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We had so much to cover in Nat Bullard’s monster climate trends deck that we’re back for another episode. Haven’t heard the first part yet? Listen here.
Nat was the chief content officer at BloombergNEF until last year. He is now a senior contributor at BNEF and Bloomberg Green as well as a venture partner at Voyager Ventures.
Shayle and Nat dig into topics like:
- EVs. From 2017 to 2022, internal combustion engine car sales globally declined by nearly a third. Yet EV sales are on the rise. Will growth in EVs stave off the decline of passenger vehicle sales?
- Onshoring of supply chains. Companies have announced plans to bring manufacturing facilities to the U.S. or nearby countries. In the EV value chain alone, there were $70 billion worth of announcements in 2022. Will this onshoring trend have lasting power?
- The three ages of decarbonization. First came renewable energy, then the energy transition, and starting in 2019, the net zero age. It builds on everything we did before, but now with a focus on molecules, calories, industry, and pressure on the boardroom.
- Plus: What we can do with old coal sites and the types of projects that tend to have cost overruns.
Full Transcript:
Shayle Kann
I’m Shayle Kann and this is Catalyst.
Nat Bullard
Net Zero is like so much harder to do than everything else that has come before, and it leaves nothing unaffected.
Shayle Kann
This week, we continue our whirlwind journey through the land of decarbonization with Nat Bullard. And we’re back. I’m Shayle Kann, I invest in revolutionary Climate Technologies at Energy Impact Partners. Welcome. So last week, Nat Bullard and I covered I don’t know five or six of my favorite insights from his first annual Decarbonization Trends report. But there’s more fun in there than we were able to get to. So this week, we finished the job. But for now, here’s Nat. Nat, welcome back.
Nat Bullard
Thank you, Shayle. Good to be back.
Shayle Kann
All right, let’s keep digging in. And I’ve got a new set of my favorite slides from your decarbonization opus to talk through. So we’re gonna jump right into it. I’m gonna go to slide 55, which is about overall vehicle sales over time, and EVs is a portion of that. Something I had not fully realized, which is that vehicle sales, motor vehicle sales have been declining over time overall. Can you just talk through, like what the dynamic is, as we understand it that’s driving that I think, intuitively, I would have said, on a global basis, like, sure, maybe we’ve hit peak car in the West, but you think that would be more than made up for by growth in China and India and Indonesia, and wherever else.
Nat Bullard
You’re right. So the data show that on a trailing 12-month basis, we hit the peak of cars, not vehicle sales, necessarily, but car sales, you know, about 85 million, and that was now almost six years ago when that happened. That’s a function like so many of the things that we end up talking about here of China. China was during the interval I’ve got from 2010 on rapidly on its way to becoming the world’s biggest new car market, supplanting I’ll give you one guess which market is the biggest new car market in the world. But then, you know, running to a certain extent against perhaps some limits of urbanization everywhere, running against a global economy as you get further on. But I think most importantly, running up against the limits of the sales of internal combustion engines. So not only did sales peak at about 85 million and decline to below 70 million as of the third quarter last year on a trailing twelve-month basis.
Shayle Kann
I just want to note that’s pretty substantial. It’s not like it peaked and then flattened like itt, that’s a meaningful decline.
Nat Bullard
Obviously, it has some COVID action going on in there, for sure. But yeah, it peaked and declined significantly. But then there is a growth market within that, which is EVs. And so like another way to think about this is that more than 100% of the auto industry’s growth is coming from electric vehicles. They are the only growth cohort within cars. I mean, obviously, probably models of cars are growing more and certain chassis are growing more, certain frames like we see more SUVs, certainly. But from a propulsion perspective, EVs are the only growing market. And I think, to an extent, this is a simple lens on thinking about why companies care about EVs, because they’re growth. They’re the growth platform within a big market. And I think sometimes we have the tendency to overcomplicate this thinking strategically, when you could simply identify, you know, the the top line growth in EVs, and the top line shrinking for everything else in a shrinking market means that EVs are a growing share of a shrinking market. And I think that most manufacturers are well aware of that fact at this point.
