Part history, part diary, part polemic - this is an essential read for anyone with an interest in the global energy industry, as well as timely warning about the many structural risks that continue to blight our economy.
Back in early 2012 I recall writing a story about BP's latest Energy Outlook report detailing how despite a rapid and significant increase in renewable energy capacity, the world was still on track to see CO2 emissions increase 28 per cent over the next two decades. I remember commenting at the time about how it was possible for one of the world's largest and most influential energy companies to openly predict emissions will not peak until at least a decade later than many climate scientists claim they have to peak, and for this to pass without any significant comment or reaction. The mainstream media, for the most part, chose to instead focus on the still bullish prospects for fossil fuels, while even BusinessGreen led on the strong long-term growth predicted for renewables. The fact one of the world's largest companies was confident we were heading for a level of climate change the international community had already deemed dangerous passed by almost unnoticed.
It is this dysfunction that sits at the heart of Jeremy Leggett's powerful and sobering new book, The Energy of Nations - Risk Blindness and the Road to Renaissance. Actually, that is unfair, the contradiction between the carbon intensive energy trends backed by fossil fuel firms and the professed concerns about climate change voiced by both those companies and the politicians who regulate them is just one of the many dysfunctions uncovered by the book. There is also the contradiction between the industry cheerleaders who seek to dismiss any concerns about "peak oil" and the industry insiders who accept the global industry is finding it ever harder to meet soaring demand. There is the contradiction between the frenzied hope shale gas and tight oil can revolutionise the global energy industry and the reality of rapidly dwindling extraction rates from shale wells and poor financial returns from US projects. And, most importantly, there is the network of contradictions and wilful blindness that sees political and business leaders routinely ignore the inherent risks attached to a global economy that is almost wholly reliant on a fuel that is experiencing historically high and volatile prices, and which we can't continue to burn without unleashing severe climate risks. In short, it is a pretty scary read.
The Energy of Nations provides a history of the energy and financial industries over the past decade or so that analyses the evolving nature of four systemic risks: the prospects of a crash resulting from oil depletion; the potential for a second financial crash; the likelihood of severe climate impacts; and the creation of a "carbon bubble" whereby billions, if not trillions, of dollars of investment in fossil fuel infrastructure is left stranded by new climate policies and the emergence of clean technologies.
It is the kind of analysis that will always fascinate green business leaders and energy policy wonks. But where Leggett is particularly astute is in his decision to explore these trends through a chronological recounting of developments in the energy and financial markets, interspersed by diary entries detailing the meetings and summits Leggett attended in his position as founder of Solarcentury and a leading speaker at energy industry conferences. As such, what threatens to be an interesting if rather worthy exploration of economic trends becomes a genuinely riveting page-turner.
The chronological format is a clever approach made even more effective by Leggett's decision to include frequent updates on the oil price throughout the narrative. We all tend to have short memories and consequently Leggett's decision to tell the story of the post-crash years in order is an extremely useful reminder of how dramatic and dysfunctional the past seven years have been. We are reminded of the way in which financial institutions and their (often rule-breaking) executives were allowed to crash the economy and then effectively avoid any legal repercussions by reaching settlements with regulators for staggeringly small sums. We are reminded of the way in which attempts to push through more ambitious climate policies have been opposed every step of the way by what Leggett refers to as the energy incumbency. And we are reminded of the way in which the oil price repeatedly set record highs throughout much of this volatile period, contributing to the crash and making economic recovery even harder to come by.
However, it is the diary entries that make The Energy of Nations stand above the other books that have sought to tackle similar issues in recent years. Leggett is, by his own admission, anything but impartial. As a clean tech entrepreneur, geologist, environmental campaigner, and climate hawk his anger and frustration at the dismissive stance many within the energy industry strike towards climate and peak oil risks is palpable. But his diary entries still paint an all too believable picture of institutional risk blindness within the global political and business elite.
There are countless tantalising vignettes: The meeting between David Cameron and George Osborne and a group of 18 small businesses that left Leggett with the impression that if these companies "are the best that UK plc can deploy, then the Cameron-Osborne project is heading for the rocks". The conversation with Bob Dudley in which the BP man admits that while doing business in Russia - the country the oil giant is betting on for much of its future growth - he feared for his life. The former US Secretary of Defense, Jim Schlesinger, who recalling his response to the first oil shock in 1973 notes that he was "prepared to seize Abu Dhabi". And the numerous meetings and discussions with oil industry insiders who admit, often privately and sometimes publicly, that a peak in oil flow rates in the coming years is a very real risk.
Perhaps unsurprisingly for someone who has spent years campaigning to get governments and businesses to pay more attention to the peak oil threat, Leggett is at his strongest explaining how those critics who dismiss peak oil theories wilfully misrepresent the argument and refuse to engage with the data showing the vulnerable nature of above ground flow rates.
Leggett and those "peakists" who echo his concerns accept that new oil supplies are coming online with new discoveries and techniques, such as tar sands and shale or tight oil extraction. But they warn that even with these new sources of oil the industry is struggling to compensate for the decline rates in older oil fields, let alone deliver a significant net increase in supply. It is a phenomenon known as the Red Queen's Race, referencing The Alice in the Looking Glass character who declares, "it takes all the running you can do, to keep in the same place". Or as Raymond Pierrehumbert, Professor of Geophysical Sciences at the University of Chicago, more prosaically says of the US shale gas "boom": "You have to keep drilling and drilling and drilling just to keep your production in the same place. At several million dollars a pop, that adds up to a big annual investment, and eventually you run out of places to put new wells".
Where does this history leave us? Staring down the barrel of a genuinely terrifying crisis is Leggett's conclusion.
Even after reading this detailed expose of the contradictions, irrational optimism, and risk blindness that has characterised the energy and financial industries for much of the past decade, Leggett's conclusion still comes as something of a shock. His central hypothesis is that the oil and gas industry is afflicted by the same kind of systemic risk and self-deluding behaviour that characterised the financial sector pre-2008 and that the financial sector has not been adequately reformed to minimise a repeat of the last financial crash. As such, he maps out two scenarios where either "oil-fails-first" or "finance-fails-first", both of which push the global economy off a cliff. Such a crisis would then trigger either mass social unrest and poverty or, more optimistically, provide the "power of context" needed to mobilise the "survival technologies" that can end the economy's reliance on fossil fuels and minimise the climate risk that loom over all the other risks explored in the book.
As Leggett concludes, "if the analysis is correct to this point, we will have arrived irredeemably in a time of consequences". Plenty of people, many of them with a vested interest in the status quo, will question whether the analysis contained in The Energy of Nations is indeed correct. But the problem for business and political leaders is that even if is only half-way to being correct the global economy faces a severe and potentially catastrophic risk that is currently being ignored. They would be well advised to read this book.