Postcard from a Recovering China

This blog post first appeared on the Mail & Guardian’s Thought Leader website

Preparing to leave Beijing last week after a splendid fortnight’s rail tour of the two neighbouring (and confusingly named) provinces of Shaanxi and Shanxi, I was startled to find evidence of a very different China to the one that is often portrayed in mainstream English-language media – “never mind the quality, feel the growth!”  What’s more, I found it in the most unexpected of places: the gentleman’s convenience in the departure lounge of Beijing’s magnificent Capital International Airport.

As is depressingly normal in many places these days, marketers have identified the unavoidable minute or so we all spend answering nature’s call as a terrific opportunity to sell us something.  However, what grabbed my attention was not an eye-catching advert for over-the-counter performance enhancement medication.  In front of me on the wall above the ablution facilities a series of posters followed a common theme, selling not a product or a brand but a concept: sustainability.

In one, an hourglass depicted a melting glacier in the top half, beneath rising CO2 bubbles, with a partially submerged globe in the bottom.  The Chinese caption was endearingly translated into English as “Save the Earth Not allowed to wait”.  On another, whose slogan was not translated but says something like “Please treasure the resources, protect our Earth”, the globe was portrayed as an apple with its skin being peeled away.  Given the location, I admit to feeling rather self-conscious as I furtively rummaged in my pocket and withdrew my camera to record the moment!

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This toilet-related anecdote echoes an episode I experienced soon after moving to South Africa from Europe last year.  On visiting various big company headquarters in Johannesburg, I immediately noticed the free condom dispensers in the men’s room, which I took to be a quite appropriate and sensible response to the country’s struggle to curtail the spread of HIV/Aids.  This contrasts sharply with my native UK, where I’m more likely to be sold a personalised car registration plate while nature takes its course.  The consumer is king, to be pandered to even when prone.

(Slightly tangential but indicative of the same trend: I remember fondly those televised public service announcements of my childhood, which my generation would instantly associate with a cartoon ginger tomcat and the catchphrase “Charley says …“.  Sadly, Charley no longer speaks to the UK’s children about the dangers of talking to strangers or playing next to canals, because that would waste valuable media space in which to sell plastic toys.)

I’ve written before about the rational and emotional conflicts that I wrestle with internally each time I return from China.  On this occasion, I left with a clearer-than-ever conviction that China’s future is also the world’s future – which is not to say that I’m entirely comfortable with that realisation.  In disclosing this, I don’t intend to issue a free pass to citizens of every other country on Earth regarding their environmental responsibilities.  The argument that “it doesn’t matter what we do to curb our resource use or greenhouse gas emissions because we’re a rounding error next to China’s national accounts” is morally bankrupt.  Our consumption choices are to a large extent serviced by Chinese coal-fired power plants and manufacturing processes with lax environmental oversight.  We are comfortable purchasing cheap goods, provided we don’t have to confront the devastation they cause in someone else’s back yard.

I recall my business trip some years ago to the massive Volkswagen plant in Wolfsburg, when I was struck by a sense that I was standing inside the throbbing engine room of the German economy (though VW’s rivals in Munich and Stuttgart may beg to differ).  For Wolfsburg read China; for Germany read The World.  Similarly, it has been said that the forests of Amazonia represent the lungs of Planet Earth.  In that case, perhaps China is its beating heart – at least in economic terms – powering a cardiovascular system that keeps other organs of commerce from breaking down.  It isn’t called the Middle Kingdom for nothing.

On the flight home to Cape Town, I read in the China Daily newspaper that officials and analysts inside the People’s Republic believe the economic slowdown “may have bottomed out” at 7.4% – down from an average of roughly 10% over the last decade – and the country is now in recovery.  To express this in meaningful terms, at a sustained 7.4% rate of growth the Chinese economy would double in size only every 9.5 years, rather than every seven years under the 10% scenario.  Does this represent breathing space for our attempts to engineer a sustainable future?  And remember: the economy is “in recovery” with the implication being that it is starting to accelerate once again.

Yet, over the course of my travels overland from Beijing through Xi’an and Pingyao to Datong, I noticed several weak signals – in addition to those lavatory wall posters – pointing to a different possible future: millions of electric scooters silently and efficiently plying the urban streets (often carrying more than one passenger); a new bicycle share scheme up and running in Beijing (not the preserve of high-minded commuters in London, Paris or Washington DC); gigantic wind farms dotting the countryside; solar-powered street lighting systems and ubiquitous roof-mounted solar geysers; the steadily lengthening choice of high-speed inter-city rail options available on the China Railways ticketing system.  Want to travel from Beijing in the north to Guangzhou in the south?  By the end of this year, a journey of some 2 200km that currently takes more than twenty hours will be cut to less than eight.  Given this option, why bother subjecting oneself to the ordeal of airport transfers, heavy-handed security checks, cramped seating and baggage delays that characterise air travel?

