I am a Singaporean. And one aspect about Singapore highlighted by many stories of its growth and early leaders is the notion of pragmatism. Yet I feel that this notion probably has been overplayed.
Pragmatism is used to suggest that the ends justify the means. Now within the context of school, it could mean that you can get your grades by rote memorisation as opposed to genuine learning. Or that you could simply find the right answer to copy than to solve a problem yourself on an assignment.
Same goes for the worker at work – just find the answer, don’t bother solving the problem. This may mean finding out how it was done before; or to figure out what others who had the same problem was doing. One could argue those are problem-solving heuristics. Maybe. But I call those “answer-finding”.
As a consultant, I cannot help but recall clients who are asking, “but have you done this same thing before with another client or somewhere else?” This is answer-finding, not problem-solving.
The Singapore today needs trail-blazers and problem-solvers; as it always had. But decades of overemphasizing pragmatism means we prefer to pay for answers than purchase problem-solving capacity. We desperately need to shift this culture and move towards real problem-solving than answer-finding.
Some interesting announcements and updates were coming out of Ecosperity last week. Most of them oriented around financing of the transition. This is an important topic considering that a lot of our existing economic system is locked into high carbon intensity systems because of financial incentives. Being able to change the incentives can help adoption of more emission-reduction measures.
Transition credits
Launched in 2023, a coalition of players were studying the use and deployment of transition credits. Verra also started working on a proper methodology to account for the carbon emission reductions from transition; and they launched it last week. Since the initial MAS announcement, the Acen Coal-fired power plant in the Philippines have become a candidate for a project that will issue transition credits in exchange for shortening the project’s tenure. And Mitsubishi also announced joining the team of firms taking a stake in the consortium that will generate the transition credits. The idea is that the consortium could then sell off the transition credits to players in Singapore who can then offset the carbon taxes; and there is hope to do the same for Japan.
I believe there is interest for these players to also participate in developing more renewable energy projects in the Philippines to help make up for the shortfall of power generation. After all, the article linked above quoted Rockerfeller Foundation that the shortfall will require “1,000MW of solar, 250MW of wind, and 1,000MW of battery energy storage”. Not sure if it comes as a surprise to all, but because of resource availability, solar and wind farms are not ‘always-on’. They only generate a fraction of their nameplate capacities most of the time, which means a lot more capacities must be built to produce the same amount of gross energy. Energy storage is needed to help time-shift the energy to when required.
WEF-GenZero aviation initiative
Launched as ‘Green Fuel Forward’ – it is a capacity-building initiative that is aimed at drawing in airlines, refiners, logistics companies, banks and others. I think the idea of building up capacity to deal with the entire SAF ecosystem is useful. Aviation decarbonisation over the next few decades disproportionately depends on SAF. It is good that the global aviation industry have more or less settled on this particular decarbonisation pathway and is developing various tools to be able to adopt it.
More than just using a different fuel, it involves getting customers to share in the higher cost of the fuel. How to do so is the issue; and all the airlines are afraid of the ticket pricing affecting their competitive position. Different approaches to distributing the emission reduction costs have been mooted: (1) some like the idea of a corporate decarbonisation programme where partners are gathered together and somehow agree to some formula to share the cost of the low-carbon fuel premium; (2) others think we could convert the emission reductions into some kind of credits to be sold to freighters or passengers who are on board those flights. Those methods involve using airlines as the market-maker for emissions reduction.
The customers of airlines especially the corporate players will need to determine their strategy when it comes to flight carbon emission abatement, as well as the budget they can allot to it. For now, corporate probably have some kind of trip budget – they might have to scale it down based on the SAF prices they are expecting. The airlines themselves will have to develop their own strategy of allocating the cost of SAF to passengers or corporate customers. And of course they can then issue or bundle the SAF-credits (SAF-C) accordingly.
As stated in the ST article on this initiative, each SAF-C means a reduction of 2.5-2.8 tonnes of carbon emissions. Assuming that each SAF-C is priced exactly equals to the premium that airlines pay for SAF above their conventional jet fuel, you’re looking at about US$1000-1,600 for each SAF-C. Now in comparison, a typical carbon credit (representing 1 tonne of carbon dioxide abatement) out in the market is selling at around US$3-4; or if it’s CORSIA-eligible, maybe US$20? So corporates are going to have quite some difficulty working out what is worth paying for SAF-C if you were supposing there was going to be some kind of market and price-discovery for those credits. Does it mean the airlines will have to pass on the rest of the cost shortfall to other customers? Then why do only the SAF-C buyers get to claim the reductions?
A lot of capacity-building will be needed and a proper vision for the workings of the ecosystem worked out.
