2.1. The Public Interest Actions that public ownership enables governments to take

The desirability of suitably motivated and effective public ownership of fossil fuel companies rests on the effective control the relevant government would gain over fossil fuel companies and their associated assets and operations, enabling it to manage these in the public interest. Specifically, such control would enable the government unilaterally to take the following actions, which we shall subsequently refer to as the Public Interest Actions:

1. 1. cease all exploration for and development of new fossil fuel deposits;

2. 2. account for and disclose the emissions embodied in the fossil fuels it produces, and phase out existing production in a timeframe consistent with the achievement of the relevant emission reduction targets and other relevant goals (e.g. ensuring a sufficient supply of energy to satisfy requirements of social justice);

3. 3. use its market power to raise the price of those fossil fuels it continues to sell (i.e. those sales that are compatible with the phase-out timeframe).Footnote ³

4. 4. disclose and minimise the company's Scope 1 and Scope 2 greenhouse gas emissions, and comply with the letter and spirit of all (other) government laws and regulations relating to climate change and energy efficiency;Footnote ⁴

5. 5. expend research, development and demonstration (RD&D) resources on developing emissions reduction technologies that are likely to be necessary to the global decarbonisation effort and that leverage the company's existing assets (e.g. geological expertise);

6. 6. cease all governmental and public affairs operations aimed at promoting fossil fuels, obstructing climate policies and repressing local opposition to operations (e.g. lobbying, political donations, advertising, public relations, litigation, surveillance of anti-fossil fuel protestors etc.);

7. 7. cease all forms of tax avoidance and evasion, and comply with the letter and spirit of applicable tax laws;

8. 8. undertake ongoing operations in accordance with high standards for occupational health and safety, labour relations, community relations and environmental/pollution management.

9. 9. fully decommission former production sites and restore them to high standards of safety, amenity and ecological functioning, and carry out associated maintenance and monitoring of decommissioned sites to a high standard;

10. 10. justly manage the transition of the workforce and of local communities dependent on company operations.

2.2. Primary desirability criterion: social justice

All of the above-mentioned 10 actions advance social justice. The first six do so by more effectively achieving decarbonisation at a scale and speed consistent with maintaining the ecological and social preconditions for social justice.

The combined effect of actions 1–3 would be to increase the price of fossil fuels that remain on the market, effectively constraining the (very large amount of) ‘scope 3’ emissions that are released when fossil fuels are burned by downstream customers, such as by drivers of petrol-based cars and trucks. Basic economic theory tells us that an increase in price results in a contraction in demand and hence, all else equal, a reduction in greenhouse gas emissions. Of course, all else is not equal. In particular, the higher price of remaining fossil fuels will incentivise other suppliers (in other countries) to expand their supply – a phenomenon known as cross-border production leakage. The new equilibrium price will depend on the relative price elasticities of demand and supply – an empirical question that depends on numerous factors. Existing studies of relative elasticities in various fossil fuel markets show mixed results, but the balance of literature suggests that unilateral reductions in fossil fuel supply tend to be replaced elsewhere at a ratio of less than 1:1, meaning unilateral fossil fuel supply restrictions tend to lead to genuine net global emissions reductions. For example, here is the conclusion of Fæhn and colleagues from their empirical study of cost-effective climate mitigation in Norway:

The more countries that pursue a supply reduction strategy, the more they will foster a new global moral norm against fossil fuel production, which will raise the social costs of non-cooperation, incentivising supply reductions (Collier and Venables, Reference Collier and Venables2015; F. Green, Reference Green2018). First-movers have a crucial role to play in modelling such ‘anti-fossil fuel norms’ and persuading other countries to cooperate (F. Green, Reference Green2018). We assume that such a foreign policy strategy would be part of the policy mix of a suitably motivated government seeking to adopt ambitious climate mitigation strategies. Ultimately, such actions could lead to international cooperation among like-minded governments to phase-out fossil fuel production (Asheim et al., Reference Asheim2019; Collier and Venables, Reference Collier and Venables2015; F. Green, Reference Green2018; F. Green and Denniss, Reference Green2018; Newell and Simms, Reference Newell and Simms2020; Piggot et al., Reference Piggot, Erickson, van Asselt and Lazarus2018).

