By Walter Borden

“The conservation of natural resources is the fundamental problem. Unless we solve that problem it will avail us little to solve all others.”  Theodore Roosevelt

What’s In a Petrodollar?
Fossil Fuel producing nations should extract their resources consistent with the health needs of their people, air, land, and water.  History shows us that regulation plays an essential role in this mandate. Energy marketers insist regulations are counterproductive. Implied though not often stated, nations like Russia and China can more easily form capital and drive labor demand from fossil fuel exploitation because they can act largely unencumbered by regulation. This unproven assumption ignores the escalating costs of unconstrained fossil fuel extraction to present and future generations. Should we be more concerned about poisoning our planet for future generations than leaving large amounts of debt for them? I argue yes. Does the regulation of fossil fuel extraction impede aggregate labor demand? The evidence indicates no. The earth is the source of all money so worrying about debt instead of planetary health puts the cart before the horse. A sick, weakened planet will create less value, profit, and wealth.  Concurrently, as oil supplies wane, systemic risk will form around basing currencies on fossil fuels, oil in particular. Searches for fossil fuel resources will grow into fierce and destabilizing conflicts. Increasingly scarce tracts of clean, fertile land can only deepen them.

Unregulated Nations and Quality of Air, Water, Land and Life
Russia and its oil country exemplify the realities of unregulated, petrodollar capitalism. Its oil producing areas constitute what experts describe as our planet’s worst ecological oil catastrophe. Based on reporting from the Associated Press, estimates are that roughly one Deepwater Horizon-scale leakage occurs about every two months. Outdated infrastructure, minimal and unenforced regulation allow for oil to contaminate soil, kill plant life, and damage habitats for mammals and birds. State-funded research shows 10-15 percent of Russian oil leakage enters rivers with nearly 500,000 tons flowing into the Arctic.

Source: Bureau of Labor Statistics

From Chernobyl to more recent paper mill pollution seeping into Siberia’s Lake Baikal, which holds one-fifth of the world’s supply of fresh water, Russia’s lax regulatory posture renders great swaths of territory uninhabitable and fallow. Russian oil spills are more numerous than in any other oil-producing nation. “Oil gets spilled literally every day,” said Dr. Grigory Barenboim, senior researcher at the Russian Academy of Sciences’ Institute of Water Problems. His is not alone. And by all accounts the estimate is conservative since under Russian law, leaks less than 8 tons rate as “incidents” and can thus go unreported. By contrast, the U.S., the world’s third-largest oil producer, logged 341 pipeline ruptures in 2010 — compared to Russia’s 18,000 — according to the U.S. Department of Transportation.

The republic of Komi, just south of the Arctic Circle, is the scene of Russia’s largest oil spill. Up to 40 kilometers of two local rivers were polluted, killing thousands of fish. Respiratory diseases rose by over 28 percent in the year following the leak. Komi’s officials blamed neglected infrastructure and oil companies reporting that “companies that extract hydrocarbons focus on making profits rather than how to use the resources rationally.”

Representatives of Lukoil denied claims that they try to conceal spills and leaks saying that no more than 2.7 tons leaked last year from its production areas in Komi. Government officials and environmentalists agree however that such spills and mismanagement typify most any oil field in Russia. They point to outdated systems used by oil companies, but also add that large scale oil spills are not confined to abandoned or aging fields. Major accidents happen at brand new pipelines.

At least 400 tons leaked from a new Transneft pipeline in two separate accidents in Russia’s Far East last year. It brings Russian oil from Eastern Siberia to China and went operational just months before the spills. Oil executives complain that oil spills that routinely happen in plain sight cost too much money to repair. Officials and citizens alike find it hard if not impossible to hold authorities accountable. In the Komi area for example, some 90 percent of the local population comprises oil workers and their families. They point out how they have relocated from other regions of Russian and depend on the industry for their livelihood.

Oil Spill. Eleanor Bay, Alaska

Is there any reason to believe that reduced regulation in the U.S. would lead to different outcomes than seen in Russia? Does there have to be a trade off between employment and keeping ecosystems healthy in Russia, the US, or any other oil bearing nation?

