Category Archives: Politics

BREXIT – What a difference a week makes

univestBREXIT – What a difference a week makes

The past week has yielded so many interesting events that I have shelved my scheduled blog to consider the potential impacts to the whole EU debate.

In no particular order let us start with the UK Budget speech given by George Osbourne last Wednesday. All sounded good with much bravado albeit two of his three fiscal rules were already in shatters. But the economy is growing so such rules are only political rhetoric. However, he used this platform to make a clear statement that the Office for Budget Responsibility (OBR) had provided evidence that UK exit from the EU would damage the UK economy in the short-term. This statement clearly aggrieved the OBR as, by tea time, they had completely refuted his representations as they only provided (conveniently selected?) views provided by third parties.

Then he expounded the view that we were all in this together as he slashed corporate taxes at the same time as slashing benefit payments (some £4 billion) to the most disadvantaged. Whereas there is no doubt that the welfare budget in the UK does need to be reined in, it cannot be achieved merely by setting arbitrary limits and crossing out figures on a spreadsheet with a complete disregard for social justice. Again, by the end of the week, these welfare cuts had diluted from hard cuts, to a discussion, to kicking into the long grass, to being scrapped with the very public resignation of the Work & Pensions Secretary, Iain Duncan Smith who gave an impassioned account of his position on the Sunday morning Andrew Marr show. Let us not forget that this happened to Osbourne in his last budget as well.

Also, during his budget speech, he confirmed that the continued refusal by the EU to relax VAT rules to allow tampons to be zero rated, the so-called tampon tax (some £500 million pa), would result in the taxes collected continuing to be distributed to various women-based charities. The following day David Cameron went to an EU Summit meeting in Brussels regarding the important refugee crisis. Apparently, during a coffee break, all 28 EU leaders agreed to relax the EU VAT rules. Clearly not planned. Has Europe realised that BREXIT is gaining support? How many more rabbits will be drawn from EU hats between now and 23rd June?

It was interesting to tour the Highlands of Scotland a few weeks before the Scottish Independence referendum to test my view that Scotland would be stronger in the Union, and thus the vote would be to stay part of the UK. Having purposely stayed in B&B and small privately owned hotels it was interesting to speak privately with the Scottish people about their thoughts. In those 8 days only one person clearly stated that they wanted independence. Much was offered by the UK Government in fear of the noise by those shouting ‘independence’. Had they copied my trip they would determine that no deals were necessary. Everyone else was keeping their thoughts to themselves because of what they were seeing in places like Glasgow where Alex Salmond’s equivalent of Hitler’s brown shirt nationalistic youth movement were intimidating those who openly wanted to remain with the UK. Come the day the silent majority, proud of their heritage within the UK, prevailed. I would therefore suggest that rabbits from the EU, at this late stage, will not work. Indeed, I think the canny Scots are likely to deal Nicola Sturgeon a blow in the EU referendum. Ouch, Nicola.

Then we have the third fiscal rule imposed upon himself regarding converting the current budget deficit into a surplus by the end of this parliament. The general view on this pronouncement is that he needs a major event, such as an exit from the EU, to provide a credible excuse for missing this target, as most surely will be the case. But not because of misguided ambition as a budget surplus should be the goal for fiscal prudence, but the target has to be reasonably achievable with a balanced approach. Ouch for political ambition.

And Peter Mandelson amused me by suggesting that if Maggie Thatcher was still in charge that she would vote to stay in. Having known her views, I’m sure that she found the surrender of so much UK sovereignty to the EU by Tony Blair in her final years as depressing, and would certainly have returned from negotiations with a credible reform deal before even thinking of such a stand to remain a member. It was also interesting that Mandelson had conveniently forgotten that he proposed we join the Euro. Beware of the so-called Prince of Darkness.

Then I read a City Comment in the London Evening Standard by a journalist with the name of Anthony Hilton. Firstly, he was abusing a quote by a long deceased industrialist, Sir Arnold Hall, “What problem do we have which is so serious that (BREXIT) could possibly provide the answer”? Then he used comparators that demonstrated his armchair approach to journalism. For example, he states that the German economy can operate very well within the EU, so why can’t the UK? If he remotely understood the difference between the German and the UK economies he would understand the answer. Whereas the UK sits with the USA economy as an outsider, or open structure, the German economy is quite the opposite as an insider, or closed structure. Ownership of German companies is protected with incestuous patrimonial linkages between German banks and companies, with preferential proxy votes and cross-shareholdings. Foreign ownership of a German company is so rare that it is major news. An example of the vast difference this closed structure reveals can be illustrated by reference to the steel dumping by China. The incestuous linkages in Germany mean that steel users (car production construction, and other major engineering companies) can be compelled to buy from German steel manufacturers rather than buying cheaper steel being dumped by China. This is protectionism. Our open system cannot compel our companies to use British steel. So when our steel companies suffer the impact of dumping we can do nothing about it because it would require Government intervention – not allowed by the EU. And will Germany fully support an anti-dumping campaign against China – not likely as China is an important market for Germany exports. We should also remember that Germany makes the trade rules within the EU to favour Germany, as with the Euro fiscal policy.

He further cites Wolfgang Schäuble, the German Finance Minister, and one of the nationalistic dinosaurs standing in the way of the much needed radical EU reform, who stated at the recent BCC conference that, after BREXIT, any trade deal with the EU would be conditional on maintaining free movement, and continuation of some form of payment into Brussels. This is typical scaremonger nonsense. Do the USA, or even Canada suffer such impositions in their trade agreements? The German Foreign Minister was far more realistic. He endorsed the view that a free trade deal would be agreed within days of BREXIT irrespective of EU political views not least because the German Government would be bombarded by their major companies and banks because of the high level of exports to the UK, not to mention that imports from Germany to the UK are significantly larger than UK exports to Germany.

I could further dismantle his arguments, but would suggest that he listens to someone like Sir Peter Hargreaves, the co-founder of the very successful Hargreaves Lansdown investment manager, who has a real-world experience and suggest that not only would the UK be better off outside of the EU, but such a stimulus would re-energise the British people to take more pride in the UK, buy British, and put the ‘Great’ back into Britain. For certain the UK has problems in productivity, poor venture investment, and lack of manufacturing. Perhaps a refusal by the EU to provide goods will stimulate the UK to make their own – a boost to employment, and needed reduction in the balance of payments – all positive. We could also relabel our much heralded sparkling wine as Champagne (as do the Americans), retain our traditions of sausages, Cornish pasties, pork pies et al without meddling interference in the British way of life from Brussels.

My final observation for today is the visit by Obama to Cuba. The opportunity to re-engage with Cuba has been staring at Europe for some years, with the doors open to engage. Whilst visiting a few years ago on an exploratory trip ‘America’ still invoked hatred with the Cuban people because of the Bay of Pigs incident. The opportunities for European businesses was considerable, as was the opportunity to substantially re-establish original European businesses in sugar, and other agri-products, as well as new off-shore oil & gas finds. The inward looking nature of the EU has surrendered this opportunity to the USA who will now move in and, no doubt, ignore repatriation of former European assets. The British understand the importance of such opportunities because of their historic trans-global, outward view of the world, in stark contrast to the introspective view of the EU.

Let us hope that the coming weeks are somewhat quieter, and less damaging.