The effect of action 4 would be to directly reduce the emissions produced in the course of the company's operations. These operational emissions can be significant: for example, the International Energy Agency (IEA) estimates that emissions from the upstream production, processing, transportation and refining of oil and gas account for 10-30% of the lifecycle emissions of oil and 15-40% for gas (IEA, 2018).

Action 5 would contribute to global climate mitigation through the innovation of new technologies and processes that ultimately accelerate global emissions reductions. Stockmarket listed firms tend to be myopic, pursuing short-term strategies to boost stock prices and dividends at the expense of investments in technological innovation that are profitable in the longer term and that benefit the firm's wider stakeholders (Lazonick and Shin, Reference Lazonick and Shin2019; Mazzucato, Reference Mazzucato2013; Stout, Reference Stout2012). Fossil fuel companies are no exception to this myopia (Kenner and Heede, Reference Kenner and Heede2021). Under suitably motivated and effective public ownership, this trend could be reversed: the assets of the acquired companies could be utilised for the RD&D of emissions reduction technologies.

Action 6 would remove powerful sources of pro-fossil fuel influence over politics, policy, civil society, and consumer beliefs, attitudes and preferences. Instead, fossil fuel companies under the effective control of suitably motivated governments would become advocates of decarbonisation. The effect of this political shift in the strategic orientation of fossil fuel companies could be great (see section 3.1).

Actions 7–10 enhance social justice in the transition process.Footnote ⁵ There is considerable evidence that the fossil fuel industry as a whole (albeit with regional variability on some measures) performs poorly – at best, patchily – with regard to transparency, payment of taxes, occupational health and safety, site decommissioning and restoration, local environmental management, labour relations, and community relations (Olson and Lenzmann, Reference Olson and Lenzmann2016). Consequently, considerable injustice is done to workers in these firms and to (other) persons who are killed or harmed by these firms’ operations (Wenar, Reference Wenar2015). Meanwhile, the low levels of tax paid by the industry constrains governments’ ability to provide public goods and services that advance social justice (J. F., Green Reference Green2021). A suitably motivated government would run such firms according to high standards across these areas (see actions 7–10), enabling large social justice gains relative to current ownership patterns.

Consider, for example, the issue of workforce transition. Privately-owned fossil fuel companies tend to treat their workers as mere factors of production. They are often swiftly made redundant when labour-saving technologies and processes are implemented to reduce costs and in adverse circumstances (e.g. when fossil fuel prices fall), with little thought given to their career development, their skills or their general wellbeing and that of their families and communities. Many fossil fuel firms have used bankruptcy as a means to escape their liabilities to fund their workers’ pensions and other entitlements (Aronoff, Reference Aronoff2021). In the context of debates about a ‘just transition’ of the carbon-dependent workforce, it is often assumed that only governments have obligations to support workers, or that, if firms do have obligations, they are unlikely to fulfil them. However, if such firms were in the employ of a suitably motivated government, the government would be able to secure a just transition for fossil fuel workers (F. Green and Gambhir, Reference Green and Gambhir2020; International Labour Organization, 2015). A publicly owned fossil fuel company could, for example, engage its workers in a workplace-democratic process concerning transition arrangements; ensure pension liabilities are paid out to eligible beneficiaries; facilitate voluntary early retirement for older workers; redeploy workers to site decommissioning, restoration, maintenance and monitoring operations, RD&D operations or other (sustainable) parts of the business; and facilitate the training and reskilling of non-retiring workers for employment in good quality jobs in growing, zero-carbon industries (as part of the wider policy mix, we assume the government would be facilitating and investing in such industries).

2.3. Secondary criteria: fairness and democracy

A public controlling majority stake performs well not only on the primary desirability criterion of increased social justice, but also on the following two secondary desirability criteria.

