Can the oil crisis pave the way for low-carbon alternatives?

Published in The Independent, in September 2000.

The current oil crisis has caught Mr. Blair and his government embarrassingly by surprise and has already done permanent damage to his reputation as a control freak. It may also have been equally damaging to two other, but in the longer term rather more important mythologies. The first is the myth that just-in-time logistics services somehow represent a real improvement in economic efficiency. The second is the myth that higher energy prices are the key to preventing global warming.

One of the primary reasons why such a small number of largely selfish protestors has been able to bring the government and the country to its knees with such brutal swiftness is that few of our businesses or public services retain any stocks of essential goods and materials.  In the thirty years since the last oil crisis the vogue for just-in-time delivery has taken huge inventories of stock out of warehouses and storerooms and off corporate balance sheets and put them into constant motion in the fleets of juggernauts and white vans that crowd our roads.

To accountants this looks compellingly attractive. The cost of maintaining an inventory is now borne by someone else – indeed by everyone else in the form of increased congestion and pollution and public expenditure on roads and related services. Paid for stock no longer stands idly in a storeroom so there is no longer any need to pay for the room, or the people to move the stores, costs come down, profits go up.

As long as nothing interrupts the flow of goods and materials around our roads everything is fine. But as is now being demonstrated with such extraordinary clarity, the minute something goes wrong, everything goes wrong. The real cost of what was always a more apparent than real increase in economic efficiency was to render our economy even more vulnerable than it already was to interruptions in the supply of oil and to put the well being of millions of us in the hands of a ever smaller number of people.

It has been an article of faith for most environmentalists that higher energy prices were the only way to save the world.  Without the implementation of the Kyoto Protocol, carbon dioxide concentrations in the atmosphere would grow rapidly and irreversible climate change would occur.  In order to achieve the Kyoto Protocol targets, energy prices would have to be raised dramatically by the imposition of carbon taxes.

Under the tutelage of the IPPR, this government has bought in to that rhetoric. So much so that on coming in to office it raised the fuel duty escalator imposed by the previous government to 6% to demonstrate its environmental good faith.  Actually, this measure was never more than a revenue raising device. The first Michael Howard, then Secretary of State for the Environment, heard about his new green tax was when he received a pre-budget briefing.  Mr Brown maintained the green fig leaf right up to the point where a booming economy meant he no longer needed the revenue.

This may matter a lot less than most environmentalists fear. The Kyoto Protocol targets, as its critics have often pointed out, would not reduce greenhouse gas emissions significantly enough to get outside the error boundaries on the emissions data. In other words, even if we managed to fully implement the Protocol we would have done little worthwhile to stop carbon dioxide concentrations increasing.

Political optimists believe that this doesn’t matter, that what is really important is to keep the process moving forward and, as the science become clearer, greater knowledge will somehow dissolve all the political obstacles to effective action. What this line of reasoning amounts to is either a naive belief in the role of knowledge in politics or, in the longer run, an acceptance that only disaster will drive change. I am too old for the former and too nervous that I might be around long enough to see the results to wish for the latter.

The reality is that only breakthroughs in the deployment of technologies for delivering energy services that do not rely on carbon will make a real difference. We have lots of those technologies now and there is much more in the pipeline. The trick is to get them to market. The NGO community believe this can only be done if only  government is brave enough to artificially raise the price of energy to the point where these options are deployed, hence the vogue for energy or carbon taxes.

There are two major difficulties with this strategy. The first is being powerfully displayed at this moment. Taxes require public consent in a democracy and the level of taxation required to fundamentally alter the cost of energy is simply not deliverable politically. The second is that if you put the price of something up artificially a very large number of really rather clever people immediately go to work figuring out how to put the price right back down again. It is only when a more powerful motive intervenes that you can change these outcomes.

As Sheikh Yamani pointed out last week in a little reported interview just such a powerful motive is coming into play. He warned his colleagues that the Stone Age had not ended because of a shortage of stones and that the oil age would not end because we ran out of oil. The OPEC countries’ desire for quick political fixes to their public revenue problems means that they have to put prices up by constraining production in order to generate public revenues.

What Yamani grasps, that his colleagues are missing, is that the learning that has gone in the Western economies since 1973, combined with growing anxiety about climate change, means that a range of non-carbon options are poised on the brink of market delivery. What was needed is an impulse to push them over the edge. Remind everyone in the West of 1973 – oil prices are now for the first time in nearly thirty years back to where they were just after the first oil price hike – and this time instead of investing billions in the nuclear blind alley the West will invest billions in fuel cells and photvoltaics. Then the oil really will stay in the ground.

Mr Blair’s current embarrassment will pass. What really matters in the longer term is whether the right lessons are drawn. What he might usefully do when the immediate crisis is over to prevent its recurrence is to ask the new director of his Performance and Innovation Unit to conduct an urgent study of the real economics of just in time logistics and to invite his Chancellor to spend rather more of his ill-gotten fuel tax gains on accelerating the deployment of non-carbon fuel technologies than the pathetic amounts he currently permits.