Reinventing Fire (Part Two) (2011)

While the energy efficiency measures detailed in part one of the review are admirable and necessary, the shift that is about to occur in electricity production and distribution is potentially even more important and thus, I think, deserving of its own review.  Though dramatically increased energy efficiency in buildings and industry is predicted to keep overall electricity demand flat or declining for the next few decades, even as we electrify vehicles, the distribution of ubiquitous, clean and renewable energy would be nothing short of a technological and geopolitical revolution that could negate the need for energy efficiency measures.

History

In order to understand why today’s inefficient, insecure and environmentally degrading system is holding us back, it’s important to understand its roots.  Modern electricity production is a 120-year-old story, driven by the complex interplay between the laws of physics, the principles of prudent engineering, the evolution of technology and shifting economics and regulation.

It began with a legendary debate between two of the fathers of the electricity industry, Thomas Edison and George Westinghouse.  In the 1890s, they disagreed on the best method for transmitting electricity – direct current (DC) or alternating current (AC).  Eventually Westinghouse prevailed, laying the foundation for the centralised architecture that dominates the AC electricity system today.  Following this, many cities sought lower prices and a high quality of service by granting non-exclusive franchises to competitors in the same region.  However, as companies invested and competed to serve the same customers, this competition often led to the duplication of plants and wires, which had high fixed costs.

Consequently, due to the nature of these investments and decreasing cost of production per kWh produced, electricity was declared a “natural monopoly” where regulation should play the role that competition fills in the free market: “control of entry, price fixing, prescription of quality, and conditions of service”.  As a result, the question became not whether but only how to regulate the electricity sector.  Legalised monopolies “eliminated investors’ fears that utilities would lose market leadership” and reduced competition for capital and the cost of needed funds.

Fast-forward to the current day, where legalised monopolies still prevail, day-to-day demand is first met by using generators with the lowest operating costs.  These generators are commonly called “baseload” plants because they are used to meet the lowest expected level of continuous aggregate demand.  Traditionally, baseload plants have been coal and nuclear plants, which are costly to build but cost only a few cents per kilowatt-hour to run, and which operate more efficiently at a constant high output.  When demand rises moderately – so-called shoulder demand – operators tap higher-operating-cost generators.  When demand peaks, operators may need to use the costliest-to-run generators, typically combustion turbines.  These generators are flexible, able to start up quickly and to ramp electricity production up and down rapidly to meet fluctuating demands.  This is why we see a constant fluctuation in electricity supply and prices.

To date, this has culminated in a regulatory structure that rewards building a large asset base and selling more electricity.

Problems

At first glance, using large, centralised sources of electricity and rewarding producers and distributors for selling more can appear to be unproblematic.  However, Lovins and his team rightly illuminate three key problems with this model that greatly affect its long-term sustainability: carbon emissions, in-built inefficiency and a lack of competition (not to mention fuel security and the exacerbation of geopolitical tensions).

At present, I don’t feel much needs to be said about carbon emissions.  It has been well documented that the unnecessary long-term use of fossil-based fuels presents risks to the global environment too grave to ignore.  It suffices to say that according to the RMI, on our current path, expected growth would drive up the electricity sector’s carbon emissions 38% by 2050, to levels nearly 600% above Kyoto protocol reduction targets.

The current centralised, fossil-fuelled electricity system also promulgates a series of storage and transmission loss inefficiencies.  Electricity is the only important “energy carrier” that cannot yet be easily and cheaply stockpiled or stored.  Therefore, electricity must be produced and used at the same instant; it is the ultimate perishable commodity.  Lovins makes the point that two-thirds primary fuel is discarded as waste heat or used internally before the electricity leaves the power plant.  

Furthermore, each hour a 1 GW coal-fired plant burns 500 tons of coal and uses 25 million gallons of cooling water.  Consequently, large centralised power generators use swathes of other precious resources and consistently decrease in effectiveness the further they are situated from the consumer.

Regarding lack of competition, it should be noted that the vast majority of electricity sectors in the world remain largely regulated industries in which protected public utilities dominate the market.  While capitalist economies the world over hail competition as the driving force of innovation, the electricity sector has succeeded in convincing the public that this is a vital service which cannot be privatised despite bloated profit margins and chronic under-funding in new technologies.  In such an environment, incremental progress trumps innovation, avoiding risk is the watchword, and protecting the status quo has become the norm.

Before moving to discuss renewable energy, I want to address what many view as half-way houses for the electricity industry: nuclear and carbon capture sequestration (CCS). 

Many advocate such a switch, however Lovins produces a cogent argument that nuclear is just not economically viable.  In the three years following August 2005, when nuclear power enjoyed the strongest political and policy support, and most robust capital markets in history, none of its 34 proposed U.S. projects was able to raise any private financing despite federal subsidies rivalling or exceeding their construction cost.  The market verdict is similar in other countries.  Of the 64 nuclear power projects that were under construction globally in 2012, all were in centrally planned power systems, mainly run by authorities with no private funding.

This is mainly due to the popular notion that no other source of the energy is so prone to catastrophic failures that cause massive financial losses.  In the wake of the Fukushima disaster in Japan in 2011, Tokyo Electric Power Company posted a $14 billion loss.  At present, a fifth of the world’s reactors are based in significant seismic zones. 

Fundamentally, though, nuclear power had been overtaken in the marketplace long before Fukushima, just as its U.S. orders had collapsed from poor economics a year before Three Mile Island.  Its costs and risks are simply unattractive to investors.  In time I genuinely hope this can change as the potential of nuclear energy dwarfs that of any other energy source (and that is just talking about nuclear fission; if we ever crack nuclear fusion it would be hard to charge money for electricity it would so abundantly available), however, at present it is not a viable candidate when compared to the more mature, safe and investor-friendly renewable energies I will discuss.

Like nuclear power, CCS could be used to eliminate carbon emissions but also faces challenges from its high costs and uncertain performance, which limit its access to capital.  Issues regarding how to store the captured carbon emissions with appropriate safeguards and liability protection mean it is unlikely to be cost-effective enough to keep coal-fired power plants economically competitive in the short or medium term.  Furthermore, moving towards nuclear and/or CCS does nothing to address the critical issues of fuel security, financial stability, and above all competition.

Opportunity for decentralised renewable electricity

In energy production and consumption the electricity system is facing a convergence – some would say a perfect storm – of changes including technology development, reliability and national-security concerns (prolonged electricity blackouts are just as economically serious as oil interruptions), and environmental issues that together create some of the largest opportunities for innovation and investment seen since the industry got its start over a century ago.  And the market is already reacting.  Half of the world’s total 2008-2010 additions of generating capacity were renewable. 

Renewable markets are now immense, global and dominated by developing countries, and will become increasingly so.  Through 2035, official projections say China and India will together add nearly twice as much new capacity as the U.S. and Europe combined, continuing to drive renewable markets.  China is now the world leader in five renewable energies and is aiming for them all.

As discussed in part one of the review, the way we consume energy is about to become radically more efficient.  Information technology providers are quickly infiltrating the electricity business with products that greatly enhance the level of information supplied to customers, utilities and even energy-using devices (I refer back to the Buildings section in part one of the review).  Passive consumption of electricity is on the brink of a radical shift.  Advances in smart-grid technologies that combine IT with the electricity grid are enabling bidirectional control, distributed intelligence, two-way communication, ubiquitous real-time price information, and demand response.

Regulatory solutions

Beyond the economic and technical challenges facing the industry, regulatory and institutional shifts must occur that quite clearly challenge a lot of powerful vested interests.  Electric utilities’ business models and regulatory structures will need to be reformed to level the playing field between investments in supply- and demand-side solutions, and between non-renewable and renewable, and centralised and distributed, options.

Regulators need to share benefits and costs equitably between customers and shareholders and to hold utilities to standards of investment and operation that are far more ambitious.  Achieving a transition to a largely renewable and distributed future will require transparent, fair, and non-discriminatory rules that ensure the safety and reliability of the grid while minimising barriers to entry.  These rules critically affect project economics and, in turn, scope of competition.

At a national level, a first important step would be the widespread adoption of policies that reward utilities for efficiency rather than the bulk amount of electricity sold (here I echo the points made in the discussion of “decoupling” policy in part one of the review).  At a local level, liberalisation of the rules affecting small-scale distributed resources (for example the permitting and inspection procedures for home rooftop solar systems) would open investment in a diverse array of new electricity markets and increase competition.

Furthermore, rewarding utilities for cutting bills, not selling more energy, aligns their interests with customers’ interests and society’s larger goals.

There may even be a whole new business model: acting much like the internet service provider, the utility could be the open source for myriad power generators and other companies, allowing these providers to get their electricity and services, like demand response, to customers on the utility’s new supergrid.

Commercial solutions

If you’re sold on the reasons for changing, and the regulatory environment that would encourage such a change, I’d like to outline in more detail some of the outstanding commercial projects that Reinventing Fire advocates.

But even if you’re not sold, it is important to realise you are swimming against the tide.  If you’re one of the nation’s largest emitters, it doesn’t matter whether you believe human activity is changing the earth’s climate; it matters only whether you think your emissions might be restricted or taxed.  Very few nations around the world are not embracing a long-term strategy towards taxing carbon emissions more heavily.  That’s why we’re seeing the world’s largest oil and natural gas producers investing in large renewable portfolios; in order to at least hedge bets.