3.1. Public ownership is redundant: other policies could achieve similar outcomes (at lower cost)

The first objection we consider is that public ownership of fossil fuel companies would be redundant because similar outcomes could be achieved (at lower cost) with other regulations. For example, the government could remove fossil fuel subsidies, ban new fossil fuel exploration and development, reduce existing production (by instituting a system of declining production quotas – which could be tradeable – or by taxing fossil fuel production), price carbon, mandate higher standards for energy efficiency, and so forth. The same could be said for the regulation of fossil fuel companies’ decommissioning and site restoration, technological innovation, local environmental protection, labour relations and community relations obligations.

We certainly think that many such regulations could be valuable elements of the climate policy mix. However, we think these other regulations are more likely to be effective if combined with suitably motivated and effective public ownership of fossil fuel companies. There are two reasons for this, both of which have to do with post-enactment dynamics. For the purpose of responding to this objection, we shall therefore assume that the government enacts some set of the aforementioned regulations such that, if fully implemented, this set of regulations would achieve similar results to what would be achieved with public ownership alone. Our claim is that those policies would have feedback effects that mean they would be less effective than they would be if fossil fuel companies were publicly owned, under the conditions outlined in Part 1, because of different – and superior – feedback effects of such ownership.

First, all regulation of private corporate activity faces implementation and enforcement challenges. These challenges arise from the strategic (e.g. profit-maximising) orientation of the privately-owned firms that the regulation seeks to control, combined with the information asymmetry between what firms know about their own activities compared with what the government can know. The fewer resources a government has available for monitoring and verifying (i.e. auditing) firms’ behaviour, the greater these information asymmetries will be. Moreover, the larger and more powerful the regulated firms are, the more likely they will ‘capture’ regulatory agencies, thus influencing executive rule-making as well as auditing and enforcement policies and practices. Larger firms are also more likely to be able to avoid enforcement actions or penalties for non-compliance, and to engage in forms of ‘creative compliance’/‘gaming’ (Baldwin, Cave, and Lodge, Reference Baldwin, Cave and Lodge2011; McBarnet and Whelan, Reference McBarnet and Whelan1991). The fossil fuel industry has proven itself highly adept at capturing and gaming regulatory and tax systems (Bergin and Bousso, Reference Bergin and Bousso2020; J. F. Green, Reference Green2021; Stokes, Reference Stokes2020). By contrast, a fossil fuel company controlled by suitably-motivated government owners would by definition be motivated by the public interest objectives that govern its mandate, thus eliminating the motivation for strategic evasion of regulations (see action 4 on our list in section 2.1).

The second set of relevant post-enactment dynamics concerns the incentives and capacities of regulated firms to mobilise politically in order to repeal or dilute the enacted legislation itself (Patashnik, Reference Patashnik2008). If a government were to enact mainstream climate policies, the affected fossil fuel firms would have every incentive to redouble their political efforts to repeal or weaken the legislation. To be sure, the enacted policies themselves would inevitably weaken these firms’ capabilities. Still, the incentive for fossil fuel companies to use their remaining capabilities to mobilise politically would continue. This incentive would be eliminated if a suitably motivated government controlled the relevant firms – hence action 6 on our list.

