For many years have I had the greatest party line when people in Bombay ask what I do (as they always do) "I make boats".
Now I have a friend who can with a straight face say "I make planes".
Bah, humbug.
Sunday, December 20, 2009
Tuesday, December 8, 2009
It’s the numbers, stupid
The climate change debate over most of the world has been hijacked by those who want to continue business as usual. They have done this by relentlessly focussing on the claimed enormous costs of mitigating what they say may not happen. On the other hand, those who want to change the world have allowed a bunch of ex hippies and daft economists to try and reinvent the world as one where the rich give to the poor, we chuck away our cars and powerboats for bicycles and sailboats, and move from 5,000 square foot McMansions to Manhattan studios. We are debating dollars and cents versus Net Happiness Indexes.
The status quo has won; the world’s press is colluding by not pointing out that the ‘costs’ that are being debated are not costs, in the sense of an ice cream bought on the street - a few licks and only the memory and a few extra fat cells remain. The money that has to be spent is all capital, and given the longevity of energy assets, it is 20 and 30 year capital.
There is a return to this capital and that return in many cases is very high. The easy stuff, especially where it is a new build in a country like India, can have an incremental return of over 30%. That’s quite good, and it is easy enough for governments to mandate by imposing and policing efficiency and building standards.
Assume I have to air condition a factory or an office building. The most common compressors used in India use 1.5 units of electricity per tonne; the most efficient use .5 units per tonne. The difference in cost between the 1.5 unit system and the .5 unit system pays for itself in about 3 years. Most Indian businesses do not choose the efficient system because capital is scarce and the incremental capital can be used to expand the business instead; an entrepreneur cannot lose a march to his rivals. This dilemma is not confined to air conditioning; it affects virtually every capital goods choice a business or a household makes. The short term financial rewards of the efficient system are greater than can be achieved in most businesses in India but in a capital constrained society they clash with the market imperative or the household budget.
A Mercedes C220 CDI is much more powerful and safer than a Maruti Dzire, and it is a little more efficient as well; but the Dzire is miles ahead of an Ambassador, which is the analogue for the state of most Indian industry. Let’s dump our Ambassadors and develop the equivalent of our competitive car industry for industrial machinery, appliances and building products. If we succeed in this there is huge gain to be had for India. We are becoming the small car manufacturing capital of the world. Why not add machines, windows, heaters et al to that industrial base?
And any financing we may get from the developed world is also easy to target to efficiency, easy to monitor and easy to leverage because it has a high commercial return so the borrower will repay the money. The incremental cost of a highly efficient appliance should be refinanced at 3% over its life by the government using its own or, preferably, developed country dough, with repayment enforced by the tax man.
As for the nonsense amongst our chattering classes about how Jairam Ramesh has given away the goods before arriving in Copenhagen, it is just that, nonsense and nonsense that is giving the game to the Americans and the Chinese, who are coming out smelling like roses, despite being the two polluters par excellence.
The Chinese have walked away with the PR debate. They are being lauded for the fact that they will cut the carbon intensity of their economy by 40% to 45%. Lost in all this nonsense is the fact that their emissions will rise from the current 5.5 MT per capita to some as yet unspecified number which I suspect will be around 8MT per person.
The current 5.5MT per capita is about what France emits per person, so the world is praising the Chinese for promising to pollute more than the French, who are signing up for a 20% to 30% reduction from their already low levels.
India, meanwhile appears to be signing up to a 20%+ reduction in carbon intensity, which means that its per capita levels will rise from about 2MT per person to between 3.5MT and 4MT per person. The calculation is simple: assume our GDP today is 100 and energy usage is X then in 2010 (at 9% growth – optimistic) our GDP will be 237 and energy use will be .75X*2.37; substitute the current estimate for per capita emissions of 2MT and you get about 3.5MT per person. This ignores population growth, fuel mix and so on but it is close enough for government work.
If one makes the simplistic assumption that all our power growth will be in electricity one has to realise that we will easily beat this goal, if only because the electricity supply will not increase 80% in 10 years, which is what the above calculation implies. It never has, no matter what the planners say and our useless electricity boards will not change their tardy habits in the next 5 years, which is when the die will be cast for what India will look like in 2020.
Instead of making the most of our inefficiency, India continues to make a fool of itself, with its own negotiators turning on the government in yet another instructive lesson on the dead weight of the bureaucracy. We must! we must! tie pollution to per capita numbers chant our 'experienced' negotiators. Take one look at their resumes and you see that they have been at this since Kyoto, in which they felt they got a great deal. They did, but a most unrealistic one. They will stick to their old position because it was such a triumph. They do not see it as empty even though the US, who along with China holds the key to reducing GHG's, walked away from Kyoto.
Both China and India also have another dodge at hand; the measurement is to be in GDP per capita in purchasing power parity terms while carbon is carbon, in this case immutable. If the exchange rate rises we will automatically make the grade because we will be using less carbon per unit of GDP. Tra la lala la.
