13 Jun 2008
Can We Have Rationing Now Please? An Exclusive Interview with David Fleming
As the UK’s energy crisis unfolds, the first places where an energy famine starts to hurt are becoming clear. The rural poor, those whose livelihoods depends on it and those living in those places designed on the assumption that cheap oil will be here forever, although its impact is starting to be felt across the board. On the train the other day I overheard a woman asking those around her if they took the train often. They replied they did, and she said it was her first time, she always drove, but last week she had sat down and worked out that it was cheaper to go on the train than to drive. More and more stories like this emerge every day as the scale of the credit crunch/recession/peak energy shock begins to sink in.
In effect we are already seeing the rationing of fuel underway, but it is rationing by ability to pay, the most socially devisive and dangerous method. I think we are nearing a point where, if people are familiar with the advantages of such an approach, pressure could be coming from the community level up for rationing, something unimaginable even last year. To explore this further, I interviewed David Fleming of the Lean Economy Connection, the creator of the Tradeable Energy Quotas system, still, in my mind, the most straightforward carbon/energy rationing system. You can find out more about TEQs here. His setting out of the benefits of beginning their introduction now is compelling, and one which, in current circumstances, one would imagine any competent government would find highly compelling.
How do you see the unfolding events of the past few weeks? (ie. the runaway price and it starting to make the price of petrol/diesel rise, with the impacts being felt acutely by those on lower incomes and in rural areas)?
Well, this is the beginning of the breakdown of the energy market. High prices are a sign that some people are having to forgo some or all of the oil which they would have expected to buy. In some cases, those purchases are absolutely essential to their livelihoods, and if they are priced out of the market in the oil auction, they will not be able to do really fundamental things like buying the kerosene they need to power their irrigation pumps. So far, most of those who have been affected to this extent are the poor – third world farmers, for instance. But it is coming our way.
The oil market is a complex system, and when complex systems break down they do so chaotically, so that it is impossible even in theory to say in any detail what will happen next. But the outcomes are certain. The energy famine, with oil in the lead, and the other fuels not far behind, is beginning, and, as the gap between supply and need widens, the market will begin to break down. Markets can only stand a certain amount of stress before behaving in peculiar ways. For the past century, the oil market has been a buyer’s market. There are many oil buyers (billions of us), as well as many sellers, and this has kept it stable. In contrast to this, a seller’s market, where a few sellers can determine the price by determining the supply, is unstable. If just one of the sellers stopped pumping oil, or drastically reduced the amount of oil being sold, some of the shipments on which we in the rich countries depend would simply stop.
So, why might one of the suppliers stop pumping? Well, there is a general answer to that: bankrolling unstable regimes causes trouble. But here are two more specific reasons. First, property rights: enormous profits can raise questions about security and orderly accountancy. Other people would like to get their hands on them. Patronage and security arrangements expand out of control, and every time you increase your security arrangements you add another level of insecurity, since you are recruiting more and more people you don’t know, and living at the centre of a storm of jealousy and politics. The prospect of something going wrong rises towards certainty. When that happens, production will be put on hold while local rivals attend to other matters.
Secondly, there is the problem of contango. As the upward trend in the price of oil continues, it becomes more likely that the price in the future will be higher than the price at present. And that means that the value of each barrel of oil you leave in the ground is higher than the value of the oil you produce. The longer you postpone producing it, the better the price you will get, so the rational thing to do (from the point of view of building capital and future income) is to reduce production, perhaps to supply just enough to meet domestic demand, plus a little bit left over to sell abroad. The rhetoric is simple: “We have to conserve our stocks”.
The difficulty is that any of these reasons could trigger a collapse in supply at any time. And that means we are no longer have the luxury of being able to discuss these things in terms of well-behaved changes in price. In a sense, high prices are a dose of sanity. There are many positive things that can happen in a world of very high transport costs. Local food production begins at last to enjoy a serious price advantage over food from the supermarkets. And the tables begin to turn in the whole of the delocalisation process which has been running amok for the last fifty years, as a good, real-world economic case begins to emerge for local shops, schools, market gardens abattoirs, workshops, pubs, arts, leisure, post-offices, self-government.
We will undoubtedly be seeing attempts to repair some of the damage that has been done to local economies, but, all too soon, the problem will move up a gear to the point where localities cannot get the fuel at any price. If the local food and community infrastructures had not been so relentlessly dismantled, we would have had a basis from which to build and respond to it. As it is, we are not starting with competent and confident local communities. We are starting from nowhere. And when the tension in the energy market breaks, the shock will be upon us in days.
What is the role of a rationing system such as TEQs?
