Platforms for a Green New Deal

Two new books in review

Also published on Resilience.org

Does the Green New Deal assume a faith in “green growth”? Does the Green New Deal make promises that go far beyond what our societies can afford? Will the Green New Deal saddle ordinary taxpayers with huge tax bills? Can the Green New Deal provide quick solutions to both environmental overshoot and economic inequality?

These questions have been posed by people from across the spectrum – but of course proponents of a Green New Deal may not agree on all of the goals, let alone an implementation plan. So it’s good to see two concise manifestos – one British, one American – released by Verso in November.

The Case for the Green New Deal (by Ann Pettifor), and A Planet to Win: Why We Need a Green New Deal (by Kate Aronoff, Alyssa Battistoni, Daniel Aldana Cohen and Thea Riofrancos) each clock in at a little under 200 pages, and both books are written in accessible prose for a general audience.

Surprisingly, there is remarkably little overlap in coverage and it’s well worth reading both volumes.

The Case for a Green New Deal takes a much deeper dive into monetary policy. A Planet To Win devotes many pages to explaining how a socially just and environmentally wise society can provide a healthy, prosperous, even luxurious lifestyle for all citizens, once we understand that luxury does not consist of ever-more-conspicuous consumption.

The two books wind to their destinations along different paths but they share some very important principles.

Covers of The Case For The Green New Deal and A Planet To Win

First, both books make clear that a Green New Deal must not shirk a head-on confrontation with the power of corporate finance. Both books hark back to Franklin Delano Roosevelt’s famous opposition to big banking interests, and both books fault Barack Obama for letting financial kingpins escape the 2008 crash with enhanced power and wealth while ordinary citizens suffered the consequences.

Instead of seeing the crash as an opportunity to set a dramatically different course for public finance, Obama presented himself as the protector of Wall Street:

“As [Obama] told financial CEOs in early 2009, “My administration is the only thing between you and the pitchforks.” Frankly, he should have put unemployed people to work in a solar-powered pitchfork factory.” (A Planet To Win, page 13)

A second point common to both books is the view that the biggest and most immediate emissions cuts must come from elite classes who account for a disproportionate share of emissions. Unfortunately, neither book makes it clear whether they are talking about the carbon-emitting elite in wealthy countries, or the carbon-emitting elite on a global scale. (If it’s the latter, that likely includes the authors, most of their readership, this writer and most readers of this review.)

Finally, both books take a clear position against the concept of continuous, exponential economic growth. Though they argue that the global economy must cease to grow, and sooner rather than later, their prescriptions also appear to imply that there will be one more dramatic burst of economic growth during the transition to an equitable, sustainable steady-state economy.

Left unasked and unanswered in these books is whether the climate system can stand even one more short burst of global economic growth.

Public or private finance

The British entry into this conversation takes a deeper dive into the economic policies of US President Franklin Roosevelt. British economist Ann Pettifor was at the centre of one of the first policy statements that used the “Green New Deal” moniker, just before the financial crash of 2007–08. She argues that we should have learned the same lessons from that crash that Roosevelt had to learn from the Depression of the 1930s.

Alluding to Roosevelt’s inaugural address, she summarizes her thesis this way:

“We can afford what we can do. This is the theme of the book in your hands. There are limits to what we can do – notably ecological limits, but thanks to the public good that is the monetary system, we can, within human and ecological limits, afford what we can do.” (The Case for the Green New Deal, page xi)

That comes across as a radical idea in this day of austerity budgetting. But Pettifor says the limits that count are the limits of what we can organize, what we can invent, and, critically, what the ecological system can sustain – not what private banking interests say we can afford.

In Pettifor’s view it is not optional, it is essential for nations around the world to re-win public control of their financial systems from the private institutions that now enrich themselves at public expense. And she takes us through the back-and-forth struggle for public control of banking, examining the ground-breaking theory of John Maynard Keynes after World War I, the dramatically changed monetary policy of the Roosevelt administration that was a precondition for the full employment policy of the original New Deal, and the gradual recapture of global banking systems by private interests since the early 1960s.

On the one hand, a rapid reassertion of public banking authority (which must include, Pettifor says, tackling the hegemony of the United States dollar as the world’s reserve currency) may seem a tall order given the urgent environmental challenges. On the other hand, the global financial order is highly unstable anyway, and Pettifor says we need to be ready next time around:

“sooner rather than later the world is going to be faced by a shuddering shock to the system. … It could be the flooding or partial destruction of a great city …. It could be widespread warfare…. Or it could be (in my view, most likely) another collapse of the internationally integrated financial system. … [N]one of these scenarios fit the ‘black swan’ theory of difficult-to-predict events. All three fall within the realm of normal expectations in history, science and economics.” (The Case for the Green New Deal, pg 64)

A final major influence acknowledged by Pettifor is American economist Herman Daly, pioneer of steady-state economics. She places this idea at the center of the Green New Deal:

“our economic goal is for a ‘steady state’ economy … that helps to maintain and repair the delicate balance of nature, and respects the laws of ecology and physics (in particular thermodynamics). An economy that delivers social justice for all classes, and ensures a liveable planet for future generations.” (The Case for the Green New Deal, pg 66)

Beyond a clear endorsement of this principle, though, Pettifor’s book doesn’t offer much detail on how our transportation system, food provisioning systems, etc, should be transformed. That’s no criticism of the book. Providing a clear explanation of the need for transformation in monetary policy; why the current system of “free mobility” of capital allows private finance to work beyond the reach of democratic control, with disastrous consequences for income equality and for the environment; and how finance was brought under public control before and can be again – this  is a big enough task for one short book, and Pettifor carries it out with aplomb.

Some paths are ruinous. Others are not.

Writing in The Nation in November of 2018, Daniel Aldana Cohen set out an essential corrective to the tone of most public discourse:

“Are we doomed? It’s the most common thing people ask me when they learn that I study climate politics. Fair enough. The science is grim, as the UN Intergovernmental Panel on Climate Change (IPCC) has just reminded us with a report on how hard it will be to keep average global warming to 1.5 degrees Celsius. But it’s the wrong question. Yes, the path we’re on is ruinous. It’s just as true that other, plausible pathways are not. … The IPCC report makes it clear that if we make the political choice of bankrupting the fossil-fuel industry and sharing the burden of transition fairly, most humans can live in a world better than the one we have now.” (The Nation, “Apocalyptic Climate Reporting Completely Misses the Point,” November 2, 2018; emphasis mine)

There’s a clear echo of Cohen’s statement in the introduction to A Planet To Win:

“we rarely see climate narratives that combine scientific realism with positive political and technological change. Instead, most stories focus on just one trend: the grim projections of climate science, bright reports of promising technologies, or celebrations of gritty activism. But the real world will be a mess of all three. (A Planet To Win, pg 3)

The quartet of authors are particularly concerned to highlight a new path in which basic human needs are satisfied for all people, in which communal enjoyment of public luxuries replaces private conspicuous consumption, and in which all facets of the economy respect non-negotiable ecological limits.

The authors argue that a world of full employment; comfortable and dignified housing for all; convenient, cheap or even free public transport; healthy food and proper public health care; plus a growth in leisure time –  this vision can win widespread public backing and can take us to a sustainable civilization.

A Planet To Win dives into history, too, with a picture of the socialist housing that has been home to generations of people in Vienna. This is an important chapter, as it demonstrates that there is nothing inherently shabby in the concept of public housing:

“Vienna’s radiant social housing incarnates its working class’s socialist ideals; the United States’ decaying public housing incarnates its ruling class’s stingy racism.” (A Planet To Win, pg 127)

Likewise, the book looks at the job creation programs of the 1930s New Deal, noting that they not only built a vast array of public recreational facilities, but also carried out the largest program of environmental restoration ever conducted in the US.

The public co-operatives that brought electricity to rural people across the US could be revitalized and expanded for the era of all-renewable energy. Fossil fuel companies, too, should be brought under public ownership – for the purpose of winding them down as quickly as possible while safeguarding workers’ pensions.

In their efforts to present a New Green Deal in glowingly positive terms, I think the authors underestimate the difficulties in the energy transition. For example, they extol a new era in which Americans will have plenty of time to take inexpensive vacations on high-speed trains throughout the country. But it’s not at all clear, given current technology, how feasible it will be to run completely electrified trains through vast and sparsely populated regions of the US.

In discussing electrification of all transport and heating, the authors conclude that the US must roughly double the amount of electricity generated – as if it’s a given that Americans can or should use nearly as much total energy in the renewable era as they have in the fossil era.1

And once electric utilities are brought under democratic control, the authors write, “they can fulfill what should be their only mission: guaranteeing clean, cheap, or even free power to the people they serve.” (A World To Win, pg 53; emphasis mine)

A realistic understanding of thermodynamics and energy provision should, I think, prompt us to ask whether energy is ever cheap or free – (except in the dispersed, intermittent forms of energy that the natural world has always provided).

As it is, the authors acknowledge a “potent contradiction” in most current recipes for energy transition:

“the extractive processes necessary to realize a world powered by wind and sun entail their own devastating social and environmental consequences. The latter might not be as threatening to the global climate as carbon pollution. But should the same communities exploited by 500 years of capitalist and colonial violence be asked to bear the brunt of the clean energy transition …?” (A Planet To Win, pg 147-148)

With the chapter on the relationship between a Green New Deal in the industrialized world, and the even more urgent challenges facing people in the Global South, A World To Win gives us an honest grappling with another set of critical issues. And in recognizing that “We hope for greener mining techniques, but we shouldn’t count on them,” the authors make it clear that the Green New Deal is not yet a fully satisfactory program.

Again, however, they accomplish a lot in just under 200 pages, in support of their view that “An effective Green New Deal is also a radical Green New Deal” (A Planet To Win, pg 8; their emphasis). The time has long passed for timid nudges such as modest carbon taxes or gradual improvements to auto emission standards.

We are now in “a trench war,” they write, “to hold off every extra tenth of a degree of warming.” In this war,

“Another four years of the Trump administration is an obvious nightmare. … But there are many paths to a hellish earth, and another one leads right down the center of the political aisle.” (A Planet To Win, pg 180)


1 This page on the US government Energy Information Agency website gives total US primary energy consumption as 101 quadrillion Btus, and US electricity use as 38 quadrillion Btus. If all fossil fuel use were stopped but electricity use were doubled, the US would then use 76 quadrillion Btus, or 75% of current total energy consumption.

Questions as big as the atmosphere

A review of After Geoengineering

Also published at Resilience.org

After Geoengineering is published by Verso Books, Oct 1 2019.

What is the best-case scenario for solar geoengineering? For author Holly Jean Buck and the scientists she interviews, the best-case scenario is that we manage to keep global warming below catastrophic levels, and the idea of geoengineering quietly fades away.

But before that can happen, Buck explains, we will need heroic global efforts both to eliminate carbon dioxide emissions and to remove much of the excess carbon we have already loosed into the skies.

She devotes most of her new book After Geoengineering: Climate Tragedy, Repair, and Restoration to proposed methods for drawing down carbon dioxide levels from the atmosphere. Only after showing the immense difficulties in the multi-generational task of carbon drawdown does she directly discuss techniques and implications of solar geoengineering (defined here as an intentional modification of the upper atmosphere, meant to block a small percentage of sunlight from reaching the earth, thereby counteracting part of global heating).

