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

Designing Climate Solutions – a big-picture view that doesn’t skimp on details

Also published at Resilience.org

Let us pause for a moment of thanks to the policy wonks, who work within the limitations of whatever is currently politically permissible and take important steps forward in their branches of bureaucracy.

Let us also give thanks to those who cannot work within those limitations, and who are determined to transform what is and is not politically permissible.

Designing Climate Solutions: A Policy Guide for Low-Carbon Energy is published by Island Press, November 2018.

An excellent new book from Island Press makes clear that both approaches to the challenge of climate disruption are necessary, though it deals almost exclusively with the work of policy design and implementation.

Designing Climate Solutions, by Hal Harvey with Robbie Orvis and Jeffrey Rissman, is a thoughtful and thorough discussion of policy options aimed at reducing greenhouse gas emissions.

Harvey is particularly focused on discovering which specific policies are likely to have the biggest – and equally important, the quickest – impact on our cumulative greenhouse gas emissions. But he also pays close attention to the fine details of policy design which, if ignored, can cause the best-intentioned policies to miss their potentials.

One of the many strengths of the book is the wealth of graphics which present complex information in visually effective formats.

A political acceptable baseline

Though political wrangling is barely discussed, Harvey notes that “It goes without saying that a key consideration of any climate policy is whether it stands a chance of being enacted. A highly abating and perfectly designed policy is not worth pursuing if there is no chance it can be implemented.”

He takes as a starting point the target of the Paris Agreement of 2015, which has received agreement in principle from nearly all countries: to reduce emissions enough by 2050 to give us at least a 50% chance of avoiding more than 2°C global warming. (We’ll return later to the question of the reasonableness of that goal.)

Throughout the book, then, different aspects of climate policy are evaluated for their relative contributions to the 2°C goal.

Working with a climate policy computer model which is discussed in detail in an appendix and which is available online, Harvey presents this framework: a “business as usual” scenario would result in emissions of 2,253 Gigatons of CO2-equivalent from 2020 to 2050, but that must be reduced by 1,185 Gigatons.

The following chart presents what Harvey’s team believes is the realistic contribution of various sectors to the emission-reduction goal.

“Figure 3.4 – Policy contributions to meeting the 2°C global warming target.” (From Hal Harvey et. al., Designing Climate Solutions, Island Press, page 67)

The key point from this chart is that about 70% of the reductions are projected to come in three broad areas: changes to industrial production, conversion of electrical generation (“power sector”) to renewable energy, and cross-sector pricing of carbon emissions in line with their true social costs.

(The way things are categorized makes a big difference. For example, agriculture is slotted as a subset of the industrial sector, which boosts the relative importance of this sector for emissions-reduction potential.)

Harvey buttresses the argument by looking at the costs – or in many cases, cost-savings – of emissions-reduction policies. The following chart shows the relative costs of policies on the vertical dimension, and their relative contribution to emissions reduction on the horizontal dimension.

“Figure 3.2 – The policy cost curve shows the cost-effectiveness and emission reduction potential of different policies.” (From Hal Harvey et. al., Designing Climate Solutions, Island Press, page 59)

 

The data portrayed in this chart can guide policy in two important ways: policy-makers can focus on the areas which make the most difference in emissions, while also being mindful of the cost issues that can be so important in getting political buy-in.

It may come as a surprise that the transportation and building sectors, in this framework, are responsible for only small slices of overall emission reductions.

Building Codes and Appliance Standards are pegged to contribute about 5% of the emission reductions, while a suite of transportation policies could together contribute about 7% of emission reductions.

A clear view of the overriding importance of reducing cumulative emissions by 2050 helps explain these seemingly small contributions – and why it would nevertheless be a mistake to neglect these sectors.

To achieve climate policy goals it’s critical to reduce emissions quickly – and that’s hard to do in the building and transportation sectors. Building stock tends to last for generations, and major appliances typically last 10 years or more. Likewise car, truck and bus fleets tend to stay on the road for ten years or more. Thus the best building codes and the best standards for vehicle efficiency will have a very limited impact on carbon emissions over the next 15 years. By the same token, even the most rapid electrification possible of car and truck fleets won’t have full impact on emissions until the electric grid is generally decarbonized.

These are among the reasons that decarbonizing the electric grid, along with cross-sector pricing of carbon emissions, are so important to emissions reduction in the short term.

Meanwhile, though, it is also essential to get on with the slower work of upgrading buildings, appliances, transportation systems, and decarbonized agricultural and industrial processes. In the longer term, especially after 2050 when it will be essential to achieve zero net carbon emissions, even (relatively) minor contributions to emissions will be important. But as Harvey puts it, “There is no mopping up the last 10 percent of carbon emissions if we don’t eliminate the first 90 percent!”

International case studies

Harvey gets deep into the nuances of policy with an excellent discussion of the differences between carbon taxes and carbon caps. This helps readers to understand the value of hybrid approaches, and the importance in some countries of policies to limit “leakage”, whereby major industries simply shift production to jurisdictions without carbon prices or caps.

The many case studies – from the US, Germany, China, Japan, and other countries – illustrate policy designs that work especially well, or conversely, policies that have resulted in unintentional consequences which reduce their effectiveness.

These case studies also provide a reminder of the amount of hard work and dedication that mostly unsung bureaucrats have put in to the cause of mitigating climate disruption. As much as we may mourn that political leadership has been sorely lacking and that we appear to be losing the battle to forestall climate disaster, it seems undeniable that we would be considerably worse off if it weren’t for the accomplishments of civil servants who have eked out small gains in their own sectors.