Therefore, the goals to 2020 are a joke for both India and for China but they are real for the US in particular because of entrenched habits and the energy industry, and for many parts of Europe that are already very efficient.
The key to our future lies in using the 10 year free ride that Mr. Ramesh appears to be negotiating to get ourselves into a position where we can make a real dent in emissions beginning in 2020. Because that is the tough stuff; that is when we will be staring down the barrel of a gun like the US and Europe are doing now.
And that is the reason they are buying this eyewash from us, and even more from China. Our agreeing allows them, especially the Americans, political room to try. And, if they can do it we can follow along and copy from them. We may have to pay a bit for the privilege, but we pay for German cars and Swiss machines today based on what they do for us. We will pay then because we will know the stuff will work, we will be richer, we will know the cost benefit, so we will be able to finance the next step.
Should we do it for us? I look outside my window and see the pall of pollution that requires daytime foghorn use by ships in the harbour in a tropical country.
The status quo has won; the world’s press is colluding by not pointing out that the ‘costs’ that are being debated are not costs, in the sense of an ice cream bought on the street - a few licks and only the memory and a few extra fat cells remain. The money that has to be spent is all capital, and given the longevity of energy assets, it is 20 and 30 year capital.
There is a return to this capital and that return in many cases is very high. The easy stuff, especially where it is a new build in a country like India, can have an incremental return of over 30%. That’s quite good, and it is easy enough for governments to mandate by imposing and policing efficiency and building standards.
Assume I have to air condition a factory or an office building. The most common compressors used in India use 1.5 units of electricity per tonne; the most efficient use .5 units per tonne. The difference in cost between the 1.5 unit system and the .5 unit system pays for itself in about 3 years. Most Indian businesses do not choose the efficient system because capital is scarce and the incremental capital can be used to expand the business instead; an entrepreneur cannot lose a march to his rivals. This dilemma is not confined to air conditioning; it affects virtually every capital goods choice a business or a household makes. The short term financial rewards of the efficient system are greater than can be achieved in most businesses in India but in a capital constrained society they clash with the market imperative or the household budget.
A Mercedes C220 CDI is much more powerful and safer than a Maruti Dzire, and it is a little more efficient as well; but the Dzire is miles ahead of an Ambassador, which is the analogue for the state of most Indian industry. Let’s dump our Ambassadors and develop the equivalent of our competitive car industry for industrial machinery, appliances and building products. If we succeed in this there is huge gain to be had for India. We are becoming the small car manufacturing capital of the world. Why not add machines, windows, heaters et al to that industrial base?
And any financing we may get from the developed world is also easy to target to efficiency, easy to monitor and easy to leverage because it has a high commercial return so the borrower will repay the money. The incremental cost of a highly efficient appliance should be refinanced at 3% over its life by the government using its own or, preferably, developed country dough, with repayment enforced by the tax man.
As for the nonsense amongst our chattering classes about how Jairam Ramesh has given away the goods before arriving in Copenhagen, it is just that, nonsense and nonsense that is giving the game to the Americans and the Chinese, who are coming out smelling like roses, despite being the two polluters par excellence.
The Chinese have walked away with the PR debate. They are being lauded for the fact that they will cut the carbon intensity of their economy by 40% to 45%. Lost in all this nonsense is the fact that their emissions will rise from the current 5.5 MT per capita to some as yet unspecified number which I suspect will be around 8MT per person.
The current 5.5MT per capita is about what France emits per person, so the world is praising the Chinese for promising to pollute more than the French, who are signing up for a 20% to 30% reduction from their already low levels.
India, meanwhile appears to be signing up to a 20%+ reduction in carbon intensity, which means that its per capita levels will rise from about 2MT per person to between 3.5MT and 4MT per person. The calculation is simple: assume our GDP today is 100 and energy usage is X then in 2010 (at 9% growth – optimistic) our GDP will be 237 and energy use will be .75X*2.37; substitute the current estimate for per capita emissions of 2MT and you get about 3.5MT per person. This ignores population growth, fuel mix and so on but it is close enough for government work.
If one makes the simplistic assumption that all our power growth will be in electricity one has to realise that we will easily beat this goal, if only because the electricity supply will not increase 80% in 10 years, which is what the above calculation implies. It never has, no matter what the planners say and our useless electricity boards will not change their tardy habits in the next 5 years, which is when the die will be cast for what India will look like in 2020.
Instead of making the most of our inefficiency, India continues to make a fool of itself, with its own negotiators turning on the government in yet another instructive lesson on the dead weight of the bureaucracy. We must! we must! tie pollution to per capita numbers chant our 'experienced' negotiators. Take one look at their resumes and you see that they have been at this since Kyoto, in which they felt they got a great deal. They did, but a most unrealistic one. They will stick to their old position because it was such a triumph. They do not see it as empty even though the US, who along with China holds the key to reducing GHG's, walked away from Kyoto.
Both China and India also have another dodge at hand; the measurement is to be in GDP per capita in purchasing power parity terms while carbon is carbon, in this case immutable. If the exchange rate rises we will automatically make the grade because we will be using less carbon per unit of GDP. Tra la lala la.
