Legendary investor Warren Buffet has had a busy, busy, busy week. (That’s one “busy” for each of the high profile deals he has made and he certainly deserves to take a seat after that, as pictured, if even for a brief moment.)
In the midst of a financial meltdown in Wall Street, Buffet’s Berkshire Hathaway made bold investments in Goldman Sachs, Constellation Energy (which has a nuclear energy storyline) and now BYD Auto, the Shenzhen-based maker of batteries and electric vehicles that this blog has profiled a few times. From Green Car Congress:
MidAmerican Energy Holdings Company, a Berkshire Hathaway Inc. subsidiary, will purchase 225 million shares, representing approximately a 10% interest, in China-based BYD Company Limited. BYD’s corporate focus is researching, developing, manufacturing and selling rechargeable batteries (Li-ion, Nickel batteries), automobiles, electric automobiles and related products. The investment is valued at 1.8 billion HK dollars, or approximately US$230 million. Read the full story
Consider this fact. March 29, 2008 was Earth Hour, a global campaign in which 50 million people across 370 cities and towns and 35 countries, including Singapore, switched off their lights for one hour starting at 8:00 pm to demonstrate a collective concern on the paramount issue of climate change. And guess what organizers of the Singapore F1Grand Prix, which would be the first night race ever, decided to do that very evening during Earth Hour?
Test the floodlights.
With Singapore, my hometown, hosting its first Formula One motor racing event ever this weekend, and China, this blog’s theater of operations, hosting its own F1 race in Shanghai in mid-October, The Green Leap Forward feels compelled to make a few preliminary observations about F1 and motorsports in general.
In this age of US$120 per barrel oil, a climate crisis and not to mention global financial meltdown, motor sports is facing a real challenge to stay relevant, to put it in very mild (read: courteous) terms. In noting the pathetic fuel (in)efficiency of F1 cars, Financial Times columnist Jonathan Guthrie notes (subscription needed):
Motorsport is balanced on a cusp where other previously praiseworthy activities – including smoking, elephant shooting and western military imperialism – teetered before becoming uncool. The problem is that performance car racing is as friendly to the environment as napalming virgin rainforest. The typical Formula One car does a flamboyant 3.8 miles to the gallon, generating enough heat to condemn whole families of polar bears to a long swim.
3.8 miles per gallon. That’s about 1.6 km per liter for those of us living in a metric world. This compares to 28 (urban driving) to 37 (highway) miles per gallon that a Toyota Corolla, one of the most popular cars on America’s roads, gets.
Renewables Report, in its own (but ultimately fruitless) inquiries with Singapore authorities on the financial and environmental logic of hosting the F1, echoes Mr. Guthrie and concludes in stinging terms:
As the cost of fuel rises, as geopolitical conflicts intensify over oil and other natural resources, the F1 and fossil fuel-based motoring sports will be viewed in the same light as socially unacceptable sports as, say, dog-fighting.
Couldn’t have said it better. When I relayed to an associate my intention of writing a critique of motorsports, he informed me that he was aware that F1 had gone “carbon neutral.” So I decided to do some digging on how green politics today were affecting F1 and its organizers, Fédération Internationale de l’Automobile (FIA).
A Campaign of Hypocrisy?
Apparently, F1 has been carbon neutral since 1997, according to this report. It’s a remarkable and almost unbelievable fact considering the fact that carbon offsetting has only in very recent years emerged into society’s consciousness, and even if so, usually just confined to those of the socially responsible. While it would be unjust to assume that just because FIA is in the business or burning petroleum that it is inherently incapable of social responsibility, it is difficult to imagine such an institution, or any organization for that matter, undertaking an action that directly affects its bottom line with no apparent collateral benefits, especially when it has done such a poor job in advertising such progressive actions so as to at least gain some CSR brownie points.
This opinion is reinforced by the somewhat hypocritical “Make Cars Green” campaign that it has recently launched to educate fans on softening their carbon footprint with respect to private car usage. The whole campaign ignores entirely the basic question of whether private vehicle ownership or usage is desirable or even necessary in the first place. It is almost as if it assumes that to buy and own an automobile is an inalienable right. No mention of public transit or better-designed cities to facilitate low-carbon mobility.
Next, it goes on to bellow certain principles such as “Don’t warm up your engines before starting off”, “Accelerate gently and keep your speed constant” and “Don’t idle your engines” that are just hilarious considering the practices of the source of these pieces of advice.