For example, the hard-won feed-in tariffs and other policies promoting renewable energies for electric generation haven’t yet resulted in a wholesale transformation of the grid – but they’ve resulted in an exponential drop in the cost per kilowatt of solar- and wind-generated power. Performance standards for many types of engines have resulted in significant improvements in energy efficiency. These improvements have so far mostly been offset by our economy’s furious push to sell more and bigger products – but these efficiency gains could nevertheless play a key role in a sane economic system of the future.

The 2° gamble

Although most of the book is devoted to details of particular policies, Harvey’s admirably lucid discussion of the urgency of the climate challenge makes clear that we need far greater commitment from the highest levels of political leadership.

He notes that the reality of climate action has been far less impressive than the high-minded rhetoric. With few exceptions the nations responsible for most of the carbon emissions have been woefully slow to act, which makes the challenge both more urgent and more difficult.

Harvey illustrates this point with the chart below. The black solid and dotted lines represent the necessary progress with emissions, if we had been smart enough to ensure emissions peaked in 2015. The red lines show what may now be the best-case scenario – an emissions peak in 2030 – and the much more drastic reductions that will then be required to have a 50% chance of keeping global warming to 2°C or less.

“Figure I-7. The longer the delay in peaking emissions, the harder it becomes to meet the same carbon budget.” (From Hal Harvey et. al., Designing Climate Solutions, Island Press, page 9)

We might well ask if a 50% likelihood of worldwide climate catastrophe is a prudent and reasonable policy aim, or certifiably bonkers. Still, a 50/50 chance of disaster is somewhat better than assured civilizational collapse, which is the destination of “business as usual.”

In any case, the political climate has changed considerably in the short time since Harvey and colleagues prepared Designing Climate Solutions. With the challenge to the political status quo embodied in the Green New Deal movement, it now seems plausible that some major carbon-emitting countries will enact more appropriate greenhouse-gas emission targets in the next few years. If that comes to pass, these new goals will need to be translated into effective policy, and the many lessons in Designing Climate Solutions will remain important.

What about fossil fuel subsidies?

In a book of such wide and ambitious scope, it is inevitable that some important facets are omitted or given short shrift.

The issues of deforestation and forest degradation are duly noted, but Harvey declines to delve into this subject by explaining that “The science, the policies, and the actors for reducing emissions from land use are very different from those for energy and industrial processes, and they deserve separate treatment from experts in land use policy.”

The issue of embodied carbon does not come up in the text. In assessing the replacement of fossil-powered vehicle fleets by electric vehicles, for example, is the embodied carbon inherent in current manufacturing processes a significant factor? Readers will need to search elsewhere for that answer.

Also noteworthy is the absence of any acknowledgement that economic growth itself may be a problem. For all the discussion of ways to transform industrial processes, there is no discussion of whether the scale of industrial output should also be reduced. In most countries today, of course, a civil servant who tries to promote degrowth will soon become an expert in unemployment, but that highlights the need for a wider and deeper look at economic fundamentals than is currently politically permissible.

The missing subject that seems most germane to the book’s central purpose, though, is the issue of subsidies for fossil fuels. Harvey does state in passing that “for many sectors and technologies, pricing is the key. Removing subsidies for fossil fuels is the first step – though still widely ignored.” Indeed, many countries have paid lip service to the need to stop subsidizing fossil fuels, but few have taken action along these lines.

But throughout Harvey’s extensive examination of pricing signals – e.g., feed-in tariffs, carbon taxes, carbon caps, low-interest loans to renewable energy projects – there is no discussion of the degree to which existing fossil fuel subsidies continue to undercut the goals of climate policy and retard the transition to a low-carbon economy.

In my next post I’ll take up this subject with a look at how some governments, while tepidly supporting the transformation envisioned in the Paris Agreements, continue to safeguard their fossil fuel sectors through generous subsidies.


Illustration at top adapted from Designing Climate Solutions cover by David Ter Avanesyan.

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.

Can nuclear power extend the economic expansion?

Also published at Resilience.org and BiophysEco.

Richard Rhodes’ new book Energy: A Human History does an excellent job of describing the scientific and technological hurdles that had to be cleared in the development of, for example, an internal combustion engine which can convert refined petroleum into forward motion.

But he gives short shrift to the social and political forces that have been equally important in determining how technological advances shape our world. That internal combustion engine might be a wonder of ingenuity, but was there any scientific reason we should make multi-tonne vehicles the primary mode of transportation for single passengers in cities, drastically reconfiguring urban landscapes in the process? When assiduous research resulted in more efficient engines, did science also dictate that we should use those engines to drive bigger and heavier SUV’s, and then four-wheel-drive, four-door pick-up trucks, to our suburban grocery superstores?

Unfortunately, Rhodes presents the benefits of modern science as if they are all inextricably wrapped up in our current high-energy-consumption economy, implying that human prosperity must end unless we find ways to maintain this high-energy system.

In this second part of a look at Energy (first installment here), we’ll delve into these questions as they relate to Rhodes’ strident defense of nuclear power.

