Oil Badly Hurt By Global Warming Fight

By Paolo von Schirach —

WASHINGTON – Well known energy expert Daniel Yergin wrote a thoughtful WSJ op-ed on the horrible headwinds the oil sector is facing on account of the lingering effects of the covid pandemic economic devastations, (The Oil Industry Is Stuck in Virus Alley, December 29, 2020). He describes the pain caused to the energy industry by the sudden collapse of oil demand due to the virtual freezing of international and domestic travel and other key energy intensive economic activities. As hundreds of millions of previously mobile people stayed at home on account of covid, demand for oil-derived fuels collapsed.

The impact of covid

According to Yergin, the open question is how long will it take for the global economy, including business and personal travel, to return to normal now that the covid vaccines distribution started. The oil sector will not recover, he warns, until the world economy will go back to normal, that is only after covid is behind us.

Fine. But is the devastating covid impact the entire oil woes story? Not really. Well before covid struck at the beginning of 2020, the oil industry was already facing other major challenges. After covid is gone these problems will still be there. But none of them were mentioned by Yergin.

There are other problems

Surprisingly, not a word in his article about the mounting threats to the profitability, and indeed continuing viability, of many oil companies represented by chronic crude oversupply, the impact on the industry of more and more global warming public policy countermeasures, and the threat of a more mature, growing electric cars industry.

Sure enough, in the short term the covid pandemic is the most immediate and historically unprecedented challenge facing the oil industry. Still, even assuming a soon to come happy ending to the covid induced global mobility and travel crisis, the oil industry future is not that bright.

Structural oversupply

Way before covid hit us in the early months of 2020, there was structural oil oversupply, largely caused by the unexpected spectacular success of hydraulic fracturing (fracking) in the US. Fracking led to the doubling of oil production in just a few years, this way cutting US oil imports by millions of barrels a day. Since major oil exporters, (Russia and Saudi Arabia in the first place), did not significantly cut their oil production as a way to offset additional supply from the US, the gigantic increase to global supply caused by the unexpected success of American fracking companies created a global oil glut and consequently a crude price collapse.

In ordinary circumstances, assuming stable or growing world demand, the global oil sector would try to find a new equilibrium via a combination of production cuts, bankruptcies of overleveraged high cost producers, mergers and consolidations. And some of this has already happened, with more to come.

In the US, the highly leveraged small and medium frackers that cannot survive with crude prices lower than their production costs (on average about $ 50 per barrel) have gone bankrupt, or sold theirs assets and gone out of business. But, industry consolidation and production cuts notwithstanding, oil prices did not go back to $ 100 per barrel, a level that would guarantee healthy profits for most participants. Please note that all this was pre-covid.

Battered stocks

Investors noticed. Indeed, even in the context of a growing US economy, for many years oil companies underperformed most of the others stocks. In 2019, well before the covid induced additional price collapse, energy companies were dead last in the US S&P 500. Yes, bottom of the bottom –in a heavily oil dependent, booming US economy.

Going forward, even in a back to normal post-covid global economy, oil overproduction and therefore low prices will probably continue, reducing the profit margin outlook for oil companies large and small. Even with covid well behind us, do not expect a much diminished Exxon to make it back to the Dow Jones Industrials index.

Anti-oil public policies

And this is only half the story. Indeed, beyond the supply glut, we have to factor the impact on the oil industry of public policy responses to global warming enacted or about to be enacted by many governments in the developed world.

While it is doubtful that in the near and medium term there will be truly viable energy alternatives to fossil fuels, the now accepted conventional wisdom (right or wrong as it may be) is that as a minimum governments must work with alacrity –starting immediately– to devise ways to reduce fossil fuels consumption. In the near term, we can expect new or higher carbon taxes, higher gasoline taxes, and more mandates for more fuel efficient vehicles. All these public policy measures will make sure that demand for oil-derived products will not grow.

The combined damage of the oil glut and public policy changes is already felt. For instance, in Alberta, Canada, the once thriving oil sands business was in recession pre covid. Countless jobs have been lost. The industry experts realize that this slump, while made much worse by covid, is here to stay. The Alberta Provincial Government is trying to find magic recipes to quickly diversify the oil dependent economy. In the US, thousands of fracking related jobs have been lost, while the economic pain has spread to the vast universe of suppliers and vendors, from pipe makers to those delivering sand used for fracking.

Electric vehicles have arrived

And then we have electric vehicles, EVs, finally becoming viable. Granted, EVs to date represent only a small fraction of total US and global auto production. Even assuming significantly higher numbers due to technological breakthroughs in battery technologies, it will take decades before the world automobile fleets will become mostly electric. All true. But, with sector leader Tesla finally becoming profitable, we probably have reached an inflection point.

For these and other intangible reasons, we have now a new strong anti oil sentiment spreading throughout the world. For example, the government of Denmark recently announced that it wants to phase out dependence on fossil fuels. The Japanese government indicated that it wants 100% electrification of the car sector by 2035, or so. A few months earlier, California declared a ban on the sale of new gasoline powered vehicles by 2035. The big automakers got the message. They have responded to the these new policies with big announcements about investments of billions of dollars in new lines of EVs. They are not betting on a bright future for gasoline powered vehicles.

Not a bright outlook for oil

It is true that we still do not have the proven, scalable technologies that will quickly get us to a new post-oil world. Still, increasing opposition to fossil fuels and more aggressive investments in the development of alternatives to the internal combustion engine are the new trends. Given all this, looking at the world ten or fifteen years from now, there are good reasons to project at best stagnant oil demand.

If this is indeed the case, who wants to invest today in major new oil projects that require huge up front capital outlays, normally justified with the assumption of steady returns over at least a decade? Getting beyond the covid induced oil crisis will be helpful for the battered oil industry. But it will not put an end to the fossil fuel sector’s systemic problems.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Sciencand International Relations at Bay Atlantic University, also in Washington, DC.

Can Biden Create a Viable Green America?

By Paolo von Schirach

WASHINGTON — As president-elect Joe Biden announced his team in charge of climate change and energy, it seems we are still at the virtue signaling stage. As expected, Biden nominated people with unassailable green credentials, starting with former Secretary of State John Kerry who helped shape the 2016 Paris Agreement. Beginning on January 20, 2021, Kerry will fill a new “Climate Envoy” cabinet level position, coordinating and directing all climate change issues for the Biden administration.

America will go green

I fully understand the intention to convey to the American electorate and to the world in general that the Trump administration “climate denial” beliefs were a temporary aberration. The new message is that from now on America is and will be an active player when it comes to international efforts to cut down emissions at the source of global warming.