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Back in South Africa and having had a week to soak on my experiences, I find myself quite taken aback by my renewed sense of hope (admittedly, more hope than expectation).  While many macro trends and the sheer weight of numbers appear unpromising, China’s development trajectory is not guaranteed to tip the world over the ecological cliff.  And if it does, who among us gets to cast the first stone?  It’s extremely difficult for anyone unfamiliar with the country to find solid grounds from which to criticise its development choices.  The challenges that China’s incoming leadership (coincidentally, likely to be announced the same day as American voters go to the polls) will soon be grappling with – improving the quality of life of more than a billion people within severe and hardening environmental limits – are as daunting as they are unprecedented in human history.  In this respect I wish them well, as I think we all should.  Our collective future largely depends on their success.

Unstoppable Forces and Immovable Objects

“That’s my new house” – my Chinese tour guide gestured toward a row of featureless apartment blocks beneath our vantage point overlooking the river – “and that’s where I used to live.”  She showed me a photograph of a modest two-storey structure within the walls of the ancient city of Fengjie.  It presumably remains intact, albeit more than 150 metres underwater.

This stretch of the Yangtze – roughly 660km from Chongqing to Sandouping – is much less a river than a lake these days, thanks to the mind-blowing Three Gorges Dam.  My guide for the shore excursion of neighbouring Baidi Cheng – the White Emperor City, at the mouth of the still awesome Qutang Gorge – was among more than a million Chinese citizens forced to relocate prior to their homes being submerged by the rising waters.  If she was remotely bitter, it certainly didn’t show.

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Over many return visits since my two years living in Beijing from 2004, the Middle Kingdom has always left a deep impression or two.  It’s hard to grasp the scale and pace of development underway in China without experiencing it for oneself, but while still fresh – if that’s the word – from my most recent trip, I’d like to share some reflections that I hope will provide a glimpse of some of the changes in progress.

I have just returned from two weeks travelling overland in one of the country’s industrial heartlands.  Starting in Chengdu, Sichuan, the home Province of my travelling companion, we journeyed by rail to Chongqing before boarding a tourist ship that cruised down the now broad and peaceful Yangtze to Yichang, a few kilometres downstream of the infamous hydroelectric power station.

The relentless intensity of river traffic brought home that electricity generation was but one of the intended outcomes of this stunning engineering endeavour.  It may not even have been the most important one.  Previously, this was a notoriously difficult stretch of inland waterway, evoking the Symplegades – or Clashing Rocks – successfully navigated in Greek legend by Jason and the Argonauts.  Now, an endless stream of gigantic barges piled high with cargoes – notably mountains of coal – ply the becalmed waters.  Setting aside the grave environmental and social concerns related to the Three Gorges development – including landslides caused by increased physical pressure on surroundings and loss of agricultural land – one wonders about the net carbon impact of what is ostensibly a renewable energy project, given the enhanced flows of coal that have been made possible.

Countless factories and construction projects dot the river banks.  This region of China is well-known for its winter fogs, though it is easy to imagine that the precession of chimney stacks and their attendant columns of smoke – added to the sooty exhaust fumes of river traffic – contribute significantly to the dismal visibility, all the more disheartening in an area of exceptional natural beauty.  It struck me: this is what implausibly cheap consumer goods look like upstream in the supply chain, far beyond the horizon of cost-conscious consumers.  The juxtaposition of local fishermen in tiny sampans bobbing around in the slip-stream of industry lends a Dickensian flavour to the scene – A Tale of Two Rivers – and a vivid reminder, were it needed, of the inequality challenge confronting not only the developing world but many advanced economies, too.  As if to compensate for those dark satanic mills, dozens of new bridges that span the water have been designed with an aesthetical flourish rather than stolid functionality in mind.

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As for the dam itself, which we reached at midnight on the third day and passed in four hours via a sequence of enormous locks, the audacity it expresses can have few equals in the world.  As an aside, en route to China I met one of the challengers for the title of “world’s most audacious construction project” when stopping in Dubai for the weekend.  On arrival, I made immediately for the top of the Burj Khalifa, at 828m and 160 stories the world’s tallest building by some considerable distance.  Appropriately enough, it features prominently in the latest Mission Impossible movie.  The eye-watering extravagance shouts engineering hubris, but it is no less beautiful for that.

In defence of Three Gorges Dam, unlike the Burj Khalifa it is hard to label it as nothing more than a vanity project.  For starters, it is devastatingly ugly.  A few key facts: (1) Mao Zedong visualised the dam in a poem penned in 1956, titled “Swimming”; (2) its 18GW of hydroelectric power capacity is roughly equivalent to nine Hoover Dams; (3) were it operating in 1994 when construction began, it would have supplied around 12% of China’s power needs – but due to explosive demand growth it today represents less than 4% and is obviously declining each year; (4) the submerged area includes 13 cities, 140 towns, 1,352 villages, 657 factories & 30,000 hectares of cultivated land.  Construction is ongoing: the latest addition to the scheme is a ship elevator into which the “smaller” vessels (typically passenger ships of up to 3,000 tons – everything is relative) will be lowered or raised the full length of the drop that separates upstream and downstream waters, thereby shortening the crossing time from four hours to thirty minutes and debottlenecking the main lock system.