When oil runs scarce, it will have to be rationed. If it is not rationed, then the available oil will simply be sold to the highest bidders, and crime will control the rest. What is likely to happen is that the government will be forced to go into the international oil market, where it will buy up an amount which is less, or much less, than the nation would normality use, and it will then put it into the domestic market. If this were done on the basis of price, then the government would simply distribute it for the highest prices it could get. There can of course be no question of this. Under these circumstances, rationing – aka entitlement – is essential. All that rhetoric about how “people don’t like rationing” will quickly be forgotten. People will grasp at rationing as the life-saving solution.
How would introducing TEQs tomorrow help Gordon Brown out of his current predicament, one he has chosen to deal with by talking about increased North Sea exploration and asking the King of Saudi to pump more oil?
He would find it very helpful for the following reasons:
1. If he is quick about it, there could just be a rationing system in place for use when the oil outages begin. We have no reliable estimates of how long TEQs system would take to install. It depends on the urgency: perhaps two years?
On the other hand, if he fails to get a TEQs system installed in time there would, of course, be the alternative of paper rations, and this should not be dismissed because, in the absence of an electronic system up and running, paper rations could seen as be the only available option. Fatally, they would have to be tradable, since energy needs are so unevenly distributed. So there is a parallel cash currency going around which people would store in their houses. This is not an entitlement system; it is a recipe for crime.
And don’t forget that, even if a paper rationing system were thought to be necessary in the absence of a TEQs system, it would still leave a gap of – how long? – three months? between the start of an oil outage and the start of the rationing. The whole of the task of identifying people who would qualify for the rations would have to be done for paper rations just as it would have to be done for TEQs. They would have to be securely distributed. The period without any rationing system at all would no doubt be filled by some government stratagem scrabbled together at the last minute: a limit of ten litres per car, perhaps – but what is to stop people simply driving on to the next petrol station? Number-plate monitoring? But how long would that take to set up? And how would it deal with the gas shortages which would quickly follow?
Life is too short to examine chaos. All we need to know is that an energy-dependent economy that is left without the energy it needs, and without a way of distributing even the insufficient supply of the energy it gets, is in trouble. If the outages are substantial, we are looking at some sort of premature endgame.
2. A TEQs system in place would mean that the response to oil outages would be integrated into a sensible energy policy.
We ought to be already working in a demand framework which guides us firmly and reliably down the energy descent with a rolling time-horizon of twenty years. If Gordon Brown did want to do something which could link his name with intelligent reality, he could, even at this late stage, introduce an economy-wide electronic energy entitlement scheme. He doesn’t even have to invent the concept: one exists – it is called TEQs.
What are the perils of leaving the introduction of TEQs for a significant period of time?
Well, I have partly answered that: the arrival of oil outages in a country whose government has failed to prepare a rationing system in advance would be a case of negligence, a breach of the contract between government and people. We would have nothing in place to guarantee access to energy. But our lives depend on that energy.
If TEQs were introduced tomorrow, how would it affect us and how would we observe those changes?
The most striking thing about TEQs – if it were done competently – is the extent to which it would be really a non-event. There is a lot of stuff written about how complicated it would be, and how confused people would be when handing their carbon cards over when they made purchases, but that is a simple a misunderstanding of the scheme. First, it would only apply to purchase of fuel and energy.
Secondly, practically all the transactions involving TEQs would take place hands-free – that is, by direct debit, or as automatic transfers based on the use of an ordinary credit card. People could have their carbon cards if they wanted them but there is no need for them. Automated debiting is perfectly capable of making the simple transfers of TEQs units that are needed. We could compare the introduction of TEQs with the great reform of the City of London in 1986 – Big Bang, except that in the case of TEQs, you would scarcely notice it.
In fact, there is no reason why the introduction of TEQs should immediately have any dramatic effect on households’ purchase of energy. If we were deep in an oil outage – yes, it would make a difference: it would guarantee that your right to buy fuel and energy would be the same as everybody else’s, and indeed that if you did not need to use your rations you could sell them on the market to be used by someone else who did.
