Kevin L, Author at Kevin Low

Extracting surpluses

I spent many years focused on infrastructure development, particularly working on getting private sector involvement into infrastructure investments, executing the projects, operating and maintaining them for government. The advantage, as we would often tout, has a lot to do with the efficiency of getting private sector with experience to do it. At the same time, it reduces need to use direct state budget for financing such projects, and reduce the need for government to get involved in the complexities of hiring specialists, working on those technical subjects that will not support other areas of government work.

We called these infrastructure projects public-private partnerships or PPPs. It has somehow unlocked lots of private sector financing into the market and supported infrastructure investments. That is all good but it made me wonder whether marketization infrastructure is necessarily a good thing. For one, collecting fees on a piece of infrastructure in order to maintain it sounds right; and that fee will somehow have to be regulated since the private sector party would try to extract all the surplus with its monopoly position. So what should the regulator allow? Average cost pricing or marginal cost pricing? There is a ‘right answer’ in economics but in practice it is always hard to really work out what is the long run marginal cost involved. Particularly if the amount of service you render in each time period varies with demand.

And who is to prevent the monopoly from trying to extract more surpluses by pushing the regulator to allow it to charge certain prices by gaming the criteria or the measurement methodologies that the public sector develops. So the cat and mouse game starts. Is this what we expect when we try to marketize infrastructure? And should we not expect it when we do go ahead to privatise infrastructure? Eventually the tax payers have to fund both the cat and the mouse – the regulator and the monopoly or the private shareholders’ profits. Does that really make sense in terms of overall economic efficiency?

And finally, can such a set up really deal with change? Especially with the energy and climate transition. A lot of infrastructure need to build in resilience, consider the climate impacts on not just their infrastructure but also their customers and the way their demand base will be evolving, whether that is going to impact existing business models. All that is not even accounting for the decarbonisation ambitions of their customers. Meanwhile, can these all become an excuse for extracting further surpluses?

The monolithic system

What if the sun could give us all our power and energy, to drive everything we need to power our economies, perform our activities and live life? Or what if we can afford everything that we ever want and need? What if money can buy us everything? What if this one thing can solve all your problems?

If all that hypothetical questioning sounds like a bunch of marketing crap or storytelling, they are actually fantastic devices that somehow appeals so much to our psyche. But they can simultaneously be truth with caveats and also complete bullshit.

In case you are curious, I provide the solutions:

The sun does power a lot of things and is capable of providing sufficient energy for all of our activities and more but capturing it and channeling them properly is had.
We, as a collective earth, already is able to afford everything we produce and will be able to satisfy all of our needs – wants on the other hand are completely manufactured by ourselves and can be managed.
Money can buy us everything that can be bought (or sold).
One thing that can solve all your problems is a mental reframe to see them not as problems but challenges to help you grow.

There is always some kind of rhetoric to get you out of those conundrum but doesn’t really address the actual psychological appeal of those questions. The thing is that we naturally gravitate towards some kind of monolithic system or idea where we want a single solution or something that becomes a common denominator for everything else. Money comes close to becoming that. Yet that has probably demonstrated that such a system do not actually deliver what you think it would.

Likewise, the market economy and market system isn’t going to be the one that delivers us all from the problems around energy, climate change, innovations and poverty elimination. The market system needs to be rightly placed for what it is good for just as we should see wind and solar power in their place within the energy system rather than expecting them to deliver all our needs. Even oil and gas was not able to power all of our world’s energy needs even if they came close to that. Monolithic systems reduces resilience even if they provide scale economies.

Mission of energy transition

The market has a role to play in the energy transition but the market is not responsible for the transition. Technological improvements and our sense of purpose or mission does not come from the market – they are exogenous inputs. What is challenging about the market is that it does have a life of its own and there are always entrenched interests pushing against the direction of the mission that the world is on. It is not just about gaining buy-in to the mission but unraveling the interests vested in it.

That is a serious conundrum especially when we need to transition fast. The bigger the vessel, the harder it is to steer and change directions. So it is with the market economy. The most vested the market is with the status quo, the greater the reach of the tentacles of the market through the system across areas of life, the harder it is for change to happen. Or at least directed, meaningful change.

It is probably time to recognise that the market can help drive the demand for greener fuels and renewable energy if the incentives are put right. It is also critical to recognise that the economics around change can be arbitrary and a snapshot in time. Cracking the puzzle is not just about performing a cost-benefit analysis and saying whether to proceed with this or not. It is about identifying the pain-points, challenging the status quo, re-jigging incentives and rallying the champions.

We have done that before, with ushering more peace, with managing overpopulation, with feeding hunger, dealing with poverty. We can deal with the challenge of climate change and the transition of our economy. If we make it our mission to do so, rather than to wait for the market.

Creating a market II

For some reason most people forget that energy markets were created through a combination of business activities and government regulation. There would be a push of some kind towards energy access, electrification in the beginning of any modern country’s development. There wasn’t that much public consultation around these topics – that was simply how development takes place and everyone sort of aspired towards that. Or so we thought; but systems were built to drive countries and societies towards those directions.

