Transition fuels II

Bioenergy, in the form of biogas or liquid biofuels finds themselves in the nexus of many things. And as it turns out, nexus of unrelated fields tends to languish in obscurity for far too long because no one in powerful places is willing to take hold of it and champion it.

And no bioenergy isn’t the kind of thing that is shown in The Matrix. One Uber driver who picked me up on the way to a bioenergy conference in Queensland thought that was what I was referring to.

Typically, bioenergy takes some kind of organic material and makes uses of various processes (synthetic or biological) to convert them into hydrocarbons that are chemically identical to fossil fuels. As it turns out, the way in which the earth cooks up all the historical organic matter into fossil fuels is not the only way in which organic matter can be converted into fuels. There are natural processes that can return these organic matter to precursors, which can allow us to derive the hydrocarbons we could use as fuels. These products are what we call biofuels and collectively, the use of organic matter within the contemporary carbon cycle (or short carbon cycle) to produce energy is known as bioenergy.

As much as these fuel and products are chemically identical to fossil fuels and can utilise all of the oil & gas infrastructure we have built over the past century, their production is so radically different from fossil fuel processes that the oil & gas companies seem to struggle with them. Or at least they find it hard to wean themselves off traditional production and capture new demands using bioenergy. On the other hand, the smaller, emerging players who wants to start bioenergy businesses find themselves shut out of the larger infrastructure base that is used to distribute these fuels because they are firmly locked within the fossil fuel ecosystem. And fossil fuel is just way more competitive if it’s about economics. Regulation does not see a clear path for bioenergy to take hold because they perceive it as a fringe activity, and the fossil lobby could easily quashes those thoughts from emerging. Across the world, bioenergy only took hold because regulation stepped in with blending mandates or direct subsidies to encourage the integration of bioenergy into the existing fossil energy system.

So while there are huge advantages in bringing in bioenergy because it helps prevent those oil & gas infrastructure assets from being stranded, they find themselves in the crosshairs of those parties whom they could help partly because they are in the ‘green camp’. On the other hand, the green camp doesn’t want to adopt and champion the bioenergy cause as much as wind and solar because bioenergy could potentially cement the position of the big oil. In markets where regulations require blending, oil & gas players have gotten involved in the bioenergy value chain, probably reluctantly and not without grumbling. They just try to meet the basic standards while taking all the political credit for having made the change.

There is also another group that bioenergy serves, which ends up becoming their enemies as well. They are the agrifood processing facilities or other food value chain players generating lots of organic waste. In countries where disposal of these organic wastes is well-regulated, anaerobic digestion plants are used for waste treatment. The biogas produced were seen more as a waste gas to be flared than an energy source to be harnessed. To harness these energy, more investments have to be made on the part of these distributed networks of players who might not have the capital readily available. They may not have the decarbonization ambitions either. There are also concerns that once we start harnessing energy from these, there will be more demand for organic waste and even agricultural residues which were traditionally used as substitutes for organic fertilisers. At the end of the day, getting the agrifood value chain involved in bioenergy seemed to be more like a distraction from their core business without contributing significantly to their business. In fact, there is increasing opposition to bioenergy that is driven by the view that it would pit energy against food production, which would be detrimental to a more fundamental need of mankind.

Hence, even though I would argue bioenergy is the most important energy source to support the transition, while playing a significant role in the net-zero world, there’s still so much wanting in this space. There is still no clear space that is adopting and championing this enough to mainstream it.

We will really need to change the narrative on bioenergy. More on this soon.

Transition fuels

When Blunomy first started out as Enea Consulting in 2007, the world was not that different. We were burning lots of fossil fuels, except a lot more coal and oil. There was also less renewables then. Solar panels were incredibly expensive and people thought wind turbines were so clunky (and expensive for the amount of power it generates) it was not possible for the world to have more wind turbines than combustion turbines.

The period of 2000s saw the mainstreaming of liquefied natural gas (LNG) and gas was broadly touted as the transition fuel as the world cross from coal towards renewables. Emissions from combustion of gas was less than half that of power generation with coal, and gas power plants could fire up faster than coal power plants. Energy transition then was about fuel switching and the metric was more around carbon intensity per unit energy. Unfortunately, there was no regulations to push for shifts in this metric and so when the economics doesn’t line up, it simply was ignored. Coal power continued propagating in the world especially in the developing countries. Even in developed countries, coal plants were continuing to operate or even refurbished to extend their lifespans. Singapore’s Tembusu Multi-utilities complex which burns a mix of coal and other fuels, was commissioned as recent as 2013.

