Sustainable Energy Pricing

Nature, Sustainable Engineering, and the Science of Energy Pricing

Gary M. Zatzman, Gary M. Zatzman

• Editore: Wiley-Scrivener
• Anno: 2012
• ISBN:
  9781118319161
• Edizione: 1
• Argomento: Business
• Categoria: Energy Industry

This is the first book to address the issues of affordable power, sustainable energy, and reduced environmental impact through the science of energy pricing. Looking at the availability of natural resources from an engineering perspective, and determining how they can be priced to achieve sustainability in the energy sector, is the aim of this groundbreaking new work.

Most current models used in energy pricing are based on linear analyses. While these models work well for targeted scenarios within a short time frame, they do not provide one with a scientific tool that can include many facets of the information age. The existing models do not include environmental sustainability in an integrated fashion. This is mainly because environmental costs are still considered to be intangible, and intractable with conventional economic analysis tools. Though one existing model acknowledges some possible theoretical truth to concerns expressed about the onset of 'peak oil'—the period in which new oil production must begin a decline of unknown and indefinite duration —this model has little or nothing to say about continuing practices in the extraction and production of fossil fuel that are themselves based on denying any significance or role for such thinking in the immediate future.

A serious limitation of that discourse is its insistence on polarizing opinions "for" or "against" environmental sustainability, peak oil, and affordable energy prices. This book proceeds instead to isolate the absence of any agreed criteria for what would constitute inherently sustainable development and examines the main outlines of the history and political economy of energy resource exploration and development since the 1850s from this standpoint. It proposes specific directions in which to take some of the leading alternatives and amendments to current energy pricing practices (as well as some of the most promising energy development alternatives) in order to fulfill the time criteria required for an inherently sustainable trend.

The author shows how, and why, identifying unsustainable practices and consequences can make a case for closing down particular oil and gas production operations, while averting the time-wasting approach of trying to fix what really has gone beyond fixing. However, it is possible, necessary, and actually far better to replace these methods with newer, scientifically based methods for achieving overall energy sustainability.

Chapter 1

Fundamental Notions

Corporate interests produce and supply modern-day energy needs. This proceeds according to plans for garnering maximum return on the invested capital in minimum time. Meanwhile, the natural order from which these energy sources are extracted continues to operate oblivious to these demands. The mandates of the natural environment are more decisive for Humanity’s long-term than anything corporate and government powers can hope to sustain. In light of this insight, coupled with an awareness of the rollercoaster in oil and gas prices seen round the world during 2007–2009, another book on how to finance or engineer yet another short-term scheme seems beside the point. Conventional works dealing with the economics of energy pricing or the engineering of energy extraction take the above-mentioned status-quo as given. As their authors theorize, analyze and record in the present moment, they make no allowance for how the future could be affected by deep-going processes of transformation already under way within the natural or the social-economic environment but which have not yet taken their toll.