Regulations alone will not do the trick

That said, I am concerned that these green technocrats will focus primarily on the tools they have, that is imposing mandates through regulations, (it will be hard to pass significant green legislation in this deeply divided Congress), in order to speed up the conversion leading to a non carbon economy. And this would be unfortunate, simply because regulatory tools by themselves are inadequate.

We need new technologies

Indeed, contrary to popular narratives, America’s inability to properly deal with the global warming challenges we are facing is not caused mostly by entrenched fossil fuels lobbies and their Republican defenders in Congress who cleverly place obstacles in the way of green progress.

Yes, the fossil fuels lobbies do play a role. But the real problem is that America will be able to make fast progress on its way to becoming green only when we shall have truly cost-effective technologies that will be able to successfully replace the carbon based systems we have now, without any significant economic penalties in terms of higher energy cost for both corporations and consumers, and loss of productivity.

The problem is that the non carbon energy and industrial technologies we have today, while vastly better and cheaper than what we had only a decade ago, are still not very efficient and cost-effective. They are inadequate and still too expensive. If the Biden team using its regulatory powers will force their adoption at the current stage of development, this “solution” will not allow us to get to a rapid and efficient transition away from fossil fuels.

No storage systems for electricity produced by renewables

Case in point, solar and wind power generation has become much cheaper and more effective. However, a dramatic renewable energy scaling up is hampered by the lack of energy storage systems (think of giant batteries or something equivalent) that will guarantee uninterrupted electricity supply when the sun does not shine and the wind does not blow. On account of this unsolved storage issue, solar and wind today require back-up systems powered by fossil fuels. The need for back ups means added costs and lowered efficiencies.

Until scientists invent and build commercially viable energy storage systems, the full potential of renewables cannot be displayed. And electricity production is only one part of the lack of critical innovation problem. Many key industries, from cement to steel to petrochemicals, use technologies that produce great amounts of emissions. To date, we simply do not have viable alternatives to these technologies.

We need innovation…

Put it simply, we need dramatic innovation across many sectors in order to get from a carbon dependent to a non carbon economy. Using regulations and mandates to force the adoption of the imperfect tools we have developed thus far, simply because Washington is and will be under pressure to demonstrate that “we are doing something”, will cost a lot and will not help us much in our effort to substantially cut down emissions while retaining a vibrant economy.

Do not get me wrong. We do have some tools, such as electric vehicles, solar and wind power. For sure, due to the persistence and ingenuity of many scientists and entrepreneurs, they are getting better. But, at the moment, their cost is still too high and their performance too low in order to become viable alternatives across the board.

In order to get there, it will take truly cost-effective alternatives, whose adoption will be a no brainer for anybody looking at value for money (irrespective of their impact on CO2 levels in the atmosphere). In order to begin transforming our 20 plus trillion dollar economy (still based on dirty technologies relying on dirty fuels) into a super efficient green giant, we need breakthrough innovation that we simply do not have today.

For example, only once we have a $ 20,000 Tesla (or equivalent) that can travel 600 miles on a single battery charge we shall see the mass adoption of electric vehicles. The electric vehicles we have now are interesting. But they are not transformative.

…In many sectors

And this is not just about oil and gasoline and electricity still produced by natural gas and coal. It is about large, high emissions industrial sectors like cement, steel, petrochemicals, and more. In order to make real progress in our efforts to reduce greenhouse gases, we need innovations that will allow us to radically reengineer most of our industrial base, on top of the transportation and power generation sectors.

This is an enormous challenge. Having good people with unmistakably good green credentials in charge of the policy-making process in Washington –people who seriously believe that we have to do a lot more, starting now– is important. But well intentioned technocrats do not do magic. They cannot will critical transformative innovation into existence.

What can Washington do?

So, what can the US Government do? It can still do a great deal. Many envisage a two pronged approach. Number one: create real federal incentives to difficult open-ended research, via substantial public funding. Number two: enact a carbon tax that will reflect the true cost of carbon-based fuels and technologies in terms of additions to harmful emissions, air quality impact, and health hazards. This tax will signal producers and consumers that it is time to reduce reliance on fuels and processes whose real cost to our society is not reflected in their price.

Boost government funded R&D

Regarding the first point, Washington must launch a major publicly funded R&D effort aimed at boosting basic research in difficult and unproven areas affecting energy and various high polluting manufacturing technologies. Washington can do much more to spur innovation by supporting new research efforts that commercially driven enterprises shun because they are not persuaded that spending on such research can lead to money-making solutions within a realistic time frame.

Granted, much of this new government funded basic research will probably yield little, or nothing at all. But we have to try, simply because we know that what we have now will not do the job. With Washington in the lead, America must launch a massive multi-year national effort aimed at discovering and then refining new modalities to power our economy and new, cost-effective, non polluting ways to make things.

If Uncle Sam agrees to bear the cost of major risky efforts that the private sector will not engage in, this may change the mood of the nation. Scientists eager to pursue interesting but unproven new concepts will get funding. Many new wheels will start turning. New connections and synergies will be created. In time, valuable green innovation will be produced and eventually adopted.

Carbon tax

The second component of this strategy will be a carbon tax. Of course, new tax laws will require the creation of a bipartisan congressional consensus uniting Democrats and Republicans. A very difficult but not impossible objective. Washington should match new R&D spending into unexplored or ignored fields of research with a reasonably high carbon tax that will signal to producers and consumers that it is time to start moving away from emission producing technologies and products. If properly modulated, a combination of government money hopefully leading to valuable innovation and a carbon tax that clearly signals that we have to start shifting away from dirty technologies may do the trick.

Mandates alone will not do

The alternative is not very promising. The alternative is to impose more and bigger mandates that will force energy producers, utilities and various industries to reduce emissions by adopting as yet inefficient and therefore very expensive solutions. While this approach may yield significant emissions reductions, this will be done in a non cost-effective manner, this way hampering the overall US economy and its vibrancy. As a result, scarce capital will have to be devoted to expensive conversions that will do something, but not enough to transform our gigantic economy into a nimble green machine.

I am not suggesting that throwing billions of US tax-payers dollars into unproven fields of research, in combination with a carbon tax, will magically and quickly produce the innovation we need. Still, this approach will stimulate research and new efforts that may indeed produce something valuable, at some point. Imposing green standards by regulation will also produce some results. But the unintended effect will be the stifling of the entire US economy without getting us to the green transformation we are seeking.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Sciencand International Relations at Bay Atlantic University, also in Washington, DC.

The End of Oil?

By Paolo von Schirach –

WASHINGTON – The Wall Street Journal reported on December 4th that “Denmark is to end all new oil and gas exploration with immediate effect as part of a plan to phase out fossil fuels by 2050, one of the most drastic moves by a crude-producing nation to curb carbon emissions.” Of course, given the small size of the Danish economy, and Denmark’s modest role as a crude producer, (about 100,000 barrel per day), this news will not move markets.

