Sustainable Energy Pricing

Sustainable Energy Pricing

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James E. R. Couper Richard Erdlac Norman Lieberman W. Kent Muhlbauer S. A. Sherif

Ken Dragoon Rafiq Islam Peter Martin Andrew Y. C. Nee James G. Speight

Publishers at Scrivener Martin Scrivener ([email protected])

Phillip Carmical ([email protected])

Sustainable Energy Pricing

Gary M. Zatzman

Scrivener

)WILEY

Copyright © 2012 by Scrivener Publishing LLC. All rights reserved.

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Library of Congress Cataloging-in-Publication Data:

Zatzman, Gary. Sustainable energy pricing / Gary Zatzman.

p. cm. Includes bibliographical references and index. ISBN 978-0-470-90163-2 1. Petroleum products—Prices. 2. Natural gas—Prices. 3. Petroleum industry and trade.

4. Gas industry. 5. Energy consumption. 6. Energy development. I. Title. HD9560.4.Z38 2012 333.79-dc23 2011043328

ISBN 978-0-470-90163-2

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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The following work is dedicated to all those men and women of science, and of conscience, who continue in all conditions to seek truth from facts to serve people

Contents

Acknowledgements xiii Preface xv

Introduction 1 0.1 Requirements of a Sustainable Energy

Pricing Model 9 0.1.1 Some General Issues 9 0.1.2 Sustainability Criteria and Economic Theory 15

0.1.2.1 Sustainability for whom? 17 0.1.3 The Basis of Change and the Conditions

of Change 19 0.1.4 Linearities that Fail to Straighten

Anything Out 22 0.1.5 The Information/Disinformation Nexus 24 0.1.6 Perception, Truth and Aphenomenality 27

0.2 Outline of the Contents of this Volume 30

1 Fundamental Notions 37 1.1 "Energy Crunch" or: The Problems and Issues of

Modeling an Energy Price 39 1.1.1 Commodification: The General

Capital-centred Theory 44 1.1.2 Energy as Social Product 48 1.1.3 Cultural Bias and Energy Price Modeling 53 1.1.4 Commodification: The Special Theory of

Modern-day Time Compression 61 1.2 Matter, Energy, and Efficiency from Scientific

Standpoint 66

Vll

viii CONTENTS

1.3 Truth as a Scientific Frame of Reference 69 1.3.1 Eurocentric Distortion of Scientific Truth as a

Frame of Reference 74 1.4 Phenomenally-based Sustainability:

The Nature-science Criterion 80 1.5 Value Assessment, Value Addition and

Phenomenally-based Energy Pricing 94 1.5.1 The Role of Value Assessment and

Value Addition 95 1.6 Newtonian 'Mechanism' and Mystification

of How Value is Transformed into Price 104 1.7 Risk Assessment & Management and

Aphenomenal Energy Pricing 107 1.7.1 Energy Pricing based on Fictions:

The Case of Enron 110 1.8 The Temporal Criterion of Long-term

Sustainability and its Implications 116 Documents 118

A. Timeline of Critical Events for Enron in the Period August 2001 to December 2001 118

B. Enron Segment and Stock Market Performance 1993-2000 119

C. The Temporal Horizon In Which Diligence Can Become Undue 119

D. Darwinian Pessimism and the Foreshortening of Temporal Horizons 123

E. Enron and the Foreshortening of Temporal Horizons 125

2 Newtonian Mechanism and The Deconstruction of Scientific Disinformation 137 2.1 Introduction 139

2.1.1 What is the Issue? 139 2.2 Einstein's Relativity and Newton's

Mechanism Compared 140 2.3 Newton's First Assumption 142

2.3.1 First Level of Rectification of Newton's First Assumption 148

CONTENTS ix

2.3.2 Second Level of Rectification of Newton's First Assumption 150 2.3.2.1 Can We Take for Granted

that Masswill Remain Constant? 150 2.4 Fundamental Assumptions of

Electromagnetic Theory 153 2.4.1 Can Energy Propagate Throughout

Space in the Absence of Mass? 153 2.5 The Engineering Approach and Its Significance 175 2.6 First Conclusions 180 2.7 Continuity and Linearity 182

2.7.1 Confusion Twice Confounded 182 2.7.2 It's Really About Time... 187 2.7.3 "Laws of Motion", "Natural Law" &

Questions of Mutability 197

Offshore Networks of Control: Providing Short-Term Multi-Entity International Oil and Gas Plays with a Guarantee 209

Current Energy Pricing Models: Origins & Problems 223 4.1 Consumption without Production 226

4.1.1 Description of the Problem and its Visible Impacts 226

4.1.2 Disinforming Impacts of Consumption without Production 242

4.2 Imposed Energy Pricing 246 4.3 Inherent Features of the Current Energy-Pricing

Model: Matters Affecting Individuals' Daily Existence 256 4.3.1 Introducing the R-D-R' Cycle 266

4.4 Societal Implications of the Current Energy-Pricing Model for the Long Term 269 4.4.1 Why Does the Writ of the "Competitive

Advantage of Nations" Seem To Stop At the Shores of OPEC Member-States? 272

4.4.2 Disappearing the Source of Energy Commodities' Value Behind Scientifically Meaningless Discourses about "Rent" 281

x CONTENTS

4.4.3 How Comparative Pricing Theory & Cost-accounting Practices of the Oil & Gas Sector Further Confound Resource rent 289

4.5 Long-term vs Short-term Returns-on-investment [ROI] From Energy Exploration & Development 296 4.5.1 An Oil-Sands Boom without Bust? 299

4.6 Resource "Renewability" and 'Sustainable Negative Rent' 304

5 The Role of Coal in the Modern Evolution of Energy Pricing 309 5.1 Introduction 309 5.2 Significance of Commodifying Labor-time &

All Material Production — Including its Energy Source 313 5.2.1 Significance of the Napoleonic Wars 318 5.2.2 The Reform Act of 1832 321 5.2.3 Britain & France Compared 323 5.2.4 Jevons as Ideologue of Coal &

"Marginal Utility" 329 5.3 From "Law of Supply & Demand" (at the margin)

to "Consumption without Production" 335 Document 338

A. History of U.S. Coal Use [extract] 338

6 Carbon Emission Credits — Theory & Practice 341 6.1 Introduction 341

6.1.1 THEORY — Regime 342 6.1.2 THEORY — "Additionality" 346 6.1.3 THEORY — Sustainability and a

"Universal Equivalent" 348 6.1.4 THEORY — Market 351 6.1.5 PRACTICE — Real-world Carbon

