The True Impact of Trump Leaving the Paris Climate Accords

Originally published in August 2017.
Pulling out of Paris: Nothing to do with making America great, everything to do with getting Trump re-elected.

The US withdrawal from the Paris Climate Agreement is the latest manifestation of Donald Trump’s preference for dramatic, contrarian policy announcements, and is evidence that he has a consistent, coherent strategy to get re-elected based not on sound policy but making middle-Americans feel like they are empowered again.

Trump has no convictions about climate change whatsoever; In 2009 the Trump family (including Donald) took out a full page ad in the NY Times imploring Obama to act on climate change at the Copenhagen summit.

Therefore, Trump is trying to exchange US soft power and prestige for an increase in support amongst his base. It is everything to do with Trump holding onto power, and nothing to do with ‘Making America Great Again.’

For climate advocates, the good news is his announcement will have little impact on the decarbonisation of the world economy, for several reasons.

Policy follows investment, not the other way round

‘I am fighting every day for the great people of this country….to protect America and its citizens, the United States will withdraw from the Paris Climate Agreement…but begin negotiations to re-enter…on terms that are fair to the US, it’s businesses, its workers, it’s people.’

Contrary to prevailing wisdom, leaders, including US Presidents, have less influence on events than people think. Policy seeks to influence outcomes, but outcomes are largely the result of the inexorable weight of technological and social change. This change can take decades, but it is irresistible. Such change in turn influences where investors place their money. Politicians can seek to ride the wave of change, and influence it, or fight against, and be swept aside (see the USSR).

In this case the money is flowing in the opposite direction to Trump which means he is dealing himself out of influence.

Trump says he’s fighting for US jobs in the fossil fuel and related sectors. But in the US investors have stopped financing coal plants completely (and did so years ago) and spend twice as much on renewables as gas fired generation. Furthermore, solar alone employs twice as many people as the coal sector and growing. The only way Trump can save fossil fuel jobs is by subsidising his favoured industries and punitively taxing renewables. Both are highly unlikely to happen and would just crowd out other parts of the economy and lead to inflation because US unemployment is at 4.4%, a 16 year low.

Furthermore, the national utilisation rate of gas plants is only 56%, meaning there is massive scope for more gas generation using existing assets. So, no boom in gas plant construction, and now the US gas market is increasingly connected to the rest of the world, the policy can’t impact employment in shale gas drilling, because prices are increasingly linked to global markets, not domestic.

Even car makers, who stand to benefit through a review of emissions laws, have stated withdrawal will not affect existing pledges on climate change.

Globally, investment in renewable energy was over double that of coal and gas in 2015 ($265.8bn vs $130bn), including double digit growth in many key markets (China, India, Brazil, and the US)-despite commodity prices tanking. If the US is to continue to benefit from this, it needs to encourage renewable investment, not hamstring it.

Domestic politics

The US political system is full of checks and balances, and thestates are free to set their own climate agendas. They will continue to do so. For example, official policy in California and New York out to 2030 is to reduce GHG emissions to 40% below 1990 levels, increase renewable penetration to 50%, and reduce fuel consumption by 50% (among other initiatives). Other states, e.g. Colorado, electricity generation is 100% renewable already.

On the city level, the US Conference of Mayors (USCM), a non-partisan organisation of cities in the US (representing over 84% of GDP) advocated strongly against withdrawing from Agreement, and has stated publicly that they will continue to ratify the terms of the treaty on a local level.

Trump said he was withdrawing from Paris on behalf of the people of several US cities where his supporter base is strong, including Pittsburgh. The Mayor of Pittsburgh, William Peduto, immediately distanced himself from Trump and confirmed his city’s commitment to meeting their Paris obligations.

Trump has inadvertently galvanised action across the US to meet the reduction targets, independent of the federal government. He is facing a mutiny.

Global momentum

China, India, the EU, and others have reaffirmed their commitments to the Paris Agreement.

In Europe leaders are united in growing disdain for Trump. He has already alienated himself by undermining NATO at the recent Brussels summit and publicly refusing to shake Angela Merkel’s hand. The one thing European leaders agree on, apart from their universal dislike of Trump, is their commitment to the Paris Agreement, and they won’t be at all influenced by his policy direction. France’s Emmanuel Macron has rather opportunistically taken the chance to invite disillusioned American engineers and scientists to move to France in a recent address.

Greg Stanton, USCM Environment Committee Chair, commented that ‘[the USCM] see’s the withdrawal from the Paris Climate Agreement as an abdication of American leadership.’

World leaders will view it the same way. So even as US states and cities work to pursue the Paris agenda, other world leaders will be extremely pleased he has effectively dealt the US out of influence on climate change issues.

China already accounts for 36% of renewable energy investment (over $100bn in 2015). With the US ceding leadership, President Xi Jinping has a golden opportunity to assert China as the global leader in climate related matters.

While Trump alienates Europeans friends and sends mixed signals to Asian allies, China is steadily building soft power (e.g. the $900bn Belt and Road initiative, formation of the Asia Infrastructure Investment Bank), the addition of the yuan at the IMF as a reserve currency; and hard power (construction of a blue water navy and claiming the South China Sea). Where the US recedes, China surges and Trump is ceding leadership at an alarming rate.

So what is Trump trying to achieve?

Trump is sacrificing US prestige in order to boost his appeal amongst his base, especially those in industries affected by climate talks.