Shayle Kann
Okay. So one of the interesting questions, though, is we have this overall declining passenger vehicle sales trend, EVs, bucking that trend, and gaining a bigger share of what appears to be an overall declining market. The way you framed it was like, automakers know that this is the growth engine, but it’s a chicken or an egg question. Is it that the total number of views vehicles that are going to get sold as a fixed number and that number is declining, and if you introduce more EVs, they will take a bigger share of that? Or is it that by introducing EVs, you can, to some extent stave off the decline in overall passenger vehicle sales? I mean, it’s probably an unknowable question.
Nat Bullard
I think it’s a collective action question if anything, right? If every you if you sense that EVs are the future, then you want to capture as much of that market share for yourself as you can. As an automaker, I think that that’s the that’s the biggest attempt. But of course, if everybody does that, you end up in an intense competition, which I think is also more or less what is happening. There are very, very few holdout companies that have no electrification plans. You know, even the supercar makers are doing electrics to an extent because they’re being competed with directly by purely electric startup super carmakers. And it’s a strategic challenge in a way that they haven’t had, except amongst themselves in decades, probably.
Shayle Kann
I just want to draw out one more data point embedded within this that I think is like particularly striking. So as you said, the overall passenger vehicle sales since the peak in 2017 has declined from whatever it is to 85 million to 68 million or thereabouts. Okay, but if you just take the ICE vehicles, right, so separate out EVs, the decline has been really precipitous, because there it’s from 84 million or so at the peak to it looks like you can tell me the exact number but somewhere in the realm of 60 million.
Nat Bullard
With the end of the year data, it will be below 60. Because there were 10.6 million electric vehicles, including plug in hybrids sold last year.
Shayle Kann
That’s like a 30% decline over six years.
Nat Bullard
It is exactly. It is very significant and it’s eating right into the heart of a way a 2+ trillion dollar sector in terms of annual sales, operates and organizes itself. You know electrification is fascinating because it can be very much a sustaining innovation if you’re a big automaker. It can be profoundly disruptive though to other parts of your value chains, and I think potentially create some new champions. Certainly Tesla qualifies, right? Tesla is a company that is electric first and electric only, and is now on its way to being one of the biggest automakers in the world. But so too, for that matter is BYD in China. So we’re going to see if we don’t see not just new champion drivetrains, like electric drive trains come around and dominate, but also, do we see new champion companies? If I think about it, we really haven’t had new breakout global high-quality automakers since probably the Korean companies were doing this in the 1980s and 1990s. You know, there are there are other places that have their own auto making firms. There are certainly Eastern European companies that are affiliated with or a subsidiary of a big German company. There are car manufacturers in Malaysia and Mexico that serve largely domestic markets, and some of them even have their own brands. But are we going to see the case that you know that BYD becomes a global auto brand that everybody buys that is electric first and oriented around the principles of electrics from a manufacturing perspective, from a service perspective, from a sales perspective and everything.
Shayle Kann
Okay, so let’s stay on the EV trend for a minute and move down two slides to 57, which I think is an interesting one, basically, breaking down what we were just talking about is passenger vehicles, which is what we probably talk about the most. But as you point out in this other slide, if you want to categorize the electric vehicle market, that’s really one out of four of the distinct EV markets that are emerging today. So walk me through the other three.
Nat Bullard
We generally if we are in United States, North America, if we’re in Western Europe, we are if not car dependent, then at least very well aware of the automobile is kind of the prime mover of personal transport. So yeah, we have about 10.6 million EVs sold last year. We had 32, almost 33 million electric two-wheelers that are sold, almost none of them here in North America or in Western Europe. And then we have another fraction like about 400,000 each electric buses and electric commercial vehicles, smaller commercial vehicles. Not the scale of like a semi trailer but you know, something that would be working In the city are doing last mile delivery or things like that. And these markets are just very, very different in scale. So EVs were like 13% of the car market – new vehicle sales market – 39% of the new market for scooters and two-wheelers, almost 50% of the market for buses, and not even 4% of the market for commercial vehicles. And then there’s the fleet size question, which is the really interesting bet, which is that we’ve now reached 27 million electric vehicles, passenger vehicles on the road. We have 287 million electric two-wheelers on the road, and fewer than a million electric buses and electric commercial vehicles.
