Archive for the ‘energy’ Category

Ethical Oil: Choose Your Poison

There’s oil, and then there’s oil. Right? Or is there only, you know, oil? Does it matter, ethically, where the oil we consume comes from?

That issue has arisen very recently and caused a minor diplomatic dust-storm: a Canadian ad offering a moral critique of Saudi Arabian oil specifically has apparently offended the Saudis, who have asked that the ads be taken off the air.

See this summary, by John Terauds for the Toronto Star: Canadian ethical oil ad stirs Saudi ire

A Canadian-made television ad that speaks out against oil imported from Saudi Arabia has raised the ire of the Middle Eastern nation, prompting it to send a threatening legal notice to broadcaster CTV.

The 30-second ad, produced by Toronto-based ethicaloil.org, focuses on discrimination against women in the conservative Muslim country….

But the ad in question isn’t just anti-Saudi oil; it’s a defence, by means of contrast, of good ol’ Canadian oil, derived primarily from the oilands (a.k.a. tarsands) of Alberta. Yes, the same oilsands that have themselves generated so much criticism on environmental grounds. Now it’s certainly not the first time someone has been accused of greenwashing the tarsands. But to slam Saudi oil as unethical in order to proclaim tarsands the ‘ethical alternative’ really does strain credulity.

Now the critique of Saudi oil isn’t entirely without merit. Saudi cultural standards for the status and treatment of women are ethically indefensible. But the “ethical oil” claim for the oilsands is a serious stretch, at least if it’s supposed to point to a bright and clear difference not just in particular ethically-salient characteristics, but in overall ethical goodness.

In principle, we could look at this as a matter of “choose your poison.” Do you want the oil that’s associated with human rights violations, or the oil that’s associated with environmental destruction? Interesting dilemma, in principle. But for most of us, it’s a moot point: oil (and the gas that comes from it) is an undifferentiated commodity, and we don’t get to choose based on nation-of-origin. So it’s not like the ad in question is really intended to help consumers make more ethical consumption choices.

More likely, what the group behind the ad is doing is the rhetorical equivalent of fracking, injecting the novel term “ethical oil” into existing debates over the oilsands, not because the term actually makes any sense, but simply in the hopes of stirring something up.

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Update: Take a hew poll on this topic, here: Oil Poll: Human Rights or Environment?

If You Can’t Take the Heat, Get Out of the Banana Republic

Some neighbourhoods simply are not worth the trouble, and the entire nation of Ecuador may be one of them. Ecuador is a significant producer and exporter of oil (ranked 30th in the world), but it is also a place where effective rule of law is being called into question.

See this story, from Americas Forum: Chevron says rule of law no longer exists in Ecuador

James Craig, Chevron’s spokesman for Latin America, said in a recent statement that Ecuador, in the past seven years, has seen a deterioration in the administration of justice, which in his opinion began with the removal of judges of the Supreme Court in 2004….

Of course, this statement is from a corporate spokesman, so we’ll surely take it with a grain of salt. But those claims are not unsupported. See for instance this report (only slightly dated) on Ecuador from Global Integrity Report: Ecuador, 2008. Ecuador ranked 127th on Transparency International’s Corruption Perceptions Index for 2010.

So, what should Chevron do? The short, harsh answer: get out of Ecuador. Multinational companies all need to acknowledge that there are some places where they simply cannot — should not — do business. For most kinds of companies, that includes war zones. But it also includes places where the kind of background conditions that make a market economy possible, including stable rule of law, do not exist. Naturally, corporate risk managers keep a close eye on such things. The risk that some cowboy government official is going to appropriate your earnings or toss managers into jail on trumped-up charges is not one to take lightly. But there’s also an ethical risk, here. The standard, conservative ethical rule for companies is that they should go about their business without force, fraud, or deception, and within the boundaries of the law. But that rule of thumb only makes sense — even a little bit of sense — where a reliable legal system exists. When the rule of law is in serious doubt, the preconditions for the ethical conduct of business simply do not obtain. Not only do such situations jeopardize the interests of a whole range of stakeholders; they eliminate the crucial fulcrum of ethical corporate decisions.