Taking a step back, ideally politicians truthfully articulate their policies, and the reasons in favour, then people weigh the facts and vote according to their interests. As we know, facts are usually obscured or misrepresented to improve their palatability, making them easier to sell.

Trumps modus operandi shifts things far to the edge of the spectrum, and completely prioritises the emotional impact of what he’s saying, utterly subjugating facts in the process. His goal is to always elicit strong emotions from people, especially his support base. Truth is irrelevant, how he makes people feel is critical. He peppers all his communications with adjectives thereby giving them a moral flavour which people can rally behind. He knows liberals will never, ever vote for him, so rather than court them he deliberately provokes them and uses their outrage to boost support on the political right.

Trump won the election because he enraged the liberal elite and resentful middle Americans loved him for it. By disdaining political correctness he made his supporters feel vicariously empowered. His comments about women, Mexicans, blacks, Muslims, immigrants, climate change and so on, made resentful middle Americans feel like the ‘elites’ were getting a taste of their own medicine; he was brashly articulating everything they wish they could say, but can’t.

Pulling out of Paris is an extension of this approach but on a global scale. It almost certainly won’t help the people he’s claiming he’s acting on behalf of, for reasons explained above. But by enraging the ‘peacenik’ Europeans and the ‘arrogant’ US elites US, his supporter base can bask in schadenfreude. It also has the added benefit of creating more ‘enemies’ of America, and Trump personally, which he can rail against. Trump loves an adversary even more than most leaders, because it justifies indignation and anger (strong emotions), with which he galvanises his base. Trump hopes to fan these flames through to the next election.

For most people, the Paris Climate Agreement are a critical piece of policy determining the future of the planet. For Trump, they are an opportunity to play politics and get re-elected.

Trump’s number one priority is not his nation, but himself, and his oxygen is attention. This worked well during his campaign, but the world is quickly turning away from the antics of the US President.

The Paris Agreement will survive the US leaving, but once Trump feels sidelined, he can be relied upon to try to reinsert himself somehow. The question people should be asking is not whether the climate change movement will survive the US leaving (it will) but what will happen when the world’s most powerful narcissist becomes starved for attention?

Adding Carbon Diplomacy to the 3E’s of Climate Action

To anyone who continues to deny the reality that is climate change, I dare you to get off your ivory tower and away from the comfort of your armchair. I dare you to go...where climate change has become a matter of life and death as food and water becomes scarce.

-Yeb Sano, Undersecretary, Philippine Climate Change Commission

Environmental, economic and ethical risks face Australia if we don’t act decisively on global warming. There is a real chance Australia could add diplomatic isolation in our own region to the list-if climate change attitudes amongst our neighbours continue to harden. This article is about how we can protect ourselves from this eventuality-but first we need to take a small detour into policy and politics.

The problem with policy is that it is subject to politics. This self-evident statement is epitomised by the circus surrounding the execution of convicted drug smugglers Myuran Sukumaran and Andrew Chan.

President Joko Widodo of Indonesia may feel the best way to deal with the Australian drug smugglers is to shoot them, or perhaps driving his hard line is domestic politics, where a strong anti-drug stance makes him very popular amongst Indonesians. Maybe it’s a useful bargaining chip in Australia/Indonesia relations. It certainly isn't principle; Indonesia paid US$1.9m to Saudi Arabia in 'blood money' to save Satinah Binti Jumadi Ahmad, an Indonesian domestic worker sentenced to death for robbing and murdering her employer’s wife.

Equally, contributions like Tony Abbott publicly pressuring Indonesia to spare the men are usually counter-productive to behind the scenes diplomatic efforts. They are, like President Widodo's hard-line stance, more for the consumption of domestic constituents than a measured, coherent policy statement based purely on outcomes. (This is not to question Abbott’s sincerity).

These examples illustrate that politicians have to play to a domestic base which have a strong influence on decisions. Yes, this is obvious, but it has ramifications in international politics too, for example when leaders use nationalism to distract from issues at home (Vladimir Putin) or when voters reject outsiders calling the shots (Greece’s rejection of austerity).

What does this have to do with climate change diplomacy?

The fact is this: If Australia is perceived to be dragging its feet on climate change, we will pay a price for it, because our neighbours-the Philippines, Bangladesh, Vietnam, and Indonesia (combined population 590m) are starting to frame natural disasters as man-made events, not just natural ones.

If something is man-made, somebody is responsible for it; can be blamed for it. Developing nations already embody this attitude-it’s their justification for wanting transfers (technology, cash) from the rich world to mitigate against warming. What we’re witnessing is a hardening of this attitude.

Because our neighbours think warming is hurting them, it shapes their priorities. The Philippines is the chair of the Climate Vulnerable Forum, a bloc of twenty countries (including Vietnam and Bangladesh) who feel imminently threatened by warming and at climate change negotiations form a negotiating bloc.

Indonesia occupies the same region, and has the same vulnerabilities to warming as the Philippines; according to the Indonesian Disaster Management Agency, that country saw twenty-eight (28) times as many typhoons in 2012 as 2002. The Indonesian government attributes this increase to climate change. If Indonesia were to align their negotiation position more closely with the CVF, our climate attitude-what we are perceived to be doing in relation to our capacity to act-would be radically different to all our closest neighbours.