 

 

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BREXIT – What Deal?

univestBREXIT – What Deal?

When David Cameron elected to engage in a referendum regarding UK membership of the EU his pronouncement was that he would seek much needed fundamental reform to the EU, or support an ‘out’ vote. These reforms included substantial issues such as curtailing the role of the European Court of Human Rights in UK determinations, to scrap the Human Rights Act, reclaiming sovereignty for both our parliament and our judicial system, and to have sanction over immigration into the UK.

What he achieved is zero reform; only some tweaking at the fringes which, until written into Treaty are no more than what the Courts call mitigating circumstances in determinations, the existing Treaty being the fundamental basis on which they will make determinations. Few, if any of the EU leaders who agreed this tweaking will be in office when the next Treaty is discussed, and the European Parliament can most certainly vote down any, if not all of the concessions. Thus why the ‘deal’ is already in the dim past of the EU referendum debate.

As a trained negotiator I have an unease about the lack of any substance to the ‘deal’ as Germany most certainly needs to keep us within. Did Cameron not have the heart for such a negotiation? Is there a deal behind the scenes regarding the future of Cameron? Was he the wrong man to negotiate? History may tell us the answer, but until then we must accept that the ‘deal’ does not remotely meet with the initial basis of the referendum.

I am not going to debase my discussion by using speculative monetary values, or the use and abuse of statistics. As it is clear to see in the media the business and financial community are divided on opinion based on their specific vested interests – thus irrelevant. As argued in previous blogs this debate is about the future of the people in the UK. All of the economic and political arguments pale against the right outcome for the British way of life. Business and finance will continue regardless of the choice made in June. As one dear lady so elegantly put it in a Jeremy Vine interview last week, ‘so-called experts built the Titanic, but not the Ark’.

I do not believe the people of the UK will engage with the current political and business debate. So let us bring the argument down to a reasonable comparator argument that anyone can understand. Our base will be a recently new golf club where the charter debenture holders (the people who essentially financed the building of the club) sought preferential treatment as part of their contribution. This creates a two-tiered system of membership even though much of their initial investment has been redeemed through subsequent debenture sales. What will happen over time is policy committee members will change, and privileges of the charter members will become fuzzy, and erode, until they have no more privileges than any other member, i.e. harmonising rights to all members. This is what will most certainly happen in the EU. Fuzzy memberships such as Norway, the UK, and Switzerland will be tolerated in the short-term, but over time the boundaries will be eroded until they are eradicated. In Political Risk parlance this is called creeping expropriation. If the UK elects to remain an EU member it will most certainly not retain any special status over time.

The generally accepted current situation of the EU is fragile, and in need of serious reform. So what is the future if the UK votes to remain within – uncertainty. What is the future if the UK votes to leave the EU – uncertainty. So what is the difference – control of the uncertainty. The UK is not a Switzerland or a Norway. The UK is the 5th largest economy in the world – and carries much power and influence in the world in its own right (as endorsed by the German Foreign Minister on Radio 4).

Let us look at uncertainty, again in an easily understandable form. Uncertainty is as much part of life as day and night. The obvious relevant examples are life-changing decisions to get married, have children, or God forbid – divorce. They all require uncertain adaptability, but are all undertaken with the hope to a better future. For a while they can be a struggle, but the outcome is generally worth it. Ask any woman who has gone through labour, but yielded a healthy baby – the pain of labour is soon forgotten. A BREXIT includes a 2 year ‘grandfather clause’ where all of our existing relationships with the EU continue giving time to agree alternatives such as free trade agreements. The UK will see some immediate benefits in that the irksome elements of the Human Rights Act can be ignored, immigration can be brought under control, and our transport infrastructure can quickly progress without the interminable interference of Brussels. Therefore, our uncertainty has a short-term safety net which negates the scaremonger argument that the short-term will be turbulent; but does have some valuable upsides. The UK successfully recovered from 2 World wars without help, so a relatively simple exit from the EU should be a breeze. I would suggest that most people will not feel any immediate difference.

There is one element of the uncertainty that I have yet to see any comment. What is likely to happen to the EU without the UK as a member. There are a number of relevant uncertainties. Other net contributor countries could see the UK exit as a sign that the current EU model is really broke, and thus elect to do the same – especially as the EU will have to increase contributions of other member States to fill the vacuum left by the considerable contribution by the UK. The right-wing elements of France could rise and depose the French Government. France has much to lose by a UK exit. Where were these concerns in the deal negotiations – or wasn’t the threat of the UK leaving a serious consideration?

If Germany can find the means to support the Eurozone then it will more rapidly consolidate its hold over the Euro countries – and the people of the UK will be thankful that they departed. Of course we still have the Greek issue which will most certainly be a thorn in the side of Germany – will this lead to conflict within the Eurozone? We have seen that the poor response by Germany to the economic situation in the Eurozone when they refused quantitative easing some 4 years ago. The too little – too late plan by the ECB yesterday was greeted with derision by the markets.

The UK has a proud history as the banking centre of the world boasting excellence in financial capability (even when Labour are in Government), and the ability of the UK to rise from both the irresponsible spending of the last Labour Government and the financial crisis lays testimony to the intelligent and speedy response to such events. Should this be sacrificed to the incapable Eurozone mandarins who clearly do not have the experience, or the global market understanding?

In summary BREXIT will yield uncertainty whichever way it goes. Therefore, the issue is whether or not the people of the UK want control over such uncertainty, or do they want to surrender decisions to Brussels – unaccountable to the people of the UK, and not so interested in preserving the British way of life.

 

 

The Foundation Stones of the BREXIT issue

img1The Foundation Stones of the BREXIT issue

Before embarking in any detail blogs regarding the political and economic merits relating to BREXIT I would like to consider the environment leading to this referendum.

I think what is happening in the USA at this time allows us to sit back and observe what happens when the people feel that politics is stagnant, and thus irrelevant. If we use a simile of the US Congress and the House of Representatives as two conflicting factions of Europe, and President Obama as the people wanting to move forward in their lives but stifled by the conflict, then we can understand why Donald Trump is doing so well. My view is that the European Commission has lost sight of the problems in Europe being more interested in the degree of curvature of a banana than the real problems of economic inequality, global instability, and now the refugee crisis. Indeed, the refugee crisis demonstrates the difference between out-of-touch grandstanding vision, and reality.

In the late 1970’s, my mentor, Walter Wriston, and probably the most influential banker in the world at the time responded to my question regarding the political influences on deregulation of financial services and global capital flows (Big Bang in 1986) by stating that politicians come and go. Business drives economic prosperity, and the banks are the enduring stable force to ensure the required liquidity to facilitate global trade. I have never forgotten his response, essentially because it has shown over the years to be the case. I was also taught by him that there are two factors in global business decision making; inevitability, and consequence. To him (in 1979) deregulation of financial services was inevitable, with timing being the only consequence of interference from politicians.

I had the opportunity to attend a presentation to senior bankers by Jacques Delors when President of the European Commission. He was expounding ever closer European union in his attempt to convince senior bankers of the merits of forcing European federalism upon the UK. I suggested to him that businessmen, rather than politicians, would drive any unity in Europe, if deemed beneficial, while the politicians were still talking about it. Even his (French) economic adviser could not dispute the reality of my comment. It was interesting last week to see how few of the CEO’s of major corporates in the UK were prepared to openly endorse the views of David Cameron regarding BREXIT.

