“The Energy of Nations” by Jeremy Leggett

Leggett_Energy_of_NationsISBN 13: 978-0-415-85782-6. The Energy of Nations – Risk Blindness and the Road to Renaissance” by Jeremy Leggett was published in 2014 by Routledge. Remarkably this is the first of Jeremy’s books we have reviewed although the likes of “Carbon War” and “Half Gone” had been knocking about our Amazon wish list for many a year. Jeremy is our kind of guy. The capitalist it is OK to like. He is a straight-talking, no-nonsense kind of bloke. Not for him the silly hats and tree-hugging nonsense of the environmentalist. He knows how to communicate the risks arising from resource depletion and climate change. As such this is his tour de force – a text book example of how to communicate risk.

First off we have to point out that the title maybe slightly misleading. This is not some modern take on “The Wealth of Nations” by Adam Smith. It is not an economics textbook. The clue is in the subtitle. It reads more like a part-autobiography being lifted by Jeremy’s own business diaries from 2004 to 2013. At times it reads like an Ian Fleming novel with Leggett (our James Bond) flitting between meetings with senior industrialists, bankers & government ministers in the venues of the elite around the globe. This is a man who is equally as comfortable blogging for both the Guardian and the Financial Times newspapers at the same time. Jeremy simply fits everywhere. He tells tale of him joining a march in London against the G20 in April 2009. He was wearing his usual business suit with a copy of the FT under his arm. He was targeted twice by CNN for a TV interview during the march. We need a million more like Jeremy.

Jeremy has had a long and illustrious career straddling both academia and the oil industry. This has given him unique insight into the energy sector. Beyond that he blends a narrative that starts in energy but brings in big business, finance and government to tell his tale. He has condensed complex threads into a readable format giving the reader all the clues needed to join up the various sob-plots in this particular thriller. He links financial crashes to risk management. He joins up our understanding of a potential coming shale gas bubble to the real threat of a carbon bubble generally. It is all here.

The book is split into two parts. The most lengthy section is the initial “history” which wraps up the “risk blindness” in financial and energy markets 2004 to 2013. The second section covers the potential for “renaissance” in the future via a number of potential collapse & renewal scenarios. This narrative is built around five key risks:

  1. Peak Oil – this seems almost “old fashioned” these days but the update from Jeremy is welcome
  2. Financial shock – stemming from the failure to address fundamental flaws in the financial system
  3. Climate Change – relating specifically to the potential to create an economic crash
  4. Carbon Bubble – the risk of unburnable underground energy assets upon which our financial system is assuming can be converted into wealth in the future
  5. Shale Gas & Oil Bubble – the risk that fracking is just another dot com boom in the making

This book is just one person’s view. Jeremy makes that clear. It is quite a personal journey through this risk landscape. Although the author cites many a pertinent study or report through the book much of the insight is delivered through the anecdotes and newspaper cuttings of the day. The writing seethes with pent-up anger at the system from a man who is working hard within that system. He is so frustrated with what he calls the energy and financial “incumbency” – something many of us simply call the “establishment”. But language is everything and Jeremy IS the ‘establishment’ and does not wish to undermine his position by portraying himself as ‘anti-establishment’. This is his strength.

Just 39 pages in to this 229 page narrative and we have first mention of the Transition Town movement. It’s June 2007 somewhere in one of London’s deprived boroughs (we guess Brixton) and Jeremy has been asked to talk about Peak Oil. Jeremy is very quick to “get” the importance of Transition. He sees where it fits immediately and he accepts its contribution to his mission with open arms. How refreshing. How many times have we read books recently that don’t even mention Transition or have to label it as some-also-ran environmental group?

Jeremy is also quick to identify the relevance of Transition to the opportunity within community renewable energy. Remember, this is 2007. In the same month, in the same year, Jeremy is rubbing shoulders with the then British Chancellor Gordon Brown and his Foreign Secretary David Miliband. He tells them both about what the Transition Movement is. It was a year later that David’s brother Ed was publically speaking about the Transition Movement in favourable terms. Then he was chief minster at the UK’s Department of Energy and Climate Change, today (2014) he is head of the opposition and likely to be the next Prime Minster.

Jeremy is a man who spots what is important; the signal in the noise. He can take the signal and amplify it to those who need to listen.

Fast forward to November 2007 and Jeremy is meeting the Chief Economist at the UK’s Department of Business Enterprise and Regulatory Reform. He is there to talk about peak oil risks. He is considering creating an Industry/Government Taskforce to manage the risk. The Economist is not quite playing ball. One phrase struck me:

“She delivers her answers, it strikes me, as though this is all a role play exercise with which she can’t quite engage seriously.”

Been there, done that: I had my own similar experience delivering a similar such argument to my own local District Council. The answers are polite, the answers are always non-committal. They are humouring you. The Civil Servants prefer the sunny-side-up version. They are not paid to rock the boat or scare the horses. Hence the British Government will not engage an Industry Consortium publically because, if the details we leaked it might

“…frighten the market and create needless panic.”