It just so happens they’re also great investments too. While renewable technologies generally have had higher capital costs than fossil-fuelled power plants, their fuel is free, their energy price is locked in for decades, and their capital costs are falling.  However, these investments generally come in two different varieties with very different investment profiles: distributed and large-scale renewables.

-         Distributed solutions:

“Distributed” usually means dispersed geographically and connected to the distribution system rather than the transmission system, so the resources are nearer customers, saving grid costs and reducing losses and failures.  But “distributed” resources are also often modular – made in small, similar chunks that can be linked together.

Consequently, distributed resources avoid the losses of delivering power.  Also, distributed resources’ combination of short lead time and small unit size reduces financial risk by building capacity in increments more closely matched to changing customer demand, easily ramping investment up or down as new demand information unfolds.  This more interactive, informed, rapidly evolving electricity system is not centrally planned from the top down.  

Lovins details a number of distributed projects that outline how new energy solutions are moving away from the public sector:

o   Chicago’s 108-story Willis Tower is now exploring the possibility of becoming the nation’s largest vertical solar farm;

o   A superefficient, affordable housing development in Sacramento, CA, will use a first-of-a-kind private, commercial microgrid to manage and distribute intelligently the generation and storage of solar power among 34 single-family homes.  The project, known as 2500 R Street, aims to achieve net-zero efficiency levels, with each home generating as much clean energy as it uses;

o   The global distributed-generation market grew 91% in 2010 to $60 billion.  In the past decade, micropower has more than swapped with nuclear power their respective shares of global electricity production, and in 2008 micropower provided roughly 90% of the world’s additions of electricity generation.

o   Seattle-based start-up Clarian Power even offers a novel solar panel system completely bypassing the normal connections to the utility’s grid.  You simply plug a cord from the PV solar system and its accompanying “SmartBox” into any wall outlet in your house, and its microinverters let electricity from the solar panels flow to all household lights and appliances, using only existing wiring.  Some of these firms are remarkably innovative.  SolarCity, SunRun, Sungevity, SunPower and a growing collection of other competitors offer rooftop PV panels for zero money down – eliminating the sticker shock that frequently deters customers.

           -          Large-scale renewable solutions:

Long have large-scale renewable projects been the fantasy of clean energy advocates, however, fervour for their investment is diminishing after years of political stagnation.  While multi-GW-scale PV farms are already planned in the Chinese deserts and have been proposed in North Africa, and California, these are necessarily centrally-planned projects.  These projects should continue to be encouraged due to their incredible potential to provide ubiquitous clean energy, however, they share few of the advantages that make distributed power so commercially appealing.  Firstly, they suffer similar transmission losses to traditional power plants.  The enormous proposed solar park in the Sahara would lose almost half its produced energy in transmission when delivering to Europe.  Secondly, the cost and financial risk is far too large to allow agile investment; these are large, long-term bets that don’t appeal to the majority of investors and consequently require major public backing.

Nonetheless, large-scale renewables should be developed in order to replace current baseload coal facilities.  The more agile and scalable distributed sources should be developed in order to meet shoulder demand and to spur innovation and investment.

Risks

Reinventing Fire is not oblivious to the risks inherent in such a transition and the RMI team deliver a healthy dose of reality by presenting opportunity and challenge in equal measure. 

Firstly, harnessing distributed, renewable power sources would require siting and building 116 million MW-miles of new high-voltage transmission lines, costing an estimated $166 billion before 2050 (and that’s just the book’s U.S. estimate).  

Furthermore, a system dominated by renewables has security and reliability risks.  More inputs and greater dependence on IT and smart-grid technology will increase cybersecurity threats to the system.  Any electricity scenario dependant on the frail aerial arteries of the transmission grid – without the ability isolate demand centres from grid disturbances – carries a national security risk.

Another challenge is the potential for public resistance.  PG&E, one of the U.S.’s leaders in smart-grid deployment, has experienced considerable customer backlash, largely based on (misguided) concerns about the health effects of electromagnetic radiation from smart metres.

Some households and small-business operators simply may not be interested in a more active, technology-intensive system, or they may not want what some see as “big brother” technology in their homes.

Financial capital is an obvious bottleneck.  Investment will fail to flow in the direction of renewable projects so long as state subsidies continue to prop up the oil industry (artificially deflating their price and distorting the market).  While immediate withdrawal would punish those on low income with more costly energy bills, plans need to be agreed to sunset all state support of non-renewable sources over the next decade.

Perhaps most crucially, the perception that the green economy is the pet project of the privileged seriously undermines the message and distorts the value proposition of making such a transition.  Without a long-term, focused government that can deliver the necessary regulatory structures and the social and environmental reasons for doing so, the ability of a green economy to reinvigorate national infrastructure to create a more open and legitimately competitive society will never be realised.  That starts with us; that starts with political pressure.

Conclusion

The challenges outlined above make clear that this is not a plan without risk.  However, Reinventing Fire has delivered the most comprehensive and ambitious plan for a green economy that I have ever read.  Six main criteria should gauge success in the new electricity sector: affordability, technical feasibility, security, reliability, environmental responsibility and public health, and public acceptability.  Reinventing Fire’s plan works on all above the criteria.

By focusing on the four sectors of transportation, buildings, industry and electricity, a complex and daunting problem now appears to have a clear solution.  By reframing the environmental agenda as a commercial opportunity, entrenched political positions are dissolving and emotion is being replaced by common values and pragmatism.

Rapid innovation, combined with society’s need to reduce fossil-fuel use, has created a golden opportunity to reinvent the electricity system – to the great advantage of clever and agile businesses and nations.  As Thomas Edison exclaimed to Henry Ford in 1931: “We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature’s inexhaustible sources of energy – sun, wind and tide…I’d put my money on the sun and solar energy.  What a source of power!  I hope we don’t have to wait until coal and oil run out before we tackle that.”

Score: 95/100

Reinventing Fire (Part One) (2011)

Sixteen years ago Amory Lovins and his team at the Rocky Mountain Institute (RMI) wrote Natural Capitalism.  For me, the book was an inspiring investigation into how the environmental movement could be married to the capitalist agenda.  While the great majority of environmental books at the time spent their energy attempting to scare readers into believing the threat of climate change (lest we forget how powerful environmental sceptics were), here was a philosophy that argued for working within the current model; using the competitive markets and intelligent regulation to propel clean energy and to deploy ubiquitous energy efficiency.  Fast-forward to 2011 and Reinventing Fire, I am pleased to say, finishes what the first book started.  By focusing our efforts on four main sectors: transportation, buildings, industry and electricity, Lovins and his team has delivered a near-complete blueprint for increasing prosperity and reducing carbon emissions while simultaneously reducing energy insecurity, expanding choices and harnessing innovation.

Due to the sheer volume of ideas contained within the Reinventing Fire plan, I’ve chosen to break this review into two parts: part one will cover transportation, buildings and industry while part two will cover electricity.

Transportation

[DISCLAIMER: the statistics referred to in this book, and subsequently by me, usually relate to the U.S.  The book is unashamedly aimed at a U.S. audience, however, the lessons are applicable to any open market.]

The first sector ripe for transition is the transportation sector.  The mass adoption of the cars, trucks, trains and airplanes has led to levels of independence that were unimaginable 100 years ago.  But the practice of using combustion engines and heavy materials has seriously polluted the atmosphere and is becoming increasingly uncompetitive.  Lovins argues that the key innovation needed within the sector will be radical efficiency via a shift to ultralight but ultrastrong auto-bodies, made of advanced materials.

The key enablers of these new generation vehicles will be: (1) integrative, whole-system design optimised for (2) ultralight materials, particularly advanced composites (primarily carbon-fibre).  Adding (3) an electrified powertrain creates incredibly efficient vehicles that are much less fuel-intensive.

By using integrative design Lovins utilises one of the key concepts of his first book, Natural Capitalism.  When the energy intensity of a process is dealt with as far upstream as possible, then gains are compounded as they flow back downstream, and ever smaller parts are required at each juncture.  Consequently, “a lighter auto needs less power, so its powertrain can be smaller and simpler.  That makes the auto even lighter, so in the next design go-round, the engine can be made yet smaller and lighter.  The weight savings multiply with each component, from brakes to suspension parts, and with each turn around the design cycle.  Parts and systems can even disappear entirely: put an electric motor in each wheel, for instance, and suddenly there’s no need for a transmission, clutch, driveshaft, axles, universal joints, or differentials.  Their disappearance in turn triggers still more weight savings.  Lightness multiplies.”

Electric motors are lighter, smaller, cheaper, quieter, cleaner, more rugged and reliable, and severalfold more efficient than modern fuel engines, while still enabling sizzling acceleration.  Furthermore, electric drive can automatically recover for storage and reuse (accelerating the auto) up to 70% of the energy otherwise wasted as heat by the brakes.  When your vehicle can save, and even sell, excess energy the payback period, in comparison to traditional vehicles, becomes very short.

Using advanced carbon fibre technology, composites with greater tensile and impact strength than steel can be affordably produced for all vehicle types, cutting the weight by up to 70%. There is a perception that safety requires weight but Lovins presents studies proving that it is size – due to having more crush space to absorb impacts – not weight that is the primary indicator of a vehicle’s safety.  Consequently, Lovins makes a marked departure from traditional environmental transportation ideology wherein the cars of the future are tiny cars like the Gwiz or the Tata Nano.  Should advanced composites continue their progress in reducing body weight, large vehicles like SUVs and planes need not be the target of environmental derision.

