Lessons from a Biotech CEO

 

I heard about the book from a podcast where Vineeta Agarwala (a16z) mentioned it as a source of inspiration and a book that left a lot of imprint on her. It was fascinating to read the account of Gordon Binder, one of the early CEOs of AMGEN - now a very big pharmaceutical company. The challenges a CEO of a biotech company faces are very different and unique than an ordinary one. For example - out of every 5000 compounds that show promise in the lab and in animals - only 5 proceed further. In terms of operating expenses - there are immense costs to run a lab. Along with paying the talented scientists, one also has to foot the bill for fitting the lab per square foot. Similarly, the cost of having a drug approved from the lab to the stores is enormous. It can take 6+ years in clinical trials.Requiring many volunteers. And, then before all that 3-5 years of pre-clinical trials.

Biotech is a tough field because even when you do everything right, follow the process - the project may implode at any point without warning. Clinical trials are tough because anything can go wrong at any phase. Clinical studies need to be designed very accurately in a balanced manner. Sometimes pre-clinical trials on different species of animals can take 1-2 years themselves.

The drug that features heavily in the book is erythropoietin (EPO). It occurs naturally in the body but this drug artificially creates a longer lasting protein.

The book also highlighted why some drugs can be taken orally v/s why some drugs had to be taken via injection. Large proteins if taken orally are chopped by the enzymes in the digestive tract. Thus, they don’t get into the bloodstream. 

It was interesting to observe that even in a biotech company there are conflicts arising on the lines of high or low science, and R&D politics are common. 

The author at one point says that he learned over many years that always favor Talent over Experience (Talent > Experience) because talent always has room to grow and adapt. 

He also said that Employee of the Month is always a bad idea considering bruised egos and issues around fairness. Furthermore, it shouldn’t be relegated to a monthly contest or just one employee. 

Assessing the legacy of any business leader - one must take into account the company he took over as well as the company he left behind.

Power utilities are not so boring afterall

Power utilities are generally considered a boring business but after reading this book I realized that there is so much happening in this industry.

Here are my takeaways -

Why is there no competition in utilities?

• Power and gas utilities are thought of as natural monopolies.

• It makes little sense for competing companies to build duplicative power plants, wires and pipelines - as that would diminish returns on capital intensive investments.

What about public owned utilities/co-operatives?

• One of the biggest challenges to public takeover (as many CA cities are hoping for) is - cost of securing ownership. The State of California would have to buy out PG&E shareholders at a premium and acquire its assets. And then it will have to issue bonds to finance purchase and customers would have to pay for it overtime.

• Additionally, customers would become liable for problems with the grid and liable for any fire damage.

Why is containing wildfires hard?

• Until now, Regulators don't allow utilities to earn returns on day-to-day projects and programs that keep the pipelines and power lines running. Big problem in the process. Utilities are incentivized to do new projects to get a guaranteed rate of return. 

• As per PG&E’s internal assessment - there are 8 million trees within a striking distance. No utility has the labor, money and the time to clear every tree away from every power line and keep that way indefinitely.

• The amount of labor, money and time needed to trim the trees, branches and put them away from the power lines is a lot. And then this exercise needs to be repeated every year or even every season as the vegetation will grow right back. 

• Add to it, the challenges for the crew to climb and trim trees on a private property threatening a power line. Property owners who are resistant to it.

• Also, it is easy to say that a utility company should turn power off when winds pick up but then it opens them up to liabilities because so many people rely on power - medications, baby food etc.

• In short, no action that can ever guarantee that the risk of a wildfire is 0.

• Also, sometimes things just break. In the Kincade fire - even after inspection a hook broke under 80 miles per hour and live wire fell and started the fire to which the CEO said sometimes things just break.

Challenges to the electric grid

• The electric grid is old and needs urgent repair at many places. To get a perspective, the PG&E fire started because of a hook that was installed many years ago (early 1900s) and had undergone so much wear and tear.

• Electrification of everything is resulting in increasing demand for electricity. 

• Fuel mix - As some sources of power go away (coal/nat gas), some new power sources come in - there is a need to build new transmission from these new sources. 

Why will electricity prices keep going up?