Shayle Kann
Yeah, I mean, there’s a few striking components are obviously one being – maybe this is somewhat intuitive, but I don’t think at least I realized how quickly electrification is taking over that two-wheeler market and as a result, how big that fleet is. As you said, it’s roughly an order of magnitude larger than the fleet of passenger vehicles that are electric. And the other thing is, I think we also probably all know that electrification of buses has been kind of the fastest mover, at least amongst larger vehicles, but the fact that we’re almost at 50%, penetration of new vehicle sales is really striking there. And I think that also, as many of these things in the big global market context comes down to China. Right?
Nat Bullard
Absolutely. Another function of China, which made this incredibly rapid, and very, very intense shifts to mostly buying electric buses, and it really didn’t take very long to rip through. And that I think a large part of this is just the lack of path dependency, I guess, you could say, within the sector there. But also, infrastructure definitely helps with this. You know, if you if you ever talk to, let’s say the person in charge of a bus depot here, they’re like, “We would love to do this. Do you know what kind of upgrade we need to do to our electrical system in order to support 50 buses with like, 250 kilowatt hour packs, charging it ones like, it’s really intense.” And look, it’s not an impossible problem to solve. But we have, in many of our cities, the challenge of having to invest to do this. You might already have site, you’ve got property planned equipment that’s obviously built around serving and servicing all of the internal combustion bus fleet that you’ve got, and you want to swap that out. You know, it’s an energetic shift. But it also means a huge amount of CapEx, right? It doesn’t just mean like a pump, and a tank underground. It means all kinds of stuff happening in the grid. And it might mean a new kind of relationship, like there’s no, there’s no such thing as demand charging for gasoline. You can get squeezed on price, but would you when you receive your shipment of diesel, and it’s stored in your depot, that price is then fixed. It does not vary over time. If your electricity you’re going to be possibly paying demand charges for it. If you don’t time or optimize your charging correctly, you could be paying peak rates. There’s lots of things that are still left there to negotiate. But I think we’re starting we’re starting to see at least everyone you know, on our side of the world, a lot of interest in these things for what I would say are very good and local and localized reasons like air quality, noise and lower footprint driving through residential neighborhoods. You know, I think in the long run, we’ll be surprised to tell our children that, you know, we used to have to sit and breathe in diesel exhaust fumes in an un-airconditioned vehicle for sometimes hours a day to traipse around the city. I think that that will be substituted and is starting to be substituted with electric buses here.
Shayle Kann
So I think one of the interesting questions is going to be are we going to have a fifth category that emerges over the next few years which is the heavy duty class eight electric semi truck category, which you know, we’re seeing the first deliveries now of the Tesla semi and the E Cascadia is coming and you know, Volvo’s and all this kind of stuff. So it’s seems like it’s starting to show up but obviously not probably not going to be at the penetration levels, really any of these other markets, either from a total volume or just portion of the market perspective over the next few years. But ultimately, right that should be its own category,
Nat Bullard
I think, and I think actually we can apply a pretty fine microtome to thinking about these various markets as they are right. The drayage market is going to be huge for electric vehicles. You know, we’re already starting to see that get rolled out into ports. These are places where you have high utilization but next limited fundamental range that you’re traveling. I think that with the class eights it’ll be curious to see what particular fleet runs are being done. I think it’s interesting though, that like Tesla’s first one is with … Was it with Frito Lay? Or is it with Pepsi?
Shayle Kann
Isn’t Frito Lay owned by Pepsi?
Nat Bullard
Potentially. I’m just trying to remember which site it is specifically that it’s that it’s rolling from out?
Shayle Kann
I don’t remember, it’s a good question.
Nat Bullard
We can we can come back on that. But this is serving a market that is, I think, probably largely internal to California. I don’t know that necessarily the processing catchment area for that plant is serving things in Illinois or in Mississippi. So the duration of runs that’s happening with those vehicles is likely to be, you know, within the range where maybe they can come back and charge overnight, as opposed to charge them on the road.
