On Oilex and proposed government oil trading monopoly

These are the exchanges in pilipinasforum@yahoogroups more than 15 years ago and the official position paper that we issued on the proposed National Oil Exchange Commission, a government monopoly corporation on oil trading. Get your favorite snacks and drinks, this is 31 pages long. Enjoy.
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Pilipinas Forum, On Oilex and Government Monopoly of Oil Trading

August-September 2000

Dear Noy,

Initially, Cong. Garcia said the OilEx was patterned after the California eletric system, only latter did he start saying that it was patterned after the PEPEX…

and you see noy, it’s more than just the bureaucratic inefficiency it will breed, it’s also about the INAPPLICABILITY of the proposal…

1. The oil industry does not operate on a GRID system

Independent suppliers of electricity in the State of California or any of its contiguous states could supply electricity anytime and in various quantities (as long as their capacity permits) as transmission of their product throughout the state by the press of a button, such that bidding may take place on a hourly basis and that delivery of the product after bids is ensured.

Unlike an electric grid system, however, where electricity may easily be transmitted instantaneously anywhere within the grid, oil comes from different sources around the world and would take months and before it reaches our shores. The bigger oil tankers have a maximum rated speed of 16 to 18 knots, such that a tanker leaving Venezuela could take three months to reach our shores. Also, it should be noted that California buys its electricity not only from the lowest bidder, but buys only a majority of its supply for a given time from the lowest bidder. It is interesting to note that California still buys from the other bidders on a pro-rated basis, depending upon their proximity to the lowest bid. This is one reason why California was able to stabilize and even bring down the prices of electricity in their area because price competition between the participating bidders were intensified thereby resulting to lower prices.

In the case of the NOEC, it bids out its oil requirements monthly, and this is a totally different, if not, a precarious situation because what will the NOEC exactly do? Anticipate demand monthly? There is no clear mechanism how the NOEC or the DOE will do this and the prospect of fuel shortages occurring isn’t too remote.

The idea that the price of our supply may go to the lowest bidder will not be guaranteed because the NOEC will only have a day to approve the bids. What would happen if a day after bidding the prices of world crude oil immediately goes down? Prices in the world market change daily, even hourly, and fluctuates widely (ANNEX 1b). Still, the best price stabilizer is the presence of competition which has continually checked domestic oil prices despite increasing crude and product prices in the international market.

Also, the measure’s plan to tap the spot market (this is where the government will ideally get the cheapest price) also poses a number of problems, specifically on the cost and time of delivery and the quality of the commodity ordered. For all we know, we might end up spending more processing poor quality Chinese crude! Take into consideration that soon enough power generation plants will be requiring “sweet crude,” or the best quality crude, to conform to air emission standards under the Clean Air Act.

2. Suppliers of crude oil are located in different areas of the world

The Philippines comprises less than ½-percent of the world’s crude oil consumption and it is difficult to presume that we precede others in the sellers’ order of preference. We should always remember that we’re at the bottom of the hierarchy of importance as far as the distribution of crude oil supplies is concerned. The demand for crude oil is highly volatile, though cyclical, such that during the month of October, Europe tries to buy all the oil it can get its hands on, and that US demands for the product traditionally rises in the months of March and April. So how sure are we that we can get a steady supply from the world during these months. It is said that during the Gulf War, the Big 3 have to literally beg to crude oil suppliers the world over to supply them with the commodity. Should the Philippines bid out its crude oil requirements to the world on a monthly basis, wouldn’t it be hard to guarantee that supplies would reach the country on time save when Singapore, who is the closest exporter of crude oil to the Philippines, win out the bid every time.

3. The supply of world oil, as the bill admits, is cartelized.

One irony in the proposed measure is that while it recognizes that a monopoly/ oligopoly/ cartel in world oil supply exists, it fails to subscribe to the fact that the problem of rising oil prices in the country is not a domestic issue, but an international one. If Rep. Garcia vehemently protests against the cartelization of the world supply of crude oil then establishing a NOEC is NOT THE SOLUTION because prices in a cartelized environment will always remain the same. If Rep. Garcia is dead serious about government intervention to augment the problem then maybe it would just be more practical, and less expensive, if government would just implement another subsidy program to deter any oil price hike. But is this not going a step back back?