In this chapter, appropriately entitled “Fundamental Notions,” the discourse begun in the Introductory Chapter concerning the requirements of an energy pricing model suited to sustainable development of fossil fuels or other energetic sources and media is deepened and broadened. The author sets out the framework for a general line of argument that counters the status-quo consensus. Among the key components of this counter-argument are clear notions of a) what exactly constitutes a commodity, and b) an analysis of the similarities and differences between commodities whose “stuff” is hard matter on the one hand and those whose “stuff” is energy (or energy feedstock) on the other. The role of historical time in shaping human thought about social problems and in framing the choices taken up in different societies at different stages of development is also delineated and explained. This chapter concludes by setting forth an important distinction between energy pricing based on data recorded about actual connected phenomena, such as energy resource flow (in a reservoir or other natural setting), current refining capacity, known transport capacity to markets, etc.; and energy pricing based essentially on statistical guesswork and projections, including the “gaming” of spot markets and-or futures markets — “aphenomena” that exist only fleetingly if ever at all. This clarification itself becomes a powerful tool for elaborating the long-term and short-term consequences of such phenomena as the rise and eventual implosion of Enron Corp. Generally complacent in accepting the mass media’s accompanying narrative, which “explained” Enron’s rise and fall either as a criminal conspiracy or as extremely sharp practice a bit ahead of its time as far as the law was concerned, the scholarly literature on many aspects of that collapse has remained silent. Breaking with that trend, this book elaborates this phenomenal/aphenomenal distinction instead to illuminate something more fundamental to what became the Enron saga. Years before its final plunge into the abyss, the aphenomenal character of the energy pricing models used by or being developed at Enron actually prefigured its ultimate fate. The Enron model itself, either as elaborated semi-theoretically either by its last CEO Jeffrey Skilling or as implemented in practice (and documented in a court affidavit appended in the “Documents” section of this chapter) by company treasurer Andrew Fastow, was consciously unsustainable. That was so, notwithstanding the authorities eventually having to catch up with and sanction the brazenly criminal behaviour of the company’s principals Such a perspective recasts the Enron fiasco as a cautionary tale — not so much about “good” vs “evil,” or even about “greater evil” vs “lesser evil,” but rather about what to avoid when it comes to formulating a scientifically-based sustainable mode of energy pricing.

I’ve no idea what a Man is:

All I have learned is … his price.

- from “The Song of the Rice Merchant”, in Bertholt Brecht, The Good Person of Szechwan (1943)

1.1 “Energy Crunch” or: The Problems and Issues of Modeling an Energy Price

The initial observation we have to acknowledge and report at the very outset of this book is that the entire field of energy production and distribution has become chaotic. On the world scale, this situation threatens the present and future of billions of human beings. That is the first fundamental point. So, then… what can be done? Albert Einstein’s insight comes to mind, that the thinking that got one into a problem will not get one out.¹ That is the second fundamental point. This chapter proceeds from both these observations taken together.

The outlines of the problem addressed by this book have been described elsewhere as “the energy crunch.”² How energy is priced millions of opinions with which to contend. Ninety-nine percent or more of these are operating in reactive mode, arguing either for increasing or reducing the price of this or that energy commodity. In the end, we are left wondering: what — if anything — here can be deemed objective or “scientific”?³

Given a market economy, what is the meaning of a price agreed between buyer and seller, and what could this have to do with science of any kind? Does it mean the price is equal but opposite for each buyer and each seller? If it is not equal but opposite, can we say “price” could ever mean the same for buyer and seller?⁴ Even after filling in (if we can…) the whole story from each side — that of the buyer and that of the seller — will we have the full story? There remains a huge gap. The forces controlling the disposition of energy commodities frequently also dictate important parts of the economic and foreign policy of entire countries and blocs of countries. We certainly take this into account when it comes to certain commodified forms of matter such as weapons systems. However, when it comes to energy commodities, are such considerations ever absent from, or without impact on, buyer and-or seller? Judging by the absence of its mention or any analysis of this condition in the scholarly literature about energy pricing, such power relations would appear to play no role whatsoever. Yet such a conclusion flies in the face both of experience and common sense.

For example: the publicized portions alone of OPEC meetings — especially just before or just after major shifts in world oil price trends — are enough to demonstrate that the price is not purely dictated by supply and demand in the market. At the same time, in every reporting period, a spot price and a future price are quoted alongside the current price of a barrel of oil. This can only continue because there is a market mechanism that operates to some degree independently of the aforementioned power relations. However it is accomplished, the establishment of a consistent and coherent theory and practice of sustainable economic development in the energy sector on a scientific basis must ensure that the space in which planning for humanity’s future needs grows regardless of the spontaneous and often highly destructive spasms of the market system. This has become an increasingly urgent and compelling need on the world scale, to such an extent that the best practices may emerge well ahead of the theory that can best elaborate the sufficiency and-or necessity of any particular practice(s).

