What happens in economics when technological innovation happens? There’s a bit of dilemma between technological progress and economics because technology needs to progress to a stage when it upend the economics of an established technology – yet the incumbent is often enjoying scale economies as well as other effects such as network economies that can make it incredibly difficult for the new comer even if it is superior to existing technology at the scale that the incumbent operates.
In the Innovators’ Dilemma, that was being described and the strategy as well as the market approach is always for the new technology to chip away at the market of the incumbent technology by being appealing enough to a small group in the market to help it grow its scale and challenge the incumbent on more fronts gradually. Can the new technologies that we are trying to cross over towards make their way through this path in order to break the dominance of the incumbent technologies?
They probably won’t be able to move fast enough. And that is probably the justification for government to intervene and encourage developments. Yet governments do not want to be seen as favouring particular technologies. There is also a concern about creating inefficiencies in the market by distorting prices or forcing the taxpayers to shoulder the wrong costs.
Yet in reality, for the world to create a better future, there’s no real ways around it. The modern world was not built by shielding taxpayers from the wrong technological investments nor from carefully betting on the right technologies to take off. The complex problems around climate issues today are not so different from the public infrastructure challenges that people faced in the time before government had the kind of powers they have today. They are more complex, and we probably need more talented people working on them, both in the private sector as well as in government. In fact more so in government than ever.
The challenge remains the cost-benefit paradigms and all the free-market type principles to government and what intervention should be like. Without more mission-oriented policy-making principles and a system that is properly leveraging talents and passion, it will be difficult for governments around the world to assume the kind of role and leadership it needs to lead the transition.
What does it mean if companies declare that they are committed to the energy transition including committing resources towards it, and massive investments, only to make a U-turn when oil & gas turns out to be way more profitable? It tells you that it had always been about the money it makes rather than the transition. Never mind that the fossil fuels continue to drive up carbon emissions and hurting the climate. In fact, maybe climate change would drive up demand for energy – especially in terms of heating or cooling, or requiring more activities in the economy to deal with and mitigate the impacts.
Can the work of accelerating the energy transition be left to the markets? Can profits really motivate companies to support the transition and reduce carbon emissions? Does the market demand understand, appreciate and would be willing to drive and pay for the transition? I don’t think so. Absent regulation, it is unlikely for the markets to drive the emergence of the solution. It is as if we want seat belt manufacturers to drive the messaging around safety and benefits of having seat belts rather than legislate it as a requirement in cars. Or just waiting around for cars to adopt them as the standard feature in a car.
We probably don’t have enough time for all that to make an impact on mitigating climate change. Regulations will be required. To put a price for carbon on the market, to push technologies and options in the market that will reduce emissions. We must also evolve and steer the regulation as our understanding of the technologies and impact on environment advances. We don’t have to get everything right on the first try but we do need to be trying.
Probably for the first time in the history of my personal blogging, I’ve brought together all my writings under a single site. Since migrating kevlow.com to a self-hosted platform (though you probably won’t be able to tell), I’ve pulled in some of the even older pieces of writing I’ve put out on the internet. This includes blog entries written from as far back as 2005.
Looking through my entries, there was the period of 2011-2013 when I wasn’t so active probably because I was busy in LSE. It was probably a bit of a shame because those were some really formative years as well in terms of the development of my academic thinking and also integration of my faith into my intellectual identity. Perhaps I had wanted to keep things a bit more private. I would like to point out that those were also years when Tim Keller’s writings engaged my mind so much more.
The focus of my writings has certainly evolved significantly especially with the addition of topics around energy and climate. My passion for education and learning was more dominant earlier in my writing though I wouldn’t consider it to have died down from then. My interest in other topics had expanded.
I could have continued to keep my writings in different niches and have them separate but I realised that in some sense, they were reinforcing one another and were all products of my principles and conviction that drove me. After years of refinement, my conviction is still towards this broader theme of trying to create a future that we all want to live in. Whether it’s energy, education, sustainability or economic development, I am future-oriented and all for investing in what is to come.