Trading Mechanisms 354 6.1.6 PRACTICE — Some Real-world

Emission-Reduction Scenarios Considered 362 6.1.7 PRACTICE — Criticisms and Shortcomings

of Practical Carbon Credit Regimes 365

CONTENTS xi

6.1.8 PRACTICE — Emissions Reduction Currency Systems 366

Documents 371 A. The Kyoto Clean Development Mechanism

Gold Standard 371 B. Thoughts on the Relative Merits of

Cap-and-Trade Versus Emission Taxes for Controlling Carbon Emissions 372

C. U.S. House Passes Repeal of EPA Carbon Rules Over White House Objections 378

D. Carbon Trading: A Method for Preserving the Environment and Reducing Poverty 380

E. Canadian Law with Regard to Carbon Emission Regulation 387

F. Carbon Capture and Storage - Identified challenges to implementation 392

G. North America Bets on "Carbon Capture and Storage" (CCS) 400

H. Canadian Implications of U.S. Climate Change Regulation 406

I. The Taxation of Tradable Permits 411 J. Ottawa Unveils Carbon-offset System 416 K. Ontario Introduces Cap-and-trade Legislation 419 L. Canada Moves Forward on Domestic

Emissions Trading Market 421 M. Carbonmail? 424

7 "Peak Oil" and Other Fits of Pique Among Resource Economists 435 7.1 Introduction 435 7.2 Human Factor Social Consciousness &

"Abstracting Absence" 453 Document 460

A. The Achnacarry Agreement and the "As Is" System 465 B. The Entry of Kuwait onto the World Market 467 C. Aramco and the Containment of Saudi

Arabian Expansion 471 D. Notes 473

xii CONTENTS

Bibliography 477 Introductory Note 477 I. Bibliography 478 II. Websites 518

Appendix -Disinformation in the Social & Historical Sciences: Concerning Time Functions and Sustainability of Resource Development 521

A.l Introduction 521 A.2 Detaching Canada's East Coast Fishery

From Its History: Causes and Consequences 523 A.3 The Mishandling of Temporal Factors

Analysed as a Problem of Method 529 A.4 Social Science and The Problem of

Linearised Time 536 A.5 Placing tL1NKAR on Life Support 543 A.6 Merchant's Capital - Key Historic Intangible

of The East Coast Fishery 555 A.7 The 800-Pound Gorilla 563

Index 575

Acknowledgements

All judgments and any potential errors expressed in this book (and in the companion volume entitled Sustainable Resource Development: How to Achieve Zero-Waste and Sustainability in Energy Engineering) are entirely my own. Along the way down this path, however, I have shared the company of various personal, intellectual and pro-fessional fellow-travelers. Here is where I acknowledge publicly my appreciation and thanks — some personally, some collectively but anonymously, some even posthumously — for their inspira-tion, help and support through the processes of this book's even-tual gestation and birth pangs.

First and foremost there is the incredible patience and support, 'through thick and thicker,' as she would put it, of fellow writer and professional colleague Rhoda Shapiro, the woman with whom I happily share a life sentence as well as a life of sentences. The love and support of our various networks of family and friends also proved critical for surmounting many obstacles along the way. The support at all levels of Isaac Saney, academic colleague and friend, has been constant and appreciated also beyond words, as has that of Charles Spurr, a salt-of-the-earth friend who always seems to be there when we need him.

A dense and often toxic fog of disinformation engulfs the truth about how the modern economy actually robs Humanity of so much of its true potential. The inspiration to produce a work about sustainable development that would cut through all that originated personally for me from the life and work of Hardial Bains (1939-1997). With his co-workers, he elaborated the "necessity for change" analysis more than 45 years ago that continues — among its many other benefits too numerous to catalogue here in this brief space — to open the eyes of new generations about the tricks, traps and prejudices of Eurocentric outlook in world politics and economics.

xin

xiv ACKNOWLEDGEMENTS

The idea of taking such an outlook and applying it to exam-ine how the economics and engineering of resource development could be turned towards genuinely sustainable development that would no longer rape the natural environment was the gift of Prof. Mohamed Rafiq Islam, the editor of the series of which the present book forms part. His confidence in my ability to nail the question squarely and his unflagging personal, academic and intellectual support, along with that of his sons Jaan and Ali Omar, produced a number of life-altering moments en route to delivery of the final version of this book's manuscript to the publisher.

Through Professor Islam's research group, I enjoyed the rare priv-ilege to work closely with Shabbir Mustafiz, who happily served as a sounding-board and effective puncturer of some of my more absurd balloons, as well as to hold many discussions about "true sustainability" with Mohamed Ibrahim Khan (the "M.I. Khan" of this book's Bibliography), which is gone into in some depth in the second volume.

On a closing professional note, I have been very lucky to be able to collaborate professionally with Phil Carmical and his team at Scrivener Publishing, whose confidence in my abilities sustained us through one or two darker moments.

Preface

This volume, like its companion volume (Sustainable Resource Development), is organized into an introductory chapter, seven chapters of content and an appendix. The underlying question posed throughout this book is: Does resource extraction — and the subsequent economic development patterns dependent on those processes of primary energy-source production — have to end badly for the natural environment? Accordingly, the chapters cre-ate their dissonant atonal symphony, exploring a number of aspects of economic theory and where they fit — or more properly: fail to fit — any rational plan of sustainable development. The appendix supplies the coda, in the form of an exploration of aspects of the 500-year history of commercial exploitation of the ocean fisheries on the Continental Shelf of the northwest Atlantic. It is not an under-statement to say that, for the first 470 years, the harvesting of these resources posed little or no threat either to the marine environment nor to the present or future prospects of the coastal communities most involved in this activity. However, in the last 30 years of that half-millennium, what remained was literally raped from stem to stern at unprecedented speed. The historical exegesis brings out in striking manner how far off-base both the promoters of this fish-ery and its critics actually were with regard to the conduct of this fishery in modern economic conditions of vertically-integrated resource extraction. None of them manifested the slightest aware-ness of how this fishery could have averted the dramatic collapse that eventually destroyed the livelihood of the families of more than 40,000 commercial fishermen from the Canadian provinces of Newfoundland and Labrador, Quebec and Nova Scotia after 1992. This dialogue of the deaf was manifest not only in the late 1970s — as the struggle over the northwest Atlantic fisheries' future

xv

xvi PREFACE

heated up to become one of the sideshows of the global confronta-tion between the U.S. and Soviet superpowers over control of the world's oceanic spaces. The same thinking that failed to address the problems of that time was being repeated 30 years later by some of the most vociferous critics of the antics of the trawling fleets, Canadian and foreign, back in the 1970s.

Finally, a word about the subtitle of this book: "Creating A Sustainable Environment and Economy Through a New Science of Energy Pricing." Just to clarify the matter up front for the reader: the author does not actually set out a "science of energy pricing." The aim of this book is to initiate that process by preparing the nec-essary groundwork.