My opinion from many years of experience throughout the world is that the EU model is broke. The Cameron negotiations demonstrated that there is no appetite from vested interest parties to fix it other than tinker at the edges. In recent years the faults in the USA federal model have clearly demonstrated how damaging such models can be to the people when vested political interests can completely stifle the function of Government, and thus damage the lives of the people it is there to protect. Therefore, the only other route is to let the EU empire fall, and then remodel into something more worthy of consideration by the people. Does the UK want to be part of this (inevitable?) decline when it has other options? I think that a risk analysis would err on the side of caution, i.e. stand outside as a spectator and watch. And let us not forget that the Greek crisis revealed another truth – that the big decisions were made in Berlin – not Brussels.

Business will always find a way to trade, and thus survive. Thus BREXIT is only about the people of the UK, and their influence over decisions regarding their own future.

To Be, or Not to Be (in the EU)? That is the question

img1To Be, or Not to Be (in the EU)? That is the question

At last we have a definitive timeline to determine our future. Do we want to be ruled by a Germanic invasion of Europe for the third attempt in a hundred years, or do we rely on our historic past and save Europe from a model that was broke the day the Euro was introduced?

Having not yet analysed in full the proposed deal agreed by David Cameron last week, I can only comment on what he says he has achieved, having twice listened to his claims. The first alarm bell was the excessive use of Aristotle pathos during the Andrew Marr interview Sunday morning. Invariably a sign of a weak argument.

Let us quickly deal with benefits as this is only window dressing at just £30m or thereabouts per year. The UK net membership contribution is some five times this amount per week – some £2 per head of every man, woman and child in the UK. And what about the money sent to support families in places such as Africa, India and Pakistan every year. Add to this people from places such as Switzerland who come here to retire to take advantage of our NHS, our subsidised travel costs for pensioners, and our substantially lower cost of living – what have they contributed to our country? I would argue that child credits should be paid to every worker at the same level assuming they are paying UK taxes. The fact that their children are in another country should be seen as a saving as they receive their education and healthcare outside of our system. If these children lived in the UK then they would not only receive child credit but also incur costs for education and healthcare. This would amount to considerably more Government support than £21 per week. People who come here only to sponge on our benefits system, or even our NHS, should most certainly be refused entry.

His scaremongering essentially revolves around trade and defence. I found it bizarre that he puts our membership of the EU on the same context as our membership to the UN, NATO, G7, etc. This is comparing apples and bananas. We sit at the top table at the UN, NATO, G7, etc whereas we are a secondary player in the EU, tolerated primarily because of our historic influence in the world, and our substantial contribution in membership fees (without which the EU is likely to collapse). Last week the German Foreign Minister, speaking on Radio 4, clearly stated that the UK leaving will substantially reduce the influence of the EU in the world. He recognised that the UK is a primary driver in global influence of the EU, and we would most certainly retain our influence. We are the fifth largest economy in the world, and we benefit from an historic trans-global approach to the world. I find the EU extremely introspective. Ask someone in China where is Brussels, and then where is London – the easiest example to support my argument.

As for trade, we constantly hear from politicians wishing to stay within the EU that the EU is our largest trading partner, and indeed some claim that the EU is the largest trading bloc in the world. Rubbish and rubbish. We import some £300 billion per annum in goods and services from the EU – about two months worth of our overall trade. We sell considerably less to the EU. Our largest investment market is the USA, and we would be far better served in exports by nurturing our Commonwealth nations who constitute some 1.85 billion people as against some 340 million people in the EU. Politicians in the EU would impose trade barriers against the UK at their peril – of their own corporate leaders. Ask the USA, whose corporates are still trying to recover from the ill-considered trade barriers set by the USA in the 1970’s and 1980’s.

Our finance sector is another scaremonger tactic. I found the statement, purportedly from HSBC, that should the UK leave the EU then they will have to establish investment banking activities in Paris as ludicrous as moving their headquarters back to Hong Kong. They might decide, as is normal practice in banking, to establish themselves within a market – but Paris? I also do not expect Deutschebank to reduce its presence in the City of London any time soon as the EU will need the capital raising capability of the City.

What Cameron did not achieve is any real movement in our sovereignty, as it is referred to, and the primary reason declared for Boris Johnson electing for the out of Europe campaign. Our legal system is considered as one of the best in the world, especially for trade and finance – and thus the dominance of the City of London. Its strength is that it grew with the market, and continues to rapidly evolve as is required to meet new challenges – and it is trusted. The continuing imposition of EU law can only impede our ability to retain this dominant position, and thus the dominance of the City – as has been attempted twice during my life as a banker. Germany has never been trans-global in its finance policy, and is invariably behind the curve on matters economic. For example, they dithered for some 3 years about quantitative easing meaning everyone within the Euro suffered.

The only applause to Cameron is for forcing the EU to agree a new deal in time for the referendum to occur whilst Angela Merkel is still in her final weeks of office. Politically well played – that is until Merkel’s response to the refugee crisis went sour. Had Merkel not lost her support within Germany she would have done whatever necessary to avoid the EU collapsing on her watch. There are now whispers that two other net contributor countries are considering following our lead out of the EU. Will the unelected grey suits in Brussels get the message? Today my vote is for Rule Britannia.

More to follow as the detail evolves.

The General Election 2015 – A Sorry Tale

univestThe General Election 2015 – A Sorry Tale

Are we all now completely disillusioned with the current General Election? Whatever happened to integrity of manifestos and campaigning? Now it’s down to who has got the biggest ……

It is also noteworthy that Ed Balls has been demoted to the second rank of campaigners. The stench of his part in the last Labour Government, plus the number of times he stood at the dispatch box during the recent term condemning economic policy which actually worked in spite of the debacle in the Eurozone. So much for the Eurozone signally the end of Rule Britannia as and when we leave the EU –  it’s the EU that will collapse as well it should – for the third time.

Whilst I appreciate that some greedy bankers created havoc in the financial markets right under the eyes of the so-called regulators, this was mainly in the USA. The previous Labour Government had still spent all of the people’s hard earned taxes on populist social experiments that all failed, or left the public sector in substantial dire straits, e.g. PFI for hospitals and school that can no longer afford the poorly negotiated high payments. Indeed I am struggling to recall one Labour Government since WWII that did not leave the country bankrupt or near bankrupt with the banks being called upon to use the might of the London financial markets to beg, borrow, or otherwise as much foreign money as possible to keep the country afloat. Thus why Maggie Thatcher spent so much energy putting the “Great” back into Great Britain. I also remember that when Tony Blair took office the previous Conservative Government left him with a surplus in the Treasury.

So what about our lefty Ed Milliband; what will he do? An accountant friend of mine has put together a little tale of how our tax and benefits system will work using Ed’s plan. It is a sobering message.

Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this:

  • The first four men (the poorest) would pay nothing
  • The fifth would pay £1
  • The sixth would pay £3
  • The seventh would pay £7
  • The eighth would pay £12
  • The ninth would pay £18
  • And the tenth man (the richest) would pay £59

So, that’s what they decided to do.

