Putting Climate Change Front and Centre

Climate change is often treated in political discourse as the topic that dare not speak its name. For me, the biggest shock of the last cycle of presidential debates was that Romney and Obama were never even asked for an opinion on what to do about global warming. The topic had become taboo. Too difficult and contentious to discuss in polite company.

In the UK, David Cameron is now completely mute on the subject, desperate as he is to stop the right of the conservative party haemorrhaging to UKIP. I think this is cowardly stance: if the Tory right are going to haemorrhage over Europe and immigration, I hardly feel that climate change will make much difference. In fact, sticking to the original Conservative Party commitment to run the “greenest government ever” would have significant appeal to the much-neglected centre.

So plaudits to Ed Milliband for raising climate change as a wedge issue in today’s issue of the newspaper The Independent on Sunday. The Daily Mail will claim that this will put yet more distance between Ed and that great, all powerful God of British politics: “White Van Man”. But I am not so sure. A true politician of stature should be able to shape fashion, not follow it. The commentary by Ed Milliband is here. See what you think.

Has Shale Killed Peak Oil?

Climate change has a certain unbearable logic. While temperature may oscillate around a trend, the trend remains. Moreover, to steepen or shallow the trend will take decades, or, indeed, centuries. Broadly, what you predict with climate change is mostly what you get.

Peak oil is a different beast. We are not sure when it will become a pressing problem, if indeed it ever will given the possibility that technology will allow us to transcend to a non-oil world.

Further, peak oil gives us a price―climate change doesn’t. As oil becomes harder (more costly) to extract, price rises. This then loops back to supply stimulation and demand destruction. Theoretically, as oil depletes, there will come a time when supply can’t respond (North Sea oil production, for example), at which point price will destroy demand, so pushing us back toward equilibrium. So what are we to make of this chart (click for larger image; source EIA here):

EIA Brent and WTI Oil Price jpeg

The sheer intensity of the drop suggests that it isn’t a function of demand. Unlike the fall in 2008, we aren’t witnessing a financial crash. The world economy may lack some puff, but it is still growing. So is this supply? And if so, it this the death of peak oil?

To answer this question, we first have to understand what we mean by peak oil. To do this, I prefer to go back and read what some key peak oil theorists have actually said. On this particular occasion, I don’t think it particularly useful to reread the dead M. King Hubbert, the father of peak oil theory, since he died long ago (1989 to be exact). Better to read the more eloquent advocates of what I call Peak Oil 2.0: Colin Campbell and Jean Laherrere.

Campbell and Laherrere wrote a seminal and prescient article for Scientific American in March 1998 titled “The End of Cheap Oil”. You can read it here. First off, focus on what they didn’t say: they didn’t say that oil was going to run out. Rather they said this:

The world is not running out of oil―at least not yet. What out society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.

They were also perfectly aware of unconventional oil.

…. economists like to point out that the world contains enormous caches of unconventional oil that can substitute for crude oil as a soon as the price rises high enough to make them profitable………Theoretically, these unconventional oil reserves could quench the world’s thirst for liquid fuels as conventional oil passes its prime.

But under their analysis, unconventional oil is too costly and too time consuming to ramp up quickly enough to compensate for conventional oil’s decline. As a result:

The world could thus see radical increases in oil prices. That alone might be sufficient to curb demand, flattening production for perhaps 10 years……But by 2010 or so, many Middle Eastern nations will themselves be past the midpoint. World production will then have to fall.

So we can extract three predictions. First, a steep rise in price will occur that is accompanied by a flatlining in production of conventional oil. Second, unconventional oil will be produced but not in sufficient quantities and at the right price to compensate for the collapse in conventional oil production growth. Third, eventually, and regardless of price, world oil production will fall.

In terms of calling the bottom of the market, Campbell and Laherrere were stunningly successful. The average oil price in 1998 for Brent crude was $12.8. Over the last four years, we have been averaging over $100 (click for larger image; source: here).

