The free-market libertarian John Blundell was at home in Fairfax, Virginia, when late one afternoon he received a phone call from his old friend Mike Fisher, the younger son of Antony and a trustee of the Institute of Economic Affairs (IEA), from London.

There had been a putsch at the free-market institute and the trustees were recruiting a new leader.

Graham Mather, a 36-year-old lawyer, had until then been the director general. But the trustees were worried that he was using Fisher’s think tank as a political springboard rather than a disseminator of ideas – he was, at that time, being tipped as the new leader of the advisory team to John Major, the newly elected prime minister, at Number 10 Downing Street.

There was also a serious rift at the IEA, with some furious that Mather was so close to the Eurosceptic faction of the Conservative party.  

Forced to Resign

“Mather endured an uncomfortable tenure as he fought a guerrilla war with old vanguard about the appropriate role that the IEA should play in the new, post-Thatcher era of politics,” the British historian and journalist, Richard Cockett, wrote in an authorised history of the institute. Mather was forced to resign in 1992.

This act of regicide was not popular with everyone at the IEA. Patrick Sheehy, the chairman of British American Tobacco, knew exactly how to make his feelings known.

He told the IEA’s Lord Harris in a letter dated 17 March 1992: “I was very disturbed to read in the press that Graham Mather will be leaving the institute as he was quite right to try to bring the institute’s policies into the 1990s and I am sorry to see him go.”

Starting a new paragraph, he added: “Having looked at the level of our subscriptions over the last five years it seems to me it is about time that market forces were brought to bear on the affairs of the institute. I have therefore given instructions that any future donation will be reduced by 50 percent.”

This was the second time in the history of the IEA that the funders had directly expressed their views about who could and could not run the IEA.

But the trustees had much more urgent matters to deal with: they needed a new director. And with that, Mike Fisher called his close and trusted friend in the US: Blundell.

A New Director

Blundell recounted: “He said they had just done the interviews for the final three for the director general job and not one of them excited them – would I fly over and be interviewed on the understanding that in the view of all who knew me I was a shoe in… I flew a couple of weeks later just after Lord Harris’s second son committed suicide.”

Lord Vinson, who had set up the Centre for Policy Studies with Margaret Thatcher 18 years earlier, was on the board of trustees and made the decision to hire Blundell.

“He’d made himself well known through his writings and general approach, you may call him a market economist.” Vinson told me. “We looked at his background – and he did the job [for] about fourteen years.”

Blundell handed in his notice at the Institute for Humane Studies, a hardline neoliberal think tank funded by oil billionaire Charles Koch, where he remained a trustee. He also left Antony Fisher’s Atlas Economic Research Foundation but retained the post of chairman of the executive committee.

Behind the Scenes

Mark Pennington, a member of the IEA’s academic advisory board, said Blundell was a new broom, creating a new casual and relaxed atmosphere while also converting the dusty library into a conference room.

“John is quite a laid back sort of person,” he said. “He wasn’t someone who wanted to be in the media [and] he gets very nervous appearing in public. So it was very much, kind of, behind the scenes type of an approach, not in a clandestine way just because he thought that was where his strengths lay.”

Most of all, Blundell was a man of principle and morals. Pennington continued: “He certainly believes that the state is a malevolent force. He doesn’t have any yachts, he’s not poor by any stretch of the imagination but he’s not driven by the desire to accumulate huge volumes of cash or anything like that.”

“He’s very much driven by believing that government is a bad thing. Some of them are verging on anarchists. Their kind of economic ideology leads them to think that it’s inefficient, but also it’s kind of something sort of deeply, almost sinister about it.”

Blundell would also remain close friends with the Kochs. In his own history of the IEA, Waging the War of Ideas, Blundell observed: “Without… Charles and David Koch… without their far-sighted commitment, we would not be here today and we would not be witnessing a world-wide move toward freedom and free markets.”

This Author

Brendan Montague is editor of The Ecologist, founder of Request Initiative and co-author of Impact of Market Forces on Addictive Substances and Behaviours: The web of influence of addictive industries (Oxford University Press). He tweets at @EcoMontague. This article first appeared at Desmog.uk. 

The UK government is set to host the first large-scale global summit on electric cars – a welcome break from Brexit.

The summit takes place in Birmingham, both a hub for the UK’s car industry – electric and otherwise – and a region troubled by air pollution. One of the focuses of the event will be how zero emission vehicles can tackle both air pollution and climate change.

It may or may not work out for the UK, given the precarious position of the UK’s car industry in the Brexit haggling, but the fact a beleaguered government has chosen to invest political capital in talking about electric cars shows how the industry has changed over the past decade.

Here are five things you need to know:

1. Some people are finally buying electric cars

For years electric cars were more of an idea than a reality. They still account for a very small percentage of the global car fleet but sales are now growing rapidly, as clean energy installations did a decade ago.

In 2010 there were a few thousand electric cars on the road worldwide. In 2017 the numbersurpassed 3 million and rose to 4 million six months later. More than half of global electric car sales were in China, followed by Europe (20%) and the US (17%) in 2017. In the UK sales reached a new record in August – spurred on by higher petrol prices.

