Associated Press

How Fossil Fuels Make Inequality Worse

There’s a whole line of thinking, popular with the fossil fuel industry and its allies in politics and business, that though climate change is real, the costs of addressing it are too high, especially for the world’s poor. In June, Bill Gates, billionaire philanthropist, took to his blog to promote that argument, saying the poor “can’t afford today’s expensive clean energy solutions, and we can’t expect them [to] wait for the technology to get cheaper.”

Fossil fuels aren’t actually the secret to bringing energy to the world’s poor, though. Responding to Gates’ post, Jigar Shah, the founder of SunEdison, pointed to actual energy economics in the developing world. Entrepreneurs are turning to distributed sources of clean energy to spread electricity in poor countries, he wrote, “overwhelmingly out of the desire to power the poor — not to solve climate change.” Extending the grid to connect more people to fossil fuel power has progressed slowly. Meanwhile, home solar is providing cheap, renewable, off-grid power to a growing number of the rural poor in India and across the world. And a policy like a carbon tax would actually give money to poor people to make sure they don’t have to pay the price for the switch to renewable energy.

Still, as the climate impacts, pollution, and environmental devastation that stem from fossil fuel consumption became undeniable, proponents of oil, gas, and coal have sought a human face to justify their continued use. The plight of the poor provided a good opportunity.

When Drilling Comes To Town

A recent profile of a Texas county where drilling produces $15 million worth of oil every day tells a common story. Gardendale has been poor for decades, and has been the site of some of the nation’s most intense drilling for years. Judy Vargas raises three children there in a trailer on an unpaved road with no garbage pickup and bad-smelling tap water. Drilling didn’t bring a bigger home or more money in the family’s pocket, but it did bring a mysterious white powder in the middle of the road that Vargas drives over. “It’s sand,” the Times reports her saying, “but from where?”

It was silica powder, a fracking ingredient, dumped in the middle of the road by a truck, probably to lighten its load. Silica powder is a known carcinogen. But it was likely to sit in the road until it blew away, since Gardendale has no government or police to address it.

Oil companies make no secret of the fact that the people working on their rigs are highly-trained and often drawn from outside the area where they’re working. Responding to criticism that oil and gas jobs aren’t going to Ohioans, Tom Stewart, executive vice president of the Ohio Oil and Gas Association, told Ohio Public Radio, “You just don’t hire people who’ve had two weeks of training and put them on this rig. You hire people who are equipped and ready to do this kind of job and you get them from where they can be supplied to.” Stewart pointed to hotel and restaurant jobs as potential benefits for those living where drilling takes place.

Those are the same jobs that Judy Vargas and her grandmother in the Texas boomtown work, providing a combined income of $1,500 a month for their family of five, while they breathe the nitrogen oxides and sands of drilling and refining.

Unequal Harm

The detrimental effects of fossil fuel extraction and combustion add up. Air pollution is worse where non-white and low-income people live. Living near fossil fuel operations means dealing with spills and explosions from an industry that routinely shows they have little incentive to prevent these incidents.

As for the payoff, a study from Headwaters Economics found that oil and gas drilling don’t even raise incomes when they come to town — in fact, they lower them. Looking at the period from 1980 to 2011, the study found that longer periods of specialization in oil and gas meant lower per-capita incomes, more crime, and lower educational achievement. Per capita income was found to be as much as $7,000 lower in counties with a long-term focus on drilling compared to those that only experienced a year of it.

Though the Headwaters study didn’t find direct evidence that drilling profits leave the areas where drilling takes place, study author Patty Gude told ThinkProgress that it made sense. “If the wages are high in mining, which they are,” she said, “it’s possible that some of that income being generated is not rewarding the local residents.” Gude emphasized that while many studies have shown positive short-term income effects of oil and gas development, the Headwaters study was significant because it showed that they don’t last long-term. Again, that points to limited job creation for high-income specialists as drilling starts, before the negative effects of extraction take over.

Pollution often takes the worst toll on disadvantaged areas, but when the wealthy parts of a country get too polluted, the rich have the option to leave. That relocation is underway in China, as the country’s smog becomes more problematic. And that’s true of the impacts of climate change, as well. As carbon emissions from fossil fuels continue to accelerate climate change, poverty, hunger, instability, and conflict are exacerbated in places like Nigeria and Syria. Poor people in those countries don’t have the money, connections, or transportation to safely migrate or seek asylum, forcing many into refugee camps.

A popular position for those who admit the reality of climate change but aren’t willing to advocate for swift action to address it is to insist that poor populations can’t afford the costs of cutting carbon, that what they really need is cheap fossil fuels. But as the impacts of a warming planet bear down on poor people specifically, it becomes clear that the one thing they can’t afford is more fossil fuels burned.

Poorer countries are more vulnerable to the effects of climate change. A Standard & Poor’s (S&P) assessment ranked nations on their vulnerability to things like sea level rise and agricultural shocks, finding far more in poorer countries of the world. As usual, wealthy people in those countries will be able to insulate themselves against floods and continue to buy food while most find themselves unable to cope or migrate.

The S&P analysis showed that climate vulnerabilities would make poorer nations a worse credit risk, meaning they’d have less access to loans necessary for adapting to a changing climate, and for recovering from disasters after the fact.