The late Nobel physics laureate Richard Feynman, in his 1985 autobiographical memoir 'Surely You're Joking, Mr. Feynman' : Memoirs of a Curious Character, set forth his vision of the meaningful content of the notion of "scientific integrity" in an arresting man-ner, with an anecdote from the annals of actual scientific research in the field of behavioral psychology. Although students in the field are carefully schooled in the concept of "conditioned stimu-lus - conditioned response" (CS-CR) including spending hours in the laboratory with mice running various experiments premised on the truth of this fundamental notion, what Feynman learned was that students are never steered towards actually testing the veracity of the CS-CR hypothesis itself, viz., that the response of the mammalian brain can be trained or conditioned by a con-sciously-planned series of stimuli. Looking further into the matter, he uncovered a research paper published before the Second World War whose author deliberately attempted to replicate the original experiments of John Watson purporting to demonstrate the CS-CR hypothesis. The investigator relaxed the condition that CS-CR be assumed true and sought alternative explanations for the lab mice's responses to various conditioned stimuli. He narrowed down one-by-one all other possible physical causes for the stam-peding of the mice through the experiment's "maze" apparatus to get their "food" reward. He found the strongest and most positive correlation existed between the level of vibration of the boards of the raceways in the apparatus and when mice from various points inside the apparatus found their way through the correct series of tunnels in the maze to the reward-point. As he removed all possi-ble sources of vibratory transmission from inside the apparatus, he reached a point where the response of the mice could no longer be

PREFACE xvii

said to correspond to the original stimulus. Feynman noted that he could find no references to this experiment anywhere in the litera-ture: it disappeared, or perhaps was "disappeared" by those who sniffed its devastating implication that the CS-CR hypothesis itself was unproven. Feynman hailed the experiment for its profound paedagogical value as a basic primer in scientific integrity — and for teaching everything one would need to know about how to verify the CS-CR hypothesis experimentally.

In this book and the above-mentioned companion work, neither is any cookbook recipe provided for guaranteeing sustainable pric-ing of energy, nor is it suggested that there is any guaranteed or spe-cific way of arriving at sustainable energy pricing. However, every effort has been made to supply the reader with everything needed for implementing a positive intention to develop and implement practical steps of various kinds towards such a goal.

Introduction

Within the real-life subject-matter of this book and its companion volume, Sustainable Resource Development, a serious if largely silent struggle carries on beneath the surface of the exploration and pro-duction of fossil fuels, or "alternative" energy sources, in their orig-inal state. It is a war that is under way between the real value of these energy sources as "gifts of nature" on the one hand, and the nominal value they acquire in the form of a market price on the other.

Many features of this struggle lie as hidden from view or other-wise just beyond our full understanding as the earth's reservoirs of oil and gas themselves, the atmospherics driving the world's wind farms, or the solar fluxes reaching our planet. The veil concealing some of the processes of research and engineering applications is being gradually lifted. That is the mission, for example, of the work to simulate exploration and production prospects as a "vir-tual reservoir" (Islam et al., 2006). This line of investigation has also provided a starting-point from which to re-examine many aspects of energy pricing that have long been taken for granted. An entire "futuristic" energy-pricing model is implicit in the virtual reservoir, for example. This is a model that incorporates solutions to many other problems, from tackling "global warming"/"climate change" to accomplishing a zero-waste lifestyle. Hence this work's subtitle: Creating A Sustainable Environment and Economy Through a New Science of Energy Pricing. The solutions incorporated in the con-cept of the "virtual reservoir" are emblematic of something more general incorporated in that subtitle and provoking widespread debate.

Sustainable energy pricing is inconceivable without sustainable development of energy resources of all kinds, beyond fossil fuels or

1

2 SUSTAINABLE ENERGY PRICING

the conversion of thermal energy into electricity in various forms. At the core of serious efforts to frame solutions to this problem stands a profound epistemological issue that all societies have been grappling with. Serious differences have emerged over how to col-lect, summarize or even make use of a wide range of sources of knowledge about, on the one hand, what works (or has worked) in the natiural environment without much if any conscious human-engineered intervention and about, on the other hand, what seems to work at laboratory scale but goes on to perform poorly when taken out of the lab to be applied 'in the field.'

When it comes to broad society-wide problems with energy suf-ficiency, there is a class of solutions that depends in the first place on a deliberate decision to render, as consciously as possible, all the knowledge gathered about available energy resources. This human factor, or what might be better described as "understand-ing based on acts of finding out," is decisive.1 Repeatedly, society emerges from a stage of seeming beset by various problems to a stage of accomplishing solutions. Subsequent developments dis-close how partial and incomplete previous solutions were. This movement itself becomes fundamental to how human beings socialize their relations in the realm of material production. At the level of theory and its cognition, this fundamental movement expresses itself as a process, or processes, of becoming conscious. Although the dawn of awareness is conventionally represented as a light bulb going on above the head, the movement being spo-ken of here expresses itself as a struggle waged to establish actual knowledge of a way forward to solutions. This process emerges as a two-phase movement: there is a "theory" phase and a "prac-tice" phase. The work of Theory elaborates the essential principles of a solution. At the same time, Practice develops as the realm in which humans individually and in society sort out precisely how principles elaborated at the level of theory are to be applied in any particular case or cases. However, these phase-pairs are not nec-essarily comprised of equal amounts of theory and practice. The length of time each phase consumes is not predictable in advance. As a result, it must in reality be highly non-linear and studded

1 This living involvement of the investigator is what invests knowledge and its gathering with actual purpose, with a direction or "intention" in the sense of the Arabic word "niyah".

INTRODUCTION 3

with numerous discontinuities. These discontinuities follow from the fact that this movement's departure from whatever was previ-ously being followed or developed is what serves to identify and distinguish the genuinely novel "breakthrough" innovation from merely incremental change.

The relationship between theory, or theories, developed with a view to solving actual problems on the one hand, and the prac-tice that implements solutions based on that theory on the other, cannot be expected to be linear, gradual or monotonic. Does this mean the relationship must lack analytical content? On the con-trary: the particular reality of such discontinuity in each case serves to confirm how symbiotic the relationship is between the-ory and practice in any given case. The way that the movement itself from theory to practice uncovers new pathways to innova-tive solutions — on the basis of upholding the authority of what has been found out in the actual conditions — stands as proof of the existence of such symbiosis. This moves forward above and against gaps in our knowledge that have been maintained up to this point on the basis of previously received, or preconceived, notions of the status quo. These gaps could be the product of ignorance, absence of sufficient data or erroneous understand-ings of data previously collected. Nevertheless, this movement itself becomes detectable as a movement from some earlier state of knowledge to a new stage massively enriched with new infor-mation and data. This information-enriched environment incor-porates a multiplicity of possible or potentially feasible solutions. Its foundation includes whatever actually exists plus whatever is unfolding within whatever is known to exist. At the same time, however, it excludes anything predicted by theory but not yet determined to actually exist.