As part of their campaign, they have also promulgated a series of lofty global policy recommendations, but again, talk is cheap. Its easy to craft idealistic automobile measures on paper, but quite another to lead by example.
No Time for Baby Steps: The Need for an Electron Revolution
In the interest of fair and balanced analysis, however, it behooves this blog to mention some other green steps that FIA/F1 is undertaking. Motorsports has not been able to shield itself from the realpolitik of climate change that is beginning to fundamentally transform many sectors of the economy. Nick Fry, chief executive of Honda’s F1 team, which has apparently gone green, is quoted as saying:
Formula One historically has been profligate; it’s been a sport which has developed ludicrously powerful engines to really no fixed agenda, maybe running fuels that would never see the light of day. The amounts of money that the car companies are paying to compete in F1 are rewarded hopefully by victories, but that’s not sufficient. It’s got to incorporate technology or intellectual-property development or people development that can be fed back into the parent company.
Other than (reportedly) going carbon neutral and launching a (laughable) green campaign, FIA has officially announced plans to tinker with F1 racing regulations in ways that will allow it to become a test-bed for energy efficiency technologies of the incremental (as opposed to radical and truly transformative) variety.
This racing season, reports The New York Times, F1 cars have been using use fuels containing 5.7% biofuel, consistent with an EU directive for road cars by 2010, will not be subject to an otherwise meaningless 10-minute idling process that does nothing but burn petrol.
Starting in 2009, it will introduce the Kinetic Energy Recovery System (KERS), a form of regenerative breaking, which basically recovers energy that is typically lost in the process of braking (just think of the numerous tight curves along an F1 track that requires excessive braking and tire burning) and channels it back into the energy flow of propelling the vehicle. But read here for some stumbling blocks that KERS is facing.
And come 2011, there are proposal to downsize the engines of F1 cars and to also eliminate any technology R&D collaboration with major auto manufacturers that are only applicable to F1 racing and not to road cars, reports GreenCarCongress.
I would argue that will these are right steps in the right direction, they do not exactly reflect the urgency of the energy conundrum that currently confronts us.
The blog Green Thoughts and its “The Electron Economy” series of posts best explains why a shift to EVs is a superior technological option over, say, the use of biofuels or hydrogen. In short, electricity is the most efficient carrier of energy and electrical motors are far more efficient converters of energy than internal combustion engines. The sustainability proposition of electricity increases if the source of generating that electricity comes from renewable energy such as wind, solar and geothermal rather than fossil fuels. If FIA was truly sincere about leveraging motorsport as a laboratory for clean automobile technology, it would not be investing heavily in research into electric vehicles (EV) and batteries (which are an essential and currently performance limiting component of EVs). A move away from the internal combustion engine, which is highly inefficient, and towards a renewable electron economy, is what should steer automobile technology research.
Companies like Tesla Motors are ahead of the likes of FIA.
But doing away with private cars altogether, and taking advantage of a public transit network powered by electricity, however, would truly be worthy of the checkered flag.
P.S. For readers not familiar with American football or contemporary US culture, the reference to Michael Vick in the title, a former American football player can be explained here.
Modern Japan is touted the most energy efficient economy in the world as well as a pioneer of electronic innovation, and increasingly, cleantech innovation as evidenced by the likes of its world leading solar companies like Sharp and Kyocera and the likes of Toyota for fuel efficient cars. Recently, Japan announced that it would revive incentives for solar power adoption, and also enact a national carbon-labeling scheme for consumer goods. Are there lessons from the Japanese experience for China to emulate?
Bill Emmott, a former editor of The Economist and author of the recently published book Rivals: How the Power Struggle Between China, India and Japan Will Shape Our Next Decade, explores in a new article in McKinsey Quarterly (subscription required, but free!) how, in this inflationary age, China can learn from Japanese socio-economic development history to steer its economy towards a more environmentally-friendly one.
Emmott reminds us that Japan’s environmental situation in the 1970s was not unlike China’s today. He then explains that there were two key factors that pushed Japan to clean up its act (bold mine):
One was popular protest, which even in a democracy dominated by a single party, the Liberal Democrats, forced government policy to change. The country’s first proper environmental laws were passed in the early 1970s, when its first environment agency was created. The second was macroeconomic: the revaluation of the yen, combined with the oil shock and the ensuing inflation. This sudden change in Japan’s circumstances brought about an abrupt switch in its industrial structure. The low-cost model was dead. Capital investment in heavy, polluting industry began to drop. Energy had become more expensive, and new taxes made it more expensive still. Companies adopted energy-saving and more efficient technologies and started to make products, especially cars, suited to the new, cleaner times. Also at this point, electronics companies, encouraged by the government, made big investments in new high-tech gadgetry, which led the economy in a new direction.