Singapore government’s clean energy fund
There was yet another announcement about US$500m fund that Singapore government is going to deploy for green projects in the region, as part of the new ‘office’ that MAS is going to set up (named FAST-P). That’s actually going to be really interesting though the news was very scarce on details. I suppose they just wanted to announce some parameters they have decided during Ecosperity week while many other things are still being worked on.
We know there will be 3 pillars: (1) accelerating the energy transition away from fossil fuels to clean energy, (2) ramping up green investments, and (3) decarbonising emissions-intensive sectors like cement and steel production. I suppose the first pillar might relate to the transition credits mentioned earlier. The FAST-P office will probably be spending more efforts for (2) because that will be a lot more complex and require someone to drive or coordinate across different parties. It is not clear how (3) can be done when those sectors are likely the beneficiaries themselves either through energy efficiency investments or fuel/electricity substitution.
Having been involved in the set-up of Infrastructure Asia some 7 years ago, I am fully aware of how much effort behind the scenes just to get the resources together, not to mention the actual work of setting up the office. The work to be done by the office is really to identify the activities where it is worthwhile helping to reduce the riskiness of other financiers or funder. The metric would probably be more impact driven though for the sake of Singapore’s economy, it would be necessary to require anchoring some activities out of Singapore.
I think it’s really great to see how the various entities within the Singapore government or related organs (and I’m almost definitely stretching that by implying platforms like Genzero, which is part of Temasek, and some of those Singapore firms dealing in transition credits) are trying to tackle the issue of the transition, not just for Singapore but for the region.
Going beyond the energy system, there’s another important element to consider for Singapore as we are faced with a world in transition for the energy system. Singapore successfully built itself out to be a sort of energy hub even without domestic energy resources itself. In 2023, Singapore imported 145 Mtoe (million tonnes of oil equivalent) and exported 76 Mtoe. We basically re-exported more than what we consumed as a country for the entire year; and this is because we are largely importing petroleum products to be refined and then exported as more differentiated products. As an economy, Singapore earns the ‘cracking spreads’ from the refinery and drive the economy with that. Technically, it is the oil & gas companies running the refineries that earn that spread.
But more things happen after that, too. Because the refineries are left with a lot of heavy oils at the bottom of the barrel, we have lots of maritime fuels to spare, which coincides nicely with our large transhipment port facilities, together with our highly efficient port system that ensures a strong throughput. These advantages combine to allow Singapore to be the largest bunkering hub in the world. Bunkering refers to the refuelling of maritime fuel for the vessels calling at the port of Singapore. Storage terminals and other facilities will contribute to that.
With that scale, comes along a lot of other opportunities and economic activities that helps drive the economy. Vessels will call at the port to move the cargoes, which means that vessel services are required at the port. All sorts of cargo audit, verification services would be required. Engineering for vessel repair and overhaul could be added to the port city.
If we go back up stream to the refinery process, there are a lot of corresponding supply chain, derivative products that can all be based in Singapore, including some of the petrochemical production, wastewater treatment, waste oil recovery, centralised utilities services for the chemical plants. And it is not limited to manufacturing of course. There would have to be engineering firms, system integration firms, companies stocking up components for all of these plants including valves, flanges, and so on.
So while we can go on and on about the energy transition, when politicians and government think about their economies, there has to be some kind of rational and gradual shift rather than sudden evaporation of all of these activities. I don’t think we have clear solutions yet. For the past decade or so, government had left corporates to plan their own transitions, hoping to create friendly policies which will ‘help’ these corporates along their transition plan.
Now the issue is that the corporates tend to make big ambitious commitments when times are good only to realise they cannot be delivered as the resources they have is insufficient. Better yet, many of them set targets based on assumptions that simply does not hold in a low-carbon economy. So there is mostly empty talk, with no sticks or carrots to keep them in line. This is not just about discipline of executives and managers, but the ability of shareholders and other stakeholders to bear the costs of the changes necessary.
And then in 2020, Covid-19 struck and the government went full steam ahead with interventions, ushering an exceptional era where more expectations are piled on them to intervene directly and set regulations to push the world towards net zero. We all had hoped so through rounds and rounds of COP; but they really only started waking up a bit more during Covid-19. Yet the pandemic left us all weaker, with less resources to cope with the sustainability issues. When the funding and stimulus from the pandemic dries up, it seemed that a lot of plans for net zero had to take more of a backseat.
In Singapore we tried to ramp things up a bit more with the carbon taxes – despite how relaxed it actually is, there were still groans and moans – serious enough for the government to consider some kind of ‘rebates’. It seems to me that pricing carbon wasn’t really enough – just as setting up more tariffs was not going to cause manufacturing to magically re-shore back to America. There’s still a lot of coordination, capacity-building to do.
So let’s work together, and let’s devote some resources to consultants like my kind to help build that capacity and create that capability to moe into the next phase.
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.
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.
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.
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.
