The government is proposing a ban on the sale of all new petrol and diesel vehicles by 2030. It is being described as a bold move. Is it? No.
Firstly, it allows the production of hybrids to continue for some time after that, and it means that existing petrol and diesel vehicles could remain on the roads for another 20 plus years, after 2030. Car makers, would continue to make money on those vehicles via dealer servicing, and supply of authentic parts, all of which are required in greater quantity the older a car becomes. But, in any case, car makers are already well on the way to making the switch to all electric anyway, though they will not say that, as they try to get government to provide as much subsidy in the interim as possible.
Why anyone would buy a hybrid is a mystery to me, having looked into them. They are the worst of both world's. A hybrid has to carry around two engines, a conventional petrol/diesel, and the electric motor. The additional weight reduces performance and fuel economy. If you only make short journeys, its already better to go straight for all electric, because you don't need the petrol/diesel engine, and if you make longer journeys, any savings on the use of the electric motor are lost, because, most of the trip will use the petrol/diesel engine, whose fuel economy is considerably reduced by having to tote around the weight of the electric motor. It also means you lose space in the vehicle, as well as meaning the technology to coordinate the two is greater with also higher maintenance costs. Hybrids amount to virtue signalling, for people who cannot use a fully electric vehicle due to the current constraints on them of range, and lack of charging points.
But, the range of electric vehicles is increasing each year, and governments will undoubtedly be led to either invest in a charging infrastructure themselves, or else will provide large subsidies to existing and new energy companies to do so. The big oil and energy companies are already investing in providing such a charging infrastructure, as they see the future, and the large profits they can make from it. If they, in cahoots with the carmakers, can get governments to fund it, that goes straight to their bottom line. Already, the government gives a 30% discount – up to £10,000 – on the price of the first electric car you buy, as well as a grant of £3,000 to put a charging point in to your house.
Electric cars are already cheaper than petrol/diesel over a five year period, because their much lower running costs, more than offsets their higher initial purchase price. But, 40% of the value of an electric vehicle consists of its battery. Continual development in battery technology, means that the price of batteries has been falling by around 30% a year, with a similar increase in their effectiveness. That means that the initial purchase price of electric cars will soon drop below that of petrol/diesel too, as the effects of mass production and economies of scale take effect. Moreover, the majority of cars are now acquired on leases, as a form of modern day HP, rather than being bought. So, its going to be the case that car makers will have switched their production towards all electric vehicles long before 2030.
The car makers and the energy companies will make huge profits from this shift to electric vehicles, and if they can get governments to fund a large part of the cost, under cover of appearing to be acting ethically, and radically, as part of so called Green New Deals, they will be highly delighted, because those subsidies go straight to their bottom line, and thereby to the dividends paid out to their shareholders. The energy companies will get the cost of the capital they need to advance for new charging stations, and all of the background infrastructure at a much reduced price due to government subsidies, which means that they benefit from a release of capital, and a higher rate of profit. In the meantime, they will make profits on the vast increase in electricity supplied, to charge all these vehicles, and at least, for a time, they will continue to make profits from the sale of fossil fuels to generate that electricity. But, as the existing energy companies move into renewables, like solar, wind and so on, the subsidies provided by governments for these types of energy, will also feed directly into their rate of profit.
In 20 years time, very little energy will come from fossil fuels if any, other than in developing economies, but, by then, the oil and gas producers will not only be making huge profits from these other forms of energy, they will also be making huge profits from their existing oil and gas as use for other purposes. Oil and gas is far more useful as feedstock for the production of petrochemicals, and complex hydrocarbons used for the production of polymers, and so on. As material science develops new artificial materials like graphene, carbon nanotubes, and so on, existing fossil fuels will be in great demand as raw material for their production. As when coal replaced wood, as the main source of fuel, it didn't mean that the use value, or value of wood disappeared. On the contrary, wood became even more useful as raw material for construction, for the production of paper and so on.
For the last thirty years “investment” has been the term given to what is actually only speculation. Investment actually involves advancing capital to accumulate additional industrial capital, in the shape of buildings, roads, infrastructure, machines, materials and workers. This is what businesses do, using the profits they create. No individual firm uses all its profits each year for this purpose, and so places the profits it does not use into the capital markets, so as to at least earn interest on it, as well as paying some of it to shareholders in interest/dividends. But, other firms, each year, need to invest more than is available from their profits for that year, and so they go into the capital markets to borrow, so using some of those profits of other firms.
However, the majority of what is termed “investment” is no such thing. It is simply the actions of the owners of loanable money-capital, who buy up existing bonds and shares. That money goes not to fund any additional real investment, but goes simply to the existing owners of those shares and bonds. In Capital III, Engels wrote that eventually this money must find its way back into circulation in the real economy, because those individuals who sell their shares and bonds, get the money for them into their bank accounts, from where either they use it to consume, or to invest, or else the bank uses these deposits to provide loans to other to consume or to invest.