• California already has the highest prices in the country i.e roughly 2x electricity prices than the national average.

2011: $0.13/kWh

2015: $0.15/kWh
2021: $0.20/kWh

• So far regulators have been focused on shiny new things - approving renewable projects no matter how expensive those projects are. [This is not a point against renewables, just a matter of fact].

• Considering how wildfires are at the forefront of risks - even if the utilities were to redesign and put all the power lines underground - a massive exercise which will involve a lot of complex engineering problems as well. The costs will be huge and who will pay for it is clear aka costs will be passed on to customers.

• This is what already happened in the aftermath of the fires caused by PG&E equipment. It is based on the fact that  if utilities faced unlimited liability - then they cannot raise funds for what is essentially a capital intensive business. They would neither be able to sell shares nor issue debt. So in this case, lawmakers allowed PG&E to issue low interest bonds to pay for the liability costs. And the company would repay the debt through a surcharge on $5/year on the customer bills. Infact, the State of California established a multi-billion dollar fund that each utility could use to cover liability costs - and it was funded half by the deposits from the utilities and half by the residents of the state through a surcharge on their bills.

In conclusion, every aspect of the electric grid requires massive investment. For the reasons outlined above customers need to be ready to pay for it no matter what the politician promises.

In 1930 - Railroad commission who approved the merger of all electric utilities in California wrote in its report :

It is a well understood maxim that in cases of competition in public utility service, the public, in the long run, generally pays the bills, including the cost of all duplication and other economic waste.

Africa is a Continent

The motivation to pick up this book was to learn more about Africa - a continent that the media usually refers only to highlight the negatives and stereotypes - famine, hunger and child poverty. 

• The Berlin Conference was where 14 European countries and the U.S met to decide upon the regulation of Africa. The borders and boundaries drawn then still exist today. Historically, it is looked at as a necessary evil with no resulting conflicts among European Powers.

• 14 European countries = Britain, France, Portugal, Netherlands, Denmark, Spain, Italy, Belgium, Austria, Hungary, Russia, Sweden-Norway, Ottoman Empire and Germany.

• King Leopold of Belgium ruled Democratic Republic of Congo, a country 5x the size of Belgium. And remarkably he never visited DRC. His reign is known as the most ruthless rule.
  
  

• The book has some common figures as mentioned in the book Cobalt Red like Henry Stanley, Cecil Rhodes.
  
  

• I learned through this that Nigeria and Cameroon have a border conflict (in Bakassi peninsula) whose roots can be traced back to how arbitrarily the Europeans divided the countries.
  
  

• 60% of all territorial disputes that make it to the International Court of Justice come from the continent. But only 30% of all borders in the world are in Africa. Another stat that highlights how badly the boundaries of the countries were configured. The colonizers set the boundaries without any regard of natural features like rivers, mountains, race, language and ethnicity. Considering Africa is 4x the size of the U.S.
  
  

• A big problem newly independent African countries faced was that after their borders and boundaries were drawn recklessly - their population was not bound in any common thread or trust or understanding. There was no strong bond that instilled patriotism.

• There is a chapter dedicated to the song Kony 2012 and the movement surrounding it and the whole irony about the “white saviour imagery.”
  
  

• I also learned about Consequentialism (end justify the means) v/s Deontology (means justify the ends). It can be viewed as the basis of all debates. In the context of Kony 2012 - the author is on the side of deontology i.e it is not okay to raise money by any means necessary. He makes a good point that the current model of charity does not involve understanding the problem but instead just impulsive donations. And that’s because proper due-diligence takes time and it doesn’t have the same emotional pull as photos.
  
  

• Another bad thing is that Africa has become a mecca of 1000s of young people who treat the continent as the official volunteering leg of their gap year.
  

  • Beautiful sentence -

    When we are at our hungriest, we are left with no other option than to fully reveal our true selves and bare for all to see the madness we normally do so well at hiding.

  • Many African countries have the same problem as many mature democracies i.e of gerontocracy. The average age of the population is way lower than the average age of the ruler. And often the ruler wants to hold on to power at all costs. 

  • Botswana is doing the best among all countries economically.

