Economics WDYT

[2860] Guess the 3Q17 Malaysian GDP growth

The Malaysian GDP has been growing strongly so far this year. So strong, that a lot of economists and institutions had to revise their 2017 projections significantly.

The growth has been partly due to consumption recovery that took a tumble thanks to the GST, and partly due to strong trade figures (though this is true for the second quarter only). You can see the actual contribution of each component to the GDP below:

Industrial production rose about 6.0%-6.8% YoY in the third quarter, which is quite respectable. The September numbers are not out yet but I do not expect it to be bad. The fourth quarter could be a different story with all the major flooding happening, especially in Penang which is an industrial powerhouse in Malaysia. And we are not yet done with November. I am unsure how the major Penang industrial spots are affected but it does not seem like the disastrous Bangkok-style 2011 flooding. But at the very least, several production days could have been affected just because of labor and commuting issues.

This monsoon season feels stronger than usual but I probably should look at the rainfall data first before making that statement. Unfortunately, data at the Met Department is… not really forthcoming. But this is one negative impact of climate change on GDP growth. Addressing climate change for Malaysia might not be easy since our emission contribution is not big compared to other countries, but we can do our part by keeping our jungle healthy and perhaps, institute a carbon tax or at least a tax on petrol.

Trade figures continue to be outrageously strong. Total trade has been growing at double digits since December last year. There is no temporary “base effect” and instead there is a level shift, as you can see in the second chart. More relevantly, net exports are strong too.

You might say, “but these are in nominal prices!” Well, the same level shift is also visible in export and import indices that strip price effect out. So, it is real (Get it? Did you get it?).

But the double-digit yearly growth on the nominal part will not last, and so this I agree with Mr Econsmalaysia. Eyeballing the levels, December sounds like the time when the double-digit growth phenomenon will end. But, that also means, Penang flooding notwithstanding, trade would likely have a positive effect on the GDP in the fourth quarter.

Anyway, the labor market and core inflation appear stable despite the relatively strong GDP growth so far this year. Meaning, no overheating yet.

The Department of Statistics will release the GDP figures on Friday. So…

How fast do you think did the Malaysian economy expand in 3Q17 from a year ago?

  • 4.5% or slower (10%, 1 Votes)
  • 4.6%-5.0% (10%, 1 Votes)
  • 5.1%-5.5% (20%, 2 Votes)
  • 5.6%-6.0% (40%, 4 Votes)
  • 6.1%-6.5% (20%, 2 Votes)
  • Faster than 6.5% (0%, 0 Votes)

Total Voters: 10

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Economics Environment

[2137] Of 40% cut in carbon intensity may not be something to shout about

Bernama wrongfully reported that the Prime Minister of Malaysia, Najib Razak, put up a conditional offer to cut 40% of Malaysia’s 2005 carbon emissions by 2020.[1] The same goes with the New Straits Times, except it did it more badly by not directly quoting the Prime Minister.[2] This is sloppy reporting. The truth is that it is a conditional cut of 40% to Malaysia’s carbon emissions intensity in terms of GDP within the base and time frame mentioned. Regardless of the inaccuracy, is the cut impressive?

The size of the cut seems big but cutting carbon emissions intensity is a lot easier than cutting outright carbon emissions; a cut in emissions is more expensive than a cut in carbon intensity. Achieving 5% cut as demanded by Kyoto is a lot harder than 5% cut in carbon intensity. The difference is clearer when one takes note that emissions itself can increase even under a situation of decreasing carbon intensity.

A demostration is in order. The most convenient way of showing this is by using intensity per capita as a unit rather than per GDP. In order words, this refers to emissions per person.

Assume that the emissions per person is 2 and there are a total of 10 persons in a neighborhood. The total emissions is therefore 20.

Assume further than emissions per person improves to 1.5 and total population increase to 15. Total emissions gets worse: it is now 22.5.

A cut in emissions will address total emissions. A cut in carbon intensity does not guarantee that.

A concrete example is the United Kingdom. According to the National Environmental Technology Centre of the UK, total emissions fell slightly between 1990 and 2005. Carbon intensity? It fell more or less by 40%. [3]

Hence, the act of stressing the difference is not a matter of splitting hair.

Carbon intensity has the tendency to decrease over time due to application of technology. The typical criticism directed at any commitment at reducing carbon intensity is that even without such commitment, carbon intensity will decrease anyway. This is especially true for developing countries where there is a lot of space for technological improvement through by merely copying.

Given this, the Prime Minister’s conditional offer is not something to shout about. China also made an offer to cut carbon intensity and it has been rightly criticized for trumpeting an unremarkable target and then demanding moral authority at the negotiation table in Copenhagen during the 15th Conference of the Parties that ended recently.