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Hat tip to legal scholar Errol Mendes (a.k.a. @3mendous on Twitter) for pointing me to this story.

Gas Prices, Criticism, and Ethics

There’s more than a little unseemly about the pervasiveness of complaints about the high price of gas. Of course, you can’t really expect anybody really to like high gas prices, at least from a consumer perspective. But disliking something is not the same thing as getting irate and pointing fingers.

Here in Toronto, gasoline prices hit an all-time high this past week. Talk radio jocks and editorialists were all over it. In the US, politicians are railing against oil companies. Of course, this is not the first time that high gas prices have spurred a populist pile-on. It’s a predictable phenomenon in response to perceived price-gouging. (And lets not forget the not-unrelated but misguided calls to boycott BP in the wake of the Deepwater Horizon blowout last year.)

But whining about the price of gas just might be unethical — or at least unseemly — in a couple of circumstances.

One such circumstance is if you really, really ought to know better. And lots of people, including most people editorializing for major newspapers, ought to know better. In fact, most of us ought to know better. We all ought to understand, as citizens, voters, and consumers, the basic interrelationship between supply and demand, and the factors that make price-gouging likely or unlikely, as well as something about how hard it is to anticipate the effects of the price controls some people favour. But I realize that that’s asking for a quantum leap in economic and financial literacy. (Ever notice that no one ever compliments gas companies or stations when their prices happen to be relatively low? This suggests that people think the low price is the right price, a the notion of a “right” price for a commodity is utterly at odds with any reasonably sophisticated view of economics.)

Another problem is when the gas-price complaints are aimed at gas stations themselves. Most of those are actually independently-owned small businesses, with precious little control over the price of gas. And as James Cowan recently wrote for Canadian Business, high gas prices don’t mean big profits for station owners. Picking on small businesses to express displeasure at the effects of fluctuations in worldwide commodity prices is thoroughly shameful.

Finally, I’ve heard surprisingly few people, in all this, bother to challenge the notion that high gas prices are a bad thing in the first place. What happened to everyone’s zeal for going green? Economics 101 says that when prices go up, demand goes down. And we all want demand for gas (i.e., consumption of gas) to go down, right? Now demand for gas, in particular, doesn’t change much when prices go up, but it does go down a bit. So if we want gas consumption to go down (as most of us agree would generally be a good thing) then we should be happy, in our less-selfish moments, to see gas prices going up. Now, admittedly, high gas prices don’t affect everyone equally. But nor do the high price of anything else. One of the few sane voices in all this is The Economist. A recent editorial there pointed out that the most effective thing that governments can do to take the sting out of high gas prices isn’t to do anything directly about those prices, but rather to insist on higher fuel-efficiency standards for cars. This suggests that the bad guys in this story, if you need to point fingers, are more likely to be found among the big auto makers than among the big oil companies. But even that is pretty lame. Car companies only make the cars that people show a preference for buying. Like it or not, not every unhappy story has a villain.

Utility Monopolies: Who Pays for Mistakes?

Naturally, when any organization suffers unanticipated expenses, it’s going to have to find ways to make up the shortfall in its budget. That’s exactly what happened to Ontario Power Generation (OPG), the provincially-owned power company responsible for generating about 70% of all the power consumed in the Canadian province of Ontario. A legal battle with customers ended up costing the company nearly $20 million. So, where did the company turn to recoup that amount? Well, to its customers, of course.

Here’s the story, via the CBC: Ont. electricity rates expected to rise next week

Electricity ratepayers in Ontario, already reeling from soaring prices, should brace for more increases.

The Ontario Energy Board agreed Tuesday to let utilities raise rates to recover $18 million they paid in fines and legal costs after charging consumers excessive interest on late payments….

Now most companies could only dream of passing along such costs to their customers. Some might even succeed. But most wouldn’t. Most would be hindered by the fact that, if they raise the prices they charge to customers, customers would simply buy from someone else. But electricity in Ontario (as in most places) is a monopoly: an organization called Hydro One has a monopoly on distribution of electricity throughout Ontario, and the power it distributes is produced by a small handful of organizations, the most significant of which by far is OPG. So, with the consent of the Ontario Energy Board (the relevant regulatory agency) all OPG has to do is raise its prices, and the company’s customers end up paying for the consequences of its legal tussle with…the company’s customers.

