It’s that time of year when we reach into our listener mailbag and answer your questions. And you had some good ones. In this episode, Shayle once again hands the mic to guest host VP of energy at GreenBiz, Sarah Golden. Together they cover things like:
- The role of biology in creating fossil-fuel-free materials
- Whether the marginal cost of electricity is heading toward zero
- Solving the dilemma of financing first-of-a-kind projects
- The impact of tech layoffs on climatetech
- The biggest roadblocks to decarbonization
- What role battery recycling will play in addressing the shortage of lithium and other critical minerals
Full Transcript:
SPEAKERS
Sarah Golden, Shayle Kann
Shayle Kann
I’m Shayle Kann, and this is Catalyst. This week, battery recycling, fertilizer, roadblocks to decarbonization, and much, much more. We dug into the mailbag, and I’m answering all your questions big and small, about the world of climatetech. I’m Shayle Kann. I’m a partner at the venture capital firm Energy Impact Partners. Welcome. Okay, so around, I’m told nine months ago, or so I had guests 18 months, but just goes to show you that I have no concept of time at the moment. Around nine months ago, we did our first ever mailbag episode of this show or “ask me anything” if you would use Reddit terminology on the show. And my guest, or I guess I was the guest. And my questioner was my friend Sarah Golden, who is the VP of energy at GreenBiz. And that episode came about because Sarah had texted me telling me that we should do an “ask me anything” where she should ask me questions because of a number of reasons. One of which I will note was our world-renowned rapport, or maybe you said, just renowned rapport, and I’m assuming that you meant world renowned. So Sarah, you’re back. Hello, welcome back.
Sarah Golden
Hello. Happy to be back.
Shayle Kann
Do you think that our rapport lived up to the standard that you set for it when you texted me last time?
Sarah Golden
Specifically during the recording of the podcast last time?
Shayle Kann
You mean as opposed to just like our general rapport? Yes. That’s a good point. Yeah. No, I mean, specifically on the podcast.
Sarah Golden
You know, I did not really listen to the podcast. Sometimes I get weird about hearing myself talk. Do you really listen to the podcasts that you record?
Shayle Kann
Occasionally I do. But it’s usually – I agree with you, nobody likes listening to themselves, or watching themselves, give speeches or anything like that. I do it sometimes because in really meaty episodes where there’s actually like, a lot of insight in the moment, whereas I’m having the conversation I blank out. And so at the end of it, I’ll be like, “Man, that was an awesome discussion about ammonia, I wish I had heard any of it.” And so occasionally I’ll go back and listen again. But usually I don’t. I don’t think I listened to this one again.
Sarah Golden
Yeah, it would be a wonderful practice for me to do because I always learn a lot when I listen to myself speak. But I did not do that for ours, and I just trust that it came through. One thing about these is that I wake up to just roll out of bed and do these. So I think one thing I noticed last time I did, I was still on my first cup of coffee. I don’t know what cup of coffee you are on at that point. So hopefully, you know, I can live up to the liveliness of your caffeinated state
Shayle Kann
How’s your caffeine calibration right now?
Sarah Golden
Still on my first cup.
Shayle Kann
All right, welcome back, we’ll see if we can top however good our report was last time we got to top at this time. And like last time, I’m gonna hand it over to you. We’ve solicited questions from our audience for the past couple of weeks, and you’ve got a list in front of you. So I’m happy to pretend to be an expert on a bunch of things for the next 45 minutes or so.
Sarah Golden
Great. The first is from Mike Hogan, PhD. So Mike sees a clearer way chemists and physicists can contribute to climate tech. But Mike is a basic biologist. So he wrote in, what are the challenges in green tech that you think are best solved with a biological solution? And in particular, he’s talking about molecular biology and genetic engineering?