Shayle Kann
Right. Okay, so let’s move on from EVs though this next topic is going to be relevant to EVs as well. Jumping ahead to slide 121. This is one that I think is really interesting and it’s not specific to climate tech, necessarily but it’s definitely relevant to climate tech, which is about onshoring, reshoring and nearshoring of supply chains, which is a big topic. Right now we’re seeing, you know, in the US, there’s this bevy of announcements, which I think have been expected ever since the IRA passed, of new manufacturing facilities for batteries and battery materials, and all the way up the value chain there. We’ve got Europe, which is mad at the US about the IRA and so coming up with its own policies, and talking about how these new industries as they develop need to be different from how some of the other industries that have been built like solar ended up being basically entirely based on imports. So you have some interesting data on mentions in quarterly earnings calls about onshoring, reshoring, and nearshoring. So what are we seeing in the trendline?
Nat Bullard
So the series that I have here from Bloomberg starts with the first quarter of 2020, which is we all know is when you know COVID hit home here in the US. Very, very little mention of this, this was not like a strategic priority, um, like in the range of like 12 to 15 mentions in total. By the second quarter, it’s jumped up to like 125 mentions of onshoring reshoring, in nearshoring. And then by the second quarter of last year, it’s more than 175 mentions in total of which most of the mentions are about onshoring. Probably a good chance to define what we mean by these. So onshoring would be your you are making a new production decision. And you decide that you’re going to do it here in the United States. reshoring would be bringing something back that had been previously done overseas, and then nearshoring. And it’s near neighbor friend assuring is bringing it somewhere close by. So maybe within NAFTA, or somewhere that at least you’re not going to have a lot of challenge in terms of trade or distance barriers to your supply chains. And then of course, as I mentioned, friend shoring, which is probably not something really getting mentioned much in calls. But it’s definitely top of mind from a policy level for so many national level discussions between countries.
Shayle Kann
So I think it’s an interesting question, how much this trend has lasting power? We could imagine a couple of possibilities. One being that this is this like beginning of relatively early days of megatrend, which is we went through decades of globalization. And now we’re unwinding that as we realize some of the challenges that globalization presented politically and economically in these new industries as we build them, and that the future supply chains in a decade for all these new markets, batteries, and hydrogen and whatever else, are going to be much more distributed. And we’re gonna see more domestication of supply chains. On the other hand, you could also imagine that there was this confluence of events that made this particularly acute right now, ranging from Russia, Ukraine, to these individual legislative actions, like the IRA, and whatever comes out of Europe, and that’ll last a few years, and then, you know, winds will change, politicians will change, and will kind of revert back to what has been the mean for a few decades, which is globalization, you know, most manufacturing taking place in low cost regions, etc. Do you have a view on which of those is more likely?
Nat Bullard
So I think that I think that there’s an urge across the most savvy, supply chain management companies to be a little bit more diversified because an intense exposure to one particular market is very, very brittle. It’s not that easy however, to make that kind of a substitution. It takes time, it takes planning, it takes support from wherever else it is that you’re going to go. It takes personnel, it takes a great deal of human capital to make these moves. I think that this is going to be the challenge, moving precision manufacturing away from the places in East Asia where it’s certainly been for a very long time. And then the other question is cost to an extent you can create more, you can create more social welfare here in the United States, perhaps by having a more robust manufacturing base, it will have a cost associated with it, and it might it might even be inflationary to in terms of needing a lot more input to get us to the point of being able to manufacture. And I think sector by sector, it’s going to be very different. I have elsewhere here that there’s about $70 billion worth of announcements last year in the in EV value chain in the United States.
Shayle Kann
And I think that’s going to pale in comparison to this year. Right? Those are just that’s just the beginning of the projects.
Nat Bullard
I remember the IRA wasn’t even passed until we were almost eight months into it.
Shayle Kann
Yeah, it’s kind of astounding how quickly it’s moved since then. I mean, clearly, a lot of companies were already thinking about it.