So far, first movers regarding the pursuit of the compound benefits of lightweighting plus electrification include: Audi, BMW, Volkswagen and Toyota.  No U.S. automakers appear on that list for two reasons: first, U.S. auto efficiency standards and offerings still lag behind most first world economies; secondly, historically cheap gasoline (due to low fuel taxes and large public subsidies) make the U.S. the only auto-making country where inefficient cars can still be affordably fuelled (petroleum is one-half to one-third the price in comparison to most other countries).  Start-ups like Tesla and rapidly emerging Asian competitors can and will adopt the latest manufacturing technology in order to gain competitive advantage.

This is one the first instances in which we can see how the market would gain from more ambitious regulations.  At present, global fuel efficiency standards lag technology in a major way.  By 2016, most countries will have set policies regarding vehicle fuel efficiency at roughly 30 mpg and have agreed and 54.5 mpg for 2025.  Yet attractive 125-240 mpg autos can be achieved within a decade.  Countries who set ambitious fuel efficiency targets, while admittedly suffering short-term pain, will capture the global transportation market in the long run.

Another tool the RMI team advocate using to speed the transition to ultralight and efficient vehicles is something they’ve termed, “feebates”.  Feebates make efficient autos cheaper to buy and inefficient autos costlier.  The idea is that if you buy a fuel hog you’d pay an up-front fee, right on the sticker price, which climbs as its fuel economy declines.  But choose a fuel sipper instead and you’d get a rebate funded by others’ fees: the more efficient the auto, the bigger the rebate.  In this way choices are not limited, but the market and our aspiration to reduce carbon emissions work hand-in-hand.  Personally, I think it’s a brilliant idea that encourages movement along the innovation curve without increasing public sector spending.  However, it does not take much imagination to consider the political difficulties of passing such a law given that, in the short term, fuel-intensive industries (such as logistics and agriculture) would have to shoulder a large burden.

Further ideas that permeate the chapter are that: (1) sharing transportation can radically reduce fuel-intensity and (2) creating more self-sufficient communities reduces the need for transportation.  Lovins makes the analogy that “buying a car to get mobility is like buying a three-star restaurant to get a good meal” and comments that “most people believe that the alternative to autos is better transit – in truth, it’s better neighbourhoods.” 

When the book was written in 2011, the online sharing economy was only just getting started, but in 2015 we can already see the incredible efficiency gains promoted by businesses such as Uber, AirBnB, Zipcar and countless cycle hire programmes throughout cities worldwide (led by Europe).  As the migration of people to major metropolitan areas continues throughout the world, the quality of public transportation will take on increased importance.  Generally public transportation requires great investment, but the book highlights spades of smart thinking, such as the “surface subway” system pioneered in Curitiba, Brazil, providing subway-like rapid bus systems that provide mass efficient transport and reduce congestion at a tenth of the cost of even surface light rail (rapid bus/surface subway systems are now found in more than 80 cities, chiefly in South America, but now headed for Los Angeles).

On the more expensive end of public transportation, the Chinese and Japanese bullet-trains still have the capacity to inspire incredible change if they can realise the tested speeds of over 300 mph (see this recent news report).  Such technology could displace thousands of flights per year with a cheaper and greatly more fuel-efficient alternative.  While working on the technology, based on magnetic levitation, engineers have even invented a way for passengers to enter and leave without the train stopping, via a “connector cabin” that the train drops off at each station while picking up a new one.

However, this is not to say that the transition will be easy.  The mass lightweighting and electrification of the world’s transportation will also require an infrastructure to recharge them (preferably from renewables).  By some estimates, each new electric vehicle will require about 1.1 charging stations – though 80% will be at homes and paid for (costing about $1,500) by the auto buyer.

But the important lesson is that the technology is available and simple regulatory changes can spur investment that leads to enormous fuel-savings and greatly more competitive companies.  The chapter aims to complete the transition by 2050 but takes pains to explain that the nation will still need liquid fuel – lots of it, falling over decades.  Unlike cars and trains, planes and heavy trucks can’t yet be cost-effectively electrified. 

The ambitious goal of using three-fourths less fuel and an entirely oil-free auto fleet by 2050 is necessary and achievable.  Reinventing Fire’s plan to transform vehicles through highly integrative design, electric engines and electric fuelling that draws on renewable sources is considered and visionary.

Buildings

Buildings are energy hogs.  They consume 42% of the US’s energy (more than any other sector) and 72% of its electricity.  Much of that energy is simply wasted.  Buildings primarily use energy in six ways: space heating, water heating, space cooling, lighting, electronics and appliances.

Lovins argues that this is a serious economic opportunity.  According to the RMI team, by 2050 the realisable savings from energy-efficiency in buildings is at least $1.4 trillion in net present value.  Those savings are worth four times the cost of capturing them.  Generally speaking, energy efficiency measures in buildings cost less than half as much as the energy they save within three years.

Such a mass focus on improving the energy efficiency of buildings could “create new business opportunities and strong new industries as companies gear up to install insulation in inner-city homes or to manufacture easy-to-install efficient office lighting systems.  This expanded economic output means that reducing the energy used in our homes, offices, warehouses, theatres, shopping malls, and other structures could revitalise the real-estate sector and help rejuvenate the national economy.  Consider the multiplicative effect of putting all this cash (and added value) back in the hands of businesses and consumers.  In a sector that needs new ideas, energy efficiency in buildings creates exceptional opportunities for growth in jobs, new goods and services, and finance.”

Lovins argues that the biggest opportunities lie in designing new buildings right and retrofitting the existing buildings that waste the most energy.  While I agree with the assessment, unfortunately there are few cookie-cutter or blanket solutions.  Upgrading existing buildings will need to be done one building at a time and every building has a different set of requirements. 

However, the book outlines a spate of emerging technologies that are making our buildings cleaner, more efficient and, frankly, cooler places to be that could soon make the process much more appealing.

One of my favourites, that I can see becoming commonplace within the next decade or two is the smart window.  Smart windows darken in response to a small electric current or heat (see firms like Pleotint and RavenBrick).  Serious Energy’s “AdaptivE” windows will use a printable liquid-crystal coating to vary the amount of incoming heat energy depending on the temperature of the outer pane of glass, while letting in the same amount of visible light.  In warm climates, this will eliminate the trade-off between being well-lit and being cool.

Phase-change materials could soon be found in the outer walls of most buildings.  Phase-change materials absorb heat by melting as the temperature rises.  Used in walls or on roofs, they slow the build-up of heat in a house on a hot day.  The stored heat is then gradually released at night meaning that you reduce the need for air-conditioning during the day and heating at night.

I could go on, but it suffices to say other technologies such as enhanced evaporative cooling, radical insulation, light emitting diodes, Fibonacci series rotors and combined heat and power (CHP) pumps are meaning that we can do much more with less (look these technologies up if you have the time, some of their energy savings are incredible).

Yet, despite the prevalence of these cost-saving technologies, the biggest problem is that the path to making money from energy savings isn’t always considered, monitored or incentivised appropriately.  Few firms track their energy use as a line item for which profit centres are accountable (the utility bill is usually just factored in as a constant in overhead costs).

Landlords have no financial incentive to weatherise homes, since the energy savings would go to their tenants’ pockets, not theirs.  The tenants, in turn, are unlikely to invest money to improve a house they don’t own and may not live in for long.  The same problem stands in the way of upgrades to many commercial buildings, since 45% of them are not owner-occupied.

Historically, utility regulation has tied revenue to the amount of energy sold and the capital invested to provide it.  Investing more money to build more energy-supplying infrastructure to sell more energy was the golden road to revenues and profits.  Indeed, utilities and their investors tacitly preferred that customers be inefficient, since inefficiency could raise profits. 

Consequently, the most important piece to the buildings’ efficiency jigsaw is the mass adoption of decoupling regulations.  Decoupling breaks the link for electricity providers between earnings and total energy sold.  To sweeten the pot, many regulators should also reward utilities for cutting customers’ bills or beating efficiency goals.  Unfortunately, though, this new business model for utilities is taking hold slowly.  The RMI team present evidence that in more than half of U.S. states, electric and gas utilities are still penalised for cutting your bill and rewarded for selling you more energy.  That’s just as odd as it sounds: it rewards exactly the opposite of what we want, so that’s what we get.

Should decoupling become the new norm, energy efficiency measures would become incredibly profitable and allow some of the following best practices to proliferate.

One brilliant technique advocated by the book is simply to provide more information in order to change behaviour.  For instance, letting people know how their energy consumption compares to their neighbours’ can stir competitive juices and reduce use markedly.

Smart controls can automatically turn down the thermostat when you’re gone, or run your dishwasher or washing machine at a time that’s convenient for you but cuts your cost.  They’d also let an office building start precooling earlier on a hot day, when electricity costs less than in afternoon peak hours.  Such unobtrusive technology can deliver the same or even better services at lower cost with no inconvenience or loss of amenity.

A Danish study, highlighted in the chapter, found that the pumps used to circulate hot water in normal European homes are 5-10 times bigger than needed and 4-8 times less efficient than they should be.  Gradually replacing 120 million household circulating pumps across Europe over a decade would eliminate the need for 8.5 one-billion-watt power plants and achieve one-sixth of Europe’s Kyoto carbon-reduction obligation.

