2b: Intro to the Energy Transition

International Political Economy of Fossil Fuels

Misha Velthuis

m.velthuis@uva.nl

Thu 12 Sept 2024

Today

How come we are stuck in this situation?

Shale

What is shale oil/gas?

How come we are stuck here?

It's simply ecology

It happened before

It's simply the mode of production

Remember …

An ancient sketch originally from "The Annals of Salt Law of Sichuan Province". A "Kang Pen" drum is seen in the centre foreground, with gas pipes directly feeding the salt stoves on the right. At the top, brine from a remote well is being carried in buckets by men, who feed it into a bamboo pipeline that runs down to the stoves. One of the carriers is being paid at top left, and it appears that a blow out is depicted on a new well being drilled in the left foreground;.

(From here).

What is capitalism?

Capitalism vs feudalism

Workers are separated from means of production

(new in capitalism)

Workers are paid less than what they produce (surplus for capitalist)

(same as under feudalism)

Workers are paid wages that they spend on the open market

(new in capitalism)

Capitalists need to reinvest surplus to expand/maintain market share (and continue accumulation)

(new in capitalism)

Historical Materialism

Historical materialism

We are rolling down the cost-landscape that is unfolding in front of our eyes.

This is how we "rolled" into coal. And how we "rolled" into oil.

Determinist (not unlike the ecologist view): like cyanobacteria, we unlocked a new power whose destructive consequences we can't escape.

Or can we escape them?

Can we change the cost landscape? For example:

Directed R&D lowering the costs of the technologies we would like to be cheaper.
Taxes increasing the costs of technologies we would like to be more expensive?

But didn't capitalism "push out" anything that doesn't lower costs? Countries that impose strict regulation will see their industry "roll down" to other countries?

If this is not a shared project, we might still roll down the same slope.

Only way out is some form of collective coordination.

Private capital is going to have to give up some freedom (it is going to have to yield to collective decision making).

Large-scale social change?

Marx: "Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past…"

Systemic change tends to be resisted by those who have the most to lose, and the least to gain
Systemic change tends to be pushed for by those who have least to lose, and most to gain

Unfortunate loop: those who benefit from the system have power. This power enables them to 1. defend the system and 2. avoid/evade the destructive consequences of the system's persistence.

History has shown that capitalism can reinvent itself in the face of systemic threats:

In the 1930s, in the face of the Bolshevik revolution in Russia and the growing strength of socialism in Europe:
- Embrace of fascism (a tried and proven method to break anti-capitalist resistance and channel popular discontent towards reactionary politics that defends the interests of private capital).
After WWII, in the face of ideological threat from Soviet Union
- Concessions to labour (welfare state, social democracy).

Right now: again increasing awareness that something has to budge. What is happening with the discontent and desperation?

Growth of fascist distraction/redirection? In the interest of the few who have a lot to lose?

People with power are fine with spread of individualism. But to people without power, strength lies in the numbers. What we are seeing: vilification of organized labour/ organized resistance.

Spread of stories? Narratives? Discourse matters.

Therefore, especially now: dangerous to hand over full control over our discursive/cognitive infrastructure (how we relate to the world and each other) to billionaires.

It's simply
international political economy

Capitalists and the state

Manage international dependence

Sellers

Increase number of buyers of what you have to sell (reduce your dependence on others)

Decrease options/alternatives for buyers of what you have to sell (increase others' dependence on you)

Buyers

Increase number of sellers for what you need to buy (reduce your dependence on others)

Decrease options/alternatives for sellers of what you need to buy (increase others' dependence on you)

Useful lens for understanding history

The story of shale

Shale: geopolitical reset

Shale boom facilitating new era of US isolationism?

Reduction of dependence on Middle-East?

Reminder of Churchill:

To commit the Navy irrevocably to foreign oil (rather than British coal) was indeed “to take arms against a sea of troubles”’.
The US went through the same "sea of troubles"…
… but got to reverse this move (from foreign oil, back to domestic oil).

Quotes from FT article:

The US will not disengage from its role in global security, even as its own rising fuel output makes it increasingly independent of foreign producers, the US energy secretary said.
Ernest Moniz said the possibility of the US and Canada together soon producing as much energy as they consume was “a real one”.
However, he said the US still had interests in oil-producing regions such as the Middle East, and in the security of global energy flows.
“This is not like we somehow draw back behind a curtain,” he told the Financial Times
He also offered reassurance to customers planning to buy liquefied natural gas from the US, suggesting it was highly unlikely the government would ever exercise its power to cut off those supplies.