What About Drilling Jobs?

In addition to the negative externalities of fossil fuel consumption — the costs of pollution and climate change impacts, for instance — extracting fossil fuels also makes rich people richer, while employing fewer people than other industries, especially when compared with green jobs.

The capital-intensiveness of drilling and mining is an important contributor to inequality. Capital-intensive industries require more spending on tools, machines, and infrastructure to make money, compared with labor-intensive industries that require more spending on workers. Education is the quintessential labor-intensive industry, where a huge portion of any spending goes to pay teachers and other school staff. Even construction is labor-intensive, because it requires lots of workers along with lots of materials and equipment. But the oil and gas industry is one of the most capital-intensive there is, with the majority of its investment going to physical capital and comparatively little going to the workers.

Spending largely goes to buy land with fossil fuels underneath, to buy or rent the specialized equipment that’s a big part of the business, and to build infrastructure that doesn’t require much human time or effort once it’s done. In fact, as Heidi Garrett-Peltier of the University of Massachusetts’ Political Economy Research Institute told ThinkProgress, the oil and gas industry is one of the worst to invest in if you want to create jobs. “In oil and gas, 12 percent” of value added investment goes to employees, she said. In renewable manufacturing industries, “it’s 60 percent.”

“In an industry that’s capital-intensive, more of the revenue coming in goes towards paying for equipment,” Garrett-Peltier said, “which means it’s going more to profits for the owners of the equipment.” That’s compared with labor-intensive industries, where more spending means more people are going to be employed.

Ownership of valuable deposits of fossil fuels is also concentrated among the wealthy, said Robert Pollin, also of the University of Massachusetts’ Political Economy Research Institute. “Very few people own these massive assets, meaning oil, natural gas, and coal,” he told ThinkProgress. “They’re owned by very wealthy people and they get the profit.” Even when private homeowners own the land their house is on, development companies often keep the mineral rights to any fossil fuels underneath.

Residents of a fuel-rich area not only live with the health and environmental consequences of drilling, but they don’t gain from owning the land or even get a say in whether to allow drilling. Because drillers have done such a successful job fighting lawsuits, people are lucky to be compensated if drilling operations make them sick, and they often have to accept outlandish gag orders or fight for years in court.

A 2007 United Nations paper by Matleena Kniivilä determined that the capital-labor ratio was an important driver of whether economic development helped reduce inequality or made it worse. Looking into how to use development to reduce poverty and income inequality, Kniivilä found that “use of capital-intensive methods instead of labour-intensive ones tends to increase income disparities, as does the employment of skill-based technologies.” To fight poverty and increase equality, the paper says, policy should increase the returns on the things that poor people do possess, like unskilled labor.

Green Jobs Are Better

That’s where green jobs come in. By some estimates, there are up to 60 million clean economy jobs to be created worldwide, even after accounting for the ones lost due to transitioning away from fossil fuels.

“Green jobs are more accessible to less-skilled people,” Pollin told ThinkProgress, and investment in renewables and efficiency creates many more jobs per dollar spent. “Roughly speaking spending, $1 million spent on clean energy creates about 17 jobs,” Pollin said. “Spend $1 million on fossil fuels, and you get about five jobs.” He says he doesn’t really like the term ‘green jobs’ though, because it implies they’re something separate from the rest of the economy. They are “jobs for secretaries, truck drivers, accountants, accountants’ assistants, lunch trucks, etc.,” Pollin said. “They’re the same jobs.” But since buildings everywhere need to be made more efficient, and renewable technologies can be installed all over, they can be well-distributed across the country and the world.

Pollin said this “opportunity to spread ownership of energy assets” helps increase equality. Right now, when consumers pay for energy, the profits go to utilities, which are often owned by large companies with highly-concentrated ownership. With home solar, ownership of energy production can be spread out among regular people. The example of off-grid solar in rural India provides a dramatic picture of how energy ownership can meaningfully transform the opportunities available to low-income populations.

Improving energy efficiency and expanding renewable energy makes fossil fuels less valuable, by reducing demand, and that helps reduce inequality as well. Shrinking the value of still-underground oil and gas could even get to the point of making it more economically sensible to leave them in the ground. Not only would that make the owners of those assets less rich, it could represent the best strategy we have for avoiding absolutely catastrophic global warming. As Chris Hayes wrote in April, the capital-intensiveness of the industry provides a vulnerability — it won’t take much decrease in the value of fossil fuels or increase in the cost of investment to make it unprofitable to keep drilling.

And fossil fuel companies won’t give up their trillions in underground assets until they are no longer profitable. The financialization of commodities like fossil fuels has allowed big profits for “big banks like Goldman Sachs and JP Morgan that control the markets for these commodities,” Pollin said. “So the more you broaden ownership of energy assets, the more you strengthen equality.”

This all just supports what we already knew was necessary to ensure a habitable climate for humans that will last generations. Fewer fossil fuels will need to be extracted, less carbon will need to be emitted, and more renewable energy sources will need to be developed. But if we needed more reason to act, every delay in addressing climate change means the rich will benefit at the expense of the poor, and it will only get worse.

« »