There was a time when demand and pricing was what matters because the rise of logistics and transport technologies made it easy to ship things around or even store things for long. So production becomes so isolated from consumption that as long as you can price things right on demand side, you can be producing anything anywhere.
Profit then is just about finding lower cost locations, resources, manpower, materials and so on. Services gradually have those attributes as they are increasingly performed remotely. But when we start considering supply chains of products, issues of resilience as well as carbon emissions, things goes a bit tricky.
The future low carbon world might be one where supply chains are shorter, where consuming local looms large and where decentralisation returns. Powering decentralisation is simply the recognition that there’s both financial economy and carbon economy; that when we need to economise on carbon, we can afford it.
The modern, capitalist, market economy is powered by demand. Demand for products, goods and services. And what drives these demand? Some would like to say, marketing, advertising. But more fundamentally, social comparison, desire for affliation/connection.
So the idea of market competition gets turned on demand itself. In other words, the seller turns to the buyer and say, “He’s got this, so you have got to get it.” This mechanism is so widespread and so completely ignored by economics that at a macro-level, it overturns more fundamental notions of allocative efficiency. The fact that demand is in itself premised upon the actions and long-term strategies of supply, makes the equilibrium in the market impossible to pin down.
There is no long term convergent points and what development has come to be is simply the ability for supply to generate more and more of its own demand.
The market values goods and services. And it also values the revenues generated from them. That’s what the capital markets are doing. What is interesting is that the capital markets have its own taste and preferences despite what we consider about rationality of businesses.
A dollar of revenues from unpopular industries can be treated as less than one from the ordinary industries. Just as the dollar of revenues from more popular industries can be seen as being more valuable.
At the moment, climate related businesses gets their chance in the limelight. And in the same vein, the coal businesses were being battered. Yet one can still consider all that rational considering the regulatory risks and issues around availability of feedstock to continue operating.
So is the value of a dollar from different businesses the same? Ultimately it is a question of what you think is the purpose of a business: to make money or to serve the customers.
We perform a lot of demand forecasting for energy players and increasingly we need to forecast energy or fuel use for other industries. Often the players are thinking about greening their production, supply chain, etc. so we are forecasting how much fuel will be needed, or fleets of ship, volume of goods, amount of energy consumed.
In the climate transitioned world, we envision a greener version of our world when actually, it’ll be a different world altogether. It will not be the same as the one we are in today. For example, the energy content of hydrogen or green ammonia is a fraction of what we currently use as maritime fuel. If long-haul vessels are to switch fuel, they need more frequent refueling and bunkering activities will no longer be as concentrated as today. What will happen to Singapore as a bunkering hub?
Likewise, if companies are starting to be concerned about Scope 3 emissions, are we sure they would just pay more for green logistics? Won’t they procure more of their supplies locally? If we care about sustainability, will we not change our supply chains to switch out carbon-intensive materials.
The metrics around overall goods demand and where they come from will change fundamentally in a climate-transitioned world. ESG or climate is not just compliance, regulatory risk and reporting.
I wrote about how people can’t solve problems that they are not willing to have. Yet one has to master the art of picking the right problems to work on as well. There had been times in my life when I wasn’t sure which problem to pick on dealing with and my attention became so diffused I wasn’t actually solving any problems but simply touching and going.
A lot of that life was during my previous career. We were often under a lot of pressure to do many things and deal with lots of problems with limited resources. And the result was the need to frequently and quickly get through a problem, declare it solved, and then go on to another one. There were long term issues, and shorter term ones. And one must learn to be able to prioritise them, as well as to properly trade-off resources across the long and short term challenges.
That prioritisation eventually becomes another challenge in itself. And this sort of self-referencing issue keeps popping up over my professional life. I discovered the importance of setting up buffer time for planning, to set aside budget for solutions to manage budgets and to ensure sufficient rest to be able to actually be producing more. Often times, we don’t recognise that the problems we pick naturally lend themselves to some peripheral problems that we need to deal with. That problems actually comes in a package when we are picking them.
I first heard about this as a question around which came first and the challenge of studying causality in somewhat circular systems. But then it was also characterised as a problem when we want to develop a new system to displace the prevailing one. It is some kind of situation where you need something to start another and you need the other to get the something you need.
Classically, if you want a thriving business, you need customer, stakeholder support but in order to do that, you need to have the business first. Or that you need capital to build a business but then quite likely the route to getting money for capital is to have a business. When success builds upon success, based on what you can observe, then you have a chicken-and-egg problem on hand when you want to create the success to begin.
Essentially anything that involves some kind of circularity exhibits this kind of problem when it needs to be first put in place. Several strategies have been looked into for this problem. There’s bootstrapping – which generally entails squeezing out some resources from existing pockets/spaces to be able to get the first bit of results which will drive more. And then let it snowball.
There’s the ‘fake-it-till-you-make-it‘ approach, which involves essentially lying to at least a small group of stakeholders to get them onboard in order to bring in the others. I do not recommend this. Finally, you could also take immense amount of risks, exhausting resources, adopting the ‘build-it-and-they-will-come’ approach.
Governments in particular do all three a lot. And it can be wise to learn from them when it comes to business. Sometimes they can be good entrepreneurs.