  • OXFAM: Amount of CO2 a citizen in U.K emits in 2 weeks = Amount of CO2 a citizen emits in 1 year in Africa(Burkina Faso) - touches upon the debate where some people in the developed countries want others to sacrifice more to reduce carbon emissions. Seems unfair?

  Museums and Artifacts from Africa

• The author presents a strong case about how the Western museums are holding on to the symbols and artifacts looted by the British army and brought to the UK. On top of that, they use empty platitudes about how by holding it in London - people of the world can see them. When in fact, many people find it hard to secure a visa to travel to the UK. Many museums like the Louvre, Guggenheim and MOMA are guilty of that. 

• Surprisingly, the British PM Gladstone wanted to return all the artifacts from Maqdala, Ethiopia back but couldn’t.
  
  

• Belgium in 2020 announced that they would be returning artifacts to African countries like D.R of Congo. U.K’s museums released what were perfunctory statements supporting the cause of racial equality without addressing the issue of stolen artifacts.

• In 2017, French President Macron acknowledged that France had in its possession artifacts that should be returned to Africa. He pledged to return them and appointed a French art historian and a Senegalese economist. The museums in France were thrilled initially until the report came out and said at least half of the artifacts in the museums’ possession were acquired through plunder and theft. And the report also rejected any idea of any long term loans in favor of restitution.

• I also learned that French Presidents like to build museums (cultural museums) as remembrance of their time in office. In contrast, the U.S Presidents like to build Presidential libraries.
  
  

• Also, the British TV show - The British Tribe Next Door was in a very poor taste. Not sure how it got the green light.
  
  

  
  
  

P.S : This excellent satirical piece by Kenyan writer Wainaina, titled "How to Write About Africa"
https://www.bu.edu/africa/files/2013/10/How-to-Write-about-Africa.pdf

Ahead of the Curve

Ahead of the Curve is a book that is about the author’s experience at HBS. He left a stable, prestigious job of a foreign correspondent in Paris for a British newspaper to do a MBA and understand how the business world works and operates. The idea behind picking up this book was to read and know about the experience of going to such a prestigious school - a sharp contrast than the sugary, dreamy vlogs put out by Youtubers. 

The book did provide me good insights into how students feel, experience and evolve over their time at HBS.

A few standouts - 

• Most students start with different viewpoints i.e detest investment banking and consulting jobs but by the end of the course most of them are trying to snag the jobs with the highest pay package.
  
  
• This is in spite of almost every other dignitary/personality visiting the school and commenting how grueling their schedule is/how little time they have to spend with their spouse and kids. The book is based in 2006-08 and the author mentioned at a few points that, at least then, the consulting job required traveling i.e fly out on Sunday and come back home on Thursday.
  
  The author references a 2006 New Yorker article by Calvin Trillin that says bluntly - in life there cannot be multiple centers. Centers as in areas of focus. Either kids/family is the center of your life or not. That is an interesting viewpoint to think about it!
  
  
• It was interesting to read the author's anecdotes of interactions in the classroom combined with personality descriptions and spot the undertones of tension between European and American students on topics of work-life balance and worldviews.
  
  
• HBS claimed to give students a fresh start in their careers but very few people were actually able to succeed. The path of least resistance was to do banking and consulting. But to get out of those fields was very hard. If you didn’t have experience in an industry, then they didn’t want you. So you ended up going back to the industries they had experience in.
  
  
• The author refers to a profile HBS did of its 1985 class : 65 graduates were prosecuted for SEC violations. Even ENRON CEO was a HBS alumni proving that the school produced its share of crooks even after a rigorous entrance process.
  Similarly, in the class of 1976 - every 10 years a profile was done for 6 students. 5 out of 6 admitted to having wretched personal lives but successful from a societal perspective. Only one of them reported to be content and that was because he chose to stay with the same firm and his main career objective in his own words was “making it through the day”.
  
  

The author remarked that for Harvard MBAs who are so used to being applauded, the idea of a private discreet life of fulfillment was nearly impossible to grasp.

In the book, the author stops and highlights the major things he learned during his courses. Like, -

• Serious investors place a greater importance on risk than an average investor. Sophisticated investors place way more weight to tail risks i.e small chance of disaster = moderate risk of something quite bad.
  
