Capricious foes, Big Sister & high-carbon plutocrats: irreverent musings from Katowice’s COP24

5 02 2019

… the time for action is not at COP25, but now and during the intervening months …

Kevin Anderson

Four weeks on and the allure of Christmas and New Year festivities fade into the grey light of a Manchester January – a fine backdrop for revisiting December’s COP24

1) An Orwellian tale: myths & hidden enemies 
A quick glance at COP24 suggests three steps forward and two steps back. But whilst to the naïve optimist this may sound like progress, in reality it’s yet another retrograde bound towards a climate abyss. As government negotiators play poker with the beauty of three billion years of evolution, climate change emissions march on. This year with a stride 2.7% longer than last year – which itself was 1.6% longer than the year before. Whilst the reality is that every COP marks another step backwards, the hype of these extravaganzas gives the impression that we’re forging a pathway towards a decarbonised future.

For me the fantasy-land of COP24 was epitomised at the UK’s ever-busy Green is Great stand. Here, the nation that kick-started the fossil-fuel era, regaled passers-by with a heart-warming tale of rapidly falling emissions and a growing green economy. This cheerful narrative chimed with those desperate to believe these annual junkets are forging a decarbonised promise-land. Despite my cynicism, I was nevertheless surprised just how pervasive the UK’s mirage had become.

Adjacent to Brexit Blighty’s pavilion was the WWF’s Panda Hub. Here I attended a session at which two British speakers offered advice to the New Zealand government on their forthcoming energy law. The mantra of the UK being at the vanguard of climate action was reiterated by a ‘great & good’ of the NGO world and by the Director of Policy at a prestigious climate change institute. A similar fable from a couple of Government stooges would not have been a surprise. But surely the NGO and academic communities should demonstrate greater integrity and a more discerning appraisal of government assertions?

If you ignore rising emissions from aviation and shipping along with those related to the UK’s imports and exports, a chirpy yarn can be told. But then why not omit cars, cement production and other so-called “hard to decarbonise” sectors? In reality, since 1990 carbon dioxide emissions associated with operating UK plc. have, in any meaningful sense, remained stubbornly static.[1] But let’s not just pick on the UK. The same can be said of many self-avowed climate-progressive nations, Denmark, France and Sweden amongst them. And then there’s evergreen Norway with emissions up 50% since 1990.

Sadly the subterfuge of these supposed progressives was conveniently hidden behind the new axis of climate-evil emerging in Katowice[2]: Trump’s USA; MBS’s Saudi; Putin’s Russia; and the Emir’s Kuwait – with Scott Morrison, Australia’s prime minister, quietly sniggering from the side-lines. But surely no one really expected more from this quintet of regressives. It’s the self-proclaimed paragons of virtue where the real intransigence (or absence of imagination) truly resides. When it comes to commitments made in Paris, the list of climate villains extends far and wide – with few if any world leaders escaping the net.

2) Let them eat cake: a legacy of failure & escalating inequity 
How is it that behind the glad-handing of policy makers and the mutterings of progress by many academics, NGOs and journalists, we continue to so fundamentally fail?

On mitigation, endless presentations infused with ‘negative emissions’, hints of geo-engineering and offsetting salved the conscience of Katowice’s high-carbon delegates. But when it came to addressing issues of international equity and climate change, no such soothing balm was available. I left my brief foray into the murky realm of equity with the uneasy conclusion that, just as we have wilfully deluded ourselves over mitigation, so we are doing when it comes to issues of fairness and funding.

COP after COP has seen the principal of ‘common but differentiated responsibility’ (CBDR) weakened. Put simply, CBDR requires wealthier nations (i.e. greater financial capacity) with high-emissions per capita (i.e. greater relative historical responsibility for emissions) to “take the lead in combating climate change”. This was a central tenet of the 1992 UN Framework Convention on Climate Change (UNFCCC), and specifically committed such wealthy nations to peak their emissions before 2000. Virtually all failed to do so.

In 1997, the Kyoto Protocol established binding but weak emission targets for these nations, with the intention of tightening them in a subsequent ‘commitment period’. The all-important second ‘commitment period’ was never ratified – partly because a new ‘regime’ for international mitigation was anticipated.

In 2015, and to wide acclaim, the new regime emerged in the guise of the Paris Agreement. This saw the dismantling of any legally binding framework for wealthier high CO2/capita countries to demonstrate leadership. Instead nations submitted voluntary bottom-up mitigation plans based on what they determined was their appropriate national responsibility for holding to a global rise of between 1.5 and 2°C. True to form, world leaders dispensed with any pretence of integrity, choosing instead to continue playing poker with physics & nature. Even under the most optimistic interpretation of the collective nonsense offered, the aggregate of world leaders’ proposals aligned more with 3.5°C of warming than the 1.5 to 2°C that they had committed to.

So, has the shame of repeated failure on mitigation initiated greater international funding for those poorer nations vulnerable to climate impacts and in the early phases of establishing their energy systems?

In Copenhagen ‘developing’ nations agreed to produce mitigation plans, with the understanding that their “means of implementation” would attract financial support from the wealthier hi-emitters. Move on to Paris, and the wealthy nations flex their financial muscles and begin to backtrack. Rather than deliver a new and anticipated post-2020 finance package, they chose to extend what was supposed to be their $100billion per year ‘floor’ (i.e. starting value) out to 2025. To put that in perspective, $100billion equates to one twenty-eighth of the UK’s annual GDP – and even this paltry sum is proving difficult to collect from rich nations.

Surely COP24 couldn’t belittle poor nations further? Yet the Katowice text stoops to new lows. Funding initially intended to mobilise action on mitigation and adaptation is transposed into various financial instruments, with the very real prospect of economically burdening poorer countries with still more debt.

3) Big Sister & ‘badge-less’ delegates
Finally, I want to touch on something far outside my experience and probably one of the most damning aspects of the COPs that I’ve become aware of.