But if we were not deep in an oil shock at the time, any reduction in the availability of TEQs units – and the energy which they entitled you to buy – would depend on the Carbon Budget. And the Carbon Budget could be quite gentle in the early years, allowing us citizens to get used to the idea that we need to work out ways of getting by with much less energy in the future. Alternatively, the Budget could be set to a steep energy descent, and that would be challenging for us all – but hang on: the whole purpose of the energy descent is to provide solutions to questions with lethal potential: to reduce our energy demand on a scale to match energy supply, and to reduce our carbon emission on a scale consistent with the survival of the planet. If you think those are tough and unacceptable things to do, try not doing them…
In short: don’t be spooked by terrors about the consequences of a TEQs scheme: evidence that the government was on the case at last would be a cause for celebration. And there is even better news: some serious progress down the energy descent would begin before the government had even done anything. As Terry Barker and others have suggested in their work on the Announcement Effect, just announcing that an effective scheme was to be introduced – that the nation was at last about to take steps down the energy descent – could be expected, on its own, to get results. The thing is, at present we are wandering in a fog of unreality: there is a sense that we shouldn’t really take climate change, peak oil, conservation, etc, too seriously: they are just tedious clichés of no interest to grown-ups who have real lives to live and real mortgages to repay. A robust systems-based system for guiding us down the energy descent would change our whole perception of what real means. It is not a prospect we should view with alarm.
Do you have a sense of there being a point beyond which we would have left it too late to introduce something like TEQs?
Your question brings to mind the famous phrase, “If you can keep your head when all about you are losing theirs, you clearly don’t know what is going on”. The problems of dependency on a once-off endowment of oil began to be understood in the 1950s. By the 1970s, they were widely recognised. By the 1990s, the oil peak was being modelled in detail. It was evident throughout that we would need to take action ahead of the peak, some fifty years ahead. This problem has not exactly come unannounced. It has been obvious that the essential thing is to avoid, at all costs, the mistake of waiting for the crisis to be upon us before starting to develop an effective response. But it is upon us, now, and we still have not started. The human race has been so entranced with admiration for its own intelligence that it has never worked out how to apply it.
I think it is best not to make forecasts, nor to have a sense of a crisis-point beyond which it is too late – and, instead, to concentrate on doing the right thing without any further delay. And, you know, you can be rewarded for doing the right thing, in unexpected ways. There could be some kind of temporary reprieve – I have no idea what it might be, but sometimes luck does come to those who work like hell to help themselves. Conversely, for those who don’t, it often happens that the reality is much much worse than anybody could have expected.
Announcement Effect reference: http://www.eftec.co.uk/documents/envecon2004/envecon04_CLIMATE_Agnolucci_et_al.pdf
DF 1 June 2008
13 Jun 10:29am
In the talks I do around the country about peak oil, climate change, resilience and transition, I always mention energy rationing, specifically TEQs.
Usually, a few people around the room start looking a little uncomfortable. I ask if anyone’s not particularly happy with the concept of rationing and one or two hands go up, with a few squirming quietly.
I then point out that it’s not “rationing” they’re uncomfortable with, but “rationing based on need”. The point starts to sink in once I point out that we currently live in a rationing system called “economic rationing” and that if you don’t have the coupons with the queen’s head and the number 10 on them, you can’t obtain the items you need.
Once they realise we’re comparing two types of rationing systems (rather than two completely different systems), and once they start asking themselves which of these two rationing systems is fairer, there’s usually an “Aha!” moment.
And that means we’ve just taken another little step in the right direction…
» Can We Have Rationing Now Please? An Interview with David Fleming A System Of A Down: What The World Is Saying About A System Of A Down
13 Jun 10:34am
[…] Now Please? An Interview with David Fleming Posted in June 13th, 2008 by in Uncategorized Can We Have Rationing Now Please? An Interview with David Fleming The oil market is a complex system, and when complex systems break down they do so chaotically, so […]
13 Jun 12:05pm
Thanks, Rob, for two “essential reading” blogs in two days.
13 Jun 12:14pm
Maybe I’m missing something but surely the primary fault in the TEQ systems is the T(radeable) part. If you can sell (and buy) them then in the end rationing returns to means rather than needs.
I know in theory no one will sell a quota they need to stay warm, but that assumes we all act rationally all the time. I don’t and I’m not sure I know anyone who does.
13 Jun 12:46pm
Mr. Peattie brings up a good point. Part of the goal is to see that everyone gets their basic needs met.
We need to remember, though, that non-tradeable rations have always been traded anyway- in a black market.
The black market is much more subject to abuses than any legal trading system. Personally, I’d prefer to keep it open. It’s pretty certainly going to happen that (for example) some dysfunctional folks will trade their energy rations for alcohol; regardless of legalities, leaving their families to freeze. This is not a good thing, but dropping it into the hands of the mafias will not help.
Rationing happens during wartime because it’s necessary. And everyone can see it. We’re getting there.
13 Jun 2:09pm
I do have another thought I’d be glad to have your feedback on- (all of you here). This is a potential direction that has not occurred to many; inverting energy prices.
Currently, big users pay much less per unit than small ones. The reasons for that have mostly to do with establishing distribution and delivery- and it does not have to be that way any more.
