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Denting the denial

Image: Maurizio Pesce

The coming year may prove to be the one in which the rose-tinted spectacles finally begin to slip and the enormity of our predicament begins to dawn.  The simple reason for this is that by the end of 2018 the unsustainability of our current way of life had begun to dawn.  In each of the “Three E’s” (environment, energy and economy) the illusions that have kept us going for a decade following the 2008 crash began to shatter. 

On the environmental front, the bad news just kept on coming.  Climate models, it seems, had underestimated the amount of heat locked up in the oceans so that climate change is happening even faster than previously expected.  Last year turned out to have been the hottest La Niña year on record.  Polar ice continues to melt, with parts of the Antarctic melting faster than the Arctic; threatening more rapid sea level rises.  However, it was two environmental issues not directly related to climate change that caught the public imagination in 2018 – plastic pollution and the growing insect extinction.  Both are the direct result of human activities that require no specialist models to explain.  In the case of plastic, it is simply that we awoke to the fact that there is no “away” to where we can throw our trash.  Other than the tiny fraction of plastic waste that can be down-cycled, what we threw away over decades was either incinerated or dumped (often at sea or in landfill sites adjacent to the coast).  The insects, meanwhile, have fallen prey to the vast quantities of agrochemicals used by industrial agriculture to provide food for 7.5bn people on a planet that can only provide for a seventh of that population sustainably.

On the energy front, a combination of boosted US shale drilling and OPEC-Russia production cuts created the kind of price volatility that stifles investment in future exploration and recovery, and that often undermines the stability of the wider economy.  Behind the rapid increase and equally rapid drop in oil prices, however, 2018 saw the emergence of a more alarming long-term issue.  This is that the quality of the oil entering our oil (largely diesel) based economy matters.

Whereas for more than 140 years we have been used to growing supplies of conventional crude oil, for the last decade we have been keeping production up using an increasing volume of ultra-light and ultra-heavy unconventional oil.  While it had been believed that blending these light and heavy oils would result in something akin to conventional crude, it appears that this is not the case.  The result has been a divergence between (lighter) petrol/gasoline output and (heavier) diesel, kerosene and bunker fuel production.  This has already created a noticeable difference in prices at the pump, with diesel prices increasing even as petrol prices fall.  If this trend continues, it will be difficult for the mainstream media to ignore it as the motoring public – many of whom were persuaded to buy diesel cars because they were allegedly “green” – becomes increasingly angry about transport costs.  The bigger problem on the horizon, however, is the International Maritime Organisation’s decision to oblige shipping operators to switch from heavily polluting, sulphurous bunker oil to (slightly) less polluting diesel from 2020.  According to Libby George and Ahmad Ghaddar at Reuters:

“Most demand is expected to shift to marine gasoil, a lower sulfur distillate [diesel] fuel.

“Morgan Stanley predicts this will generate at least 1.5 million bpd in extra demand for distillate in the next three years, pushing up total distillate demand growth for the period to 3.2 million bpd.

“That, in turn, will drive up prices. Gasoil now trades at a premium of about $250 a ton to fuel oil, but the forward curve forecasts this will balloon to $380 per ton by early 2020.”

If the world’s refineries were struggling to produce enough diesel to satisfy demand prior to these changes taking effect, they are certainly going to struggle afterward:

“…the energy and shipping industries are ill-prepared, say analysts, with refiners likely to struggle to meet higher demand for cleaner fuel and few ships fitted with equipment to reduce sulfur emissions…

“’The reality is that the industry has already passed the date beyond the smooth transition,’ Neil Atkinson, head of the oil industry and market division at the International Energy Agency (IEA), said in April.”

The inflationary impact of this large hike in the price of diesel will be devastating for ordinary people across the western economies, whose living standards have already been crushed by a decade of austerity.  According to the IEA, shipping accounts for 80 percent of the physical units of international trade.  So 80 percent of everything we buy is going to be increasing in price simply because of the increase in shipping costs.  According to Elizabeth Stratiotis at More Than Shipping:

“Fuel oil analysts calculate the difference in price between HFO [i.e. bunker fuel] and LSFO [diesel] of around $200 per tonne. The additional cost for a 20,000 TEU ship would be $50,000 a day.

“Also, low-sulphur fuel oil (LSFO) cost is currently around $600 per tonne, compared with $460 12 months ago.”

Almost all of the remaining 20 percent of the physical units of trade that we buy will arrive on a truck (as, of course, will the 80 percent that has to be moved from ship to shop).  With shipping driving up the cost of fuel, the trucking firms will also be facing higher fuel costs; and will struggle to avoid passing these costs on to consumers.

