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11 April 2023 · 1:07 pm

First impressions of India six weeks after arriving

I last lived in India in 1977 as a schoolboy in Nagpur, famous for oranges and not much else. With a few months left before their ‘indefinite leave to remain’ visas lapsed; my parents called time on their two-year sojourn in India. Sure, I’ve since visited for work or family occasions, but India was just a backdrop for something else. Usually, I was reeling with jetlag, amidst a crush of half-remembered relatives at a wedding, or too overdosed on sight-seeing to pay attention to the changes that had occurred while I was gone. In any case, I wasn’t living in India I was breezing through its manicured hotels or couch surfing in relatives’ spare rooms.

The India I experienced half a lifetime ago was through ten-year-old eyes. I noticed beggars clustered around the temples my grandmother made me go to. Many of whom missed limbs, as India was home to around five million lepers. I remembered health-and-safety concern devoid Diwali fireworks in our backyard when my cousins and uncles packed kilotons of rockets under a steel bucket to despatch it into orbit. I loved holiday fairs with gaudy lights and charcoal flames, stalls selling peanuts boiled in brine, and Ferris wheels powered by steam-aged engines. My brother and I would travel back and forth to school in a cycle rickshaw and play in streets where cows walked freely, and cars were few.

Since moving here in February, I have seen no lepers, in fact, no beggars at all, though downtown Mumbai and Goa might only partially represent India. India’s efforts at space exploration have come on since my family’s pioneering efforts; its space agency has had success with its reusable launch vehicle programme, reducing the costs of deploying satellites. Maybe one day rivalling SpaceX. Cycle rickshaws have been replaced by CNG-fuelled three-wheeler autos or taxis. An ambitious but painfully slow build-out of Metros is being implemented in Mumbai and Nagpur. To date, Mumbai’s consists of three partial lines, which will one day rival those in Chinese cities. A couple of weekends ago, we took a forty-minute trip from Andheri to the Sanjay Gandhi National Park to see the 10th-century Buddhist Kanheri caves.

The biggest change I see is that my Indian family has died or migrated. Few people are left in Nagpur. Many of my cousins have joined their parents and flowed into the huge Indian diaspora looking for better-paid jobs in Dubai, US, Australia, and Canada.

I’ve met many people who spent a few years overseas returning after a foreign degree and a few years of professional life in tech or Wall Street. Those that come back find the country’s plentiful domestic staff and cheap cost of living eclipse the obvious disadvantages. I write this having just chased the Devonian-era-sized cockroach across our spotless flat and spent a fitful night praying the sporadic power cuts would not deprive me of AC-induced sleep.

We’ve had to buy lots of things quickly. India is cheap, except for imports. Our broadband costs ₹799/month (£8/month), our 4G mobile monthly charge is around ₹500/mn, a pizza at our nearest 5-star hotel ₹900. Quality is comparable, if not better than UK. Streaming companies like Netflix, Amazon Prime and Spotify charge Indian customers hardly a tenth of UK prices. But to subscribe you need an Indian phone number, bank account perhaps IP location to prevent foreign free loaders. This implicit subsidy to the middle-class Indians (some £300 per person) dwarfs aid flows to the country!

India’s best-selling car, the Maruti Suzuki Baleno, costs ₹800,000 and has decent AC, sound system, sat-nav and rearview cameras. India used to be the last place in the world still making the Oxford Morris (twenty years after production ceased in UK), by contrast the 2015 iteration of the Baleno was launched in India a year ahead of its launch in the UK. Maruti-Suzuki now sells around two million cars annually, comprising two-thirds of its parent Suzuki’s global production. India has become a net exporter of cars, with a trade surplus in vehicles of $5.2bn.