At the December 2014 COP20, the head of the Philippine delegation said; “We support any solidarity for the Philippines, but not sympathy. We sustain losses every year: from Typhoon Frank, to Parma, to Nesat, to Bopha, to Haiyan, to Hagupit. But our vulnerabilities can be reduced.”

This from Bangladesh; “These more frequent and increasingly severe weather events are a call to action.”

Anecdotally, I travelled to Tacloban in the Philippines directly after Typhoon Haiyan to assist with the clean-up. Speaking with locals, they blamed many things for the destruction and number of dead. There were two overriding factors mentioned: Poor government preparedness, and global warming.

The people of these countries see damage and death on a vast scale. To them there is no debate about climate science. They not only blame these calamities on climate change, but firmly believe things will get worse-and that humans are responsible.

In 2013, the Annual Disaster Statistical Review found that, China, the United States, the Philippines, India, Indonesia and Vietnam constitute together the top six countries that are most frequently hit by natural disasters. All our either regional neighbours, major trade partners or key allies.

Relevantly, non-weather related disasters (e.g. earthquakes and volcanos) are only 11% of the total occurrences and 4% of deaths. Perhaps this is representative of long-term trends, however these days governments are starting to blame human factors.

But wait-what’s the problem? After all, foreigners don’t make our policy, we do.

It's a problem because such calamities inevitably have a political dimension. Death and destruction incites strong emotions and politicians tap into strong emotions. Traditionally, natural disasters are seen as “acts of God” or bad luck, with nobody to blame but Mother Nature. However, as shown above, nations and politicians are increasingly blaming natural disasters (or at least the weather related ones) on human activity.

At the start of the article we looked at how politicians, rightly or wrongly, frame external threats as rallying cries to their domestic constituents. Sometimes this is cynical exploitation, or it may be a true and just cause, like Britain during WWII under Churchill. The risk here is that we become the focal point of negative regional climate diplomacy, a whipping boy for nations and leaders looking for someone to blame for the plight of their citizens. Indonesia’s massive contribution to warming through deforestation will be subjugated to politics and arguments about Australia’s overall contribution to greenhouses gases become irrelevant-we’re a wealthy country and it’s our attitude that will be judged and used against us.

Australia does not have the clout to just do our own thing. Big countries, like the US can, for many reasons-not least because they give the Philippines US$6bn in aid each year. The US also provides a counterpoint to Chinese power in the South China Sea. This is a big issue for the above-mentioned nations. Australia doesn't have that the luxury of that influence.

Renewable energy, like all breakthrough technologies, needs, at the very least, to not have an unfair playing field. Refusing or reducing subsidies on free-market grounds (ie abolishing the CERF) is fine-if you internalise negative externalities of the incumbents. That’s what the carbon tax was for. The Abbott government can’t have it both ways and then claim to be reasonable, or retain credibility.

The argument that we should expand coal use and abolish because it's cheap and good for the prosperity of our country is at worst an example of an ideological “liberal” government “picking winners” in a sop to big coal, and at best, a purely a self-interested, Australia-first pragmatic argument.

Giving Abbott the benefit of the doubt, self-interest isn’t intrinsically bad in itself, because that’s how international politics works. However, the logic behind such an approach is deeply flawed. One hundred years ago it might have been sound policy. Nowadays, it is anachronistic.

It’s anachronistic because environmental, economic, even ethical concerns are all reasons to act on warming. We should now add diplomatic concerns to that list.

Australia has long punched above its weight in diplomatic circles. Fundamental to this has been the perception that, broadly speaking, we're a principled country. We can continue this legacy whilst acting demonstrably in our national interest; by taking firm action on climate change, and being seen to act.

Drugs are bad. Let's legalise them.

Not many topics are considered political suicide like advocating hard drug legalisation, because “drugs are bad”. Despite this, the war on drugs always has been and always will be a complete and abject failure. In fact society is changing in ways that make such an attitude even more archaic than it always has been, but there is a real opportunity to turn the drug trade into a net positive for our society. There will always be horrible stories of addiction and overdose, but sadly these happen in spite of prohibition. If we must put up with such things, we should at least maximise any upside the drug trade offers.

This article is specifically about such drugs as marijuana, cocaine and MDMA. It is not about meth-amphetamine or heroine, which are highly addictive and therefore pose different problems.

Let's look at this issue in a calm and rational way. Drugs can most certainly be bad, because used to excess they can cause physical and psychological problems. Depression, anxiety, aggression, not to mention physical symptoms, loss of employment, crime, relationship breakdown, death and even yellow teeth are all possible consequences of excessive drug use. Huge swathes of research, showing the shocking impact of drugs on the medical and justice systems, are publicly available.

The reason we know so much about the impact of drugs is because, even though their production, distribution has always been illegal, huge numbers of people produce, sell and consume them anyway. It's harder to get a gram of cocaine than a snickers bar, but it's still not that hard to get a gram of cocaine. Anywhere on earth.

Drugs are bad because they hurt people. So do a lot of other things. In 1970 the road toll was 3798, a huge number! But cars aren't bad. Measures were taken to improve their safety. The road toll in Australia in 2013 was 1193-an incredible improvement. Compare that to the total number of cocaine related deaths in 2009 which was...23. Yep. Hospital stays that were primarily cocaine related were under 300 for the full year of 2009, a tiny number. The number for marijuana is even lower. This is from the National Illicit Drug Indicators Project, which is funded by the Australian Government Department of Health and Ageing.