Shayle Kann
Oh, that’s very specific. I mean, I guess I’ll answer a broader question about biology. I’ve for a while wanted to do I think it will do this at some point, a deeper conversation, particularly pitting not that they’re actually in opposition to each other, but pitting biology against electrochemistry. Because I think there are a bunch of places in in decarbonization, where there electrochemical pathways to do something and their biological pathways to do something, and they’re sort of competing with each other, at least in some cases. On biology specifically, I mean, there are some clear areas within, quote unquote, “climatetech” that like biology is well suited, right? So acceleration or improvement of existing biological processes being the obvious one. So take nature-based solutions for carbon removal and stuff like that. Everything to do with agriculture, like those are all categories that are inherently biological and biology obviously has a big role to play to help solve those. Beyond that you can look at more slightly more esoteric, but also really important from a climate perspective things. So using biology to change animal feed. I guess it falls into the agriculture bucket. And then you get into some categories that I think are interesting and where there starts to be this emerging battle between biology and other disciplines. So take chemicals, for example. So there are a bunch of companies that are using synthetic biology approaches to produce commodity chemicals is that in a way that does not use they’re not petrochemicals, doesn’t use petroleum as a feedstock and potentially doesn’t use as much energy in the process. So you’re reducing emissions that way. What we’ve seen so far is some companies having a lot of success producing more complex chemicals that are higher value, but smaller volume commodities. So Solugen would be the sort of classic example this. This is a private venture backed company with a, I don’t know, $3 billion valuation or something like that, at this point. They’re producing a bunch of chemicals, using synthetic biology that are chemicals you probably haven’t heard of, generally. And the question is, can they or others produce the chemicals that you have heard of: the really big commodity chemicals that are less complex, but huge markets and where the big emissions impacts come from? So we’re talking about stuff like ethylene and propanol, a bunch of these big commodity chemical categories, which are much bigger markets, bigger decarbonization impact, ultimately, but less complex molecules to create and processes where sort of traditional chemical refining, and or potentially electrochemical processes might be better suited. So anyway, it’s a long answer the question, I think biology is best where biology already exists, or where biology can create a really great alternative. And the other category, I guess, worth mentioning for for bio approaches and climate is food, alternative protein, you know, cellular agriculture, all that kind of stuff. That’s all biology, clearly. And then the final one, I’ll note back in agriculture world is, you know, you mentioned I think, gene editing, there’s a lot going on there in climate resilience land, as opposed to climate mitigation, land, right. So drought-resistant crop production, that kind of thing. Those are a big deal if you include resilience in your sort of category of climate solutions, which some do, and some don’t. And obviously there biology also has a big role to play.
Sarah Golden
I saw recently that you tweeted about geoengineering and the Mexican Ministry of the Environment that moved to block solar geoengineering experiments. So where do you see the state of geoengineering right now?
Shayle Kann
Oh, man, it’s been such a wild ride in that little corner of the universe for the past few months. So we did one episode on solar geoengineering a while ago here. So anybody who hasn’t listened to that one absolutely should. It’s totally fascinating, and sort of mind blowing. There’s just a ton we don’t know about solar geoengineering. But one of the things that we do know as pretty likely is that it’s possible you could do solar radiation management that would deliver substantial reduction in warming for a very, very, very low cost relative to all the other approaches that we’re seeing out there, particularly this emergent world of carbon removal. And that has been known for some time, but it comes with these gigantic caveats, which are: there are unknown ecological effects; there’s a huge geopolitical concern; if it’s that cheap and easy to do, how do you control who does it and how much of it and all this kind of stuff, so there’s only been questions. And the science has been plodding along. And there’s a good debate that there should be a lot more funding for that science, but people are worried about it because if once you kind of let the cat out of the bag, then it’s tough to put it back in. Meanwhile, along has come a few a small number of private semi-venture-backed startups – I don’t want to call them truly venture backed startups because I don’t really think any of them have received mainstream venture capital funding yet – but there’s one in particular, called Make Sunsets has the approach of “we’re just gonna do it. We’re really not concerned with all the concerns about it. We’re not going to like build stakeholder consensus, we’re literally just going to do it.” And they did it on a very, very small scale in Mexico. And then they went public about it and it got some news. Not as much as I think it could have if people appreciated what you know the potential ultimate impact of it, but it got some news, and MIT Tech Review wrote a really good article about it. It’s sort of like saying, “Wait a second, like these guys are, they’re just doing it. And this is dangerous.” And because they did it in Mexico, then the Mexican government, I think, was the first one to act in response to that, which is what you’re referring to. And they are looking at banning it as a practice, which I think is probably the right thing for the moment, and probably is what any reasonable government would do, if somebody just showed up and said, “Hey, we didn’t ask you for anything, we didn’t get a permit there. In fact, there are no permits for this kind of thing yet. But what we’re going to do is spread a bunch of aerosol into the stratosphere and see if we can create a cooling effect on the planet.” So I don’t know where it goes from here, but I think a swift regulatory or political backlash to like totally unfettered solar geoengineering is probably the right thing.
Sarah Golden
Sounds right. Next question is from Benjamin Tincq. So Benjamin works at Marble Climate. Do you know about Marble Climate?
Shayle Kann
I do. I know Benjamin.