Therefore, the goals to 2020 are a joke for both India and for China but they are real for the US in particular because of entrenched habits and the energy industry, and for many parts of Europe that are already very efficient.
The key to our future lies in using the 10 year free ride that Mr. Ramesh appears to be negotiating to get ourselves into a position where we can make a real dent in emissions beginning in 2020. Because that is the tough stuff; that is when we will be staring down the barrel of a gun like the US and Europe are doing now.
And that is the reason they are buying this eyewash from us, and even more from China. Our agreeing allows them, especially the Americans, political room to try. And, if they can do it we can follow along and copy from them. We may have to pay a bit for the privilege, but we pay for German cars and Swiss machines today based on what they do for us. We will pay then because we will know the stuff will work, we will be richer, we will know the cost benefit, so we will be able to finance the next step.
Should we do it for us? I look outside my window and see the pall of pollution that requires daytime foghorn use by ships in the harbour in a tropical country.
Thursday, December 3, 2009
Carbon Baloney 2
April 2009 3D electricity .08 units per piece.
November 2009 3D electricity .06 units per piece.
Carbon intensity (assuming no change in fuel mix over this period) down 25% in 8 months.
Perhaps our bloody pols and academics ought to get into the real world and see how easy this stuff really is, and how cheap if done at the right time.
November 2009 3D electricity .06 units per piece.
Carbon intensity (assuming no change in fuel mix over this period) down 25% in 8 months.
Perhaps our bloody pols and academics ought to get into the real world and see how easy this stuff really is, and how cheap if done at the right time.
Carbon Baloney
The crap targets being adopted by various countries amongst their wailing and gnashing that this will be so hard and cost so much are evidence of how easy the task really is.
India will cut carbon intensity (though as a major agricultural state they should have gone for GHG as the measure) by 20%-25%.
A joke. Some posts back I showed how our household cut energy intensity by 65% (no matter the change in the source of electricity that beats 25% hands down). The whole energy thing cost less than 10% extra of the overall redecoration budget; done by itself it would have been 50% of the redecoration budget.
Sometime this week I put on this blog how much per unit the business has cut energy intensity. I suspect that the number will be around 50% from 6 years ago, but perhaps as much as 20% just this year; and it may well be another 20% next year.
Again, their is only a minor extra cost to go energy efficient as this is being done as part of an expansion. We are buying better and faster machines anyway; the only extra cost is making the new aircon system more efficient, and making it bigger to subsume the old, shitty one. Extra cost - about 1% of the total capital budget for the next 1 year.
What both of these examples show is the following:
1) The places to make the changes are in the developing world because we do not have much infrastructure in place.
2) The easy way to do it is to have high standards and codes for buildings. This will also build an industry for building materials that can be sold worldwide. No technology is needed - all this stuff exists.
3) Growth will take care of the rest as new stuff comes up and old stuff is replaced.
Our legacy of a low component of manufacturing will help as we do not have many legacy assets to protect. The right rules (if enforced) on energy standards and pollution controls, will ensure better development.
The most heretical way to keep industrial energy efficiency high is not to dismantle our labour rules as many suggest, but to enforce them absolutely. This will mean even more capital intensity to Indian business, but it is a fact that the more labour efficient a machine, the more expensive, the more expensive the more powerful, the more powerful the more productive.....
India will cut carbon intensity (though as a major agricultural state they should have gone for GHG as the measure) by 20%-25%.
A joke. Some posts back I showed how our household cut energy intensity by 65% (no matter the change in the source of electricity that beats 25% hands down). The whole energy thing cost less than 10% extra of the overall redecoration budget; done by itself it would have been 50% of the redecoration budget.
Sometime this week I put on this blog how much per unit the business has cut energy intensity. I suspect that the number will be around 50% from 6 years ago, but perhaps as much as 20% just this year; and it may well be another 20% next year.
Again, their is only a minor extra cost to go energy efficient as this is being done as part of an expansion. We are buying better and faster machines anyway; the only extra cost is making the new aircon system more efficient, and making it bigger to subsume the old, shitty one. Extra cost - about 1% of the total capital budget for the next 1 year.
What both of these examples show is the following:
1) The places to make the changes are in the developing world because we do not have much infrastructure in place.
2) The easy way to do it is to have high standards and codes for buildings. This will also build an industry for building materials that can be sold worldwide. No technology is needed - all this stuff exists.
3) Growth will take care of the rest as new stuff comes up and old stuff is replaced.
Our legacy of a low component of manufacturing will help as we do not have many legacy assets to protect. The right rules (if enforced) on energy standards and pollution controls, will ensure better development.
The most heretical way to keep industrial energy efficiency high is not to dismantle our labour rules as many suggest, but to enforce them absolutely. This will mean even more capital intensity to Indian business, but it is a fact that the more labour efficient a machine, the more expensive, the more expensive the more powerful, the more powerful the more productive.....
Subscribe to:
Posts (Atom)