Crude Oil Price Change jpeg

These are nominal prices that don’t take account of inflation. Still, even if we adjust for inflation, the jump in oil prices has been impressive.  In 2013/14 dollars, the oil price in the late 1990s would have been around $25 to $30; so in real terms, we have seen a three- to four-fold increase. Apart from the two price spikes of the 1970s, the surge has been unprecedented.

Moreover, even if we take the current price of Brent oil after the slump of the last few months  ($72 as of writing), the appreciation is two- to three-fold.

Crude Oil Prices jpegAs for a flatlining in conventional oil, Campbell and Laherrere have been pretty good on that prediction too. Since 2005, we have been moving along a bumpy plateau (the blue section). Chart below is taken from Eaun Mearns excellent blog here.

word total liquids production jpeg

Where Campbell and Laherrere have been wrong is with respect to unconventional oil. This category has been powering ahead, although not, until recently, at a sufficient pace to hold down price. Nonetheless, unconventional volumes have risen sufficiently to keep total aggregate liquids on the rise as well.

Global Liquids jpeg

So to recap, the peak oil camp has done pretty well on price and conventional oil volume, but not so well on unconventional oil production. However, we need to go back to Scientific American’s summary statement, the peak oil bottom line:

The world is not running out of oil―at least not yet. What out society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.

Using this statement as a yardstick, peak oil gets a straight “A”. Unconventional oil has been forthcoming but not at sufficient volumes and lower enough cost to push down the oil price back to the kind of levels seen in the 1990s. Indeed, up until a few months ago, unconventional was hardly moving the needle in terms of price.

But has everything now changed following the oil price plunge as much of the media would suggest? Note, what was so unusual about the recent period of high oil prices was that such prices were sustained over a prolonged period: 2011, average of $111 per barrel for Brent crude,  2012, $111; 2013, $109; 2014, likely to average around $100.

Oil has a notoriously inelastic supply and demand curves (they are steep on the chart), so you don’t need supply or demand to move much to get a major shift in price over the short term.But over the longer term, the supply curve is supposed to be more elastic. At the right price, technology and innovation should pour into the sector and push the supply curve to the right. This didn’t happen. Or rather it didn’t happen for a long time, but just possibly it is happening now.

Oil Supply and Demand jpeg

But we don’t really know if what we are seeing over the last couple of months is a short-term or long-term phenomenon. You can get to where we are now with the short-term curves alone. Push the demand a little bit to the left due to a slowing Chinese economy, and the supply a bit to the right due to oil from a few troubled regions coming back on stream and, hey presto, price plummets. But I repeat: peak oil is a story about long-term supply and demand, and long-term elasticities.

Over the short term, whether you pump oil depends on your marginal cost and the price per barrel. Whether you have invested $10 million, $100 million or $1 billion in a particular oil field makes no difference as  to whether you pump the oil or not—the investment is a sunk cost. The “pump or not to pump decision” has no relation to the investment in existing operating kit; you will produce if the cost of producing one barrel of oil (operation and maintenance) is below the price of a barrel of oil. Accordingly, when you see media reports that some shale oil fields are still profitable at $40 per barrel this has absolutely no relevance whatsoever to the veracity of the peak oil claim. The question to be asked is would you invest in new shale fields at $40, $50 or $60 per barrel?

Peak oil, in effect, says the long-term supply of oil is inelastic, not just the short term. Consequently, for new unconventional oil sources like shale to dispose of the peak oil thesis, they must come to market such that the return on investment including the maintenance and operating costs plus the opportunity cost of what your money could be earning elsewhere is considerably below the oil price level witnessed in recent years. Will the shale win this argument? Possibly (although I think not).

The predictions made by Campbell and Laherrere have held up pretty well because the two said that the oil price would rise and then stay high for year after year—it did. For Campbell and Laherrere to be proved wrong, the oil price must fall and then stay low for year after year. Let’s see what happens in 2015.

The Green’s Grievance

Since returning to the UK three years ago, I have been astounded by the media coverage given to the United Kingdom Independence Party (UKIP). UKIP’s leadership, when pressed (a rare occurrence), convey a ramshackle and rather incoherent libertarian philosophy juxtaposed with 1950s-style little Englandism.

