GMA ecstatic over wrong things, says former Clinton aide

Joseph Romm, assistant secretary for energy efficiency and renewable energy during the Clinton administration, was unhappy with the remarks of GMA during her recent appearance in a forum of Clinton's Global Initiative. In his post "Why sustainable development is so damn hard, Philippine edition". he quotes the president:

Yesterday, I also announced, for the second time, an initiative where we are encouraging economic zones to be set up around the geothermal sites, because not only can geothermal fields give us power, they also give us jobs because the local governments earn royalties from the geothermal power. And they, by law, they can only use most of it for electricity. So they subsidize the electric bills of the constituents. So now we are creating economic zones there, so that businesses, like electronics, for instance, power incentive electronics firms, will locate there. So aside from the subsidized power bills from the local governments, they will also have the usual investment incentives. So these areas, which are usually far from central Manila, will now have industries, as well as power."

At first I thought she did not have the law right, as I was thinking about provisions in the energy department's regulation (1-94) which does not really impose power rate subsidies in the use of the funds generated, see the power sector reform tracker.

The Generation Company and/or energy resource developer sets aside one centavo per kilowatt-hour (P 0.01/kWh) of the total electricity sales as financial benefit of the host communities of such generation facility, where applicable. The financial benefits are given directly to the host LGU or region, especially to the community and people affected while equitable preferential benefits are being provided to the host region. The accruals of the financial benefits are allocated for the following:

1. Electrification Fund (EF);
   
2. Development and Livelihood Fund (DLF); and
   
3. Reforestation, Watershed Management, Health and/or Environment Enhancement Fund (RWMHEEF).

This is actually the pertinent provision GMA was referring to, in section 294 of the Philippine Local Government Code (RA 7160), which reads:

Development and Livelihood Projects. - The proceeds from the share of local government units pursuant to this chapter shall be appropriated by their respective sanggunian to finance local government and livelihood projects: Provided, however, That at least eighty percent (80%) of the proceeds derived from the development and utilization of hydrothermal. geothermal, and other sources of energy shall be applied solely to lower the cost of electricity in the local government unit where such a source of energy is located.

On a more positive note, the system of subsidies and cross-subsidies in the Philippine power sector has been reformed a great deal since the passage of the EPIRA. For one, most of the inter-grid (among the three major island groups Luzon, Visayas, and Mindanao) and inter-class (between industrial/commercial and residential) subsidies have been virtually eliminated. What remain are the intra-class subsidies in the residential sector with the ‘institutionalization’ of ‘lifeline’ rates supposed to be for the poorest among the poor in all the franchise areas.

The new system of lifeline rates is much better than the old one, where each franchise area had almost complete leeway over them, but still is not good enough. For instance, in the Meralco area, households consuming up to 100 kilowatt-hours a month are subsidized even though this threshold is way above what poor households consume on average (as determined by the official povety count). Historically there are two possible motivations for such lifeline rates.

The more compelling is the notion that the poorest households underconsume electricity because they don’t consider the positive effects on the children’s education and their own access to media and social connectivity have on the rest of society, coupled with unwarranted coupling because of limited possibilities for pleasure at night.

The other is with society’s desire to work toward equality of opportunities and incomes/outcomes. Most economists agree that this objective could be pursued much better through outright cash handouts rather than subsidies for specific goods.

What alarms me in the Philippine context is the ‘populist’ attempt by the current administration to work for the granting of special electricity rates to many special zones, defeating the purpose of the power sector reform act. It is in this light that GMA’s announcement must be viewed. She had no hand in the enactment of the local government code but instead of working to revise the pertinent provisions, it panders to some special interests. Note that the subsidized rates are based on a fixed total to use for subsidization and would have the effect of raising residential rates in the affected communities. In my own estimation, greater industrial activity would lead to more pollution. While the increase might not be that much in the overall inventory, it is the intent and the pandering to special interests which is worrying.

How safe is Manila Water?

If you read the papers, and only those, you may never know. This is a dilemma which plagues consumers of many kinds of products. If one consumer has doubts about the quality of a product, it might happen that what she spends verifying product quality might not be worth it. She can spend time and effort and finally know that the product was sub-standard. Then what? The government regulatory agency might say that they would do something about it? In the meantime what?
In the past year or two, cancer survivor Pinky Tobiano has been publicizing results about water quality tests conducted on samples in Metro Manila. Initially, I was alarmed about the test results in regard to bacteria. But lately, after watching her on the show of Korina Sanchez, where results in regard to lead content were discussed, I was alarmed. How can this be happening?
In the mid nineties, I wrote a paper discussing the benefits and costs of eliminating the lead content in gasoline and the paper concluded that a well phased-out program in regard to lead in gasoline was beneficial. But water is a more essential product than gasoline and I ask myself why government could be so far behind in the regulation of lead in water.