There is a collorary to our economic system in nature. It’s not considered a single subject or discipline but involves a mixture of physical geography with ecology, biology and so on. Nature is truly circular to the extent that the outputs of one system feeds into the input of another and the overall grand scheme of things is in a kind of dynamic equilibrium that eventually shifts over time.
For a while humans have mimicked nature in creating circularity in our economy. And then we gave up because it was easier to scale things up and create wastage in order to fulfill profit motives. The unequality in an economy, the more wastage is produced because production gets inevitably skewed towards satisfying a demand that is aligned more to the distribution of “means” rather than a distribution of “needs”.
Nature behaves differently because the currency of nature is multi-dimensional and rich. There is no “monetisation”; nature do not base its value on a single commodity. You can’t exchange one calorie for another easily within the diet of most animals.
Real circularity involves richness that the industrial capitalist manner of approach cannot replicate.
Singapore is going to import low-carbon electricity soon; well, technically it already has been importing these electricity through some “small pilots”. The idea of importing electricity isn’t new. For a long time, Thailand had been importing power from Laos, developing hydroelectric plants there and building transmission lines into their network.
Most regional electricity markets started out first with interconnectors to help with load balancing, which also provides for imports and export. The Nord Pool in Nordic states started out that way. And the purpose of that had always been to enhance resilience and promote regional integration.
Singapore’s case is interesting because of the focus on securing green electrons. From a GHG Protocol carbon accounting standpoint for Nationally Determined Contributions to emission reduction, the electrons that are imported are carbon-free. This is because countries only need to care about Scope 1 emissions. That is to say the electricity exporting country will need to care about their energy mix and be responsible for the carbon emitted during the power generation process.
At the country level, all imported electricity is carbon free. But for companies consuming the electricity, things can be complicated. Do they use the grid emissions factor assuming the imported electricity is carbon-free? Are retailers who purchase the import electricity able to claim the power is carbon-free?
Because of these controversies, Singapore took the clear path of requiring the power imported to be from low-carbon sources / renewable sources. So hydroelectricity qualifies, and so does solar and wind. The challenging layer that Singapore added to the electricity importers is for the power to be firm; ie. the solar power cannot be just supplied in the day when the sun is shinning. The message is that we want green electricity but not the intermittency that comes with it. Nevertheless, managing the intermittency will come down to the importer rather than the exporter since the requirement comes from Singapore.
I do wonder if this whole musical chairs around who should own the cost or benefit to the matter of carbon emissions a big distraction from the world’s attempt to reduce carbon emissions though. If Singapore could simply develop more projects overseas and secure the relevant credits from other countries on a government-to-government basis, we could still create new instruments that could help to release more supply of green energy for companies in Singapore to meet their obligations.
At some point we need to cut through the whole posturing, learn to be strategic together as Team World and work on the problem of climate change together.
Singapore Airlines is trying to switch their in-flight dining serviceware to paper rather than the current single-use plastic and met with accusation of attempting to cut costs. There is an issue also of sacrificing in-flight experience of customers for the sake of costs despite profits.
There are a few dimensions to consider in the debate and wider issues around the consumerist culture and system we have created. For the longest time, it pays off for companies to upsell: by providing better materials, packaging, a little more space and convenience, they can sell at higher price than it costs them to deliver the service or product. In fact sometimes they spend additional costs to cheapen the alternative because encouraging you to consume more and creating the cheaper alternative simultaneously enhance their customer base without cannibalising on some of their profits.
But as we step into a world where sustainability matters increasingly, these values and strategies we used to leverage on becomes more complex. We no longer just trade off customer experience, price and the costs of providing that experience. Now we have to consider how much being sustainable adds or subtracts that experience, how perceptions will be reshaped. And how important this is, for our culture to shift towards more sustainable consumption.
When dealing with a global issue with local variations of a problem and the need to change culture the way we are trying to do with climate change, there are important lessons we can learn about curbing smoking, especially here in Singapore.
Before we go there however, I want to first envision a state of the world where carbon emissions become more like stigmatised like smoking. Carbon-emitting industries would be like the cousin or uncle we have who is our relative and we can’t quite shake off but still be puffing away, causing our clothes to smell and our lungs to be polluted. We would want them to smoke far from us but they will inevitably bring that odour and whiff of smoke, and also ash back to us.
As employers, we would have competent workers who are smokers – and while we know that they might be taking smoke breaks, we still need to keep them as they are largely productive. So they will continue to exist, but we can treat them a little badly to nudge them to reduce their carbon emissions. Currently, we’re definitely not doing enough.
Some ideas on how to treat the carbon-intense companies/industries like smokers:
Labels could be slapped on all of the products and service invoices of these companies – imagine going down the aisle of supermarkets and seeing these labels on the fresh beef packaging.
These industries could be made to situate together (maybe within a yellow box); and if they are not in that given zone, they cannot run processes that emits carbon dioxide above certain threshold.
Tax them based on escalating, progressive carbon tax rates; this is above
These companies are not allowed to emit carbon dioxide until they registered their business in the jurisdiction and operated for at least 21 years.
So consider if we are doing enough for climate change; compared to public health. Both concerns survival of a nation, of the entire mankind.