The grown-up me is aware of many other changes in India over the last forty years. The Indian exchange rate dropped from 15₹/£ to around 100₹/£. The population has doubled from 650 million to 1.3 billion. GDP per head in purchasing power parity and constant 2017 USD has increased from $1,800/capita in 1990 to $6,600 in 2021. Over the same period, the global average increased by 70 per cent to $17,000. India’s cheapness is crucial; if you don’t adjust for the purchasing power parity, today’s per capita GDP is just $2000 / capita. The low prices for non-tradable goods like mobile phone tariffs and services like bus fares make life in India tolerable for Indians.

The steady fall in the exchange rate is puzzling. Much of it occurred between 1990 and 2000 and after 2007 and is despite India now being a significant exporter of services, manufacturing and even some food items. I’ll cover this in a future blog.

The other thing the grown-up me notices is the G20 summit. It’s hard to ignore. Omnipresent billboards declare One Earth, One Family, One Future, and the Prime Minister’s big brotherly face looks down on you constantly. Unlike the UK, India does not have much of a seat at the big boy’s table. Despite being the world’s fifth largest economy, it’s not a member of the G7, the UN’s security council, OECD, the EU, NATO, or any other place the big economies talk. Chairing the G20 is a big deal for the political classes. When I left India in 1977, the country was almost a pariah. Indira Gandhi had declared an Emergency, suspended the constitution, imprisoned political rivals, and postponed the general election. In September, Narendra Modi will welcome Biden, Xi Jinping, and the other heads of state. Goa is in a state of continuous reconstruction, awash with ‘Smart city’ and G20 funds to impress officials and second division ministers attending the eight meetings scheduled for the state.

Many have asked why Maya and I upped sticks and relocated to India. India is changing fast, and we wanted to be here to watch, and help make its development more sustainable. We come armed with our OCI card, allowing us to work, and some savings. Goa is also an incredibly beautiful place to live and write. More on that in the next post.

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Filed under Economics, India ExPat living, Politics, Travel

Tagged as India Goa G20 Maruti economics

7 April 2019 · 6:50 pm

Financing the war on climate change

On 12 April 1912 the Titanic set sail. Two days later, while in the Arctic seas Captain Edward Smith received 7 iceberg warnings over the course of the day. But he followed standard procedure which was to proceed at full speed on the basis that the lookout would provide sufficient warning and the ship could steer or smash its way through. Based on backward looking historic data this was smart thinking. He had a schedule to keep, he was expected in New York in three days, and he was after all captain of the largest and newest boat in the world.

At 11.40 pm the lookout spotted an iceberg dead ahead. The engines were stopped and the ship attempted to evade. At 11.50 it struck the iceberg. At 12.05 the order was given to abandon ship. At 2.05 am the last life boat departed. 700 people were saved 1500 died. There were still plenty of space on the lifeboats but there hadn’t been enough time to get off.

The financial sectors response to climate change is alarmingly similar. Full speed ahead finding and exploiting new fossil fuel assets even though the atmosphere doesn’t have the capacity to safely absorb what we already know about. 30% of bonds and equity is in sectors vulnerable to stranding: natural resources and extraction, power utilities, chemicals, construction and industrial goods.

People in this room all know that these companies are going to have to take massive write-down at some time over the next 15-20 years. They are praying to God they’ll reach the lifeboat before the ship hits the fan. (Forgive my bad taste in jokes)

I am going to talk about the role financial regulators and central government need to play to avert catastrophe to turn the billions into trillions? I make three key points.

Embedding the TCFD’s [Taskforce on Climate-related Financial Disclosures] recommendations is a good foundational step. This report has yielded some important benefits: the financial regulators largely accept systemic risks to the banking and insurance sector and agree something needs to be done. TCFD provides a language for talking and thinking about them: transition risks, climate risks. It asks institutions to establish governance and strategy around climate and undertake scenario analysis which is disclosed to stakeholders.

Central Banks’ Network for Greening Financial Systems is the most important international forum. It shares experiences and best practice. The Network’s three work streams are: sizing the impacts of climate on the economy (including low probability tail risks), mapping how current supervisory practices should be changed, scaling up of green finance.