I don’t know much about the original lawsuit, but I do know that this was a predictable result of it. And that puts customers of utilities in a strange position. Sure, customers can sue the a utility when they screw up, but all the utility is going to do is turn around and raise your rates to get the money back out of you.

Now, just to be clear, I generally have nothing against this sort of monopoly. Electricity distribution is what economists call a “natural monopoly.” It’s crazy to have multiple competing sets of power lines running down to street. And, for that matter, it might well be crazy to let many multiple competing companies all run nuclear power plants (OPG runs several of those). But at any rate, it’s worth recognizing the effect that this monopoly (or quasi-monopoly) situation has in the event that the company screws up (say, by overcharging customers). The expenses incurred are entirely likely simply to be passed along to their captive customers.

By the way, Ontario Power Generation (whose only shareholder is the government of Ontario) had a profit of $333 million for the 4th quarter of 2010.

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Thanks to NW for the story.

Ethics of Inefficiency

The current way of thinking seems to imply that small-scale production is the way to go. Of course, for much of the 20th century, small-scale production was a sign of affluence: only the wealthy could afford to have a craftsman dedicate hours, perhaps days, to the task of custom-making an item just for them. Today, everyone from yuppies to hippies is clamoring for just that, in their rush to grab for things perceived as local and green and anti-commercial. We don’t want multinationals to get between us and the skilled hands that make our loafers, and we want no agrifood giants mediating our relationship with the farmer who lovingly raised the goats that gave the milk that made the cheese. We want our business small, and indie. We want our consumer goods “bespoke,” and “artisanal.”

And the reason for this seems to be some vague impression that those kinds of businesses, and those kinds of products, are somehow more ethical. And in some cases, along some ethical dimensions, that may be true. But if anyone thinks that products produced by a small, local artisan are likely to be environmentally superior, well excuse me for being just a tiny bit skeptical.

This vague association of the small with the ethical misses the fundamental truth that, when it comes to production methods, size brings efficiency. Mass production tends to be efficient in its use of energy, materials, and labour. There are of course tradeoffs and exceptions: it’s entirely possible for a factory mass-producing something to be highly efficient in the use of labour, but to be highly inefficient in the use of, say, water — especially if water is had at no cost. But generally, mass production is efficient; that’s its raison d’etre. Consider: a local tailor spending an entire day hand-stitching a jacket has to use, to begin with, an entire day’s worth of energy to light and heat his workshop. Alternatively, the same jacket could be made in a garment factory in a matter of minutes, using a few minutes’ worth, rather than an entire day’s worth, of energy.

Now that’s not a blanket endorsement of all mass production. It’s entirely possible for production processes to be set up so that they are highly efficient in their use of whatever resource is particularly costly, and highly inefficient in its use of whatever happens to be cheap, regardless of the ethics of doing so. Note also that mass-produced goods tend to cater to the lowest common denominator. It should also be noted that assembly lines may tend to result in repetitive strain injuries among workers — and, if you believe some critics, in feelings of alienation as the worker whose job is reduced to some trivial aspect of production is effectively cut off from any connection with the product as a whole.

But (generally) efficiency is good. Certainly no one is in favour of inefficiency, with the possible exception of those of us who revel in a well-earned “inefficient” weekend. At any rate, the very reason we engage in mass production is that it is efficient: it produces the most output per unit of input. And that’s a good thing. So while there may be reason to value the small, the local, the artisanal, we ought at least to be aware that such goods are liable, at least in general, to be the product of highly inefficient — and hence environmentally unfriendly — production methods.

Sustainability is Unsustainable

I was tempted to call this blog entry “Sustainability is Stupid,” but I changed my mind because that’s needlessly inflammatory. And really, the problem isn’t that the concept itself is stupid, though certainly I’ve seen some stupid uses of the term. But the real problem is that it’s too broad for some purposes, too narrow for others, and just can’t bear the weight that many people want to put on it. The current focus on sustainability as summing up everything we want to know about doing the right thing in business is, for lack of a better word, unsustainable.