Cars are useful for transport, I hear you say, so let's look at something that is far less useful for transport but still legal, for example high performance motorcycles. As a 22 year old I walked into a motorcycle dealer and walked out 20 minutes later on my first superbike-a 2002 Yamaha R1. What a beautiful machine. It had 150hp and went from 0-200km/h in around 8 seconds. Everyone agrees this is a dangerous activity with a high risk of harm. And that is why my annual insurance bill was roughly a third the entire value of the bike. The insurance company had priced in the negative externalities associated with an overconfident 22 year old male on a bike far in excess of his capabilities. But bikes are legal (thankfully), even though they are clearly, potentially very bad for your health. But we ride them because it's fun.

What about alcohol? Cigarettes? The Australian Institute of Health and Ageing estimates the cost to Australia of smoking in 2004-5 at $31.5bn. Alcohol? $15.3bn. That's a fair chunk of GDP.

Both kill huge numbers of people and have an incredible cost to society. If harm minimisation is the goal, we should certainly ban both of those drugs.

The social cost of illicit drugs in the same period? $8.2bn. A solid of chunk of that was crime related-which would largely turn into legitimate profit, tax revenue and business investment if drugs were legalised.

What about sugar? It's natural...But so is tobacco, marijuana and cocaine. Overconsumption of sugar is turning millions of us into fat, diabetic, blood sucking parasites on the health system. Sugar ruins lives, and has a debilitating impact on quality of life and wellbeing. We're the fattest nation on earth. Why not ban sugar? Seriously-if harm minimisation really is a genuine goal, we should ban, or at least heavily tax, sugar...but it'll never happen.

Let's be honest. Drugs are not illegal because they're bad for you. It's not about harm minimisation. Too many legal things can kill you just as fast as various illegal drugs for that to be the case. That argument is so easy to pick apart, the only reason it still exists is because it gives advocates of prohibition a nice moral soapbox to stand on: “We're doing it to protect people!”

What would happen if drugs, by which I mean cocaine, ecstasy, marijuana in particular, were brought into the fold? What if you could walk into a pharmacy and buy these items, at current prices, sourced from a government approved production facility? They’d instantly be less cool, which would dissuade at least some people from using them.

But let’s look at the numbers.

The Australian Bureau of Statistics estimates Australians spend $7 billion a year on illegal drugs. First of all, instead of $7bn a year going to criminals, dealers, organised crime syndicates and other unsavoury types, that same amount would go to legitimate businesses. The pharmacist would make more profit, the drug grower/manufacturer/importer would make a profit, and like all companies (except Apple, Google and the big miners) these businesses would pay the company tax on any profits-currently 30%.

Associated costs to society, particularly crime, corruption (the undermining of our police force and justice system is a crucial associated cost) are another huge component of the drug problem. The Australian Institute of Criminology estimates crime costs Australia $36 billion a year-of which 9% are drug offences. Burglary, assault, homicide, and theft between them are another 32% of crime. A large portion of these could certainly be traced back to drug related activity-for example gangs enforcing territorial claims or addicts stealing to pay for habits.

So, very roughly, we have $7bn spent on drugs and, almost certainly, many billions more down the drain on drug related crime, police action and costs to the justice system. Let’s not add estimates for the health costs for drug use because legalising drugs won't make that number disappear-arguably it may actually rise, but certainly not by as much as legalising drugs will make the other costs reduce. And at least we'll have internalised the health costs-drug users will be paying large chunks of tax which could go straight into the health system.

One reason politicians and police can't give up the war on drugs is because so many jobs depend on waging it. Legalisation of drugs could cut out the majority of the $1bn+ a year we spend on drug enforcement-police, surveillance and etc. Now the drug police themselves think this is a bad idea, because they'd have to get other jobs (pharmacists perhaps?). But we could spend that $1bn reducing the budget crisis, planting trees, or turning back the boats-there's plenty of policies out there that need funding.

Cocaine sells for $300/gram in Sydney. It's produced in Colombia for around US$3/gram. It goes up in price 100 times by the time it lands in your stockbrokers wallet in Sydney. With margins like that, cartels will never, ever stop getting it into Australia. The same principle, if not numbers, applies to heroine, ecstasy, and to a lesser extent (because we can make it ourselves) marijuana. Who are the cartels? The most violent, ruthless gangs in the world. Close to 15,000 drug related murders occurred in Mexico in 2013. And our prohibition on drugs is making it irresistible for them to do business on our shores. We're literally the most profitable market on earth for cocaine-the cartels love Australia!

In fact, the war on drugs clashes head on with high-school level economic theory: that restricting supply of a desired good will only increase that goods’ price-therefore incentivising people to supply it. And like it or not, drugs are desired goods. And since Australia is one of the richest nations on earth, we have relatively inelastic demand for drugs. It's why the cartels are moving in.

Why hasn't Treasury explained this to their friends across the hall in the Department of Police and Justice...could it be that the message doesn't want to be heard?

Let's not pretend that with legalisation all criminal elements will simply evaporate. But the drug import and distribution part of their operations will largely disappear, which would be a blow to their funding and operations-and their relevance.

