Writing on the Wall

The leaders of big oil companies should get behind the scheme of contraction and convergence, as it might be their only chance of avoiding nationalisation.
It should have been a wake up cry for big oil when UN secretary general Ban Ki Moon announced (1) that the tragedy of Darfur was caused by global warming. You would think that the horror of a country collapsing into civil war under environmental pressures would be enough. But I suspect that the really frightening thing for oil bosses is the techtonic shift in opinion that means a Secretary General will say this despite American disapproval. The world is changing,and so are the political dynamics that go with it. Indeed, on closer examination, the situation in Darfur reveals how profound these changes are.

Anthropologist Alex de Waal has written about the ground-level history leading up to the Darfur Crisis2. Climate change might well have had an impact on rainfall patterns in the area, causing the famine of 1984-85 and a persistent reduction in land productivity. The resource scarcity that followed raised the value of the land, and this in turn led to elite groups stepping in to capture it. According to de Wall, it was this resource grabbing that set off the conflict.

Now this is of wider significance. Currently human consumption is growing exponentially, driven by both population and economic growth. As this expansion approaches the limits of natural resource usage, the scarce natural resources start to rocket in value, as demand outstrips supply. This creates a general situation where political elites are tempted to capture these resources. Their economic incentive is the rising value, but they also have a political justification, namely to protect the dwindling resource, and so the population from the implications of shortage.

Take the case of Chazev in Venezuela. He nationalised oil production and ploughed the revenues into services for the poor5. This has given him massive democratic popularity. This is close to what Putin is doing in Russia, tightening his grip on Gazprom with an explicitly nationalist justification, of restoring Russia’s former glory, presumably for the long-term good of its people. Why is this political risk worth taking? Well partly it must be because of the rising value of the resources captured.
This is something that could catch on world-wide. Tariq Ali recounts how Chavez had been interviewed live on Al-Jazeera for over an hour. The audience response was enormous with thousands of emails pouring in. The majority of them asked “Why don’t we have a Chavez in the Middle East?”6
Oil company executives should be very worried about this. According to the IPCC, the current growth path we are on will lead to between 2-6 degrees of warming7. This is likely to severely damage agriculture in the tropics8. So their business becomes a cause of mass starvation.
Rising oil prices will make matters worse. After the various Green Revolutions, mechanised agriculture has become a global phenomenon. This type of agriculture uses around ten times as much fossil fuel energy as the food energy it produces, or around fifty times as much energy as traditional agriculture9. So global food prices are now linked to rising oil costs.
Oil companies are already seeing record profits10 as barrel prices rise, with food prices following suit11. Combine this with bio-fuels now pushing up food prices, by competing with food for the use of land and you can see a powerful political logic for resource-capture emerging. Sooner or later a politician will connect the perceived profiteering of oil companies with the suffering of starvation.
It might be a series of floods or a hurricanes that sets it off. Public anger with fossil fuel extraction will mount until punishing fuel companies becomes a vote winner. You can nationalise the resource and then distribute the proceeds to try and repair some of the damage. You can plough the nationalised oil revenues into boosting food production for instance. It has a certain simple justice to it that will play well to an angry crowd.
Which brings me to my main point: The oil companies need to exercise a bit of foresight. They are facing a crisis, since the legal and political basis of their fortunes may disappear. The issue of food shortage is a general one, with enough political power to cause a wave of nationalization.
The politics of this is potentially very powerful because there is a huge distributional issue built into the coming food crunch: Under 2-3 degree scenarios, there is a good chance that agricultural production will decline in the tropics even whilst it increases in temperate zones. Less agriculture in the tropics will lead to less income for the rural poor. At the same time as food prices are rising, rural purchasing power falls. Poor people starve because they can’t afford food, even if there is enough to buy14.
In addition, if climate change hits hard it is going to severely stretch government resources. Globally, with food in short supply and thus expensive, famine relief will be beyond the means of many tropical countries. And those tropical countries, and their politicians, are unlikely to overlook that fact that the mass starvation within their borders has its roots in the rich world’s consumption. When the resources to relieve famine run out, they are sure to want to pass the buck.
So there needs to be a solution that not only tackles climate change, but also tackles global inequality16. It is only that kind of solution that will foster a “stable business environment” where the benefits of leaving fossil resource in the open market outweigh the political costs. Under Kyoto, the current Clean Development Mechanism (CDM) does not address inequality well. It is another case of a scarce resource (emission reductions) gaining value and then being captured by elite groups. What the developing countries are now selling, cheap ways to reduce emissions, they will have to buy back at a premium rate in future, when they hit their carbon limits17. This will make it even harder for developing countries to deal with food shortages. What is required is a solution that leads to redistribution, based on a just principle that is simple and easy to explain.
One solution that fits this description is the contraction and convergence (C&C) scheme18. This scheme is not on the fringes any more: the majority of the world’s governments already back it. Sadly, the current gang of rich world governments are showing quite some resistance to the idea19. There is a simple reason for this: it gives out rights to emit on a per-capita basis, favouring countries with large populations that don’t emit much, which means not them.
Thankfully, things are changing. India and China are rising powers, albeit shaky ones20. Under C&C they will get emission rights based on their huge populations, so unsurprisingly, they are both backing it. Any deal on the atmosphere that doesn’t have the backing of these two is unlikely to last. The CDM is nowhere near as generous to India and China as C&C would be21, so it is not the horse the oil companies should be betting on.
If the oil companies want to avoid getting nationalised, it makes sense for them to get behind contraction and convergence in a very public kind of way. It is a widely supported approach, which is perceived to be just, and is pretty much the only framework under which their continued existence would be politically justifiable.
The beautiful part is that if they get behind it straight away, rich world governments might even listen before it’s too late. Otherwise, we might even live to see a UN Secretary General calling for the worldwide nationalisation of fossil fuel production, a thought which is guaranteed to leave any oil man under a black cloud.

