Economy

Nickel and Dimed in 2016

Cashier

Retail jobs are frequently minimum-wage and highly monitored.

When presidential candidate Bernie Sanders talks about income inequality, and when other candidates speak about the minimum wage and food stamps, what are they really talking about?

Whether they know it or not, it’s something like this.

My Working Life Then

A few years ago, I wrote about my experience enmeshed in the minimum-wage economy, chronicling the collapse of good people who could not earn enough money, often working 60-plus hours a week at multiple jobs, to feed their families. I saw that, in this country, people trying to make ends meet in such a fashion still had to resort to food benefit programs and charity. I saw an employee fired for stealing lunches from the break room refrigerator to feed himself. I watched as a co-worker secretly brought her two kids into the store and left them to wander alone for hours because she couldn’t afford childcare. (As it happens, 29% of low-wage employees are single parents.)

At that point, having worked at the State Department for 24 years, I had been booted out for being a whistleblower. I wasn’t sure what would happen to me next and so took a series of minimum wage jobs. Finding myself plunged into the low-wage economy was a sobering, even frightening, experience that made me realize just how ignorant I had been about the lives of the people who rang me up at stores or served me food in restaurants. Though millions of adults work for minimum wage, until I did it myself I knew nothing about what that involved, which meant I knew next to nothing about twenty-first-century America.

I was lucky. I didn’t become one of those millions of people trapped as the “working poor.” I made it out. But with all the election talk about the economy, I decided it was time to go back and take another look at where I had been, and where too many others still are.

My Working Life Now

I found things were pretty much the same in 2016 as they were in 2012, which meant — because there was no real improvement — that things were actually worse.

This time around, I worked for a month and a half at a national retail chain in New York City. While mine was hardly a scientific experiment, I'd be willing to bet an hour of my minimum-wage salary ($9 before taxes) that what follows is pretty typical of the New Economy.

Just getting hired wasn't easy for this 56-year-old guy. To become a sales clerk, peddling items that were generally well under $50 a pop, I needed two previous employment references and I had to pass a credit check. Unlike some low-wage jobs, a mandatory drug test wasn’t part of the process, but there was a criminal background check and I was told drug offenses would disqualify me. I was given an exam twice, by two different managers, designed to see how I'd respond to various customer situations. In other words, anyone without some education, good English, a decent work history, and a clean record wouldn't even qualify for minimum-wage money at this chain.

And believe me, I earned that money. Any shift under six hours involved only a 15-minute break (which cost the company just $2.25). Trust me, at my age, after hours standing, I needed that break and I wasn't even the oldest or least fit employee. After six hours, you did get a 45-minute break, but were only paid for 15 minutes of it.

Fast food

Minimum wage workers often have jobs that require constant customer interaction.

The hardest part of the job remained dealing with ... well, some of you. Customers felt entitled to raise their voices, use profanity, and commit Trumpian acts of rudeness toward my fellow employees and me. Most of our “valued guests” would never act that way in other public situations or with their own coworkers, no less friends. But inside that store, shoppers seemed to interpret “the customer is always right” to mean that they could do any damn thing they wished. It often felt as if we were penned animals who could be poked with a stick for sport, and without penalty. No matter what was said or done, store management tolerated no response from us other than a smile and a “Yes, sir” (or ma'am).

The store showed no more mercy in its treatment of workers than did the customers. My schedule, for instance, changed constantly. There was simply no way to plan things more than a week in advance. (Forget accepting a party invitation. I'm talking about childcare and medical appointments.) If you were on the closing shift, you stayed until the manager agreed that the store was clean enough for you to go home. You never quite knew when work was going to be over and no cell phone calls were allowed to alert babysitters of any delay.

And keep in mind that I was lucky. I was holding down only one job in one store. Most of my fellow workers were trying to juggle two or three jobs, each with constantly changing schedules, in order to stitch together something like a half-decent paycheck.

In New York City, that store was required to give us sick leave only after we'd worked there for a full year — and that was generous compared to practices in many other locales. Until then, you either went to work sick or stayed home unpaid. Unlike New York, most states do not require such a store to offer any sick leave, ever, to employees who work less than 40 hours a week. Think about that the next time your waitress coughs.

Minimum Wages and Minimum Hours

Much is said these days about raising the minimum wage (and it should be raised), and indeed, on January 1, 2016, 13 states did raise theirs. But what sounds like good news is unlikely to have much effect on the working poor.

In New York, for instance, the minimum went from $8.75 an hour to the $9.00 I was making. New York is relatively generous. The current federal minimum wage is $7.25 and 21 states require only that federal standard. Presumably to prove some grim point or other, Georgia and Wyoming officially mandate an even lower minimum wage and then unofficially require the payment of $7.25 to avoid Department of Labor penalties. Some Southern states set no basement figure, presumably for similar reasons.

Don’t forget: any minimum wage figure mentioned is before taxes. Brackets vary, but let's knock an even 10% off that hourly wage just as a reasonable guess about what is taken out of a minimum-wage worker's salary. And there are expenses to consider, too. My round-trip bus fare every day, for instance, was $5.50. That meant I worked most of my first hour for bus fare and taxes. Keep in mind that some workers have to pay for childcare as well, which means that it’s not impossible to imagine a scenario in which someone could actually come close to losing money by going to work for short shifts at minimum wage.

Bus

Transportation costs can use up a significant amount of a minimum wage worker's earnings.

In addition to the fundamental problem of simply not paying people enough, there’s the additional problem of not giving them enough hours to work. The two unfortunately go together, which means that raising the minimum rate is only part of any solution to improving life in the low-wage world.

At the store where I worked for minimum wage a few years ago, for instance, hours were capped at 39 a week. The company did that as a way to avoid providing the benefits that would kick in once one became a “full time” employee. Things have changed since 2012 — and not for the better.

Four years later, the hours of most minimum-wage workers are capped at 29. That's the threshold after which most companies with 50 or more employees are required to pay into the Affordable Care Act (Obamacare) fund on behalf of their workers. Of course, some minimum wage workers get fewer than 29 hours for reasons specific to the businesses they work for.

It's Math Time

While a lot of numbers follow, remember that they all add up to a picture of how people around us are living every day.

In New York, under the old minimum wage system, $8.75 multiplied by 39 hours equaled $341.25 a week before taxes. Under the new minimum wage, $9.00 times 29 hours equals $261 a week. At a cap of 29 hours, the minimum wage would have to be raised to $11.77 just to get many workers back to the same level of take-home pay that I got in 2012, given the drop in hours due to the Affordable Care Act. Health insurance is important, but so is food.

In other words, a rise in the minimum wage is only half the battle; employees need enough hours of work to make a living.

About food: if a minimum wage worker in New York manages to work two jobs (to reach 40 hours a week) without missing any days due to illness, his or her yearly salary would be $18,720. In other words, it would fall well below the Federal Poverty Line of $21,775. That's food stamp territory. To get above the poverty line with a 40-hour week, the minimum wage would need to go above $10. At 29 hours a week, it would need to make it to $15 an hour. Right now, the highest minimum wage at a state level is in the District of Columbia at $11.50. As of now, no state is slated to go higher than that before 2018. (Some cities do set their own higher minimum wages.)