The Greens, meanwhile, get barely a mention, despite actually having a lot to say about the big topics of climate change, resource depletion, low growth and inequality. I don’t agree with much of the Green’s world view, but at least they get stuck into those issues which truly impact on our long-term welfare.

Leo Barasi at the Noise of the Crowd blog puts some numbers on this phenomenon. Monthly media mentions for the Greens are minimal despite their respectable polling numbers.

Green Media 1 jpeg

This is even more evident when we look at mentions per percentage point of votes:

Green Media 2 jpeg

In a perfect world, it would be wonderful if journalists spent time reading UKIP’s policies and asked some probing questions about them. UKIP’s barking mad energy policy, for example, rests on the assumption that CO2 emissions are benign and manmade climate change a hoax. Instead, we get another Nigel Farage pint-in-a-pub picture and 1,000 words on the “people’s army”.

I am told by media friends that the UKIP political narrative plays well  to the general public; conversely, the narrative of dangerous climate change doesn’t. But, ultimately, climate change is a narrative with no spectators—only participants.

Oxford Climate Forum 2014

I’m fresh from the Oxford Climate Forum, held this weekend. Presenters and panel speakers attempted to remain resolutely upbeat, but it was hard, at times, not to feel despondent—and that came through.

Professor Lord Giddens, the eminent British sociologist, and doyen of climate change politics, gave a presentation entitled “What Cause for hope?” Note, he gave the same speech a month previously at the LSE, available here (starting at 4 minutes). He commenced his speech with this statement:

Over the period from 2008 to 2014 today, on the one hand, the science of climate change, our understanding of climate change and our understanding of the dangers posed by climate change to the future of our civilisation has advanced substantially…………yet public opinion has become more indifferent.

Why should there be such a yawning gap between the dangers we face and our reactions to those dangers?

To answer this question, Giddens pointed to the fossil fuel lobby, the inability of a small coterie of scientists to convey the climate change message, the free-rider problem and, finally, the ongoing disputes between rich and poor countries over who should shoulder the burden of CO2 mitigation. Yet Giddens ultimately sees all these reasons as secondary; rather:

No other civilisation has ever intervened in nature remotely to the degree which we do on an everyday basis. Therefore, there is no historical situation, no historical record, no historical data from which we can draw upon to seek to mobilise public opinion against it…… The consequences of it are not there, they are to come.

I see the central difficultly of our world getting a stable future for itself in the 21st century around this situation; this situation being that we are likely to wait until there is some cataclysmic happening which can be unequivocally linked to climate change before we stir ourselves to action. But then, by definition, it will be too late, because we can’t get the greenhouse gases out of the atmosphere. I see this paradox as the central issue.

Giddens’ paradox also explains why, ironically, the young appear less concerned about climate change than the old, despite it being the young who will shoulder the burden in years to come. I’ve blogged about this issue here, but, in short, my explanation of the relative indifference of the young is that they have less experience of the fact that “shit happens”. Most fifty-year olds know of someone who has died of cancer, been killed in a road accident, attempted suicide, descended into alcoholism or ended up in prison. Must 18-year olds don’t.

Dr Adam Corner of Oxford’s Climate Outreach and Informational Network (COIN) didn’t quite see it this way. To COIN, climate change communication is a question of narrative. You can see their approach here. Moreover, a unifying feature of the forum was that narratives should be positive: climate change mitigation being an opportunity as much as an obligation. My take is that we have seen some pretty powerful political youth movements in the past that were a reaction to a threat, whether fascism, Vietnam or apartheid.

If there was some silver lining in Giddens speech, it was that a transformational technological change may arise. This is a similar line taken by the Google engineers Ross Kosingstein and David Fork in an article titled “What would it really take to reverse climate change“. They argue that we should be pouring money and resources into blue sky thinking, since it is only such thinking that could help prevent a catastrophe.

