Changing the story

Insurance seemed like betting against your death or misfortune and some people don’t want to bet on your personal downfall so they don’t want to buy insurance. For years, the industry have been trying to change the story and they settled on the idea of protection, financial protection against those misfortune.

In principle, that works theoretically but the issue is that a lot of what you pay for is sales and distribution. The structure of the industry is such because insurance works well only when the risks are being pooled. That means having lots of people paying the premiums in order to support payouts during adverse events. As a business though, it means that the firm is ultimately a sales and marketing organisation. Costs will have to weigh disproportionately on the distribution side of the business.

This is a shame because the society needs insurance. Yet it is a market failure; the market system allocates resources poorly in this market. It can be better designed through a mix of regulation and making it mandatory to have certain amount of cover. The government should not think the market will help reduce cost of insurance through competition because the basis of competition in this market isn’t so much pricing. It is more sales, marketing and tactics.

But isn’t it just like many other products? For luxury products, yes. Basically for things people don’t actually need, you can allow the whims and fancies to be shaped by the market. But when it comes to insurance, you want the market to deliver an outcome so you need to design the boundaries and structure to make it work.

The story of insurance should be that of mandates, regulation, and basic necessity and right of people. We come together to live in highly urbanised environment and it should be a no brainer for us to risk-pool and mutually insure. There’s no excuse for this market to be hijacked to support high-flying salespeople.

Externalities isn’t external

An externality is deemed as a cost or benefit caused by a producer that is not incurred (financially) by the producer. The view is that because the producer is not paying for the portion of costs, or receiving the portion of gains from that economic activity, it is under or over-produced.

Of course, there are further variations of consumption externalities where it is happening on the consumer side of things.

The manner economists perceive these effects are based on analysis in a single snapshot of time, considering only a very narrow dimension of financially accountable cost and benefits. The typical solution prescribed on paper is to provide a tax or subsidy to close the gap: or to internalise the externality.

What if an externality actually isn’t external to begin with? That through time and the interconnectedness of people, organisations, nature and environment, would bring the costs or benefits back to the producer? After all, won’t reputation or enployer branding matter? Would it matter if an all-knowing government discloses the truth about how much pollution a company is causing? If the government in the economic analysis can close the gap, then there isn’t actually a genuine externality because somehow, within the system, the level and details of the externality is known.

And how are compensatory funds to be used by the government? For example, should carbon tax revenues be used to innovate in further development of low-carbon technologies to make it easier for companies to emit less carbon? Or should they be directed towards mitigating the impact of climate change? Eg. Building levees to buffer sea level rises? Should the role and impact of the externality have any say in that?

Moving solar around

You might have seen solar panels ground-mounting on vacant land in Singapore. Today I was on a cab when the driver told me about this and thought it is such a waste of land in Singapore.

So I explained the idea that our government agencies had and the tender they designed. The projects are actually to maximise the use of land rather than waste them. In Singapore, there are plots which are left vacant for future development – they may not be empty for the full period of a solar farm, but at any one time in the island of Singapore, there should be enough space to hold a certain amount of ground-mounted solar. So the plan is to move the panels around to a vacant lot once an existing solar farm land is needed for development.

Such a model seems common sensical but requires a great deal of coordination and detailed thinking. But in the grand scheme of trying to produce more green electricity for our island state, this is not exactly a great solution. And this is an example of the challenge that Singapore faces when it comes to being innovative and scaling solutions. We have requirement for unique solutions that serves us well but probably no one else – nor are we able to easily adapt our solutions to other places.

Not sure who else would want to be moving their solar panels around.

Primitive technology

Had a chat with a friend who used to be in the oil & gas industry; well at least along the value chain. He was also a bit on the old school side of things and he calls solar PV technology primitive because compared to the gas turbines whose efficiency is 60% when using combined cycle, the efficiency of converting solar energy into electricity is only 15-20%.