This could also avoid the problem just discussed; the tendency for people to cheat on or circumvent rationing. Basically, everyone would pay a pittance for the basic energy required to sustain life- and far far more for “excess” or luxury use. The electric meters already available can do this now. There are ways to cope with industrial needs, too-
More discussion here- forgive the somewhat wordy intro-
13 Jun 2:42pm
Yes, Greenpa is right about the black market. Dr. Mark Roodhouse, a historian at the University of York, did an excellent study looking to WW2 rationing for lessons that could be applied to the idea of modern-day energy/carbon rationing. It is available here: http://tinyurl.com/yqypxo
He concludes that the choice is not between tradable and non-tradable rations, but rather between legal or illegal trading in rations.
Sharon Astyk also wrote an insightful piece on the subject last year: http://tinyurl.com/69377k
» Can We Have Rationing Now Please? An Exclusive Interview with … A System Of A Down: What The World Is Saying About A System Of A Down
15 Jun 2:15pm
[…] Please? An Exclusive Interview with … Posted in June 13th, 2008 by in Uncategorized Can We Have Rationing Now Please? An Exclusive Interview with … The oil market is a complex system, and when complex systems break down they do so chaotically, so […]
15 Jun 4:45pm
Just in case someone is working hard on a good long response to my comment above- by great good fortune, the NY Times has an article on the glass making industry- which is waking up to discover they’re still making glass like the Romans did; and wasting truly enormous amounts of energy. They CAN change- they just never had any incentive to bother. http://tinyurl.com/6qxqfb
More incentive would be a great idea, I think; and energy rates are likely easier to alter than tax programs are to pass and monitor-
15 Jun 4:54pm
I’ve always thought the same. A basic price and then the price rises as more is used.
15 Jun 8:20pm
I enjoyed listening to David Fleming immensely at yesterday’s climate forum, if you can go to one of his workshops, he is very thought provoking and fun
More here http://another-green-world.blogspot.com/2008/06/dr-david-fleming-presents-energy-and.html
16 Jun 10:38am
In relation to the above-mentioned three related issues: Energy Security, Climate Change and the Energy/Poverty relationship, I would like to add the following:
It is believed that developing countries, specially in Africa should wake up. They should for once take the lead because they will be the hardest hit. Beside, they do claim in their “NEPAD” creation that they can resolve themselves their own problems.
Drastic measure are required for ensuring drastic changes of mentality. It is believed that the present increase in fuel price is causing some changes but not up to the point of switching politically and on a large scale to renewable energy and public transport.
We can not leave the market to decide because the latter is regulated by the very short term law of supply and demand.
Why not increasing artificially the oil price (except the kerosene for the poor) at national level and use the benefit to research, develop and launch alternative and clean sources of energy (CSE).
This should evidently be accompanied by relevant policies, which would finish with fossil fuel monopoly, ration its consumption, facilitate the spread of CSE and cushion the eventual short effect on the poor. But this should not be too hight has the real poor are not depending much on oil in Africa.
That would be the bold political decision, which I believe, the situation requires. Besides this would no longer be a lip service to global warming.
In the other hand, it is not certain that African countries could gather enough independence, commitment, strength and political will to take the lead. But the EU has shown that it has what is needed to lead the way.
Renewable Energy Centre
16 Jun 11:18am
David Fleming’s website claims the following:
“TEQs (Tradable Energy Quotas) would reduce our reliance on fossil fuels fast, guarantee that we meet our agreed emissions obligations and empower communities to address the challenges of our times, allowing us to move into a happier, thriving future.”
I have a problem with the word ‘guarantee’. There are obvious merits in the simplicity of limiting the use of TEQs to energy transactions but this leaves a large, and growing omission, related to the embodied energy in the goods we buy. A recent paper by Dieter Helm and others (http://www.dieterhelm.co.uk/publications/Carbon_record_2007.pdf) suggests that, the deficiencies in the UNFCCC methodology used to measure our emissions under Kyoto mean that emissions equivalent to 50% of our actual smokestack/tailpipe emissions nationally go unmeasured. The bulk of these are due to the embodied energy in the goods we import (after crediting exports) – and this deficit is growing. Two years ago the NHS thought that its CO2 emissions were around 3.7mte/year because it only measured its building energy use. Now it measures its transport and procurement activities this figure has risen to 18mte/year (http://www.sdu.nhs.uk/get_involved/carbon_reduction_feedback.php).
As currently proposed, TEQs are not a sufficient method for controlling emissions. We will either have to extend the application of them or introduce emission related taxes on the embodied energy in goods and services. The first step is to start acknowledging that this is a real issue.