Ahhh yes, needless panic, that would never do. How sensible. By April 2009 [and Jeremy’s march against the G20] the author is starting to notice the downward trend in the prices of renewable energy:

“Given these growth rates, it was becoming increasingly clear to me that renewable energy was beginning to appear on the radar screen of energy-incumbency bosses as some kind of threat.”

A threat you can either co-opt or fight. Jeremy describes a curious mixture of both. Whilst some energy companies made gestures towards building their own renewable energy business others would fight all the way. Even some of the “gestures” had no staying power. Renewables seemed fashionable for a while whilst they were no threat. But when they seriously started to look effective and cheap it seemed the incumbency dropped them like a hot brick. Change is a scary thing.

In August 2009 the British Government (after rejecting an approach for cooperation on a Peak Oil Risk report with Jeremy’s own UK Industry Taskforce on Peak Oil and Energy Security “ITPOES”) published its own report. The Wicks Review mentioned peak oil only once whilst accusing the early peakists of ignoring the role of price in stimulating exploration & technology. In fact the UK ITPOES ignored none of these things. Worst of all the Wicks Report chose not only to ignore ITPOES but to ignore its existence. There is no hiding Jeremy’s anger.

Then we hit Copenhagen December 2009 and the Climate Change Conference. Regardless of the Wicks Report, 2009 had been a “good year” for those concerned about peak oil. It seemed that the message was getting through. Now Climate Change took centre stage with what looked like a good chance of the world agreeing to cap global emissions. It wasn’t to be. This is a pivotal moment in “The Energy of Nations” for Leggett. Everything that comes after is, in some way, related to THAT failure. For those of us at the time it just seemed like another predictable failure of little direct consequence. The genius of Leggett is that he paints a picture of exactly what the legacy is in the financial markets. The markets got the message straight: nobody is taking climate change seriously, hence you may burn all the fossil fuels you wish because nobody will stop you. Hence all your underground reserves have a value and you can keep developing them. No fear of stranded assets and no risk management strategy is required to map a path away from oil, coal and gas dependency. Burning carbon was just fine – keep doing it, without consequence, forever.

In April 2010 Jeremy is at Oxford University learning about the neuroscience of irrational behaviour. This is right up polymath-Leggett’s street and answers for him one burning issue: why do markets and governments behave so irrationally in the face of over-whelming evidence? It is also at this time that he gains added insight into the importance of community to the human mind. He concludes:

“…I realise that even though I was already interested in the role of community in fashioning a survivable energy future, I am even more so now.”

By late 2010 events are turning sour for Jeremy. He recites tales of massively over-subscribed share offers for new coal extraction enterprises whilst similar renewable energy enterprises flopped. Why? Jeremy links this directly to the failure at Copenhagen and the failing of his capitalism:

“There were a lot of capitalists out there, it seemed, who by now had grave misgivings about the course of modern capitalism.”

Indeed one of Jeremy’s correspondents used the phrase “suicidally dysfunctional”. In the Spring of 2011 the author is watching an interview with Fatih Birol, Chief Economist at the IEA [International Energy Agency]. When prompted about how urgent the peak oil problem could be he says that it would have been better if governments had started work on it at least ten years ago. Leggett is beside himself with rage. Today I am reminded about the similar narrative playing out with Climate Change; ie, we deny there is any problem until it is too late – then we complain about it being too late to do anything.

In July 2011 Jeremy’s Solar Century is working with the Transition movement at the Wadebridge Renewable Energy Network (WREN). Shortly afterward Jeremy sets up Carbon Tracker with the mission of measuring the unburnable carbon bubble for the financial markets. As usual with everything Jeremy does this is right on the money – doing the right thing at the right time using the language the market understands. It drew the comment from one anonymous City analyst who described the Carbon Tracker analysis of unburnable carbon as a “bollocks subject”. Such is the macho testosterone-fuelled attitude of so many in the financial system. Jeremy describes this as a “crude expression of a belief system, not a logical rebuttal of an argument”. Hence a whole new class of toxic assets has been identified. But how will the markets respond? Flee or fight?

[We hope they will flee and de-fund fossil fuels. However, what if they fight legislation on carbon emissions? It is HOW governments ACT to mitigate climate change that is the threat to the money markets. They will only act ‘correctly’ if they perceive some benefit to them. Hence we see enthusiasm for emission trading systems BUT not stranded assets. One is profit, the other is loss. We know what we like. We tread a fine line…]

In November 2011 and Jeremy is sitting with Energy Minster Charles Hendry at an event laid on by Transition Forest Row in the Tory heartland. The Transitioners are angry about the cut to the Feed In Tariff. The Government Minster warns them that they should not upset the big energy companies for fear that they might leave the country.