Ruth Greenspan Bell of the World Resources Institute recently pointed out, “Looking only at job losses inevitably ignores a larger truth: environmental spending creates jobs that offset losses.”  She notes that compared to overall spending in the economy, on a per dollar basis, spending on environmental protection and clean-up employs:

  • Over twice as many workers in construction
  • 25 percent more in manufacturing
  • Plant closings and layoffs comprise only one tenth of 1 percent of all layoffs nationwide.
  • From 1990-1997 period, 10 million U.S. workers were laid off for non-environmental reasons.

Bell cites a recent report to Congress compiled by the White House Office of Management and Budget, which examined the costs and benefits of environmental regulations. Looking at federal regulations between 1999 and 2009 in which the relevant agencies both estimated and monetized the benefits and costs of those rules, the OMB analysis estimated that the annual benefits of regulation totaled between $128 billion and $616 billion. The annual costs: between $43 billion and $55 billion.

Nonetheless it is held as orthodoxy by many that environmental protection laws i.e. regulations regardless of application are bad for everyone in the economy.

Regulations do not impede labor demand in the ways claimed by polluters and their publicists. But do renewable technologies that mitigate the costs of oil to our society actually increase labor supply and stifle aggregate demand for it, or is renewable energy poised to help tighten labor markets in the long run and thus help families secure their futures? Bloomberg New Energy Finance recently reported that for the first time, global investments in renewable electricity have exceeded investments in fossil fuel power plants. Some of the facts laid out in their reporting:

  • The number of solar jobs in America has doubled since 2009
  • Today more than 100,000 Americans work in the solar industry at more than 5,000 companies in every single state.
  • These include manufacturing, installation, and supply chain jobs.
  • The installed base of solar power in the United States doubled
  • The solar industry is growing at a rate of 69 percent annually
  • The cost of solar panels has fallen 30 percent over just the last two years, continuing a long-term downward trend in the price of solar.

Solar is becoming more cost-competitive with conventional fossil fuels and some estimate photovoltaic solar will achieve price parity by 2020. Two of the world’s three largest employers, the United States Department of Defense and Walmart are looking to solar. Walmart is installing solar panels at 130 stores in California because its solar program has significantly reduced its energy expenses. The United States Marine Corps utilizes solar energy with battery storage to fully power forward operating bases in Afghanistan. Marine Colonel Bob Charette says renewable energy is “about saving lives” by reducing the number of dangerous fuel convoys needed for resupply. The People’s Liberation Army of China is the third, and China is well known for its aggressive push towards renewables as well as towards securing fossil fuels and mineral resources from the Americas to Africa.

There are encouraging signs that the private sector is beginning to understand the urgency of carbon pollution rates and take action. Fund Balance associate South Pole Carbon recently performed a Carbon Scan of S&P 500. It provided a carbon footprint of a USD 1 million investment into the S&P 500:

  • Total Emissions for a USD 1 million investment amount to 188 tons of CO2.
  • Offsetting those emissions with high quality emission reduction projects costs an investor USD 2,632 (26 basis points in relative terms).
  • Roughly 60% of the overall emissions come from just 3.7% utilities exposure meaning just 5 out of the 500 companies are responsible for over a quarter of the emissions.

The private sector has a role to play as well. This analysis shows that News Corp and Google are already climate neutral due to their own offsetting. Rupert Murdoch stated that News Corporation is carbon neutral: “But achieving net zero carbon emissions was never our only goal…Today, I’m pleased to share some of our successes across the Company, as well as our long-term commitment to environmental sustainability.” Quite a statement from the Chairman of a Corporation that counts Saudi Royalty as its second largest shareholder.

Dubai Under Cloud Cover

What Does All This Mean?
The information above is indicative of a great many other studies: nations with sufficient and adequately funded regulatory law compared to those with little to no regulatory law and enforcement have less carbon pollution and higher standards of living. It points to two other policy imperatives.

First, nations such as the US and Norway that strictly regulate pollution maintain healthier environments and have higher living standards than those that do not. They are also better positioned to thrive in an era of constrained access to fossil fuels as the health of their aquifers and atmospheres renders them more productive.

