Tamminen: Wars Over Oil Yield No Winners
President, Seventh Generation Advisors
One of the first things you notice about Vietnam is the hundreds of thousands of motorcycles darting in and around the cars and trucks. The second thing you notice is that most of the riders on motorcycles are wearing masks to reduce the soot from getting into their lungs.
From Ho Chi Minh City, I traveled recently to Shenzhen in China and saw where Vietnam is headed next. A few miles from the bustling commercial center of Hong Kong, Shenzhen was China’s first experiment with “Special Economic Zones.”
Locals tell me that thirty years ago, the region was home to no more than a road-less fishing village, but today resembles a mix of Manhattan and Germany’s Ruhr Valley with over 10 million people in high-rise apartments and offices packed into an endless sea of gleaming modern factories producing everything from cars to plastic flamingoes.
Such dramatic economic growth has come at a price. Air quality is routinely no better than Houston or Los Angeles (at their worst). You don’t see as many people in Shenzhen wearing masks as you do in Ho Chi Minh City, but that may be because the motorcycle riders have upgraded to air conditioned SUVs and luxury sedans, which add to the traffic during rush hour and demand for fuel.
And while rising asthma and lung cancer rates are local tragedies and impose significant health care costs — something we have learned all to well in my home state of California — behind these trends in Vietnam and China is a more ominous threat to global commerce.
The insatiable appetite for crude oil has now pitted these two former communist allies against each other in the South China Sea on a collision course that could result in higher commodity prices and far worse.
The territorial dispute over otherwise worthless islands and surrounding waters is being waged over an estimated 213 billion barrels of oil, or about the same reserves as in Saudi Arabia.
Instead of heading into political and possibly armed conflict over a resource that will soon be exhausted and will steal the breath of a lot of its citizens in the meantime, what would happen if Hanoi and Beijing launched a cooperative effort to transition away from their respective addictions to oil?
- They might start with passing fuel economy standards similar to those recently adopted in the US (over 54 mpg by 2025).
- They could combine R&D efforts to harness their respective manufacturing capabilities to produce electric motorcycles and hydrogen-electric cars — similar to products being brought to market by Japanese, German, and US vehicle makers — for sale in their burgeoning domestic markets and for valuable export.
- They could help each other to exploit regional wastes that can be converted into cleaner liquid fuels, including landfill gas, sewage sludge, farm waste, and urban greenwaste.
Or they could follow our example in Iraq and spend three trillion dollars (according to Nobel laureate economist Joseph E. Stiglitz)and thousands of lives in a war that former Fed chair Alan Greenspan declared was “largely about oil”.
It may seem far-fetched to consider war when today’s conflict is mostly bamboo sabre rattling, but the voracious appetite that the two nations exhibit for oil today makes it far from unthinkable.
Oh, and did I forget to mention that the Philippines also lays claim to some of the same oil-rich territory in the South China Sea?
History tells us there are no winners in wars over oil, but there are certainly a lot of losers. History also tells us that we are smart enough to innovate our way to a more sustainable future. Having seen the creative, entrepreneurial spirit of the people in both Vietnam and China, I believe they are wise enough to choose the more productive path.
Terry Tamminen, former secretary of the California Environmental Protection Agency, is president of Seventh Generation Advisors and an operating partner at Pegasus Capital Advisors.