As a professor in the gentle world of academia, I can speak wherever I’m able to get a forum. I can explain my analysis in direct language that accurately reflects my judgements – free from any fear of being actively shut down. Certainly, there are academics (usually senior) who favour backstabbing over face to face engagement, but typically their comments are later relayed via their own (and more honest) Post-Doc & PhD colleagues. And if I find myself on a stage with climate Glitterati & accidently step on a few hi-emitting toes – the worse I face is an insincere smile and being crossed off their Christmas card list. But such bruising of egos and prestige is relatively harmless. Elsewhere however this is not the case – for both early career academics and civil society.

At COP24 I spoke at some length with both these groups. Not uncommonly early career researchers feared speaking out “as it would affect their chances of funding”. This specific example arose during a national side event on the miraculous low-carbon merits of coal and extractive industries. However, similar language is frequently used to describe how hierarchical structures in universities stifle open debate amongst researchers working on short-term contracts. Given senior academics have collectively and demonstrably failed to catalyse a meaningful mitigation agenda, fresh perspectives are sorely needed. Consequently, the new generation of academics and researchers should be encouraged to speak out, rather than be silenced and co-opted.

Turning to wider civil society, I hadn’t realised just how tightly constrained their activities were, or that they are required to operate within clear rules. At first this appears not too unreasonable – but probe a bit further and the friendly face of the UNFCCC morphs into an Orwellian dictator. Whilst country and industry representatives can extol the unrivalled virtues of their policies and commercial ventures, – civil society is forced to resort to platitudes and oblique references. Directly questioning a rich oil-based regime’s deceptions or even openly referring to Poland’s addiction to “dirty “coal is outlawed. By contrast eulogising on the wonders of clean coal is welcomed, as is praising a government’s mitigation proposals – even if they are more in line with 4°C than the Paris commitments.

All this is itself disturbing. Whilst the negotiators haggle over the colour of the Titanic’s deckchairs and how to minimise assistance for poorer nations, the UNFCCC’s overlord ensures a manicured flow of platitudes. The clever trick here is to facilitate the occasional and highly choreographed protest. To those outside the COP bubble, such events support the impression of a healthy balanced debate. National negotiators with their parochial interests and hydrocarbon firms with their slick PR, all being held to account by civil society organisations maintaining a bigger-picture & long-term perspective. But that is far from the truth.

For civil-society groups getting an “observer” status badge is an essential passport to the COPs. These are issued by the UNFCCC and can easily be revoked. Without ‘badges’, or worse still, by forcibly being “de-badged” (as it’s referred to), civil society delegates have very limited opportunity to hold nations and companies to account or to put counter positions to the press. Such tight policing has a real impact in both diluting protests and, perhaps more disturbingly, enabling nations and companies to go relatively unchallenged. The latter would be less of a concern, if the eminent heads of NGOs were standing up to be counted. But over the years the relationship between the heads of many NGOs and senior company and government representatives has become all too cosy. Witness the UK Government’s decoupling mantra forthcoming from the lips of one of the UK’s highest profile NGO figures.

So what level of ‘control’ is typically exerted at COPs? To avoid compromising badges for those wishing to attend future UNFCCC events, I can’t provide detail here, but the range is wide: highlighting the negative aspects of a country or company’s proposals or activities; displaying temporary (unauthorised) signs; asking too challenging questions in side events; circulating ‘negative’ photographs or images; and countering official accounts. In brief, criticising a specific country, company or individual is not allowed in material circulated within the conference venue. Previously, some civil-society delegates have had to delete tweets and issue a UNFCCC dictated apology – or lose their badges. This year, and following a climate-related protest in Belgium, those involved were subsequently stopped from entering Poland and the Katowice COP; so much for the EU’s freedom of speech and movement.

If the COP demonstrated significant headway towards delivering on the Paris agreement, perhaps there would be some argument for giving the process leeway to proceed unhindered by anything that may delay progress. But no amount of massaging by the policy-makers and the UNFCCC’s elite can counter the brutal and damning judgement of the numbers. Twenty-four COPs on, annual carbon dioxide emissions are over 60% higher now than in 1990, and set to rise further by almost 3% in 2018.

4) Conclusion
It’s a month now since I returned from the surreal world of COP24. I’ve had time to flush out any residual and unsubstantiated optimism and remind myself that climate change is still a peripheral issue within the policy realm. The UK is an interesting litmus of just how fragmented government thinking is. A huge effort went into the UK’s COP presence – yet back at home our Minister for Clean Growth celebrates the new Clair Ridge oil platform and its additional 50 thousand tonnes of CO2 per day (a quarter of a billion tonnes over its lifetime). Simultaneously, the government remains committed to a new shale gas revolution whilst plans are afoot for expanding Heathrow airport and the road network.

COP can be likened to an ocean gyre with the ‘axis of evil’, Machiavellian subterfuge and naïve optimism circulating with other climate flotsam and with nothing tangible escaping from it. Twenty-four COPs on, questions must surely be asked as to whether continuing with these high-carbon jamborees serves a worthwhile purpose or not? Thus far the incremental gains delivered by the yearly COPs are completely dwarfed by the annual build-up of atmospheric carbon emissions. In some respects the Paris Agreement hinted at a potential step change – but this moment of hope has quickly given way to Byzantine technocracy – the rulebook, stocktaking, financial scams, etc.; not yet a hint of mitigation or ethical conscience.

But is this jettisoning of COPs too simple? Perhaps international negotiations could run alongside strong bilateral agreements (e.g. China and the EU)? Stringent emission standards imposed on all imports and exports to these regions could potentially lead to a much more ambitious international agenda. The US provides an interesting and long-running model for this approach. For just over half a century, California has established increasingly tighter vehicle emission standards, each time quickly adopted at the federal level by the Environmental Protection Agency. Clearly internationalising such a model would have implications for WTO. But in 2018, and with global emissions still on the rise, perhaps now is the time for a profound political tipping point where meaningful mitigation takes precedent over political expediency?

