Top 8 energy news of 2017

* This is my article in BusinessWorld last January 2.

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This should have been a “Top 10” list but due to space constraints, I limited it to only eight, divided into four news stories each for global and national.

GLOBAL

1 “Non-news” to many media outlets but good and big news to me: NO major energy catastrophes in 2017. No major oil spill, no gas blowouts, no reactor meltdowns, no major infrastructure destroyed by natural disasters, and energy prices did not rebound to their 2014-2015 levels.

2 In June 2017, the British Petroleum (BP) Statistical Review of World Energy 2017 was released and among the highlights of that report are: (a) China and US remain the planet’s biggest energy consumers, (b) increases in oil, natural gas, nuclear and renewable energies (REs) but decline in coal use, (c) for big Asian economies, coal use remain very high especially in China, India, Japan, South Korea and Indonesia (see chart).

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3 In September 2017, the US Energy Information Administration (EIA) released its “International Energy Outlook 2017” and among its projections are (a) In 2040, fossil fuels (oil, natural gas and coal) and nuclear will supply about 83% of global total energy consumption; 8% from hydro and 9% combined from wind, solar, geothermal, other REs, and (b) coal use is projected to be stable until 2040 and declines in China to be offset by increased use in India.

4 In November 2017, the “America First Energy Conference” was organized by the Heartland Institute in Houston Texas to analyze US President Trump’s pronouncement of US global “energy dominance”. “Energy dominance” is defined on two key goals: (a) meet all US domestic demand and (b) export to markets around the world at a level where they can “influence the market.” The important lessons from the papers presented are that (i) the US can have energy dominance in oil, natural gas and coal, but (ii) US cannot and should not aspire to have dominance in nuclear and REs. It was a very educational conference and I was the only Asian in the conference hall.

NATIONAL

5 Hike in excise tax for oil products and coal under TRAIN but zero excise tax for natural gas even if it is also a fossil fuel. Diesel tax will increase from zero in 2017 to P2.50/liter in 2018, P4.50 in 2019, and P6.00 in 2020. Gasoline tax will increase from P4.35/liter in 2017 to P7 in 2018, P9 in 2019, and P10 in 2020. Coal tax will increase from P10/ton in 2017 to P50 in 2018, P100 in 2019, P150 in 2020. There was successful maneuver by some senators, a known economist and some leftist organizations to spare natural gas from higher taxation, benefitting a big energy gas firm.

6 The feed-in-tariff (FiT) or guaranteed high price for 20 years for wind-solar and other renewables keeps rising, from only 4 centavos/kWh in 2015, became 12.40 centavos in 2016, 18 centavos in mid-2017 and petition for 22 centavos by late 2017 not granted. A pending 29 to 32 centavos/kWh by early 2018 is awaiting approval by the Energy Regulatory Commission (ERC).

7 Continued exemptions from VAT of the energy output of intermittent wind-solar and other renewables but stable fossil fuel sources were still slapped with 12% VAT under TRAIN. Government continues its multiple treatment of energy pricing: High favoritism for wind-solar, medium-favoritism for natgas, and zero favor for oil and coal.

8 Supreme Court issuance of TRO in the implementation of Retail Competition and Open Access (RCOA) provision of the Electric Power Industry Reform Act (EPIRA) of 2001. In particular, the SC TRO covered five ERC Resolutions from June 2015 to November 2016, affecting the voluntary participation of contestable customers (CCs) for 750-999 kW and many Retail Electricity Suppliers (RES) with expiring licenses cannot get new ones yet, reducing potential competition. Data from the Philippine Electricity Market Corporation (PEMC) show that as of Nov. 26, 2017, there were 28 RES, 12 local RES, 862 CCs for 1 MW and higher, and only 78 CCs for 750-999 KW. There should be thousands of CCs in the lower threshold, there should be several dozens of RES nationwide to spur tight competition in electricity supply and distribution.

Overall, EPIRA of 2001 was a good law that introduced competition, broke government monopoly in power generation, broke private geographical monopolies in power distribution. The RE law of 2008, SC TRO 2017 and TRAIN 2017 are partly reversing the gains of EPIRA.