Anyway, I am tired of sustainability. And not just because, as Ad Age recently declared, it’s one of the most jargon-y words of the year. Which it is. But the problems go beyond that.

Here are just a few of the problems with sustainability:

1) Contrary to what you may have been led to believe, not everything unsustainable is bad. Oil is unsustainable, technically speaking. It will eventually get scarce, and eventually run out, for all intents and purposes. But it’s also a pretty nifty product. It works. It’s cheap. And it’s not going away soon. So producing it isn’t evil, and using it isn’t evil, even if (yes, yes) it would be better if we used less. Don’t get me wrong: I’m no fan of oil. It would be great if cars could run on something more plentiful and less polluting, like sunshine or water or wind. But in the meantime, oil is an absolutely essential commodity. Unsustainable, but quite useful.

2) There are ways for things to be bad other than being unsustainable. Cigarettes are a stupid, bad product. They’re addictive. They kill people. But are they sustainable? You bet. The tobacco industry has been going strong for a few hundred years now. If that’s not sustainability, I don’t know what is. To say that the tobacco industry isn’t sustainable is like saying the dinosaur way of life wasn’t sustainable because dinosaurs only ruled the earth for, like, a mere 150 million years. So, it’s a highly sustainable industry, but a bad one.

3) There’s no such thing as “sustainable” fish or “sustainable” forests or “sustainable” widgets, if by “sustainable” you mean as opposed to the other, “totally unsustainable” kind of fish or forests or widgets. It’s not a binary concept, but it gets sold as one. A fishery (or a forest or whatever) is either more or less sustainable. So to label something “sustainable” is almost always greenwash. Feels nice, but meaningless.

4) We’re still wayyyy unclear on what the word “sustainable” means. And I’m not talking about fine academic distinctions, here. I’m talking big picture. As in, what is the topic of discussion? For some people, for example, “sustainability” is clearly an environmental concept. As in, can we sustain producing X at the current rate without running out of X or out of the raw materials we need to make X? Or can we continue producing Y like this, given the obvious and unacceptable environmental damage it does? For others, though — well, for others, “sustainability” is about something much broader: something economic, environmental, and social. This fundamental distinction reduces dramatically the chances of having a meaningful conversation about this topic.

5) Many broad uses of the term “sustainable” are based on highly questionable empirical hypotheses. For example, some people seem to think that “sustainable” isn’t just an environmental notion because, after all, how can your business be sustainable if you don’t treat your workers well? And how can you sustain your place in the market if you don’t produce a high-quality product? Etc., etc. But of course, there are lots of examples of companies treating employees and customers and communities badly, and doing so quite successfully, over time-scales that make any claim that such practices are “unsustainable” manifestly silly. (See #2 above re the tobacco industry for an example.)

6) We have very, very little idea what is actually sustainable, environmentally or otherwise. Sure, there are clear cases. But for plenty of cases, the correct response to a claim of sustainability is simply “How do you know?” We know a fair bit, I think, about what kinds of practices tend to be more, rather than less, environmentally sustainable. But given the complexities of ecosystems, and the complexities of production processes and business supply chains, tracing all the implications of a particular product or process in order to declare it “sustainable” is very, very challenging. I conjecture that there are far, far more claims of “sustainability” than there are instances where the speaker knows what he or she is talking about.

7) Sometimes, it’s right to do the unsustainable thing. For example, would you kill the last breeding pair of an endangered species (say, bluefin tuna, before long) to feed a starving village, if that was your only way of doing so? I would. Sure, there’s room for disagreement, but I think I could provide a pretty good argument that in such a case, the exigencies of the immediate situation would be more weighty, morally, than the long-term consequences. Now, hopefully such terrible choices are few. But the point is simply to illustrate that sustainability is not some sort of over-arching value, some kind of trump card that always wins the hand.

8 ) The biggest, baddest problem with sustainability is that, like “CSR” and “accountability” and other hip bits of jargon, it’s a little wee box that people are trying to stuff full of every feel-good idea they ever hoped to apply to the world of business. So let’s get this straight: there are lots and lots of ways in which business can act rightly, or wrongly. And not all of them can be expressed in terms of the single notion of “sustainability.”