So add it up: The idea of raising the minimum wage (“the fight for $15”) is great, but even with that $15 in such hours-restrictive circumstances, you can't make a loaf of bread out of a small handful of crumbs. In short, no matter how you do the math, it’s nearly impossible to feed yourself, never mind a family, on the minimum wage. It's like being trapped on an M.C. Escher staircase.

The federal minimum wage hit its high point in 1968 at $8.54 in today's dollars and while this country has been a paradise in the ensuing decades for what we now call the “One Percent,” it’s been downhill for low-wage workers ever since. In fact, since it was last raised in 2009 at the federal level to $7.25 per hour, the minimum has lost about 8.1% of its purchasing power to inflation. In other words, minimum-wage workers actually make less now than they did in 1968, when most of them were probably kids earning pocket money and not adults feeding their own children.

In adjusted dollars, the minimum wage peaked when the Beatles were still together and the Vietnam War raged.

Who Pays?

Many of the arguments against raising the minimum wage focus on the possibility that doing so would put small businesses in the red. This is disingenuous indeed, since 20 mega-companies dominate the minimum-wage world. Walmart alone employs 1.4 million minimum-wage workers; Yum Brands (Taco Bell, Pizza Hut, KFC) is in second place; and McDonald's takes third. Overall, 60% of minimum-wage workers are employed by businesses not officially considered “small” by government standards, and of course carve-outs for really small businesses are possible, as was done with Obamacare.

Keep in mind that not raising wages costs you money.

Those minimum wage workers who can't make enough and need to go on food assistance? Well, Walmart isn't paying for those food stamps (now called SNAP), you are. The annual bill that states and the federal government foot for working families making poverty-level wages is $153 billion. A single Walmart Supercenter costs taxpayers between $904,542 and $1.75 million per year in public assistance money, and Walmart employees account for 18% of all food stamps issued. In other words, those everyday low prices at the chain are, in part, subsidized by your tax money.

If the minimum wage goes up, will spending on food benefits programs go down? Almost certainly. But won't stores raise prices to compensate for the extra money they will be shelling out for wages? Possibly. But don't worry — raising the minimum wage to $15 an hour would mean a Big Mac would cost all of 17 cents more.

Time Theft

My retail job ended a little earlier than I had planned, because I committed time theft.

You probably don’t even know what time theft is. It may sound like something from a sci-fi novel, but minimum-wage employers take time theft seriously. The basic idea is simple enough: if they’re paying you, you’d better be working. While the concept is not invalid per se, the way it’s used by the mega-companies reveals much about how the lowest wage workers are seen by their employers in 2016.

The problem at my chain store was that its in-store cafe was a lot closer to my work area than the time clock where I had to punch out whenever I was going on a scheduled break. One day, when break time on my shift came around, I only had 15 minutes. So I decided to walk over to that cafe, order a cup of coffee, and then head for the place where I could punch out and sit down (on a different floor at the other end of the store).

We’re talking an extra minute or two, no more, but in such operations every minute is tabulated and accounted for. As it happened, a manager saw me and stepped in to tell the cafe clerk to cancel my order. Then, in front of whoever happened to be around, she accused me of committing time theft — that is, of ordering on the clock. We’re talking about the time it takes to say, “Grande, milk, no sugar, please.” But no matter, and getting chastised on company time was considered part of the job, so the five minutes we stood there counted as paid work.

At $9 an hour, my per-minute pay rate was 15 cents, which meant that I had time-stolen perhaps 30 cents. I was, that is, being nickel and dimed to death.

Economics Is About People

It seems wrong in a society as wealthy as ours that a person working full-time can't get above the poverty line. It seems no less wrong that someone who is willing to work for the lowest wage legally payable must also give up so much of his or her self-respect and dignity as a kind of tariff. Holding a job should not be a test of how to manage life as one of the working poor.

I didn't actually get fired for my time theft. Instead, I quit on the spot. Whatever the price is for my sense of self-worth, it isn’t 30 cents. Unlike most of this country’s working poor, I could afford to make such a decision. My life didn't depend on it. When the manager told a handful of my coworkers watching the scene to get back to work, they did. They couldn't afford not to.


Peter Van Buren blew the whistle on State Department waste and mismanagement during the “reconstruction” of Iraq in his book We Meant Well: How I Helped Lose the Battle for the Hearts and Minds of the Iraqi People. A TomDispatch regular, he writes about current events at We Meant Well. His latest book is Ghosts of Tom Joad: A Story of the #99Percent. His next work will be a novel, Hooper's War.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Nick Turse’s Tomorrow’s Battlefield: U.S. Proxy Wars and Secret Ops in Africa, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2016 Peter Van Buren

Top photo by Fotolia/Kadmy

Middle photo by Fotolia/connel_design

Bottom photo by Fotolia/Dmitry Naumov

The Oil Pricequake

Oil rig

The petroleum-centric global economy may be losing clout, with low crude prices and increasing options for renewables.

Reprinted with permission from TomDispatch.

As 2015 drew to a close, many in the global energy industry were praying that the price of oil would bounce back from the abyss, restoring the petroleum-centric world of the past half-century. All evidence, however, points to a continuing depression in oil prices in 2016 — one that may, in fact, stretch into the 2020s and beyond. Given the centrality of oil (and oil revenues) in the global power equation, this is bound to translate into a profound shakeup in the political order, with petroleum-producing states from Saudi Arabia to Russia losing both prominence and geopolitical clout.

To put things in perspective, it was not so long ago — in June 2014, to be exact — that Brent crude, the global benchmark for oil, was selling at $115 per barrel. Energy analysts then generally assumed that the price of oil would remain well over $100 deep into the future, and might gradually rise to even more stratospheric levels. Such predictions inspired the giant energy companies to invest hundreds of billions of dollars in what were then termed “unconventional” reserves: Arctic oil, Canadian tar sands, deep offshore reserves, and dense shale formations. It seemed obvious then that whatever the problems with, and the cost of extracting, such energy reserves, sooner or later handsome profits would be made. It mattered little that the cost of exploiting such reserves might reach $50 or more a barrel.

As of this moment, however, Brent crude is selling at $33 per barrel, one-third of its price 18 months ago and way below the break-even price for most unconventional “tough oil” endeavors. Worse yet, in one scenario recently offered by the International Energy Agency (IEA), prices might not again reach the $50 to $60 range until the 2020s, or make it back to $85 until 2040. Think of this as the energy equivalent of a monster earthquake — a pricequake — that will doom not just many “tough oil” projects now underway but some of the over-extended companies (and governments) that own them.

The current rout in oil prices has obvious implications for the giant oil firms and all the ancillary businesses — equipment suppliers, drill-rig operators, shipping companies, caterers, and so on — that depend on them for their existence. It also threatens a profound shift in the geopolitical fortunes of the major energy-producing countries. Many of them, including Nigeria, Saudi Arabia, Russia, and Venezuela, are already experiencing economic and political turmoil as a result. (Think of this, for instance, as a boon for the terrorist group Boko Haram as Nigeria shudders under the weight of those falling prices.) The longer such price levels persist, the more devastating the consequences are likely to be.