We enter 2012 in Jeremy’s narrative with a return to the peak oil story. The price of oil is on the up and nobody has spare capacity any more. However, the market is now dominated by the shale oil & gas narrative. Regardless of any evidence this is being talked up and up. Suddenly peak oil is out of fashion in the USA and, by extension, everywhere else. Leggett walks us through the fundamental numbers again. There is no doubt that, other than moving the date of peak oil out by a little there is nothing to the market hype. It is a bubble wrapped in a bubble. Oil fields are still depleting. Shale plays cannot make up the shortfall. More than that it requires an awful lot of fracking wells to make up losses. Hence shale is expensive and has a much lower net energy yield than the old oil fields they are meant to replace. But the markets can’t see these fundamentals whilst there is money to be made on the way up. And the way down.

In the meantime the UK energy incumbency has embedded 50 full time employees free of charge inside government departments. The renewable industry has none. The Department of Energy and Climate Change has been plying the Nuclear Industry with sensitive policy documents. The incumbency and government are as much in bed with each other as they have ever been. Renewables are left out in the cold with a walk-on part later in the act. By 2012 the Chancellor George Osborne invited the fracking industry into Britain to make it a “gas hub” for Europe. Support for shale oil and gas would be paid for by scaling back support for renewables.

Events appearing to be spinning out of control and in entirely the wrong direction. Leggett is despondent. Between this and an unfolding series of financial scandals hitting the big banks, Leggett warns of a coming second great crash. A crash that will change everything if allowed to happen. If change does not happen Jeremy warns, none of us will have anything to retire on… It is always the darkest before dawn.

So we move onto part 2 of the book: the future. It comes with a health warning from Jeremy. We have a choice between two really bad outcomes: either an oil shock in 2015 or a financial crash soon after. He walks us through the analysis and his reasoning. It is sound but hardly cheery reading. By the penultimate chapter Jeremy gives us a vision driven by what he calls the “power of context”. This basically means that everything has to get really, really bad before it can get better. He draws a parallel between now and the pre-war politics of Europe. Nothing would really get done until Hitler invaded Poland. THAT is the kind of context we are talking about. All out war-of-a-kind driven by circumstance.

“In the rebuilding of economies and societies after the crash, local economic activity will need to be powered by locally sourced energy supply…”

Necessity is the mother of invention. Germany is already leading the way with its energy transition. It is up to us to follow or face the consequences. So what of “renaissance”? The final chapter leads us onto asking the big questions. Using examples of collapsing societies like the Maya and Romans and quoting societal collapse scenarios from Jared Diamond, David Webster and Marcello Canuto, we learn:

“…we’re not very rational in how we think about how the world works. They [the Maya] had their rituals and sacrifices. Magic, in other words. And we also believe in magic: that money and innovation can get us out of the inherent limits of our system, that the old rules don’t apply to us.”

Jeremy implores the reader to see beyond the cost of the energy transformation:

“We think of the transformative power such a new energy paradigm would hold: renaissance of community, improved human health, enhanced local and national security, and on and on – all made possible by the innate pro-social character of renewable energy…”

The author is a true believer. His/our renaissance is driven by passion and belief. Hence, in the end Leggett is optimistic about the future. We will do the right thing after finally exhausting every other possibility. Jeremy’s “Road to Renaissance” is driven by the explosive growth of renewable energy, the over-whelming advantages of clean energy, clean energy as being “pro-social”, the growth of the power of communities… And the power on context.

“…being more suited to local economic activity, clean energy favours the renaissance of community.”

Now THAT is something right out of the Rob Hopkins playbook isn’t it? Just a handful of pages from the back of the book Jeremy again throws his shoulder against the wheel of the Transition Movement – singing its praises: local money, local energy and community resilience…

So, what to make of it all? This is a whistle-stop tour through nine years of the author’s life. Nine years battling government intransigence. Nine years of watching the energy and financial incumbency thwart every attempt at building the renaissance. Yet still he fights on like some pre-war Churchill – his time will come.

Do we have to rely upon the power of context? We hope not but fear that Jeremy is right. We can be prepared for things to come. That is part of the Transition – the ability to ride out tough times. That is resilience. Is this the whole picture? Maybe not. Leggett takes no time to address financial institutional reform in any depth. It is not his field, he only exposes the rotting corpse, he knows not where to bury it. To examine such issues as monetary reform we should point the reader elsewhere. But as a snapshot in the life of a thoroughly modern and very green capitalist this is beyond compare.

“The Energy of Nations” may well not be remembered in two hundred years as “The Wealth of Nations” is today but this is not the point. This is an overview of the energy landscape in the early 21st Century. Maybe in one-hundred years the historians will look back through its pages and marvel at the risk blindness of their forebears… That’s if there will be such time for things…. Let’s hope so.

Recommended.

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