Symbolically important

Still, this announcement is symbolically very significant. It is yet another signal of a shifting mood. Denmark, a modern, rich, innovative European country, says officially that oil is essentially dead. We know that in terms of public sentiment fossil fuels are somewhat or very unpopular in Europe and beyond. But we are now entering new territory. We are now shifting from “green righteousness” as a posture embraced by those who want to signal some kind of moral superiority to the formulation of workable alternative energy policies. Mostly because of increased global warming concerns, many governments are actively planning –today– for a world in which carbon will play a smaller and smaller role. Granted, we are not quite there yet. But getting there is looking a bit more feasible every day.

Not just posturing

From this perspective this Danish announcement cannot be dismissed as mere green posturing. It is about having turned a corner. Fossil fuels, with all their accompanying emissions contributing to global warming, are the past. Renewable energy is the future. Indeed, increasingly the present.

Of course, easy to argue that while a such a shift away from oil may be realistic for Denmark, it is just a dream for heavily oil dependent America. True. However, while a non-oil, green energy future is still a dream in the US, it is not an impossible dream.

Electric cars have a future

Take electric cars. Until just a few years ago they were the subject of jokes. Today, Tesla –the US leader in this space– has an astronomic market capitalization, (around $ 500 billion), increasing sales, and –guess what– sustained profits. Realistically, if we remove the hype Tesla and electric cars in general are at best work in progress. The batteries that power these vehicles, while now cheaper and lighter, are still too costly. Compared to old-fashioned internal combustion engines, EVs are not very efficient, and comparatively more expensive. To date, Tesla cars are still a luxury or high end product lacking mass appeal.

However, we know that practically all car makers around the world, having looked at Tesla’s rise, have pledged to invest billions of dollars in electric vehicle technologies. Major breakthroughs that will improve battery efficiency this way driving overall production costs down are not guaranteed. But they are entirely possible.

We will still rely on oil

The skeptics are ready to point out that even if there will be fantastic transformative innovations that will make EVs more affordable and therefore appealing to tens of millions of consumers it will take many years before we shall have a large national fleet made out of EVs. We start from an extremely low base. EVs barely made 2% of overall US car sales in 2019.

Which is to say that even assuming a fast conversion rate from gasoline to electricity millions of Americans will continue using cars powered by gasoline burning internal combustion engines for many more years. And this means continuing reliance on oil derived gasoline. Furthermore, oil will still be needed to make jet fuel for civilian as well as military planes, in addition to oil for diesel fuel to power trucks, locomotives and ships. Not to mention oil for plastics, and for other oil derived products we still depend on. All true.

Not a promising future

And yet, I still believe that oil is doomed. Consider this. Oil companies executives must look at very long time horizons when contemplating investment in costly new exploration and production projects. It makes sense to invest billions of dollars in new exploration and production today only if we are reasonably sure that future oil prices will be high enough to repay the initial heavy investments, and then generate pure profits for several years.

Well, if I were an oil corporate manager trying to predict the profitability of the oil sector 20 years from now, I would not be too sanguine about sinking –today– billions of dollars in new exploration. Looking ahead, and especially at the emerging anti-fossil fuel consensus in most developed countries, I would probably conclude that, with many other countries following Denmark’s example, overall demand for oil will shrink, or at least it will not grow. Without buoyant new demand, crude prices will stay low or depressed.

Many energy companies will go bankrupt

The main consequence of this incremental shift away from fossil fuels will be the exit, disappearance or bankruptcy of the weaker players: the high cost producers who could thrive only in a buoyant market with sustained high crude prices.

Looking ahead, I cannot see a bright future for many Canadian companies specialized in extracting heavy crude from oil sands in the Alberta Province. The whole process is not cost-effective, assuming crude below $ 50 per barrel. Likewise, there are too many small and medium producers in the US shale oil business. Many of them could barely stay afloat when oil went below $ 60 per barrel. Now it is at $ 45. Hence a slew of bankruptcies.

Covid impact

Of course, right now the global oil business is hit particularly hard by the fuels consumption freeze caused by the global covid pandemic. Millions of people all over the world drive less, while they practically stopped flying. Going forward, as covid will progressively disappear by the middle of 2021 on account of the forthcoming wide vaccines distribution, for millions of people in America and around the world life will progressively revert to normal. Therefore, we can expect higher oil demand, and higher crude prices in the second half of 2021. All true.

Bleak future ahead for oil

Still, even in a post-covid environment the headwind caused by growing global warming concerns will continue to discourage fossil fuels consumption. At the same time, more and more financial resources will be devoted to investments in alternative forms of energy and energy efficiency.

Trying to imagine the oil industry twenty years from now I see a severely shrunken sectors, with a much smaller number of players. And who will they be? Very simple. The low cost producers who can survive even with historically low oil prices. Think Saudi Arabia, the other smaller Gulf countries, and may be Russia. Most of the other producers will be gone or tottering because they will be unable to survive with low oil prices, given their high extraction costs. The US shale oil boom –arguably the most amazing oil renaissance story of the last twenty years– will be gone.

But even for the survivors prospects will be grim. For sure, Saudi Aramco will be able to extract and sell oil at a profit. But its margins will be much lower, given depressed crude prices. Unless the Saudis manage to create, out of nothing, a non oil economy, the future of the kingdom does not look bright. Oil revenues are used to finance practically everything in Saudi Arabia. A substantially reduced oil revenue stream means an impoverished country. Same story for Russia, a small unimpressive economy whose only strength is energy exports.

Overall, it is hard to say if and when renewable energy will become a genuinely money-making sector (I mean unsubsidized) in the US and other advanced economies. At the moment, renewable energy is still plagued by huge unresolved technical problems –first and foremost the inability to store excess energy to be used when the sun does not shine and wind does not blow.

That said, even without perfect alternatives in place, most advanced societies have decided that they want out of fossil fuels. Denmark’s announcement is an example of the new mood. Expect many more countries to follow suit. My hunch is that there is no coming back. If you have money invested in the conventional energy sector, the time to get out and at least cut your losses was yesterday.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Sciencand International Relations at Bay Atlantic University, also in Washington, DC.

Climate Emergency?

By Paolo von Schirach

WASHINGTON – Most sensible people would agree today that climate change due to global warming is a very serious problem. And everybody now knows that at the source of all this we find man-made increased levels of greenhouse gases in the atmosphere. And we also know that all this is happening because we humans keep burning significant –indeed increasing– amounts of high emissions fossil fuels in order to produce the energy we need to power the world economy.

Dealing with the problem?