Sarah Golden
Oh, great. I had never heard of it. It sounds like a cool organization, and it’s described as a place that builds deep tech startups that slash emissions, remove carbon and cool the planet. So my first question is, what is a deep tech startup? And to be clear, that’s not the question from Benjamin. That’s just from me, what is a deep tech startup?
Shayle Kann
It’s so funny. So that’s often the term that I use in describing what I do, right? So my job is not this podcast, my job is at EIP, and I lead this fund we call our Frontier Fund, which when I’m describing it in shorthand, I say it’s our deep tech Climate Fund. And then occasionally, somebody asks me the question you just asked, which is what is deep tech. And deep tech is a term I’d say that has sort of taken hold in Silicon Valley circles, but often means something a little bit different than what I mean it to be. I also don’t think there’s a perfect definition in Silicon Valley world. You know, it means sort of like, you could think of it as being sort of frontier tech. But in Silicon Valley world, that can also mean things like next generation ML. You know, I think some people were calling some of the stuff that you’re seeing now with generative AI, like six months ago, people call that deep tech and now they probably don’t.
Sarah Golden
What’s ML?
Shayle Kann
Oh, I’m sorry, machine learning. So machine learning, AI, all the next-generation computing stuff like quantum computing, all that, people would have bucketed into deep tech. In my context, in the climate context, I mostly mean hardware, like physical stuff and true technological innovation on physical stuff. So like something that has not been done before, that is physical in nature. That’s atoms not bits, generally, is what I mean by deep tech. But the more techie it is, the more deep tech it is, is another way to think about it.
Sarah Golden
Okay, well, here’s the actual question from Benjamin: why aren’t there more investors launching an innovative project finance shop? There’s nothing in Europe. Are there new ones in the US outside of the usual suspects?
Shayle Kann
So that is a very good question, I think. Project finance has long been the biggest challenge for a lot of these deep tech or hard tech companies bringing new products to market, within climate and energy and so on. And I think that there’s a part of it that is fairly well solved. And there’s a part of it that is definitively not solved. It is very well solved if you have a pretty mature technology with a good operating history and customers who are bankable and financial structures that are well known, like project finance, for renewables, for example. And even for grid-scale battery storage and stuff like that. It’s just infrastructure finance, now. It’s available, the cost of capital is not high, you could argue it could be a little lower, but it’s infrastructure capital in the way that you want it to be. And you can get that stuff built and financed. I think what Benjamin is probably referring to in the part that has always been trickier is before you get to that point. So you bring some new technology to market, either it hasn’t scaled up enough, or it’s just generally not considered to be de-risked by big private project finance providers. And you know, there have been a bunch of folks creating innovative project finance vehicles of one kind or another, but it really is not a solved problem. I’d say in particular, the first of a kind financing, the first of a kind of anything, maybe first three of a kind, let’s say is still incredibly difficult and we see lots of companies in our portfolio and outside our portfolio who are forced to pay for that stuff themselves basically, because there is no project finance available for it. As a result, they have to raise a lot more corporate equity in order to do so, and that’s expensive money. And it’s harder to come by in today’s environment than it was 12 months ago, and it just remains a really big problem. There have been some shops that have spun up that are trying to do something clever, like combine investing in companies and their projects at the same time or invest in the company with like a right of first refusal to the assets. They exist, but I don’t think anybody has figured out a way to really scale that. And so if you’re an innovative company with a new technology, you need to bring a market and you need to build the first one of them ever, you still 90% of the time end up paying for it with your money you’ve raised from venture capital funds, which is less than ideal. Which is all to say, Benjamin, I don’t know. I think it is actually an intractable problem, because the project level returns on those first projects are rarely very good, and the risk profile is often very high. Inherently, it’s the first of a kind thing. So if you don’t solve that with some kind of discretionary concessionary capital, then I think it’s difficult to do. And the other thing is, you have a hard time getting to scale because the whole point is that this technology is going to graduate from the type of thing you would do to the type of thing that that JP Morgan would do. And so you, if you’re the one focused on just the first few of a kind, then you have to continually cycle through new technologies and new companies, because you want them to graduate beyond you very quickly. That means that your cost of getting up to speed and doing your analysis and de-risking and all that kind of stuff is really high for any given transaction that you’re doing. So I don’t know what the solution is, but I would love to see more of that stuff out there, because it does not feel like a solved problem to me.
Sarah Golden
Do you think the Inflation Reduction Act is going to change anything in this landscape of people trying to figure out new financial mechanisms?