Nat Bullard
They were thinking about it, but it was an incredible inception moment for being like, Okay, well, you could call it another way, perhaps as social license to say, Alright, now I’m going to do this, like, this is the kind of thing that now is going to be viewed as within the boundaries of not only normal, but like good competitive behavior, and perhaps national behavior as a company to bring a lot of capacity back here. So I think it’s quite possible we have a robust sector built up around EVs that goes further down the value chain than just assembling a battery that you bought from somewhere else into a vehicle that you’re stamping in, in Michigan or in Tennessee. And the other question will be how much further up the ladder does that go? In terms of, do we have more mining here? Do we have processing here, for all of the critical minerals that need to go into these value chains over time, you know, the determining step for so many of these things is not fundamentally, you know, X access or availability within the Earth’s crust, but where it is that it gets processed. And so I think that’s going to be really interesting to see if we have the stomach for bringing that kind of capacity back to the United States.
Shayle Kann
I also think that, you know, the biggest volume of announcements has come from the battery supply chain. But it’s important also to keep an eye on all the other parts of climate tech, where you’re seeing these big and I mean, solar, is a good example, right, like Hanwah, which is a big Korea-based solar manufacturer, is setting up like a two and a half billion dollar manufacturing facility in the US for solar is expanding capacity in the US. You’ve got companies that are elsewhere in the solar supply chain, we’re making trackers and racking systems or making inverters like, all this stuff is getting domesticated right now. And that’s just in solar, right? And then take all these other emergent industries, where are we going to make all of our electrolyzers? Where are we going to make all of our direct air capture machines, whatever you want to call them? Like, all this stuff, right? So batteries, I think, are getting the right lead getting the most attention, because it’s happening the fastest and largest volume but feels to me like it’s its pan climate tech?
Nat Bullard
No, I think so. And you know, we have the advantage here in the United States of being a large market. We’re a large market for basically anything. And we are adjacent to two other reasonably large markets, Canada and Mexico. And I think that if you if you’re confident in the path of Climate Technologies, then you as an executive can see the path to doing things here, because of the strength of your own market and becoming an exporter elsewhere. The question is, like, how is how small of an economy? Can you do this effectively? Like, could you do this at the scale of Germany? I think so. Could you do this at the scale of Vietnam? open question. Could you do it at the scale of an Indonesia? Also an open question. But I think a lot of countries are doing this right now. They’re trying to decide, are we capturing something for ourselves for? I wouldn’t, let’s not call it, autarky economically, but for reduced interdependence in other countries, or are we ourselves trying to become a new export hub, a new friend for globalization?
Shayle Kann
Okay, let’s talk about something. I think I’ve known intuitively but never seen data around, which is about mega projects. This is slide 111. I think everybody’s probably familiar with the fact that if for the most part when we’ve tried to build new nuclear power, particularly the US which they’re very few examples of, but we tried to build new nuclear power at large scale of late there have been a lot of cost overruns. What I think is interesting in the data that you pulled is it’s not unique to nuclear, though maybe it’s worse than nuclear. So what do we see in terms of when you’re building a really big energy project or not even just energy, what the costs end up being relative to what you think they’re going to be.
Nat Bullard
So very basically, the first of a kind of anything is late and over budget. You know, that’s an aphorism that you could apply to anything that’s being done new and is first of a kind. But what the data here and it’s coming from Professor Ben flay Berg, who’s a site business school in Oxford, his data points that like, the bigger the things are, the more they tend to overrun, roughly speaking. So nuclear power has a mean cost overrun of 120%. And 55% of projects have a 50% plus cost overrun. So I mean, there’s almost no way if you look at those numbers that you could expect nuclear power in most markets to ever come close to what it was intended to cost. Hydro dams have a 75% mean cost overrun big oil and gas projects 34%, mining 27%. Go all the way down towards a traditional energy transition, renewable energy technologies, wind power 13% cost overrun, transmission 8%, the mean cost overrun for solar power is 1%. And only 2% of solar projects ever have a cost overrun of more than 50%. So it just like the smaller and more distributed in this case is better there is the from lack of a better phrase is more sunlight also on what’s happening, you get more visibility on the cost structure for a project that’s happening over the course of 18 months of build time work for months and five months of build time, then you do with somebody that has a build time of a decade. But also somewhere is fairly standardized at this point, you know, you have topographical decisions to make, you might have some you got to have some siting decisions to make. But like the configuration of each inverter module is something that can be repeated at scale and speed.
