3E Intelligence

Looking back at the first half of the year, I can only conclude that my doom-and gloom predictions for 2008 were unfortunately spot on. With stock markets continuing their dive down and oil prices exploding upward, this year could indeed turn out to become the “annus horribilis” I feared. To be honest, things look even a bit more gloomy than I expected (who would have believed me if I would have predicted a 140 dollar price for the oil barrel?).

The “climate fatigue” I foretold has also gone further than I expected and is turning into a possible “energy counter-revolution”. When prices of gasoline and heating oil will not go down in the next months (and I do not foresee so), we might see the recent street protests of the truckers becoming a full-fledged citizens’ movement against rising oil and food prices. As l mentioned yesterday during a debate in Brussels, is it so surprising that consumers do not want to pay for solving the energy/climate crisis when the political and economic elites keep sending messages that we can solve this mess with the necessary technological innovations (be they biofuels, carbon capture, or nuclear). When will these “leaders” have the courage to lead and warn their constituencies that “the party is over“.

And even my prediction that the words “crisis of the EU” would be spoken again was on the money although that was not really a difficult one. Unfortunately our EU leaders continue to whistle in the dark and pretend all is well with the Union. Even sarcasm is no longer appropriate to describe this lack of leadership.

Last but not least, the most dark scenario (an Israeli attack on Iran) seems to come closer every day. The final Bush legacy?

• It is often assumed that climate and energy security policies are complementary and that therefore measures in one area are also good for the other. This assumption might be correct in certain cases (driving less will be good for climate and will make us less dependent on imported oil), but there are more and more signs that, in the long run and under particular political pressures, worries about energy prices and energy supply might undermine our climate mitigation policies. The Economist has an excellent comment on this trade-off. Just imagine what will happen to our climate policies when prices will go even higher (which they will) and governments start introducing energy rationing or lights start going out.
• The Jeddah meeting of oil producers and consumers clearly failed to convince energy traders that OPEC will be able to bridge the growing gap between demand and supply driving up prices on Monday 23 June. For a good analysis of why we should indeed be cautious about Saudi pledges to increase production, read the Oil Drum’s article “The devil is in the production details of Saudi Arabia“. In the same online publication, Jerome à Paris lists the past broken promises of the oil cartel. I guess Andris Piebalgs will have to wait a long time for his “two-digit” oil prices.
• We all have our scapegoats.It is so much easier to be able to point our fingers to others than to change our own behaviour. High oil prices: just blame the speculators or the OPEC leaders. Climate scepticism: go after Big Oil’s chief executives. With all the admiration and respect I have for US climate expert James Hansen, I suspect his call to put some oil chiefs on trial for crimes against humanity will not really help much in our war against climate chaos.

The Spring Summit of European political leaders has been another showcase of why this generation of policymakers will be unable to deal with the current climate-energy chaos. Although the 27 decided to support the Commission’s climate/energy package, short-term protection of European (or better German, French, and other national) economic interests and jobs is still much more a priority for politicians who are incapable of thinking beyond their potential next term in office.

The caving in of Chancellor Merkel to big old industry’s scaremongering about “carbon leakage” (read “delocalisation”) is particularly significant, as the same Mrs Merkel less than one year ago (at Heiligendamm) was hailed as the new “Valkyrie” in the war against climate change.

It is remarkable how fast certain interests have been able to hegemonise the “carbon leakage” rhetoric and how supposedly “smart” politicians have fallen back to their old reference frameworks(their competitiveness or Lisbon paradigm) to water down one of the key elements of Europe’s so-called leadership on climate change: the European emission trading scheme. Continuing to give free emission allowances to these industries will, in the long run, mean the collapse of the whole emission trading system itself. But why care? Après moi, le déluge. Have politicians not learned any lessons from their coal “débacles” in the 80s?

As far as I know, no serious scientific study has been undertaken or initiated to determine the real dangers of the climate delocalisation. Carbon leakage is indeed a problem but it would be helpful if the EU could do some serious impact assessment before believing the exaggerated horror stories which are now distorting the political discourse on these issues.

Moreover, by promising free carbon allowances to its heavy industries, the European leaders will probably undermine any future American plans for a similar cap-and trade system. All three candidates for the US Presidency have planned 100% auctioning of carbon allowances once they would be US President. Does anyone believe this will happen now that the European so-called climate change leaders have gone chicken?