(Despite this tendency, Malaysia’s carbon intensity between 1990 and 2004 increased. I suspect a Kuznets curve.[4] The ratio may increase up to a certain level before decreasing. Malaysia after all was industrializing during the 1990s and now, Malaysia is largely done with industrialization.)

It should only be seen as a brilliant diplomatic maneuver and not a big effort at cutting emissions. It is brilliant not just because that the commitment is very likely to be achieved anyway and thus, making the offerers look good, it is brilliant because it makes demand for aid — and making the exercise cheaper than it would — even when the cut in carbon intensity is very likely to be achieved without any binding commitment.

This is not to dismiss the importance of cut in carbon intensity. I myself believe that technology is the answer to climate change but it is important to get the right message across while the Malaysian mass media failed the public miserably.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — COPENHAGEN, Dec 17 (Bernama) — Malaysia has agreed to reduce its carbon dioxide emission to 40 per cent by the year 2020 compared to the 2005 levels subject to assistance from developed countries.

Prime Minister Datuk Seri Najib Tun Razak said the cut was conditional on receiving the transfer of technology and adequate financing from the developed world.

“I would like to announce here in Copenhagen that Malaysia is adopting an indicator of a voluntary reduction of up to 40 per cent in terms of emissions intensity of GDP (gross domestic product) by the year 2020 compared to 2005 levels,” he said in his speech at the United Nations Climate Change Conference 2009 here, on Thursday,

United Nations data shows Malaysia’s carbon emissions in 2006 stood at 187 million tonnes or 7.2 tonnes from each Malaysian. [Malaysia Announces Conditional 40 Per Cent Cut In Emissions. Bernama. December 17 2009]

[2] — PM Najib says Malaysia is committed to do its best in combatting climate change.

MALAYSIA will voluntarily slash by up to 40 per cent her carbon emission by 2020 compared with 2005 levels.

Prime Minister Datuk Seri Najib Razak, who made this commitment yesterday, said the cut was part of Malaysia’s contribution to global efforts to combat climate change. [40 per cent reduction of carbon emission by 2020. Mimi Syed Yusof. New Straits Times. December 18 2009]

[2] — COPENHAGEN: A roadmap towards realising the 40% reduction of carbon emission per capita from the 2005 level by 2020 will be presented to the Cabinet soon. [40 per cent reduction of carbon emission by 2020. Mimi Syed Yusof. New Straits Times. December 18 2009]

[3] — [Page 18 and 19. Carbon dioxide emissions and energy consumption in the UK. The National Environmental Technology Centre]

[4] — See Kuznets Curve at Wikipedia. Accessed on December 25 2009.

Economics Environment

[2131] Of compensation yes but there are concerns

It appears that Malaysia and other similar countries with significant forest cover may end up as winners out of the ongoing 15th Conference of the Parties to the United Nations Framework Convention on Climate Change in Copenhagen. Whether these set of countries will be net winners are another matter altogether but as far as compensation for maintaining forest cover, or within the context of COP15, carbon sink goes, reports are coming out that this is one aspect that is going pretty well.[1]

The economics behind such compensation is as sound as the economics behind carbon tax or cap and trade. It is about pricing externality.

The difference between such compensation and carbon tax or cap and trade is that the former addresses positive externality while the latter addresses negative externality. That is in econolese. In English, it means paying someone for doing something that affects others in a good way and penalizing someone for doing something that affects others in a bad way. It is about accounting for spillover effect. In a way, it is a full cost accounting.

While I am excited at seeing an economic theory being put into practice, I am curious at how exactly will it be implemented. The biggest issue here is related to opportunity cost. The compensation will have to be big enough to address the problem of opportunity cost faced by owners of forest.

Some forested land may not be opened even without compensation. That put the opportunity cost of such land very low. I would imagine, some countries would not admit to that and instead, would overestimate their opportunity cost. It is not hard to come up with a plan to open up new land, project its economic value to some monstrous value that could be outrageous compared to actual situation and have that as the opportunity cost.

I know, forest has its inherent value. I am sympathetic to that argument. Inherent value however is hard to measure, and no one will pay for it despite all the sound moral argument defending it. The best way to price forest by its concrete opportunity cost: what other alternatives are possible to have a covered land and what is the value of that alternatives?

While I do support such compensation, these concerns must be resolved conclusively. Else, the arrangement will be a farce that only redistribute wealth unfairly.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — COPENHAGEN — Negotiators have all but completed a sweeping deal that would compensate countries for preserving forests, and in some cases, other natural landscapes like peat soils, swamps and fields that play a crucial role in curbing climate change. [Climate Talks Near Deal to Save Forests. Elisabeth Rosenthal. New York Times. December 15 2009]

Economics Environment Politics & government

[2123] Of Abbott’s plan is suspiciously boilerplate-like

Climate change has been very much the heart of Australian politics at the federal level for the past few months. It is the source of intense debate between the Labour government and the Coalition opposition. Within the Liberal Party itself, the proposed cap and trade arrangement has divided the party. Tony Abbott successfully replaced Malcolm Turnbull as the new Liberal leader exactly because of this issue.