Finance ministries also have a major role to play, both as direct issuers of green bonds, and also in providing financial incentives for others to issue. The largest sovereign issuer is currently the French OAT with 5 billion Euro new issuance last year some 1% of French Government spending. Singapore and Hong Kong governments provide subsidies to cover some of the costs associated with issuing green bonds.

But that’s not what truly ambitious looks like. We need to look back to the war to see real intervention. Between 1942 and 1945 the US government debt rose from around 50% of GDP to 106% of GDP. Unlike climate change the war was commonly perceived as a clear and present existentialist threat and the country’s financial systems got behind it.

Was debt incurred to fight the war wasted? Of course not. As well as allowing the Allied countries to maintain their freedom this expenditure created a raft of technological benefits that transformed the 20^thcentury at least as much as the war itself: the Manhattan Project created fissile materials used in nuclear power and bombs, Bletchley Park produced the first pre-semiconductor computers and cryptographic algorithms. Then there was RADAR, jet engine aircraft. What marvels will a green New Deal unlock? And without the body bags.

A month ago today a small number of left-leaning Democrat representatives signed a resolution to fund a Green New Deal to transform US energy, transport and buildings stock. In their resolution they say US wildfires would be twice as bad as now by 2050, and by 2100 US climate related losses would be $500 billion/yr ($2000 /person). Its opponents say the cost of implementing the Deal would be $5 to 9 trillion a year.

Turning to the Central banks. What are they doing? The ECB’s and BoE asset purchase programmes, which purchase some green bonds, are nothing to brag about. They are just business as usual. If anything they are biased against green bonds since so many fossil fuel issuers have high credit ratings based on their financial histories. But implementing TCFD is a useful first step.

What does an audacious supervisor look like? In China the central bank PBoC is intervening to allow green bonds to serve as collateral for medium term lending facility; there’s also discussion about using preferential risk weighting for green assets including green bonds and green loans. In India the Priority Sector Lending rules oblige banks to lend minimum volumes of money to agriculture, SMEs and renewable energy. These are out of step with OECD countries light-touch supervision, but are they really less bad than bank capital being poured into another asset bubble.

But supervisors could do even more. During the second world war the Fed was an agent for change, not a supervisor. The second world war was debt financed and the Fed purchased the equivalent to 3.2% of GDP in bonds to keep the yield low. Inflation coupled with high nominal rates of GDP growth in the 1950s allowed the then unprecedented levels of debt to erode away back down to pre-war levels.

But a properly audacious financial regulation would focus on the Tragedy of the horizon – the fact that that finance markets are still myopically rewarding yesterday’s business models. Finance should not be funding new fossil fuel infrastructure because of the halo effect of yesterday’s strong balance sheets. The market’s time myopia means the future stops mattering after 5-7 years once climate-misaligned assets are safely on some-one else’s balance sheet. We need to massively raise the cost of capital for brown assets so they are never built in the first place; and redirect this to green infrastructure. And we need to do this yesterday.

Audacious policy means large Green and brown adjustments to capital weights and bank lending targets set at a level sufficient for an orderly exit out of fossil fuels in the next decade or two. This is what many countries have signed up to, and what we need.

The Titanic had plenty of warning about the hazard it faced, if it’d had slowed down as had other nearby ships that fateful night, the momentum of its terrible coal engines might have been tamed. Spaceship Earth doesn’t have any lifeboats.

Pavements and road crossings

One unfortunate side-effect of my job is seeing all problems through a climate finance lens. See a problem that need fixing, sort-it with a green loan, possibly credit enhanced and securitised for good measure. But there are a few things in life that money(-markets) can’t buy and government has to dip into its pockets and pay for itself.