  
• Accounting gimmicks!
  
  Ads can be an asset or an expense. When the benefit of the ad is uncertain, it can be an expense. But when the revenue from the ad is measurable - it can be treated as an asset and then depreciate the cost over time.
  
  
• Strategy != Operating Efficiency. You can run the best laundry in the world, but if what I was doing was quite simple and 1000s could do it - no money was to be made. Good products alone won’t get you there!
  
  
• In a career - Be a principal or decision maker. Not a service provider.
  
  
• It was interesting to find out that prior to 2008 there was a loophole in the HBS admission process for granting financial aid. Students used to report their savings/bank statements but not report the type of the car they had. So, what a lot of them did was they used to buy an expensive car and then report their drawn-down/near-empty accounts only to be awarded financial aid. HBS was buying students a car! Future CEOs/administrators supposed to be stewards of right business practices were exploiting the loophole.
  
  
  Ultimately, the author was one of a handful of the 900 students who were without job offers come graduation time. For him, since he placed importance on work-life balance and didn’t want to do a stereotypical job at investment banking/consulting - his options were limited. And in addition he said it aptly that he “seeked out the frailest shred of evidence to support my assumptions”.
  
  
  Good book that gives us an insight into the psyche of supposedly the smartest and most business savvy cohort of overachievers and their doubts and insecurities.
  
  
  

The man behind low-cost index funds

The motivation to pick up this book was thanks to my father who drew my attention to this book-review published in Business Standard. 

I knew what Vanguard was and had a vague idea about Jack Bogle so this book seemed interesting and I put it on my to-read list. 

Here are my takeaways from it -

• Index Funds always have more inflows during Bear Markets.

• No one regardless of their experience knows what the future holds.

• As per Jack Bogle - the best way to make money through investment was to focus on -

• Dividends

• Earnings growth

• I liked the analogy of Cost Matters Hypothesis (CMH) in contrast with Efficient Market Hypothesis. It makes perfect sense where one invests in a fund/ETF/individual asset.

• Constant drip of costs will reduce your final payout.

• The entry price (Costs) matters if one wants a good return.

• Jack Bogle is the father of “low-cost” investing rather than “index funds” because index funds would have existed without him but not to such a low-cost degree.

• The beauty of Buffet/Bogle is that they are financially conservative.

• When things are good, they remind investors that it is not going to be this good forever.

• When things are bad, they tell it is going to get better.

• These days the index funds (passive investing) has become so big that people are highlighting the downside effects of it. One of them is that the big giants like Vanguard and Blackrock which own ~10% of every publicly listed company often vote as a monolith regardless of the millions of investors who invested through them and helped them build a big stake in it. Currently, Blackrock allows certain institutions to choose to vote on the management proposals themselves. Why not allow small investors to do the same and democratize the voting? A side-effect of this would be that the companies could no longer rely on Vanguard/Blackrock (their top two shareholders) to shepherd their proposals.

• Another criticism of Vanguard is the lousy customer service. The author points out that low-fees is unfortunately the root of it. Low fees are good but the actual price the customer pays is sloppy customer service. And as Vanguard continues to grow - it’ll have to figure out how to allocate money towards system maintenance and system upgrade with a low-fee structure through all its funds.

• Finally, the author makes a valid point that is known but often forgotten i.e the 95/5 phenomenon. 95% of media coverage is on companies that typically make up 5% of people’s portfolios. They are not your friends or have any fiduciary duty towards their viewers and readers.

Dark side of the Green Energy Revolution

Cobalt Red is the culmination of the investigative work done by the author over a period of years - the contents of which make it a very moving read. It gives a detailed account of how the Cobalt supply chain relies heavily on artisanal mining and child labour in Democratic Republic of Congo (DRC). 

Cobalt element allows batteries to hold more charge. Cobalt is used in primarily three types of rechargeable batteries - Lithium Cobalt Oxide (LCO) , Lithium Nickel Manganese Cobalt Oxide (L-NMC) and Lithium Nickel Cobalt Aluminium Oxide (L-NCA) (used by Tesla). Cobalt can make up-to 60% of the battery composition. It is found alongside Copper in the ground and at times Uranium has also been found in the deposits. Due to geographical quirks, widespread Cobalt deposits have been found alongside the East African Rift. 

