energy

Competition and consumer watchdog needed

In the wake of the alleged power rate fixing scandal in electricity markets and unsafe practices among transport operators, it is time for a competition watchdog to protect the rights of consumers.

Given the penchant for regulatory capture that appears to have occurred among our transport and energy authorities, a commission dedicated to protect consumers and markets, in general, against anti-competitive predatory behaviour is needed.

So far the proposals for anti-trust legislation do not contain any provision for a dedicated watchdog with the powers to investigate complaints and penalise companies found guilty of breaching the consumer protection act.

In a country like the Philippines whose government agencies are prone to capture by vested interests, to the detriment of the rights and interests of consumers, a consumer advocate and competition watchdog would provide an additional check on the powers of industry regulators who often end up in the back pockets of big business.

The United States has its Federal Trade Commission, the European has an antitrust regulator, the Canadian government has a Competition Bureau and the Australian government has its Competition and Consumer Commission. These agencies protect consumers against fraud, deception and unfair business practices.

The promotion of consumer welfare is an area that is neglected in the Philippines. In the case of the transport sector, a recent road accident that killed 22 passengers could have been prevented if the bus operator followed road rules and did not endanger the lives of commuters. In the case of the energy sector, the alleged collusion among providers might have been prevented if there was a credible threat against unfair practices.

The same could be said of airlines, shipping, cement and a host of other industries. It is time to put the era of robber barons and booty capitalists behind us.

An invitation to a UNESCO talk regarding ethics, energy and climate change

“Beyond Fukushima: Ethics, Energy and Climate Change”
Consultation Meeting with UNESCO Bangkok RUSHSAP in cooperation with the National Commission of the Philippines to UNESCO, and the Department of Philosophy of Ateneo de Manila University
Ethics and Climate Change in Asia and the Pacific (ECCAP)
8:00 – 12:00, 30 April 2011

Venue: Ching-Tan Room of Ateneo Gokongwei School of Management
Ateneo de Manila University, Loyola Heights, Q.C.

 

ManilaECCAP30APril2011program

Japan, the Persian Gulf and Energy

y George Friedman

Over the past week, everything seemed to converge on energy. The unrest in the Persian Gulf raised the specter of the disruption of oil supplies to the rest of the world, and an earthquake in Japan knocked out a string of nuclear reactors with potentially devastating effect. Japan depends on nuclear energy and it depends on the Persian Gulf, which is where it gets most of its oil. It was, therefore, a profoundly bad week for Japan, not only because of the extensive damage and human suffering but also because Japan was being shown that it can’t readily escape the realities of geography.

Japan is the world’s third-largest economy, a bit behind China now. It is also the third-largest industrial economy, behind only the United States and China. Japan’s problem is that its enormous industrial plant is built in a country almost totally devoid of mineral resources. It must import virtually all of the metals and energy that it uses to manufacture industrial products. It maintains stockpiles, but should those stockpiles be depleted and no new imports arrive, Japan stops being an industrial power.

 

The Geography of Oil

 

There are multiple sources for many of the metals Japan imports, so that if supplies stop flowing from one place it can get them from other places. The geography of oil is more limited. In order to access the amount of oil Japan needs, the only place to get it is the Persian Gulf. There are other places to get some of what Japan needs, but it cannot do without the Persian Gulf for its oil.

This past week, we saw that this was a potentially vulnerable source. The unrest that swept the western littoral of the Arabian Peninsula and the ongoing tension between the Saudis and Iranians, as well as the tension between Iran and the United States, raised the possibility of disruptions. The geography of the Persian Gulf is extraordinary. It is a narrow body of water opening into a narrow channel through the Strait of Hormuz. Any diminution of the flow from any source in the region, let alone the complete closure of the Strait of Hormuz, would have profound implications for the global economy.

For Japan it could mean more than higher prices. It could mean being unable to secure the amount of oil needed at any price. The movement of tankers, the limits on port facilities and long-term contracts that commit oil to other places could make it impossible for Japan to physically secure the oil it needs to run its industrial plant. On an extended basis, this would draw down reserves and constrain Japan’s economy dramatically. And, obviously, when the world’s third-largest industrial plant drastically slows, the impact on the global supply chain is both dramatic and complex.

In 1973, the Arab countries imposed an oil embargo on the world. Japan, entirely dependent on imported oil, was hit not only by high prices but also by the fact that it could not obtain enough fuel to keep going. While the embargo lasted only five months, the oil shock, as the Japanese called it, threatened Japan’s industrial capability and shocked it into remembering its vulnerability. Japan relied on the United States to guarantee its oil supplies. The realization that the United States couldn’t guarantee those supplies created a political crisis parallel to the economic one. It is one reason the Japanese are hypersensitive to events in the Persian Gulf and to the security of the supply lines running out of the region.

Regardless of other supplies, Japan will always import nearly 100 percent of its oil from other countries. If it cuts its consumption by 90 percent, it still imports nearly 100 percent of its oil. And to the extent that the Japanese economy requires oil — which it does — it is highly vulnerable to events in the Persian Gulf.