All these meant that as energy demand increased, the mainstreaming of gas especially through LNG was only serving incremental demand and not exactly displacing coal. Today, it gets lumped as ‘bad’ with coal and there are calls for it to be eliminated from the system. In many sense, people are considering gas no longer as a transition fuel but to be leapfrogged somewhat. The leapfrogging makes sense from a carbon intensity point of view. But by most counts, gas is a superior technology even to renewable power generation as gas power can still serve as baseload and is dispatchable unlike wind and solar which do not respond to the beck and call of power demand. Batteries help to overcome this but as long as the economics of renewables-plus-batteries is not superior to coal or gas, it will be a tough sell.

The reason for expansion of LNG was because of the superiority of gas in terms of technology, the way it matches our energy use, and the falling costs in the early 2000s. Projecting the way forward, this is unlikely to be true anymore as exploration in certain jurisdiction have slowed or ceased, existing gas fields are no longer as productive, and material costs have risen to counter the competitiveness. There is also a question of the new generation of engineers bothering to enter into this space if they perceive it as declining.

This is where bioenergy comes in and becomes positioned so awkwardly that it finds itself a little stuck. More on this soon.

GST hike & discounts

As we move from 2023 into 2024, Goods & Services Tax (GST) in Singapore will rise by another 1%. Given the prevailing rate is 8%, the 1% rate increase is actually a 12.5% increase in the consumption tax. No doubt companies will try to convince you to buy stuff before 31 December 2023 to benefit from the lower GST, rather than wait till next year. And if we were to project this logic forward, knowing that GST might eventually be 10%, there is a question of whether we should bring forward some of our purchases even more.

This is more of a psychological trick than anything. Take for example, your interest in an iPhone that may cost you $1000. Buying it before end of the year will save you $10 at the most because of the 1% additional GST that you will need to pay next year. That is hardly a ‘discount’.

Let’s say you got 10% discount from a Black Friday sale instead. Would it compel you to change to a new model rather than stick to your old one? You might. But what if instead of using your existing phone for 1 additional year (eg. 3 years instead of 2 years). If your original phone was also costing $1000, you’d effectively get a discount of 33% just by using it for 1 additional year. Obviously, it goes down if your base time length is longer.

But you get my drift. The biggest discount is when you can use your goods for longer and get more life out of it. There is no point chasing after lower prices of new goods upfront if you keep replacing them quickly. This is an element where sustainability on the consumer end actually lines up with economics but the challenge is psychology.

Structuring incentives for waste

As we try to navigate the climate transition, we are working within a framework of incentives and economic structure where incentives are sometimes mis-aligned to driving climate-positive behaviours. Not just climate but sustainability overall. Waste management represents one of the more problematic area. In many situations, the cost of waste management is pretty much socialised with the cost spread out across a large number of people while the economic benefits accrued by only some. Take electronic waste without proper framework in place for disposal and attribution of responsibility to producers, the society bears the overall cost of managing these difficult waste while the benefits are borne only by the users (especially those who are replacing devices extremely often, and the producers who are selling electronic products.

By incorporating producer responsibility, the cost of disposal and waste management should preferably be priced upfront to customers so that they are paying for the lifecycle cost.

The same should be done for various product packaging. After all, the producers are typically the ones responsible for handling the packaging in the first place so it won’t be too bad for them to take on the responsibility. They can then put the cost into the price tag of the users, who would then be the ones paying for those goods that require the particular packaging. The thing about packaging materials and electronic waste is that they have value as recycled materials anyways – which means that if the ‘disposal’ logistics cost can be at least in part offset through the value recovered from aggregation of these materials, it is a win-win.

What about food waste? Food waste should not be the responsibility of the producers since it is the consumers who determine the level of waste based on how much they purchase and eventually consume. Likewise, those in-between the value chain from farm to table would also be responsible for some of the food waste through their utilisation of the ingredients. The way to make them responsible for the disposal cost is to allow only specific channels of disposing food waste and pricing it properly. The cost of disposing food waste will necessarily be the logistics involved, and then offset against whatever residual value the food waste can generate. What kind of residual value is there? After all, food waste cannot be used to remanufactured food (unlike cardboard whose fibre can be used for recycled paper, or e-waste where the extracted metals can be turned back into materials to produce new products).