The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free but what about the other six men – the paying customers? How could they divide the £20 windfall so that everyone would get his fair share?

They realized that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fairer to reduce each man’s bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.

The result was that the fifth man, like the first four, now paid nothing (a100% saving).

The sixth man now paid £2 instead of £3 (a 33% saving).

The seventh man now paid £5 instead of £7 (a 28% saving).

The eighth man now paid £9 instead of £12 (a 25% saving).

The ninth man now paid £14 instead of £18 (a 22% saving).

And the tenth man now paid £49 instead of £59 (a 16% saving).

Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, the men began to compare their savings.

“I only got £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved £1. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get £10 back, when I only got £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next week the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

German Domination of Europe – When will they learn that there is a better way

German Domination of Europe – When will they learn that there is a better way

The poignant D Day events of last Friday reminded me that this year is also the centenary since the start of the First World War, or the Great War as it is more commonly known. Although I have many good friends in Germany, and hold absolutely no prejudice against the German people of today, it occurred to me that, for 100 years, the elite of Germany have attempted to mould Europe in their own image, initially through two catastrophic world wars, and currently through self-serving political and economic influence within the European Union.

It cannot be disputed that the engine-room behind the introduction of the Euro was Germany, and in spite of the so-called stringent rules of entry into the Euro, Germany allowed such rules to be significantly relaxed to allow countries to participate where compliance with the entry rules would result in such countries otherwise unlikely to qualify for entry for years to come. It is no secret that Germany has significantly prospered under the Euro – at the expense of the other member nations. These nations now seek financial support, and the German Government have a hard time selling these bailouts to the already over-taxed German people, albeit a problem created by Germany in its self-serving quest for the domination of Europe.

Sometimes I reflect that Germany, having left Europe devastated in 1945, forgets that much of their subsequent prosperity was built on their substantial participation in the Marshall Plan (whereas the United Kingdom, as victor, did not qualify for any such support and has been required the swallow the cost of the wars, and rebuild using its own resources). As with the so-called super-model of Japanese prosperity in the 1980’s I do not subscribe to the German economic model of today, and certainly would strongly oppose this model being at the centre of the European Union. The current German economic model has a fundamental incestuous instability at its core, just like the proverbial pack of cards, and just as with Japan before its economy collapsed.

And this week the German elite are flexing their self-serving muscle again by instruction Angela Merkel to support a tame federalist like Jean-Claude Juncker as European Commission president, a move that is counter to the fundamental reforms needed by all donor nations – except Germany.

I have just noticed a news headline  ‘German chancellor Angela Merkel has cautioned David Cameron not to use threats of a UK exit from the EU in his campaign to block a federalist candidate from taking the helm of the European Commission.’

Without these reforms my view is that the UK should not threaten to leave the EU, but make it very clear to Germany through the promised referendum that the people of the UK do not see their future dominated by the German vision of Europe. Maybe then the UK will have to pick up the pieces of an imploded Europe for the third time.

A New Multilateralism – Realisable or Wishful Thinking?

univest

A New Multilateralism – Realisable or Wishful Thinking?

I listened to the Richard Dimbleby Lecture on Monday evening with expectation of some new thinking on the way forward. The lecture was called ‘A New Multilateralism for the 21st Century’ and was presented by Christine Lagarde, incumbent MD of the IMF. My initial reaction was that it presented some interesting ideas, but I couldn’t quite put my finger on the relevance of these ideas. So, on Tuesday, I printed off the transcript of her speech from the IMF website. Having now studied this speech in some detail I find it endorses my view that the multilateral institutions of which she leads the IMF are essentially out of touch with the real problems that we face in the 21st century.

Back in the 1970’s, during the oil boom, individuals in the Middle East were accumulating vast amounts of US Dollars in cash because Western banks did not want it. Indeed I remember Swiss banks charging up to 3% p.a. to take these deposits. I actually walked into a room in a palace and saw a pile of US Dollars, and was told that this pile amounted to USD 1 billion. In an attempt to give some visual impression of this pile I am reliably informed that a standard 40ft sea container will hold USD 1 billion in fresh print USD 100 denomination bills. This money was not participating in any economic benefit whatsoever, and there was no possibility that the owner could reasonably consume these funds in their lifetime. Yet just one mile away there were ordinary working people struggling to find the money for their next meal. It occurred to me that if these funds were deposited with SAMA, and used productively producing even a nominal return, such return could be used productively to provide food for these people without any degradation to the original money. Yet the owner had no interest in such a proposition, and was content to accumulate yet more piles to look at.

Unfortunately this sorry tale has since increased in propensity, and as we saw a few weeks ago, Oxfam calculated that the 85 richest people have the same wealth as the bottom half of the World’s population. Christine Lagarde added that the richest 1% in the USA captured 95% of all income gains since 2009, yet the number of people in the USA needing food parcels to survive is now reaching pandemic proportions. She further states that in India the net worth of the billionaire community increased 12 fold in the past 15 years, enough to eliminate the poverty of that country twice over. So why has she not rationalised this into the real threat to the World Order in the 21st century?

We have seen so many billionaires created out of emerging economies such as the former Soviet Union, China, and India, sapping vast amounts of sovereign assets. The rapid nature of such wealth creation should arouse suspicion. However the point that I make is that somehow a few own wealth beyond any reasonable expectation of spending throughout their life. Many will say that they invest much of their wealth, but this only increases their existing wealth. Having met a number of these oligarchs their primary objective is to continue to increase their wealth, usually at the expense of others.

What about if each billionaire set aside USD 1 billion for investment and applied just the income to relieving poverty.

In 2013 an investment return of 15%+ was easily achievable. This would provide in excess of USD 150 million from each billion invested. The billionaire has not lost their capital, but much could be achieved with the income stream. Of course a few of these billionaires are already philanthropic and names like Bill Gates easily come to mind, and who clearly understands that he does not need such vast wealth, so uses his business judgement to make every dollar count in his selected beneficial projects.

Having brushed along with the World Bank, the IMF, and the UN for over 30 years I would suggest that they are political institutions populated by political appointees and academics who have no idea about the real world. I have witnessed a number of World Bank projects which did no more for the recipient country than to provide work for a donor country corporate, create an inappropriate monster that, within 5 years, was derelict leaving the recipient with sovereign debt but with no value to show for it. I have also seen appropriate solutions costing a fraction of the price of the expensive inappropriate concrete alternative discarded because the amount of the appropriate solution did not warrant World Bank intervention. It is interesting that Christine Lagarde acknowledges that it was the fast response of the G20 that stopped the world descending into meltdown 5 years ago rather than the institutions such as the World Bank and IMF founded to deal with such events. I think that this is a good template to use in stating that the current multilateral institutions are not good at delivering effectively solutions.

Although I am clearly in support of the outcome of Bretton Woods, we should also remember that not enough people there were visionary enough to accept all of the ideas of Keynes, and which were subsequently quickly adopted as catastrophe loomed, e.g. removal of the gold standard. Other than those wearing rose tinted spectacles no-one would suggest that the institutions that emerged remotely fulfil their ambitious mandates. I have already mentioned the lack of effectiveness of the World Bank and the IMF, and the UN is little more than a toothless talking shop today – Bosnia being a classic failure.