So what lowest bidder are we then talking about? We should remember that it’s a seller’s market out there, and that OPEC and non-OPEC countries shall and will always sell its product to those who can pay more, like Japan, the US, and the EU. And if we think that the prices of crude oil from non-OPEC countries is cheaper then we should think again. Their prices have historically been the same! What oil producing economy in its right mind would sell its crude oil at a price lower than the OPEC’s when the demand for the product have always been continually high (remember that oil is price inelastic, in the long term, at least)?

To say that what worked with power industry in California will work for the oil industry in the Philippines is downright oversimplification of the problem and of the solution. We cannot get away that easily. Electricity, given that there is a critical amount of power suppliers could be available anytime, anywhere. But, oil, sad to say, could only be available from a limited few (about 40 suppliers the world over) and that the delivery of the said commodity is subject to so many variables (i.e. weather disturbances, political instability, or any other acts of God).

hope this adds to the discussion…

– Poch Bermudez

Hey Poch,

This is interesting. Actually I’m not so familiar about the nitty-gritty of the debate about this oil exchange of Cong. Tet Garcia. My disagreement with the proposal is basically on its economic theory and principle: it’s again back to regulation. Government regulation accdg. to theory and experience, will always result to inefficiency (& corruption) if the subject of regulation is not a “public good”, if there is no “market failure”, and no “externalities” involved. Thus, if these things are not present, government should NEVER come in to intervene or regulate.

Thus, unlike the provision of national defense or traffic lights, where no private businesses will dare produce and expect to make profit, oil retailing is a purely private good where private businesses – in competition with one another – will provide and make profit in the process.

– Nonoy Oplas

Conflicts arising from fiercely parochial causes (e.g. nationalist/ethnic movements, sector strikes, etc.) have probably resulted to more deaths, economic losses and deprivation than any other events in recent history. My views on the recent transport strike and the OilEx issue:

First, deregulation, not transport strikes, would be a more effective and more lasting oil price-reduction measure. If you want to bust the Big 3 market dominance, you have to facilitate the entry of more players to the industry. The fact that the oil industry in our country performs importation, refining, storage and distribution operations, without the huge costs of extraction (and exploration, for some), makes it a fairly ‘contestable industry’. And this is already evidenced by the presence of other oil companies in the market. The more players, the more profits are suppressed, as companies try to undercut each other’s prices to increase their market shares (in a perfectly competitive industry, which exists only in textbooks, profits are zero in the long run). In countries with highly competitive energy industries, a liter of petrol can
sometimes be cheaper than a liter of bottled water. Petrol prices rise and fall in a day or two following changes in global prices. OPEC is still powerful but it no longer wields the same power it used to. Other countries have explored their own energy sources, have learned to develop more energy-efficient technology, and have become more efficient users themselves following the two global oil crises.

Second, government should shy away from regulating both the supply and price of oil as well as fare rates. If transport organizations and unions are free to set their fare rates, strikes would be minimized and commuters would have a range of choices. As commuters flock to jeepneys and buses that charge lower fares, others operators would have to cut their fares to gain commuters back. Price-cutting would settle to a fairly lower level of fares. Regulatory power over supply and prices should be limited to emergency circumstances like war and extreme shortages in supply. The Government already spent billions just to stabilize oil prices during the OPSF regime. Which could have been used for more basic social services. And you thought you did not pay for that as a taxpayer. In the actions of the different parties to this conflict, various interests were considered but the consumer’s. At si Mang Driver ay si Mang Consumer din. I don’t want government to be dictating my political choices (martial law, national ID, etc.), so why should I want it to dictate my economic decisions, as well? This is not the way towards a ‘civil society’.

Third, creating another government regulatory agency or for government to again own an oil company is not the answer. The controversy involving former Petron employees getting priority over the purchase of shares when the company was privatized showed how government power over business entities can be abused. If you set up any government company, inefficiency is more likely than not to creep in. How can you get the best managers when they can earn more in the private sector? And once created, you know how politicians just find it difficult to abolish agencies/corporations.

Just look at why the Soviet economy collapsed and why the Chinese economy continues to prosper. Because as one economist puts it, “the Soviets followed the ‘Harvard Model’ while the Chinese adopted the ‘Chicago Model’.

Which “has made all the difference”.

– LuzAbogadi-Rose

Continue reading “On Oilex and proposed government oil trading monopoly”

The FEF on unjustified RE law subsidies

* Originally posted on June 15, 2011.

The Foundation for Economic Freedom (FEF) has produced a new statement, Manifesto Against Increases in Power Rates to Subsidize Solar and Wind Energy Producers and to Guarantee their Superprofits. Portions of it below. Click to get a larger image.

