REVIEWING CAPM: How to Truly Bring Down Power Rates in the Philippines

I recently came across and found the time to re-read a material written by renowned Energy scholar,the late Simon Awerbuch. I first encountered Awerbuch’s readings a few years ago. That article made me really reflect and understand why our consumer on the street, Juan de la Cruz, is probably getting a bad deal in his electricity prices.

In the material, Awerbuch discussed the Capital Asset Pricing Model (CAPM), and the importance of reviewing the traditional methods used in estimating electricity costs.  He asserted that traditional energy planning fails to consider the risk of price volatility of fossil fuels, which, unfortunately, has a negative correlation with the economy.

We use CAPM in our tariff setting. In my view,  the concept is misused. The reading made me think that if only our energy planners and regulators take the time to understand the concept and make the changes needed, then we will surely have lower power rates

For a long time, we in the power sector have been using the “least cost” approach to analyze which sources of power are cheapest or the most economical to use in the system.  We do this by comparing technologies where we conclude that certain fuel sources are “cheaper” than others. To exacerbate this further, we then go on and regulate what can be passed on to consumers based on the returns we want to give to investors rather than what consumers want nor deserve.

And for the Nth time, I say, we got this all wrong.  This is the reason why we find it extremely difficult to bring down power rates.

We need to look at our Power Sales Agreement or PSAs to understand what we are doing wrong. Reduction of energy cost is simple: regardless of the technology, introducing fixed-price long-term contracts will REDUCE power rates.

To understand the need to introduce fixed-price-long term contract, we first need to review the use of what I call the ‘floating’ power sales agreement.

Generally, PSAs have provisions to “pass through” or “pass on” foreign exchange and fuel prices to the end consumers. It is my contention that once we minimize PSAs with “pass through” or “pass on” rates and replace them with fixed price long-term contracts, we can truly bring down power prices.  Otherwise, as my good friend says, these “pass on” contracts will have to be, in the Visayan language, “pas-an” (to be carried) by the consumers.

In my other articles, I have always asked the question: which is cheaper, a floating PSA that is currently priced at P5.00/kWh or a fixed price PSA that is fixed at P5.10/kWh for 25 years? The traditional analysis will say it is the floating P5.00/kWh.  In fact, the way “rate impact” studies are done, most utilities calculate only the first year tariff and weigh the implications of that tariff when added to the current average tariff of the entire energy mix. The traditional analysis will conclude that, indeed, a floating P5.00/kWh is cheaper than a fixed P5.10/kWh.

Unfortunately, such analysis does not consider the possibility that the floating PSA can reach P10.00/kWh the following year should the value of the peso fall against foreign denominations or prices of fuel or coal significantly increase.

Choosing the ‘floating’ price is counter intuitive. Any businessman or even a housewife would rather pay a known fixed price because, from a budgeting perspective, it is far more convenient.  And more importantly, it is actually, conceptually cheaper. It is cheaper because the cost to hedge either the fuel or forex risk will have to be added on the P5.00/kWh if one is to adjust the cost of a floating PSA to reflect current prices of fuel or value of peso against a foreign denomination. And that is assuming there is such a hedge for 20 years.

But why is this penchant for choosing the floating PSAs embedded in our regulatory framework? For this, we can point to the calculation of the Weighted Average Cost of Capital (WACC) when computing for the Return on Equity (ROE) in the determination of the appropriate tariff for a particular PSA. Our regulators use the CAPM for tariff setting, but unfortunately, use an incorrect value for the beta in the computation. Our regulators assume that the beta has a positive value, which signifies that the return to the generator is positively correlated to the economy.

This indeed is a faulty assumption especially if used in the tariff setting for fossil-powered plants. On the contrary, studies have shown that oil price volatility has a negative relationship on macroeconomic activities. Awerbuch, simplified it best: financial betas of fossil prices must also be negative.