Putting the building blocks in place for a smooth transition to the new sustainable and post-oil energy future will require no less than a monumental global coordination effort of ALL economic superpowers. When these superpowers will continue to put their own short-term interests higher than the long-term survival chances of our global civilisation, then James Lovelock’s Cassandra call will come true and Gaia will have its revenge.

Further reading:

• Council: Conclusions of the Spring Summit
• Independent: EU leaders promise to act against China and US in carbon crusade
• International Herald Tribune: EU leaders commit to new year-end climate change deadline
• Guardian: Concessions to Merkel threaten climate change plan

The Spring Summit of European political leaders has been another showcase of why this generation of policymakers will be unable to deal with the current climate-energy chaos. Although the 27 decided to support the Commission’s climate/energy package, short-term protection of European (or better German, French, and other national) economic interests and jobs is still much more a priority for politicians who are incapable of thinking beyond their potential next term in office.

The caving in of Chancellor Merkel to big old industry’s scaremongering about “carbon leakage” (read “delocalisation”) is particularly significant, as the same Mrs Merkel less than one year ago (at Heiligendamm) was hailed as the new “Valkyrie” in the war against climate change.

It is remarkable how fast certain interests have been able to hegemonise the “carbon leakage” rhetoric and how supposedly “smart” politicians have fallen back to their old reference frameworks(their competitiveness or Lisbon paradigm) to water down one of the key elements of Europe’s so-called leadership on climate change: the European emission trading scheme. Continuing to give free emission allowances to these industries will, in the long run, mean the collapse of the whole emission trading system itself. But why care? Après moi, le déluge. Have politicians not learned any lessons from their coal “débacles” in the 80s?

As far as I know, no serious scientific study has been undertaken or initiated to determine the real dangers of the climate delocalisation. Carbon leakage is indeed a problem but it would be helpful if the EU could do some serious impact assessment before believing the exaggerated horror stories which are now distorting the political discourse on these issues.

Moreover, by promising free carbon allowances to its heavy industries, the European leaders will probably undermine any future American plans for a similar cap-and trade system. All three candidates for the US Presidency have planned 100% auctioning of carbon allowances once they would be US President. Does anyone believe this will happen now that the European so-called climate change leaders have gone chicken?

Putting the building blocks in place for a smooth transition to the new sustainable and post-oil energy future will require no less than a monumental global coordination effort of ALL economic superpowers. When these superpowers will continue to put their own short-term interests higher than the long-term survival chances of our global civilisation, then James Lovelock’s Cassandra call will come true and Gaia will have its revenge.

Further reading:

• Council: Conclusions of the Sprint Summit
• Independent: EU leaders promise to act against China and US in carbon crusade
• International Herald Tribune: EU leaders commit to new year-end climate change deadline
• Guardian: Concessions to Merkel threaten climate change plan

When one follows the international news scene closely, it looks like there are two different worlds being reported about: one where the housing and credit crisis is being played out against a background of inflation fears and worries about a global economic slowdown; the other where spectacularly rising energy and commodity prices underline the energy/climate challenge and confirm the beginning of a new era of world-wide resource scarcity. There are very few commentators or political and economic experts who are able to connect the two worlds and paint a realistic picture of their historical importance.

One of them, who does manage to connect the two crises, is Tim Bond in the Financial Times of today. In an article called “Twin shocks of finance and resources facing global economy“, the head of asset allocation strategy of Barclays Capital manages to link the credit crisis with the new depletion reality. Here are a few extracts of his interesting article (with my highlighting):

“The global economy is facing twin shocks. Natural resource markets are delivering a supply shock of 1970s dimensions, while the financial system is delivering a shock comparable to the bank and thrift crises of the 1988-1993 period. The magnitude of each shock is very different. The financial markets require a recapitalisation of the banking system, with estimates ranging from $300bn to $1,000bn.

By contrast, prospective capital requirements in the resource markets dwarf the current needs of the banking system. According to the International Energy Agency, the global energy sector alone needs a real $22,000bn over the next two decades to meet the anticipated rise in primary energy demand. There is also the unavoidable necessity to reduce the CO 2 intensity of energy production, a good 80 per cent of which is derived from the dirtiest of fossil fuels. While an accurate quantification of the size of the required green energy investment is not possible, it is likely to be of a similar scale to the expansion of energy supply”.