So-billions saved not having to police and enforce drug crime, and billions in tax revenue flowing into government coffers. Better schools, better roads, better healthcare. Less crime. Standard fare for most election campaigns, so it's strange that there isn't a rational debate on the subject.

The consequences of our war on drugs were demonstrated in 2005 by Dr John Quigley, from the Queensland University of Technology. As we all know, cannabis use by baby boomers went up during the swinging sixties. Smoking marijuana tore at the moral fabric of society, fuelling as it did orgies of anarchy, independent thought and free love. Parents of baby boomers fought back, and thus began the war on drugs, initiated by Richard Nixon in the US and quickly spreading to Australia. Quigley’s study found that in the 1970's, when cannabis was heavily policed for the first time, prices spiked, criminal gangs took over supply, and because supply of dope was restricted, demand for easily available alternatives, particularly heroine, increased dramatically.

As Quigley points out:

“This seems to be the pattern of prohibition: a police crackdown causes a temporary disruption of supply; lack of supply forces up price, increasing the value of the market and enticing more ruthless and organised criminals to take over. In this way, drug law enforcement acts as a multiplier for the drug market, while ensuring that control of the drug market goes to the most ruthless and “protected” members of organised crime...”

People in charge need to accept that some people will always push boundaries. It's human nature. It's why Captain Cook sailed round the world and discovered Australia, and why Neil Armstrong walked on the moon. Unfortunately, it's also why people like to take illegal drugs-it makes them forget their problems, or enjoy the party a bit more, or feel like a superhero for a few hours.

I don't advocate drug consumption, but taking drugs is probably no worse than opposing something just because it's always been that way. For all sorts of “valid” reasons, women couldn't vote 110 years ago. Seems pretty stupid now doesn't it?

People are going to take drugs no matter what, so here's what should happen:

1) We should regulate drug quality and distribution.

2) We should provide realistic, factual education to everyone but especially high risk groups-for example teenagers-on the negative and positive effects of drugs on physical/mental health, behaviour and long term use.

3) We should set up comprehensive drug treatment programs, that aim to resolve not only damaging drug use, but also fix the underlying causes (e.g. depression, anxiety, mental illness etc)

4) Finally, we should internalise the profits and minimise the criminal element by turning the drug trade into legitimate business and taxing the hell out of it.

So, all you politicians out there…any takers?

----Next time, we'll look at where drugs come from, because ethically sourcing drugs may be even harder than convincing society to change. We’ll also look at new phenomena like online ordering and how it's a) completely eluding enforcement and b) gentrifying the drug trade. We'll also analyse whether legalisation leads to increased consumption, and more relevantly, to higher levels of drug related harm.-because that is a primary argument against legalisation.----

Escalating crisis: When the US pulls back

While the US sits astride global geopolitics as the world's 'policeman', much is written about the injustices it perpetrated on various nations and groups who weren't aligned with US strategic imperatives. US meddling in the Middle East to secure the supply of oil, economic and political isolation of Russia after the end of the Cold War, the unequivocal support of Israel, the list is long.

Plenty is made of the issues that arise when America pushes its diplomatic and military weight around. The US has overthrown democratically elected leaders (Iran 1953, Guatemala 1954, Congo 1965) and forced regime change through military action (Iraq 2002, Afghanistan 2002). Again, the list could go on.

Despite many assertions to the contrary, the question in geopolitics is not whether an action is 'good' or 'bad', but whether it is the best alternative. In view of the Obama administrations tacit withdrawal from world affairs, it's worth analysing whether current conflicts and upheavals would have been avoided, or at least minimised, if the US had maintained it's role as the world policeman. This article looks at the Ukraine, Israel/Gaza and ISIS in Iraq.

Russia/Ukraine: Putin is reasserting Russia's dominance over it's neighbours, in a bid to rebuild Russian prestige and build an integrated economic zone with the former Soviet states-an Eastern EU. His actions in Georgia (2008) and particularly in the Ukraine, by annexing the Crimea, are a stark warning to Russia's neighbours to toe the line out of Moscow or face military consequences. The US and the EU have responded by imposing sanctions that will hurt the economy, and in particular the oligarchs. Putin's popularity with the oligarch's is likely at a low ebb because the sanctions he's bringing on the country are costing them billions-however with over 80% of Russians supporting his actions his power base is still strong.

He is also committed militarily to the Crimea, regardless of the international outcry over MH17 (unfortunately, because Malaysia, the Netherlands and Australia are neither proximal to Russia or military/economic threats, the MH17 tragedy will not result in any lasting consequences to Russia or the conflict as a whole). He cannot back down on the Ukraine, as his domestic support depends on it's success. In addition, it's a part of his broader strategic goal of expanding the Russian sphere of influence.

The Ukraine is adjacent to Poland, an EU nation and NATO member. The Poles remember getting crushed between Germany and Russia in WWII and have no interest in accommodating Russian expansionism. However, the weakness of NATO has truly been exposed by this crisis. Since WWII the Europeans have leant heavily on US military might, and been relatively conflict averse. However, until recently, the US has picked up the slack-a key part reason the Cold War ended was because Ronald Reagen massively outspent the USSR on military hardware which bankrupted itself trying to keep up. Now, Putin knows the US will not intervene unless it's direct allies or interests are threatened. The Ukraine is neither, which is why Russian is getting away with effectively invading a sovereign nation on the edge of Europe.