2. Government policies are driving the rise of electric car sales

Various key countries have announced plans to stop the sale of cars that rely on fossil fuels. Norway set out the earliest ban on all fossil fuel cars by 2025.  Netherlands, Ireland, and Slovenia have put 2030 as the target year and India is reportedly mulling something in the same time-frame.  France, the UK, and Sri Lanka committed to phasing out the sales of ICE vehicles by 2040, and Sweden by 2045. China has reportedly proposed a ban – but it is yet to be confirmed.

Whilst these policies look impressive, they may not mean a great deal – depending on how they are implemented. In the short term most electric cars are sold in cities and city plans to phase out fossil fuels – or limit diesel emissions – are arguably a bigger driver of sales.

In 2017 12 cities announced phase out dates for gasoline and diesel cars. In 2016 four major cities introduced diesel car access restrictions. And 14 mayors signed the Fossil-Fuel-Free Streets Declaration committing them to ensure all busses are zero emission by 2025 and cities have zero emission zones by 2030.

Finally, and crucially, direct subsidies still play a crucial role in electric car sales – as they did in the rise of renewable energy.

China, Norway, the US, UK, Germany and Sweden all offer some kind of financial incentive for electric car ownership. In Denmark, meanwhile, electric car sales dropped by 60% in 2017, after the government announced it would phase out tax exemptions.

Even more directly many governments, including Canada, France, China and India are simply buying lots of electric cars whilst cities such as London move to bring in electric taxis.  

3. People drive electric cars in places where they can charge them

The growth of electric cars depends on the availability of charging points. Norway and Netherlands has ten times more chargers per capita than the average market – and a lot more electric cars.

Getting charging points in place, however, has been pretty slow. New public-private partnerships between utilities, local and national governments – and moves by oil companies to put chargers on forecourts – could change that, but so far it’s pretty piecemeal.

In Europe, the UK  announced a £400 million investment fund for charging, in the US

New York Power Authority released a $250 million statewide EV charging plan and California Public Utility Commission approved a $738 million worth of EV charging projects for three big utilities.

The Chinese government plans to build 4.8 million charging points by 2022 with $1.9 billion of investment.

4. Manufacturers are going to offer lots of electric cars (and petrol and diesel ones too)

Car manufacturers are rushing to introduce electric models across their range – much as they once did so in Europe for diesel.

The number of EV models will increase from 155 in 2017 to 349 by 2025, according to estimates by Bloomberg New Energy Finance (BNEF). Major auto companies will releaselong-range EV models between now and 2025, and nearly half of the launches will be SUVs.

That comes with significant investment, around $140.7 billion into electric vehicles by 2022 according to BNEF. The only catch? Only a few companies, such as Volvo, have committed to stop conventional cars and even they plan to continue to sell “mild hybrids” which are, essentially, more efficient petrol cars.

“We could of course have prioritised [fully electric cars], but we would then of course have cars that are difficult to charge for our customers,” is what Volvo’s international chief executive Håkan Samuelsson told Unearthed last year.

As for big investors like VW? They plan to have an electric option for each model, but petrol and diesel options will persist too.

Electric cars displace oil – but how much is debated and there is always coal to worry about

Bloomberg has forecast that electrification could displace 7.3 million barrels a day of transportation fuel by 2040.That is a significant amount – leading analysts to speculate that it could punch a big hole in the oil price, potentially driving down oil production.

However, it seems unlikely to be enough to reduce emissions from transport in line with preventing catastrophic climate change (we understand calculations on this are being carried out in various places).

That said, forecasts about clean energy and electric cars have a very often been wrong with BP, Exxon and Opec all recently revising their predictions of electric car demand. Bloomberg tends to be a trifle more optimistic (after all, they don’t have skin in the game) but it’s safe to say the numbers could change wildly depending, it seems, on such mundane issues as whether anyone can get their head around building a global and cross-car compatible charging infrastructure.

Once that is in place there is a final key factor: where the power comes from. China is the world’s largest market for electric cars and it is also investing heavily in renewable energy. However, coal remains a key power source and the latest data reported by Unearthedsuggests China’s emissions are actually rising again.

Electric cars powered – even partially – on coal will not provide major benefits when it comes to climate change or air pollution.

This Article

This article first appeared at Unearthed, from Greenpeace.

The annual political party conference season where politicians, party members, lobbyists and charities meet, exchange ideas and shape future party and government policy is upon us.

Expect lots of rousing speeches, interactive exhibition stands and interesting niche fringe events. This year The Vegan Society will be attending five of the main party conferences: Labour, Conservative, Liberal Democrat, Green and SNP.

Here is a run-down of the impact key politicians have had on veganism, both at home and abroad…

Jeremy Corbyn

Committed vegetarian, Corbyn, was asked by a worker at Lush Cosmetics if he would take “the next logical step to veganism” this time last year. Mr Corbyn replied that he was “going through the process” of eating more vegan food.

This led to intense speculation that Corbyn was going vegan and presented the once unimaginable possibility of a future vegan PM. His office later clarified that he was in fact not going vegan, just eating more vegan food.

The impact a vegan PM would have is hard to imagine. Publicity and interest in veganism would likely increase many times over and the likelihood of positive legislative change for the environment and animal welfare would also greatly increase.

However, Corbyn’s office’s clarification is also a timely reminder that veganism is not currently considered a vote-winner – a call to action for all environmentalists, if we are to enact the real change required.

Michael Gove

Michael Gove, the secretary of state for environment, food and rural affairs, has had a somewhat mixed impact on veganism. Positive points include admitting to being “predominantly herbivorous” and making some encouraging animal welfare changes like introducing CCTV in slaughterhouses and recently banning puppy-farms.