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Energy favoritism under TRAIN

* This is my column in BusinessWorld last December 19, 2017.

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The recently approved tax reform for acceleration and inclusion (TRAIN) by the Congressional Bicameral Committee exhibits a number of favoritism for some energy products and players while penalizing others. In particular, among the three fossil fuels, only petroleum products and coal received tax hike while natural gas was not mentioned and hence, not taxed.

In the VAT base expansion, expensive, unstable and intermittent renewable energy (RE) like wind-solar is again exempted (see table).

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Here are the possible implications:

  1. Since petroleum products are a public good, many goods and services will experience price hikes. Not only fares for jeepneys, buses, taxi, boats, and airplanes but also for agricultural products because most farmers now no longer use carabaos in tilling their farms, they use tractors, big and small; more farmers now also do not use human labor for harvesting rice, they use harvest + threshing combiner machines. Fishermen hardly use manual paddle boats, they use motorboats. Traders no longer use animals in transporting cargo, they use trucks.
  1. Since coal power contributes 48% of total electricity production nationwide (2016 data) despite having only 34% of total installed power capacity, electricity prices will further go up, slowly but surely. Most apologists of raising coal taxes cite the “minimal impact” on households consuming 200 kWh/month. This may be true but those households work in factories, malls and hotels, schools and universities, hospitals and residential condos, airports and seaports. These establishments consume hundreds or thousands of MWh per month, not kWh of electricity. The additional cost will be passed on to the consumers.
  1. Natural gas is also fossil fuel but it was never slapped with excise taxes. The Malampaya gas royalty is a tax on exploitation of a natural resource, the same way that the price of our imported petroleum and coal already include royalties. There is favoritism in exempting natural gas from excise tax. And there are some connections between some legislators and a known economist who pushed for high coal tax but silent on natural gas tax, with a big energy company whose main product is natural gas power generation.
  1. Exempting RE from VAT but retaining VAT for fossil fuels. These REs are enjoying favoritism three times. First, this exemption from a high 12% VAT. Second, they are given guaranteed high prices for 20 years via feed-in-tariff (FiT). Third, they are given priority or mandatory dispatch to the grid even if they are expensive. For instance, FiT for solar1 is P10+/kWh, FiT for wind1 is P9+/kWh, average coal price is P4/kWh, can go down to P1.50/kWh on off-demand hours like midnight.

Oplas-121917-768x402Soon, REs will be given a fourth privilege via the renewable portfolio standards (RPS), or minimum percentage of REs that electric cooperatives (ECs) and private distribution utilities (DUs) must purchase and distribute to households. REs then can price their electricity output high because these ECs and DUs have no choice, they will be penalized if they will not buy those expensive and intermittent REs.

Meanwhile, the DoF is often quoted as saying that “two million richest Filipino families consume 50% of oil products in the country.” This is one of the reasons why they pushed for high tax hike for oil products.

I have been intrigued by that repeated statement since last year and I am wondering what papers or studies justify this?

There are about 25 million Filipino families now. The DoF refers to the richest 2 million families, so the other 23 million middle class and poorer class Filipinos consume the other 50% of oil products.

The DoF is saying then that anytime in EDSA, NLEx, SLEx, roads in Visayas and Mindanao, etc. on average, about 50% of the cars, buses and trucks there transport the two million rich families and their goods? And that about half of domestic flights and the inter-island boat rides transport the richest two million families? This is absurd.

I think the DoF displayed dishonesty and deception in making that claim to further justify the high oil tax hikes. If such DoF claim has indeed objective basis, I am willing to apologize for this remark. For now, that statement is not backed up by solid numbers and hence, deceptive and opportunist.

The Habito carbon tax distortion

* This is my column in BusinessWorld on December 7, 2017.

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Very often, the purpose of government is to make cheap things become more expensive. It does this via high and multiple taxes, regulatory fees, mandatory contributions, and multiple permits and bureaucracies that raise the cost of compliance. Many governments display hypocrisy when they say that they want to control inflation yet create those multiple taxes and bureaucracies that create inflationary pressure.