The above point leads me to the bigger, and more important question: why is the rate setting evaluated from the point of view of the generator? Since the consumer is taking the forex and fuel risks anyway, shouldn’t the consumer’s perspective be taken instead?  Shouldn’t we use the beta for consumers for a floating PSA instead of the beta of the generator?

First of all, we need to look at who bears the risk of having a volatile price.  How is Juan de la Cruz compensated for taking on this risk? This question is not even being asked right now.  This has to be asked because, in reality, Juan de la Cruz will end up subsidizing the generators if we insist on assuming a positive of the beta of the floating PSAs.

Given that we are calculating the required ROE in the WACC using a flawed “beta,” then the generators are getting a ROE far greater than they deserve. This leaves Juan de la Cruz in a sorry state.

BUT if we take on the perspective of the consumer, then the entire story changes.

If we want to compensate Juan de la Cruz for taking the volatility risk, then we must consider the financial evaluation of the floating PSAs. Otherwise, the traditional assessment will show that Juan de la Cruz is getting a “cheaper” floating PSA. However, this is a fallacy.  The proof of which can be seen from a mathematical calculation using the CAPM.

Comparison

Take a look at the table above.  Clearly, the floating PSA is riskier for the consumer than the fixed PSA because, again, the consumer bears the cost of the forex and fuel risk. Or to put it simply, the consumers pay more for the fuel and forex upward adjustments.

Now we have to ask: how much is Juan de la Cruz really paying for each type of contract?

A static price comparison obviously is wrong. One cannot compare one price alone, let us say a P5.0/kWh for a floating PSA versus P5.10 for a 20-year fixed-price contract.  We MUST take into consideration the WHOLE contract period.

It is however, IMPOSSIBLE to predict the future prices of fuel and the foreign exchange.  And one cannot possibly put the future prices inside the contract.  This is the reason why these volatile costs are “pass through” or “pass on.”  It is the consumers who will pay for the adjustments above the P5.0/kWh.

This begs the question of how to account for this uncertainty in the evaluation of cost for Juan de la Cruz.

The fixed PSA, on the other hand, is easy to figure out: it is fixed.

So, how can one evaluate what the real cost is for Juan de la Cruz? Common sense will tell you, the fixed price – as long as it is priced correctly – will be always be advantageous to Juan de la Cruz, all other things being equal.

Mathematically it can also be proven.  We still use the CAPM– the very same formula that is being used to determine the appropriateness of the tariff–except that this time, we use the CAPM from the point of view of Juan de la Cruz rather than the one of the generator.

CAPM

The formula above says the discount rate of any asset is equal to the risk-free rate plus a premium.  This premium is represented by the market return (MR) adjusted for the sensitivity of the asset to the return of the market.  Generally, in modern finance, the market return (MR) is defined as the return of the entire stock exchange, and the beta is the correlation coefficient of a particular stock against the return of the market.

If a stock’s price goes up or down with the market, then we say that stock is POSITIVELY correlated with the market.  The beta then will be a POSITIVE number.  If the stock’s price goes up when the market goes down and vice versa, then we say that stock is NEGATIVELY correlated with the market.  Then that beta will be a NEGATIVE NUMBER. If a stock price stays constant regardless of the behavior of the market, then we can say it has NO CORRELATION with the market. Then the beta will be ZERO.

Let us now apply the concept in evaluating the floating PSA versus the fixed PSA.

Let’s start with the easy one – the fixed price.

Since the price of the PSA is fixed (in real terms), then we can say it has NO CORRELATION with the movements in the fuel price or forex.  Or to put it simply from a consumer’s perspective—the consumer will pay the same price regardless of the fuel prices or forex. So, the beta will be ZERO, which means the discount rate we should use will be the risk-free rate. Let me go back to this number later when we do the analysis.

How do we handle the case of the “pass on” or floating PSAs?