However, he also angered many doctors by stating: “Fresh dairy produce and protein sources such as fresh fish, offal and properly sourced meat are critical to human health.”

This is clearly untrue as both the British Dietetic Association and the American Academy of Nutrition and Dietetics recognise that totally plant-based diets are suitable for every age and life stage.

There was also the furore that erupted when Caroline Lucas’ amendment to the EU withdrawal bill, which explicitly recognised that non-human animals are sentient, was rejected by Conservative MPs. Following a social media campaign by animal rights groups.

Mr Gove promised to make “any necessary changes” to UK law to recognise that other animals can feel pain. 

Kerry McCarthy

Kerry McCarthy is one of five vegan MPs in the UK and former shadow environment, food and rural affairs minister. She made headlines when she was first appointed to the role for claiming that “meat should be treated like tobacco with public campaigns to stop people eating it”.

Many tabloid newspapers and farmers groups reacted negatively to her comments, but Kerry’s comments appear sensible when considering the harm meat and dairy are doing to the nation’s health, the environment and of course the vast number of animals who are slaughtered and exploited every year.

United States

In 2013, Al Gore, prominent US environmentalist and former Vice-President to Bill Clinton, announced that he had switched to a vegan diet for environmental reasons.

Al Gore is an extremely-high profile environmentalist with his film, An Inconvenient Truth, receiving critical acclaim for highlighting the devastating impact of global warming.

His words and actions will have undoubtedly influenced a great number of environmentalists and inspired people to make the switch to a vegan diet worldwide.

Portugal

In 2017, Portugal became the first country in the world to introduce legislation compelling all public sector canteens to provide a strict vegetarian (vegan) option on their daily menus. This followed a campaign and petition promoted by the Portuguese Vegetarian Society that started back in 2015.

Highlighting the gulf between UK and Portuguese politics, a relatively new political party, People-Animals-Nature (PAN), have a seat in the National Portuguese Assembly and a further seat in the Madeiran regional parliament.

PAN is a political party that is explicitly vegan; clearly, there is a lot more to be done before the UK reaches a position where a vegan political party could take a seat in parliament.

Germany

Founded in 2016, this new German political party is seeking to abolish the slaughter of animals by 2030. Federal President Roland Wegner states: “We are the new Greens, only brighter.”

Having only contested one election so far, V-Partei3 does not yet have any seats in the German Bundestag, but support and interest is building.

There are many reasons to be optimistic regarding politicians and veganism, however we acknowledge that there is still a long way to go before we are where we want and need to be. We are hoping that The Vegan Society’s activities at Party Conferences can be a good step towards making this happen.

Conference Season

The Vegan Society will be hosting a mix of exhibition stalls and fringe events at the conferences. The fringe events will take the form of panel discussions on healthy, sustainable food, and the impact of Brexit on UK agriculture in conjunction with SERA (Labour’s environmental association) and the Green Lib Dems.

Panellists will include: Social Association CEO Helen Browning OBE, WWF Campaigns Director Tony Juniper, Chair of The Real Junk Food Project Duncan Milwain, and Harvard University Researcher Helen Harwatt PhD. 

The Vegan Society, along with V For Life, already sponsor the All-Party Parliamentary Group (APPG) on Vegetarianism and Veganism, which meets four times a year to discuss all things relating to veganism with politicians and other stakeholders. Previous discussions have included the pros and cons of a legal definition of veganism and issues around vegan rights.

Switching to a vegan diet could be the single biggest way to reduce your environmental impact on the earth, according to researchers at the University of Oxford.

Personal levels of food-related greenhouse gases, acidification, eutrophication, land use and water use would all reduce dramatically. With this in mind, The Vegan Society’s work at party conferences is all the more important, as politicians have it within their power to make a big difference at societal level.

This Author

Mark Banahan is campaigns and policy officer at The Vegan Society and a keen vegan and political activist. If you would like to learn more about veganism, sign up to the 7-day challenge here.

I’m regularly told – on social media and in real life – that climate skepticism has failed. ‘Hardly anyone actually denies the climate is changing, or argues that humans aren’t causing it’, people tell me.

Indeed, after one of Europe’s longest and most intense heatwaves for decades, more people than ever seem to be joining the dots between the way we live – burning all those lovely fossil fuels – and climatic anomalies.

But as is so often the case – it’s not how many people believe something, but who, which matters. On climate change, the general public is considerably ahead of some influential policymakers.

Sufficiently resourced

Right now, the president of the United States is a man that famously called climate change a “hoax”, and pulled the world’s second largest emitter out of the world’s only functioning climate treaty.

It’s not just the US. In Poland, the country set to host the next major international climate talks, the environment ministry doesn’t appear at all convinced that climate change is caused by humans. And in the UK, climate science deniers continue walk the corridors of the House of Lords, and enable meetings between government and foreign fossil fuel and agriculture lobbyists.

Meanwhile, the UK’s mainstream press continues to publish swathes of nonsense on climate change – whether via a column in The Times by coal baron and hereditary peer Matt Ridley, a diatribe ghost-written by a blogger for Christopher Booker in the Telegraph, or yet another piece of IPSO-corrected fake news from David Rose in the Mail on Sunday.

