This ad campaign by Activista, mainly targeting Space X on Earth day – I believe that was in 2021 – is brilliant. It helps to put things into perspective in terms of how we approach our resources and earth.
The message still rings true today and in many ways, it is saying something about the human heart. Our wandering heart often wants to look for something else to sustain ourselves. Something else that may not be designed to sustain us, but we want to make it what our lives depend upon.
Yes, as a Christian, I’m talking about Christ, who provides the salvation we need when we are wandering about seeking salvation through our work, relationships and other forms of addiction in our lives.
Dr Janeway’s article on False Economies highlights some of the philosophical underpinnings of the modern, capitalistic study of economics that drives the system to behave in ways that endangers the entire economy’s long term prospects at times.
There were so many different themes brought out in the article that is worth more investigation and appreciation. The point that Arrow-Debreu’s work points to the fact that our markets in reality would never be efficient is something that we do not embrace enough of – especially in public policy.
The lack of political courage and unwillingness to be accountable to policy decisions drives the notion that we must ‘leave things to the market’. And today, with the world facing the climate challenge, I do not believe that the market is the solution to deal with the challenge. The political will to align incentives, define standards and mobilise efforts is necessary.
The recent Oxfam study about the rich getting richer faster than the poor being uplifted shows that, indeed, we have enough money to deal with the world’s problems. But far too often, it is either in the wrong hands or working towards the wrong goals. Economics assumes the market would direct resources to the ‘right goals’ but this goal-selection process at present is dysfunctional.
Recently a friend and I was working on some business ideas. We were thinking through scenarios where smart people come up with great business ideas or business models that can generate impressive returns but require capital to do. If the capital markets work perfectly for the specific risk profile of the business (assume that it can be assessed correctly), then all capital should only be able to demand the market rate of return on capital.
We ran some simulations on this. To simplify the whole business and risk, we assume it is a very low-risk infrastructure project that returns constant cashflow across 10 years, one year after the initial cash injection. A project that can bring in >27%, when raising all of its funds from a capital owner, should be split 60-40 if the market hurdle rate is at ~12% for that risk and tenure. This means that though the capital holder is financing 100% of the project, he needs to give up 40% share of the returns to the ones who structured and pulled the project together.
Now, when the project returns rises to 33% over 10 years; and the market hurdle rate remains at 12%, then the capital holder needs to give up 49% share. This means that if the project that the smart guys are able to put together can return more than 33%, then the capital owner needs to give up more than 50% of the returns even though he is contributing 100% of the upfront capital. This is a hard bargain for the ‘entrepreneurs’ organising the resources to strike with capital holders.
This is perhaps how the Thomas Piketty argument about the relative bargaining power of capital gets played out. At the same time, capital can afford to be more patient because the cost of upkeeping capital isn’t as high as trying to upkeep a living person with the wits and capabilities to develop all the ideas and organise the resources. And because capital is more ‘tangible’ and ‘calculative’, it can keep forcing all kinds of cost upon labour side of the equation. In this blog post, labour basically includes the ‘entrepreneurial’ elements as well that is typically somewhat associated with capital.
This is where debt comes in. Instead of getting a co-investor, the project entrepreneur should be able to borrow to finance the project. And the debt tenure can be shorter. A simple solution could be to take out a 4-year debt at 7% interest; this would require the entrepreneur to sacrifice 85% of the project cashflow for the first 4 years, in exchange for the rest of the project’s cashflow. Technically, when structured as a debt, the market interest rate should be lower than the market hurdle rate. Yet because the ‘project’ is new and may not have a sufficient track record, financiers may demand collateral and other risk-management tools to enhance the credit standing. Technically, when structured as a debt, the market interest rate should be lower than the market hurdle rate. Yet because the ‘project’ is new and may not have a sufficient track record, financiers may demand collateral and other risk-management tools to enhance the credit standing. This means that the entrepreneur would have to give out more than he needs to reduce the risks of the capital holder further despite the risk profile of the project.
So, the entrepreneur who does not have any capital to contribute will be seen as having a mouth-watering return since there isn’t any ‘capital at risk’ for the entrepreneur, but the reality is that there is some opportunity cost. Yet if the entrepreneur’s salary is built into the project returns, then he doesn’t have the ‘opportunity cost’. The extra upside would be his ‘supernormal return’.
Over the years, thanks to the multiple pieces of work Blunomy (previously Enea Consulting) had completed on bioenergy in Australia, we have often been cited and also asked questions about the relationship between numbers in our reports.
Since the publication of a piece of analysis Blunomy completed for AGIG last year on Biomethane potential and benefits, I sat down to review and work out a sort of directory to connect together the various work that different clients have commissioned us to do and all now in the public domain.
