrifices economics to support a young democracy in Ukraine. But don’t blame proponents of renewables for that dynamic. Blame Vladimir Putin and those that have kept oil dominant for so long.

Blaine Townsend is executive vice president and director of the sustainable, responsible and impact investing group at Bailard.