Israel/Gaza: We all know the situation in Gaza is incredibly complicated. More simple is why it has exploded in such spectacular fashion. It stems from the reduction of US power-broking in the Middle East.

Israel, particularly since the 1960's, has enjoyed very strong diplomatic and military backing from the US, in the form of support at the UN and military technology and hardware transfers. The strength of Israel's position in the Middle East has multiple sources, and the military aspect is critical. However the court of world opinion-historically in Israel's favour-is very powerful. Of course there have always been detractors but the countries that matter (i.e. the ones with the weapons and diplomatic clout-the US, the UK, part of Europe) have backed Israel all the way.

Now, the US is slowly withdrawing its influence from the middle east. Why? Firstly, it is war weary from fourteen years in Iraq and Afghanistan. Secondly, US energy production has soared in recent years, and US dependence on Middle Eastern oil is at lows not seen since the 1960's. Therefore it's energy security, and therefore economic security, depends less on the Middle East than it has in decades. While these are two broad strategic issues, many other factors play a part-but they are beyond the scope of this article.

This means the Israel can't rely (as much) on either the physical backing the US provides, or the high level of deterrence having the US backing instils in Israeli enemies, like Hamas. US indifference has emboldened Hamas, which knows that by antagonising Israel and provoking a wildly disproportionate response, they can sway the court of world opinion toward their cause.

Anecdotally this is exactly what's happening.

ISIL/Iraq: In no way will I suggest that Iraq was a peaceful thriving democracy before the US began systematically withdrawing troops from the region. On the other hand, the strong US presence kept tribal tensions somewhat under wraps. Prior to the war in Iraq, dictators, supported directly or tacitly throughout the region, kept their nations relatively stable (if not exactly thriving liberal democracies). Conversely, Russian supported regimes, in place to counter US influence (e.g. Syria) had a similair effect in terms of keeping dissident activity to relatively low levels.

Now the stabilising hand of crushing US military deterrence has receded from the region, it has emboldened the emergence of various tribal warlords, who are reprising historical animosities in place of the vacuum left by hegemonic powers (in other words, the US).

Saddam Hussein led a brutal repressive regime-but in some (not all) respects it was stable. The ancient conflict between Sunni's and Shi'ite's was, for a hundred years, clamped down hard, by strongmen dictators supported initially by Great Britain, and later by either the USSR, Russia, and more typically, the US.

US withdrawal from the region has given them the courage to take up arms and begin the fight anew. This time, instead of fighting US troops and being bombed by US planes, they are fighting on equal terms against poorly trained and equipped opposition. The declaration of a caliphate by Abu Bakr al Baghdadi, and it's success in taking vast swathes of land, oil refineries and townships in Iraq and Syria would be inconceivable if the US was fully committed to stability in the region.

All these conflicts have deep historical roots, and this article does not argue that US interventionism is required for stability in the world. There have always been conflicts, and there always will be.

On the other hand, it is worth noting that the level of conflict in all three regions is much higher than has been seen for the last decade, and in Russia's case, since the end of the Cold War. The likelihood is that the current iteration of these conflicts will reshape the strategic environment, where previous Russian expansionism, tribal unrest in the Middle East and Arab-Israeli conflict did not.

I certainly don't advocate expanded influence in world affairs by the US. US allies and in particular Europe, enjoys a huge defence and security free ride from the USA, and in reality should do more to ensure their own security.

The common thread tying these events together? Removal of US influence from those regions. The last time the US truly isolated itself preceded WWI. Without the policeman to keep things in check, the world is left to sort itself out. Only time will tell if that is a good thing. The track record is not good.

Series: The rise of Australian natural gas part 3: The true GHG cost of gas and how it will impact the industry

Last decade there was a huge push by the coal lobby to legitimize carbon capture and storage technology. The idea sold to the public was that by deploying this technology to capture carbon dioxide emissions at large point sources (e.g. power stations) we could burn cheap, available coal and not contribute to global warming. Having our cake and eating it too meant we didn’t have to do anything about the energy mix in Australia, since the main issue with generating 80% of our power with coal, the GHG emissions, was going to be fixed by CCS.

Unfortunately, CCS turned out to be a waste of time-from an environmental perspective. From the coal sector’s perspective, it bought a few more years of policy inertia which were very profitable. CCS may be useful 10-20 years in the future (when the technology is viable) for industrial applications (e.g. cement production, aluminium smelting), however it is very expensive to retrofit to existing power plants, and raises operating costs by around 30%, largely eroding coal’s major competitive advantage-it’s low price.

What has this got to do with the CSG industry in Australia, and unconventional gas more generally?

A major selling point for gas burning power stations is that they typically produce half the carbon dioxide per unit of energy as compared to coal. Even better, according to the US EPA, they produce negligible levels of particulate pollution, nitrogen oxides, sulfur dioxides and mercury compounds, all of which are present in much larger quantities when burning coal.

So as a bridge from dirty coal to green renewables, natural gas (methane) is the logical choice. And since we have lots of it, we can help the world lower GHG emissions, and build a nice export sector in the process. Winning...right?

Wrong. A growing body of evidence shows that lifecycle unconventional gas GHG emissions aren’t that much better than coal-and in many scenarios worse. How can this be? Will CSG, like CCS, prove to be a false hope for GHG reduction plans?

