Scheer Solar Economy Renewable Energy for a Sustainable Global Future (Earthscan, 2005)

ENSNARED BY FOSSIL SUPPLY CHAINS 41

The nuclear supply chain

The most complex supply chain is that of the atomic energy industry. The first link, extraction, is complicated by the danger of radiation. In the second stage, the uranium ore is transported from countries such as Australia or Canada to refining plants where the ore is turned into uranium oxide. This socalled ‘yellowcake’ is the third link in the chain. In the fourth and fifth stages, the yellowcake is transported to processing plants for the production of uranium hexafluoride. In the sixth link, the uranium hexafluoride is shipped to a uranium enrichment plant, where production of the actual fuel rods forms the seventh link in the chain. The fuel rods are then shipped (eighth link) to the power station. Each individual step involved in the extraction and processing of uranium ore is accompanied by the intensive use of technology, high energy use, considerable environmental damage and huge risks.

The following statistics illustrate just how dramatically the industrialized countries’ dependency on imports has increased: between 1975 and 1994, German imports of fossil fuels increased from 115 to 160 million tonnes; Japanese imports from 475 to 555 million tonnes; and US imports from 1.77 to 2.2 billion tonnes.4 In its White Paper on renewable energy, the European Union (EU) Commission calculated that Europe’s dependency on fossil fuels could grow from 50 to 70 per cent by 2020.5 Germany already meets 70 per cent of domestic energy demand from imports; for crude oil, the level is already almost 100 per cent.

The lengthening supply chains in the electricity generation industry

On top of the supply chain links already discussed (seven for oil, six for gas, five for coal and up to nine for nuclear fuel), there are also the waste disposal costs and the distribution grids of the electricity suppliers: high-voltage transmission to regional substations where the current is transformed to medium voltage, followed by transmission to local substations and subsequent low-voltage transmission to the end-users. The

42 CAPTIVITY OR LIBERATION

last link in the chain is the use of electricity to power lights, heating, motors or other electromechanical or electrochemical processes. The total length of the resulting supply chain, from extraction to end-use, is:

•at least ten links for coal-fired power stations (one link fewer for gas-fired power stations, because gas combustion leaves no residues to be disposed of); and

•at least 14 links for nuclear power stations (in the case of reprocessed fuel, at least seventeen).

These figures take no account of the supply chains involved in the construction of extraction facilities, pipelines, tankers and freighters, power stations and cabling, nor of the need to deal with land and water pollution, nor indeed of the damage to human health and to the climate caused by individual links in the chain.

Resource and mineral supply chains

Industrial resources comprise firstly the various types of quarried stone and rock, sand and mineral salts which are the oldest and most abundant of the non-renewable resources, and which can be extracted at numerous locations across all continents; secondly, mineral ores in the form of compact deposits, which have shaped the world since the dawn of the industrial age; and finally, the hydrocarbons extracted from coal, gas and above all from crude oil.

In metals extraction, the ore must first be separated from the surrounding rock, which produces large quantities of spoil. The extracted ore is then processed – the second link in the chain – to separate the crude ore from the useless and harmful components, and press, sieve and break it up ready to feed to the blast furnaces. Processing facilities are usually located near the mine. Rock with low concentrations of ore has to be enriched, which involves milling in order to be able to admix other minerals. Total world output from iron mining is more than 800 million tonnes annually. Both of these first two links in the chain are highly energy-intensive. The third step is to

ENSNARED BY FOSSIL SUPPLY CHAINS 43

ship the processed ore to steelworks across the globe, using freighters which – again employing large quantities of energy

– traverse routes stretching as much as 12,000 miles from the two major exporting countries, Australia and Brazil, to Europe and the USA.

Before they can be processed further, most mineral ores require additional refining (fourth link) to remove amalgamated substances, and extract pure metals and other materials that can be used in the production of synthetics, composites, alloys or minerals for use in fertilizers and pharmaceuticals. This process, too, consumes copious quantities of energy. The ore is then shipped to the smelting plants where the actual metals are produced, and the finished metals are delivered to customers’ premises. The supply chain for metals is thus as a rule at least six links long. Other mineral raw materials such as gravel and sand, potassium or salts also feed into other supply chains, primarily in the chemicals industry.