Volatile prices, in general, will be NEGATIVELY correlated to the market, so the beta is a negative number. A simpler analogy is this: if the price of fuel or the cost of forex goes up, the value of the PSA goes down (becomes more expensive.) On the other hand, if the cost of fuel or forex goes down, the value of the PSA goes up (becomes less expensive). Clearly, there is a NEGATIVE correlation between a volatile PSA and the market.

Applying this logic to the CAPM, one will see that the discount rate for the fixed PSA will always be higher than the discount rate for the volatile or floating PSA (mathematical proof available upon request.) The reason is simple. In the case of the fixed price contract, we discount the price at the risk-free rate.

On the other hand, in the case of the floating contract, we discount the price at a rate LOWER than the risk-free rate.  Discounting at this lower discount rate will result in a higher price than one that is discounted at the higher discount rate.  That the mathematical truth.

How do we translate this to Juan de la Cruz?

This simply means, ceteris paribus, a fixed price contract will ALWAYS be lower than a floating volatile contract. And any analysis that does not take this into consideration is doing a disservice to the consumers. This also means that putting a fixed price contract into a utility’s energy mix will lead to LOWER power rates.

There is no magic in the CAPM formula. After all, anyone with some basic knowledge of calculus and finance can calculate using that formula. The major shift here is this: we should use the discount rate relevant to Juan de la Cruz rather than to the generator. It is the consumer taking the fuel and forex risks.  Hence, he must be compensated for taking on that risk. Using the generator’s beta (most likely greater than 1) to evaluate the PSA is wrong because the one paying the tariff is Juan dela Cruz and not the generator.

I am not saying that we should totally ignore floating PSAs. Floating PSAs generally are associated with fossil fuel-based contracts. I think the late Prof Awerbuch hit the nail on the head with his article. As he pointed out, “The CAPM analysis highlights some important implications of the negative correlation between energy prices and the economy, suggesting a broader conceptualization of energy security that reflects the deleterious economic effects of fossil volatility. These effects can be measured and reduced by incorporating technologies such as wind, geothermal and PV, whose underlying costs are uncorrelated to fossil prices. Fossil price risk can be mitigated only through such diversification.”

Unless this shift is made, Juan de la Cruz will always be screwed. It will be the consumer who will “pas-an” the generator because of the “pass on” nature of the volatile PSA.

Time to change.

It’s About Time

President Rodrigo Duterte made strong pronouncements after attending the Asia Pacific Economic Cooperation in Peru, promising to open up our utilities to more competition.

In his speech delivered in New Zealand, the president said “The only way to make this country move faster to benefit the poor is really to open up the communications, the airwaves and the entire energy sector. My decision now is to open the Philippine economy to other players.”

He further added that the government is “now also looking into regulatory requirements and institutional arrangements to hasten the entry of new players in the power industry and energy sector.”

This is good news for us, not only for energy players like myself but the rest of the country. I have long been advocating for the opening up of the sector to more players, including foreign ones. I have always been vocal in my desire to lift the 40 percent restriction on foreign ownership to address the energy needs of our country for several reasons.

For one, the building of power plants, particularly renewable energy plants is capital intensive, and there are very few local businessmen who can cough up the needed money to explore and build RE plants. The government no longer spends for the exploration of renewable energy and has left the task to the private sector. Unfortunately, exploration is not a cheap undertaking.

Take the case of geothermal energy where drilling of a single hole can cost $5 million, and that doesn’t include expenses incurred for the feasibility studies before drilling.

What we need are foreign investors who can shell out the money and provide the technologies needed to harness the energy from renewable sources because local businessmen do not have them. What we can do is to limit the foreign ownership of the renewable sources, but welcome more foreign investors to own equipment needed to convert our resources.

There’s another reason why the energy sector is ripe for more foreign ownership. The International Energy Agency or IEA has reported that roughly $165 trillion funds are ready for renewable and efficiency efforts from the years 2020 to 2030 after the government heads last year signed the agreement to reduce and limit carbon emissions to help save the environment.  This means the Philippines can take a share of that pie if we open ourselves to more foreign owners. We are, after all, a natural choice to receive these funds given the country’s abundance of natural resources.