The book is well-researched, eminently readable, and just as thought-provoking on a second reading as on the first. Unfortunately there is little examination of the way future energy supply constraints will affect either carbon drawdown or solar engineering efforts. That significant qualification aside, After Geoengineering is a superb effort to grapple with some of the biggest questions for our collective future.

Overshoot

The fossil fuel frenzy in the world’s richest countries has already put us in greenhouse gas overshoot, so some degree of global heating will continue even if, miraculously, there were an instant political and economic revolution which ended all carbon dioxide emissions tomorrow. Can we limit the resulting global heating to 1.5°C? At this late date our chances aren’t good.

As Greta Thunberg explained in her crystal clear fashion to the United Nations Climate Action Summit:

“The popular idea of cutting our emissions in half in 10 years only gives us a 50% chance of staying below 1.5C degrees, and the risk of setting off irreversible chain reactions beyond human control.

“Maybe 50% is acceptable to you. But those numbers don’t include tipping points, most feedback loops, additional warming hidden by toxic air pollution or the aspects of justice and equity. They also rely on my and my children’s generation sucking hundreds of billions of tonnes of your CO2 out of the air with technologies that barely exist.” 1

As Klaus Lackner, one of the many researchers interviewed by Buck, puts it, when you’ve been digging yourself into a hole, of course the first thing you need to do is stop digging – but then you still need to fill in the hole.2

How can we fill in the hole – in our case, get excess carbon back out of the atmosphere? There are two broad categories, biological processes and industrial processes, plus some technologies that cross the lines. Biological processes include regenerative agriculture and afforestation while industrial processes are represented most prominently by Carbon Capture and Sequestration (CCS).

Buck summarizes key differences this way:

“Cultivation is generative. Burial, however, is pollution disposal, is safety, is sequestering something away where it can’t hurt you anymore. One approach generates life; the other makes things inert.” (After Geoengineering (AG), page 122)

Delving into regenerative agriculture, she notes that “over the last 10,000 years, agriculture and land conversion has decreased soil carbon globally by 840 gigatons, and many cultivated soils have lost 50 to 70 percent of their original organic carbon” (AG, p 101).

Regenerative agriculture will gradually restore that carbon content in the soil and reduce carbon dioxide in the air – while also making the soil more fertile, reducing wind and water erosion, increasing the capacity of the soil to stay healthy when challenged by extreme rainfalls or drought, and making agriculture ecologically sustainable in contrast to industrial agriculture’s ongoing stripping the life from soil.

Regenerative agriculture cannot, however, counteract the huge volumes of excess carbon dioxide we are currently putting into the atmosphere. And even when we have cut emissions to zero, Buck writes, regenerative agriculture is limited in how much of the excess carbon it can draw down:

“soil carbon accrual rates decrease as stocks reach a new equilibrium. Sequestration follows a curve: the new practices sequester a lot of carbon at first, for the first two decades or so, but this diminishes over time toward a new plateau. Soil carbon sequestration is therefore a one-off method of carbon removal.” (AG, p 102)

There are other types of cultivation that can draw down carbon dioxide, and Buck interviews researchers in many of these fields. The planting of billions of trees has received the most press, and this could store a lot of carbon. But it also takes a lot of land, and it’s all too easy to imagine that more frequent and fiercer wildfires could destroy new forests just when they have started to accumulate major stores of carbon.

Biochar – the burying of charcoal in a way that stores carbon for millennia while also improving soil fertility – was practiced for centuries by indigenous civilizations in the Amazon. Its potential on a global scale is largely untapped but is the subject of promising research.

In acknowledging the many uncertainties in under-researched areas, Buck does offer some slender threads of hope here. Scientists say that “rocks for crops” techniques – in which certain kinds of rock are ground up and spread on farmland – could absorb a lot of carbon while also providing other soil nutrients. In the lab, the carbon absorption is steady but geologically slow, but there is some evidence that in the real world, the combined effects of microbes and plant enzymes may speed up the weathering process by at least an order of magnitude. (AG, p 145-146)

The cultivation methods offer a win-win-win scenario for carbon drawdown – but we’re on pace to a greenhouse gas overshoot that will likely dwarf the drawdown capacity of these methods. Buck estimates that cultivation methods, at the extremes of their potential, could sequester perhaps 10 to 20 gigatons (Gt) of carbon dioxide per year (and that figure would taper off once most agricultural soils had been restored to a healthy state). That is unlikely to be anywhere near enough:

“Imagine that emissions flatline in 2020; the world puts in a strong effort to hold them steady, but it doesn’t manage to start decreasing them until 2030. … But ten years steady at 50 Gt CO2 eq [carbon dioxide equivalent emissions include other gases such as methane] – and there goes another 500 Gt CO2 eq into the atmosphere. That one decade would cancel out the 500 Gt CO2 eq the soils and forests could sequester over the next 50 years (sequestered at an extreme amount of effort and coordination among people around the whole world).” (AG p 115)

With every year that we pump out fossil fuel emissions, then, we compound the intergenerational crime we have already committed against Greta Thunberg and her children’s generations. With every year of continued emissions, we increase the probability that biological, generative methods of carbon drawdown will be too slow. With every year of continued emissions, we increase the degree to which future generations will be compelled to engage in industrial carbon drawdown work, using technologies which do not enrich the soil, which produce no food, which will not directly aid the millions of species struggling for survival, and which will suck up huge amounts of energy.

Carbon Capture and Sequestration

Carbon Capture and Sequestration (CCS) has earned a bad name for good reasons. To date most CCS projects – even those barely past the concept stage – have been promoted by fossil fuel interests. CCS projects offer them research subsidies for ways to continue their fossil fuel businesses, plus a public relations shine as proponents of “clean” energy.

A lignite mine in southwest Saskatchewan. This fossil fuel deposit is home to one of the few operating Carbon Capture and Sequestration projects. Carbon from a coal-fired generating station is captured and pumped into a depleting oil reservoir – for the purpose of prolonging petroleum production.

Buck argues that in spite of these factors, we need to think about CCS technologies separate from their current capitalist contexts. First of all, major use of CCS technologies alongside continued carbon emissions would not be remotely adequate – we will need to shut off carbon emissions AND draw down huge amounts of carbon from the atmosphere. And there is no obvious way to fit an ongoing, global program of CCS into the framework of our current corporatocracy.

The fossil fuel interests possess much of the technical infrastructure that could be used for CCS, but their business models rely on the sale of polluting products. So if CCS is to be done in a sustained fashion, it will need to be done in a publicly-funded way where the service, greenhouse gas drawdown, is for the benefit of the global public (indeed, the whole web of life, present and future); there will be no “product” to sell.

However CCS efforts are organized, they will need to be massive in order to cope with the amounts of carbon emissions that fossil fuel interests are still hell-bent on releasing. In the words of University of Southern California geologist Joshua West,

“The fossil fuels industry has an enormous footprint …. Effectively, if we want to offset that in an industrial way, we have to have an industry that is of equivalent proportion ….” (AG, p 147)

Imagine an industrial system that spans the globe, employing as many people and as much capital as the fossil fuel industries do today. But this industry will produce no energy, no wealth, no products – it will be busy simply managing the airborne refuse bequeathed by a predecessor economy whose dividends have long since been spent.

So while transitioning the entire global economy to strictly renewable energies, the next generations will also need enough energy to run an immense atmospheric garbage-disposal project.

After Geoengineering gives brief mentions but no sustained discussion of this energy crunch.

One of the intriguing features of the book is the incorporation of short fictional sketches of lives and lifestyles in coming decades. These sketches are well drawn, offering vivid glimpses of characters dealing with climate instability and working in new carbon drawdown industries. The vignettes certainly help in putting human faces and feelings into what otherwise might remain abstract theories.

Yet there is no suggestion that restricted energy supplies will be a limiting factor. The people in the sketches still travel in motorized vehicles, check their computers for communications, run artificial intelligence programs to guide their work, and watch TV in their high-rise apartments. In these sketches, people have maintained recognizably first-world lifestyles powered by zero-emission energy technologies, while managing a carbon drawdown program on the same scale as today’s fossil fuel industry.

If you lean strongly towards optimism you may hope for that outcome – but how can anyone feel realistically confident in that outcome?

The lack of a serious grappling with this energy challenge is, in my mind, the major shortcoming in After Geoengineering. And big questions about energy supply will hang in the air not only around carbon sequestration, but also around solar geoengineering if humanity comes to that.

Shaving the peak

Solar geoengineering –  the intentional pumping of substances into the upper atmosphere into order to block a percentage of incoming sunlight to cool the earth – has also earned a bad name among climate activists. It is, of course, a dangerous idea – just as extreme as the practice of pumping billions of tonnes of extra carbon dioxide into the atmosphere to overheat the earth.

But Buck makes a good case – a convincing case, in my opinion – that in order to justifiably rule out solar geoengineering, we and our descendants will have to do a very good job at both eliminating carbon emissions and drawing down our current excess of carbon dioxide, fast.

Suppose we achieve something which seems far beyond the capabilities of our current political and economic leadership. Suppose we get global carbon emissions on a steep downward track, and suppose that the coming generation manages to transition to 100% renewable while also starting a massive carbon drawdown industry. That would be fabulous – and it still may not be enough.

As Buck points out, just as it has proven difficult to predict just how fast the earth system responds to a sustained increased in carbon dioxide levels, nobody really knows how quickly the earth system would respond to a carbon drawdown process. The upshot: even in an era where carbon dioxide levels are gradually dropping, it will be some time before long-term warming trends reverse. And during that interim a lot of disastrous things could happen.

Take the example of coral reefs. Reef ecosystems are already dying due to ocean acidification, and more frequent oceanic heat waves threaten to stress reefs beyond survival. Buck writes,

“Reefs protect coasts from storms; without them, waves reaching some Pacific islands would be twice as tall. Over 500 million people depend on reef ecosystems for food and livelihoods. Therefore, keeping these ecosystems functioning is a climate justice issue.” (AG, p 216)

In a scenario about as close to best-case as we could realistically expect, the global community might achieve dropping atmospheric carbon levels, but still need to buy time for reefs until temperatures in the air and in the ocean have dropped back to a safe level. This is the plausible scenario studied by people looking into a small-scale type of geoengineering – seeding the air above reefs with a salt-water mist that could, on a regional scale only, reflect back sunlight and offer interim protection to essential and vulnerable ecosystems.

One could say that this wouldn’t really be geoengineering, since it wouldn’t affect the whole globe – and certainly any program to affect the whole globe would involve many more dangerous uncertainties.

Yet due to our current and flagrantly negligent practice of global-heating-geoengineering, it is not hard to imagine a scenario this century where an intentional program of global-cooling-geoengineering may come to be a reasonable choice.

Buck takes us through the reasoning with the following diagram:

From After Geoengineering, page 219

If we rapidly cut carbon emissions to zero, and we also begin a vast program of carbon removal, there will still be a significant time lag before atmospheric carbon dioxide levels have dropped to a safe level and global temperatures have come back down. And in that interim, dangerous tipping points could be crossed.

To look at just one: the Antarctic ice sheets are anchored in place by ice shelves extending into the ocean. When warming ocean water has melted these ice shelves, a serious tipping point is reached. In the words of Harvard atmospheric scientist Peter Irvine,

“Because of the way the glaciers meet the ocean, when they start to retreat, they have kind of a runaway retreat. Again, very slow, like a couple of centuries. Five centuries. But once it starts, it’s not a temperature-driven thing; it’s a dynamic-driven thing … Once the ice shelf is sheared off or melted away, it’s not there to hold the ice sheet back and there’s this kind of dynamic response.” (AG, p 236)

The melting of these glaciers, of course, would flood the homes of billions of people, along with a huge proportion of the world’s agricultural land and industrial infrastructure.