As a result, Japan’s industry underwent a transformation to the upmarket. Emmott keenly observes that the twin pressures of environmental degradation and inflation (similarly caused by currency revaluation and energy shocks today) are precisely what China is currently experiencing.
Comparing Apples to Oranges?
Can these drivers be similarly channeled towards a greening of China’s economy?
Everything there [in China] is on a larger scale than elsewhere: only India comes close in population, and only Russia, Canada, and the United States are comparable in geographic size. This can make China’s problems look more daunting than those of other countries. But that is misleading, for alongside the scale of the country’s pollution problems must be placed the scale of its resources to deal with them—if it chooses to do so. China has plenty of officials to enforce laws, the world’s largest security forces, and a central-government budget that is now happily in surplus.
However, Emmott acknowledges that, other than scale, certain other key differences that exist between China and Japan situation, and hence possible limitations to using Japan as a roadmap:
[China’s] inflationary pressures so far are milder than Japan’s in the ’70s (an annual rate of 8 percent, versus 25 percent in Japan in 1974–75). Its currency policy is in its own hands rather than Richard Nixon’s, and the pressure from environmental protests, while real and growing, is muted. The biggest problem is decentralization: China has excellent environmental laws, but local governments have so far tended to ignore them.
Another observer suggests that there are other significant unique obstacles that China faces, including “corruption, political reform, lack of water and energy, over-dependence on trade.”
The problem of decentralization is one of the principal-agent variety, whereby the agents, in this case the local government officials, do not fully execute the policy prescriptions of the principal, in this case the central government, due to a variety of reasons, such as a lack of resources, competing priorities, indifference, or even corruption. Anyone following China issues for even a short time will appreciate that China possesses some of the most progressive laws and policies, especially in the energy and environmental sphere. It is these “agency costs” that prevents the full implementation of the edicts of Beijing.
As in the corporate world, where the principal-agent problem exists between shareholders as principals and corporate managers as agents, where the tools of the law (legal duties of loyalty and good faith) and financial instruments (stock options) are used to align the interests between principals and agents, the Chinese central government is experimenting with something similar, by making energy efficiency performance as a significant promotion criteria for local government officials. And just as the government authorities may from time to time decide to spring spot-checks or investigations on certain companies, Beijing has authorized energy audits on certain major enterprises in Guizhou after the failure of the southern province to meet certain energy efficiency targets.
A Better Way?
Is emulating Japan’s path even the right course to take?
What might be good for China may not be good for the rest of the world. Japan’s greening came about by a radical transformation of its industry to more high tech, cutting edge manufacturing. But what would the impact on the rest of the world be if China were to abandon its heavy industries and mass manufacturing of consumer goods. Yes, it is certainly a boon if China ramps up its cleantech manufacturing sector, as suggested in our last post. But If China were to pursue the route of high-tech manufacturing and innovation at the expense of heavy industry and low-end mass manufacturing, wouldn’t such a transformation merely shift the associated environmental problems of low-end manufacturing to other low-cost countries such as Vietnam, Indonesia, and eventually even Africa? Labor shortages may already be pushing many factory jobs abroad, it seems. Is the net global result any better?
A better way forward is not to abandon its highly pollutive industries such as steel, cement and refining in favor of the high-tech, but accelerate energy efficiency gains in these very sectors through adoption of better management practices and technology. The use of voluntary agreements between major enterprises and local governments that set energy efficiency and pollution reduction targets and also provide for avenues of government assistance in achieving those goals are a useful tool, one that the likes of the Energy Foundation (China) is helping promote through its Low Carbon Development Path program.
The proper approach then is not to walk away from the problem (by offshoring), but to fix it at home.
An influential voice from within calls for hard carbon emission targets.
A prominent policy academic has urged China to bind itself to carbon emission reductions. The substance of the academic’s message is not new–that as a (the?) world’s leading emitter of greenhouse gases, China should take active steps to curb emissions. What is new is that the messenger is coming from within, in a break from the official stance of Beijing, whose national climate policy focuses on reducing emissions intensity, i.e. emissions per unit of GDP, rather than reducing absolite emissions.