In the energy sector, the most recent proposed tax hikes are in the excise tax of oil products of up to P6/liter, and a big jump in excise tax of coal also known as “carbon tax” from the current P10/ton to P300/ton. The original bill by Sen. Sonny Angara proposed a hike from P10 to P20/ton but last week, an amendment by Sen. Joel Villanueva and followed up by Sen. Loren Legarda changed this to P300/ton.

Romeo Bernardo in his BusinessWorld column last Monday “The Gravy TRAIN is leaving and common sense isn’t in it” estimated that “The P300 per metric ton tax on coal will add P0.14 per kWh to our cost of generating electricity. This is on top of… feed-in-tariffs (FiT), a fancy term for what are just subsidies from the taxpayer. Combined, they will add P0.43 per KWh to our electricity bills or, at current consumption levels, a total of P40 billion for 2018.”

That is huge, a big government-instigated expensive electricity measure via legislation. In 2016, coal power constituted only 34% of total installed capacity in the country but contributed 48% of total electricity production. If the distortion created by priority and mandatory dispatch to the grid of solar-wind even if they are expensive (feed-in-tariff or FiT of up to P10+/kWh for solar and P9+/kWh for wind, more than 2x the price of coal and natgas) and intermittent, the share of coal electricity production can easily reach 50%.

The earlier proposal by former NEDA secretary Ciel Habito to impose a carbon tax of P600/ton has something to do with this. It is a lousy proposal yet it emboldened the legislators to make cheap and stable energy from coal become more expensive.

When Dr. Habito wrote his article at the Inquirer last September 2017, coal prices were around $60/ton, not $80 as he claimed. So $60 x P51/$ = P3,060/ton. His distorted proposal of a tax of P600/ton would be equivalent to 19.6% tax, not 15%. So the legislators may perhaps claim that at least they did not follow the distorted logic of P600/ton Habito proposal and they proposed only P300/ton.

I was wondering about Dr. Habito’s inconsistencies. One, he frequently advocates expensive electricity via high coal and carbon tax with about four articles at the Inquirer since June 2017. Two, no advocacy for high carbon tax of natural gas/LNG which are also fossil fuels. And three, silence in expensive electricity via guaranteed high price for 20 years also known as FiT for wind-solar. To say that the impact of the coal tax on electricity prices will be small is a cavalier attitude on price increases when he’s not the only one paying for it.

Romeo Bernardo has a point when he further wrote in his article, “why single out coal for a carbon tax? Why not a carbon tax on every fuel based on its impact on the ozone layer (which incidentally should also include LNG)?”

oplas-768x402Our electricity prices are already heavily distorted with about 10 different items and charges in our monthly electricity bill. Generation charge, transmission charge, distribution charge, supply charge, system loss charge, universal charge, metering charge, lifeline rate subsidy, taxes, FiT. For consumers such as households with about 600+ kWh consumption, industrial users, there are 2 other charges (total 12), like environmental tax.

The FiT keeps rising from 4 centavos/kWh in 2015 and now 18 centavos with a pending hike to 29 centavos/kWh late this year. Very likely it will no longer be granted so Transco will likely ask for 32 centavos/kWh or higher early next year. Add 32 centavos subsidy for expensive and intermittent renewables + 14 centavos coal tax and soon we shall have 56 centavos/kWh of unnecessary and distortionary extra cost in expensive electricity.

The continued favoritism of renewables while penalization and demonization of coal and fossil fuels is triggered by continued climate alarmism. Whether we have less rain, no rain or lots of rain; whether we have no flood or lots of flood; whether there are few storms or lots of storms, whatever weather and climate, the alarmism movement suggests that we should pay more expensive electricity, we should send more money to the UN, WB, ADB, CCC, WWF, etc. We should get more climate loans, more renewables loans, and cronyism. It is a lousy movement.

