Environment

Economics & discounting rates for climate change

Published

4 years ago

March 5, 2021

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The earth had been mostly very hot over its 4.5 billion years of existence but there were severe spells of low temperature epochs in the latter stages, but undoubtedly the current period of permanent settlements over the last 10,000 years is one of relatively low temperatures, barring the last century where there has been significant human activity that has led to temperature increase; the non-linearity of results notwithstanding but taking Ockham?? Razor, as a principle, (when multiple competing hypotheses are equal in other respects, choose the hypothesis that introduces the fewest assumption), CO2 as a heat trapping gas and its abundance created by emissions is a good enough reason to go after, if we want to limit temperature increase. But Methane and NO2 or SO2 are also to be dealt with but have other consequences as well.

Climate, the word is derived from the Greek word, which depicts the inclination of earth?? rays, which is a reminder again of the importance of warmth than cold, in fact it is far more efficient to heat up than extract heat, or most economic systems are far better attuned to heat additions than heat extractions as the progress of the last three hundred years have been facilitated by heating systems that produced the much needed energy to propel modern systems forward. The economics of heating or energy never precluded the absorption of CO2 as an externality, a cost that must be endured and therefore paid for by the consumers; had it been the norm, the current use of fossil fuels would have seen natural moderations and renewable energy sources would have by this time proliferated at a frenetic pace.

The importance of the externalities, the costs that are to be borne by the society, for example the cost of CO2 released to the environment when an item is produced for consumption, only remained in the economics footnotes and only in the last two decades some meaningful treatment has been meted out. But think of it as Bill Gates points out in his book, ??ow to Avoid a Climate Disaster?? clean versions of fossil fuels for cargo ships are at $5.5 -$9.05 per gallon against their fossil fuel versions which are at $1.29 per gallon, making them hugely uneconomical, whereas if the cost of externalities are included this difference would considerably reduce. It is same as investing in climate change actions for the future, none of which would at the moment give benefits to the environment. Therefore it is as good as saying that corporations are entering into pledges for the future which would need investments and the environmental benefits will only be visible and enjoyed by generations in the future, for which the current stakeholders would have to bear the costs.

To put it differently what part of consumption now needs to be foregone, in order that the future consumption can be maintained? Or how much profits would have to be foregone now for future benefits? But a unit of consumption now or profits is not the same as a unit of consumption or profits in the future. So we enter the realm of time-discounting rates to fix this problem.

But how do you impose the social cost of externalities and what would be the economic impact for the current generations while they altruistically take the brunt of ??limate change??impact now so that the future generations enjoy large parts of the benefit. This is what the economists calculate through the time-discounting rates. These are not mere market rates of return on investment, but that they ought instead to be derived from economic forecasts and society?? conception of distributive justice concerning the allocation of goods and services across personal identities, time, and events. Inter-generational transfers and the incentives for savings over consumption needs to be weighed against a non-linear and highly unpredictable future impact on livelihood and environment forced by climate change. No doubt this is an arduous task in itself.

But there are potentially two distinct camps in which the economists are camped into, Nordhaus, who supported a milder action on climate change and who got the Economics Nobel in 2018 and the Stern camp, after the Stern Report (2006) that specified far more stricter actions on climate change now, believing that aggressive abatement is worthwhile even though the future is much richer, because the potential massive damages warrant the costs. When you take milder scheme of things, where current consumption can continue, you are in effect proposing a different discounting rates, like the high 4 to 7 per cent, while anything between 1 to 2 per cent is a low enough discounting rate for the very drastic measures now.

The real implications of these two discounting rates is the following. If the current generation is too impatient to enjoy the benefit now against that in the future, the consumption discount rate needs to be higher. Also an unit of consumption now against the cost of that in the future is higher, as the opportunity cost of capital itself would propound and that is not going down but only moving up. So in effect Nordhaus is proposing a milder version of actions, that of a much higher discounting rate, so that current consumption now is valued and not therefore foregone that easily.

Stern camp however is believing that foregoing consumption now is the more important thing to do so a much higher foregoing of consumption is necessary for a dramatic result in the future, which will avert the crisis. But it essentially means that corporations and consumers would have to bear the brunt of these actions in the current times.

Think of a steeper slope of climate actions now versus a less steep slope in the future? It means that an industry would have to invest now and that would mean it would draw away capital from the alternate use of it. Further to maintain the same level of profit, it would need to factor the price increases necessary to compensate for the rising costs, this must be paid for by the consumers.

This would also mean that an entire industry in a specific space must act as an industry body, otherwise it will never work, some could get away being the free-rider, thus removing all incentives for actions. On the other hand the government or the regulatory body must factor in the loss of income that could ensue if economic activities get impacted due to higher prices or lower profits that impact government revenues.