16 Jun 4:47pm
Thanks for your comments. I’m the TEQs Development Director at the Lean Economy Connection, and we certainly do acknowledge the issue of embodied energy, which is discussed in our booklet Energy and the Common Purpose (downloadable here: http://tinyurl.com/2rqwz2).
As you say, for simplicity’s sake it makes sense to only require the surrender of TEQs units for fuel and energy purchases, but this does not mean that embodied energy is not included.
If, for example, you want to buy a table, then the company who made that table would have to buy TEQs units to cover the energy involved in the manufacture. This would come out of the national TEQs budget, and the company would pass on the cost to the end consumer via the cash price of the table.
This accounts for domestic embodied emissions, but I think your point was more about imported embodied emissions. TEQs is explicitly a national scheme as common purpose is dependent on collective motivation on a scale in which individual effort is seen as being significant.
This means that TEQs alone is not sufficient to address emissions globally, and needs to exist within a global framework such as Contraction and Convergence.
Ideally, there would be a TEQs scheme in each nation, which would mean that embodied emissions would always be accounted for within a robust national budget, but given that TEQs will certainly be implemented by some nations before others, yiu are right to say that import tarriffs will be necessary to ensure that domestic producers are not disadvantaged. This was regarded as politically unthinkable until recently, but no longer: http://tinyurl.com/2spdvg
Incidentally, I couldn’t agree more with your criticism of the inadequate Kyoto and EU ETS systems, which are simply failing to address the problems we face in any relaistic way. I have recently been speaking on this very topic.
I hope you are reassured that we have considered these issues, and if you have further comments to make please do come and join the conversation in our TEQs forum, which can be found at http://www.teqs.net
All the best.
16 Jun 5:52pm
[…] would like to echo Graham and point you to Rob’s excellent interview with David Fleming for brilliant insights on where we are with liquid fuels and some options for […]
16 Jun 7:17pm
Agreed. TEQ is not the complete response.
We should also define an import/co2 tax for the “embodied energy in the goods we import” … and kill WTO. But as well a CO2 tax/head/km to the airliners/ship/public transporter as well as for all the useless, non recycled and CO2 heavy packaging that we buy everyday.
16 Jun 11:31pm
Just to say that in lots of places (e.g. Valencia in Spain) water is already priced as suggested above: the first bit you use is cheap; the rest gets increasingly expensive.
Zone5 » Energy Famine
17 Jun 1:12pm
[…] reading: Rob Hopkins Interviews David Fleming. David Fleming, creator of Tradeable Energy Quotas (TEQs) and author of “The Lean […]
26 Jun 9:14am
shaun wrote: “that import tarriffs will be necessary to ensure that domestic producers are not disadvantaged.”
Wouldn’t the WTO have something to say about this?
They’ve spent the last 30 years dismantling these sort of planning mechanisms across the developing world..
PL wrote: “and kill WTO”
26 Jun 9:12pm
Yes, stuffit, they certainly are having a few things to say about it, but they appear to be fighting a losing battle.
As I highlighted with the link above, Jose Manuel Barroso, the president of the European Commission, like me, sees only two alternatives to simply ignoring the problem of climate change:
i) global agreements
ii) tarriffs on those who do not do their part
There is of course a third option – allowing domestic industries in reponsible countries to suffer, but that is even more unthinkable than tarriffs.
The New Economics Foundation produced a report a few years back entitled Free Riding on the Climate: The possibility of legal, economic and trade restrictive measures to tackle inaction on global warming. It was essentially an argument for exactly the kind of tarriffs I’m talking about.
Now what is most interesting is that when NEF wrote the report they extracted an admission from Pascal Lamy (then at the European Commission, now Director-General of the WTO) that the EU would be within its rights to pursue that course of action…
Also, as this article highlights, tarriffs that “levy punitive tariffs on greenhouse-gas-intensive products imported from countries that lack “comparable action” to that of the US, starting in 2020″ are contained in the central piece of global warming legislation now before the US Congress, which would of course also impose emission controls on US industries. Industrial lobbies and labor unions are pushing hard for these sanctions to take effect more quickly.
From the same article:
“European Commission President José Manuel Barroso, French President Nicolas Sarkozy and industrial chambers of commerce strongly advocate a similar tariff system, leading many analysts to predict that the EU will also adopt some sort of green tariff system in the next few years.”
Of course the key benefit is that the country or countries taking a lead gets a headstart in developing the carbon economy, technologies and lifestyles that the rest of the world will be moving towards. Always assuming that humanity does actually adapt to its global circumstances of course, and not just keep ploughing on until we hit the wall.