3.2. The market is better at maximising aggregate welfare than the government

A second objection is that public ownership of fossil fuel companies would not be welfare-maximising because perfectly competitive markets are better at maximising welfare.Footnote ⁷ Before we respond to the core of the objection, note that it only gets off the ground if markets for fossil fuels are perfectly competitive, or could be made so with additional regulation. In reality, markets for fossil fuels are about as far from perfectly competitive as a market can get. Fossil fuel companies are propped up by massive direct and indirect government subsidies that support production (e.g., production tax credits), or downstream consumption of their products (e.g., consumer fuel rebates) (Coady et al., Reference Coady, Parry, Sears and Shang2015). Most discussions of subsidies don't even count government investments in military operations to protect fossil fuel production sites, infrastructure, and transport routes, or government diplomatic efforts to secure favourable contracts and other arrangements (Olson and Lenzmann, Reference Olson and Lenzmann2016). Aside from subsidies, the industry pays nowhere near (plausible estimates of) the social cost of its externalities, which include not only its greenhouse gas emissions but also air pollution and other environmental impacts (Coady et al., Reference Coady, Parry, Sears and Shang2015), not to mention human rights abuses and democratic distortions across the world (Olson and Lenzmann, Reference Olson and Lenzmann2016; Wenar, Reference Wenar2015). Finally, the supply of fossil fuels is oligopolistic, as there are high barriers to entry to the industry and it requires natural monopoly infrastructure such as pipelines, railways and ports. If the industry received no subsidies (other than for any positive externalities it provides), and paid the full social costs of its externalities (e.g. through carbon and pollution taxes), much – perhaps all – of it would be unprofitable, and perfect competition would bid down any remaining rents.

However unlikely it is that a perfectly competitive fossil fuel market comes about, let us assume for the sake of argument that it does and consider the original objection on its merits.Footnote ⁸ The objection is that, under perfectly competitive market conditions, the (ex hypothesi highly-regulated) market would achieve higher aggregate welfare than if fossil fuels were produced and distributed according to government priorities. This, so the argument goes, is because markets enable fossil fuels to go to those who have the greatest willingness to pay for them.

The objector's argument rests on an implicit assumption that efficient outcomes (which we are assuming for the sake of argument) are welfare-maximising, where welfare is understood to mean the aggregate satisfaction of consumption preferences. But efficiency and welfare are not the same. Rather, given the diminishing marginal propensity of money to satisfy preferences, aggregate preference satisfaction is a function of how economic resources are distributed. Efficiency is, therefore, at best an indication of society's potential to satisfy preferences (assuming costless redistribution); realising that potential requires actual redistribution (which is not costless) (Hausman, McPherson, and Satz, Reference Hausman, McPherson and Satz2016, pp. 159–61). The more unequally economic resources are distributed, the greater the distance between efficiency and aggregate preference satisfaction (i.e. the less efficiency is a proxy for welfare) because a wealthy person is able and willing to pay more for a good they value than a poorer person who values the good just as much. It follows that the more unequal a society is, the more effective government rationing (as compared with market allocation) will be as a means of maximising welfare (Weitzman, Reference Weitzman1977). Income and wealth inequalities are currently extremely high (Chancel et al., Reference Chancel, Piketty, Saez and Zucman2021). Consequently, some individuals can fly around the world in private jets, while others can barely heat their homes in winter, and others still don't have access to housing at all. Under these conditions, our objector cannot rely on neoclassical welfare theory alone to argue that the allocation of fossil fuels via the market mechanism is more welfare-maximising than is its allocation according to the priorities determined by the government.

3.3. Public ownership is the first step on the Road to serfdom

A second objection comes from those who are worried that the government taking over economic production entails the undermining of economic freedoms. Following Hayek's famous arguments in The Road to Serfdom (1944), economic and political liberties go hand in hand, hence the increase of government ownership over the means of production will eventually lead to tyranny: the government will start by curtailing economic freedoms of entrepreneurs in the fossil fuel industry, and once they have taken this step, we are on a slippery slope to further restrictions of economic freedoms and eventually a totalitarian state.

Given the prevailing ideological background in many countries, the idea of public ownership of a large sector may come across as radical. But that position may reveal more about the biases in those prevailing ideologies, since contemporary governments – even prosperous, democratic ones – already own many assets. Indeed, all rich democracies have mixed economies that combine private, public and common ownership, yet there is no evidence that this public and common ownership has set those countries on a path towards totalitarianism.