A Perfect Storm

Generally speaking, oil prices go up when the global economy is robust, world demand is rising, suppliers are pumping at maximum levels, and little stored or surplus capacity is on hand. They tend to fall when, as now, the global economy is stagnant or slipping, energy demand is tepid, key suppliers fail to rein in production in consonance with falling demand, surplus oil builds up, and future supplies appear assured.

During the go-go years of the housing boom, in the early part of this century, the world economy was thriving, demand was indeed soaring, and many analysts were predicting an imminent “peak” in world production followed by significant scarcities. Not surprisingly, Brent prices rose to stratospheric levels, reaching a record $143 per barrel in July 2008. With the failure of Lehman Brothers on September 15th of that year and the ensuing global economic meltdown, demand for oil evaporated, driving prices down to $34 that December.

With factories idle and millions unemployed, most analysts assumed that prices would remain low for some time to come. So imagine the surprise in the oil business when, in October 2009, Brent crude rose to $77 per barrel. Barely more than two years later, in February 2011, it again crossed the $100 threshold, where it generally remained until June 2014.

Several factors account for this price recovery, none more important than what was happening in China, where the authorities decided to stimulate the economy by investing heavily in infrastructure, especially roads, bridges, and highways. Add in soaring automobile ownership among that country’s urban middle class and the result was a sharp increase in energy demand. According to oil giant BP, between 2008 and 2013, petroleum consumption in China leaped 35%, from 8.0 million to 10.8 million barrels per day. And China was just leading the way. Rapidly developing countries like Brazil and India followed suit in a period when output at many existing, conventional oil fields had begun to decline; hence, that rush into those “unconventional” reserves.

This is more or less where things stood in early 2014, when the price pendulum suddenly began swinging in the other direction, as production from unconventional fields in the U.S. and Canada began to make its presence felt in a big way. Domestic U.S. crude production, which had dropped from 7.5 million barrels per day in January 1990 to a mere 5.5 million barrels in January 2010, suddenly headed upwards, reaching a stunning 9.6 million barrels in July 2015. Virtually all the added oil came from newly exploited shale formations in North Dakota and Texas. Canada experienced a similar sharp uptick in production, as heavy investment in tar sands began to pay off. According to BP, Canadian output jumped from 3.2 million barrels per day in 2008 to 4.3 million barrels in 2014. And don’t forget that production was also ramping up in, among other places, deep-offshore fields in the Atlantic Ocean off both Brazil and West Africa, which were just then coming on line. At that very moment, to the surprise of many, war-torn Iraq succeeded in lifting its output by nearly one million barrels per day.

Add it all up and the numbers were staggering, but demand was no longer keeping pace. The Chinese stimulus package had largely petered out and international demand for that country’s manufactured goods was slowing, thanks to tepid or nonexistent economic growth in the U.S., Europe, and Japan. From an eye-popping annual rate of 10% over the previous 30 years, China's growth rate fell into the single digits. Though China’s oil demand is expected to keep rising, it is not projected to grow at anything like the pace of recent years.

At the same time, increased fuel efficiency in the United States, the world’s leading oil consumer, began to have an effect on the global energy picture. At the height of the country’s financial crisis, when the Obama administration bailed out both General Motors and Chrysler, the president forced the major car manufacturers to agree to a tough set of fuel-efficiency standards now noticeably reducing America’s demand for petroleum. Under a plan announced by the White House in 2012, the average fuel efficiency of U.S.-manufactured cars and light vehicles will rise to 54.5 miles per gallon by 2025, reducing expected U.S. oil consumption by 12 billion barrels between now and then.

In mid-2014, these and other factors came together to produce a perfect storm of price suppression. At that time, many analysts believed that the Saudis and their allies in the Organization of the Petroleum Exporting Countries (OPEC) would, as in the past, respond by reining in production to bolster prices. However, on November 27, 2014 — Thanksgiving Day — OPEC confounded those expectations, voting to maintain the output quotas of its member states. The next day, the price of crude plunged by $4 and the rest is history.

A Dismal Prospect

In early 2015, many oil company executives were expressing the hope that these fundamentals would soon change, pushing prices back up again. But recent developments have demolished such expectations.

Aside from the continuing economic slowdown in China and the surge of output in North America, the most significant factor in the unpromising oil outlook, which now extends bleakly into 2016 and beyond, is the steadfast Saudi resistance to any proposals to curtail their production or OPEC’s. On December 4th, for instance, OPEC members voted yet again to keep quotas at their current levels and, in the process, drove prices down another 5%. If anything, the Saudis have actually increased their output.

Many reasons have been given for the Saudis’ resistance to production cutbacks, including a desire to punish Iran and Russia for their support of the Assad regime in Syria. In the view of many industry analysts, the Saudis see themselves as better positioned than their rivals for weathering a long-term price decline because of their lower costs of production and their large cushion of foreign reserves. The most likely explanation, though, and the one advanced by the Saudis themselves is that they are seeking to maintain a price environment in which U.S. shale producers and other tough-oil operators will be driven out of the market. “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including U.S. shale, deep offshore, and heavy oils,” a top Saudi official told the Financial Times last spring.

Despite the Saudis’ best efforts, the larger U.S. producers have, for the most part, adjusted to the low-price environment, cutting costs and shedding unprofitable operations, even as many smaller firms have filed for bankruptcy. As a result, U.S. crude production, at about 9.2 million barrels per day, is actually slightly higher than it was a year ago.

Gas pump

With crude oil production higher than demand, gas prices have plummeted.

In other words, even at $33 a barrel, production continues to outpace global demand and there seems little likelihood of prices rising soon, especially since, among other things, both Iraq and Iran continue to increase their output. With the Islamic State slowly losing ground in Iraq and most major oil fields still in government hands, that country’s production is expected to continue its stellar growth. In fact, some analysts project that its output could triple during the coming decade from the present three million barrels per day level to as much as nine million barrels.

For years, Iranian production has been hobbled by sanctions imposed by Washington and the European Union (E.U.), impeding both export transactions and the acquisition of advanced Western drilling technology. Now, thanks to its nuclear deal with Washington, those sanctions are being lifted, allowing it both to reenter the oil market and import needed technology. According to the U.S. Energy Information Administration, Iranian output could rise by as much as 600,000 barrels per day in 2016 and by more in the years to follow.

Only three developments could conceivably alter the present low-price environment for oil: a Middle Eastern war that took out one or more of the major energy suppliers; a Saudi decision to constrain production in order to boost prices; or an unexpected global surge in demand.

The prospect of a new war between, say, Iran and Saudi Arabia — two powers at each other’s throats at this very moment — can never be ruled out, though neither side is believed to have the capacity or inclination to undertake such a risky move. A Saudi decision to constrain production is somewhat more likely sooner or later, given the precipitous decline in government revenues. However, the Saudis have repeatedly affirmed their determination to avoid such a move, as it would largely benefit the very producers — namely shale operators in the U.S. — they seek to eliminate.

The likelihood of a sudden spike in demand appears unlikely indeed. Not only is economic activity still slowing in China and many other parts of the world, but there’s an extra wrinkle that should worry the Saudis at least as much as all that shale oil coming out of North America: oil itself is beginning to lose some of its appeal.