Shayle Kann
And most of the components are manufactured and then assembled on field right and with solar. And that is of significant distinction from nuclear, as it has existed historically, from hydro dams, from oil and gas from mining, like a lot of this, these are big complex engineering projects.
Nat Bullard
And they have in their in their critical path, there are often multiple things that are unique for that purpose. Like if you’re building a nuclear thing, a nuclear power project, you are going to commission a turbine, it’s not like you can call up, you know, Hitachi or GE, and I’m sure we’ve got one we’ve got, we’ve got a 1500 megawatt turbine laying around like that it’s in and of itself, a multiple year process and possibly a multiple year negotiation. And in that, in that process, it’s like, Okay, you’ve got to catch the rotor, you’ve then got to form the blades, you’ve then got to ship this gigantic, complex thing, in a probably completely bespoke shipping process to get it somewhere. And then you have to set it up with unique site specific attention to geology, to hydrology to everything else. And so yes, it’s in a sense, there’s almost like an unfairness or a an asymmetry to the competition between these technologies. You know, if you’re, if you’re buying software, there are optimizations you can get at the module level. But those themselves are digit distributed at a scale of like probably tens of millions of products specific or units rather, specific to any given subset of that technology.
Shayle Kann
So this is one of the reasons why I think people often get excited about for good reason get excited about technologies that are more modular, potentially more distributed, certainly more manufacturable. And I think there’s good reason for that. I mean, you see this also in a lot of other sectors, right? this move toward like prefab, and modular housing, for example, right? Is drawing upon the same thing, it should be cheaper and more predictable, to build the thing if that thing can be built in a manufacturing facility and shipped to a site rather than having to get designed and built on the site. But I wonder how far, you think we should take that logic, right. Like, what we what we’re saying here is that stuff like solar that is more modular and manufacturable tends to be more predictable from a cost perspective. I think some people take that to a an extreme and say, Well, this is the reason that we need a fully distributed energy system. For example, everything should be modular, we should never build another mega project of any kind. Right? And I wonder how you think about that, like, does this, does this mean to you modular is better? Or does this just mean like, I don’t know, does it mean modular wherever we can.
Nat Bullard
Modular is different. I think it’s the best way to say it, it’s a different modality. What I will say is, I think that the success of these modular technologies means that the aperture for mega projects is generally getting smaller over time, as Well as the ability to integrate lots and lots of modular stuff, you know, you and I did from a time when you could to find a grid engineer who would swear up and down, we were never going to get past maybe 10% renewable power in any given grid, things were going to work, or nobody would ever figure out how to ramp up and down the large thermal plants that were already in the fleet. That’s obviously not true. Obviously didn’t happen that way. Because people have improved along the way through another modularity, iterative learning across grids everywhere, to be able to put more of everything into play. So I don’t think it’s the case that we’re going to need to have 60% baseload power, in fact, I think we should probably be, you know, deprecate the notion, as it is, in terms of baseload probably forever. But we are going to have more acute needs that might actually be of shorter duration, that do need things that are either very big, or are designed to be very firm. And we will have to come up with a kind of regulatory societal financial compact, on which we can make those things happen. Who is responsible for them? How do they get paid for? Where are they built and who and who owns them, I think it’s going to be very interesting to me, like, you know, that we don’t have any merchant nuclear power being built in the United States, where it’s being built, in fact, worldwide, is generally by a state owned or parastatal. Financial Institution or in the United States, one of the fully regulated entities in the southeast. Now, it’ll be really interesting to see what happens when we, if when we reach the point where there’s a lot of small modular reactors, where did they fit within this structure, in theory, they’re manufactured, you know, as compared to built bespoke, and each in each different iteration. And they’re small, meaning that in order for them to make a meaningful impact on the energy system, they will have to be lots of them distributed around in various places. Another one of my arguments is that there’s lots of potential sites, if you think about today’s liability, you know, a brownfield ex coal plant in the Ohio Valley as an asset, given its interconnection, given, its got feed water on site, given the land is already to put it gently, perhaps disturbed. And we can see a place where there’s an opportunity to distribute this modularity pretty quickly.