The relevant question, then, is: which sector, or the production of which goods and services, should be organised in what way? The answer will likely vary from case to case, and depend on a wide range of factors, including values and social-scientific knowledge (Bayliss and Fine, Reference Bayliss and Fine2020). Focusing on the normative issues at stake, we have made a specific set of arguments as to why governments should take fossil fuel companies into public hands, assuming they are suitably-motivated and capable of exercising effective control. We do not argue in this paper for public ownership in a broad range of sectors, let alone in the entire economy. At most, the arguments we have made could be extended to encompass other links in the supply chain of fossil fuels (e.g. large coal-fired and gas-fired power generators), and other large sources of emissions. The onus therefore lies with the objector to explain the causal dynamics by which suitably motivated and effective public ownership of fossil fuel companies – or other public ownership of other targets to which our arguments may extend – would lead to serfdom.

3.4. Motivation and feasibility issues

In this final section, rather than considering a specific objection, we explore a set of issues concerning motivation and feasibility.Footnote ⁹ These issues are linked in that they question one or more of our main assumptions in ways that have significant implications for our arguments – especially concerning the effectiveness of public ownership as a means of decarbonisation. We do not propose to treat these issues comprehensively, let alone to resolve them. Rather, we merely aim to lay out the relevant issues and invite further multi-disciplinary discussion.

Our first two assumptions are that in each case of a public acquisition of a fossil fuel company it is undertaken by a suitably motivated government that acquires sufficient control over the company to carry out the Public Interest Actions. Following the philosophical literature on feasibility, these can be thought of assumptions about accessibility, i.e. the attainability of an outcome, by way of a set of possible transformations (social, political, economic etc.) from the status quo (cf. Gilabert, Reference Gilabert, Vallier and Weber2017; Gilabert and Lawford-Smith, Reference Gilabert and Lawford-Smith2012). Our third assumption is about stability, i.e. the maintenance of the requisite motivation and control over a relevant time period (Cohen, Reference Cohen2009), and this assumption can be decomposed into an assumption about the stability of the requisite motivation and an assumption about the stability of the requisite control. Objections can be envisaged targeting each of these assumptions.

Accessibility of the requisite motivation: An objector may argue that governments are unlikely to be motivated to incur the economic and political costs of acquiring fossil fuel companies only to wind down production in the global public interest. The objector may point to the fact that, historically, where governments have been motivated to acquire fossil fuel assets their motivation has been to gain control over a higher share of short- to medium-term revenue from the sale of oil and to use this to retain power, consistent with an overall objective of maximising net benefits to the ruler (Mahdavi, Reference Mahdavi2014; Reference Mahdavi2020).

However, just because some rulers in some countries in the past nationalised oil companies to enrich themselves and entrench their power does not preclude other governments in other countries in the future acquiring fossil fuel companies in the interests of decarbonisation. Numerous governments have pursued policies to manage the phase-out of fossil fuel production or power generation assets on climate mitigation grounds, especially in the coal sector (Rentier, Lelieveldt, and Kramer Reference Rentier, Lelieveldt and Kramer2019). Moreover, we do not assume that public ownership would necessarily involve expropriation / compulsory acquisition, as did the oil nationalisations of the 1970s: as we note in Part 1, we are open to the possibility that shares could be acquired on the open market or some amount of compensation could be paid for a compulsory acquisition (though we acknowledge that would be controversial, so we remain neutral on this issue here).

As for whether the requisite motivation might extend to using public ownership to engineer such a phase-out, we note that free-market ideology is increasingly being called into question among the public and among segments of the intellectual elite in many parts of the world, and there is substantial interest in expanding public ownership of essential assets (Guinan and O'Neill, Reference Guinan and O'Neill2018; Hanna, Reference Hanna2018; Kishimoto, Steinfort, and Petitjean, Reference Kishimoto, Steinfort and Petitjean2020; Lawrence and Hanna, Reference Lawrence and Hanna2020). The imperative to decarbonise is often a central motivation for such proposals (Aronoff et al., Reference Aronoff, Battistoni, Cohen and Riofrancos2019; Galvin and Healy, Reference Galvin and Healy2020; Pettifor, Reference Pettifor2019; Prakash and Girgenti, Reference Prakash and Girgenti2020). To provide just two examples, proposals for a Green New Deal in the US, advocated by the socialist-progressive wing of the Democratic party, have proved extremely popular with the public (Bergquist, Mildenberger, and Stokes, Reference Bergquist, Mildenberger and Stokes2020; Gustafson et al., Reference Gustafson2019) and have clearly influenced the policies of the Biden administration (Kurtzleben, Reference Kurtzleben2021). In the UK, the nationalisation of a wide range of strategic assets, and implementing a Green New Deal, were central planks of the Labour Party manifesto for the 2019 national election (Labour Party Reference Party2019). Clearly, this political-economic trajectory faces barriers in the US and UK, and we do not necessarily think it is likely to eventuate. Our point is simply that the probability that a future progressive government in the US, UK or elsewhere would be motivated to acquire fossil fuel companies as part of their decarbonisation strategy seems sufficient to warrant further debate.