So given the current course of history, it’s not at all far-fetched that the best option available in 50 years might be a temporary but concerted program of solar geoengineering. If this could “shave the peak” off a temperature overshoot, and thereby stop the Antarctic ice from crossing a tipping point, would that be a crazy idea? Or would it be a crazy idea not to do solar geoengineering?

These questions will not go away in our lifetimes. But if our generation and the next can end the fossil fuel frenzy, then just possibly the prospect of geoengineering can eventually be forgotten forever.


1 Greta Thunberg, “If world leaders choose to fail us, my generation will never forgive them”, address to United Nations, New York, September 23, 2019, as printed in The Guardian.
2 In the webinar “Towards a 20 GT Negative CO2 Emissions Industry”, sponsored by Security and Sustainability Forum, Sept 19, 2019.

Pulling the plug on fossil fuel production subsidies

Also published at Resilience.org

How long would the fossil fuel economy last if we took it off life support?

Or to state the question more narrowly and less provocatively, what would happen if we removed existing subsidies to fossil fuel production?

Some fossil fuel producers are still highly profitable even without subsidies, of course. But a growing body of research shows that many new petroleum-extraction projects are economically marginal at best.

Since the global economy is addicted to energy-fueled growth, even a modest drop in fossil fuel supply – for example, the impact on global oil supplies if the US fracking industry were to crash – would have major consequences for the current economic order.

On the other hand, climate justice demands a rapid overall reduction to fossil fuel consumption, and from that standpoint subsidies aimed at maintaining current fossil fuel supply levels are counterproductive, to say the least.

As a 2015 review of subsidies put it:

“G20 country governments are providing $444 billion a year in subsidies for the production of fossil fuels. Their continued support for fossil fuel production marries bad economics with potentially disastrous consequences for the climate.” 1

This essay will consider the issue of fossil-fuel production subsidies from several angles:

  • Subsidies are becoming more important to fossil fuel producers as producers shift to unconventional oil production.
  • Many countries, including G20 countries, have paid lip service to the need to cut fossil fuel subsidies – but action has not followed.
  • Until recently most climate change mitigation policy has been focused on reducing demand, but a strong focus on reducing supply could be an important strategy for Green New Deal campaigners.

Ending subsidies to producers can play a key role in taking the fossil fuel economy off life support – or we can wait for the planet to take our civilization off life support.

Producer subsidies and the bottom line

A 2014 paper from the Oxford Centre for the Analysis of Resource Rich Economies takes a broad look at subsidization trends in many countries and over several decades. In “Into the Mire”2, Radoslav Stefanski aims to get around the problem of scarce or inconsistent data by, in his words, “a method of so-called revealed preference to back out subsidies.”

Stefanski does not focus specifically on subsidies to producers. Instead, he is concerned with inferring an overall net subsidy rate, which is the difference between subsidies aimed at either fossil fuel producers and consumers, and the taxes levied on fossil fuels at the production and consumption end.

He finds that “between 1980 and 2000 the world spent – on average – 268 billion USD (measured in 1990 PPP terms) a year on implicit fossil fuel subsidies.” Starting from the late 1990s, however – when it should have been clear that it was globally essential to begin the transition away from fossil-fuel dependence – the rate of subsidization grew rapidly in several regions.

In particular, Stefanski finds, “the vast majority of the increase comes from just two countries: China and the US.”

In North America, he says “until the 1990s the policy was fairly neutral with a slight tendency towards subsidization. Subsequently however, fossil fuel subsidies exploded and the region became the second highest subsidizing region after East Asia.”

Not only did the global price of oil see a rapid rise after 2000, but North American production saw a huge growth in production through two unconventional methods: hydraulic fracturing of oil-bearing shale, and mining of tar sands. These oil resources had been known for decades, but getting the oil out had always been too expensive for significant production.

A 2017 paper in Nature Energy shows how crucial subsidies have been in making such production increases possible.

Entitled “Effect of subsidies to fossil fuel companies on United States crude oil production”, the paper quantifies the importance of state and federal subsidies for new oil extraction projects.

The authors found that at then-current prices of about US$50 per barrel,

“tax preferences and other subsidies push nearly half of new, yet-to-be-developed oil investments into profitability, potentially increasing US oil production by 17 billion barrels over the next few decades.3

The projects that would only be profitable if current subsidies continue include roughly half of those in the largest shale oil areas, and most of the deep-sea sites in the Gulf of Mexico – all areas which have been critical in the growth of a reputed new energy superpower often referred to triumphantly as “Saudi America”.

From Erickson et al, “Effect of subsidies to fossil fuel companies on United States crude oil production”, 2017.

The authors also estimate the greenhouse gas emissions that will result from continuing these subsidies to otherwise-failing projects. In their tally, the additional carbon emissions coming from these projects would amount to 20% of the US carbon budget between now and 2050, given the widely accepted need to keep global warming to a limit of 2°C. In other words, the additional carbon emissions from US oil due to producer subsidies is far from trivial.

Extending this theme to other jurisdictions with high-cost oil – think Canada, for example – the authors of Empty Promises note “the highest cost fields that benefit most from subsidisation often have higher carbon intensity per unit of fuel produced.”4,5

The Nature Energy study is based on an oil price of US$50 per barrel, and says that subsidies may not be so important for profitability at substantially higher prices.

Another recent look at the fracking boom, however, reveals that the US fracking boom – particularly fracking for crude oil as opposed to natural gas – has been financially marginal even when prices hovered near $100 per barrel.

Bethany McLean’s book Saudi America6 is a breezy look at the US fracking industry from its origins up to 2018. Her focus is mostly financial: the profitability (or not) of the fracking industry as a whole, for individual companies, and for the financial institutions which have backed it. Her major conclusion is “The biggest reason to doubt the most breathless predictions  about America’s future as an oil and gas colossus has more to do with Wall Street than with geopolitics or geology. The fracking of oil, in particular, rests on a financial foundation that is far less secure than most people realize.” (Saudi America, page 17)

Citing the work of investment analyst David Einhorn, she writes

“Einhorn found that from 2006 to 2014, the fracking firms had spent $80 billion more than they had received from selling oil and gas. Even when oil was at $100 a barrel, none of them generated excess cash flow—in fact, in 2014, when oil was at $100 for part of the year, the group burned through $20 billion.” (Saudi America, page 54-55)

It seems sensible to think that if firms can stay solvent when their product sells for $50 per barrel, surely they must make huge profits at $100 per barrel. But it’s not that simple, McLean explains, because of the non-constant pricing of the many services that go into fracking a well.

“Service costs are cyclical, meaning that as the price of oil rises and demand for services increases, the costs rise too. As the price of oil falls and demand dwindles, service companies slash to the bone in an effort to retain what meager business there is.” (Saudi America, page 90)

In the long run, clearly, the fracking industry is not financially sustainable unless each of the essential services that make up the industry are financially sustainable. That must include, of course, the financial services that make this capital-intensive business possible.

“If it weren’t for historically low interest rates, it’s not clear there would even have been a fracking boom,” McLean writes, adding that “The fracking boom has been fueled mostly by overheated investment capital, not by cash flow.”7

These low interest rates represent opportunity to cash-strapped drillers, and they represent a huge challenge for many financial interests:

“low interest rates haven’t just meant lower borrowing costs for debt-laden companies. The lack of return elsewhere also led pension funds, which need to be able to pay retirees, to invest massive amounts of money with hedge funds that invest in high yield debt, like that of energy firms, and with private equity firms—which, in turn, shoveled money into shale companies, because in a world devoid of growth, shale at least was growing.” (Saudi America, page 91)

But if the industry as a whole is cash-flow negative, then it can’t end well for either drillers or investors, and the whole enterprise may only be able to stay afloat – even in the short term – due to producer subsidies.

Supply and demand

Many regulatory and fiscal policies designed to reduce carbon emissions have focused on reducing demand. The excellent and wide-ranging book Designing Climate Solutions by Hal Harvey et al. (reviewed here) is almost exclusively devoted to measures that will reduce fossil fuel demand – though the authors state in passing that it is important to eliminate all fossil fuel subsidies.

The authors of the Nature Energy paper on US producer subsidies note that

“How subsidies to consumers affect energy decision-making is relatively well studied, in part because these subsidies have comparatively clear impacts on price …. The impact of subsidies to fossil fuel producers on decision-making is much less well understood ….” 8

Nevertheless there has been a strong trend in climate activism to stop the expansion of fossil fuels on the supply side – think of the fossil fuel divestment movement and the movement to prevent the construction of new pipelines.

A 2018 paper in the journal Climatic Change says that policymakers too are taking another look at the importance of supply-side measures: “A key insight driving these new approaches is that the political and economic interests and institutions that underpin fossil fuel production help to perpetuate fossil fuel use and even to increase it.”9

The issue of “lock-in” is an obvious reason to stop fossil fuel production subsidies – and an obvious reason that large fossil fuel interests, including associated lending agencies and governments, work behind the scenes to retain such subsidies.

Producer subsidies create perverse incentives that will tend to maintain the market position of otherwise uneconomic fossil fuel sources. Subsidies help keep frackers alive and producing rather than filing for bankruptcy. Subsidies help finance the huge upfront costs of bringing new tar sands extraction projects on line, and then with the “sunk costs” already invested these projects are incentivized to keep pumping out oil even when they are selling it at a loss. Subsidy-enabled production can contribute to overproduction, lowering the costs of fossil fuels and making it more difficult for renewable energy technologies to compete. And subsidy-enabled production increases the “carbon entanglement” of financial services which are invested in such projects and thus have strong incentive to keep extraction going rather than leaving fossil fuel in the ground.

Carbon-entangled governments tend to be just as closely tied to big banks as they are to fossil fuel companies. Sadly, it comes as no surprise that in 2018 the G7 Fossil Fuels Subsidy Scorecard noted that “not a single G7 government has ended fiscal support or public finance to oil and gas production, with Canada providing the highest levels of support (per unit of GDP).”10

Fossil fuel producer subsidies and the Green New Deal

Major international climate change conferences have long agreed that fossil fuel subsidies must be phased out, ASAP, but little progress has been made.

The first step in getting out of a deep hole is to stop digging, and at this point in our climate crisis it seems crazy or criminal to keep digging the hole of fossil fuel lock-in by subsidizing new extraction projects.

Many major fossil fuel corporations have expressed their support for carbon taxes as a preferred method of addressing the climate change challenge. I am not aware, however, of such corporate leaders advocating the simpler and more obvious approach of removing all fossil fuel subsidies.

Perhaps this is because they know that carbon taxes almost always start out too small to make much difference, and that every attempt to raise them will stir intense opposition from lower- and middle-income consumers who feel the bite of such taxes most directly.

The costs of producer subsidies, on the other hand, are spread across the entire population, while the benefits are concentrated very effectively among fossil fuel corporations and their financial backers. And by boosting the supply of fossil fuels, especially oil, to a level that could not be maintained under “free market” requirements for profitability, these subsidies maintain the hope of continuous economic growth based on supposedly cheap energy.