Another hour downstream from the dam we disembarked at nondescript Yichang, from where a four hour white-knuckle bus ride whisked us to Wuhan, the most important city in Hubei Province.  Together with Chongqing and Nanjing, Wuhan is one of China’s so-called “Furnaces” due to the sweltering summer climate endured by its 10 million residents.  Its location at the confluence of the Yangtze and the Han rivers, dividing the city into three parts – Wuchang, Hankou, and Hanyang (hence the composite name) – brought to mind Pittsburgh, with which I later learned Wuhan is officially twinned.  From Hankou to Wuchang on the short commuter ferry, I was impressed by the dozens of electric-powered bicycles and scooters crammed on board.  A recent estimate placed China’s e-bike population at 120 million; I briefly imagined the scene were all of those zippy two-wheelers powered by noisy two-stroke petrol engines.

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Moving on from Wuhan, the world’s fastest train south to Guangzhou averages 328km/h on the 968km journey, which annihilates comparable high-speed routes elsewhere in the world.  The new Wuhan Station embarrasses many modern airports in terms of scale, passenger facilities, and physical beauty.  A comparison with airports is apposite, since the station is situated some 50km from the city centre, thereby demanding close to an hour’s taxi ride in light traffic.  This came as a surprise – and a disappointment – to a European brought up to believe that the great advantage of rail over air travel is the convenience of journeying from one urban centre to another.  Still, I retain a conviction that rail travel is vastly less stressful and more enjoyable than flying.

Guangzhou, formerly known in the West as Canton, is regarded as China’s third city after Beijing and Shanghai.  If this status gives Guangzhou an inferiority complex, you wouldn’t know it.  The city’s proximity to Shenzhen and Hong Kong – soon to be connected with yet another high-speed rail line – give it a significant competitive advantage.  A stunning array of outlandish buildings have sprung up, including a striking waterfront opera house, all serviced by a spanking new – and already insanely busy – underground metro system.  Beijing’s development received an additional kick from the 2008 Olympics, while Guangzhou experienced a similar stimulus from the 2010 Asian Games, recognised as the second largest multi-sport event after the Olympics.

On leaving China from Guangzhou’s spotless – if mildly confusing – Baiyun International Airport, my overriding impression was that, despite everything I have read and experienced previously, it remains impossible to do justice in words to the sense of sheer momentum that exudes from this vast country of nearly 1.4 billion citizens, undertaking in two or three decades a transformation for which human history offers no precedent.  The industrial development that took more than a century in the US and Europe – with only a few hundred million citizens to consider – can offer some useful pointers, but direct analogies quickly break down due to the vastly different context in which humanity finds itself today.  For one thing, when E.L. Drake struck oil in Titusville, Pennsylvania in 1859, we hadn’t the faintest idea of the full consequences of embarking on a socio-economic development trajectory underpinned by two of our most primitive discoveries: fire and the wheel.

Where does it all lead?  Whether we like it or not, China’s future is our future.  My colleague Dirk Visser at CSPL South Africa begins his excellent systems pressures overview by referring to the movie The Dark Knight, in which the Joker sums up his relationship with Batman: “This is what happens when an unstoppable force meets an immovable object”.  China creates an overwhelming illusion of the proverbial unstoppable force.  Is nature – or the hard, non-negotiable biophysical limits that nature imposes on all earthly life – the immovable object?  Apparently not, yet.

China’s alternative to an American addiction

This blog first appeared on the Mail & Guardian Thought Leader website

Last week saw the launch of BP’s Statistical Review of World Energy, a rich seam of energy industry stats that journalists, analysts and academics will spend many hours mining for nuggets of data that support their chosen narratives.  The Financial Times led with “China becomes leading user of energy” – hardly a revelation to even the most casual industry observer, though undoubtedly a pleasing melody to those in the US who point to the rise of the Middle Kingdom as a reason to forestall domestic action on climate change.  

Noteworthy in BP’s latest tome is that crude oil remains the number one source of energy, contributing just over one-third of the global total.  In terms of growth, China again leads the way, increasing its consumption by 860 000 barrels a day, or 10.4% over the previous year.  Of course, in per capita terms, China’s oil consumption pales in comparison to the world’s largest economy: at 2.5 barrels per person a year, the average Chinese citizen consumes nine times less oil than its American counterpart.  Nevertheless, China’s growing thirst for oil represents a direct threat to US economic supremacy.  America may have been the first – and remains by far the largest – oil addict in the global village, but as others increase their appetite for the drug – the supply of which is increasingly concentrating in the hands of a relatively few volatile countries – the US must eventually face the prospect of weaning itself.  The only plausible alternative is to brace for military conflict.  