An unapologetic bare-knuckle prize fighter at the forum was Bob Ward from the Grantham Research Institute. Ward concentrated on calling out UKIP’s climate skeptic energy policy, a copy of which you can find here. It contains such gems as this:

We do not however regard CO2 as a pollutant. It is a natural trace gas in the atmosphere which is essential to plant growth and life on earth.

To which my riposte would be that water is vital to human life, but that does not mean to say we can’t drown in it.

Ward’s worry is that UKIP could quite easily perform the  role of king maker in any future minority Conservative Party government. As such, UKIP’s demand that the UK’s Climate Change Act should be torn up does no bode well for any constructive British participation in the Paris 2015 climate talks.

The media currently views climate change activism as essentially “boring”. In the 1930s, large parts of the British media viewed the rise of central European fascism as a matter of no consequence. How wrong they were, and how wrong they are now.

World on Brink of New Temperature Record (Despite a Coy El Niño)

Usually, a big, fat El Niño sets the world up for a new temperature record; see the correlation in the chart below. (For a good explanation of why, read this post by Bill Chameides of Duke University.)

TempAnomElNino jpeg

And for most of 2014, forecasters have been debating whether a big one would or wouldn’t show sometime soon. However, in its latest ENSO forecast, out 6th November, the US government’s National Oceanic and Atmospheric Administration (NOAA) has grown far more “iffy”:

The CPC/IRI ENSO forecast has dropped the likelihood of El Niño again, to 58%, despite the presence of “borderline” El Niño conditions (i.e. warmer equatorial Pacific sea surface temperature, and some reduction in rain over Indonesia). El Niño is still expected, but with less confidence.

But the Australians, in an even more recent update (18th November), think we may see a last minute appearance for this year’s elusive El Niño:

The Pacific Ocean has shown some renewed signs of El Niño development in recent weeks. Above-average temperatures in the tropical Pacific Ocean have warmed further in the past fortnight, while the Southern Oscillation Index (SOI) has generally been in excess of El Niño thresholds for the past three months. Climate models suggest current conditions will either persist or strengthen. These factors mean the Bureau’s ENSO Tracker Status has been upgraded from WATCH to ALERT level, indicating at least a 70% chance of El Niño occurring.

Regardless of whether El Niño shows, it is too late in the year for it to significantly pump up global temperature anomalies. So it should be tough for 2014 to take the number one spot. Or will it?

From Columbia University’s Earth Institute, we can see where the records stand:

Top 10 Warm Years jpeg

Note: the slight differences between the anomalies recorded by the two US government agencies, NOAA and NASA, are due to different measurement procedures. Nonetheless, for both time series, the years from the last decade dominate the table and broadly align. And for 2014?

The NASA data (here) have been published out to October and show an average temperature anomaly for the first 10 months of the year of 0.66 ⁰C. The nine months of data put out so far by NOAA (here) average 0.67 ⁰C. While the Pacific Ocean may not be characterised as exhibiting a full-blown El Niño, it certainly is on the warm side, with the result that the final months of the year are likely to come in well above average, temperature-wise.

So the annual global mean temperature record looks almost in the bag for 2014. Whether this record will be enough to put paid to the climate skeptic meme that global warming stopped in 1998 is doubtful (the old records will likely be beaten but not smashed). But the evolving data do show that when the next El Niño arrives, it will build on an ever hotter base.

Thus mankind presses ever further into unchartered temperature territory. The foolhardiness of this risk-taking amazes me.

One Percentism

Since the 2008 financial crisis, we have seen a flurry of interest over the issue of inequality. Most recently, Thomas Piketty’s book “Capital in the Twenty-First Century” has drawn  a lot of attention. Yet there are a number of other academics who have been writing on this topic for some time, not least Danny Dorling, a social geographer now at Oxford University.

Dorling’s output is prodigious, and encompasses not just academic articles but also books aimed at the general public. You can get an idea of the breadth of his work by looking at his personal web site here. Last week, my daughter and I had the good fortune to see Dorling introduce his latest book, “Inequality and the One Percent“, to a packed house at the London School of Economics (LSE).