Coal power and fossil fuels are responsible for higher productivity of the poor and cheaper electricity for households and industries. We have a rising life expectancy, rising per capita GDP despite rising population because of the rise in overall human productivity, thanks to coal and fossil fuels.

The House of Representatives should counter the high coal tax proposal of the Habito-inspired Senate bill. The various tax-tax-tax under TRAIN should not add more distortions and inflationary pressure in our daily electricity consumption.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

Bjorn Lomborg on World energy mix

I am reposting here a post by Bjørn Lomborg in his fb wall early today. Thanks for this great piece, Bjorn.
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The world is mostly run on fossil fuels (81.4%). Nuclear makes up 5% with 13.6% from renewables. Solar panels and wind turbines contribute less than 0.7%.

When you hear 13.6% renewables, you will likely think ‘wow, things are going pretty well with the change-over to renewables’. But these are not the ones you hear about. The biggest contributor is wood, used in the poor world to cook and keep warm. This leads to terrible indoor air pollution – it is actually the world’s deadliest environmental problem, killing some 4.3 million people each year. We should definitely hope the poor will have to use *less* polluting wood in the future.

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The other main contributors of renewables are biofuels (e.g. the American forests, cut down and shipped across the Atlantic to be burnt in European power plants to be called green and CO₂ neutral) and hydropower. In total, that makes up 12.1%. The last 1.5% comes mostly from geothermal energy (0.54%) and wind turbines (0.53%) along with solar heaters in China, tidal power etc. (0.29%) and solar panels (0.13%).

Contrary to the weight of news stories on how solar and wind is taking over the world, solar panels and wind turbines really make up a very small part of the global energy mix. (I started out coloring solar panels yellow, but the thin sliver at the top became invisible.)

Sources: The International Energy Agency has released their latest Renewable Energy Information 2017, http://www.oecd-ilibrary.org/…/renewables-information…. It contains 488 pages of data, with preliminary data for the rich world for 2016, but for the entire world for 2015. Unfortunately, the data is not free.

Since solar PV constitutes such a small part of the energy supply, the International Energy Agency combines it with tidal, solar CSP and solar thermal (the water heaters on rooftops for direct hot water). In 2014, the split was 34% for solar PV, 0% for tidal, 6% for CSP and 60% for thermal, so I applied the same split to the data for 2015.

All data is Total Primary Energy Supply, which is the International Energy Agency’s own main measure, also used in all their graphs for global energy balances.

Top 10 myths for oil tax hike

* This is my article in BusinessWorld last January 17, 2017.

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An excise tax is defined by the Department of Finance (DoF) as “a tax on products that have a negative effect on health or the environment… on nonessentials and luxury items.” With this definition, the DoF therefore, should abolish the tax on oil products, not increase it.

Here also are the 10 myths and alibi why the DoF and other sectors tend to demonize oil and are proposing oil tax to be as high as possible.

MYTH 1
OIL IS BAD FOR THE ENVIRONMENT.

Truth: Transportation of people and goods via cars, jeepneys, buses, and trucks that use oil is good for the environment because there will be no need for millions of cows, carabaos, or horses that produce tons of animal manure on the roads daily. Sure, there are particulates and other polluting gases but they are minor compared to tons of animal manure everywhere, more dirt, flies and worms in the environment. Also, cheaper LPG will encourage poor households to stop using firewood and charcoal for cooking which will result in more trees being saved.

MYTH 2
OIL IS BAD FOR PEOPLE’S HEALTH.

Truth: Cars, vans, jeepneys, and buses that use oil spare the oldies, sick, babies, pregnant women, etc. of hard labor and more diseases due to exposure to heat, rains, dust, and exhaustion if they were to ride bicycles or skateboards or animals that do not use oil. Also, transport of agricultural products from Ilocos, Cordillera, Cagayan Valley, or Bicol to Manila via animals not trucks will only lead to food spoilage. People will have little or no access to fresh vegetables and fruits, resulting in poor health.

MYTH 3
OIL IS NOT A PUBLIC GOOD.