It is to mitigate the risk of oil dependency — which cannot be eliminated altogether by any means — that Japan employs two alternative fuels: It is the world’s largest importer of seaborne coal, and it has become the third-largest producer of electricity from nuclear reactors, ranking after the United States and France in total amount produced. One-third of its electricity production comes from nuclear power plants. Nuclear power was critical to both Japan’s industrial and national security strategy. It did not make Japan self-sufficient, since it needed to import coal and nuclear fuel, but access to these resources made it dependent on countries like Australia, which does not have choke points like Hormuz.

It is in this context that we need to understand the Japanese prime minister’s statement that Japan was facing its worst crisis since World War II. First, the earthquake and the resulting damage to several of Japan’s nuclear reactors created a long-term regional energy shortage in Japan that, along with the other damage caused by the earthquake, would certainly affect the economy. But the events in the Persian Gulf also raised the 1973 nightmare scenario for the Japanese. Depending how events evolved, the Japanese pipeline from the Persian Gulf could be threatened in a way that it had not been since 1973. Combined with the failure of several nuclear reactors, the Japanese economy is at risk.

The comparison with World War II was apt since it also began, in a way, with an energy crisis. The Japanese had invaded China, and after the fall of the Netherlands (which controlled today’s Indonesia) and France (which controlled Indochina), Japan was concerned about agreements with France and the Netherlands continuing to be honored. Indochina supplied Japan with tin and rubber, among other raw materials. The Netherlands East Indies supplied oil. When the Japanese invaded Indochina, the United States both cut off oil shipments from the United States and started buying up oil from the Netherlands East Indies to keep Japan from getting it. The Japanese were faced with the collapse of their economy or war with the United States. They chose Pearl Harbor.

Today’s situation is in no way comparable to what happened in 1941 except for the core geopolitical reality. Japan is dependent on imports of raw materials and particularly oil. Anything that interferes with the flow of oil creates a crisis in Japan. Anything that risks a cutoff makes Japan uneasy. Add an earthquake destroying part of its energy-producing plant and you force Japan into a profound internal crisis. However, it is essential to understand what energy has meant to Japan historically — miscalculation about it led to national disaster and access to it remains Japan’s psychological as well as physical pivot.

 

Japan’s Nuclear Safety Net

 

Japan is still struggling with the consequences of its economic meltdown in the early 1990s. Rapid growth with low rates of return on capital created a massive financial crisis. Rather than allow a recession to force a wave of bankruptcies and unemployment, the Japanese sought to maintain their tradition of lifetime employment. To do that Japan had to keep interest rates extremely low and accept little or no economic growth. It achieved its goal, relatively low unemployment, but at the cost of a large debt burden and a long-term sluggish economy.

The Japanese were beginning to struggle with the question of what would come after a generation of economic stagnation and full employment. They had clearly not yet defined a path, although there was some recognition that a generation’s economic reality could not sustain itself. The changes that Japan would face were going to be wrenching, and even under the best of circumstances, they would be politically difficult to manage. Suddenly, Japan is not facing the best of circumstances.

It is not yet clear how devastating the nuclear-reactor damage will prove to be, but the situation appears to be worsening. What is clear is that the potential crisis in the Persian Gulf, the loss of nuclear reactors and the rising radiation levels will undermine the confidence of the Japanese. Beyond the human toll, these reactors were Japan’s hedge against an unpredictable world. They gave it control of a substantial amount of its energy production. Even if the Japanese still had to import coal and oil, there at least a part of their energy structure was largely under their own control and secure. Japan’s nuclear power sector seemed invulnerable, which no other part of its energy infrastructure was. For Japan, a country that went to war with the United States over energy in 1941 and was devastated as a result, this was no small thing. Japan had a safety net.

The safety net was psychological as much as anything. The destruction of a series of nuclear reactors not only creates energy shortages and fear of radiation; it also drives home the profound and very real vulnerability underlying all of Japan’s success. Japan does not control the source of its oil, it does not control the sea lanes over which coal and other minerals travel, and it cannot be certain that its nuclear reactors will not suddenly be destroyed. To the extent that economics and politics are psychological, this is a huge blow. Japan lives in constant danger, both from nature and from geopolitics. What the earthquake drove home was just how profound and how dangerous Japan’s world is. It is difficult to imagine another industrial economy as inherently insecure as Japan’s. The earthquake will impose many economic constraints on Japan that will significantly complicate its emergence from its post-boom economy, but one important question is the impact on the political system. Since World War II, Japan has coped with its vulnerability by avoiding international entanglements and relying on its relationship with the United States. It sometimes wondered whether the United States, with its sometimes-unpredictable military operations, was more of a danger than a guarantor, but its policy remained intact.

It is not the loss of the reactors that will shake Japan the most but the loss of the certainty that the reactors were their path to some degree of safety, along with the added burden on the economy. The question is how the political system will respond. In dealing with the Persian Gulf, will Japan continue to follow the American lead or will it decide to take a greater degree of control and follow its own path? The likelihood is that a shaken self-confidence will make Japan more cautious and even more vulnerable. But it is interesting to look at Japanese history and realize that sometimes, and not always predictably, Japan takes insecurity as a goad to self-assertion.