Now, look. Of course I don’t have anything against sustainability per se. I like the idea of running fisheries in a way that is more, rather than less, sustainable. I like the idea of sustainable agriculture (i.e., agriculture that does less, rather than more, long-term damage to the environment and uses up fewer, rather than more, natural resources). But let’s not pretend that sustainability is the only thing that matters, or that it’s the only word we need in our vocabulary when we want to talk about doing the right thing in business.

Greenpeace, Tar Sands and “Fighting Fire With Fire”

Do higher standards apply to advertising by industry than apply to advertising by nonprofits? Is it fair to fight fire with fire? Do two wrongs make a right?

See this item, by Kevin Libin, writing for National Post: Yogourt fuels oil-sands war.

Here’s what is apparently intolerable to certain environmental groups opposed to Alberta’s oil sands industry: an advertisement that compares the consistency of tailings ponds to yogourt.

Here’s what is evidently acceptable to certain environmental groups opposed to Alberta’s oil sands industry: an advertisement warning that a young biologist working for Devon Energy named Megan Blampin will “probably die from cancer” from her work, and that her family will be paid hush money to keep silent about it….

It’s worth reading the rest of the story to get the details. Basically, the question is about the standards that apply to advertising by nonprofit or activist groups like the Sierra Club and Greenpeace. But it’s also more specifically about whether it’s OK for such groups to get personal by including in their ads individual employees of the companies they are targeting.

A few quick points:

  • Many people think companies deserve few or no protections against attacks. Some people, for example, think companies should not even be able to sue for slander or libel. Likewise, corporations (and other organizations) do not enjoy the same regulatory protections and ethical standards that protect individual humans when they are the subjects of university-based research. Corporations may have, of necessity, certain legal rights, but not the same list (and not as extensive a list) as the list of rights enjoyed by human persons. So people are bound to react differently when activist groups attack (or at least name) individual human persons, as opposed to “merely” attacking corporations.
  • Complicating matters is the fact that the original ads (by Canadian Association of Petroleum Producers, or CAPP) themselves featured those same individual employees. So the employees had presumably already volunteered to be put in the spotlight. But of course, they volunteered to be put in the spotlight in a particular way.
  • For many people, the goals of the organizations in question will matter. So the fact that Greenpeace and the Sierra Club are trying literally to save the world (rather than aiming at something more base, like filthy lucre) might be taken as earning them a little slack. In other words, some will say that the ends justify the means. On the other hand, the particular near-term goals of those organizations are not shared by everyone. And not everyone thinks that alternative goals (like making a profit, or like keeping Canadians from freezing to death in winter) are all that bad.
  • Others might say that, being organizations explicitly committed to doing good, Greenpeace and the Sierra Club ought to be entirely squeaky-clean. If they can’t be expected to keep their noses clean, who can? On the other hand, some might find that just a bit precious. Getting the job done is what matters, and it’s not clear that an organization with noble goals wins many extra points for conducting itself in a saintly manner along the way.

(I’ve blogged about the tar sands and accusations of greenwashing, here: Greenwashing the Tar Sands.)

Thanks to LW for sending me this story.

Chevron Agrees

Chevron has just announced a new ad campaign to highlight the various ways in which the company and its critics actually agree on a number of ethically-important points. Things like:

  • “Oil companies should put their profits to good use.”
  • “It’s time oil companies get behind the development of renewable energy.”
  • “Oil companies should support the communities they’re a part of.”
  • etc.

Here’s the press release announcing the new campaign: Chevron Launches New Global Advertising Campaign: ‘We Agree’. There’s also a YouTube channel where you can see the TV ads.

Many people will detect a whiff of greenwashing, here. And you don’t have to be much of a cynic to be somewhat skeptical. Back in 2001, another oil company, British Petroleum, claimed to be turning over a new leaf when it branded itself as just BP, which it suggested stood for “Beyond Petroleum.” We all know how that turned out.

The We Agree website of course features all kinds of nifty-sounding illustrations of Chevron’s commitment to being socially responsible. It’s mostly the usual kinds of stuff. But what’s interesting here, philosophically, is the attempt to point to the underlying agreement on values. And (this campaign aside) I do think it’s important for people on different sides of any given debate to understand just how much they probably do agree on, at the level of basic values. Now, if we could just agree on how those shared values ought to be implemented, we would really be getting somewhere.