Truth: Oil is a public good. As shown above, no petroleum, no modern and comfortable life, no mass production of food and transportation of people and goods. Public goods like public education, public health care, roads, bridges, etc. are either provided to the people for free or highly subsidized prices. Oil as a public good only needs zero tax, or at least low tax.

MYTH 4
MORE CO2 EMISSION FROM OIL MEANS MORE POLLUTION, MORE “MAN-MADE” CLIMATE CHANGE.

Truth: CO2 is not a pollutant gas; it is a useful gas. It is the gas that humans exhale, the gas that our pets and farm animals exhale, the gas that plants use to produce their own food via photosynthesis. Climate change is natural and cyclical. Planet Earth is 4.6B years old, there was climate change ever since marked by warming and cooling cycles.

MYTH 5
INCREASING THE OIL TAX IS NECESSARY TO FINANCE MORE PUBLIC INFRASTRUCTURE.

Truth: Government has trillions of pesos already from income taxes (corporate and individual), VAT; excise tax from alcohol, tobacco, mining, new vehicles; from documentary stamp tax, franchise tax, from annual vehicle registration tax, withholding tax, capital gains tax, travel tax. And from various regulatory fees (passport fees, driver’s licenses, terminal fees, etc.)

Government simply has too many personnel, officials, employees, consultants and pensioners; too many offices, travels, trainings, and meetings. Perhaps these items alone constitute about 70%-80% of the annual budget. So little is left for public infra, school buildings, government hospitals, etc.

MYTH 6
THE OIL TAX INCREASE WILL HAVE MINIMAL IMPACT ON THE POOR.

Truth: Oil is used by the poor not only in jeepneys but also in tricycles, farm tractors and harvesters, irrigation pumps, fishing boats, interisland boats, generator sets in off-grid islands. While the DoF plans to introduce “Pantawid Pasada” for jeepneys, nothing has been allotted for farm tractors and other equipment used by poorer farmers, fisherfolks, hunters, etc.

As shown below, fishing boats that use gasoline, tractors and irrigation pumps that use diesel, tricycles that also use gasoline, will be slapped with 12%-19% price hike simply because of the proposed tax hike (see table).

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MYTH 7
THE OIL TAX INCREASE WILL HIT THE RICH MORE THAN THE POOR.

Truth: Oil use is a small portion of the overall consumption of the rich. The rich buy more expensive but more fuel-efficient cars and SUVs, they spend more on expensive restaurants, hotels, schools and universities, condos and subdivisions, etc.

MYTH 8
FOOD PRICES WILL NOT GO UP SIGNIFICANTLY WITH OIL TAX HIKE.

As mentioned above, oil is used not only by trucks, jeeps, and boats that transport agriculture, meat and fishery products. Oil is also used by farm tractors and harvesters, fishing boats. A 3.6% food inflation in 2016 (despite around 50% hike in diesel prices) is not small for the poor.

MYTH 9
NO OR LOW EXCISE TAX MEANS SUBSIDIZING THE OIL CONSUMPTION OF THE MIDDLE CLASS AND RICH.

Truth: There is no subsidy, zero, unlike subsidies for public education and health care or rice price subsidies using tax money. When you walk down the street and encounter a mugger who didn’t demand your money, you do not owe that mugger anything.

MYTH 10
GOVERNMENT IS LOSING SOME P145 BILLION/YEAR POTENTIAL OIL TAX REVENUES.

Truth: Government has no entitlement to more income and savings of the people other than income taxes that are already high, and other existing taxes. Government is losing more from wasteful spending or stolen money via corruption. Government can save more money for infrastructure by reducing too many personnel and consultants and by abolishing and defunding old welfare programs that do not work before it creates new welfare programs.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET. Both are members of Economic Freedom Network (EFN) Asia.

Malaysia and Singapore at night and nat gas power

I was in Kuala Lumpur, Malaysia, last Sunday-Tuesday, for the IPRI 2015 launching + other visits arranged by IDEAS and SEANET. It was my second visit in KL this year, I was there last April for another SEANET event.