Mining giant Glencore has a big presence in Africa and has been criticized for working conditions in its operational mines and how it has manipulated Cobalt supply in the global markets. In one instance, it shut down a mine in DRC claiming shortage of Sulphuric acid to process the ore but it resulted in low supply of Cobalt and the price shot up on the London Metal Exchange.

Even though big technology and car companies have multiple press-releases swearing of any such elements in their supply chain. The reality found by the author in multiple visits to DRC was very different. The organizations, which have big tech and car companies as affiliates, that are supposed to enforce and vouch for keeping the supply chain clean seemingly have no presence on the ground specially in DRC which has 70% of world's supply. The author saw first-hand the brutal working conditions in DRC which resembled more of 18-19th century.

Specially, since artisanal miners aren't employed by any company - no one takes ownership of this problem. And because the sources of information for the government and the miners are different for obvious reasons - this aspect of mining never comes up to the surface.

It was particularly depressing to read about DRC's tragic past - from Belgium's King Leopold who ruthlessly ruled and extracted profits from them until the 1960s to how political leaders have assassinated and governed the country in a dictatorial fashion. This particular tidbit mentioned in the book caught my attention: when DRC gained independence in the 1960 - King Leopold's grandson Boudain was present at the ceremony and said this was the culmination of the genius of King Leopold. To which the democratically elected DRC PM, seething with anger responded "nous ne sommes plus vos singes".

Also, there are elements of economic imperialism making matters worse i.e Chinese companies running mines in the interiors of DRC with no regard for safe working conditions, fleecing the country by underpaying taxes and treating the native Congolese as second-class citizens. Since DRC doesn't have sufficient infrastructure to process these ores, they are shipped to China for processing and battery manufacturing.

The Cobalt supply chain is the dark underbelly of push to renewables and electrification of everything. Something that's not talked much about in the western world.

The author ends the book by posing a very obvious question -

If kids from Cupertino aren't supposed to dig for a living, then why should the kids from Congo?

Easy Capital

The book talks through the point of view of Thomas Hoenig, who was often the lonely voice of dissent when the Federal Reserve Governors voted on whether to embark on QE under the chairmanship of Ben Bernanke. (There were others too but they never formalized their dissent by casting a NO vote which by the way would have shook the long standing traditions of the Fed of mostly unanimously consented decisions).

The book does an excellent job of simplifying the jargon of the Fed that is often obtuse and incomprehensible to something an average person can understand.

First off, in FedSpeak - “hawks” and “doves” mean the opposite of what they do in the context of foreign policy.

In FedSpeak:

Hawks - Try to limit the Fed’s reach.

Doves - Argue for aggressive intervention of the Fed.

The book throws some insight into how J. Powell views things related to monetary policy. He has worked in Private Equity in the past so he clearly has seen from close quarters how QE and low interest rates drive up valuations and can lead to distortions in the economy. Specifically, it incentivizes PE firms to take more adventures and make money through financial engineering. At certain points even though he himself didn’t cast an official dissenting note, he clearly voiced his concerns about QE.

Post 2008, when there were reforms to be made - the author suggests the administration did not opt for radical reforms and somewhat middle-of-the-road reforms. Hoenig’s proposal in itself was to break the riskiest parts of banking away from the economically vital part so riskier banks failing wouldn’t impact the system. However, the government. decided to create a more intricate web and labyrinth of regulatory bodies to oversee them. (CFPB/Dodd-Frank).

Fed and Capital Cycles

The cycle goes like this: 

Cheaper Money → More Loans → More demand/growth → High employment + Driving up prices → High inflation → Hike interest rates → Expensive capital → Less loans and less demand → High unemployment → Less growth

• In one of the chapters, the author explains there are two types of inflations - (1) Price Inflation (2) Asset Inflation.

• Price Inflation implies the cost of everyday/essential items - something that is reflected in CPI.

• Asset Inflation refers to the inflation in the prices of assets that are a store of value (like real estate, stocks).

• Thomas Hoenig believed that low interest rates for too long would lead to Asset bubbles (or asset price inflation).