While newly affluent consumers in China and India continue to buy oil-powered automobiles — albeit not at the breakneck pace once predicted — a growing number of consumers in the older industrial nations are exhibiting a preference for hybrid and all-electric cars, or for alternative means of transportation. Moreover, with concern over climate change growing globally, increasing numbers of young urban dwellers are choosing to subsist without cars altogether, relying instead on bikes and public transit. In addition, the use of renewable energy sources — sun, wind, and water power — is on the rise and will only grow more rapidly in this century.

These trends have prompted some analysts to predict that global oil demand will soon peak and then be followed by a period of declining consumption. Amy Myers Jaffe, director of the energy and sustainability program at the University of California, Davis, suggests that growing urbanization combined with technological breakthroughs in renewables will dramatically reduce future demand for oil. “Increasingly, cities around the world are seeking smarter designs for transport systems as well as penalties and restrictions on car ownership. Already in the West, trendsetting millennials are urbanizing, eliminating the need for commuting and interest in individual car ownership,” she wrote in the Wall Street Journal last year.

The Changing World Power Equation

Many countries that get a significant share of their funds from oil and natural gas exports and that gained enormous influence as petroleum exporters are already experiencing a significant erosion in prominence. Their leaders, once bolstered by high oil revenues, which meant money to spread around and buy popularity domestically, are falling into disfavor.

Nigeria’s government, for example, traditionally obtains 75% of its revenues from such sales; Russia’s, 50%; and Venezuela’s, 40%. With oil now at a third of the price of 18 months ago, state revenues in all three have plummeted, putting a crimp in their ability to undertake ambitious domestic and foreign initiatives.

In Nigeria, diminished government spending combined with rampant corruption discredited the government of President Goodluck Jonathan and helped fuel a vicious insurgency by Boko Haram, prompting Nigerian voters to abandon him in the most recent election and install a former military ruler, Muhammadu Buhari, in his place. Since taking office, Buhari has pledged to crack down on corruption, crush Boko Haram, and — in a telling sign of the times — diversify the economy, lessening its reliance on oil.

Venezuela has experienced a similar political shock thanks to depressed oil prices. When prices were high, President Hugo Chávez took revenues from the state-owned oil company, Petróleos de Venezuela S.A., and used them to build housing and provide other benefits for the country’s poor and working classes, winning vast popular support for his United Socialist Party. He also sought regional support by offering oil subsidies to friendly countries like Cuba, Nicaragua, and Bolivia. After he died in March 2013, his chosen successor, Nicolas Maduro, sought to perpetuate this strategy, but oil didn’t cooperate and, not surprisingly, public support for him and for Chávez’s party began to collapse. On December 6th, the center-right opposition swept to electoral victory, taking a majority of the seats in the National Assembly. It now seeks to dismantle Chávez’s “Bolivarian Revolution,” though Maduro's supporters have pledged firm resistance to any such moves.

Power plant

Political instability is only part of the morass surrounding current crude oil price fluctuations.

The situation in Russia remains somewhat more fluid. President Vladimir Putin continues to enjoy widespread popular support and, from Ukraine to Syria, he has indeed been moving ambitiously on the international front. Still, falling oil prices combined with economic sanctions imposed by the E.U. and the U.S. have begun to cause some expressions of dissatisfaction, including a recent protest by long-distance truckers over increased highway tolls. Russia’s economy is expected to contract in a significant way in 2016, undermining the living standards of ordinary Russians and possibly sparking further anti-government protests. In fact, some analysts believe that Putin took the risky step of intervening in the Syrian conflict partly to deflect public attention from deteriorating economic conditions at home. He may also have done so to create a situation in which Russian help in achieving a negotiated resolution to the bitter, increasingly internationalized Syrian civil war could be traded for the lifting of sanctions over Ukraine. If so, this is a very dangerous game, and no one — least of all Putin — can be certain of the outcome.

Saudi Arabia, the world’s leading oil exporter, has been similarly buffeted, but appears — for the time being, anyway — to be in a somewhat better position to weather the shock. When oil prices were high, the Saudis socked away a massive trove of foreign reserves, estimated at three-quarters of a trillion dollars. Now that prices have fallen, they are drawing on those reserves to sustain generous social spending meant to stave off unrest in the kingdom and to finance their ambitious intervention in Yemen’s civil war, which is already beginning to look like a Saudi Vietnam. Still, those reserves have fallen by some $90 billion since last year and the government is already announcing cutbacks in public spending, leading some observers to question how long the royal family can continue to buy off the discontent of the country’s growing populace. Even if the Saudis were to reverse course and limit the kingdom’s oil production to drive the price of oil back up, it’s unlikely that their oil income would rise high enough to sustain all of their present lavish spending priorities.

Other major oil-producing countries also face the prospect of political turmoil, including Algeria and Angola. The leaders of both countries had achieved the usual deceptive degree of stability in energy producing countries through the usual oil-financed government largesse. That is now coming to an end, which means that both countries could face internal challenges.

And keep in mind that the tremors from the oil pricequake have undoubtedly yet to reach their full magnitude. Prices will, of course, rise someday. That’s inevitable, given the way investors are pulling the plug on energy projects globally. Still, on a planet heading for a green energy revolution, there’s no assurance that they will ever reach the $100-plus levels that were once taken for granted. Whatever happens to oil and the countries that produce it, the global political order that once rested on oil’s soaring price is doomed. While this may mean hardship for some, especially the citizens of export-dependent states like Russia and Venezuela, it could help smooth the transition to a world powered by renewable forms of energy.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation. Follow him on Twitter at @mklare1.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Nick Turse’s Tomorrow’s Battlefield: U.S. Proxy Wars and Secret Ops in Africa, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2016 Michael T. Klare

The Renewable Revolution

Wind turbines 

Renewable energy is rapidly advancing, both in terms of cost and practicality, to compete successfully with fossil fuels.

Reprinted with permission by TomDispatch.

Don’t hold your breath, but future historians may look back on 2015 as the year that the renewable energy ascendancy began, the moment when the world started to move decisively away from its reliance on fossil fuels. Those fuels—oil, natural gas, and coal—will, of course, continue to dominate the energy landscape for years to come, adding billions of tons of heat-trapping carbon to the atmosphere. For the first time, however, it appears that a shift to renewable energy sources is gaining momentum. If sustained, it will have momentous implications for the world economy—as profound as the shift from wood to coal or coal to oil in previous centuries.

Global economic growth has, of course, long been powered by an increasing supply of fossil fuels, especially petroleum. Beginning with the United States, countries that succeeded in mastering the extraction and utilization of oil gained immense economic and political power, while countries with huge reserves of oil to exploit and sell, like Kuwait and Saudi Arabia, became fabulously wealthy. The giant oil companies that engineered the rise of petroleum made legendary profits, accumulated vast wealth, and grew immensely powerful. Not surprisingly, the oil states and those energy corporations continue to dream of a future in which they will play a dominant role.

“Fossil fuels are our most enduring energy source,” said Ali Al-Naimi, Saudi Arabia’s minister of petroleum and mineral resources, in April 2013. “They are the driving force of economic development in the U.S., Saudi Arabia, and for much of the developed and developing world [and] they have the capacity to sustain us well into the future.”

