Wednesday, June 18, 2008

Peak Oil, Deglobalization and Ecolomics

According to the Ecolomics website ecolomics is " improved balance between inter-generational ecological objectives and more short-term economic priorities. The relationship between these two often disparate spheres is perceived as being dominated too much by the latter. .....ecolomics at the same time can facilitate more broadly the discussion, negotiation and analysis of the interaction between ecological and economical concerns. " It goes on to explain, "This is not a new subdiscipline but a political concept, somewhat similar but considerably narrower than the concepts of sustainable development and of ecopolitics."[23]

The field of ecology for the first time brought to the environmental movement, at exactly the time it was important to begin making serious inroads into reducing the degradation we were inflicting on the environment, the benefits of a disciplined scientific study of the complex interrelationships and interdependence of all living and environmental systems. This new science may have been, in large measure, responsible for the general public understanding and acceptance of environmentalism.

As we approach a serious confluence of peak oil, other resource peaks, global warming, a global freshwater crisis, a global food crisis, a global soil crisis, all exacerbated by massive human overpopulation, can ecolomics serve as the catalyst to achieve a general understanding of the catastrophes that lay ahead of us? Can it help build a momentum of public support for the programs that will be needed to mitigate the impact of these crises on human society? Will ecolomics succeed in getting people to finally realize, especially those in power, that the environment is not a servant of human economics nor can economics function independent of the environment but must be, in fact, a subset of it?

We cannot continue to treat the global environment as a human cesspool in the name of economic convenience. We cannot continue to allow travesties that threaten the future of environmental survivability such as the Canadian legislation that allows lakes to be reclassified as "tailings impoundment areas" to allow mining companies to dump their toxic effluents there which would otherwise be in clear contravention of the government's own fisheries act.[24]

The more scarce the resources become that our industrial society are built on, it seems, the further industry and government are willing to push environmental degradation to get at those resources. Much of that environmental degradation has been pushed on to poor, desperate nations under globalization, nations prepared to destroy their local environment for the sake of an influx of western capital. Under deglobalization brought on by energy scarcity, however, as we increase the push to exploit our own dwindling resources to make up for exhausted, cheap offshore supplies, all of that degradation could be brought home to roost.

For the past several decades the incessant debates over the issue of trade globalization have largely centered on the cost benefits of production efficiency through the industrial concentration of zone specialization versus the adverse downstream economic impact on the industrialized economies brought about by offshoring of manufacturing and industrial processes and the skilled jobs that go with them. This has generated an endless barrage of hand wringing such as, "Over the past half-century, the United States has seen its global dominance in dozens of industries slip away, mostly to Asia, and particularly to China and Japan, not to mention a continuing procession of tiger economies." and "Once upon a time America owned the automobile industry ..... the US no longer dominates an industry that it practically invented. "[1] and "We're talking about 4 million jobs that will be outsourced to India probably over the next ten years."[2]

Job losses and loss of the industrial base in the OECD nations, therefore, have been the core concerns. Until now that is.

The biggest issue in trade globalization over these past couple of years, and an issue that is going to grow in importance as oil demand begins to seriously outstrip oil supplies, is the rising cost of those offshored products due to the serious and incessant rises in the cost of shipping brought about by rising fuel costs, most particularly rising oil prices. Trans-oceanic shipping remains essentially fully dependant on oil as a fuel source. A recent report issued by CIBC World states, "Higher energy prices are impacting transport costs at an unprecedented rate. So much so, that the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today."[14]

Finally we are getting close to the debate being recentered on what will be the defining issue as oil scarcity following peak oil pushes us into a new era of deglobalization.

The OECD offshoring of so many industries over the past few decades has not only outsourced the jobs from those industries. It has also outsourced the demand for energy, particularly oil, that the outsourced industry and jobs would have consumed at home. In short it has had an odd effect of redistributing a significant chunk of the oil and energy usage away from the industrialized OECD countries toward the emerging industrializing countries like China, India, other Asian countries and Latin America.