That said, we also know that public opinion in the West and most elected leaders have come to agree that the most sensible way to stop global warming is to substantially reduce the consumption of fossil fuels, choosing instead zero emissions renewable energy technologies in order to keep the world economy moving.

On the surface this looks like a very good plan. Out with dirty energy, in with clean energy, such as solar and wind. Good plan in principle. But, according to some, not in practice. According to Bjorn Lomborg, Danish author of the recently released book False Alarm, (subtitle: How Climate Change Panic Costs Us Trillions, Hurts the Poor, And Fails To Fix The Planet), all the well meaning clean energy policies enacted or planned share a common defect: they will cost an enormous amount of money and they will not produce the intended effects. They simply will not work.

Wrong approach

How so? Well, because renewable energy technologies, at the current stage of development, are both still very expensive and not very efficient. While costs for solar and wind have come down dramatically in the last decade, these two main sources of clean, emission free, energy are still not cost-effective compared to the dirty fossil fuels. By forcing their large scale adoption now, via mandates, taxes and subsidies, many governments are diverting enormous resources to immature renewable energy technologies in a very inefficient way. We do get more clean energy. But at a very high cost, and not enough of it to make a real change.

Goals will not be met

Besides, and here is the real problem, forced adoption is manifestly not working as intended. While the adoption of renewable energy is definitely growing worldwide, the rate of growth is still too modest, if the goal is to replace fossil fuels before global temperatures climb up even further. In plain language, we have chosen a very expensive medicine that in the end will not be able to cure planet Earth –our intended goal.

And it gets worse. Notwithstanding the solemn pledges made by so many world leaders at the signing of the 2015 Paris Accord, two facts should get our attention. Number one, even if all signatories dutifully fulfilled all their pledges about fossil fuels consumption cuts, this would make practically no difference on world temperatures. Got that? No difference. Number two, at this stage, no country is on track to fulfill the energy consumption pledges they made.

So, argues Lomborg in his book, here the situation becomes almost absurd. Many countries are committed to spend a fortune on something that will produce almost no tangible effect. And we shall fail to meet our targets anyway.

A different approach?

If this is indeed so, may be it would be good to pause for one second and take stock. Please note that Lomborg is not a “climate denier”. In his book he repeatedly states that climate change is real, is man made, is due to fossil fuels consumption and that it will have mostly negative consequences for the planet.

So what is to be done? Lomborg proposes a different, two tracks approach. He argues that instead of spending a fortune on renewables that cost too much, (especially when it comes to the meagre budgets of poor developing countries), and produce little, it would be wiser to invest in adaptation measures aimed at mitigating the impact of climate change.

Mitigation measures

For instance, we know that higher temperatures are causing the increased melting of ice caps on the two Poles of the Earth. Ice turning into water is causing progressively higher sea levels. Overtime, higher sea levels will cause the flooding of many coastal areas around the world. If we do nothing, in a few decades scores of cities (think Miami, New York, Mumbai, Shanghai, Barcelona) will no longer be suitable for humans. We know all this. And this is very serious.

However, remedial actions are possible and reasonably inexpensive, provided we start working now on the necessary countermeasures. Indeed, Lomborg argues, humans have been building dikes to keep the sea away for centuries. Ask the Dutch, whose country is largely at zero elevation and about 30% below sea level. The Dutch have been building protective barriers aimed at preventing flooding for centuries.

Of course, it would be much better if we could prevent higher sea levels. But at the moment we simply lack the technologies to stop higher temperatures and hopefully reverse this global warming trend. Therefore, says Lomborg, let’s mitigate the impact of higher sea levels caused by melting ice. Let’s adapt to this unfortunate development by protecting coastal areas using engineering technologies that are well known and efficient.

More R&D spending will give us new energy sources

That said, Lomborg does not conclude that workable clean energy solutions are impossible. He simply says that what we have developed so far will not do the trick. Nonetheless, he strongly recommends that all advanced societies engage in a truly robust R & D effort aimed at exploring new energy technologies. Eventually we shall come up with something that will be both clean (zero emissions) and super efficient. At that point consumers will not need incentives, or tax breaks to adopt it. The new clean energy technologies will be chosen because they will be better and cheaper.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Sciencand International Relations at Bay Atlantic University, also in Washington, DC.

Tesla Batteries and Climate Change

By Paolo von Schirach —

WASHINGTON – Notwithstanding solemn pledges issued by many governments, no country that really matters is taking the fight against climate change seriously. Headline grabbing global agreements detailing ambitious emission reduction goals mean almost nothing, as they are purely voluntary, and therefore non verifiable, and certainly not enforceable.

Policy-makers will not act

Do not expect more on this front. The truth is that all policy-makers live under the constraints and pressures of urgent matters that require immediate attention. Catastrophic climate change scenarios regarding what will materialize in our world years or even decades from now do not motivate anybody in a position of responsibility to engage –today– in serious and very costly policy changes.

Innovation will deliver results

That said, there is hope when it comes to drastically reducing dangerous emissions. And hope rests on coming up with cost-effective technological innovation. Man made global warming leading to climate change is largely due to the continuing use of dirty emission producing technologies and industrial processes, most of them developed quite a long time ago. The reason why we keep using them, with only some improvements here and there, is because any currently available alternatives would be far too expensive. However, innovation may change all this. Human ingenuity should not be discounted.

Tesla leading on new battery technologies

Take Tesla, for example. Under Elon Musk, its controversial founder, Tesla dared to think of commercially viable electric vehicles (EVs) many, many years ago, when nobody –literally nobody– in the automotive business believed that this might be possible.

Well, fast forward to today and we see how tiny Tesla has become an EVs sector leader. True, the jury is still out on Tesla’s long term commercial viability. However, a relentless effort to improve its battery technology and therefore reduce cost structure and increase both vehicle performance and company profitability may indicate that this maverick EV company may not just survive but actually lead a boom in EVs production.

We know that the main obstacle on the way to mass produced, affordable electric cars is relatively unsophisticated battery technology. While there has been progress, the batteries used to power most EVs are still expensive, very heavy, and not very efficient compared to the traditional internal combustion engines running on oil derived gasoline.

A game changer

Tesla, however, (and many others innovators around the world working on the same or similar issues), seem to have made very significant progress in improving battery performance on all fronts: life of the battery, cost and weight of the battery, amount of energy stored in the battery, and therefore distance that can be covered with a single charge, and shorter recharging time. Many of these battery technology breakthroughs have just been announced by Tesla, and it remains to be seen how the actual vehicles sold to real customers will perform. Still, assuming that most of what Tesla announced is true or close to becoming true, then we are getting to, or very close to a tipping point when it comes to the mass adoption of electric vehicles.