Integrative design, just as in the transportation chapter, is a crucial component to unlocking the energy savings.  Instead of just upgrading, say, conventional lights or heating systems with more efficient equipment, integrative design starts by asking whether there are smarter ways to design the whole building and all its interacting systems together.  Integrative design combines technologies (old and new) in novel ways.  But as before, switching to integrative design isn’t easy.  It requires architects, engineers, contractors and owners to collaborate more effectively.

The resolution here is twofold – first, let businesses, homeowners and government entities seek solutions to reduce their own energy use and develop services and products to help others do the same.  Second, enable those solutions through smart policies that remove persistent barriers, open new opportunities, level the playing field, and align incentives.

Buildings are the future hub of energy storage, energy production and energy markets (as I will illuminate further in part two of the review, focusing on electricity), consequently, it is imperative that we all begin to harness available technology in our homes and offices.

Industry

Innovation within the industrial sector (i.e. manufacturing / the extraction and use of raw materials) is also rooted in the concept of efficiency via integrative design.  However, here Lovins reintroduces the concept of biomimicry (please visit my review of Biomimicry by Janine Benyus for further detail).

In human industry we mine ores, fashion them into products that we use briefly, and then throw away.  We use processes that extort exotic elements from all over the world, many rare and toxic, to drive unnatural chemistries under severe conditions inside costly furnaces and reaction vessels to heat, beat and treat and then discard most of the results as waste.

Calculations indicate that an appalling 1% of the originally extracted materials actually make it into durable goods – and of those, only one-fiftieth gets recycled.  Therefore, only 0.02% of the originally extracted mass flow returns to nature as compost or to industry as a “technical nutrient” for recycling or remanufacturing.  The other 99.98%, much of it toxic, is pure waste.

According to the RMI team, global industry now makes four times the tonnage of major engineering materials – metals, plastics, cement – that it made 50 years ago.  They forecast that that amount is to double again within 40 years.  That’s despite a 26% drop in the amount of materials used per dollar of global GDP between 1980 and 2007. The “take-make-waste juggernaut”, as Lovins terms it, rumbles forward.  It’s hard to find a more wastefully designed system, or a greater business opportunity, on the face of the earth.

In contrast, nature uses almost zero wasteful or aggressive processes in manufacturing materials stronger than steel (spider silk) and storing information more efficiently than a computer chip (DNA).  We know the ability exists and biomimetic scientists work to unlock the potential to achieve the same bounty nature has achieved with this planet’s finite resources.  Importantly though, following Nature’s lead is not only good for the earth; it can also bring crucial competitive advantages to business.

Over the past 40 years, U.S. industry has cut energy intensity in half, scrubbed its stacks to reduce acid rain, greatly reduced poisonous discharges into water, and clamped down on profligate flaring of “waste” gases.  Many of industry’s advances over the past three decades arose directly from the Nixon-era Clean Air Act and Clean Water Act (and the Control of Pollution Act 1974 in the UK).  There is no plateau suggesting that further improvement cannot be achieved over the next 40 years.

Despite the incredible diversity of products, processes, and plants, just two purposes account for more than three-quarters of U.S. industry’s primary energy use.  Within manufacturing facilities, more than two-fifths of primary energy is used to heat things, whether giant vats of steel or tiny dabs of solder on circuit boards.  Another two-fifths turns shafts to drive machines, from the clattering conveyor belts in soft-drink factories to the robotic arms on auto assembly lines.  The rest goes into a myriad of processes and support functions, including smelting, reduction, lighting and space conditioning.

Lovins outlines how we can design out waste in mining and manufacturing, recapture resources now lost in extraction and manufacturing and make products last longer – then recover, reuse, repair, remanufacture and recycle them.  By systematically designing out waste and toxicity, and radically increasing the efficiency of using resources, we can deliver more service per pound of material.

First, Lovins offers the plan to reduce the energy needed to run fundamental processes.  Next, reduce the losses in the systems that distribute energy services within a facility.  Third, improve the efficiency of devices like boilers and motors that turn energy into useful services.  Finally, put energy that’s now wasted into use (heat being the largest waste in almost all industrial processes – the U.S.’s power plants turn fuel into one-third electricity and two-thirds heat – and that heat is typically thrown away, wasting more energy than Japan uses for everything, because there’s no productive use for it nearby, and old U.S. practices encourage or mandate power-only plants despite industry needing enormous amounts of heat energy).

The beauty of these four steps is that they not only achieve virtually every imaginable efficiency gain, but they also feed on each other.  Reduce the amount of steam heat needed for a chemical reaction, for instance, and you’ll also reduce the losses inherent in bringing steam to heat a reaction and be able to use a smaller, cheaper, more efficient boiler.  And if you can recapture some of that heat, the efficiency gains compound even more (again, this is integrative design in action).

In many European countries and increasingly in Japan, manufacturers bear a legal lifetime responsibility for their products and thus have a strong incentive to make them easy to repair, reuse, remanufacture or recycle.

The RMI team estimate that such additive manufacturing, using only what it needs, can create better products with up to 90% less material.

In order to encourage investment and spur innovation within the sector, a few regulatory changes could arguably go a long way.  They include: desubsidising fuel; mandating producer lifecycle responsibility; allowing and encouraging waste-heat recovery and reuse, including all forms of cogeneration; removing distortions that favour virgin over recycled materials; letting businesses expense energy-saving investments against taxable income (just as they now expense wasted energy) rather than having to capitalise them; and properly pricing the commons into which things get thrown away, whether gunk in our water, soot in our lungs or carbon in our air.

Such deliberate, across-the-board stimuli to innovation and adoption have long driven the competitive prowess of countries like Germany and Japan.  Their high energy prices and strict environmental rules honed their efficiency, helped cut their healthcare costs and resource dependence, enhanced their economies’ transparency and choice, and sped their broad adoption of energy efficiency.

Lovins and the RMI team make a compelling argument that biomimicry and integrative design are the two next big design revolutions.  Each is important separately.  Together they will transform industry and remake our world.

Conclusion

While a lot of the efficiency measures detailed in the above chapters are now, in 2015, becoming more commonplace, I want to applaud the book for its comprehensive collation of such innovation. But moreover, the real strength of the text is that it refocuses the environmental agenda in a coherent way.  Over the past decade environmental literature has failed to speak coherently.  The majority of texts pick a distinct issue and deal with it in isolation.  In Reinventing Fire I believe we have the first coherent singular voice, cutting above the noise and delivering a clean, equitable and prosperous vision for the environmental movement that is no longer distracted by notions of taking down big business.  By understanding the key levers of energy efficiency and renewable energy the proper solutions are rewarded and the political positions appear less entrenched. 

In the second half of the review I’ll attempt to describe how the plan can be power by a revolutionised electricity sector.

   

The Law of the Jungle (2014)

To be honest, when I first read about a lawyer who was suing Texaco for the environmental damage caused by the drilling of oil, on behalf of Ecuadorian inhabitants of the Amazon rain forest, I thought it must be the second coming of Jesus.  As a legal professional and an environmentalist I was excited to read this book by Bloomberg Business Week journalist, Paul Barrett, convinced that I was about to learn about a new hero.  I could not have been more wrong.

Ecuadorian Background

In order to properly discuss the moral and legal catastrophe that ensues, I think it’s best to start at the beginning.

Prior to the exploration of oil, the Ecuadorian economy was quite limited, suffering from a series of boom and bust export markets (cacao in the 1920s and bananas in the 1940s).  The country and its population were poor, endangered by drug wars in Columbia and marred by near-constant political pandemonium.  In March 1964, Texaco heard about the discovery of oil reserves underneath the Amazon rain forest and signed a contract with the military junta that ruled Quito (a region of Ecuador), for the right to explore 4 million acres (about the size of Kuwait).  In 1970, the junta then forced Texaco to hand over one-quarter ownership of its venture to the newly created state oil company, Petroecuador.  By 1977, the government actually owned 62.5% of the entire operation and by 1992, Texaco had reduced their ownership to 0% and the Ecuadorian government had profited to the tune of $23.5 billion (Texaco, $1.6 billion).

Despite this the country was still cash-strapped and in 1990 it had to abandon its membership in the OPEC oil cartel as it was unable to pay its membership dues.  Mismanagement of the entire operation, from the existence and enforcement of safety standards to the use of the oil revenue, had left the various farmers and tribes that lived in the rain forest incredibly poor and sick.

When drilling for oil, fluids known as drilling muds are used.  Drilling muds contain acids, corrosion inhibitors, biocides and fungicides.  Oil-related toxic compounds known as polycyclic aromatic hydrocarbons (PAHs) were found in the area’s water used for drinking, bathing and fishing in levels ten to one thousand times greater than U.S. Environmental Protection Agency (“USEPA”) safety guidelines.  The most harmful chemicals, benzene and toluene, are serious carcinogenic agents.  Exposed populations face an increased risk of serious health effects such as cancers and neurological and reproductive problems.

In 1976, the Ecuadorian government requested that Texaco drain and cover its waste oil pits, however the company rejected the request on the ground that it would too expensive at $4.2 million (despite the fact that they were failing to use techniques that had become commonplace in American oil operations).  Internal documents at Texaco later revealed that the company had a practice of not disclosing accidents or company practices that may cause ecological damage and even went further in discouraging employees from recording any of the impacts of drilling.

