To protect energy profits, Capital gambles with humanity’s future

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by Steve Drury

People and Nature,  December 14, 2011

After 12 days of wrangling, posturing, wheeling, dealing, cajoling and demonstrating, delegates at the 17th UN Climate Change Conference in Durban, South Africa failed to reach agreement by its scheduled close on Friday 9 December. It took a further 36 hours of “negotiations” to cobble together a deal: the style of discourse was familiar for this annual UN showcase of the climatically “great and good” – devious and vague.

Following the agreement on wording, Maite Nkoana-Mashabane, South African International Relations Minister and president of the conference, summed up the underpinning hubris of the weary yet self-satisfied negotiators: “No one can walk out of this room and say we don’t care about climate change. … We came here with plan A, and we have concluded this meeting with plan A to save one planet for the future of our children and our grandchildren to come.” The conference agreement had “saved tomorrow, today,” she said.

OK. How?

Another “roadmap”

There is a “roadmap”, originating with the European Union (EU), the Alliance of Small Island States (Aosis) and the Least Developed Countries bloc (LDCs). This comprises three years of talks, set to start in 2012 when the Kyoto Protocol expires. This lengthy discussion is supposed to thrash out by 2015 an agreement that will govern reduced emissions for all countries, but whatever that is it will come into force in 2020.

So, more than eight years from now action will begin: after two US presidential elections and in the year of a third, plus elections in the majority of nation states, big or small. The “roadmap” ignores possible developments in the global economic crisis, which, as the Durban deal was being cut, already threatened to tear apart the third largest economic bloc on the planet, the EU. Well … this is the UN.

The pact that is hoped to emerge from the “roadmap” aims to bring all major carbon emitters, including China and India, into a single legal accord. Developed countries, whose economic activities had already driven up atmospheric carbon dioxide levels during the twentieth century, also agreed to a second commitment period under the Kyoto Protocol once it expires in 2012 – apparently, that was the price for hauling India and China onto the carbon “abstinence wagon.” Indian negotiators, tacitly supported by the Chinese delegation, had previously demanded that their developing economy should be exempt from restraint because of that “first world” legacy.

The big sticking point for India and China seems to have been the phrase “legally binding” that might be applied to original “roadmap” text. A bright spark from Brazil apparently broke the log jam by substituting for “legally binding” that it must have “legal force”.

It doesn’t take a world-class expert in semiotics to see a nice loophole in the changed phrase, around which all could comfortably gather.


Let’s not forget that Kyoto committed 37 industrialised nations and the EU to cut emissions to 5% below their 1990 levels by 2012, and in the case of the EU overall by “at least 20%” by 2020. The lag in publication of emissions data (around two years at least) means that it is not possible to say whether or not pledges are on schedule.

Detailed reports by the EU[1] claim that, by the end of 2010, the 15 pre-2004 EU members states were on track towards the 2012 Kyoto targets – admitting the recession had played its part. But they also stated: “Additional measures … will be insufficient to achieve the important emission cuts needed in the longer term”, i.e. by 2020.

For much of the rest of the world at the end of 2011, carbon dioxide emissions continue to grow much as they did throughout the first decade of the twenty-first century and the whole of the twentieth. Predictably, the US delegation at Durban maintained an aloof vagueness while giving the impression at the last minute that they supported the “roadmap”: odd that, from a non-signatory to Kyoto.

How it shall be done…

Reduction in carbon emissions needed to avoid a 2°C or more global temperature rise by the end of the century require a wholesale transfer of energy supplies from fossil fuels to alternative technologies that involve no emissions.

In a market economy, if the price of a unit of energy – a kilowatt hour (kWh) – from an alternative source is more than that supplied by fossil fuels there are three possible outcomes: the user has to pay a “green premium”; the price for energy from the alternative source has in some way to be subsidised; or it simply is not worth producing.

(State subsidies can be direct, as with wind and nuclear, or indirect, such as tax-breaks for coal and petroleum producers. There could be, but rarely are – such is the enormous power of the petroleum and coal lobbies – disincentives to use fossil fuels, i.e. some kind of “carbon tax”.)

The price of energy delivered as electricity is the easiest to examine as most alternative sources are used at present for electricity generation.