Shayle Kann
I mean, undeniably, we’re going to, we’re going to do a bunch of really, I mean, I think some folks are already paying attention, this, we’re going to do a bunch of really interesting things with brownfield X pole sites in the US over the coming years. Because there’s there are particular incentives, even amongst all the big incentives in the IRA, there are particular incentives that pertain to those sites specifically. And so they’re stackable, if you do lots of interesting things on those sites, and I think we’re going to and some of it, some of it might be small, modular nuclear, but some of it could be a bunch of other things.
Nat Bullard
I mean, it will be really interesting, you know, as a slight aside here to see those sites, as an inbound, not an outbound so to speak, you know, that already happened with Google’s data center, and Alabama, that was an old TVA coal plant, basically becomes a load a demand center, right,
Shayle Kann
are another example to pitch my own book. So form energy, one of the companies were invested in, which is making multi day energy storage batteries, announced their first two significant commercial installations a few weeks ago, with Xcel Energy, and both of them are at retiring coal sites. So they’re going to replace coal plant with a basically one gigawatt hour battery in each case,
Nat Bullard
which is, which is tremendous, you know, the, if you think about how that truncates the critical path of planning permission development, it’s just a win for everybody. You know, and it’s a it’s an argument that I’ve made in columns before, it’s one I definitely make in this in this deck here is that I really hope that people Look holistically at our fleet of objects, and queries carefully whether or not they’re a liability, or an asset of a different kind. So look, I mean, it would be I think, at the moment, it would be something of a shame to fully decommission every single coal plant site and remove all of the power and water infrastructure that exists there. If you can do something else with them. Obviously in the cleanest, greenest way possible.
Shayle Kann
All right, last topic. We’re getting we’re getting way high level on this one. You’ve got a riff, I’m going to call it in this deck around the three ages of decarbonization, which you and I have talked about a little bit, you’ve put a much cleaner frame on it than we’ve talked about historically. But both of us having spent too much time in this sector as It has evolved over the years, I like to think about how it has evolved and what has changed. And where are we today in the trajectory of this market. So walk me through your view of the three ages of decarbonization.
Nat Bullard
I’m glad we’re talking about this one. These are, by far the simplest visual slides, I think in this in this deck of mine. By far the hardest to work out. Like I’ve been, I’ve been fiddling with these for months, you know, basically since the middle of the summer, but my thinking was that we were in the we’ve had three ages that overlap and are a creative of decarbonization. The first was renewable energy. When you and I were beginning, this is starting, in my case here not to go too far back in time with the German and then the Spanish feed in tariffs starting in 2004. This is a world that is driven completely by regulation and tariffs, the financial structures or principal investment, the financing is very customer bespoke. And there’s a really limited number of technologies that apply: wind, solar, biofuels in the United States, and carbon dioxide in the form of carbon markets in Europe. You know, moving ahead this into the next wave, it’s above that, you know, taking everything, everything from before it’s still going on. But the next wave is energy transition that start that like 2012 era. And I’m by the way, I’m basing this on Google Trends searches for, you know, hits and significance and interest for these terms. So let’s start 2012 and move forward. this is when you get beyond just regulations and tariffs, when you start to have ESG as a big driver, you’ve got a group strategy, rather than just the principal investing team looking at doing something, rather than just getting assets, or developing them yourself, you might start acquiring things. And you might also start divesting and you shift into looking at other elements of things besides just power, what you have firm power, for one thing, a lot of power storage. And then you have electrified transport, which is obviously very close in terms of total dollars spent now to anything happening renewable energy but involves a whole other set of value chains. Let’s go forward to the last one, let’s start 2019 2020, if you will. And think about net zero, this elevates further up into the company. This is not just happening at the group strategy level, it’s happening at the boardroom. And it’s not just about like maybe taking one business line and deciding you’re going to get that one to net zero scope one emissions by 2040. It means really transforming the business and not being able to leave anything that isn’t transformed. And it’s about more than just power. And it’s about more than just biofuels and regulated carbon dioxide. It’s about molecules, and it’s about calories. And it’s about all greenhouse gases, and not just just CO2. And it’s about remaking industries. And so I think that, you know, I put this together, because I feel like we have this view that net zero is like what comes next? Okay, well, we know, we’ve already started all these other processes. So the next logical thing is to get ourselves to net zero, which is I think, true. But Net Zero is like so much harder to do than everything else that has come before, and it leaves nothing unaffected. There’s basically no economic activity that isn’t going to have to be significantly reengaged, let’s say, by deciding that you’re going to get down to net zero greenhouse gas emissions by the middle of the century.