So yes, in one sense, the scientists are winning – most of the public believe climate change is real and caused by humans. But those running newspapers, FTSE 100 companies, and some major economies are yet to be convinced.

And that’s why we can’t be complacent. Fake news on climate change will be defeated, but only if those checking it are sufficiently resourced.

That’s why the independent media outlet I edit, DeSmog UK, this week launched a crowdfunding campaign. We’re aiming to raise £20,000 by the end of October to allow us to continue calling out climate science denial, and provide the full picture on the shadowy networks pushing environmental deregulation.

What will that money get you?

Well, what do you do if you see one of your friends (or even worse your MP, or boss) sharing a report penned by a legitimate sounding organisation like the Global Warming Policy Foundation suggesting climate change really isn’t that bad?

Who wants to spend hours trying to factcheck each line themselves?

But you could use DeSmog UK’s database to alert them that they’re quoting a famed purveyor of climate science denial.

Then you could use one of DeSmog UK’s network maps to show them exactly where the organisation fits into a complex web of lobbyists pushing for deregulation that harms the environment.

That’s the fake news checked, with expert journalists doing the legwork (and you getting to look clever in the process).

Pursuit of transparency

DeSmog UK’s Disinformation Database contains almost 100 profiles of organisations and individuals that push climate science denial. The profiles allow anyone to combat fake news on climate change quickly and effectively.

But creating and keeping these profiles and maps up to date takes a lot of time and money – about £250 a pop.

Because DeSmog UK doesn’t have corporate sponsorship or make any money from advertising, we have to rely on the generosity of people who care to allow us to pay skilled journalists and make sure our work meets the highest editorial standards.

If we raise the full £20,000 we can double the size of our database. That’s twice the fact-checking fun (and you can even claim some swag in the process).

Our Database and regular reporting on the UK’s influential climate science denial networks remove any excuse anyone – media, politicians, friends and family – have to peddle inaccuracies on climate change.

It’s only with this relentless, well-resourced, pursuit of transparency in the face of denial that fake news on climate change can be defeated, once and for all.

This Author

Mat Hope is Editor of DeSmog UK. You can donate to DeSmog UK’s crowdfunding drive through Indiegogo.

By the early 1990s John Blundell was a well established founder and supporter of several American free-market think tanks. So to help grow the neoliberal network, he organised eight-week paid internships in the United States each year for 30 British students who had demonstrated flair and a keen interest in free market economists.

Blundell asked the think tanks such as the Competitive Enterprise Institute (CEI), supported by the Kochs, to take on some of the young hopefuls. “Fred Smith at CEI agreed but only if he could have Roger Bate,” Blundell confirmed.

Roger Bate was sharp, energetic and almost fanatical. He had met Smith in 1992 at the week-long “Université d’été des Nouveaux Économistes” in Aix-en-Provence, France.

Now a free-market economist, Bate was around this time completing an MSc in environment and resource economics at University College London (UCL).

Bate was influenced by Jimmy Sheehan, a CEI “staffer” who was working on a book about the global environmental movement and a monograph for the Institute of Economic Affairs (IEA) in London.

Cross Pollination

Bate would, in turn, recruit his friend Julian Morris to the climate cause. The two men would have a profound influence on the germination and cross pollination of climate denial in London and around the world.

Morris was the handsome, charming and well spoken son of a chemical engineer from Epping. He first became interested in free market economics when he was a 22-year-old student completing an MA at the highly regarded Edinburgh University in 1991.

He read a startling and challenging article in the Financial Times which was based on a monograph by professor Sir Douglas Hague, published by the IEA, which called for the privatisation of universities.

Morris also read free-marketeer Friedrich von Hayek‘s The Use of Knowledge in Society and attended events at the IEA, where he met Blundell and Linda Whetstone, the daughter of IEA founder, Antony Fisher.

Naive Environmentalist

“I was myself a naive young environmentalist,” Morris wrote some years later. “I had just written a paper on how to establish a global system for restricting emissions of carbon dioxide and was about to embark on a masters course in environment and resource economics run by Professor David Pearce at University College London.”

At the time, there was much buzz about a conference due to take place in Rio de Janeiro that was being hailed as the ‘Earth Summit’ and global warming was a hot item on the agenda.

It was during his masters at UCL that Morris became close friends with Bate and became increasingly immersed in free market ideas and the think tank world.

“I am not dogmatic in my approach”, Morris told me. “I care deeply about the environment.”  

Blundell would later arrange for Morris to fly out to the United States through the Charles G Koch Foundation, taking up a short internship at the Atlas Foundation – both of which Blundell worked for.

“Charles and David Koch are two of the finest, most upstanding businessmen and philanthropists in the world,” Morris told me during an email interview.

While in the US, Morris completed his research for his IEA monograph The Political Economy of Land Degradation in 1995. On his return, he set up shop as a consultant economist and worked for the European Environment Agency, Save the Rhino International and the World Wildlife Fund.

But over the coming years Morris would make considerably more money running think tanks that challenged the science of climate change and attacked policies that would reduce carbon emissions.

This Author

Brendan Montague is editor of The Ecologist, founder of Request Initiative and co-author of Impact of Market Forces on Addictive Substances and Behaviours: The web of influence of addictive industries (Oxford University Press). He tweets at @EcoMontague. This article first appeared at Desmog.uk.

Following a long slump, crude prices have rebounded to about US$70  per barrel. That may make 2018 the most profitable year for oil and gas companies in at least four years.