In 2010 the average cost of producing a kWh, using different technologies – according to one set of estimates – were:[2]

  • Coal (40.6% of global electricity supply), 4.8-5.5 US cents;
  • Gas (21.4%), 3.9-4.4 US cents;
  • Hydropower (16.2%), 3-12 US cents;
  • Nuclear (13.4%), 11.1-14.5 US cents;
  • Oil (5.1%), 6-8 US cents
  • Wind (1.4%), 5-14 US cents;
  • Solar (0.8%), 15-50 US cents;
  • Geothermal (0.23%), 4.5-30 US cents.

The unit price paid by the consumer has to cover these costs, and generate profits along the supply line, as well as being subject to market forces and maybe political regulation – a complex process, but one in which generating costs figure very strongly.

The consumer on an electricity grid, domestic or industrial, pays for a “blend” supplied from different sources, the energy utility deciding whether or not to buy energy at prices set by the costs listed above, in order to maintain an acceptable rate of profit.

The variable use of state subsidies of one kind or another, for nuclear or wind power as important examples, complicates matters, but the picture is clear: market forces determine the overall “blend” of sources that is dominated at present by fossil fuels. Currently natural gas has the edge, both on cost and its supposed “greenness”, because burning it generates less carbon dioxide than does coal.

Fixed capital: destruction and creation

In whatever form and for whatever use, energy as a major sector of the global economy involves a truly stupendous commitment of fixed capital in the form of power stations, vehicles, other engines and so on.

For electricity generated using coal – the greatest contributor to global warming among all the fossil fuels – the capital cost of equipping a power station is around US 1 cent per kWh, allowing for the station’s useful lifetime. The estimated amount of energy generated globally by coal-fired power stations in 2008 was roughly 8000 terawatt hours (TWh = 1 billion kWh). Allowing 50 years for the lifetime of coal-fired power stations globally and assuming the above amount of energy produced per year gives a very rough idea of the fixed capital bound up in the world’s coal-fired power stations: a conservative estimate would be US$4 trillion, about one tenth of the total world value of stocks and shares in 2009.

To replace fossil fuels with carbon-free, alternative means of generating electricity requires literally destroying a sizeable proportion of that fixed capital. (That would have to happen were the necessary reduction in greenhouse emissions to be met. But for capital, changing the technologies used for energy supply seems likely only if existing technologies became inefficient in the economic terms demanded by the global market. If that does not happen, roadmaps will not be followed and targets will not be met.)

Dismantling each power station would also carry a cost with little by way of income from recycling its components, though each could be left as a hulk similar to the junked steel plants on the banks of the Ohio River around Pittsburgh, USA. …

While a coal-fired power station can be converted – at a cost – to oil- or gas-fired electricity generation, conversion to any of the alternative energy sources would be impossible, because they involve fundamentally different kinds of engineering. Somehow, new capital has to be found to replace and increase the lost capacity to “sustain economic growth”, and the alternatives don’t come cheap, with capital costs per unit of energy well above coal’s US 1 cent per kWh.

Destruction and replacement of fixed capital are not good for the rate of profit. So where does the “green” capital come from and how can the rate of profit globally be maintained or enlarged while capital is striving to “save tomorrow”?

The only means of capital accumulation is from surplus value created by the world’s working masses. During a costly strategy of fuel replacement, while maintaining a sufficient rate of profit to avoid global economic collapse, exploitation of labour would have to be racked up, globally.

Keeping pace

Alternative energy in the form of “renewables” apparently has done well for capital in the twenty-first century so far. At any rate, wind energy has grown at rates around 30% per annum in some countries, and as far as capital is concerned that tips the balance towards a positive view of investment in moving air. That wind turbines, especially those on-shore, have yet to prove capable of yielding the amount of energy claimed for them hasn’t really been twigged on Wall Street or in the City. What have been grasped are the state inducements to invest in wind.

Wind power is not the “free lunch” vis a vis energy output and CO2 emissions claimed by both entrepreneurs and its “green” promoters. Even in the most favourable areas, wind turbines rarely generate energy at their rated capacity,[3] and often stand idle: wind is an intermittent and unpredictable energy source and currently has to be backed up by conventional fossil-fuel generation.