I am not exactly a fan of the FEF, but on certain issues, I support their campaigns. Like this one, to expose the racket and legalized robbery in the Renewable Energy (RE) law, where we, ordinary energy consumers in the Philippines, will be forced to pay even higher electricity rates to the already high rates, to subsidize the RE power plants of the new energy cronies.

Towards the closing paragraphs of the statement, the FEF says,

We believe that the subsidy in the form of Feed-in-Tariff rates should NOT be given to existing power producers as this will mean a tremendous windfall for them. These producers are already enjoying tax and duty free incentives and will not add to the nation’s power supply.

I think it’s already late for the FEF and the public to complain about the Feed-in-Tariff (FIT) system. It’s already in the law. The strong RE lobby, led then by the World Wide Fund (WWF), Greenpeace and other climate alarmist groups, made sure that the new energy cronies will get such incentive in order to help “save the planet.” Those lobbyists for RE cronyism will insist that the law should be implemented.

But if public pressure to set aside the FIT provision will be strong as it will mean even more expensive electricity rates, perhaps the RE producers and cronies will be ashamed to push for it. It’s a good fight worth pursuing.

Once people fall for climate alarmism and the various racket and rent-seeking provisions, regulations and taxation that the alarmists and governments want, they’re trapped. It just happened that a number of the FEF Fellows and members are part of the climate alarmism movement.

Meanwhile, here’s another article from Boo Chanco today.

Renewable energy

Beyond the subsidy called Feed-in Tariff, there are other things that ought to be looked at before we agree to allow them to put additional burdens on our power users. For instance, it is not clear, the position paper of the Foundation for Economic Freedom (FEF) observes, what is it exactly that the envisioned FIT program is supposed to buy us?

“Is it to lower our carbon emissions in order to help arrest global warming? Our carbon footprint is a rounding error vs. the large and more industrialized countries, and our RE component, at 30 to 40 percent of installed capacity, is already five times the global average.”

Romy Bernardo who spearheaded the paper’s drafting illustrates: The subsidy cost for solar per kWh is over P12. (calculated as the FIT rate of P17.95 less avoided cost of P4.50/kwh or the cost of buying at the current grid cost). One can lower consumption of power by giving away new efficient light bulbs that produce 60 watts of brightness at 15 watts use of power. Based on the calculation, by an ADB expert, the cost of doing this translates to $0.025 per kWh saved, roughly ten centavos/kWh saved. The numbers are striking– P12 solar vs. P0.10 for energy efficient light bulbs.

In short, just give free light bulbs and you can do more than 100 times the benefit in terms of reducing carbon footprint for the same peso spent from public purse. A slightly clever solar operator selling at FiT rates can put solar panels under a light bulb, run even when there is no sunlight (like even night time) to get paid for power at P 17.95 per kWh, and only incur cost of P4.50 per kWh to buy power from the grid for the light bulbs.

Boo Chanco on the RE law cronyism

* Originally posted on June 02, 2011.

I seldom read newspapers, much less their columnists. I read more a few blogs that I follow everyday, especially science blogs pertaining to climate science, then the facebook updates of my friends, including the news articles that they recommend. Then I read some of those articles or opinions.

The renewable energy (RE) racket “to save the planet” is still on-going. Mind you, they plan to steal from us around P9 billion (roughly US$ 207 million at current P43.3/$ exchange rate) every year for the next 20 years. It’s not a new tax that will go to the government. Rather, it’s an add-on cost that we energy consumers in the Philippines will have to pay extra to the already high electricity prices, to subsidize those expensive solar and wind farms.

Luckily, there are a few local newspaper columnists who have written about the RE racket. Like FEF Fellows Romy Bernardo of BusinessWorld, and Boo Chanco of the Philippine Star.

Last May 27, 2011, Boo Chanco wrote in the Philippine Star:

Renewable energy

Here is something to think about for us electricity consumers, already burdened by one of the highest electricity rates in the world. We are being asked to subsidize the cost of electricity produced by solar, wind and other so-called renewables through the mechanism of the so-called feed in tariff or FIT.

Unless we speak up, we will be forced to shell out some P9 billion every year for FIT for 20 long years… even after technology has made those renewables economically competitive. Of that amount, 50 percent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FIT program.

There are those who say we have such a small carbon footprint and because we use significant amounts of geothermal and hydro, our electricity generation mix is already at least 32 percent renewable compared to the US which is under 10 percent. That means the Philippines is already contributing three times as much RE as the US on a country basis.

