The Great Disruption: Why the Climate Crisis Will Bring On the End of Shopping and the Birth of a New World - Paul Gilding (2011)

Chapter 13. Shifting Sands-From Middle Eastern Oil to Chinese Sun

History has many examples of powerful companies, countries, and empires that have fallen because of complacency. They think they are protected by their size and momentum, forgetting the lessons of the world’s oldest surviving “civilization”—the global ecosystem: Survival in a system is not about size or strength, it’s about capacity to adapt to changing circumstances. Consider the dinosaurs.

Being responsive to change requires us to understand what might be coming and to be as ready as we can be for surprises—to consciously and deliberately develop resilience.

The reason resilience is now so important is that we have unleashed massive change on every level. Change that is physical—the impacts of shifting climate zones, refugees, weather disasters, and rising sea levels—but also geopolitical and economic. In this new world, which resources are valuable in economic and geopolitical terms changes dramatically, including the end of oil, shifts in economic competitiveness, and conflicts over resources, including water.

To get ready for these new system conditions, we have to consider both practical preparedness—investing in the right technologies—and psychological readiness—can we cope with uncertainty and rapid change? Will we seize the opportunities or get stuck lamenting and resisting the pace and scale of change?

In this context, all participants need to keep their eye on the prize on the other side and ask: Is my family, company, community, or country ready for what’s coming?

As we covered in the first half of this book, system shocks are now unavoidable. What is avoidable is failing to respond effectively to stabilize the system in response. The more we think through the possibilities and the better we prepare and respond, the greater our chances of both dealing with situations that arise and leveraging them for maximum benefit.

This brings me to the geopolitical implications of what this all means for countries and national competitiveness. In this context, there are four issues I’d like to cover:

• The security and economic consequences of the physical impacts of climate change, coming as they are on top of existing sustainability challenges.

• The global and national shifts in economic competitiveness caused by both the shifting value of resources and the shift to new technologies.

• Challenges to the moral authority of different cultures and economic systems, driven by their ability to respond to the coming crises.

• The process of retribution and accountability for creating the problem.

The physical, security, and economic consequences will now be significant regardless of our response. Even with a response as dramatic as the one-degree war, the climate will continue to change physically and many other sustainability issues will have significant social and economic impact. We are already seeing this with water availability shifting, increased extreme weather, sea level rising, food supplies being threatened by climate, and other sustainability limits being breached. All these trends will now accelerate. While this is well understood at the scientific level, we are just beginning to think about planning for the economic, security, and social implications.

A prime example of this is food shortages, supply shocks, and price volatility. Given that we experienced shortages and price spikes in 2008 and again in 2010, the pressure now piling up on the food supply system makes it inevitable that more of this will come. On top of the already stressed supply situation, we face a 33 percent population increase and greater per capita demand driven by more wealth and associated expectations for more complex diets. While agricultural production has increased dramatically over recent decades, it has stopped increasing on a per capita basis. There is also a price to pay for the industrialized farming techniques that have delivered this, such as the nitrogen overload that has yet to fully work its way through the system.

We see food as a natural healthy industry. In reality, the nitrogen fixation on which it relies is highly carbon intensive, and industrial agriculture (in stark contrast with traditional agriculture) is a nonrenewable industry (that is, dependent upon things that run out). This makes it unstable in the coming world.

The industrialization of food is not just about the physical impacts on the environment, however. We now have an integrated global food supply system that is highly specialized and commoditized. While these types of systems deliver great efficiency and low costs, they are particularly prone to shocks and change. As the New Economics Foundation (NEF) pointed out in its report 96 Hours to Anarchy, Western countries have now created such a finely tuned, just-in-time food supply system that the loss of transport, for example, would see supermarket shelves in some countries empty in just four days. All it would take would be a terrorist attack on fuel depots, a peak oil price panic, or a pandemic keeping drivers at home, and chaos could erupt very quickly, with enormous social and political consequences.

This system is already tightly wound and highly stressed. Climate change is only increasing the pressure, making the global geopolitical risks even greater. We can expect major issues in India and China because, already struggling under the impacts of environmental degradation, the water supplies that feed their agriculture are being threatened by over use, magnified by climate-related shifts. Serious food shortages affecting this region of two billion people could soon lead to widespread geopolitical, economic, and social consequences, with resulting refugees and social and security instability.

There are many other such examples around the world. With so many of the world’s people living in coastal regions, sea level rise will have major impacts on security and stability, particularly in poor countries, with the potential for millions of refugees well documented.

The conflicts that will inevitably arise and the shift in power among countries that will result are impossible to accurately predict. However we certainly need to get our militaries, security think tanks, and development and aid bodies to ramp up their planning for these developments. We can’t now avoid such impacts, but we can certainly get ready to manage them by building the requirement for resilience into our planning.