In onshore areas where turbines are erected on peatlands (much of upland Britain), opponents of wind farms argue that the disturbed peat releases CO2 to such an extent that for a turbine to be truly “carbon neutral” might take as long as 23 years of its likely 25-year lifetime.[4]

Much of the phenomenal growth in wind power installations stems from generous state inducements, such as China’s US$11.5 billion asset-financing for “clean technology”, that lies behind its assuming pole position in global wind-energy development.[5]

Geothermal, solar and a whole raft of hi-tech means of creating biofuels – beyond-corn-ethanol and beyond-reclaimed-chip-oil-biodiesel – have not fared so well. For instance, Solyndra, a solar panel manufacturer in California sought bankruptcy protection in September 2011 after defaulting on a $528 million federal loan.[6] There is no shortage of ideas for alternative, non-polluting energy sources and technologies, and excitement around them among stock traders has created something of a potential bubble.[7]

Out of the various forms of renewable energy, hydropower is by far the most significant, accounting for 16.2% of global electricity supply. Being tightly constrained by all kinds of factors, hydropower is not far short of its feasible global capacity, and its potential varies widely depending on climate and topography.

Most hydro electricity is supplied from huge schemes that are environmentally and often socially disastrous, and what growth potential exists is in the form of small-scale, local projects, which although carbon-free and environmentally friendly would be hard-pressed to improve global hydroelectric output.

The other renewables – wind, solar power, geothermal energy, various renewable biofuels and combustible waste – comprise shares of total electricity output that are still extremely small. In 2010 wind power was estimated to supply about 1.4% of total electricity, geothermal 0.3% and solar around 0.8%. To replace coal, which emits the most carbon dioxide, with solar power, the most environmentally friendly alternative and ultimately capable of supplying virtually all energy requirements, would need an almost 700-fold growth in solar electricity generation.

(Of course, any decent carbon-reduction scenario would involve a blend of alternative energy sources, but solar power provides an illustration of the pace needed to meaningfully “green” the world’s energy sector.)

For solar to replace coal by 2050 the proportion of solar electricity generation needs to double its present 0.8% of supplies eight times in the next 40 years, i.e. doubling every five years, which is possible only by an uninterrupted rate of growth of about 14% per year. In the last 50 years world economic growth, as measured by GDP, has never reached 7%, lurching between zero and 5% since the 1970s.[8] (Britain, for instance, experienced a 1.97% average annual increase in inflation-adjusted GDP between 1830 and 2008.)

“Growth-oriented” environmental economists, such as Nicholas Stern, claim that steady investment of only 1% of GDP in alternative energy would be sufficient to avoid the worst effects of climate warming – a view that seems to me to witness a massive investment in pure faith that the type of change he envisages can indeed take place under present political and economic conditions.

Whole troupes of prancing, multi-hued elephants in tutu skirts went unnoticed by attendees in Durban’s conference hall and hotel lobbies. The main hidden issues were:

  • Can the gigantic quantities of capital needed to move significantly from fossil fuels to alternative energy sources be found?
  • Can the transformation move at a pace that ensures global warming stops before global temperatures pass a threshold beyond which climate change has a catastrophic effect on the whole planetary system, let alone the world economy?

My view is that Durban has been yet another exercise in procrastination. Yet, even if the outcome had been an object lesson in clarity and determination to combat climate change, global capital would find it hard, even impossible, to make the necessary changes without driving even faster towards economic depression. It is in the very nature of the beast to avoid a fall in the rate of profit, which is why its personifications bray that there is no alternative to perpetual growth. The bind for capital is maintaining sufficient energy supplies to fuel growth without destroying itself, either economically or through ecological collapse.

Not for nothing is the means for such growth called “risk capital.” The forces ultimately behind the wheeling and dealing at Durban are engaging all of us in an inhuman gamble with dangers that are largely unknown.



[1] Greenhouse gas emission trends and projections in Europe 2011 – Tracking progress towards Kyoto and 2020 targets, downloadable here.

[2] I have used figures from a clean energy technology professionals’ site, see here.

[3] Statistics for the contribution of wind power to global electricity supplies and its growth are frequently based on the installed capacity of generators, rather than on actual supplies.

[4]  Personal communication from Mike Hall.

[5] There’s some commentary on this issue on the Power Line blog here.

[6] Reported here, for example.

[7] See investment commentators’ arguments here and here, for example.

[8] Britain, for instance, experienced a 1.97% average annual increase in inflation-adjusted GDP between 1830 and 2008


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