To set the context, Rhodes argues that the only realistic – and the most ethical – way forward is a gradual progression on the path we are already taking, and that means an “all energy sources except coal and oil” strategy:

“Every energy system has its advantages and disadvantages …. And given the scale of global warming and human development, we will need them all if we are to finish the centuries-long process of decarbonizing our energy supply – wind, solar, hydro, nuclear, natural gas.”1

Three key points here: First, Rhodes recognizes the severity and urgency of the climate problem.

Second, he believes we have been “decarbonizing our energy supply” for centuries. That is true with respect to intensity: we now release fewer units of carbon for each unit of energy than we did in the 19th century.2 But in an overall sense, we emit vastly more carbon cumulatively (and vastly more carbon per capita) than we used to. It is the overall carbon emissions, not the carbon/energy intensity ratio, that matters to the climate.

Third, while energy production via natural gas has relatively low carbon emissions at the point of combustion, there is wide recognition that methane leaks throughout the production/transmission chain are major sources of greenhouse gas emissions, which may counteract the benefits of switching from coal to gas. Rhodes makes only an oblique reference to this critical problem in current natural gas usage.

It’s the issue of nuclear power, though, that really brings out Rhodes’ rhetorical heat. Consider this ad hominem attack:

“Antinuclear activists, whose agendas originated in a misinformed neo-Malthusian foreboding of overpopulation (and a willingness at the margin to condemn millions of their fellow human beings to death from disease and starvation), may fairly be accused of disingenuousness in their successive arguments against the safest, least polluting, least warming, and most reliable energy source humanity has yet devised.3

If someone warns that a social or technological development is likely to result in mass death, does that logically mean they want mass death, or that they are indifferent to it? Obviously not. They may well be sincerely motivated by a desire to save lives – just as those who promote the same social or technological development might sincerely believe that is the best way to save lives and promote prosperity.

So I think it is Rhodes who is being disingenuous with his ad hominem argument – even though I happen to agree with some of his substantive points on the relative safety of nuclear power.

What could go wrong?

As one who has lived for fifteen years just downwind of major nuclear facilities – first a uranium processing plant, more recently a nuclear power generator – I’ve had lots of incentive to study the potential safety hazards of the nuclear power industry. And on the issue of the relative operating safety of nuclear power generation, my conclusions have been much the same as those Rhodes puts forth.

I frequently take a short bike ride along the Lake Ontario Waterfront Trail through the buffer zone around the Darlington Nuclear Generating Station. Is this a significant hazard to my health? Yes it is, but only because this route also requires me to share the road with trucks and cars for a few kilometers, and to ride right beside a stream of pollution-emitting traffic on Ontario’s busiest expressway.

As a close neighbour of nuclear facilities, my risk of death due to sudden catastrophic nuclear power accident is several orders of magnitude lower than my risk of death due to sudden catastrophic traffic accident. (Worldwide, well over a million people are killed in traffic accidents per year.4)

As for the health risk due to chronic exposure to the amounts of radiation that are emitted by a current Canadian nuclear generating plant, I fully concur with Rhodes’ more general conclusion: “Low doses of radiation are not only low risk; they’re also lost in the noise of other sources of environmental insult.”5

Likewise, I share Rhodes’ conclusion that shutting down our existing nuclear power plants for environmental reasons, while continuing to rely on coal for a significant part of electricity generation, is daft6 – we should replace carbon-emitting generating systems first.

In my region, I would be sorry to see Darlington Nuclear Station shut down if Ontario were still significantly reliant on gas-powered peaker plants, as it is now. And given that we have a very long way to go in electrifying personal transportation and home heating, our electricity demand may increase significantly, making the transition to a fully renewable electricity generation system that much farther down the road. In that context, I think our existing nuclear power plants are a better option environmentally than continued or increasing use of any fossil fuel, natural gas included, for generation of electricity.

But should we commission and build new nuclear power plants? That is a very different question. Rhodes recognizes that the economic viability of the nuclear power industry is very much in question, but he makes no significant attempt in Energy to resolve the economic question.

To adequately answer the economic viability question, we would need a much wider conception of science than the one that comes through in Rhodes’ book.7

Beyond physics and chemistry

The science Rhodes celebrates in Energy: A Human History falls almost entirely within very basic physics and chemistry. The discoveries and developments Rhodes discusses are highly significant, and they will always remain foundational – but they are not sufficient for a clear understanding of technological systems, which are also social phenomena.

A more recent scientific advance is essential in coming to grips with our current energy challenges. This is the concept of Energy Return on Investment (EROI). Over his long and distinguished career, ecologist Charles A.S. Hall posited that organisms, ecological communities, and human societies must derive more usable energy from their activities than the energy they invest in those activities. With this simple insight8, Hall gave economics a foundation in the very principles of thermodynamics that Rhodes reveres.

The resulting field of biophysical economics provides a deeper understanding of the socio-technological revolutions that Rhodes simply ascribes to “science”. After studying the Energy Return on Investment of major energy sources over the past 200 years, we can understand how the rapid exploitation of fossil fuels provided a huge boost in the the energy available to society, while simultaneously freeing the great majority of people from energy-procuring activities so that they could work instead at a wide variety of new activities and industries. We can understand that if any society is to use a high quantity of energy per person, while employing only a small number of people in its energy sector, then its energy sector needs a high rate of Energy Return on Investment.

With readily accessible supplies of coal, oil and natural gas, industrial civilization in the past 200 years has benefitted from a very high Energy Return on Investment. But with “sweet spots” exhausted or in depletion phases, the EROI of the fossil fuel economy has been in marked decline for the past few decades.