These are the negative geopolitical impacts, but there will also be some significant impacts for the relative competitiveness of nations in the transformation to a low-carbon economy. For some, these will be positive, for others much less so.

Countries that depend on oil income, for example, could find this income virtually disappear over a few short decades. The security implications of resulting failed or conflict-ridden states across the Middle East and elsewhere could be dramatic.

While not significant on a global scale, my own country, Australia, is an interesting illustration of the global trends. We will lose our significant historical competitive advantage of cheap energy and export income from plentiful coal. With one of the highest per capita CO2e emissions in the world, Australia quickly finds itself at a competitive disadvantage when a high-carbon price is applied. We are already suffering the physical impacts of climate change disproportionately, with severe drought and water shortages wreaking havoc both on our agriculture and on city water supplies. We have had tragic wildfires in recent years that have been so far out of historical experience, they have necessitated the design of new ratings systems for severity of fire conditions. With the likely loss of coral reefs, we also face severe impacts on one of our key income earners, tourism. Some would say all this was karmic retribution!

On the other side, however, we have many advantages and opportunities. Our large land area means we have the potential for significant scale impact with soil carbon. If the science confirms that cattle can be grazed in ways that lock up soil carbon and thus make grazing cattle a net carbon sink, then our vast areas of country become an exciting opportunity with potential global impact.

Our hot, dry continent is blessed with lots of high-intensity sunshine, making our country particularly well suited to solar power. This applies both at the domestic level with distributed power and solar hot water and at the utility level with solar intensity, meaning we can produce energy at a lower cost than many other places in the world. We also have a long coastline for wave power, plentiful agricultural land for wind, and some excellent geothermal areas.

These issues play out differently in each country, but it is already clear they will lead to major shifts in relative economic power around the world.

At the global scale, the most interesting competitive battle is likely to be China vs. the United States. While the United States has considerable advantage with its history of success in innovation and technology, its lack of responsiveness to date is causing this advantage to move steadily to China.

There is great irony in this. For decades, many Western companies have argued against stronger environmental policies on the grounds of loss of competitiveness to China and the developing world. The argument has been that if Western countries made their companies behave more cleanly, Chinese companies would be able to outcompete them because they could pollute freely and therefore have lower costs.

What’s been happening while the West has been delaying action, partly in response to this argument, is that China has caught up and is now seriously pursuing a low-carbon economy. Do they want to save the world? No, they want to own it. As Tom Friedman argued:

Yes, China’s leaders have decided to go green—out of necessity because too many of their people can’t breathe, can’t swim, can’t fish, can’t farm and can’t drink thanks to pollution from its coal- and oil-based manufacturing growth engine. And, therefore, unless China powers its development with cleaner energy systems, and more knowledge-intensive businesses without smokestacks, China will die of its own development.

So China has become an example of the Great Disruption and perhaps provides an important insight into our future. They are being forced to act, with rapidly increasing intensity, because they are hitting the physical limits of their economic growth model. They are not quite in an emergency response phase, but they are seeing clear economic consequences of environmental system impacts and are taking stronger action in response, including major interventions in the market such as closing down dirty industries and strongly supporting the growth of new cleaner ones.

Whatever the motivation, China has the potential to dominate the technologies of the future with the advantages of both scale and the capacity for rapid change. I wouldn’t be surprised if China puts in place a national system for pricing carbon pollution before the United States and Australia can get it through their respective political processes.

China already boasts the world’s richest solar entrepreneur, Dr. Zhengrong Shi, who spoke to me passionately about the need to address climate change when I addressed an event launching his business in Australia. An accomplished solar scientist, he is determined to make solar cost competitive with coal. Chinese born Dr. Shi was educated in Australia but saw the urgent need and great business opportunity to apply his skills in his home country so went home and founded Suntech Power. In a move laced with irony, Suntech is now opening a plant in Arizona, making it the first Chinese clean tech company to bring manufacturing jobs to the United States. China also has a world-scale electric car and battery company, BYD, that has significantly boosted Warren Buffett’s wealth. Buffett bought 10 percent of BYD in 2008. BYD beat GM and Toyota to market with the first plug in hybrid vehicle and proposes to sell all electric cars in the United States by 2011. Unusually, the United States is looking like a laggard in this technology race. Indeed, in lists of the top ten companies in various new energy technologies compiled by investment bank Lazard,1 the United States lags behind Japan, Europe, and China, an uncomfortable place for a country that has prided itself on technology and entrepreneurial leadership.

China is not alone. India already has in place a carbon tax on coal to raise money to invest in promoting renewables. Brazil is emerging as a bioenergy superpower. According to the bankers at HSBC, South Korea committed 78 percent of its recent economic stimulus packages to environmental measures, while the United States focused just 11 percent in this area.

The point of all these examples is not to prescribe an approach, but to argue that all countries now need to see this issue for what it is—a current driver of change in what makes a country competitive. Countries that assume their current strength will protect them are likely wrong. Remember, strength counts for little against a more responsive competitor.