Cheap, high performance electric vehicles will generate mass markets

It is no secret that so far electric vehicles have had only limited appeal. They are still regarded by most consumers as too expensive. They are fancy gadgets for the rich who can afford to pay extra money for a high-tech car, so that they can brag about being green and cool.

Most budget conscious people considering buying a new car look at the price and then the operating cost of the car (mostly fuel) over the time in which they will use it. For these reasons, an expensive EV coming with the additional problems of limited range, limited numbers of charging stations and a long recharging time does not look appealing.

But a new generation of Tesla vehicles powered by a super efficient, low cost, lower weight, high performance battery that will essentially last for ever, would be a true game changer. It would signal a new era for EVs: from experimentation and tinkering to mass production based on proven superior technology and lower prices.

End of gasoline

When this happens, high performance and cheaper EVs will inevitably displace gasoline powered traditional cars. Assuming that these battery technology breakthroughs will work as expected, we can reasonably conclude that EVs will begin to dominate the global auto industry in just a few years. This will be the beginning of the end for traditional cars. And this will also be the end for many refiners currently producing the rivers of gasoline necessary to power hundreds of millions of traditional cars. Further upstream, the virtual end of gasoline will also mean significantly lower demand for crude oil.

Oil will survive, at least for a while

Of course, we do know that even if it all happens as planned regarding a new generation of batteries, with Tesla and many others inundating the global automotive market with affordable, state of the art, super efficient EVs, it will take years before the world automotive fleet will become totally electric. In the meantime, there will be still demand for gasoline and therefore oil.

The oil industry will survive. Let’s not forget that beyond gasoline oil is also used to make diesel fuel for trucks and other heavy vehicles, and powering ships’ engines, not to mention jet fuel, heating oil, and plastics, and what not. Therefore we can expect that there will still be an oil industry ten or even twenty years from now, (unless other technological disruptions will introduce alternatives to other oil-derived products). However, it will be a smaller, streamlined oil industry; and it will be dominated by the low cost producers, (think Saudi Arabia). In a world market characterized by lower and declining demand for oil, only those who can be and stay profitable with oil at $ 10 per barrel or less will be able to survive.

The end of shale?

This being the case, the future of the recently reborn US oil industry appears very uncertain at best. The economic sustainability of the US shale revolution, itself the fruit of American technological ingenuity, was and is predicated on fairly high oil prices. While the cost of fracking operations has come down significantly in the last few years, fracking is still a fairly expensive activity. It is hard to believe that companies struggling in 2019 to stay alive, let alone do well, with oil at around $ 50 per barrel or less, will be able to survive when crude will go down to $15 or less, on account of soft global demand.

Innovation spill over

Improved battery technologies will also transfer to other applications, such as efficient storage for electricity produced by renewable sources such as wind and solar, something that will most likely increase their appeal and marketability vis-a-vis traditional fossil fuel based electric power generation. Overtime, expect fewer (if any) coal fired power plants, and eventually fewer natural gas power plants that are now necessary given intermittent generation from renewables.

You see where we are going here. We are looking at the real possibility of cascading positive effects, affecting different sectors, all born out of technological innovation spurred by the goal of getting a better battery for Tesla’s EVs. And this is the magic of innovation. It spreads. Tesla was not born out of the need to address a well defined market need. True enough, American drivers were routinely complaining about the high cost of gasoline. But all they wanted was cheaper gas. They had not articulated this complaint into a demand for an alternative to the traditional car powered by an internal combustion engine.

And here is the beauty of innovative minds. Elon Musk launched into an industrial adventure that most analysts dismissed as silly, and therefore destined to failure. But now Tesla, the company he created, despite all its challenges, may be on the verge of deploying another generation of technological innovation that is likely to transform the EV sector, and consequently the entire automotive industry in the US and worldwide.

We need more than new batteries

Back to global warming, it is clear that even radical transformations in the automotive sector leading to sharply lower demand for gasoline and therefore crude oil will not be enough to cause dramatic emissions reductions. More innovation will be needed to radically transform industrial processes, from cement production to petrochemical plants and more, that currently produce harmful emissions.

Green and profitable can go together

However, the Tesla relentless quest for better and more efficient car batteries is a good illustration that it is possible to pursue at the same time profits, a more efficient propulsion technology, and drastically reduced greenhouse emissions. It is not true that trying to be green is a luxury that is simply not practical nor affordable for most industries.

Tesla’s innovation efforts may be driven in part by the desire to produce a perfectly green car. But we should keep in mind that Tesla is a business, not a charity. Ultimately Tesla has to serve its shareholders. They want to see a return on their investments. And this means more cars sold at a profit. By pursuing better batteries that will increase performance while reducing cost, the company is strengthening its competitiveness vis-a-vis conventional vehicles, with the hope that millions of consumers will prefer affordable EVs, not because they are green, but because they are better value for money.

By the same token, assuming that some new industrial technologies will be able to eliminate emissions and increase productivity and profits at the same time, you will have classic win-win propositions in which being green is also good for business.

A long shot, but the only one we have

While this innovation driven approach may be a long shot, this is the only practical way to cut down emissions, stay profitable, and avoid the dire effects of global warming. International agreements that cannot be enforced produce short-lived feel good moments, and not much else. Innovation will be the game changer.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Sciencand International Relations at Bay Atlantic University, also in Washington, DC.

US Oil and Gas Sector Hit Hard By Virus, Price War

By Paolo von Schirach –

WASHINGTON – Sadly, coronavirus is here in America. All the restrictions announced and feared on most economic activities have created huge disruptions and panic. The entire travel, entertainment and restaurant industries are comatose. Airlines bookings literally collapsed. And now, with most economic activities frozen, there is widespread fear that this may be just the beginning of a massive health and economic crisis –with no timeline.

Even worse for the oil sector

Well, if things are looking ugly for the broader US economy, they are simply disastrous for the US fossil fuel industry, oil in particular. The global economic slowdown began in January when China literally closed down half of its economy. The consequent drop in oil demand from China depressed already low oil prices.

Very low oil prices mean that many low margin small and medium sized US oil companies will go bankrupt. And this is because their extracting costs are far higher than in Saudi Arabia or Russia. Many of them could barely stay alive with oil at $ 50 per barrel. But when crude prices went down from $ 60 to $ 30 the picture looked bleak. And now, with the new development of a price war between Russia and Saudi Arabia, expect oil (now at around $ 25) to go down to $ 20 per barrel, or even lower. What started as a crisis for the US energy sector in January, just turned into a nightmare.

