Home  |   About  |   Energy  |   Politics  |   Software  |   Music

05 August 2009

Thoughts from Alcatraz

More than a month passed on the ASPO-TheOilDrum summit at the Libera Università di Alcatraz at Perugia, but only now I had the time to go through my notes. To match the summit's informal framework, this time, instead of the usual one paragraph digest of each presentation, there's just a collection of thoughts I brought back home.

The Setting

Alcatraz is an Arab word referring to the large, white sea bird that through linguistic migration and evolution came to be known in English as albatross. I have yet no idea how it also came to be the name of a sanctuary/touristic venue in the hills north of Perugia, but that's where the so called Peak Summit took place. It is a wonderful site, deep within the luxurious North Italian forest, composed of a few scattered houses built around a central complex where lies a reception, a small bar, a self-service restaurant and a sort of conference house. The central buildings were decorated with eerie post-modern wall paintings figuring a good number of bare breasted ladies, plus some scattered sculptures in the same vein of alien art. The staff is warm and laid back, leaving the central buildings pretty much to the guests, easily making everyone at home. But what makes the place really special is the total isolation from the outside world, away from the cities, their traffic and noise. In a subtle invitation to introspection we would wake up to the chants of dozens of small birds in the morning and when it got warmer our ears would be flooded by the callings of a million cicadas.

The attendants were about sixty and were able to fit all in the conference house, a sort of elementary school class room with a projection screen in place of the black board. This class room environment, the proximity of speaker to audience, the extended debate sessions, the overall setting proportioned by the Nature engulfing Alcatraz, all together provided for a unique experience, a close share of ideas without any of the formalities imposed by a more academic (or larger) event. Discussion erupted naturally during presentations and went on to the feeding zone and into the night.

Without a shadow of doubt this summit was a capital idea by Ugo and Rembrandt that was put to practice in quite a successful way. Congratulations and thanks to both.

Beyond Energy

One major difference from this summit to previous ASPO gatherings was the small number of presentations directly aimed at energy production and/or consumption. Perhaps a consequence of Peak Oil being now history for many, perhaps the current economic crisis forcing a new perspective on the issue, truth is, the wider implications of the perceived end to energy growth were the main dish of this event. The impact on raw materials production, the impact on Food production, the impact on the Economy, the impact on Social Equity, any one of these subjects can eventually exacerbate the scarcity of energy itself, triggering Social convulsions of enormous scale, but more than that, masking the root problem of the finitude of fossil fuels.

A very common concern is the Social impact of an extended period without physical economic growth (physical, as opposed to statistic GDP growth, e.g. based on Inflation). As many times discussed at this forum, and pointed clearly by Herman Daly, this growth interruption will immediately translate into a degradation of Social Equity under the Western Socio-Economic framework, with less wealthier folk being the first to loose access to scarce goods and services. When the numbers of those hurt by unemployment, rampant energy prices, inaccessible products, crime waves, etc, becomes large enough, all the technicalities of the energy transition go overboard.

Whilst avoiding that sort of Social breakdown is the underlying motivation of all those giving their time to the energy problematics, it may be exactly there Society is set to go. As Nate would explain in his wrap-up address, with everyone set to compete their way into the 20% of individuals that own 80% of the wealth, northing short of re-instating growth will do. In his words “we need to compete for something else”. It is very possible that Social Policy will need to find a larger place in this whole fossil fuels debate. How to do so without darting right down into daily politics fait-divers is the difficult thing.

Planned Economics

Another important point common to many speakers is the necessity of changing the current Economic Paradigm in order to avoid the outright onset of the Social convulsions discussed above. Tweak the Market in order to avoid the depletion of rare chemical elements and foster the use of more common ones, foment the recycling processes to keep matter circulating in the Economy, manage food consumption reducing dependence on imports, change rules to facilitate the build up of alternative energy infrastructure, were among the strategies discussed. The speakers at the summit had funny names for it: “Managed Austerity”, “War Time Economics”; at school there was a much more recognizable definition for it: Planned Economics.

Unfortunately, today the term Planned Economics carries on it a political semantics that distorts its true being. Planed Economics is about setting long term goals and objectives and devising the strategies and tactics to achieve them. It doesn't have to be about ending or limiting private entrepreneurship, by the contrary, it can be used as a means to actually foster it, but in ways that lead to a different overall outcome for Society.

Wind power is en interesting case, well known to readers of this forum. This energy source has been assessed as having a relatively high EROEI, even factoring in storage losses, well in excess of 10:1 and comparable to other mature electricity production systems. But when entering the market, Wind presents itself as financially disadvantageous, a disconnect imposed by the current financing framework that penalizes projects where the largest share of investment is made upfront. Without the feed-in tariffs aimed facilitating the scale up of this energy source, most of the infrastructure already in place in Europe would not exist.

Programmes like the EU 20-20-20 goals can be seen as an archetype of an Economic Plan, with the lay down of a structured set of long term objectives. Unfortunately in this particular case, the tactics to achieve these goals either do not exist or are too vague to assure success.

As the Peak Oil community moves from pre-peak warning mode to post-peak mobilization mode it might become important to address Planned Economics in a scientific, politically bare way, exploring its possibilities in times of scarcity.

The “classroom” at Alcatraz.

The Roman Empire and Money

Ugo's talk was one of the most stimulating, and links to many of the issues discussed during those two days, with the difference that it was laid down from an historical perspective. In short, empires go through several cycles of good and bad times, but always increasing Complexity, up to some point beyond which it can't increase any longer. Henceforth investments cannot keep up with capital depreciation and the decline unfolds.

Ugo referenced in his talk a very interesting theory about the collapse of Rome. The crucial element that the Romans brought about and made the Empire possible was the professional military. The English word soldier (as in many other languages) evolved from the Latin soldato, a man on salary, formed in its turn from the word soldo, pay or salary. This was the great Roman invention, whereas up to that point war in Europe was waged either by mercenaries or farmers, defending or taking capital (land, crops, etc), legions were composed by men dedicated entirely to the military activity, receiving a fixed income, either engaged at war, stationed as peace keepers or at training. This meant that the Empire had to maintain a constant flow of precious metals to its legions. As long as the Empire kept expanding geographically this was easily attained, with plunder and more precious metals mines under its domain, assuring the maintenance of the military machine. The expanding territory meant an expanding Money Supply.

Some historians say that the Roman Empire expanded to wherever vines and olive trees could be farmed. Either imposed by Climate or other factors, the truth is, when the Empire reached certain foreign environments, such as Scotia or Germania, it stopped expanding. Beyond then it was a only a matter of time before Money Supply would stop growing. The number of mines producing silver and gold stopped increasing but at the same time precious metals would leave the economy either looked out as wealth storage or sent abroad through Trade (taxation had a special role on this, flowing money to Rome that would be spent on luxuries). At some point, the flow of money from mining was outpaced by the outflow and it became impossible to maintain the usual numbers of military. Some point to the depletion of silver at the Rio Tinto mines as the catalyst for this reversal.

Other reasons can be pointed for the collapse of the Empire, Pollution, Disease, Climate Change and more, it might even have been a combination of factors, but the Money thesis has several attractivenesses. It presents a clear token for Complexity, and more, it postulates that it weren't exactly production constraints that brought the Empire down. Gold and silver, even more then than now, had no practical usefulness, they don't grow crops and are too malleable to produce hand tools, their value emanates solely from their exquisite chemical properties (density and durability). This leads to a very interesting perspective of the Roman Empire running out of the tokens to maintain its Complexity.

On a more technical speech, the lines above outline an Economy where Money Velocity is relatively low and constant and Money Supply is the main macro-economic variable. With the mines depleting Rome debased the currency and increased taxes, trying to prop up Money Velocity, but it failed nonetheless, because under those conditions being a soldato became a much less interesting profession. This starts the bridge for today's Economic Crisis and it's relationship with Fossil Fuel depletion. There's an essential difference from today to Roman times, there is no physical constraint on Money Supply. This is an advantage, but there's a catch, money is today created as debt, the promise of future growth, not as a token for the real energy (Complexity) that flows through the Economy. Without growth this system can stop working, and that may exactly be what the present Crisis is about. While the Oil Empire is in no clear way better prepared than the Roman Empire for Peak Complexity, it may have some interesting options the latter didn't had. Money can actually be a key element in the transition away from Finite Energy.

And a final note on this thematic, it is at least discussable that Money Velocity has today the same properties of back then. It is hence with some appallment that one sees the debate on the Economy relationship with Energy almost always subject to a rather strict Monetarist perspective. This was patent at the summit, as is in the daily discussion among the ASPO-TheOilDrum community. Some open mindedness on the subject is in order.


A common thematic at this sort of gatherings is the apparent difficulty in bringing the fossil fuel depletion home with politicians and stakeholders in general. Being such an obvious and pressing issue, why are the power structures largely ignoring it? Or at least pretending to ignore it?

In my perspective there's an old book that may explain why: Animal Farm. It is the story of a farm where the animals working there revolt against their masters and take power. They are leaded by the pigs, the brightest of the four-feet, that learn to read. The story ends up with the pigs simply replacing the men, enforcing their power on other animals (mainly sheep) with fierce dogs. Written originally as an allegory for the rise of Communism in Russia, it has actually much more wider reach than that, it can be interpreted as a book on human condition itself.

The supreme leader of the Animal Farm is a pig called Napoleon, who takes that position by learning how to teach and control the dogs. But throughout the book he looses protagonism, with the practical leadership relying on another pig: Squealer. He is a brilliant, charismatic speaker on which the other animals completely invest their confidence. Squealer is at first able to make the animals understand the miserables lives imposed on them by men and then convince them into revolt and freedom. Unfortunately, that blind confidence is later used to bring back the animals to a sort of slavery.