Of course, the COPs are much more than simply a space for negotiations. They are where a significant swathe of the climate community comes together, with all the direct and tacit benefits physical engagement offers. But did Katowice, Fiji-Bonn, Marrakech or even Paris represent the pinnacle of high-quality and low carbon discussion and debate? Could we have done much better? Perhaps established regional COP hubs throughout the different continents of the world, all with seamless virtual links to each other and the central venue. Could journalists have listened, interviewed and written from their offices? Could civil society have engaged vociferously in their home nations whilst facilitating climate vulnerable communities in having their voices heard? Almost fifty years on from the first moon landing, are the challenges of delivering high-quality virtual engagement really beyond our ability to resolve?

If the COPs are to become part of the solution rather than continuing to contribute to the problem, then they need to undergo a fundamental transformation. Moreover the UNFCCC’s elite needs to escape their Big Sister approach and embrace rather than endeavour to close down a wider constituency of voices. Neither of these will occur without considerable and ongoing pressure from those external to, as well as within, the UNFCCC. The time for action is not at COP25, but now and during the intervening months.

Lowlights of COP24
i) Several climate glitterati & their entourages again jet in and parade around making vacuous noises. This would be a harmless aside if it were just a tasteless comedy act, but it is these carbon bloaters and their clamouring sycophants that set much of the agenda within which the rest of us work. Whilst they remain the conduit between the Davos mind-set and the research community, climate change will continue to be a failing techno-economic issue, ultimately bequeathed to future generations.
ii) The pathetic refusal of several nations to formally ‘welcome’ the IPCC’s 1.5°C report (and I say this as someone who has serious reservations about the mitigation analysis within the report).
iii) The blatant travel-agency nature of many of the national pavilions – with the periodic glasses of bubbly and exotic nibbles undermining the seriousness of the issues we were supposed to be there to address.
iv) The level of co-option, with academics and NGOs all too often singing from official Hymn sheets.
v) The absence of younger voices presenting and on panels.

Highlights of COP24
i) Amy Goodman and the excellent Democracy Now (DN) team providing a unique journalistic conduit between the COPs and the outside world. Certainly DN has a political leaning, but this is not hidden. Consequently, and regardless of political inclination, any discerning listener can engage with the rich and refreshingly diverse content of DN’s reporting. For a candid grasp of just where we are (or are not) in addressing climate change Amy’s full interviews give time to extend well beyond the polarising headlines preferred by many journalists and editors.
ii) Listening to John Schellnhuber call for “system change” and “a new narrative for modernity”. John is arguably the most prestigious climate scientist present at COPs and the science darling of ‘the great & the good’ (from Merkel to the Pope). Whilst many others in Professor Schellnhuber’s exalted position have long forgone their scientific integrity, John continues to voice his conclusions directly and without spin. I really can’t exaggerate just how refreshing this is. I may not agree with all he has to say, but I know that what he is saying is carefully considered and sincere. 
iii)
At the other end of the academic and age spectrum was the ever-present voice of Greta Thunberg soaring like a descant above the monotonic mutterings of the status-quo choir. We need many more voices from her generation prepared to boldly call out the abysmal and ongoing failure of my generation. Applying Occam’s razor to our delusional substitutes for action, this fifteen year old (now sixteen) revealed just how pathetic our efforts have been. In so doing Greta opened up space for a vociferous younger generation to force through a new and constructive dialogue.

[1] An actual fall of around 10% in 28 years (i.e. under 0.4% p.a.)
[2] The group of national leaders who refused to “welcome” the IPCC special report into 1.5°C (SR1.5).

For a review of the COP23 (Bonn-Fiji) see:Personal reflections on COP23
An edited version was published in the Conversation: Hope from Chaos: could political upheaval lead to a new green epoch

For a review of the Paris COP21 see: The hidden agenda: how veiled techno-utopias shore up the Paris Agreement
An edited version was published in Nature: Talks in the city of light generate more heat





Is this a sign of collapse gathering pace…?

15 05 2018

The articles coming from the consciousness of sheep are getting more and more interesting… after reading this one, I could not help but think that while Australia’s energy dilemmas are different to the UK’s, the following quote really struck a cord with me…:

Underlying all of this is a fundamental truth that few are prepared to contemplate: with the end of the last supplies of cheap fossil fuels, there is no affordable energy mix for the foreseeable future.  No combinations of gas, nuclear and renewables can be developed and deployed at the same time as prices are held at levels that are only just affordable to millions of British households.  Nor is there any option of returning to cheap gas from depleted North Sea deposits; still less reopening coal deposits put out of reach by the Thatcher government.

We are ‘lucky’ to have more coal and gas than we know what to do with, until that is it becomes so obvious we can’t keep burning these climate destroying fuels, we just stop. Hopefully before it’s too late.  But consider this……  if the UK economy collapses, what effect would it have on ours? Oil is creeping up, and our electricity rates are the subject of much moaning all over the country. An economic shock is coming, as sure as the sun rises in the East…..

Centrica may not care

Sometimes a story is repeated so often that its veracity is never challenged.  One such is the myth that British households are in thrall to a wicked energy cartel that puts excessive profits above common decency.  So much so, indeed, that the government and the opposition parties have all signed up to some form of energy cap designed to keep energy prices affordable.

The grain of truth in this story is that, aided by a craven regulator, the “big six” – British Gas, EDF Energy, E.ON, Npower, Scottish Power, and SSE – have on many occasions operated a cartel to hold prices up.  How else can we explain, for example, recent British Gas price increases in the face of a collapse in their customer base?

“British Gas owner Centrica lost 110,000 energy supply accounts in the first four months of the year.  That is roughly equivalent to 70,000 customers as many households buy their gas and electricity from British Gas, so will have two accounts.