Tsinghua University public policy professor Hu AnGang (pictured right) argues that China stands much to gain, both economically and diplomatically, in imposing absolute emissions targets, even if the likes of the US continue to hold out in the global climate negotiations, reports Reuters. Indeed, we’ve already examined how China is beginning to cash-in on the low carbon game. In a climate plan proposed by Hu, China’s GHG emissions would continue to rise until 2020, as China climbs up the Kutznets curve, then enter a period of dramatic emissions reductions to 1990-levels by 2030, and then half that by 2050.
Sometimes, the messenger is as or even more important than the message. A quick background check reveals Hu to be a highly influential policy adviser to the central government. According to his biography on Tsinghua’s School of Public Policy & Management’s webpage:
Dr. Hu has important influence to China’s public policy making, as one of the most well-known policy advisers and Chinese economists to push China’s reform and development. Earlier in 1990s, he propounded many important suggestions that had been adopted by the central government, for example, establishing tax share distribution system between central and local government (1993), reducing the disparities of regional development (1994), prohibiting the army of engaging in commerce (1994), creating jobs as most priority goal of economic development(1997), balance between social development and economic development (2000),new conception of development based on people-centred (2000,2004).
I’ve argued before (in an interview with Social Bridges) that in order to win the battle of ideas, we need “visionaries who can be champions of the sustainability cause. It is these people, who either by themselves or through innovative organizations at which they work, who are going to spread the green message globally.” Many voices are calling for change, but some voices are heard louder than others, and when it comes to policy making in China, we expect that voices from within, especially amongst those who have the ears of the central government like Hu, are probably the best heard.
Despite China’s hitherto unwavering adherence to the concept of common but differentiated responsibilities (i.e that developing countries such as China should not be bound by hard targets and that developed countries, who are historically responsibile for the largest emissions cumulatively over time, should lead the way), Hu argues:
It’s in China’s own interest to accept greenhouse gas emissions goals, not just in the international interest…Like joining the WTO [World Trade Organization, in 2001], this should be used as international pressure to spur our own transformation…If China makes a 1 percent error in handling climate change, that could mean 100 percent failure in making [an international] agreement [on climate change].
When it was pointed out how radical it was to advocate binding caps on emissions given the history of the international climate negotiations, Hu responded philosophically, in reference to his own experience in policy advocacy on various issues over the years:
I’ve always started out in the minority but ended up as the mainstream.
Indeed, Hu’s clarion call to Beijing’s policy makers reverberates across the pacific where a different visionary, renown journalist and leading globalization commentator Thomas Friedman (in his new book Hot, Flat and Crowded) has also called upon his fellow Americans to turn the challenge of fighting climate change into an opportunity to generate new wealth. The US and China, after all, should have a lot in common when it comes to energy security issues. Both are economic powerhouses that are heavily reliant on foreign sources of oil (70% of US’s and 50% of China’s oil consumption is met by foreing sources of oil), and use coal as a predominant source of electricity generation (50% for the US and 70% for China). These observations make cooperation on energy issues between both countries is a sensible and urgent foreign policy agenda.
They also make voices of “visionaries” like Hu and Friedman a little louder, and little clearer.
I was recently interviewed by Social Bridges, a relatively new but excellent blog on sustainability and corporate social responsibility. The interview touched on various topics, including the following question on China (followed by my response):
Q: As your main focus is on China, what’s your take on the sustainability/greener efforts in your country and are you satisfied? International media keeps on criticizing the Chinese efforts such as the Olympics – how do you view all this?
A: China’s green push is a paradox. On the one hand, it has awakened to the imperative for sustainability and has announced all sorts of progressive environmental and energy reforms. On the other hand, its legacy of a highly polluting industrializing economy is of massive scale, and the socio-political pressures to maintain economic growth so as to provide jobs for its vast populous shows no sign of ebbing. It is clear that the Chinese government is well aware of the need to protect its environment, but as various China commentators have observed, there is a significant disconnect between the top-level central government green policy intentions, and the capacity of its various institutions to effectively manage its energy, environmental and water sector. This means that environmental and energy reform must be undertaken simultaneously with administrative and structural reform of its political institutions–no easy task by any measure. I guess I would consider myself an optimist, but a cautious one at that.
Yes, it is true that the international media has not always been kind to China on various cross-cutting issues. But that comes with the territory of being the world’s emerging superpower. China has to take the good with the bad. Hopefully, rather than simply stirring up local indignance, the international criticism can be turned into an opportunity for China to respond positively–with actions, rather than merely defensive rhetoric. China has demonstrated the ability to listen to its international partners–its current policy over the revaluation of its currency is a case in point.
For the rest of the interview, click here.