An urban legend goes that early in 2003 while Bush, Cheney and Rumsfeld fumbled around the Oval Office for a catchy moniker with which to rally the nation ahead of their planned invasion, they came up with “Operation Iraqi Liberation” – an obvious riff on the Iraq Liberation Act signed into law by Clinton in 1998.  Just in time, one sharp-eyed White House aide piped up that the initials spelled “OIL”, which was possibly too brazen even for the Bush administration.  With that, “Liberation” was dropped in favour of “Freedom”.  Mission accomplished.

As a thought experiment, let us suspend our voices of cynicism for a moment and imagine – as the urban legend would have us do – that the US-led invasion of Iraq was chiefly concerned with securing oil, specifically the world’s third largest reserves after those sitting beneath the deserts of Saudi Arabia (uncomfortable allies) and Iran (sworn enemies).  Indeed, the number one oil-consuming nation on Earth – reliant on imports for roughly two-thirds of its annual demand – has a strong vested interest in the affairs of the Middle East petrostates.  The Carter Doctrine leaves little room for doubt: the Persian Gulf region is vital to the interests of the US and will be protected “by any means necessary, including military force”.  Put simply, without cheap transport fuels moving people and goods across the urban sprawl and vast interstate network – themselves products of the nation’s now dwindling domestic petroleum bounty – the American economy grinds to a halt.  

Perhaps Jimmy Carter’s 1980 State of the Union speech was nothing more than Cold War posturing, designed to make the Soviets think twice before extending their Afghanistan incursion further westwards to the oil fields of the Gulf.  Taking Carter’s words out of their historical context is unfair; America wouldn’t really go to war over another nation’s natural resources, would it?  Dick Cheney provides a clue when, during his stint as chief executive of Halliburton – shortly before assuming the vice-presidency under Bush Jnr – he addressed an Institute of Petroleum conference in London: “Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy. The [first] Gulf War was a reflection of that reality.”

As the occupation of Iraq winds down (US troops are supposed to withdraw by the end of this year) we might well ask ourselves: was it worth it?  In 2008, economist Joseph Stiglitz put the true cost of the Iraq war to the US at about $3 trillion; more recently he concluded this figure was probably too low.  For the sake of the exercise, we will avoid hyperbole and assume the original estimate of $3 trillion puts us in the right ball park.  Is that a lot?  To provide a sense of scale, consider that since the invasion kicked off in March 2003, the US has burned through roughly 60 billion barrels of oil at a cumulative cost of about $3.5 trillion.  That’s an extraordinary amount of money literally going up in smoke – it’s remarkably close to Stiglitz’s estimated cost of the war – but we are no closer to assessing whether the US will get a decent payback.  

Donald Trump’s recent suggestion to simply take the oil as compensation for the cost of the invasion makes sense from a narrowly-defined financial perspective.  According to BP’s latest data, Iraq’s oil reserves measure 115 billion barrels, which would keep the US ticking over for 16 years at current rates of consumption.  Translated into dollars at today’s oil price, Iraqi reserves are worth some $12 trillion, not including the cost of development. Now it starts to look more interesting: that represents a four-fold return on the investment!  Except of course that Trump’s proposition – a bit like a burglar justifying the theft of your home cinema system as recompense for the outlay on his crowbar, eye-mask, striped T-shirt, and hessian sack bearing the word “Swag” – is morally reprehensible to any right-minded human being.  

Setting aside grand larceny, perhaps another way to think about it is this: how else could the US have spent $3 trillion to address its eye-watering dependence on oil, simultaneously the cause and the result of decades of foreign policy negligence?  It is remarkable to ponder that for every man, woman and child in the US a whopping $10 000 could have been invested in measures to avoid oil consumption, such as developing the type of safe, clean, efficient and effective mass transit solutions that many European and Asian citizens enjoy, or investing – as China has – to establish a world-leading electric vehicle industry that by its nature is independent of oil, and by its far-sightedness will probably eat America’s lunch in the coming decades.  

Instead, during the 8 years of the war, US citizens set fire to some 1.15 trillion gallons of motor gasoline, much of it in obese “sports utility vehicles” with fuel economy ratings that should be a source of national embarrassment and would have finished Detroit were it not for the federal bailouts of 2008.  It was only fair: Washington was complicit in the predicament that Motown found itself in after years of profiting from feeble business-as-usual energy policy, while Beijing was busy plotting a domestic automotive industry based on electricity.  The astounding fact is that while it remains political suicide for a US administration to consider a meaningful tax on gasoline – thereby encouraging more frugal driving habits – it is politically acceptable to place at risk the lives of young American soldiers in the Middle East in order to secure flows of the very oil that it is impossible to tax back home.  

Impossible to tax transparently, that is.  The $3 trillion cost to the American taxpayer of projecting military force in Iraq translates to a phantom tax of $2.69 on every gallon of gasoline consumed in the US since 2003 – effectively doubling the average pump price to more than $5 a gallon over the period of the war.  To put it another way, if instead of agreeing to invade a sovereign state Congress had slapped a 100% tax on gasoline back in 2003, its citizens would be no worse off financially and the federal coffers would have been boosted rather than drained to the tune of $3 trillion.  With most Europeans already paying north of $8 a gallon of petrol and diesel, it is both difficult to sympathise with the American motorist and easy to appreciate why Europe’s automotive fleet is twice as efficient as that on the other side of the North Atlantic.  