Thus net zero pledge is a serious debate on the current versus the future benefits and time discounting rates. Those corporations who take a drastic view of things are actually discounting at a lower rate, they are willing to forego current profits for a better future and essentially this is making the corporation stronger for the future, than currently what it could be without these actions.

Footnote:

ABOUT THE AUTHOR:

Procyon Mukherjee is an ex-Chief Procurement Officer at LafargeHolcim India.

Concrete

India donates 225t of cement for Myanmar earthquake relief

Published

2 weeks ago

June 17, 2025

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On 23 May 2025, the Indian Navy ship UMS Myitkyina arrived at Thilawa (MITT) port carrying 225 tonnes of cement provided by the Indian government to aid post-earthquake rebuilding efforts in Myanmar. As reported by the Global Light of Myanmar, a formal handover of 4500 50kg cement bags took place that afternoon. The Yangon Region authorities managed the loading of the cement onto trucks for distribution to the earthquake-affected zones.

Concrete

Reclamation of Used Oil for a Greener Future

Published

2 weeks ago

June 16, 2025

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In this insightful article, KB Mathur, Founder and Director, Global Technical Services, explores how reclaiming used lubricants through advanced filtration and on-site testing can drive cost savings, enhance productivity, and support a greener industrial future. Read on to discover how oil regeneration is revolutionising sustainability in cement and core industries.

The core principle of the circular economy is to redefine the life cycle of materials and products. Unlike traditional linear models where waste from industrial production is dumped/discarded into the environment causing immense harm to the environment;the circular model seeks to keep materials literally in continuous circulation. This is achievedthrough processes cycle of reduction, regeneration, validating (testing) and reuse. Product once
validated as fit, this model ensures that products and materials are reintroduced into the production system, minimising waste. The result? Cleaner and greener manufacturing that fosters a more sustainable planet for future generations.

The current landscape of lubricants
Modern lubricants, typically derived from refined hydrocarbons, made from highly refined petroleum base stocks from crude oil. These play a critical role in maintaining the performance of machinery by reducing friction, enabling smooth operation, preventing damage and wear. However, most of these lubricants; derived from finite petroleum resources pose an environmental challenge once used and disposed of. As industries become increasingly conscious of their environmental impact, the paramount importance or focus is shifting towards reducing the carbon footprint and maximising the lifespan of lubricants; not just for environmental reasons but also to optimise operational costs.
During operations, lubricants often lose their efficacy and performance due to contamination and depletion of additives. When these oils reach their rejection limits (as they will now offer poor or bad lubrication) determined through laboratory testing, they are typically discarded contributing to environmental contamination and pollution.
But here lies an opportunity: Used lubricants can be regenerated and recharged, restoring them to their original performance level. This not only mitigates environmental pollution but also supports a circular economy by reducing waste and conserving resources.

Circular economy in lubricants
In the world of industrial machinery, lubricating oils while essential; are often misunderstood in terms of their life cycle. When oils are used in machinery, they don’t simply ‘DIE’. Instead, they become contaminated with moisture (water) and solid contaminants like dust, dirt, and wear debris. These contaminants degrade the oil’s effectiveness but do not render it completely unusable. Used lubricants can be regenerated via advanced filtration processes/systems and recharged with the use of performance enhancing additives hence restoring them. These oils are brought back to ‘As-New’ levels. This new fresher lubricating oil is formulated to carry out its specific job providing heightened lubrication and reliable performance of the assets with a view of improved machine condition. Hence, contributing to not just cost savings but leading to magnified productivity, and diminished environmental stress.

Save oil, save environment
At Global Technical Services (GTS), we specialise in the regeneration of hydraulic oils and gear oils used in plant operations. While we don’t recommend the regeneration of engine oils due to the complexity of contaminants and additives, our process ensures the continued utility of oils in other applications, offering both cost-saving and environmental benefits.

Regeneration process
Our regeneration plant employs state-of-the-art advanced contamination removal systems including fine and depth filters designed to remove dirt, wear particles, sludge, varnish, and water. Once contaminants are removed, the oil undergoes comprehensive testing to assess its physico-chemical properties and contamination levels. The test results indicate the status of the regenerated oil as compared to the fresh oil.
Depending upon the status the oil is further supplemented with high performance additives to bring it back to the desired specifications, under the guidance of an experienced lubrication technologist.
Contamination Removal ? Testing ? Additive Addition
(to be determined after testing in oil test laboratory)

The steps involved in this process are as follows:
1. Contamination removal: Using advanced filtration techniques to remove contaminants.
2. Testing: Assessing the oil’s properties to determine if it meets the required performance standards.
3. Additive addition: Based on testing results, performance-enhancing additives are added to restore the oil’s original characteristics.

