After the oil crunch?

The end of cheap oil helps renewables, but makes far dirtier alternatives viable. A low-carbon futur

There are two competing explanations for today's high oil prices. One sees the price rise as the result of a temporary imbalance between supply and demand, exacerbated by a weak dollar and a bubble of speculative commodities trading. Fix these problems, adherents suggest, and the price can return to previous low levels, allowing business to continue as usual. The other sees the current price spike as symptomatic of a much deeper crisis, one that could end life as we know it in the rich, consuming west as global supplies of cheap oil begin to run short, not temporarily, but for ever. As Chris Skrebowski, editor of the UK Petroleum Review, puts it: "This is what I would describe as the foothills of peak oil." An imminent oil peak is no longer just a fringe theory: increasing numbers of experts view the topping out point as very close, if not actually upon us. "Easy, cheap oil is over, peak oil is looming," warns Shokri Ghanem, head of Libya's National Oil Corporation. If they are right, we are about to move into a very different world.

But while the reality of global warming is now nearly universally accepted, the potential problem of peak oil is still widely doubted or ignored. There is no official policy for a smooth transition to a post-oil future; the British government blithely reassures us (in response to a peak oil petition on the No 10 website) that "the world's oil and gas resources are sufficient to sustain economic growth for the forseeable future". Both the International Energy Agency and the US government issue projections based on oil reserve estimates which many geologists and oil industry insiders suggest are grossly inflated. This complacency smacks of a fatal combination of ignorance and denial. Recent oil production figures suggest that the peak oil crowd is winning the debate. For the past three years world crude production has flatlined at about 86 million barrels per day, despite a rapid upward trend in prices. This lack of increase in supply, combined with rapidly rising demand in countries such as India, China and Brazil, lies at the root of today's soaring prices.

Unlike the oil price shocks of the 1970s, caused by political factors, the present crisis is caused by something far more intractable even than the Middle East conflict - geology. David Strahan calls this "the last oil shock" in his book of the same title; the one after which supply and demand can never be rebalanced and the world totters towards economic catastrophe. As Strahan points out: "For three years the oil supply has been a zero-sum game in which if one country consumes more, another has to consume less."

In this case, unusually, it is the rich world which is losing out: countries which are members of the Organisation for Economic Co-operation and Development (OECD) have seen crude oil use falling for two years, as price rises choke off demand. Indeed, what we do here no longer seems to matter much: car sales in Russia leapt by a staggering 60 per cent last year, while new vehicles flooded the roads in India and China. With oil massively subsidised in many Opec countries, some of the strongest growth in demand is now coming from oil producers themselves. Whether the actual moment of peak oil is now, next year or in five years' time is not what matters most; what defines this new era is the conclusive end of cheap oil. Never again will oil be bought at $20 a barrel, as it was through much of the 1990s. Instead, we will see crude prices rising steadily - if not uniformly - towards $200, $300 and $400 a barrel in years to come.

The oil crunch has created a crisis for western leaders. George Bush made two humiliating trips to Riyadh to beg the Saudis to pump more. He was rebuffed: whether the Saudis can't or won't remains unclear. In France, President Sarkozy has had to contend with striking fishermen, and in Britain the hauliers are blocking roads and refineries once again. Gordon Brown's absurd response was to ask North Sea producers to increase output - despite the fact that offshore production peaked in 1999 and has since fallen by 40 per cent. The hauliers' protests have now spread to France and Spain. All seem to believe that the rising cost of energy should be borne by someone else, not them. They huff and puff to no avail - the rules of geology cannot be broken.

But peak oil may not be quite the crisis the catastrophists predict. So far, the price hike has been an environmental boon: the rise in fossil fuel prices has made emitting carbon more expensive, helping to make up for the more or less total failure of world climate change policymaking. Higher oil prices have made renewables more competitive, spurring rapid developments in wind and solar power: installed capacities of each are now doubling every two years. In the US, SUV sales have slumped - General Motors may now drop t he Hummer and focus production instead on its new plug-in electric hybrid model, the Chevrolet Volt. The aviation industry has seen its profits evaporate, with many analysts declaring that the era of cheap flights is over. All of these should be causes for celebration. In global warming terms, oil at $139 a barrel has been the best thing to happen for a decade.