• In hindsight, this seems to have been a problem that the Fed failed to address. They were so focused on CPI/regular price inflation - they did not take any meaningful steps to address the ballooning asset prices as a consequence of low interest rates and QE. This meant, people with assets became richer and richer while at the same time those without it kept falling further behind.

• As per the analysis by Allan Meltzer - Reason for the high inflation in the 1970s in the US was- more weight was placed on maintaining high/full employment than on reducing inflation.
  Now, let's parse this - Fed printed more money in the 70s unaware that it was causing more inflation as there was more money floating around to chase limited goods. Add to it the events like the formation of OPEC and its cartel-like policies driving up oil prices.
  
  

Effects and Side-effects of Quantitative Easing 

• Between 2008-2010, the Fed printed $1.2 trillion of money -more than what it had printed in the last 100 years.

  

  

  Fed Balance Sheet

  
  

Swathes of Capital - Private Equity

The book gives us a very good overview on how and why Private Equity has created a niche for itself. It also shines a light on how this industry operates. It identifies subsidiaries neglected within corporations or mismanaged businesses and tries to implement improvements in them making them more efficient cash flow generating businesses. The timing of the buy at the right times during a business cycle also helps a great deal. Often this is accompanied by a low interest rate in the credit cycle.

Private Equity (PE) is often pilloried for being quick-buck artists who make a quick return by slashing jobs thus cutting expenses and earning money by a very high amount of leverage. The book does a great job in explaining how Private Equity goes about it.

• It looks for businesses that can use some operational efficiency and for various reasons (public companies focused on short-term/less access to capital) cannot make those improvements itself. PE then installs managers/executives or retains key people from the target company to do a turnaround or make-over of the business.
• Academic research does provide evidence that yes, for the first couple of years there are job cuts however once the business stabilizes it results in higher job openings.
• It can also be argued that Private Equity acts as a bridge between two stages in a company’s life. Create Long Term Value for a business that is mismanaged or a company whose ambitions are thwarted by the parent.
• Private Equity is also a source of funds to companies at the time of need (in a trough in business cycle).
• Often, Private Equity pares down their stake but continues to hold on to their positions belying the belief that they are quick-buck artists.

Leverage Buyouts

It is no different than how one gets a mortgage for buying a house.

If one has $100 and buys an asset, and sells it for $120; making a $20 profit

With a $80 loan from banks, and $20 of their own (equity) - they buy an asset, and sell it for $120 - thus walking away with $40 profit.

In Leveraged Buyouts - income covers rent, property taxes and upkeep. Since PE firms pay some small amount of down payment and force the target company to pay for interest after loading it up with debt, it ensures that the interest expense is so big of an item to deduct.

It is like an income property where rent covers the mortgage. Property taxes and maintenance.

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Private Equity does have some tax advantages which are in the news often 

1. They often load a tonne of debt on their target company, and the company has to pay interest on the debt which can be deducted.

2. PE also works on the 2 and 20 model. That is they take a 2% of fees on all the assets under management even if none of the money they raised wasn't invested in anything. Once invested, they take a flat 20% cut on the profits. And this cut on the profits under the current tax code goes under Capital Gains Tax (i.e 15%). Thus, having the PE partners on WallSt. pay less than the cleaning ladies in their offices.

Lot of people say it should count as income thus subjecting those profits to a 37% tax rate ($578k or more income slab).

PE firms have faced economic crises before. And each time they have emerged stronger.

It is because they have tons of cash/capital (as of Q1-2023 easily $0.75 tn) to buy companies, real-estate and debt at a time if there are distress sales.

What can we learn from a PE firms’ modus operandi?

It is always good to buy assets of companies (in physical fields) that are below the replacement cost. Prices have a natural tendency to rise where the supply couldn’t expand much.

The book provides another confirmation that as the market rises, the investors are willing to pay higher multiples on cash flow or earnings. Similarly, when markets fall, multiples recede. Thus, it is important to understand capital cycles.

Private Equity profits arise from leverage, increase in long term value of the company, increase in cash flow and well-timed buys.

It is also true private equity has beaten returns of all pension funds and even index funds, thus even pension funds invest in them.