Of course, all of this is simply a thought experiment based on the notion that Operation Iraqi Freedom was all about the oil.  To swallow that, you would have to believe the words of every US president since Lyndon Johnson, one by one gravely warning of the national security implications of dependence on foreign oil, while successively failing to offer any plausible means of addressing it beyond securing more resources at home and abroad.  

For the majority of global citizens living in the developing world, a straightforward question demands a straightforward answer: should we seek to emulate the oil-drenched model of economic development pursued by America and its allies for the last century and a half, thereby embracing a doctrine of expensive military interference in faraway desert lands?  Or might China – for all its shortcomings and pressing development challenges – offer a less dystopian vision of the future?  Returning to the BP Statistical Review we discover that not only has China surpassed the US in total energy consumption, it is also now the world’s leading generator of carbon-free electricity from wind turbines.  With its planned 45,000 km of high speed rail by 2015, burgeoning renewable energy sector and more than 120 million electric bicycles plying Chinese roads today, it is for good reasons that we are increasingly refocusing our attention from west to east.  

Ready, Steady, COP!

This blog first appeared on the website of think tank and strategy consultancy SustainAbility

I have just shaken off the biggest hangover of my entire life.  It lasted for about 9 months, triggered by spending 3.5 days living a feral existence, sleeping rough outside a Gentleman’s convenience, with no change of clothes, no shower and – as the BBC’s World Service broadcast to my mother’s chagrin – not even a toothbrush.  As the end drew near, I even caught myself foraging in bins behind the kitchen for an out-of-date pre-packaged salad (bliss!).  Juxtapose this tragic image with the likes of Sarkozy, Merkel, Zapatero and Rudd swishing past me in a melée of advisors and journalists, and you could be forgiven for assuming that my hangover was chemically-induced.  Alas, no.  It was an apparently normal reaction to the debacle that was COP 15.  

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way.

Charles Dickens, “A Tale of Two Cities”

They tried to make me go to rehab…

At Chatham House last week, I found myself in the company of numerous COP veterans girding their loins, preparing to once again contemplate the UNFCCC process.  Everyone I spoke to had also experienced the post-COP tremors, and decided – consciously or sub-consciously – in favour of maintaining their grip on sanity by taking a break from the circus.  As with everything else in life, a football analogy is never far away.  The vast majority of match-going supporters reach the end of every season thoroughly exhausted, looking forward to a well-earned rest to lick the wounds inflicted by another disappointing season.  Yet magically, as July turns to August, that familiar but inexplicable sense of optimism triumphs over common sense, and we simply can’t wait to get back on that emotional roller-coaster!

So it is with the UNFCCC, now heading for its 16th Conference of the Parties to be held in Cancun towards the end of this year.  We listened with renewed intensity as an impressive array of speakers and panellists from the worlds of politics, business, academia, and civil society outlined their hopes, fears, and realistic expectations for COP 16 and beyond.  And here’s the rub: if Copenhagen did nothing else, it injected a healthy dose of realism into those who yearned for a global, comprehensive, legally binding climate treaty for the post-2012 era.  Plenty of clichés were trotted out – Rome wasn’t built in a day, we lost the battle not the war, focus on the doable – but I was left with a sense that this was more than empty rhetoric: there was a tangible appetite among the Chatham House delegates to roll up sleeves and get stuck into what remains an unprecedented political, economic, social, and environmental challenge.

Sweet Sixteen?

Admittedly, the broader context for COP 16 is not good: the euphoria of Obamania has well and truly subsided and the US remains unable to enact any meaningful climate legislation – what can we expect from BRICS in response?  European governments are slashing public expenditure to a degree unseen for generations – the UK’s Department of Energy & Climate Change is under budgetary pressure despite not having been in existence when the government’s spending baseline was set.  Citizens everywhere are understandably more concerned about covering rents and mortgages than paying more for someone else to reduce their carbon footprint.

On the other side, Climategate paradoxically helped strengthen the scientific case for human-induced climate change: complacency in the field of climate science has rightly given way to the highest standards of rigour and discipline, and the outlook remains bleak.  A hard core of climate dissenters persist, but their numbers are vanishingly small.  “Natural” disasters this summer in RussiaPakistan and China – within days of one another – dominated the world’s media.  As ever, it is difficult to attribute a single extreme weather event to climate change, but the rising frequency and severity are persuasive indicators that we are on an alarming trajectory.  It is still possible to keep the rise in average temperatures below the 2°C threshold, but only just.

China continues to invest in renewable energy at a breathtaking pace.  We all know the legend of the “coal-fired power station every week”, but are we equally aware that China builds as much wind capacity each year as the entire UK?  Indications that China is already contemplating domestic CO2 cap-and-trade legislation should be an object of shame for the US, Canada, Australia, and a source of optimism for those convinced that a price on carbon is the best way to mobilise the clean energy revolution.