The LSE has done an invaluable service to the intellectual life of London and beyond by hosting free and open public lectures by just about everyone who is anyone in the field of economics or politics today. Furthermore, you can access podcasts, videos and slides of the events if you are not able to attend in person. The one for Danny Dorling’s lecture is here.

Apart from being a gifted speaker, Dorling is noted for using innovative data visualisation techniques to communicate his arguments, so we can get a sense of London’s monopolisation of UK wealth through looking at a slides such as this one (click for a larger image):

London Wealth jpeg

A key driver of this wealth disparity is the value of property in London:

London Home Value jpeg

Actually, there are two categories of “one percenters”: income and wealth. To qualify as a one percenter by income, you need to be earning £160,000 a year. To get into the top one percent by wealth, you need £2.8 million. This is a chart taken from the work of the LSE academic John Hills (see here):

Total UK Wealth jpeg

And from such data, Dorling produces infographics for both the UK and US:

UK Land by Wealth jpeg

US Land by Wealth jpeg

Dorling is a proud left-winger: as such, a polemic against the super rich is to be expected. Nonetheless, I am surprised by how Dorling’s arguments are resonating across the political spectrum. In particular, he argues that the one percent has, in effect, detached itself from its natural allies the top 10% and the top 50%. Even the upper middle class is feeling the squeeze, with much of it going backwards in terms of financial security. In short, what economic growth there is is being monopolised by the super-rich.

The arch Tory Charles Moore, no friend of any socialist, has an article in The Daily Telegraph with this headline echoing Dorlng’s analysis:

Today’s political leaders don’t realise how vulnerable voters feel

Followed by this subhead:

Capitalism’s benefits are not felt by all, and the main parties are not talking about it

Moore goes on to argue that fewer and fewer are benefitting from the current political game:

Socialists love saying that the Tories are the party for the rich. If that were the case, they would never have won an election in the era of the universal franchise, since the rich are, by definition, a small minority. Labour’s underestimation of Margaret Thatcher in the Eighties arose from this error: it could not understand why she also appealed to many who were poor and to even more who were middling. So it lost. But now that the Conservatives have, as I say, not hit 40 per cent of the vote for 22 years, perhaps the criticism has greater validity. Perhaps they have got themselves on the wrong side of the divide between those who are comfortable and those who are struggling. And perhaps – stranger thought – the same problem applies even to the party which takes its name from the workers. For 13 years, Labour too has not hit 40 per cent. Those years have encompassed the crisis of capitalism, out of which it should have done well.

Moore finishes with an extraordinary paragraph that could have been written by Danny Dorling himself.

For six or seven years now, voters in the West have realised that capitalism was disastrously captured by those who operated it, so that it stopped benefiting the rest of us. No leader, of Left or Right, has yet worked out what to do about this. In Britain, both main parties have tacitly agreed not to discuss it at the next election.

The analysis here from someone of the political right is interchangeable with someone of the political left. Is a strange world we live in.

Links for the Week Ending 16 July 2014

I haven’t posted for quite a while. Basically, family commitments have eaten into my blogging time, and this state of affairs will likely continue for an indefinite period longer. Nonetheless, I will try to get some posts out as we grind through the last few innings of what I would term the ‘Great Hiatus': a hiatus period—or pause— amid the longer term trend of rising global mean temperatures, higher oil prices, increasing resource constraints and greater global economic instability.

For example, with a 70-80% chance of an El Nino by year-end, temperature records have the potential to start falling again. Further, oil has built a solid base above $100 per barrel but appears poised to go higher in the next year or so as oil companies struggle to find new fields that can be developed at the right price.

At the same time, many of the financial fragilities in the system posed by ageing demographics, declining productivity and increasing resource constraints have to date been countered by the super easy monetary policy pursued worldwide. The aggressive, unprecedented and unorthodox monetarism  led by the Federal Reserve Board has been a policy triumph over the short term. Since the credit crunch of 2008/2009, the sky has not fallen down.