Will oil and gas executives reap big rewards as well?

As energy economists, we’ve wondered how much the top oil and gas executives earn, particularly when their companies are earning large profits. To spot the patterns, we analyzed data on the compensation of more than 900 U.S. oil and gas executives between 1992 and 2016.

Critical decisions

Before getting to the evidence, it is worth considering what executives do in general, and how they get compensated.

Chief executive officers, chief financial officers and other C-level executives make important strategic decisions. If they act wisely, their companies are more likely to succeed and earn bigger profits. Oil and gas executives, for example, make critical decisions about where, when and how much to invest.

In many industries, the decisions executives make can also impact the prices their companies can charge.

For example, Apple’s ability to charge $1,000 (US dollars) for an iPhone X reflects in part the skills of CEO Tim Cook and other Apple executives at developing a desirable product and marketing it. But in a global commodity market like oil, executives have zero control over price. No matter how talented CEOs are, or how hard they work, they can’t singlehandedly make oil prices rise.

In economic parlance, hiring an executive is a principal-agent problem. The board of directors, the principal, hires an executive, the agent, to act on its behalf. The principal wants the agent to work hard and to make good decisions, but it is hard to measure this effort.

Instead, executive compensation typically includes incentives like bonuses, stock options and other forms of pay, designed to align the interests of the executive with the interests of the company.

Paying for luck

The Nobel Prize-winning economist Bengt Holmstrom pointed out, however, that it makes no sense for executive compensation to depend on what other scholars have since called “observable luck.” 

Tying compensation to luck just makes compensation more volatile, which in turn makes both companies and executives worse off. Holmstrom and others have found it easy to remove luck from compensation by, for example, basing compensation on a company’s performance relative to its competitors.

Oil prices are the classic example of observable luck. We looked, in particular, at U.S. oil and gas production companies, because these are the ones most impacted by oil prices. We excluded companies engaged partially or exclusively in oil refining – including Valero Energy, Chevron and Exxon Mobil, because the impact of oil prices is less clear and direct on that line of business.

We found that a 10 percent rise in oil prices increases the market value of these oil and gas production companies by 9.9 percent – almost a 1-for-1 relationship. Perhaps in no other industry are so many companies’ fortunes driven by a single global price.

More surprising, however, we determined that executive compensation follows a similar pattern. In particular, a 10 percent rise in oil prices increases executive compensation by 2 percent.

Asymmetrical pattern

That is, we find strong evidence of a “pay-for-luck” dynamic, with large rewards to executives who happen to be in the industry at the right time. 

We found this pay-for-luck pattern to be widespread across the different individual components of compensation for the top five executives at oil and gas companies. This includes not only stocks and options, but also bonuses and long-term cash incentives. 

We also noticed that this pattern is asymmetrical.

Executive compensation rises more with increasing oil prices than it falls with decreasing oil prices. This is consistent with anecdotal evidence that the criteria used for executive compensation changes over time. And that they are more quantitative during “boom” times and more qualitative during “bust” times.

In other words, U.S. oil and gas executives reap big rewards, when prices go up and they aren’t punished that much when prices fall.

Rent extraction

Everyone in the industry understands that oil prices are highly variable and completely out of the control of individual executives. So why do executives earn more when oil prices go up? 

The most likely explanation is that these CEOs and other top executives have co-opted the pay-setting process. Economists call this “rent extraction.”

That is, at least to some degree, executives are exercising influence over the board of directors – extracting compensation packages that exceed what would be expected in a competitive labor market. 

And the compensation of all oil and gas executives in our sample, all told, totals almost $1 billion (US dollars) per year, making the money at stake substantial. 

With median pay for U.S. CEOs nearly $12 million (US dollars) per year, executive compensation has become more complicated and important to understand than ever. Understanding pay-for-luck dynamics in the oil and gas industry can also shed light on what happens in other businesses where luck plays a less obvious, but often equally important, role.

This Author 

Catherine Hausman is an assistant professor in the School of Public Policy and a faculty research fellow at the National Bureau of Economics Research. Her work focusses on environmental and energy economics.

Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley, and faculty director of the Energy Institute at Haas.

 This story was first published by The Conversation.

Following a long slump, crude prices have rebounded to about US$70  per barrel. That may make 2018 the most profitable year for oil and gas companies in at least four years.

Will oil and gas executives reap big rewards as well?

As energy economists, we’ve wondered how much the top oil and gas executives earn, particularly when their companies are earning large profits. To spot the patterns, we analyzed data on the compensation of more than 900 U.S. oil and gas executives between 1992 and 2016.

Critical decisions

Before getting to the evidence, it is worth considering what executives do in general, and how they get compensated.

Chief executive officers, chief financial officers and other C-level executives make important strategic decisions. If they act wisely, their companies are more likely to succeed and earn bigger profits. Oil and gas executives, for example, make critical decisions about where, when and how much to invest.

In many industries, the decisions executives make can also impact the prices their companies can charge.

For example, Apple’s ability to charge $1,000 (US dollars) for an iPhone X reflects in part the skills of CEO Tim Cook and other Apple executives at developing a desirable product and marketing it. But in a global commodity market like oil, executives have zero control over price. No matter how talented CEOs are, or how hard they work, they can’t singlehandedly make oil prices rise.