I was a bit surprised at that idea given that inputs in terms of the energy from the sun is free whereas you might need to calculate the energy cost from the drilling, piping, even liquefaction and then gasification of gas. Nevertheless, the point is that turbine technology has been widely adopted and used for many more decades than the solar panels. So a lot more money, time, resources have been invested into that those technology compared to renewables. That is simply fact.

Yet if you consider which technology has more room for progress and can move us to a future that we want to live in, the answer is just as clear. The problem again, with the economic analysis undertaken is that they are all based on individuals considering Ceteris Paribus everywhere else. The energy transition, decarbonisation is more than just that an individual decision and it was never meant to be worthwhile done alone. It was something to be coordinated, actions taken together. Which is why we cannot allow all of these technologies like solar, wind, EVs, hydrogen to be as primitive as they are.

Blue bins

In the first episode of my recently launched podcast, I kind of ranted about the blue bins in the National Recycling Programme that Singapore has. My major gripe was that the system for blue bins which was completely open access and operated by riding on the back of the public waste collection system was designed to fail because by seeking to include everyone, it made securing a clean stream of recyclables harder.

I noted that an alternative system where people sign up to gain access to the blue bin, and pledge to abide by the ‘rules’ of using the blue bins could do better. They could pledge the following:

  1. they will use the blue bin only for recycleables allowed,
  2. they will ensure the items are cleaned and ready for recycling,
  3. they will only access the blue bin themselves,
  4. they will ensure the blue bin is locked after their use,
  5. they will not deposit into the blue bin when it is full or when they note it is contaminated

Friends at Upcircle has shown that by giving assurance to people who care and show up for the environment that you are able to deal with the recyclables properly, you can actually obtain good quality post-consumer recyclable stream. By preventing those who doesn’t care about recycling from taking part in pseudo-recycling by their own terms, we can actually do better.

Recycling better by excluding people isn’t exactly the best narrative to the ears but in due course, that can actually change the culture.

What about the baseload?

I get asked this question a lot; by the people operating power systems, by the Oil & Gas industry, and the traditional old school bankers. They also ask about price of intermittent renewable energy plus energy storage; and when that will reach grid parity. Essentially, they are saying that the new innovations cannot replace the current technologies because the cost don’t stack.

I’m not sure those are the right conversations to have or the right questions to ask. Economics do drive a lot of systems and considerations but they probably should not be hijacking our priorities and our realities. Climate change is real; and if we are to put our best foot forward to make the difference, we are not going to make it. Putting our best foot forward is about using our minds, engaging our hands and changing our lives.

Yes, baseload power will be changed, energy prices will increase, perhaps our spaces, our wealth will have to be sacrificed. But our earth can remain a sanctuary for life, and our world can remain intact; if only we are putting our best foot forward. Not dragging our feet, not trying to maintain status quo. Not trying to exercise malicious obedience.

Making the transition III

I have written about green ammonia and hydrogen before. And I might keep talking about them because they are important candidates as energy vectors in a decarbonised world. They are quite likely what is considered as the end points of the transition for the world towards zero carbon or low carbon. What does it mean to transit to green ammonia or green hydrogen? What needs to take place, and who will move first? What should the players be looking out for in order to make the switch?

We need to start defining intermediate steps for the switch. There is actually very little doubts about the inevitability of the switch. Yes there are concerns that it might be energy intensive, the costs are high, and the market is not formed yet. But realistically, most new things are like that. When the Apollo mission took up 60% of the computing power of United States in order to perform its calculations for the project, there wasn’t anyone saying the industry is not formed yet we should wait for better computers before we send man to the moon. We just viewed the mission as a series of problems to be solved, within the budget constraint.

The transition needs a budget; it can be a small one or it can be a large one. The issue is that the businesses needs to take a stance and say that climate change and the transition is a mission I want to be on, and to explore the series of problems to be solved in order to complete the mission. And we don’t wait for costs to come down before we make the transition, we take active steps towards it. That is also what leadership is about. That is really the only issue people should be considering.