…

“The broad story is of depletion. Most of the easily obtainable resource deposits have already been exploited and most usable agricultural land is already in production. Natural resource discoveries, where they continue to occur, tend to be of a lower quality and are more costly to extract. Meanwhile, the dwindling supply of unutilised land faces competing demands from biodiversity, biofuels and food production.

Predictably, the scale of response to each of these crises is in inverse proportion to their respective magnitude. In the US, the credit crunch has elicited an instantaneous fiscal package to the tune of $168bn, or 1.2 per cent of nominal GDP. In contrast, the latest annual budget appropriation for renewable energy spending is just $1.72bn - 0.01 per cent of GDP.”

The EU is unprepared for future conflicts over energy resources, according to a new report written for the meeting of EU leaders on 13-14 March. The report, seen by the Guardian, predicts that global warming might lead to energy wars, mass migration, failed states and political radicalisation. The report highlights the “scramble” over natural resources from the thawing Arctic region as a potential new conflict area with Russia.

This is not the first report looking at the security aspects of the climate crisis. In April 2007, a group of eleven retired US admirals and generals published a report underlining the risks of global warming and energy insecurity for America’s national security.

NATO leaders meeting in Bucharest in April will also discuss this issue.

The Oxford Research Group published an excellent overview of the national security dimension of global warming in January 2008.

When investments banks start to talk openly about a future oil supply crunch, there is reason to get really worried.

According to the Wall Street Journal, Deutsche Bank recently joined the club of high-level energy experts who think the world will never see production levels above 100 million barrels per day. The Bank is now seeing 150 dollar oil on the short-term horizon.

Our economies now need 87 million barrels per day to keep the lights and factories going. In its last World Energy Outlook 2007, the International Energy Agency (IEA) predicted that oil demand will reach 116 million barrels by 2030. But the Agency itself has now doubts on the possibility to reach these levels. For this year’s Outlook (expected in the autumn), the IEA is preparing serious investigations into the real reserves of oil, gas and coal. This exercise has been provoked by ” the healthy debate on peak oil”, IEA’s Richard Baron said during the 4th Annual Climate Change Conference in Brussels this week. For more reporting on this conference, see EurActiv.

Although Deutsche Bank tries to distance itself from the “peak oil doomsayers”, the end result is the same. Whatever it is called, “peak” or “plateau”, it is going to have some very harsh consequences. And it should have our European policymakers sweating as much over this coming energy supply crisis than they are now sweating over climate or Russia. So, where was the “peak energy” communication in the Commission’s recent climate/energy package?

In a recent interview with EurActiv, Jeremy Rifkin expressed his belief that “Europe can lead the third industrial revolution”. In the closing debate of this year’s European Business Summit, the American author repeated his admiration for the EU’s policies but added cautiously that “the EU might well tell the right narrative, but the US could well do it”.

Rifkin’s warning confirms my views (which I have already expressed several times on this blog) that the EU leads on talking about the need for a low-carbon economy, but that, on the ground, many more interesting developments are taking place in the US and that once the sleeping giant wakes up to the climate/energy crisis, it might quickly overtake the EU in terms of real and effective action.

One of Rifkin’s arguments in his story about the “European Dream” is the fact that the European Union now is the biggest market in the world (Rifkin talks about Europe’s ‘golden goose’). If you ask me, this is a very weak argument when it comes to leading a new economic revolution which is needed because the market has not exactly functioned as it should(see Nick Stern’s report: “Climate change is the biggest market failure ever”).

Furthermore, the United States disposes of some “golden geese” which I think are much more essential to take leadership in the transformation to a new eco-industrial society: a “risk-taking entrepreneurial mentality”, a system of dynamic venture capitalists who do not shy away from investing in nine failures to get the tenth investment right, and a political system which is less structurally linked to the economic and financial elites (less of Europe’s neo-corporatist “social economy” which is based on a historic compromise between state power and economic interests).

All this makes the US much more open to the “creative destruction” and radical innovation which will be needed to move as quickly as possible from the second fossil-fuel-based industrial economy to the new solar economy. For anyone who is still in doubt, just look at the new green tech boom which has grabbed the former Silicon Valley or the sudden awakening of American banks and even Wall Street to the carbon crisis.