In economic parlance, hiring an executive is a principal-agent problem. The board of directors, the principal, hires an executive, the agent, to act on its behalf. The principal wants the agent to work hard and to make good decisions, but it is hard to measure this effort.

Instead, executive compensation typically includes incentives like bonuses, stock options and other forms of pay, designed to align the interests of the executive with the interests of the company.

Paying for luck

The Nobel Prize-winning economist Bengt Holmstrom pointed out, however, that it makes no sense for executive compensation to depend on what other scholars have since called “observable luck.” 

Tying compensation to luck just makes compensation more volatile, which in turn makes both companies and executives worse off. Holmstrom and others have found it easy to remove luck from compensation by, for example, basing compensation on a company’s performance relative to its competitors.

Oil prices are the classic example of observable luck. We looked, in particular, at U.S. oil and gas production companies, because these are the ones most impacted by oil prices. We excluded companies engaged partially or exclusively in oil refining – including Valero Energy, Chevron and Exxon Mobil, because the impact of oil prices is less clear and direct on that line of business.

We found that a 10 percent rise in oil prices increases the market value of these oil and gas production companies by 9.9 percent – almost a 1-for-1 relationship. Perhaps in no other industry are so many companies’ fortunes driven by a single global price.

More surprising, however, we determined that executive compensation follows a similar pattern. In particular, a 10 percent rise in oil prices increases executive compensation by 2 percent.

Asymmetrical pattern

That is, we find strong evidence of a “pay-for-luck” dynamic, with large rewards to executives who happen to be in the industry at the right time. 

We found this pay-for-luck pattern to be widespread across the different individual components of compensation for the top five executives at oil and gas companies. This includes not only stocks and options, but also bonuses and long-term cash incentives. 

We also noticed that this pattern is asymmetrical.

Executive compensation rises more with increasing oil prices than it falls with decreasing oil prices. This is consistent with anecdotal evidence that the criteria used for executive compensation changes over time. And that they are more quantitative during “boom” times and more qualitative during “bust” times.

In other words, U.S. oil and gas executives reap big rewards, when prices go up and they aren’t punished that much when prices fall.

Rent extraction

Everyone in the industry understands that oil prices are highly variable and completely out of the control of individual executives. So why do executives earn more when oil prices go up? 

The most likely explanation is that these CEOs and other top executives have co-opted the pay-setting process. Economists call this “rent extraction.”

That is, at least to some degree, executives are exercising influence over the board of directors – extracting compensation packages that exceed what would be expected in a competitive labor market. 

And the compensation of all oil and gas executives in our sample, all told, totals almost $1 billion (US dollars) per year, making the money at stake substantial. 

With median pay for U.S. CEOs nearly $12 million (US dollars) per year, executive compensation has become more complicated and important to understand than ever. Understanding pay-for-luck dynamics in the oil and gas industry can also shed light on what happens in other businesses where luck plays a less obvious, but often equally important, role.

This Author 

Catherine Hausman is an assistant professor in the School of Public Policy and a faculty research fellow at the National Bureau of Economics Research. Her work focusses on environmental and energy economics.

Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley, and faculty director of the Energy Institute at Haas.

 This story was first published by The Conversation.

Ever since I watched Robin Hood riding through a black-and-white cardboard glen, the BBC has enriched my life.

As an adult I grew to admire the technical artistry of wildlife programmes, and the remarkable courage of news correspondents like John Simpson and Kate Adie reporting from war zones. I cooked and cleaned while genuinely learning from Radio Four.

The respect for which viewers and listeners like me had for the BBC was earned through detailed research, fairness and expertise. 

Losing support

David Attenborough, arguably the world’s most respected presenter, has for decades exemplified the highest standards of integrity on which the nation has depended.

In recent years Professor Cox has enhanced our understanding of what it means to be human in a mysterious and fascinating world.

Yet now the Corporation responsible for such excellence has lost my admiration and support. It is with sadness, anxiety and growing anger that I ask why values so embedded in the BBC’s raison d’être have been compromised and abandoned.

The political bias is unmissable, risible, almost the stuff of satire – and that’s dangerous. It threatens democracy.

The rise of the Far Right began with the BBC platform that made Nigel Farage ubiquitous (see Question Time panel statistics). News often constitutes misinformation as the BBC takes its agenda and even its vocabulary from the predominantly right wing press.

Climate chaos

But I am writing about something even more serious, so dangerous as to threaten the future of life on earth.

Our most prestigious national broadcaster fails to acknowledge the overwhelming consensus of climate scientists. It almost never finds it necessary to share the causes, nature and potential outcomes of climate change these experts identify.

Calls for change to mitigate climate chaos are apparently banned. Instead, I observe a persistent and perverse determination to give a voice to climate deniers in spite of their statistical isolation, and a blithe or strategic head-in-sand approach to programming.

Weather presenters have smiled about sunshine through this summer, while new temperature records have been set in Africa and Australian cities, Taiwan, Georgia and the west coast of US, heat stroke or forest fires have killed (at least 119 in Japan).

We have seen freak blazes in Lapland and elsewhere in the Arctic Circle.

Informing and educating 

It became clear, after Blue Planet’s shocking exposé of plastic pollution, that the truth inspires in many of us immediate and committed changes of attitude and behaviour. By informing and educating us about climate change the BBC could be instrumental in our very survival.

Instead its silence sends out a clear message that there’s no problem. If we were at risk on this earth, the BBC would be telling us! 

