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

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fuel producers profit from bulk sales and the production of feedstocks for chemicals, fertilizer and pesticide manufacture. What unites them all is their common interest in stable relative demand, helping one another to achieve a balanced increase in consumption and to head off political interventions that might lead to demand gaps in one market or another.

Much is explained by these considerations: the enduring reluctance of the automobile industry to develop fuel-efficient vehicles, although this would have no direct impact on car sales; the otherwise incomprehensible refusal of the oil companies to market even lubricants from environment-friendly vegetable oils, which would free up crude oil derivatives for other uses; the all but point-blank refusal of companies to develop alternative fuels and engines. The effect on refinery output also explains why even the chemicals industry is vehemently opposed to increases in fuel duty, although at first sight this does not seem to affect them. This analysis also demonstrates that it is a serious political error to seek to impose ‘green’ taxes only on one oil derivative – fuels for road vehicles – rather than on an upstream link in the chain. Either imports of crude oil must be taxed directly (which could lead to the relocation of refineries), or all products must be taxed equally. By now it should have become absolutely clear that if real progress towards an alternative is to be made, the entire energy supply chain must be taken into account, right down to the ties between individual links. It must also be clear that the radical approach is the only one that promises any success.

The web of Big Gas: the gas–chemicals–oil complex

Functional divisions within the gas-processing industry are similar to those in oil refining. Natural gas has several components: 70–80 per cent is methane, with smaller proportions of ethane, propane and butane, plus nitrogen, hydrogen sulphide, helium, sulphur and water. Apart from gas for the energy industry, gas-processing outputs include liquid gas for the petrochemicals industry and for industrial process energy, as well as the production of chemicals such as acetylene, methanol, chloroform and formaldehyde, and gas feedstocks for the

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manufacture of a whole range of other synthetic chemicals. All these products have their own storage requirements. For these reasons, the gas industry is heavily interwoven with the chemicals industry. Not by chance is Wintershall, one of the three largest gas importing businesses in Germany, a wholly owned subsidiary of the chemicals giant BASF, which, together with the world’s largest gas supplier, the Russian-owned Gazprom, also has joint ownership of two companies involved in gas extraction and pipeline construction. As the oil giants are now also increasingly moving into gas, the webs of the gas and oil industries are becoming ever more closely interlinked. Partly, this is because oil companies are taking a strategic position against the exhaustion of oil reserves, with natural gas providing a replacement revenue stream when the oil runs out. And with the current rate at which new gas-fired power stations are being built, the gas and electricity webs are also becoming ever more closely linked.

The web of Big Mining: the energy–minerals complex

A similar process is underway in industrial processing of mineral resources. Minerals are also processed in refineries in order to separate out amalgams, extract pure metals and manufacture composites and alloys. This processing takes place mostly in the industrialized countries, so that outputs can easily be shipped to customers in the metalworking industries. Developing countries where the ores are mined receive only one tenth of the over $100 billion of investment conducted annually. The refined products find use as metal, as industrial components and as amalgams in the steel, metalworking, electrical and electronics, petrochemicals, paints and dyes and glass industries.22

Fear that flows of processed minerals might be restricted, diverted or simply dry up also promote structural conservatism and cartel formation in the minerals industry. The metalsprocessing industry also works arm-in-arm with the energy industry. The aluminium industry, for example, is opposed to higher energy taxation because energy makes up a high proportion of its cost base.

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The web of Big Electricity: the energy–industrial combine

Within the electricity industry, the triumvirate of primary energy suppliers, power station operators and distribution grid companies has to find the right mix of the various types and capacities of energy sources. Nuclear power and lignite are preferred where the load is constant, lignite and black coal for times of medium load, and large-scale hydro is preferred for peak loads on national grids. Interlopers are not welcome – not windfarms, not small-scale hydro, not municipal operators generating from local sources, nor anything that might cause the large power stations to run at less than full capacity. This triumvirate has the backing of the large investment banks. A large power station represents an investment of the order of several billions of dollars; lead times are long, requiring longterm finance, and returns on the investment occur significantly later than with other large-scale investment projects.