“Last year, the company lost 1.3 million energy accounts…

“In April, British Gas announced a 5.5% increase in both gas and electricity bills, which comes into effect at the end of this month.  It blamed the rising wholesale cost of energy and the cost of meeting emissions targets and introducing smart meters.

“Other big energy firms have also announced price increases this year, including Npower, EDF and Scottish Power.”

This is surely evidence of a cartel being operated behind the back of the regulator… or is it?

There is an alternative explanation for the recent behaviour of the soon to be Big Four that should send a shiver through the UK economy.  Toward the end of last year, Jillian Ambrose at the Telegraph reported that:

“Britain’s second-largest energy supplier is eyeing the exit as the Government’s crackdown on energy bills threatens profits.

“SSE, formerly known as Scottish and Southern Energy, may turn its back on supplying gas and power to almost 8m British homes ­after years of political threats against the six largest energy companies comes to a head.

“City sources say the FTSE 100 energy giant is quietly discussing early plans to sell off its customer accounts, or even spin the business off as a separate listed company in order to focus on networks and renewable energy and avoid the Government’s looming energy price cap.”

Some months earlier I took the time to examine Centrica’s (British Gas’ parent company) annual accounts.  The results are not pretty:

“While Centrica profits were down (but still high) the division of British Gas that supplies electricity to UK consumers (businesses and households) actually made a loss of £61.1 million last year – in the household market, the loss was even bigger at £71.9 million.  That is, business electricity consumers are subsidising household electricity to some extent, while Centrica itself is subsidising its UK electricity business out of the profits from its other divisions.  Despite this, of course, electricity consumers are facing increasing bills even as they scale back their consumption.  This is exacerbated by the government decision to load the cost of renewables, new gas and new nuclear onto customers’ bills; effectively creating in all but name an even more regressive tax than VAT.”

Centrica’s response at the start of this year was to axe 4,000 jobs; having previously ceased maintaining the strategically essential Rough natural gas storage facility in the North Sea.  SSE in the meantime has announced a merger with N-Power in an attempt to rationalise both company’s retail energy business.  Unfortunately, no business to date has managed the trick of cutting its way to greatness… particularly in an economic climate in which ever fewer consumers can afford the service.

Centrica’s route out of an increasingly unprofitable domestic energy supply sector will be to focus on its much larger international energy business.  Britain’s remaining retail energy suppliers – all of which are foreign owned – may not enjoy this option.  For example, EDF’s wholesale energy investments are tied up in an increasingly risky and very-likely loss-making nuclear power sector.  Nor is there much to be gained from investment in renewable energy technologies that depend upon uncertain government subsidies that have become politically toxic among ordinary voters.

Underlying all of this is a fundamental truth that few are prepared to contemplate: with the end of the last supplies of cheap fossil fuels, there is no affordable energy mix for the foreseeable future.  No combinations of gas, nuclear and renewables can be developed and deployed at the same time as prices are held at levels that are only just affordable to millions of British households.  Nor is there any option of returning to cheap gas from depleted North Sea deposits; still less reopening coal deposits put out of reach by the Thatcher government.

For the moment, the UK government is content to fill Britain’s energy gap with imports.  However, as global energy supplies begin to tighten once more, pricing and profitability issues are likely to rise up the political agenda again.  Faced with an increasing struggle to remain profitable, and in the face of a government determined to add the cost of green energy onto domestic bills while legislating to prevent those bills from rising, companies like Centrica may simply choose to walk away.  After all, one of the blessings of being a private corporation (as opposed to a public utility) is that nobody can stop you from closing when you run out of money.





2017: The Year When the World Economy Starts Coming Apart

20 01 2017

Conclusion

The situation is indeed very concerning. Many things could set off a crisis:

  • Rising energy prices of any kind (hurting energy importers), or energy prices that don’t rise (leading to financial problems or collapse of exporters)
  • Rising interest rates.
  • Defaulting debt, indirectly the result of slow/negative economic growth and rising interest rates.
  • International organizations with less and less influence, or that fall apart completely.
  • Fast changes in relativities of currencies, leading to defaults on derivatives.
  • Collapsing banks, as debt defaults rise.
  • Falling asset prices (homes, farms, commercial buildings, stocks and bonds) as interest rates rise, leading to many debt defaults.

FOLLOWING ON from my last post exposing HSBC’s forecast of a peak oil caused economic collapse, along comes this piece from Gail Tverberg predicting it may all start this year…….

Most of this article is a rehash of things she’s said before all consolidated in one lengthy essay, and some of them were published here before. It’s becoming increasingly difficult to not recognise all our ducks are lining up on the wall…….

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Some people would argue that 2016 was the year that the world economy started to come apart, with the passage of Brexit and the election of Donald Trump. Whether or not the “coming apart” process started in 2016, in my opinion we are going to see many more steps in this direction in 2017. Let me explain a few of the things I see.

[1] Many economies have collapsed in the past. The world economy is very close to the turning point where collapse starts in earnest.  

Figure 1

The history of previous civilizations rising and eventually collapsing is well documented.(See, for example, Secular Cycles.)

To start a new cycle, a group of people would find a new way of doing things that allowed more food and energy production (for instance, they might add irrigation, or cut down trees for more land for agriculture). For a while, the economy would expand, but eventually a mismatch would arise between resources and population. Either resources would fall too low (perhaps because of erosion or salt deposits in the soil), or population would rise too high relative to resources, or both.

Even as resources per capita began falling, economies would continue to have overhead expenses, such as the need to pay high-level officials and to fund armies. These overhead costs could not easily be reduced, and might, in fact, grow as the government attempted to work around problems. Collapse occurred because, as resources per capita fell (for example, farms shrank in size), theearnings of workers tended to fall. At the same time, the need for taxes to cover what I am calling overhead expenses tended to grow. Tax rates became too high for workers to earn an adequate living, net of taxes. In some cases, workers succumbed to epidemics because of poor diets. Or governments would collapse, from lack of adequate tax revenue to support them.

