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.

South Africa on the brink

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

Two weeks into the truckers’ strike and South Africa stands on the precipice of serious societal breakdown. The Marikana massacre was undoubtedly a tragic event in its own right, although it may prove to have merely been the spark that lit the fuse.

The powder keg waiting to explode is the imminent shortage in liquid fuel supplies. Unless the country pulls itself back from the brink, we are in for a national state of emergency.

It may play out something like this.

As fuel supply lines further constrict, many motorists will understandably choose to fill up their tanks “just in case”. Filling stations will quickly run dry, supermarkets operating at the end of complex just-in-time supply chains will see their inventories deplete, exacerbated by panic buying brought on by sensationalist media coverage. Within days, severe food shortages will result, and we’ll be running a real-time nationwide experiment to test the veracity of the adage that civilisation is, at any one time, only nine meals away from anarchy.

Factories will close their doors as production lines grind to a halt, with companies unable to procure raw material supplies or shift burgeoning product inventories. More and more banks and ATMs will run out of cash; emergency services will find themselves simultaneously inundated with calls for assistance as violence and desperation spreads, yet unable to respond due to their own fuel shortages; hospitals will cancel all but the most critical operations as remote doctors and nurses struggle to reach their place of work; burials will be postponed and corpses will pile up in morgues. The country will come to a complete standstill and many of the characteristics of modern civilised society that we take for granted – trust, human decency, a lawful majority – will evaporate.

If all this sounds rather fantastical and unlikely, recall that it has already happened.

In the United Kingdom (UK), just 12 years ago last month, a protest by road hauliers against high diesel prices led to blockades of refineries and fuel terminals, and culminated in a week-long social experiment that will be remembered by anyone who experienced it. The world’s fourth largest economy (at that time) unravelled within a matter of days.

The challenge facing South Africa today is not identical, though situational differences should not lead us to a position of complacency. The UK dispute specifically targeted transport fuel supplies at source, whereas the current crisis involves the road haulage sector (which is but a critical component of the supply chain) as a whole.

However, throw in some extremely combustible kindling created by entrenched social inequalities and legitimate labour grievances – which have found their most recent violent expression in the extractives sector disputes – and we have all the conditions necessary for collapse.

The extent of our dependency on liquid transportation fuels – overwhelmingly derived from oil, more often than not from unstable parts of the world – becomes vividly apparent only when they no longer flow freely.

Until this moment, we scarcely give a moment’s thought to how pervasively oil seeps through every aspect of our lives.

Note also that absolute physical shortages are not necessary; with the human tendency to hoard in anticipation of a crisis, all that is required is for the notion to take hold that limited fuel supplies are a distinct possibility.

It becomes a case study in self-fulfilling prophecies.

Of course, none of the above is inevitable in the coming weeks. What is likely, however this plays out, is that we will recover from the crisis and return to some semblance of normality without properly facing up to – much less addressing – this pernicious dependence on liquid fuels.

To the extent that we pretend to deal with it, our “answers” will probably be found in synthetic oil substitutes – coal liquefaction and Karoo shale gas – proffered as a pathway to national energy security that insulate us from undemocratic regimes in faraway desert lands. It’s a shell game – a confidence trick designed to keep our eyes away from the real prize. It’s methadone for our collective heroin addiction.

Dear Fossil Fuel, I want a divorce!

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

Dear Fossil Fuel,

There is no easy way to do this, so I’ll just say it: I want a divorce!

Writing this letter is very painful for me, but the contents will not come as a great surprise to you. Our relationship has been wondrous at times, with ups and downs like every marriage. But you’ve been abusive for too long and pushed me to the limit. It’s taken decades of counselling to build up the courage to leave you, but after 300 years together I’ve decided it is time I grew up and faced the future as a responsible adult.

Let me start by saying: I don’t think you ever had evil intentions at heart. Your character flaws are in your basic chemistry, and that’s not your fault. You’ve had a difficult life, unloved by all except me. Your parents – Sun and Earth – were ashamed of you. Having conceived and given birth to you by accident millions of years ago, they locked you away in the cupboard under the stairs, out of sight and out of mind. So full you were of harmful chemicals, they probably felt they had no choice, to give their other offspring the best possible chance to thrive.

But once I released you from your geological tomb, how you made up for lost time with your fiery character! We achieved things together that I could not have imagined before we met. Side by side, we reshaped the landscape; we built great cities and connected them with infrastructure that spanned continents; we fought and won epic wars (admit it, you were often the cause of them!); we created a vast empire that left no corner of the globe untouched. Put simply, we lived tens of thousands of lifetimes in three short centuries. I owe virtually all of my success to you, which is why I write these words with such a heavy heart.