At the time of Texaco’s exit from Ecuador in 1990, Texaco and Petroecuador began to negotiate the cost of cleaning up.  Texaco offered $3 million to clean the waste-oil pits and surface spills at drill sites in the jungle and wipe their hands of the whole mess.  Petroecuador found the offer insultingly low and after a few years of negotiation eventually settled on a deal in which Texaco would remediate 37.5% of the oil sites (a percentage reflecting Texaco’s average ownership stake from 1977 through to their eventual exit).  However, Petroecuador’s lawyers wrote an appallingly bad agreement in which the explicit terms only called for Texaco to “investgate” the 133 well sites and seven spill areas.  In a self-serving but ultimately short-sighted decision, Texaco investigated the sites and in the vast majority took no action (USEPA clean-up goals dictate that the total petrol hydrocarbons (“TPH”) should be no higher than 100 parts-per-million – Texaco negotiated to remediate to a level of 5,000 parts-per-million).  Petroecuador had secured no legal obligation from Texaco to clean up any of the degraded waterways or provide medical treatment to anyone effected.  Yet Ecuador accepted these terms and Petroecuador then assumed responsibility for the sites disregarded by Texaco.  Ecuador had blatantly failed to foresee the issues these oil pits and spill sites would cause.  For a developing country, environmental protection was just not a priority in the exploitation of natural resources or negotiations with global corporations.

Donziger Background

Part two of the introduction is our leading man: Steven Donziger.  Born in Jacksonville, Florida, in 1961 he was greatly influenced by his mother who was an active protestor in support of Cesar Chavez.  Donziger started his career as a journalist and followed the contra militias in Nicaragua.  

Donziger always saw himself as a protagonist and was quoted as saying, “Being a journalist is good preparation for being a human rights lawyer.  You’re looking for truth that the corporate and political establishment wants to cover up.”

After a few years in Nicaragua, Donziger followed one of his heroes, consumer-rights advocate Ralph Nader, in pursuing a law degree at Havard Law School.  The most esteemed of Donziger’s law school friend’s was Barack Obama.

Donziger began work as a public defender, representing teenagers accused of street crime, but always had his eye on something bigger.

Aguinda I (New York, USA)

In 1992, Judith Kimmerling (a Yale-trained litigator) wrote a report for Oxfam on the damage done to the Amazon in Ecuador.  Kimmerling had also written a book called Amazon Crude, which detailed the exacerbation in wealth disparity within Ecuador since the drilling of oil began via the contamination of water supplies which caused the destruction of local fisheries, farmland and livestock.  Cristobal Bonifaz, an American lawyer of Ecuadorian descent, read the report and contacted Kimmerling about the possibility of beginning a class-action lawsuit against Texaco and Petroecuador (class-action being the American legal vehicle through which someone can bring a claim on behalf of a large group of people).

When Bonifaz laid out his plan to pursue Texaco, Kimmerling eventually refused to participate due to the difficulty she knew they would face in finding epidemiological evidence linking the contamination of the water supply to the local deaths from cancer.  Bonifaz was not put off, he had all Kimmerling’s research at his disposal and his son, John Bonifaz who had just graduated from Harvard Law School, was able to provide his father with the names of many young litigators who would jump at the chance to join such a lawsuit.

Enter Steven Donziger.  Compelled by the idea of a campaign that combined litigation, promotional tactics and humanitarian issues, he signed up to assist Bonifaz.

Bonifaz originally wanted to bring the case in the Ecuadorian courts, however, he was discouraged by the country’s institutionally weak judiciary and political turbulence.  Consequently, Bonifaz chose to bring the lawsuit in New York, the home state of Texaco.

Aguinda, as the case became known due to the name of the lead-claimant, listed seventy-six tribal Indians and migrant farmers suing on behalf of thirty thousand similarly situated people living on the original concession taken by Texaco.

One of the first hurdles to overcome was how to pay for the case, as it would not generate income for many years.  Without support, the behemoth of Texaco would crush the claimants. Consequently, Bonifaz allied himself with the Philadelphia law firm Kohn, Swift & Graf (“KSG”) who had a history of class action suits in the United States.  In return for 25% of the eventual damages, KSG agreed to fund all the up-front expenses.  Managing partner Kohn was no philanthropist, publicly stating this “could be the largest fee-producing case the firm has ever had.”

Even with KSG’s backing Texaco’s legal team did not initially consider the lawsuit to be a significant threat. They compared the claimant’s lawyers to ambulance chasers and responded matter-of-factly with a defence of lack of causation (i.e. there was no evidence proving the causal link between the oil spills/contamination and the deaths) and forum non conveniens (the jurisdictional defence that New York was not the correct court within which to hear merits of the case and as such should be dismissed by the New York courts and transferred to Ecuador).

In November 1996, the New York courts granted Texaco’s motion to dismiss the suit with the presiding judge stating that the claimant’s needed to “face the reality that the authority of the U.S. judiciary does not include a general writ to right the world’s wrongs.”

Ecuador’s political gymnastics (concerning the case – the country has been politically turbulent almost since inception) sprang into action upon realising that the case may now be transferred to home jurisdiction.  The then-president, Fabian Alarcon, publically supported the case after Bonifaz provided a written promise to the Ecuadorian government that were the claimants to secure a judgment against Texaco (which provided for joint/contributory liability against Petroecuador) then his clients would expressly waive their right to collect such money from Petroecuador.  As Barrett rightly notes, “This constituted a monumental concession by Bonifaz.  By pledging not to go after Ecuador or its national oil company, he reassured the government that it could support the suit against Texaco without risking any liability itself…Bonifaz effectively absolved the Ecuadorian state of blame for ecological damage that the country’s leaders, at a minimum, had tolerated…Bonifaz’s motive for letting Ecuador off the hook could not have been more transparent: He sought a colossal pay-out from Texaco, and wanted to focus judicial and public animus solely on the wealthy American company.  Indicting a malevolent global oil giant had more sex appeal than trying to hold a struggling national government responsible for letting down its people.”

Aguinda II (Lago Agrio, Ecuador)

Class-action suits were completely alien to Ecuadorian jurisprudence and Ecuador was still an extremely dangerous place to be.  The town of Lago Agrio, in the district of Quito, was marred by the violent cocaine trade.  Lago in particular was patrolled by Ecuadorian soldiers in jeeps due to the narco-gangsta guerrillas of the Columbian group, FARC (Fuerzas Armadas Revolucionarias de Colombia or The Revolutionary Armed Forces of Colombia), who regularly terrorised the area.

“No had ever attempted to sort out such a complicated dispute involving money, politics and science” in Ecuadorian courts. Consequently, it was even more alarming when the judge declared that the trial would only last six days, during which witnesses would be interrogated, there would be no jury and after which the judge would preside over 122 in-person visits to well sites and separation stations before court-appointed experts would compile reports from which the judge would then form his decision.  This was an amazingly lax procedure compared to the scrutiny the sites and witnesses would have faced in the U.S., but it suited Bonifaz and Donziger down to the ground.

Donziger, who had begun to take over from Bonifaz after showing a greater appetite for spending time in Ecuador, finally had the setting he wanted and began a fight for the hearts and minds of the public.  Buying space in both Ecuadorian and US publications, he advertised the case as a no-holds-barred courtroom brawl to be heard in Ecuador, a “Billion-dollar lawsuit between rainforest Indians and Texaco heading for trial: A real-life ‘David vs. Goliath’ story”.  He also began couching the terms of the argument in very grand language, stating the case was a way to “re-allocate some of the costs of globalization…to the most vulnerable rain forest dwellers from the most powerful energy companies on the planet.”

I should note at this point that in October 2001 (as the inspections of well-sites were ongoing), Chevron purchased Texaco (along with its legal liabilities).  The combined company of ChevronTexaco (which was later renamed to just Chevron) was the world’s fourth largest non-state-owned oil company with global revenue of $66.5 billion via production of 2.7 million barrels of oil a day.  As part of the buyout, Chevron approached Bonifaz in 2000 about settling the claim, to which Bonifaz proposed a $140 million figure.  Chevron summarily rejected the offer and did not even bother with a counter offer.

This willingness to settle so soon, enraged Donziger.  Donziger’s strategy was clear from the outset.  The courtroom was just a sideshow; he wanted to paint Texaco as a cold, corporate bully unwilling to pay for the mess they made (which was true to a certain extent), and then use the negative publicity and pressure to force Texaco (now Chevron) into a huge pay-out.  He knew that he media would be more curious about costumed Indians than the less exotic migrant farmers who were the majority of the claimants in the case.  To that end, on the first day of the trial, 21 October 2003, Donziger arranged for hundreds of Cofan and Huaorani tribesmen and women to march on the courthouse holding placards demanding “No Mas Muerte” (no more death) and “Texaco, Basta!” (Texaco, Enough!).  He also arranged for the court proceedings to be aired on national radio and informed television stations of every opportunity to film court exits and the filing of documents, etc.

He and his small team began regularly scripting releases portraying Texaco as “having pumped nearly all the oil this small Andean country produced until 1990, maximising profits, ecologists here say, by using inexpensive and environmentally unsound methods” and blatantly disregarding the role of the Ecuadorian government and the fact that the majority of the profits remained with the state owned Petroecuador.