So why subsidize these fashionable RE technologies now? Why can’t we just wait for the more technologically advanced and financially capable developed countries to shepherd these technologies along until no subsidy will be required? Ironically, these developed countries are cutting back on their RE subsidies lately, notably in Europe.

I understand that even the National Grid will have to shell out substantial capex. It has to cope with all these small power sources going on and off the grid all the time without destabilizing the system. Guess who pays for the National Grid investments?…

Today, Boo wrote again on the RE subsidy racket.

Solar + Wind = Hot Air

… Indeed, solar is still a technology undergoing development. Eventually, it should be commercially viable or competitive with conventional energy. Right now, the only way to make it viable is to subsidize it. It is the same thing with wind. They call that subsidy feed-in-tariff (FiT), a fancy term for the amount they want to add to our electricity bills supposedly to encourage more use of this type of renewable energy.

Some local economists have raised an alarm about going overboard on this FiT in our mindless haste to be seen as fashionably earth loving. The manufacturers of solar and wind energy equipment have successfully lobbied Congress into passing a law that mandates the granting of this subsidy. It also mandates the inclusion of RE into our electricity mix. Because our legislators were only after PR mileage to be seen as being ecologically correct, the law gave no regard to cost implications for our consumers and our industries.

Romy Bernardo, a Ramos era undersecretary of finance, is critical of the P9 billion annual cost of FiT (times 20 years or P180 billion). Of this, 50 per- cent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FiT program. “Let’s decide what the public can afford,” Bernardo urges. “It certainly cannot be the P7 to P9 billion PER YEAR over a contract period of 20 years, given the already high cost of power.”

Bernardo is correct. Even the RE developers acknowledge that today’s RE prices are expected to come down. One executive working on the solar initiatives of a local conglomerate told their stockholders meeting just this week that it will take three to five years to reach grid parity based on global studies.

The solar industry is growing so fast, he said, and economies of scale are kicking in. “In the Philippines, projection is by 2015 to 2017, we should reach grid parity.” So why not wait? And why give them subsidy for 20 years when the technology is at grid parity in five? The initial price setting should only be made applicable for the next three or five years. After that, we should review again.

Even if we end up with less RE because we have been too cautious, it would be worse to err on the side of paying too much, locking in the mistake for 20 long years. We already have, in any case, at 34 percent, more RE capacity installed as a percentage of total electricity generated than the US and most European countries. We can afford to wait for the technologies to mature and come down in price.

The Foundation for Economic Freedom (FEF), a public advocacy group espousing market-oriented reform for good governance, has taken the position that “Renewable Energy subsidies must be transparent, limited and technology neutral.” The FEF believes the Feed-in-Tariffs to be issued by the Energy Regulatory Commission (ERC) must provide for an absolute peso cap on the total amount of subsidies that the public will be made to bear, capped both on an annual basis and for the life of the project.

The FEF also wants to make sure that the amount of public subsidy for RE projects should be explicitly disclosed and shown to be commensurate to the social benefit that the public is expected to derive from this program. The outlay should be transparently evaluated based on “value for money” to the public.

The FEF also urged the ERC to consider the ability of the public to shoulder additional levies on a per kWh cost of power. As FEF president Toti Chikiamco puts it, “it’s not only household consumers who will suffer but industry too. It will reduce the competitiveness of Philippine industry, already burdened with one of the highest power rates in the region and a strong peso.”

The FEF economists also think we should buy the cheapest RE available before we buy the more expensive technology. They point out that based on the numbers of the National Renewable Energy Board (NREB), it appears that we can subsidize 11 kwh of hydro for the same amount needed to subsidize 1 kwh of solar. The subsidy equivalent for biomass is 6 kwh for 1 kwh of solar.

Actually, even abroad, the economics of solar and wind are being questioned. In an article on MarketWatch, where I borrowed the headline for this column today, market trader Jim Chanos famed for shorting Enron, argues that wind and solar are “not capable” of real cost-effective ways of meeting energy demands. “Wind and solar are not efficient.”

This is not to say that technologies such as Solar Photo Voltaic have no place in our energy mix at this time. The FEF paper admits solar may be the best, or the only substitute, in some areas, for expensive diesel-fired plants serving off-grid customers.

When solar or wind are used to augment off-grid diesel installations, the avoided costs (or the cost of diesel fuel that would have been used) and the avoided emissions are higher, so the required incremental subsidy is less. And no additional reserves or transmission facilities that add to our power costs are needed. In fact, solar technology is already used in a significant number of rural electrification projects all over the country….