Christine Legrande suggests that the multilateral outcome of Bretton Woods produced ‘unprecedented economic and financial stability …. Disease eradication, conflict diminished, child mortality reduced, life expectancy increased, and hundreds of millions lifted out of poverty’.

Do we not count Korea, Vietnam, Congo, Sudan, Yugoslavia, Israel, Egypt, Lebanon, Iraq, Afghanistan, Syria …….etc as conflicts? All consumed the lives of many thousands of people including Western soldiers, left chaos and destruction in their wake, and they are still very much in our minds today. When was the last time that the USA was conclusively successful in any serious military conflict? Therefore Europe and the USA may have seen peace and prosperity since Bretton Woods but how many thousands of American and European soldiers and civilians have died in the name of preserving this peace?

To suggest that Europe has been conflict free is also short-sighted. In the past 6 years Europe has been involved in an economic war. Not too many people killed with bullets and bombs, but many have become disenfranchised, lost everything, displaced, and descended into poverty. Is this not symptomatic of a conventional war? When the vision of a European Union was first put to the people the rhetoric promised peace and prosperity for all citizens. I accept that the banking crisis made a bad situation worse, but how many European politicians in France, Greece, Spain, Italy, Ireland and the UK breathed a sigh of relief that they could hide their failure to create a credible EU behind the banking crisis?

Let us examine the two reference dates that she used, i.e. 1914 and 1944. She suggests that prior to 1914 the birth of the modern industrial society brought about massive dislocation between protectionist nations, and inequality between the ‘haves’ and ‘have-nots’. Take away the country boundaries, essentially the impact of the digital age, and what is different today?

So where do I see the powder kegs of the 21st Century? Perhaps controversially I do not see the North-South Conflict as a major threat. An implosion within the Islamic community is more likely with primarily Sunni against Shi’a. If you think about it, most of the current conflicts involve the Islamic nations, and are driven by extreme religious division. The intervention by the West in some of these conflicts in the name of protecting the West has no logical outcome. These people have no regard for Western democratic values, or of secular tolerance.

At one end of the spectrum we have the blatant inequality of the distribution of wealth. We are experiencing 2 critical phenomena, both of which are counterproductive to a peaceful, all inclusive world. We have individuals and corporates accumulating vast wealth to the point where the resulting power exceeds that of some major nations. Albeit a few of these have taken a philanthropic stance we should note that such philanthropists are mostly from Western countries. Many of the new billionaires are from emerging or developing economies where democracy does not really mean very much, and a market society is the norm, i.e. everything has a price, even social and civic values. All we need is a charismatic megalomaniac, as depicted by the Carver character in the James Bond movie, ‘Tomorrow Never Dies’, to cause chaos and suffering for many throughout the world. Unfortunately Western civilisation has degraded over the past couple of decades towards a market society thus adding a significant sting to the ever increasing differential between the ‘haves’ and ‘have nots’. For example diminish the rights of the ‘have nots’ to education, justice, political influence, and healthcare because they have no money and you have a significant pool of would-be terrorists for our megalomaniac to exploit because they have nothing else, and nothing to lose.

Then we have corporate greed. So what can the people see? During the past 6 years the people have become very aware that their corporate executives have suppressed the salaries of the workers (the value drivers) to below inflation levels whilst increasing their own already attractive remuneration by some 40% average, and which has been allowed by investors because dividends have been maintained to these investors. So the people at the top have handsomely profited whilst real income to the workers has diminished. So much for sharing the pain. In addition these executives are immune to any accountability should they fail. Have any of the avaricious people who profited from the banking crisis been prosecuted, or had their ill-gotten gains repossessed? The banks themselves are being penalised by regulators who should have been more alert to the problems in the first place, and some of these funds do go to Government coffers. But these large fines diminish the capital of the banks, and thus inhibit their capability to finance the very enterprise we need to re-energise the employment market, i.e. they inadvertently stifle recovery, increasing disenfranchised young entrepreneurs.

At a micro scale we can look at the fate of RBS under Fred Goodwin. He was a megalomaniac trying to build the biggest bank in the world. Everyone I spoke to in the City of London at the time leading up to the acquisition of ABN Amro agreed that the terms of that deal, at twice the price that anyone else was prepared to consider, was insane. Yet no-one stepped in to stop him. How much pain, and destroyed lives has RBS caused to many thousands of people. But Fred Goodwin is made for life financially; so well in fact that sticks and stones may break his bones, but he will not lose a night’s sleep over the names that he is called.

At the other end of the spectrum we have the demographic issue. We have already seen a growing view amongst the young generation of workers that their taxes should not be funding the pensions and healthcare of the graying generation. The younger generation see that they have to pay taxes to support the pensions of an ever increasing graying population, and being told that they also have to contribute a significant proportion of their disposable income to their own pension provisions as State pensions will slowly but surely phase out by the time they retire. All of this at a time when real incomes are diminishing in real purchase power terms. Rightly the graying population state that they have paid their taxes, in the form of a special National Insurance tax specifically for the right to a State pension and healthcare, throughout their working lives and thus their State pension is rightfully theirs. The problem is that successive Governments have not ring-fenced these contributions over the years, preferring to spend it in the hope that future generations with continue to fund the requirement; a little like a Ponzi scheme. Add to this the migration of young labour where they have no historic interest in the local graying population, and expect to be able to send money home to support their own aging family, and we have potential serious discourse and unrest. Bring both of the above phenomena together and we have a powder keg just looking for a fuse.

So from where can our fuse emerge? Our fuse already exists in the form of the global internet, social networking, and twitter. Christine Lagarde is right in that the Arab Spring was fuelled by the galvanising of the people through media such as Twitter and social media. But likewise these facilities can also be used to fuel discontent and confusion. Great philosophers such as Aristotle, Kent and Hume have all commented on the importance of gossip to the masses, and our lesser quality media thrives on this obsession. So the touch paper is a disenfranchised charismatic individual or group exploiting the power of gossip through Twitter and social networks. We have seen the impact of disenfranchised ‘have nots’ in riots in many cities over recent years. It is when all of these groups can be galvanised together that we need to be concerned.

Are we at a collision point between socialism and capitalism, and is the global energy business driving this collision?

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Are we at a collision point between socialism and capitalism, and is the global energy business driving this collision?

Two events have occurred over the past few weeks which appear to encapsulate an observation that I have been considering for some time, i.e. whether or not capitalism has moved to the extremes of greed, and socialism has no answer to counterbalance this behaviour. Politicians and the media would have you believe that banks are the ultimate in capitalist greed. Whereas I have serious reservations about the activities in certain banks, I feel that the major energy companies from oil & gas production through to energy generation consider their power above that of politicians at the highest level, and that of the major trade unions. If my observation bears credible scrutiny then who are the winners, and who are the losers.

The two events that I would like to use in this debate, because they encapsulate the major drivers in this debate, albeit not the only events of concern, are the Grangemouth Refinery & Petrochemical plant debacle in Scotland, and the UK Parliamentary Committee meeting with the major UK energy companies this past week.

Perhaps a little background on the energy footprint in the UK will assist readers not familiar with the situation here.