The sudden popularity of “Green New Deal” ideas in several countries raises essential questions about political strategy. There is no single silver bullet, and a range of political and economic changes will need to be made. Though one major goal – eliminate most fossil fuel use by about 2030 and the rest by 2050 – is simple and clear, there are many means to move towards that goal, not all of them equally effective or equally feasible.

A swift elimination of producer subsidies, and a redirection of those funds to employment retraining and rehiring in renewable energy projects, strikes me as a potential political winner. Major fossil fuel interests, including big investment firms, can be counted on to oppose such a shift, of course – but they have shown themselves to be determined lobbyists for the preservation of the fossil fuel economy anyway.

Among the overwhelming majority of voters without big financial portfolios, the cessation of handouts to corporations strikes me as an easier sell than carbon taxes levied directly and regressively on consumers.


Photo at top: port of IJmuiden, Netherlands, September 2018.


Footnotes

1 Empty Promises: G20 subsidies to oil, gas and coal production, published by Overseas Development Institute and Oilchange International, 2015, page 11

2 “Into the Mire: A closer look at fossil fuel subsidies”, by Radoslav Stefanski, 2014.

3 Peter Erickson, Adrian Down, Michael Lazarus and Doug Koplow, “Effect of subsidies to fossil fuel companies on United States crude oil production”, Nature Energy 2, pages 891-898 (2017).

4 Empty Promises: G20 subsidies to oil, gas and coal production, published by Overseas Development Institute and Oilchange International, 2015, page 17

The same hurdles to unsubsidized profitability apparently apply outside of North America. See, for example, this article detailing how major fracking ventures in Argentina are likely to stall or fail due to declining subsidies: “IEEFA report: Argentina’s Vaca Muerta Patagonia fracking plan is financially risky, fiscally perilous”, March 21, 2019

 Saudi America: The Truth About Fracking and How It’s Changing the World, by Bethany McLean. Columbia Global Reports, 2018.

McLean’s reading echoes the analysis in the 2017 book Oil and the Western Economic Crisis, by Cambridge University economist Helen Thompson.

Peter Erickson, Adrian Down, Michael Lazarus and Doug Koplow, “Effect of subsidies to fossil fuel companies on United States crude oil production”, Nature Energy 2, pages 891-898 (2017).

Michael Lazarus and Harro van Asselt, “Fossil fuel supply and climate policy: exploring the road less taken,” Climatic Change, August 2018, page 1

10 G7 Fossil Fuels Subsidy Scorecard, Overseas Development Institute, Oilchange International, NRDC, IISD, June 2018, page 9

The clean green pipeline machine – a free-market fairy tale

A review of Donald Gutstein’s The Big Stall

Also published at Resilience.org

In late 2016 Canadian Prime Minister Justin Trudeau was ready to spell out his government’s “Pan-Canadian Framework on Clean Growth and Climate Change”. His pitch to Canadians went along these lines:

We recognize that climate change is a serious challenge and that we must transition to a new economy which dramatically cuts carbon emissions. To make this transition we need a strong economy and a united country. To have a strong economy we must allow our fossil fuel sector to continue to grow. And to keep our country united while we impose a modest price on carbon, we must also build new pipelines so that oil sands extraction can grow. That is why my government is proud to lead the way in reducing carbon emissions, by ensuring that the oil sands sector emits more carbon.

If you think that sounds absurd, then you’re likely not part of Canada’s financial, industrial, political or media elite, who for the most part applauded both the minimal carbon tax and the substantial oil sands expansions being pushed by Trudeau and by Alberta Premier Rachel Notley.

How did we get to a point where oil companies and governments are accepted as partners in devising climate action plans? And why did these climate action plans, decade after decade, permit fossil fuel companies to continue with business as usual, while carbon emissions grew steadily?

This is the subject of Donald Gutstein’s new book The Big Stall: How Big Oil and Think Tanks are Blocking Action on Climate Change in Canada. (James Lorimer & Co., Toronto, October 2018)

Though Gutstein takes a deep dive into Canadian politics, industry and academia, much of his story also concerns the series of international conferences which attempted, with very little success, to come up with strong international solutions for a climate crisis that knows no borders. Thus The Big Stall has relevance to climate change campaigners in many countries.

By the early 1990s, Gutstein says, the pervasive influence of neoliberal economic theory was leading to “a silent corporate takeover of the United Nations Framework Convention on Climate Change”.

Neoliberal theory said that the “free market”, not government, should be relied on to solve the problem of climate change. That suited the oil industry, because the one thing they feared most was a hard-and-fast regulatory limit on carbon emissions.

An ad for tourism in the Canadian Rockies, perhaps? Not so – this is a still from the Alberta government’s tv ad series with the tagline “The TransMountain Pipeline is on  Canada’s side.” At keepcanadaworking.ca.

Lessons from Big Tobacco

In common with many other historians, Gutstein pays close attention to the strong links between public relations campaigns used by the tobacco industry and the similar strategies employed by Big Oil, particularly in sowing public confusion about the scientific consensus.

But as Gutstein’s book makes clear, the mainstream environmental movement failed to absorb a key lesson from the decades-long struggle to combat tobacco addiction: the industry whose products are the root of the problem should not be relied on to devise solutions.

Corporate participation in COP21 [Paris 2015] and in the conferences and talks leading up to and following it stands in stark contrast with the corporate role in the World Health Organization’s Framework Convention on Tobacco Control. There, tobacco interests are excluded, a fact which helps explain that treaty’s rapid progress in curtailing tobacco use. … At the climate talks, in sharp contrast, there is no conflict between Big Oil’s interests and public health and environmental interests. The corporate sector succeeded in making itself integral to the process.” (The Big Stall, page 158-159)

Fossil fuel interests assured their seat at the table in part by sponsoring the negotiations. In Paris in 2015, Gutstein writes,

Big Oil even partly financed the talks. France could have easily paid the C$255-million cost, but by allowing corporations to contribute 20 per cent, the host country encouraged the private sector to be part of the inner circle that was planning and organizing the event.” (The Big Stall, page 160)

The result was that in spite of inspiring rhetoric and lofty goals, the Paris Agreement contained no binding emissions reduction requirements. Instead countries were free to make their own reduction “pledges” with no penalties for missing their targets. This result was perfectly predictable, Gutstein says: “Paris was guided to its inevitable conclusion by the veiled hand of Big Oil and its corporate and political allies.” (The Big Stall, page 155)

He traces the pattern of corporate influence over climate negotiations back to the role of Canadian businessman Maurice Strong at the 1992 Rio Summit, and former Norwegian Prime Minister Gro Brundtland at the eponymous Brundtland Commission in the 1980s.

Brundtland helped popularize the phrase “sustainable development” – a phrase which Gutstein says has come to mean little beyond sustaining the profits and asset values of major corporations. Thus fossil fuel interests can forge ahead with plans to extract even more nonrenewable resources while forestalling international action to reduce carbon emissions – and then sign declarations of support for “sustainable development”.

An ad for Wind Turbines? Flowers? Puppies? Kites? None of the above – this is a still from an Alberta government tv spot promoting the TransMountain Pipeline expansion, which is intended to double the amount of bitumen exported through the Port of Vancouver.

To tax or not to tax carbon

The story gets complicated, of course, because corporate figures do not always agree on the best ways to protect their bottom lines, and sometimes they respond to changing political winds in different ways.

Gutstein covers these shifts in corporate spin in great detail. Put simply, major fossil fuel interests went from denying that there was any scientific consensus on the reality or cause of global warming, to support for carbon-emissions trading markets, to support for a modest carbon tax.

In Canada in particular, a carbon tax was seen as a necessary concession to strong public concern that Canada wasn’t doing its part to mitigate global warming. Recognizing that the oil sands had a terrible reputation around the globe, oil interests hoped they could earn public favour by supporting a carbon tax. And politicians including Justin Trudeau pitched the carbon tax as an integral part of an indivisible package: we need to tax carbon to reduce emissions, while at the same time building new pipelines to ensure that oil sands extraction continues to grow.1

The common element in all of these fossil fuel corporation strategies is that there must not be any strict regulatory limit on carbon emissions – we must trust “the market”, in all its infinite wisdom, to arrive at emissions reductions. (When fossil fuel interests want subsidies, or need government help to get their products to market, then of course it is quite alright to deviate from free market principles.)

Gutstein makes clear that the level of carbon taxes advocated by fossil fuel interests is far too low to have a significant impact either on their profits or on national carbon emissions. Likewise, he says, the imposition of carbon taxes alone cannot substitute for the wide range of regulatory measures and incentives needed to make a rapid transition away from a fossil fuel economy. But he leaves unanswered another question: does he think carbon taxes could play an important role if they were set high enough to be effective, and were part of an appropriate package of other rules and incentives? In other words, if our political parties move beyond their fealty to neoliberal free-market ideology, should they enact effective carbon taxes?

The final corporate PR strategy that Gutstein discusses is the trend for fossil fuel companies to embrace the “market opportunity” of leading the transition to new energy systems. By publicizing their corporate efforts to buy wind turbines, study battery technology, or build heavily-subsidized prototypes of carbon-capture-and-sequestration plants, fossil fuel companies would like us to believe they are leading the way into a clean green future. But the important action happens behind the scenes, as fossil fuel companies continue to fight against any effective and compulsory limits on carbon emissions.

A clean green future? Major graphics in this article are stills from an Alberta-government funded tv ad series promoting the TransMountain Pipeline expansion. The ads do not show images of pipelines, tar sands open-pit mines, tailings ponds or refineries – just prosperous people and unspoiled environments. (At keepcanadaworking.ca.) Since the ads are paid for by a provincial government, and the TransMountain Pipeline is now owned by the federal government, fossil fuel industry adherence to “free market” principles can be flexible indeed.


FOOTNOTES

By the time The Big Stall was published, Trudeau’s grand bargain was in danger of failing on both fronts. Court cases and business decisions had delayed or cancelled most of the pending pipelines that would facilitate oil sands expansion. In the meantime the minimal carbon tax Trudeau has promised has been dubbed the “job-killing carbon tax” by the new Premier of Ontario and the federal Conservative Party, and the scheduled tax is now vehemently opposed by provincial leaders in about half of the country.

Quantifying climate hypocrisy – the Canada file

Also published at Resilience.org

Which nation shows greater hypocrisy in the struggle to limit climate change – the United States or Canada?

The US President, of course, misses no opportunity to dismiss scientific consensus, downplay the dangers of climate change, and promote fossil fuel use.

Canada’s Prime Minister, on the other hand, has been consistent in stating that the scientific consensus is undeniable, the danger is clear, and Canada must step up to the challenge of drastic carbon emissions reductions.

It was within the first few weeks of the Justin Trudeau administration that Canada surprised most observers by backing a call from island nations to hold global warming to 1.5°C, as opposed to the 2°C warming threshold that had been a more widely accepted official goal.1

Yet according to a new peer-reviewed study2 of countries’ pledged emissions reduction commitments following the Paris Agreement, Canada’s level of commitment would result in 5.1°C of global warming if all countries followed the same approach to carbon emissions. In this tally of the potential effects of national climate commitments, Canada ranks with the worst of the worst, a select club that also includes Russia, China, New Zealand and Argentina.

The actual carbon emissions policies of the US would result in a lesser degree of total calamity –  4°C of warming – if followed by all countries.

Behind this discrepancy between Canada’s professed goals and its actual policy is the lack of a global agreement on a fair method for allocating the remaining carbon emissions budget.

