Sinning in abundant grace

I’m currently doing some bible memory work of Romans 6:1-4. And sometimes, it just helps to do a close reading of the verses bit by bit and digest it so that the verses stick in my memory not just merely as words but as deep concepts and associations with the many other things I’ve learnt.

The context of Romans 6:1-4 is the preceding chapters of Romans that Paul has penned. He writes and expound on the incredible grace of God that is given to us through the gospel – that Christ died for our sins so we may gain salvation, and be reconciled with God.

Paul asks two questions:

  1. What shall we say then? – this question is more to get us to respond somehow to the implications of the grace of God that had been presented before us in the preceding chapters.
  2. Shall we continue in sin that grace may abound? – this question effectively spells out what would be in the minds of most disciples: is the grace of the Lord fuelled by or shown only by the fact that we have sinned greatly?

He then answers the second question himself: ‘Certainly not!’

And then he poses another question to introduce another concept: “Or do you not know that as many of us as were baptised into Christ Jesus were baptised into His death?” He is presenting the argument that as we submit ourselves to be baptised in the name of Christ, we are entering His death (we allow our old selves to be dead)

Finally, having presented that concept, Paul then concludes his point here with a long statement of the implications of this baptism into Christ’ death:

  • We were buried with him through baptism into death
  • Just as Christ was raised from the dead by the glory of the Father
  • We also should walk in newness of life

In other words, just as Christ was raised up, we are likewise raised, living a different life from the one we lived before when we identify with Christ and accept Him as our saviour, receiving our salvation from Him.

I reproduce again the full text of the verses I’m trying to memorise:

What shall we say then? Shall we continue in sin that grace may abound? Certainly not! How shall we who died to sin live any longer in it? Or do you not know that as many of us as were baptized into Christ Jesus were baptized into His death? Therefore we were buried with Him through baptism into death, that just as Christ was raised from the dead by the glory of the Father, even so we also should walk in newness of life. – Romans 6:1-4 (NKJV)

Singapore energy transition

As a strategy consultant devoted to the energy and climate transition, I spend a lot of time thinking about what is the pathway to transit our economy, and economic activities. A lot of the confusion and disorderliness arises out of poor understanding, misinformation and also uncertainties surrounding technology curves. Another reason is that we desperately want to get things right before we can make the move – this is a disease resulting from having too much information and failing to be strategic. Sometimes that is too late.

We have pretty much breached the threshold of 1.5 degree Celsius warming. That means we will have to decarbonise our economy while simultaneously deal with the consequences of climate changes within those temperature thresholds. We could fall into various positive feedback cycles that bodes ill for our climate systems. For example, we could be looking to manage the increased temperatures we experience by introducing more cooling, creating more comfortable indoor spaces that ends up throwing up more heat into the external environment, and also emitting more carbon dioxide in the process. I suspect it is already happening in Singapore.

I think an orderly and balanced transition isn’t about looking for the ultimate fuel or energy vector as our panacea. Even for Singapore, I dare say despite the National Hydrogen Strategy, it is very unlikely that we will be able to replicate our 95% natural gas strategy for our electricity system with something low-carbon. Unless it is biomethane but even then, there are doubts about the adequacy of supply. This means we will need to adopt different strategies.

I think for an energy system like Singapore, electrification may not always be a solution because adding more demand for green electricity to the grid would just make it harder to green our grid unless we manage to pull off an ASEAN power grid system where we can bring green power from anywhere in ASEAN and consume it in Singapore. Otherwise, if we assume a standalone grid system in Singapore that have projects offshore with dedicated connections to Singapore grid, it is better to focus on greening the existing electricity demand first, before looking at stepping up on electrification efforts (especially those where natural gas is currently being consumed).

The last thing we want to do is to electrify all our road transportation, only to have to import green hydrogen to be used to generate electricity to charge our electric vehicles. If that actually happens, then won’t it make more sense to put the green hydrogen directly into hydrogen-fueled vehicles instead? We want to minimise these inefficiencies and unnecessary round-trips. I think we need to consider first the anticipated electricity demand and the size of the system we will need over the next 2-3 decades, and make sure we are able to strike enough deals and do enough projects to meet that first.