Success is a journey, not a destination

Realistically, then, what can be achieved in Cancun?  With last week’s Climate Change 2010 conference operating under Chatham House’s eponymous “rule”, I’m not able to attribute quotes directly to sources, but what I can do is distil what I heard into a few key deliverables against which we might judge COP 16 as a success, or failure.  

  1. Overarching need is to re-establish trust among Parties through transparency on financing, and transparency on actions/progress
  2. Agree a long-term global goal under the UNFCCC – building on the Copenhagen Accord’s 2°C threshold – and a establish a process to review progress
  3. Formalise mitigation pledges submitted in the aftermath of COP 15 and give clear direction on measures needed to realise them
  4. Put in place mechanism for measurement, reporting, and verification (MRV) of mitigation actions
  5. Agree a framework for adaptation and establish a new global finance fund to ensure oversight of financial flows
  6. Create infrastructure needed to deliver funds to the point of action on adaptation and mitigation, and establish a global registry
  7. Establish a robust framework for reducing emissions from deforestation and degradation (REDD)

Ultimately, Cancun will be judged a success according to progress in each of the above areas, and not on the delivery or otherwise of a single, comprehensive, legally-binding global treaty (or perhaps worse: the “promise” of such a treaty at South Africa’s COP 17 next year, thereby raising expectations and pressure to pre-COP 15 levels).  As for carbon markets collapsing if we don’t get a treaty in place for 1st Jan 2013, this is patent nonsense.  The EU’s emissions trading scheme (EU-ETS) is the key to carbon market continuity – it will continue in a strengthened form regardless what happens under the auspices of the UNFCCC.  

Me, I’m going to take a year off from COP attendance.  I can’t face the UN accreditation process, draconian entry procedures and secondary pass system, the fact that most non-governmental observers will be kept well away from the action, presumably to save government delegates from the awful sight of rough sleepers in the conference centre.  And anyway, we’ve got Aston Villa that week, and I think this could yet be our season.  

The Future of Oil

This article, co-authored with John Elkington, first appeared in China Dialogue and was repeated on the Guardian Environment Network

The race for the world’s remaining oil reserves could get very nasty.  Recently, Nigerian militants announced their determination to oppose the efforts of a major Chinese energy group to secure six billion barrels of crude reserves, comparing the potential new investors to “locusts”.  The Movement for the Emancipation of the Niger Delta (MEND) told journalists that the record of Chinese companies in other African nations suggested “an entry into the oil industry in Nigeria will be a disaster for the oil-bearing communities”.  

Whatever the facts, the end of the first decade of the twenty-first century is likely to be seen by future historians as the beginning of the final chapter of a unique, unrepeatable period in human development.  Even oil companies now see the Age of Oil in irreversible decline – even if that decline spans decades. International oil companies (IOCs) increasingly accept that they must transform themselves completely – or expire – by mid-century.  

Superficially, the so-called “super majors” appear to be in good health. Fortune’s Global 500 list places the “big six” – Shell, ExxonMobil, BP, Chevron, Total, and ConocoPhillips – among the seven largest corporations in the world, as measured by 2008 revenues.  In third place, Wal-Mart stands alone as the only top seven company not dedicated to finding, extracting, processing, distributing and selling the liquid transportation fuels that drive the global economy, although few business models are as dependent on the ready availability of relatively cheap oil. 

Worryingly for such companies, 2008 may prove to have been the high water mark for the global oil industry, with geological, geopolitical and climate-related pressures now creating new market dynamics.  The oil question is now, more than ever, a transport question.  Cheap and reliable supplies of transportation fuel are the very lifeblood of our globalised economy.  So it matters profoundly that we are entering an era in which oil supplies will be neither cheap nor reliable. 

For the likes of Shell, BP, and ExxonMobil, whose rates of liquid hydrocarbon production peaked in 2002, 2005, and 2006 respectively, the current economic paradigm requires them to replace reserves.  Investors primarily value IOCs on this basis, as well as their ability to execute projects on time within budget.  A key problem for the IOCs is that petroleum-rich countries feel increasingly confident in the ability of their own national oil companies to steward their domestic resources.  So generous concessions once offered to IOCs in return for technical and managerial expertise are now deemed unnecessary.

The imperative to satisfy investor expectations fuels an increasingly risky growth strategy, which drives IOCs towards energy-intensive (and potentially climate-destabilising) unconventional oil substitutes, such as tar sands (in Canada), gas-to-liquids (in Qatar), and coal-to-liquids (in China and elsewhere).  These pathways are not chosen as ideals: they are more or less reflexive responses to external market pressures.

Meanwhile, the uncomfortable fact is that our economies are addicted to liquid hydrocarbon transport fuels, the consumption of which creates a catalogue of negative side effects.  And we cannot hope to address this addiction by way of our “dealers” developing even more damaging derivatives of the same drug. 