Pavements are one such problem. I spent the first week of January in New Delhi scurrying around the diplomatic enclaves and the chic district of Safdarjung in southern New Delhi. The city has seen massive investment in its sleek new(-ish) metro system. If you’re a nerd about these sorts of things its eight lines stretch 327 km and carry 2.5 million passengers a day making Delhi the 10^thmost busy system in the world. Plus, it is as cheap as chips to use (Rs 30 – i.e. 45p – for a typical 10 km journey) making it surely the best thing to hit the city since Lutyens.

But despite glowing reviews by foreigners hardly any of the Indians I met in Delhi used it. One colleague who has lived in Delhi all her life, admitted trying it just twice in its 14 year existence (it’s even got women’s carriages so her reticence can’t be “Eve-teasing” in case you were wondering). It’s not as though she’s congenitally averse to the concept of underground transport, when she’s in London or New York she’s happy to use their grotty systems. So when in Delhi why does she drive or Uber everywhere?

“It’s the last-mile,” she explained. And she’s got a point. The walk from one of the 236 stations – often located on one of India’s arterial roads – to the final destination is often… well take a look at the pictures below.

Indian smashed and see-sawing pavements are the site of Delhi’s charming informal economy, as well as where it stores its vehicles and construction materials. What hope do mere pedestrians have?

And then there is the issue of Crossing an Indian Road. When I asked the way to a nearby café on the other side of a busy road, my hotel’s staff begged me to take an auto. “But it’s just a couple of hundred meters” I spluttered. Google maps dispatched me on a 1.5 km detour through one of Delhi metro’s excellent underpasses (another altruistic act of benevolence by this celestial institution). Google’s algorithm clearly took legal advice and completely blanked a near-by and widely used pedestrian crossing. If it directed me to the ‘official’ crossing and the inevitable happened, widow-Vaze would sue its ass for, if not man-slaughter, at least assisted suicide. (Quick tip for President Trump – don’t waste $6 billion building a wall between Mexico and US border. Just ask Delhi city planners to route one of its dual carriage-ways along any border that needs to be hermetically sealed. Even a wily, rapist, drug-laden coyote wouldn’t stand a chance of making it across.) Cars aren’t so much a mode of transport in India as a WMD. India, for once, can happily take the silver medal to China’s gold sending just 230,000 people to an early grave compared to China’s 260,000. But India shouldn’t get too self-righteous China has nine times more road vehicles than India. For the record, UK’s drivers kills just 1,700 a year.

Which brings me back to the main point of this blog. Middle- and upper-class Delhi-ites don’t much use any public transport, except the plane, because so many of them own cars, often with drivers. Like feeble Dalek’s encased in their steel exo-skeletons, they have insulated themselves from the carnage wrought by their vehicles and glibly exterminate all who chance in their way. Things are likely to get worse. The rip-roaring success of Uber and Ola (India’s home-grown ride sharing app) is not an indication of India’s ingenuity, but of her inequality. Most of the Uber fares around Delhi and Mumbai were £1-£2 even for a 40 minute journey through Mumbai’s snarled up traffic. India’s shocking unemployment rates mean too many people are prepared eke out a living as car-slaves so more and more people can turn their backs on walking.

Here is my elevator pitch for Indian metropolitan planners. Forget about widening roads and building more over-passes that will simply yield bigger traffic jams in a few years. Instead suggest to traffic cops instead of collecting bribes they should instead collect fines for crossing red lights and mowing down pedestrians. Second, phase-out the use of petrol and diesel altogether in cities. Visibility in Delhi was down to one kilometer during my stay (though it made for some stunning sunset shots). Convert buses and taxis to electric and put a ceiling on the numbers of cars that are allowed to be owned. Third, introduce parking wardens with tough targets and low EQs. Fourth, revenues from road offences should be ploughed back into effective road crossings on minor roads and underpasses and footbridges on major roads. In Connaught Circus the underpasses are vibrant commercial spaces that collect rent, not homeless.

Perhaps the fines could be used as a revenue stream to pay the yield on a green bond to finance pedestrian facilities. I think I’ve invented a new financial instrument – a Fine Backed Security (FBS). Great idea I should tell my boss.