Renewable Energy Act of 2008 and Vince Perez

* Originally posted on May 27, 2011.

The Renewable Energy Act of 2008 or simply the RE law (RA 9513) is proving more as another corrupt law that creates another form of energy cronyism in the country. At least two provisions of the law, the Renewable Portfolio Standards (RPS) and Feed in Tariff (FIT) ensure that the RE power producers have assured income, assured profit, for up to two decades once they start producing power, by forcing us energy consumers to pay them high power rates.

Aside from those take-it-at-this-high-power rate provision, the law also provides a lot of give aways and freebies to developers and suppliers of RE power plants. Exemptions from income tax, from import tax, from VAT, accelerated depreciation, low realty tax, etc.

And aside from those companies not paying certain taxes, legally, they will also get cash incentives (transfers?) and financial assistance from us taxpayers. Hit us with even higher power rates, then hit us further with more taxes going to their companies and pockets. What else can you ask for?

I posted an earlier paper by Romy Bernardo, a BusinessWorld columnist, of this discussion series. Romy also criticized the FIT system.

Another business columnist and a Fellow of the Foundation for Economic Freedom (FEF), Boo Chanco, criticized the FIT. He wrote in Renewable energy, The Philippine Star, May 27, 2011.

Here is something to think about for us electricity consumers, already burdened by one of the highest electricity rates in the world. We are being asked to subsidize the cost of electricity produced by solar, wind and other so-called renewables through the mechanism of the so-called feed in tariff or FIT.

Unless we speak up, we will be forced to shell out some P9 billion every year for FIT for 20 long years… even after technology has made those renewables economically competitive. Of that amount, 50 percent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FIT program.

There are those who say we have such a small carbon footprint and because we use significant amounts of geothermal and hydro, our electricity generation mix is already at least 32 percent renewable compared to the US which is under 10 percent. That means the Philippines is already contributing three times as much RE as the US on a country basis.

So why subsidize these fashionable RE technologies now? Why can’t we just wait for the more technologically advanced and financially capable developed countries to shepherd these technologies along until no subsidy will be required? Ironically, these developed countries are cutting back on their RE subsidies lately, notably in Europe….

There is one person whose shadow stands tall in the crafting of the RE law and its implementation: fellow UPSE alumni, former Department of Energy Secretary (2001 to 2005), Vincent “Vince” Perez.
In one of his presentations as DOE Secretary then, he showed this in his 38-slides presentation, The Philippine Energy Sector, October 2004. Wind power was close to his heart then.

In June 2009, as a private citizen and businessman, he presented this paper at the ADB during a climate and energy conference there. He mentioned 3 of his concurrent positions then — with Merritt, Alternergy and the World Wilflife Fund (WWF). Two companies in the wind energy business, and heading a huge environmental NGO that is pushing hard for RE like wind power.

I checked today Merritt Partners’ website, he remains as its Chairman.

Two notable things here. One, he was the head of two RE companies, Merritt and Alternergy, that will benefit from the cronyism  of the RE law. Second, he is the head of a big environmental NGO, the WWF, that put constant pressure to policy makers to stick to the cronyism of the law.

Government should get out of playing favoritism and cronyism among energy producers. If things are indeed “free and renewable” with the RE power plants, then they should not be given any subsidy. But that is not the case. Those RE plants like wind and solar are NOT really free and renewable. The cost of putting  up just one huge tower for a wind turbine should cost six digits already.

Anti-coal, anti-nuke, anti-mining activism

Originally posted on April  14, 2011.

In one of my discussion googlegroups today, someone posted a campaign, “Please sign: Stop sacrificing the environment and the people’s welfare on the altar of profit”. Portions of the campaign said,

We, environmental advocates, members of the clergy and churchworkers, citizens, and leaders representing various organizations committed to defending the Philippine environment, unite to declare publicly our growing dismay over the state of ecological destruction and human rights violations under the administration of President Benigno Aquino III….

We challenge President Aquino to stop this sacrifice of the environment and the people’s welfare on the altar of profit. We assert our calls for a genuinely pro-people, pro-environment and progressive policy of stewardship over our natural resources by pursuing the following specific demands:

1. Stop the liberalization of the Philippine mining industry.
2. Stop the killings and human rights violations of environmental advocates.
3. Cancel the permits and operations of big commercial logging firms in addition to the logging moratorium.
4. Impose a moratorium on the construction of new coal power plants.
5. Reject the proposal to revive the Bataan Nuclear Power Plant.
6. Scrap the Japan-Philippines Economic Partnership Agreement.