Energy-sector investment – of which one third falls on electricity generation and supply – makes up roughly 15–20 per cent of total domestic investment.23 As the finance for these investments is largely provided by the internationally active investment banks, it is safe to assume that these provide on average 40–50 per cent of all lending in the energy sector. Between 1988 and 1997 alone, investment in electricity supply systems in Germany totalled more than DM126 billion (€64.4 billion; $57.3 billion), with DM44.6 billion (€22.8 billion; $20.3 billion) for generating capacity, and DM61.2 billion (€31.3 billion; $27.8 billion) for distribution infrastructure. Electricity companies undertake the majority of these investment projects, and almost all investment in generating capacity went on fossil fuel plant and related transport and distribution infrastructure.24 Of the DM11.6 billion (€5.9 billion; $5.3 billion) spent in 1997, nearly DM2 billion (€1 billion; $0.9 billion) went on high-voltage distribution, DM1.6 billion (€0.8 billion; $0.7 billion) on medium-voltage distribution and DM2.1 billion (€1.1 billion; $1 billion) on low-voltage distribution. Annual investment in gas supply exceeds DM5 billion (€2.6 billion; $2.3 billion), of which three quarters is

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spent on piping. Two thirds is spent on local supply, one third on long-distance supply.25

In a forecast by the International Institute for Applied Systems Analysis (IIASA) and the World Energy Council (the common forum for the global energy industry), global investment in energy between 1990 and 2020 is projected to be around $12.4 trillion, or over $400 billion a year. If the average payback period for the loans involved is around 15 years, then total unpaid loans must amount to a constant $3 trillion or so. With such sums at stake, the large investment banks act as guardians of the grid-distributed energy industry and the pool of large-scale generating capacity. In Germany, the banks exert control not just through their lending, but also directly through seats on the supervisory boards of major electricity generation and supply companies.

The extremely close ties between the various links in the chain explain why the power station construction industry has always preferred multi-megawatt facilities, despite the fact that they could achieve the same or greater turnover with smaller power stations: they are following the demands of their customers, the generating companies. The strength of these supply chain relationships also explains why it is that the most ludicrous technological ventures are embarked upon with such great expectations – from the allegedly crucial fusion reactor to the crazy idea of setting up carbon sinks (in order to sequester excessive CO2 emissions) while downplaying the potential of decentralized micropower plants. It also explains why electricity companies are prepared to make risky investments in waste disposal or telecoms, despite refusing to consider even the slightest risk vis-à-vis renewable energy, and also why certain ‘suppressed inventions’26 never even make it onto the market, for fear of rocking the boat.

Of the many individual steps taken on the road towards globalization and the formation of monopolies and cartels, most are economically sound and rational decisions, given the structures established by the fossil fuel and mineral industries. The situation as a whole, on the other hand, is becoming ever more irrational and problematic. Every incursion into the networks and supply chains of the fossil energy industry is

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portrayed as a danger, and dire warnings are given both to government and to the public. Change, supposedly, can only be the result of voluntary action within the cartel-dominated industry, which is why the response to climate change, for example, is not to regulate by statute, but at best to propose voluntary codes of conduct, which themselves are honoured more often in the breach. Of course, the energy companies publicly submit to the authority of the legislator, and draw their legitimization from the political and legal framework. But this only serves as a smokescreen for the embargo on all outside influence, whatever the consequences may be for the environment and the economic, social, democratic and international order. There are four developmental pressures at work in this process:

•the pressure towards economic globalization, which is the inevitable product of a fossil fuel-based energy system;

•mergers and acquisitions stemming from the need to integrate supply chains;

•cartel formation driven by industrial dependency on fractions of the same resource stream, focusing on the electricity industry, which is a consumer of all the fossil fuels, the supplier of energy in its most versatile form (electricity), the greatest single consumer of capital investment for its generating capacity and distribution network and the only industry to hold all other companies and citizens in its thrall; and

•the attempt by the electricity industry, as described below, to become a strategic economic lynchpin by moving into the provision of data and media networks, in which respect it has opportunities beyond the reach of all other industries.