Thus one of the key questions about a supposed nuclear renaissance is, can the nuclear power industry achieve an EROI comparable to that of the fossil fuel economy we have known to date? Most published analyses say no9 – from an Energy Return On Investment standpoint, nuclear power generation is (at worst) not worth doing at all, or (at best) worth doing even though it will produce much more expensive energy than the energy we came to depend on during the twentieth century.

If nuclear power generation has a low EROI, in sum, it cannot and will not fuel a continued economic expansion.

Rhodes argues that nuclear power is vitally important because we really need it to extend our current model of prosperity to billions more people now and in coming generations, and he claims the mantle of science for this position. But a broader and deeper application of scientific analysis can deal with the economic viability questions about nuclear power that he simply sidesteps.

Illustration at top: high-voltage transmission lines on grounds of Darlington Nuclear Station, on north shore of Lake Ontario east of Toronto

 


NOTES

1Energy: A Human History, page 337 (return to text)

2This is a point explained in more detail by Vaclav Smil, who also gives a perspective on the relative degree of decarbonization. From 1900 to 2000, he says, “the average carbon intensity of the world’s fossil fuel supply kept on declining: when expressed in terms of carbon per unit of the global total primary energy supply, it fell from nearly 28 kg C/GJ [GigaJoule] in 1900 to just below 25 in 1950 and to just over 19 in 2010, roughly a 30% decrease; subsequently, as a result of China’s rapidly rising coal output, it rose a bit during the first decade of the twenty-first century.” Smil, Energy and Civilization: A History, page 270. (return to text)

3Energy: A Human History, page 336 (return to text)

4World Health Organization says there were 1.25 million traffic deaths in 2013. (return to text)

5Energy: A Human History, page 324 (return to text)

6This general statement must be qualified, of course, by noting that some particular nuclear plants should be shut down because their designs were inherently flawed to begin with, or because they have aged beyond the point where they can be maintained and operated safely. (return to text)

7Even if one accepts that the operating safety record of nuclear power stations is exemplary, there are the major issues of nuclear weapons proliferation, and the long-term storage of highly radioactive wastes. Rhodes doesn’t mention weapons proliferation, and he cavalierly dismisses the long-term disposal issue: “The notion that such waste must be successfully protected from exposure for hundreds of thousands of years is counter to how humans handle every other kind of toxic material we produce. We usually bury it, but we also discount its future risk, on the reasonable grounds that we owe concern to one or, at best, two generations beyond our own …” (Energy: A Human History, page 337, emphasis mine). Yes, that’s what we usually do, but in what sense is that “reasonable”? (return to text)

8Though the basic insight is simple, measuring and calculating EROI can be anything but simple. A key issue is deciding how far out to draw the boundaries of an analysis. As Hall, Lambert and Balogh noted in “EROI of different fuels and the implications for society” in 2014, “Societal EROI is the overall EROI that might be derived for all of a nation’s or society’s fuels by summing all gains from fuels and all costs of obtaining them. To our knowledge this calculation has yet to be undertaken because it is difficult, if not impossible, to include all the variables necessary to generate an all-encompassing societal EROI value”. (return to text)

9In Scientific American (April 2013) Mason Inman cited an EROI of 5 for nuclear electricity generation – lower than photovoltaic or wind generators, and only a small fraction of the EROI of 69 that Inman cited for global conventional oil production in 2011. In 2014 a meta-review of studies, EROI of different fuels and the implications for society, gave a mean EROI of 14 for nuclear power. A paper by the World Nuclear Association cites outliers among the published studies, highlighting a conclusion that nuclear generation of electricity has a higher average EROI than hydro or fossil fuel generating systems, and is “one order of magnitude more effective than photovoltaics and wind power”. (return to text)

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

A fascinating, flawed look at limits

A review of The Wizard and The Prophet

Also published at Resilience.org.

Charles C. Mann has written consecutive bestsellers of popular history writ large. His 1491 surveyed the civilizations of the pre-Columbian Americas, while 1493 looked at how post-Columbian America has affected the whole world.

The Wizard and the Prophet, by Charles C. Mann, 2018, 616 pages

The Wizard and the Prophet at first glance shows Mann at work on a smaller canvas, comparing the life’s work of two American scientists in the mid-20th century.

Though Norman Borlaug and William Vogt both studied agricultural resources their career trajectories could hardly have been more different. Mann uses the contrast as a framework for a sweeping discussion of the biggest environmental questions facing our generations.

In the process he transforms Borlaug into “The Wizard” and Vogt into “The Prophet’’, superheroes who have, in Mann’s telling, guided the two major currents in environmental thinking ever since. Thus “The Wizard” and “The Prophet” are tapped for analyses of subjects which, for all we know, neither Borlaug nor Vogt actually thought about.

Always lurking in the background are the questions with which Mann opens the book: is it possible to feed, clothe, and shelter 10 billion people on this planet, or are we moving towards inevitable environmental collapse?

The real Norman Borlaug was born to a poor Iowa farm family and he yearned to escape the backbreaking work in the fields. After earning a degree in plant pathology he found himself immersed in even more tedious manual labour in a dusty, eroded, wind-blown patch of dirt outside Mexico City. His goal was to find a variety of wheat that would resist the blight known as rust.