How the World Really Works

The crux of the book is that a poor understanding of energy has some overzealous young activists calling for a near-instant shift from fossil fuels to “superior” green and renewable electricity.

The author takes us from the basics and builds up our understanding. For example, he says we cannot talk about electricity if one doesn’t understand electrons. And then explains why we can’t store enough electricity for a medium-sized city of 500,000 people even though we have all sorts of technology available.

I started with the section on Understanding our Material World - very eye-opening!

There are four building materials of the world - 

• Plastics

• Ammonia

• Cement (Asphalt)

• Steel

These four materials account for 25% of global CO2 emissions.  

Ammonia as per the author is the most important of the four. It is used to make nitrogen fertilizers. Ammonia is manufactured using Haber-Bosch synthesis and is one of the most crucial inventions in the world. It is responsible for almost half of the nitrogen that’s applied to the world’s fields. And has helped with increasing the food production and harvests specially in Asia where populations have continued to rise. Africa, the continent with the fastest-growing population, remains deprived of the nutrient (Nitrogen) (the use of NH3 is one-third of Europe) and is a substantial food importer. If there is any hope for Africa to be self-sufficient in terms of food - it needs to boost its Nitrogen supply. 

Worth remembering that Nitrogen is a barrier to higher crop yields. The Green Revolution wouldn’t have happened without better crops and higher application of Nitrogen based fertilizers.

In terms of carbon footprint - Hydrogen for this reaction comes from either coal/natural gas/oil through processes that release CO2.

Plastics in the form of polyethylene (PE) [polybags] , Polyvinyl Chloride (PVC) [plumbing], PolyPropylene (PP) [car bumpers] and Polyethylene Terephthalate(PET)[plastic bottles] is manufactured using petrochemicals. Plastics are also widely used in healthcare - gloves, gowns and masks, and their importance was highlighted during COVID-19 when there was a scramble to airlift their supplies from China.

Steel is an alloy dominated by Iron (Fe). Cast Iron, hot metal produced in a blast furnace is through a process which requires coke (coal) and Iron Ore mined from the ground. Steel is used just about everywhere in the modern day city.

Cement, a component of concrete, is produced by heating limestone in a large kiln. Over time, we moved to reinforced steel in every large modern building and transportation infrastructure. However, there are factors which result in cement’s deterioration like algae/bacteria growth, tension and moisture. Especially, in the U.S where the infrastructure has been awarded the grade D+ and needs large quantities of replacement concrete and new concrete. 

In terms of future outlook, the world now consumes as much steel in one year as it consumed in the first half of the 20th century. It is unlikely that the above four industries will get rid of their dependence on fossil fuels in the manufacturing process. Even if it were to do that, it would put almost all low and middle income countries at a huge disadvantage. That’s the major criticism of Green New Deal or environmental activists that there is no proposal on how to electrify the major building blocks of society.

Carbon footprint of Food Production

There has been growing discussion around how much carbon footprint the whole food production creates. I liked how the author explained the energy consumption in growing, harvesting crops and on meat from farm to table.

The benchmark he laid out was plain sourdough bread, a staple - which is made from flour and water after the wheat has undergone Milling - removing the seed's outer layer. A kilogram of bread requires ~250mL diesel equivalent.

It was surprising to find that a kilogram of chicken also requires a somewhat similar energy requirement (~300mL diesel) as bread. The author pointed out that the price of a kilo of bread is somewhat the same as a kilo of chicken. 

However, it was interesting to learn about CAFOs (Central Animal Feeding Operations) - a facility where tens of thousands of animals (birds in this case) are put in rectangular structures where they are crowded in dimly lit spaces. And that the process of raising an animal + feeding it (corn/soybeans) + slaughtering + processing + retailing + storing + Home refrigeration + finally cooking - is all quite energy intensive. If we are to map types of meat, based on energy intensive - chicken is the lowest and beef among the highest. Seafood is the highest in terms of energy, it is somewhat the same idea however we need to add diesel fuel consuming trawlers and shipping boats to catch which adds a lot. Sardines is the lowest among seafood requiring ~700mL/kg of diesel, almost a bottle of wine. And shrimp or lobsters are the highest in the seafood category.