Then separately, on the fuel systems side, the authorities will benefit from developing a clearer view of what our industries need. The industries are also transforming and trying to meet decarbonisation obligations, not just from the carbon tax introduced in Singapore but also pressure from other markets. By aggregating these needs and then looking at common infrastructure or aggregated deals that we can explore, we create more synergies and stickiness for the industries housed in Singapore. Whether it is renewable diesel, sustainable aviation fuel or biofuels for the maritime industry, these various fuels can be looked into more holistically for the demand pockets within Singapore to tackle them together.

We need to use the same attitude we have used for industry promotion and attraction to look at our energy system. Perhaps for the next leg of growth, the Energy Markets Authority will need to be parked under the Economic Development Board? Or at least they will have to be more coordinated and act almost as one agency in charting the needs and course ahead.

Primary energy fallacy

I think more people need to understand this concept that was attributed to Michael Liebriech, a thought-leader in the energy transition. Sam Hamels just wrote a pretty short explainer of its implications on Linkedin, which I encourage you all to read.

The assumptions are simple and does not address some of the other obstacles along the way but it is important that we should not be overwhelmed by the gross energy requirements in primary energy terms when we recognise that a lot of primary energy in the form of fuel are lost in the process of converting them into energy.

There are other obstacles along the way however, when considering that the most viable and economic renewable electricity sources are typically wind and solar, with substantial hydropower in the mix for certain geographies. These include:

  • Transmission and distribution infrastructure:
    • Hydropower tends to be farther away from demand centers so the distance of transmission makes the infrastructure expensive
    • Wind and solar tends to be intermittent which means that a lot more needs to be transmitted during the times they are produced while the infrastructure remains underutilized when they are not available
    • Overall capacity will need to be increased compared to the fossil energy regime
  • Energy storage infrastructure:
    • While hydropower dams could benefit from becoming pumped storage, other renewables such as wind and solar will require significant energy storage in the grid in order to reduce the need to overbuild (because of the point above)
    • Energy storage will also help provide the ancillary services for the electricity system as fossil plants retreat from the system (eg. reserve markets, frequency and voltage supports) while it becomes more volatile due to intermittent renewable electricity.
    • A lot more investment into stationary energy storage will be required. At least before the more lofty vehicle-to-grid concepts kick into place.
  • End-use system/equipment changes
    • To reap the benefits of the improved efficiency of an electricity based energy system, there will be a need to electrify more which means end-use equipment will need to be changed – assuming we’re trying to change a whole fleet of equipment with no regard to remaining lifespan, we are not properly using up our invested assets.
    • Typically, fuel-driven systems have longer lifespans than those driven by electricity – that may have to do with the fact that fuel-driven systems are more mechanical and have less delicate circuitry systems. Of course, that varies with specific use-case and appliance but what this means is that you might still face more frequent replacement, and the environmental cost of that might need to be carefully considered.
    • In some cases, the change in end-use equipment requires further infrastructure support. The most important example is electric vehicles, which need the support of a robust charging network – that must be supported by improved distribution networks in the grid.
    • Besides the grid, institutional improvements that properly allocate costs and reflect them to customers are necessary as well. Sometimes, it may make the transition harder as well. For example, the peak demand pricing of electricity markets drove a bakery in Queensland Australia to change their electric ovens to gas fired ones because they absolutely have to bake their breads in the early hours of the morning.

Now the reason I’m listing all these other obstacles is to challenge us to think through the solutions needed having convinced ourselves that we actually can work on getting enough supply into the system. There is still a lot of work to do to ensure this supply actually matches the real demand. Looking at gross energy terms is simply not enough, as evident from the primary energy fallacy itself.

Loving thy neighbour

I’m thinking of putting together some learnings from the bible (yes the Christian Holy Bible, word of God) as part of my posting every Sunday. These are not necessarily lessons learnt on the Sunday itself but it is a dedication of the day to the Lord. And an opportunity to share my learnings with readers (if at all).

In Matthew 22:36, a lawyer (religious legal scholar) asked Jesus what is the greatest command. While he did so to test Jesus, it was still a teaching moment for Jesus and he responded:

Jesus said to him, “‘You shall love the Lord your God with all your heart, with all your soul, and with all your mind.’ This is the first and great commandment. And the second is like it: ‘You shall love your neighbor as yourself.’ On these two commandments hang all the Law and the Prophets.” – Matt 22:37-40 (NKJV)

The reason these commandment hangs all the Law and the Prophets is because they in essence summarised the Ten Commandments, from which all the other Laws that the Jews had develop were derived from. In Romans 13, Paul further notes that:

Owe no one anything except to love one another, for he who loves another has fulfilled the law. For the commandments, “You shall not commit adultery,” “You shall not murder,” “You shall not steal,” “You shall not bear false witness,” “You shall not covet,” and if there is any other commandment, are all summed up in this saying, namely, “You shall love your neighbor as yourself.” Love does no harm to a neighbor; therefore love is the fulfillment of the law. – Romans 13:8-10 (NKJV)

All of the laws involving the various ‘don’t’s in our interaction with one another ultimately culminate in loving one’s neighbour. Paul explains further that this is because love does no harm to a neighbour.