Our current economy seems to be following a similar pattern. We first used fossil fuels to allow the population to expand, starting about 1800. Things went fairly well until the 1970s, when oil prices started to spike. Several workarounds (globalization, lower interest rates, and more use of debt) allowed the economy to continue to grow. The period since 1970 might be considered a period of “stagflation.” Now the world economy is growing especially slowly. At the same time, we find ourselves with “overhead” that continues to grow (for example, payments to retirees, and repayment of debt with interest). The pattern of past civilizations suggests that our civilization could also collapse.

Historically, economies have taken many years to collapse; I show a range of 20 to 50 years in Figure 1. We really don’t know if collapse would take that long now. Today, we are dependent on an international financial system, an international trade system, electricity, and the availability of oil to make our vehicles operate. It would seem as if this time collapse could come much more quickly.

With the world economy this close to collapse, some individual countries are even closer to collapse. This is why we can expect to see sharp downturns in the fortunes of some countries. If contagion is not too much of a problem, other countries may continue to do fairly well, even as individual small countries fail.

[2] Figures to be released in 2017 and future years are likely to show that the peak in world coal consumption occurred in 2014. This is important, because it means that countries that depend heavily on coal, such as China and India, can expect to see much slower economic growth, and more financial difficulties.

While reports of international coal production for 2016 are not yet available, news articles and individual country data strongly suggest that world coal production is past its peak. The IEA also reports a substantial drop in coal production for 2016.

Figure 2. World coal consumption. Information through 2015 based on BP 2016 Statistical Review of World Energy data. Estimates for China, US, and India are based on partial year data and news reports. 2016 amount for "other" estimated based on recent trends.

The reason why coal production is dropping is because of low prices, low profitability for producers, and gluts indicating oversupply. Also, comparisons of coal prices with natural gas prices are inducing switching from coal to natural gas. The problem, as we will see later, is that natural gas prices are also artificially low, compared to the cost of production, So the switch is being made to a different type of fossil fuel, also with an unsustainably low price.

Prices for coal in China have recently risen again, thanks to the closing of a large number of unprofitable coal mines, and a mandatory reduction in hours for other coal mines. Even though prices have risen, production may not rise to match the new prices. One article reports:

. . . coal companies are reportedly reluctant to increase output as a majority of the country’s mines are still losing money and it will take time to recoup losses incurred in recent years.

Also, a person can imagine that it might be difficult to obtain financing, if coal prices have only “sort of” recovered.

I wrote last year about the possibility that coal production was peaking. This is one chart I showed, with data through 2015. Coal is the second most utilized fuel in the world. If its production begins declining, it will be difficult to offset the loss of its use with increased use of other types of fuels.

Figure 3. World per capita energy consumption by fuel, based on BP 2016 SRWE.

[3] If we assume that coal supplies will continue to shrink, and other production will grow moderately, we can expect total energy consumption to be approximately flat in 2017. 

Figure 5. World energy consumption forecast, based on BP Statistical Review of World Energy data through 2015, and author's estimates for 2016 and 2017.

In a way, this is an optimistic assessment, because we know that efforts are underway to reduce oil production, in order to prop up prices. We are, in effect, assuming either that (a) oil prices won’t really rise, so that oil consumption will grow at a rate similar to that in the recent past or (b) while oil prices will rise significantly to help producers, consumers won’t cut back on their consumption in response to the higher prices.

[4] Because world population is rising, the forecast in Figure 4 suggests that per capita energy consumption is likely to shrink. Shrinking energy consumption per capita puts the world (or individual countries in the world) at the risk of recession.

Figure 5 shows indicated per capita energy consumption, based on Figure 4. It is clear that energy consumption per capita has already started shrinking, and is expected to shrink further. The last time that happened was in the Great Recession of 2007-2009.

Figure 5. World energy consumption per capita based on energy consumption estimates in Figure 4 and UN 2015 Medium Population Growth Forecast.

There tends to be a strong correlation between world economic growth and world energy consumption, because energy is required to transform materials into new forms, and to transport goods from one place to another.

In the recent past, the growth in GDP has tended to be a little higher than the growth in the use of energy products. One reason why GDP growth has been a percentage point or two higher than energy consumption growth is because, as economies become richer, citizens can afford to add more services to the mix of goods and services that they purchase (fancier hair cuts and more piano lessons, for example). Production of services tends to use proportionately less energy than creating goods does; as a result, a shift toward a heavier mix of services tends to lead to GDP growth rates that are somewhat higher than the growth in energy consumption.

A second reason why GDP growth has tended to be a little higher than growth in energy consumption is because devices (such as cars, trucks, air conditioners, furnaces, factory machinery) are becoming more efficient. Growth in efficiency occurs if consumers replace old inefficient devices with new more efficient devices. If consumers become less wealthy, they are likely to replace devices less frequently, leading to slower growth in efficiency. Also, as we will discuss later in this  post, recently there has been a tendency for fossil fuel prices to remain artificially low. With low prices, there is little financial incentive to replace an old inefficient device with a new, more efficient device. As a result, new purchases may be bigger, offsetting the benefit of efficiency gains (purchasing an SUV to replace a car, for example).

Thus, we cannot expect that the past pattern of GDP growing a little faster than energy consumption will continue. In fact, it is even possible that the leveraging effect will start working the “wrong” way, as low fossil fuel prices induce more fuel use, not less. Perhaps the safest assumption we can make is that GDP growth and energy consumption growth will be equal. In other words, if world energy consumption growth is 0% (as in Figure 4), world GDP growth will also be 0%. This is not something that world leaders would like at all.

