Industry vs. scientists – who profits from climate disruption?

Posted on May 5, 2010


“Follow the money – it’s all about the research grants.”

This and similar accusations are commonly made against anyone who advocates on behalf science-based climate policies at all levels, all they way from national academies of science down through professional scientific societies, universities, research groups, and even down to individual scientists. S&R decided to follow the money to see who profits the most from climate disruption, the fossil fuel-related industries or the global climate science community. Note: Many of the numbers below are so large that there’s not a common style convention for writing them. For this post, trillions of dollars will be indicated like this: $1464 billion.

Fossil fuel-related industries are more than just the organizations that extract the crude oil, coal, and natural gas from the ground. There’s also the groups that transport the fuels via ship, train, and pipeline. Then there are the refiners who turn the crude oil or natural gas into unleaded, diesel, plastic, and fertilizer feedstock. And there’s the utilities that keep the lights on by burning natural gas and coal. All of these industries make a great deal of money because carbon dioxide (CO2) emissions are not priced or regulated, and they all risk losing a great deal of money should that change.

According to the U.S. Energy Information Administration’s international data on crude oil exports for 2008 (the latest year for which all the data for this post was available), total annual exports were 15.442 billion barrels of crude oil. Using the calculated average spot price for crude oil in 2008 of $94.81 per barrel, the total value of exported crude oil was approximately $1464 billion. Similar calculations for dry natural gas production and Contract 1 prices per million BTUs of gas produce an estimated value for produced natural gas of $1007 billion in 2008.

In order to estimate the revenues of the industries that were involved in fossil fuel production, transportation, refining, and electricity generation, I used the Fortune Global 500 list of the largest publicly-traded companies in 2008 (published in 2009). According to Fortune’s estimates, the largest energy companies had revenues of $619 billion in 2008, the largest mining and crude-oil production companies had revenues of $498 billion, the largest petroleum refining companies had revenues of $4,462 billion, the largest pipeline companies had revenues of $65 billion, and the largest utilities had revenues of $863 billion. The combined total of all these industries in 2008 was $6508 billion.

When added up, these industries plus the total value of gas and crude oil exports accounted for a minimum of $8979 billion of the global economy in 2008. This is a conservative estimate because it only accounts for the revenues of the top 500 publicly-traded corporations – there are dozens if not hundreds of private or government-controlled companies that are not included in the list above. One private oil conglomerate alone, Koch Industries, was estimated by Forbes Magazine to have revenues of at least $100 billion.

The International Monetary Fund and World Bank estimated that global economy in 2008 was approximately $60000 billion. Of that, at least $9000 billion, or 15% of the entire global economy, was directly involve in the production, transportation, consumption, and refining of fossil fuels.

In comparison, the entire US budget for research into climate disruption in 2008 was only $1.83 billion. The UK’s budget for climate research was about $30 million, Canada’s budget was only $75 million, and Australia’s budget was about $73 million. While S&R was unable to determine the budgets of other nations with major scientific research budgets such as China, Russia, Japan, and Germany due in large part to the language barrier, S&R estimates that the entire global climate research budget exclusive of the U.S. is not likely to exceed the US’ budget based on how much greater the US’ research budget was than the UK’s, Canada’s, and Australia’s.

The total research budget for climate research globally in 2008 is estimated to be about $3.8 billion. Compare that to the combined revenues of fossil fuel industries of a minimum of $9,000 billion. The research money available to climate researchers is approximately 0.04% of the revenues of fossil fuel industries.

I asked a couple of working scientists their opinion about what motivates scientists in academia and government civil service. Dr. Andrew Dessler, professor of atmospheric sciences at Texas A&M, said that his own motivation was doing “incredibly interesting and challenging” research rather than money. He said

After college, I went to work on Wall Street in the energy group of an investment bank, and after a year or so realized that I was incredibly bored and decided I would rather have an interesting job than a high salary.

Furthermore, Dessler described how his salary is determined, and how the amount of research grant money he brings in doesn’t drive his salary in any way:

Texas A&M pays 10 months of my salary to teach. The other two months of my salary are paid out of grants for doing research, but the University sets the amount I receive during those two months equal to the monthly rate that the University pays me the other 10 months. Thus, the vast majority of my salary is completely disconnected with research.

Dessler also pointed out that what motivates most scientists is not money but rather the desire to “impress your colleagues.” Brigham Young University geochemistry professor Barry Bickmore made a similar observation at his personal blog, saying “scientists get brownie points for showing that others’ work is flawed in some way.” Put another way, Dessler and Bickmore are claiming that scientists are not largely motivated by financial gain, and as such they don’t agree with the “it’s about the research grant money” motivation accusations made by so many climate disruption deniers.

Economists have studied how much it will cost the global economy to address climate disruption, and they’ve concluded that it will cost between 1% and 3% of the global economy. In 2008 that would have been between $600 and $1800 billion, of which climate research would have represented less than 0.6%. Given that climate research has a microscopic piece of this hypothetical climate pie, it’s unrealistic to believe that climate researchers would be willing to prostitute their own research for so little when there is so much more money available in the fossil fuel industries.

S&R also estimated the amount of “extra” revenue that fossil fuel industries made in 2008 as a result of very limited CO2 restrictions. Assuming that climate disruption costs 3% ($1,800 billion) of the global economy and that the cost is borne entirely by the fossil fuel industries. In 2008, that would have cut the fossil fuel industries’ revenues from $9000 billion to $7200 billion, a 20% drop. According to Fortune, the fossil fuel industries had profits of $371 billion over revenues of $6508 billion in 2008, for a profit margin of approximately 5.7%. If the companies’ revenues were 20% smaller but the profit margin remained the same, those companies would have had profits that were $74 billion less in 2008 than they actually were. So long as the industries’ opposition to climate disruption legislation via advertising, lobbying, media outreach, litigation, and FUD-focused think tanks cost less than $70 billion, the opposition resulted in the industries’ making more profit than the total amount spent by all governments on climate science research.

$9000 billion in total fossil fuel revenues. $371 billion in profits for just the Fortune Global 500. $74 billion in extra profits made because climate disruption wasn’t being addressed. Compared to less than $4 billion for climate research.

If “it’s all about the money” like the climate disruption deniers claim, then the numbers above show that fossil fuel industries have the greatest financial stake of the varied interests involved in climate. Furthermore, their financial self-interest lies in ensuring that climate disruption isn’t addressed.

And, to date, climate disruption hasn’t been.

Thanks to Gavin, Wufnik, and the others who helped find the data used in this piece. Calculations used to generate the numbers in this post are available here.

Posted in: Uncategorized