My parents were uneasy about our union from the early days. Oh, they could see how much fun we were having together – how your intensity captivated me! – but they worried that our relationship was growing at the expense of everything else in my life. It’s easy to see it now: I was becoming dependent on you, even addicted, blind to the damages we wrought, losing sight of what was important. Because of you I lost all respect for my mother, Nature.

With you egging me on, I became lazy and conceited. I didn’t stop to worry how I was growing, only that I grew. And I grew! As time passed, I hardly noticed how overweight I had become. No, morbidly obese! I’d developed this habit of consuming unnecessary stuff in vast quantities, more wants than needs. So wasteful of mother’s inheritance – much of it gone, forever – such regret … gradually I lost all interest in my appearance, as together we created such waste! I’ll admit, at the time it was childishly good fun, but I realise now, as I spend more and more of my energy cleaning up your mess, it must stop!

Frequently – and this is my greatest shame – I also lost sight of my duty to take care of my father, Society, who has long struggled with episodes of ill-health. On the surface he appeared OK, but underneath the neglect was evident, as his recent violent outbursts testify. (In fact, I would be surprised if our relationship were not the direct cause of much his sickness, though I know you will protest your innocence!) Of course, I would not even exist were it not for mother and father. I’m determined to make up for lost time and place their needs first and foremost from now on.

I know what you’re going to say: “I can change!” I’ve heard it so many times. Yes, I know you’ve become more efficient over the years, and tried to clean up your act. But everything is relative – you too have grown so much larger (OK, it’s partly my fault) that all your efforts to improve yourself have been trumped! And you’ve become so risky lately. You used to be dependable, easy-going – I liked the sense of security that you gave me. But over the last 30 or 40 years you’ve become so volatile and unreliable. I can see the writing on the wall: you probably are going to change, but not for the better! It’s only a matter of time before you blow up again, and set me back another few years. I just can’t take it any more.

And now for my confession: I’ve met someone else. He’s not as powerful as you – not at the moment – but he’s got some really interesting ideas how we can develop together in totally different ways. He’s very smart, not all brute force like you – he thinks you’re incredibly primitive, and I’m coming to realise he’s probably right! He doesn’t smell (oh, your awful smells!), never leaves any mess lying around, refuses to draw us into debt (he doesn’t know the meaning of the word!) and he gets the job done so much more efficiently than you ever did. Granted, he’s not always there by my side (he travels the world), but he has a wonderful network of like-minded friends that are always hugely supportive.

I know this will come as a bombshell for you: he’s your younger sibling, Solar Flux. Sun and Earth are so proud! My parents love him, too – he’s got big plans how we can attend to their needs and make up for all my past misdemeanours. Mother wonders why I left him in the first place for you all those years ago. But as I keep reminding her, our marriage was not all bad. Some of the amazing things we accomplished have made me what I am today – without that, I couldn’t begin to imagine a successful future with Solar Flux. Thanks to you, I’ve learned so much. But I was a child when we met. I’ve grown up, come through a tricky adolescence, and now I’m ready to move on.

I realise this divorce is probably going to cost me, in the short-term financial sense. But in the long-term, I know that I will grow even stronger in this new relationship and lead a much more vibrant and meaningful life without you. No doubt, this will be one of the biggest challenges I’ve ever faced, but it is one I can no longer postpone. If I avoid this decision now, I may harm my relationship with my parents beyond repair, and I’ll regret that for the rest of my life.

Yours no longer,

The Economy

The Story of Energy (for Grown-ups)

Among the myriad challenges facing the human species in the early years of this century there is one that shows up on every political and business agenda from Pretoria to Paris, Lusaka to London, and Windhoek to Washington: how to sustain economic growth.  So dominant is this discourse that those who dare to question it can be readily dismissed as lunatics, so far outside the mainstream as to appear out of touch with reality.  Can’t they see?  We need to create jobs!  

Yet deep down we all know that our home planet – and the non-renewable resources upon which our economies are based – is finite, meaning that nothing can grow indefinitely without violating immutable laws of nature.  This is a scary thought.  So, to insulate our preferred mental models of the world from uncomfortable physical truths, we invent oxymoronic terms like “sustainable growth” that evade all attempts to assign a coherent definition.  Most worryingly, we render ourselves unable to recognise and confront a profound blind spot: the pivotal role that energy plays in the human project. 