Shayle Kann
It improves the economics for some things. So in the categories where the IRA created new tax credits, or increased the tax credits, it certainly makes the economics richer. That’s in hydrogen and carbon capture and renewables and standalone battery storage and all those areas. So it helps in the economics. And then it does provide this gigantic slug of capital to the DOE loan programs office to do a bunch of things, some of which can be first-of-a-kind projects. With that said, the LPO is really well set up for big stuff. And even there, first of all, they’re not intending to take a ton of technology risk either. So you have to be fairly mature, and at a fairly large scale for the LPO funding to make sense for you. So for some companies that will help solve the problem, but for many others, I think they still have to graduate to the point where they’re ready for an application to the LPO, let alone actually winning the funding. So yes, I think in some cases it’ll help.
Sarah Golden
Okay, let’s get deeper into this VC funding. The next question I have is from Brendan O’Hare @NobullBrendan. NoBull is Brendan’s blog, which focuses on economics and technology and politics. So he asks, would love to learn more about how the recession and technology will affect the climate tech industry, particularly with regards to VC funding?
Shayle Kann
Yeah, I mean, we don’t know yet. Just as we don’t know what’s going to happen in broader tech over the next couple of years. But I will say is that I would say climate tech funding has been slower to decline than traditional tech funding in the in the venture world. So there was a bigger downturn in broader tech world than there was in climate tech. You can start to see this in the data that’s showing up now it is starting to hit climate tech, but the downturn has not been as severe. And I think, you know, what is happening is you just have to countervailing forces. On one hand, you have the broader macro environment, which is challenging, you have high interest rates and possible recession and this sort of pullback in tech generally. And that all pushes in one direction. And then the specifically for climate tech, the market forces themselves pushing the other direction, which is to say at the same time, you’ve been having all that stuff happen. We’ve had the inflation Reduction Act, we’ve had Russia invading Ukraine and the spike in natural gas prices and disruptions in the energy markets at the same time. And you’ve had this increasing recognition of a climate tech supercycle where, you know, the train has left the station on deploying renewables and electric vehicles and a bunch of that stuff. And so all the categories that kind of cascade from that, have this underlying bullishness that investors have held on to, and so they’re fighting the sort of current macro environment against this sector-specific optimism. And the result of that has been, you know, we’re not in the boom times that we were 12 months ago or 18 months ago. But it’s also not as dire from a VC investing perspective as it is in some other categories, right, like crypto are some of the ones that have taken really big hits. So what is going to happen over the next couple years? I don’t know, nobody does. But I do think there’s still a lot of dedicated capital out there in venture capital world that has been raised specifically to be deployed into climate tech. And there is still this belief that this, this trend toward decarbonization across sectors and industries is going to hold that is like a multi decade trend that should persist through multiple economic cycles. So I think we’ll continue to be more resilient than the overall tech world.
Sarah Golden
There was a perspective that came out when the first tech layoffs started in November, that said that it would be good for climate tech. And the theory essentially went that there’s still money flowing into the space, these climate tech companies are hiring like crazy. They need the best minds to do incredibly hard things. And in the past, they’ve struggled to compete with the compensation and the perks of big tech. So now there’s all of this talent that’s been freed up. And so that may be a better situation to reach climate breakthroughs, just because startups are more nimble and are able to innovate better. And so that’s a better use of that workforce. Do you agree with that? Or does that mirror what you’ve been seeing?
Shayle Kann
I mean, it’s tough to say that layoffs are a good thing ever in any situation. So I guess I wouldn’t say that exactly. I would say the two silver linings for climatetech of the downturn in the tech industry have been one, what you said, which is there is there already was a big wave of talent coming from traditional tech into climate tech that was happening, it’s been happening for years. There have been all these great organizations spun up, specifically to help people who are really high caliber individuals, and want to find their way into climate tech to sort of figure out what their home should be. And that is accelerating, if anything. So I think that’s good for climate tech, just more great talent is good. The other thing is, I actually don’t think it was a bad thing that the moment when it happened that we started to have a little bit of a deflating of the bubble in climatetech. It was I was very hyped. It was in every sort of VC conversation, right alongside crypto and a bunch of this other stuff. And it’s not that it’s not now but I think, you know, everybody has got their eyes open real wide on what they’re investing in as they’re making investments at the moment. I think that’s probably a good thing. Because I don’t want us to end up getting over our skis in climatetech. I’m extremely bullish on the market opportunity, but I was a little nervous to see how rapidly the kind of broader VC world was flooding in and I don’t mind seeing that pull back just a little bit.