He formed an alliance with the Amazon Watch (an anti-corporate, San Francisco-based advocacy group) and Frente de Defensa de la Amazonia (the Front for the Defence of the Amazon) and recruited celebrities (such as Bianca Jagger and Trudie Styler (Sting’s wife)) to raise awareness.  However, Donziger’s approach was quickly becoming viewed as inviting of too much circus and controversy as larger environmental groups (such as the Natural Resources Defence Council and the Sierra Club) declined invitations to involve themselves.

In 2003, Donziger commissioned a report from an American engineer, Dave Russell (picked due to his lack of expertise and openness to suggestion), in which the cost of remediation was bullishly stated at $6.14 billion and that deployed purposefully incendiary language (“you’re looking at something, size-wise, larger than the Chernobyl disaster”).  Donziger loved the comparison to Chernobyl and in 2004 authored an academic article entitled “Rainforest Chernobyl” and instructed his staff, allied groups and celebrity support to use the analogy as often as possible.

Undeterred by the controversy, Donziger made an astute move to keep the Ecuadorian public onside.  He understood that being white, he was not ideally placed to be the face of the suit, “he did not want a gringo”, so instead he groomed a young activist lawyer from the Frente, Pablo Fajardo, to be his public puppet.   Now growing in power and influence, especially after he forced Bonifaz out in 2006, Donziger cultivated the nickname el Commandante.

As Donziger’s power increased, so did his grip on morality.  Up to now he had simply engaged in publicity stunts that bent the truth for his clients.  Now Donziger believed with increasing conviction that opponents of power had to use irregular tactics if they expected to prevail and he began brazenly throwing the rule book out.

Donziger attempted to befriend the judge and deployed attractive female interns on his staff to flirt with the judge in an attempt gain leverage by way of sexual harassment blackmail.  Donziger became increasingly involved in Ecuadorian politics and supported a young, obscure, leftist candidate by the name of Rafael Correa who in 2006 became president.  Donziger, in his private notes which later became public, noted, “Think of what has happened in ten years; how we have gone from fighting on the outside of power to being on the inside.”  The first public use Donziger had for Correa was to orchestrate an announcement that all the Ecuadorian lawyers working for Chevron were traitors to their country.  Later, Correa took a highly publicised tour of the pits with camera and news crews in which Donziger scripted memorable media moments as Correa asked leading questions of the local, sick inhabitants.

In February 2006, after a sudden attack of conscience, Russell wrote to Donziger stating that he no longer stood by his previous report’s remediation estimate (having conducted further research he believed a truer estimate was $600 million).  Despite repeated requests, Donziger continued to publicise the $6 billion figure and Russell applied for a cease and desist order.

Things took another turn for the worse, as Donziger began to feel funding pressure from KSG (by 2007 KSG had funded Donziger and his staff to the tune of $5 million and the firm was now starting to experience cash-flow problems of its own).  Consequently, he developed a strategy to speed up proceedings:

• Convince the Lago court to end judicial inspections of the wells and to appoint a sole expert;
• Increase Ecuadorian political pressure on the judge; and
• Increase media attention in the US in order to prime the fund-raising pump and increase public relations pain for Chevron.

In June 2007, Donziger pressured the court into appointing as the sole independent expert an engineer by the name of Richard Cabrera (picked by Donziger because he would have no problem writing the report the claimants wanted), behind the back of Chevron.  The claimants immediately began prepping Cabrera and doing his research for him.  Donziger’s notes boasted, “This is a huge victory!!!!”

To help Cabrera write the report Donziger enlisted the Colorado-based law firm, Stratus (whose role was to remain absolutely secret).  The pollution specialists at Stratus were unimpressed by Cabrera’s scientific grip of the scenario, lacking the necessary qualifications and experience to properly evaluate the environmental damage.  Nonetheless, Donziger and Stratus practically co-authored the report which Cabrera submitted to the Ecuadorian courts on 1 April 2008, now somehow managing to value the cost of remediation at $16 billion.

Naturally Chevron’s lawyers contested every assumption and statistic used in the report, but even more audaciously, Donziger protested the report, stating that it was not generous enough.  In response, Cabrera filed a second version of the report in November 2008.  This time, the estimate was $27.3 billion.  In all, Chevron made over thirty court filings objecting to Cabrera’s methods.  Cabrera swore his neutrality in front of the judge and Donziger stood idly by.

Not content to be falsifying evidence, Donziger wanted further public pressure so he recruited the acclaimed documentary film-maker Joe Berlinger to develop a documentary-come-publicity vehicle about the Ecuadorian case.  Donziger persuaded his wealthy Harvard law School friend, Russell DeLeon (who had made his fortune by starting the online gambling site PartyGaming) to invest $900,000, while Netflix invested a further $300,000 in return for distribution rights.  The documentary, entitled Crude (which is still available on Netflix), debuted at the Sundance Film festival in January 2009.  Donziger and Fajardo attended in person and gladly received the adulation of the crowd.

Perhaps worst of all, Donziger persistently attempted to impede Petroecuador’s remediation efforts, desiring that the pits be left as they are in order to display the atrocity of the damage while the case remained unresolved.  By this point I’m completely against Donziger, no matter how noble his ambition is.  He has been absolutely absorbed by the case and it is obvious that he has completely lost sight of his desire to help the people of Ecuadorian Amazon live healthier and better lives.  As Barrett notes, “Donziger’s deal with the devil was becoming increasingly perverse.”

However, I don’t mean to paint this as a thoroughly one-sided affair.  The defendant’s legal team committed similarly illegal and immoral acts in the hope of gaining advantage.  In October 2005, prior to the inspection of a site called Guanta, the Lago court anonymously received a military report stating that the Cofan were planning an ambush and kidnapping (despite having no history of violent or illegal behaviour).  Chevron lawyers immediately filed a request for the inspection to be called off.  It later became apparent that the Chevron’s legal team and the Ministry of Defence had been working together and that the report was based on intelligence traced back to an unnamed Chevron employee and a former Ecuadorian army captain who now did security work for the oil company.  The Ecuadorian media had a field day and Donziger was able to propel his narrative about a “military-corporate conspiracy against justice”.

In early 2009, Chevron hired young journalists to go into Ecuador under the guise of reporting an article in order to get close to the claimants and attempt to uncover some of the secret tactics they had been using/statistics they had been manufacturing.

In August 2009, the company declared that it had uncovered video evidence of a bribery scheme involving the case’s judge from a local man named Diego Borja.  After investigation, it became apparent that Chevron had been involved in the sting operation in an attempt to disqualify the presiding judge.

In the face of an opponent quite clearly willing to fight dirty, you can understand how Donziger managed to convince himself that his own tactics were justified.  However, little did Donziger know that of all the shady tactics he used in the case, it would be his ego that ultimately caused his downfall.  In his desire to elevate his own standing and publicise the case by filming all variety of meetings, protests and court appearances he would unwittingly provide his opponent with a lethal weapon.

As a tactic of last resort, Chevron had hired the LA-based law firm, Gibson, Dunn & Crutcher (“GDC”) in order to destroy Donziger’s credibility.  In reviewing all the evidence they could get their hands on, GDC realised that the Netflix movie contained a scene of Dr. Carlos Beristain, a Spanish doctor who had helped Cabrera with some of the medical aspects of his report, meeting with the claimant’s legal team.  Donziger’s manufacturing of evidence had been caught on camera and distributed to the world.

Beginning in January 2010, GDC used an obscure piece of US legislation to lodge 1,782 petitions to seek practically every communication exchanged among anyone who had worked for or with Donziger.  One of the most damning pieces of evidence to come from the discovery process was that of another early expert in the case, Calmbacher, who categorically stated that the reports were fraudulent.  Furthermore, there were emails in which Fajardo pleaded with Berlinger to remove the scenes including Beristain from Crude. 

This culminated in a New York court hearing in December 2010 in which Donziger reluctantly confessed to having prepared the bulk of the Cabrera report under the weight of overwhelming evidence.  However, Donziger continued to insist that he sought to achieve legitimate ends through unconventional means.  The New York judge ultimately ruled that Donziger and his clients were forbade from enforcing any judgment that they may obtain in Ecuador.

Decision

In September 2010, judge Nicolas Zambrano took over the Ecuadorian case.  In under three months he claimed to have read over 20 years’ worth of documents relating to the case with no assistance except from his 18 year old secretary.

On 14 February 2011, judge Zambrano delivered his 188-page judgment. Chevron lost to the tune of $9 billion.  Furthermore, should the company not deliver a public apology to the nation of Ecuador, the judge ruled that the damages award would be doubled.  Chevron duly refused and, after incidentals, the final damages totalled $18.2 billion (at the time the company had $17.1 billion in cash reserves).

Faced with the difficult ruling in New York, Zambrano summarily swept all the issues of expert impartiality under the rug when stating the reports of Cabrera and Calmbacher had been disregarded in reaching his verdict.  Furthermore, the culpability of Petroecuador was also swiftly dealt with when concluding that “After 1990, Petroecuador may have added to the contamination, but the national oil company’s negligence did not exonerate Texaco.” And in one last leap of jurisprudential faith, judge Zambrano iterated that despite the epidemiological studies presented being inconclusive on causal connection between oil and illness, they “suggest a connection between the risk of having cancer and living in an area having petroleum exploitation."

As Barrett summarises, “an American judge would not recognise the decision as one based on conventional legal reasoning or rigorous scientific evidence.”