As if that were not enough, there is the hot topic of “peak oil”, defined as the point at which global oil production reaches a maximum rate, from where it steadily declines.  The basic principle is uncontroversial: production of a finite non-renewable resource cannot expand endlessly, and this has been demonstrated in practice at national level all over the world.  The heated debate centres on the point at which the peak in global oil production is likely to be reached. 

“Early toppers” argue that the peak has already been passed, and that the world will never produce more than 85 million barrels per day.  By contrast, “late toppers” point to the huge scale of unconventional reserves – for example, Alberta’s tar sands resource is vast – that remain untapped, as well as the potential bounty locked away in frontier regions such as the Arctic Ocean, where global warming is opening up new areas for oil and gas exploration. 

Unfortunately, what matters is not the absolute size of these unconventional and frontier resources, but the rate at which they can be developed and brought to market.  By definition, this is the “difficult” oil.  Production rates are determined by a series of significant financial, social, and environmental constraints that raise grave concerns for the viability of a global economic system made possible by liquid transport fuels. 

At the same time, leaders of all the major economies finally acknowledge what scientists have long been warning: to avoid catastrophic climate-change impacts, the global average surface temperature increase must be limited to 2° Celsius compared with the pre-industrial era.  To stand any reasonable chance of avoiding a 2° Celsius rise, our best understanding of the climate change science suggests that global greenhouse-gas emissions must peak within the next five to 10 years, and then decline by more than 80% on 1990 levels by 2050.  Realistically, meeting this requirement will demand that we engineer a transition to a zero-carbon energy system by mid-century. 

So what might a zero-carbon energy system look like?  As well as dramatic improvements in the energy efficiency of buildings and appliances, and massive deployment of sustainable renewable energy technologies, we will no longer be allowed to burn fossil fuels without capturing and sequestering the carbon dioxide emissions.  This implies that we must restrict our use of fossil fuels to stationary facilities, such as power plants, where carbon capture and storage (CCS) is practical (see “Outlook and obstacles for CCS”).  Strikingly, a zero-carbon energy system will also mean that no liquid hydrocarbon fuels, with the exception of biofuels, can be consumed in mobile applications such as transport. 

This does not make pleasant reading for international oil companies.  Their core business today may be described as: digging geological carbon resources out of the ground, converting those resources into liquid fuels, then marketing those fuels to consumers who set them on fire in internal combustion engines to move around.  By 2050, these activities will all be considered to be strikingly primitive. 

Why $40 per barrel is no cause for complacency

This article, co-authored with David Strahan, first appeared on the website of think tank and strategy consultancy SustainAbility

These days it is comforting to have one thing not to worry about.  As the world teeters on the edge of a full-blown depression, and business is crushed between slumping sales and seized-up credit markets, at least the oil price is in retreat.  From an historic high of $147 per barrel last July to around $40 today, the price of crude has collapsed so quickly it is tempting to believe it means the end of the energy crisis; that the spike was just some speculative aberration; and that all talk of ‘peak oil’ is so 2008.  

It is true that the horizon has been utterly transformed.  Last year the big issue keeping many company bosses awake in the small hours was rising energy bills – this year all manner of competing spectres haunt their sleepless nights.  But to relegate oil simply because the price has slumped is to misunderstand the causes of the recent spike and collapse, and therefore the future outlook for energy prices and what it means for business and the climate.  

It is commonplace to blame $147 oil on booming demand in China and India, but that is only one half of the equation.  The other is that global oil production between early 2005 and mid 2008 was stagnant, at around 86 million barrels per day.  So for three years the oil supply was a zero sum game: the East consumed more, and with production static, the price of crude had to rise to force the West to consume less.  Under the circumstances the oil price was a one way bet.  But in the past, rising demand has always been met by increased output, so the key question is: why did global oil production fail to grow?

Analysts divide the oil producing world into two halves: OPEC and the rest.  Non-OPEC output has underperformed against forecasts every year this century.  Because it depends on production from regions that are increasingly mature, non-OPEC output is widely expected to peak by around the end of this decade.  But OPEC also failed to raise its game, and this is unlikely to have been the result of deliberate market manipulation.  At $147 per barrel, the incentive to pump more oil rather than risk destroying demand would have been irresistible, if it were possible.  In fact, there are good reasons to suspect that the cartel’s members have been exaggerating the size of their reserves for decades (most observers attribute the sharp jump in proved reserves of several Middle Eastern members during the 1980s to a dispute over production quotas, which created an incentive to overstate reserves).  So OPEC’s collective inability to respond to record prices by raising production may suggest its output is approaching its geological limits.  If we have not yet arrived at the oil peak, we seem at least to be in the foothills.

The subsequent oil price collapse is just as misunderstood as the spike that preceded it.  Of course, the price is falling because demand is shrinking, and that’s due to the recession.  But what caused the recession?  The obvious culprit is the banking crisis, which has clearly been extraordinarily damaging.  But so too are oil price spikes; every major recession since World War II has been preceded by one.

It’s not hard to see why: the global transportation system – moving goods, workers and consumers around, thereby enabling an increased level of economic activity to take place – is almost entirely fuelled by crude oil.  When the price of oil soars, almost all aspects of modern daily life become more expensive.  And as the oil exporters accumulate more of the world’s money, so everyone else has to make do with less.