If you are reading this and you have children, call me, even if I may not have the best advice. Somehow, I will, and can tell you how to direct your ire.

Taxi strike: unfare?

Philippine taxi drivers are generally a friendly lot, though there are many horror stories associated with rogue drivers who reject fare, short-change passengers, collude with robbers, and eject customers midway through trips. (The last shows cab drivers know their economics and the value of time, because some would even give up the registered fare simply because going further would result in a loss---in other words, they think in terms of 'net incremental benefit.'

They are are also a bit talkative and need little provocation to lecture you on politics and philosophy, and many of them in their 60's would still even hark to the 'good old days' of Marcos and the period of discipline and (false) sense of national purpose. With a little provocation they'll even tell you whom they voted for in elections and subtly try to sway you to their position. I have always used their stories as a vane to give me a sense of the social weather. In one unforgettable ride not too long ago, a driver, having eavesdropped on my conversation on politics with a friend, butted in politely and eventually confessed he was an 'intelligence agent' of the armed forces. No, his cab driving was not a front but genuine moonlighting, though that was not really reassuring. And cell phones were not affordable then. In fact, at about the same time in 1995, I was amazed that my cabbie in HK handed me his handset to call a friend to ask for directions. And no, his name was not Vidal Doble.

Once, in my early 30's, I was mistaken by a cabbie as of his age. After I complained about the metallic rock on his radio, he gently reminded me that things were a lot different in 'our time.' I didn't protest that because I had much earlier accepted having been born old and grumpy. But then, in another ride, while I was waiting for change, this young driver insisted he recognized me as a lead member of a local rock band.

I don't know the status of renewed efforts to finally enforce the requirement in the tax code (circa post-Marcos 80's) that cabs should issue receipts to passengers as part of enhanced tax-revenue generation. I guess government has balked again. I agree with the measure but recognize government has to be fair to both cab companies and drivers but fairer to drivers and to passengers. Clearly there is a lot of room for improved regulation of behavior. The economic fact is that drivers merely respond to the so-called incentive structure of the system, like free 'profit-maximizing' agents who take all the demand risk, because they pay a fixed rent regardless of kilometers travelled or fare volume. Bus drivers, on the other hand, get a share of revenues. But in congested thoroughfares, the resulting behavior results in disastrous consequences for both passengers and air quality (I digress too much, as usual).

I travel fairly often and fairly wide and know that Philippine taxi rates are among the cheaper in the world, and have spent large sums because of my habitual laziness and addiction to door-to-door delivery. An absolute increase in fares resulting from regulation might do a lot of good all around, most of all by encouraging more mass transit patronage. With some caveats, mainly for people like myself, who, as a lazy patron, also use cab drivers to attend to other addictions. When I was a beer-drinker and smoker, and whether alone or with guests, but as lone occupant in a single male-headed household, I would call the nearest cab company to request delivery of beer and cigarets.

Do cabbies generally overcharge? I don't think so. Rates are much higher in areas where entry is either regulated or banned, especially airports. That is because the entry regulator is usually corrupt but justify the regulation as part of ensuring passenger safety. Hell, they could do that by simply charging a parking fee and enforcing a monitoring system.

Without much ado, local cab companies have been shifting to alternative fuels like liquefied petroleum gas (there is an LPG filling station just a few hundred meters from where I live) because it makes financial sense. It also results in less harmful emissions.

This brings me to the implications of this news article from the New York Times, New York Taxi Strike:

Fare increases in 2004 and 2005 — totaling some 25 percent — were contingent on taxi owners installing global positioning systems and credit-card machines. Drivers were desperate for the increase — the first in eight years — and accepted the terms. That was the deal they made, and they should stick to it. The city had an equal obligation to make sure the mandated technology is functional, up-to-date and serves both driver and passenger. So far, the results are not encouraging.

It is not surprising they are talking about GPS and credit card payments while we are arguing about receipts. After all, we are in the Philippines. But our level of economic development, I should say, does not really indicate our comparative level of civility.