The writers and endorsers of this campaign possibly forgot that the President came from the Liberal Party, not from the Socialist Party or a Nationalist or Anti-globalization Party.

A liberal, in the classic liberal tradition or even the current European liberalism philosophy, respects the free enterprise system, not more business regulations, more prohibitions.

On their specific demands:

1. Stop the liberalization of mining industry — and leave the industry only to local politicians and companies? Among the best practitioners of sustainable mining practices are the big multinationals which have global corporate brands and have modern mining and geological technologies to optimize mining with minimal damage to the environment. If we prohibit them from coming in, the mineral potentials of the country at the time that prices of important commodities and mineral products are very high, as well as the creation of many locals jobs, will not be optimized.

2. Stop the killing and human rights violations of environmental advocates — I support this, we should support this. And not only environmental advocates, all political killings and human rights violations of ordinary citizens should be stopped. Especially by political warlords like the Ampatuans.

3. On commercial logging ban — and leave the forests to carabao logging, local politicians logging? People need wood, whether we like it or not. The poor especially as they cannot afford the steel and cement housing, or aluminum/steel/glass furnitures. No commercial logging means zero supply of wood from legitimate sources, wood prices shoot up, and the bigger the temptation to do illegal logging by local politicians and carabao logging to take advance of the high prices of wood.

Commercial logging, supervised by licensed foresters and connected with long-term business contracts, practice sustainable logging. A logging concession area is divided into several blocks. For a 20-years cycle for instance, only 1/20th of the entire logging area is cut and cleared for a year, the remaining 19/20th of the area has thick forest, forever. It is to their business interests that there are trees to cut every year, so they keep planting every year.

4. Moratorium on the construction of new coal power plants, reject nuke power plants — and what else to prohibit, natural gas plants, petrol oil plants? And what will the new houses, new factories, new schools, new offices, new shops and malls use, candles and firewood?

Many environmentalists advocate the renewables like wind, solar, biomass, etc. That’s why we have the RE law, and the business cronyism associated with it as it gives lots of incentives and guaranteed profit for the wind farms, solar farms. Our already expensive power prices will soon become even more expensive due to mechanisms like feed-in-tariffs (FIT) and renewable portfolio standards (RPS).

5. Scrapping of Japan-Philippines EPA — and go back to the old trade protectionism? That EPA is not exactly a free trade agreement (FTA) but it is better than going back to high protectionism.

The petition also mentioned the “Earth Hour”. As I posted in Earth Hour lunacy, part 2, I wrote to the top 2 honchos of WWF-EH, Atty. Ibay and Mr. Yan where I sent them my article why the EH is a lunatic idea, they have one standard reply: silence of the lamb. Then I wrote a comment at the EH website comment section, they censored it. I consider the WWF as a bunch of noisy but coward environmental activists.

If the WWF officials and other environmentalist groups will protest my assessment of them, then I am open to any public debate with them on climate science and policy, anytime, anywhere. Leave a note of challenge at the comment section here.

Willie Soon and Barun Mitra on poor countries’ access to cheap energy

Originally posted on April 01, 2011.

Among the important goals of climate alarmism is energy rationing. “Non-renewable” energy like oil, coal and natural gas will be over-taxed, over-regulated, and be killed whenever possible, while “renewable” energy like solar, wind, biomass and hydro will be given all sorts of incentives, subsidies and mandatory assured market. See an example of such energy rationing and cronyism will be done in the Philippines in Energy rationing and climate alarmism, part 2.

Dr. Willie Soon, a Malaysian-American astrophysicist at the Harvard-Smithsonian Center for Astrophysics in Boston, USA, and Barun Mitra, founder and Director of Liberty Institute in Delhi, India, recently wrote an article questioning this policy of energy rationing, especially for poorer countries like India and China.

In this photo, from left to right: Barun, Willie, Jose Tapia of ILE in Lima, Peru, and me. This was during the 2nd International Conference on Climate Change (2nd ICCC) in early March 2009 in New York City, sponsored by the Heartland Institute.

The joint paper by Barun and Willie, What really threatens our future? was published in The Edge Financial Daily in Kuala Lumpur yesterday. A friend from KL, Wan Saiful Wan Jan, CEO of IDEAS, helped to place the article in the said newspaper. Below are excerpts from Barun-Willie paper.