The point is: there is no Peak Oil Squealer. Surely, there are bright minds and special individuals in the this realm, starting with M. King Hubbert himself, and going through the many others that readers of these lines know pretty well. But none of them has the charisma of someone like Al Gore, for instance. Since his first involvement with the cause, then as US Senator of the state of Tennessee, he dedicated a good part of the last 20 years raising awareness to the possible effects of the increase of global atmospheric CO2. He became a venerable person, a man the masses are willing to listen and follow. He encloses the authority that Nate writes about, to the point that the man is sometimes confusable with the cause itself. He is the Squealer of Global Warming.

While there's no Squealer for Peak Oil (or more broadly, Fossil Fuel depletion) it might be actually good that there isn't one. There isn't such a thing as “ a solution” for Peak Oil, there may exist answers at different levels and different places, but as of now, there's no silver bullet, no magic formula, that can solve every problem right away. Cassandras are not charismatic, Squealer wasn't only telling the other animals they were doomed, he was also telling them precisely how to act upon it. A Peak Oil Squealer con only emerge presenting a solution to the masses, and coming that to be the case, chances are good of him being wrong.


The most important for last and not because of the interest this word naturally generates. Last year TheOilDrum conducted a survey revealing that less than 10% of its readership is of the female sex. The same with the website's staff, where presently only two members are women (although producing more and much more regularly than the men). Similar figures could be draw from a statistic on the summit's attendance.

On his wrap-up lightning address Nate briefly referenced that Men have steeper discount rates than Women. The obvious question was raised by Ugo during the ensuing and final debate session: being so, why were so few women at Alcatraz that day? Somewhat surprisingly Nate couldn't give an objective answer, saying that it was possibly a combination of several factors. But one of the female attendants had a pretty objective thesis to bring forth: it is all a problem of communication. So we were left with the perspective of institutions like TheOilDrum or ASPO being unable to communicate properly with about half of the world's population.

This subject would dominate what was left of the summit. After dinner I entailed a rather long dialogue with that female attendant that brought up the issue of Communication. It was a serious mind opener for an issue that I'd never realized to be so profound and horizontal to Society. Adding those new elements to Nate's approach on human behaviour, I walked away convinced I really understood it all. And that may be exactly the problem.

TheOilDrum has definitely to try to reach the female audience, not only to broaden the community aware of the issues discussed in its pages, but because women may bring different ways to deal with them. That is something that possibly only women can do, so I guess I can say we want to hear from you. Writing for TheOilDrum is pretty close to being in that classroom at Alcatraz, no formalities, scant rules (mainly directed at format, not content) it's just a blank sheet of paper ready to nourish your thoughts.

See you at the next ASPO/TheOilDrum gathering.

05 June 2009

EuroElections 2009 : GUE/NGL

This series draws to an end by visiting a political bloc that represents another major philosophical current in Europe. The Confederal Group of the European United Left – Nordic Green Left (GUE-NGL) is the Scientif Socialist reference at the European Parliament. Although composed at its core by state-level Communist parties, it also congregates some less Scientific parties that haven't yielded to Liberalism. More than sharing a philosophy, GUE-NGL members share a common reluctance towards the Europen Construction process, at least in its current form.

Apologies to all fellow citizens that already voted. Time is in short supply these days and this last entry is going live a few days behind schedule.h

It all started 150 years ago when a German textile tycoon sent is young soon to work at one of his factories in Manchester. During the two years spent there the young man became convinced that the Industrial Revolution was resulting in poorer, not better, living conditions for the majority of the population – the working class – which lead him to write a book on the subject – his name: Friedrich Engels. After two years in England Engels decided to go back to Germany, on the way stopping in Paris to meet another young thinker: Karl Marx; his journey ended there. Moving to Brussels the next year, they would spend three years writing “The Manifesto of the Communist Party”. The rest is History.

At least that's one of the ways of starting the story. What Marx and Engels brought about was the idea that social inequity had its root on the hold that certain individuals had on the Commons, and on the means of production in general. To deal with that imbalance the only proper remedy would be to simply eliminate any sort of private control on the Commons and deliver enterprise control to the working class.

A thorough account of what Communism achieved in Europe is way beyond these simple lines, a profoundly rich story that would have much to write about. Fast forward to the early 1980s with the second oil shock and Europe divided in East – surrendered to Communism – and West – surrendering to Liberalism. The collapse of oil prices in 1985 coupled to the peak of oil production in the USSR triggered the collapse of the Communist bloc, which eventually lead to an uniformization of Europe in political terms, with Communist parties relegated to the background in a Market Economy backed by rotating Democracies.

With the Globalisation process succeeding the implosion of the USSR, a slow process (that was already in march in many states) shifting the working class from blue collar to white collar jobs ensued. The Communist parties largely failed to appeal to this emerging working class and progressively lost their grip on the electorate, something quite visible in their Parliament results, going from over 10% of the seats in 1979 to just over 5% in 2004.

Communist parties in Europe today are not exactly the same of the XIX century. Fully integrated in the Democratic process, they do not advocate for Planed Economics, but for state control of key services in a market economy framework. Their biggest flag in recent years has been the fight for workers' rights, confronting the precariousness of labour contracts imposed by the Free Market. Modern Communist parties are sometimes compared to the Social Democrats of the early XX century, when Socialists of that time re-factored Socialism to integrate a multi-party democracy. As a foreigner reference, many of the concerns of European Communists are common to the Socialist Party of America, although the latter goes further left in many issues.

GUE-NGL is less of a party and more of an ideological platform, its parliament members retain almost full independence, especially on state matters. There isn't, for instance, a common Vision for Europe put forward. Of all the groups reviewed in this series GUE-NGL, is the less cohesive and farther from the traditional concept of a party.

GUE-NGL's website is sober but well organized, far from the mega-productions of the traditional parties. It has a great focus on the people, each parliament member is presented individually, as so each state-level delegation. There's even a section dedicated to the party's staff, with a small file presenting a picture and contact for each. GUE-NGL also doesn't present election specific content, something that seems exclusive of the big parties; possibly a consequence of budegt limitations. But the website contains a section entitled Policy that a lists a good number of areas for which the party tried to present structured but simple ideas. Clicking on Energy the reader is presented with two lonely paragraphs:


The GUE/NGL Group has contributed to adopting new legislation to enhance energy saving policies, to improve energy efficiency and to reinforce the use of renewable energies with the objective of respecting the commitments made by the European Union at the Kyoto Conference. We continue to press the case globally for renewable energies and we emphasise the role that research into energy efficient vehicles and investment in clean and ecological public transport systems could have on limiting pollution and protecting the future of the planet. The active development of renewable energy will go some way towards addressing the fossil fuel crisis and can lead to environmental improvements. It can also bring economic benefits through developing new technologies and creating new jobs.

"Contributing to meeting the energy challenges of the 21st century is a European responsibility, but it cannot be adapted to an unbridled race for profitability or competition. Preparing the post-oil era; progressing much further in the reduction of greenhouse gases; increasing the research effort to boost energy efficiency and diversity; transforming the organisation of transport; establishing the right to energy for all - these are the eminently political tasks that cannot, for risk of failing, be allowed to be kept in check by short-sighted market considerations." Francis Wurtz.

“Post-oil era”. Words that are not that common in the political discourse these days (with the proper exception made for Commissioner Piebalgs). These lines attempt simply at a Mission and Vision, not at a real Policy. Some keys areas of action are identified but it is not that clear if the party really aknowledges the emergency of the moment. And at the closing stages “the right to energy for all” ends up somewhat dislocated from the rest of text, no matter what good intentions are behind that sentence. Before the right to energy comes the access to, or production of it.

Such meager lines prompt a bit more of research through the website's sections. There are a few loose articles on the matter without bringing an integrated perspective. Worth reproducing is a two year old note by Francis Wurtz, the party's President, on Liberalisation proposals by the Commission:

Statement by Francis WURTZ, President of the GUE-NGL Group in the European Parliament
Following the Commission's proposals on energy

Brussels, 19/09/07

As it had announced, the Commission has just proposed a new legislative "package" in the field of energy.

More than ten years after the adoption of the first liberalisation directives, the assessment is gloomy: in terms of prices, security of supply and of environmental performance.

Prices are escalating: electricity charges increased by 9% in the EU in 2006, the Union is not immune to the serious crises that are believed to be the preserve of other continents, such as the massive blackout of November 2006 which left millions of Europeans without electricity. As for the sustainable energy challenge, it is still worth noting that coal and gas account for 48% of the electricity production of the EU.

The official report is therefore sufficiently alarming so that one wonders about the justification of the method followed up to now. Instead of that, the Commission is pushing ahead, and now proposes a pure and simple separation between the production means and the distribution network - in other words the dismantling of major companies trusted by all for the quality of their service. It brings to mind the drunkard from St-Exupéry's tale who, having drank too much, drinks without further ado to forget… that he drinks.

My group defends a radically different vision for the European energy domain. Energy is a strategic asset, essential to the economy as well as to society. It is a common asset to which any and everybody has to have access. The service of general interest that entails the production, transportation and distribution of energy has to be defined democratically and entrusted to public operators equipped with the necessary industrial means, and all the more accountable thanks to an irreproachable method of governance, with respect to their employees, with respect to consumers and the entire company. They must absolutely be preserved and put in a position to contribute to a genuine European public energy service.

My group will therefore fight with the employees, with consumers and with the advocates of public service, against the dangerous draft that the Commission has just submitted.

There's life beyond Liberalisation. By nature, Communism and unbundling/deregulation don't exactly match, but it is good to know that at least someone at parliament understands that these tactics will not provide Energy Security.

This peering into GUE-NGL's Energy Policy ends up being a major disappointment. There's no clear policy to show, it isn't even clear if this is a priority area of intervention or not; too few information, no committing stances are taken. Being traditionally an opposition party and with a declining electoral base, GUE-NGL is one of those groups that can afford, and actually profit from, bringing to the debate those issues that aren't comfortable for bigger parties. That's more or less the Greens' strategy, but unfortunately, such isn't case with the Communists. If Peak Oil isn't a disruptive event capable of triggering social change, then what will?