Of the 50 largest European companies, 17 are in part or wholly conventional suppliers of energy and raw materials, or part of the chemicals industry. This does not include suppliers of power station technology, nor car manufacturers with their interest in cheap fossil fuels, nor the large food-processing companies with their close links to the chemicals industry and influence on primary agriculture, without whom an economy

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built on solar resources cannot be achieved. If you count all these, then 43 of the 50 are directly or indirectly involved in the established business of resource supply and processing, with an established interest in large quantities and low prices. The major banks do not figure in this list. So much for the ‘weightless’ economy.

The convergence of power: networking, supercartels and the disempowerment of democratic institutions

Since the advent of electricity, the business of its supply has always had an important role to play. Previously, the highest rollers have always been the oil companies, who have not brooked any public interference. In more recent times, though, the electricity industry has surged ahead.

The electricity supply is one of the essential infrastructure components needed to keep a modern society running, alongside the railway, the post office (including the telephone network) and the water supply. However, wherever regional electricity boards have been transformed into public limited companies, even where the state remains the majority shareholder, they have since begun using their regional monopolies as a springboard for moving into other companies and sectors where their activities are not so geographically restricted. This process has been underway for decades in Germany in particular, whereas the nationalized electricity industries of other countries have remained tied to their original business. The German federal monopolies commission has on many occasions criticized the expansion of the electricity industry into other sectors as a serious distortion of the marketplace.

Many believe this problem to have been solved with the liberalization of the electricity market. This is not the case in practice. The established electricity industry is now free to merge at will with the other transnational corporations within the resource supply chain. It also has a unique trump card in the potential multifunctionality of the electricity distribution grid. The grid is the electricity industry’s passport for entry into the sector commonly thought to have the greatest impor-

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tance for the future of industrial society, culture and democracy: telecommunications and electronic media in general. The stage was set with the dismantling of the state telecommunications monopoly and the existence of a thriving commercial television industry. The deregulation and privatization of the electricity, telecommunications and railway industries put an end to the classical division of labour among the formerly public-sector service corporations. The national grid could, in theory, also be used to transmit data; so too the overhead cabling of the railways. The retrofitting of telephone cables for high-voltage current, by contrast, presents considerably greater and more expensive challenges. In the struggle for control of these networks, the electricity industry has two blatant advantages that might allow it to steal a march on the former state telecoms and railways companies:

•Possession of the longest and most extensive network. In 1997, the primary grid in Germany had a total length of 492,000 km (307,500 miles), and 1,077,000 km (673,000 miles) of secondary cabling – enough to stretch 12 times and 27 times round the globe respectively. These lengths are considerably greater than those of the telephone network or the electrified rail network.

•Availability, through integration into the resource industries and the ability to tap their economic power, of the greatest reserves of capital and economic influence.

New applications for the existing network infrastructure, for which the EU Commission has coined the intentionally harmless-sounding term of technological ‘convergence’, are explicitly welcomed and promoted as a ‘coherent concept’ for all network and data-transmission services. The goal is greater asset productivity and combined service offerings: voice and data transmission over the internet, electronic business transactions and other online services, audiovisual feeds, the interaction of mobile and cable phone networks, the integration of computers and data storage into electronic services and the ongoing process of digitalization. As the development of IT makes it possible not just to use cable TV networks for data access and

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telephone services, but also to broadcast audiovisual content over the internet, the boundary between broadcast media and data transmission is dissolving. The capacity and bandwidth limitations of local landline networks still present a barrier to unlimited access to the internet and other online services. The case for convergent platforms for information and media services is argued not just in terms of economic efficiency, but also on grounds of customer and consumer convenience.