On-site oil testing laboratories
The used oil from the machine passes through 5th generation fine filtration to be reclaimed as ‘New Oil’ and fit to use as per stringent industry standards.
To effectively implement circular economy principles in oil reclamation from used oil, establishing an on-site oil testing laboratory is crucial at any large plants or sites. Scientific testing methods ensure that regenerated oil meets the specifications required for optimal machine performance, making it suitable for reuse as ‘New Oil’ (within specified tolerances). Hence, it can be reused safely by reintroducing it in the machines.
The key parameters to be tested for regenerated hydraulic, gear and transmission oils (except Engine oils) include both physical and chemical characteristics of the lubricant:

Kinematic Viscosity
Flash Point
Total Acid Number
Moisture / Water Content
Oil Cleanliness
Elemental Analysis (Particulates, Additives and Contaminants)
Insoluble

The presence of an on-site laboratory is essential for making quick decisions; ensuring that test reports are available within 36 to 48 hours and this prevents potential mechanical issues/ failures from arising due to poor lubrication. This symbiotic and cyclic process helps not only reduce waste and conserve oil, but also contributes in achieving cost savings and playing a big role in green economy.

Conclusion
The future of industrial operations depends on sustainability, and reclaiming used lubricating oils plays a critical role in this transformation. Through 5th Generation Filtration processes, lubricants can be regenerated and restored to their original levels, contributing to both environmental preservation and economic efficiency.
What would happen if we didn’t recycle our lubricants? Let’s review the quadruple impacts as mentioned below:
1. Oil Conservation and Environmental Impact: Used lubricating oils after usage are normally burnt or sold to a vendor which can be misused leading to pollution. Regenerating oils rather than discarding prevents unnecessary waste and reduces the environmental footprint of the industry. It helps save invaluable resources, aligning with the principles of sustainability and the circular economy. All lubricating oils (except engine oils) can be regenerated and brought to the level of ‘As New Oils’.
2. Cost Reduction Impact: By extending the life of lubricants, industries can significantly cut down on operating costs associated with frequent oil changes, leading to considerable savings over time. Lubricating oils are expensive and saving of lubricants by the process of regeneration will overall be a game changer and highly economical to the core industries.
3. Timely Decisions Impact: Having an oil testing laboratory at site is of prime importance for getting test reports within 36 to 48 hours enabling quick decisions in critical matters that may
lead to complete shutdown of the invaluable asset/equipment.
4. Green Economy Impact: Oil Regeneration is a fundamental part of the green economy. Supporting industries in their efforts to reduce waste, conserve resources, and minimise pollution is ‘The Need of Our Times’.

About the author:
KB Mathur, Founder & Director, Global Technical Services, is a seasoned mechanical engineer with 56 years of experience in India’s oil industry and industrial reliability. He pioneered ‘Total Lubrication Management’ and has been serving the mining and cement sectors since 1999.

Concrete

Charting the Green Path

Published

2 months ago

May 13, 2025

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The Indian cement industry has reached a critical juncture in its sustainability journey. In a landmark move, the Ministry of Environment, Forest and Climate Change has, for the first time, announced greenhouse gas (GHG) emission intensity reduction targets for 282 entities, including 186 cement plants, under the Carbon Credit Trading Scheme, 2023. These targets, to be enforced starting FY2025-26, are aligned with India’s overarching ambition of achieving net zero emissions by 2070.
Cement manufacturing is intrinsically carbon-intensive, contributing to around 7 per cent of global GHG emissions, or approximately 3.8 billion tonnes annually. In India, the sector is responsible for 6 per cent of total emissions, underscoring its critical role in national climate mitigation strategies. This regulatory push, though long overdue, marks a significant shift towards accountability and structured decarbonisation.
However, the path to a greener cement sector is fraught with challenges—economic viability, regulatory ambiguity, and technical limitations continue to hinder the widespread adoption of sustainable alternatives. A major gap lies in the lack of a clear, India-specific definition for ‘green cement’, which is essential to establish standards and drive industry-wide transformation.
Despite these hurdles, the industry holds immense potential to emerge as a climate champion. Studies estimate that through targeted decarbonisation strategies—ranging from clinker substitution and alternative fuels to carbon capture and innovative product development—the sector could reduce emissions by 400 to 500 million metric tonnes by 2030.
Collaborations between key stakeholders and industry-wide awareness initiatives (such as Earth Day) are already fostering momentum. The responsibility now lies with producers, regulators and technology providers to fast-track innovation and investment.
The time to act is now. A sustainable cement industry is not only possible—it is imperative.