Today, in the struggle to set up an orderly energy transition, policy leadership from government is more important than ever. The challenge is in determining what are political choices and what are really policy-choices that is to be determined through more rigorous research and analysis. There is always the search for market-based solutions even though we might actually have seen in history that a lot of big dislocations are resolved or handled through public sector decisions and investments.

The idea of seeking the market for solutions is a new idea. And while the market appear to have been terrific in generating a whole load of choices and new options, the fundamental innovations are still pulled together by a greater sense of mission than market competition. We probably need to mature further to appreciate this.

Creating a market

We might not realise it but governments have a huge role in creating markets. This is because markets do not spontaneously emerge out of nowhere especially in highly developed economies. One of the reasons is that markets actually requires structures, institutions and frameworks such as rules and regulation can encourage players to step forward more boldly and grow the market.

Today, in Australia, despite the multi-dimensional benefits that bioenergy brings, and synergises with the traditional economy, there’s still little recognition of the low-carbon identity of bioenergy. And it is a shame that methane produced from biological processes are still seen as not too different from natural gas that is extracted from the ground. There is no forward direction by the government to stake the space and define the standards for biogas production, upgrading into biomethane and regulations around treatment and handling of the digestate, which itself is a by-product of the process that can be made useful.

There is perhaps a clear path to create a market not just through regulatory clarity but also enforcing demand. Market for audit, market for inspections, even market for many public services are created by regulations. Sure, there’s a need and the market contributes positively to society and so regulations support that. Why can’t we do the same with clean energy? One that displaces directly the fossil fuels in our system?

Market values

When you try to sell your house, you take reference off the market price. You determine essentially the ‘market value’ of your house and then try to sell your house for that price. When you do eventually meet an interested serious buyer who makes an offer, you then haggle until you agree upon a price. This price is of course somewhat anchored by the market value you seem to have developed but then it would likely be different, complicated by the specific situation you and the buyer is in.

Do you value your own home based on that market value? Does it matter that your neighbour bought his house at a certain price? What is the basis of that price? Ultimately, while we can deconstruct these prices into locality, the quality of the build and other attribute, it is still a bit of a mystery. Is the value of something based on our subjective eyes and preferences, or is it intrinsic to the thing itself?

When we pay an artist to perform for 1 hour; is it the performance that is worth the money or the time spent by the artist? Do we allow the market to value us or do we value ourselves? Which market are we talking about anyways?

Power to liquid fuels

I’m not sure if I’m yet in position to criticise McKinsey – but Mariana Mazzucato did and probably so did some media somewhere somehow that I feel sufficiently assured that I could.

The report they published last year about power-to-liquids for Sustainable Aviation Fuels is honestly trying to popularise something potentially risky and have questionable sustainability credentials. First, the process of producing green hydrogen and then recombining it with carbon dioxide only for the compound to be combusted to release that carbon dioxide sounds really strange given that we are trying to reduce carbon emissions.

Second, the idea of using industrial carbon dioxide for producing power-to-liquid fuel is misguided especially when that carbon dioxide is potentially anthropogenic emissions. By taking that and putting it into jet fuel, one is simply delaying the release of the carbon into the atmosphere by 1 cycle, not preventing it.

Third, using direct air capture carbon dioxide to produce fuel that would then release the carbon dioxide back into the atmosphere does not make that much sense from a thermodynamics perspective. So what exactly is McKinsey up to? Why do they insist that power-to-liquids are not constrained by feedstocks?

Building solar developments in sparsely populated, nonarable regions on just 1 to 2 percent of desert land would provide enough PtL fuel to decarbonize the entire aviation sector by 2030.

What about the pure water needed for the electrolysis of water to produce green hydrogen? Where is that going to come from? Where will the relevant carbon dioxide come from? How are the recommendations or “strategies” really helping to decarbonise the aviation sector? What is McKinsey trying to ‘solve’ or be strategic about when they consider power-to-liquids as a solution for decarbonising aviation? Are they just trying to diversify their positions to take so that they can gain more business from more people? Where is their conviction?

Remembering Tim Keller

More than 10 years ago, when I was exploring the Christian faith, my housemate got me to read ‘Counterfeit Gods’ by Timothy J Keller. It was a relatively easy but not quite comfortable to read. Tim Keller explained eloquently how we live diminished lives pursuing counterfeit gods who promise much but never delivers; and the deepest needs of our hearts are never satisfied by the things of this world. For me, it helped me desire more to explore the bible for myself and the gradually, as I delved into the riches of scriptures, I discovered more of how the gospel really changes our understanding of life and the world and is capable of shaping our response to it. I recognised the meaning of what good news it is for Jesus Christ to be my Saviour and God.