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(Note: as I blogged last night, this Chevron campaign got spoofed by pranksters who issued their own version of the Chevron press-release, pointing to a very-convincing-but-fake campaign website. I was temporarily fooled, myself. You can find out about the spoof via the NYT‘s Media Decoder blog: Pranksters Lampoon Chevron Ad Campaign.)

Spoof Chevron Ad Campaign: Too Dumb to be True

I should have known.

Earlier this evening, I briefly posted a blog entry about a too-dumb-to-be-true ad campaign, supposedly by Chevron. The spoof ad campaign made Chevron look very dumb. And say what you will about the oil giant: it ain’t dumb.

I won’t say who is (apparently) behind the spoof, because a) that’s exactly the kind of publicity this stunt was intended to generate, and b) from what I can tell (from this and previous stunds) this gang is only good at media manipulation, and does nothing to promote smart solutions.

Tomorrow, I’ll post about the real Chevron ad campaign. (And yes, the image above is real, from the Chevron “We Agree” website.)

BP and Corporate Social Responsibility

I’ve long been critical of the term “CSR” — Corporate Social Responsibility. (See for example my series of blog postings culminating in my claim that “CSR is Not C-S-R”.) Too many people use the term “CSR” when they actually want to talk about basic business ethics issues like honesty or product safety or workplace health and safety — things that are not, in any clear way at least, matters of a company’s social responsibilities.

But the BP oil spill raises genuine CSR questions — it’s very much a question of corporate, social, responsibility.

BP is in the business of finding oil, refining it, and selling the gas (and propane, etc.) that results. In the course of doing business, BP interacts with a huge range of individuals and organizations, and those interactions bring with them ethical obligations. Basic ethical obligations in such a business would include things like:

a) providing customers with the product they’re expecting (rather than one adulterated with water, for example),
b) dealing honestly with suppliers,
c) ensuring reasonable levels of workplace health and safety,
d) making an honest effort to build long-term share value,
e) complying with environmental laws and industry best practices, and so on.

Most of those obligations are obligations to identifiable individuals (customers, employees, shareholders, etc.). There’s nothing really “social” about those obligations (with the possible exception of compliance with law, which might better be categorized as an obligation of corporate citizenship, or more directly an environmental obligation). And it’s entirely possible that BP, in the weeks leading up to the spill, met most of those ethical obligations. The exception, of course, is workplace health and safety — 11 workers were killed in the Deepwater Horizon blowout. But even had no one been killed or even hurt during the blowout, a question of social responsibility would remain.

So, what makes the oil spill a matter of social responsibility? Precisely the fact that the risks (and eventual negative impacts) of BP’s deep-water drilling operations are borne by society at large. The spill has resulted in enormous negative externalities — negative effects on people who weren’t involved economically with BP, and who didn’t consent (at least not directly) to bear the risks of the company’s operations.

Now, all (yes all) production processes involve externalities. All businesses emit some pollution (directly or indirectly via the things they consume) and impose some risks on non-consenting third parties. So the question of CSR has to do with the extent to which a company is responsible for those effects, and (maybe) the extent to which companies have an obligation not just to avoid social harms (or risks) but to contribute socially (beyond making a product people value). From a CSR point of view, then, the question with regard to BP is whether the risks taken were reasonable. Most of us would say “no.” But then most of us still want plentiful cheap gas.

Thus the BP oil spill provides an excellent way to illustrate the way we should understand the scope of the term “corporate social responsibility,” and how to keep that term narrow enough for it to retain some real meaning.

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p.s., here are a few relevant bits of reading:

1) Did you know that, in 2005, BP made it onto the Global 100 list of the “Most Sustainable Companies in the World”, a feat the company repeated in 2006. (And yes, that’s a reason to be skeptical about such rankings!)

2) See also this bit on Which is the Most Ethical Oil Company?

3) And finally here is BP’s own take on CSR, from 2002, see this speech: The boundaries of corporate social responsibility
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Addendum:
Here are a few books on ethics & CSR in the oil industry. No endorsement is implied.

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