We live in interesting times and as an economist, I find it hard to resist commenting on the events I’m living within. I got into economics because I’ve been fascinated by trade, the amazing ability for the world to grow in production just because it is able to specialise in different things and thereby contribute to overall growth and prosperity of the world. The challenge is that being good at different things can affect how the overall increase in wealth or production is distributed. But if we care mainly about the world being able to do more together at the same time, we just want to maximise trade. On the other hand, if we care about only what we get individually, on relative terms with others, then yes, trade can get contentious, even if we are getting more on an absolute scale than if we hadn’t trade.
There is quite a couple of forces within the US economy that is generating the symptoms that we are seeing including the huge trade and budget deficits. None of them is going to be easily resolved through the use of trade tariffs. And yes indeed, there will be a need for the world system of trade, foreign reserves and financial exchanges to shift. The question of how it will shift and whether the transition is smooth or not will depend on both the actions of US and the rest of the world. Trump’s approach of bringing people to the negotiating table doesn’t make so much sense when he is simultaneously weakening his hand while trying to strike deals with multiple parties.
What that shows is a highly ego-centric or US-centric view of the world that will prove to be self-destructive. I’m not saying that the whole of US thinks or act this way but the fact that such a leader is voted into office makes things more difficult than it is. Obviously the electoral college system might need to be rethought or reformed but there’s probably too much gaming of the system that is taking place.
Back to the point about tariffs. By imposing a broad sweeping tariff system across the world, what will happen is that overall cost of living and consumption will rise in the US given how much it is dependent on imports (the deficit themselves reflect that). The goods or services where demand is more price sensitive might find themselves switching more towards domestically produced ones assuming that they exists and can be priced competitively. Otherwise, the status quo + higher tariffs will prevail. The government will maybe raise their revenue from customs but the US consumers are ultimately paying these tariffs. So on the trade front, nothing really happens, and on the government budget front, the government is probably going to get a bit more revenue to reduce their budget deficit.
If we assume that the reason for US budget deficit is that the government isn’t taxing enough relative to their spending, then it means they will have to somehow find ways to obtain more from the value that they are bringing to the markets. Perhaps it is the rule of law, or regulation of the markets, the government isn’t charging the fair amount to the beneficiaries, or allowing too much leakages (think corporates avoiding taxes or billionaires parking their returns in offshore tax havens). If we assume the richest ones are the most mobile, then applying tariffs would simply worsen the inequality situation in the US.
Tom Bilyeu posted something insightful on Linkedin a few days ago that’s worth mulling over. He said, “There are no solutions, only trade-offs.”
And that the belief in a perfect solution can cap your growth as it paralysed you from making decisions as you wait for the perfect solution to come by. It may also be just because you are endlessly searching thinking that the ideal solution will emerge.
Yet when we do chance upon some things, we do recognise them as solutions. I realised that this is because we have priorities in most settings and it is the priorities that determine what we value more and what we value less. The trade-offs then allows us to exchange things that are less valued for things that are more valued. The ability to do so increases the overall value and hence becomes a ‘solution’.
There may be times when the things being traded off against are both valued – and then it takes that strategic mind, one that is able to look into different versions of the future to try and determine which elements in the trade-off is more important and would have lasting impacts.
Ultimately, there is no way one can navigate life and decision-making without the ability to prioritise things. If we see everything as equally important, we suffer from the plight of Buridan’s Donkey and never get anything done.
How should research funding be assessed? What makes good spending on research? Should it be about patents filed? Or about the number of significant breakthroughs per dollar spent? How about revenues generated from licensing a technology? Or royalties on the patent? Is that really the best way?
What if a drug that could save many lives was discovered? But then it would take much more investment to get the drug tested and so on? What if the research funding itself wasn’t able to get innovation through to the stage where commercialisation would be successful?
The original question was really hard. And one of the things that my research into intellectual property rights regime revealed is that it never was about the patents system or the risk capital that drove innovations. Often, it’s merely the ability to disclose and disseminate information, especially knowledge that would otherwise have been kept a secret, that would have helped push an overall system towards being more innovative.
After all, the Industrial Revolution happened in Britain during a period when their intellectual property rights were terrible, and a patent was mainly used as a form of marketing rather than a way to achieve a monopoly.
So when National Research Foundation or even our A*STAR tries to properly steward taxpayers money by trying to figure out how to spend research funding wisely, they might want to take note that true innovation is the goal of the spending, and not so much the commercialisation value. The need to enforce some kind of ‘commercialisation’ target could very well destroy the very foundation and philosophical underpinnings of research and discovery. The reason government funding is needed is precisely because the market is unable to offer that same kind of funding directed to those activity – so to demand ‘market discipline’ from those activities will bring us back to square one. The underprovision of innovation and hence market failure. Only this time, it is the government who fails.