Rifkin’s session was not the only event during EBS 2008 which strengthened my view that the EU could soon be surpassed by the US in terms of leading the transformation to the green economy. In Thursday’s high-level debate between Commission President Barroso and Business Europe chief Antoine de Sellière, the European businesses leader expressed his frustration with the EU’s explicit focus on climate change. Sellière urged the Commission President to refocus on its “economic compass” (competitiveness) demonstrating that business still sees the EU’s efforts to tackle climate change not as an opportunity but as a burden.

Mr Séllière’s speech expressed big doubts about EU renewable energy policies and demanded more support for new nuclear power. This message was all the more remarkable as the EBS sessions on renewables and nuclear had clearly sent other messages: a resounding “yes” to renewables and lots of scepticism about the role of nuclear power.

In conclusion: European business should not go soft on its low-carbon revolution or it will lose the economic competitiveness it is pretending to defend.

How do you communicate the need to take urgent climate change actions when your citizens are enjoying the warmest winter in ages with temperatures which save them a lot of money in energy consumption?

This was one of the interesting questions I discussed with government communicators, EU information officers and aspiring journalists during my two-day visit to Vilnius, Lithuania, this week. What might be the hot debate in Brussels does not necessarily ring a bell in other member states.  The largest of the three Baltic EU members cares more about its economic growth prospects and the energy security issues related to its nuclear past and future.

Nuclear power provides most of Lithuania’s current energy needs but as a result of its EU membership, the country will have to close down its only remaining Chernobyl-like Ignalina nuclear unit in 2009. This makes it more dependent on gas imports from its Russian neighbour, something most Lithuanians are not very happy about.

The country has therefore been working on a Baltic Energy Strategy with Latvia and Estonia which includes the construction of one new nuclear power plant and development of new transmission lines with Poland and Sweden. But conflicts over costs and ownership of the new nuclear plant could delay the operational start of the new plant until 2020 and the Lithuanian government is trying to negotiate with the European Commission for an extension of the life of the last Ignalina N-plant (see interview with Lithuania’s President Adamkus in January 2008).

Green groups in Lithuania have presented ideas for a sustainable energy future based on energy savings (a huge potential in this country) and renewables instead of nuclear (read “Lithuanian Sustainable Energy Vision 2050” by Inforse Europe). Renewables now accounts for about  8% of Lithuania’s energy consumption (see the Commission’s DG Energy’s fact sheet on Lithuania’s renewable energy situation of 2007). In its latest renewable energy proposal of 23 January 2008, the Commission has set a very ambitious target of 23% of renewables to be reached by Lithuania in 2020.

But the Lithuanians I talked to seemed to be rather sceptical about the acceptance of more renewable energy (especially about the use of wind power).

As Lithuania is trying to rebrand itself as the “brave” country, maybe it could try and become the first new EU member states to really make an innovative choice for a sustainable low-carbon future? In that way, the climate objectives of the country could probably even be reached without its citizens having to care much about global warming .

The Wall Street Journal reported today that three of the biggest US investment banks are getting cold feet about financing new coal power plants as they expect US policy-makers to introduce a carbon capture-and-trade system in the future. The environmental standards which the three banks will lay down could mean that coal plants without carbon capture and storage could have a hard time to get financed.

The news follows close upon another setback for the US coal industry. On 29 January, the US Department of Energy decided to withdraw funding for the US’ biggest carbon and capture demonstration plant FutureGen (see Wikipedia) because of costs overrun.

The bad news comes at a time of rising prices for coal as a result of supply problems from South Africa and Australia. In China, coal stocks have dwindled to emergency levels. Although the current supply problems are not geological, there are more and more experts who are starting to have doubts about the future reserves of coal. I reported on this in earlier posts. An excellent summary of the coal reserves issue (”The great coal hole“) has recently been published by David Strahan, the author of the must-read book “The last oil shock”. As the world is starting a new rush on coal (see the latest IEA World Energy Outlook 2007), the question of the real coal reserves will become one of the key questions for the future energy/climate debate. US author Richard Heinberg has just published a new article on this Great Coal Rush (and why it will fail) on Global Public Media.