Fossil Fuels

  • BoE Central Banker Addresses Stranded Assets

    September 30th, 2015 by designburd
    Screen Shot 2015-10-01 at 9.42.09 AM

                                             Video courtesy of Bloomberg.com

    We were very encouraged to hear Bank of England Governor Mark Carney address the financial market stabilization risk of “stranded assets,” the risk that if we are to avoid 2 degree warming, we will need to leave up to 80 percent of proved oil, gas, and coal reserves in the ground, echoing the important message that has been promoted tirelessly by our friends at the Carbon Tracker initiative. (Read Carney’s full speech here)

    Capital Institute’s 2011 post, “Our $20 Trillion Big Choice” addressed this issue not just as a financial market stabilization issue. Approximately three quarters of these fossil reserves are owned and controlled by national oil companies.  Exxon and BP are relative bit players in this game. The REAL risk and challenge is perhaps the largest geopolitical one ever to face the modern world.  Rapid drops in solar costs, and other technical revolutions could render much of these fossil fuels obsolete, resolving the problem, although with profound ramifications for fossil- fuel-dependent economies and their societies, with spillover affects throughout the world.  More likely, a comprehensive and highly complex international policy regime will be required far beyond what is currently even contemplated with voluntary “pledges” by nation states negotiating from the perspective of their national interests.

    Great progress this week.  The hard work lies ahead.

  • China: Ecological Civilization Rising?

    February 26th, 2015 by ewalsh

    Returning to China for the first time in a quarter century this month was equally awe inspiring and terrifying. The observation deck of the truly gorgeous Shanghai World Financial Center is breathtaking, a fitting testament to China’s rise. But it was the unexpected sense that we might be experiencing history at DeTao Group’s summit in Shanghai, “Future New Economy: Sustainable Model Toward an Ecological Economy,” that left an indelible mark on me.

    I had the honor to address the DeTao Group summit on the topic of regenerative investing in natural capital. Inspired by the vision and leadership of DeTao Chairman George Lee, it was an extraordinary experience. The warm hospitality and genuine appreciation and respect extended to all the visiting “experts” was quite exceptional. As George told me, “in Chinese culture, we honor our teachers.”

    DeTao Chairman George Lee

    DeTao Chairman George Lee

    The context of the summit was of course China’s unprecedented quarter century boom that has seen China emerge the second largest economy in the world, lifted two hundred million people out of poverty (so I’m told), and created middle class lives for many and immense wealth for more than a few. But this newfound wealth and power has come at a significant cost.

    China is now the world’s largest carbon emitter, the result of the west’s outsourcing manufacturing production to a location where environmental standards are lower, and cheap, plentiful coal is the power source of choice. I’m told that eighty percent of the population has no access to clean water, and virtually all of the productive soil is toxic. The now infamous air pollution is making people sick and reducing life expectancies. The environmental crisis is not a special interest issue; it is omnipresent.

    It was quite significant, therefore, when the 18th National Congress of the Communist Party wrote the construction of an “Ecological Civilization” into the Constitution in 2012, requiring a shift away from the industrial civilization modern China had become. Of course in an authoritarian State with single party rule, a change like this gets translated directly into policy, albeit slowly and unevenly. Note how clear China’s President Xi is with respect to the real source of wealth:

    “We value both natural landscape and resource as well as material wealth. The former overrides and promises the latter.” – Chinese President Xi Jinping

    I can’t pretend to know how serious China’s leaders are with respect to their stated goal of achieving an “ecological civilization,” and one certainly can’t help but notice the irony when looking at the pollution belching out of smoke stacks as you travel to and from the airport. But I was impressed with what I saw at this summit. Here are a few highlights:

    • The conference highlighted the work being led by ecological economist Dr. Robert Costanza in Sanya City (“the Miami of China”) to create the first natural capital balance sheet for one of the world’s major municipal governments. In his speech, Sanya City Vice Mayor Li Baiqing stated that “it is difficult for an entire society to think in a different paradigm,” and “this [management of natural capital] project is our destiny.”
    • Mr. Long Yongtu, who negotiated China’s entrance into the World Trade Organization and is now Secretary General of the Boao Forum for Asia, gave a remarkably honest assessment, stating that, “China is at a crossroads. After thirty years of development, people are getting wealthier but are not feeling happier.”
    • And Chairman George Lee closed the conference with a notable speech, calling for a “new economic system” in which investing in natural capital will be the doorway to the new economy. He has a vision for private capital working in collaboration with the public sector, enhancing the efficiency and speed of capital deployment for the shared benefits of healthy ecosystems, and the pathway to a “green mountain” to complement the “gold mountain” that has been built.