My 5+pm return MAS flight to Manila (arrival should have been 9:20pm) on Tuesday was cancelled, should be due to additional APEC security measures in Manila. I needed to go back home, so IDEAS got a new ticket for me, KL-SG-Mla via SG Air. Left KL Tuesday at 9:45pm, left SG at 12:20am, Manila by 4:30am.

So, I was able to see KL and suburbs at night from the air as I took the window seat. Again, like what I saw in Thailand last month when I arrived Bangkok at midnight (see Thailand’s bright nights and nat gas power), Malaysia has a wide, huge area of well-lighted roads, houses and buildings.

This photo I got from the web, not from my camera. It shows KL center and suburbs. The dark areas are the many urban forest in KL.

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The bright and well-lighted areas go beyond KL and suburbs. Stretched to other urban centers further down, to Johor and other cities bordering with Singapore.

Below, Singapore at night; again, this photo I got from the web, not from my camera. It simply captures the well-lighted city-state, from the shorelines to other sides.

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I am glad that like Thailand, Malaysia and Singapore do not believe in mandatory switch to unreliable, intermittent wind and solar power made “cheaper” only because of various subsidies. They rely on the old, dependable coal and  natural gas, for their electricity needs.

In 2012, these countries and economies were dependent on the following energy sources:

Thailand: 20% coal + 70.3% nat gas + 1.5% oil = 91.8% fossil fuel.
Malaysia: 41.5% coal + 46.6% nat gas + 4.5% oil = 92.6% fossil fuel.
Singapore: 84.3% nat gas + 13% oil = 95.3% fossil fuel.

Indonesia: 48.7% coal + 23.2% nat gas + 16.7% oil = 88.6% fossil fuel.
Vietnam: 17.9% coal + 35.8% nat gas + 2.7% oil = 56.4% fossil fuel.
Philippines: 38.8% coal + 26.9% nat gas + 5.8% oil = 71.5% fossil fuel.

Hong Kong: 70.3% coal + 27.3% nat gas + 2.1% oil = 99.7% fossil fuel.
S. Korea: 44.8% coal + 20.9% nat gas + 4.0% oil = 69.7% fossil fuel.
China: 75.8% coal + 1.8% nat gas and oil = 77.6% fossil fuel.

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Source: ADB, Key Indicators for Asia and the Pacific 2015, Table 6.1

So when people say they dislike or hate fossil fuels yet also dislike or hate frequent brownouts and expensive electricity, they proudly and openly exhibit their hypocrisy and double talk.

In one fb thread of a friend, he commented that during the APEC meetings, US President Obama posed climate change (CC) as a challenge that government and business leaders must take action.

I commented that the main reason why we have electricity in M.Manila for the APEC and similar events, the reason why many people can do fb and attack “man-made” CC, is because of those power plants that run on fossil fuels.  Frequent brownouts and candles are NOT nice to “save the planet.” Watch more fires because of more candles. Watch more crimes and road accidents because of dark streets.

There are many people who advocate or support the “anti-fossil fuel movement.” We can assume that they have no car or motorcycle, that they do not take a jeepney or taxi or bus, does not ride an airplane — ALL of these run on fossil fuel.

The anti-fossil fuel movement is notorious for hypocrisy and double talk. The Paris meeting in less than two weeks will have thousands of petroleum-bashing planet saviours who reach Paris via fossil fuel-fed planes and cars.

CC is natural, it is nature-made, not man-made. It is cyclical, warming-cooling-warming-cooling, endless cycle, not “unprecedented”. CC is true, it happened in the past even if humans did not even ride a bicycle or invented shoes. It is happening now, and it will happen in the future.

As I told my friend in the past, climate alarmis, ss(“it is man-made, period!”) will never be interested in dialogues or even debates. The big ones and leaders are interested only in climate money, something like $100B a year, or $500B a year, or $5 trillion a year, take your pick. The non-big ones are interested only in spreading alarmism.

The Pope, ahh, when he came to Manila, his plane was using water, or it was being towed by hundreds of witches on flying brooms or carpets.