Table 1.1 Geographical concentration of mineral reserves

Commodity	Proportion of known global reserves possessed by the three
	largest exporters
Platinum	99.5%	South Africa, Russia, Canada
Chromium	96.9%	South Africa, Zimbabwe, Russia
Vanadium	94.9%	Russia, South Africa, Chile
Manganese	90.5%	South Africa, Russia, Australia
Asbestos	81.3%	Canada, Russia, South Africa
Molybdenum	74.3%	USA, Chile, Canada
Tantalum	72.7%	Zaïre, Nigeria, Russia
Tungsten	69.6%	China, Canada, Russia
Mercury	65.2%	Spain, Russia, Yugoslavia
Aluminium	63.8%	Guinea, Australia, Brazil
Cobalt	63.0%	Zaïre, New Caledonia, Russia
Iron	59.4%	Russia, Brazil, Canada
Titanium	59.0%	Brazil, Canada, India
Silver	54.9%	Russia, USA, Mexico
Nickel	54.5%	New Caledonia, Canada, Russia
Tin	50.2%	Indonesia, China, Thailand
Bismuth	47.9%	Australia, Bolivia, USA
Lead	47.8%	USA, Australia, Russia
Zinc	45.8%	Canada, USA, Australia
Copper	44.9%	USA, Chile, Russia

Source: Bilardo/Mureddu: Energy, Raw Materials for Industry6

44 CAPTIVITY OR LIBERATION

Most European industrialized countries are now 100 per cent dependent on imports of metal ores.7 This dependency continues to grow, because most industrialized countries have already exhausted any deposits they once had in the course of their industrial development. In 1980, for example, the then members of the European Economic Community (EEC) produced 5 per cent of their antimony ore, 2 per cent of their manganese and mercury, 4 per cent of their copper and 12 per cent of their nickel. Domestic extraction of iron, chromium, germanium, cobalt, molybdenum, niobium, platinum, titanium and tungsten had already ceased.8 Even the USA, which by virtue of its sheer size is rich in mineral deposits, is reliant on imports for many metals: 100 per cent for titanium, niobium, tin, germanium and platinum, 98 per cent for manganese, 96 per cent for tantalum, 90 per cent for chromium and cobalt and 70 per cent for nickel. The figures come from a study performed by the Pentagon’s Energy and Defense project.9 Although it is possible in many cases to substitute one metal for another, the limited availability of local deposits means that this does not fundamentally reduce the extent of the dependency.

Fossil resource supply chains and industrial concentration: market destruction through market mechanisms

The tendency for only a few or only one large firm to survive in a marketplace initially comprising many competing firms is simultaneously regarded both as the normal course of development in a market economy, and as presenting a danger to it. Mergers and acquisitions are justified in terms of economies of scale, and latterly also by reference to ‘synergies’, that is, the ability of firms to complement and expand on each other’s specialized skills and technologies. All market economies have made legal provisions for interventions to prevent the formation of cartels and monopoly abuses. Such measures may postpone industrial concentration, but they cannot stop it. As businesses become multiand transnationally organized, a process facilitated by the General Agreement on Tariffs and Trade (GATT), the WTO and continental market regimes like

ENSNARED BY FOSSIL SUPPLY CHAINS 45

that of the EU, which is designed to prevent economic protectionism, political measures to combat cartels are losing their effectiveness. The political goals of international free trade on the one hand and the prevention of cartels on the other are thus increasingly at cross-purposes. Measures to combat protectionism have played an obvious role in facilitating mergers and acquisitions. International trade agreements accord transnational corporations a de facto privileged position and promote giant mergers. The result is the transformation of the global marketplace into a market for the few, with global market forces being cited as justification for the resultant erosion of competition.

Unlike all other industries, in the minerals and energy industries the pressure for increased industrial concentration derives directly from their business models. It is by no means simply a product of the pursuit of increased productivity through greater business scale, but the result of extended global resource supply chains. By driving globalization and industrial concentration in the energy and commodities business, global resource supply chains have also given a decisive impetus to industrial concentration processes in the economy at large. If it were not for the highly concentrated availability of wholesale energy supplies, merger activity would probably have followed a lower-key, more differentiated course.

