Gasoline allies or gasoline alleys?

The Chris Cook Economics 3.0 column

I was interested to see that the US is planning to impose sanctions on gasoline supplies into Iran, with a view to applying pressure on the Iranians to cease development of nuclear energy.

To date, US sanctions have been almost entirely self defeating. Restrictions by the US on the supply of communications and IT technology have not only provided enormous black market profits inside and outside Iran, but have also held back the spread of perhaps the most liberating influences in Iran today, as was evident from recent unofficial coverage of events from Iranian bloggers, “tweets”, mobile phone cameras and so on.

Moreover it was a subject of some amusement in Tehran last October, both among the elite I met, and the man in the street, that the very financial sanctions aimed at bringing Iran to the negotiating table had the perverse side-effect of protecting Iran from the Credit Crunch meltdown then in progress.

Could gasoline sanctions work?
Indeed they could, but not in the way the President Obama would wish, I suspect.

Firstly, like all sanctions, they would work to bolster the government through the Iranian people’s intense patriotic nationalism. The more noticeable the effects, the more this would be the case.

Secondly, it would work to increase already significant profits of those within Iran who control access. Outside Iran we would see Russian and Chinese refiners, rail and road haulage operators and traders such as Glencore and Trafigura all making mouthwatering profits.

Thirdly, it would in fact be a boon to Iranian policy makers who have been trying and failing, through rationing and price increases, to reduce Iran’s catastrophic waste of carbon-based energy, and the massive subsidies involved.

This final point was recently brought home to me in relation to the environmental disaster zone of the Niger Delta in Nigeria, which is another “externality” of the toxic enterprise model of the global oil industry. It served to remind me that the current global system of financial capital – the combination of deficit-based money and “for rentier profit” equity – is in fact one of the principal causes of our problems.

How many barrels has the G7?
In all the discussions going on in connection with Climate Change, it seems to me that the focus is almost exclusively upon which of the energy consuming nations should take the pain of cutbacks in energy use, and particularly how that pain should be shared between the developed nations and the developing nations.

I really think that this ignores a very large Elephant in the Room, and that is the energy production, use, and development strategies of the energy producing nations, and what they do propose to do with the proceeds. To paraphrase Stalin’s inquiry as to how many divisions the Vatican had at their disposal, “How many barrels has the G7?”

Reversing the Polarity
In fact, there is a very simple and straightforward route to fund the transition from carbon, and that is to “monetise” energy – through the issue by producers of Units redeemable in energy – within an International Energy Clearing Union global framework agreement.

By way of example, Iran could gradually increase gasoline prices to global levels, and then issue to the population Units redeemable in gasoline and its energy equivalent by way of compensation. A consumer would then have the simple choice of continuing profligate gasoline use, and paying for it with Units, or of exchanging these Units for (say) the Korean flat screen TV he fancies.

A carbon levy on transactions could be made to create a “Carbon Pool” fund and this would be invested in renewable energy and energy saving projects – particularly a new generation of public transport – and it would be both wise (and profitable) for the West to facilitate such a process. Nuclear energy, on the other hand, would not be economic using the same “energy accounting” approach, and this is a serendipitous outcome.

Nigeria, for its part, is crippled by electric power shortages at the same time as enough gas to power Brazil is simply flared off because it is not profitable to do anything else with it. I propose that Units redeemable in Nigerian energy would be issued and sold to investors.

The proceeds would then be invested as “energy loans” which would fund decentralised power generation using currently flared gas, and a new generation of renewable energy production for the day that existing resources run out. This energy production would cut the fuel use of existing production, and free it to redeem the Units sold to investors.

The proposed global market in emissions and carbon credits is brought to us by the same people who brought us the Credit Crunch. It makes no sense to monetise by global governmental fiat carbon dioxide which is intrinsically worthless. In my view, we should reverse the polarity of the global financial system by monetising the energy value of carbon instead.

A new global settlement is necessary, and it must necessarily centre upon energy producers and energy users. The US discussions about to begin, and the Copenhagen discussions in December, are in my view doomed to failure unless there is a recognition of the true source of the problem.