The Paris Agreement set a target for the limitation of global warming, and it was (relatively) straightforward to calculate how much more carbon can be emitted without blowing through that warming target. But countries remained free to decide for themselves what principles to follow in determining their fare share of emissions reductions.

The result?

Developed countries who committed to take the lead in reducing emissions and mobilizing finance for developing countries often submitted NDCs [Nationally Determined Contributions] that do not match the concepts of equity that they publicly supported.” (du Pont and Meinshausen, “Warming assessment of the bottom-up Paris Agreement emissions pledges”, Nature Communications.)

A fair way to count to 10

An old joke provides a good analogy for the slipperiness inherent in divvying up the global carbon budget. (My apologies to accountants everywhere, especially the one who first told me this joke.)

You ask a mathematician, “how much is 3 + 3 + 4?” She punches the numbers into her calculator, and tells you “3 + 3 + 4 is 10”.

But when you ask an accountant “how much is 3 + 3 + 4?” he sidles up and whispers in your ear, “How much do you want it to be?”

Though climate scientists can provide a simple number for how much additional carbon can be emitted globally before we hit our agreed-on warming threshold, each country’s ruling party decides for themselves how much they want their share of that carbon budget to be.

And the radically different circumstances of countries has resulted in radically different positions on what is fair.

A 2016 study published in Nature gives us insight into Canada’s position.

Entitled “Global mismatch between greenhouse gas emissions and the burden of climate change”, the study categorizes countries into how drastically and immediately they are hit by the effects of climate change. While all countries are already being impacted, the study found that Canada is among the 20% of countries who are suffering least from climate change.

Countries are also categorized according to their responsibility for climate change, and Canada is among the 20% who have contributed the most (on a per capita basis) in causing climate change.

In economic terms, those who do most to cause climate change while suffering the least damage from climate change are “free riders”. Those who do the least to cause climate change, but suffer the most from it, are “forced riders”.

The study shows that Canada is among the 20 “free riders” now, and will still be one of 16 “free riders” in 2030. The “forced riders” in both 2010 and 2030 include many African countries and small island nations. (Yes, that would be the same island nations that Canada claimed to be backing in 2015 in the call to adopt a 1.5°C warming threshold.)

“Figure 1. Global inequity in the responsibility for climate change and the burden of its impacts” in “Global mismatch between greenhouse gas emissions and the burden of climate change”, by Glenn Althor, James E. M. Watson and Richard A. Fuller, Nature, 5 February 2016. Countries shown in dark brown are in the highest quintile in emissions and in the lowest quintile of vulnerability to climate change. Countries in dark green are in the lowest quintile of emissions, but in the highest quintile of vulnerability. The top map shows this mismatch in 2010, the bottom map the projected mismatch in 2030.

Is there evidence that the “free riders” are trying to maintain their free-riding status as long as possible? According to du Pont, Meinshausen and their research colleagues, the answer is yes: most countries have set carbon emissions commitments that reflect their immediate self-interests. In the case of the major fossil fuel producers and consumers, that means the sum of their commitments adds up to a woefully inadequate global carbon emissions reduction.

An equity framework that dares not speak its name

In their discussion of the emissions reductions pledges made by nations following the Paris Agreement, du Pont and Meinshausen try to match these pledges with various approaches to equity. They note that the Intergovernmental Panel on Climate Change (IPCC) has listed five major equity frameworks. These frameworks are summarized in this table from an earlier paper:

Source: “Equitable mitigation to achieve the Paris Agreement goals”, by Yann Robiou du Pont, M. Louise Jeffery, Johannes Gütschow, Joeri Rogelj, Peter Christoff, and Malte Meinshausen, Nature, 19 December 2016

Of particular interest for our purposes is the final entry, CER or “Constant emissions ratio”. This has been defined as

[maintaining] current emissions ratios (‘constant emissions ratio’, or CER), so that each country continues to emit the same share of global emissions as it does at the moment, even as the total volume is cranked down.”3

In other words, those who have emitted an outsize share of carbon in the past get to preserve an outsize share of a shrinking pie in future, while those who have emitted very little carbon to date are restricted even more drastically in future.

If that sounds anything but fair to you, you are not alone. Du Pont and Meinshausen say the Constant Emissions Ratio “is considered unfair and not openly supported by any country.”

Yet when they looked at the Nationally Determined Contributions following the Paris Agreement, they found that the Constant Emissions Ratio “implicitly matches many developed countries’ targets”.

The Constant Emissions Ratio framework for these countries would be the least stringent of the IPCC’s equity frameworks – that is, it would impose the smallest and slowest cuts in carbon emissions.

In the case of Canada and other members of the climate rogues gallery, their post-Paris commitments turn out to be even weaker than commitments calculated by the Constant Emissions Ratio method.

Former ExxonMobil CEO and US Secretary of State Rex Tillerson with Canadian Prime Minister Justin Trudeau.

Follow the money

Let’s take a closer look at some of the Nationally Determined Contributions – individual nations’ commitments towards the global goal of rapid decarbonization.

“Selected Country Pledges Under the Paris Agreement and GHG Emissions”, from “The Paris Agreement on Climate Change”, by Radoslav Dimitrov, published by University of Western Ontario, March 2018.

Canada’s commitment ranks among the weakest of this lot for three reasons. First, the Reduction Target of 30% is near the low end of the scale, with several other industrial economies pledged to Reduction Targets of 40% or more. Second, the Target Year for achievement of the Reduction, 2030, is five years beyond the US and Brazil Target Dates of 2025. This matters, because every year that we continue to emit high amounts of carbon makes it that much more difficult to forestall catastrophic climate change.

Third, the Base Year is also very significant, and on this measure Canada also ranks with the poorest commitments. The European Union, for example, pledges to reduce from a Base Year of 1990, while Canada will work from a Base Year of 2005.

Between 1990 and 2005, Canada’s greenhouse-gas emissions rose 25%,4 and so if Canada’s emissions in 2030 are 30% lower than in 2005, that is only about a 12% reduction compared to 1990.

Canada’s national government claims to understand that swift and dramatic action must be taken to reduce carbon emissions. So why would this government then commit to only a 12% emissions reduction, compared to 1990, as a target for 2030? Let’s follow the money, with a quick look at the relative influence of the fossil fuel industry in Canada.

Radoslav Dimitrov writes

the energy sector (oil, gas and electricity) is important to the Canadian economy, accounting for approximately 10% of national GDP in 2016, more than a quarter of public and private investment, and approximately 29% of exports.”5

Notably absent in the above paragraph is employment. Natural Resources Canada says that in 2017, only 5% of employment was either directly or indirectly within the energy sector, and that includes the electricity sector.6

Both of Canada’s traditional ruling parties like to talk about their commitment to “good middle-class jobs”. But given the scale of the environmental crisis we face, how big a challenge would it be to fund an immediate job retraining and investment program to start replacing fossil fuel jobs with renewable energy jobs? Couldn’t a committed government-and-industry program find new “middle-class jobs” for 3% or 4% of the working-age population?

I think the answer is yes … but as for capital investment, that’s another story. The fossil fuel industry accounts for closer to 25% of Canadian investment, and an immediate and sustained push to reduce the output of carbon-intensive fuels would result in a dramatic and immediate drop in the stock-market value of fossil-fuel corporations.  Those stocks are a big part of the portfolios of most people in Canada’s stock-owning class.

Alberta Premier Rachel Notley and Canadian Prime Minister Justin Trudeau

A two-pronged strategy which starts with “dig the hole deeper”

Since before his election as national leader, Canadian Prime Minister Justin Trudeau has proclaimed the need to “balance the environment and the economy”. What has this meant in practice?

As the industry-friendly Financial Post put it in 2015,

The encouraging news — at least from the perspective of the energy sector — is that Mr. Trudeau seems onside with continued oil industry expansion and that his climate change program aims to support it rather than contain it.”7

Part of Trudeau’s program was a commitment to establishing a modest national price on carbon. He found a prominent early ally in an unlikely location, Alberta. There the NDP Premier Rachel Notley not only implemented a carbon price, but also announced a cap on carbon emissions from Alberta’s oil and gas sector.

Notably, however, that cap will start to reduce tar sands emissions only in 2030, and in the meantime emissions from that sector are projected to rise 50%, from 66 megatonnes/year to 100 megatonnes.

The Alberta plan thus mirrors Trudeau’s national policy. While championing a modest carbon tax, the Prime Minister has consistently pushed for the construction of major new pipelines – and the business case for these pipelines is that they are essential in the expansion of tar sands extraction.

On this front, at least, Trudeau is willing to put our money where his mouth is. Last summer, the Trudeau government invested $4.5 billion to buy the TransMountain Pipeline, with the prospect of spending at least several billion more in a much delayed project designed to almost triple the line’s bitumen-carrying capacity.

Meanwhile a national price on carbon emissions of $20/tonne is scheduled to be implemented in January 2019, rising to $50/tonne in 2022. While most environmentalists see this as a positive step, they also believe the price needs to be much higher if it is to result in dramatic emission reductions.

Setting a low bar and failing to clear it

As we have seen, the Nationally Determined Contribution that Canada has offered in response to the Paris Agreement is one of the world’s weakest.

The evidence to date suggests that Canada is on track to miss its own low target. Canada’s Environment Commissioner Julie Gelfand concluded in March 2018 that Canada is making little progress and will miss its 2030 targets unless both the federal and provincial governments step up the pace.8 And just this week, the UN Environment Program said that Canada is on track to miss its emissions targets for both 2020 and 2030.9

That should come as no surprise: it’s hard to cut national emissions by 30%, when you’re also fully committed to the continued rapid expansion of the country’s most carbon-intensive industrial sector – tar sands extraction.

Photo credits: all photos are publicity photos released by the Prime Minister’s Office, Canada, taken by Adam Scotti, accessed at https://pm.gc.ca/eng/photos.


References

1  “Catherine McKenna pushes for 1.5 C target in Paris climate talks”, Globe & Mail, December 6, 2015

2  “Warming assessment of the bottom-up Paris Agreement emissions pledges”, by Yann Roubiou du Pont and Malte Meinshausen, Nature Communications, accessed at https://www.nature.com/articles/s41467-018-07223-9.pdf

3  In “US trying harder on climate change than ‘unambitious’ China, says study”, CarbonBrief, 20 December 2016

4  “Canada’s greenhouse-gas emissions rose sharply between 1990 and 2005: study”, April 22, 2008, accessed at CBC News.

5  “Selected Country Pledges Under the Paris Agreement and GHG Emissions”, from “The Paris Agreement on Climate Change”, by Radoslav Dimitrov, published by University of Western Ontario, March 2018.

6  “Energy and the economy”, on the Natural Resources Canada website, accessed Nov 28 2018.

7  “Justin Trudeau aims to strike balance between environment, economy with carbon policy”, Financial Post, February 6, 2015

8  “Canada, provinces lack clear plan to adapt to climate change, auditors say”, by Mia Rabson, Canadian Press, 27 March 2018

9  “Canada set to miss C02 emissions target, UN says,” in Toronto Star, 28 November 2018, accessed in Pressreader.

Energy: A Human History – a slim slice of history and science

Also published at Resilience.org and BiophysEco.

