Why Big Money Doesn’t Want a Diesel Ban
By Frank Van Lerven – New Economics Foundation: This week, the Scottish government pledged to phase out all new petrol and diesel cars by 2032 – a welcome eight years earlier than the UK-wide ban due by 2040. Air pollution and carbon emissions from transport are major problems. More than 40,000 premature deaths are attributable to high levels of air pollution in the UK alone. The sooner we leave petrol and diesel cars in the past, the better. But even the Scots are setting a 15-year horizon on the ban. Why so long?
The outrage of the right-wing tabloid press over anything that feels like ‘bashing the motorist’ has a lot to do with it. And certainly, new technology has a way to go – though it’s rapidly developing. At present, Alternative Fuel Vehicles (AFVs) – that’s electric cars, hybrids, plug-in hybrids, range extenders and hydrogen powered models – make up just 4.2% all new car purchases. But environmental regulation spurs innovation, and would start to accelerate demand for AFVs. The whole point of setting a date by which something will be banned is to incentivise doing something else.
But there’s more to it than that. For a more sophisticated answer, we need to look under the bonnet. Who really holds the power? It certainly isn’t the people whose lungs suffer daily as a result of illegally high air pollution. Much has been written about the power of the car industry itself. But who fuels it? And perhaps even less well understood – who finances it?
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Cheap and readily available finance continues to push new car sales to record levels. Average household debt has eclipsed 2008 levels and over 50% of consumer borrowing is for purchasing a new vehicle. And the financial sector doesn’t just lend to households, it also lends to car manufacturers and other industries (i.e. steel) that produce the cars.
Power holders – from governments to industry lobbyists, can’y afford to turn a blind eye to the need for change for much longer
The banking and finance sector also have their hand deep in the cookie jar of the oil and fossil fuel industries.. More than 30% of the market value of the FTSE 100 stock exchange is derived from fossil fuels. Between 2014 and 2016, the UK’s major banks lent around £35bn to the fossil fuel industry – the majority of which was for oil.
The oil industry and the financial sector would stand to suffer big losses from an immediate downturn in gasoline usage as well. In fact, there is a good chance our financial system might suffer a breakdown if a petrol and diesel ban was implemented in the short-term – without the right safeguards in place. Those safeguards would significantly hurt the financial sector’s profits, so there is little chance the necessary measures would be passed. Banks make a lot of money from lending to oil companies, so any attempt to force a reduction in the amount of credit extended to oil would hurt banks’ profits. In addition, attempts to force banks to hold more capital as a buffer in case things go bad are likely to be resisted because this would mean they would be unable to spend that capital on something else that might make them money.
Some researchers at the Bank of England have started looking at car loans and what would happen if diesel suddenly contracted. They have concluded that there is “concentrated financial risk” and that the industry is “vulnerable to… falls in market prices of used cars”. The UK’s Prudential Regulatory Authority and the European Systemic Risk Board have also warned of similar risks.
The issue is that if the government were to ban diesel and petrol cars the value of these cars could fall overnight. This would send considerable shockwaves through the car, oil, and finance industries which have significantly invested in them. A lot of people with a lot of power could lose a lot of money – and fast. If you are the Government, that’s the kind of thing you pay attention to.
If that all paints a grim picture for the future of our planet, the good news is that there’s a growing movement to demand that the people in charge of the finance industry – central banks like the Bank of England – start to prioritise climate change. As they should – the economy should run according to the principles that the public demand, and there is overwhelming support for urgent decarbonisation and cleaner air.
Dirty industries are on their way out, with transitions to new and cleaner technologies increasingly picking up speed. Power holders – from governments to industry lobbyists – can’t afford to turn a blind eye to the need for change for much longer. The louder we make our demands for a future which supports the environment and long-term good of the people, the more rapidly they will begin to take action.