Tag Archives: economics

Importing green energy

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.

Plastic, cheap and perceptions

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.

Smoking and carbon emissions

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.

What would a net zero agrifood business look like?

Talking about creating net-zero businesses reminds me of the time when I wrote about zero-based thinking about the education system. Only by reconstructing what we want to achieve from scratch, can we try to uncover new innovations and ideas that we have been missing out to think about problems we have.

The agrifood industry supposedly produces about one-third of all the carbon emissions that humans are responsible for these days. We can try to think about where to cut emissions or we can consider how to overhaul things. One of the chief challenge of the world today is that we have been taking the theory of comparative advantage and trade too far, forgetting in part the risk of concentration, and the issues around carbon emissions of the logistics and supply chain. Once we start factoring in carbon costs, we can start considering more about growing and consuming local more because it might actually be worth the while.

Overspecialisation in the agrifood sector may bring about economic efficiencies at the expense of carbon emissions and food security. A long time ago, there were stories about fish being sent from the Nordic seas to China to be fillet only to be sold back in the Nordic states. It is a reflection of how capitalism have morphed our appreciation of craftsmanship, and our values around environmental stewardship.

So a net-zero agrifood business quite likely will have start from considering crop cycles, relevant crops to be growing for the local taste and preferences, and the techniques for cultivation, processing, and marketing these products. It will have to reduce distribution or tap on synergies with other nearby industries for distribution. It should concern itself with strong focus on quality and selection of robust crops.

Of course, it will also concern itself with minimizing packaging, pioneering newer retail approaches; once again leveraging more on synergies with surrounding industries. Of course, there is still room for trade and exporting but it might be harder especially if the produce is perishable. Nevertheless, the idea is no longer to use economies of scale and efficiency to sell to the mass market and allow the whole capitalist-industrial complex to be built upon heaps of waste and trash.

What would a net zero business in your industry look like?

We spend a lot of time thinking about emission reduction. And it is all based on considering the existing state of affairs and how to move ahead from here. So we often consider how a process can be optimised to use less energy, or to use alternative materials. So a decarbonisation roadmap plays an important role in considering an existing business and how carbon emissions can be gradually eliminated from the workings of the business to transit it towards a low-carbon economy.

But just as important is how we can envision a new business to perform exactly the functions of an existing business but with zero carbon emissions. It is no longer about mapping or developing emissions baselines but rethinking how the same process can be achieved without emitting as much carbon. It is rethinking processes altogether. Heck, it might even involve rethinking products.

Major oil & gas companies are now refashioning themselves as provider of energy, competing with their customers who are power generators. Or they can think of continuing to supply the electricity generation players by going into mining and extracting of minerals and metals that are needed for wind turbines and solar panels. Or they could reconsider that they are actually logistics players ferrying molecules around and look into dealing more with chemicals transport. They could even consider themselves producers or inventors of new materials.

This exercise can be repeated for other industries and we could potentially have very interesting outcomes.

Finding good people

Can people be talented in terms of their attitude and work ethic rather than in content? I think it is potentially harder to find good people who takes ownership in their work and do them well than so-called skilled people. Because our work and education system increasingly churn out lots of generalists in the market, education stops being a good system for sifting out the non-committed, the slackers and non-resilient.

We want the system to help everyone get a degree, get good jobs and get paid well but we forget that our market system continues to be built on the competitive premise of “may the best team win” – which is to say that at some space between the education system and our industries, something is going to snap.

To move away from creating broken systems or breaking one part of the system while trying to fix another part. You choose.

Forecasting scenarios

What sort of forecasting is better?

  • If this, then …
  • It will be …

The first makes assumptions explicit. The second hides the assumptions and takes them for granted.

In my work as a strategy consultant, I make extensive use of scenarios, and often we might not consider the likelihood of scenarios while constructing them. It matters because it helps us to immerse ourselves into a reality such that our construction of the reality is not affected by how likely we think it would be. It is more important to be able to extensively work our the implications of our assumptions at that stage.

Only after the scenario modelling is complete, it makes sense to step back and examine the assumptions, perform sensitivity analysis and consider how the outcomes are sensitive to some of the assumptions.

And then what? Then we consider likelihoods of those assumptions manifesting.

Notions of additionality

What does additionality mean? There’s this idea that the activity needs to add on something to the existing context. This is a big matter in the case of renewable energies as people are speaking against carbon credits or renewable energy certificates that are actually not adding more renewable energy or removing carbon emissions from the atmosphere.

We are trying to create a system where incentives themselves are not blunted or abused. If for example, we introduce incentives to reduce rat infestation by rewarding those who catch rats, then you risk the abuse where people are breeding rats to be killed and submitted for incentives. The result of this unintended condition is that people are taking actions that may be contrary to what the original intent of the incentives were.

The world is trying to shift towards a low carbon world. Incentives ought to be rejigged and aligned towards reducing carbon emissions. Yet if we allow abuses and undermine the credibility of emission reductions, we’re hurting ourselves. If forest land owners are suddenly making new revenue streams for trees they are already protecting, it might be a problem that there is no additionality for the new carbon assets.

We should only be incentivising activities that will reduce the world’s carbon emissions. Or increasing its sequestration. The problem is that is hard to measure and align standards of what really counts.

Dynamic cost-benefit analysis

One of the most power tools that economics have brought to the world is cost-benefit analysis and really assessing what is the constitution of cost or benefits at various levels: individuals, firms, regional government, national government, countries.

Where it fails is the ability to properly ascribe who cares about what. The assumption around rational, selfish agents cannot possibly hold in reality. On the other hand, there is radical inconsistencies when you perform such optimisation on behalf of “government” which is staffed by human agents and with politicians have their own agenda. Over the years, these poor assumptions have made room for more colourful, richer analysis of agents, decision-making units at different levels.

Now if we move our attention to the dimension of time rather than perspective of our agents, we realise another issue. We can assess somehow the cost and benefits of today if we use our imaginations but to stretch it to the future would require even more manipulations. And the uncertainty make render the exercise less fruitful than one may expect.

Alas, we continue to use these tools expecting them to work while not having proper assessment of whether they work or not when the outcomes play out in reality. It is not the issue of calculating those figures but how we incorporate them into our judgment that matters. Yet with limited budgets and resources, most have chosen to opt for a semblance of the exercise, paying a smaller cost but getting almost none of the benefits.

Trash & waste

About 81 years ago, Dorothy Sayer, a British writer penned these words:

A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand.

Dorothy Sayers (1942), Why Work

In the article, I’m amazed by the clarity which Dorothy Sayers foresaw the world post-war, with piercing critique of the economic system we have created. The economics that she was schooled in was one of observations of the market, of history and of human psyche itself.

The second world war has ended for more than 70 years now; and as predicted by Sayer, we had immediately jumped back into the business as usual, where work and labour was valued only by money. And this is why we churn out more waste our planet can scarcely handle (both in terms of carbon emissions and lots of material wastage).

Sayer’s remedy has to do with appreciating our work in a different way and valuing it more. And much of it certainly sounds like echoes of the messages around ESG, corporate social responsibility and sustainability these days. Yet she also points to something deeper, points revolving around values of work, of the things we do in society, and value that is created to serve lives and human beings, not abstracted by the market in the form of price signals.

Her full essay can be found here. I confess of course that my shared faith with Sayers help me appreciate the essay in a deep way. If you do care about sustainability and our world, even if you are not a Christian, surely some of the points she brought up should give us a deeper motivation to drive us to live in a manner that is a part and yet apart from this market system?