Final notes

Taking the extra space haplessly provided by the GUE-NGL, these final paragraphs reflect on this series as a whole.

The first point to make is that Energy is not a determining area to choose between any of these parties, none of them provides a serious, congruent programme to deal with fossil fuel scarcity. Apart from the Greens-EFA, all the parties leave Energy in second plane, without much or none priority. The Greens go at a good deal of commitment, especially in the Transport sector, scoring points in the Efficiency front, but don't really grasp the urgency of the moment and compromise their stance with an unrealistic outlook on Nuclear.

To all these parties Growth is an acquired fact, an immutable constant, a goal pursuable and to pursue above everything else.

Before leaving, it is perhaps good to stress that although encompassing all the major parties and political currents in Europe, this series left much uncovered. There are more political parties at Parliament and many more are those at state-level that do not have seats at the moment. An informed voting decision should properly look into those parties as well. To assist on that there's a handy electronic tool that informs the citizen which parties are closer to his/hers philosophical profile:

EU Profiler

May the 2009-2014 term be the one Europe overcomes Fossil Fuels.

02 June 2009

EuroElections 2009 : Greens-EFA

This round through the European political landscape now leaves the parties more used to power and starts dealing with those found more often in the opposition. The Greens – European Free Alliance (Greens-EFA) is the fifth largest political block at Parliament, with little over 5% of the seats. Greens-EFA is a coalition largely composed by state-level Green Parties plus a small number of Regionalist deputies. After an all-time high close to 10% in 1999 the party had what can be called a disappointing result in 2004. Embarking on a worldwide effort to promote its ideologies by the midst of the current term, it is quite possible that the Greens-EFA may reach a relevant stake at Parliament this time.

The Green ideology is possibly the most complex political philosophy in Europe today, a sort of definition can be attempted at, but with the due reserves. The roots of the Green movement can be traced back to the late XIX century when Naturist Anarchism emerged in France, Spain and Portugal. Among other things it advocated for an ecological relation of Man with Nature, reducing or even annulling the impact of the former on the latter. It was a rather individualist philosophy, underpinned on self-sufficiency. Throughout the XX century these ideas evolved into modern Green Anarchism, that embraced community with the development of the eco-village concept (units of no more than a few hundred folk living from subsistence agriculture). It brought about the idea that modern realizations of primitive social structures would allow a way of life in harmony with Nature, repudiating larger power hierarchies. With the debate about limits to growth and the oil crisis unfolding in the 1970s the Green ideology made it into larger sections of the political landscape, with movements emerging aiming to push those ideas through the established Democratic process.

By 1979 the German Green Party developed the Four Pillars of the Green Party: Ecological wisdom, Social justice, Grassroots democracy and Nonviolence. These are still today the main guidelines followed by most Green parties around the world. In Europe, Green Parties started reaching parliamentary representation during the 1980s and from that time, the most important legacy they left was the halting of further developments to the European Nuclear Programme (facilitated by the tragic events at Chernobyl in 1986). Early on, Green Parties were composed by activists that could be identified both with the traditional right and the left and for some time this created internal tensions and some splits. To their aid came the establishment of Liberalism and the revival of pure Monetarism in Europe, especially from the second half of the 1980s onwards. Appealing to individualism, Liberalism wasn't that far from the Greens' roots and the merging of these two philosophies happened rather naturally. With the approach of Socialists and Conservatives to Liberalism, a fertile political landscape was set for the Greens to flourish, not by alternative social policies, but by presenting the differentiating element of Environmentalism. This allowed the German Green Party to reach a government backing coalition in 2002. In other states, albeit their increasing popularity, Green parties have remained in the opposition invariably with single digit electoral results.

As happens with Liberal parties, the Greens haven't so far been able to fully capitalize on the electorate closer to the traditional parties. Nonetheless, their activism have been having a crucial role in shaping politics in Europe, especially in the field of Energy.

The party's website, although simple and low budget, is quite straightforward and presents the visitor with plenty of information on its activities and ideas. In the Who we are section comes a synthesised political presentation:

Our project is to :

  • build a society respectful of fundamental human rights and environmental justice: the rights to self‑determination, to shelter, to good health, to education, to culture, and to a high quality of life;

  • increase freedom within the world of work, not only by tackling unemployment but also by widening people's choices, releasing human creative potential ;

  • deepen democracy by decentralisation and direct participation of people in decision‑making that concerns them, and by enhancing openness of government in Council and Commission, and making the Commission fullv answerable to Parliament.

  • build a European Union of free peoples based on the principle of subsidiarity who believe in solidarity with each other and all the peoples of the world.

  • re‑orientate the European Union, which currently over‑emphasises its economic conception at the expense of social, cultural and ecological values

And then comes a section headed with “The Greens/European Free Alliance is working for:” that includes the incredible statement:

[...] economic and social reforms to make development sustainable for both human beings and the natural world;

Just to remind the inattentive reader that the Greens-EFA is a party like any other, with growth at the front of its concerns.

Like in the case of the liberals, Greens-EFA doesn't have any election specific content summarizing the party's policy proposals for the next term. Moving around the website a thorough Energy Policy stance is no where to be found. In the Documents subsection there is a long list of essays and news that can be organized thematically, being possible to access a list of those tagged with Energy; this is a long list of articles going back to 2001, that present a sort of recent history of the party's vision on this field. These articles are almost exclusively dedicated to dismiss Nuclear Energy, with the occasional promotion of Natural Gas.

But there's more to the website. Another section is called Campaigns where the party lists special policy programmes, each one with its own website. Two of these are worth a closer look: E-Polis and TEN-T. The first is dedicated to Urban Planing, the second to Transport.

E-Polis is not a real political programme or a formal policy, it is more of communication and experience-sharing platform:

E-Polis - European Sustainable Cities Network
E-Polis was founded by 4 Green Members of the European Parliament in 2006: Gisela Kallenbach, Monica Frassoni, David Hammerstein-Mintz and Michael Cramer - all driven by the need to involve citizens in local decision-making and to promote sustainability in urban development.

E-Polis supports and inspires local initiatives and NGOs whose purpose is to promote sustainable development and participation of civil society in urban development processes. E-Polis aims to create and establish a European-wide network of such local initiatives/NGOs in order to share experiences and find partners for joint activities.

E-Polis launched with selected local initiatives/NGOs from different European countries. The activities stimulated by E-Polis cover a broad range of issues, although there is particular focus on activities raising environmental awareness and empowering citizens in local decision-making processes.

The main networking tool is this e-polis website with a forum and a NGO data base, allowing to get in touch with persons and organisations that share the same idea: a better city is possible.

It is time to network!

It is always awkward to read the oxymoron “sustainable development” in a text supposedly inspired by Environmentalism. Nowhere in the website is it made clear what the Greens understand by “sustainability in urban development”, so the E-Polis campaign can be actually promoting practices that increase energy use. Notwithstanding, the Greens seem to be concerned with a matter that is unfortunately missing from the big parties' scope.

TEN-T is originally an European programme dedicated to develop an trans-European transport network, that the Greens-EFA regard as being a failure at the moment. The website the party dedicates to it is a reformulation of this plan, a serious attempt at a Transport Policy capable of changing Europe's direction on the matter. While energy is not at the root of this campaign, this is one of the areas were emissions reduction and Energy easily overlap:

Transport in Europe is unsustainable at the moment. Although there are huge investments in infrastructure like the TEN-T program, it is quite evident that especially for the environmental harmful modes of transport such as road and air borne transport are constantly increasing. We want to propose some solutions in order to make transport more sustainable and to allow for the climate effects of transport

This Policy is laid down in three stages: Ad-hoc measures, Medium-term measures and Long-term measures. Below is a synthetic list of the tactics proposed in each scope. For each one the website goes into great detail, with much information worthy of a closer look, especially for those working and/or researching in the field.

Ad-hoc measures

These measures comprise some ideas and practical advice that could be easily and immediately implemented without changing the legal basis at the European level. Due to reluctance from the member states these opportunities are not utilised on a broad scale.

  • Additional inspections - controlling of compliance with social and employment standards for truck drivers and the compliance with general rules;

  • Cross financing for rail - due to the new directive on the "Eurovignette" (Directive 2006/38/EC of the European Parliament and of the Council) each member state is allowed to levy tolls and user charges for vehicles over 3.5 t (from 2012 onwards) for the use of certain infrastructure.

Medium-term measures

These measures are intended to change transport policy in the medium term. In order to tackle the problems of climate change, as well as other environmental problems, changes in the legal and policy basis are nescesa

  • Internalisation of external costs - will help to abolish distortion of competition between rail and road;

  • Climate change - shift money from prestigious projects to upgrading on a large scale within the period 2007 - 2013 especially in the context of climate change;

  • Intelligence for rail - improving cross-border rail transport through Europe-wide technological and regulatory harmonisation under the flagship ERTMS/ETCS;

  • Funding preferences - shifting funds from huge infrastructure projects to efficient multimodal nodes - new funding programme (amendment to TEN-T);

  • Alpine crossing exchange - recognizing transport opportunities as a limited good especially in areas with geographical constraints like the Alps, the trading of transit rights could bring a solution: "The Alpine Crossing Exchange";

  • Transport Subsidies - cut transport subsidies for environmentally harmful modes in order to facilitate the shift towards rail;

  • Kerosene tax - introduction of a European tax on kerosene in order to support the realisation of the TEN-T rail links;

Long-term measures

These measures are intended to sustainably change the direction of European transport policy over the long-term. New strategic approaches, as well as reconsidering existing programmes, could help to make transport greener in the future.

  • Strategy for intermodal logistics - development and implementation of a European strategy for intermodal logistics, enlarging combined traffic etc;

  • Big projects - realisation of huge infrastructure projects that are proven to have a long-term economic viability and that are indispensable;

  • Inland Waterways - the use of inland waterways could help to make freight transport more sustainable but only if strong environmental concerns are respected and resolved: fit the ships to the rivers and not the other way round!