Shale: geopolitical reset

Global shale oil/gas reserves

Stranded assets?

Stranded regions

"We", in the Netherlands, have benefited:

We have benefited from the low prices that were maintained through the murder of environmental activists, and labour activists.
In Cesar: at least 3000 executions by the paramilitaries, unfortunately also called "AUC" (Autodefensas Unidas de Colombia) (Trouw, 2023) (Link)

"They", in Colombia, have become dependent:

In term of fiscal income (without coal exports there are no other tax revenues)
In terms of trade (economy has come to rely on imports that are paid for with coal exports)
Economic (carbon curse: the economy has been built around coal mining)

We asked "them" to jump and take a risk. For the sake of our comfort. They jumped. They became dependent. Now we simply discard them (patting ourselves on the back for closing coal-fired power plants).

From: Furnaro, A., & Yanguas-Parra, P. (2022). A Global South Perspective on Stranded Regions: Insights from the Decline of Coal Mining in Cesar, Colombia. Economics of Energy & Environmental Policy, 11(2), 27-48.

The war in Ukraine as a second chance

Agents of change?

Dealing with stranded assets:
Ministry for the future

Excerpt from book:

In Saudi Arabia, during the height of the hajj, what appeared to be a coup by the military resulted in the deaths of an unknown number of Saudi princes. Reports ranged from twenty to ﬁfty, but no one knew for sure. The king was in New York at the time, and was said to be in hiding and not planning on going home. He called on the world to support his legitimate government, and a few governments did, but none of them oﬀered active help. The United States oﬀered asylum. The new government had the backing of most of the people in the country, as far as anyone could tell; with the hajj in disarray and two million Muslims either trying to complete their pilgrimage or get home, confusion on the Arabian peninsula was general. The only thing that was obvious in that ﬁrst month was that no one outside the Arabian peninsula knew very much about what had really been happening in Saudi Arabia. Which was now to be called simply Arabia, the new government told the world. The Sauds were done. The other Sunni national governments were cautiously approving or disapproving of this removal, reserving their sharpest criticism for the disruption of the hajj. No one had liked the Saud family, it now appeared, but the ramiﬁcations of this were unknown, and potentially volatile throughout the region. The Shiite nations openly applauded the coup. Other governments around the world stayed reticent. They seemed to be trying to calculate what the change meant and what the new government would do, especially with its immense reserves of oil. The formerly implicit was now uncomfortably obvious; no one had cared about these people, only about their oil. Then word came from Riyadh that Arabians respected the pressing need to decarbonize the world’s economy, and intended to use their oil only for plastics manufacture and other non-combustible uses. The new Arabian government therefore made an immediate claim to the CCCB, the Climate Coalition of Central Banks, which recently had been established speciﬁcally to administer the carbon coin, saying that their full conversion to solar power, to begin immediately, and their refusal to sell their oil reserves for burning, deserved compensation in the form of the CCCB’s newly created carbon coins, sometimes called carboni. At the rate of one coin per ton of secured carbon, the Arabic claim was estimated at about a trillion carbon coins; at current exchange rates this came to several trillion US dollars, which would make Arabia instantly one of the richest countries on Earth, at least in terms of national bank assets. If the present currency exchange rates held, they would be wealthier than if they had sold their oil for burning. After a period of delay the CCCB agreed to this exchange, but stipulated it was to be paid out on a schedule pegged to how fast the Arabian oil would have been produced and burned in that now deactivated alternate history, only a bit front-loaded and accelerated to reward Arabia for doing the right thing for the planet and human civilization. Meanwhile they could leverage this assured income stream, which they did. They accepted the deal and went to work. This sudden loss of supply sent oil prices and oil futures sharply up. Oil was rarer now, therefore more expensive, which meant that clean renewable energy was now cheaper than oil by an even larger margin than before. And as the new carbon taxes being levied in every country in compliance with the latest commitments to the Paris Agreement, made at the COP43 meeting, were also scheduled to rise year by year by an increasing percentage, price signals were now all pointing toward clean renewables as the cheapest way to power the world. The social cost of carbon was ﬁnally getting injected into the price of fossil fuels, and that old saying, ridiculed by the fossil fuels industry for decades, was suddenly becoming the obvious thing, as being the most proﬁtable or least unproﬁtable thing: Keep it in the ground.

How did we get so stuck?

"It's simply ecology"

"It's simply capitalism"

"It's simply international political economy"