Four things environmentalists can learn from Hong Kong

So my three and a half years in Hong Kong are up and I’m wending my way back to the UK tomorrow via the Silk Road over the next four weeks. In my work here, I often suggest environmental policies from other countries that Hong Kong might adopt. But knowledge transfer has traditionally wafted the other way, from East to West. So I thought I’d use my last Hong Kong blog to about what Hong Kong can teach policy makers in the West.

1. The MTR (Mass Transit Railway)

Now carrying around 5.79 million passengers a day in Hong Kong and another 6.49 million overseas (yes: it’s managing lines in China, London and Stockholm) almost half of the city’s public transport trips are undertaken on the MTR. It’s so much part of the everyday fabric, it’s hard to believe Hong Kong’s “underground” only commenced operations in 1979. It’s hugely profitable, even disregarding its property income, has a punctuality of 99.9%, clean and is incredibly easy to use.

What makes MTR unusual is the way it’s financed. Unlike other underground systems which struggle to secure capital budgets, MTR is awarded development rights for commercial and residential property around new MTR stations. So instead of the huge windfall rents from proximity to the MTR station being appropriated by those owning plots near the new station, the gains can go into investment into new lines. In the three years we’ve been here we’ve watched two lines being extended, and one entirely new line open up.

idiosyncratic map of the MTR

The contactless payment system devised by the MTR, the Octopus card, is Hong Kong’s de factolocal currency, and used for 14 million payment transactions a day. It’s widely accepted in shops and cafes, and is the only way to pay for parking meters. It’s so ubiquitous that the card’s magnetic strip is used as access control cards in many residential building complexes and schools. Pretty much all our visitors have picked one up at the airport and used it seamlessly for their travel and snack purchases over their stays.

Do understand MTR’s environmental success you just need to think about what transport and associated emissions would have been without it. The Hong Kong MTR’s electricity consumption was 1600 GWh last year – around 1 MtCO₂, 2 per cent, of the cities total emssions. Unleaded petrol (used by taxis and private cars) in the city was responsible was 1.5 MtCO₂emissions. This is despite only 14.4 percent of households having access to private cars and each private car only being driven 30 km/d on average. That’s right. Only one in six households in Hong Kong have a car. Most people, even well-off people, choose to use public transport and taxis. Think what transport emissions would be if the other five sixths of households without cars bought vehicles of their own.

As well as changing the pay we spend and travel, the MTR has changed where people live, stretching the widely habitated areas suitable for commuters off Hong Kong island, out of Kowloon through the 600-metre mountain ranges into areas of the New Territories like Shatin, Tai Po, Fan Ling, Tseung Kwan O, Yuen Long.

2. High density accommodation

The city makes use of all three spatial dimensions. Hong Kong’s 7.5 million people live in just 42,000 buildings; of these 8000 are high rise. Our current flat is in a 50-storey building; our previous in a 66-storey. Our ‘luxury’ estate comprises 17 towers set in 9 hectares of space and accommodating 20,000 people. The blocks are skirted by lawns, trees, play areas, indoor and outdoor swimming pools, tennis and squash courts, gym, soft play area, halls for hire, snooker facilities, a bowling alley and supermarket. By way of comparison, Highgate Camden in central London has an area of 320 hectares (150 hectares excluding the heath) and a population of 10,000 people.

This extreme high density means that the whole of Hong Kong’s population lives on just 70 km²of space with a density of 100,000 people per square kilometre, with the vast majority of people in the ultra-compact space around the MTR and bus stations. This means that the “last-mile’ journey either end of the MTR is usually not a mile, but a couple of hundred metres easily provisioned by tunnels and above ground walkways. At its extreme is the tangle of thru-building walkways permeating the Hongkong Land’s Central portfolio. Major MTR stations are embedded inside shopping malls and surrounded by residential or offices. The towering IFC and ICC blocks are built over the Hong Kong and Kowloon MTR stations.