The Philippine Daily Inquirer's recycling advocacy is probably garbage

“Every issue of the Inquirer is already made from 100% recycled paper. But if every reader recycled their (sic) newspapers for one year, we would all save an additional 3.4 million trees, 840 million kilowatthours of energy, and 78
million gallons of oil. Support the PDI NewPaper Drive and help save the environment ...”

The recycling advocacy of the Philippine Daily Inquirer is admirable, but the claim above is mind-boggling and incredible. In what follows I’ll just leave the claim about trees saved to stand.
I did some back-of-the envelop calculations and came out with an estimate of a combined national hardcopy daily newspaper circulation of 6.6 million, assuming the Inquirer assumed its drive would include the recovery of old editions of its rivals. Otherwise, the circulation estimate would be bloated by a factor equal to the reciprocal of its market share. I also estimated that each copy of PDI weighed 200 grams, but even if we grant that that weight is a kilogram, that would still imply a daily circulation of 1.32 million.
(Reliable newspaper circulation numbers are hard to come by because ironically, the principles of transparency and the public’s right to know are not shared by the business and advertising departments of newspapers. The Philippines is one of a few Southeast Asian countries for which newspaper circulation data are missing by the Southeast Asian Ministers of Education Organization).
The electricity savings is already about two percent of generation in the whole of Luzon, and at spot prices prevailing in the WESM, would be worth about P4 billion. So, at this point, I will not even question the claim of the volume of oil saved except to say that at prevailing world prices, that would add another P6 billion in putative savings.
The proper way to estimate energy savings from recycling is to subtract energy consumption with recycling from a base case (meaning transporting old newspapers to a landfill and production of newsprint from trees. For the curious and/or technically inclined, try following this reference.
Aggravating the exaggeration of the claims of the Inquirer, and more unforgivably at that, is the assumption that no old newspapers are being recycled. (If it did, the circulation figures above would again be bloated by another factor). In the United States, the rate of newspaper recycling is around 82% and I dare say that in a poorer country such as ours, the rate would be higher. If you don’t know the schedules of your friendly neighborhood ambulant BDP’s (Bote, Diario, Papel) entrepreneurs, you must be living in Forbes or Dasma. My best guess is that the savings from any newspaper recycling drive such as the Inquirer’s would be much less than 10% of the figures cited above. In my case, all newsprint is sold to vendors by the neighborhood diner (the owners of the diner are friends of the Inquirer’s readers’ advocate) I donate newspapers to after breakfast coffee, except for the crumpled ones I use to wipe grease off dishes and kitchen implements, as absorbent for the occasional water intrusions on my bedroom floor after storms, and to clean glass. I can also safely assume that newsprint not ending up recycled would be re-used as wrappers of choice for bulad and tapa in your friendly neighborhood talipapa. In the latter, the Bulletin trumps the Inquirer hands down. I don’t know why. A secret ingredient from the ink supplier?

But 10% of a billion pesos is still a lot, right? But to whom will these savings accrue? Is the waste collection system competitive? Three years ago I worked for a project with a paper manufacturing facility in Luzon and observed so many layers of middle men enroute to supplying the plant with scrap paper, and that’s one of the reasons I’m able to come up with the estimates above. The spouse of my masseuse was in the garbage business in Antipolo and he had to give it up because of the competitiveness of supply going against the monopsony of the buyers.
It may be that the Inquirer drive will benefit impoverished folk targetted as beneficiaries. But it can actually do better. It can radically change its business model and encourage more readership by scrapping its archaic and unenforceable links policy, and thereby reduce the use of newsprint at source. This commentator, for instance, explains resistance to the net forcefully.

And, if you happen to be like me, sentimentally retarded and insisting on reading the news while sipping coffee, find a cost-effective way to access news in cyberspace.
(I’m still trying to muster the heart to tell the old man who has delivered the Inquirer to my doorstep the past 15 years that I have finally discarded old habits).
A final note: Worthy advocacies often lose credibility by the exaggeration of the advocates. This is obviously one of those. To recycle an old economics argument, allow me to say that if it pays for them to do something, reasonable people generally do it. Except if they read Bulletin Today.

P.S. To those interested in my calculations, the spreadsheet file will be mailed on request.

Clouds, now, from both sides

I’ve looked at clouds and the climate for over two decades and I must say the claims of our weather, energy, and science officials are a bit befuddling.