In the longer term, some deeper issues will emerge as we see who succeeds in adapting to the emerging world. The Western model of market-based democracy clearly dominated the twentieth century. Indeed, without China’s success late in the century, it would have been indisputable. While people express various levels of discomfort with the political, social, and cultural approach of the United States, the world’s people have largely tried to emulate much of what the country represents. Reinforcing this has been the dominance of U.S. power in most areas of competition and conflict; whether it was World War II, the cold war, the technology revolution, music and film, or overall wealth creation, the United States represents the success many aspire to.

As the twenty-first century gathers momentum, however, it is not at all clear that the United States will be able to maintain its dominance and critically whether it will still represent the most effective political and economic model that others will want to follow. China in recent years has been taking increasingly dramatic decisions to force environmentally driven change in its economy while market-based democracies have floundered. While many are skeptical of China’s capacity to carry through, there is plenty of evidence to suggest its market is accelerating ahead of the United States already. China is already the world’s largest solar PV manufacturer and the largest market for wind power.

What if the United States, saddled by debt and military costs and well behind in the race to new energy technologies, continues to drift as emerging countries like Brazil, India, and South Korea forge ahead? What if China can maintain stability and lead the way on the environmental and technology transformation now under way? Will China’s very different approach to decision making, democratic freedoms, and open society be a hindrance, as many commentators argue? Or will it be an advantage, enabling them to leapfrog in technology and drive change without the pesky limitations of Western democracies’ corporate lobbying and populist politics slowing down change?

If China succeeds and the United States fails, the implications could go well beyond the shift in economic competitiveness and wealth. It could undermine the moral authority of democracy and lead to a shift in global geopolitics back toward autocratic regimes. The worse the crisis of the Great Disruption becomes, the greater the risk this will occur. What’s at stake here is more than economic success.

Such a result is certainly not inevitable; after all, the United States and United Kingdom led the victory in World War II against nondemocratic enemies. And there are many powerful and proven economic benefits to democracy and freedom, with the U.S. success in technology and innovation often being put forward as an example. Likewise many argue that China’s restrictions on freedom will lead that country to political instability and possible breakdown.

Nonetheless, however many of us view democracy as a superior system, we should not lose sight of the inherent risk to it in the period we are entering. This is now a high-stakes game.

Whichever way all these issues unfold—and it is probably the most unpredictable area of all—what is very clear is this: The social, security, and economic implications of climate change and sustainability will force a major realignment in world geopolitics. In this process, responsiveness to change will determine the winners and losers, not a preexisting power or authority.

On a smaller stage, one of the more interesting developments will be the response of “victim” countries, those nations that have contributed little to the problem but face catastrophic impacts. Alongside this will be the legal and economic conflicts in rich countries over the relative contribution and impacts on different sectors, companies, and individuals. As the world enters a full-scale physical and economic crisis, people will be looking for revenge on the perpetrators. This will be messy and complex but will certainly occur.

It’s not hard to imagine how this might unfold. When low-lying countries like Tuvalu, Kiribati, or the Maldives cease to exist because they’re under water, their citizens are going to be pretty cranky. In all likelihood they’re going to want to blame someone and seek retribution. Also in all likelihood the world will (sadly) largely ignore them no matter how just their cause, because these countries are small and not very powerful.

However, when great swaths of countries like Bangladesh, China, India, and the United States become affected, when we have hundreds of millions of refugees, geopolitical conflict, and trillions of dollars of real estate devalued by risk of sea level rise or extreme weather, we will no longer be able to ignore the question of cause and accountability.

Some of this will play out in the geopolitical realm, where poor countries demand compensation from those rich countries whose pollution largely caused the problem. These poor countries will expect military and food aid to deal with the consequences. Some of it will play out in the courts as individuals, countries, and companies sue those they consider responsible, first for the pollution and second for the decades of prevarication and delay, particularly by deliberate cover-ups or misrepresentation of the science. Some of the world’s biggest corporations will be on the firing line. Will today’s coal and oil companies become tomorrow’s asbestos or tobacco companies?

As well as legal actions and campaigns attacking reputation, some of this will be simple economic transfer within the economy as governments force the costs of pollution onto the companies that create it. A 2010 study 2suggested the economic costs of the environmental damage caused by the top three thousand companies in the world were around $2.2 trillion for the year 2008. This represented about one third of all their profits. At some point, governments and others will be coming after these profits that have been “taken from the environment.”

Sadly, it is also seems inevitable that some of this will play out in acts of terrorism against countries and companies. Whether or not you believe terrorism is caused by injustice, it is certainly fueled by it. Many long conflicts throughout history have been created by the loss of land or the sense of injustice at damage done to a culture or group of people.

There is surely no greater injustice than the elimination of your country’s existence or the death of many of its people—especially when it’s done for the sake of more cup holders in your car or a larger television for the spare room.