However, today, and indeed, during any period of inflating asset price bubbles, this is not the case, because the money can simply continue to go around in a never-ending paper chase pushing up the prices of assets, and of drawing ever new asset classes into this inflationary spiral. Rather than the money finding its way back into general circulation, the asset price inflation encourages money to flow out of general circulation into this speculation in assets, as no one wants to miss out on obtaining the capital gains produced by it. Indeed, now, not only is the speculation or to give it its proper description “gambling” described as “investment”, but these capital gains are themselves described as profits, giving the false impression that they represent some kind of self expansion of value, or the production of surplus value.
As a result of this speculation in the guise of investment, huge swathes of economies have been underinvested, and that is particularly marked in the area of infrastructure, which is generally the preserve of state capital, financed by the issuing of government debt. In order to reduce government debt, spending on infrastructure was severely curtailed in many developed economies. It was developing, newly industrialising economies that had to spend most on such infrastructure spending, because without it, their industries could not develop. But, they had the advantage of being able to skip over some of the steps that developed economies had gone through. They could go straight to high speed motorways, to high speed, electrified railways, to mobile telephony and internet networks etc.
But, now, across the globe, demands for Green New Deals are simply an ideological reflection of the growing needs of capital to massively increase infrastructure investment, both to meet current needs, and to make up for the fact that infrastructure spending was held back in favour of financial and property speculation for forty years. A World Bank Report last year suggested that, in the developing economies alone, investment in their major cities for such infrastructure, waste, renewable energy, public transport, water, electric vehicles, and green buildings, would soak up around $29 trillion by 2030. That is a lot of money that would have gone purely into speculation, pumping up asset prices that now must instead go into actual investment, with the equivalent value itself going into the real economy, as the money is used to buy all of the materials and so on required for this real investment, to pay the wages of the workers involved in the construction and so on.
It also means that to fund this real investment, a huge amount of new debt has to be issued, and this increased supply of debt means that the prices of debt instruments, i.e. bonds, fall, causing yields on those bonds to rise, meaning that interest rates rise. This is coming at a time when spending to cover the economic damage caused by lockdowns, means that even more borrowing is undertaken, pushing interest rates higher still. In order to take advantage of virtue signalling, and the favourability of all things green, governments have proposed paying for this investment via Green Bonds. The bonds have to meet certain criteria, as with other forms of ethical investing, but obviously, speculators will not buy them, unless they offer the same kind of return as other bonds.
The government in the Netherlands, for example, has issued a €6 bn. Green Bond to finance natural infrastructure spending, which, given the low lying nature of the country, is seen as vital to avoid flooding, as a result of climate change. Speculators obviously saw it as a good bet, because within a couple of hours it was oversubscribed by three times. Earlier this year, the German government issued a €6 bn. Ten Year Green bond that was five times oversubscribed, but many countries, from Fiji to France, have issued such Green Bonds, in the last year or so. The ICE Bank of America Merrill Lynch Green Bond Index has shown that the amount invested in bonds with an environmental impact has grown from $55bn in 2015 to $345bn by 31st. October last year. Between 2012 and 2018 cumulative issuance of green bonds totalled $140bn, across 28 markets. According to the IFC, that could increase to between $210bn and $250bn by 2021. So the Green Revolution, and Green investing is big business, meaning big profits, and big interest payments for those financing it.
And, as that has increased, so has the inevitable expansion of derivatives, as a range of mutual funds are established to buy into the Green Market, whilst sucking in the money of retail speculators seeking total returns on their money. In Europe, there are now 29 of these funds, with assets under management amounting to nearly €6 bn. All of these bond funds have enjoyed positive returns so far of between 0.8% and 9.7% by the end of October 2019. Of course, many of the people putting money into these funds are workers, as well as money from their pension funds going into them, as well as directly into the purchase of the bonds. Yet, those workers have no democratic control over the way that money is used either as savers, or as workers employed in the various companies involved. That control is exercised by a tiny minority of shareholders.
The biggest increase in such green bonds is, of course, in China and the rest of Asia. China needs to move away from its reliance on fossil fuels which it used as the basis of its industrialisation. It recognises that is not sustainable, and, as it looks to also be the supplier of energy technologies to the rest of the world, it needs to first acquire the economies of scale in such technology production that comes from developing them on a huge scale in its domestic economy. More than 80% of recent issuance of Green Bonds by developing countries has been by China. East Asia and the Pacific region are responsible for 81% of the market. Green bonds have raised between $1.5m to $4.4bn, with an average issue size of $385m. Back by governments in these countries, about half of the bonds boast a formal credit rating, and nearly always investment grade.
As the world divides into three large competing blocs of North America, Europe and Asia, China may be limited in what it can sell to North America and Europe, as is already happening with ICT, but the new free trade area it has established with Japan and 14 others, means it will be well placed to dominate that arena, as well as to sell into Africa, the Middle-East, and Latin America, where its economic relations are already well established.
This is the real context of the Green New Deal being proposed by Boris Johnson, as well as by Biden in the US, and similar proposals across Europe. It has nothing to do with any ethical or environmental concerns, but with simply protecting the interests of capital. Already, Britain and Europe are lagging behind in these developments, and risk being left behind by China, and its Asian partners. There is nothing bold about the Tories plans. If anything, they are too little, too late.
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