Sarah Golden
The next question is from Alex at TigerComm. What do you think is first among equals from the list of barriers facing the clean energy transition? And I’m about to give you a list. Are you ready for this?
Shayle Kann
Okay, I’m ready. These are the barriers, I got it.
Sarah Golden
Yes, permitting, stabilizing supply chains, workforce development, critical minerals, transmission, storage, or grid stability?
Shayle Kann
It’s like the – I don’t know how many you just listed – the seven horsemen of the climate apocalypse.
Sarah Golden
It’s seven!
Shayle Kann
Oh, is it seven? Nice. I knew that….obviously. You know, I’ve been talking about wanting to do an episode of this podcast on – We’ve done this this deep decarbonization draft a couple of times where we draft the technologies that we think are most likely to contribute the most to decarbonization. I’ve been thinking about doing the inverse of that, where we do an episode on the things that we think are going to be the biggest barriers to decarbonization, and drafting those. So I’ve thought about this a little bit. It’s a tough call, I would say, I’ll tell you what, I don’t think from that list is going to be the barrier. I don’t think storage is going to be the barrier. I think we need a lot of it, but I think we’re gonna get a lot of it. So let’s assume we do and that’s not a huge barrier. Grid stability, I do not think is going to be the barrier. Again, it’s not that it’s not a challenge. But I see enough solutions out there getting deployed. Now, both of these – storage and grid stability – the ability to get enough of them are a function of a couple of these other ones that I think are going to be the big barriers. But grid stability in and of itself is not my top concern. Stabilizing supply chains, that is a temporary phenomenon, which I think we will solve, we will have more supply shocks, I’m sure over time in various commodities, but I don’t think that’s the thing that I say think about the next 10 or 20 years of decarbonization is going to be the problem. So that leaves permitting, workforce development, and critical minerals and transmission. Alright, I’ll keep running through them, then. Critical minerals is a big problem. But, you know, we’re over multi decade periods, we’re very good at figuring out ways to extract the things that we need from the earth if we really need them. And if the price signals are there, so are we going to have big run ups in prices for critical minerals? We’ve already seen this with lithium, and to a lesser extent with cobalt and nickel. We may see this with stuff like copper, maybe with rare earths. Is that going to stop us from pursuing decarbonization? I don’t think so. It may affect the economics to some degree, and there may be some commodity swings. Workforce development, I sort of similarly think if you step back and take a long enough time horizon on it, that’s a solvable problem to this is where the economy ultimately is pretty good at solving a problem. If you look at it in a short period of time, it can be like a huge bottleneck. And I have heard about it a lot. There’s a bunch of areas, electricians, utility scale, renewables installers, and engineers and stuff like that, where we do have a workforce development challenge. But I still don’t think it rises quite to the level of like, top tier problem. So that leaves the two that I think are actually potentially like really intractable problems that if they don’t get solved, they don’t get solved. And you end up with an actual long term, halt or delay in the deployment of key technologies. And that’s permitting and transmission. It’s tough for me between those two, I think those are both very difficult. Permitting is broader. So you can say permitting for things like renewables and storage on the grid. But you also need permits for new mines and new chemical refineries, you need permits for underground CO2 storage, right, which is a big challenge. So permitting is broader transmission is more acute, because transmission is already immediately a huge problem. For renewable development. There’s actually just a study, I think, maybe last week, or a couple of weeks ago that came out from I think Lawrence Berkeley National Labs, that that found that permitting carves, or interconnection costs in PJM, which is the Mid-Atlantic region of the US, but I don’t think this is specific just to PJM have gone up between 2x to 8x. For new generation and storage projects over the last three years, interconnection costs are going up, but internet connection, timelines are going up even more. And we you know, one of the things that is undeniable about decarbonization is that it inherently means we need to build a lot of new electricity generation and storage capacity. And I worry a lot about an interconnection. So between those two, it’s hard for me. I think, if you force me to pick I would probably pick permitting, just because it will affect a broader swath of the market.
Sarah Golden
You know, I wrote down what my pick was also, and I also put down transmission and permitting. And the reason I said that is, as I was thinking through these different problems, I thought there’s nothing harder to move than a socially constructed barrier.
Shayle Kann
Yes, that’s exactly right.
