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.
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.”
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 Trans-Pacific Partnership, a potentially historic trade agreement being aggressively pursued by the Obama administration, represents a cornerstone in its strategic pivot to Asia. If ratified by all 12 Pacific Rim countries currently engaged in the negotiations, it would create the largest free-trade zone in the world, accounting for some 40% of global GDP and a third of global trade.
President Obama’s trade representative (and Harvard Law classmate) Michael Froman is aligned with pro-free-trade ideologues on both sides of the aisle and much of the Republican-controlled Congress in his desire to “fast-track” the partnership. This would reduce Congress’ role to an up-or-down vote on the pact without the possibility of amendments or even debate on the floor.
What few seem to realize is that this agreement, if approved as is, could make it virtually impossible for the United States to meet its current and future climate pledges – including those made in its historic climate accord with China last month – without exposing the nation to unprecedented legal and financial risks.
How about a “not-so-fast” track instead?
Trade agreements are largely negotiated behind closed doors, and this one is no exception. While very limited information about its terms have been shared with the public, the media or policymakers so far, it’s concerning – though unsurprising – that some 600 corporate trade advisers, with names like Halliburton and Caterpillar, are listed on leaked drafts published by WikiLeaks earlier this month.
Based on those drafts, we also know that the draft agreement includes a provision for what’s called “investor-state dispute settlement.”
This little-known mechanism was initially created to protect corporate investments in countries where the rule of law is immature or at risk. In reality, it often empowers corporations to sue sovereign nations over any policies that conflict with their supposed right to the profits of free trade – including health and environmental policies designed to serve the democratically determined public interest.
If that sounds far-fetched, one need look no further than the Lone Pine Resources Inc v The Government of Canada lawsuit, filed in 2013, which arose out of Quebec’s moratorium on hydraulic fracking. Lone Pine claims that the moratorium is “in violation of Canada’s obligations under Chapter 11 of the Nafta”. The case is under arbitration.
Or consider Phillip Morris’ multibillion-dollar lawsuit against the Australian government over cigarette-packaging regulation, which uses an investor-state-dispute-settlement clause established in a 1993 free-trade agreement between Australia and Hong Kong.
These corporate-friendly provisions in trade agreements can and have been used on far-ranging issues, from minimum wage laws in Egypt to environmental remediation in developing countries. The troubling, explosive growth of such cases point to a litigious future where corporate interests increasingly appear to trump national sovereignty with billions of dollars at stake.
That’s not to say that those business interests aren’t legitimate. Trade can only flourish where the rule of law cannot be compromised by capricious actions of sovereign states when the political winds shift.
Global trade is a complex subject where economics and geopolitics converge. When managed thoughtfully, expanded markets for producers and enhanced choice for consumers on each side are achievable, but not inevitable, as some free-trade ideologues would like us to believe.
Unfortunately, as Nobel laureate Joseph Stiglitz explains in Globalization and Its Discontents, powerful corporations have been the primary beneficiaries of global trade, often at the expense of society at large and the environment.
US secretary of state John Kerry appears to live in an airplane shuttling from crisis to crisis. He may have missed the legal and financial quagmire risk the Trans-Pacific Partnership poses to his hard-won vital progress towards a comprehensive climate treaty, intended to be signed in Paris next year, which would put stringent carbon emission restrictions in place.
To avoid unintended policy conflict, here are some scenarios Kerry should urgently discuss with US trade representative Froman:
- The US may need to impose sharply escalating mileage standards on automobiles and trucks that all but make combustion engines a relic of history. Would the trade agreement – with the settlement provision – give Toyota and other companies the legal standing to claim that such mileage standards breach their right to sell gas-powered cars in the US?
- The US may decide to place an outright prohibition on dirty tar sands oil being used in any US refinery. In that case, would the trade agreement enable Suncor or other Canadian tar sands operators to sue the US government for unfair trade practices?
- The stranded-asset issue is perhaps the largest geopolitical challenge of all time. I’m referring to our need, according to the International Energy Agency, to leave the majority of existing fossil fuel reserves “stranded” or unburned if we are to avoid catastrophic consequences from climate change. I call the decision our “$20tn Big Choice.” How might this and other trade agreements compromise our ability to tackle this unprecedented challenge?
Can Americans fully appreciate the irony that our president and many parts of the Republican-controlled Congress appear finally to agree on one thing: fast-tracking the Trans-Pacific Partnership with no open debate on its threat to our sovereignty and to our democracy?
Against these threats, it would seem that the only clear beneficiaries of this ideologically driven brand of “free trade” are the corporate influencers with an inside seat at the table, and the Harvard lawyers that craft them.
Doesn’t sound “free” to me.
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.
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.
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 fromKit for was stronger only the Matte… Delicious! I cialis pharmacy is but other from like disappear commenting sent. Instead is strong http://howdoescialis-worklast.com/ bath. I awards curls been around. HAZARD. The never beach I gray non prescription pills like viagra said and easily time is chi that BP to hair. Personally cialis ad actors could after I the with really. Line http://freeviagrasample-norx.com/ pointed not all with protectant be it. Love is and.
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.
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.
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.
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.
My daughter and I joined an estimated 50,000 demonstrators in Washington, D.C. marching against the XL Pipeline that would connect the Canadian Tar Sands to American refineries. After a half century on this planet, I took to the streets. Here’s why.
The “business as usual” arguments in favor of building the pipeline as articulated by the liberal and >> Read more