Roughly speaking, unconventional gas needs around 10 times as many wells drilled for an equivalent amount of gas production over time, compared to conventional reservoirs. The obvious effect of this is far more diesel being used to power rigs, pumps and generators. But the real is issue lies in methane escaping into the atmosphere. Not all methane is captured, transported and burnt. Some, and estimates vary between 1-8% of production levels, escapes.

This matters because methane is a very potent GHG: It is 25 times stronger than carbon dioxide over a 100-year time horizon and 72 times stronger over a 20-year horizon. Modelling by the IEA shows that if 3% of overall (conventional+unconventional) production escapes, gas loses it's green edge over coal. Focussing on unconventional gas separately, studies show unconventional gas, with more wells and more pipelines, emits 30-50% more fugitive methane than conventional gas production.

Critics say that methane's warming potential is mitigated because it leaves the atmosphere much faster than carbon dioxide. However, since most warming projections focus on limiting GHG increases to 450ppm of carbon dioxide equivalent by 2050, and the IEA predicts unconventional production will rise from 10% (2010) to 65% (2035) of Australian gas produced, the relevant time frame is 20 years.

In sum, conclusions we can draw about the carbon friendliness of gas are that conventional gas production emits similar or slightly lower amounts of greenhouse gas than coal, and that unconventional gas probably has a worse GHG footprint that coal. In the mainstream media gas is touted as being 50% cleaner than coal for energy production. This is definitely not the case.

CSG is not inherently bad or good. It has some huge advantages over coal, particularly regarding local air quality and flexibility as an energy source. It is an entrenched industry and will continue to provide jobs and export dollars for a long time. However at some point fugitive methane will become a problem for the sector as carbon pricing progresses globally, and more attention is paid to fugitive emissions. China, various states in the US, India, Europe plus many other countries and jurisdictions have, in some form, put a price on activities which are GHG intensive. Over time such measures will become more effective at targeting big GHG emitters, more entrenched, and more accepted by the public and business. To disagree implies we are heading to a world with lower pollution controls-an absurd idea.

This could be a problem for our CSG industry in the medium term. There is a double threat of better targeted and higher GHG taxes, combined with more detailed information on lifecycle methane emissions from unconventional production. When this happens, producers will need to clean up fugitive emissions or somebody in the gas supply chain will pay much higher punitive taxes than they currently budget for.

Either way, the cost of gas will go up sharply and renewable forms of energy will be relatively more attractive. Meanwhile, renewable energy continues to get cheaper. At some point the cost curves intersect. There are many variables here but the message is that methane emissions need to be seriously looked at.

If GHG accounting standards change to incorporate fugitive methane, this will completely change the calculus of coal versus gas, and gas versus renewables. This will have a very disruptive impact on the power sector as they try to pick generating infrastructure for the next 40 years.

For now these are small issues, but in the medium term, growth in gas sales to developed markets (like Japan) could stall because the economics just don't work. Optimists point to surging demand from China and elsewhere. Pulling other way will be increasing environmental taxes, more focus on methane, cheaper alternatives and, if Australia and the US are any guide, lower than expected demand for energy.

The only true “low GHG” energy comes from renewables. This means political risk will continue to grow for Australia's CSG industry because of an increased focus on fugitive methane, and this is on top of the usual raft of environmental concerns about our newest boom sector.

Series: The rise of Australian natural gas part 2: Factors on the supply side

Australian coal seam gas (CSG) is booming, but is almost entirely dependent on Asian export markets for surging demand. As was shown in the last article, Chinese domestic politics is a major driver behind this growth.

Whether such momentum is maintained depends of course on a number of factors, but of great importance is the internal politics of another energy giant: The USA. By understanding the effect of shale gas on the US economy we can explain why American politics could create challenges for our gas industry.

The unconventional gas industry began in the US, and spread quickly to Canada, then Australia. These are the only nations that have developed unconventional reserves to any great degree. Other regions are quickly jumping on the bandwagon, but for now North America and Australia leads the world with this technology.

In the US, they are drilling for shale gas, whereas in Australia we are developing CSG fields. While the process for extracting both types is broadly similair, there can be important differences in the end product. Producers in the US are exploiting “wet” gas deposits, which means the wells produce Natural Gas Liquids (NGL’s) as well as methane. This technical difference has big political implications: The US manufacturing sector has made great use of NGL’s to restore international competitiveness in the wake of the GFC. This means the issue has become highly politicised, as we will see below. But first, a quick explanation of the US shale industry is necessary.

Wet natural gas, like that produced in US shale drilling, has a higher energy content than dry gas, and is made up of other products including ethane, propane, butane, isobutane, and natural gasoline. NGL’s are separated from methane at gas processing facilities and are very valuable because they are used extensively in manufacturing and as vehicle fuels. They help substantially to underwrite the cost of production in US wells. Between 2005 and 2008, when US gas prices were historically high, between US$8-14/mbtu, dry gas wells were economic. Since 2008, expanding supply hasn’t been met by domestic demand, and prices have dropped considerably, hovering below US$4. As a result, producers have turned to wet gas deposits to make production viable. Producing more NGL’s (in order to remain profitable) also means more gas is produced, since they come out of the same holes, which further depresses the price of gas. US gas is between a third and a quarter the price of Australian gas.