Borlaug planted eight thousand wheat varieties the first season and came up with exactly four rust-resistant varieties. But he eventually developed strains of “dwarf” wheat that not only resisted rust, but which did not blow over in the wind and which responded well to artificial fertilizers. This development became known as the “Green Revolution”, and earned Borlaug a Nobel Peace Prize. He continued to work nearly up to his death in 2009 at the age of ninety-five, with advocacy for genetic engineering a theme of his later writings.

William Vogt was publicly lionized long before Borlaug came to fame, yet he too did his key research in an unglamorous setting: the guano-caked islands off Peru’s coast. For half a century the nitrogen-rich excrement of Guanay cormorants had been a key resource for world agriculture. Peru’s government wanted to know: why did the population of cormorants sometimes crash, and could they safeguard the marvellous output of fertilizer?

While Borlaug’s work rewarded a rigorous focus on detail, Vogt approached his task with the wide-angle lens of ecology. He tied cormorant populations to the ups and downs of the anchovetas which fed the birds; the plankton which fed the anchovetas; and the alternately warm or cold ocean currents of El Niño or La Niña which fed or starved the plankton. The maximum numbers of cormorants as well as their periodic crashes, Vogt reported, were set by nature’s own limits, and it would be foolhardy to push against those limits.

Vogt extended this message of limits in his 1948 book Road to Survival. He believed too much consumption is ecologically disastrous, and this consumption is based on both population growth and the quest for continuing economic growth. Road to Survival was a runaway best-seller.

Trending to infinity

Mann’s story-telling skills shine when he’s narrating the life and times of Borlaug, Vogt and the colourful characters they worked with. When The Wizard and the Prophet embarks on a 200-page tour of today’s many global ecology challenges, Mann’s discursions are fascinating but the quality is uneven.

An overview of world agriculture contrasts the Green Revolution with small-scale “organic” approaches. Yet Mann winds up that chapter without posing an obvious question. The artificial fertilizers required by Green Revolution crops are based on an energy-intensive process with natural gas as a feedstock, but can we be confident we have affordable resources to maintain, let alone double, current fertilizer production?

Through most of the book Mann recognizes the value in Vogt’s arguments for limits as well as Borlaug’s success in at least temporarily pushing those limits. That even-handedness is gone in his chapter on energy supply. Responding to the fear that fossil fuel resources might soon run short, Mann espouses Cornucopianism with an enthusiasm that would make a tar-sands tycoon blush.

In Mann’s reading of history the mere thought of “peak oil” has produced such infelicities as 75 years of war and tyranny in the Middle East. Though in some mere physical sense fossil fuel reserves must be limited, Mann argues, they are economically infinite – and economics trumps physics. That may be “counterintuitive”, he admits, “but more than a century of experience has shown it to be true.” If a trend lasts 100 years, apparently, we should feel confident it will be sustained for all time.

His chapter on climate change has more grounding in science and reason, but is badly dated. He relies on the 2014 report of the Intergovernmental Panel on Climate Change, a necessarily conservative consensus review of thousands of reports published in prior years, which gave a likely range of global temperature increases from 1.5° to 4.5° Celsius.

Mann uses the IPCC’s temperature range and probability estimates to conclude “Very roughly speaking, this translates into a one-out-of-six chance that nothing much will happen – and a one-out-of-six chance of complete disaster.” When Stewart Brand used a similar one-in-six analogy in his 2009 book Whole Earth Discipline it was somewhat plausible. But since that time, measured global warming has been consistently outrunning the IPCCs cautious projections, many climatologists warn that we’ve already passed any chance of keeping global warming to less than 2°C, and the possible outcomes now run along a spectrum of biospheric  and civilizational catastrophes.

Vogt’s 1948 Road to Survival was a bestseller, but by the mid-1960s he found it hard to get a hearing in major media. Borlaug’s 1970 Nobel Prize was the first of a series of accolades that continued for the next 40 years. (Photo of statue in US Capitol building by Architect of the Capitol)

While Borlaug was influential to the end of his long life Vogt’s career flamed out early. In the 1950s he turned to population control as the single overriding issue, leading to a stormy tenure  at the helm of Planned Parenthood. Publishers and book buyers lost interest in his writings and he slid into despair. In 1968 – two years before Borlaug won his Nobel Prize – Vogt was gone, dead by his own hand.

Had he lived another fifty years to see 7 billion people trying to secure a subsistence on a planet already suffering from climate change, it’s hard to imagine that he would have regained hope.

 

Photos at top: Norman Borlaug in Mexico, 1964, photo from Centro Internacional de Mejoramiento de Maíz y Trigo. William Vogt, 1940, promotional photo from Compañia Administradora del Guano

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)

S-curves and other paths

Also published at Resilience.org.

Oxford University economist Kate Raworth is getting a lot of good press for her recently released book Doughnut Economics: 7 Ways to Think Like a 21st Century Economist.

The book’s strengths are many, starting with the accessibility of Raworth’s prose. Whether she is discussing the changing faces of economic orthodoxy, the caricature that is homo economicus, or the importance of according non-monetized activities their proper recognition, Raworth keeps things admirably clear.

Doughnut Economics makes a great crash course in promising new approaches to economics. In Raworth’s own words, her work “draws on diverse schools of thought, such as complexity, ecological, feminist, institutional and behavioural economics.” Yet the integration of ecological economics into her framework is incomplete, leading to a frustratingly unimaginative concluding chapter on economic growth.