To comprehend why we are where we are, and what it means for our future, we must first appreciate that not a cent of economic activity happens without energy being transformed from one form into another.  Through trillions of daily conversion processes – some of which happen inside our bodies as we consume food which also required energy to produce – we benefit from a range of useful services such as heating, cooling, mobility, communications, etc.  In so doing, laws of physics dictate that we must throw some energy away as waste heat; we can (and should aim to) improve the efficiency of our conversion steps, but we can never break even. 

A deeper understanding of our predicament is revealed in the workings of our pre-industrial world.  Then, as today, our economic system was based entirely on the movement of people and things.  Prior to the Industrial Revolution, however, all of that movement was driven by solar energy, whether it was harvested as food for people, feed for draught animals – then converted into motion via muscles – or wind caught in the sails of ships and windmills, or rivers turning watermills.  For simplicity, we can think of this kinetic energy sub-system as the ‘Wheel’.  It was constrained by our ‘solar income’, which is the quantity of incident sunlight we could capture (in a relatively short timeframe) and usefully deploy. 

Sure, we had for many centuries also been making good use of stored sunlight.  By burning wood, peat and coal (the last of these in miniscule quantities by today’s standards), we were able to use the liberated heat to cook our food, warm our homes, and drive an impressive host of manufacturing processes.  We can call this thermal energy sub-system ‘Fire’, and it ran on the ‘hydrocarbon battery’ – sunlight captured by plant and animal life over millions of years before being locked away in fossil fuel deposits – to which we increasingly turned as our supplies of firewood became exhausted.  But, just as today, our ability to bring the hydrocarbon battery into service was constrained by the rate at which we could move these combustible fuels from where they were found to where they were needed. 

This year marks the 300th anniversary of an event that altered the course of human history profoundly.  In 1712, Thomas Newcomen’s first steam engine became operational in the English Midlands town of Dudley.  By converting heat into motion, it united humanity’s two most important discoveries: Fire and the Wheel.  From that moment on, our scope for mobility – in the first instance, to shift water from a flooded coal mine – was no longer bound by the limits of solar income, by human and animal muscle or sailing ships. 

Once we’d hooked ourselves up to the hydrocarbon battery, we began to mechanise our world.  Fewer draught animals were required, which liberated not only the paddocks on which they were kept, but also the large tracts of arable land which fed them.  In concert with advances in agriculture, fewer farmhands were able to produce greater quantities of food, which in turn boosted population growth.  More of us were free to swap rural for urban landscapes that were melting pots of knowledge-sharing and innovation, fostering further advances in science and medicine that allowed us to lead longer, more productive – and more consumptive – lives.  Later, steam ships and locomotives allowed us to move more things (including food) faster over greater distances, enabling ever higher levels of consumption.  For the better part of three centuries, we hardly looked back as we ascended this upward spiral, propelled by ancient solar energy released from fossil fuels. 

A crucial enhancement of the Fire/Wheel axis arrived towards the end of the 19th Century with the invention of the automobile.  If fossil fuels are the Earth’s hydrocarbon battery, then crude oil is their ultimate expression: its liquid state provides unmatched energy density and ease of transport, making oil the reference fuel for moving people and things, far superior to coal and natural gas.  Its role in underpinning our economic system cannot be overstated and it seems impossible to dislodge.  No wonder we are prepared to go to war over the stuff – we are fighting for nothing less than our ability to sustain economic growth as we know it. 

A ready supply of cheap liquid transport fuels subsequently enabled us to do all sorts of clever things, such as create globalised supply chains and just-in-time delivery systems, and we congratulate ourselves for the perceived efficiency gains that we created.  The trouble is it all unravels spectacularly when fuel becomes expensive or scarce, even fleetingly.  Keen to avoid cold-turkey convulsions on a societal scale, governments intervene by any means necessary and order is maintained.  This is precisely how South Africa ended up with the world’s single largest point source of CO2 emissions, thanks to its apartheid-era coal liquefaction programme, a response to constricted oil supplies. 

All the most prized attributes of advanced economies – proud beacons of human progress to which many developing nations aspire – are based upon the marriage of Fire and the Wheel.  That is, we achieve and maintain our pinnacle of civilisation by relentlessly digging fossil fuels out of the ground and setting them on fire in order to move people and things from place to place in motor vehicles.  High-tech, indeed!  But lurking in the dark recesses of our minds is the realisation that consuming any resource faster than its rate of formation is, by definition, unsustainable.  Fully aware that our hydrocarbon battery is draining fast and will not be re-charged in the conceivable future, that using it has a deleterious effect on the natural systems that sustain all life on Earth, and that meanwhile the economic system through which we aim to deliver societal needs is utterly dependent on it, what are we to do?  We surely can’t return to a pre-industrial existence where most people struggled on the very edge of survival.  At least, we won’t take this lying down. 