But new developments, including a surprising surge in wind and solar installations, suggest that oil’s dominance may not prove as “enduring” as imagined. “Rapidly spreading solar technology could change everything,” energy analyst Nick Butler recently wrote in the Financial Times. “There is growing evidence that some fundamental changes are coming that will over time put a question mark over investments in old energy systems.”

Normally, transitions from one energy system to another take many decades. According to Vaclav Smil of the University of Manitoba, the shifts from wood to coal and coal to oil each took 50 years. The same length of time, he has argued, will be needed to complete the transition to renewables, which would leave any green energy era in the distant future. “The slow pace of this energy transition is not surprising,” he wrote in Scientific American. “In fact, it is expected.”

Smil’s analysis, however, assumes two things: first, that a business-as-usual environment in which decisions about energy investments will largely be made within the same profit-seeking outlook as in the past will continue to prevail; and second, that it will take decades for renewables to best fossil fuels in terms of cost and practicality. Both assumptions, however, appear increasingly flawed. Concern over climate change is already altering the political and regulatory landscape, while improvements in wind and solar technology are occurring at an extraordinary rate, rapidly eliminating the price advantage of fossil fuels. “ The direction of change is clear,” Butler writes. With the cost of renewable installations falling, solar power has moved “from being a niche supplier to being a major regional competitor [to fossil fuels]. ”

Experts largely agree that renewables will claim a larger share of the global energy budget in the years ahead. Nevertheless, most mainstream analysts continue to believe that fossil fuels will be the dominant form of energy for decades to come. The U.S. Department of Energy (DoE) typically predicts that the share of world energy provided by renewables, nuclear, and hydro combined will climb from 17 percent in 2015 to a mere 22 percent in 2040—hardly change on a scale that would threaten the predominance of fossil fuels. There are, however, four key trends that could speed the transition to renewables in striking ways: the world’s growing determination to put a brake on the advance of climate change; a sea change in China’s stance on growth and the environment; the increasing embrace of green energy in the developing world; and the growing affordability of renewable energy.

Taking Climate Change Seriously

Resistance to progress on climate change is widespread and well entrenched. As Naomi Klein documents in her latest book, This Changes Everything, the major fossil fuel companies have mounted well-financed campaigns for years to sow doubt about the reality of climate change, while politicians, often in their pay, have obstructed efforts to place restraints on carbon emissions. At the same time, many ordinary people have been reluctant to acknowledge what's happening and so to consider steps to bring it under control (a phenomenon examined by George Marshall in Don’t Even Think About It). As the devastating effects of extreme weather, including droughts, floods, and ever more powerful storms, gain greater prominence in everyday life, however, all of this is clearly in flux.

Considerable evidence can be assembled to support this assessment, including recent polling data, but perhaps the most impressive indication of this shift can be found in the carbon-reduction plans major nations are now submitting to U.N. authorities in preparation for a global climate summit to be held this December in Paris. Under a measure adopted by delegates to the most recent summit, held last December in Lima, Peru, all parties to the U.N. Framework Convention on Climate Change (UNFCCC) are obliged to submit detailed action plans known as “intended nationally determined contributions” (INDCs) to the global climate effort. These plans, for the most part, have proven to be impressively tough and ambitious. More important yet, the numbers being offered when it comes to carbon reduction would have been inconceivable only a few years ago.

The U.S. plan, for example, promises that national carbon emissions will drop 26 percent to 28 percent below 2005 levels by 2025, which represents a substantial reduction. There are, of course, many obstacles to achieving this goal, most notably the diehard resistance of Republican legislators with strong ties to the fossil fuel industry. The White House insists, however, that many of the measures included in the INDC can be achieved through executive branch action, including curbs on carbon emissions from coal plants and mandated improvements in the fuel efficiency of cars and trucks.

Other countries have submitted similarly ambitious INDCs. Mexico, for example, has pledged to cap its carbon emissions by 2026, and to achieve a 22 percent reduction in greenhouse gas levels by 2030. Its commitment is considered especially significant, since it’s the first such pledge by a major developing nation. “Mexico is setting an example for the rest of the world by submitting an INDC that is timely, clear, ambitious, and supported by robust, unconditional policy commitments,” the Obama White House noted in a congratulatory statement.

No one can predict the outcome of the December climate summit, but few observers expect the measures it may endorse to be tough enough to keep future increases in global temperatures below two degrees Celsius, the maximum amount most scientists believe the planet can absorb without incurring climate disasters far beyond anything seen to date. Nevertheless, implementation of the INDCs, or even a significant portion of them, would at least produce a significant reduction in fossil fuel consumption and point the way to a different future.

A Sea Change in Chinese Energy Behavior

Of equal importance is China’s evident determination to reduce its reliance on fossil fuels—a critical change in stance, given its projected energy needs in the decades to come. According to the DoE, China’s share of world energy consumption is expected to jump from an already impressive 19 percent in 2010 to 27 percent in 2040, with most of its added energy coming from fossil fuels. Should this indeed occur, China would consume another 88 quadrillion British thermal units of such energy over the next 30 years, or 43 percent of all added fossil fuel consumption worldwide. So any significant moves by China to reduce its reliance on those energy sources, as now being promised by senior government officials, would have an outsized impact on the global energy equation.

China has not yet submitted its INDC, but its plan is expected to incorporate the commitments made by President Xi Jinping in a meeting with President Obama in Beijing last November. Xi promised to cap China’s carbon emissions by 2030 and increase the share of non-fossil fuels in primary energy consumption to around 20 percent by that time. He also agreed to work with the U.S. “to make sure international climate change negotiations will reach agreement as scheduled at the Paris conference in 2015.”

Although the Chinese plan allows for continued growth in carbon emissions for another 15 years, it substantially reduces the amount of new energy that will be derived from fossil fuels. According to a White House statement, “It will require China to deploy an additional 800-1,000 gigawatts of nuclear, wind, solar, and other zero-emission generation capacity by 2030—more than all the coal-fired power plants that exist in China today.”

Beijing

China invested a total of $83.3 billion into renewable forms of energy in 2014—the most ever spent by a single country in one year.

It appears, moreover, that Chinese leaders are preparing to move even faster than their pledge would require in transitioning away from fossil fuels. Under pressure from urban residents to reduce punishing levels of smog, the authorities have announced ambitious plans to lessen reliance on coal for electricity generation and rely instead on hydropower, nuclear, wind, and solar power, as well as natural gas. “We will strive for zero-growth in the consumption of coal in key areas of the country,” Premier Li Keqiang told the National People’s Congress, China’s legislature, this March.

As in the United States, the Chinese leadership will face opposition from entrenched fossil fuel interests, as well as local government structures. However, their evident determination to reduce reliance on oil and coal represents a real change of mood and thinking. It’s likely to result in a far different energy landscape than the one laid out by the Department of Energy and, until recently, most other experts. Despite repeated predictions of ever-increasing coal consumption, for instance, China actually burned less coal in 2014 than in the previous year, the first such decline in decades. At the same time, it increased its spending on renewable forms of energy by an impressive 33 percent in 2014, investing a total of $83.3 billion—the most ever spent by a single country in one year—to a renewable future. If China leads the way globally and such trends continue, the transition from fossil fuels to renewables will occur far sooner than expected.