Clearly, such concentration of economic power brings with it a host of problems, including pricing difficulties, availability of content, network access and the difficulty of levelling the playing field. The common underlying issue is the question of vertical versus horizontal network integration – ie, whether a variety of network operators will compete as equals, or one operator will come to dominate. The policy preference, naturally, is for horizontal integration, but the signs are that vertically integrated operators will prevail, and the end result will be either oligopoly or monopoly. This seems especially likely since the electricity industry has made entry into the telecoms sector the centre of its long-term strategy, which it is realizing apace. The EU Commission report mentioned above, which summarizes the results of consultations with interested political institutions, companies and organizations on the need for regulatory action, contains the following passage:

Many participants were of the opinion that competition regulations should be applied in the case of restrictive practices by existing network operators. There are fears of restrictive practices, illegal cross-subsidies and the bundling of access and content. Many network operators take the position that the application of competition law should take account of the high investment cost of rolling out digital communication networks and television platforms, and also of the great uncertainty as to the likely demand for these services.27

This last is an undisguised demand for political institutions to grant institutional and corporate investors a free hand. In the case of the power companies’ attempt to break into telecommunication at least, this is exactly what is happening.

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It is clear for all to see that multi-billion-dollar investments in this area are being cross-subsidized out of revenue from sales of electricity, in flagrant contravention of the regulations governing competition in the telecoms sector. Yet political institutions are not being half as rigorous in their application of new market regulations to the electricity industry as they are to the ex-monopoly telecoms companies. For instance, while the German telecommunications act right from the start contained provisions for a watchdog to monitor anticompetitive practices and guarantee unrestricted network access, the new German energy act has been drawn up on the basis of a voluntary sectoral agreement between industry and the electricity companies. The electricity companies, meanwhile, are busily gobbling up any remaining municipal and regional distribution grids not yet under their control. The ultimate aim is a convergent network under control of the electricity industry. In this battle of the networks, the likelihood is that the electricity magnates will win out.

If the politicians fail to apply the brakes on this development, then the future is clear. Privatization and the expansion of network power will be followed by the internationalization of the distribution grids. Power companies will become ever more removed from political control and market transparency, with the large-scale power stations being accorded a privileged position within the international electricity grid. Backed by the cartels of the fossil resource industry, the power companies will gain the upper hand over the convergent networks, a position from which they can exert control over electronic transactions and the media, and over television broadcasters in particular. With television broadcasters under their thumb, they will have the power to control public access to information and to shape public opinion. The outcome will be a supercartel of proportions unique in economic and political history, with the ability to withstand both market pressures and political institutions’ futile attempts to regulate. Thus is the power companies’ show of bowing to democratically elected politicians exposed for what it really is: a sham.

It will come as no surprise if in the near future we learn that media empires such as those owned by Murdoch,

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Berlusconi or Kirch have been taken over by power companies. What can then hold back telecoms companies under the thumb of power companies from taking over IT services for all firms connected to the electricity industry by offering packet-switch- ing services for both data and power? Who would then be able to check how often communication services contracts are tied to low network tariffs, preferential offers and targeted dumping? How can this be controlled on an international level when national controls fail, or were never even properly applied? This issue has not yet penetrated the public consciousness. Instead, the power companies are lauded for their activities.

Fossil-fuelled power corporations present more than just an acute environmental danger. Their control of electricity supplies and their influence on the mineral resources industry, plus the support of the large investment banks, makes them the most powerful element in the economy as a whole. They hold all the cards they need to construct a comprehensive commodity supply and media empire. They are closely bound up with the fossil fuel extraction and processing industry, and by extension with the chemicals industry. This latter has not only ensured that agriculture remains dependent on its supplies of fertilizers and pesticides. It is also harnessing biotechnology and patent law to massively deepen this dependency, and it has extensive links with the food-processing industry. The power corporations have links to the waste management industry, and are currently seeking to bring the municipal water utilities under their control. They are attempting to erect tollgates on information and media networks. They are systematically taking over all the former public sector supply networks, but with no trace of public accountability or control. They are wreaking havoc on the environment, democracy and the free market.

Even if this is not their explicit intention, the power corporations are well on the way to becoming a uniquely powerful cartel. To this end they have no need of grand strategic visions. They merely have to follow, step for step, the economic logic of their existing supply chains. In this respect, their behaviour is as ‘normal’ as that of other firms; it is simply that the opportunities open to them and the resultant consequences are