The incredible impact of the US energy renaissance

Taking a broad view, there is no question that the US energy boom triggered by the 10 year old domestic “fracking revolution” is one of the brightest spots in the US economy. Thanks to fracking, in the space of almost nothing, America, assumed to have only small and rapidly declining reserves in both oil and gas, came back with a gigantic roar; all thanks to its ability to exploit vast amounts of oil and gas until recently deemed to be unrecoverable, due to the prohibitive cost of extraction.

Well, thanks to the revolutionary fracking technologies, unrecoverable oil and gas became recoverable. In just a few years, a large number of small and medium energy companies (Exxon Mobil and Chevron, among others came later) made the US into the world’s largest natural gas producer, and now the biggest oil producer. It is hard to overestimate the positive impact of all this.

New jobs and energy security

Just think about it. Nowadays, we have billions of dollars invested at home, in this dynamic domestic energy sector, instead of being sent out to buy OPEC oil. We also accomplished the creation of “Hemispheric Energy Security”.

To be clear, America is not totally energy independent. However, if you combine this staggering increase in domestic energy production with Canadian and Mexican imports, you realize that nowadays most of the energy Americans use every day originates from the Western Hemisphere. This is a huge net plus in terms of improved US energy security and therefore national security.

Problem: high cost

The big fly in the ointment in all this was and is that shale oil extraction is a high cost, low margin business. And this is a big problem. Indeed, mostly on account of a mature, abundantly supplied global energy market, crude prices are now historically low, while many if not most US players in this shale oil sector are over leveraged, while they do not make much money by selling oil at such low prices.

In fact, some do not make any money at all. Given relatively high operating costs, low oil prices and large debt burdens, the sheer survival of many American small and medium energy companies was highly questionable before the crisis of 2020 began. For these reasons, the energy sector was not very attractive to average investors. Indeed, even in the context of a very robust stock market in 2019, oil stocks were the worst performers.

Energy companies must be profitable

Yes, it is great to celebrate this astonishing American energy renaissance. However, this is a capitalistic economy. Eventually, you have to be profitable to stay in business. Of course, cost cutting and consolidation were happening in this rather fragmented industry, well before this most recent oil price collapse. And the sector proved to be much, much more resilient than what many critics had argued. Initially thought to be viable only with oil at $ 60 per barrel or above, many companies can still make money with oil at $ 50 or $ 40. However, some cannot.

The impact of the crisis in China

And then January 2020 came along, with the explosion of the coronavirus epidemic in China. This led to the freezing of the Chinese economy, and the consequent collapse of (already low) oil prices due to drastic demand cuts by its biggest customer. This was bad news for all oil producers and exporters; but really horrible news for the shale oil sector in the US that depends on relatively high crude prices (at least $ 50 per barrel on average) to stay profitable.

Saudi Russia price war

Well, if this were not bad enough, on the heels of the China problem came an unexpected price war between the two main world exporters: Saudi Arabia and Russia. They would not continue their cooperation based on agreed upon production cuts aimed at supporting global oil prices. In fact, with no deal, they decided to turn all the taps on, this way flooding an already over supplied oil market, with a consequent additional price drop.

Well, if oil at $ 40 per barrel was very bad news for many US shale oil producers, you can imagine the impact of oil at $ 25 per barrel, or lower. This is an unmitigated disaster, in the context of a suddenly deteriorated US and world economy.

If this oil price slump lasts much longer, you can expect many bankruptcies, and tens of thousands of American oil workers out of a job, with negative cascading effects on the hundreds of suppliers and vendors that depend heavily on vibrant energy companies buying pipes, drilling equipment, valves, pumps, and what not. Expect collapsed demand for all these oil services, parts and components companies. And, as a sad consequence of all this, expect additional misery and negative ripple effects on so many local economies that had done very well on account of the money brought in by the oil business.

Price war cannot last much longer

The only hope in all this is that this price war cannot last very long because it is unsustainable for both Saudi Arabia and Russia. Indeed, while both countries’ oil industries can still make money even at these extraordinarily low oil prices, both governments cannot afford this.

Russia based its spending plans on oil at $ 50 per barrel. Saudi Arabia needs oil at $ 80 to finance its rather ambitious economic diversification agenda. Here is the thing. Revenue generated by foreign oil sales is almost all these two countries got. Russia may be somewhat better placed, but is not in a great position.

US shale sector will take time to recover

Yes, for a while at least, both countries can dip into their dollar reserves to finance the cash shortfall caused by drastically reduced oil revenues. But not indefinitely. In all this, the US shale oil sector is getting hit pretty hard, because its operating costs are much higher than current oil prices.

No way that companies that need oil to be at $ 40 per barrel just to stay alive can keep going much longer with crude hovering around $ 20. In the end, the US shale sector will survive. But only after undergoing painful bankruptcies and consolidations after which only the fittest will make it.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.

Can Tesla Make It?

By Paolo von Schirach –

WASHINGTON – Tesla’s recent massive stock price rise has no rational explanation. Believe it or not, electric vehicles (EVs) manufacturer Tesla now is worth more than the combined value of General Motors, Ford and Fiat Chrysler. It is worth almost the same as Volkswagen and BMW combined. And yet the company produced only 500,000 cars last year, and has yet to be consistently profitable for at least a year. How is this possible? Clearly many of those who buy and hold Tesla’s stock are part of something akin to a cult, rather than savvy, rational investors. And yet, Tesla is no cult or joke. Far from it.

There is something there

There is definitely something “there”, there. But the something is not what most normal people are looking for: that is a well-structured manufacturing company that has a credible business plan that demonstrates when and how this car maker will become consistently profitable, this way rewarding its investors.

With Tesla, the usual parameters do not apply. And yet, at some point the company will have to become profitable. Yes, of course; but it is not clear when this will happen. Thus far, Tesla’s faithful investors are willing to believe that this will happen “soon”. Even though they do not know when, they are willing to believe this. So, is this EVs manufacturer a hallucination, a dream, or –worse– a hoax?

The fact is that nobody knows for sure what Tesla is.

Musk broke all the rules

That said, what we do know for sure is that Elon Musk, Tesla’s co-founder and CEO, successfully broke all the rules, and single handedly upended the entire automotive industry. And this is most welcome.

All analysts would agree that, before Tesla, electric vehicles were a dream, at best a concept, something we could think about, but whose time had not come yet.

Making EVs a reality

Well, Elon Musk made the EV dream a reality. Starting from scratch, his company designed and made appealing, interesting electric vehicles that people actually wanted to buy. Sure enough, he smartly took advantage of politically motivated subsidies in the form of federal and state tax brakes that increased the appeal of EVs. That was a big help, especially at the beginning.

Still, it is a fact that Tesla over time managed to design and produce models that are becoming cheaper, more efficient, with increased mileage per battery charge. In other words, thanks to Tesla, EVs are much closer to becoming truly competitive vis-a-vis even the most efficient, traditional internal combustion engine vehicles.

