Recently, I had been to an interactive workshop on implementing the Energy Conservation Building Code (ECBC), conducted the Indian Association of Energy Management Professionals . The discussion invariably turned towards the urgency of implementing this code due to the advent of global warming.
Global Warming has been such a burning topic in the media these days that the hot air created by this debate could actually be contributing to the rising heat! However, despite all the talk about the necessary preventive measures to be taken, we do not see any action on the ground.
Recently, cities across the globe joined in their efforts to reduce power consumption by one hour by observing the ‘Earth Hour’. More such activities are planned for the upcoming ‘Earth Day on April 22nd. Despite such massive efforts to create awareness in a global level, business firms are very much non-committal about their efforts in reducing greenhouse gases. Research agencies like Mckinsey and The Economist are coming out with surveys which indicate lip sympathy attitude.
Crude oil prices will deliver what Global Warming could not!
It is obvious that the issue of global warming is not going to change the mindset of corporate heads about environmental concerns. How can we expect a management which is obsessed with a short term focus of quarterly and annual results, to think of their actions which affect the global economy nearly 50-70 years later!
Carbon trading still not being taken seriously; exorbitant cost of Renewable Energy sources; and governments still lenient on large scale polluters are the other reasons that contribute to this apathetic attitude. The recent statement by Thomas J. Donohue, spokesman for the U.S. Chamber of Commerce summarizes corporate world’s concerns.
“First, climate change policies must preserve our jobs and our industry’s competitiveness. Excessive restrictions on greenhouse gas emissions would encourage U.S. companies to shift jobs overseas, where goods can be produced more cheaply and where emissions controls are not as strict. Second, climate change is a global challenge that requires a global response. Fast-growing nations such as China and India are just beginning to address this issue and until they do, there is no hope for an overall reduction of CO2,” says Thomas.
The crisis is closer than we think
Thankfully, there is a looming crisis that can scare the hell out of every profit focused firm. It is the Energy Crisis triggered by the rising prices of crude oil and natural gas. Crude oil prices have been hovering above the $100 per barrel mark since the last few weeks. Strangely, our Indian economy has been steadily growing without much concern, thanks to the rupee appreciation against the dollar and the central government’s efforts to subsidize the consumer fuel prices. Even if the international prices inch up further, we may not bear the brunt.
Figure 1 – In 2005, when Goldman Sachs predicted that oil prices can reach $100 per barrel within the next few years, the market analysts ridiculed the forecast! Source: WTRG Economics
Then, why do we need to worry… Unlike what the analysts have been telling us, it is not the typical ‘geo-political issues’ and ‘speculative buying’ which is pushing up the prices this time. We need to worry since this time it is the indication of a declining production and ever-increasing demand. Way back in the 1960s, a geologist named Marion King Hubbert had suggested that crude oil production will undergo a bell curve and after it hits the peak, it can only decline.
Figure 2 – The bell curve of ‘Hubbert Peak Oil theory’ proposes a decline in crude oil production during the 2010-15 period. Source: Wikipedia, May 2007
Artifically low prices have kept demand booming
There is no doubt about why the US is always against any legislation to cut down emissions or even petroleum consumption. China and India are becoming the next big culprits by subsidizing the fuel prices and exposing their citizens to a future shock. Recently when the petroleum companies suggested an increase of Rs.9 per liter of petrol, the central government implemented a rise of just Rs.2.
Do Petroleum prices affect every aspect of our lives… The present soaring inflation of food and commodity prices stand evidence to that! Right from fuel for transportation to fertilizer for our food, petroleum plays a crucial role in every aspect of our lives. Many essential goods in our lives such as plastics, resins, fibers, lubricants, and even fertilizers are made up of Petrochemicals.
The impact of oil price rise on the macro-economic situation can be explained through an example of a typical IT services company in India.
Let’s check the intricate needs of an IT services company with 3,000 employees in a single location in Bangalore. (Guesstimated prices)
- Transportation cost of employees – Rs.4,000 per person per month
- 24/7 Power back-up cost – Rs.500,000 per month
- Food & beverages cost – Rs.2500 per person per month
- 24/7 Data-center power needs – Rs.10,000 per megawatt-hour (MWh)
Remember that these costs are at present petroleum prices, where Petrol is being sold at a loss of Rs.8.74 a litre, diesel at Rs.9.92 per litre, kerosene Rs.20.53 a litre and LPG at a loss of Rs.256.35 per cylinder. What would be cost spiral impact if the crude oil prices continue to rise?
Data collected by the Indian Association of Energy Management Professionals (IAEMP) indicated that the electricity consumption in Indian unorganized industrial sector has an inefficiency of 25-30%, due to transmission and distribution losses. A few years back, this was the same case even in organized industrial sector!
The peak requirement of the city of Delhi is as high as 4,000MW and on many days, the shortage was 300-500MW. If lighting and air-conditioning, together with other needs such as water heating were efficient, it is estimated that the load could have been reduced by almost 400-500MW. Thankfully now, Delhi Government has enforced mandatory use of CFL and electronic chokes in Government buildings and also mandatory use of solar water system, standard motor pump-sets, power capacitors etc.
IAEMP association head Sunil Kumar Sood said the Bureau of Energy Efficiency (BEE) was established by the enacting of Energy Conservation Act passed in October 2001, to enforce energy audits for all organizations. To implement the Energy Conservation Building Code, BEE called for a team of certified auditors from across India who can take up this task on the same lines of chartered accountants. But till now, BEE has not even bothered enforce this auditing program.
Indian Power Ministry undertook an energy audit in 2003-04 which ascertained that the State and central government buildings in Delhi alone consumed power worth Rs.600 crores per year. A saving of 25% can mean Rs.150 crores per year! Despite such clear possibilities of energy efficiency in government buildings, there has been no action taken. If this is the case of government agencies, how will be the profit minded private firms ever think of energy efficiency, laments Sunil Kumar Sood.
It is not that solutions are not available; it is the lack of political will that is affecting our economy. For instance, measures like CFL bulbs fitting, solar water heating, HVAC temperature modulation, water pump automation can build up the initial cost of infrastructure, but they can really pay back in time. Hopefully the rising fuel prices could bring about the change in mindset and better sense will prevail.
A
research report by Levine Lawrence and Amit Gupta of Infiniti Research, published in Businessgyan magazine in April 2008