Laying the groundwork for that discussion of economic growth has resulted in an article about three times as long as most of my posts, so here is the ‘tl;dr’ version:

Continued exponential economic growth is impossible, but the S-curve of slowing growth followed by a steady state is not the only other alternative. If the goal is maintaining GDP at the highest possible level, then the S-curve is the best case scenario, but in today’s world that isn’t necessarily desirable or even possible.

The central metaphor

Full disclosure: for as long as I can remember, the doughnut has been my least favourite among refined-sugar-white-flour-and-grease confections. So try as I might to be unbiased, I was no doubt predisposed to react critically to Raworth’s title metaphor.

What is the Doughnut? As Raworth explains, the Doughnut is the picture that emerged when she sketched a “safe space” between the Social Foundation necessary for prosperity, and the Ecological Ceiling beyond which we should not go.

Source: Doughnut Economics, page 38

There are many good things to be said about this picture. It affords a prominent place to both the social factors and the ecological factors which are essential to prosperity, but which are omitted from many orthodox economic models. The picture also restores ethics, and the choosing of goals, to central roles in economics.

Particularly given Raworth’s extensive background in development economics, it is easy to understand the appeal of this diagram.

But I agree with Ugo Bardi (here and here) that there is no particular reason the diagram should be circular – Shortfall, Social Foundation, Safe and Just Space, Ecological Ceiling and Overshoot would have the same meaning if arranged in horizontal layers rather than in concentric circles.

From the standpoint of economic analysis, I find it unhelpful to include a range of quite dissimilar factors all at the same level in the centre of the diagram. A society could have adequate energy, water and food without having good housing and health care – but you couldn’t have good housing and health care without energy, water and food. So some of these factors are clearly preconditions for others.

Likewise, some of the factors in the centre of the diagram are clearly and directly related to “overshoot” in the outer ring, while others are not. Excessive consumption of energy, water, or food often leads to ecological overshoot, but you can’t say the same about “excessive” gender equality, political voice, or peace and justice.

Beyond these quibbles with the Doughnut diagram, I further agree with Bardi that a failure to incorporate biophysical economics is the major weakness of Doughnut Economics. In spite of her acknowledgment of the pioneering work of Herman Daly, and a brief but lucid discussion of the work of Robert Ayres and Benjamin Warr showing that fossil fuels have been critical for the past century’s GDP growth, Raworth does not include energy supply as a basic determining factor in economic development.

Economists as spin doctors

Raworth makes clear that key doctrines of economic orthodoxy often obscure rather than illuminate economic reality. Thus economists in rich countries extoll the virtues of free trade, though their own countries relied on protectionism to nurture their industrial base.

Likewise standard economic modeling starts with a reductionist “homo economicus” whose decisions are always based on rational pursuit of self-interest – even though behavioral science shows that real people are not consistently rational, and are motivated by co-operation as much as by self-interest. Various studies indicate, however, that economics students and professors show a greater-than-average degree of self-interest. And for those who are already wealthy but striving to become wealthier still, it is comforting to believe that everyone is similarly self-interested, and that their self-interest works to the good of all.

When considering a principle of mainstream economics, then, it makes sense to ask: what truths does this principle hide, and for whose benefit?

Unfortunately, when it comes to GDP growth as the accepted measure of a healthy economy, Raworth leaves out an important part of the story.

The concept of Gross Domestic Product has its roots in the 1930s, when statisticians were looking for ways to quantify economic activity, making temporal trends easier to discern. Simon Kuznets developed a way to calculate Gross National Product – the total of all income generated worldwide by US residents.

As Raworth stresses, Kuznets himself was clear that his national income tally was a very limited way of measuring an economy.

Emphasising that national income captured only the market value of goods and services produced in an economy, he pointed out that it therefore excluded the enormous value of goods and services produced by and for households, and by society in the course of daily life. … And since national income is a flow measure (recording only the amount of income generated each year), Kuznets saw that it needed to be complemented by a stock measure, accounting for the wealth from which it was generated ….” (Doughnut Economics, page 34; emphasis mine)

The distinction between flows and stocks is crucial. Imagine a simple agrarian nation which uses destructive farming methods to work its rich land. For a number of years it may earn increasingly high income – the flow – though its wealth-giving topsoil – the stock – is rapidly eroding. Is this country getting richer or poorer? Measured by GDP alone, this economy is healthy as long as current income grows; no matter that the topsoil, and future prospects, are blowing away in the wind.

In the years immediately preceding and following World War II, GDP became the primary measure of economic health, and it became political and economic orthodoxy that GDP should grow every year. (To date no western leader has ever campaigned by promising “In my first year I will increase GDP by 3%, in my second year by 2%, in my third year it will grow by 1%, and by my fourth year I will have tamed GDP growth to 0!”)

What truth does this reliance on GDP hide, and for whose benefit? The answers are fairly obvious, in my humble opinion: a myopic focus on GDP obscured the inevitability of resource depletion, for the benefit of the fossil fuel and automative interests who dominated the US economy in the mid-twentieth century.

For context, in 1955 the top ten US corporations by number of employees included: General Motors, Chrysler, Standard Oil of New Jersey, Amoco, Goodyear and Firestone. (Source: 24/7 Wall St)

In 1960, the top ten largest US companies by revenue included General Motors, Exxon, Ford, Mobil, Gulf Oil, Texaco, and Chrysler. (Fortune 500)

These companies, plus the steel companies that made sheet metal for cars and the construction interests building the rapidly-growing network of roads, were clear beneficiaries of a new way of life that consumed ever-greater quantities of fossil fuels.