It is this last point that holds out especially profound implica-tions. The most significant is that the heat death of the universe predicted by the Second Law of Thermodynamics2 — the "limiting case" that every engineer is taught must eventually trump any pro-gram of sustainable development — cannot be assumed as some-thing bound to happen, whereas numerous evidences of negative entropy — as elaborated (for example) in the work of Prigogine

2 See Thomson [Lord Kelvin] (1852).


and others3 — have to be admitted. The applicability of many other classically-assumed truths — such as Newton's First and Third Laws of Motion — has to be limited to cases and phases of phe-nomena outside the realm of matter at the molecular, nano-, atomic or sub-atomic scale. Most crucially, the stricture within engineered or other mechanical reality that time t always be treated as an inde-pendent variable has to be relaxed and a fundamentally different approach undertaken with regard to time functions in the natural environment of organisms possessing a capability of renewing their lifecycle, viz., an approach that embraces time t as a fourth dimen-sion in its own right.4

This is of more than merely theoretical interest. Consider the cur-rent discussions of "global warming"/"climate change." One out-standing feature of this discourse is the struggle being put up by the principal antagonists from both sides against acts of "finding out" what's really happening in specific countries and regions of our planet. This common stand against such "finding out" is apparent only upon reflection, however. Consider for example the brouhaha that attende COP-15, the UN Climate Conference at Copenhagen in December 2009, when the International Panel on Climate Change was publicly accused of publishing doctored data. Awareness of the fact that COP-15 and its opponents shared a common stand against detailed "finding out" was lost, as a seemingly insurmount-able "difference of opinion" over how to interpret opposing projec-tions of data crunched in different climate-models utterly obscured it from view. Thus, this "difference of opinion" itself, far from being a passive element, has actually been blocking the advance in social consciousness that is needed in order to move onto the stage of elaborating solutions and programs that address actual dangers facing Humanity right now. Many of these hazards have accumu-lated during more than 200 years of anti-conscious industrializa-tion of climate and the natural environment. Today this has reached the point where a fight over how to interpret the world now stands in the way of getting on with changing the world.

"Global warming"/"climate change" has become a code-phrase, standing at one pole, for that struggle which seems aimed at keep-ing everyone at this level of fighting over how to interpret the

3 See Website 14. 4 This is argued out in some historical depth at (Zatzman et al, 2009)

INTRODUCTION 5

world. On the other hand, "zero waste" (or, more properly: "zero net waste") represents precisely one class of solutions at the other pole. It is a particular class of solutions that would envision har-monizing human social demands on the energy front with what nature can usefully provide if a consciously worked-out program is followed. The underlying unspoken premise of the seemingly end-less struggle over how to interpret the world is that Humanity must accept being nature's victim. At the other pole stands a kind of con-scious awareness and knowledge both of what the stakes really are. There is an awareness of the need to adopt a more appropriate approach to, among other things, the manner in which resources are extracted from the natural environment and how they are priced, so that energy can be provided as needed on a sustainable basis. "Sustainability" in this work, therefore, is not treated or pre-sented as some bag of tricks for managing scarcity. To follow that path would amount eventually to attempting to solve fundamen-tal social problems by telling the poor to eat less. The consciously-elaborated path taken in this work and the forthcoming companion volume is the only one on which Humanity can hope to escape the otherwise very dire-seeming consequences of continuing to sub-mit anti-consciously to "nature." This volume tries to cover the "theory" part of the problem, while the forthcoming companion volume addresses the new "practice" — focusing most strongly on "zero net waste" approaches to technological development.

Probably one of the most demonized modes of energy produc-tion in the world today is the extraction of crude oil from under-ground and-or undersea reservoirs. Ironically, however, it is the science of reservoir engineering (or more properly: the science of reservoir engineering turned right-side-up) that offers some of the best possible conscience-based solutions to present-day energy problems. In particular, the concept of a "virtual reservoir" opens up the possibility of learning the true potential of a given resource. Key to its operation is the continuous collection of new knowledge of dynamic changes in reservoir conditions in situ, during actual production. Information of this kind is more than mere "meta-data." This information supplements and corrects purely predic-tive data gathered in earlier exploratory phases of development. It includes the true likely rate of drawdown and known effects on resource recovery rates and their impacts on the production budget. Acquisition of such data therefore holds out a potential whereby, a project's true impacts can be established. This information could


become available long before exhausting any funds invested or set aside or borrowed to finance the project. Contrast this with what has been the general case up to now. Knowledge of the actual pro-duction capabilities and supply of a given reservoir was limited to a kind of guesswork. To "take care" of the margin of error incorpo-rated in those guesses, demand and costs were projected well into the future. One result of this absence of reliable or sufficiently com-plete information, therefore, has been to ensure and maintain the predominance for "global demand" models in projecting trends in energy prices. The information-generating potential of the virtual reservoir, on the other hand, opens up a very different prospect. Energy pricing models can be repositioned increasingly away from this "global demand" guesstimate approach towards an "actual-supply" approach. It has prepared the way for an advanced regime of information-enriched energy pricing to replace the conventional model with which the world is presently saddled.

This shift from demand-based to supply-based modeling implies a further shift in the relative weight of the various players involved in producing and delivering energy. It is bound to increase the potential in the hands of the main producing states to take control, finally and actually, of their own future economic and social devel-opment. A large portion of energy commodities is currently pro-duced by national oil companies operating in the main fossil-fuel energy basins of the planet. To date, these basins have been con-centrated in countries that are fabulously rich in the necessary raw material. The governments of these countries have become starkly dependent for development finance on foreign syndicates and cartels. That dependence has restricted their capacity to exercise meaningful ongoing control after contracts are signed and sealed. For their part, the syndicates and cartels with whom they have partnered maintain almost a 100% focus on capturing and market-ing the energy resources. What remains unattended, and indeed practically left to chance, is the future well-being of the countries in which they invest. Today, meanwhile, the producing states have at hand, at least potentially, all the tangible requirements to look after their own needs without this foreign dependence. Nevertheless, they persist in the status-quo arrangements that serve to delay the achievement of meaningful independent national development indefinitely into the future.