Much could be discussion on each of these tactics, but the most important thing to note is that the programme is congruent with itself and throughout compliant with the vision of an infrastructure shift away from fossil fuels towards electricity. Where a shift to electricity isn't immediately a goal there are proposals for taxing fossil fuels or to use more efficient modes of transport. All that is left to say is how that shift will be accomplished in the short/medium term with the decommissioning of the Nuclear Park taking place simultaneously.

One thing is certain, Greens-EFA is so far in this round up the party dedicating more resources to Energy related issues and the one willing to go more deeply in its proposed polices. Unfortunately, that is not happening by the acknowledgment of impeding Fossil Fuel shortages, which leads to an incoherent message. Although not openly proposing one, the Energy Policy emerging for the party's websites' is the most ambiguous of those reviewed so far. Greens-EFA should try to bring about a thorough and integrated realization of such policy and seriously reflect on the consequences of deactivating the European Nuclear Programme at this stage, or at least provide a realistic and comprehensive road map to achieve such goal.

29 May 2009

EuroElections 2009 : ALDE

This series on the Energy Policies put forward by the main parties running for the European Parliament moves on, leaving the heavyweights and bringing focus to smaller political groups. The Alliance of Liberals and Democrats for Europe (ALDE) is the main political group at the centre, pretty much in between EPP-ED and PES. It is the major Liberal reference in Europe, as in the member states where it is represented.

Writing about Liberalism in Europe is not a simple task. While it can be identified as the ideology with the largest support base in the continent, and the one that had the strongest grip on politics during the last 25 years, the parties that directly subscribe to it are yet to have major electoral results (exception here must be made for Scandinavia). The main reason for such paradox has been the morphing of traditional parties (the several Conservative and Socialist flavours) closer to Liberalism, especially after the second oil crisis, that allowed them to capitalize on the broader Liberal electorate. Portugal is an interesting exception: the largest party in this state is the PSD, that although directly subscribing to Liberalism, was created under a Social-Democrat image, right after the 1974 revolution (hence the SD in the party's acronym). As the previous 48 years of Fascism rendered Conservatism unfashionable, PSD was able to capitalize on a broader electorate and eventually took the majority of seats at Parliament. Initially a member of ALDE, it forfeited and joined ranks with EPP-ED about a decade ago, openly searching further influence on euro-politics.

For foreign readers, ALDE can be broadly considered the European counter-part of the American Democrat party, although in a smaller scale and without much of the burdens of a party that is rotatively at the helm. Still, state-level members of ALDE are many times in power, taking part in coalitions needed to reach majority at local Parliaments to back up state Governments. All things considered, ALDE can be seen, together with the two heavyweights, as a third element shaping the EU to what it is today.

Visiting the party's website, it is immediately clear that the kind of budget the big parties can afford isn't there. Still, the website is quite pleasant and well organized, with a good deal of information on the party's activities and policy proposals. But there is no Election dedicated content, and the inquiring citizen needs some extra effort to get a synthetic idea of the party's programme for the coming term.

Inside a special space called “Key Documents”, at the left-side navigation bar, is a document for download entitled About ALDE leaflet [pdf!]. It starts with a message from the party's president, Graham Watson, of which it can be highlighted:

The Alliance of Liberals and Democrats for Europe offers leadership and direction. It aims to build a broad consensus about what the European Union is for and how we can face together the supranational challenges of global population growth and migration, energy security and climate change, internationally organized crime and terrorism – all of which require a supranational solutions.

Further relevant contents in the leaflet:

We stand for individual liberty, a free and dynamic business culture, economic and social solidarity, sustainability in taking actions, protection of the environment and respect and tolerance for cultural, religious and linguistic diversity.

Our vision for the EU is of a Europe which:

  • Reaches out to all European countries which wish to join and respect the principles of democracy, stability, human rights and a functioning market economy;

  • Promotes sustainable economic growth leading to more and better quality jobs, more consumer choice and greater opportunity for business;

  • Provides freedom, security and justice for its citizens, standing up for human rights and combating discrimination in all its forms;

  • Furthers justice, peace and stability and alleviates poverty in the world.

Finding ALDE's stance on Energy Policy is easy, at the top content bar there's a menu with the title “Policy themes” that unrolls a series of sub-menus, among which is Energy. This document doesn't really attempt to build a thorough Energy Policy, Vision and Mission are absent, strategies are diffuse; it is more a collage of loose tactics with an heavy focus on market liberalisation. The opening paragraphs don't leave much shadow of doubt:

ALDE Position on Energy Policy

The promotion of competitive, clean and secure energy is a key objective of the ALDE Group. This means a commitment to free and fair competition in the energy market and an active engagement in the environmental aspects of energy policy. ALDE supports firm binding targets for renewable energy and energy efficiency.

The liberalisation of energy markets and the completion of the internal market for energy has always been one of the key objectives of ALDE. A truly European energy market means real and fair competition that benefits consumers. The Group has actively pushed for energy liberalisation, e.g. in the 2006 Parliament report on the Trans European Energy Networks (electricity and natural gas), with ALDE MEP Anne Laperrouze as the EP rapporteur. The report aimed to diversify and improve the security of the European Union's energy supply by forging stronger links with non-EU countries and integrating the networks of the new Member States.

The party clearly aims at projecting an image of being a major defender of free market and its fully application to Energy. Further strategic lines are drawn ahead, but on a very superficial approach:

The ALDE Group supports the EU action plan on energy and climate change. It is important to address the multiple and linked challenges ahead for energy supply, environmental sustainability, research competitiveness and a consistent foreign policy.

Research and innovation in the energy area play a considerable role: development of renewable and clean energy and of technologies for energy saving and efficiency will reduce our energy dependence, diversify the energy sources as well as decrease our greenhouse gas emissions.

Not much to add to the Energy Policy put forward by the Commission, but in a much less committing fashion. The document only goes into more detail with two strategies, Liberalisation and Emissions:

The third liberalisation package

In September 2007 the Commission gave its proposal on a third package on liberalisation of energy markets. Its central aim is the effective separation between the control over electricity and gas transmission networks from supply and generation activities. The Commission proposed "Ownership unbundling", meaning that companies owning gas and electricity networks would not be allowed to engage in energy generation or supply at the same time. As an alternative solution the Commission suggested the establishment of Independent System Operators (ISO). This option would allow energy companies to keep their network assets, but they would have to hand over the control over their management to the ISOs. In its first reading in June 2008, the EP supported full ownership unbundling.

In reality, this is not exactly a strategy, ALDE simply limits itself to subscribe the Liberalisation strategy put together by the Commission. There's no reference to future actions or further Legislation to propose and discuss at Parliament.

The integrated proposal for Climate Action

In January 2008 the European Commission put forward an "integrated proposal for Climate Action" in order to achieve the targets that were set in 2007. The proposal includes:

  • An update of the EU emissions trading scheme (EU-ETS) for the period after 2013. It includes expanding the scope of the ETS and replacing national allocation plans with either auctioning or free allocation through single EU-wide rules;

  • A decision on Effort Sharing for cutting emissions in sectors not covered by the EU-ETS (such as transport);

  • A directive on renewable energy. The proposed directive sets national renewable energy targets that taken together should result in the overall binding target of 20% in 2020. It also establishes the binding 10% minimum target for biofuels in transport to be achieved by each Member State;

  • A communication on carbon capture and storage (CCS).

Once again, complete subscription to the Commission's Policy, no new elements are brought about. The party tries to present itself as a major element in building the Commission's strategies, providing the consensus that allowed to bridge from the need for market competitiveness and the environment. It is far from clear that such is the case. Further down the page there's a list of articles and news that further detail loose positions of the party and its members, but from which a clear Energy Policy can't be easily distilled.

This Policy project doesn't have the same level of incongruence of those presented by the big parties, but that's in great measure a consequence of its superficial nature. The only good point that can be made from this blurry image is that ALDE doesn't seem to be band-wagoning on the bio-fuels hype, although the word actually appears once in the text, it doesn't have the same highlight other parties lend to it. On the negative side is the obsession with Liberalisation; it can have obvious benefits if it comes to foster the physical inter-state integration of the Energy Grid, but how can it deal with internal depletion? And the depletion in Europe's main energy suppliers? Believing in Liberalisation and Deregulation can be seen largely as a philosophical option, but it is an illusion to push it as the remedy for all evil, and believe it can solve the EU's most pressing energy problems.

It would be better if there was more to write about ALDE's Energy Policy, but there really isn't.

19 May 2009

EuroElections 2009 : PES

In the second installment of this series, that pretends to round up the Energy policies put forward by the main political blocs running for the European Parliament, the analysis is on the Party of European Socialists - PES. The eternal runner up behind EPP-ED, never got more than one third of the seats at the euro-chamber. Nonetheless, through the alternating democratic process at state level, it has been having also a relevant role in shaping the European Union to what it is today.

PES is a federation of state parties that are either part of, or closely related to, the Socialist International, being the political group at the European Parliament that is formally closer to the way state parties function. Still, it gathers politicians with very different approaches to Society, diluting its identity.

Unlike in the US, where the word Socialism is a synonym for Planed Economics, in Europe it still retains some of its philosophical meaning of solidarity and equality. Especially during the rebuilding process ensuing the Second World War, Socialism (or Social-Democracy in some states) in Europe became associated with John Maynard Keynes' recipes for economic growth, in what can be considered a politicisation process of popular Economics. The oil crisis (that hit Europe most during the 1980-1985 period) brought this Social-Economic view into question, with refactored interpretations of Monetarism becoming popular again, especially among Liberal parties and but extending to large swathes of the population. That, coupled with the fast expansion of the European Union (that brought rapid economic growth to many states), ended up moving some state-level socialist parties much closer to Liberalism.