The Philippines has been one of the fastest growing economy in the region and the Duterte administration is determined to keep our economic growth momentum that will be felt by the Filipinos. But the government can only accomplish such by building infrastructure to support our economic growth including power plants for stable and affordable energy supply.

Hopefully, the president can achieve his goals by having a cooperative Congress that will push for the needed changes in the Constitution. This necessary change is long overdue.

Reference:

http://business.inquirer.net/220139/digong-opens-3-sectors-foreign-investors

 

When Big Businesses Unite

Everyone has been calling for more action to address climate change, and many have responded. The corporate sector is one of them. A report revealed that roughly 43 percent of companies belonging to Fortune 500 have set their strategies on helping the environment either through greenhouse gas reduction, renewable energy consumption or energy efficiency.

Businesses have an obligation to provide their clients with quality services and products. But it’s not only the obligation that they have. It is also imperative to provide value to customers by committing to a greater cause: helping improve the lives of many.

And gladly, big firms are doing just that by committing to use renewable energy in their operations under the RE100 initiative.  From soda makers, search engines and clothes manufacturers. It is heartwarming to know that some of our favorite brands are part of a global initiative that is committed to using 100 percent renewable energy.

Here are some of them:

AstraZeneca

This pharmaceutical firm is committed to sourcing 100 percent of its power requirements globally by 2025. In the meantime, it has set a goal of using 100 percent RE for Europe and the US by year 2020.

Bloomberg

A provider of business and financial information, Bloomberg has its vision of using 100 percent RE by 2025.

BMW

German luxury car maker and motorcycle and engine manufacturer wants to buy 2/3 of all its power requirement from RE sources by 2020 and eventually consume 100 percent of RE power in the future.

Coca-Cola

Everyone knows (and probably consumes coke), but few know that this cola manufacturer intends to power its operations using RE by 2020.

Goldman Sachs Group, Inc.

This global investment bank and securities and investment management firm has the goal of using 100 percent RE by 2020.

Google

The number 1 search engine is also the largest firm to use RE and is committed to source 100% of its energy needs from renewable sources. It has also made a commitment to purchase 2.5 GW of RE and invest $2.5 billion in RE projects.

H&M

This fashion retailer is not only a favorite shopping destination in malls, but also a committed firm that intends to go 100 percent RE in the near future.

H&P

One of the biggest computer and print systems maker, H&P wants to increase its RE consumption to 40 percent of its total needs by 2020 and eventually go 100 % RE in all its operational needs in the future.

Johnson & Johnson

The health care company has made a mission of helping individuals and families live longer and healthier. And part of its vision of healthier individuals is its commitment to help address climate change through 100 percent us of RE use by year 2050.

Marks and Spencer

UK-based multinational retailer is already using 100 percent RE in UK and intends to source 100% of its energy needs from RE soon.

Microsoft

Bill Gates- led Microsoft has been using 100 percent RE since 2014 via purchase of renewable energy certificates and offset plus power purchase agreements. The firm is able to generable some amounts of power via their solar panels found in the rooftop of its campus in Silicon Valley.

Nestle

Swiss-based manufacturer Nestle wants to reduce its greenhouse gas emissions by 35% and plans to increase its consumption of RE to achieve this goal.

Nike

Popular for its athletic shoes, Nike also wants to purchase all its energy requirements from RE sources.

P&G

P&G boasts of the strongest household name brands and operates in around 70 countries. It plans to power up its full operations through RE, and in the meantime wants 30 percent of its power requirements sourced from RE by 2020.

Unilever

British-Dutch multinational company and a direct competitor of P&G proudly uses 100 percent RE in Europe and the US. It also aims to source all of its energy needs through RE by 2030, as well in other areas where it operates. In the interim, it intends to use 100 percent of all electricity bought from the grid from RE by 2020.