What has been missing? Why haven't these governments and-or their national oil companies made that leap? For too long, it would

INTRODUCTION 7

seem, many OPEC member states lacked a full, serious apprecia-tion of the fact that investments by those who were (and are) not their well-wisher were (and are) unlikely to empower them to transform these conditions. Although marking progress of a certain kind, the displacement since the 1970s by national oil companies of the foreign concessionaires' system serving the Anglo-American-dominated international petroleum cartel did not alter the general design of upstream production Schemas to fit the downstream end of the oil and gas business. In these matters, regardless of their oft-expressed wishes to realize a better future for the people of their countries, the national oil companies and their governments have had little choice. (The best-known exception to this pattern proves the rule: the Venezuelan national oil company PdVSA has broken with this pattern, but at huge cost in the immediate short-term.) All this, of course, would seem to point to the need for a thoroughgo-ing renovation of economic theory that takes into account the roles of intangible factors such as intention, the actual passage of histori-cal time, the roles of information and disinformation, etc. It is pre-cisely these intangible factors that must form the foundation of any long-term approach to sustainable development of these countries' energy resources. On this path, a new approach to energy pricing can be provided with a basis more solid and lasting that of any short-term policy objective.5

No matter how much, or how long, interested parties may resist, once the knowledge itself, as well as access to that knowledge, exist, the shift away from demand-based toward supply-based pricing becomes inevitable. That is a major reason for positioning the dis-course away from talk of "future energy prices" and towards talk-ing instead about "futuristic energy pricing". In what ways would it qualify to be called "futuristic"? As producers increasingly empowered by such sources of knowledge and information take responsibility increasingly for the future needs of their countries

5 The essential theoretical underpinnings of this book are set out in Chapter 2 infra. Three conceptions are central: a) aphenomenality and the aphenomenal model; b) the role of intention (referring to systemic direction, rather than individual wish or preference); and c) the profound difference between time considered historically in the unfolding of processes (referred to as tHKTORICA]) and the largely linearized notions of time incorporated in the calculus and other areas of the mathematics that researchers in the natural and social science rely upon almost exclusively (referred to as tUNEAR).


(rather than merely or mainly for production targets of the foreign syndicates and their debt repayment agreements), the entire model and its paradigm must shift to include long-marginalized consid-erations such as the intention of the external backer, or the stake of the nation itself in properly husbanding the oil wealth under their own feet. What is essentially futuristic about energy-pricing models founded on such an approach is its leapfrogging the clas-sic resource-rent model. This is the prevailing resource develoment model that projects future demand for and delivery price of some quantity of oil or gas 15, 20 or even 30 years from now, based on investing a certain principal sum today given a range of current interest rates.

It remains for others to work out the political implications for oil-rich developing countries referred to above, and come to some reckoning with the present-day legacy bequeathed in their own par-ticular circumstances. The present book and its companion volume constitute neither a political tract nor a work in the field of politi-cal science. This volume concentrates on elaborating the social-historical development responsible for the general and common features of those circumstances, as well as how this development has impinged on how energy pricing has been modeled up to now. Here, only the root and pathway of these matters has been pointed out, with the aim of enabling the reader to appreciate more deeply the significance of enriching the science of energy production and how its price is modeled in the directions proposed throughout this book and its companion volume.

The outstanding question remains: in what ways will it become less meaningful to speak about a "future energy price," and more meaningful to think in terms of another energy pricing model? Retaining the existing and predominant resource-rent model — the idea of drawing down some raw material deposit until the revenue generated from its extraction, refining and sale no longer produces a surplus payable as rent to the proprietor of the raw material — loses all justification and rationality under present conditions. The nation as trustee of a people's energy endowments no longer need remain hostage to the effective proprietary control long exercised by offshore leaseholders of development technologies. This was a stranglehold that multiplied by many times the real dictate being exercised hitherto by the downstream refining and marketing end of the global oil and gas business. What has rendered this burden more onerous for the peoples and homelands of these national yet

INTRODUCTION 9

still foreign-dependent oil companies is the dictate exercised by their foreign partners. The downstream power has long controlled the flow of information about current and-or prospective resource supply in many a producing country. Increasingly, then, the real issue is shifting. It is no longer the price as such or even its forma-tion, but rather how that price is to be modeled.

0.1 Requirements of a Sustainable Energy Pricing Model

0.1.1 Some General Issues

The requirements of a sustainable energy pricing model come from two sources. One source involves deconstruction, the other source a new construction. At this stage of development of the technologies required for fully implementing the "virtual reser-voir", deconstruction proceeds by way of examining the bases and limitations of the current, existing models of energy pricing. The other source of information about the new model's require-ments is more contentious. Notwithstanding the vast amounts of data these have produced, the current actual predictive ability and record of all the existing models remains poorly developed. Either we have a long way to go in improving what exists, or the wrong path was taken in the first place and new models must be established on a different path. The present work embarks this alternative approach of establishing new models on a new path. There are many known inadequacies and limitations in the sci-ence and mathematics currently employed to provide the basis of conventional models that are used for theorizing either incre-mental or entirely new developments in the sciences. This volume starts from the premise that a profound and fundamental recast-ing of the theoretical underpinnings of the science and mathemat-ics which currently provide this basis should take care of these problems in a comprehensive manner.

The "deconstruction" portion is comprehensive insofar as it aims to root out the sources — and not just particular or egregious cases — of error. The "new construction" portion developed here, mark-ing the initial stage of a longer-term venture, includes a recasting of conventional approaches to economic theory on a new philosophi-cal foundation. In broad outline, what are the principal sources of


present problems with predictions of global energy supply and demand, and with the pricing of energy commodities as a function of a "resource-rent capture" operation orchestrated among syndi-cates and cartels operating globally in international financial mar-kets? The question has been formulated to hint at the answer. The first problem is that, indeed, the interests of contending forces in international financial markets provide the tail that wags the dog of actual production at any given reservoir project. Today's produc-tion has become mortgaged for decades to come in order to meet future debt repayments.6

As part of this process, production itself has become organised according to criteria serving this demand — a demand utterly extraneous to the production process — at the expense of both the efficiency and sustainability of not only the production process but the resource base itself.7

A closely related problem is the setting of a price that will be acceptable both to those needing to import energy supplies and to those that have real surpluses available to export after meeting their own needs from their own supplies. This part of the story

6 The Kingdom of Saudi Arabia happens to enjoy stewardship of the foremost amount of oil and gas reserves that can be extracted and refined at one of the lowest costs per barrel to be found anywhere on this planet. Over the last two generations, its huge energy resource basin has been turned into a vast debt engine underwriting a wide range of speculative activity in financial markets around the globe. Over this period, it has gone from being the model that other Arab oil states sought to emulate to probably the single greatest obstacle to progress inside the Organization of Petroleum Exporting Countries (OPEC). What is the condition of the actual foreign debt of this regime, which remains also one of the biggest oil producers on the planet? The total foreign obligations of the Saudi Kingdom — which had accumulated a "public debt" that was reported at the end of 2004 to stand at US$176 billion — remains an official and closely-guarded secret down to this day (in September 2011 as this is being written). Most of the reported public debt was accumulated reportedly since 1972. In this lies the signal example and a cautionary tale. The Energy Information Administration of the U.S. Department of Energy reports the "external" portion of this debt as US$34 billion (Website 2). However, it is known that most of the allegedly non-external remain-der is "non-external" only because it is borrowed from the Saudi state bank. This is effectively a private institution modeled on the U.S. Federal Reserve, itself also a private institution with a single customer, viz., the U.S. Treasury. The Saudi state bank itself borrows in the international money markets to service the needs of its chief client, the Saudi royal family—and this amount is unpublished. This startling and extremely sensitive truth that the Saudi ruling family and the state they run

INTRODUCTION 11

remains very much a "work in progress." One obstacle such a pro-posal encounters is seen in the response that has emerged to the diminishing role of the U.S. dollar as the store of any reserve(s) of any actual material exchangeable value. The Euro, in particular, is being pitted against it.8 What is needed is to decouple energy production and distribution from the debt management engines of all global reserve currencies to begin with, and re-price energy exports according to something that might be capable of winning widespread international acceptance from customer and supplier states alike.