In recent years some socialist parties were able to implement policies that directly social equity, like indirect tax increases, in states as the United Kingdom or Portugal. On the other hand, in places like Scandinavia or France, socialists remain closer to post-WWII philosophies. Thus, the concept of an European socialist is today something rather hard to define and largely dependent on geography. For foreigner readers to understand, a large portion of PES would be registered with the Democrat party in the US, while the remainder would not find home at any other party there, even with the Socialist Party of America, largely a Scientific Socialist bloc.

To the election. As one of the parties with the largest electoral base, PES can afford a professional website full with media content. After a few years with pink, the party's colour is again red, prominent in the website's design. Right at the top is a link to a secondary website dedicated to the 2009 Campaign. This website is built around something called the Manifesto, the result of a public consultation that went from October of 2007 to July of 2008, in wich more than 3000 individuals reportedly participated. This consultation produced a draft that was discussed and approved by the PES Council in December of 2008.

Both the Manifesto and the election website are markedly directed at younger voters, with audio, video and printable contents. The language is most of the time simple and direct; the word "your" is present at large. There's also a clear attempt to promote the party's graphical image as an identifying symbol of its members. That might not mean it won't work for maturer audiences likewise.

The printable version of the Manifesto is that traditional electoral booklet that could be expected. The introducing remarks are less of a laid down ideological foundation and more of an action programme, still, it is enough to understand where the party stands in the political landscape; a few highlights are reproduced below.

The Party of European Socialists is committed to creating a fairer, safer society, tackling the challenges we all face by putting people first.


For us, the European Union is the vital link in the era of globalisation. It puts our countries in a stronger position to solve global problems that have an impact locally. We need more active cooperation in Europe to tackle our common challenges and improve people’s lives. The entry into force of the Lisbon Treaty, subject to ratification by all EU Member States, would make Europe better able to tackle common challenges democratically, transparently and effectively.

It is now 30 years since the first direct elections to the European Parliament, which has a key role to play in realising our vision of a European Union which puts people first. The Party of European Socialists is your voice, promoting your interests and championing your causes. We are committed to:

01. Relaunching the economy and preventing new financial crises
02. New Social Europe – giving people a fairer deal
03. Transforming Europe into the leading global force against climate change
04. Championing gender equality in Europe
05. Developing an effective European migration policy
06. Enhancing Europe’s role as a partner for peace, security and development


We need a strong progressive majority in Europe to introduce the progressive reforms that are essential to secure the future well-being of European citizens and society as a whole.


The global financial crisis has exposed the weaknesses of the unregulated market. These are very difficult times in the global economy. The past year has seen two unprecedented shocks - the worst credit crunch since the 1930s and a record surge in energy and food prices. We need active cooperation in Europe and globally to coordinate action and tackle the problems in national and international financial systems; and we need to take proactive action to transform the economy – through investments in key priorities - to secure a prosperous and sustainable future for everyone in Europe.

Conservatives have pursued a policy of blind faith in the market – serving the interests of the few rather than the general public – and we are now seeing the damage that badly regulated markets can do. But we know we can do something about this. We can relaunch Europe’s economy and create a fairer and safer society for all in a New Social Europe.

Our comprehensive progressive reform agenda to transform European cooperation - based on our values of equality, democracy, human dignity, solidarity, freedom and justice – can deliver the change which the people of Europe so desperately need.

There is a great deal of comparison made with the EPP-ED's policies, possibly a consequence of PES permanent second place at Parliament.

Moving through the Manifesto it becomes clear that Energy Policy is relegated to a second plane by the PES, with only one of its pages 60 pages dedicated to it (even considering that half of those pages contain pictures or graphical art). Three lonely paragraphs, buried in a section about Climate, attempt at a sort of extended policy view:

We propose to develop a European Common Energy Policy based on sustainability, energy security and independence, diversity of energy sources and solidarity between Member States in the event of energy crises. The EU should, for example, increase its renewable energy supply by taking the lead in building a High Voltage Electricity Transmission Network for the transportation of offshore wind energy from Northwest Europe and solar energy from southern Europe and North Africa.

While these are initiatives to welcome, there's no time framing nor any sense of urgency. The "for example" is quite unfortunate, it hints at the party not having a properly developed policy.

We will support a modern Common Agricultural Policy that promotes comprehensive rural development and values the fundamental role of farmers, recognising the role of agriculture in protecting the environment, ensuring food quality and security of supply, preserving the landscape, and protecting animal welfare and plant health. Biofuels can help to lower emissions in transport, but this should not come at the expense of European and global food production, environmental protection or biodiversity. The EU’s Biofuels Directive should be revised to ensure respect of this principle.

It is good to read about Agriculture in a text that prototypes an Energy Policy. It is good to acknowledge food production as a major variable in the Energy system. It is bad to ignore what EROEI is, and what it vaticinates for agro-fuels in temperate climates.

It is for each Member State to decide on whether to use nuclear power. However, given the importance of nuclear safety for all European countries, the monitoring of existing and new nuclear power plants should be coordinated at the European level.

PES adopts essentially the same posture as the EPP-ED on Nuclear, leaving development decisions for the state level. Is this the Common Energy Policy referenced in the opening paragraph? At PES this hand-washing is not only a symptom of lack of commitment, but possibly of serious internal differences on the matter. Apart from that, the proposal for Union level safety motorization is welcome.

There's a lot left to be desired for from such meagre lines. Digging deeper into the election website it is possible to find something a bit more elaborate. At the Documents page, under a section entitled "Save our planet", is buried a link to a resolution with the title "Secure energy supply and smart, green growth: a new social democratic energy policy [pdf!]". This is an 11 page document dedicated entirely to Energy, produced at the 7th PES Congress, held in December of ... 2006.

What can be called a vision and a mission are laid down at the opening:

High energy prices and the evident consequences of our changing climate underline the urgency of a new energy strategy for Europe and our planet. European socialists and social democrats agree that this new strategy has to meet five different, but interdependent challenges:

  • it should tackle climate change and energy policy in a integrated way

  • it has to address the security of energy supply concerns

  • the new strategy should be based on the principle of sustainability

  • it should focus on the economic opportunities this global challenge offers
    by developing new ecologically sound industrial policies

  • the aim of the new strategy should be a common European market for energy that is based on the principle of solidarity and cooperation within the European Union

This document is worth to be read in its entirety, but for the sake of brevity, here is simply a digest. The document continues to underpin the party's energy vision, distancing itself from deregulation goals and proposing a social dimension to Energy Policy. After that, the proposed policy is materialized in six strategic lines; for each strategy the tactics devised are summarized below.

Tackling Climate Change

Referenced as "the most pressing problem", is tackled almost by a single line of action: expanding the Emissions Trading Scheme in both space and time. PES proposes the EU to lead a negotiation process to reform Kyoto in order to effectively guarantee a world-wide adherence to similar policies. As for Energy, this scheme is proposed to funnel resources into renewable energies and efficiency R&D. At the end is the proposal to accelerate the development of Carbon Capture and Sequestration (CCS) technologies so they can become mandatory after 2020 for every new fossil fuel power plant built.

Securing Europe’s energy supply

This strategy can be divided into two main tactics: a) procure an EU agreement on a timetable for fossil fuel reduction in coming decades and b) procure partnerships with major neighbouring energy suppliers (e.g. Russia, Norway, Algeria, Lybia) that are mutually beneficial, guaranteeing long term supply. At a wider international level, it is also proposed for the EU to use its negotiating powers to promote its climate agenda in energy exporting countries, as also social stability.

Investing in Energy efficiency

Not far from the goals proposed by the Commission a few months earlier, this is the section where the party goes at greater length detailing its proposed strategy. The tactical outline is the following:

  • Energy efficient products - introduce new legislation to support the most efficient products, promote new technologies to support household - electricity supplier communications, among others;

  • Buildings, planning and construction - reduce energy consumption in buildings up to 25% by 2020; instruments like the European Regional Development Fund can be used to provide for household refurbishing to low-income families; reform urban planning down to local level in order to reduce unnecessary transport and promote infrastructures such as district heating;

  • Transport - strengthen alternative transport modes such as rail, inland waterways and maritime transport with better inter-modal competition rules; increase domestic bio-fuel production;

  • Improving energy production - move from average electricity generation efficiency of 40% to a new generation of infrastructure than can reach 60%; improve electricity transmission and distribution;

  • Consumers’ awareness - create an "energy culture" together with local and regional governance in order influence citizen's individual choices.

Promoting renewable energies

PES proposes the EU to go one step further from the goals already agreed upon in the 2006 Spring Council. It aims for more ambitious and long-term targets: 25% of renewables in primary energy by 2020, 50% by 2040. In the short term this is to be achieved almost exclusively by bio-fuels, with policies such as increasing the ethanol blended in petrol to 10%.

Diversifying Europe’s energy mix

This section is somewhat diffuse and repeats many of the points made earlier. New issues brought up are the decentralization of power generation and the need for a common Nuclear safety policy. The later is referenced as an important element of the EU's energy mix.

Value added: a European dimension of energy policy

A more political strategic line, calls for more cooperation at the EU level. Uniformise the internal market under the same political framework, with overcoming the market's discrimination for renewable energies as a goal.

Definitly, this is more than what the regular citizen could wish for, but it is a serious attempt at bringing together an Energy Policy. It quite resembles the Commission's proposals, but going further in many areas, both for the good as for the bad. There are interesting references to alternative modes of Transport and Urban Planning; Energy Efficiency is especially tackled in a much more integrated perspective than that of the Commission. Also relevant is the acknowledgement of the importance of the EU's neighbours and of the present role Nuclear has in the energy mix. On the negative side are the blatant promotion of agro-fuels and of-course, the suicidal CCS targets. It is pretty unbelievable to read in the same document proposals for an efficiency increase in power generation and proposals to reduce that same efficiency. All these incongruences bring into question many of the numbers that quantify the tactical goals laid down.