Wal- Mart

A global retailer with more than 11,000 stores in the world in some 28 countries has a target of buying 7,000 GwH of renewable energy by 2020 and eventually fuel its 100% of operations by renewables.

google-logo

Ivanpah Solar Electric Generating System near the California-Nevada border. Google is one of the major investors of the plant. Photo c/o http://www.ibtimes.co.uk

Choosing to go renewable is a task that requires careful thought. Corporations at first must decide on their targets.  They can choose either to set a percentage target of their overall energy consumption (i.e. power up 50 percent of their total operations through RE sources by 2022); choose to set a procurement target in absolute numbers (i.e. purchase 100 MW by 2022), or identify an investment level ( i.e. spend some $1 billion in renewable energy resources by 2022).

Aside from setting targets, the private firms also have to choose how to execute them. RE targets, after all, may come in the form of Renewable Energy Certificates (RECs), Power Purchase Agreements or Direct Investments.

RECs are tradable commodities in the United States. A certificate is the proof that one megawatt of electricity was sourced from a renewable energy source and was connected and passed through the grid. On the other hand, purchase power agreements are commitments to buy power from an RE supplier or developer for a negotiated price at a specified time period while direct investments pertain to firm’s strategy of developing and operating their own RE power plants.

Clearly, the choice of going green is not a process completed overnight. But just the same, such initiatives of these global brands must not go unnoticed. Reducing our carbon footprint is the responsibility of all. And happily, the private sector is doing its part.

References:

https://www.google.com/green/energy/

https://www.microsoft.com/about/csr/environment/renewable_energy/

http://there100.org/re100

https://www.ceres.org/resources/reports/power-forward-why-the-world2019s-largest-companies-are-investing-in-renewable-energy

Unquantifiable Returns

Corporate Social Responsibility or even sometimes referred as corporate citizenship is defined by Investopodia as a firm’s “initiatives to assess and take responsibility for the company’s effects on environmental and social wellbeing.”

My own definition of CSR, however, is slightly different. I see CSR as a means to provide more opportunities for families. This means working harder to encourage and support opportunities for education, entrepreneurship, and preservation of our natural resources. More so, when more than 25 percent of Filipinos live below the poverty line. In fact, the Philippines has the second highest poverty incidence in the Southeast Asia Region, next to Myanmar, according to the Asian Development Bank.

And it is the thought of helping others through my own endeavors is what, as cliché as it may sound, keeps me pushing harder for success in my business ventures. It was the same when I was with NAPOCOR and facing all the hardship of giving light (literally) to Filipinos. It was the thought that there are plenty who would benefit from the power projects we were putting together.

It is no different now that I am involved in renewable energy development. Our team in EPI reaches out to communities to understand how we can work together. As we build power plants, we are aware that we can make a difference in other people’s lives: we create value by providing them with employment and education.

EPI employs close to 400 individuals with our power plant projects. And on top of generating employment, we are also able to send both children and adults who wish to complete their education after quitting due to poverty.

One example is a 47-year-old Mangyan who recently graduated high school through our sponsored Alternative Learning System Program in Najuan. She, along with other 25 students graduated secondary education through our ALS.   At present, we have some 120 students in the programs who range 17 to 48 years of age.

It is important for us entrepreneurs and other members of the society to find ways to help our fellowmen go to school given that as of 2013, four out of every 10 Filipinos or four million youths are out of school. The Functional Literacy, Education and Mass Media Survey noted that roughly 19.2 percent of the survey participants said that their families could not afford to send the school expenses as the primary reason for quitting their education.

It has always pained me to see our fellow Filipino go abroad to find employment and have their children grow up without their parents’ care and for children to drop out of school to help their poor families. What’s even worse is when these workers end up taking care of other’s children while their own are being nurtured by others.  Our team takes pride that we can help keep families together through our own entrepreneurial initiatives.