UK statistics show, for example, between 1990 and 2006, a major energy use reduction in a number of key industries that is only partially, and only in some instances, accounted for by improved efficiency. Iron and steel production, for example, saw a net reduction in energy use over this period of 36,763,200 boe (barrels of oil equivalent) per year - US steel production was reduced by more than half in the same period, despite there being a marginal domestic increase in steel use during the same period. British non ferrous metals production energy use declined by 2,023,200 boe, mineral products by 9,820,800 boe, industrial engineering and related products by 6,026,400 boe, vehicle production by 2,239,200 boe and construction by 4,147,200 boe (an overall demand reduction in those industries of over 61,000,000 boe/year). This is contrasted against general increases in energy consumption and production in other industries such as textiles, food, furniture, etc. and an overall relatively flat industrial energy usage as industrial growth was offset in most industries through achievement of significant energy efficiencies during this period.

Most in western societies seem to believe - this belief largely fostered by self-serving politicians and nation-centric media - that the massive increase in oil demand in China, India and other emerging economies, is because everyone in those nations is suddenly buying and driving automobiles. You cannot view the exploding Chinese auto sales market through a North American or even European perspective. Perhaps the more appropriate is a Cuban perspective. A very large proportion of automobile purchases in China (as much as half in many cities) are made with the express intent of using the vehicle as a taxi, either one officially licensed as such or as a black market taxi - you know, the one owned by the shadowy character standing in the corner at the airport going pssst. The vast preponderance of travel in Chinese cities is by bus and other public transit, taxi, or bicycle (China has far more bicycles than any other country, including India). In recent years, however, new legislation in China's largest cities like Shanghai and Beijing is pushing rickshaws and bicycles off city streets in favour of car traffic. This is pushing more and more people into taxis. The upsurge in car sales is not necessarily an increase in private car ownership but rather car passengership. This heavy usage of automobiles as taxis, by the way, significantly distorts the Chinese national vehicle miles travelled (VMT) statistics. The VMT per vehicle is higher than in the U.S. because the ratio of taxis to personal autos is so high.

The reality is that much of the growing oil demand in China and India originates from the massive volume of construction in those countries (China and India over the past several years are using more concrete and construction steel than the rest of the world combined) and from the high energy needs of rapidly increasing industrialization. Most of that industrialization is for products for export as OECD countries offshoring the industries they once dominated continue to turn these emerging economies into their manufacturing plants, refashioning themselves as service economies in the process.

With the dramatic increases in the price of oil over these past five years, however, this trend is already beginning to be reversed. Industries are slowly being repatriated, or the last hold-outs against offshoring are finding their business volume exploding. U.S. steel imports from China have, for example, declined by 20% over the past two years while at the same time domestic steel production has increased by 10%. And the momentum is picking up as OECD nations are forced by rising energy costs to re-examine the benefits of globalization. As the paper Reinventing Globalization puts it, "The heralded increases in oil costs due to the exhaustion of reserves and global warming linked to CO2 emissions are going to force us, experts believe, to take a new look at the global flow of merchandise...."[18] That paper goes on to make this point; "Eight hair dryers, toasters or coffee-makers out of ten sold in the world are made in China. Is the logic of specialization by production zones tenable when the cost of energy is going to explode?"[18]

The issue, however, gets much more complicated than most seem to be thus far allowing for.

If oil prices continue to rise because of increasing supply-side issues is the repatriation of industries to the OECD countries a reasonable or even workable response? The daily barrage of financial news coverage of steadily rising oil prices assaults us with an endless litany of excuses, none of them touching on the reality that the underlying reason is declining global oil supplies. We may have already seen the global peak in oil production, as long ago as spring 2005. Increases in all liquids since that time have largely been the result of non-conventional oil like tar sands and deep water, alternatives like ethanol, coal to liquid, gas to liquid and coal bed methane. For much of this year, and in some cases earlier, countries like the U.S. have been dipping into their strategic petroleum reserves. And globally oil production and consumption have surpassed new oil discoveries since the early 1980s, global production and usage now four to five times greater than new discoveries.