Of course the government is guilty of pursuing an energy policy that accelerates climate crisis. It continues to subsidise fossil fuels, pursues fracking despite medical opinion as well as earth science. All this in spite of ever-mounting opposition, low and declining support and the rejection of proposals by local Councils.

Indeed no MP would support fracking in their constituency because every community would resist it. Yet, as the government threatens to push ahead and frack our countryside, we hear next to nothing of the reasons other countries and states have thought better of this reckless idea and agreed a moratorium or ban.

Presenters seem more interested in challenging Jeremy Corbyn on every move he makes and breath he takes than in challenging a government about to begin a hugely damaging practice that will destroy our chances of achieving the less-than-ambitious targets agreed in Paris.

Peace and justice

I am a Green Party member, but my interest is much less in party politics than in the survival of humanity, in peace and justice. I’m a Quaker and a grandma; I believe in acting on what love requires of us.

Visiting schools as an author, I’m acutely aware that the young who grow up in the knowledge of climate change wonder why the adults in charge – in government, but also in the media – ignore the truth and in doing so, jeopardise their future. 

I therefore suggest that in order to fulfil its responsibility at this crucial time in human history, the BBC needs to:

• Stop crediting climate deniers with a reasonable position when climate scientists are virtually unanimous in the expert conviction that climate change is real, dangerous and exacerbated by human activity;
• Stop referring to climate change as though it’s no more important than football, if somewhat inconvenient for gardeners, and as if nothing can be done to address it;
• Look into the political allegiances of key figures behind and on screen and ensure that there is no unrepresentative imbalance of opinion. While I’m tempted to ask that climate deniers make up no more than three percent of BBC staff, I would happily settle for minimum science qualifications for all those representing or presenting scientific data, news, weather or political debate. 
• Challenge government policies that endanger future generations with the same unshifting focus currently applied to Labour’s difficulties.
• Invite David Attenborough, Brian Cox and Chris Packham, all of whom agree on the vital need for action, to present the truth and inspire change.

Nothing has ever mattered more.

This Author 

Sue Hampton is an author writing fiction for children, teenagers and adults, all underpinned by green values. She lives in Berkhamsted, Herts, where she is a Trustee for People not Borders supporting refugees, a Green Party member and a co-founder of Plastic-Free Berko. 

Right of Reply 

A BBC spokesperson told The Ecologist: “The BBC is committed to covering all subjects, including climate change, with due impartiality. The term ‘due’ means that the impartiality must be adequate and appropriate to the output, taking account of the subject and nature of the content, the likely audience expectation and any signposting that may influence that expectation. This does not meant that there has to be equal balance between opposing views and the BBC is mindful of the findings of the 2011 BBC Trust review of impartiality in science coverage and its recommendations on due weight of opinion.

“In the case of climate change the BBC acknowledges the weight of scientific consensus around climate change and this underpins our reporting of the subject and we always seek to make this clear. This does not mean, however, that we should never interview someone who opposes this consensus and there are times when it is editorially appropriate to hear from a dissenting voice. The BBC is committed to reporting the facts and most recently has covered a range of climate change based [stories] such as the ‘Hothouse Earth’ scenario, pioneering climate change resistant farming and a study from the Nature Communications journal about rising temperatures.”

Friedrich von Hayek died in Freiburg, Germany, aged 92, on 23 March, 1992 – a few months after the Soviet Union voted for its own dissolution.

The funeral was attended by around one hundred family members and invited guests. It was a overcast and windy day. Vaclav Klaus, the finance minister and future prime minister of the former communist Czech Republic arrived late.

Hayek, the recipient of the Nobel Prize, had lived a fascinating life during a tumultuous period of history. He remained convinced of the “spontaneous order” of the free market and that inequality was an inescapable feature of human existence.

From his deathbed he told a reporter: “I believe in general that the idea of justice is more closely met by a freely competitive market than by any deliberate allocation of income to some imagined ideal of the kind”.

The Right Circumstances

His life is evidence of what a single man can achieve in the right circumstances, and as fellow neoliberal Antony Fisher would have said, the embodiment of the fact that ideas have consequences. He was awarded the presidential Medal of Freedom by President George Bush Senior in 1991, for example, but had been too frail to attend in person.

In 1947, Hayek founded the Mont Pelerin Society (MPS), an international group of economists, historians and philosophers; he was convinced the MPS was crucial to the triumph of neoliberalism around the world.

However, as his biographer Alan Ebenstein would note: “Hayek was virtually forgotten in England during the 1950s and ’60s. The London-based Institute of Economic Affairs [IEA]…became almost the only organisation that continued to promote him and his work in the country during this period.”

In the United States, Hayek would also be directly involved with the Foundation for Economic Education (FEE), the American Enterprise Institute, the Heritage Foundation and Cato Institute.

These think tanks, each tied to the Koch family’s fossil fortune, would each play a role in the rise of climate denial during the 1980s and ‘90s.

Not For All Men

Hayek’s free market philosophy did not mean total freedom for all men though.

He was, during his life, a keen supporter of General Augusto Pinochet, whose death squads tortured and murdered thousands of citizens following the overthrow of the democratically elected government of Salvador Allende in Chile during a military coup in 1973.

“Don’t confuse totalitarianism with authoritarianism,” Hayek said of Pinochet. “I don’t know of any totalitarian governments in Latin America.