“The population of the earth has increased more than sevenfold since 1850 – from one billion to seven and a half billion – primarily because of science and technology,” Richard Rhodes concludes at the end of his new book Energy: A Human History. “Far from threatening civilization, science, technology, and the prosperity they create will sustain us as well in the centuries to come.”1

Rhodes tells an engaging tale of energy transitions over some 500 years. Yet the limitations in his field of view become critical in the book’s concluding chapter, when he reveals which particular axe he is especially eager to grind.

Both the title of the book and its timing invite comparison with Vaclav Smil’s 2017 work Energy and Civilization: A History (reviewed here). There is a significant overlap, most notably in both author’s views that major energy transitions – from wood to coal, from coal to petroleum – have been multi-generational processes.

But Rhodes’ scope is far narrower, both in time and in geography.

Rhodes begins his story in sixteenth-century England. His cast of characters is overwhelmingly Anglo-American and male, with a sprinkling of western Europeans, and only a brief excursion outside of “western civilization” to discuss oil exploration in Saudi Arabia.

Smil, by contrast, starts his book in pre-history, with an erudite discussion of the energy implications of human evolution. He follows with more than 200 pages on developments in energy usage from ancient times to the Middle Ages, in Africa, India, China, Europe, and Mesoamerica.

Smil’s readers, then, arrive at his discussion of the industrial revolution and the fossil fuel era with an understanding that millennia of progressive developments, around the world, had gone into the technologies and social organizations available to sixteenth-century Englishmen.

The unspoken implication in Rhodes’ tale is that the men of the Royal Society of London started with a blank slate, and all our current technological marvels are due wholly to the magnificence of their particular current in science.

One question that never arises in Rhodes’ book is, how did it happen that a class of educated men had the time and resources to ponder theories, conduct long series of experiments, and write and discuss their essays? There is no mention that during these same centuries, the countries of western Europe were drawing vast quantities of basic resources from Africa and the Americas, at the cost of millions of lives.

In short, this is a woefully incomplete history of energy. But within those limitations, Rhodes writes engagingly and with admirable clarity.

A thermodynamic page-turner

For anyone interested in basic issues of physics and technology, the progression from scattered awareness of curious phenomena, to testable theories, to technologies that were applied on a mass scale and changed everyday life, makes a fascinating story. For example, observations of static electricity from a cat’s hair, frightening strikes of lightning, and the effects of magnets eventually grew into a comprehensive theory of electromagnetism. Rhodes ably outlines how this led through development of crude batteries, then to simple generators, and eventually to the construction of a massive generator harnessing some of the power of Niagara Falls for a new phase of the Industrial Revolution.

Likewise, his discussion of the long gestation of the coal-fired steam engine – which depended on an understanding of basic issues of thermodynamics as well as refinements in metal-working needed for the construction of high-quality boilers – illuminates important factors in the birth of the fossil-fuel era.

An excellent section on early oil drilling and refining processes leads to a fascinating aside: the profitable introduction of lead as a performance-enhancing additive to gasoline, notwithstanding severe health effects which were noticed and decried at the earliest stages of the leaded gas era.

Credit where credit is due

The social effects of these developments in basic and applied science have been sweeping and many of them have been salutary. It would be foolish to deny that science has played a major role in increasing life expectancy and making rapid population growth possible.

Yet many historians would argue that social and political factors such as labour rights and the push for universal education have been equally important.

Of most direct importance to Rhodes’ subject, it is clear that science was critical in helping us understand principles of thermodynamics and helping us harness the power in both fossil fuels and and renewable resources. But science has not decreed that, once having learned to extract and consume fossil fuels, we should use up these resources as fast as humanly possible. That trend, rather, is due to an economic system that requires profits to increase continuously and exponentially.

Likewise, science taught us how to use the fossil fuel resources which have helped boost our population seven-fold in the past 170 years. But science did not create those resources, which were cooking in the earth’s cavities for millions of years before the first protohuman scientist conducted the first experiment.

If, following Rhodes’ thinking, we give science the whole credit for making a population explosion possible, we should also credit science with blowing through millions of years of accumulated energy resources in just a few hundred years. We should give science credit for the fact that billions of people live in areas already being severely impacted by climate change caused by fossil fuel emissions (even though those people typically have used minimal quantities of fossil fuel themselves.) And we should ask, why can’t science come up with a cost- and time-effective way of replacing all those fossil fuels, so that all 7 billion of us plus our more numerous descendants can keep on living the high-energy lifestyle to which (some of) us are accustomed?

Ah, but science has already found a big part of the next answer, Rhodes might answer: nuclear power.

The questions raised by Rhodes’ concluding sections on nuclear power are complex, and we’ll dive into those issues in the next installment.

Illustration at top: “Bridge over the Mongahela River, Pittsburg, Penn.” from the Feb 21, 1857 edition of Ballou’s Pictorial, accessed via Wikimedia Commons


1Energy: A Human History, page 343

The climate revolution: a manual for head, hands and heart

Also published at Resilience.org.

How many people in North America and Europe have known for at least 15 years that climate change is dangerous, that it is caused mostly by our burning of fossil fuels, and that we must drastically reduce our fossil fuel consumption?

That would be most of us.

And how many of us have drastically reduced our fossil fuel consumption?

Not so many of us.

Mostly, our actions proclaim “We’ll cut back our fossil fuel use when everybody else does … or when the government forces us … or when hell freezes over – whichever comes last!”

Physicist and climatologist Peter Kalmus found the gulf between his beliefs and his lifestyle to be deeply unsatisfying, and he set out to heal that rift.

The result, he says, has been a dramatically richer life for him and his family.

His book Being The Change (New Society Publishers, 2017) outlines the ‘why’ and ‘how’ of his family’s reduction of their fossil fuel consumption by 90% in just a few years. His discussion ranges from climate science to economics, from bicycling to beekeeping, from community networks to meditation, in a deeply inspiring narrative.

Waves of gravity

Kalmus didn’t begin his scientific career in climatology. With a PhD in astrophysics, his speciality was gravitational waves and his day job was working through the data that would, in 2016, confirm Einstein’s prediction of gravitational waves.

But he was also learning about the onrushing catastrophe of climate change, and as a young parent he was deeply worried for the world his children would inherit. Motivated by a desire to work on problems closer to home, he switched his professional focus, taking a new job at NASA studying the role of clouds in global warming.

Kalmus describes Being the Change as a book for the head, the hands and the heart. Wearing his scientist hat, he lucidly lays out the science of climate change. These chapters don’t require more than a high-school science background to understand, but even those who have read many books and articles on the subject are likely to learn something. For those who have read little or nothing on this subject, a good beginning would be to read Kalmus’ chapters on climate science three or four times over – he packs a lot of information into 50 pages.

His sobering conclusion is that we have already stalled too long to have any reasonable chance of keeping global warming below 2°C. Within two or three decades, the mean global temperature will be higher than in any record-warmth year in human experience so far. That new climate era will last centuries, challenging the resiliency of not only human civilization but global biodiversity.

The key uncertainty, he says, is the temperature at which global warming will peak. None of us alive today will be here to experience that peak, but our actions this generation will have a major influence on that peak. A higher peak will cause a spike in the rate of species extinctions, and if and when global warming slows or stops, it will take far longer for biodiversity to recover.

“A good overarching goal for today’s civilization would be to minimize global warming and its concomitant biodiversity loss for the sake of the next few hundred thousand human generations.” (Being the Change, page 69)

Fear of not flying

Climate science gives us clear warning of the disaster we are bequeathing our descendants if we don’t change our way of life, fast. Kalmus concludes, “it’s critical we begin saying that burning fossil fuels is causing real harm and needs to stop. It’s even more important to begin living this message.” (Being the Change, page 120 – italics mine)

A second major focus of the book is “hands-on” – the many ways people can change their own lives to join the movement away from fossil fuels. Kalmus relates his personal experiences here, but he also provides valuable suggestions to help others estimate their consumption of fossil fuels and reduce that consumption in meaningful ways.

Kalmus found that one category of fossil fuel consumption outweighed all others in his life: long-distance travel by air. Much of this consumption happened in traveling to distant conferences where delegates would warn of the dangers of climate change. Kalmus’ decision to stop taking these flights led to a more satisfying life, he says – though this was a rejection of one of the signature privileges of a global elite.

“The act of flying is an exercise of privilege. Globally, only about 5% of humans have ever flown.” (Being the Change, page 151)

Even the average American spends relatively little time in the air. Kalmus writes that “The average American emits about 1,000 kg CO2 per year from flying, which is roughly equivalent to one 4,000-mile round-trip between Los Angeles and Chicago.” But in 2010, Kalmus’ carbon emissions due to flying were 16 times that average – and so it was obvious where he had to make the first change to align his lifestyle with his knowledge.

Kalmus’ graph of his greenhouse gas emissions for 2010 – 2014. Source: Being the Change, page 144. (click graph for larger view)

For the average American, Kalmus says, the “largest climate impact is from driving.” He largely eliminated those CO2 emissions from his life too, through routine bicycling, driving a car that he converted to run on used vegetable oil, and taking a bus or trains for occasional long-distance trips.

Each person’s CO2 emission profile, and therefore their opportunities for emission reductions, will be different.

But Kalmus hopes others will share his experience in one key respect – a greater peace with their own lives and their own surroundings.

“I think most people are afraid of a low-energy lifestyle because we equate quality of life with quantity of energy use,” he says. “My experience has been the opposite: low-energy living is more fun and satisfying.”

Reading about his new-found love of gardening and beekeeping, and the strength of the local community bonds he and his family have developed, it’s easy to understand the richness of this low-energy lifestyle.

He also makes clear that he doesn’t believe that purely individual actions are sufficient to halt the fossil-fuel juggernaut. In the realm of public policy, he pens an excellent advocacy for his preferred fiscal approach to reducing national and international CO2 emissions – Carbon Fee And Dividend (CFAD). He also discusses his work with one group working on the CFAD option, the Citizens’ Climate Lobby.

Finding a lifestyle that matches his principles brings joy and a significant measure of peace of mind. At the same time, finding peace of mind is key in giving him the energy to embark on all those personal changes. That brings us to a third major focus of Being the Change: meditation.

“As part of my daily work, I look directly at the truth of global warming, and what it’s doing to the inhabitants of the Earth. Meditation gives me the strength and the courage to keep interacting with this truth, as it is – not only to cope, but to be happy and as effective as possible in enacting positive change.” (Being the Change, page 203)

As one who has never been attracted to the practice of meditation, Kalmus’ story here left me with mixed feelings. On the one hand, his discussions of dissolving the ego and escaping all wants were, for this reader, just about the only parts of the book that weren’t wholly convincing. On the other hand his life story so far is truly moving, and if he says meditation has been central to that journey then I can only celebrate the strength and peace that meditation gives him. More than that, his book has made me ask whether I want to introduce meditation into my own life in a concerted way; better late, perhaps, than never.

Science and love

Peter Kalmus has written a profound book about the science of global warming, and a profound book about love:

“These two seemingly disparate things – reducing my own fossil fuel use and increasing my ability to love – are actually intimately interconnected.”

In the process he grapples with three of the most troublesome questions facing the environmental movement. Can we convince people it’s essential to eliminate fossil fuel use, when our own lifestyles say that fossil fuel use is no problem? Can we convince people that a high-energy lifestyle is unnecessary and destructive, when we act as if our lives depend on that lifestyle? Can we be happily productive agents of change, while we are caught up in the high-energy whirl of consumptive capitalism? It’s hard to answer those questions except with “No, no and no.” And yet Kalmus’ personal message is deeply positive and deeply hopeful:

“On my own path, as I continue to reduce, I’m actually experiencing increasing abundance. It’s a good path.”