The situation we are encountering today seems to be very similar to the falling resources per capita problem that seemed to push early economies toward collapse in [1]. Figure 5 above suggests that, on average, the paychecks of workers in 2017 will tend to purchase fewer goods and services than they did in 2016 and 2015. If governments need higher taxes to fund rising retiree costs and rising subsidies for “renewables,” the loss in the after-tax purchasing power of workers will be even greater than Figure 5 suggests.

[5] Because many countries are in this precarious position of falling resources per capita, we should expect to see a rise in protectionism, and the addition of new tariffs.

Clearly, governments do not want the problem of falling wages (or rather, falling goods that wages can buy) impacting their countries. So the new game becomes, “Push the problem elsewhere.”

In economic language, the world economy is becoming a “Zero-sum” game. Any gain in the production of goods and services by one country is a loss to another country. Thus, it is in each country’s interest to look out for itself. This is a major change from the shift toward globalization we have experienced in recent years. China, as a major exporter of goods, can expect to be especially affected by this changing view.

[6] China can no longer be expected to pull the world economy forward.

China’s economic growth rate is likely to be lower, for many reasons. One reason is the financial problems of coal mines, and the tendency of coal production to continue to shrink, once it starts shrinking. This happens for many reasons, one of them being the difficulty in obtaining loans for expansion, when prices still seem to be somewhat low, and the outlook for the further increases does not appear to be very good.

Another reason why China’s economic growth rate can be expected to fall is the current overbuilt situation with respect to apartment buildings, shopping malls, factories, and coal mines. As a result, there seems to be little need for new buildings and operations of these types. Another reason for slower economic growth is the growing protectionist stance of trade partners. A fourth reason is the fact that many potential buyers of the goods that China is producing are not doing very well economically (with the US being a major exception). These buyers cannot afford to increase their purchases of imports from China.

With these growing headwinds, it is quite possible that China’s total energy consumption in 2017 will shrink. If this happens, there will be downward pressure on world fossil fuel prices. Oil prices may fall, despite production cuts by OPEC and other countries.

China’s slowing economic growth is likely to make its debt problem harder to solve. We should not be too surprised if debt defaults become a more significant problem, or if the yuan falls relative to other currencies.

India, with its recent recall of high denomination currency, as well as its problems with low coal demand, is not likely to be a great deal of help aiding the world economy to grow, either. India is also a much smaller economy than China.

[7] While Item [2] talked about peak coal, there is a very significant chance that we will be hitting peak oil and peak natural gas in 2017 or 2018, as well.  

If we look at historical prices, we see that the prices of oil, coal and natural gas tend to rise and fall together.

Figure 6. Prices of oil, call and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

The reason that fossil fuel prices tend to rise and fall together is because these prices are tied to “demand” for goods and services in general, such as for new homes, cars, and factories. If wages are rising rapidly, and debt is rising rapidly, it becomes easier for consumers to buy goods such as homes and cars. When this happens, there is more “demand” for the commodities used to make and operate homes and cars. Prices for commodities of many types, including fossil fuels, tend to rise, to enable more production of these items.

Of course, the reverse happens as well. If workers become poorer, or debt levels shrink, it becomes harder to buy homes and cars. In this case, commodity prices, including fossil fuel prices, tend to fall.  Thus, the problem we saw above in [2] for coal would be likely to happen for oil and natural gas, as well, because the prices of all of the fossil fuels tend to move together. In fact, we know that current oil prices are too low for oil producers. This is the reason why OPEC and other oil producers have cut back on production. Thus, the problem with overproduction for oil seems to be similar to the overproduction problem for coal, just a bit delayed in timing.

In fact, we also know that US natural gas prices have been very low for several years, suggesting another similar problem. The United States is the single largest producer of natural gas in the world. Its natural gas production hit a peak in mid 2015, and production has since begun to decline. The decline comes as a response to chronically low prices, which make it unprofitable to extract natural gas. This response sounds similar to China’s attempted solution to low coal prices.

Figure 7. US Natural Gas production based on EIA data.

The problem is fundamentally the fact that consumers cannot afford goods made using fossil fuels of any type, if prices actually rise to the level producers need, which tends to be at least five times the 1999 price level. (Note peak price levels compared to 1999 level on Figure 6.) Wages have not risen by a factor of five since 1999, so paying the prices that fossil fuel producers need for profitability and growing production is out of the question. No amount of added debt can hide this problem. (While this reference is to 1999 prices, the issue really goes back much farther, to prices before the price spikes of the 1970s.)

US natural gas producers also have plans to export natural gas to Europe and elsewhere, as liquefied natural gas (LNG). The hope, of course, is that a large amount of exports will raise US natural gas prices. Also, the hope is that Europeans will be able to afford the high-priced natural gas shipped to them. Unless someone can raise the wages of both Europeans and Americans, I would not count on LNG prices actually rising to the level needed for profitability, and staying at such a high level. Instead, they are likely to bounce up, and quickly drop back again.

[8] Unless oil prices rise very substantially, oil exporters will find themselves exhausting their financial reserves in a very short time (perhaps a year or two). Unfortunately, oil importerscannot withstand higher prices, without going into recession. 

We have a no win situation, no matter what happens. This is true with all fossil fuels, but especially with oil, because of its high cost and thus necessarily high price. If oil prices stay at the same level or go down, oil exporters cannot get enough tax revenue, and oil companies in general cannot obtain enough funds to finance the development of new wells and payment of dividends to shareholders. If oil prices do rise by a very large amount for very long, we are likely headed into another major recession, with many debt defaults.

[9] US interest rates are likely to rise in the next year or two, whether or not this result is intended by the Federal reserve.

This issue here is somewhat obscure. The issue has to do with whether the United States can find foreign buyers for its debt, often called US Treasuries, and the interest rates that the US needs to pay on this debt. If buyers are very plentiful, the interest rates paid by he US government can be quite low; if few buyers are available, interest rates must be higher.