Second, there can be no doubt of the continued need for fossil fuel energy resources for the immediate future. During this process what can we do to protect our food and water supply and its viability for future generations and their ability to live and create wealth? History provides few examples of mining and energy concerns protecting resources if not required. Society can and should incrementally redirect the funding and effort to extract fossil fuels towards renewables. This includes those resources utilized for lobbying,  deregulation, and publicity campaigns designed to produce the misconception of legitimate scientific debate that Global Warming is primarily man made. Society must honestly and rigorously assess regulations that may interfere with short term job creation and adapt job training, industrial, and agricultural programs accordingly. Policy must encourage steady elimination of the linkage between our currencies and oil. Cultivate Heliodollars.

Such redirection should include subsidies. As energy concerns move to the Arctic and other remote ecosystems to exploit hard-to-get oil and gas reserves, let’s listen to scientists and policy makers as they register concern for potential environmental calamities. These will just as surely affect the entire planet’s ability to support life and create wealth in future generations as inherited balance sheet debt among nation states.

What Can We Conclude?
When our air and water are protected from exposure to excessive carbon dioxide or mercury the entire Earth profits. 20th century notions of wealth and productivity should adapt as they did when the great nation states abandoned slavery as an economic system within the rule of law. All of this means that moving forward even GDP as a measure of value will necessarily serve a limited role in climate and economic scenarios. Petrodollars may no longer serve as the best store of wealth.

We need policies that address preservation of the resources that provide us with food and water. This requires the will and action to regulate polluters, building on the successes these regulations bring  to the United Sates, and remaining mindful of current and future realities for “pollutacracies” like Russia. This requires new thinking and refinement of money and debt. A  recent economic analysis found coal-generated electricity imposing more in public health costs than the electricity is worth on the market. In short our current approach to resource extraction, sustenance cultivation, and wealth preservation “reduces the Earth Herself and Her People to a form of slavery via economic vampirism” as Fund Balance partner Leland Lehrman recently wrote.

The urgency of this matter does not reduce well to comfortable partisan positioning. President Obama has dismissed environmentalists as “pointy headed greens.” His Commerce Secretary William Daley actively works to prevent new EPA regulations. As recently as 2007, GOP stalwarts such as Lindsay Graham and Newt Gingrich acknowledged the urgency of Global Warming only to totally reverse their positions even as the science solidified around a consensus that Global Warming is real and manmade. And contrary to popular belief, the Obama administration is on track to approve fewer regulations than their predecessor.

This isn’t to say all regulations are useful only that the characteristics of nations whose energy industries are well regulated help define their economic opportunity and public health.

Regulations and the rule of law are at the heart of what has protected America’s resources from over-exploitation. Abraham Lincoln moved to protect California’s Yosemite Valley in 1864 laying the groundwork for Yosemite National Park.  Theodore Roosevelt later created hundreds of national forests and bird sanctuaries as well as  reclamation projects during his tenure. Dwight D. Eisenhower established the Arctic National Wildlife Refuge. Richard Nixon signed almost every major piece of environmental legislation that we know of today.

Sunset at North Pole. Photo/composite by Brian Krassenstein

While campaigning, President Obama proclaimed his “intergenerational” perspective and recognition that “we are borrowing this planet from our children and our grandchildren.” After years of supporting the coal industry in Illinois, he supported cutting carbon emissions 80 percent by 2050. There was to be a much greater commitment to conservation. So far little has been done. While Congressional intransigence, well funded lobbying, and PR campaigns often broadcast on News Corporation’s Fox News network matter, there has also been scarce leadership from the Obama administration.

Weakening environmental regulations does little to create jobs and and makes us both poorer and sicker. Enforceable and enforced regulations protect future generations’ wealth and health. We need to transition away from reliance on petrodollars as a medium of exchange. The oil industry in Komi, Russia has been sapping nature for decades, killing or forcing out reindeer and fish. Locals like 63-year-old Yuri Bratenkov recount that when big oil leaves, only poisoned terrain is left in its wake. “Fishing, hunting — it’s all gone”.