Sure, bottom line figures are important for any businessman. But there are other created value through business undertakings that are equally important. Jobs generation that allows our head of families to provide a good future for their children without flying elsewhere and the opportunity to send individuals back to school after being denied of education in their early years top the list.

 

Not All Talk

No doubt that climate change is attracting attention from various sectors—the church, governments, private firms and successful individuals.

And Climate Change is taking center stage once more as with the case of the US Presidential Elections. Based on the report of New York Times, the topic of climate change is the focus of the US presidential elections, unlike previous ones where the topic was rarely discussed. The Democrats with its party nominee Hillary Clinton is pushing for taxes on carbon pollution and Bernie Sanders who lost to Clinton for the Democrats’ nomination said that “this election is about climate change.”  The report also quoted the president of the League of Conservation Voters, Gene Karpinski saying “The elevated conversation about climate change in this election is truly historic,” adding that “In 2012, no one asked about it, and the candidates didn’t talk about it.”

Awareness, too, about climate change, is apparent among consumers. Cone Communications, a US-based public relations firm reported that consumers list climate change as the top complex CSR topic that they can both define and explain.  Related topics such biodegradable, renewable resources and greenhouse emissions, follow climate change as topics that consumers can extensively discuss.

However, climate change is not merely a subject of conversation since actions match the discourse with many familiar big brands leading the way to cleaner energy consumption. We have seen large firms increase their commitment to using renewable energy through signed purchase power agreements to 3.23 GW in 2015, tripling their commitment from 1.18 the previous year. And 2016 is off to a good start since companies have already committed to 0.59 GW of RE as of July 15 according to Business Renewables Center.  Not surprising since influential global businesses and their leaders are united in pushing 100 percent use of renewable electricity by the private sector, which accounts for roughly half of the globe’s power consumption.

For example, a global initiative of influential businesses called RE100 and committed to using more renewable energy in businesses was launched in 2014.  Big brands such as Google, Hewlett-Packard, Coca Cola, H&M, Goldman Sachs Group, Johnson & Johnson and Astra Zeneca, to name a few are part of this initiative. Google, the biggest corporate consumer of renewable energy has committed to buying 2.2 gigawatts of RE and investing some $2.5 billion for renewable energy development projects. It intends to use 100 percent renewable energy for its operations in the future.

Last year, the world’s billionaires, including Mark Zuckerberg of Facebook, Microsoft founder Bill Gates and Virgin’s Group Richard Branson, among others, launched the Breakthrough Energy Coalition. The coalition that’s composed of more than 25 investors will fund clean energy companies in their infancy stage as its members agree that: “The world needs widely available energy that is reliable, affordable and does not produce carbon. The only way to accomplish that goal is by developing new tools to power the world.”

mission-innovation

Business leaders and politicians share the same stage at the launch of Mission Innovation. photo c/o The Guardian

 

Along with the launch of the Breakthrough Energy Coalition is the birth of Mission Innovation, a union of the European Union and 20 other countries that intend to double state-funded research initiatives on clean energy. Mission Innovation’s goal is simple: “Accelerate the pace of clean energy innovation to achieve performance breakthroughs and cost reductions to provide widely affordable and reliable clean energy solutions that will revolutionize energy systems throughout the world over the next two decades and beyond.”

Clearly, climate change is a problem that everyone is eager to address. And there is hope that we can head towards a greener and cleaner future with the actions of our leaders from various sectors.