 

Photo at top: Peter Kalmus, photo by Alice Goldsmith, courtesy of New Society Publishers

When boom is bust: the shale oil bonanza as a symptom of economic crisis

Also published at Resilience.org.

The gradual climb in oil prices in recent weeks has revived hopes that US shale oil producers will return to profitability, while also renewing fevered dreams of the US becoming a fossil fuel superpower once again.

Thus a few days ago my daily newspaper ran a Bloomberg article by Grant Smith which lead with this sweeping claim:

“The U.S. shale revolution is on course to be the greatest oil and gas boom in history, turning a nation once at the mercy of foreign imports into a global player. That seismic shift shattered the dominance of Saudi Arabia and the OPEC cartel, forcing them into an alliance with long-time rival Russia to keep a grip on world markets.”

I might have simply chuckled and turned the page, had I not just finished reading Oil and the Western Economic Crisis, by Cambridge University economist Helen Thompson. (Palgrave Macmillan, 2017)

Thompson looks at the same  shale oil revolution and draws strikingly different conclusions, both about the future of the oil economy and about the effects on US relations with OPEC, Saudi Arabia, and Russia.

Before diving into Thompson’s analysis, let’s first look at the idea that the shale revolution may be “the greatest oil and gas boom in history”. As backing for this claim, Grant Smith cites a report earlier in November by the International Energy Agency, predicting that US shale oil output will soar to about 8 million barrels/day by 2025.

Accordingly, “ ‘The United States will be the undisputed leader of global oil and gas markets for decades to come,’ IEA Executive Director Fatih Birol said … in an interview with Bloomberg television.”

Let’s leave this prediction unchallenged for the moment. (Though skeptics could start with David Hughes detailed look at the IEA’s 2016 forecasts here, or with a recent MIT report that confirms a key aspect of Hughes’ analysis.) Suppose the IEA turns out to be right. How will the shale bonanza rank among the great oil booms in history?

Grant Smith uses the following chart to bolster his claim that the fracking boom will equal Saudi Arabia’s expansion in the 1960s and 1970s.

 

Chart by Bloomberg

 

OK, so if US shale oil rises to 8 million barrels by 2025, that production will be about the same as Saudi oil production in 1981. Would that make these two booms roughly equivalent?

First, world oil consumption in the early 1980s was only about two-thirds what it is now. So 8 billion barrels/day represented a bigger proportion of the world’s oil needs in 1980 that it does today.

Second, Saudi Arabia used very little of its oil domestically in 1980, leaving most of it for sale abroad, and that gave it a huge impact on the world market. The US, by contrast, still burns more oil domestically than it produces – and in the best case scenario, its potential oil exports in 2025 would be a small percentage of global supply.

Third, Saudi Arabia has been able to keep roughly 8 million barrels/day flowing for the past 40 years, while even the IEA’s optimistic forecast shows US shale oil output starting to drop within ten years of a 2025 peak.

And last but not least, Saudi Arabia’s 8 million barrels/day have come with some of the world’s lowest production costs, while US shale oil comes from some of the world’s costliest wells.

All these factors come into play in Helen Thompson’s thorough analysis.

No more Mr. NICE Guy

In an October 2005 speech, Bank of England governor Mervyn King “argued that the rising price of oil was ending what he termed ‘NICE’ – a period of ‘non-inflationary consistently expansionary economic growth’ that began in 1992.” (Thompson, Oil and the Western Economic Crisis, page 28-29)

In spite of their best efforts in the first decade of this millennium, Western governments were not able to maintain steady economic growth, nor keep the price of oil in check, nor significantly increase the supply of oil, nor prevent the onslaught of a serious recession. Thompson traces the interplay of several major economic factors, both before and after this recession.

By the beginning of the George W. Bush administration, there was widespread concern that world oil production would not keep up with growing demand. The booming economies of China and India added to this fear.

“Of the increase of 17.9 million bpd in oil consumption that materialised between 1994 and 2008,” Thompson writes, “only 960,000 of the total came from the G7 economies.” Nearly all of the growth in demand came from China and India – and that growth in demand was forecast to continue.

The GW Bush administration appointed oilman and defense hawk Dick Cheney to lead a task force on the impending supply crunch. But “ultimately, for all the aspiration of the Cheney report, the Bush Jr administration’s energy strategy did little to increase the supply of oil over the first eight years of the twenty-first century.” (Thompson, page 20)

In fact, the only significant supply growth in the decade up to 2008 came from Russia. This boosted Putin’s power while fracturing Western economic interests, as “the western states divided between those who were significant importers of Russian oil and gas and those that were not.” (Thompson, page 23)

Meanwhile oil prices shot up dramatically until Western economies dropped into recession in 2007 as a precursor to the 2008 financial crash. Shouldn’t those high oil prices have spurred high investment in new wells, with consequent rises in production? It didn’t work out that way.

Between 2003 and the first half of 2008 the costs of the construction of production facilities, oil equipment and services, and energy soared in good part in response to the overall commodity boom produced by China’s economic rise. Consequently, whilst future oil supply was becoming ever more dependent on large-scale capital investment both to extract more from declining fields and to open up high-cost non-conventional production, the capital available was also required by 2008 simply to cover rising existing costs.” (Thompson, page 23)

Thus oil prices rose to the point where western economies could no longer maintain consumption levels, but these high prices still couldn’t finance the kind of new drilling needed to boost production.

Oddly enough, the right conditions for a boom in US oil production wouldn’t occur until well after the crash of 2008, when monetary policy-makers were struggling with little success to revive economic growth.

Zero Interest Rate Policy

In western Europe and the US, recovery from the financial crisis of 2008 has been sluggish and incomplete. But the growth in demand for oil by India and China continued, with the result that after a brief price drop in 2009 oil quickly rebounded to $100/barrel and stayed there for the next few years.

As in the years leading up to the crash, $100 oil proved too expensive for western economies, accustomed as they had been to running on cheap energy for decades. Consumer confidence, and consumer spending, remained low.

Simply pumping the markets with cash – Quantitative Easing – had little effect on the real economy (though it afforded bank execs huge bonuses and boosted the prices of stocks and other financial assets). But as interest rates dropped to historic lows, the flood of nearly-free money finally revived the US energy-production sector.

QE and ZIRP hugely increased the availability of credit to the energy sector. ZIRP allowed oil companies to borrow from banks at extremely low interest rates, with the worth of syndicated loans to the oil and gas sectors rising from $600 billion in 2006 to $1.6 trillion in 2014. Meanwhile, in raising the price and depressing the yield of the relatively safe assets central banks purchased, QE created incentives for investors to buy assets with a higher yield, including significantly riskier corporate bonds and equities. …” (Thompson, page 50)

Without this extraordinary monetary expansion “the rise of non-conventional oil production would not have been possible”, Thompson concludes.

And while a huge boost in shale oil production might be counted as a “win” for the economic growth team, the downsides have been equally serious. The Zero Interest Rate Policy has almost eliminated interest earnings for cautious middle-income savers, which depresses consumer spending in the short term and threatens the security of millions in the long term. The inflation in asset prices has boosted the profits of large corporations, while weak consumer confidence has removed corporate incentive to invest in greater production of most consumer goods.

The situation would be more stable if non-conventional oil producers had the ability to weather prolonged periods of low oil prices. But as the price drop of 2015 showed, that would be wishful thinking. “By the second quarter of 2015 more than half of all distressed bonds across investment and high-yield bond markets were issued by energy companies. Under these financial strains a wave of shale bankruptcies began in the first quarter of 2015” – a bankruptcy wave that grew three times as high in 2016.

Finally, financial markets with their high exposure to risky non-conventional oil production have been easily spooked by mere rumours of the end of quantitative easing or any significant rise in interest rates. So central bankers have good reason to fear they may go into the next recession with no tools left in their monetary policy toolbox.

Far from representing a way out of economic crisis, then, the shale oil and related tar sands booms are a symptom of an ongoing economic crisis, the end of which is nowhere in sight.

Energy and power

Thompson also discusses the geo-political effects of the changing global oil market. She notes that the shale oil boom created serious tensions in the US-Saudi relationship. The Saudis wanted oil prices to be moderately high, perhaps in the $50-60/barrel range, because that would afford the Saudis substantial profits without driving down demand for oil. The Americans, with their billions sunk into high-cost shale oil wells, now had a need for oil prices in the $70/barrel and up range, simply to make the fracked oil minimally profitable.

There was no way for both the Saudis and the Americans to win in this struggle, though they could both lose.

At the peak (to date) of the shale oil boom, there was only one significant geo-political development in which the Americans were able to flex some muscle specifically because of the big increase in US oil production, Thompson says. She attributes the nuclear treaty with Iran in part to the surge of new oil production in Texas and North Dakota. In her reading, world oil markets at the time needn’t fear the sudden loss of Iran’s oil output, and that gave European governments a comfort level in agreeing to impose sanctions on Iran. These sanctions, in turn, helped convince Iran to make a deal (a diplomatic success which the Trump administration is determined to undo).

But in 2014 OPEC still produced about three times as much oil as the US produced – with important implications:

“even at the height of the shale boom the obvious limits to any claim of geo-political transformation were also evident. The US remained a significant net importer of oil and, consequently, lacked the capacity to act as a swing producer capable of immediately and directly influencing the price.” (Thompson, page 56)

“Most consequentially, when the Obama administration turned towards sanctions against Russia after the onset of the Ukrainian crisis in the spring of 2014, it was not willing to contemplate significant action against Russian oil production.” (Thompson, page 57)

Thompson wraps up with a look at the oil shock of the 1970s, concluding that “There are striking similarities between aspects of the West’s current predicaments around oil and the problems western governments faced in the 1970s. … However, in a number of ways the present version of these problems is worse than those that were manifest in the 1970s.” (Thompson, page 57)

A much higher world oil demand today, the fact that new oil reserves in western countries are very high-cost, plus the explosion of oil-related financial derivatives, make the international monetary order highly unstable.

Has the US returned to the ranks of “fossil fuel superpowers”? Not as Thompson sees it:

Now the US has nothing like the power it had in the post-war period in providing other states access to oil. Shale oil … cannot change the fact that the largest reserves of cheaply accessible oil lie in the Middle East and Russia, or that China and others’ rise has fundamentally changed the volume of demand for oil in the world.” (Thompson, page 111)

Guns, energy, and the coin of the realm

Also published at Resilience.org.

While US debt climbs to incomprehensible heights, US banking authorities continue to pump new money into the economy. How can they do it? David Graeber sees a  simple explanation:

There’s a reason why the wizard has such a strange capacity to create money out of nothing. Behind him, there’s a man with a gun.” (Debt: The First 5,000 Years, Melville House, 2013, pg 364)

In part one of this series, we looked at the extent of violence in the “American Century” – the period since World War II in which the US has been the number one superpower, and in which US garrisons have ringed the world. In part two we looked at the role of energy supplies in propelling the US to power, the rapid drawdown of energy supplies in the US post-WWII, and the more recent explosion of US debt.

In this concluding installment we’ll look at the links between military power and financial power.

A new set of financial institutions arose at the end of World War II, and for obvious reasons the US was ‘first among equals’ in setting the rules. Not only was the US in military occupation of Germany and Japan, but the US also had the financial capital to help shattered countries –whether on the war’s winning or losing sides – in reconstructing their infrastructures and restarting their economies.