Back when Saudi Arabia and other oil exporters were doing well financially, they often bought US Treasuries, as a way to retain the benefit of their new-found wealth, which they did not want to spend immediately. Similarly, when China was doing well as an exporter, it often bought US Treasuries, as a way retaining the wealth it gained from exports, but didn’t yet need for purchases.

When these countries bought US Treasuries, there were several beneficial results:

  • Interest rates on US Treasuries tended to stay artificially low, because there was a ready market for its debt.
  • The US could afford to import high-priced oil, because the additional debt needed to buy the oil could easily be sold (to Saudi Arabia and other oil producing nations, no less).
  • The US dollar tended to stay lower relative to other currencies, making oil more affordable to other countries than it otherwise might be.
  • Investment in countries outside the US was encouraged, because debt issued by these other countries tended to bear higher interest rates than US debt. Also, relatively low oil prices in these countries (because of the low level of the dollar) tended to make investment profitable in these countries.

The effect of these changes was somewhat similar to the US having its own special Quantitative Easing (QE) program, paid for by some of the counties with trade surpluses, instead of by its central bank. This QE substitute tended to encourage world economic growth, for the reasons mentioned above.

Once the fortunes of the countries that used to buy US Treasuries changes, the pattern of buying of US Treasuries tends to change to selling of US Treasuries. Even not purchasing the same quantity of US Treasuries as in the past becomes an adverse change, if the US has a need to keep issuing US Treasuries as in the past, or if it wants to keep rates low.

Unfortunately, losing this QE substitute tends to reverse the favorable effects noted above. One effect is that the dollar tends to ride higher relative to other currencies, making the US look richer, and other countries poorer. The “catch” is that as the other countries become poorer, it becomes harder for them to repay the debt that they took out earlier, which was denominated in US dollars.

Another problem, as this strange type of QE disappears, is that the interest rates that the US government needs to pay in order to issue new debt start rising. These higher rates tend to affect other rates as well, such as mortgage rates. These higher interest rates act as a drag on the economy, tending to push it toward recession.

Higher interest rates also tend to decrease the value of assets, such as homes, farms, outstanding bonds, and shares of stock. This occurs because fewer buyers can afford to buy these goods, with the new higher interest rates. As a result, stock prices can be expected to fall. Prices of homes and of commercial buildings can also be expected to fall. The value of bonds held by insurance companies and banks becomes lower, if they choose to sell these securities before maturity.

Of course, as interest rates fell after 1981, we received the benefit of falling interest rates, in the form of rising asset prices. No one ever stopped to think about how much of the gains in share prices and property values came from falling interest rates.

Figure 8. Ten year treasury interest rates, based on St. Louis Fed data.

Now, as interest rates rise, we can expect asset prices of many types to start falling, because of lower affordability when monthly payments are based on higher interest rates. This situation presents another “drag” on the economy.

In Conclusion

The situation is indeed very concerning. Many things could set off a crisis:

  • Rising energy prices of any kind (hurting energy importers), or energy prices that don’t rise (leading to financial problems or collapse of exporters)
  • Rising interest rates.
  • Defaulting debt, indirectly the result of slow/negative economic growth and rising interest rates.
  • International organizations with less and less influence, or that fall apart completely.
  • Fast changes in relativities of currencies, leading to defaults on derivatives.
  • Collapsing banks, as debt defaults rise.
  • Falling asset prices (homes, farms, commercial buildings, stocks and bonds) as interest rates rise, leading to many debt defaults.

Things don’t look too bad right now, but the underlying problems are sufficiently severe that we seem to be headed for a crisis far worse than 2008. The timing is not clear. Things could start falling apart badly in 2017, or alternatively, major problems may be delayed until 2018 or 2019. I hope political leaders can find ways to keep problems away as long as possible, perhaps with more rounds of QE. Our fundamental problem is the fact that neither high nor low energy prices are now able to keep the world economy operating as we would like it to operate. Increased debt can’t seem to fix the problem either.

The laws of physics seem to be behind economic growth. From a physics point of view, our economy is a dissipative structure. Such structures form in “open systems.” In such systems, flows of energy allow structures to temporarily self-organize and grow. Other examples of dissipative structures include ecosystems, all plants and animals, stars, and hurricanes. All of these structures constantly “dissipate” energy. They have finite life spans, before they eventually collapse. Often, new dissipative systems form, to replace previous ones that have collapsed.





A wake up call……?

9 06 2016

When I recently wrote about the spate of frosty mornings down here in Southern Tasmania, I mentioned that the high pressure system causing this was going to send bad weather to SE Qld, and that the rain might start again in the following week… what an understatement that was..!

Before settling on the Huon as ‘the right place’ to move to, I did a lot of research. This research told me that the Northern part of Tassie was more prone to fires and floods, and both have occurred in the past eight months since arriving here for good. In spades as it turns out.

While up north got hundreds of millimetres of rainfall, Geeveston barely received 65….. things have gotten soggy, the dam is full again, and I temporarily can no longer drive my ute as far as my shipping container – though I got close yesterday to store the last of the electrolyte I picked up in Hobart the day before… hardly worth a mention compared to the hardship, let alone the loss of lives others have had to endure through what has now been declared a national disaster. While it’s easy for me to gloat, this is clearly a case of when paying attention has actually paid off….

sydneystormThe whole East Coast of Australia copped it too before Tasmania was hit. The by now familiar pics of Sydney luxury houses teetering on the edge of the now not so Pacific Ocean have gone viral, and the arrogant “we will rebuild” mantra is making a comeback.

It’s difficult to not conclude that the people who lived in those multi-million dollar homes are climate deniers….  after all, nobody who understands climate change would, in their right mind, buy seafront properties like this.  Anyone in their right mind would be paying attention….  Anyone not reading The Australian would have known that the seas around the East coast were two degrees above normal and 20cm higher, and that the extra energy in those two degrees in the system would make the next storm event an extra bad one….. and it’s hardly surprising so many people look so surprised.

rain events

This is no one off either.  Elsewhere around the world, the weather has gone ballistic. Apart from floods, parts of India scorched under temperatures of 51°C. Yet, even now, climate change hardly makes a ripple in the running of the current election campaign. The Greens are making waves (sorry….) but all they can talk about is emitting more greenhouse gases to transition to 100% renewables.  Just as it’s fast becoming obvious, all emissions should stop, right now.