But isn’t that hard, even impossible? In the modern secular world and also our laws of the land, we have likewise developed categorical prohibition against most of those deeds that Paul mentioned. But it is not just because that those deeds in and of themselves are wrong; nor the fact that they harm another person (utilitarianism); but that they come from a place other than love (in terms of spirit and intentionality). What does the Christian gospel give us then, that allows Paul to say that to the Roman church even though we as humans know we can’t live up to that?

The gospel gives us the basis that as we were still sinners, Christ died for us, what we can have eternal life and be reconciled to God. Personally, when I read those verses from Paul, I think about what kind of neighbour I would be if God was a neighbour to me – I won’t be a very good one but yet He would love me. In fact, He sent Christ to die for me – in effect fulfilling the law of loving me through the ultimate sacrifice for my sins. As a Christian, that is the basis from which God gives us the command. There is a certain degree of circularity about it: God gives us the commandments through Moses to help us recognise that we fall short of it, but at the same time it gives us an ability to appreciate God’s perfection – at the same time, it provides the foundation for us to understand, and appreciate Jesus Christ’s ministry and the reason for His coming to die on the cross, and hence the offer of salvation for us. The very laws that prescribe the sacrifice of the lamb is fulfilled by the sacrifice of Christ, as the ultimate sacrificial lamb for our sins.

The laws command, but also prophesy and are fulfilled by God alone. Thus, having been saved and adopted, we are freed to love, no longer being enslaved to the self or to sin.

SAF sustainability and pricing

This year, the EU mandated 2% Sustainable Aviation Fuel (SAF) blending in all airports feeding into aeroplanes. The definitions of SAF for EU is clear, mostly based on a whitelist of feedstocks that are proven to be ‘sustainable’ and achieves a high level of carbon emissions reduction on a lifecycle basis (70% or more compared to A1 Jet Fuels). Unlike CORSIA, which puts the onus on airlines to reduce their emissions from jet fuels, RefuelEU regulations put the responsibility on fuel suppliers that supply to the airports. These suppliers will need to quote their prices to airlines accounting for these regulations, and while airlines don’t have to deal with the hassle of making sure the blend is correct to meet compliance requirements, they will need to bear the increased costs.

Now, there are also similar SAF regulations in the US under Renewable Fuel Standards, but their requirements for feedstocks and lifecycle carbon emissions reductions are different. Just to caveat first that I’m way less familiar with the US standards and requirement but based off some work from my colleagues, I understand they are less stringent, defining SAF to require 50% reduction in lifecycle carbon emissions compared to conventional jet fuels. This allows feedstocks such as corn ethanol, or other dedicated energy crop-based feedstocks (including canola, other oilseed crops) to be used for their SAF.

And if you refer back to the ICAO standards set under CORSIA, they only require that there’s 10% reduction in carbon emissions. It is still unclear to me what would constitute ‘SAF’ to the countries in Asia Pacific that are all introducing some SAF volumetric blending mandate.

One of the key challenges with just defining a standard threshold for carbon reduction and then setting a volumetric SAF target is that you don’t incentivise SAF producers to reduce their lifecycle carbon emissions. It becomes a race to the bottom for the airlines or fuel suppliers to buy the cheapest SAF that meets the threshold for compliance. If instead, we set a carbon emission reduction target and require the blend to achieve that target, then we can benefit from a greater diversity of SAF feedstocks and pathways that meets the economics on the basis of a unit carbon abatement cost. After all, the carbon emission reduction is the piece of value we care about for SAF at the moment, won’t it be better to price that?

SAF Pathways and value pockets

Today’s conventional wisdom around the Sustainable Aviation Fuel (SAF) market is that it will start with the HEFA pathway which converts oily waste compounds into jet fuel. The process is well established and economical. The challenge is aggregation of the feedstocks which takes the form either of used cooking oil and oily waste streams coming out of some vegetable oil production streams. They could also take virgin vegetable oil and oil from oilseeds to produce (but these tend to have a higher lifecycle emission associated with them as they are cultivated and will require fertiliser inputs and other resources).