Tangle of above ground public walkways weaving through shops, hotels, banks and offices in Central

This extreme concentration of habitation helps the environment not just by improving the economics and logistics of mass-transport systems but by freeing up land for nature.

There is a down side to the parsimonious way land is made available for urban uses. Developers and government conspire in driving up property prices so each flat is tiny and crowded to European sensibilities and inadequate for many Hong Kong people too. Hong Kong people’s homes are 15 square metres per person; half that in Singapore, or Tokyo.

3. Country Parks

Seventy-five percent of Hong Kong’s land territory is non-built up, over half of this, 444 km², consists of country parks and other designated special areas. Unlike national parks in the UK no farming or forestry takes place. The space is slowly reverting back to forests, mangroves, coastlines and bare hill face. These parks and special sites are home to 2100 species of local plant, 50 species of mammal: from deer, porcupine, bats and macaques, 540 species of bird.

The country parks are criss-crossed by the MacLehose, Lantau, Wilson trails creating a wonderful and easily accessed corridor into nature used by 17 million people a year. It is hard to believe but nearly all the country park forests and grass lands are new growth re-established after the second world war. Well before the British came in the 1840s, Hong Kong’s mountains and uplands had been cleared of their trees to make charcoal and timber. Landslides and erosion had washed away the top-soil. Replanting began at the end of the 19^thcentury, but the second world war denuded the landscape of its trees once more. The Country Parks Ordinance was enacted in 1976 to provide open space for recreation and to collect rainwater for the reservoirs. The different trails were laid in the late 1970s to link the country parks to one another.

Views from Lantau North Country Park, Lantau and Lung Fu Shan Country Park, Hong Kong Island

I am not aware of any other city that manages to squeeze so much nature so close to millions of people. But I hope the other mega-cities in the Greater Bay Area and elsewhere in Asia try and emulate. As well as improving local air quality, it provides fantastic recreation right on the door step.

4. Banning of trawling

Go to any wet market and you can see Hong Kong people love eating fish: croakers, groupers, bream.

Volume and value of the Hong Kong fishing fleet 1965-2008, LegCo

It’s hard to believe but until the 1970s fishing was still carried out off sailing junks using traditional lines. But Government programmes encouraging investment and better integration if the Hakka fishers, saw the fleets ‘modernisation’ replacing wind-power with diesel; lines with trawlers. The predictable result echoed that seen in fisheries world over. The diagram above shows the swift boom and bust cycle of rapid expansion in catch until 1989, followed by an equally rapid decline. In the battle between nature and technological mining of nature there is only ever one winner. The cod and haddock fisheries in the North Sea and the Grand Banks of USA/Canada similarly collapsed.

But then Hong Kong did something different, the government courageously banned trawling at the start of 2013. Trawling, the raking of the seabed to indiscriminately snare everything on the sea bed regardless of whether it’s edible, used to account for 80 percent of fishers’ incomes when the ban came in. By the end of 2015, government paid 1250 vessel owners almost $1 billion in one-off buy outs. Money has been loaned to retrain fishers, or to finance the switch to aquaculture/mariculture and fisheries related eco-tourism. There is also extensive co-operation between Hong Kong and the Guangdong Fisheries Administration General Brigade to ensure illegal .

The first-year results are encouraging with a 50 percent increase in the catch of bottom dwelling species, and a doubling in the waters where trawling used to be most intense. But it’ll take years for the communities on the sea-bed to recover and other measures like proper stock assessments over the South China Sea and the establishment of marine nature reserves are needed to make a real in-road.