One woman I saw in tears on TV was telling anyone who’d listen that the loss of her swimming pool into the ocean was ‘unfair’.  I put it to you that the Earth thinks all our emissions are unfair too…… but who’s listening?

Will we the poor people, especially those of us trying our best to reduce our personal emissions, have to fork out public money to rebuild these people’s insensitive dreams?  Is this not throwing good money after bad…?

The time to rebuild is over.  It’s now time to face up to our stupid errors, admit to them, and retreat up the hill.  I fear, however, that it might very well take a few more of these events for these fools to wake up to themselves.

For me though, it wasn’t the millionaires losing their cool houses that brought home the wake up call message….. it was the poor farmers who have no choice but to live near rivers for watering their crops and animals, losing, sometimes, the lot… the effect of this weather event on food prices will not be felt for some time I expect, but as more and more such disasters become regular newsworthy items on TV, the cumulative effects will begin to be felt, I am certain.

Meanwhile, next month, Australia will elect another brainless government hell bent on jobs and growth, and we’ll all await the next unnatural disaster to make us feel guilty.

 





Dear Humanity, Time Is Running Out

9 04 2014

Next and final chapter in IPCC climate change assessment will say window is fast closing for society to respond to worst impacts of fast-warming planet

– Jon Queally, staff writer

Avoiding dangerous climate change will require not just rapid reductions in fossil fuel use but also a revolution in the structures of our economies and societies, according to a momentous UN scientific report on climate change to be released next week in Berlin. (Photo: Shutterstock)

 

The next chapter of the UN climate panel’s scientific report on global warming is due out next week in Berlin, but a draft of the document seen by the Reuters news agency reveals that the main message for humanity and society is simply this: time is running out.

According to Reuters:

Government officials and top climate scientists will meet in Berlin from April 7-12 to review the 29-page draft that also estimates the needed shift to low-carbon energies would cost between two and six per cent of world output by 2050.

It says nations will have to impose drastic curbs on their still rising greenhouse gas emissions to keep a promise made by almost 200 countries in 2010 to limit global warming to less than 2 degrees Celsius over pre-industrial times.

This third chapter of the Intergovernmental Panel on Climate Change (IPCC)’s Fifth Assessment Report will move away from the causes and scientific consensus of climate change (covered in the first chapter) and the impacts of global warming and changing climate patterns (covered in the second), and focus on the possible steps that can be taken to avoid the very worst case scenarios that scientists have set forth.

To avoid these dangers, the report will say, society will not only need to rapidly reduce use of fossil fuels, but also revolutionize the structures of its economies, food systems, and energy grids.

“Climate change is global-scale violence, against places and species as well as against human beings.” —Rebecca Solnit

What this next chapter will highlight is that for all the alarming warnings generated by the scientific community and confirmed by the IPCC’s comprehensive analysis of that science, is that world government’s and the powerful private sector have done next to nothing to meet the challenge now before humanity.

“So far, world leaders have sorely lacked the political will to make the shift to low-carbon societies,” said Dipti Bhatnagar, Friends of the Earth International Climate Justice and Energy coordinator, as she responded to the latest IPCC draft.

According to Agence France-Presse, which also saw a draft of the chapter, the panel suggests there is a 15-year window for affordable action to safely reach the UN’s warming limit of two degrees Celsius.

“Scientists confirm that we must take urgent steps to avoid triggering catastrophic climate change and its irreversible impacts on humans and ecosystems. Real solutions to the climate crisis are already available. We need community-based energy solutions, energy efficiency and reduced consumption levels, not dangerous energy sources like fossil fuels or nuclear power,” said Inga Roemer of Friends of the Earth Germany / BUND.

Roemer was responding to potentially controversial aspects of the IPCC recommendations, which may include the use of nuclear energy to offset the imperative of scaling back reliance on fossil fuels. Environmentalists have largely rejected those in the scientific community who have suggested that nuclear power —even if “done right” and safer—is a realistic and responsible solution to the carbon-based energy system.

For all the warnings, however, what environmentalists and climate activists are calling for is the paradigm shift that the science—and the economic implications of the fossil fuel industry—have long been showing is necessary.

As green activist and author Rebecca Solnit writes at the Guardian on Monday, the consistent and current refusal by governments and industry to address the crisis of human-caused climate change should be called what it is: violence against humanity and planet Earth itself.

Solnit writes:

Climate change is anthropogenic – caused by human beings, some much more than others. We know the consequences of that change: the acidification of oceans and decline of many species in them, the slow disappearance of island nations such as the Maldives, increased flooding, drought, crop failure leading to food-price increases and famine, increasingly turbulent weather. (Think Hurricane Sandy and the recent typhoon in the Philippines, and heat waves that kill elderly people by the tens of thousands.)

Climate change is violence.

So if we want to talk about violence and climate change – and we are talking about it, after last week’s horrifying report from the world’s top climate scientists – then let’s talk about climate change as violence. Rather than worrying about whether ordinary human beings will react turbulently to the destruction of the very means of their survival, let’s worry about that destruction – and their survival. Of course water failure, crop failure, flooding and more will lead to mass migration and climate refugees – they already have – and this will lead to conflict. Those conflicts are being set in motion now.

What comes next, Solnit says, is entirely up to humanity’s capacity to admit the problem, call it by its true name, and then systematically and aggressively address it.

“That’s a tired phrase, the destruction of the Earth,” admits Solnit. “But translate it into the face of a starving child and a barren field – and then multiply that a few million times.”