In the early 1990’s I was investigating the remote and immediate causes of the crippling power shortages, and observed that unseasonably bad weather inflicted a double whammy on power consumers in the Philippines. The less rain there was, the less hydroelectric power availability and thus the higher were electricity production costs. At the same time, less rain entailed higher ambient temperatures and thus greater demand for airconditioning. This is true for the whole country, and to all countries similarly situated. It is a double whammy indeed, for both supply and demand factors result in lower satisfaction at a much higher price.

From Nick Nichols I learned that Cyril del Callar of NPC had been quoted as saying that the current cloud-seeding operations were meant more to lower ambient temperatures, and thus lower airconditioning demand, rather than to increase the water levels in the dams of the hydropower facilities. Yet, the pronouncements of spokespeople of the departments of agriculture and of science of technology belie this. And so does the an article in the weekly newsletter of NPC, which clearly associates the cloud-seeding with attempts to elevate dam water levels.

I had a brief exchange with Cyril first to ask him whether there was any ‘optimal’ cloud-seeding effort level. Perhaps he did not appreciate the import of my question and said no. He said that in terms of NPC cash operations, the expenses were justified.

Now, if you follow me, why don’t we spend billions instead of a few million to induce rain? I am an advocate of science and economics and would thus suggest that government spend on cloud-seeding as much as and until the incremental costs exceed the marginal benefits. And, to my knowledge, we are far from there, although I need to study both the science and economics more thoroughly.

Incidentally, government spokesmen recently admitted that cloud-seeding operations could be concentrated on specific areas when clouds were favorable. That might buttress suspicions that government can exercise weather control to lessen attendance in poitical opposition rallies. Triple whammy!

More Sex is Safer Sex (and also maybe better)

More Sex is Safer Sex
The Unconventional Wisdom of Economics
Steven E. Landsburg

(Free Press, 2007, pp 274; PhP1170 at fully booked)


Expectedly, Landsburg got a lot of hate mail for the lead essay in this collection from readers who misinterpreted it as advocating promiscuity. It does not. What it does is use economic theory to argue that if responsible individuals shy away from the casual sex market, it leaves that market with a greater proportion of individuals with more risky behavior, and thus increase the risk for other people of contracting HIV.

Landsburg, who writes a popular column (Everyday Economics), is one of a few economists who believe that the world would be a much better place if the findings (and also the methods) of economics had a wider audience, and who act on that belief. He does a good job explaining these findings because he refrains from using economics jargon. He succeeds because he is a good writer, and he is a good writer because he is a clear thinker, though he falters in some instances. (Why he appreciates Scrooge).

The main reason I appreciate Landsburg is that he painstaking explains a key concept in economics without ever using the technical term (externality). As a perpetual student and practioner of environmental economics, I am often frustrated with people who don’t understand the idea, because I am a distance removed from the clear thinking of people like Landsburg.

But back to sex, which is probably why you are my accidental reader. To my knowledge, the AIDS scourge is already contained in the Philippines, but I could be wrong and the health authorities could be lying, or maybe the entrepreneurs of the sex industry here might really be more responsible. (Hey, I’m no expert on the sex industry and I’ve never had sex with a prostitute). But the main assertion in the essay holds, regardless. Certainly such ideas would raise the hackles of ‘respectable’ citizens in a morally challenged and hypocritical Catholic country such as ours. But wait, Landsburg refrains from discussing morality, but recognizes that moral values do matter.

In another essay, he could also be misinterpreted as supporting the Catholic church’s position on birth control in the essay “Be Fruitful and Multiply.” He argues that a larger world population would be good for all of us, but he doesn’t necessarily argue that governments (especially in the developing countries) should not spend tax money educating poor households on the merits of birth control and responsible parenthood).

Readers who enjoyed Freakonomics would probably enjoy this book. But they should know that there is a limit to how much economists would reveal the secrets of their profession, because after some limit, they would start to make themselves dispensable. And they would not generally want to cross that line.

The ‘more sex’ idea is not really his but that of Michael Kremer, a Harvard economist, who did the rigorous analysis and reported the results in “Integrating Behavioral Choice into Epidemiological Models of the AIDS Epidemic” in the Quarterly Journal of Economics.


I bought a copy as a wedding present for a very good friend. Books generally make for unimaginative and inappropriate wedding presents, but not in this case. My friend Ben Endriga not only is a good economist and pianist, he would also most likely enjoy reading the lead essay.