There is complexity operating at two levels here. At the first level, it is a bedrock feature of this reality that the relative economic and political weight of the market players play roles in energy pricing trends that are both partially independent of, and partially dependent on, the marketplace. On the one hand, the privately-owned oligopoly, monopoly and cartel players that dominate global energy markets do need and do use the marketplace largely to redistribute risk and its burdens. The national oil companies, on the other hand, have also entered the market, especially during the last decade, in order to raise capital both for new natural gas ventures and extending pipeline infrastructure.

At the second level, according to conventional economic theory, the market is a necessary mechanism for setting a price. Yet, it is clear to even the most casual observer that, while the world oil market may be one of the places a price is posted, today it is certainly not where the price is actually set.⁵ The outcome of this complexity is both stunning and simple: entire societies appear to have been taken hostage by the dominant energy oligopolies, monopolies and cartels. If policy is imposed without regard to autonomous movements in the market, the market may become “spooked,” at some unpredictable cost to the various players. If market players bidding the price of energy commodities ever upward pass some (unknown) price-point, a policy button is triggered somewhere aiming to contain the rise, but with many unpredictable consequences, including possible financial ruin of some established players. Either way, the societies that depend on these commodities will be made to pay most of the price of these indulgences. For those trapped in this vise, is there any way out? How could it have happened that the vaunted freedom of the marketplace has ended up enslaving entire societies within such a narrow band of affordable or available choices when it comes to energy supplies? This is a human social, economic and political problem that crosses borders and continents, and solutions that serve human social, economic and political needs must be found for it. To embark the pathway on which those solutions will be found, however, entails recognizing first and foremost that the principle of sustainable economic development is absolutely mandatory as the constant and common goal.

1.1.1 Commodification: The General Capital-centred Theory

Seeking answers to these questions requires unraveling the actual meaning of what a commodity is, and then identifying what significantly distinguishes commodification of Energy, i.e., the process(es) by which supplies of energy are turned into a form of capital that may be bought and sold as commodities — from commodification of Mass, i.e., the process(es) by which supplies of raw generally solid-state materials are wrested from the earth to be turned into capital and rendered as products for sale in markets after undergoing some manufacturing or other value-creating process.

Regardless of whether they package a certain amount of matter (mass) or energy, all commodities may be considered as being products either of human, or human plus mechanical, labor. However, the fact that all commodities are products does not mean that all products are necessarily commodities.

Manufacture and sale of what we call products emerged during the first and second millennia CE in leading towns of Europe and various parts of Asia. However, the prices of such products, whether crafted for money-sale by artisans, guilds, or marketed by merchants who have their arrangements with a few sources of labor here or there, did not incorporate any kind of standard value assignable to the labor worked up in them.

Commodities are goods or services rolled out on a massive scale. They are products of social manufacture. From a broader scientific standpoint, it can be said that commodification is the theory and practice, according to the capital-centred viewpoint, of the transformation of nature’s possibilities — which are truly neutral as to their direction, for good or ill, vis-à-vis humanity — into goods and services for us. Commodities are no longer just products, e.g., crafted articles of various kinds, generated in some fairly limited run and that happen to be exchanged for money and not necessarily used by their producer. The product that we call a commodity is an item or entire line of manufacture that has been given rise not only for one’s own or one’s family’s consumption and use, but also for use throughout the larger society. Historically, the era of modern commodity production begins with the factory system set up in England in the middle of the 18^th century. Someone, or some group, possessing some money-capital and a factory outfitted with some machinery, employed labor — scores, hundreds or even thousands of workers at a time — to produce goods for sale. The workers were hired on the basis of selling their labor-time to the employer. The wage rate would have already been standardized among the various manufacturing employers.

