Musk for clean power, but Tesla has bitcoin’s dirty baggage

Tesla boss Elon Musk is a poster child of low-carbon technology. Yet the electric carmaker’s backing of bitcoin this week could turbo-charge global use of a currency that’s estimated to cause more pollution than a small country every year.

Tesla revealed it had bought $1.5 billion of bitcoin and would soon accept it as payment for cars, sending the price of the cryptocurrency though the roof. So what’s the problem, you may ask? Bitcoin’s virtual, so it’s not like it’s made from paper or plastic, or even metal.

The digital currency is created when highpowered computers compete against other machines to solve complex mathematical puzzles, an energyintensive process that currently often relies on fossil fuels, particularly coal, the dirtiest of them all. At current rates, such bitcoin “mining” devours about the same amount of energy annually as the Netherlands did in 2019, the latest available data from the University of Cambridge and the International Energy Agency shows.

Bitcoin production is estimated to generate between 22 and 22.9 metric tons of carbon dioxide emissions a year, or between the levels produced by Jordan and Sri Lanka, according to a 2019 study in scientific journal Joule. The landmark inclusion of the cryptocurrency in Tesla’s investment portfolio could complicate the company’s zeroemissions ethos, according to some investors, at a time when ESG environmental, social and governance - considerations have become a major factor for global investors.

“We are of course very concerned about the level of carbon dioxide emissions generated from bitcoin mining,” said Ben Dear, CEO of Osmosis Investment Management, a sustainable investor managing around $2.2 billion in assets that holds Tesla stock in several portfolios. “We hope that when Tesla’s bitcoin ventures are over, they will concentrate on measuring and disclosing to their market their full suite of environmental factors, and if they continue to buy or indeed start mining bitcoin, that they include the relevant energy consumption data in these disclosures.” Tesla did not respond to a request for comment.

Still, it’s not all eco-doom and gloom, and Tesla’s bet on bitcoin comes amid growing attempts in the cryptocurrency industry to mitigate the environmental harm of mining.

This movement could be advanced by Musk, who this week separately offered $100 million for inventions that could pull carbon dioxide from the atmosphere or oceans. The entrance of big corporations into the crypto market could also boost incentives to produce “green bitcoin” using renewable energy, some sustainability experts say. They add that companies could buy carbon credits to compensate too.

Yet in the shorter term, Tesla’s disclosure of its bitcoin investment, made in a securities filing, could indirectly serve to exacerbate the environmental costs of mining. Other companies are likely to follow its lead by buying into the currency, investors and industry experts say. Greater demand, and higher prices, lead to more miners competing to solve puzzles in the fastest time to win coin, using increasingly powerful computers that need more energy.

The inclusion of the crypto in Tesla's portfolio could complicate the company's zero-emissions ethos, according to some investors, at a time when ESG considerations have become a major factor for global investors

In her Budget speech, Finance Minister Nirmala Sitharaman had implied that the public sector would vacate the traditional Nehruvian commanding heights of the economy with the private sector stepping in to take up the slack.

This is the basic interpretation of Ms Sitharaman’s statement that the government would minimise the presence of the central government public sector enterprises and create “new investment space for the private sector”. Central to the policy would be classifying sectors as strategic and non-strategic and ensuring a “bare minimum” public sector presence in the former.

If this policy is followed through, it implies an unprecedented transfer of assets and national wealth to the private sector. Ms Sitharaman later swatted away the opposition charge that the government was selling the “family silver” by insisting that the policy was actually strengthening it.

The “family silver” argument is a tired one to be sure, but doubts about the galvanic properties of the Indian private sector are valid. Though the public sector’s command did not exactly make India an economic powerhouse, the question is whether the private sector can do the trick now.

On the reckoning of the immediate past, the prognosis is not that great. For all the excitement at the prospect of being “world class in India” — the hopeful title of book written by three management doyens in 2001 — it is fair to say that the early corporate promise of liberalisation has remained largely unfulfilled, more so when judged on three parameters: Innovation, employment and governance.

The IT and ITES revolution that put India on the world map was powered by the provision of lowvalue services. Don’t knock that — it is thrilling to see, say, the name of Infosys emblazoned at stadiums as the IT services provider for Grand Slam tennis tournaments or World Cup Football. But these small triumphs do not disguise the fact that the domestic IT industry is scarcely the epicentre of game-changing innovation.

This innovation-lite descriptor applies to the many Unicorns that have emerged during the pandemic too. Attracting large PE investments for building businesses built on purveying, say, education services or payments online is more a testimony to the operational capabilities of these entrepreneurs — no small achievement in India’s chaotic business environment — than their innovative capacities.