Sarah Golden
It’s like, because it’s not clear what breakthrough will really change it. Every other one of these things, I think, “Okay, well, there’s smart people working on this and if you figure out the right breakthrough, then you can really make progress.” And when it comes to transmission and permitting, I’m like, I don’t know, it doesn’t it doesn’t follow logic. I’m not quite sure how to start to move the needle on this.
Shayle Kann
Yes, I 100% agree. I guess you’ve just told it better than I did, which is basically the rest of these I think not that I’m like a pure Chicago-style economist. I think the market ultimately solves most of them. Transmission and permitting don’t fall into a category that the market ultimately solves, necessarily, because as you said, they’re socially constructed. So yeah, I’m with you.
Sarah Golden
And I want to hear another deep decarbonization draft could be for barriers. I think you should get Stephen Lacey back on here for old times. I think you should have your wife act as a judge with all of her experience of fantasy drafts with her RuPaul Drag Race draft picks, and I want to make that happen.
Shayle Kann
All right, I’ll tell Lexi you said that. I feel like she would be, she’d be up for it. But I’m not sure I would like the result. Personally, I don’t think she’d be a fair judge.
Sarah Golden
Yeah, I can tell you now you would lose.
Shayle Kann
Yeah, exactly.
Sarah Golden
Okay, so I’m going to follow up on that critical minerals part because we have another question from Phoebe at TigerComm. And she asks, how big of a resource do you think battery recycling will be for future lithium and other minerals in the domestic supply chain? And, more specifically, how far do you think recycling can go to close that gap? Not just old car batteries, but from phones and other small batteries as well.
Shayle Kann
So I’ve looked at some of the math on this. I think the short answer is that there is not enough supply of recyclable batteries today to make up for the majority or even close to the majority of the need for critical minerals. And you know, you could get batteries recycled from phones and small batteries and things like that there. But the total volume of the materials that you get pales in comparison to what you’re going to end up getting out of EV batteries themselves. And because we’re in the steep part, or hopefully entering the steep part of the adoption curve of EVs. You know, what you’re doing right now is recycling EV batteries from 10 or 15 years ago, and there were not that many electric vehicles 10 or 15 years ago, relative to the number that we are producing today. So it just stands to reason that at the moment, though, battery recycling isn’t important, it is not going to make up for the need for a lot of new virgin production of critical minerals. If you draw that forward a couple of decades. And you get to the point where we’re at kind of steady state, and let’s just say electric vehicles at that point, or 80% of all vehicles produced. And we’re up at the you know, the curve has flattened because we’ve been at that point for a longer period of time, then you can imagine that recycling plays a significant doesn’t totally fill the entire role, you don’t get everything back and there was going to be continued growth in the economy. And so just as car sales have gone up over time, so have electric car sales, but there it starts to present a really significant portion, it’s just going to take quite a while to get there because we need to go from today where electric vehicles are 6% of new vehicle sales up to steady state, and then we need to sit at steady state for a while before the supply meets the demand.
Sarah Golden
And what about the small batteries? Is the juice worth the squeeze? And what do you do with your old batteries?
Shayle Kann
Oh man, what do I do with my old batteries. They like sit in a shelf in my house somewhere. The juice is probably worth the squeeze on that stuff it just doesn’t add up to it doesn’t add up to a really significant source of supply of the minerals that we’re really talking about for electric vehicle batteries in particular, which is mostly lithium, nickel, cobalt, aluminum, copper. You don’t get that much out of like phone batteries. Ultimately, it doesn’t mean we shouldn’t do it. It just from the broader perspective, you know, it’s not going to make up the difference.
Sarah Golden
The next question is from Scott, who’s handle is a bunch of underscores followed by Scott I think eight. So Scott asks, in a world with the marginal cost of energy going to zero, could desalinization soon be a reality?
Shayle Kann
“In a world….”
Sarah Golden
That’s how I heard it when I was reading it, as soon as I said, “in a world” where the marginal cost of energy goes to zero.