At first blush, such an approach would seem entirely feasible in purely tangible terms provided that

1. it is backed by true production figures from partici-pating energy-exporting countries, compiled and maintained independently of existing international financial institutions; and

are instruments of the financial markets of the Western powers is kept as obscured from view as possible, by various means. By way of contrast, meanwhile, two very different discourses has been maintained for decades now in the mass media to keep public opinion deeply disinformed. First, there is the running soap opera tale of Arab potentates corrupting Western governments. In the U.K., for example, where for decades the British banks have serviced, and otherwise extended large amounts of credit to, Saudi royals and their favourite projects, the Blair govern-ment since 2006 had become embroiled in a scandal involving what press reports allege were Saudi government bribes intended to shut down an official investi-gation of British arms sales to the Kingdom. The other disinforming discourse is that Saudi Arabia's economy is this huge exception to the norm among other countries tied to exporting petroleum in order to make their way in the world. Every one of these countries knows or has known all about how the Western bank-ing system indentured their economies decades into the future, yet the citizenry of the main oil-consuming countries are supposed to swallow tales about their own alleged invulnerability to such pressures. The economic downturn that has spread worldwide since 2007-2008 has served only to reaffirm the ancient Roman dictum mutato nomine et de te fábula narratur ("change the name and the story's about you"). In many western countries, a common thread in today's growing mass discontent is that their own governments' policies bear the main responsi-bility for their country's mess. The actual evidence is that the globalization of the banking system on the backs of hundreds of millions of individuals plunged into unconscionable levels of personal indebtedness has served to hide the hands of those actually responsible.


2. participating exporters must demonstrate that they are meeting domestic energy demands from their own industry and not relying on revenue from the export of unrefined crude to pay for imports of refined petro-leum products.

Following the inauguration of the Euro currency, and then sud-denly intensifying early in the last decade before and during the U.S.-led coalition's invasion and subsequent occupation of Iraq, there emerged some discussion on the scholarly literature of the idea of an International Commodity Unit or Universal Commodity Unit with regard to the pricing of commodities in widespread global demand (McCauley, 1997; Yarjani, 2002; Bask, 2003; Putland, 2003; Alhajji, 2004; Islam & Zatzman, 2004; McFadden, 2004; Islam & Zatzman, 2005a; Islam & Zatzman, 2005b). Rumours were widely published that the Chavez government in Caracas, while retaining the use of U.S. dollars for its export trade with the United States, was looking for trading partners to develop oil trades based on a "basket" of currencies that would include the Chinese yuan; that the Islamic Republic of Iran was planning to establish an "oil exchange" on Kharg Island; and even that the Putin government in Moscow was mulling the idea of introducing aspecific oil-trading currency tentatively dubbed the "petroruble." Despite this frenzy of specula-tion, the speed with which the main oil-consuming countries were

Whenever, for whatever reasons, OPEC members collectively cannot pump enough oil in the short term to meet market demand for refined petroleum prod-ucts in the developed countries, it has become accepted as a "given" among the leading Western oil monopolies, cartels and their governments and financiers that Saudi production will be increased to fill the gap. Although the Saudi royal fam-ily's actual revenue share — effectively a resource rent — of the per-barrel cost of producing this oil also remains a state secret, giving rise occasionally to the most exotic speculations in the world's media, how the gap is actually filled is prosaically obvious. The Saudi fields just pump more, giving the appearance of an increase in Saudi revenues from this source in the short term. However, in the meantime, there is no reduction of either the principal amount of, nor the accumu-lating interest on, Saudi debt. In this way, despite the seeming security of a world oil price formed in no small part on the basis of the critical role played obySaudi oil reserves in its mainte-nance, the domestic needs of the Saudi populace have been mortgaged decades into the future to the financial oligarchs from a handful of the world's leading economic powers. The model determining how Saudi energy commodities are

INTRODUCTION 13

able to adjust to the subsequent disappearance of Iraqi oil from the world market seemed to put a quick end to such talk.

From another quarter, meanwhile, a similar conflagration seemed about to smoulder into full flame. The rumor this time concened a range of proposals for formally instituting and collecting the so-called "Tobin tax" (Tobin, 1978; Website 33). One idea was that col-lecting such a levy on financial transactions in international markets might contribute financially to paying for large-scale remediation of environmental degradation and-or crises threatening multinational regions of the globe and potentially serve simultaneously as the financial backing of an international commodity unit outside the control of any single currency issuing power (be it the U.S. Federal Reserve of the European Union's European Central Bank). This was almost immediately stopped in its tracks by strong opposition from the leading international financial markets and production lobbies of the oil and gas industry around the globe.

However, there was an upshot to all this struggle to generate something that could work in parallel with the U.S. dollar with-out openly challenging its global reach (as a reserve currency). It came late in the last decade from an unexpected quarter, con-tinues to date, and is posing a different and perhaps even graver threat. This is the regime of carbon emission credits. These were originally proposed half-heartedly by the U.S. delegation to the 1992 UN-backed Rio Summit on World Climate. The UN Climate Follow-Up Conference in Kyoto in 1995, which set the famous Kyoto targets for reducing carbon emissions worldwide, endorsed the idea of creating a market for the pollution waste of large-scale industry. Over the next decade, progress remained slow and even

priced operates effectively as a fetter on the very human social development of which it ought to be the servant. A Western financial yoke stands behind this resul-tant financial and industrial debility not only of Saudi Arabia but practically all the other major oil-producing states. This in itself has become a source of increas-ingly bitter contention within OPEC between the Saudi Kingdom on the one hand and the governments of Algeria, Iran and Venezuela on the other. For more about OPEC's role in energy pricing, see Chapter 6 of Sustainable Resource Development, the companion volume to the present work. 7 One rough index of this problem's seriousness is the rising expression of concern everywhere about the sustainability of current systems of energy extraction, refin-ing and distribution. See, for example, Islam & Zatzman (2004a). " See Islam & Zatzman (2005a & b).


anemic as the rules of the game were fixed from the outset in a most discriminatory way against the developing countries. ON the one hand, China, India and the the governments of other devel-oping economies could sell permissions to developed countries to dump their pollution and other toxic wastes inside the developing countries of the African, Asian or Latin American continents. On the other hand, however, developing economies from these regions were not permitted in their turn to purchase "rights" to the unused potential carbon emissions of the undeveloped boreal forests and other carbon sinks in the developed countries of the U.S., Canada, western Europe, Russia or Japan. In the last several years, never-theless, carbon emission credit exchanges have "taken off" in west-ern Europe and the United States. Today, they seem to be attracting a possibly unhraslthy degree of interdst from the leading stock exchanges around the world that trade heavily in bulk commodity futures (Campanale and Leggett, 2011). As elaborated in Chapter 6 infra, this has reached a tipping-point in which the world economy could face the prospect of "carbonmail" being inflicted in the next few years.

