Thursday, April 12, 2012

ENVIRONMENTAL IRONIES OF CAPITALISM: OIL


            As eloquently articulated by Walter Benjamin,

“A religion may be discerned in capitalism – that is to say, capitalism serves essentially to allay the same anxieties, torments, and disturbances to which the so-called religions offered answers . . .

Capitalism is the celebration of a cult sans réve et sans merci (without dream or mercy). There are no ‘weekdays.’ There is no day that is not a feast day, in the terrible sense that all its sacred pomp is unfolded before us; each day commands the utter fealty of each worshiper . . .

It adds to our understanding of capitalism as a religion to realize that, to begin with, the first heathens certainly did not believe that religion served a ‘higher,’ ‘moral’ interest but that it was severely practical. In other words, religion did not achieve any greater clarity then about its ‘ideal’ or ‘transcendental’ nature than modern capitalism does today.”[1]

Thus ironies of religion, of beliefs that preach kindness and concern but promote war and violence, for example, are well known. The ironies of Capitalism perhaps merit as much comedic jousting as religion justly receives.

            A case in point is the current obsession with oil prices. Three facts combine to generate a delightful irony.  First, corporate profits in the oil business are dependent on “oil in the ground,” which is to say, investment in oil companies is based on an evaluation of their future worth more than their present performance[2]. Thus, the market value of Exxon stock, for example, is based on investors willing to cough up large sums of money only because they are secure in the supposition of Exxon’s future ability to pump oil and the faith that oil will be the go-to energy source forever. Indeed, the bulk of the current value of that company lies in its apparent ownership of oil in the ground, not in its current performance in any sensible marketplace. This fact explains the initially perplexing fact that oil companies vigorously oppose efforts at promoting alternative forms of energy even though they themselves could easily make investments for favorable positioning in those new energy markets. Much of their current profit stream stems from the assumption that they will get to bring the rest of the oil in the ground to the market.

Second, opportunity costs for alternative energy, especially wind and solar, remain large but are declining rapidly. Currently the cost of electricity generation, for example, is nearly cost competitive for wind (depending on location, of course) and is nearing competitive status for solar. The fear of the oil industry is that emerging industries will soon conclude that filling the roofs of their factories with solar panels will be more cost effective than purchasing electricity produced with oil, that the Volt and the Prius will become even more popular, that Germany and Denmark will continue with their successes in wind and solar power. All of those things are partly a consequence of the very high price of oil, which is why environmentalists cheer when the price of a barrel of oil continues to rise.

Third, the actual price of oil is not exclusively determined by either the amount in the ground or the amount being produced, it is also a product of speculation. The cost of extracting a barrel of oil is about $11 while the cost in the international market is over $100. There are so-called “pure” speculators, men and women whose activities in the oil business consist of exchanging pieces of paper, or, these days, computer files. Oil futures are traded at a greater rate and by more people today than ever before. According to Congressional testimony in 2009, it is routine for over a billion barrels of oil to be traded per day, in a world in which only about 85 million are actually produced. “This means that more than 90 percent of trading involves speculators’ exchanging ‘paper’ barrels with one another.”[3]

It is a rather delicious irony for environmentalists. The corporate capitalists seem obliged to promote a system that drives the price of their commodity up to a point where it generates attractive new opportunity costs for alternative energy sources. But those alternatives cannot be allowed because profits are tied up, not so much in the present physical reality, but the future fantasy of proven reserves eventually coming on line. Yet that fantasy is what keeps the speculators speculating. This multi part opera creates long-term disaster for their business, but may be an unwitting ally in the struggle for the post hydrocarbon society. As speculation increases, prices rise. As prices rise, alternatives become more rational. As alternatives increase, profits for oil companies drop. Speculators don’t care, since they make money no matter the actual price of oil, but their behavior continues driving the price up. The proverbial fish starts eating its own tail and ends up devouring itself. 

We have long had the slogan, “For the sake of the planet, keep oil prices high!” I now propose we adopt a new one “long live the new glorious deity, oil speculators!”


[1] Quoted in Steenstra, Sytze. 2010. Song and Circumstance: The work of David Byrne from talking heads to the present. Cotinuum Iternational Pub. Group Inc. NY
[2] McKibbon, Bill.  2012. Why the fossil fuel community fights so hard.  Posted at http://www.huffingtonpost.com/bill-mckibben/the-great-carbon-bubble_b_1259782.html
[3] Kennedy, J. P. 2012. The high cost of gambling on oil. NYT, April 10, 2012.

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