Shayle Kann
So there’s a premise here that the marginal cost of energy is going to zero and I think it’s interesting to interrogate that premise. You hear that sometimes and the the underlying assumption there usually comes down to one of two things and people are assuming one is either solar, mostly, where the presumption is that the cost of solar is going to keep declining and eventually, you know, get beneath that one cent per kilowatt hour barrier, and then maybe keep going down and it’s approaching zero over time. Or it’s, you know, a nuclearphile who’s saying that the fusion in particular maybe is going to drive the marginal cost to zero. And I think both of those are somewhat flawed premises, ultimately. On the solar side, one, in a shorter period of time solar costs have been going up, not down. This is a function more of supply chain and import tariffs and stuff like that in the US than anything else. But let’s just be clear that the trend line at the moment is not toward zero, it’s toward some higher number. Currently. Let’s assume that that normalizes and solar costs do continue to decline over time. What you would say then is that the marginal cost of the marginal electron delivered at a certain time of day trends toward zero. But that doesn’t mean one that the marginal cost of energy overall trends toward zero. If you’re looking to run, for example, a desalinization plant, which is really capital intensive, you probably want to run it 24/7 or close to that. And so you don’t want to power just off of solar. So then the question is the marginal cost of solar plus, you know, whatever you want to balance it out, which could be versions of batteries could be other resources, like geothermal, who knows, but you have to incorporate that into your thinking around the cost. The second point is, there’s a difference between the marginal cost of produced electrons and the marginal cost of delivered energy. And this is where the trend lines have been really distinct, where the marginal cost of production could be going down, but the cost of transmission distribution has been going up. And so overall delivered electricity prices have not been going down at all, for customers, generally speaking, especially on an 8760, you know, 365 days a year basis. So I do fundamentally believe that cheaper and cheaper renewables plus storage and some other technologies, oh, I’m sorry, we haven’t even talked about the nuclear thing like nuclear fusion may happen. But there’s no reason to think that it drives cost down close to zero. We don’t know yet what the cost of that electricity is going to look like. And there are a lot of factors in that that could make it much, much more than zero. So all that said, I’m not sure I think that the marginal cost of energy is going toward zero. And I think it’s particularly if you’re trying to do something in a current investment time horizon, say, five years or 10 years, I think it’s sort of dangerous to assume that we see a lot of startups who are doing something where they’re sort of fundamental assumption is marginal cost of energy is going towards zero. And maybe that that could be true over a longer time horizon, but show me how you can deliver positive unit economics with electricity costs as they are today. Otherwise, I think you’re you’re sort of putting yourself in a pretty risky position. With all that said, the question was, if marginal cost of energy goes towards zero, will desalinization become a real thing? And the answer is desalinization is a real thing? We do a lot of desalinization already today. Might we do more of it? If energy is cheaper, maybe there’s a bunch of things that we might do if we end up with really cheap, abundant clean energy. I think Sheldon Kimber at Intersect has a good list of them. I think desalinization is on the list. But things like direct air capture, production of hydrogen and clean fuels, like there’s a bunch of things, a bunch of other industrial processes that can be electrified. In a world where the cost of energy overall, particularly if it’s 24/7, is getting cheaper delivered, then, yes, I think desalinization amongst a number of other things could take off as a result. But I think you have to be really careful with that premise.
Sarah Golden
Yeah, agreed. I often hear this in the conversation about Bitcoin mining, too, which may be less pressing these days. But it often assumes that that’s the direction we’re heading for energy, which is a big assumption. So here is the last question I have for you today. It is from Patrick. And he had a question on the role of fertilizers and what role they will play in the climate transition? He asks, is this an area that will never be fully decarbonized because of the scale in need? Or are we just going to use methods to reduce its carbon footprint and how we produce agriculture with minimum fossil fuel inputs?
Shayle Kann
So we did an episode recently on ammonia, which is relevant to this. Is fertilizer an area that will never be fully decarbonized because of its scale? No, I think it will be fully decarbonized, eventually. I think it will be a combination of multiple things that will do it. And this is fertilizer production, I want to separate two things, importantly. Let’s start with fertilizer production, I think we will get a lot of green quote unquote green ammonia, which is ammonia produced with zero-carbon hydrogen, which is where the majority of the emissions come from in the ammonia production process. We’re seeing a lot of movement there already. And it’s going to take time, but I think we will do a lot of that. There’s also alternative methods to produce fertilizer, which are not ammonia, but also are decarbonized in and of themselves. And then third, there are things that can reduce the need for fertilizer – for synthetic fertilizers. So there’s microbial approaches, for example: soil amendments, seed coatings, things like that. That mean you just need less fertilizer per unit crop that you produce. So we need less of it. We make it greener in the production. I think we’ll do a lot of that. The thing that I think people don’t spend enough time talking about is not the emissions from the production of fertilizer, but the emissions from the application of fertilizer: the soil emissions that largely come in the form of nitrous oxide, which is an incredibly potent greenhouse gas. It’s undermeasured, we don’t even quite know how much of it we produce, but it comes from soil and it is impacted by the use of fertilizer, the type of fertilizer that is used, and how it is applied, and how the soil is tilled, and all these different complex things, but that’s a bigger deal. So total emissions globally from fertilizer production, I’m not gonna get these numbers exactly right, but they’re pretty close. Fertilizer production represents something like one and a half percent of global greenhouse gas emissions, maybe up to 2%. N2O emissions on fields in soil represents like 5%. So it’s actually a bigger deal and I think a harder problem to solve. So the short answer to the question for me is that I do think we will solve the problem fertilizer production emissions. I want to see what we can do to accelerate progress on soil and N20 emissions reductions.