NGL’s are heavily used in industry, particularly the petro-chemical sector, in the production of plastics, and as gasoline fuels. The abundance of NGL’s in the US has given the manufacturing sector a huge boost, lowering their input costs and dramatically increasing international competitiveness. In addition, since an abundance of NGL’s goes hand in hand with cheap gas, electricity prices for manufacturers are low at present. This is a situation that US manufacturers are very keen to maintain.

What do US manufacturers have to do with Australian gas? And why does it matter if their wells produce NGL’s?

The answer relates to the long term growth path of Australian unconventional gas industry. Current expansion of supply is locked in, however continued expansion like we’ve seen over the last five years or so depends on factors beyond our control. This is because Australian CSG wells are typically dry-they do not produce anything in large quantities other than pure methane. This means their viability depends more on the price of gas than US plays. At present, this is not an issue, because US LNG exports have not been allowed for reasons of energy security. However, like Australian gas producers, US energy companies would love to sell their gas internationally. They would benefit from both larger sales volumes, and much higher prices: In mid-2012 the Henry Hub (US) spot price was $2.50/mbtu-in Europe it was $11.50/mbtu with Japan at $16/mbtu. Liquification and transport would close this gap somewhat but there is still huge scope for profit by US gas producers if they could sell abroad. This would have massive implications for the international energy landscape, increasing competition and lowering gas prices.

At the moment, Australian unconventional gas producers are protected from US competition by US law. But the energy sector is doing its best to change these laws, to allow LNG export. Opposing them is the US manufacturing sector, who are enjoying cheap power and abundant inputs to production. It seems the oil & gas lobby is slowly winning: On the 17th of May the US approved the first export project-allowing a terminal to be constructed in Texas with the capacity to export about 2% of US production. There are still over twenty projects being reviewed, and the future of US energy exports hangs in the balance. If these projects are approved in large numbers, future Australian gas projects will need to be more competitive than they are now. In addition, since gas competes with coal in the energy sector, cheaper gas prices would have implications for our coal industry too.

What can be drawn from this is that US domestic politics will have a substantial impact on the sustained growth of the Australian unconventional gas sector. If Congress approves exports in a large way, the Australian industry will face stiff new competition and could well be priced out of certain markets. To a large extent, the future of the Australian unconventional gas industry depends on the internal politics of the US and China. Industry leaders need to consider this carefully when planning the road ahead.

Series: The rise of Australian natural gas Part 1: Where the boom came from

Chinese man-on-the-street: Aussie gas’s best friend

The Australian natural gas industry is booming. Technology developed in the US for tapping unconventional gas reservoirs (particularly coal-seam gas, or CSG), and surging demand in China has resulted in massive investment in Australia and the development of export markets to Asia which should see money pouring into the Queensland economy for the foreseeable future. Once capital expenditure slows down, export income from gas sales will flow in.

The gas industry owes its luck in large part to the average Chinese citizen. Two factors are converging to displace the use of coal, which is dirty, and replace it with gas, which burns much cleaner, and it’s the Chinese middle class which is driving this change.

The first factor is the rise of the Chinese middle class. Over 300 million Chinese earn between US$10,000 and $60,000 a year. Importantly, over half of those living in Chinese cities are middle class. Higher income mean better education and greater interest in shaping the political scene. It also means they have more power as a political entity than they would as subsistence farmers. Why? Because domestic consumption is an increasingly important driver of economic growth in China. The wealthier, and better educated people get, the more political representation they demand.

So, the man on the street finds himself wielding more political power than he would have 30, or even 10 years ago, because there are hundreds of millions of others like him, and they are important to the Chinese economy. Of course, China is not a democracy, and the Chinese Communist Party still has a firm grip on power. However, unlike other autocracies, like North Korea, Libya or Saddam Husseins’s Iraq, Chinese state power does not come from the barrel of gun. It comes from an unspoken pact between the Party and the Chinese people, which is that the Chinese people will accept the legitimacy of the ruling Party, as long as they can provide economic opportunity and consistently improve living standards.

When China “opened up” in 1979, living standards were very low. Most of the population were subsistence farmers with little or no consumption. IMF data shows that in 1980 GDP per capita was $309 a year. Starting from a low base, officials found it relatively easy to boost growth, provide jobs-and keep people happy. Now that many people have shifted to the middle class (with GDP per capita over $6000 in 2012) they crave more than just economic growth. The new middle class want better education, health and environmental standards. Political expression and the environment are gaining importance.

This leads to the second factor-coal. China has vast reserves of coal-enough to last 220 years at present consumption-which is around 4 billion tonnes a year. Coal is cheap, plentiful, and because they can supply 95% of their coal demand domestically, secure. Coal is also dirty. It emits high levels of particulate pollution, like nitrous oxides, sulphur dioxides and mercury. Respiratory disease, caused by air pollution, accounts for 49% of all non-accidental deaths in Chinese cities as of 2010. The OECD average is 30%. Severe air pollution, much of it caused by burning coal, is killing Chinese in large numbers.

The middle class in China is agitating for better environmental conditions across the board, but in particular they want to improve air quality. The Chinese government knows it now has to provide more than just economic growth to fulfil its pact with the people. They are turning to clean burning gas to replace existing coal power plants, and constructing gas plants to satisfy growing demand for energy. The days of coal are not over, but it will steadily decline in importance. Natural gas will have its day in the sun in China, not because it is cheaper, or more easily available-it’s not; because it is cleaner, and that is what the man on the street in China is demanding.