Food waste can be turned into energy through anaerobic digestion. And the process will generate methane that can be used as a fuel. The fuel potentially displaces fossil fuel and emits biogenic carbon dioxide in the short carbon cycle. Of course, there are plenty of other biofuels that can also be produced from food waste. If we start putting a value on the food waste, does it mean more of such waste would be produced? It is quite unlikely since the value will probably represent some kind of residual value from the primary use of the food. Yet we find CEO of multi-national company Lufthansa thinking otherwise.

The challenge we have today is that the incentives around recovery of residual value from waste. We will need to redesign how we are able to extract residual value, offset against the disposal costs. We will also need to ensure disposal costs are properly priced and applied to the right parties responsible for the waste generation. We need to set up incentives such that waste is properly sorted and pushed into various streams. The cost of mixed-stream convenience needs to be costed to reflect the cost of sorting.

There’s a lot of work ahead. We need people to get on to them.

Who is the polluter?

There was a recent piece on Eco Business about Singapore’s packaging recycling scheme being delayed and how the polluter-pays principle seems to have failed to take hold in this particular situation. It was partly because of a speech by an activist in the recent SG Climate Rally.

The principle of polluter-pays is important because it helps to internalise the social cost of pollution and allows the market to price it in correctly. The result would be that the production and eventual consumption of the relevant goods stays at the level which is socially optimum.

Product packaging is itself a massive problem where it is clear certain social costs of the waste production is not properly internalised. The fact that supply chains are such that buying a new product is cheaper than the refill version, and the fact that massive amounts of materials are used in packaging without producers having to foot the cost of disposal, seems to be an issue. But the situation is also because waste management is not properly priced. Today, in Singapore, the amount of cost you shoulder for waste disposal is based on where you live and the type of dwelling you live in rather than the amount of waste you generate. This in itself is already not exactly adhering to the polluter-pay principle.

Creating a plastic bottle or aluminum can refund scheme would also jack up the cost of the products but sometimes we forget who are actually the polluters. The ultimate polluters are still the consumers and in making our purchase decisions, if we recognise the cost to the environment and decide that accordingly, it changes the dynamics of the situation and allows the producers to ‘suffer’ the cost from the lack of demand despite the low-ish prices. But that still doesn’t produce a very reliable signal in the marketplace. And that’s why it makes sense to properly ‘tax’ the producers or the consumers somehow to get the market back in line.

As it turns out, the identification of the polluter does not matter much. What matters is that the associated product gets the pollution priced in somehow. You can charge even the shops that are stocking the products. The reason is that the cost will reverberate through the supply chain; the higher price will result in less customers buying it, sending a demand signal that reduces the orders and stocking by the shop, who will order less from their suppliers and so on. Eventually, at the default price point the producer will realise the market isn’t taking as much of the product that they are producing hence reducing their production and hopefully the pollution as well.

The tricky issue is pricing the pollution and getting a sense of how much the marginal reduction in production could reduce the pollution. This is tricky because the average pollution per product isn’t the same as the marginal pollution. And indeed you may have to curb consumption/production very drastically in order to reduce a bit of pollution if there is significant non-linearity involved. I won’t go into the mathematics here but suffice to say, there is reluctance to tinker too much with the pricing of more ‘ordinary’ consumer goods in Singapore. And it might be a shame for sustainability.

Room for charity

I love this recent article by Toh Yan Yun in Rice Media, it makes an important point about Singaporean’s perspective on inequality and also our perceived sense that our meritocratic system will continue to serve us well. I frequently question this point about how well our meritocratic system is working; but more than that, whether our overemphasis on the workings of the meritocratic system we have is squeezing out room for charity. So much so that government needs to use tax deductions as a means to further incentivize donations. Question then, is whether the tax department is the one being generous or the philanthropist?

In believing that we are entitled to the successes and achievements we receive, and seeing that as a system that works, we are also thinking that those who are down and out deserves to be so. Like what Yan Yun says in the article; the belief implies “So long as you play your cards right, your big break lies around the corner.”