There is no question that rising oil prices are starting to hurt globalization. As the report Will Soaring Transport Costs Reverse Globalization? puts it, "In global shipping, the increase in ship speed over the last fifteen years has doubled fuel consumption per unit of freight. With oil prices now accounting for almost half of total freight costs, it should come as no surprise that soaring oil prices have translated directly into soaring transport costs. ..... Currently, transport costs are equivalent to an average tariff rate of more than 9%. At $150 per barrel, the tariff-equivalent rate is 11%, going back to the average tariff rates of the 1970s. And at $200 per barrel, we are back at “tariff” rates not seen since prior to the Kennedy Round GATT negotiations of the mid-1960s."[14] In the report Globalization death watch, Part I: Airlines, cargo ships increasingly desperate due to rising fuel costs they state "The cost of shipping a 40 foot container from Shanghai to the east coast of North America has gone from $3,000 in 2000 to $8,000 because of the cost of fuel, and for many products, the Asian cost advantage has virtually disappeared. ..... But at $200 per barrel, it will soon cost $15,000 in transport costs to ship from China to the US eastern seaboard."[13]

Repatriating the industries that are generating products abroad and shipping them to countries like the U.S. does not, however, eliminate the problem. If fuel costs are rising because supply can no longer keep pace with demand, repatriating those industries and the production energy they consume is simply going to change the geographic location of that energy consumption. If there is insufficient oil to meet demand, where is the extra oil going to come from to power the industries that are being repatriated? To build the industrial infrastructure that those industries will need? To supply the transport energy for the importation of the raw materials needed by those repatriated industries? All of the industrial energy consumption that was exported through offshoring under globalization will again have to be met at home. The nations repatriating industries are going to be facing increased domestic oil and other energy demand at the same time that global oil supplies, the reason for the repatriation, are diminishing.

Yes, declining global oil production is "going to force us, experts believe, to take a new look at the global flow of merchandise...."[18] When we do, however, we cannot do so with a narrow point of view focused on the final product assembly, finished product shipping, and final market distribution of those products. We must examine the whole supply chain, from extraction of raw materials and their transport to a manufacturing site to the final delivery of products to retail outlets. If we do not review the whole system we will be perpetually having to readjust as we go through the transition from the globalization that has characterized the last several decades to the progressive localization and regionalization that will follow peak oil.

I have included far more references and links below than I have quoted in this article. They are included for those who wish to achieve a deeper understanding of the issues involved in the coming deglobalization.


1) America Loses Another Industry
3) OUTSOURCING: India readies to state its case
4) Costly Trade With China: Millions of U.S. jobs displaced with net job loss in every state
5) UAW Kills Thousands More American Jobs
6) American Worry-Mongering About China
7) New Awakening About Free Trade
8) The Great American Jobs Scam
9) Job Repatriation?
10) Forward Slash?
11) Senate Passes Smith Repatriation Provision with JOBS Act
12) De-Globalization? Musing about Oil Prices and Trade Costs
13) Globalization death watch, Part I: Airlines, cargo ships increasingly desperate due to rising fuel costs
14) Will Soaring Transport Costs Reverse Globalization?
15) Fuel Prices Putting Globalization in Reverse?
16) The Establishment Rethinks Globalization
17) The End of Globalization - Can you Smell it Yet?
18) Reinventing Globalization
20) Energy Use and Carbon Dioxide Emissions from Steel Production in China
21) Energy-Efficiency Improvements for the U.S. Steel Industry
22) Saving One Barrel of Oil per Ton - A New Roadmap for Transformation of Steelmaking Process
23) Ecolomics website
24) Lakes across Canada face being turned into mine dump sites