ESG, Electricity Prices and BBM Economic Team - BusinessWorld Online

ESG, Electricity Prices and BBM Economic Team – BusinessWorld Online

during the Business world The Virtual Economic Forum (BWVEF2022) discussed last week (May 25-26), net zero, decarbonization, and more renewable energy (RE) on day one. These concepts and aspirations are linked to the new fad in finance – the environment and social governance (ESG) scheme where more investments in renewable energy and underinvestment in fossil fuels are encouraged.

ESG and its effect on agricultural commodities
Among the points on ESG made by some of the speakers at BWVEF2022 were: 1.) Offshore wind energy as part of a climate solution, presented by Torbjørn Kirkeby-Garstad of Scatec, 2.) More incentives for green buildings and net zero, Submitted by Raymond Rufino of NEO, and 3) Small Business Should Be Empowered to Pursue Net Zero, made by Maria Yolanda Crisanto of Globe Telecom.

See also some recent articles about ESG in Business world:

1. “Accounting Considerations for the Oil and Gas Sector as Adoption of Renewable Energy Drives ESG Reports” By Arthur M. Madalora (April 10)

2. “ESG Investment” By Marvin Tort (May 4)

3. “Emerging ESG Impact on PHL Business” By Adrian Paul B. Conoza (23 May)

Fossil fuels (oil, gas, and coal) give us power for our cars, trucks, and tractors; Reliable and distributable electricity for our homes, buildings and factories. Therefore, if there is a shortage of investment in fossil fuels, there will be less supply of these commodities in the future. Petroleum produces many of the chemicals that we use in our daily lives. They include nylon and polyester fabrics in our clothing. Handbags, sunglasses, phone cases and jewelry in our accessories. Cooking utensils, appliances and cleaning products in our homes. Fertilizers and pesticides in our cultivation. And much more.

Food inflation has become more noticeable in recent years. Crops need urea, ammonia and other fertilizers to grow faster and produce a higher yield per hectare. Cattle need corn and other crops for nutrition. These commodities also need energy to harvest, transport and store – and energy prices have been rising rapidly since 2021.

I checked the peak prices of agricultural commodities and the price curve became steeper upwards. Wheat, palm oil (also canola), coffee and US eggs showed a sharp increase this year compared to last year and before the 2019 pandemic. Urea – used in fertilizers, feed supplements, and feedstocks to make plastics – saw nearly a 300 percent increase in prices compared to 2019. Salmon and other seafood have increased in prices this year mainly due to higher demand while the supply of Russian seafood has diminished due to economic sanctions (Table 1).

The price of urea ammonium nitrate (UAN) last Friday was 645 euros / ton, which was 187.3% higher than it was a year ago. This is a huge increase in just one year.

Therefore, ESG schemes have a direct threat to global food production. Corporations, banks, multilateral institutions, and government agencies must rethink their defense of ESG.

Electricity prices in the Philippines
In today’s briefing by the Independent Electricity Market Operator of the Philippines (IEMOP), their figures showed that an economic recovery is already happening – peak demand in Luzon-Visayas networks was 14,380 MW in May 2022 versus 13,660 MW in May 2021, 11,567 MW in May 2020 and 13.316 MW in May 2019.

The “blackouts during the May 2022 elections” did not happen by some climate-stricken groups pushing for more renewable energy and a move away from fossil fuels. On Election Day, May 9, power supplies were at normal levels while demand was low and prices were low at P2-3/kwh.

The share of total generation for February, March, April and May was as follows: coal 54.4%, 57.6%, 57.6%, 60.9%, respectively. Solar prices stabilized at 1.9%-2%; With wind, 1.9%, 1.2%, 1.2%, 0.4%. So, the combined share of the granulated solar wind in May was only 2.3% while the devil’s coal was 61%. Weather-dependent energy sources should not be the “hope” for economic prosperity.

BBM Economic Team
The recently announced economic team consisting of President-elect Ferdinand “Bong Pong” Marcos Jr (BBM) is generally good.

Incoming Finance Minister Benjamin Dyukno – former Secretary of the Budget and Administration Department (DBM) under Estrada’s administration, and outgoing Governor of Bangko Sentral ng Pilipinas (BSP) under Duterte’s administration – has long experience in fiscal and monetary policy work. He was my Professor of Public Finance twice at the University of the Philippines School of Economics (UPSE), an undergraduate in the 1980s and a PDE/graduate in the 1990s.

Incoming NEDA Secretary Arsenio Balizakan – the former NEDA Secretary under PNoy, Commissioner of the Philippine Competition Commission under Duterte’s administration – has a long experience in social and economic research and policy. He was also my professor of development economics at UPSE PDE in the 1990s, the same semester as Sir Benn.

Next Minister of Commerce Alfredo Pascual – former UP president, curPresident of the Rental Management Association of the Philippines (MAP) – He has long experience working in corporate, academic and multilateral agencies. He is not from UPSE, graduated from BS in Chemistry and then MBA from UP.

Incoming BSP Governor Felipe Medalla – a former NEDA Secretary under Estrada, and current BSP Board Member since 2011 – has extensive experience working in fiscal/tax and monetary policy. He was also a former dean of UPSE but he was not my professor.

There is no appointment yet for a DBM trustee but I hope he is not a fan of big subsidies and more borrowing, preferring financial discipline and responsibility.

The economic team will face a very important problem – the massive increase in public debt and how to repay it. From $6.6 trillion (actual + guaranteed) in 2016, this has increased to $8.22 trillion in 2019, $10.25 trillion in 2020, $12.15 trillion in 2021, and $13.09 trillion as of March 2022. Increase $6.5 trillion in just five years and one quarter.

This happened due to the strict COVID-19 shutdowns for the period 2020-2021, when revenues decreased significantly while expenses continued to increase. While millions of people lost their jobs and jobs in the private sector, government employees remained the same and their salaries, allowances and bonuses continued from national to rural levels.

I calculated average monthly borrowing: it jumped from 73 billion pesos in 2019 to 208 billion in 2020, 188 billion in 2021, and 291 billion in January-April (JA) this year (Table 3).

The good news is that Sir Ben is not inclined to raise taxes but is focused on better tax administration, and collecting more revenue via an easier digital payment system. This will reduce corruption through personal interaction between the IRS/Customs Officers’ office and taxpayers.

BBM and the economic team are not yet in the mood to do a large-scale privatization or long-term lease of government assets and companies, but I hope they will consider it. Among the “hanging fruits” that are easy to privatize are the Philippine Entertainment and Games Corporation, the long-term lease of state university and college land, and army and police camps. Privatization proceeds and long-term leases should be used exclusively to draw down public debt, and not intended for any agency or program.

Entrepreneurs and private sector workers have suffered enough under lockdowns in 2020-2021. They should suffer no more from higher taxes in 2023 and beyond.

Bienvenido S. Oplas, Jr. He is the head of the Organization of Minimal Government Thinkers.

minimal government@ gmail.com

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