As it turned out, Donziger had managed to ghost-write the majority of the judgment (in fact, it’s embarrassing how poorly Donziger covered his tracks with an entire third of the judgment containing verbatim portions of memos drafted by the claimant’s legal team) by offering Zambrano a bribe of $500,000.  By February 2012 judge Zambrano had been ousted from the Ecuadorian judicial council and in 2013, Zambrano was summoned to a New York courtroom to be cross-examined about his ruling.  In yet another embarrassing turn, the judge did not know what TPH stood for (total petroleum hydrocarbons), despite referring to it thirty-five times in the judgment, nor could he name the most carcinogenic agent found in oil (benzene).

The judgment could not be enforced in Ecuador as Chevron had no assets in the country. Failed attempts in Canada, Brazil and Argentina were made.  A twenty year legal battle ended in an empty victory for the claimants.

Conclusion

What started out for me as a grand story, marking the beginning of a new era of corporate environmental accountability quickly became a false dawn when the rules were so flagrantly disregarded.  In the end, no one comes out of this looking good, and it is the Ecuadorian people who continue to suffer.

The Ecuadorian judiciary is blatantly weak and corrupt. The Ecuadorian government and Petroecuador were negligent and never held to account.  The government should have negotiated a proper remediation agreement and legislated for vastly better environmental standards rather than rolling out the red carpet in order to turbo-charge their economy in the short term.  But these were all decisions taken in the 1970s and 80s when the environmental agenda was simply nowhere near as well recognised, understood or appreciated.  Their decisions are somewhat understandable in my opinion.

However, Petroecuador drilled an additional 700 new wells after Texaco’s exit (at which point there were 322 wells).  Their own records indicated that from 1995 to 2011 more than 1,900 spills occurred in the area (about one every three days, totalling almost 130,000 barrels).  Ecuador still generate significant oil revenue every year (primarily via Chinese oil companies that have taken up the concession), and their populist president Rafael Correa, has still to deploy such revenue into a meaningful clean-up of the Amazon’s spill sites.  Water remains polluted, stalling the local economy, and local inhabitants continue to contract cancer at alarmingly high rates.  In June 2013, 10,000 barrels of oil were spilt in the area.

Texaco, of course, are not without blame.  They should have conducted their business more ethically and sustainably by properly lining pits, injecting contaminated water into deep underground wells, cleaning spills and contributing to a legacy fund for clean-up.

But for me the real villain of the story is Donziger.

Donziger not only displays a complete lack of professionalism, he has set the environmental movement back by decades.  By discrediting class action lawsuits and environmental claims/lawyers, calls for environmental remediation will be tarnished with the same brush and unfairly dismissed (see the much more realistic and sustainable class-action suit law firm, Leigh Day, recently secured against Royal Dutch Shell for the residents of the Niger Delta - £55m).   

Donziger sought to do (extremely) well, while doing good for others, but ultimately achieved neither.

Rather than being the overtly environmental book that I expected, this is a book about the reality of large-scale litigation and the inherent politics and morality involved.  Rather than being about the clean-up of a devastated area, this was a book about a giant ego that masqueraded behind the pretence of selflessness.  Ultimately, this is a frustrating story about the opportunity to advance environmental law and improve standards and accountability within oil companies, that was completely corrupted by a man with a maniacal pursuit to win at all costs.

Score: 55/100

The Secret World of Oil (2014)

The discovery of oil as a source of energy has fuelled economies the world over.  The radical improvements to agriculture, manufacturing, textiles, construction, and transport made possible by the exploitation of this incredible natural resource has drastically improved the quality of life for everyone on the planet since the beginning of the 20^th century.  The fact that this transformation was brought to us by the world’s oil industry is a great credit to them and should not be forgotten.  However, that is probably the last nice thing I am going to say about the industry.  What follows is the dissection of a bloated, greedy and dying industry that perpetuates global and societal inequity and environmental degradation for the benefit of a very few.

Investigative journalist Ken Silverstein’s “The Secret World of Oil” illuminates the dark corners of this guarded industry.  In an attempt to distil some of the more interesting points in the book I’ll discuss the oil industry in relation to countries, middlemen and then derivative markets.

Countries

When the “Seven Sisters” (comprising the Anglo-Persian Oil Company (now BP); Gulf Oil, Standard Oil of California (SoCal), Texaco (now Chevron); Royal Dutch Shell; Standard Oil of New Jersey (now Esso) and Standard Oil Company of New York (Socony) (now Exxon Mobil)) exploited the world’s oil fields in the mid-1900s, the majority of the world’s oil rich nations (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela) banded together to counteract the Seven Sisters power to pillage their natural resources while failing to share revenue, transfer technology or clean up their mess.

In hindsight, this was the creation of Frankstein’s monster: OPEC (the Organisation of Petroleum Exporting Countries).  OPEC now operates as a legal price-fixing cartel, only held legal by the fact they are countries rather than private entities (and thus benefitting from the law of sovereign immunity).  Had any collection of private entities banded together so blatantly to manipulate the price of a commodity (and in this case, perhaps the most important tradable commodity in the world), national and international competition authorities (such as the UK’s Competition and Markets Authority, the US’s Federal Trade Commission, or global organisations such as the OECD, WTO or G8) would have come down on them with serious punitive measures to destroy their ability to pervert the market for their own gain.  Instead, OPEC now sets the price for just under 42% of the world’s oil supply, heavily distorting the global market and contributing to a market that is rife with corruption.

At the time of writing, oil is trading at its lowest price in years.  Counterintuitively OPEC has chosen to use its power by publicly stating that they will maintain current production levels, sending the price of oil plummeting (news link) (don’t be fooled though, this is no act of charity, it is a power move designed to decrease the profitability of the current US boom in oil production (via shale) – they will collude to raise the price again once it is over).

In doing so, OPEC members utilize the basic economic laws of supply and demand, and I have no problem with that.  Any single resource provider/exporter has the right to restrict production in order to reduce market supply (however, when doing so they do incentivise the development of substitute goods – in this case, renewables or nuclear) but acting in unison is always anti-competitive and drives the price up for consumers.  The US has approximately 12% of the world’s oil supply (Russia (12%), China (5%), and Canada (4%) being the other large, non-OPEC producers), but the government has far less control over the private entities that do the drilling.  Consequently, the justification that the OPEC cartel is legal because the members are nations (and thus the benefit is theoretically shared with each country’s populace) is quickly discredited once you realise that the countries in OPEC have historically been run by autocratic dictators who persistently embezzle their oil revenue, for their own greed, rarely applying the funds to address the issues of insufficient infrastructure, poor healthcare and poverty that run rampant in these countries.

In developed nations, if you want to drill for oil you negotiate a licence with each local landowner, provincial or state authority and pay him royalties.  In the Third World, power is concentrated in the hands of a dictator or a small group because mineral resources are typically owned by the head of state.  Perversely, a strongman president, using an inherently centralized process is great for oil companies as it is a lot easier to win support from the top than to build from the bottom.

Consequently, the leaders of oil rich nations rank among some of the richest people in the world, but lead some of the world’s poorest countries.  Look up any of the following: Omar Bongo (Gabon), Mobutu Sese Seko (Zaire), Sami Abacha (Nigeria), Teodoro Obiang (Equatorial Guinea), Laurent Kabila (Congo), Nursultan Nazarbayev (Kazakhstan), Huh Sen (Cambodia), Ilham Aliyev (Azerbaijan), Islam Karimov (Uzbekistan), Garbanguly Berdimuhamedov (Turkmenistan).  The reason you haven’t heard of them is because their populations are kept so poor and isolated that they do not possess the means to be heard and because it works for the oil companies to keep it that way.  Furthermore, if you do hear their names, they constantly hire lobbying and PR firms to ensure negative press is quickly spun in a positive light.

Silverstein goes to great lengths to unveil this gross corruption by highlighting the excesses of Teodoro Obiang, the son of Equatorial Guinea’s leader by the same name (who ousted his uncle in a violent military coup to become president in 1979). Jr. lives a lavish lifestyle in LA, chartering private jets, dating playboy bunnies, buying sports teams, mansions and fleets of sports cars (the guy would be a hilarious caricature if it weren’t for the corruption that led to his embezzling of roughly $600 million) while Equatorial Guineans suffer horribly with rampant human trafficking, suppression of the media, half of the population having no access to clean water and 1 in 5 children dying before the age of five.  It is abhorrent that the country’s oil-wealth has led to huge personal wealth for a few individuals while the country lives in poverty.  It is equally deplorable that major world-powers have refrained from standing up to Obiang for fear of losing access to Equatorial Guinea’s 0.4% of the world’s oil (Condoleeza Rice calling Obiang Sr. a “good friend” in 2004 and Obama inviting him to the Whitehouse in 2009).

The embezzlement of these funds has been made possible by a select group of countries who have chosen to turn a blind eye when it comes to banking.  The fact that the Cayman Islands, Panama, Switzerland and even a great majority of American states have enacted laws stating that it is not necessary for companies to disclose their beneficial owners (as opposed to their registered owners, who serve as fronts) allows these leaders to hide their ill-gotten gains and perpetuate the cycle.

Middlemen

It is clear that despotic presidents and oil companies have fared very well from the status quo, and I believe that is largely common knowledge if you’ve taken a passing interest in geopolitical affairs over the last few decades.  However, what Silverstein does a great job of uncovering is the vast wealth this has created for middlemen.