Another serious obstacle to inaugurating a regime of sustainable energy pricing comes from the incessant campaign of disinforma-tion, maintained worldwide, proclaiming that price must forever remain hostage to an unquenchable demand because . . . energy sources and supplies are finite and diminishing. The prime exam-ple of this campaign is the so-called "theory of 'peak oil'" circulated widely by the U.S. Department of Energy, inter alia.9

One necessity for a new energy pricing model stems from the failure of scarcity-based economic theories, like "peak oil", to deliver the goods. Neither is the widely-trumpeted conservatism of the scarcity approach leading to conserving anything, nor is it giving rise to the highest or best uses of the allegedly available

9 See Chapter 7 infra for an extensive discussion of the etiology of the peak-oil hypothesis. The first point of contention is whether, by projecting only cur-rent supply and demand into the future, we can ever establish, before the fact, that the supply of a particular naturally-based energy resource must fall per-manently behind the demand for that resource or its refined outputs. A second issue is whether policy should then be framed on the basis of evidence for such a finding. On the first point: such projecting is silent about the potential of innova-tive technologies to extract greater energetic value out of the same quantum of raw material, about the intervention of the human social factor, or even about more

INTRODUCTION 15

yet scarce resources. Another necessity for a new model stems from the fact that, for any range of competitively-priced inputs, the market mechanism is no longer delivering optimally-priced outputs — whether in the form of end-uses for petroleum products such as refined fuels as well as such byproducts as petrochemicals, plastics, etc.

What the research into futuristic models of energy pricing has established so far is that events, especially the pace of modern tech-nological developments and the availability of information, have seriously outpaced all these expectations of the theorized world in which the assumptions of conventional economic theory about at least relative and sometimes even absolute resource scarcities might have applied, if ever. The decay, with the passage of time, in the truth-content of these assumptions was not addressed up to now. Theories elaborated in an earlier period on the basis of informa-tion that has become outdated continue zombie-like to wander the research landscape like the living dead. All this can be considered to have rendered the work of re-positioning fundamental elements of economic theory vital to, as well as necessary for, accomplishing the task of conceiving as well as elaborating a suitable and func-tional futuristic energy-pricing model. This work of re-setting the foundations of economic theory is the most essential requirement for such models. The necessity of deconstruction referred to at the start of this section means the necessity of deconstructing the foun-dations in conventional economic theory of the existing energy pricing models. The new construction required is first and foremost the setting of new foundations for this theory.

0.1.2 Sustainability Criteria and Economic Theory

Is sustainability possible without inducing scarcity, deliberately or otherwise, somewhere within an economic process?

efficient means of delivering the finished energy product to customers. On the one hand, these human social interventions have almost nothing to do with the supply of raw material or projections thereof. On the other hand, these are decisive for the eventual matching of supply and demand. These factors play a prominent role in the development and application of policies that would address rearrangements in the relations of production, be it in a group of enterprises competing in the same field or across a society's entire industrial production base.


This question is crucial. As mentioned above, economics as a science is broadly associated with notions of producing, distribut-ing or managing finite quantities of inputs and outputs. Often this finitude is interpreted as a relative scarcity. This can be misleading, even highly so. What really counts is whether a process is sustain-able. Sustainability is to be measured by more than mere availabil-ity or unavailability of a supply of raw material components.

The prime criterion of sustainability is whether a given process, and all the other processes to which it connects, are "natural" — in the sense of characteristic — within whatever context the process normally unfolds. A secondary, derivative criterion is whether a process is truly "time-tested", i.e., capable of persisting indefinitely (assuming no other elements on which it depends are removed from the environment). The extent to which the second criterion is fulfilled defines relative sustainability. The first criterion, which constitutes a definition of inherent sustainability, defines sustain-able in an absolute sense. If the prime criterion is not met, no other criteria matter.

The question of sustainability addresses the matter of the path-way of a process. In our own day, this has emerged as the arena in which the supply-demand models of conventional economics fail most spectacularly. Under modern conditions, there are countless pathways by which potentially to finance, staff and operate the production of almost any given commodity for any market. It is even entirely possible that all of them are unsustainable: nuclear energy production currently falls in that category and it appears — from the evidence discussed in Chapter 2 of the companion volume Sustainable Resource Development — almost certain to remain in that category for some time to come. Back in the 18th and 19lh centuries, when the foundations of scarcity-based economics were laid, eco-nomic space was far more open. Markets, far from being saturated, were frequently and chronically undersupplied at various times of the year. Competition, while fierce in markets between purveyors of the same goods or services, was almost non-existent between technologies, i.e., between pathways.

This matter of pathway is an especially rich vein. In practical terms, as discussed in depth at Chapter 4 of Sustainable Resource Development, it can provide the entry-point for introducing inno-vations in managerial and other practices as well as policies that impinge on sustainability, including many under-appre-ciated aspects such as green supply chains.'0 When it comes to

INTRODUCTION 17

accomplishing a futuristic energy-pricing model, whether it might involve cutting back and-or eliminating unsustainable practices such as how produced water at offshore platforms is disposed of, or the design and construction of lightweight portable barges made from recycled waste material to clean up oil spills using oil-water separation based on Archimedes' Principle (to recover the oil for re-use), the role to be played by research and new technologies spun off from such research is not small. Serious savings on the cost of the massive overheads of the energy production process, paid up to now out of the massive profits generated by the current system of a single global oil price, can be accomplished from applying the results of such research.

0.1.2.1 Sustainability for whom?

For a new economic model, and a new energy-pricing model and other models within its paradigm, the question of "sustainability for whom?" is posed and answered as follows: any development that degrades or limits a society's ability to reduce, reuse and-or recycle waste or excess products cannot be considered truly sustainable.