But what is more consternating is the absence of urgency in dealing with fossil fuel depletion, the sense that reducing these energies' consumption is dependent solely on the citizens' and politicians' will. Such is reflected in the way the party relegates Energy into the background, hiding its thorough approach from the common citizen and even failing to properly synthesize it. Can one day PES politicians reach the same level of energy lucidity Andris Piebalgs seems to have?

15 May 2009

Andris Piebalgs : it may have peaked.

When elections approach, public office holders can sometimes feel that with their term coming to an end the political correctness is not that constraining anymore. That's precisely what seems to be happening with European Energy Commissioner Andris Piebalgs. In a note that could be your regular TheOilDrum post, the Commissioner talks about peak oil in the past tense and warns that present oil prices at relatively low figures are simply transient.

Below the fold the 8th May entry to the Energy Commisioner's weblog is reproduced in its entirety, for such words from a such stakeholder are a precious thing.

Emphasis added mid text.

Are we moving towards a new oil crisis?

One of the few good pieces of news in the current economic crisis (maybe the only one) is that oil prices have gone from the 147$ a barrel of July 2008 more than 100$ down to less than $50 a barrel on the international markets. However, in the last days we have seen oil prises rising and reaching the price of $58 a barrel for the first time in nearly six months. Nevertheless low oil prices are also good news for gas, since gas prices are normally linked to those of oil. If we remember the difficulties that European fishermen and truck drivers had last year we can imagine what their problems with be if in the middle of an economic crisis they had to deal as well with prices over 100% a barrel.

However, we should not be under any illusion. The current fall of oil prizes is just the consequence of an even more dramatic fall in demand due to economic crisis. I add to that the fears in the financial markets you will understand why investments in futures of any commodity except the safest ones (gold, for instance) are so rare. But the fundamentals that drive the energy markets have not changed. Once the economic crisis is over demand for hydrocarbons will soar again, particularly in the developing world. And some countries are preparing for that. For example the Chinese government has granted a credit to Russian State owned oil companies Rosneft and Transneft $25 bn. against daily supplies of 48,000 tonnes of oil for the next 20 years.

The world is aware that the production of the existing oil wells is decaying and that new discoveries are more scarce and more expensive. Some experts consider that global oil production may have peaked at 94 million barrels a day [sic - the correct figure would be arround 84 Mb/d]. The current economic crisis can make the situation worse. The lower prices that we are enjoying now can be in fact bad news. At this price oil producers have been forced to postpone many necessary investments in new production capacity. These investments take decades to be accomplished. In consequence, if the current economic crisis finished and demand recovers we could be facing huge shortage of supplies that can lead to extremely high prices.

How high? According to the Secretary General of the International Energy Agency (IEA), Nabuo Tanaka, oil prices could go up to as much as 200$ a barrel in the next 4 years. A quick look back on the situation of last year when prices were at a mere 147$ a barrel maybe gives an idea of what the consequences may be if the prices goes a 25% higher.

The current relatively low oil prices give a respite to prepare for the coming new oil crisis. We have to reduce our dependency in all those areas in which black gold is not indispensable, such as heating, or electricity production. For those areas which will have to continue to depend on it, like transport, we need to accelerate the research for alternatives, like biofuels, electric cars or hydrogen. And in all sectors, we have to accelerate our efficiency being aware that every barrel of oil that we are using is one of the last.

It is difficult to forecast when the next oil crisis is going to come. As Nobel Price Niels Bohr once put it “prediction is very difficult, particularly about the future”. But one thing is certain, one day we are going to run out of oil, and to prepare for that day we may be running out of time.

There isn't much to add to these lines, for anyone reading this post likely agrees fully with them.

Taking the opportunity, it may be perhaps time to reflect on this Commissioner's term. The Commission took office with oil prices below 40$ and saw them climbing above 140$, dealt with protests from professionals dependent on oil products: hauliers, fishermen, farmers and leaves office during the worst economic recession since at least 1980. While during the first half of its term both the Commission and the Commissioner were reluctant in accepting the hypothesis of serious Energy supply problems, they eventually aknowledged the situation.

First with the setting of the 20-20-20 goals but especially with the second Strategic Energy Review, the Commission showed to understand (even if partially) that Europe's energy entitlement is at risk. Acknowledging the Union's unsustainable dependence on imported Gas and the present importance of it's Nuclear park, where two relevant steps. To that adds some interesting initiatives like the Mediterranean Energy Ring or the Solidarity Plan. But the most positive point to this Commissioner's term ended up being the commitment to Energy Efficiency - the policy that can have most impact over the short term.

On the negative side are the sense of abundance inherent to the 20-20-20 goals, the promotion of damaging dreams like CCS, agro-fuels or hydrogen and the the Marketplace adulation. Although the 20-20-20 goals are in themselves defensible objectives, they were designed for a Europe of the past, when energy was easily accessible in the Market. As for agro-fuels et alia this was possibly more the result of certain lobbies, although here the Commission also evolved by limiting the number of CCS pilot plants and reconsidering it's bio-fuels goals. Nonetheless, the greatest shortcoming of the Commission's Energy Policy was the absence of an integrated approach to Transport, where the EU spends most of the oil it imports. Jet-fuel and Liquefied Petroleum Gas continue to be subsidized, the Union is still heavily dependent on road transport (especially for freight) the High Speed Rail network is not fully integrated and far from reaching all states. The weakest link seems to have been overlooked.

What seems most difficult for European politicians to grasp is that the coming decline of fossil fuel consumption will be imposed by Nature and the Market, it won't be an option. With this weblog entry Andris Piebalgs definitely distances himself from that class of energy illiteracy, and just for that deserves praise.

When the largest party at Parliament, EPP-ED, writes in its campaign booklet that CCS and hydrogen are energy sources, one has to feel fortunate for having an Energy Commissioner capable of writing the lines above. Yes, it took the whole term to get there, but it eventually did. It seems unlikely that Commissioner Piebalgs can continue in office. Especially with the realization of the importance of the energy link with Russia, the largest states will possibly fight for this important office. Being the appointee from Estonia, Andris Piebalgs will likely see his place occupied by a German or Italian Commissioner for the next term. If member-states chiefs and the Parliament are able to agree on someone with the same understanding of Energy as Andris Piebalgs it won't be bad.

But alas, these lines end up highlighting how ineffective the current political system in preparing in advance and planning for the long term - only when the crisis hit comes the direct acknowledgement of a problem. Tragic.

Hat tip to Rembrandt for pointing Andris Piebalgs' original entry.

07 May 2009

EuroElections 2009 : EPP-ED

This post starts a series intending to reflect on the policies on the field of Energy proposed by the main political parties/blocks running for the 2009-2014 term at the European Parliament. Consulting the information made available on-line, either at home-pages, electronic leaflets or booklets, this series will look into the guidelines on Energy Policy that each party is proposing to euro-citizens.

Starting is the EPP-ED, the Cristian-Democrat block that has held the largest number of seats at Strasbourg since the Assembly's first day.

EPP-ED is a congregation of regional Conservative or Cristian-Democrats parties plus a few scattered Liberal parties. Most of these parties are used to be rotatively in power at state level and can be seen as the largest molders of what the European Union is today. With the largest electoral base, both at state- as at union-level, the party is also home to the ideas behind most of the policies and legislation put in place by the Commission and the Parliament.

The present Commission was shaped by the EPP-ED, largely influencing the name choice for Commissioner positions. Commission President, José Manuel Durão Barroso, although a Liberal, is a member of EPP-ED through his home state party – PPD/PSD – a Liberal party that has the largest militant base in Portugal.

The party's home-page is pleasant looking and well organized; although more focused in showing the work already made or in development by the parliamentary group. There's also an entire webpage solely dedicated to this year's election, a good place to know further the party's stance and the proposed programmes on other fields of action beyond energy.

It didn't take much time to find a booklet presenting the party's political guidelines for the 2009-2014 term. This booklet is very good, presenting not only the political programme but also a sum up of the party's ideology and its place at the present geo-political landscape. After messages from the group's parliamentary leaders comes a section that explains the values at the core of the party's ideology, of which the main section is worth to reproduce:

The European Union needs to update, reassert and modernise its values: freedom, democracy equality, the rule of law, along with respect for human rights, including those of minority groups These values are common to all Member States, in a society characterised by pluralism, non-discrimination, tolerance, justice, solidarity and equality between men and women.

The essential pillars of our political activity must be to safeguard family values – particularly in response to challenging demographic trends and a falling birth rate – and to defend freedom of education. After all, the family is the basic unit that enables people to overcome crises, help each other, and prepare for the future. Our policy must be to strengthen families, ensure inter-generational solidarity and the passing on of values and heritage. The EPP-ED Group supports the laicism of the State, where this is a positive secularism that protects freedom of religion in a spirit of cooperation based on dialogue, mutual respect and reciprocal independence.

Economic rights are not secondary rights. They must be forcefully reasserted. Our Group believes that freedom of education, research, enterprise and competition are individual rights and the basis of a healthy and prosperous economy. There can be no justification for infringing these rights, which must, on the contrary, be further enhanced.

The value of effort, work, ownership and saving is insufficiently upheld. The current reforms aimed at reducing the burden on those wishing to work, save and invest must be continued.

A full page of this booklet is dedicated to Energy Policy, that his headed by the following title: Developing a coherent energy policy in the context of measures to combat climate change and sustainable development. The party's vision is resumed in a single paragraph:

The EPP-ED Group supports the establishment of a diversified energy mix, promoting higher energy efficiency in all activity sectors, the completion of the internal energy market and the development of a coherent foreign energy policy

And after it four strategic lines are laid down:

Towards a zero or low-CO emitting energy mix

The EPP-ED calls for:

  • more investment in R&D for clean technologies such as carbon capture and storage, hydrogen and methanol energy, biofuels, biogas and biomass, which will allow us to rely on indigenous sources of energy in a sustainable way;

  • more emphasis on clean energy technologies such as nuclear energy on the part of those States that favour it, the use of clean technology when using fossil fuels and the use of renewable wind, marine, solar and thermal energies;

  • large-scale renovation of the cities (building stock, district heating systems, public transport);

  • increased cooperation and dialogue between Member States in order to avoid drastic consequences for the price and quantity of imported sources and for the overall levels of the EU’s CO2 emissions.