There were other things that could have been included on the list but didn’t quite make the cut. The mandatory switching to low-sulphur fuel while vessels are berthed was an excellent bit of legislation to improve air quality, but is rapidly being superseded by more stringent regulations from Beijing covering all Chinese waters. I was tempted to write about the excellent network of cycle lanes spreading through the New territories and the dockless bike hire companies like Hong Kong’s Gobee (which sadly is closing due to competition from superior, and better financed, Chinese competitors like Ofo). With cycling Hong Kong is playing catch-up with Guangdong.

Another initiative that didn’t quite make the mark was the recent push by the government to position HK as a green finance hub including support for issuing green bonds in Hong Kong and using the HK Quality Assurance Agency to certify green bonds.

Perhaps these three near successes are part of the bigger story. The real hub of environmental leadership is taking place north of the Shenzhen River in mainland China.

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Filed under Environment, Politics, Technology, Travel

2 July 2018 · 2:53 pm

Why are Hong’s two power utilities CLP and HKE building an off-shore LNG regasification plant?

Two weeks ago I experienced the usual level of cognitive dissonance most environmentalists working in Hong Kong get from time-to-time. I spent Thursday at an uplifting conference on green finance organised by the Hong Kong Monetary Authority and the International Capital Market’s Association. Star billing went to the green bonds market, which is starting to really take off with around US$180 billions of issuance, which is around 2% of the value of all bonds issued last year. Hong Kong wants a piece of this – especially the lucrative deals from mainland Chinese banks wanting to raise finance for renewable energy, public transport and green buildings in China and the belt-and-road countries.

Paul Chan the finance secretary and his deputy Joseph Chan both talked about the sweeteners cash-rich Hong Kong government is offering project sponsors. They’re generous, the Government is subsidising the costs of certifying green bonds, as well as issuing up to HK$100 billions of green bonds itself. Other speakers, including the Ma Jun, former chief economist at the Peoples Bank of China, wove together a tale of how Chinese banks were experimenting with techniques to analyse whether the infrastructure they financed was consistent with decarbonising the economy and resilient to climate change.

Sounds like Hong Kong is itching to develop and fund green infrastructure. Well that’s how it seemed till the next day.

On 15th June, Hong Kong’s two power companies China Light & Power (CLP) and HK Electric (HKE) issued an environmental impact assessment (EIA) promoting a floating liquidfied natural gas (LNG) terminal to receive and re-gasify liquid gas from tankers, and pipe it to the utilities’ power stations. What could be wrong with this? Hong Kong’s energy policy is to increase the share of electricity generated from natural gas and reduce our reliance on coal. The trouble is, while gas is cleaner than coal, it is not clean enough to meet the Paris Agreement. So the bigger question is whether Hong Kong needs to invest in long-lived gas assets like the new LNG terminal, or whether we can use existing facilities in the transition years.

The EIA rationalises the floating terminal: “The Project will increase CLP and HK Electric’s options regarding the sourcing of future gas supplies for Hong Kong, and provide the flexibility to directly access competitively priced gas from the global LNG market, including its associated spot market, therefore improving the Hong Kong LNG buyers’ future negotiating position, and diversity of gas supply sources.”

The argument being made isn’t that existing facilities to import gas are insufficient for the projected demand, instead the argument is that the new terminal will increase security of supply and help the power companies’ negotiating hand.

Let’s look at these. At the moment CLP receives gas from the massive Second West-East Gas Pipeline (WEPII) from Central Asia, and also a pipeline connecting Hong Kong to smaller gas fields, like the 20-year old Yacheng field in the South China Sea. CLP draws attention to the fact Yacheng is fast depleting. What it doesn’t mention is that only two years ago it contracted to receive gas from another South China gas field, Wenchang, and which necessitated no new investment on CLP’s part, to help balance Yacheng’s fall in output.

The other electricity utility, HKE, receives gas from a land-based LNG terminal in Dapeng Shenzhen. This is just 20 kilometres away from CLP’s service area. Dapeng, as well as already supplying HKE with gas from world markets, also supplies HK’s third energy utility, Towngas, with its natural gas imports through a pipeline to Tai Po, which lies inside CLP’s service area. If Towngas is happy to rely on the Dapeng terminal to supply its raw gas, why doesn’t CLP follow suit? Using an already existing LNG terminal to access world gas markets would surely save a bundle, and also provide the security of supply to ward off any disruption to the WEPII like the Shenzhen landslide.

