Capitalism, Efficiency and the Environment

Many years ago, I "interned" at a sugar factory in India. The factory was owned by Uncle V, my dad's college friend. For some reason, I wanted to go see this factory and ended up spending a fortnight there, looking through the plant layout drawings, goofing off in the maintenance shed and learning the difference between various kinds of gears, lathes and such. I am sure Uncle V was confused as to why I wanted to spend my time this way (I was 13) but luckily he didn't question my thinking. This is what I learned.

Uncle V inherited this factory from his father in the early 1960s. It was the era of "License Raj", when the Indian government kept all the "dirty capitalists" on a tight leash. The prevailing thinking was that small-scale capitalism was okay, it was the large-scale capitalism that would destroy the society. Therefore, many aspects of any factory were tightly controlled by the government including vacation time, salary structure, production capacity and such.

At that time, the incoming sugarcane was crushed, then run through a water shower and crushed again, the juice was split into molasses and sugar syrup and the sugar was crystallized with heat from a coal-fired boiler. The sugar was shipped to the distributors and the molasses was shipped to rum makers and the factory made a nice tidy profit. All of the production was sold, the selling price was controlled by the Indian government and there wasn't really any competition. Most people would have enjoyed the status quo. But Uncle V was not content. He was an engineer at heart and he pushed the people at the factory to make improvements, hoping to increase production or reduce costs.

The very first improvement was to install a third crusher, thus increasing the juice yield. More importantly, the bagasse (the fibrous cane part of the sugarcane) became easier to burn due to less sugar and moisture left behind. Earlier bagasse was simply discarded as waste but now, it started being used for firing the boiler. This made operating the factory cheaper because the coal needs went down dramatically. Another improvement was the installation of a heat exchanger. This is a wonderful piece of machinery that reduces energy needs by pre-heating the incoming water with the heat from the outgoing waste hot gases.

Now, with the new heat exchanger installed, the process improved so much that bagasse started to pile up! Rather than simply throwing it away (as it used to be done earlier), someone figured that it could be put to better use. In the end, the bagasse was used to make cardboard, setting up a small sister factory next door.

The fact to remember out of all this is that Uncle V was not doing this out of the goodness of his heart. He didn't have any pro-environment protesters at his doorstep demanding that he reduce his coal usage. I am sure that in those days he hadn't even heard of global warming. He did all this to improve the profitability of his factory. He did it to save money.

Today, many commentators and politicians are portraying green technology as a zero-sum game. They think that becoming more green can only mean more costs. However, this is not true. Everything a factory consumes costs money and it is financially smart to use the inputs more efficiently.

Last I heard, Uncle V was trying out a bonus program that gave sugarcane growers more for their crop if the sugar content in the sugarcane was high. I am sure this would create a whole set of incentives for the growers that would help Uncle V improve the efficiency of his sugar plant...