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Bookmark and ShareAndrew Simms is nef‘s Policy Director and head of nef’s Climate Change programme.

We may be in the grip of the worst economic upheaval for half a century, but the UK is still at heart a forward-looking, modern economy, isn’t it? Smogs and satanic mills are things of the past and we have a model that is resource-light and service driven, don’t we?

Perhaps not. In the UK for the first quarter of this year, £1 in every £4 paid in dividends to shareholders came from a single industry: oil and gas. And, from that sector, just two companies – BP and Shell – accounted for the vast majority.

If the banking crisis taught us one thing, it is that putting too many of your economic eggs in one sector’s basket is a very bad idea. In banking it was a bad idea because they practised Narnia-nomics (which is probably a slur on Narnia). With the oil and gas sector it is a bad idea for two reasons, which may seem contradictory: the products are both very damaging and have no long-term future. Unfortunately, however, there’s still enough oil and gas left to cause more damage than the planet can handle (and an awful lot of coal, which people may turn to as the other fossil fuels become more expensive and harder to get).

Where the damage is concerned emissions continue to drive the loss of a climate system conducive to stable, flourishing societies. A combination of steadily rising greenhouse gas concentrations and temperatures suggest that in around 78 months we will enter a new, more dangerous category of risk for creeping climatic instability, reason enough perhaps, to disinvest in fossil fuels.

The second reason is that an economy so hard-wired to the oil and gas sector is hitching its future to a long-term loser. We are already decades past the point of peak global oil discoveries, and on the cusp of the peak of oil production.

A new assessment of 14 forecasts of global oil supply underlines how the short-lived empire of oil is already well into its dotage, with the end in sight during our own lifetimes.

Some speculate that the moment at which production levels-off and begins its inexorable decline is already with us. If so, it may be only the recession, which temporarily reduces demand, that is hiding it. Several more forecasts suggest it will happen over the course of this decade – mere seconds away in the calibration of economic planning. Crucially, the study concluded that no credible forecast could put the date more than 20 years away.

Expect to see repeats of BP’s disaster at its Deepwater Horizon rig as companies seek to extend their lives of by exploiting ever-more marginal and hard-to-get reserves. Accidents happen when limits get pushed and an industry becomes increasingly desperate.

While companies like Shell, BP and Exxon may dominate the current economic landscape like leviathans, it is a feature of the end of empires that they seem permanent (especially from within) until, suddenly, they are gone.

All the more important, then, to plan for the inevitable. This is starting to happen. As the peak, plateau and decline of oil production approaches, its price will rise dramatically. Companies that are heavily exposed or, in other words, dependent on the old oil economy, will be at risk. Thinking back to the oil price spike of 2008, the ratings agency Fitch recently reassessed a range of industrial sectors for how vulnerable they will be when oil again knocks on the door of $150 per barrel. Airlines, trucking, chemicals and various consumer goods sectors look to be in big trouble. But railways and renewable energy cash-in.

It’s not just the coasts of the Gulf of Mexico that have fallen victim to our economic dependence on oil, its the climate that we depend on, for example, to grow our food, and will soon also be huge chunks of the economy.

The quicker we arrange a separation between society, the economy and the oil and gas sector, the better. This era-defining problem falls on the watch of the new coalition government. They could start by substantially capitalising the proposed new green investment bank and turning the taxpayer-owned Royal Bank of Scotland – that once proudly called itself the “oil and gas bank” and is still up to its neck in fossil-fuel financing – into a Royal Bank of Sustainability. More or less we have just the lifetime of this parliament to get money out of oil and into renewables and low-energy infrastructure.

After the bank bailout, we were left with the question, “where did the money go?”. At least if we put our resources into the great transition away from fossil fuels there would be tangible results. We would be looking at a great wave of new employment opportunities, more energy security, a less vulnerable economy and the chance for a better future.

78 months and counting …

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Bookmark and ShareJosh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.

Financial crisis

After the storm: what will replace the neoliberal consensus?

The financial crisis which erupted almost two years ago has led to the biggest shake up in economic policy since the Oil Crisis of the 1970s.  Neoliberal economics lies in tatters, with the UK Conservative party dismissing the notion of the ‘utility-maximising rational actor’ as a fantasy and Martin Wolf of the FT pronouncing the end of the dream of global free market capitalism.  The question is what will come next.

Sadly, there are few signs of a new approach which takes seriously the ‘triple crunch’ of the financial, environmental and energy crises.  Rather, governments are turning back to tried and tested state-led growth strategies to reflate national economies, pumping liquidity into credit markets and creating new or bringing forward existing public spending plans.  In other words, there has been a return to post-war Keynesianism – the doctrine that the state could and should regulate the market and step in to boost demand whenever required.   This thinking lies at the heart of Obama’s $787 billion fiscal stimulus package, as well of those of Europe and China.   China is embarking on what is possibly the biggest Keynesian experiment in history, with the government attempting to create a welfare state virtually overnight so as to maintain demand as well as pumping billions of yuan into mainly state owned industries, as Newsnight’s Paul Mason recently revealed.