The 2008 spike not only set a new record high oil price, in both absolute and inflation-adjusted terms, but it was also very sudden, with the price almost trebling in around eighteen months.  So it seems highly likely that even without the credit crunch, the oil market fundamentals would have been sufficient to push us into a global recession.

Far from being a source of relief, today’s relatively low oil price is as damaging in its own way as the spike.  Oil companies around the world are cancelling or delaying investment in planned production projects, because they are uneconomic at current levels; $60 billion of investment in the Canadian oil sands was shelved in the three months to January alone.  At the same time, existing global production capacity is constantly shrinking, as oil fields age and reservoir pressures decline.  The International Energy Agency (IEA) estimates that capacity is currently shrinking by around two million daily barrels per year, and that this decline rate will accelerate in future (World Energy Outlook 2008).  Oil production projects have long lead times, so the combination of declining reserves and limited investments means there is a very real danger that when economic growth returns, oil supplies will be inadequate to meet demand, and the price will spike once more.  And the cycle starts all over again.

Extreme volatility in the oil price will of course mean the same for gas and electricity.  Natural gas purchasing agreements are tied to the price of crude, meaning that extreme volatility in the oil price means the same for gas and electricity – as has been demonstrated in the past two years.

This is likely to wreak havoc with company budgets, and share valuations – at least for those companies that do not take steps to reduce their exposure.  A recent analysis of the correlation between energy costs and the share valuations of logistics companies showed that financial markets can reward fuel thrift and punish profligacy.  A 10% rise in energy costs was credited with precipitating a 10 cent fall in FedEx’s share price, but a rise of 3 cents for UPS.  It turns out that fuel-per-package-delivered is a key performance indicator for UPS, for which managers are held accountable.  So in addition to carbon reduction, cost cutting, and resilience to short term supply disruption such as the UK fuel duty protests of 2000 (which are likely to become more frequent as the oil supply tightens) there is now yet another reason for companies to eliminate their dependence on oil.

When the next spike occurs depends crucially on the depth of the recession – or depression – although analysts such as Barclays Capital forecasts that in the fourth quarter of this year the oil price will average $87 per barrel, rising to $96 twelve months later.  But for as long as the oil price stays low, it’s not just bad for the future oil supply, but also for investment in renewable electricity generation, where the economics are judged against the cost of electricity from gas fired power stations.  The impact is worsened by the low price of allowances in the EU Emissions Trading Scheme (ETS), now languishing at around 10 EUR per tonne of CO2, where most energy analysts believe it is impotent as a stimulus for green energy investments.  (The economic slowdown has thus highlighted one of the inherent flaws in the existing EU ETS: emissions allowances are allocated in advance, on the assumption that economies will grow.)  Major projects such as the London Array offshore wind farm are in the balance, while plans by the legendary oilman T Boone Pickens to build the world’s largest wind farms in Texas have already been put on hold.  Paradoxically, one of the indirect impacts of falling oil consumption is that investments in green energy technologies are less economically viable.

If we are still in the foothills of peak oil, there is good evidence to suggest we will reach the summit well within most companies’ planning horizons.  We are clearly already in deeply unsustainable territory: discovery of oil has been falling for over forty years, while consumption has risen inexorably, save for a couple of brief recessionary interludes.  Today, for every barrel of oil we discover, we consume three; annual production is already falling in over sixty of the world’s 98 oil producing nations.  Many oil companies and forecasters expect trouble at least by the middle of the next decade – whether or not they strictly accept the term ‘peak oil’.  Shell expects global production to plateau, Total’s chief executive, Christophe de Margerie, says the world will never produce more than 89 million barrels per day, and the IEA says we face a “supply crunch”.

Given the prominence of the peak oil debate, no CEO can claim they were not put on notice about this fundamental threat to their business, irrespective of their role within the economy.  It is hard to imagine any sector prospering today in the absence of a functioning transportation system.

The good news however is there is absolutely no shortage of energy.  The sunlight that hits the earth in an hour contains enough energy to run the global economy for a year.  But while solar, wind, wave, tidal and geothermal energy can all be harnessed to generate clean electricity, they cannot hope to solve the oil crunch – and with it many of the environmental consequences of our crude oil addiction, not least climate change – as long as the global economy runs on liquid hydrocarbon fuels.

There is scant evidence that governments have awoken to the scale of the peak oil crisis, the impacts of which will surely be felt well before the worst effects of climate change start to kick in.  Oil market psychology lurches between two extremes: complacency and panic.  What we need is to find the middle ground: a sense of urgency and an appetite for action commensurate with the challenge, and to sustain it even when oil prices are low.  The trick for corporate leaders will be to figure out what the post-petroleum economy is going to look like, what technologies and policy frameworks will be required to expedite the transition, and what risks and opportunities will emerge within the changing regulatory environment.  In short, they will need to plan how to survive – or better still, profit from – the inevitable transformation.