…power cuts and inadequate power are routine in developing countries like China and India. For them, going without electricity for hours or even days is the norm, not the exception.

But now, the UK’s power grid CEO is warning Brits that their days of reliable electricity are numbered. Because of climate change and renewable energy policies, families, schools, offices, shops, hospitals and factories will just have to “get used to” consuming electricity “when it’s available,” not necessarily when they want it or need it.

UN IPCC chairman Rajendra Pachauri justifies this absurd situation by sermonizing, “Unless we live in harmony with nature, unless we are able to reduce our dependency on fossil fuels and adopt renewable energy sources, and until we change our lifestyles, the world will increasingly become unfit for human habitation.”

Thus, people in poor countries who never had access to reliable electricity may be denied it even longer, while people in rich countries could soon face new electricity shortages.
Citizens of the world’s poor and emerging economies: Beware of claims that the greatest threat we face is from manmade climate change. They are wrong. The real threat is from energy starvation policies implemented in the name of preventing climate change….

People in rich countries will not give up their modern living standards, electricity, automobiles, airplanes, hospitals, factories and food. Mr. Pachauri certainly will not. Why, should people in poor countries give up their dreams?

During the Cancun climate summit, rich nations said they would give poor countries $100-billion annually in “climate change reparation and adaptation” money. But these are empty promises, made by nations that can no longer afford such unsustainable spending.

Poor countries that expect this money will end up fighting over table scraps – and whatever funds do flow will end up in the overseas bank accounts of ruling elites. The poor will see little or none of it.

For awhile longer, rich countries will continue supporting global warming research and conferences. Researchers, bureaucrats and politicians will continue issuing dire warnings of imminent catastrophes, while they enjoy the benefits of modern energy, traveling on airplanes, attending talk fests at fancy hotels in exotic locations – all powered by coal and petroleum.
They may continue telling the world’s poor how important and admirable it is that we keep living traditional, sustainable, environment-friendly lifestyles; getting by on small amounts of intermittent, unreliable, expensive electricity from wind turbines and solar panels; and giving up our dreams of a better, healthier, more prosperous life.

Ultimately, the climate change debate is really over just two things.

Whether we, the world’s poor, must give up our hopes and dreams. And whether we will determine our own futures – or the decisions will be made for us, by politicians who use climate change to justify restricting our access to reliable, affordable energy.

Which should we fear most? Climate change that some say might happen 50 or 100 years from now? Or an energy-deprived life of continued poverty, misery, disease, and forgotten hopes and dreams?

Our future is in our hands.

RA 9513, the Renewable Energy Act of 2008

Originally posted on February 18, 2011.

One of the by-products of climate alarmism is energy rationing and energy cronyism. Producers and suppliers of “non-clean” or non-renewable energy sources will be slapped with various government regulations and taxation while suppliers of “clean” and renewable energy (RE) will be exempted, or be given highly relaxed regulations.

This is happening now, after the enactment of the Renewable Energy Act or RA 9513 in December 2008, and its implementing rules and regulations (IRR) became effective in June 2009.

The law is highly distortionary as it will give assured revenues and profit for the developers of immature, expensive and unstable power supply like solar, wind and ocean energy. A normal business in a competitive environment does not work this way. There is no “assured or guaranteed profit”, there are only possibilities of business expansion or bankruptcy, depending on how efficient a company is in producing the products and services needed by the consumers and the public.

The favoritism and cronyism given by the law and its IRR to RE developers and companies are too much compared to the various regulations and taxation imposed on non-RE companies and developers, when both simply produce energy that our houses, offices, schools, malls, computers and cell phones need.

Several schemes in the law and its IRR assure the developers of RE companies but the two most important ones are the Renewable Portfolio Standard (RPS) and the Feed-in-Tariff (FIT).

RPS is giving minimum percentage of generation to be sourced from eligible RE resources. FIT is giving guaranteed fixed price for at least 12 years for electricity produced from emerging RE resources (wind, solar, ocean, run-of-river hydro and biomass). See the presentation by former DOE Secretary Vince Perez, Status of Renewable Energy Policy in the Philippines presented in June 2009.

These two schemes immediately assure the RE companies of guaranteed markets and buyers, even if current RE costs per kwh are high, between 2x to 5x the prevailing rates, and even if RE supply is unstable and unreliable. Us energy consumers will be forced to pay for their more expensive energy output, on top of the already expensive energy costs. The ballpark figures are about 15 centavos per kwh add-on to the already high energy costs.