Still, this response has its limits. Even if all rich democracies (say) underwent a progressive revolution in which suitably motivated governments came to power, stubborn facts about the geographic dispersion of fossil fuel reserves and their current ownership are likely to limit the effectiveness of the decarbonisation actions we envisage (in section 2.1). This is a particularly thorny issue for oil, since the vast majority of reserves are controlled by national oil companies, most of which are currently owned by poorer and/or undemocratic states where, to put it mildly, the requisite motivational state seems less accessible for the foreseeable future (Heller and Mihalyi, Reference Heller and Mihalyi2019; Manley and Heller, Reference Manley and Heller2021). It is somewhat less of an issue for coal – where large deposits exist in the US, Australia, Germany and other rich democracies, and where markets are more regionalised. Future research could usefully explore the feasibility of suitably motivated governments coming to power in different countries with significant fossil fuel reserves.Footnote ¹⁰

Sustainability of the requisite motivation. A further issue concerns whether the requisite motivation, once attained, could be sustained for sufficiently long to carry out the Public Interest Actions. If it turns out that the probability of suitably motivated governments coming to power is only sufficiently high to warrant serious consideration in rich democracies, then we must also recognise that those governments could lose power at a subsequent election and be replaced by a government with contrary motivations. Indeed the replacement government might even be motivated to use its newfound control over the fossil fuel sector to increase production, or otherwise pursue the opposite actions that we have envisaged. Much depends on the political feedback effects of the initial acquisition: are these likely to entrench or weaken support for the incumbent and its decarbonisation strategy? Future research could usefully explore this question in relevant democracies.

Accessibility and sustainability of the requisite control: Finally, it may be objected that many states lack the fiscal or administrative capacity necessary to acquire and sustain ownership of private fossil fuel companies, or obtain and sustain sufficient control over the companies they own to implement the Public Interest Actions.

Whether a government has the capacity to acquire ownership of relevant companies depends much on the acquisition strategy pursued (see Part 1) and jurisdiction-specific features, and is therefore difficult to evaluate in the abstract. Further analysis of specific feasibility constraints, and the feasibility trade-offs associated with different acquisition strategies, in key jurisdictions would be valuable.

Whether a government that acquires a fossil fuel company can then obtain and sustain sufficient control over it to carry out the Public Interest Actions is likely to be contingent on the capacities of the relevant government and the motivations and behaviours of managers and employees in the relevant company. Historical and contemporary case studies suggest two kinds of generic risks. First is the principal-agent problem, which might be called the ‘state within a state’ problem: that the acquired fossil fuel company is so large, and so wedded to its (former) objectives of profit-maximisation through fossil fuel production, that it remains de facto autonomous – both motivated and able to ignore government mandates. This might manifest as successful resistance to either the initial bid for government control, or an ability to thwart the directives of the government-installed directors and their appointed senior managers, or to co-opt them over time. A related problem applicable to a company that exhibits this kind of autonomous resistance to the government's desired public interest strategy is what might be called the ‘fox in the henhouse’ problem: that the company, once brought into the government apparatus, is able to exert more corruptive influence over the government's energy and climate policy than it did when it was privately owned. Again, the conditions under which these kinds of dynamics are likely to be triggered vs avoided in specific contexts is a worthy object of further study.