According to Ofgen, the energy regulator, the UK has installed capacity for electricity of some 73GW of conventional generation and 9GW of renewable with ACS peak demand expectations around 60GW. Uncertainty around government policy (UK and EU) and future prices continues to limit investment in conventional generation and no new plant is expected before 2016. In the UK it is  estimate that around 1GW of new gas plant will come online before the end of the decade and the installed capacity of wind power will possibly more than double over the same period albeit that this must surely now be in question. In any event, given the variability of wind speeds, they estimate that only 17% of this capacity can be counted as firm (i.e. always available) for security of supply purposes by 2018/19.

More than 2GW of LCPD opted-in plant have also closed or converted to biomass since October 2012, resulting in less pollutant plant but with significantly reduced capacity. Around 0.5GW of nuclear capacity is reaching the end of its technical life and is expected to close by 2014/15, though extensions now have to be considered. Around 2GW of CCGT plant should be retired by 2018/19 for the same reasons, but will this happen?

As installed capacity falls in the next few years, all else being equal, prices can be expected to rise and it is possible that this will lead plant, especially coal fired, that is currently mothballed to come back online to keep prices affordable.

According to National Grid, the expected drop in peak demand is mostly due to increased energy efficiency in the domestic sector and increased Demand-Side Response (DSR) insulation of buildings, etc. I consider this to be a convenient explanation politically where the truth may be more damning.

For completeness the interconnection capacity between the UK and mainland Europe and Ireland is currently 3.8GW. Assumptions about the likely direction and size of interconnector flows therefore have a significant impact on the calculation of the risks to the UK security of supply.

Ofgen expect that, in a situation of tight margins (please), ahead of mitigation actions being implemented, prices would rise resulting in higher interconnector flows into GB. However, GB is not the only European country expecting de-rated margins to fall in the next six winters. France, Ireland, Germany and Belgium are also facing security of supply challenges, and have very similar patterns of demand and supply availability.

As for gas, DECC reports suggest that gas consumption reached a record high in 2004 of 1,125 TWh. Since then, consumption has seen an overall decline, and in 2012 total gas consumption was 845.6 TWh, around 25% below its 2004 peak. These longer term trends are driven by commodity prices, energy efficiency and, for domestic use in particular, temperature. However domestic demand in 2012 was high, up almost 16 per cent on 2011, reflecting the colder, protracted winter, but gas demand for electricity generation fell by almost a third to 214 TWh largely as a result of coal replacing gas use due to high gas prices.

UK gas production peaked in 2000 and has since been declining. With declining production the UK has become increasingly reliant on gas imports to meet demand. Since 2000 net imports have steadily increased year on year, with the exception of 2011 which saw a 3 per cent decrease on the previous year’s level. The recent fall in imports can be attributed to the reduced gas demand from electricity generators, being replaced by coal.

Imports of Liquefied Natural Gas (LNG) through the two terminals at Milford Haven remain substantial, but their shares of total imports have dropped from 46% in 2011 to 27% in 2012. Demand for LNG on the global market remains strong but the UK has a diverse pipeline infrastructure (from Norway, the Netherland and Belgium) and the proportion delivered through each route will depend on global market conditions.

It is probably also worth noting that Europe, as a whole, has over capacity in crude oil refineries. The UK has 7 refineries. According to HIS Purvin & Getz Research Group the UK imports 47% of its diesel fuel, and 50% of its aviation fuel. However the UK has a 20% surplus of petrol which it exports.

Now let us look at the politics. In March 2007, the European Council agreed to a common strategy for energy security and tackling climate change. An element of this was establishing a target of 20% of the EU’s energy to come from renewable sources. In 2009 a new Renewable Energy Directive was implemented on this basis and resulted in agreement of country “shares” of this target. For the UK, by 2020, 15% of final energy consumption – calculated on a net calorific basis, and with a cap on fuel used for air transport – should be accounted for by energy from renewable sources. There was much grandstanding by the politicians at the time, especially directed towards the USA, indicating that Europe was a good citizen of the world, and would be a leader in the climate change revolution, setting targets that many reasonably minded people thought optimistic. However there followed much uncertainty surrounding the implementation of this and and other market reforms thus having as much impact on plant investment and retirement decisions as the expectations of the impact of evolving energy prices. This uncertainty means energy companies suffer much frustration of their long-term strategy through muddled energy policy, or indeed the lack of any definitive energy policy by various governments.

On the other hand the USA refused to sign up to Kyoto and, other than a little dancing at the edges, ignored the grandstanding of Europe and other countries and allowed the market to determine the future. The USA gets many things wrong, especially much of its foreign policy, but when it comes to protecting its own market it invariably gets it right. Developing new technologies and techniques such as fracking, the USA is now energy independent, energy prices are around 20% less than Europe, and they can export enough cheap fuel to disturb the markets in Europe.

In the UK the previous Labour government blindly signed up to all of the EU energy initiatives, could not fund these initiatives through already excessive taxation, so the current leader of the Labour Party, then Energy Secretary, came up with stealth taxes in the form of environmental and social levies to be collected by the energy companies from the domestic consumer, currently £117 per household, to fund these initiatives making a number of people in the renewable energy market very rich without delivering any tangible value today, or tomorrow. We now have a coalition government where the predominant Conservative Party want to repeal these stealth taxes and no longer subsidise renewable initiatives from public money but find themselves frustrated by the minority Liberal Democratic Party who see some value (to them) of continuing to wave the environmental flag. In addition the Labour Party, who created these woes for the consumer now wants to go to the dark ages of socialism and freeze energy prices. Maybe a good soundbite for the uninformed, but ridiculous in the world of global energy markets.

So let us review the Grangemouth debacle. As I said refining capacity in Europe exceed demand. Furthermore cheaper energy supplies are being imported from the USA. The management of Grangemouth, owned by INEOS, (the refinery can process some 210,000 barrels of oil per day) claimed that they are losing some USD 8 million per month fuelled partly by US imports where USA refineries pay some USD 15 per barrel less than UK refineries. The management, knowing that they need to invest some £300 million in the plant, decided that they could no longer afford to run the plant with the then operating costs. They put a package of pay and pension reforms to the 800 or so workers. In essence the UNITE union, one of the largest remaining trade unions in the UK (Margaret Thatcher saw off most of the trade union power in the 1980’s) applied its usual socialist dinosaur approach threatening strike action. The refinery management refused to accept revised terms from, or to spend 3 months negotiating with UNITE (giving the Government 3 months to find an alternative buyer) so INEOS, who had already safely closed the plant facing the threat of a strike then announced that they were going to close it. Both the UK Prime Minister, David Cameron, and First Minister of Scotland, Alex Salmon, quickly came into play to rescue this situation. We can only speculate on what happened behind closed doors but the UNITE union completely caved in and announced that they would recommend acceptance of the INEOS terms for its members, and it was clear that INEOS had been offered some government deal towards the required investment in the plant.

What we saw during the Grangemouth debacle is an example of how commercial reality surpasses political and trade union power. It was suggested that the loss of this facility would have been devastating for the Scottish economy, and they complain about banks being too big to fail.

Then we look at the Parliamentary Select Committee interrogation of the ‘big 6’ energy companies bosses, having raised energy tariffs by some 10% average to domestic consumers against wholesale price increases of just some 1.8%. The only reasonable summary of this session is too much grandstanding by the political panel, and total indifference by the energy bosses suggesting that the high price of energy was down to the stealth taxes mentioned above. I understand that the UK domestic consumers pay the highest energy costs in the European Union. One interesting analysis on a news broadcast was that British Gas had increased their profit from £45 per customer just 5 years ago to £95 per customer today. Apparently they need these profits to satisfy investment returns for their shareholders.