Sarah Golden
Do you think we can address the emissions associated with agriculture without drastically and fundamentally changing how we do agriculture?
Shayle Kann
I hope so. Yeah. I generally think – I’m generally a techno-optimist, as you can imagine, and so I think we probably can. There’s no panacea as far as I can tell. It’s a requires a bunch of different things, from changes in practices to new technologies to changing what crops we grow. And where I guess that is sort of fundamentally changing the nature of agriculture, but I guess I wouldn’t go so far as some people have said – this line of thinking can lead to ideas around like degrowth, and stuff like that, which I do not believe we need in order to decarbonize, I think it just requires a lot of concerted effort and policy and money and you know, what all this stuff requires.
Sarah Golden
So that’s all the questions I have today, it’s so much fun to actually listen to you, you know, pick through some of these. On a personal level, so we are about to go on a trip together for a mutual friend’s wedding. We’re going to be heading to India. Have you ever been to India?
Shayle Kann
I have not, have you?
Sarah Golden
I have, I have but not the region we’re going to, I have never been down to Mumbai. So one thing I’m curious about is how much you take your professional lens when you do these big trips, or you go anywhere, do you see like carbon emissions everywhere? Or systems? Or do you kind of turn that off when you go to new places?
Shayle Kann
I try my best to turn that off. There’s like a joke, you’ve probably seen this happen, but my wife and some of our friends, if they’ll be somewhere and they’ll see solar on the roof, like “Ooh, Shayle, solar!” and I’m like, “Alright, thank you very much.” I try not to think about it a whole lot. Just because, you know, the whole point is to separate my personal life from my professional if I’m on a vacation or a trip like that. With that said, you know, it’s hard not to notice some of that stuff….What?
Sarah Golden
Shayle’s wife just stuck her head into the office and said “solar.”
Shayle Kann
Anyway, no, I don’t know. I’m gonna try not to think about it, though. India’s totally fascinating from a climate and energy perspective. I don’t know do you travel around the world thinking about climate stuff?
Sarah Golden
Yeah, of course. I think that there are ways that it’s the lens from which I view the world. And I know last time I went to India, it’s hard to not notice the AQI on the air is 200-plus and all of the little diesel Tuk Tuks that are going around. So I think there’s very real impacts. You know, we’ve been advised to not run while we’re in India. And so it’s where the climate crisis is really meeting the standard of life. So there’s some ways that I just I can’t help but notice it. But as far as seeing a power station and thinking, “Oh, I should Google that and see what resources it’s using or where it’s getting it’s coal or whatever.” That is not something I tend to do while on vacation.
Shayle Kann
Well, Sarah, this was fun. Again, thank you so much for coming back on and chatting with me for an hour. We’ll let the audience tell us how good our rapport was this time but I suspect it was good enough that we’ll have you back for another “Ask Me Anything” at some point.
Sarah Golden
Gee thanks. I look forward to it. Maybe….
Shayle Kann
Sarah Golden is the VP of energy at GreenBiz. Well, what questions did we miss that you really wanted us to cover? Or what did I get wrong in my responses? You can leave us a voicemail if you’d like the number is 919-808-5832. Again, that’s 919-808-5832. I know a few people still use voicemail. For the rest of you, you can email us at catalyst at postscriptaudio.com. Or you can find us on Twitter or on LinkedIn or you could tell us what social platform we should be using instead. If you liked the show today, as always, go over to Spotify or Apple podcasts and leave us a rating and review. The show is a co production of Post Script Media and Canary Media. You can head over to canarymedia.com for links to today’s topics. And as always, Post Script is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors including advanced energy, food and ag transportation and logistics, advanced materials, manufacturing and advanced computing.
What else should we cover on the show? Leave us a voicemail at 919-808-5832. Or email us at catalyst@postscriptaudio.com. You can also tag us on Twitter.
Catalyst is a co-production of Post Script Media and Canary Media.
Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you’re a startup, investor, enterprise, or innovation ecosystem that’s creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more.