I went on to read the more difficult ‘Reason for God’ and went through a lot of Tim Keller’s sermons before I came to accept the faith. Of course, there was the help of my local church community, friends, not forgetting prayer and the scriptures. He came to be my favourite preacher and when I started dating my wife in college, the contents of ‘Meaning of Marriage’ both challenged and excited me as I come to appreciate more and more what God intends in the relationship between man and wife. As I learnt to navigate my work and career, I continued to draw upon the lessons from the scriptures with the help of Tim Keller’s preaching – which I would listen to during times when I did laundry, am alone running long distances or go on walks.

God had certainly reached out and enriched my understanding of His word greatly through the teaching by Tim Keller. Today, Tim Keller has gone to be with our great Saviour. And I want to remember his intellect, strength and wisdom enabled by God and used to do the good works that he has been prepared for. My heart is truly heavy at the loss of such a great teacher but I have full assurance that Tim is rejoicing with God. And I am challenged to grow and develop further my knowledge of God and my spiritual life, having seen how the richness in God works itself in the life of Tim Keller.

Biofuels vs E-fuels

I wrote about the conversation I had around biofuels and e-fuels that are produced through power-to-fuel approaches. They have rather different chemical pathways, costs and constraints. I’d really like to see someone consider the resource intensity of these different approaches. The challenge for most studies is that they consider biofuels from a standpoint of resource potential as though the agriculture activities are inert. Of course there’s the whole question of whether land should be used for cultivation of food or energy. I won’t get into that.

But I’d be curious to see if people who can organise the supply chain across the land, the supply of food alongside the supply of feedstock towards the bioenergy plants had done their analysis on resource intensity. A good comparison of the resource intensity from the water-intensity, output logistics standpoint would be really good. It doesn’t have to be a full-fledged lifecycle assessment – back of envelope calculation would be helpful.

There is a view that bioresources are limited by the amount of feedstocks available. There is only this much used cooking oils (UCO) that you can convert to hydrotreated vegetable oils (HVOs) or into biojet fuel (typically via the Hydrotreated Esters and Fatty Acids (HEFA) pathway). And that power-to-liquid is theoretically not limited in terms of resource potential. That is not exactly true because we are still limited in our green options for power generation and green power itself can eat into resources required by other sectors. The conversion process to fuel also requires carbon dioxide feedstock of suitable concentration as well as pure water to be electrolysed to produce hydrogen.

It’s strange to think that we can have unlimited power or that we can easily power the world – remember those times when people actually calculated the amount of solar panels and space on land that is needed to power all the earth? The investment to be made in terms of building lines to distribute power, and the factories to take that power and convert them into the fuel needed would multiply the complexity problem of supplying the world’s energy needs.

Holistic Thinking

I’ve been reading Erin Meyer’s Culture Map. And I even did her survey on her website that would cost you a bit to get some results. Anyways, I realised as a Singaporean that my results lacked 1 dimension, and it was on the persuading scale. It was only when I had results not benchmarked to my country’s norm that I realised there was a dimension missing!

Only then I realised from her book that she claims the East Asians tend towards a ‘holistic thinking approach’ where they focus on inter-connectedness and inter-dependencies. I found this pretty interesting being a Singaporean and essentially East Asian descent. I’m not exactly sure how this drags us out of that Persuading spectrum of ‘principles-first’ vs ‘applications-first’ because I do find myself on the scale as well and I’m inclined towards ‘principles-first’. I attribute it to my western upbringing but I also think that holistic thinking is more compatible with the ‘principles-first’ approach to reasoning.

East Asians are also logical; even if they might not have a standard structure of approach. The holistic thinking perhaps just cause us to reach out farther to consider more marginal connections to the core topic. This could mean that in using the ‘principles-first’ approach, holistic thinkers are drawing from even broader principles that may at first sight, have nothing to do with the topic at hand.

For example, I was recently having a conversation with a renowned East Asian expert in the bioenergy field and in talking about the advantages of biofuels over e-fuels, he started by considering the efficiency of electrolysing water, and then the fact that most locations rich in wind or solar power tend to be scarce in water supply, and eventually the land required to support the power generation that is required to produce just a small amount of renewable e-fuel. Then he went on to talk about growing crops on some of these land, how they might help the habitat, the robustness of particular crops. Finally, that the crop residues can be processed to produce biofuels; allowing the land to be used for multiple purpose of food and energy – especially if the right kind of crops are grown to ensure more cycles of harvest.

The point about biofuels being superior to e-fuels was made somewhat indirectly and through a detailed explanation about something way beyond the issue of energy – it was about resource-intensity in terms of land-use and perhaps water. So he was drawing from a principle about resource intensity to produce the required fuel essentially though the manner he had approached it starts with considering linkages between the subject and other concepts.

For me, I am relatively comfortable with that sort of conversations and being patient for the point to be made; and even if the point is not really made clearly, I often give benefit of doubt and draw the connections by myself. Perhaps being East Asian in heritage, I rarely have an issue drawing the actual connections that the speakers are getting at. Indeed, perhaps persuading an East Asian will require more appreciation of the importance of connections and inter-dependencies or relationship than a linear approach to logic.