This brings us to the economic front.  As expected, 2018 turned out to be the year of the white swan.  Oil prices spiked upward and central banks countered with higher interest rates which, alongside unwinding quantitative easing are meant to convince investors that we are “returning to normality” (whatever that means in the post-2008 world).  The consequences were predictable enough too:

“As happened in the run up to 2008, they will oblige firms and households that are already struggling with rising prices to divert more of their income into servicing their debts.  Inevitably this will trigger defaults and bankruptcies as consumer spending drops and firms and households can no longer pay their way…”

In the UK, 2018 ended with a bloodbath on the High Street as a decade of austerity finally came home to roost.  With average wages (adjusted for inflation) at just two-thirds of their 2008 level, 2018 turned out to be the year that our collective discretionary income (the amount left over after the bills have been paid) finally fell below the amount required to sustain a consumer economy.  By December 2018, even the mainstream media was obliged to stop glossing over the collapse of consumer spending with weather-related nonsense.  Even the upbeat BBC conceded that:

“The retail sector took a battering in 2018.  Some 40,000 jobs have been lost or are at risk.  Household names like House of Fraser, New Look and Marks & Spencer have been forced to close stores and take a long look at how they do business.  A profit warning from Asos , the online fashion firm, in December suggested that even the internet might not be retail’s panacea.”

More worrying, however, was the news in October that the slump in discretionary spending was beginning to cascade into the retail supply chain.  As Judith Evans at the Financial Times reported:

“UK landlords are struggling to offload billions of pounds’ worth of shopping centres and retail parks, as the crisis in bricks-and-mortar retail ripples into the property sector.

“At least £2.5bn of retail properties are currently being marketed, according to FT data based on information from agents, while some property companies privately place the total available to buy as high as £5bn.”

In the immediate aftermath of the 2008 crash, low interest rates and quantitative easing made commercial property an ideal investment.  The rental income from prime city centre property far outweighed the repayments on the loans used to purchase them.  So long as consumer spending continued to grow, it was as close to money for nothing as anyone could find… So long as consumer spending continued to grow.

The gathering storm clouds in the real economy finally percolated through to the ersatz financial markets, which ended the year with the worst December on record.  Aided and abetted by algorithms that can run for the exits in a fraction of the time required by the average pension fund manager, financial markets are now in dangerously bearish territory.

None of this is news to anyone with some grounding in energy economics and the wit to look carefully behind the headlines.  Nor is it difficult to see where these trends are going in the longer-term.  Governments and central banks will prioritise maintaining the current system ahead of any serious action to reverse the human impact on the environment.  As a result it will be the arrival of shortages in critical fuel and/or mineral resources that will provide the mercy bullet to our unsustainable way of life.  Between then and now, however, there is plenty of scope for human action both of the kind that may cushion the blow and of the kind that may exacerbate our predicament.

What is clear, however, is that the stories that we have been telling ourselves in order to avoid peering into the abyss are wearing thin.  The idea, for example, that we can cut our way to prosperity has all too obviously resulted in a wave of insolvencies, a growth of low-paid and insecure working and, at the bottom of the heap, a massive increase in homelessness and emergency food handouts.  Similarly, the myth that we can solve our environmental crisis via circular recycling activities was holed beneath the waterline when China decided not to be the west’s trash heap any more.

Other myths persist of course.  Large numbers still believe that our energy predicament can be solved by deploying non-renewable renewable energy harvesting technologies like solar panels and wind turbines, despite these failing to even dent global carbon emissions.  Even more people believe the story about how yet-to-be-invented technologies will suck the excess carbon dioxide out of the atmosphere and store it beneath the ground in perpetuity.  Closer to home, though, the world remains wedded to the quasi-religious belief in infinite growth on a finite planet; choosing to believe that it is only the global elite that is dysfunctional rather than western civilisation as a whole.

This last belief is largely responsible for the wave of populist movements in support of any political figure who appears to emerge from outside the neoliberal elite.  Such diverse and unlikely figures as Jeremy Corbyn, Donald Trump, Bernie Sanders, Viktor Orbán, Jair Bolsonaro and Giuseppe Conte have all been propelled to centre stage by a growing coalition of people united by their discontent with the post-1980 neoliberal consensus.  Meanwhile, neoliberal insiders like May, Merkel and Macron, who looked unassailable just a few years ago, have been left clinging to power by their finger nails in the face of a growing populist revolt.

Environmental policy turns out to be the arena where the clash between the populists and the neoliberals is playing out.   It is notable that Macron’s Qu’ils mangent de la brioche moment arose from the imposition of an environmental tax.

It ought to have been obvious that continuing to force the poor to pay for slowing environmental destruction while giving the wealthy a free pass was going to end badly.  The spectacle of failed politicians, petulant movie stars and techno-confidence tricksters flying around the planet lecturing the rest of us on why we need to change our behaviour always played badly.  However, the greater resentment is toward the various affluent class campaigners – including climate scientists themselves – whose actions and lifestyles are totally at odds with their message.  As John Michael Greer explained on his Ecosophia blog:

“It’s really quite simple. Imagine, dear reader, that instead of talking about stopping climate change, we were talking about stopping rape. Imagine that there were big organizations dedicated to stopping rape, and curiously enough, most of their membership consisted of serial rapists. Imagine, then, that people pointed out to the serial rapists that if they really wanted to stop rape, they ought to start by not committing any more rapes themselves – and every time, the serial rapists responded by insisting that you can’t stop rape by just having the members of anti-rape organizations give up raping people, that the problem’s much bigger than that, and how can they find a way to communicate to everyone in the world that rape is wrong? The answer, of course, is that they can’t, because nobody will take them seriously until they themselves stop committing rape.