Betting on failure

But high oil prices cannot substitute for proper carbon regulation indefinitely. Even as the "green tech" sector soars to new heights - $100bn flooded in last year - equally big investments are being ploughed into the dirtiest fuels of all: unconventional oil and coal. An upcoming report from the WWF and the Co-operative Insurance Society suggests that oil sands in Canada are three times as carbon-intensive as conventional oil, while oil shale in the US Rockies may be up to eight times more so. And these reserves are vast, estimated at 1.7 trillion barrels for Canadian oil sands and up to 1.5 billion barrels for US oil shale. Proven reserves of 174 billion barrels in Canada place the country second only to Saudi Arabia, which claims 260 billion barrels.

But extracting this oil is environmentally devastating. Some open-cast mines in Canada's oil sands are so huge they can be seen from space, and they have already laid waste to vast areas of fragile boreal forest. This is not oil that can be drilled easily out of the ground: each barrel requires the extraction of two tonnes of tar-soaked sand, which is then washed with hot water to remove the hydrocarbons, using both gas and water in massive quantities. Current operations use enough natural gas to heat a quarter of Canada's homes, according to the WWF/CIS report, while 300 million cubic metres of water are diverted from the nearby Athabasca river. Ponds to hold the resulting toxic sludge measure up to 50 sq km each.

Coal-to-liquids technology is also being ramped up worldwide, using the Fischer- Tropsch chemical process to produce synthetic petrol, diesel and kerosene from solid coal - but again this is vastly more carbon-intensive than pumping conventional oil, doubling CO2 emissions. The Economist suggests both oil shale and coal to liquids become competitive with world crude prices at $70 a barrel or above. With high prices likely to continue, all the majors are moving rapidly to invest in this area.

Even after making record profits on the back of high prices - $27bn for Shell and $40bn for Exxon-Mobil in 2007 - the evidence suggests that oil companies are moving away from renewables and instead "recarbonising" by ploughing billions into unconventional oil as they run down their conventional reserves. In May this year, Shell pulled out of the London Array, expected to be the world's biggest wind farm. Instead, the company plans to double its output from the Canadian oil sands, and is being closely followed in investing in unconventional oil by BP, Exxon-Mobil and ConocoPhillips. However, as the WWF report asserts, these companies are exposing their shareholders to a significant investor risk: essentially they are betting that world policy failure on greenhouse-gas regulation will continue indefinitely.

If policy improves, high carbon prices will likely make dirty fuels uncompetitive when compared with renewables, and investors in solar, wind and other clean energy sources will win out at the expense of the oil majors. This has to be the best-case environmental scenario: that high oil prices continue, and that the pricing of carbon in world markets chokes off investment in dirty replacements. Then a true transition to a post-oil, low-carbon future becomes a real possibility. But this scenario depends on policymakers having the vision to squeeze fossil fuels further even as restive populations protest at losing their foreign holidays and big cars. As David Strahan concludes: "All it needs is some brave political leadership. What a terrifying thought."

Mark Lynas has is an environmental activist and a climate change specialist. His books on the subject include High Tide: News from a warming world and Six Degree: Our future on a hotter planet.
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The secret anti-capitalist history of McDonald’s

As a new film focuses on the real founder of McDonald’s, his grandson reveals the unlikely story behind his family’s long-lost restaurant.

One afternoon in about the year 1988, an 11-year-old boy was eating at McDonald’s with his family in the city of Manchester, New Hampshire. During the meal, he noticed a plaque on the wall bearing a man’s face and declaring him the founder of McDonald’s. These plaques were prevalent in McDonald’s restaurants across the US at the time. The face – gleaming with pride – belonged to Ray Kroc, a businessman and former travelling salesman long hailed as the creator of the fast food franchise.