Biomethane (or upgraded biogas) has a challenging reputation in some markets. It is chemically indistinguishable from natural gas which is a fossil fuel. It burns identically and emits carbon dioxide when combusted. However, it is considered a low-carbon fuel because the carbon content from biomethane is actually the short-cycle carbon dioxide. It is great because you can combust and generate power or heat using a conventional gas turbine or other gas appliances with it without having to retool or change the equipment.
Biomethane is a clear pathway to support decarbonisation of gas and yet it is being shunned by critics. Part of the reason is that the fossil fuel companies are getting involved and could extend the lifespan of their fossil fuel assets and infrastructure using it. And some people are unhappy that they even receive low-carbon funding for the gas infrastructure.
When we see fossil fuel companies as enemies, then anything they do will be wrong and things that continues driving their asset base even tangentially related to fossil gas seem like a problem.
But if the enemy is carbon emissions, then those companies need to be given a chance. We need to demarcate some boundaries: for example, they could set a profit margin cap on themselves and commit all the funds above that towards clean energy investments. Or even better, they could funnel those funds into a ring-fenced facility which then dole out the resources towards anything proven to be low-carbon.
After having kevlow.com domain and plan on wordpress.com for 3 years, I’ve finally decided to uproot my site and migrate it to a self-hosted system. Existing subscribers might realise you are not getting email notifications. You can go back to your WordPress Reader settings to enable it.
With self-hosting, I’m going to be able to run a lot more things on my website itself including some of my digital product e-commerce as well as my mailing list. I might start managing it out of my own system very soon. So stay tuned while I try to figure all that out.
The backlog of entries should be coming back soon – apologies for all the hiccups during the migration process.
Sometimes I wonder if being a good professional can be different from being a good employee. After all, what is being a good employee when you’re over-delivering or serving your customers better than your employer expects? Is that “stealing” from your company? How about when you are over-worked by trying to be a good employee – does that set a bad example as a professional?
There seem to be some tension between doing good work and being a good employee. And it has to do perhaps with the actual business culture and character of the firm that you’re in. Or it comes through from the self-interested capitalist identity of what a firm stands for. It is strange though, that the firms that would persist tend to be the ones who have been able to uphold their values and commit to them.
So all the short run success factors and metrics turn out to be pretty poor indicator of long-run success. Yet people feel like they have no choice but to stick to these short term metrics because people can’t patiently wait for results or their fruits.
Is the whole notion of ESG disclosure a massive distraction? In 2021, Tariq Fancy of Blackrock called it a distraction for climate action. And I tend to agree because it tries to pass on the responsibility of climate action into the hands of the market, that had continually proved incapable of generating endogenous climate action. Sure, you need the market to scale solutions, and drive the expansion of some of the good things that will benefit the climate. But to think that the market can drive change just purely from the realisation of climate change as a problem is naive.
By leaving the type of climate action and the labelling of what counts as green to the market will simply generate greater confusion and inaction as we have seen from the proliferation of funds that tout sustainability or impact, or both and often still trying to pair that with financial returns, etc. The extra cost that goes into reporting, emissions accounting and massive resources around disclosure standards and all simply drives activities for the big consultancies without diverting energies towards the direction of climate action.
The issue is that greenwashing is real and pretty easy. And that can take the form of superficial disclosures that tosses buzzwords around. Yet there are corporates taking genuine action drowning in this sea of sustainability marketing and PR nonsense, being accused of greenwashing when they are trying to make a difference. If it was all going to boil down to rules, regulations and laws, then there won’t be ESG funds and non-ESG funds or government having to regulate disclosures. There won’t be accusations of greenwashing because you are either green or just illegal/non-compliant.
Regulation is of course a complex topic for another day but it has to be worked on. Regulating disclosure is unlikely to be enough.