“Climate change activism these days is almost entirely a concern of middle- and upper middle-class people in the industrial world: people, that is, whose lifestyles are disproportionately responsible for the dumping of greenhouse gases; people who use much more fossil fuel energy, and many more of the products of fossil fuel energy, than the average human being. This fact isn’t lost on anybody outside the climate change movement – and the fact that climate change activists by and large insist on leading carbon-intensive lifestyles, while insisting that everyone else has to do something about climate change, has done more to scuttle the movement to stop climate change than any other factor I can think of.”

In less stark terms, this message began to permeate the mainstream media too.  2018 ended with Michael Zammit Cutajar in the Financial Times conceding that:

“…the revolt in France against an increased tax on fuel consumption, proposed on climatic grounds, reminds us that climate action must also be ‘good for the people.’ The crisis building up in the earth’s atmosphere cannot be overcome by Olympian elitism. Protecting the global climate must be inspired by social justice and not run counter to providing universal access to affordable energy. The wars against climate change and against poverty must be combined and fought on both fronts.”

In the same week, the Irish Times explained that “Austerity has created indifference towards climate change;” meanwhile, Daphne Leprince-Ringuet at Wired notes that:

“If governments fail to earn the trust of their citizens in implementing climate change policies, they will reinforce the common trope that environmentalism is a privilege of the better off…

“As the gilets jaunes protests have shown, things can escalate in a matter of weeks. In this case, concerns with climate policy are no longer at the top of the protesters’ agenda; the demonstrations have morphed into a challenge to President Macron’s economic and social policies, reflecting a general feeling of discontent across the country.”

Although these organs continue to see the problem in terms of “educating the masses” into accepting further hardship, they are forced to acknowledge that the masses are no longer playing ball.  This suggests that something that has been obvious enough to anyone paying attention is about to enter the mainstream – that we cannot mitigate the existential crises that face us without radically changing the societies/economies that are largely responsible for creating them.

Raising the need for a fairer distribution of wealth as a basis for any serious environmental programme serves to further undermine our carefully crafted attempts at trading safety for peace of mind.  When relatively affluent journalists, economists and politicians talk about the need for fairness in environmental policy, they are not talking about what we really need to do – i.e. make dramatic cuts to the consumptive lifestyles of the top 10 percent of the world population (almost everyone earning a western living wage or more).  Rather, they are looking to governments and central banks to play the one remaining card in their post-2008 hand… helicopter money.

Helicopter money – printing new currency and handing it more or less directly to the people – is likely to be sold in Keynesian terms; as an attempt to recreate the prosperity that followed in the wake of the Marshall Aid plan in the aftermath of the Second World War.  By using a combination of public investment, public sector services and increases in social security and pensions, governments in the west managed to rebuild their shattered economies and usher in the most prosperous 20 year period in human history.  This led far too many economists into believing that they really were the “Masters of the Universe.”  In reality, post-war currency printing only succeeded because of the vast quantities of untapped fossil fuels and mineral resources easily available to the few developed economies on the planet at that time.  When the trick was attempted in the 1970s – by which time most of the cheap and easy resources had been consumed – the result was inflation rather than prosperity.

Opponents of currency printing today are undoubtedly correct when they point to the likely outcomes in the shape of inflation and currency devaluations.  With the exception of Germany, the western economies have been running current account (aka balance of payments) deficits for several decades.  To allow this to continue, they have had to maintain artificially over-valued currencies; based more on the illusion that their economies are prosperous rather than any concrete ability to ever pay back their debts (Germany is the exception because it can use the poorer southern European economies to balance its own position within the Euro).  When, as is likely this year, central banks are forced to renege on their pledge to unwind quantitative easing and to “normalise” interest rates, we are very likely to see currencies being devalued (something that will happen to the UK the moment it leaves the European Union).

There is, however, no Monetarist solution to our predicament either.  Squeezing the money supply in the early 1980s bought low inflation at the cost of unemployment and poverty for classes and regions that have yet to recover from the shock.  And what recovery was possible in the 1990s and early 2000s only took place on the back of a massive expansion of debt that brought forth the last economically viable reserves of fossil fuels and critical minerals.  Attempting to repeat the trick today will certainly result in an economic collapse; but there will be no recovery to follow in its wake simply because dwindling resources mean that western consumerism is no longer viable.

As western politicians, economists and journalists are obliged to discuss the complexities involved in our current predicament, so 2019 may turn out to be the year that some, at least, of our denial has to be dropped.  It is equally likely, however, that 2019 will see an increase in the tribalism that is beginning to tear western societies apart; as each tribe blames the other for an unfolding collapse that each is equally responsible for.  Sadly, it is unlikely that any appreciation of the complexity will prevent us rushing headlong into faux political solutions that stand to make matters worse.  The new stories that we use to continue to trade safety for peace of mind are likely to have a (slightly) closer relationship to reality; but they are unlikely to admit that we cannot have infinite growth (or, growth of any kind for much longer) on our small finite planet.

As you made it to the end…

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