Here a serious gap emerges between the notion of sustainability developed for the new theory on the one hand, and the conven-tional view of sustainability on the other. The conventional view long assumed that sustainability only arises as an issue in the first place either because resources are finite or because resources are maldistributed.n

The general method of the conventional approach consists of absolutising a single factor, then extrapolating its downward spiral to negative infinity. For example, much of the discussion of "global warming", which entails an almost morbid preoccupation with

10 Advanced work around all these aspects of sustainability can be found in (Khan, 2006), (Khan & Islam, 2004), (Khan & Islam, 2005a), (Khan & Islam, 2005b), (Khan & Islam, 2005c), (Khan & Islam, 2006), (Khan & Islam, 2007a), (Khan & Islam, 2007b), (Khan et ai, 2005d), (Khan el al, 2006) and (Khan et al., 2008) 11 It is named for the English preacher Rev. Thomas Malthus. He argued in his Essay on Population (1798) that human population must always tend to grow in geometric progression so as to outstrip food supplies, which can only increase in arithmetic progression. The category of what are called neo-Malthusian arguments includes later writers who were compelled to acknowledge that Malthus was incapable of taking into account already known facts that refuted his claim, not to mention extremely reactionary as well, but then went on to factor


carbon and C02, assumes "climate is destiny" as it goes on to extrap-olate Humanity's doom. All choices among alternative courses are always Hobson's Choices between equally unpalatable options. These analyses frequently come up badly short in the predictions department. However, they never fail to marginalize any role or relevance for human intentions and interventions. Sometimes it becomes necessary to stand up and call a spade a shovel: it is diffi-cult if not impossible to see how any discussion of "sustainability" proceeding from premises of this kind can be helpful.12

It does not take long to discover that, for all their gloom about Humanity's future prospects, proponents of this conventional view seem satisfied with the status quo. Although the ongoing need for science or research is not explicitly denied, the possibility of har-monizing human needs and intentions with Nature's possibilities is implicitly excluded. In this way, the conventional viewpoint imposes a large obstacle against those seeking to elaborate a sci-entifically responsible thesis on sustainability. Proponents of the conventional standpoint insert themselves as an obstacle precisely by taking up contemporary problems, rather than denying their existence. However, instead of illuminating the possibilities and the limits for transformation by furnishing information about the immediate or recent history and-or conditions of any problem they take up, they revert instead to broad generalizations about "human nature" to account for many immediate and long-term material effects of material causes.

What has made all this urgent in our own time is the trans-formation of the field of economic competition by the entry of large-scale, even global, organizations and the marginalization of public involvement. The present work has had to take this into account especially in order properly to analyze and understand the

in food shortages and other catastrophic events to argue that the imbalance is the general problem, be it the "gap between the North and the South" (WCED, 1987), or a "technology gap", or "global warming". Malthus himself has modern-day emulators in Dr Paul Ehrlich and his book The Population Bomb (1968), as well as the work of Garrett Hardin on "the tragedy of the commons" (Hardin, 1968). The central error of Malthus' analysis is isolated and discussed in Chapter 7 infra. 12 The science of these scenarios — as distinct form their melodrama — remains ever thin on the ground. That has proven no impediment to their often being put forward as the "left"-wing version of, or response to, the Armageddon and "End of Days" scenarios popularised by various U.S. religious broadcasters (Website 3).

INTRODUCTION 19

dynamics affecting global energy markets since the collapse of the Soviet bloc.

0.1.3 The Basis of Change and the Conditions of Change

The basis of all real change is internal, whereas the conditions of change are external: this distinction is particularly important when it comes to accounting for the co-presence of tangible alongside intangible elements in any phenomenon. Assigning a proper place to what has been elaborated elsewhere as "the tangible-intangible nexus"13 is a key task of the program proposed here for renewing approaches taken to the foundations of economic theory. Here it specifically has two immediate implications:

1. external conditions cannot provide the basis of change, hence, e.g., the underpinnings of Newton's First Law and all theories of 'Prime Mover' go out the window; and

2. existence of an internal basis for change cannot in itself guarantee an unfolding or expression of change in the absence of suitable external conditions, hence, e.g., apparently spontaneous (and otherwise exter-nally unprovoked) miscarriages or stillbirths

The implications of the first point are profound. As an enterprise entailing apprehension and comprehension of

the material world existing external to consciousness, science — meaning the scientific approach to investigating phenomena — requires examining both things-in-themselves and things in their relations to other things.

One of the most fundamental issues of this exercise involves mastering and understanding laws of motion as they apply to the matter under investigation. The importance is simply that motion is the mode of existence of all matter. Whether it is energy, or mat-ter that has become transformed into energy, or energy that became transformed into matter, there is no form of material existence that is not in motion.

13 See Chapter 1, 'The Tangible-Intangible Nexus," esp. Figures 1.1 and 1.2 at p.12 and p. 13 resp., in (Zatzman & Islam, 2007)


Time and Information are two variables that have become espe-cially critical for modeling and tackling the actual laws of motion of modern economic life. Both are utterly intangible. Up to now, however, they have been incorporated into economic analysis on the basis of rendering them tangible — a procedure that may have created more problems than it solved.

On the front of scientific research undertaken to investigate and determine laws of motion, Sir Isaac Newton's work stands at the watershed. His elaboration of the general laws of motion of all matter was a huge advance over the incoherent and conflict-ing notions that prevailed hitherto. Of course, various limitations appeared at certain physically measurable/detectable boundaries — at speeds approaching the speed of light, for example, or within space approaching the measurable minimum limit of (approxi-mately) 1032 m. This led researchers to make important corrections and amendments to Newton's formulae. The fact remains, never-theless, that Newton's fundamental breakthrough lay in the very idea of summarizing the laws of motion itself, common to all dis-crete forms of matter understood and observed to that time. (Of course, "at that time," one must remember, would mean matter in forms that were neither atomic, molecular nor sub-atomic.) Equally remarkably, in order to take account of the temporal component attending all matter in motion, Newton invented an entirely new departure in mathematics. Necessitating this departure was the fact that existing mathematics were useless for describing any aspect of change of place while matter was undergoing such change.

Newton's mathematics made it possible to treat time as though it were as infinitely divisible as space. That was something no one had ever previously conceived. This worked well for purposes involv-ing the relative motion of masses acting under the influence of the same external forces, especially force due to gravity and accelera-tion due to gravity. Extended to the discussion of the planets and other celestial bodies, it appeared that Time throughout nature — Time with a capital "T" — was indeed highly linear, or could be assumed to be such for all practical purposes. For Newton and for all those applying the tools of his calculus to problems of time and space comprehensible to ordinary human perception, two very dif-ferent conceptions of time, distinguished (at Chapter 2 infra) as "t,.n

" and "t . „" were now one and the same. ear natural'

Newton's maneuver was extremely bold and utterly unprece-dented. This is much obscured today for several reasons. Einstein's