As for the innovation competences of the rest of industry, here is a small comparison. Japan gave to the world concepts such as Just-in-time and Kaizen, which have become standard for every large global manufacturer. India has so far bequeathed jugaad ,a concept that yielded many admiring books but few emulators.

Nor can the Indian private sector be considered a major job creator. The IT and ITES industry accounts for about 8 per cent of India’s GDP but employs a little over four million professionals — less than a drop in the ocean of 400 million-plus workers. So the hoopla surrounding this sector may be overdone even accounting for the multiplier effect.

Though the private sector has overtaken the public sector in terms of job creation, the scale of operations of even the giants in Indian business has not been large enough to alter employment dynamics the way China has managed. Their owners don’t schmooze at industry association meets or grace prime ministerial advisory bodies, but small and medium companies form the numerical bulk of Indian enterprise still.

Anyway, if private entrepreneurs get their hands on more public sector companies, expect a massive downsizing of bloated workforces (a fate that awaits Air India, for example). And given the chronic problems of dealing with large workforces (which new laws are unlikely to change), a visit to any modern shop-floor immediately reveals how large enterprises are increasingly demonstrating a marked preference for robots.

That leaves governance, and it’s hard to know where to begin the litany of shortcomings, most of which stem from the domination of family-managed corporations. This form of ownership should not, prima facie, make a difference to the quality of governance. But somehow, it has. In India, at least, it has reduced the accountability of professional management and, most of all, narrowed the ambit of talent and employment. The pitfalls of speaking truth to promoter power has been spectacularly on display in the Tata-mistry imbroglio these past few years.

Nor has the private sector been a beacon of social change. A quick look at the top- and second-rung management reveals the upper caste, religious and gender biases of India Inc’s hiring . It is not as though the public sector has been a model of affirmative action but the private sector has even less to boast about. For instance, Muslims account for just 6 per cent of the private sector workforce and less than 3 per cent of senior management — a situation that obtained well before the advent of a Hindu majoritarian regime at the Centre. Companies ingenuously ascribe their hiring preferences to a lack of adequately qualified scheduled castes, Muslims and women. This may hold for the first two categories but is patently untrue for the women.

Perhaps the government’s ostensible intention to direct its energies to public education and health once it exits the business of business will make a difference to the employability of those communities that have been left behind in the socio-economic stakes all these years. But we’ve heard all these resolutions before — in the last decade of the last century, in fact — so don’t hold your breath.

Credit-risk schemes have recorded the first month of positive flows since at least April 2019, when industry body Amfi started publishing data for various subcategories of mutual fund schemes.

In January 2021, creditrisk funds saw a net inflow of ~366 crore, a sign that investors have once again developed risk appetite for the product which was made unpopular by the crises at IL&FS in 2019 and Franklin Templeton Mutual Fund’s decision to wind up six debt schemes last year.

Credit-risk funds are debt schemes that take significant exposure (at least 65 per cent) to not-so-highly rated companies (AA and below) with an aim to generate higher returns.

Market players said several investors are now looking at these products as real rates on bank fixed-deposits and top-quality bonds have turned negative. Also, there is optimism that the expected recovery in the economy will help alleviate stress.

“The overall credit market has seen significant stress in the last two-and-ahalf years due to the collapse of IL&FS, weak economic growth, and tight monetary policy. But the RBI started easing monetary policy from 2019, and we are seeing benefits coming to the corporate sector now. I think, given the scenario, there is an opportunity for investors to start participating in non-aaa-rated papers,” said R Sivakumar, head-fixed income at Axis Mutual Fund.

The data from Association of Mutual Funds in India (Amfi) showed that in the period between April and December last year, credit risk funds saw net redemption of ~28,289 crore, with April alone witnessing net redemption of ~19,238.98 crore.

“The net outflow from the category has been showing signs of moderation over the last few months, which eventually resulted in net inflow this month. This was an important development as it showed that investors were gradually getting their risk-appetite back, which was severely impacted after the debt crises during March-may period last year,” said Himanshu Srivastava, associate director-manager research, Morningstar India.

Credit-risk funds had been giving returns in the range of 5- 10 per cent in the past one year. Market players said such returns would draw investor interest as returns in other debt categories were even lower.

“Low rates on bank FDS and Aaa-rated corporate bonds have been below inflation rates. So, one must go long on duration or take some credit to get real positive returns (returns which are higher than inflation). This is also the reason why investors have invested in other fixed income instruments like credit-risk funds,” said Sivakumar.

Market participants said steps taken by the government and the Reserve Bank of India (RBI) since the outbreak of the virus have also helped non-aaa rated corporates improve their financial condition. Fund managers also said that regulatory changes helped improve liquidity and boosted investor confidence.