So for example, if you’re providing equipment for natural gas systems – be it power generation, cogeneration, for steam methane reforming, etc. You need to start thinking about the smaller pieces of things: are your valves able to handle hydrogen? Do the membranes in your cryogenic tanks work if it was to be filled with hydrogen? What about your manpower, are they able to be trained in the safe handling of the gas? All these to prepare for the transition. You won’t be able to make the transition overnight or achieve it through a single project. It takes much smaller steps.

So start making them now.

Making the transition II

Transition means being in an in-between state, crossing over to something which is supposed to be perhaps a less temporary state. The challenge, however, is that one can get stuck in transit. Natural gas as a fuel risk being in that state because it wasn’t really adopted fast enough as a transition fuel. And now renewable electricity from solar and wind has more or less leapfrog it in terms of cost advantage. Once battery or other energy storage technology moves along the cost curve and decline sufficiently, natural gas might even be bypassed.

So the world is in a somewhat confused state. When is it right to use gas? What should be counted as alternatives for decarbonisation? In any case, gas prices are spiking now so what does it mean? Should that mean we move forward into more renewables which might even be more expensive? Or we move backward into coal?

These decisions are not meant to be made in categorically; because the entire system needs to be considered. And what is at the margin in terms of choice needs to be clearly identified. If the additional unit of power that satisfies both energy security and the quantity demanded can be obtained through renewables, it should be used. Of course if that is not available, one might have to step back into more carbon-intensive processes. Availability can also be based on budget.

Natural gas itself, needs to be displaced by greener fuels without threatening the underlying combustion technologies that underpin the gas turbines. But that is perhaps for another day.

Corporate ladder II

I wrote about the corporate ladder previously; I asked the question of what we are actually climbing in our lives. But what if we are really climbing the corporate ladder? What exactly is that about? What if we aspire to have influence over the business, over something that we had thought was important in life. What difference does it make?

Does it matter whether you become a CEO before 40 years old? Or whether you reached there climbing the corporate ladder as opposed to having founded the business? What do others think of a professional CEO? Would it be better if he had worked the grounds and been in operations? Or if he was just a businessman? Or if he had been some office corporate slave who had been putting together powerpoint slides? What do you need to build that path towards that position?

You probably will need some kind of persistence and tenacity. But what do you lose in the process if you try to shortcut it? Who do you actually care about? Is it about yourself? The problem with any ladders including the corporate ladder is that they are designed only with the individual’s desire to rise to the next rung in mind. It appeals to the self, and reinforces it, making one feel more right, more just in serving just oneself. So how can a person who reached the top by climbing be really trying to serve the earth, or shareholders, or the employees, or the customers? If all his life, he’s just trying to lift up himself. Higher and higher.

Green economy

What is the green economy? It is an entire system of production and consumption that actually acknowledges and properly handle the constraints and boundaries of the environment, nature and ensures sustainability of the system. The blue economy is captured in that. So is circularity in the economy. And so is the notion of nature based solutions.

Greenwashing is not part of the green economy even if the activity is borne out of it. A large part of the green economy is the government; they no longer just ensure monetary stability, enforce the laws and support various other institutional structures. They also have to provide some kind of structure to govern the pricing of carbon, enforce accounting of carbon emissions, invest into the technologies that enhances the sustainability of our economy.

All of these things are not entirely new to the government but they need to get used to being involved, taking responsibility and ownership over this area they used to leave out. Not only this, they need to look upon the transition towards this green economy as ultimately part of the security and future of the jurisdictions they are looking after. It can be difficult; when banks don’t finance baseload coal fired power plants you might think energy security is being undermined. But maybe that’s not the right problem we want to deal with; because energy security can also be about energy efficiency, switching to more decentralised sources of energy, and using more renewables.

So are we electing and choosing leaders who care about the future to lead governments? Are we behind them in their approach and thinking about creating a future that we can exist in?