So who are the winners, and who are the losers.

Winners

  • The capitalist (foreign) owners of Grangemouth
  • The capitalist owners of the major energy companies
  • The capitalist owners of the renewable energy companies who will be long gone with their accumulated wealth before the reality of this folly is known
  • It will be interesting to know who claims the victory of Grangemouth, especially with the up-coming Scottish Independence vote: David Cameron claiming a victory for a United Kingdom, or Alex Salmon who wants Scottish Independence.
  • The environmental lobby thanks to the short-sighted view of the Liberal Democrat coalition leader

Losers

  • The domestic consumer who has to bear the cost of the bailout of Grangemouth because of a dinosaur socialist union leader.
  • The domestic consumer who has to pay the cost of the increased energy tariffs, which could be indirectly attributed to the lack of energy policy by governments
  • The domestic consumer who has to bear the socialist imposed stealth taxes for renewable energy policies that are far too optimistic, expensive, and will prove to be a waste of resources. It should be noted that the socialist principal of payment according to what you earn was ignored thus betraying their core socialist vote.
  • The domestic consumer who has to pay for price increases to corporate energy users as they will pass their increases on to the consumer in the price of their goods/services.
  • The domestic consumer who will have to bear the cost of frantic, last minute efforts to maintain supply because of the lack of any firm energy policy.
  • It is claimed that reduction in demand is mostly due to the energy efficiency in the domestic consumer market. To some extent new technology and insulation will have an impact, but I fear that cost means that many domestic consumers cannot afford to heat their homes, and thus go cold. Thus the losers, again, are low income and pensioner domestic consumers – a direct reflection of capitalist greed.

I think that it was Socrates who observed that intelligent people discussed ideas, moderately intelligent people discussed events, and the vast majority, the uninformed, share gossip. Our largest selling newspapers, and to a degree some news channels, and political hype thrive on sensationalised gossip including important issues of energy policy – apocalyptic climate change gossip spread by brainwashed environmental campaigners sell more copies and buy more uninformed votes than mundane realities. There is a flaw in democracy if the noisy uninformed minority can unreasonably influence the uninformed, the impact of which is a substantial negative impact to the silent majority. It is an unquestionable fact that people united can make change happen. Therefore the people need to be properly and honestly informed.

Ironically all of this dithering means that the future is a return to non-other than the fuel which started the industrial revolution –Coal – because it is plentiful, and it is cheap, – look at Germany’s preferred fuel.

I would be very interested to hear how the above events in the UK would have played out in other countries, not least Germany and France.

References:

Ofgen Electricity Capacity Assessment Report 2013

Various DECC reports

HIS Purvin & Getz Research Group

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FUTURE ENERGY GENERATION – Why are our major oil & gas companies, apparently under threat by the environmental lobby, not diversifying into energy generation as part of their future strategy?

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FUTURE ENERGY GENERATION – Why are our major oil & gas companies, apparently under threat by the environmental lobby, not diversifying into energy generation as part of their future strategy?

Having watched with interest over the past weeks discussions relating to the strategic development of future energy generation I noted one discussion that questioned if the major oil & gas companies today would be the energy companies of tomorrow. This question did not arouse much discussion, but then I thought that if we beg the question of why these companies have not already diversified into the energy generators of today we might have a more interesting debate. After all they have both the Balance Sheets and the income generation to engage in energy generation, and they have the environmental lobby trying to drive them out of the business of fossil fuel production. So why have they not, at least, diversified their activities, but continue to pursue ever more costly development of fossil fuel production?

Looking at the business model of the major oil & gas companies such as BP, Exxon, Shell, etc. they all engage in exploration, development, production, refining, wholesale and retail distribution of fossil-based products. Thus their business model fully accommodates the substitution of power generation (even nuclear as a means to offset the fossil fuel debate) for refining which then provides for both wholesale and retail distribution of electricity. The companies have both the Balance Sheets and income profile (cash flow) to support the development of new primary generation capacity using the new generation of nuclear reactors, namely thorium reactors, as a logical diversification away from fossil fuels.

Before anyone raises the fact that these companies, in various degrees, have invested into renewable energy projects I would suggest that an intelligent review of their capital commitment to such projects is less than their annual promotional costs, and would further suggest that these projects are undertaken as part of their promotional costs, taking full advantage of all available government grants and subsidies, in order to create the illusion that they care about the impacts they may, or may not, be contributing to climate change. Of course we must remember that such impacts are not as yet reasonably proven, and are essentially propaganda by bodies fronted by the UN IPCC committee.

So why do these companies not take the environmental lobby seriously? Why do they continue with the ever increasing cost of developing ever more expensive fossil fuel recovery, yet do not spread their risk into other sources of energy?

Could it be that the latest IPCC climate change report provides a significant clue as to why these companies do not see the need to contemplate energy generation as part of their business strategy. Indeed could the advent of successful fracking for both oil and gas provide an even stronger foundation to the forward strategies of these companies in that the net production costs of recovering fossil fuels is getting cheaper? And the quantum of fossil fuel recoverable reserves has never been in doubt other than by the doomsayer environmentalist activists.

Why do these major oil & gas companies not see the need to diversify into energy generation even though such activity fits within their existing business model? I would suggest that they understand the business of energy, and their fundamental involvement in secure supply of fuel for the foreseeable future – much to the chagrin of the environmental lobby. These companies know that they will maintain their position as the primary source of fuels for generations to come, regardless. They are the only consistent source of fuels for primary energy generation, especially now that the nuclear program has been stalled by the unrealistic (but understandable) reaction to events such as the Fukushima incident. They are likely to have to find ways of reducing the hostile emissions of fossil fuels but, as with the creation of solutions such as the syntroleum process to remove the sulphur content from natural gas thus providing clean feedstock diesel fuel, they will find cost-effective solutions to other emission issues.

I share their confidence – that is until either/or thorium reactors and fusion reactors provide a significant commercial alternative. Other initiatives such as hydrogen fuel cells are unlikely to be cost effective enough to replace internal combustion engines. Indeed there are cheaper and much cleaner fuel alternatives that can be used in the existing internal combustion engine – if the powerful oil & gas interests will let such fuel alternatives see the light of day, even though they are the logical producer and distributor of these alternate fuels.

The major oil & gas companies are formidable political lobbyists. They will ensure that the revelations of uncertainty in the latest IPCC climate change report will set back the climate change/fossil fuel debate by decades, and I expect to see political support of the environmental lobby begin to cool. Indeed politicians in need of votes are likely to slowly but surely defuse the debate by asserting the current lack of reasonable evidence. Germany has irrationally indicated its lack of support for nuclear, not by reference to renewable alternatives, but to a return to coal of which they have significant reserves. Thus I propose that fossil fuels are the preferred reliable source of primary energy generation for the foreseeable future, and as such the major oil & gas majors are in no hurry to diversify.

IPCC Fifth Assessment Report on Climate Change 2013: Does the lack of media interest indicate that this group have cried ‘wolf’ once too often?