The battle is still on

I realize that the epochal battle for market dominance has not been won yet. Especially at a time of very low oil prices, and consequently cheap gasoline, the challenge to make EVs that are more cost-effective than traditional gasoline powered cars is huge. But it seems that Tesla is constantly working on refining its products. Can they make better, cheaper, more efficient batteries? Can they further reduce production costs? I have no idea. And I truly believe that nobody really knows for sure.

Musk is a genuine innovator

But I would like to bet on Elon Musk’s abilities. Whatever you can say about his bluster, braggadocio, exaggerations, wild predictions and what not, this successful South African immigrant is an extremely welcome addition to an uninspiring American industrial scene made out of unimaginative leaders who in most cases are at best capable of tweaking and fine tuning old stuff.

Think about it. The internal combustion engine is a more than 100 years old invention. It is most disappointing that no truly radical innovation has been produced by the major brands that have been designing and producing cars for decades.

It took Elon Musk –an immigrant and a complete outsider, with zero prior experience in the automotive sector– to shake up the entire industry. For that alone Musk deserves a great deal of credit.

Tesla opened a new chapter

Tesla opened a new chapter. It creatively linked renewable energy, automotive technology, sophisticated electronics, and more into a new way to think about personal transportation. Whatever your opinion about Tesla’s viability as a profit-making company, we should all welcome bold innovation.

Of course, being bold and daring does not always mean being right. Eventually the numbers will have to validate the new formula. However, for the time being, most Tesla investors are willing to suspend judgement. They are willing to believe the seemingly impossible, if not outright absurd. And, in the end, they may be proven wrong.

But, whatever Tesla’s future, I still believe that Elon Musk is a genuine trail blazer. With zero assurances of success, he dared to go where no one else would. That by itself is a great achievement, and (I hope) a powerful source of inspiration for all the would-be innovators in the United States.

Same old, same old does not do it anymore.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.

Self-Driving Electric Cars Coming Soon

By Paolo von Schirach –

WASHINGTON – Imagine this: affordable, driverless electric cars, EVs. This would be the true game changer for urban transportation and urban living. I say “would be” because this revolution, prophesized and announced many times, has not quite arrived. We know that there has been significant technological progress in these areas in the last few years; but not enough to make this vision into a reality. Still, I am hopeful that some day we shall see it.

When the revolution comes

If and when these affordable, autonomous EVs will hit the road, the impact of this radical technological revolution will be immense. I am not just talking about the environmental gains deriving from zero emissions electric engines, and therefore the overall reduction of greenhouse gases and significant air quality improvements in all large urban areas.

The real game changer will be that most people will no longer want to own a car, because hiring one will be very easy, and very cheap. Hence a true revolution in the way most of us will deal with all personal mobility needs, especially in large urban areas.

Changes in the way we think of mobility and cars

Even today, relying only on established, gasoline powered cars driven by humans who need to be paid for their driving, the availability of app-connected transportation services like Uber and Lyft convinced many city dwellers that calling a vehicle via smart phone whenever needed is easier and probably cheaper than owning and driving your own car.

How so? Uber of course is not free. However, for many users who rely on Uber or equivalent services any app-connected car service is more cost-effective than going through the trouble of buying and keeping a car.

It is true that you have to pay for each Uber ride, while you pay only a little (the cost of gasoline) each time you drive your own car. Still, you have to consider all the costs connected with owning a vehicle. You have to factor the substantial cost of the initial purchase, plus the cost of registration, insurance, parking, fuel, ordinary (oil changes) and extraordinary maintenance, (new tires, new brakes, new transmissions). Then add odds and ends like the cost of parking tickets, (some people collect many of those), the cost and aggravation caused by possible car accidents, and then the aggravation of the daily stress of driving on congested roads, and all of a sudden the Uber option, while it has a price, seems more cost-effective, at least for some.

Driverless, electric Uber

Well, if relying on smart phone connected car services as opposed to owning a car is the emerging trend today, imagine the appeal of this car hire option in a not so distant future in which your Uber or equivalent vehicle will have an electric engine and no driver. These radical innovations obviously will mean very low operating costs for the service provider, hence much lower fees charged to users, and guaranteed, fast 24 hour service.

The rides will be cheaper because there will be no payments to a human doing the driving. Besides, the driverless car will stay on the road day and night. It does not get sick and it does not need to take a break. And the cost of the electric charges will be much lower than gasoline.

The future of personal mobility

So, here is tomorrow’s scenario. Think of driverless EVs that will be on the road almost 24/7, (taking a break only for the time necessary to recharge the car’s battery). Since these vehicles will cost much less to operate, the companies providing the service will be able to pass on to the consumers significant savings.

And this will mean that almost anybody will be able to afford rides, probably several rides a day. At the same the service providers will be able to guarantee that there will be plenty of vehicles constantly on the road available to quickly meet demand for rides. And this means almost no wait time for your ride.

No more need for private cars

In this new scenario, for the vast majority of urban dwellers, owning a private vehicle will become unnecessary, because all mobility needs will be easily and inexpensively met by driverless EVs. If this is so, let’s think about the significant ripple effects of this radical reorientation of consumers’ preferences.

Fewer cars

As a result of all this, there will be a complete restructuring of the automobile industry. Only EVs will be manufactured, of course; but fewer of them, because it will no longer be one vehicle per individual driver. One vehicle on the road 24/7 will serve many customers during the day. This will mean far fewer cars on the road. And probably improved road safety, because driverless vehicles will not get distracted, they will not cause accidents. They will not be under the influence of alcohol. They will not be tired and sleepy.

Empty parking garages

Furthermore, far fewer cars constantly in circulation will mean plenty of redundant parking spaces. In most large cities enormous parking garages have been built for commuters. They are filled every day by tens of thousands of cars parked there by commuters. In the future commuters will be able to rely on services provided by driverless cars, therefore all these parking lots and garages will sit empty. This will create an opportunity for re-purposing a great deal of valuable urban real estate.

A better future

So, here the picture. No more private automobiles on the roads, or at least far, far fewer of them. And this means that the substantial capital devoted by millions of individuals to purchasing a vehicles will be used for other goals. Besides, given far fewer cars on the road, there will be no more road congestion, and no more street noise caused by the internal combustion engines and related air pollution. And, finally, no more stressed out drivers/workers who have to fight the traffic twice a day, every day, commuting to and from their work places. All in all, with the driverless EV doing the driving, this will translate into a much more enjoyable, more relaxing urban life experience for millions of people across the globe.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC

Raising The Temperature In The Middle East

By Paolo von Schirach –

WASHINGTON – After the unexpected airstrike that killed IRGC General Qassem Soleimani, right outside the Baghdad airport, analysts began speculating what Trump’s end game may be. In other words, is this just an ill-conceived, spur of the moment decision? Or is this targeted assassination of the master mind of all the Iran-led irregular forces operating with impunity in the Middle East part of a carefully orchestrated US “plan”?