The government tends to be an easy target for most of the problems, or the lack of solution towards them. In most cases, the lack of technical solutions tend not to be the barrier towards solving the problems. It is a matter of adoption. And people look towards the government to drive the uptake of solutions. The struggle today, in the market economy where there’s a multitude of technical solutions backed by various different economic interest, there’s some kind of gridlock towards having governments select solutions.
Historically, the popular beliefs, ideas and thoughts drive the directions of democratically elected government. Influence from businesses probably will contribute to some of that. But the options are limited (automobiles or horse carriages, internal combustion engines or electric engines, AC or DC transmission, etc.) and there are certain dimensions by which governments can justify their choices and move forward.
Today, it is less clear. Should we electrify homes completely or allow them to continue using gas, albeit having to encourage the development of renewable gases? Should the government be driving the choice of technologies used in homes or industries by enabling or making difficult the development of more biomethane for grid-injection? Or should they be encouraging full electrification not just of homes but also industries, and even heavy transport, redeveloping infrastructure to be able to deliver lots of electricity, enabling battery swapping or ultra-fast charging along highways?
What are the dimensions that the government should be optimising along, should they be taking positions to propagate certain solutions or standards? Are they in the position to make those choices? Yet some of these innovations and technological adoption can only move forward with enabling policies. The issue is that being in a standstill and not enacting any policy is in itself a choice for status quo, for the carbon-intense way of life, and dooming our system. Yet making a choice can mean excluding certain options or causing certain options to be more or less expensive than they otherwise would be, hence favouring one over another.
Taking policy positions and ultimately making some kind of technological choice implicitly is inevitable. So it is just a matter of what are the priorities.
We might not realise it but governments have a huge role in creating markets. This is because markets do not spontaneously emerge out of nowhere especially in highly developed economies. One of the reasons is that markets actually requires structures, institutions and frameworks such as rules and regulation can encourage players to step forward more boldly and grow the market.
Today, in Australia, despite the multi-dimensional benefits that bioenergy brings, and synergises with the traditional economy, there’s still little recognition of the low-carbon identity of bioenergy. And it is a shame that methane produced from biological processes are still seen as not too different from natural gas that is extracted from the ground. There is no forward direction by the government to stake the space and define the standards for biogas production, upgrading into biomethane and regulations around treatment and handling of the digestate, which itself is a by-product of the process that can be made useful.
There is perhaps a clear path to create a market not just through regulatory clarity but also enforcing demand. Market for audit, market for inspections, even market for many public services are created by regulations. Sure, there’s a need and the market contributes positively to society and so regulations support that. Why can’t we do the same with clean energy? One that displaces directly the fossil fuels in our system?
There’s going to be a new kind of entrepreneurship; not necessarily one that is building businesses with an established revenue stream or for a current market need, but one that bets on the needs of a future that the world wants to be creating. And the upcoming green race might unleash this new breed of entrepreneur more strongly than before. In the post-pandemic era where people might have got sick of government stimulus allowing billions of capital to slosh around the system, risking inflation and simply making the richer rich, fiscal policy might be returning to the center-stage as the new means of keeping the public voting base satisfied.
The green race is going to drive new winners in the economy as entrepreneurs who have positioned themselves to make the critical investments needed for the economy. Especially the ones that going to create the very jobs that politicians plan to trumpet about. Being able to think ahead and consider the kinds of businesses desired both by the public sector in an economy that is highly pro-market will be rewarded. The risk is that the public sector decides to take on the direct investments themselves rather than to ‘incentivise’ the businesses to do so. This is why the pro-market orientation of the government is important.
For the markets where the government have the tendency to perform direct intervention or deem infrastructure investments way too strategic to be left to private sector, the green race may take those economy in a different direction. They may choose to create new state-owned and managed entities to make new direct investments or to use the existing ones. And the green jobs will be created within state-linked enterprises. Civil servants who are savvy in these areas will tend to gain within such systems.
Either way, there are going to be new ways smart people will be gaming the system.