    Now of course the devil is in the details. (For more on that, see my thought piece Limits to Investment.) Unleashing huge surpluses of investment capital in the name of “natural capital investment” can do as much damage as good, and much more is needed than unlocking investment capital. Indeed, Long Yongtu himself cautioned that investment had become “the bad guy” but felt it didn’t need to be. I understood what he meant when I peered from atop the Shanghai World Financial Center across endless nondescript concrete blocks of apartment buildings that stretch as far as the eye can see.

    But what struck me most as I listened to the presentations and even more in the private conversations was that I was experiencing history in the making. Unlike so many conferences in the West where there is a lot of talk, and then everyone knows little will change, in Shanghai, I felt the tide shifting under our feet. I felt that a force was being unleashed, that began, no doubt, with the amendment to the constitution in 2012, in response to profound ecological and human crises.

    Authoritarian leadership, like it or not, has pointed to a spot on a distant horizon and set change in motion. Five-year plans were affected, and transitioning the economic system will require an ability to plan (take note, America!). Reward systems have been adjusted. Experts are called in for their ideas. Old paradigms that brought great success in the past are put on the table and critiqued in light of the new context. No ideological debate casts a shadow, only debate about how to engineer solutions. We may not like all the answers (200 nuclear power plants are in the pipeline). No doubt there will be ups and downs, and likely crisis. Success is far from certain.

    Yet powerful mainstream Chinese interests appeared interested to learn, not defend. Successful and practical business leaders like George Lee, now a practicing Buddhist, have taken up the reins and are initiating action. The mayor of a major city is establishing a natural capital balance sheet and will begin monitoring its rise or fall as “destiny.” Others will follow. We all signed a bold joint declaration, despite an imperfect translation. The media was present in full force doing interviews and reporting on the substance of the event. History was unfolding.

    Notes to self:  It’s in our collective interest that they get this right. Remember the name George Lee.

  • The Club of Rome’s Next Act

    October 30th, 2014 by ewalsh
    Image Courtesy of Wikipedia.org

    Courtesy of Wikipedia

    The Club of Rome was founded in 1968 but really came into the public eye with the publication of Limits to Growth in 1972. The controversial book, which sold 12 million copies in 37 languages, first called attention to the systemic limitations of the exponential expansion of the human population and the related material inputs and waste outputs of its economic system on a planet that is fixed in scale.

    The concept is not complicated. Sooner or later, the endless expansion of the metabolism of a system within a finite body will cease.

    Critics and the media misinterpreted (or willfully distorted) the message at the time as a prediction of imminent collapse. The authors were accused of being neo-Malthusian alarmists, personally attacked, and dismissed. If there were any doubt about that dismissive conclusion it was reinforced in the following decade of the eighties, during which deregulation ushered in an era of seemingly boundless prosperity. The authors were quacks; their systems dynamics models were wrong; there are no limits to growth — end of discussion.

    One problem: Turns out reality is tracking the modelers’ “business as usual” case remarkably closely.

    Courtesy of OurFiniteWorld.com

    Several recent studies, the most prominent one by Australian physicist Graham Turner, have validated the basic accuracy of the systemic interconnections the original study highlighted forty-two years ago. We are tracking the “business as usual” scenario quite well, given the limitations of these early systems models in 1972. Critically, we are just now approaching the moment of truth with respect to the economic indicators that the models anticipated, as the charts below demonstrate. Furthermore, as Turner explores, it is possible that the 2008 financial collapse, and the ongoing economic malaise, may actually be linked to the looming tipping point around 2015 that the “business as usual” scenario indicated back in 1972.

    Image Courtesy of Graham Turner's "Is Global Collapse Imminent"

    Courtesy of Graham Turner’s “Is Global Collapse Imminent”

    And most importantly, we have wasted four decades ignoring the insights of the original Club of Rome report, leaving us in a state of global emergency that is becoming harder to ignore, with warning signs flashing red, most notably the effects of global warming. (See Johan Rockstrom’s “Planetary Boundaries: Exploring the Safe Operating Space for Humanity“)

    This is the context in which Club of Rome Co-Chairs Anders Wijkman and Ernst von Weizsaecker convened the annual meeting of the Club of Rome in Mexico City last week. The theme of the conference was the energy transition off fossil fuels, which juxtaposed nicely against Mexico’s new commitment to clean up corruption in Pemex, the State-owned oil company, while also welcoming (and this is where it became surreal but also very poignant) new foreign direct investment, previously banned, into exploration partnerships with Pemex in order to accelerate fossil fuel extraction with the goal of reversing the State’s declining oil revenues.