The US was also able to offer military protection to many countries including previous mortal enemies. This meant that these countries could avoid large military outlays – but also that their elites were in no position to challenge US supremacy.

That being said, there were challenges both large and small in dozens of nations, particularly from the grass roots. The US exercised political power, both soft and hard, in attempts to influence the directions of scores of countries around the world. Planting of media reports, surreptitious aid to favoured electoral candidates, dirty tricks to discredit candidates seen as threatening, military aid and training to dictatorships and police forces who could put down movements for social justice, planning and helping to implement coups, and full-fledged military invasion – this range of intervention techniques resulted in hundreds of thousands, if not millions, of deaths. Cataloguing the bloody side of US “leadership of the free world” is the task taken on so ably by John Dower in The Violent American Century.

Dollars for oil

One of the rules of the game grew in importance with each passing decade. In Timothy Mitchell’s words,

Under the arrangements that governed the international oil trade, the commodity was sold in the currency not of the country where it was produced, nor of the place where it was consumed, but of the international companies that controlled production. ‘Sterling oil’, as it was known (principally oil from Iran), was traded in British pounds, but the bulk of global sales were in ‘dollar oil’.” (Carbon Democracy, Verso, 2013, pg 111)

As David Graeber’s Debt explains in detail, the ability to force people to acquire and use the ruler’s currency has, throughout history, been a key mechanism for extracting tribute from subject populations.

In today’s global economy, that is why the pricing of oil in dollars has been so important for the US. Again in Timothy Mitchell’s words:

Europe and other regions had to accumulate dollars, hold them and then return them to the United States in payment for oil. Inflation in the United States slowly eroded the value of the dollar, so that when these countries purchased oil, the dollars they used were worth less than their value when they acquired them. These seigniorage privileges, as they are called, enabled Washington to extract a tax from every other country in the world …. (Carbon Democracy, pg 120)

As Greg Grandin explains, the oil-US dollar relationship grew in importance even as OPEC countries were able to force big price increases:

With every rise in the price of oil, oil-importing countries had to borrow more to meet their energy needs. With every petrodollar placed in New York banks, the value of the US currency increased, and with it the value of the dollar-denominated debt that poor countries owed to those banks.” (“Down From The Mountain”, London Review of Books, June 19, 2017)

But the process did take on another important twist after US domestic oil production peaked and imports from Saudi Arabia soared in the 1970s. Although the oil trade continued to support the value of the US dollar, the US was now sending a lot more of those dollars to oil exporting countries. The Saudis, in particular, accumulated US dollars so fast there wasn’t a productive way for them to circulate these dollars back into the US by purchasing US-made goods. The burgeoning US exports of munitions provided a solution. Mitchell explains:

As the producer states gradually forced the major oil companies to share with them more of the profits from oil, increasing quantities of sterling and dollars flowed to the Middle East. To maintain the balance of payments and the viability of the international financial system, Britain and the United States needed a mechanism for these currency flows to be returned. … Arms were particularly suited to this task of financial recycling, for their acquisition was not limited by their usefulness. The dovetailing of the production of petroleum and the manufacture of arms made oil and militarism increasingly interdependent.” (Carbon Democracy, pg 155-156)

He adds, “The real value of US arms exports more than doubled between 1967 and 1975, with most of the new market in the Middle East.”

An F-15 Eagle aircraft of the Royal Saudi Air Force takes off during Operation Desert Shield, 1991. (Source: Wikimedia Commons)

Fast forward to today. Imported oil is a critical factor in the US economy, in spite of a supply blip from fracking. US industry leads the world in the export of weapons; the top three buyers, and five of the top ten buyers, are in the Middle East. (Source: CNN, May 25, 2016) Yet US arms sales are dwarfed by US military expenditures, which are roughly double in real terms what they were in the 1960s. (Source: Time, July 16, 2013)

Finally, US national debt, in 1983 dollars, is about 10 times as high as it was from 1950 to 1980. In other words the US government, along with its banking and military complexes, has been living far beyond its means (making bankruptcy king Donald Trump a fitting figurehead). (Source: Stephen Bloch, Adelphi University)

Yet the game goes on. As David Graeber sees it,

American imperial power is based on a debt that will never – can never – be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.

At the same time, U.S. policy was to insist that those countries relying on U.S. treasury bonds as their reserve currency behaved in exactly the opposite way: observing tight money policies and scrupulously repaying their debts ….” (Debt, pg 367)

We’ll close with two speculations on how the “American century” may come to an end.

US supremacy rests on interrelated dominance in military power, financial power, and influence over fossil fuel energy markets. At present the US financial system can create ever larger sums of money, and the rest of the world may have no immediately preferable options than to continue buying US debt. But just as you can’t eat money, you can’t burn it in an electricity generator, a diesel truck, or a bomber flying sorties to a distant land. So no amount of financial wizardry will sustain the current outsized industrial economy or its military subsection, once prime fossil fuel sources have been tapped out.

On the other hand, suppose low-carbon renewable energy technologies improve so rapidly that they can replace fossil fuels within a few decades. This would be a momentous energy transition, and might also lead to a momentous transition in geopolitics.

In recent years, and especially under the Trump administration, the US is ceding renewable energy technology leadership to other countries, especially China. If many countries free themselves from fossil-fuel dependence, and they no longer need US dollars to purchase their energy needs, a pillar of US supremacy will fall.

Top photo: Commemorative silver dollar sold by the US Mint, 2012.

Fossil fuel empire: a world of vulnerability

Also published at Resilience.org.

“It’s all about the oil,” many commentators said about the US assault on Iraq in 2003.

Attributing a war to a single cause is almost always an oversimplification, but protecting access to the 20th century’s most important energy source has been a priority of US foreign policy since World War II.

In part one of this series we considered the effects of the US military complex which has ringed the world for the past 75 years. This complex has depended on vast amounts of fossil fuel energy to move troops and munitions, and the US became a world power in significant part because of its endowment of oil.

As Daniel Yergin recounts in The Prize: The Epic Quest for Oil, Money & Power

Petroleum was central to the course and outcome of World War II in both the Far East and Europe. The Japanese attacked Pearl Harbor to protect their flank as they grabbed for the petroleum resources of the East Indies. Among Hitler’s most important strategic objectives in the invasion of the Soviet Union was the capture of the oil fields in the Caucasus. But America’s predominance in oil proved decisive, and by the end of the war German and Japanese fuel tanks were empty.” (The Prize, Simon & Schuster, 1990, pg 13)

At the end of World War II the US was not only the world’s preeminent military force, but its industrial capacity was undamaged by war and it was running on seemingly abundant supplies of cheap domestic oil.

Spurred on by oil and car companies who had the most to gain from a high-energy way of life, the US embarked on a building spree of far-flung suburbs, interstate highways, and airports that allowed long-distance flight to become a routine activity.

This hyper-consumption was bolstered by a new economic orthodoxy which saw no need to factor in energy depletion when accounting for national wealth, and which portrayed exponential economic growth as a phenomenon that could and should continue decade after decade.

It took barely a generation, of course, for the US economy to suck up the bulk of its cheap domestic oil – conventional oil production peaked in the US in 1971. Did Americans then conclude they should change the basis of their economy, and make peace with reduced energy consumption? Far from it. Dependence on imported oil has now been a central feature of the US economy for fifty years.

Gap between US oil consumption and production. Chart by An Outside Chance for the post Alternative Geologies: Trump’s “America First Energy Plan”, from stats on ycharts.com

 

A world of vulnerability

The huge military complex which protects essential oil supply routes is sometimes seen as a sign of US strength, but it can just as accurately be seen as a sign of US weakness.

In a 2009 report entitled “Powering America’s Defense: Energy and the Risks to National Security”, a panel of twelve retired generals and admirals notes that “The U.S. consumes 25 percent of the world’s oil production, yet controls less than 3 percent of an increasingly tight supply.” This voracious appetite for oil, they say, is a dangerous vulnerability:

As we consider America’s current energy posture, we do so from a singular perspective: We gauge our energy choices solely by their impact on America’s national security. Our dependence on foreign oil reduces our international leverage, places our troops in dangerous global regions, funds nations and individuals who wish us harm, and weakens our economy; our dependency and inefficient use of oil also puts our troops at risk.” (Introduction to Powering America’s Defense)

One source of imported oil has outranked all others for the US and its western European allies. The US was already consolidating its “special relationship” with Saudi Arabia in the 1930s, in the first years of that country’s existence. As Timothy Mitchell describes this relationship,

Aramco [Arabian-American Oil Company] paid the oil royalty not to a national government but to a single household, that of Ibn Saud, who now called himself king and renamed the country … the ‘Kingdom of Saudi Arabia’. … This ‘privatisation’ of oil money was locally unpopular, and required outside help to keep it in place. In 1945 the US government established its military base at Dhahran, and later began to train and arm Ibn Saud’s security forces …. The religious establishment, on the other hand, created the moral and legal order of the new state, imposing the strict social regime that maintained discipline in the subject population and suppressed political dissent.” (Timothy Mitchell, Carbon Democracy, Verso, 2013, pg 210-211)

The alliance between a self-styled liberal democracy and an theocratic autocracy has not been a marriage made in heaven. But in spite of many points of tension the relationship has benefited powerful forces in both countries and has endured for most of the age of oil.

The need to protect US access to the world’s largest sources of conventional oil was formally recognized in the Carter Doctrine:

An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” (US President Jimmy Carter in his State of the Union Address, January 1980)

Ironically, this doctrine led the US to begin supporting the mujahideen, Islamic fundamentalists who were fighting the Soviet Union in Afghanistan. And ironically, after the Soviet-Afghan war ended one of the major irritants for the formerly lauded “freedom fighters” was the heavy military presence of the infidel United States in Saudi Arabia. The result has been almost 20 years of continuous warfare between the US and various offshoots of the mujahideen, with no prospect of victory for the US.

The costs of these wars, merely in dollar terms, have been staggering. While US military expenditures have remained high ever since World War II, these costs have recently gone through the roof. An analysis of military spending by Time in 2013 found that inflation-adjusted military spending in the 2000s was approximately twice as high as military spending in the 1960s, during the nuclear face-off with Russia and the massive deployment in Indochina.

In sum, the US has been importing increasing quantities of increasingly expensive oil for decades. During the same years US military spending has soared. Does this sound like a recipe for solvency? You might well wonder if it’s just coincidence that US national debt has soared during these years.

US national debt converted to 1983 dollars and plotted on logarithmic scale – each step up the ladder is 10 times as high as the previous step – by Stephen Bloch of Adelphi University.

 

Recall the curious formulation by John Dower cited in the first installment of this series:

Creating a capacity for violence greater than the world has ever seen is costly – and remunerative.” (The Violent American Century, pg 12, emphasis mine)

How is this world-wide military occupation remunerative? In our next installment we’ll look at the tie-in between the power that grows out of the barrel of a gun, and the power that comes with control of currency.

Part Three of this series

 

Top photo: well head at the Big Hill, Texas site of the US Strategic Petroleum Reserve. The Big Hill facility stores up to 160 million barrels of oil. The four sites of the Strategic Petroleum Reserve were developed in the 1970s, amid fears that a disruption in global supply lines could leave the US dangerously vulnerable. Photo from US Office of Fossil Energy.