The regulators and market expect that these feedstocks will be insufficient as the virgin oils should be reserved for food use and the waste-based feedstocks are limited. So then when the HEFA feedstocks supply goes down, prices of these feedstocks would move up towards the next SAF pathway. The popular contender after HEFA is the alcohol-to-jet (ATJ) pathway. They take bioethanol or methanol and turn them into jet fuel. This process is a bit more expensive, but because bioethanol is already being produced by various plants worldwide to supply provide for gasoline blending in countries with ethanol-blending mandate, it has a much more stable and ready market than used cooking oil.

Further technology pathways are expected to involve gasification where biomass is subjected to thermal processes that breaks down the material into constituent carbon, oxygen, hydrogen and nitrogen compounds, then reformed to make liquid fuels including jet fuel. These pathways are even more expensive, but their feedstock, which is pretty much any biomass, would be much more abundant.

So, the supply curve is expected to notch upward in discrete steps; once prices hit the threshold to unlock the next technology pathway, more feedstock will enter the picture and hence increase the supply of SAF available. This doesn’t mean that the earlier pathways will earn more margin, because the bottlenecks are the feedstocks; typically, the feedstock owners or aggregators tend to extract more of that value.

But this would mean that the prices of SAF should and can only rise as the mandate for more SAF and aviation decarbonisation becomes stricter and emission reduction targets become more ambitious. Now there is another transition to consider. That is a scenario where the chief driver of SAF adoption, regulations and blending would be decided by the market – but the outcome they are targeting would be based on proportion reduction of carbon emissions relative to conventional jet fuels.

Now of course, some from Oil & Gas players might think they can use carbon capture and storage to lower the fossil jet fuel intensity to meet the criteria. Yes to a certain limit; because the carbon dioxide emitted during the aircrafts’ journeys from fossil jet fuels will always been counted while the biofuel or synthetic fuel’s emissions will be zero (because they are short-cycle or biogenic carbon dioxide).

So I urge regulators and policy-makers; focus on the carbon intensity reduction targets, rather than volumetric blending targets.

Asset prices & markets

I haven’t looked closely into the numbers, but one cannot help but realise that those markets that have grown well over the past few decades, but where stock exchanges or equity multiples have been relatively pathetic in performance, tend to have exceptional performance in the real estate market. Cases that come to mind include Singapore, China, Vietnam and perhaps more recently, Hong Kong.

This makes the proposal from Singapore government on trying to boost the stock exchange in Singapore through this ‘Equity Market Development Programme (EQDP)’ pretty interesting. The initial idea is to have funds that inject liquidity into companies in the SGX beyond just those represented in the broad market index. Mechanics aside, I don’t know how well the intentions are conveyed by the government. Maybe they think it is too sensitive to share or too controversial. I think it’s more interesting to consider the intent properly than the mechanics or the chances of success at this point.

The issue with wealth getting tied up with the real estate market in Singapore and especially for Singaporeans is that it is illiquid as an asset; the value growth can be quite uneven, and more significantly, housing is a necessity so when it becomes a way in which majority of the people store their wealth, it prevents the newcomers from entering the market. Across generations, it can lead to severe distortions in terms of affordability. Home ownership is seen as a cornerstone in the formation of community and Singapore society – owning a home gives us a physical stake, and more importantly, it leads us to take actions that are more long-term when it comes to caring for our surroundings.

So in my mind, the EQDP is more about trying to activate and encourage overall movement of wealth towards the stock market rather than the housing market. After all, not everyone needs to hold a piece of stock but everyone needs a shelter above their heads. We’d rather have asset price inflation in the stock market than to have it in our housing market. Besides, the liquidity of Singaporeans has probably been contributing to the asset price inflation in the stock markets in the US. So why not keep them at home? This, I think is probably a more significant intent for EQDP than just thinking about financial markets development. And I think this social intent is probably more admirable than the calculative sense of how much more economic benefit or mileage we can get out of the markets in Singapore or the spill over financial services impact it can create.

Now whether the mechanisms proposed as part of the EQDP makes sense or not, I’ll perhaps comment some other day. And maybe when it is clearer what it would be.