In the decades after World War II, the US industrial complex threw its efforts into rapid exploitation of energy reserves, along with mass production of machines that would burn that energy as fast as it could be pulled out of the ground. This transformation was not a simple result of “the invisible hand of the free market”; it relied on the enthusiastic collaboration of every level of government, from local zoning boards, to metropolitan transit authorities, to state and federal transportation planners.

But way back then, was it politically necessary to distract people from the inevitability of resource depletion?

The Peak Oil movement in the 1930s

From the very beginnings of the petroleum age, there were prominent voices who saw clearly that exponential growth in use of a finite commodity could not go on indefinitely.

One such voice was William Jevons, now known particularly for the “Jevons Paradox”. In 1865 he argued that since coal provided vastly more usable energy than industry had previously been able to harness, and since this new-found power was the very foundation of modern industrial civilization, it was particularly important to a nation to prudently manage supplies:

Describing the novel social experience that coal and steam power had created, the experience that today we would call ‘exponential growth’, in which practically infinite values are reached in finite time, Jevons showed how quickly even very large stores of coal might be depleted.” (Timothy Mitchell, Carbon Democracy, pg 129)

In the 1920s petroleum was the new miracle energy source, but thoughtful geologists and economists alike realized that as a finite commodity, petroleum could not fuel infinite growth.

Marion King Hubbert was a student in 1926, but more than sixty years later he still recalled the eye-opening lesson he received when a professor asked pupils to consider the implications of ongoing rapid increases in the consumption of coal and oil resources.

As Mason Inman relates in his excellent biography of Hubbert,

When a quantity grows by a constant percentage each year, its history forms a straight line on a semilogarithmic graph. Hubbert plotted the points for coal, year after year, and found a fairly straight line that persisted for several decades: a continual growth rate of around 6 percent a year. At that rate, the production doubled about every dozen years. When he looked at this graph, it was obvious to him that such rapid growth could persist for decades – his graph showed that had already happened – but couldn’t continue forever.” (The Oracle of Oil, 2016, pg 19)

Hubbert soon learned that there were many others who shared his concerns. This thinking coalesced in the 1930s in a very popular movement known as Technocracy. They argued that wealth depended primarily not on the circulation of money, but on the flow of energy.

The leaders of Technocracy, including Hubbert, were soon speaking to packed houses and were featured in cover stories in leading magazines. Hubbert was also tasked with producing a study guide that interested people could work through at home.

In the years prior to the Great Depression, people had become accustomed to economic growth of about 5% per year. Hubbert wanted people to realize it made no sense to take that kind of growth for granted.

“It has come to be naively expected by our business men and their apologists, the economists, that such a rate of growth was somehow inherent in the industrial processes,” Hubbert wrote. But since Earth and its physical resources are finite, he said, infinite growth is an impossibility.

In short, Technocracy pointed out that the fossil fuel age was likely to be a flash in the pan, historically speaking – unless the nation’s fuel reserves were managed carefully by engineers who understood energy efficiency and depletion.

Without sensible accounting and allocation of the true sources of a nation’s wealth – its energy reserves – private corporations would rake in massive profits for a few decades and two or three generations of Americans might prosper, but in the longer term the nation would be “burning its capital”.

Full speed ahead

After the convulsions of the Depression and World War II, the US emerged with the same leading corporations in an even more dominant position. Now the US had control, or at least major influence, not only over rich domestic fossil fuel reserves, but also the much greater reserves in the Middle East. And as the world’s greatest military and financial power, they were in a position to set the terms of trade.

For fossil fuel corporations the major problem was that oil was temporarily too cheap. It came flowing out of wells so easily and in such quantity that it was often difficult to keep the price up. It was in their interests that economies consume oil at a faster rate than ever before, and that the rate of consumption would speed up each year.

Fortunately for these interests, a new theory of economics had emerged just in time.

In this new theory, economists should not worry about measuring the exhaustion of resources. In Timothy Mitchell’s words, “Economics became instead a science of money.”

The great thing about money supply was that, unlike water or land or oil, the quantity of money could grow exponentially forever. And as long as one didn’t look too far backwards or forwards, it was easy to imagine that energy resources would prove no barrier. After all, for several decades, the price of oil had been dropping.

So although increasing quantities of energy were consumed, the cost of energy did not appear to represent a limit to economic growth. … Oil could be treated as something inexhaustible. Its cost included no calculation for the exhaustion of reserves. The growth of the economy, measured in terms of GNP, had no need to account for the depletion of energy resources.” (Carbon Democracy, pg 140)

GDP was thus installed as the supreme measure of an economy, with continuous GDP growth the unquestionable political goal.

A few voices dissented, of course. Hubbert warned in the mid-1950s that the US would hit the peak of its conventional fossil fuel production by the early 1970s, a prediction that proved correct. But large quantities of cheap oil remained in the Middle East. Additional new finds in Alaska and the North Sea helped to buy another couple of decades for the oil economy (though these fields are also now in decline).

Thanks to the persistent work of a small number of researchers who called themselves “ecological economists”, a movement grew to account for stocks of resources, in addition to tallying income flows in the GDP. By the early 1990s, the US Bureau of Economic Analysis gave its blessing to this effort.

In April 1994 the Bureau published a first set of tables called Integrated Environmental-Economic System of Accounts (IEESA).