References:

 

http://www.nytimes.com/2016/08/02/us/politics/climate-change-divide-bursts-to-forefront-in-presidential-campaign.html

http://www.iea.org/publications/freepublications/publication/KeyRenewablesTrends.pdf

http://www.bloomberg.com/news/articles/2016-04-07/google-to-provide-seed-funding-for-renewable-energy-in-asia

http://www.conecomm.com/research-blog/2015-cone-communications-ebiquity-global-csr-study

http://www.businessrenewables.org/corporate-transactions/

https://www.theguardian.com/environment/2015/nov/30/bill-gates-breakthrough-energy-coalition-mark-zuckerberg-facebook-microsoft-amazon

http://www.breakthroughenergycoalition.com

http://mission-innovation.net

http://there100.org/re100

http://blog.rmi.org/blog_2016_08_31_community_scale_solar_can_power_corporations_too

 

 

Energy Poverty

 

Solar-Lighting-Poverty-Kerosene-Renewable-Energy

Some 1.2 billion have no access to power. Photo c/o dsuonenergy.com

 

Imagine young children in far flung areas walking several miles to get to school, studies at night using kerosene lamps and spend their free time from school fetching water from the nearest source. Think of tired workers, particularly our farmers who cannot extend their productive hours due to lack of electricity in their areas.

Sadly, many of our fellowmen and others from other countries suffer the above scenarios given the prevalence of energy poverty. Some 1.2 billion people in this world are without access to electricity.[1]

In the Philippines, energy poverty remains a problem. In fact, we have one of the lowest national electrification rates in the region as of 2013 according to the International Energy Agency (IEA) at 79%. Our neighbors such as Singapore, Malaysia and Brunei are at 100% while Thailand, Vietnam, Laos and Indonesia are at 99%, 97%, 87%, and 81%, respectively. We are at the bottom of the list, just higher than Cambodia at 37% and Myanmar at 32%.[2] We may have one of the highest economic growth in the region in recent years, but we still have a long way to go in providing electricity to all.

It is widely known that electricity is necessary for any economic growth and will improve the lives of the 21 million Filipinos who live in the dark.[3] A study published by Philippine Institute of Development Study showed that rural households and rural-based economic agents directly benefit from having electricity given that they can expand their productivity and economic ventures at home. [4]Access to electricity allows families to operate their livestock and poultry farms, efficiently store their produce and food for their family’s consumption, and venture into micro-small enterprises like food processing. Such activities provide food and additional income for the household. After all, electricity is a significant determinant of agricultural productivity.

The absence of electricity, too, poses a health risk since those without power are forced to rely on solid fuel for cooking like charcoal and fuel wood. Unfortunately, using solid fuel is a health hazard and IEA estimates that roughly 4.3 million premature deaths are due to household air pollution from the use of solid fuels for cooking.[5] In fact, cook stove smoke is the single largest environmental threat according to research.[6] The Global Burden of Disease study showed that some 3.5 million die annually from respiratory diseases caused by burning of dung, brush, and wood for fuel use. The research also noted that deaths from the emission of the material above are more than twice than the recorded deaths from AIDS or Malaria.

It is then essential to provide clean and sustainable power if we want to help our needy countrymen especially since the poorest of this nation are from the agricultural sector and more than half of our population do not have access to clean cooking facilities.[7] World Bank Vice-President Rachel Kyte sums it best “Access to energy is absolutely fundamental in the struggle against poverty….It is energy that lights the lamp that lets you do your homework, that keeps the heat on in a hospital, that lights the small businesses where most people work. Without energy, there is no economic growth, there is no dynamism, and there is no opportunity.”[8] Indeed, we need to move fast to address energy poverty.

 

 

[1] World Economic Outlook 2015 data base

[2] World Economic Outlook 2015 data base. International Energy Agency http://www.worldenergyoutlook.org/resources/energydevelopment/

 

[3] World Economic Outlook 2015 data base. International Energy Agency http://www.worldenergyoutlook.org/resources/energydevelopment/

[4] The Impact of Infrastructure on Agricultural Productivity by Gilberto M. Llanto (2012)

National Geographic http://energyblog.nationalgeographic.com/2012/12/13/cookstove-smoke-is-largest-environmental-threat-global-health-study-finds/

 

[5] http://www.worldenergyoutlook.org/resources/energydevelopment/modernenergyforallwhyitmatters/