Green Goes Global

The giant oil companies have long acknowledged that the most advanced countries, led by the U.S., Japan, and Europe, would eventually transition from fossil fuels to renewables, but they continue to insist that developing nations—eager to expand their economies but too poor to invest in alternative energy—will continue to rely on fossil fuels in a big way. This outlook led ExxonMobil and other oil firms to make massive investments in new refineries, pipelines, and other infrastructure aimed at satisfying anticipated demand from the global South. But surprise, surprise: those countries are also showing every sign of turning to renewables in their drive to expand energy output.

The global South’s surprisingly enthusiastic embrace of renewables is impressively documented in Global Trends in Renewable Energy Investment 2015, a recent collaboration between the Frankfurt School of Finance and Management and the U.N. Environment Programme. It reports that the developing countries, excluding China, spent $30 billion on renewables in 2014, a substantial rise over the previous year. Together with China, investment in renewables in the developing world totaled nearly as much as that spent by the developed countries that year. Significant increases in spending on renewables were registered by Brazil (for a total of $7.6 billion), India ($7.4 billion), and South Africa ($5.5 billion); investments of $1 billion or more were posted by Chile, Indonesia, Kenya, Mexico, and Turkey. Given how little such countries were devoting to a renewable future just a few years ago, consider this a sign of changing times.

No less striking is the degree to which oil-producing countries are beginning to embrace green energy. In January, for example, the Dubai Electricity and Water Authority awarded a contract to Saudi Arabia’s ACWA Power International to build a 200-megawatt, $330 million solar electricity plant. The deal received widespread attention, as ACWA promised to deliver electricity from the plant for $58.50 per megawatt-hour, one-third less than the cost of natural gas-fired generation.

“This is a major breakthrough in the oil-fired Emirates and a clear demonstration of the ongoing global energy transition,” suggested Mark Lewis of Kepler Cheuvreux, a European financial services company. “We think this is a landmark deal both in terms of the extremely competitive cost at which the project will generate power and the potential for a much greater take-up of renewables in countries that have so far been slow to embrace them.”

The Falling Price of Renewables

As the Dubai deal indicates, price is playing a crucial role in the shift from fossil fuels to renewables. Listen to the apostles of coal and oil and you’d think that poor countries had no choice but to rely on their chosen form of energy because of its low cost compared to other fuels. “There are still hundreds of millions, billions of people living in abject poverty around the world,” said Rex Tillerson, the CEO and Chairman of ExxonMobil. “They need electricity they can count on, that they can afford ... They'd love to burn fossil fuels because their quality of life would rise immeasurably, and their quality of health and the health of their children and their future would rise immeasurably.”

Until recently, this would have been gospel among mainstream energy experts, but the cost of renewables, especially solar power, is dropping so rapidly that, even in a moment when the price of oil has been halved, the news on the horizon couldn’t be clearer: fossil fuels are no longer guaranteed a price advantage in delivering energy to developing countries. Among the harbingers of this change: the cost of solar photovoltaic cells (PVs) has plunged by 75 percent since 2009 and the cost of electricity generated by solar PVs has fallen globally by 50 percent since 2010. In other words, solar is now becoming competitive with oil and natural gas, even at their currently depressed prices. “Cost is no longer a reason not to proceed with renewables,” concluded a report released by the National Bank of Abu Dhabi in March.Says Lewis of Kepler Cheuvreux: “Over time, as renewable-technology costs continue to come down and economies of scale continue to increase, the relative competitiveness of renewables in the global energy mix will only increase further.”

Solar panels

Renewable technology costs are rapidly decreasing to levels that negate the price advantage of fossil fuels.

Keep in mind as well that developing nations have a powerful reason to favor renewables over fossil energy that has nothing to do with price and everything to do with costs of another sort. As the most recent reports from the U.N.’s Intergovernmental Panel on Climate Change (IPCC) make clear, poor countries in the global South will suffer more (and sooner) from the ravages of climate change than countries in the global North. This is so because these countries are expected to experience some of the sharpest declines in rainfall and so the most droughts, endangering the food supply for hundreds of millions of people. Combine such concerns with the plunging prices of renewable energy, and it appears that the transition away from fossil fuels will occur faster than predicted in the very regions that the oil companies were counting on for their future profits.

A New World’s A-Coming

Add up these factors, all relatively unexpected, and one conclusion seems self-evident: we are witnessing the start of a global energy transition that could turn expectations upside down, politically, environmentally, and economically. This transformation won’t happen overnight and it will face fierce opposition from powerful and entrenched fossil fuel interests. Even so, it shows every sign of accelerating, which means that while we may be talking decades, the half-century horizon previously offered by experts like Vaclav Smil is probably no longer in the cards. Fossil fuels—and the companies, politicians, and petro-states they have long enriched—will lose their dominant status and be overtaken by the purveyors of renewable energy far more quickly than that.

Even with the quickening of investment in green technology, the likelihood that world temperatures will be held at a 2 degrees Celsius rise, that all-important threshold for catastrophic damage, is unfortunately vanishingly small. Which means that our children and grandchildren will live in a distinctly less inviting world. But as the destructive effects of climate change become more pronounced and more embedded in daily life across the planet, the impetus to slow the warming phenomenon will only intensify. This means that the urge to impose strict curbs on fossil fuel consumption and the companies that promote it will grow, too.

We’re talking, in other words, about the building of genuine momentum for an energy transition which, in turn, means that the majority of people alive on the planet today will experience the ascendancy of renewables. As with previous energy transitions, this shift is going to produce both winners and losers. Countries and companies that assume early leadership in the development and installation of advanced green technologies are likely to prosper in the years ahead, while those committed to the perpetuation of fossil energy will see their wealth and power decline or disappear. For the planet as a whole, such a transition can’t come soon enough.


Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2015 Michael T. Klare

Top photo by Fotolia/Omar Kulos

Middle photo by Fotolia/SeanPavonePhoto

Bottom photo by Fotolia/soonthorn

Big Oil's Broken Business Model

Oil rig at sunset

In the wake of collapsing oil prices, Big Oil must alter its broken business model or face being outcompeted by smaller, nimbler energy producers.

Reprinted with permission by TomDispatch.

Many reasons have been provided for the dramatic plunge in the price of oil to about $60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the U.S. and elsewhere); and the increased value of the dollar relative to other currencies. There is, however, one reason that’s not being discussed, and yet it could be the most important of all: the complete collapse of Big Oil’s production-maximizing business model.

Until last fall, when the price decline gathered momentum, the oil giants were operating at full throttle, pumping out more petroleum every day. They did so, of course, in part to profit from the high prices. For most of the previous six years, Brent crude, the international benchmark for crude oil, had been selling at $100 or higher. But Big Oil was also operating according to a business model that assumed an ever-increasing demand for its products, however costly they might be to produce and refine. This meant that no fossil fuel reserves, no potential source of supply — no matter how remote or hard to reach, how far offshore or deeply buried, how encased in rock — was deemed untouchable in the mad scramble to increase output and profits.