This is an effort I have undertaken to help generate more clarity in the conversations around bioenergy, especially biomethane resources in Australia. Blunomy continues to seek to accelerate the transition by developing analysis that drives evidence-based decision-making.
We started working on the National Bioenergy Roadmap for Australia back in 2020 and that was an attempt to look into all the bioenergy resources, regardless of what kind of fuel they could produce. The total theoretical potential estimated at 2600 PJ was computed based on the net calorific value of the various feedstock streams available including forestry residue and biomass, with assumptions applied on their moisture content.
In the Roadmap, we assumed a 45% recovery rate under the Business-As-Usual modelling as ‘limited information is available to assess [feedstocks’] current and future, technical, commercial and sustainable accessibility’.
Subsequently, Blunomy started looking into biogas/biomethane in greater detail, studying the biomethane yield of various feedstock streams suitable. Sustainability Victoria commissioned a piece of work around Victoria’s biogas potential, which was published in 2021. The main contribution of this piece of work is the stricter selection of feedstocks and the application of different recovery rates for different feedstock streams. The study eliminated some of the resources from consideration for biogas potential due to high lignin content and also determined that paper & cardboard were more suited for recycling.
Table excerpt from the Victoria biogas potential assessment (2021)
While this work only covered the potential for the state of Victoria, once again, using data from the Australian Biomass for Bioenergy Assessment (ABBA) study, the approach on feedstock selection and recovery rates were eventually applied to more states in Australia to obtain the Australia biogas technical potential that was presented in the Appendix (Slide 36) of the 2030 Emission Reduction Opportunities for Gas Networks Report (2022) published for Energy Networks Australia. In it, we stated that the biogas technical potential of Australia was 506 PJ.
These figures, including the state-level breakdowns, were extensively used by ACIL Allen in their work on Renewable Gas Target for APGA and ENA. They added landfill gas into the mix, something we did not previously include in our studies as we felt that landfill gas was ultimately a subset of the feedstock potential from the waste streams we had already computed in our theoretical potential. Nevertheless, we acknowledge that when considering how much biomethane could be produced per annum in the near to medium term, the landfill gas resource cannot be ignored.
One of the important elements when considering the broad use of biomethane to displace natural gas was the consideration of proximity to gas networks. We got to dive more closely into that in 2023 when AGIG commissioned the mapping work for biomethane resources around their networks in South Australia, Victoria and Queensland. By this time, Blunomy had developed a new methodology to disaggregate the biomethane feedstocks spatially by using land-use data. This allowed us to estimate the amount of feedstock with greater granularity on locations, though the recovery rates were still applied according to feedstock streams.
The report was eventually published in 2024. It contained not just the biomethane potential near AGIG’s networks; we reviewed and updated waste stream figures in some states, included landfill gas resources into consideration, and updated the recovery rates in consultation with more local experts. As a result, we developed updated theoretical and recoverable potentials of biomethane in the states of South Australia, Victoria and Queensland. Those updated figures suggest that waste figures have been increasing over time, and the biomethane potential is likely above the 506 PJ we estimated in 2021.
It has been an incredible journey since the days of the National Bioenergy Roadmap. We had to deal with so many doubts about biogas and biomethane, misinformation and poor understanding of the nature of this biogenic source of methane. As Victoria’s government contemplates their approach to renewable gas in the state to deal with impending gas shortfalls and the need to decarbonise energy use, there is no longer doubt that we need biomethane. It is a question of how to get it into the system quickly. I hope we don’t have to hit up so many walls this time to get it right.
This article was first posted on Linkedin as my first article contribution to the platform. The link can be found here.
The challenge of industrialising some kind of process, expecting things to move in a “business as usual” fashion is that it tends to decline towards mediocrity. There would be people expecting to just pick up how to do things once and then coast to keep things as status quo.
Yet the issue is less to do with this group than the leadership. Leaders who try to tighten things ad hoc rather than develop a culture of continuous improvement will discourage staff from improving themselves but instead see improvement as being able to guess what the boss wants. Yet if we are unable to see the mission of the organisation, only the boss, then the march stops when the boss is gone.
And the march towards mediocrity starts when leadership becomes weak and is formed from previous generations of followers who never learnt how to drive the mission independently.
Blunomy is a French firm and being part of the firm for over four years now brings fresh perspectives that an Asian person schooled in very Anglo-Saxon education systems did not quite have as much.