Flickr/Phillip Pessar

But this wasn’t the man the young boy munching on fries expected to see. That man was in the restaurant alongside him. “I looked at my grandfather and said, ‘But I thought you were the founder?’” he recalls. “And that’s when, in the late Eighties, early Nineties, my grandfather went back on the [McDonald’s] Corporation to set the history straight.”

Jason McDonald French, now a 40-year-old registered nurse with four children, is the grandson of Dick McDonald – the real founder of McDonald’s. When he turned to his grandfather as a confused child all those years ago, he spurred him on to correct decades of misinformation about the mysterious McDonald’s history. A story now being brought to mainstream attention by a new film, The Founder.


Jason McDonald French

“They [McDonald’s Corporation] seemed to forget where the name actually did come from,” says McDonald French, speaking on the phone from his home just outside Springfield, Massachusetts.

His grandfather Dick was one half of the McDonald brothers, an entrepreneurial duo of restaurateurs who started out with a standard drive-in hotdog stand in California, 1937.

Dick's father, an Irish immigrant, worked in a shoe factory in New Hampshire. He and his brother made their success from scratch. They founded a unique burger restaurant in San Bernardino, around 50 miles east of where they had been flogging hotdogs. It would become the first McDonald’s restaurant.

Most takeout restaurants back then were drive-ins, where you would park, order food from your car, and wait for a “carhop” server to bring you your meal on a plate, with cutlery. The McDonald brothers noticed that this was a slow, disorganised process with pointless costly overheads.

So they invented fast food.

***

In 1948, they built what came to be known as the “speedy system” for a fast food kitchen from scratch. Dick was the inventor out of the two brothers - as well as the bespoke kitchen design, he came up with both the iconic giant yellow “M” and its nickname, the “Golden Arches”.

“My grandfather was an innovator, a man ahead of his time,” McDonald French tells me. “For someone who was [only] high school-educated to come up with the ideas and have the foresight to see where the food service business was going, is pretty remarkable.”


The McDonald brothers with a milkshake machine.

McDonald French is still amazed at his grandfather’s contraptions. “He was inventing machines to do this automated system, just off-the-cuff,” he recalls. “They were using heat lamps to keep food warm beforehand, before anyone had ever thought of such a thing. They customised their grills to whip the grease away to cook the burgers more efficiently. It was six-feet-long, which was just unheard of.”

Dick even custom-made ketchup and mustard dispensers – like metal fireplace bellows – to speed up the process of garnishing each burger. The brothers’ system, which also cut out waiting staff and the cost of buying and washing crockery and cutlery, brought customers hamburgers from grill to counter in 30 seconds.


The McDonald brothers as depicted in The Founder. Photo: The Founder

McDonald French recounts a story of the McDonald brothers working late into the night, drafting and redrafting a blueprint for the perfect speedy kitchen in chalk on their tennis court for hours. By 3am, when they finally had it all mapped out, they went to bed – deciding to put it all to paper the next day. The dry, desert climate of San Bernardino meant it hadn’t rained in months.

 “And, of course, it rained that night in San Bernardino – washed it all away. And they had to redo it all over again,” chuckles McDonald French.

In another hiccup when starting out, a swarm of flies attracted by the light descended on an evening event they put on to drum up interest in their restaurant, driving customers away.


An original McDonald's restaurant, as depicted in The Founder. Photo: The Founder

***

These turned out to be the least of their setbacks. As depicted in painful detail in John Lee Hancock’s film, Ray Kroc – then a milkshake machine salesman – took interest in their restaurant after they purchased six of his “multi-mixers”. It was then that the three men drew up a fateful contract. This signed Kroc as the franchising agent for McDonald’s, who was tasked with rolling out other McDonald’s restaurants (the McDonalds already had a handful of restaurants in their franchise). 