In recent years, this output-maximizing strategy had, in turn, generated historic wealth for the giant oil companies. Exxon, the largest U.S.-based oil firm, earned an eye-popping $32.6 billion in 2013 alone, more than any other American company except for Apple. Chevron, the second biggest oil firm, posted earnings of $21.4 billion that same year. State-owned companies like Saudi Aramco and Russia’s Rosneft also reaped mammoth profits.

How things have changed in a matter of mere months. With demand stagnant and excess production the story of the moment, the very strategy that had generated record-breaking profits has suddenly become hopelessly dysfunctional.

To fully appreciate the nature of the energy industry’s predicament, it’s necessary to go back a decade to 2005, when the production-maximizing strategy was first adopted. At that time, Big Oil faced a critical juncture. On the one hand, many existing oil fields were being depleted at a torrid pace, leading experts to predict an imminent “peak” in global oil production, followed by an irreversible decline; on the other, rapid economic growth in China, India, and other developing nations was pushing demand for fossil fuels into the stratosphere. In those same years, concern over climate change was also beginning to gather momentum, threatening the future of Big Oil and generating pressures to invest in alternative forms of energy.

A “Brave New World” of Tough Oil

No one better captured that moment than David O’Reilly, the chairman and CEO of Chevron. “Our industry is at a strategic inflection point, a unique place in our history,” he told a gathering of oil executives that February. “The most visible element of this new equation,” he explained in what some observers dubbed his “Brave New World” address, “is that relative to demand, oil is no longer in plentiful supply.” Even though China was sucking up oil, coal, and natural gas supplies at a staggering rate, he had a message for that country and the world: “The era of easy access to energy is over.”

To prosper in such an environment, O’Reilly explained, the oil industry would have to adopt a new strategy. It would have to look beyond the easy-to-reach sources that had powered it in the past and make massive investments in the extraction of what the industry calls “unconventional oil” and what I labeled at the time “tough oil”: resources located far offshore, in the threatening environments of the far north, in politically dangerous places like Iraq, or in unyielding rock formations like shale. “Increasingly,” O’Reilly insisted, “future supplies will have to be found in ultradeep water and other remote areas, development projects that will ultimately require new technology and trillions of dollars of investment in new infrastructure.”

For top industry officials like O’Reilly, it seemed evident that Big Oil had no choice in the matter. It would have to invest those needed trillions in tough-oil projects or lose ground to other sources of energy, drying up its stream of profits. True, the cost of extracting unconventional oil would be much greater than from easier-to-reach conventional reserves (not to mention more environmentally hazardous), but that would be the world’s problem, not theirs. “Collectively, we are stepping up to this challenge,” O’Reilly declared. “The industry is making significant investments to build additional capacity for future production.”

Oil rig in snow

In an effort to provide oil for anticipated demand, Big Oil moved into dangerous environments such as the Arctic, deep water oil reserves, and politically unstable countries.

On this basis, Chevron, Exxon, Royal Dutch Shell, and other major firms indeed invested enormous amounts of money and resources in a growing unconventional oil and gas race, an extraordinary saga I described in my book The Race for What’s Left. Some, including Chevron and Shell, started drilling in the deep waters of the Gulf of Mexico; others, including Exxon, commenced operations in the Arctic and eastern Siberia. Virtually every one of them began exploiting U.S. shale reserves via hydro-fracking.

Only one top executive questioned this drill-baby-drill approach: John Browne, then the chief executive of BP. Claiming that the science of climate change had become too convincing to deny, Browne argued that Big Energy would have to look “beyond petroleum” and put major resources into alternative sources of supply. “Climate change is an issue which raises fundamental questions about the relationship between companies and society as a whole, and between one generation and the next,” he had declared as early as 2002. For BP, he indicated, that meant developing wind power, solar power, and biofuels.

Browne, however, was eased out of BP in 2007 just as Big Oil’s output-maximizing business model was taking off, and his successor, Tony Hayward, quickly abandoned the “beyond petroleum” approach. “Some may question whether so much of the [world’s energy] growth needs to come from fossil fuels,” he said in 2009. “But here it is vital that we face up to the harsh reality [of energy availability].” Despite the growing emphasis on renewables, “we still foresee 80% of energy coming from fossil fuels in 2030.”

Under Hayward’s leadership, BP largely discontinued its research into alternative forms of energy and reaffirmed its commitment to the production of oil and gas, the tougher the better. Following in the footsteps of other giant firms, BP hustled into the Arctic, the deep water of the Gulf of Mexico, and Canadian tar sands, a particularly carbon-dirty and messy-to-produce form of energy. In its drive to become the leading producer in the Gulf, BP rushed the exploration of a deep offshore field it called Macondo, triggering the Deepwater Horizon blow-out of April 2010 and the devastating oil spill of monumental proportions that followed.

Over the Cliff

By the end of the first decade of this century, Big Oil was united in its embrace of its new production-maximizing, drill-baby-drill approach. It made the necessary investments, perfected new technology for extracting tough oil, and did indeed triumph over the decline of existing, “easy oil” deposits. In those years, it managed to ramp up production in remarkable ways, bringing ever more hard-to-reach oil reservoirs online.

According to the Energy Information Administration (EIA) of the U.S. Department of Energy, world oil production rose from 85.1 million barrels per day in 2005 to 92.9 million in 2014, despite the continuing decline of many legacy fields in North America and the Middle East. Claiming that industry investments in new drilling technologies had vanquished the specter of oil scarcity, BP’s latest CEO, Bob Dudley, assured the world only a year ago that Big Oil was going places and the only thing that had “peaked” was “the theory of peak oil.”

That, of course, was just before oil prices took their leap off the cliff, bringing instantly into question the wisdom of continuing to pump out record levels of petroleum. The production-maximizing strategy crafted by O’Reilly and his fellow CEOs rested on three fundamental assumptions: that, year after year, demand would keep climbing; that such rising demand would ensure prices high enough to justify costly investments in unconventional oil; and that concern over climate change would in no significant way alter the equation. Today, none of these assumptions holds true.

Demand will continue to rise — that’s undeniable, given expected growth in world income and population — but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it’s lowered that figure for this year to only 93.1 million barrels. Those 10 million “lost” barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil’s multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse.

Gulf oil spill

The environmental consequences not only of oil drilling, but of fossil fuel use, have become impossible to ignore.

Current indications suggest that consumption will continue to fall short of expectations in the years to come. In an assessment of future trends released last month, the EIA reported that, thanks to deteriorating global economic conditions, many countries will experience either a slower rate of growth or an actual reduction in consumption. While still inching up, Chinese consumption, for instance, is expected to grow by only 0.3 million barrels per day this year and next -- a far cry from the 0.5 million barrel increase it posted in 2011 and 2012 and its one million barrel increase in 2010. In Europe and Japan, meanwhile, consumption is actually expected to fall over the next two years.

And this slowdown in demand is likely to persist well beyond 2016, suggests the International Energy Agency (IEA), an arm of the Organization for Economic Cooperation and Development (the club of rich industrialized nations). While lower gasoline prices may spur increased consumption in the United States and a few other nations, it predicted, most countries will experience no such lift and so “the recent price decline is expected to have only a marginal impact on global demand growth for the remainder of the decade.”