    This is exactly the tension underlying what I call our “$20 Trillion Big Choice.” While we focus as we must on the monumental challenge to mobilize the necessary policies and investments to transition the world off fossil fuels, those sitting on our existing stock of fossil fuel reserves, from Exxon to Mexico, are naturally seeking to optimize the exploitation of those reserves, which remain highly profitable as long as we continue to ignore the costs of global warming. And the $20 trillion “choice” is harder. It means not only ceasing to invest new capital to expand fossil fuel extraction – $674 billion last year alone – it means writing off some $20 trillion of existing proved reserves (“stranded assets”) rather than cashing them in (as a comparison, the direct financial losses of the subprime crisis in the U.S. were a mere $2.7 trillion).

    The divestment movement now well underway is focused primarily on the 25 percent of this stranded asset issue owned by public companies. (See Rockefeller Brothers Fund historic decision to divest.) Exxon, the successor company to John D. Rockefeller’s Standard Oil, has responded to the Rockefeller decision with a statement about their concern for those facing energy poverty. Touching.

    But the real question is the largest and most complex geopolitical challenge of all time: how can we restrain the exploitation of existing proved fossil fuel reserves, not only those controlled by the Exxon’s of the world, but even more difficult, the 75 percent of reserves controlled by nation states like Mexico (and Saudi Arabia, Iraq, Iran, Venezuela, Canada, and Russia just for starters) whose economies (and social cohesion) are currently highly dependent upon the continued sale of oil and gas?

    I was privileged to address the attendees at the Annual Meeting on “Financing the Energy Transition.” In my speech, I addressed three interconnected monumental challenges:

    • Mobilizing the estimated $44 trillion (that’s Trillion with a “T”) of investment required between now and 2050 for renewable energy technologies and critical energy efficiency, (see the International Energy Agency’s recent report);
    • The $20 trillion stranded asset challenge referred to above; and
    • The overarching context of limits to growth, which implies a corollary limits to investment a challenge no economic system has ever had to contemplate.

    Jane Jacobs once said, “it’s not how big you grow, it’s how you grow big.”

    As we reflect on the prescience of the Club of Rome’s seminal work on limits to growth, nothing could be more important at this pivotal moment in time. Future growth and development, beginning with the energy system that fuels it, and the business models that define its qualities, will need to evolve as living systems have done over billions of years, to more intricate, regenerative systems.

    Watch for the Club of Rome’s next act, shifting from prescient diagnosis, to a search for genuine solutions, rooted in a systemic level understanding of the forces at play. We can say for sure that there are limits to mindless growth. Regenerative economies nurture mindful growth and development. This is the future we had better embrace.

    To read John’s full address to attendees of the Annual Conference of the Club of Rome, click here.

  • John Lennon Said It Best: “Living is Easy with Eyes Closed”

    July 30th, 2014 by designburd

     

    I was floored by this Saturday’s New York Times article, “Seeing a Supersize Yacht as a Job Engine, Not a Self-Indulgence.” I was amazed not only by how the subject of the article, Mr. Jones, rationalized his extraordinary consumption habits, but also by the mere fact that the article was published.

    Mr. Jones of St. Louis, we learn, is living the “American dream.” Now in his mid 70s, still married to his high school sweetheart, and apparently a natural born salesman, he built Jones Pharma and sold it for $3.4 billion in 2000 (well done, and good timing). From an earlier 2010 article, it appears that Jones’s personal take from the sale was about $500 million, of which he put 10 percent in a family foundation. I guess tithing is alive and well in St. Louis. With the remaining $450 million, the Joneses are living large in a 33,000- square-foot house in St. Louis, and with several other homes, a Gulfsteam V, and, the subject of the article, a $34 million, 164-foot, custom-built yacht.

    26wealth-pic-master675-v2.preview

    To be fair, such a yacht is not extravagant by billionaire oligarch standards. Larry Ellison recently downsized, and sold his 452-foot Rising Sun to David Geffen, his second super yacht. Paul Allen’s Octopus measures in at 414 feet – his second boat is only 300 feet. Who knew you needed two?

    Mr. Jones sounds like a nice man. Charitable toward the underprivileged in St. Louis in particular, focused on education, and the homeless. And he shares his good fortune with his old “pre-success” friends, inviting them on his jet and yacht all over the world. Nice.

    What floored me was how he rationalized spending $34 million on his new yacht and how uncritically the author Paul Sullivan bought into that rationalization. According to Sullivan, “Mr. Jones said he wanted to encourage other wealthy people to think about how their opulent lifestyles could provide jobs just as their charity helps people in need.” The story goes on to report how his $34 million purchase order in 2013 helped revive the North Western yacht manufacturer who had been forced, out of necessity, to diversify into manufacturing wind turbines and smaller vessels. I guess until Mr. Jones got his mojo back, the mega-yacht purchasing crowd was still laying low following the Wall Street-induced economic collapse. Now that’s the leadership we’ve been waiting for!