This is a sure formula for enriching the RE developers and a sure formula for further impoverishing poor energy consumers. Then there is the cash incentive for RE developers for “missionary” areas.

And aside from the above guaranteed market at guaranteed price, there are lots of other incentives given to RE companies that are absent or not provided to non-RE companies. These freebies are: (a) Income Tax Holiday for 7 years, (b) Duty-free importation of RE machinery, equipment and materials within the first 10 years, (c) Special realty tax rates, (d) Net Operating Loss Carry-over (to be carried for the next 7 consecutive years), (e) 10% Corporate tax rate, (f) Tax Exemption of Carbon Credits, and (g) Tax Credit.

If the government is hungry for more revenues to plug its endless and annual budget deficit, to pay its ever-rising interest payment (constituting on average one-fifth of total expenditures of the national government) due to its ever-rising public debt, why would it give lots of income tax holidays to RE companies?

The quick answer is that the government will slam-dunk the other companies and private individuals with the heavy burden of existing taxes (like 32 percent personal income tax, 30 percent corporate income tax, VAT, doc stamp tax, import tax, etc.).

Mr. Perez’ presentation also has a table entitled “Comparison of RE Promotion Policies, Asian Countries”. The Philippines is giving away so many freebies to RE companies, but not to non-RE companies. It is a give away admission of how much favoritism and cronyism the RE law has created.

Then there are two new bureaucracies created by that law. One is the National RE Board (NREB) to be composed of different government agencies to some private sector players. The other is a technical secretariat, the RE Management Bureau (REMB).

The scientific, economic and business distortions created by the man-made warming scam keep increasing. And we taxpayers, we energy consumers, will pay for all those distortions and rent-seeking behavior by certain government agencies in cahoots with new crony companies and NGOs.

Renewable energy and climate loans

Posted on February 13, 2011.

A fellow UPSE alumni, a BusinessWorld columnist, former DOF UnderSecretary, Romy Bernardo, wrote in one of his BW columns,Renewable Energy– reality check . He wrote,

The Philippine Renewable Energy Law passed in 2008 has been applauded by environmental groups, renewable energy firms, and official donor institutions keen to play a role in addressing global warming. We who pay taxes and high energy bills need to be a little more wary.

My attention was caught by a news article reporting a billion dollar renewable energy loan program being negotiated between the Asian Development Bank, other official co-financiers, and the Philippine government. The news item said that “most of the $ 1 billion loan will be focused on supporting solar, wind and biomass power projects”. I hope this is inaccurate, and that most of the funding goes to sound components of the program like raising consumer awareness on energy efficiency and regulation for energy efficient equipment and appliances, instead of subsidizing inefficient technologies.

The hard reality is that the technology for these three sources is far from mature as seen in their exceedingly high price: solar costs P 25 per kWh, biomass and wind around P 10. This compares very poorly with the current grid rate of P 4.50 per kWh– anywhere from two to five times true cost now.

So who will carry the high cost of these immature technologies? Answer: Feed In Tariffs (FIT). An add-on, a tax if you will, to the average cost of power in the grid for everybody. The law obliges the power industry participants to source electricity from generation at a guaranteed price applicable for a given period of time but no less than 12 years, supposedly to accelerate the development specifically of emerging RE resources. This cost to the public is on top of the tax gives the Renewable Energy Law provides developers, including income tax holidays for 7 years, duty free importation of renewable energy machinery, equipment, material for 10 years, special realty tax rates, etc.

The FIT provisions seem to have been adopted from laws in developed European countries, meant to subsidize emerging technologies by burying it in the general public’s power bill. The FIT number floating around in discussions for the Philippines is fifteen centavos add on per kwh used by each consumer. This amount may seem small, until one considers that this is an add-on to one of the highest per kWh cost of power in the region, arising from our archipelagic geography, and legacy/stranded costs.

Moreover, this fifteen centavos translates into a P 10 billion ANNUAL subsidy, hardly the best use of money for a country that has huge social and basic infrastructure requirements.

Last January 16, 2011, I wrote in Climate stupidity, part 6

…The climate loans racket is terrible. According to one news report last August, Billion dollar loans for climate change ‘unjust’, data from the Environmental Management Bureau (EMB) showed that Philippine loans for climate adaptation was $586.59 million, plus loans for climate mitigation of $491.64 million, for a total climate loans of $1.078 billion!!