Duty to vote

So it’s general elections season. It’s really interesting how this general election gives a great sense of a maturing democracy where more capable candidates are stepping forward, and emphasising the need to provide diversity of voices in the parliament. Peers of mine are stepping forward as candidates. I’m seeing even young independent candidates like Darryl Lo stepping forward.

The features of the Westminster Parliamentary system that Singapore inherited create a strong government because of the ‘first-past-the-post’ approach to voting. While the governing party can somehow gerrymander to optimise their support across constituencies, there is a natural limit to that as their vote share decreases.

The other feature is that the system calls non-ruling parties the ‘opposition’. It is perhaps a result of the typical debate terminology where they talk about proposition and opposition. As our democracy matures, we begin to see what it means more and more to be a loyal opposition, and not be misled by this somewhat ‘confrontational’ sense of the term.

Even as the country faces uncertainty from the global situation, this general election thus far fills me with a sense that Singapore is really ‘coming to age’ as a country that is learning to deal with challenges. Looking at the MPs coming from different walks of life and at a broader range of socio-economic backgrounds (at least from my perception), there is more a sense of ordinary people trying to make a difference in the society they live in, recognising it is no longer enough to slog for their own personal lives and expect the society to develop desirably.

Land resources

I don’t think we’re being imaginative or aggressive enough with tackling climate issues. Nor are we thinking about how to sync-up our efforts to grow our economies, improve lives together with environmental conservation efforts. There are plenty of false dichotomies that result from how we’ve developed our economies. It’s haunting us and discouraging us from thinking in worthy directions for problem-solving.

One example of a dichotomy that may turn out to be false in the long run is the issue of food versus fuel. The food shortage problems today is driven by logistics and localised disaster more than aggregate unavailability or insufficiency. If anything, instead of trying to outright ban dedicated energy crops or crop-based feedstocks for biofuel production, it would be wiser to encourage a programme of reducing desertification and farming of marginal land with resilient crops that can be used as feedstocks for biofuels.

Another involves questioning of thermodynamically-unappealing solutions. Direct air capture (DAC) requires that energy is so cheap that you should mechanically capture the carbon dioxide from the air with machines. And yes, it doesn’t take as much land per unit of carbon captured. It could even compete with vegetation/forests. One could consider through the lens of this competition with nature: Forests takes about 860 square km of land to absorb 1 million tonnes of carbon dioxide whereas if you were to build a DAC plant plus a solar farm powering it which can capture 1 million tonnes of carbon dioxide a year would only take about 30 square km, which is ~3.4% of the land area. [my calculations are back-of-envelope and derived from unit figures here and here].

Yes, but then what about the limited lifespan and all the value chain emissions from making solar panels and DAC systems? Indeed, those trade-offs are worth thinking about, which is why we probably won’t advocate replacing natural habitats and forests with DAC. A forest is more than just sequestering carbon, but also provides other ecosystem services such as enhancing biodiversity, increasing groundwater supply, and even helping to clean the water and reducing the risks of desertification.

At some level, biofuels compete with synthetic or e-fuels; and biomethane perhaps is imagined to compete with hydrogen. But all of these are false dichotomies. The world needs us to keep working on different solutions and coordinate our efforts to scale them where they make sense. One can be purist about different things and get nowhere. Let’s try to lay out the trade-offs and work through those in specific contexts rather than seek to rule out solutions on the whole.

Foreign reserve currency

It’s probably been almost 15 years since the bancor proposal from JM Keynes has been last discussed and taken seriously. I’m wondering how are things progressing today. IMF probably has lost a lot of credibility over the last decade or so and the international financial system has just chugged along without any serious desire to be reformed.

So I wonder why it is not being thought about during this period where Trump is naively attempting to reduce the trade deficit (when of course, he could tackle the budget deficit more effectively himself, instead of relying on Elon and DOGE). Barry’s article on Project Syndicate provides some useful historical considerations though it isn’t that easy to compare US’ economy today with UK in the 1920s.

For one, the Triffin dilemma should be understood and examined rather than wished away by the American administration. Of course, they may think the trouble isn’t the dilemma as much as the issue of being an incumbent superpower on the brink of some decline. Instead of managing a soft landing or a proper way to unwind the situation gradually, the US feels like it’s trying to cling as hard as possible to the incumbency.

So the old fashion macroeconomics and financial issues are back to haunt us again because we haven’t dealt with them properly in the past.