The second argument being made is that untrustworthy Chinese energy companies are screwing Hong Kong on gas price, and Hong Kong needs its own independent facility. This might play well to some parts of Hong Kong society, the trouble is, only six years earlier, when CLP first connected to the WEPII, it gave a presentation to legislators saying almost the exact opposite. In the slide deck CLP claimed it had agreed a pricing formula for gas covering the next twenty years for gas supplied by WEPII. Price would be linked to commodity costs of gas, plus fees for transit costs and taxes. Government would scrutinise the agreement’s application to ensure fair-play. In the presentation it forecasted WEPII prices to be the same as LNG prices landed in Dapeng. If CLP thought WEPII was a good deal then what’s changed?

Perhaps the reason that CLP and HKE want to build the floating LNG terminal is not for the reasons being given, but because they make a great deal of risk-free money from building their own gas terminal, but no money at all if they use someone else’s. One of the peculiarities of the Scheme of Control (SoC), the gentleman’s agreement between the government and the two power companies, is that profits are earned only from investment. Figuring out what a customer wants and providing it as cheaply as possible to gain market share, the normal route to power utilities making money, goes unrewarded. The new SoC promises utilities an 8 percent rate of return on their $5-6 billion investment in the floating LPG terminal it. This means that customers will have to foot the $400 million per year bill for the just-in-case asset for up to 30 years regardless of whether the companies use it. CLP are currently asking for bids to supply 1.4 million tonnes of LNG through the proposed terminal, just a quarter of the gas CLP will need to supply half its power.

And if the government decides to transition away from gas to a genuinely clean fuel over the next 30 years, guess what, the SoC promises that the utilities have to be compensated for the LNG terminal being stranded. In my last few days at WWF, I spoke to government and CLP officials and asked whether the terminal would be funded within the SoC or outside its terms and got the same answer over-and-over: “not decided yet”.

So what’s all this got to do with the green finance conference earlier in the week? One of the big themes of the talk was that investors need to wake-up to the fact that some of their investments are going to impaired by policies to mitigate climate change, as well as the impact of climate change itself. The world’s central bankers asked the Task force on Climate-related Financial Disclosures (TCFD) to figure out how information could better align financial markets to deal with climate change.

One of the TCFD’s key recommendations was that companies assess the impact of and disclose their exposure to risks from climate change policies like carbon pricing or emissions trading. This sensitises the finance community to their fossil fuel investments being stranded once the world transitions away from them. However, the current SoC uses customer bills to 100 percent insulate the two power companies from their long-term greenhouse gas incontinent investments. So I beg the Hong Kong government to say no to any attempt to fund the LNG gas terminal through the SCA. Doing so makes a mockery of the the green finance principles being espoused elsewhere in government. If the utilities want to gamble on future demand for gas let them use shareholder money, not customer bills to make the wager.

I have spoken to the two power companies’ staff enough times to know that some of them get the threat of climate change and the special responsibilities power companies have to address it. Both companies have set themselves ambitious 2050 goals to decarbonise. But now they need to implement these high-minded strategies in concrete infrastructure investment plans.

It’s time to dust off their off-shore wind proposals first developed a decade ago, and propose these once more. In my opinion the new SoC is a good mechanism to finance off-shore wind, the rate of return has been reduced from 11 per cent to 8 percent and the capital costs should be much cheaper than ten years earlier. Taiwan has contracted to buy output from 5 GW of off-shore wind this year for prices around US$73/MWh or HKD0.57/kWh. This could well be less than the price of LNG fuelled gas power!

The world has moved on and the Hong Kong people and finance community are hungry for green investments, not white elephants.