The first four elements put forward are CCS, hydrogen and methanol “energy” and biofuels, which are even called “indigenous sources of energy”. A worst starting would be hard to imagine, leaving a lot to be desired for on the party's understanding of what is energy. A positive note goes for the reference to urban planning and its role in Energy Policy. Still, one can't stop thinking that these lines are simply a gathering of names that have a good echo with the press; yes, Nuclear is there, but lightheartedly, but only for those who want it.

Energy efficiency as a key driver of competitiveness and respect for the environment

Energy efficiency in all sectors represents the most cost-effective and rapid way to reduce our energy dependence on imports, rationalise consumption in households and industry and drastically reduce our CO2 emissions. This requires the involvement of all economic and social sectors.

The EPP-ED Group advocates:

  • fiscal incentives for citizens and companies undertaking renovation works in the building sector and for the purchase of energy efficient vehicles and appliances;

  • providing users with accurate information so that they can rationalise their energy consumption, encouraging new technologies such as smart meters in particular;

  • continuing the rapid development of cogeneration in our energy-intensive industries and encouraging other sectors of industry to follow suit.

Things get better at this stage, the efficiency message is now well absorbed by the political class who understand how simple and light tactics can have an important impact in energy consumption (like the Labelling Directives). Naturally, one may or may not agree with specific tactics as fiscal incentives for vehicles substitution, but nonetheless, the election of Efficiency as a priority is quite welcome.

The internal energy market as enabler of open competition, higher efficiency and cost-reflective prices

Completion of the internal energy market is essential to the success of our security of supply and environmental goals. However, many obstacles to the free movement of gas and electricity within the EU still remain: lack of interconnection capacity between Member States; lack of harmonisation of basic technical rules; political protectionism; and the coexistence of 27 different regulatory frameworks.

The EPP-ED Group supports:

  • further technical and regulatory harmonisation, placing all companies on a level playing field so that they can serve customers throughout the Union, increase interconnection capacity, and create competition in isolated and closed-off areas;

  • setting up social programmes for vulnerable sectors of society without interfering with the market;

  • encouraging a truly integrated and open market in order to ensure that energy prices reflect actual production costs; an efficient market is also essential to encourage the significant investment necessary for the introduction of renewable energy sources.

Using rhetoric similar to that of the Commission, EPP-ED advocates that increasing the competition in the internal market can secure energy supplies from abroad and moreover, foster investment in renewables. On the later, Jérôme had the opportunity to explain just recently why this isn't the case. As for the former, why more competition between, say Portuguese and Spanish companies can bring more oil from, say Angola to Europe is something that only this party and the Commission seem to know – especially in the face of natural depletion. None of this goes at saying that liberalizing the internal market is an undesirable objective; while it's priority is mainly an ideological choice, it's effect on the problems Europe is facing today is largely limited.

Creating supportive energy diplomacy.

The EU represents more than 500 million consumers and therefore needs to establish a real energy diplomacy.

Solidarity mechanisms need to be established between Member States in case of emergency situations. The gas supply crisis over the past two years as well as the two EU-wide blackouts have demonstrated the need to improve physical interconnection and rapid reaction mechanisms, in order to avoid the potentially critical consequences these events can have on the economy and on society.

Reading the header of this section one could even get the idea that the EPP-ED is proposing an European Foreign Minister/Ministry, but that's not exactly the idea. Nonetheless, solidarity and physical interconnection are some of the added strengths the Union can provide and their reference is welcome.

All in all, this programme doesn't differ much from what the Commission stood for during the term that now ends. The booklet's section on energy is close to a condensed version of the Commision's Energy Reviews. Being so, the same problems are present: it is understood that something is wrong, although not quite well what; the recipe: throw at it all that the hand can reach, well mixed with a liberalized internal market. It turns out that some of what is being thrown at the problem is actually lumber into the fire.

On a positive note is the attempt to build a thorough Energy Policy, composed by four strategic lines, submitted to an integrated vision. These strategies are not properly realised by concrete goals, which even at this level of contact with the broader public should be possible. A few tactics are put forward, that as explained above, do not exactly conform to the vision and strategies outlined. A sense of lack of commitment ends up emerging from the programme as a whole.

Calling CCS an “indigenous source of energy” is one of the most hilarious things ever present in a energy text.

01 April 2009

London G-20 meeting: the last chance?

On the 24th of March, Frank Biancheri, head of of the LEAP2020, published in the Financial Times the following open letter directed to the G20 leaders gathering in London on the 2nd of April:

Ladies and Gentlemen,

Your next summit takes place in a few days in London; but are you aware that you have less than a semester to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment? Therefore, this open letter by LEAP/E2020, who saw the arrival of a « global systemic crisis » as early as three years ago, intends to briefly explain why it happened and how to limit further damage.


Until now you have merely been concerned with the symptoms and secondary effects of this crisis because, unfortunately, nothing prepared you to face a crisis of such an historic scale. You thought that adding more oil to the global engine would be enough, unaware of the fact that the engine was broken, with no hope of repair. In fact, a new engine must be built, and time is running out, as the international system deteriorates further each month.



1. The key to solving the crisis lies in creating a new international reserve currency!

The first recommendation is a very simple idea: reform the international monetary system inherited post-wwii and create a new international reserve currency. The US Dollar and economy are no longer capable of supporting the current global economic, financial and monetary order. As long as this strategic problem is not directly addressed and solved, the crisis will grow. Indeed it is at the heart of the crises of derivative financial products, banks, energy prices... and of their consequences in terms of mass unemployment and collapsing living standards. It is therefore of vital importance that this issue should be the main subject of the G20 summit, and that the first steps towards a solution are initiated. In fact, the solution to this problem is well-known, it is about creating an international reserve
currency (which could be called the « Global ») based on a basket of currencies corresponding to the world’s largest economies, i.e. US dollar, Euro, Yen, Yuan, Khaleeji (common currency of oil-producing Gulf states, to be launched in January 2010), Ruble, Real..., managed by a « World Monetary Institute » whose Board will reflect the respective weight of the economies whose currencies comprise the « Global ». You must ask the imf and concerned central banks to prepare this plan for June 2009, with an implementation date of January 1st, 2010. This is the only way for you to regain some control over currently unwinding events, and this is the only way for you to bring about shared global management, based on a shared currency located at the centre of economic and financial activity. According to LEAP/E2020, if this alternative to the currently collapsing system has not been initiated by this summer 2009, proving that there is another solution than the « every man for himself » approach, today’s international system will not survive this summer.

If some of the G20 states think that it is better to maintain the privileges related to the « status quo » as long as possible, they should meditate the fact that, if today they can still significantly influence the future shape of this new global monetary system, once the phase of global geopolitical dislocation has started they will lose any capacity to do so.


Further detail of LEAP2020's analysis was given by Frank in an interview to the Guns and Butter radio show.

There will be other issues discussed at the meeting: tax heavens, shadow accounting practices, reserve requirements, but the global reserve currency system, that, as was known during at least the last 40 years, seems to have ceased to exist, is the most important of all.

How did it get here.

The first attempt to reach a global monetary system was held at Bretton Woods in the US in the Summer of 1944, with the end of the Second World War in sight. An agreement was reached between 44 nations in the Allies' side, that enacted the IMF, the prototype of the World Bank and a new monetary system for commercial relations. This system (named Bretton Woods) established fixed exchange rates between currencies, defining narrow fluctuations of paper currencies against gold.

This Bretton Woods system lasted for more than two decades along which countries kept on increasing paper currency supply, but managed to maintain gold prices under control by injecting reserves into the market. The system began to fail in May of 1968 when world wide panic closed down most gold trading markets. Investors had lost faith in central banks' ability to redeem the fiat currency they had issued. In the Summer of 1971, bending on the weight of increasing energy imports and the Vietnam war, the US was forced to pull out of the Bretton Woods system, abandoning the direct convertibility of the US dollar into gold.

During the following months, with the dollar loosing half of its value against gold, most other countries abandoned fixed exchange rates against the dollar. A new system emerged, with major currencies used in international trade adopting floating exchange rates.

Following came a period of about ten years between the first oil shock and the pinnacle of the early 1980s recession, when currencies slowly depreciated without much economic growth happening in the western world. During this time the foundations of the present system were launched. Perhaps the most important action towards it was the birth of the Carter Doctrine. As the economic crisis was overcome, a symbiotic relationship developed between the Midde East and the West, in exchange for military protection (conserving the ruling elites) oil producers provided easy oil that fostered economic growth in its turn reinforcing that military power. Oil producing countries stored their wealth in US Treasury bonds and other debt instruments becoming creditors of the military power that kept them safe; the flow of cheap oil allowed the economic growth that justified the faith on the US currency. This was the Petro-dollar system.

While in a different stance, US allies in the NATO framework (also Japan and Oceania) ended up also benefiting from this new system. They couldn't export debt as the US did, but benefited both from the flow of cheap oil and of the rising protective military power at the western side of the Atlantic. Two decades of unprecedented economic stability and growth unfolded.

But History is relentless. By the mid 1980s this system was being used chiefly in the Atlantic – Middle East trade, with the USSR and its allied still in place, and in a trade environment much narrower than today. As oil prices collapsed in 1985, events were set in motion that brought down the USSR both in political, military and economic terms; in 1989 the Berlin wall fell and in 1991 Russia detached from the former republics of the Warsaw Pact. In 1992 the Maastricht Treaty created a new market of international dimension; in 1999 the Euro was born and in 2001 China joined the WTO, paving the way far a major, now liberalized, economy entering the world market. At the same time other important players emerged, with Russia becoming again the world's largest oil producer and a major energy exporter, not forgetting countries like Brasil or India.