The high cost of prospecting alone, requiring countless geological surveys and test drillings, can be borne only by capital-rich firms. Only wholesale investors with guaranteed long-term sales can afford investments with such lengthy amortization periods. The same applies to the use of modern extraction techniques, the construction of pipelines and the provision of large-scale freight capacity. For oil, coal and ore shipments, freighters with up to 800,000 tonnes carrying capacity are used; for gas shipments, capacities run to 200,000 cubic metres of liquid gas. Such large deliveries necessitate large refineries and high storage capacity, which means centralized plant and high-volume storage. Processed materials and energy are shipped onwards to equally large power and smelting plants, for the same reasons of economic scale. The sheer weight of these concentrated material flows leads to the forma-

46 CAPTIVITY OR LIBERATION

tion of strategic alliances between large-scale resource suppliers and the operators of large-scale industrial processing and energy-generation capacity. There is pressure to manage the whole supply chain in-house, or at least to control it. The oil giants led the way in this regard, bringing the whole chain from exploration through to garages under one roof. Conglomerates uniting coal and ore-mining firms with electricity generators and smelting plants also crystallized early, for the same reason

– on the national level, for as long the domestic reserves of the industrialized countries lasted, then on the international level. Since the beginning of the 20th century, during which oil replaced coal as the main source of energy, internationalization due to the geographically restricted distribution of oil reserves has been a foregone conclusion. The oil giants – the infamous ‘seven sisters’ – became the first ‘global players’, and thus the exemplar of 20th-century business.10

Exporting countries have frequently tried to strengthen their position through the use of state-owned companies to exert control over their reserves, and preferably downstream operations as well. One such attempt is the Organization of Petroleum Exporting Countries (OPEC) cartel; another is UNCTAD (the United Nations Conference on Trade and Development), which every four years tries to force through fair prices for resources – almost entirely without success, because the importing countries, and the resource giants in particular, can play the exporters off against each other almost at will.11 The resource conglomerates, which control transport capacity, processing plants and power stations, and the energy and materials markets in the consuming countries, have the upper hand. They have long since been the financial backers, partners, shareholders or owners of extraction companies in the exporting countries.12 They act, in effect, as new colonial powers – but without accepting any political responsibility.

In the sphere of electricity generation, which began in the industrialized countries with water and steam power, this level of concentration was harder to achieve than in the pure oil, gas and coal supply chains. This is because retail distribution depends on the local electricity grid, which could not so easily be taken over without political help and connivance. The

ENSNARED BY FOSSIL SUPPLY CHAINS 47

technical and economic advantage that derives from the control of large-scale hydropower, much the easiest and cheapest source of additional and reserve capacity, was a trump card that the power companies were able to play to their advantage. They constructed the national grids, which they used to monopolize supply, freeze out local electricity producers, and now finally to take over ever more municipal distribution grids. As wholesale purchasers of fossil fuels, they were able to demand lower prices and subsequently to vary their prices locally in order to price municipal suppliers out of the market. They also froze out local producers – such as the operators of small-scale hydro plants and wind turbines, large numbers of which were in operation in the 1930s in places like the USA, Denmark and Germany – even where this could not be justified on cost grounds. Despite the fact that many independent operators of small-scale hydro plants and windfarms could produce electricity cheaply, the grid monopolists either refused to purchase their current, or offered prices that were insufficient to cover the producers’ costs. Local and municipal power plants, after all, presented an obstacle to the erection of a comprehensive monopoly on electricity supply.

The power companies’ greatest trade advantages, however, were and remain the political privileges that they were granted as, with the growth of the electrical goods industry, the importance of electricity generation in social and economic strategy came to be recognized, and as demand for electricity grew. The power companies positioned themselves as guarantors of a stable and uniform electricity supply and, in response, the statutes regulating the power industry were tailored to suit their needs. In other words, governments actively promoted increased concentration in the industry. Concentration became the leitmotiv of capitalist heavy industry, which sought to base its activities on carefully planned guaranteed deliveries. It became the social democratic ideal for the state to come, as described by Ballod-Atlanticus in his paean to large-scale power stations.13 It became a communist dictum, as embodied by Lenin’s famous statement that communism was composed of Soviet power and electrification. Concentration also became the basis for military strategy, which was the reason why the

48 CAPTIVITY OR LIBERATION

German Energy Act of 1935 actively promoted the centralization of the energy industry.14 In short, concentration became the unifying factor in capitalism, fascism, communism and social democracy, and the principal goal of industrial societies of all natures.15 The nationalization of the French energy industry with the foundation of Électricité de France in 1946, the nationalization of the Italian energy industry under the umbrella of ENEL in 1962, and the foundation of the Austrian national grid company are all artefacts of this process.16

Where governments did not themselves drive the concentration process, either through nationalization or by means of energy legislation, the energy industry took matters into its own hands. Its representatives bribed municipal politicians to close municipal plants or sell municipal distribution grids, as described by Lutz Mez in his work on the expansion of the RWE group.17 It blackmailed local authorities and used grid access restrictions and sabotage to put pressure on local producers, as reported by Berman and O’Connor with reference to many examples in the USA. It was developments like this that roused the ire of Tom Johnson, who was Mayor of Cleveland at the turn of the 20th century: ‘I believe in municipal ownership of monopolies. If you don’t own them, they’ll own you. They’ll destroy your politics, corrupt your institutions and ultimately deprive you of your freedom.’18