Those who have been in reality will certainly respond, ‘Yea, right’. A society that does not see luck and chance playing a part becomes less forgiving for people’s mistakes and even for failures. And this has become so serious in Singapore that people are struggling even with being average. There is some obvious implication for mental health and our functioning as a society.

Do we want to start caring? Do we deserve it?

Success factors in life vs exams

When you get back your exam scripts, do you focus on the questions you got right or the questions you got wrong? When I was a teacher, I often reminded my students that those scripts were more valuable for the way they show you how you had gone wrong rather than places where you got things correct. And in fact, those lessons were probably the whole point of sitting for the exam – more important than the grades themselves. Grades do not show whether you are good or bad but merely reflects your progress in the attempts to master the materials you were provided.

The issue with life after graduation is that it is so different from exams. To begin, your score in exams is capped at 100 whereas in life, your upside is really infinite. Now that means that unlike in exams where you could hone in on your mistakes and try to deal mainly with the weak points, life cannot be managed by exceptions or by focusing on weak points. You’d end up trying to perfect areas or dimensions that do not matter at all. Because unlike examinations, you are no longer trying to complete all the questions. You are now looking for questions worth answering amongst infinite questions. It looks more like an examination where there’s endless questions you can choose to answer and you’re trying to get to correct answers for the questions you do attempt.

So then the strategy now can be to just pick the easy questions, those that you have a high confidence of being right. Or to start devoting yourself to being really good at a particular cluster or set of questions around the same topics or ideas. And you want to get away from questions that you don’t stand a chance at unless you happen to be really interested and think you have a shot in developing the ability to answer them. Notice these approaches are radically different from what we learn in school. But once you are able to see life this way, you start recognising you need a different approach from what you were brought up with.

Positive cycles in systems

There are certainly some positive self-fulfilling prophecies in life, and they represent positive cycles in life that we can do more to encourage and harness. Students who have teachers believing in them tend to end up doing better than if they were left on their own; encouragement matters, and more importantly, the social dimension of love and nurturing has an impact on the learning outcomes of students. That is an input for teachers beyond pedagogy, but are we training teachers to believe in their students?

The industrial system works best when we can identify success factors and then invest in them to keep those positive feedback loops in the system. The tricky part is how the industrial system seeks to interact with that ‘scientific management’ koolaid about measurability and creating metrics and indicators. As a result, some of those success factors that are strictly unmeasurable get left out. After all, how do you make sure that a teacher can ‘believe’ in the students evenly in the class? But that question, which is precisely what standardisation and industrialism are based upon, misses the point.

Some of these unmeasurable success factors can generate power feedback loops. Consider the culture of graciousness in a workplace, gentleness, kindness, patience. Just because we cannot correlate the attributes with outcomes doesn’t mean they do not exist. And we all are worse off because we have allowed measurability and ‘big data’ to take such a dominant position in our systems.

Electrification Tussle II

This post continues from yesterday’s blog post.

There will be players who cannot electrify their processes, and they will need solutions. Most of them would be using natural gas running through the pipelines. And for them to decarbonize, they would need either a renewable form of natural gas, which is probably the most acceptable solution for them technically. For some of them, burning green hydrogen could potentially work as well, assuming they overcome the issues around the lower energy content of the hydrogen. Let’s consider again the drive to electrify. Using green hydrogen for these industries is equivalent to electrification because green hydrogen production is driven by renewable wind or solar power production. The notion is ultimately to shift the energy demand of these hard-to-abate industries back to the electricity grid, except through green hydrogen. Except, of course, the green hydrogen route is a very inefficient use of electricity because of poor conversion by electrolyzers and then coupled with the fact that more energy might be used to transport or store the hydrogen.

What I’m trying to point to here, is not that green hydrogen isn’t a viable solution – because in due course, with technological improvements, it definitely can and should be used. But in light of the electrification challenges I highlighted in part 1 (yesterday’s post), green hydrogen does not help alleviate the problem. It tends to complicate it and put even more stress on the electricity system when trying to green the grid. The mix of policy stances involving the heavy promotion of green hydrogen, the attempts to accelerate the reduction in gas use domestically, and setting aggressive renewable energy targets (really more like renewable electricity targets) for the grid emissions factor are all putting a lot of pressure on the electricity system while trying to keep electricity cost pressures under control.