“The only one was Chile under Allende. Chile is now a great success. The world shall come to regard the recovery of Chile as one of the great economic miracles of our time.”

Communism, therefore, was not despised because of the violence of revolution but instead because it posed a real threat to the private property of the wealthy.

Hayek believed that only people who were over the age of 45 should be allowed to vote, and that people receiving benefits should have the right withdrawn.

Neighbourhood Effects

However, Hayek also considered himself an environmentalist: he supported the World Wildlife Fund and the National Trust in the UK.

He had argued that it is “often impossible to confine the effects of what one does to one’s own land to this particular piece; and hence arises those ‘neighbourhood effects’ which will not be taken into account so long as the owner has to consider only the effects on his property. Hence also the problems which arise with respect to the pollution of air or water and the like.”

This statement should light the way for those who now claim to carry his flame.

This Author

Brendan Montague is editor of The Ecologist, founder of Request Initiative and co-author of Impact of Market Forces on Addictive Substances and Behaviours: The web of influence of addictive industries (Oxford University Press). He tweets at @EcoMontague. This article first appeared at Desmog.uk. 

Following a long slump, crude prices have rebounded to about US$70  per barrel. That may make 2018 the most profitable year for oil and gas companies in at least four years.

Will oil and gas executives reap big rewards as well?

As energy economists, we’ve wondered how much the top oil and gas executives earn, particularly when their companies are earning large profits. To spot the patterns, we analyzed data on the compensation of more than 900 U.S. oil and gas executives between 1992 and 2016.

Critical decisions

Before getting to the evidence, it is worth considering what executives do in general, and how they get compensated.

Chief executive officers, chief financial officers and other C-level executives make important strategic decisions. If they act wisely, their companies are more likely to succeed and earn bigger profits. Oil and gas executives, for example, make critical decisions about where, when and how much to invest.

In many industries, the decisions executives make can also impact the prices their companies can charge.

For example, Apple’s ability to charge $1,000 (US dollars) for an iPhone X reflects in part the skills of CEO Tim Cook and other Apple executives at developing a desirable product and marketing it. But in a global commodity market like oil, executives have zero control over price. No matter how talented CEOs are, or how hard they work, they can’t singlehandedly make oil prices rise.

In economic parlance, hiring an executive is a principal-agent problem. The board of directors, the principal, hires an executive, the agent, to act on its behalf. The principal wants the agent to work hard and to make good decisions, but it is hard to measure this effort.

Instead, executive compensation typically includes incentives like bonuses, stock options and other forms of pay, designed to align the interests of the executive with the interests of the company.

Paying for luck

The Nobel Prize-winning economist Bengt Holmstrom pointed out, however, that it makes no sense for executive compensation to depend on what other scholars have since called “observable luck.” 

Tying compensation to luck just makes compensation more volatile, which in turn makes both companies and executives worse off. Holmstrom and others have found it easy to remove luck from compensation by, for example, basing compensation on a company’s performance relative to its competitors.

Oil prices are the classic example of observable luck. We looked, in particular, at U.S. oil and gas production companies, because these are the ones most impacted by oil prices. We excluded companies engaged partially or exclusively in oil refining – including Valero Energy, Chevron and Exxon Mobil, because the impact of oil prices is less clear and direct on that line of business.

We found that a 10 percent rise in oil prices increases the market value of these oil and gas production companies by 9.9 percent – almost a 1-for-1 relationship. Perhaps in no other industry are so many companies’ fortunes driven by a single global price.

More surprising, however, we determined that executive compensation follows a similar pattern. In particular, a 10 percent rise in oil prices increases executive compensation by 2 percent.

Asymmetrical pattern

That is, we find strong evidence of a “pay-for-luck” dynamic, with large rewards to executives who happen to be in the industry at the right time. 

We found this pay-for-luck pattern to be widespread across the different individual components of compensation for the top five executives at oil and gas companies. This includes not only stocks and options, but also bonuses and long-term cash incentives. 

We also noticed that this pattern is asymmetrical.

Executive compensation rises more with increasing oil prices than it falls with decreasing oil prices. This is consistent with anecdotal evidence that the criteria used for executive compensation changes over time. And that they are more quantitative during “boom” times and more qualitative during “bust” times.

In other words, U.S. oil and gas executives reap big rewards, when prices go up and they aren’t punished that much when prices fall.

Rent extraction

Everyone in the industry understands that oil prices are highly variable and completely out of the control of individual executives. So why do executives earn more when oil prices go up? 

The most likely explanation is that these CEOs and other top executives have co-opted the pay-setting process. Economists call this “rent extraction.”

That is, at least to some degree, executives are exercising influence over the board of directors – extracting compensation packages that exceed what would be expected in a competitive labor market. 

And the compensation of all oil and gas executives in our sample, all told, totals almost $1 billion (US dollars) per year, making the money at stake substantial. 

With median pay for U.S. CEOs nearly $12 million (US dollars) per year, executive compensation has become more complicated and important to understand than ever. Understanding pay-for-luck dynamics in the oil and gas industry can also shed light on what happens in other businesses where luck plays a less obvious, but often equally important, role.

This Author 

Catherine Hausman is an assistant professor in the School of Public Policy and a faculty research fellow at the National Bureau of Economics Research. Her work focusses on environmental and energy economics.

Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley, and faculty director of the Energy Institute at Haas.

 This story was first published by The Conversation.