    Mr. Jones is, however, on to something. Both investment and consumption decisions have broad implications and multiplier effects, including the job creation that is at the heart of Mr. Jones’s argument. But in the 21st century, a new and far more nuanced understanding of financial stewardship than Mr. Jones’s is required of the very wealthy. And it can, and must, change the course of history. Let me explain:

    • As we know, inequality has reached levels not seen since feudal times in this country. History teaches that such highly unequal societies devolve into either a police state or revolution. This reality alone demands, among other things, “conspicuous under-consumption” by the wealthy, and vastly more strategically directed philanthropy.
    • We are in ecological overshoot, using up more nature every year than the earth regenerates on its own. This means excessive consumption “because they can” by the “most successful Americans” among us impedes others now and in the future from having access to a fair share of nature, including a safe climate to carry on life as we know it. Because of the scale of today’s global economy, this is our new reality, and it is unlike anything we have encountered in the past.
    • Few things are more wasteful of our atmosphere’s finite ability to absorb greenhouse gases than a large, fossil-fuel powered yacht. Mr. Jones’s boat burns 3.75 gallons of diesel per nautical mile (not miles per gallon). The fuel tanks of Mr. Allen’s Octopus cost $900,000 to fill up (in the U.S., twice that on the French Riviera) and burns a grotesque 28 gallons per nautical mile (more if it’s in a hurry). Imagine a gluttonous man in a lifeboat dumping water over his head to keep cool knowing it would cause others to die of thirst later. Someday soon, this will not seem like a strained analogy.
    • Never in the history of civilization has there been such an investment imperative as the transition off our fossil-fuel energy system and onto renewables, estimated at $30 trillion over the next decades. This investment imperative, not consumption, is where we need leadership from the Mr. Joneses of the world.
    • Which leads to my final point. Mr. Jones missed a great opportunity. The shipyard had already diversified into wind turbine blades and smaller (more fuel efficient) boats. Imagine if he had opted for a smaller boat, perhaps crafted out of sustainably harvested wood rather than toxic and unrecyclable composites and with an innovative hybrid electric power system that needs price insensitive early adopters. Perhaps even a sailboat of all things! Either way, he could have put in an order for five of them, and shared them with all his friends so they could still go cruising together (and put them out for charter in the “sharing economy”) while helping stimulate the vital transition of the cruising boat industry in the process. At the same time, he could have invested in the company and helped them accelerate their diversification into wind turbines as a second line of business and actually survive long-term, since manufacturing 160-foot yachts is likely a dead end in the real world. Think how much more valuable and empowering those jobs could have been if the company was at the vanguard of two industry transitions.

    There are many entrepreneurs busy at work all around the world helping drive the transition to more regenerative economies supporting healthy and resilient livelihoods. Spencer Beebe, head of Ecotrust across the river from the shipyard in Portland, Oregon, is one such entrepreneur who writes in the latest issue of Commonplace magazine, “My forty years of conservation work has focused on practical ways to integrate ecology and economics, to promote conservation, while creating jobs.”

    We need more such leadership and “job creation” that regenerates natural and social capital. And please save the rationalization of excessive consumption, which is just the example we don’t need to admire at this time. I can’t think of a better way to bring out the pitchforks than by burning that much fuel as a luxury in the carbon constrained world we are heading into, a world where we must figure out how not to burn 80% of the fossil fuel reserves we’ve already discovered if we are to avoid the worst consequences of climate change.

    But it is not altogether fair to single out Mr. Jones as our whipping boy. We are all, in the developed world, complicit in a lifestyle that, when analyzed objectively, is immoral, given the carbon budget truth we must face up to, and the inequities of our current economic system. This truth hits harder as the assets we have the responsibility to steward grows. All outlets have inescapable consequences, whether the money is channeled into consumption, investment, or philanthropy.

    Welcome to the new meaning and awesome responsibility of financial stewardship in the 21st century.

  • Harvard and Brown Fail Moral Leadership Exam

    November 19th, 2013 by John Fullerton

    At a time when institutions of business and government continue to fail society, two of our leading academic institutions missed the opportunity to provide essential moral leadership on the most pressing challenge ever faced in the history of human civilization.

    Harvard President Drew Faust issued her October statement >> Read more

  • Reimagining Capitalism in Post Sandy America

    November 6th, 2012 by John Fullerton

    No scientist will tell you with certainty whether doping was the reason Lance Armstrong won any particular leg of his seven Tour de France titles. You know where I’m headed with this reasoning.

    Bloomberg Businessweek put it rather succinctly on this week’s cover: “It’s Global Warming, STUPID.”

    For the first time since 1984, not one challenge >> Read more