What do we find as the end result of this process? A vast accumulation of physical objects of various kinds. The common distinguishing feature of these items is not their physical character. Their uses could be highly varied. From this vantage point, however, the ultimate secret of commodity production still lies just beyond our grasp. The ultimate secret is not that these various goods can now be placed in large quantities in mass markets. No: the ultimate secret of commodity production lies in its conversion of the creative laboring power of human beings into capital, in the form of “labor-time” bought and sold as a commodity. This is the feature that distinguishes industrialized commodity production from all previous systems of production. The labor-time is congealed in the physical commodity, as the monetary value of that amount of time, averaged over an entire sector of production, socially necessary for converting raw or semi-processed material into the next product-stage. The wages paid any particular group of workers of any particular enterprise from the given sector comprise a part of that monetary value.

As a commodity, labor-time is highly peculiar. On the one hand, it is to be found in every commodity. On the other hand, in one key respect, it is unlike every other commodity. Any other commodity is and can ultimately be sold at its value. However, the manufacturer-owner-seller of commodities in which this labor-time commodity is congealed realizes profit because the labor-time involved in creating his commodities was purchased below its value. This difference, sometimes called “surplus labor,” is pocketed as the manufacturer’s profit. The worker has sold his labor-time at a rate of $x for the working day of, say, 8 hours, but his labor within that same 8 hours — augmented by the capabilities of machinery and the productive cooperation of the other laborers of the production-line — has actually produced a value, in the manufacturer’s control, of x plus some surplus monetary amount.

In the entire arrangement of capital-centred commodity production, labor-time is the only commodity that is always sold, and must always sell, below the value that it ultimately produces. It is this buying and selling of labor-time as a commodity — yet, uniquely, always below its value — which provides the foundation for what we have come to know as “the industrial system,” “industrialization,” or “industrial capitalism.” What is also hidden and uncommented is that commodification locks time within itself. Whatever the form of commodification, labor-time is the disguised temporal component. Part of that labor-time has compensated the worker in the form of wages. The value of the other part of that labor-time also congealed in the commodity, and which is known as the surplus-labor, has been pocketed by the manufacturer. It is this surplus-value that the manufacturer, the factory owner, the distributor, etc. all live and work to capture. It is not the employer who gives employment to the worker. It is rather the surplus-labor of the workers that enables employers to live without having to participate in actually creating value through labor of their own.

What about the actual physical material comprising the commodity-product? The full answer to this comprises three parts, each constituting a distinct standpoint — the standpoint of exchange-value, the standpoint of value-in-itself and the overall standpoint of capital-centred economics. During an earlier phase of the production cycle, the actual physical material worked up in the commodity arriving for sale in the market was turned into something useful by the conscious application of human hands. If some of those hands were mechanical, what does that do to the argument? The work that a machine accomplishes stands in for the extended labor of scores, perhaps hundreds of human hands and brains, shortening the production time, and assisting in standardizing the appearance of the final output. So, from the standpoint of exchange-value — which is the standpoint that predominates in the scholarly literature and in the media, even though it is not clearly spelled out — it is indeed nothing but labor-time that is actually congealed in every commodity. (Machinery used up in production is, in effect, dead labor.) The exchange-value of the commodity includes the labor-time paid for as wages plus the surplus-labor pocketed by the capitalist alongside the cost of replacing the wear and tear of machinery used up in production. From the standpoint of value itself in general, however, the source o...

Indice dei contenuti

• Cover
• Half Title page
• Title page
• Copyright page
• Dedication
• Acknowledgements
• Preface
• Introduction
• Chapter 1: Fundamental Notions
• Chapter 2: Newtonian Mechanism and the Deconstruction of Scientific Disinformation
• Chapter 3: Offshore Networks of Control: Providing Short-Term Multi-Entity International Oil and Gas Plays with a Guarantee
• Chapter 4: Current Energy Pricing Models: Origins & Problems
• Chapter 5: The Role of Coal in the Modern Evolution of Energy Pricing
• Chapter 6: Carbon Emission Credits — Theory & Practice
• Chapter 7: “Peak Oil” and Other Fits of Pique Among Resource Economists
• Bibliography
• Appendix: Disinformation in the Social & Historical Sciences: Concerning Time Functions and Sustainability of Resource Development
• Index