This being the case, the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. Such figures fall far below what would be needed to justify continued investment in and exploitation of tough-oil options like Canadian tar sands, Arctic oil, and many shale projects. Indeed, the financial press is now full of reports on stalled or cancelled mega-energy projects. Shell, for example, announced in January that it had abandoned plans for a $6.5 billion petrochemical plant in Qatar, citing “the current economic climate prevailing in the energy industry.” At the same time, Chevron shelved its plan to drill in the Arctic waters of the Beaufort Sea, while Norway’s Statoil turned its back on drilling in Greenland.

There is, as well, another factor that threatens the wellbeing of Big Oil: climate change can no longer be discounted in any future energy business model. The pressures to deal with a phenomenon that could quite literally destroy human civilization are growing. Although Big Oil has spent massive amounts of money over the years in a campaign to raise doubts about the science of climate change, more and more people globally are starting to worry about its effects — extreme weather patterns, extreme storms, extreme drought, rising sea levels, and the like — and demanding that governments take action to reduce the magnitude of the threat.

Europe has already adopted plans to lower carbon emissions by 20% from 1990 levels by 2020 and to achieve even greater reductions in the following decades. China, while still increasing its reliance on fossil fuels, has at least finally pledged to cap the growth of its carbon emissions by 2030 and to increase renewable energy sources to 20% of total energy use by then. In the United States, increasingly stringent automobile fuel-efficiency standards will require that cars sold in 2025 achieve an average of 54.5 miles per gallon, reducing U.S. oil demand by 2.2 million barrels per day. (Of course, the Republican-controlled Congress — heavily subsidized by Big Oil — will do everything it can to eradicate curbs on fossil fuel consumption.)

Still, however inadequate the response to the dangers of climate change thus far, the issue is on the energy map and its influence on policy globally can only increase. Whether Big Oil is ready to admit it or not, alternative energy is now on the planetary agenda and there’s no turning back from that. “It is a different world than it was the last time we saw an oil-price plunge,” said IEA executive director Maria van der Hoeven in February, referring to the 2008 economic meltdown. “Emerging economies, notably China, have entered less oil-intensive stages of development… On top of this, concerns about climate change are influencing energy policies [and so] renewables are increasingly pervasive.”

The oil industry is, of course, hoping that the current price plunge will soon reverse itself and that its now-crumbling maximizing-output model will make a comeback along with $100-per-barrel price levels. But these hopes for the return of “normality” are likely energy pipe dreams. As van der Hoeven suggests, the world has changed in significant ways, in the process obliterating the very foundations on which Big Oil’s production-maximizing strategy rested. The oil giants will either have to adapt to new circumstances, while scaling back their operations, or face takeover challenges from more nimble and aggressive firms.


Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What’s Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2015 Michael T. Klare

Top photo by Fotolia/sculpies

Middle photo by Fotolia/Ded Pixto

Bottom photo by Fotolia/rufous

Black November

Black Friday has already deepened the irony of Thanksgiving: Thursday is for giving thanks, Friday is for merciless shopping. But Friday is no longer enough, as opening hours have seeped into early Thanksgiving Day, forcing retail workers to sacrifice their holiday.

The Daily Show’s correspondent Lewis Black addresses the cause of this backward tradition, with malls demanding stores to open shop on the holiday, thus demanding employees to work. Still, news outlets argue that companies should be allowed to choose their own hours of operation, some even saying that to oppose Black Thursday/Friday is to oppose capitalism.

Watch the spirited correspondent take on the shopping tradition in this clip:

Advanced Technology Fuels Inequality, Replacing Middle Class Jobs

Silicon Valley has famously provided the public with addictive social media, reliable search engines, and sophisticated software. But its most concerning impact, economists observe, is its development of a new invisible hand in the marketplace: advanced technology.

This innovative California city is either manifesting the national trend, by having one of the country’s most significant wealth gaps, or contributing to it by producing digital technologies that eliminate the need for many middle class jobs. Russell Hancock, president of Joint Venture in Silicon Valley, told Technology Review, “When we used to have booms in the technology sector, it would lift all boats. That’s not how it works anymore. And suddenly, you’re seeing a backlash, and people are upset.” There is no longer a ladder to get into the middle class, and while it didn’t happen suddenly, he said 2014 brought an awakening to this issue.

Erik Brynjolfsson, professor of management at MIT’s Sloan School and co-author of The Second Machine Age, worries that a growing share of the workforce could be left behind, even as digital technologies increase overall income. He said productivity and GDP may be on the rise thanks to progress in this sector, but in this modern technology-driven economy, only the small group of imaginative individuals comes out on top.

It wasn’t always this way. In the 1970s and 80s, new technology was connected to people’s hands and eyes, simply heightening human capabilities, said Brad DeLong, professor at the University of Berkeley and economic historian. But that trend is “edging away.”

“Ten years ago, people in the workplace used to be the muscles and fingers, moving big things around and making fine manipulations. The problem is that the technologies we’re now moving into are things we can substitute for ‘look at the form and put it in the proper pile.’”

As robots and automation replace routine, low-skilled jobs, economists observe that perhaps technology isn’t as responsible for income inequality as it is for the increased demand for creativity and innovation, resulting in little need for uneducated workers. Addressing the disparity in education would be an obvious yet complicated solution to this economic imbalance. But one thing is certain: it’s time to adapt, or get left behind.

Image by elph, licensed under Creative Commons

Class War Continues

wage

Can a maximum wage help bridge the income inequality gap?  

There’s been an increase in discussion on minimum wage which is a positive step for movements such as Fight For 15. However at the other end of the spectrum sits maximum wage, an idea rarely brought to the table. One reason is that there is little research into implementing such a policy, though proposals have been brought forward in unions (advocating for a 1:100 pay ratio) and in Switzerland (1:12) among a few other countries and individual companies.

One model to look at is the NBA where salaries are capped and the ratio currently stands at about 1:20. This has shifted the incentives from making the most financially to other factors like teammates and chances at a championship. It’s also been shown to help mid-range players; since teams are restricted from spending too much on one player, other players see their offers increase.

Others believe that increasing income taxes would serve as a de facto maximum wage. Researchers have looked back at the post-WWII era when taxes were 90 percent for high wage earners and compared it with post-Reagan numbers. They found that productivity was higher and that the distribution of gains was more equitable pre-Reagan. Rectifying income inequality may also actually help the overall economy which is still recovering. A report by Standard & Poor’s Ratings Services found that the income gap is stunting economic growth. Beth Ann Bovino, the chief U.S. economist on the report said, “What disturbs me about this recovery —which has been the weakest in 50 years—is how feeble it has been, and we’ve been asking what are the reasons behind it. One of the reasons that could explain this pace of very slow growth is higher income inequality.” The report points out that the affluent are more likely to save money rather than funnel it back into the economy and that they have the ability to use their financial power for political gains.

Another idea that is gaining favor, especially in the tech industry is an open salary system. One company that has utilized this is Buffer, a social-sharing site which has developed a salaries formula and even published their employees’ salaries (at the highest is the CEO who brings in $158,800 and at the lowest is a team member who makes $70,000). Proponents of such an arrangement say it instills a sense of transparency and trust.  

Photo by timothy.actwell, licensed under Creative Commons.