What started as a bonding scheme between two regions, became the system that prices global trade today. Not only the usage of the US dollar as reserve currency became global, it became much more intense with imports and exports having far greater weight in individual economies than 20 years ago. This scheme resulted into the US Federal Reserve setting monetary policy for the whole world, while in fact its targets and gauges are solely on the US economy.

The recent years.

After 2000 the US embarked on a monetary and fiscal policy expansion with little parallel in history: interest rates were brought down to the floor, the monetary mass grew in excess of 10% annually, an expansionary budget stimulated demand for goods and services, many of them imported from countries that accumulated US bonds and other forms of fiat currency. From 2002 to 2007 reserve currency held by central banks grew in excess of 20% annually. In parallel, lax financial regulations and reserve requirements helped creating a pile of invisible debt (out of balance sheets) on that expanding demand and monetary mass, according to some amounting today to more than the world's annual GDP.

Did this incredible expansion ended because oil production plateaued? That's an interpretation, although other views are possible. Oil prices entered the rising phase in 2004, in 2005 were raw materials and 2006 food: no matter what the underlying reason, the supply side stopped following the demand expansion. When Ben Bernanke became chairman of the US Federal Reserve and tried to change course by raising interest rates, so that at least some strain would come to the monetary expansion, it was already too late: the US economy couldn't expand anymore in order to generate the wealth promised by all the debt issued in previous years.

Without that physical growth, the result was simply default on debt. Without the proper leadership from either the US government or the Federal Reserve, panic took over last September and during two months the world assisted to one of the sharpest demand retractions in history. The awkwardness of the moment is that in order to stimulate demand once more the prescription in the US seems to be an expansionary budget and monetary policy. And here's the main problem: this policy threatens the value of US dollar reserves held abroad.

There is another side to the present crisis worth observing: countries that followed alternate monetary policies to those set by the Fed seem to be suffering the most. Those that opted for high interest rates in order to fend price inflation and/or demand enjoyed an influx of foreign investment lurking for easy profits. When the crisis hit that investment simply vanished, examples were Iceland, and Russia to some extent. At the other end were countries like Japan that during this decade had been battling problems of employment or lack of internal demand, employing expansionist measures even sharper than the US; they are now facing an influx of currency that threatens to engulf demand and massively destroy employment.

In conclusion: a regional currency running world trade had two main negative effects: impaired specific monetary policies in other regions, formating them to the issuing region, and pegged wealth in store to the economic health of a single region: the issuer. Exacerbating these problems is the hegemonic position the currency issuer gets, allowing it to leave beyond its means - what Frank Biancheri calls the reserve currency curse – the budget and trade deficits can apparently be expanded without limit, but at some point it makes foreigners wonder, and when that time comes the issuing region is engulfed in debt. A global economy running on a regional currency seems almost like a scheme designed to self destruct.

The confidence wanes.

The policies needed to bring the US economy back into contact with reality have thus the parallel effect of deriding the wealth stored by those economies that grew on exports during the past few years: be it expensive lasting goods (e.g. Germany, Japan), consumer goods (e.g. China) or energy (e.g. Middle East, Russia). The confidence on the US dollar as a reserve currency is severely demaged and as the LEAP2020 implies, it will probably never come back. No wonder then that China is openly calling for a new reserve currency system:

Zhou Xiaochuan, governor of China's central bank, has proposed to create a super-sovereign reserve currency as part of reform in the international monetary system.

The desirable goal of the international monetary system is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies," he said.

Zhou said the Special Drawing Right (SDR) of the International Monetary Fund (IMF) has the potential to act as a super-sovereign reserve currency in a signed article posted on the website of the People's Bank of China Monday.

This backs up earlier calls from another major holder of reserve currency, Russia, that seems to be heading a group of nations with the same intent:

China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.


Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to up their influence on decision making globally. Their first ever joint communique did not mention a new currency but the source said the issue was discussed.
"They (China) did not formally put forward their position for the G20 summit but unofficially they had distributed their paper regarding the same ideas (the need for the new currency)," the source told Reuters, speaking on condition of anonymity.

But China has not sticked solely to articles in the western press and meetings with other reserve currency holders. Ever since the country announced its intention to make the Yuan a reserve currency, several currency swaps have been announced with its main commercial partners, Argentina being the last of a list that includes South Korea, Malaysia, Hong Kong and Belarus.

What could happen then if a new coordinated reserve currency fails to emerge? The answer is simple: the US dollar will stop being the world trading benchmark. A period will then unfold during which trading nations won't have a clear worldwide unit to value their goods, much less to store value for future trading. Possibly, some regional currencies might be tried on a geographically limited basis, and another alternative might emerge with a currency for which there isn't much policy to go about: gold. The consequences of such transition will be immense; an Hungarian mathematician called Antal Fekete, claims to already be getting signs in that sense, with gold futures entering backwardation late last year. This is a rather technical issue, way beyond the aims of this simple essay, but with or without backwardation, it is important to know what Fekete foresees [pdf!] in case the present system ceases to exist without a clear replacement:

I have to go back to the collapse of the Western Roman Empire after the abdication of the emperor Romulus Augustus on September 4, 476 A.D. It was followed by the Dark Ages when the rule of law, personal security, trade of goods against payment in gold and silver could no longer be taken for granted. Gold and silver went into hiding, never to re-emerge during the lifetime of the original holders. It is plausible to see a causal relationship between the fading of the rule of law and the complete disappearance of gold and silver from trade. Virtually all observers say that the first event caused the second.

I may be in a minority of one to say that causation goes in the opposite direction. The disappearance of gold and silver coins as a means of exchange was a long-drawn-out, cumulative event. In the end, no one was willing to exchange gold and silver coins for the debased coinage of the empire. At that point the empire was bankrupt; it could no longer pay the troops that defended its boundaries against the barbarians threatening with invasion. This is not to say that the empire did not have other weaknesses. It did, plenty of it. But the overriding
weakness was the monetary weakness. Centuries after centuries the Mint of the empire could attract less and less gold and silver. Because of this, the empire was forced to debase its coinage and the deterioration continued until the bitter end, when the gold flow to the Mint completely dried up.


The history of the monetary system of the United States [and of the World] shows an ominous parallel to that of the Western Roman Empire. As long as gold and silver was still used in trade at least to some extent, the Western Roman Empire was limping along. The modern equivalent of the disappearance of gold and silver is epitomized by the progressive vanishing of the gold basis [meaning the vanishing confidence in the US dollar as an effective long term wealth storage medium].

Coming from a different perspective, this scenario ends up remarkably close to what Frank Biancheri calls “every man for himself”: the break down of global commercial bonds, a drastic reduction in global trade and the emergence of several regions of influence deploying different economic and monetary policies, in a world resembling Europe in 1914.

A small but important sign of this unfolding change of the world's monetary system is the recent news that the US sate of Montana is considering a return to gold and silver as means of payment and state accounting units.


Europe has possibly the most complex stake in this meeting. On the one hand it is home to about one third of the world's reserve currency, having to some extent benefited from the advantages of being a reserve currency issuer (although in its case the reserve currency issued is a relatively small fraction of total currency in circulation). On the other hand, it holds the third largest foreign currency reserve in the world, being a major creditor of the US.

Two other issues are worth nothing in Europe's stake, first, it is heavily dependent on energy imports, thus being highly vulnerable to world trade disturbances, and more so when its major fossil fuel suppliers are entering terminal decline: Norway, in the case of oil and gas, and Russia in the case of oil. Another important point is that about half of the world's reserve gold is in Europe, as so considerable sums in privately owned bullion and monetary jewelry.

All things considered, Europe is possibly the region having most to benefit (or more to lose in the opposite case) from a new reserve currency system not reliant on a single regional issuer. Up front, for it would prevent serious impact on world trade and the possible consequent disruption of energy imports, but also because it would prevent the Euro from somehow becoming a substitute for the dollar, shifting the “reserve currency curse” to the eastern side of the Atlantic.

Enter the Khaleeji.

There is still another possibility to unfold if a new reserve currency system isn't put in place. After several years of talks and on/off reports in the press about its arrival, the Gulf Cooperation Council states decided in the wake of the present crisis to precipitate the creation of its common currency, the Khaleeji. This is another sign of the confidence break up in the US dollar as a reserve currency, from countries that so far had their currencies pegged to it. It is shaping up to be something like the Euro, governed by a Middle East Central Bank. Interestingly, there's only one country from this block attending the G20 meeting, Saudi Arabia.

Speculation as come about on this new currency being backed by a physical entity, in contrast with the other fiat currencies of the main world trading blocks. Gold is the usual suspect, but that's unlikely, for the region doesn't hold much gold (compared to Europe) and a good part of what it has is non-monetary jewelry.

The important thing about the Khaleeji is that it will be backed by the economic health of countries whose main economic activity is energy production and export. This makes it a real improvement over the US dollar, the Yuan or the Euro, and a potentially emerging reserve currency in case an agreement fails at the G20.

Beyond a new reserve currency system.

The last paragraph contains an obvious caveat: if the Khaleeji comes to be a fiat currency, its backing by energy is purely abstract, shakily built on confidence. And that is the main problem world leaders face today, irrespective of what role energy prices had on the crisis unfolding, one thing is certain: if the energy flow to the world economy can't grow anymore, then all abstract currencies are condemned as long term wealth storage media.

Without economic growth to support their expansion, abstract currencies loose their main advantage over commodities: a supply totally detached from economic activity allowing for monetary policies supporting employment, wealth or international relations. As expansionary measures are put forward to revive an economic growth that might no longer be possible, paper currencies will rapidly deride in value, menacing public confidence invested on them.

A new world reserve currency, resembling the old Ecu for instance, could indeed re-instate balance in world trade, but it won't be in any way a solution for the deriding value of abstract currencies and the policies founded on them. But it would at least bound international players together into finding a way forward.