Attempts to do greenhouse farming like for tomatoes especially in regions of Spain is also energy intensive as you need plastic films to create the greenhouse effect and heat it. Not to mention, the other things like transporting harvest from Spain to Sweden on trucks and poor working conditions for workers who are predominantly immigrants.

The author is careful enough to not suggest that we abandon meat eating (in his view Africa needs a lot of nutrition) but he does highlight the excessive meat consumption in some countries specially U.S and China (~150kgs/per capita annually) compared to India (~4kg/per capita annually). He says the room to reduce carbon footprint is to go on a moderate carnivorous diet for high income countries and avoid food wastage.

Dependence on Fossil Fuels in Renewable Energy Movement

• Lots of materials which were needed in modest amounts before would now be needed in unprecedented materials.
• Even infra for sources of renewable energy like Wind and Solar are built on top of fossil fuels. For example: to construct a wind energy farm (symbol of green electricity) would require foundation to be laid by reinforced concrete; towers, blades and rotor are made of steel; gearbox requires oil lubricant. Parts of a turbine are so huge that they have to be transported piece by piece to the site for assembly via trucks which run on diesel fuel. Ironically, even before the wind turbine is functional it has accumulated a large carbon footprint. 

Why is the renewable energy transition going to take a while?

• Is it possible to have complete electrification of transport in 2-3 decades?
• What about ships which are the backbone of global trade?
• Currently, African nations rely on fossil fuels to supply 90% of their primary energy. What miraculous options will be available to them that are not only less carbon intensive but also cost-efficient within a decade?
• Let's talk about the most realistic solution which is capturing carbon from the atmosphere and storing it away underground. Worth noting, that this technology is still being worked on and far-away from commercialization.
• The author raises a great point in my view which is when was the last time America built anything on time? Atleast, not since WWII ended. Even regular projects for renovating public transit stations, or even installing a bathroom exceed the timelines and budget overruns. Plus, the NIMBY movement will not make it easy to have millions of miles of pipelines needed to transport captured CO2 to storage tanks in Texas. Keep in mind, the huge oil & gas pipeline network today is a result of 100+ years work and trillions of $ investment.

Thus, the following comments from the author seem appropriate  -

The current zero-carbon future plans are flights of fancy unencumbered by real-world considerations.

History does not unfold as a computerized academic exercise with major achievements falling on years ending with a zero/five.

Reality presses in from both ends.

What can we do in the meantime to preserve the environment?

On this I liked the author’s realistic nuanced suggestions.

• We can improve buildings’ efficiencies with the same materials for long lasting energy and carbon emission savings.

• Install triple window panes to insulate.

• Proper wall insulation.

• Highly efficient heating furnaces.

• Reduce the adoption of SUVs; more public transport

• Clear cut evidence that a SUV emits 25% more CO2 than a standard car. And there is now 250 million SUVs on the road

• SUVs are now the second highest cause of rising CO2 emissions behind electricity generation and even ahead of heavy industry, trucking and aviation.

• Reduce food wastage

The author does talk about how in the past all forecasts (which were sensational) about how the world was going to run out of XYZ or something have proven wrong mostly. He attributes it to the indomitable spirit of human ingenuity.

One of such misleading pronouncements he gives an example of is the below tweet.

Which implied that the fire in Amazon forests in Brazil was a much bigger deal as those forests are a source of 20% world’s Oxygen, causing alarm, hysteria and the top most item to be discussed in the G-7 meeting. This is precisely an outcome of poor understanding of how Oxygen is formed.

Conclusion

Non-carbon based energies can replace fossil fuels (Carbon) in 1-3 decades only if there is willingness to take cuts to other standards of living in affluent countries and deny countries in Africa and Asia improvements by even a fraction of what China has done in the last 20 years.

P.S -

The author seemed to have some interesting thoughts around how good humans are at controlling their own fate. He took the example of COVID and remarked that COVID exposed emptiness of any quests to have space flights, precision and personalized medicines. Why the world's richest country supposedly failed to provide its healthcare workers with low-tech PPE? In his view, long tail events have a bigger impact on how we live. (9/11, covid, WWII).

Surprising to me - he believes that even without the vaccines the pathogen would have stopped once it had infected a large number of people or mutated to a less virulent form.