Please indulge me while I summarize a little family folklore from my childhood. Two of my sisters, teenagers back then, suffered the indignity of wanting some particularly fashionable shoes but, due to budgetary considerations, having to take turns sharing a single pair. You no doubt see the problem already. “Sharing” is a loose term in this case, encompassing little compromise but a fair amount of wailing and the occasional physical altercation. My mother, who at the time worked approximately as many jobs in a day as I’ve had in my career, eventually dealt with the shoes. With a pair of scissors, as I recall.

I bring up this modern inversion of the Judgment of Solomon in light of remarks not-quite-delivered this week by Mary Nichols, who chairs the California Air Resources Board. Nichols was speaking at a forum on the subject of President Donald Trump’s effort to roll back vehicle fuel-efficiency and emissions mandates, which California opposes. As Bloomberg News reports, in her prepared remarks, Nichols mused on the alternatives the state might have to consider to curb air pollution if Trump was successful:

That might mean, for example, tougher requirements for low-carbon fuels, looking at tighter health-protective regulations on California refineries, doubling down on our enforcement efforts on mobile and stationary sources – and might lead to an outright ban on internal combustion engines. [Emphasis mine.]

Nichols softened that last point in the spoken word to “bans on certain types of vehicles and products,” which is, on one level, a recognition that banning traditional cars and trucks is an inflammatory concept in a state defined as much by gridlock as it is by granola.

On another level, though, there is the fact that Nichols raised such a drastic step in the first place. And if you’ve ever spent even five minutes in a room where Nichols is talking about California’s environmental protections, you will know she takes her mandate very seriously.

The American Energy Alliance, a free-market advocacy group in the sense that they’d prefer the dumping of carbon pollution on society to remain free, dismissed Nichols’s words as a tactical threat in her face-off with the feds. And I have little doubt that is a big factor at play. Yet it also captures the short-sightedness of the industry the AEA supposedly champions but is increasingly putting at risk.

The day before Nichols spoke, a new coalition of 13 large companies and environmental groups, including oil majors BP Plc and Royal Dutch Shell Plc, called on Washington to enact “an economy-wide carbon pricing policy” in order to “use the power of the market to achieve carbon reduction goals in a simple, coherent and efficient manner.” Besides recognizing the threat posed by climate change, the important thing to note about the CEO Climate Dialogue’s platform is that it seeks policy shaped in a way that is preferable for these companies; namely, market-based and with a single set of standards.

This isn’t an accident. The Green New Deal hasn’t a hope of being enacted anytime soon. But it has effectively highlighted the absurdity of saying we can’t afford radical action on climate change while devastating wildfires in California, among other disasters, already provide a taste of what inaction will cost us. The GND’s accelerated timetable and emphasis on broad and direct government action also represents a shift in the so-called “Overton window,” with ideas that might have been dismissed out of hand only a decade ago now finding at least some support in our political discourse.

Herein lies the risk for incumbent energy companies. Such measures as banning internal combustion engines – already a goal in many major cities around the world – represent a policy of “interdiction” in regulating carbon emissions, to borrow a term from ClearView Energy Partners, a Washington analysis firm. Unlike the market-led measures preferred by the CEO Climate Dialogue, these blunter tools sharply raise the odds of incumbent assets such as oil fields or refineries becoming stranded. Add on the dimension of them being enacted at a state or regional level rather than across the nation, and you have a perfect recipe for raising uncertainty and risk premiums for the likes of oil majors and reducing investment in them and their long-term projects (see this by me and this by my colleague David Fickling).

The costs of dealing with climate change can either be transparent, such as via explicit fees, or opaque, such as via regulatory standards or bans. The latter become likelier as we get closer to climate-change tipping points, which is why at least some fossil-fuel producers now belatedly push for less-drastic measures. Yet they are weighed down by the burden of decades of efforts to obfuscate the dangers posed by greenhouse-gas emissions and the continuing intransigence of some among their ranks, as well as sympathetic politicians, against accepting the scientific consensus.

Lord John Browne, the former BP CEO, recalls in his book “Beyond Business” the speech he gave at Stanford University in May 1997 acknowledging the link between fossil fuels and climate change and how, in reaction, the American Petroleum Institute accused him of “leaving the church.” That theological characterization from an organization nominally rooted in engineering is the tell there. History shows such an uncompromising stance can be effective – unless society’s patience runs out, that is, and it reaches for the scissors.

To contact the author of this story: Liam Denning at ldenning1@bloomberg.net

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.

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