Kroc soon became frustrated at having little influence. He was bound by the McDonalds’ inflexibility and stubborn standards (they wouldn’t allow him to cut costs by purchasing powdered milkshake, for example). The film also suggests he was fed up with the lack of money he was making from the deal. In the end, he wriggled his way around the contract by setting up the property company “McDonald’s Corporation” and buying up the land on which the franchises were built.


Ray Kroc, as depicted in The Founder. Photo: The Founder

Kroc ended up buying McDonald’s in 1961, for $2.7m. He gave the brothers $1m each and agreeing to an annual royalty of half a per cent, which the McDonald family says they never received.

“My father told us about the handshake deal [for a stake in the company] and how Kroc had gone back on his word. That was very upsetting to my grandfather, and he never publicly spoke about it,” McDonald French says. “It’s probably billions of dollars. But if my grandfather was never upset about it enough to go after the Corporation, why would we?”

They lost the rights to their own name, and had to rebrand their original restaurant “The Big M”. It was soon put out of business by a McDonald’s that sprang up close by.


An original McDonald restaurant in Arizona. Photo: Flickr/George

Soon after that meal when the 11-year-old Jason saw Kroc smiling down from the plaque for the first time, he learned the true story of what had happened to his grandfather. “It’s upsetting to hear that your family member was kind of duped,” he says. “But my grandfather always had a great respect for the McDonald’s Corporation as a whole. He never badmouthed the Corporation publicly, because he just wasn’t that type of man.”

Today, McDonalds' corporate website acknowledges the McDonalds brothers as the founders of the original restaurant, and credits Kroc with expanding the franchise. The McDonald’s Corporation was not involved with the making of The Founder, which outlines this story. I have contacted it for a response to this story, but it does not wish to comment.

***

Dick McDonald’s principles jar with the modern connotations of McDonald’s – now a garish symbol of global capitalism. The film shows Dick’s attention to the quality of the food, and commitment to ethics. In one scene, he refuses a lucrative deal to advertise Coca Cola in stores. “It’s a concept that goes beyond our core beliefs,” he rants. “It’s distasteful . . . crass commercialism.”

Kroc, enraged, curses going into business with “a beatnik”.


Photo: The Founder

Dick’s grandson agrees that McDonald’s has strayed from his family’s values. He talks of his grandfather’s generosity and desire to share his wealth – the McDonald brothers gave their restaurant to its employees, and when Dick returned to New Hampshire after the sale, he used some of the money to buy new Cadillacs with air conditioning for his old friends back home.

“[McDonald’s] is definitely a symbol of capitalism, and it definitely sometimes has a negative connotation in society,” McDonald French says. “If it was still under what my grandfather had started, I imagine it would be more like In'N'Out Burger [a fast food chain in the US known for its ethical standards] is now, where they pay their employees very well, where they stick to the simple menu and the quality.”

He adds: “I don’t think it would’ve ever blossomed into this, doing salads and everything else. It would’ve stayed simple, had quality products that were great all the time.

“I believe that he [my grandfather] wasn’t too unhappy that he wasn’t involved with it anymore.”


The McDonald’s Museum, Ray Kroc’s first franchised restaurant in the chain. Photo: Wikimedia Commons

Despite his history, Dick still took his children and grandchildren to eat at McDonald’s together – “all the time” – as does Jason McDonald French with his own children now. He’s a cheeseburger enthusiast, while his seven-year-old youngest child loves the chicken nuggets. But there was always a supersize elephant in the room.

“My grandfather never really spoke of Ray Kroc,” he says. “That was always kind of a touchy subject. It wasn’t until years later that my father told us about how Kroc was not a very nice man. And it was the only one time I ever remember my grandfather talking about Kroc, when he said: ‘Boy, that guy really got me.’”

The Founder is in UK cinemas from today.

Anoosh Chakelian is senior writer at the New Statesman.