Yet the jury is still out as to whether the provision of free money can be maintained long enough to see a return to sustainable economic growth, or whether it will beget a new cycle of chronic instability through having fostered the extension of credit into intrinsically poor investments and a generalized asset price inflation that benefits few but the rich.

In the meantime, here are some links which I hope will flesh out some of the themes of this blog:

  • Occasionally, my left-learning friends berate me for reading the right-of-centre Daily Telegraph. I offer two defences: first, you need to read opinion with which you may instinctively disagree, but find of some merit with a bit of reflection. Second, a good newspaper has intellectual mavericks—and The Telegraph has many (probably more than The Guardian). Here is an article by Ambrose Evans-Pritchard portraying the fossil fuel industry as poor capitalists; in short, the oil majors have been investing ever more, to reap ever less; while renewables are slowing sloughing off their subsidies. Joseph Schumpeter would be proud of this epic creative destruction.
  • And despite all the new technology we are bringing to bear on oil extraction, when fields go into decline it is damn tough fighting the tide. North Sea oil was a much ignored saviour of the British economy in the 1980s, but is decline is inexorable and, according to the Office for Budget Responsibility (OBR), accelerating. The Financial Times has the story here (access to FT articles after free registration), but if you want to go to the primary OBR source you can find it here.
  • We are still seeing a lot of commentary over “Capital in the Twenty-First Century” by Thomas Piketty. Piketty argues that the relative reduction in inequality in advanced countries over the post-war period was something of an aberration. Accordingly to his analysis, without direct political intervention (or in the most extreme case revolution), capital will gradually accrue to a relative few. In short, when the return on capital is greater than the growth rate, it is the owners of capital who prosper most, not those in capital’s employ. For a fuller treatment, I recommend Cory Doctorow’s summary here,  and an interview by Maththew Yglesias of Vox  a while back with Piketty here.
  • You can also slice growing inequality in different ways. The Institute for Fiscal Studies (IFS) in the UK has just issued a report detailing how the real incomes of young people are falling much faster than those of any other age cohort (here). Meanwhile, I have often commented on how London has detached itself form the rest of the UK. In the US, Emily Badger of The Washington Post’s Wonk Blog charts a similar divergence between cities showing a virtuous cycle of education and growth and those showing a vicious cycle of poor education and decline (here)
  • Climate sceptics love to start any global mean temperature chart with a data point centred on 1997/98, which happens to coincide with the largest El Nino for a century. This monster El Nino ushered in the record breaking hot year of 1998 (slightly eclipsed in later years depending on which data set you look at, but still one of the hottest years on record: see NASA’s data set here). Global mean temperature is a construct of short-term weather volatility, long-term green-house gas induced temperature rise and the medium-term ENSO cycle. Eventually, CO2 will do its stuff and records will fall regardless of whether we have an El Nino. But for us to quickly retire all the talk of a hiatus in temperature rise will require a new and powerful El Nino. True, an El Nino appears on the cards by year-end, but quite how strong it will be is still clouded in uncertainty as this post at Skeptical Science explains here.
  • If you visit London, take time to visit some of the quirky, smaller museums. One of the most intriguing (and downright disturbing) is the Old Operating Theatre that used to be part of St Thomas Hospital just south of The Thames. This is no Disney Land reconstruction, but a perfectly preserved part of pre-antiseptic medical history.  Despite appearing to be a set from a particularly dark Harry Potter movie scene, the Old Operating Theatre shows how and where surgeons removed a damaged limb in around two minutes flat, with minimal anaesthetic. The museum demonstrates how far we have come health-wise in an historical blink of an eye (150 years or so). And for those who would welcome an economic collapse as a route toward a more authentic form of living, I direct you to a post at Club Orlov explaining a world of post-collapse, or village, medicine. Humanity is put right back on the St Thomas Hospital’s operating table. Pray for four strong men to hold you down—and a surgeon who has not only washed his hands, but is also quick with blade and saw.