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  IPCC Fifth Assessment Report on Climate Change 2013: Does the lack of media interest indicate that this group have cried ‘wolf’ once too often?

The 5th Assessment Report on Climate Change was published last week, but did anyone notice? Where were the media? Scant reference in the visual and radio media, and very little in the printed press – the London Evening Standard, having the lead over the daily newspapers, had all of 2 column inches on page 4. Have these climate change disciples cried ‘wolf’ once too often, and no-one believes them anymore?

Intrigued by this lack of obvious interest, even by the serious news stations, I waded through the 36 page report summary, and the press release, over the weekend to see what it had to say – the full report is a real tome. The striking feature throughout this report is the obvious desperation to convince the reader that this time they have it right. They have better observation techniques, better data, blah, blah, blah. However, without boring the pants of one and all, the essence is that mankind is a major contributor to global warming (around 50% – compared with the 99%+ stated in 1999) with a 90% degree of confidence. It also indicates that some 9,000 scientists around the World agree with the findings of this report. So what does this really tell us?

Many moons ago in another life, when I started my training as a scientist at the Atomic Energy Research Establishment, we were given a number of books that we should treat as lifelong companions in our pursuit of truth. One of these was called ‘The Use and Abuse of Statistics’ and was intended as a constant reminder that the data must paint the picture, and not used or abused to create the picture that one would like the data to paint (e.g. in order to receive continued funding). I still have this somewhat battered book as I found it very useful when studying the data presented by the ultimate protagonists of such abuse – Politicians. Obviously this book defines how data can be presented to fit the required message, and the difference between relative levels of ‘confidence’ and ‘certainty’ as there is a big difference between confidence and certainty. You need to have a very clear idea of these classifications in order to make any sense of this IPCC report. I also know how frustrating it is when there is an unexplained hole in the data when you are under pressure to present your findings. Do you mention the hole, or assume it of little relevance and ignore it.

Let us consider a typical statement in this report: “The atmospheric concentrations of the greenhouse gases carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) have all increased since 1750 due to human activity.” The first part of this statement is probably a true and accurate – even an objective statement. But then the integrity is shattered by the second part of the statement i.e. “due to human activity” which indicates a level of certainty which can only be interpreted as desperate arrogance – it needed a qualification such as ‘probably, primarily, likely’ to be acceptable without absolute proof to the contrary. The remainder of this paragraph does not support the indicated certainty.

Just as a comparison on a Universe basis (as in climate change) I asked an astrophysics friend who had worked on the Mars Voyager mission if they would have launched Voyager with only a 90% degree of confidence in their calculations that Voyager would reach Mars – absolutely not. They needed to be better than 99% degree of certainty subject only to cosmic collisions that could destroy Voyager.

Let me be clear in that I fully accept climate change. Indeed the climate is constantly changing, and we are familiar with the climate change over the past 10,000 years since the last ice-age since when we are told that sea levels have risen some 110m and thus cities that were once on dry land are now beneath the sea. We are also told that there is evidence that sea levels have been some 10m higher than they are today in past history so our climate is a continually evolving system. My reservations are to what extent mankind influences changes in climate versus natural change as the earth continues to evolve. Leaving mankind to one side for a moment we are told that changes in the activity of the sun will render earth uninhabitable by humans in some 140,000 years’ time in any event. If science revealed with substantial levels of certainty that the behaviour of mankind was impacting climate change by, say 30%, then I think that mankind needs to be creative and resolve this influence. What I do not accept is that the arrogance of mankind can suggest that the full force of mother nature is a known and fully understood process, and that man has the capacity to change it, even unwittingly – something akin to King Canute standing before a tsunami.

Why did this report need to state that some 9,000 scientists agree with the content of this report? Do we know how many scientists disagree with this report, or even if some 9,000 scientists is a representative group in the global scientific community. Do we remember that when Copernicus (1473 – 1543) developed his treatise on a heliocentric model of the universe with the sun at its centre he was so afraid to publish that the first copy was placed into his hands on his death bed. When Galileo (1564 – 1642) assumed the mantle on behalf of Copernicus, and added description of the orbits of other planets such as Venus and Neptune he was branded a heretic and committed to house arrest for the remaining 9 years of his life. In the 15th century Christopher Columbus found it difficult to find a crew for his historic voyage of discovery because the general belief was that the earth was flat and thus he would sail over the edge into iniquity. History shows that the view of mankind, based on lack of real knowledge over arrogance, can lead to serious misunderstandings. This is where I see the claims of mankind’s influence over climate change today.

What this IPCC report really indicates is that, since their first report in 1999, there has been a number of step changes in thinking and understanding of the complexity of the problem – but without enough understanding to define a universally accepted solution. This is progress, but the contra argument is that we are still in an embryonic stage at the front-end of the curve of discovery. But the frenzy caused from the imposition of such imperfect science has reaped havoc in energy policy throughout the World, and thus my reference to crying wolf.

Using the UN to put their weight behind emotive propaganda regarding climate change has provoked responses from the environmental lobby that has delayed political decisions regarding replacement of current energy generation stock. Surely the UN has enough problems dealing with the issues relating to the essence of its being. Furthermore the people are being taxed to fund clean energy policies for which, to date, there is no proven argument as to the urgency. Blue skies science has traditionally been funded by benefactors, philanthropists, etc and so should climate change science until such time as the evidence is irrefutable. Public funds should not be invested in such embryonic science or technology. I have absolutely no problem with development of new energy technologies as this would be against my fundamental scientist instinct. However, as shown by our wind power investment, there is no payback in any respect to the people whose taxes, in whatever form, are used to develop such technologies so they get a double whammy with also trying to manage their lives in this period of austerity.

As for the IPCC report predicting what will be in 100 years from now I can only comment that had we asked the most eminent progressive thinkers of their time 100 years ago (before World War I) what the World would look like today, how wrong would they have been? My concern, and should be the concern of every one of these 9,000 scientists, is what do we need to do today in whatever reliable form to ensure that we can provide the required energy capacity needed in 10 years’ time to safeguard the momentum of mankind. What we do not need is energy starvation with the ensuing likely chaos and anarchy – even from those banging the drum about clean energy today. And please let us stop kidding ourselves that wind and solar can play any primary part in such delivery.

The irony of energy policy delay in much needed high capacity base load energy generation (as I will argue in a blog already in progress) is that the beneficiaries of these delays will be none other than the fossil fuel production companies – home goal for the environmental lobby.

Perhaps a glowing example from history from which we should learn is the story of the Mayan civilisation from around 2000BC – AD250. The mathematical and astronomy skills of this ancient civilisation are well known, and form part of our calendar today. There are many theories as to how this highly advanced civilisation suddenly collapsed. Their scholars spent most of their time observing the universe, and even lived high in the trees or on platforms never really taking much notice of life on the ground. The popular view to their demise is that their population exceeded the carry capacity of their environment, exhausting agricultural capacity, over-hunting, and converting their forests into cropland thus reducing evapotranspiration and thus rainfall leading to a lack of water. Are we focussing on the wrong end of the universe? Should we take our heads out of the clouds and look to how we manage the fundamentals of life such as food, water, energy, etc. Certainly the research needs a watching brief on the impact of human activity but do we really need to continue with the massive costs of this climate change circus when there are more pressing matters right under our noses?

 

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