This was no ordinary earthquake in magnitude or in the potential impact on Japan’s view of the world. The earthquake shook a lot of pieces loose, not the least of which were in the Japanese psyche. Japan has tried to convince itself that it had provided a measure of security with nuclear plants and an alliance with the United States. Given the earthquake and situation in the Persian Gulf, recalculation is in order. But Japan is a country that has avoided recalculation for a long time. The question now is whether the extraordinary vulnerability exposed by the quake will be powerful enough to shake Japan into recalculating its long-standing political system.

Japan, the Persian Gulf and Energy is republished with permission of STRATFOR.

Philippines leads region in renewable energy initiatives

[vimeo]http://vimeo.com/12709720[/vimeo]

We are on track to be among the first countries in the world to one day eliminate our reliance on oil. We have the resources, we just need to use them better, and sustainably. Good for the environment, good for the economy. I am no greenie greenpeace advocate, but it makes economic sense. It is my hope that government sees this potential and sets in motion the right environment in terms of policies and corruption, for renewable energy investment and development.

The Philippines was in an energy crisis in the first half of this year. The El Niño phenomenon had caused power supplies to trickle, bringing in its wake rolling blackouts and a temporary hike in electricity in oil prices.

A long-term solution, however, is well under way.

According to Vincent Perez, former DOE secretary and current chairman of the World Wildlife Fund in the Philippines, the Philippines is the regional leader in promoting the use of renewable power.

(The term “power” specifically refers to electricity, while the term “energy” is a general term.)

With its agricultural geography and its economy, the Philippines is well-situated for wind (particularly in the Ilocos region, thus Bongbong’s wind farms), solar (no explanation needed), geothermal (we are in the Pacific ring of fire and the second largest geothermal energy producer in the world) and hydroelectric power (Ma. Cristina Falls is a prime example), as well as power from biomass.

Biomass is a renewable energy resource derived from organisms, either as they are (such as coconut and sugar), or in the form of their wastes. These can be wastes that are normally burned in farmlands, or methane gas derived from places like Payatas.

“We hope to see these grow substantially in the next ten years with various emerging renewables,” said Perez, also the CEO and President of a renewable energy company called Alternergy.

The Renewable Energy Act has been labeled as the most aggressive renewable energy initiative in Southeast Asia.

Signed into law by former President Arroyo in 2008 (R.A. 9531), the Renewable Energy Act seeks to promote the development of renewable energy resources and its commercialization by providing incentives to institutions that invest in this sector.

Public and private institutions have responded aggressively and so far, with favorable results and prospects.

The Institute for Climate and Sustainable Cities (ICSC) has taken the first steps on the ground by modifying the Philippines’ iconic jeepney. The E-jeepney emits no smoke and no noise. It runs on electricity, and powering it up costs at least Php 200 less than at the pump for a full day’s route, a significant daily savings in a country where a third of the population lives on less than a dollar a day.

“It’s mainly a solution that integrates what we already have,” said Red Constantino of the ICSC. “There’s no rocket science here, it’s all about application.”

Call it a glorified golf cart, but ICSC hopes to eventually replace all public vehicles in the country with E-Jeepneys. They’re already running for free at certain schedules in Makati and Puerto Princesa.

With E-Jeepneys, you don’t need to gas up. All you have to do is plug in for a few hours and you’re ready to go. And there lies the rub. No matter how clean and green these cars are, its energy source has to be clean and green as well before we can put Mother Nature’s stamp of approval.

The E-Jeepney is part of what could soon be a “green loop.” It’s a cycle where renewable sources produce clean energy, that will in turn power green technology. Former DOE Secretary Perez supports this vision. He says that one of the dreams he has is to build a series of gasoline stations that are now converted to solar-powered charging stations for future E-Jeepneys.

Or for that matter, any form of power from renewable energy sources. One alternative is power from biomass. Global Green Power is run by Briton David de Montaigne, his Filipina wife and a business partner. They have invested in the Philippines to build biomass plants around the country. They are building plants across the islands from Luzon to Mindanao, which will convert agricultural waste into usable energy. They already operate in China.

It’s potentially sustainable both ecologically and economically. De Montaigne estimates that their plants will pump Php 200M back into the economy in their first year of operations.

“It’s not just renewable energy, it’s not just climate change mitigation with biomass, it’s actually socio-economic development. We’re actually pulling people out of poverty,” he tells me.

Thirty-nine percent of the country’s power capacity currently comes from renewable sources. If government provides a fertile environment for continuing investments, experts reckon 2000 megawatts of renewable energy can be produced in 3 years at our current rate of development.

A promising prospect for a country that needs to sustainably develop an economy heavily dependent on its natural resources.

This report was originally filed in May for CCTV English, Beijing.

Ilocos windmills, photo pulled from Adaphobic's blog
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