Because oil companies are cash rich, but opportunity poor, the competition to become friends with leaders has become intense.  Consequently the crucial question becomes: how do you beat your competition to the key decision makers? That’s where “fixers” come in.  Fixers make introductions and broker deals between states and companies.

Again, look up any of the following: James Giffen, Jamal Daniels, Friedholm Eronat, Marc Rich, Hany Salaam, Fouad Ajami, or Gilbert Chagoury.  You won’t know their names, and they have worked hard to keep it that way.  They trade world leaders and oil company executives like baseball cards.  Their service is like that of a concierge at a fancy restaurant; tip them and you will get the table you wanted (except this tip is millions and/or stocks, options, diplomatic immunity, etc.).

These are men of impressive commercial acumen and political opportunism, but I struggle with the morality of their motives.  Silverstein illuminates his subject by focusing on two in particular: Ely Calil and Marc Rich.

Ely Calil, a Nigerian born man of Lebanese descent, pushing 70 years old, now lives in London after having spent the majority of his career fixing oil deals for Mobil in Russia, Kazakhstan and Nigeria.  Arranging introductions, and quite often taking healthy cuts of deals for himself, has been good to Calil who was well-known for counting Severo Moto (the leader of Equatorial Guinea before Obiang), King Abdullah II (Jordan) and Peter Mandelson as some of his closest allies in the past.  Rather than shoehorn my own incomplete opinion into this review, I have chosen a few choice quotes from his interviews with Silverstein to illuminate Calil’s perspective of his role within the oil industry:

“Corruption isn’t endemic in the energy business because people in the industry are more corrupt or have lower morals but because you’re dealing with huge sums of capital…A million dollars here or there doesn’t make any difference to the overall economics of a project, but it can make a huge difference to the economics of a few individuals who can delay or stop or approve the project.”

“There used to be about 40 people who ran the oil-trading business, but then the world got bigger, especially when the oil market boomed and the hedge funds came in, but it’s still a pretty small group of people.”

“From a strictly legal standpoint, there was nothing strictly illegal about it.  It has become illegal now…Was it legal? Yes.  Was it moral?  I don’t know.  But business isn’t about not making money.  I’m not a philosopher, but the law is there to be tested.  If you’re on the wrong side you should be sanctioned, and if you’re not you should be left alone.  Americans want their gasoline cheap, but it’s not possible without cutting a few corners.”

“Oil is not a commodity, it’s a political weapon.”

“There’s no way to do business in the Third World without enriching government leaders.”

I would not classify Calil in the same bracket as the dictators he chooses to keep for company and trade for his living.  He took advantage of a commercial opportunity by simply introducing people; what those people did after the introduction was not under his control.  But he is certainly an enabler and another example of an individual who become disproportionately wealthy from (and thus indirectly contributed to the poverty perpetuated by) the oil industry.

While stronger anti-bribery laws have reduced the clout of fixers in recent years, they continue to outpace and outsmart regulators.  Rather than directly funnelling money to dictators, companies simply partner with a local company that is owned by a president, oil minister, or some other official that needs to be appeased.  Safe to say that where centralised decisions regarding oil persist, fixers will continue to profit.

Derivative Markets

In contrast to my slightly conflicted opinion on Calil, the other fixer highlighted by Silverstein, Marc Rich, is perhaps one of the most poisonous men the world has never heard of, in my opinion.

A Belgian-born US citizen, Rich started life as a fixer before starting an oil-trading company called Glencore in 1974.  At first glance, trading oil seems like a perfectly legitimate and relatively harmless business model in order to redistribute a physical commodity to where demand is highest in the world.  But when looking deeper at global oil prices, in conjunction with the rise in power of these trading companies (see also Vitol, Gunver, Dagmara, Envergure, Cargill, Addax and Trafigura), I am compelled by a different story.

Silverstein describes how, since the oil shocks of the 1970s (caused primarily by the Israeli-Arab war of 1973, the position the political position the US took in that war and the subsequent reaction of OPEC) the price of oil has largely been driven by supply and demand (with distinct geopolitical dimensions).  However, in the last decade prices have swung wildly in the face of such market forces.  For almost 20 years the price fluctuated between $10 and $40 per barrel.  However, in 2005, the price jumped quickly to $70, then after a short lull, again to $140 in 2008, but then fell all the way to $30 within a year and tripled again within three.

The primary reason for this severe and seemingly illogical fluctuation in the price of a commodity with a relatively stable supply is the introduction of a variety of sophisticated hedging techniques recently adopted by oil traders.  Where traditional traders used to trade equally in the physical and paper trading of oil (the latter’s job being to hedge the sales of the former), modern trading firms now perform 50 paper trades for every one physical trade.  Consequently, for every barrel of oil sold, 50 bets are being placed on at what value it will sell.  Silverstein interviewed half a dozen traders for the purpose of the book but they all refused to speak on the record.  One ex-trader stated, “Historically paper markets were created to facilitate trade by letting buyers and sellers hedge their bets.  The intention was not for people to gamble or to give them the ability to manipulate the market, which is what happens today”.  While it is not suggested that there is conspiracy between traders to consistently short the market, the ex-trader goes on, “these guys all know each other.  It’s so easy to influence prices.  If someone at one trader decides he’s going to start selling one hundred million barrels of oil, the market will obviously go down.  No doubt if he makes a call to his friend, and that friend talks to his friend, in a few days everyone is selling, selling, selling – and the insiders sell early and make a giant profit.”

This further perversion of the oil market drives up the cost for the end-user and increases geopolitical tensions.

Now the world’s biggest middleman (valued at $232.7 billion), Glencore is headquartered in Zug, Switzerland (close to Geneva, where OPEC’s headquarters are located – in fact, due to the sheer number of times Switzerland reoccurred in Silverstein’s book, I’m led to believe that the majority of the world’s oil industry operates in the area under the safety of their banking secrecy laws and friendly tax regimes).  Operating through a maze of subsidiaries that make it virtually impossible to know who they are trading with, how much and at what prices, Glencore now wants to control the entire supply chain: pumping, shipping and refining oil while trading and hedging all along the way.  They are an “active predatory force”, designing a system in which, at every step, the money stays in the same pocket.  Silverstein reports that Glencore’s effective global tax rate for 2010 was just 9.3 percent, because nearly half its 46 subsidiaries are incorporated in “secrecy jurisdictions”.  Furthermore, it appears that no money-making strategy is off the table as Glencore helped bankroll the Ivory Coast strongman, Laurent Gbagbo, in 2007 in return for future exports.

Importantly, when it comes to the media, oil traders consciously stay away from the public spotlight, which is probably why you’ve never heard of Glencore despite it being the tenth biggest company in the world.  Commodities trading remains as one of the world’s most opaque, secretive, corrupt – and globally consequential – industries.

Other discussions

Silverstein’s chapters on dictators, traders and fixers were a riveting insight into the recesses of the oil industry, but I must admit that the book doesn’t consistently deliver with chapters about lobbyists (much to my disappointment, as I really felt that was going to be ripe for plucking), legacy lawsuits, retired politicians who happily trump up the oil agenda for their last pay day, and gatekeepers who enmesh themselves in the fabric of oil nations in order to profit from every move.

A discussion of the Louisiana’s Corbella case (one of the first environmental lawsuits against an oil company in which the plaintiff was awarded damages for the degradation of his land caused by the oil drilling techniques used) was enlightening, but too much was made of the seemingly surprising fact that US Republicans had sided with the landowners in these cases (because of their belief in the property rights over their supposed allegiance to the oil industry). 

A chapter titled “Tony Blair” had me salivating at the idea that I would unearth some seriously scathing analysis of Labour’s fallen hero, but instead it was simply the constant allusion that the extortionate fees Mr Blair charges for his public speaking these days have often been paid for by petro-states rather than anything much more nefarious.

George W. Bush’s brother, Neil Bush, was regularly thrown under the bus for being an incompetent energy executive who has bumbled his way through countless companies, bankrupting most along the way and only surviving through a series of hand-outs and political favours doled out by his family’s impressive oil network.  This was hardly surprising news and felt more like Silverstein just wanted to score some easy points by picking on some well-known names.  I wish he had spent more time exploring the themes of environmental degradation and high-level collusion than personal knit-picking of this nature.

However, the book was incredibly thought-provoking.  It is easy to label the oil industry as bad, and I have often done so.  It is much informative to read an investigative journalist’s findings and understand how the industry can be so poisonous, why corruption persists and consider if anything can be done to change it. 

Unfortunately, having read the book, the picture looks quite bleak.  Where such huge sums of money stand to be made corruption will ensue.  While oil remains the driving force of almost every global economy, there will never be the political will (or the authority) to effectively police the world’s corrupt leaders.   Though the book contained no real discussion of the future direction of energy companies (i.e. their ability and/or willingness to phase renewable energy into their portfolios), I feel that this is where our collective mind must now turn.  Rather than be upset by this frustrating set of circumstances, the book reinvigorated my passion for a green energy economy, free from dependence on oil.  Besides the environmental/climate change issues associated with oil this is an incredibly poor way to power our economy and ultimately our society.

In reality, the only solution is time, a commitment to raising living standards and unearthing corruption the world over.  Time for alternative energy sources to develop.  Time that will then drive down the price of the alternatives, reduce the demand for oil and hopefully eradicate the negative externalities Silverstein’s The Secret World of Oil so importantly reveals.

Score: 66/100