The liberalization of electricity markets across the world and the dismantling of regional and national monopolies has led many to believe that the concentration of market power in the electricity industry has now run its course. Nothing could be further from the truth. The industrial concentration process has in fact received a wholly new impetus. The trans-European gas and electricity grid is being expanded with political backing from the EU Commission and subsidies from the TransEuropean Networks programme. The legislative framework for the common market in electricity, which became law in 1997, has given a new significance to the West European grid (UCPTE), and plans are afoot to link it with the common energy grid of Poland, Hungary and the Czech and Slovak Republics (ENTREL), the Baltic ring and the Russian grid (EES).19 The former public energy utilities are now being sold

ENSNARED BY FOSSIL SUPPLY CHAINS 49

off, and the resultant wave of mergers is creating the first transnationally organized energy producers. Tariffs have fallen globally with the inclusion of energy in the WTO regime. On a European level, the new European Energy Charter is designed to extend the protection of international law to energy investments in other countries (meaning investments in extraction facilities on oil, coal and gas fields). All these developments are helping to strengthen supply chains and concentrate energy flows, with the aim of flooding the markets with more and cheaper energy.

Despite lip-service commitments to sustainable development, few seem disturbed by the fact that the processes outlined above are accelerating the exhaustion of available reserves. Environmental objectives continue to be stymied, irrespective of national and international decisions on climate change. On the contrary, the loss of regionally protected monopolies is being compensated for through increased market concentration and internationalization, with heightened and accelerated flows – with the result that the opportunities provided by the opening up of the energy markets are negated by the heightened market power of the grid operators. This is a dangerous development. As absurd as it may sound, market mechanisms are destroying the market.

The spider in the web: the growing influence of Big Energy and Big Mining

The energy and minerals industry is highly concentrated, composed for the most part of local monopolies. It has become the focal point for the formation and entrenchment of crosssectoral industrial cartels that have paralysed the economy in the face of growing environmental challenges. These concentrations of economic power are organic outgrowths of energy and material flows. Like a spider, the fossil resource industry has been spinning its web over more and more sectors of the economy. Each strand of this web is a supply chain, with crosslinks composed of other directly connected industries. Yet for almost each and every node in this industrial web, there is an undisputed supply chain logic and a convincing business case.

50 CAPTIVITY OR LIBERATION

The web of Big Oil: the oil–petrochemicals complex

Oil refineries do not just produce petrol and diesel. Of the crude oil input, 45.6 per cent is turned into petrol, 20.9 per cent into diesel or heating oil, 9.4 per cent into kerosene and 1.3 per cent into naphtha-based fuels for jet aircraft, 6.8 per cent into residuum, 1.2 per cent into lubricants, 2.9 per cent into petrochemical feedstocks, 3.2 per cent into asphalt, 3.9 per cent into petroleum coke for carbon electrodes, among other uses, and 3.6 per cent into liquid gas.20 It is possible to vary the proportionate quantities of the various outputs, but only within a limited range. Refineries are thus a focal point where industrial interests find common cause. Each individual interest may be motivated by sound business reasons, but in concert they generate an unhealthy resistance to change.21 The automobile industry has an interest in maintaining low prices for petrol and diesel products. The aviation industry seeks to secure sufficient supplies of kerosene; the shipping and heating industries likewise seek supplies of diesel and heating oil. Finally, there is the chemicals industry’s demand for hydrocarbons for the production of fertilizers and pesticides, and the interest of the refinery operators themselves – usually elements of the chemicals industry – in maintaining demand in the right proportions for all refinery outputs.

A disproportionate change in the demand for one output can displace sales of other outputs. An enduring imbalance in demand results in increased costs. For example, the demand for diesel-driven cars should not grow faster than the demand for petrol-driven ones. If demand for kerosene increases, which is currently the case due to the rapid expansion in air travel, the oil industry is forced to seek additional markets for its other outputs or to flood the market with cheap products. In this system of mutual interdependencies, the optimal balance is achieved when demand grows uniformly across the board. Refineries are the anvil on which alliances between the crude oil, chemicals, automobile, aviation and transport industries are forged. The primary axis is the common interest of the crude oil and chemicals industries. The automobile and aviation industries profit from the availability of cheap fuel, and the