[6] National Geographic Blog http://energyblog.nationalgeographic.com/2012/12/13/cookstove-smoke-is-largest-environmental-threat-global-health-study-finds/

[7] World Economic Outlook Database; Traditional use of biomass for cooking

[8] Quoted in National Geographic “Five myths about Energy Poverty” http://news.nationalgeographic.com/news/energy/2013/05/130529-surprising-facts-about-energy-poverty/

Encouraging Developments

A recent report by the International Energy Agency showed that some 6.5 million deaths yearly are linked to air pollution. The same report noted that the premature deaths attributed to outdoor air pollution would probably increase to 4.5 million from 3 million by the year 2040 with much of the deaths concentrated in Asia. After all, according to the World Health Organization, roughly six out of seven million people who die yearly due to air pollution are in Asia. And these numbers are likely to increase if no real efforts are made to curb emissions.

Sounds gloomy, right? However, all is not lost as the report also stressed that the dreary scenario above could be changed if total energy investments are to be increased by seven percent until 2040.  Increasing investments in energy will mean a decline in premature deaths from outdoor air pollution by 1.7 million in 2040.  Deaths from household pollution would fall by 1.6 million annually, too.

Will we see an increase in investments significant enough to alter the number of deaths linked to air pollution? Similarly, can we also reduce our carbon footprint globally and hold the global average temperature to below 2 centigrade as agreed by our leaders in last year’s COP 21 meeting?

Maybe. But it is worth noting that many are taking environmental problems seriously. What we see these days are prominent people who are urging us all to sit up and find solutions to the growing problem of climate change. Last year, the Pontiff spoke out about the environment. This was also followed by the world leaders in COP21 who reaffirmed the previous commitment of allotting $100 billion yearly by 2020 to fund climate-related efforts, and to keep the global average temperature to mitigate the risks of rising atmospheric level. Even Oscar best actor Leonardo DiCarpio spoke emotionally about our environment in his acceptance speech.

Just recently, the three North American leaders agreed to a trilateral energy and climate plan during the recently concluded Tres Amigos summit. Presidents Barrack Obama of the US and Enrique Nieto of Mexico and Canadian Prime Minister Justin Trudeau committed to increasing the power coming from clean energy sources to 50 percent from the current goal of 37 percent by the year 2025. The trilateral agreement also includes the three countries agreeing to increase the goal of reducing methane emission from 40 to 45 percent as well as to commit to the research and development of clean technology initiatives and their commercialization.

Even farmers are now being encouraged to adopt climate-smart farming methods through the Climate-Smart Lending Platform. This platform has the intention of making credit cheaper and easier for small-scale farmers to protect their crops from weather disturbances while adopting climate-friendly practices. The goal of the initiative is to entice farmers to sustain their climate-smart agriculture practices.

rice fields negros philstar

Dry rice fields in Negros due to El Niño. Photo c/o Philstar/AP

Similarly, in Mexico, an Energy Savings Insurance Initiative was launched by the Inter-American Development Bank where small and medium-sized businesses in the agro- investing sector can buy insurance for their energy-efficiency upgrades for a small amount. These SMEs can benefit from buying such insurance since they will spend less on power should their upgrades work. If not, these firms can obtain an insurance pay-out. This initiative is set to be replicated in other Latin and Caribbean nations soon.

Locally, our Climate Change Commission has already started its review on how we can attain our commitment to helping the world reduce our carbon footprint. This initiative involves other departments including the Energy Department in reviewing our Energy Plan to promote the development and use of more renewable energy sources.

All these initiatives are music to my ears, as well as for others who wish to help address the world’s environmental problems. May these agreements and efforts undertaken by different countries and their leaders bear much fruit so that the next generation can enjoy God’s gift of nature.  After all, in the words of Pope Francis “The effects of the present imbalance (in the environment) can only be reduced by our decisive action, here and now.”