One was about the ability to disagree as a reflection of the group’s collective ability to grow and be smarter. As an Asian, I overvalue harmony and tend to see open disagreement as unhealthy or disrespectful. Yet being amongst the French taught me to recognise that in a room full of smart people, something might be very wrong if everyone agrees with one another because the world is inherently complex and we are probably missing out on diverse perspectives if there were no disagreement. Being able to wrestle with differing perspectives could help everyone grow and learn.
Another was this concept of ‘REX’ that I kept seeing the French people use in my firm. They typically use that term for ‘after-action review’ but the term refers to ‘return on experience’. It sounds logical to be able to gain some kind of return (as in flow of benefits) from having experienced something. But I never quite thought of it that way until now. We always somehow take for granted that someone who have done something often or for a long time would be ‘experienced’. That’s not really true. An industry veteran who have been at a job for 40 years could simply have had 40 times of 1-year experiences if he did not learn anything with each additional year of experience. Simply being at a job or a post does nothing to prove that you are ‘experienced’.
When we consider assessing people for ‘experience’, it is no longer as simple as considering the CV of someone. It is mostly about assessing someone’s learning capability. Someone who can learn fast and sustain their interest in a topic, going deeper and deeper is much better than someone who plainly had been in the same place for a long time without demonstrating the capacity or hunger to learn.
In Seth Godin’s new book, This is Strategy for, he had a chapter (the book has over 200 chapters, all of them short and highly readable) on killing whales.
He documented the rise of the whale-hunting industry in the 1800s where sperm whales were hunted down for their blubber. The activity was both dangerous and lucrative because a single sperm whale’s blubber could yield many barrels of lamp oil. The demand for lighting onshore and offshore fueled the whaling activity.
For a time to the mid 1850s, it seemed like they could just go on and hunt sperm whales to their extinction. Yet the earth today still has sperm whales. Thanks to the discover of petroleum and hence the advent of keroscene used in oil lamps. The cost of keroscene was much more competitive than lamp oil made from whale blubber and the petroleum industry was also costing less human lives.
Climate solutions that displace fossil fuels would need to achieve cost reductions to scale. But we could all inprove their chances by removing fossil fuel subsidies and pricing carbon. Of course, that will “hurt” the cost of living for many people. But if we think about it at system level, it is more about a sort of attachment to the current status quo of how we value different things, and refusing to change that.
I don’t think we could derive any sort of moral authority from the market to say we’re producing something that destroys our future because it is cheaper. We may not have a future to spend that surplus savings on. At the system level, we will have to help one another cope with changes.
It’s Christmas season so reading Luke 1 is both timely and revisiting old stories we thought we already knew sometimes bring about new perspectives.
One of the things that moved me from this season’s series of messages at my church was about Zacharias’ faith. Angel Gabriel visited him during his duties at the temple and became mute because of his unbelief. The lack of faith in what God was about to do in His and Elizabeth’s life was apparent in the sense that he was already witnessing the revelation from an angel himself and yet he was skeptical about the birth of his son happening at all (Luke 1:18).
Yet on the eighth day after John’s birth, Zacharias demonstrated his faith by writing on the tablet to those around him that the baby’s name is John. That seemingly trivia act was really important because it was the combination of everything that happened since the incident at temple. In putting down the baby’s name as John, he submitted himself to God’s plan for John the Baptist and, hence, the rest of his life. In having a son at his old age; and experiencing Elizabeth’s conception of John at an old age, he was witnessing a miracle. More than that, his wife Elizabeth must have conveyed to him the encounter with Mary and the fact that her baby was moved somehow in the presence of Mary and her baby.
Zacharias took all of these in, and gradually worked on his faith to this point when John was about to be circumcised. His name is John – those four words on the writing tablet, meant so much more than just the name of a baby.
The life and ministry of John the Baptist says a lot about God’s work and the earlier prophecies but it also reflected the faith of Zacharias and Elizabeth. They would have had to prepared John for that future ministry though they probably would not have grasp the full extent of how important it was. The life that John the Baptist came to live, was also testifying of his father’s faith.
Being a fast follower is a good strategy; it allows you to take in the lessons from those who have tried and failed first. It is even a strategy that enables you to become a leader from public’s eyes.
But the challenge for the fast follower who gained leadership status is falling into the trap of thinking they are the leader. Their skills in curating what they learnt from the mavericks, scaling what was small and bringing things to market fast, are not going to be suited for what is required to take real leadership: influencing the market, uncovering innovation from their own values and principles.
They may have to pivot at some point when they’ve outcompeted all those whom they were fast-following.
As we learnt from Thomas Edison, one could invent many things and accomplish a lot of innovation (or anything else for that matter) by leveraging others and taking credit from them in exchange for paying them a salary.
Industrialism accomplishes a lot. Often by using artists, craftsmen and individuals, then taking credit.