Aside from the fact that the proportion of this new funding that will be spent upon green investment is rather small (very small in the case of the UK), there are bigger questions about whether this whole approach will prevent another, bigger financial crisis and  help us move towards to the low carbon, low throughput ‘steady-state’ economy required to prevent catastrophic climate change.

As Walden Bellow, the Phillipino intellectual and activist, points out in a recent article, today’s crisis requires us to move beyond Keynesian demand management at the national level to address global problems of inequality, overproduction and over-consumption.  For Bellow:

“The challenge to economics at this point is raising the consumption levels of the global poor with minimal disruption of the environment, while radically cutting back on environmentally damaging consumption or overconsumption in the North.  All the talk of replcaing the bankrupt American consumer with a Chinese peasant engaged in American-style consumption as the engine of global demand is both foolish and irresponsible.”

These are issues nef has addressed in our interdependence reports but currently they are not even on the ‘any other business’ agendas of the  finance ministries of the world’s great powers.  Rather, we are seeing a return to a ‘Growth as Usual’ policy which flies in the face of global inequalities and serious attempts at a transformation to a low carbon economy.   It is about time that economists began to look at some of Keynes’ less well known policies, such as that economies should be primarily concerned to consume only what they are able to produce, outlined in his essay on  “National Self-Sufficiency“.    Globalisation, in particular the globalisation of capital flows, is a major part of the reason we are in this mess – a bit of de-globalisation  will be required to get us out of it.

Bookmark and ShareAndy Wimbush is nef‘s Communications Assistant and blogmaster. He also draws cartoons for nef‘s newspaper.

When he was Prime Minister, Tony Blair liked to pretend that Britain was ‘leading the world’ in the fight against climate change. Of course, the UK was never really leading in any meaningful sense: yes, we had a Climate Change Bill making a slow and convoluted journey through Parliament, but our efforts paled next to the renewables boom in Germany and Sweden. But Blair’s soundbite survived because, at the time, it was hard to quantify what ‘leading the world’ might mean.

These days it’s pretty obvious that Britain is not at the cutting-edge of climate change policy. We have a government which is doggedly pursuing the construction of coal-fired power stations and the expansion of airports,  damning the consequences for our planet, our economy and our civilisation.

Writing on Comment is Free, GND group member Jeremy Leggett wonders how we got stuck in a ‘grey old deal’ which bails out the car manufacturers rather than investing in a sustainable economy. Leggett explains how retrofitting old houses with insulation and energy efficient technologies in Germany has created 140,000 jobs and lowered emissions and energy use to boot. He also cites a new report from the Washington think-tank World Resources Institute which says that $1 billion of government investment in green recovery programmes would create 30,000 jobs. Let’s imagine that this same equation held true for the UK: if we take the £37 billion which the British government has invested directly in bailing out the banks – a figure which leaves out the bigger picture of extra, hard-to-quantify support which propped up the banks – that money could have created well over 1.5 million green sector jobs.

The rest of the globe is moving rather faster, with the Guardian reporting that ‘calls for “green new deals” are coming from every part of the world‘. The Financial Times has a neat little graphic which lets you compare the ‘greeness’ of the stimulus packages for different nations, both by volume of expenditure and by percentage of overall stimulus spending. As reported previously, South Korea has been enthusiastic about the Green New Deal, so it’s not surprising that the UK’s stimulus plan looks pretty paltry by comparison. What’s more striking is that the UK is now being eclipsed in its environmental ambitions by those countries normally thought of as big polluters – the ‘climate criminals’ of the USA and China:

greenstimulus

Green bail-outs by percentage

Today, Gordon Brown is holding a ‘low-carbon summit‘ with business leaders, unionists and select members of the environmental movement, in which he will discuss how the UK might boost the economy via a ‘Green New Deal’. The target for job creation is rather modest, however: Ed Miliband suggested 400,000. Which is better than the 100,000 previously mentioned by Brown, but still much lower than needed. And those green activists who’ve been left outside the conference have reminded us that this Government doesn’t exactly have a good track record on helping low-carbon business: Peter Mandelson, the Secretary of State for Business, Enterprise and Regulatory Reform, was ‘slimed’ on his way to the summit by Plane Stupid‘s Leila Deen who was protesting his closed-door meetings with BAA corporate lobbyists.

The Financial Times also reports on how the world will quickly lose the opportunity to re-engineer the economy along  low-carbon lines unless more nations follow South Korea’s ambitious example. If the UK really wants to be a pioneer, to be remembered in the history books as a nation which helped rather than hindered the creation of a sustainable future, our Government has a lot of work to do.

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UPDATE: Gordon Brown’s call for a Green New Deal is now the top story at Number10.gov.uk. Watch Brown, Mandelson and Miliband talk about it in this video:

I can’t help but ask why a Prime Minister needs to ‘call for a Green New Deal’. Surely that’s our job, as citizens. His job is to make the thing happen.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.
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