The Turnbull fraction is prepared to work with the Rudd government on the cap and trade proposal. Others, perhaps, now called the Abbott fraction, do not. With Turnbull out and Abbott in, the cap and trade proposal has been scuttled in the Australian Senate.

On the front page of The Australian yesterday, Abbott made known a curious position. He accepts the challenges climate change poses and he accepts emission targets that Turnbull agreed to. What he rejects is any introduction of tax, as direct as carbon tax or as indirect as cap and trade scheme. In his own words, “[t]he Coalition will not be going to the election with a new tax, whether it’s a stealth tax, the emissions trading scheme, whether it’s an upfront and straightforward tax like a carbon tax.” In its place, he proposes implementing “land management and energy efficiency measures.”[1]

This is a curious position because I am grappling to see how his plan could achieve the reduction target he agreed to. Land management and efficiency measures sound like a boilerplate idea that lacks substance.

Despite actual inferiority of cap and trade to carbon tax, if done properly, it could be as effective as the simpler carbon tax. Land management and efficiency measures on the other hand will demand maneuver more complex than cap and trade.

In fact, complexity of a scheme makes it more susceptible to higher probability of failure. That happened in Europe with its version of cap and trade. One major feature that is attributable to European failure is the granting of free permits. Free permits arrangement is present in Rudd government’s proposed cap and trade scheme.[2]

Furthermore, Abbott’s measures appear similar to the Bush administration’s proposal of encouraging development of technology to address the need to manage carbon emissions in form of the probably now forgotten Asia-Pacific Partnership for Clean Development and Climate.[3]

Technology is indeed the golden bullet. It can reduce emissions given a unit of activity. Of course, the technology is out there: carbon sequestering, micro mirror in space, the spraying of aerosol in the atmosphere, nuclear power, wind, solar, etc. But which one?

That is the weakness of Bush’s proposal.

Any proposal has to be concrete with implementable actions, Abbott’s measures are mere boilerplate. It lacks substance. It lacks actual implementable measures.

Boilerplate solution is sorely inadequate.

Perhaps it is unfair to criticize Abbott’s measures since it is still early days. After all, he is less than a week old as the new leader of the Liberal Party and as the Opposition Leader. It may be only fair to give him the opportunity to think and present his idea more thoroughly.

Unfortunately, time is running out. This is not a tired old green rhetoric. Election may loom and the Liberals risk further marginalization if there are no concrete alternative solutions, especially since the new Liberal leader accepts the need for action.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — TONY Abbott plans to fight a climate change election using land management and energy efficiency measures to slash greenhouse emissions instead of an emissions trading scheme or a carbon tax.


Pressed for an alternative, he said the Opposition remained committed to an unconditional target of reducing emissions by 5 per cent by 2020 but would not embrace an ETS or a carbon tax. He said there were “lots of things” that could be done to reduce emissions through other means, many not involving significant costs.

These included more energy-efficient buildings, better land management and biosequestration. NSW Nationals Senator John Williams claimed Australia could offset 100 per cent of its carbon emissions for 100 years by lifting soil carbon by 3 per cent.

Mr Abbott also said he would welcome a debate on the use of nuclear energy, although he did not think it was a short-term option.

“The Coalition will not be going to the election with a new tax, whether it’s a stealth tax, the emissions trading scheme, whether it’s an upfront and straightforward tax like a carbon tax,” he said “We’ll have a strong and effective climate change policy, we’ll have it early in the new year,” he said. [Tony Abbott’s tax-free carbon plan. Matthew Franklin. The Australian. December 3 2009]

[2] — See Carbon Pollution Reduction Scheme at Wikipedia. Accessed December 4 2009.

[3] — The world’s four largest coal-consuming countries have announced a pact to share technology for limiting emissions of greenhouse gases. The US, China, India, Australia – plus Japan and South Korea – signed what is being seen as a rival to the Kyoto Protocol to curb climate change, which the US and Australia have refused to sign.

The new pact will be known as the Asia-Pacific Partnership for Clean Development and Climate. It allows the countries to set their own goals for emissions of greenhouse gases, with no enforcement measures. This is in contrast to the Kyoto Protocol, which requires industrial nations to accept legally binding emissions targets. [US-led emissions pact seen as Kyoto rival. Fred Pearce. Newscientist. July 28 2005]

Environment Politics & government

[2114] Of the Liberals are in such a mess

I cannot help but laughed out loud after reading these sentences.

Of all the extraordinary things on display in the past 48 hours in Canberra, two stand out.

The first is Malcolm Turnbull’s chutzpah. The second is his extraordinary lack of political guile. [Nothing to crow about. Laura Tingle. The Australian Financial Review. November 26 2009]