Recalculations about America’s will are in order

I have no idea. However, I would say that this brazen attack that eliminated the most significant and most revered leader of Iran’s international mischief will probably cause some rethinking on the part of those who have come to believe that America is a hesitant giant, essentially impotent when targeted by non state actors.

Well, not so impotent, it turns out. I would speculate that Soleimani was killed in some measure because he got used to traveling from Iranian fiefdom to Iranian fiefdom, (Lebanon, Syria, Iraq, Yemen), without too much concern about his own safety. In other words, being at the head of a victorious and unchallenged unconventional military force, made Soleimani arrogant. It made him believe that he was invincible, that he could safely move around almost anywhere in the region.

Here is the thing. Going forward, the accepted narrative of a rather passive and impotent America, incapable of reacting to stealthy attacks that do not leave clear footprints, no longer applies. Not just Iran, but all America’s enemies should take all this into account.

Making things worse in the Middle East?

Sure enough, this sensational killing caused all sorts of speculations regarding possible reverberations on the volatile Middle East, already torn by conflicts and insurrections. Trump has been accused by Joe Biden, would be Democratic nominee for the presidency, of having thrown a stick of dynamite into a powder keg, or something like that.

Sure, this American action raises the temperature in the region. But the most feared consequence of a major Middle East crisis, sky rocketing oil prices, will not happen. As Holman W. Jenkins noted in a recent piece in The Wall Street Journal, the unrelated American fracking revolution, by substantially increasing US oil production, completely transformed global oil markets.

There is plenty of oil

In other words, today the world should not be overly concerned with any disruption of the flow of oil passing through the Strait of Hormuz. The difference between 10 0r 15 years ago and today is that America –until not long ago a major oil importer– is now the largest oil producer in the world. Yes, the US produces more oil than Saudi Arabia or Russia. While America still imports oil, it buys most of it from Canada, not from the Persian Gulf.

This fantastic increase of America’s oil production has had and will have significant geopolitical consequences. A very big one is to have down graded the strategic importance of the Middle East as an oil producing region, and therefore the possible negative impact of Iranian actions targeting Middle Eastern oil facilities on the world economy.

Nothing happened after Iran attack Saudi oil facilities

If you recall, a few months ago, the Iranians launched a surprise attack against major Saudi oil installations, knocking down with one shot about 50% of Saudi Arabia’s oil output. Well, what happened? Not much. Yes, oil prices went up, for a few days. But then, when the analysts were reassured that there was plenty of extra supply in global energy markets, oil prices went down again.

I am not suggesting that the Middle East has become irrelevant, far from it. What I am suggesting is that Iranian threats and possible attacks against oil are not as dangerous as they used to be in an era of tight supplies and enormous needs for imported oil on the part of the United States.

Iran is not the winning champion

Yes, after the stinging loss of Soleimani, its revered military leader, we should be prepared for something really nasty coming out of Iran. But let us not forget that Iran is not Stalin’s Soviet Union, or Nazi Germany at the height of its power.

Iran is an impoverished police state, stricken by US economic sanctions. It is a country in which an increasingly recalcitarting population, notwithstanding the obvious threats of imprisonment, torture or death, still engage in spontaneous protests against the high cost of food and other basic necessities. While we should not underestimate its resourcefulness, today’s Iran is not exactly an unbeatable champion.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC

When The Coal Mine Closed Down

By Paolo von Schirach

WASHINGTON – Not long ago, I read a vivid account of a small town in West Virginia facing the demise of a coal mine, the major employer in the area. It is a real tragedy. Many people in the small town worked there. Their families depended on their salaries; while the entire local economy thrived because of the money coming directly or indirectly from the mining operation. No mine, no nothing. Only semi-desperate unemployed miners, empty stores, empty restaurants. You get the idea.

Gas is cheaper and cleaner

And why did the mine close down? Mostly because of the competition created by cheaper, super abundant, (and much cleaner), natural gas as the new fuel of choice for electric power generation plants. Considering lower prices and lower emissions, utilities across America have been switching to natural gas.

Hence the slow demise of coal. Quite frankly, from a most elementary economic stand point, this switch from coal to natural gas makes perfect sense. Having a choice, utilities go for the fuel that costs less and pollutes less.

Indeed, as a nation, we should be extremely grateful to the entrepreneurs who a couple of decades ago unleashed this incredible “fracking revolution” and created this almost unthinkable natural gas bonanza. Once gas poor, America has now so much natural gas that it is exporting it, with obvious advantages for our balance of trade.

No reason to be happy

However, if you grew up and live now in that West Virginia community, you have no reason to be happy. The coal mine was all they had; and now it is gone. How are the people going to create, out of nothing, a new local economy that will provide income and a decent standard of living for all? The reality is that this is almost impossible.

Creative destruction

Capitalism is a process of “creative destruction”. Unfortunately the “creation” and thedestruction” components are not nicely harmonized. There is no “system” that will guarantee that when jobs are lost because a new technology has made the old one obsolete, (or as in this case a better fuel becomes available this way replacing the old one), enough new, well-paying jobs will be created, just when they are needed.

In the end, if one looks at the big picture, if an innovative economy works, eventually the entire society will be better off. New technologies mean new and better products or services. New investments mean higher productivity and higher salaries. Yes, this is true…eventually.

What about the victims?

In the meantime, what will be the fate of this West Virginia rural community now that their main source of income has disappeared, victim of the “destruction” component of “creative destruction”? Unfortunately, as a society we have not managed to create the necessary shock absorbers, the transition tools that could eliminate or at least alleviate the frictions caused by painful economic change affecting people with no defenses.

Sure enough, in America we have retraining programs, vocational schools, Community Colleges, and more. But these resources are scattered. They are not well organized. Most tragically, usually they are not available when and where they are needed the most.

A future smart society will provide tools

A future smart society should have this reassuring message for all workers: “Do not worry. If you lose your current job, and this is quite possible given the rapid pace of change in this hyper competitive global economy, we have many resources for you. You will quickly learn new skills. You will become employable in new sectors where there is a strong demand for qualified workers. You will be OK. Your family will be OK.”

Sadly, we do not have anything like this in place today in America. Yes, there is unemployment compensation, food stamps, Medicaid, and other state or federal subsidies. But these are just bandaids. These are no long term solutions.

May God help those poor people in that West Virginia small community. Without the coal mine they are lost.