The official effort was short-lived indeed. As described in Beyond GDP,

progress toward integrated environmental-economic accounting in the US came to a screeching halt immediately after the first IEESA tables were published. The US Congress responded swiftly and negatively. The House report that accompanied the next appropriations bill explicitly forbade the BEA from spending any additional resources to develop or extend the integrated environmental and economic accounting methodology ….” (Beyond GDP, by Heun, Carbajales-Dale, Haney and Roselius, 2016)

All the way through Fiscal Year 2002, appropriations bills made sure this outbreak of ecological economics was nipped in the bud. The bills stated,

The Committee continues the prohibition on use of funds under this appropriation, or under the Census Bureau appropriation accounts, to carry out the Integrated Environmental-Economic Accounting or ‘Green GDP’ initiative.” (quoted in Beyond GDP)

One can only guess that, when it came to contributing to Congressional campaign funds, the struggling fossil fuel interests had somehow managed to outspend the deep-pocketed biophysical economists lobby.

S-curves and other paths

With that lengthy detour complete, we are ready to rejoin Raworth and Doughnut Economics.

The final chapter is entitled “Be Agnostic About Growth: from growth addicted to growth agnostic”.

This sounds like a significant improvement over current economic orthodoxy – but I found this section weak in several ways.

First, it is unclear just what it is that we are to be agnostic about. While Raworth has made clear earlier in the book why GDP is an incomplete and misleading measure of an economy, in the final chapter GDP growth is nevertheless used as the only significant measure of economic growth. Are we to be agnostic about “GDP growth”, which might well be meaningless anyway? Or should we be agnostic about “economic growth”, which might be something quite different and quite a bit more essential – especially to the hundreds of millions of people still living without basic necessities?

Second, Raworth may be agnostic about growth, but she is not agnostic about degrowth. (She has discussed elsewhere why she can’t bring herself to use the word “degrowth”.) True, she remarks at one point that “I mean agnostic in the sense of designing an economy that promotes human prosperity whether GDP is going up, down, or holding steady.” Yet in the pictures she draws and in the ensuing discussion, there is no clear recognition either that degrowth might be desirable, or that degrowth might be forced on us by biophysical realities.

She includes two graphs for possible paths of economic growth –  with growth measured here simply by GDP.

Source: Doughnut Economics, page 210 and page 214

As she notes, the first graph shows GDP increasing at steady annual percentage. While the politicians would like us to believe this is possible and desirable, the graph showing what quickly becomes a near-vertical climb is seldom presented in economics textbooks, as it is clearly unrealistic.

The second graph shows GDP growing slowly at first, then picking up speed, and then leveling off into a high but steady state with no further growth. This path for growth is commonly seen and recognized in ecology. The S-curve was also recognized by pre-20th-century economists, including Adam Smith and John Stuart Mill, as the ideal for a healthy economy.

I would concur that an S-curve which lands smoothly on a high plateau is an ideal outcome. But can we take for granted that this outcome is still possible? And do these two paths – continued exponential growth or an S-curve – really exhaust the conceptual possibilities that we should consider?

On the contrary, we can look back 80 years to the Technocracy Study Course for an illustration of varied and contrasting paths of economic growth and degrowth.

Source: The Oracle of Oil, page 58

M. King Hubbert produced this set of graphs to illustrate what can be expected with various key commodities on which a modern industrial economy depends – and by extension, what might happen with the economy as a whole.

While pure exponential growth is impossible, the S-curve may work for a dependably renewable resource, or a renewable-resource based economy. However, the next possibility – with a rise, peak, decline, and then a leveling off – is also a common scenario. For example, a society may harvest increasing amounts of wood until the regenerating power of the forests are exceeded; the harvest must then drop before any production plateau can be established.

The bell curve which starts at zero, climbs to a high peak, and drops back to zero, could characterize an economy which is purely based on a non-renewable resource such as fossils fuels. Hopefully this “decline to zero” will remain a theoretical conception, since no society to date has run 100% on a non-renewable resource. Nevertheless our fossil-fuel-based industrial society will face a severe decline unless we can build a new energy system on a global scale, in very short order.

This range of economic decline scenarios is not really represented in Doughnut Economics. That may have something to do with the design of the title metaphor.

While ecological overshoot, on the outside of the doughnut, represents things we should not do, the diagram doesn’t have a way of representing the things we can not do.

We should not continue to burn large quantities of fossil fuel because that will destabilize the climate that our children and grandchildren inherit. But once our cheaply accessible fossil fuels are used up, then we can not consume energy at the same frenetic pace that today’s wealthy populations take for granted.

The same principle applies to many essential economic resources. As long as there is significant fertility left in farmland, we can choose to farm the land with methods that produce a high annual return even though they gradually strip away the topsoil. But once the topsoil is badly depleted, then we no longer have a choice to continue production at the same level – we simply need to take the time to let the land recover.

In other words, these biophysical realities are more fundamental than any choices we can make – they set hard limits on which choices remain open to us.

The S-curve economy may be the best-case scenario, an outcome which could in principle provide global prosperity with a minimum of system disruption. But with each passing year during which our economy is based overwhelmingly on rapidly depleting non-renewable resources, the smooth S-curve becomes a less likely outcome.

If some degree of economic decline is unavoidable, then clear-sighted planning for that decline can help us make the transition a just and peaceful one.

If we really want to think like 21st century economists, don’t we need to openly face the possibility of economic decline?

 

Top photo: North Dakota State Highway 22, June 2014. (click here for larger view)