References
1. Ban Ki Moon (June 16th 2007) A climate culprit in Darfur. Washington Post.
http://www.washingtonpost.com/wp-dyn/content/article/2007/06/15/AR2007061501857.html
2. Alex De Waal (June 25th 2007) Is Climate Change the Culprit for Darfur? Social Science Research Council Blogs
http://www.ssrc.org/blog/2007/06/25/is-climate-change-the-culprit-for-darfur/
3. Cynthia Rosenzweig and Daniel Hillel (1998) Climate Change and the Global Harvest: Potential Impacts of the Greenhouse Effect on Agriculture London: Oxford
4. The Economist (June 16th 2005) The global housing boom
http://www.economist.com/printedition/displayStory.cfm?Story_ID=4079027
5. Nikolas Kozloff (2007) Hugo Chavez: Oil, Politics and the Challenge to the US Palgrave Macmillan: London
6. Personal communication with Tariq Ali at Hornsey Library (December 2nd 2006), at the Launch of his book, covering Chavez, Pirate of the Caribbean: Axis of hope
7. Mark Lynas (2007) Six Degrees: Our Future on a Hotter Planet, Fourth Estate: London
also:
Working Group III contribution to the Intergovernmental Panel on Climate Change
Fourth Assessment Report (2007) Summary for policy makers. See table on page 23.
http://www.ipcc.ch/SPM040507.pdf
8. Ibid.
9. Mario Giampietro and David Pimentel (October 1993) The Tightening Conflict:
Population, Energy Use, and the Ecology of Agriculture. Negative Population Growth online.
http://www.npg.org/forum_series/tightening_conflict.htm
10. Consumeraffairs.com (October 28 2005) Record Oil company profits prompt call for probe
http://www.consumeraffairs.com/news04/2005/oil_price_probe.html
11. John Vidal (July 5th 2007) Bio-fuel demand to push up food prices. Guardian Online
http://www.guardian.co.uk/international/story/0,,2118696,00.html
12. DuPont, Director Government Affairs (June 20th 2006) DuPont and BP announce partnership to develop advanced biofuels Epobio online
http://www.epobio.net/news/news060627.htm
13. George Monbiot (November 23rd 2004) Feeding cars, not people Published in the Guardian 22nd of November 2004
http://www.monbiot.com/archives/2004/11/23/feeding-cars-not-people/
14. Amartya Sen (1983) Poverty and Famines: An essay on Entitlement and Deprivation OUP: Oxford
15. Ibid.
16. There is also the problem of overall global food supply, and possible schemes to try and address that. There is not space to cover this issue here.
17. Anil Agarwal (2000) Climate Change: A Challenge to India’s Economy, Centre for Science and Environment, New Delhi
http://www.cseindia.org/html/climate/pdf/cse_briefing.pdf
18. Aubrey Meyer (2000) Contraction and Convergence: A Global Solution to Climate Change Green Books: London
19 Ibid.
20. Pranab Bardhan (25th October 2005) China, India Superpower? Not so fast
http://yaleglobal.yale.edu/display.article?id=6407
21. Anil Agarwal (2000) Climate Change: A Challenge to India’s Economy, Centre for Science and Environment, New Delhi
http://www.cseindia.org/html/climate/pdf/cse_briefing.pdf