Like Barack Obama before him, Donald Trump comes to power amid an inherited emergency. When Obama took office in January 2009, the U.S. economy was in freefall. massive housing bubble had burst. Banks were failing, stock markets tumbling. Millions of people were losing their jobs, homes, and life savings.
The emergency Trump inherits also involves a bubble, but his bubble is made of carbon. This bubble nevertheless threatens many of the same catastrophes Obama’s did, including the evaporation of trillions of dollars worth of wealth and terrible human suffering. Trump seems oblivious to the danger, judging from his nomination of ExxonMobil’s CEO Rex Tillerson and other fossil fuel champions to his cabinet. But the confirmation hearings that begin this week enable the Senate and the press to publicize the emergency, demand answers, and reject any nominee unfit to manage the crisis.
A financial bubble occurs when the price of a given asset rises well above the asset’s actual value. In the case of the 2008 housing bubble, homebuyers, financial institutions, and other investors embraced the enticing but dubious assumption that U.S. housing prices only went up, never down. This assumption became a self-fulfilling prophecy, for a while, as a surge in investment drove housing values higher. But reality eventually asserted itself. When there were not enough buyers to keep the bubble expanding, housing prices imploded, punishing investors and bringing the economy as a whole to the brink of collapse.
Today’s carbon bubble operates on the same economic principles, as Mark Carney, the governor of the Bank of England, has explained. In a landmark 2015 speech to the venerable Lloyd’s of London insurance company, Carney, Britain’s central banker, highlighted the scientific finding that humanity cannot burn most of the earth’s reserves of carbon-based fuels without risking a catastrophic increase in global warming. According to studies by the International Energy Agency and others, said Carney, only about one-third of the remaining oil, gas, and coal can be burned without pushing temperature rise beyond 2 degrees Celsius, the internationally agreed threshold where, scientists warn, climate change may well be unsurvivable. These two-thirds of unburnable reserves are the source of the carbon bubble.