There is a glimmer of hope around which to galvanise our collective imagination.  About the time of the automotive revolution, another energy technology was born that also came to shape modern life: electricity.  Just as the steam engine created a pathway for turning heat into motion, so electricity can reverse the process.  Via electrons, we can take solar income – either directly by capturing sunlight or indirectly by harnessing wind – and transform it into every imaginable energy service of benefit to society, including the mobility which underpins all economic activity.  

Crucially, modern electrical devices – and transportation modes in particular – just happen to be supremely energy efficient, meaning that we can enjoy more services with less energy expenditure.  And electricity is unique among energy carriers because it can also convey information.  This introduces the prospect of discarding the current ‘dumb’ energy system and replacing it with one that is ‘smart’.  Since all of the energy arrives for free and its source will never expire as long as our solar system persists (if it doesn’t, human concerns will be a thing of the past!), what’s not to like?  

We are exhibiting all the symptoms of addiction, including compulsive behaviour and denial in the face of mounting evidence that we have a serious problem.  We even resort to theft in order to feed our increasingly expensive habit, either from weaker nations and communities, or from generations as yet unborn.  As civilised adults we need to confront and treat this addiction, unhook ourselves from the hydrocarbon battery, creating in its place a new economic paradigm that provides societal needs equitably within solar income constraints.  

Does this mean the end of growth, at least as the term is currently understood?  That is inevitable anyway; we cannot negotiate with hard biophysical limits.  The best we can hope for is what economists might call a ‘soft landing’.  The 21st Century project – both hugely challenging and incredibly exciting – is to create the ultimate just-in-time delivery system, powered by energy that arrives every day from the sun, not by setting fire to millions of years of ancient sunlight in the blink of an eye.  All other species on Earth manage just fine like this.  For now, we are the 0.0001% that attempt to live by rules of our own making and it is silly to imagine that we can continue as we are with impunity.  

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.

Reason to be Cheerful?

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

Like many colleagues in the sustainability field, I continue to struggle with the notion that economic growth – and the ever-increasing consumption it implies – necessarily drives improvements in quality of life and delivers poverty alleviation.  This is not to say that GDP is an irrelevance, only that it is increasingly recognised as an impoverished metric for assessing human progress, given that it measures only quantity and is silent on the distribution of economic benefits, not to mention costs.  However, particularly when discussing development issues in high growth emerging economies like China and India, I’ve experienced the discomfort of challenging this basic premise from the moral low-ground of a privileged life in northern Europe.

So, at the ACCA (Association of Chartered Certified Accountants) Friday Forum last week on Ecological Footprinting, I was interested to hear Tony Greenham of the New Economics Foundation (NEF) – the organisation whose Impossible Hamster comically demonstrates the fallacy of growth without limits – asserting that for every $100 of GDP, roughly 60¢ reaches the poorest 10 percent of the population.  In other words, the pursuit of GDP growth as a development tool effectively says: “We’re going to make the poor wealthier by making the already wealthy obscenely wealthy”!

Oliver Greenfield of WWF-UK’s Sustainable Business unit spoke eloquently of the One Planet Living concept that invites us to think in terms which are far more meaningful than tonnes of CO2, gallons of water, or other abstractions that leave non-technical citizens cold.  It’s a powerful idea that we should all strive to live a “one planet existence”, especially when I reflect that here in the UK, for instance, we currently lead a three planet lifestyle, which means that if our consumption patterns were adopted worldwide, we would require three Earth’s to sustain us.  In the US, it’s five planets.

And linking this back to quality of life, there is simply no correlation between the environmental impact of our lives and our cheerfulness.  NEF’s Happy Planet Index – a composite indicator that attempts to quantify human well-being and environmental impact – places Costa Rica at number one in the world, with the UK languishing 74th out of the 143 nations assessed, and the US floundering in 114th place, which is pretty desperate for a country ranked number one by far according to GDP alone.

Paul Cooper of environmental consultancy Best Foot Forward presented a compelling case for placing a cost – and properly accounting for that cost – on society’s ecological footprint.  We are already starting to internalise the cost of CO2 emissions in economic decisions, with policy instruments like carbon taxation and emissions trading schemes taking root in many parts of the world.  Only by expanding this effort to encompass the totality of humanity’s natural resource consumption can we begin to address what common sense tells us we must: infinite growth cannot be sustained in a finite world.

My reason to be cheerful?  The collective challenge ahead – nothing less than transforming business and the way societies produce and consume – is intellectually and practically far more exciting than the modus operandi, which is to worship at the altar of the Impossible Hamster.

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.