Already mentioned in the earlier blog post is that natural gas resources can serve as part of the transition story. Now, there are concerns and worries about an addiction to fossil gas. After all, the economy might actually be addicted to it because it is a very lucrative export for Australia and so even as the country tries to reduce domestic use, it is unlikely to give it up as an export. And the fear is that the addiction would make it harder to decarbonise. This is why the other area for the government to direct its resources and develop policies that channel efforts in the right direction would be to promote biomethane production and displacement of fossil natural gas through the use of biomethane.

It is almost a no-brainer. Yet, there were concerns about the costs of biomethane while the more costly green hydrogen is being subsidised in all directions. There were further concerns about the limits of the resource potential of biomethane when the grid resources for green hydrogen production are even more scarce and expensive.

In providing my opinions, I have not given any figures but assumed that readers can find and discover for themselves the relative costs, and other challenges associated with how the overall policy mix and energy transition conversation is creating needless bottlenecks and distorting the orderliness of the energy transition. I suggest that we direct our efforts as an industry, economy, society and country in a more sensible, coherent, and directed manner to navigate the energy transition. The technically sensible approach is available and on the table, let’s set that as a destination first, and then slowly navigate the political minefield to get to it. This would likely produce better results than to be muddling through the technical solutions while trying to satisfy various political constituents and be none the wiser as to which destination we’re trying to get to.

Just an additional note to say that these entries are purely my personal opinions and do not reflect any views of my employers or any organisations I happen to be affiliated with.

Electrification tussle

The more I observe the energy transition in Australia, the more I realise that its attempts at balancing many different principles and ideas are at odds with achieving an orderly transition. Too often, we cast the energy transition as a technical or economics problem but more often, it’s a policy and political science problem. At the heart of the debate, is the age-old welfare economics issue around winners and losers. And with lobbying, power plays, risk of job losses, and a mix of various different studies, academic and commercial contributing to various perspectives, it can be incredibly confusing for policymakers.

Having worked on the side of government and alongside policy makers when I first started my career in Singapore, I thought that the volume of noise that exists in Australia around the energy transition is startling. I recalled that there were a lot more ‘no-brainer’ type of policy directions and being in the government was a lot more about trying to steer a large, heavy ship towards the destination that we can more or less agree on. In Australia, it almost feels like the policymakers are simultaneously being pulled in a hundred different directions at the same time and trying to achieve it all.

If, at this point, we are seeing that the policy direction is towards electrification, then the actual effort will have to be looking at what can green the grid and focus on that. So there’s been funding towards more solar and wind, as well as batteries to help balance the load in the system. The next big challenge is grid stability and network capacity. This will require extremely large investments and infrastructure build-up that will take time. This means we cannot electrify everyone at the same time, and this phase-in of various functions being electrified will have to be determined and planned carefully. The risk of not working this out is high – the greatest being continually being held hostage by the coal-fired power capacities and unable to shut them down to green the grid because power demand is climbing faster than we can build the grid and renewable capacities.

Gas is a transition fuel for precisely this reason; and it can play its role in the transition in two ways. First, it continues to supply energy to industries that need heat, delaying their need to electrify and hence keeping power demand at bay. Second, it can provide peaking power and supplement or displace coal-fired power in baseload, playing a critical role in taking the most carbon-intensive power source off the grid. Yet this brilliant idea keeps getting drowned out by the fear that once the gas industry is entrenched, it won’t go away. The economic lifespan of combined cycle gas-fired power plants or open cycle ones is about 25 years though their operational life can be extended. This means that they can be introduced immediately and fired up to replace coal-fired power plants and the tail end of their economic life can be more for peaking uses to stabilize the variable renewable energy, deferring investment in batteries that have significant lifecycle carbon emissions themselves.

The earlier we cut coal, the better; by allowing gas-fired power generation, we also defer the need to scale up our network capacity quickly when the electrification drive advances. These actions can mutually reinforce each other and allow battery, wind, and solar capacities to enter the system gradually alongside network upgrades. We observe how energy cost on consumers have increased while trying to green the grid (levellised cost of electricity from solar and wind is not a strong measure given that they are not produced when needed); trying to force the electrification is not going to make things better. Coupled with the strong anti-gas sentiments would only mean costs will keep going up.

Part II of this article continues tomorrow.