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The Huge Hidden Costs Of Our Fossil-Fueled Economy

Oil companies may be the most profitable companies on the planet. But that’s only because we let them destroy the planet for free.

The Huge Hidden Costs Of Our Fossil-Fueled Economy
[Top Photo: topten22photo via Shutterstock]

Extracting fossil fuels is a lucrative business. Last year, ExxonMobil made $32.5 billion in profits. But, arguably, it’s a business built on shaky foundations. If we were to account for the full cost of fossil fuels to the environment, it might completely wipe out the industry’s profitability.

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That’s the conclusion of a new analysis from the University of Cambridge that tallies up the social cost of producing oil, gas and coal products. Across 20 leading companies, it finds “hidden economic costs”–that is, costs that aren’t currently paid–of $755 billion in 2008, and $883 billion in 2012. Which is several times what the companies reported in earned income in those years.

grynold via Shutterstock

“The 20 companies as a group are highly profitable, with after‐tax profits of about 8.2 % of revenues in 2008 and 8.6 % in 2012. However this does not take account of the hidden economic cost to society that is caused when their products are burned and CO2 is emitted to the atmosphere,” says the paper by Chris Hope, Paul Gilding, and Jimena Alvarez.

The researchers studied the accounts of major oil and gas groups like BP, Shell, Statoil, and Petrobras as well as several coal producers like Peabody and Coal India. The calculations are based on a U.S. Environmental Protection Agency model that says each ton of CO2 costs society $105 (in 2008 dollars). That’s higher than the working EPA figure of $37 per ton, but below what some other researchers have calculated it should be. The analysis doesn’t include some major state-owned producers such as Saudi Aramco, which don’t publish open public accounts.

grynold via Shutterstock

Most of the oil and gas companies have hidden costs of $1.5 to $3 for every dollar is post-tax profit, while costs of the coal companies range mostly from about $40 to $100 for every dollar in profit, the paper says. The coal companies are also the most “unprofitable” with economic costs ranging from two to nine times annual revenues (let alone their profits).

The point of the paper is to warn investors that they face risks if society ever wants to account for its losses (which doesn’t look likely at the moment, but still). “These results will be a useful starting point for investors seeking to manage their exposure to climate change risk, and for policy makers interested in fossil fuel companies’ net contribution to society,” the authors say.

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About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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