Shayle Kann
The other thing that I think is interesting about it is that, you know, phase one about renewable energy, you can just kind of get started. And you can go as far as you want to go phase two energy transition, you know, by its definition, by its name, even it’s a transition, it’s like this, it with a like, undefined and state and you can be in transition. But you know, the pace is, is TBD. Net Zero is this very specific endpoint. And the endpoint is, generally for most companies that are committing to net zero, it’s always out, right? I mean, I don’t think anybody’s saying full Net Zero, besides maybe like Microsoft, who’s going to not only go to net zero, but then like, remove all of their historical emissions, but most companies are saying that zero by 2035 2040 2050, something like that. And so, you know, what I wonder is, I do agree that we are in the age we have been, at least in the past few years in the age of net zero speak, right? The question is, will we remain in that age because in theory, you could say net zero is the end state, right? this is the this is the trend until we do it. And so it’s gonna last until 2040 or 2050. But you know, as history has proven, like, we’re on these, I don’t know, eight year cycles of like trends in this market and so that I would suggest that middle of this decade, we’re going to do something else.
Nat Bullard
So if we let’s play that tape forward gets imagine that this is so successful that we’re already re engaging the new master narrative around negative emissions. Right? And let’s imagine that the next eight year cycle is, Okay, cool actually looks like we’re going to do this like, looks like we’re going to reach net zero, it’s going to cost us $200 trillion, it’s going to take 30 years. But now we need to start correcting for embedded error. And that’s in the Earth system as it is right now. And let’s start removing emissions. I really don’t know what would come after that. Negative emissions a good problem to have exactly you if we, if we reach that, that rhetorical cliff, we will be very fortunate to have that be the problem that we have to deal with.
Shayle Kann
Yeah, I think, in my view, you know, each one of these phases, we amped up the difficulty of actually accomplishing it. And that zero is really difficult as everybody listening and you and I definitely both know. So I think what’s more likely to happen is that, it’s going to turn out that there are going to be a bunch of stumbling blocks on the journey to net zero. And the question is, will this trend resolve amongst corporates, I guess, is mostly what we’re talking about here. The resolve to hit net zero – will that hold in light of challenges accomplishing it in light of economic challenges, both macro and micro? Like, can this hold long enough for us to actually be on the trajectory to get to that zero, which we’re definitely not as a society today.
Nat Bullard
The way I think about it is, and I allude to it further on in the presentation is about personnel, and about human capital involved in this. So the person making the decision to talk about Net Zero is, generally speaking, I would say within five, maybe 10 years of retirement, it’s a decision to make, it’s a strategic decision to make implementing it, the beginning of it is probably within your frame. Actually dealing with it, having to wrestle with it as an existential challenge for your company is probably after you’ve retired, you know, there are no 27-28 year olds at a company, you get to say, we’re going to take this global pet Kim’s concern, and we’re going to make it net zero. There, they’re just not involved in the decision-making process. And I think I’m not really sure exactly how this is going to play out in the long run. But the data indicate that there’s very little expertise about any of this stuff in the global boardroom, you know, like you find 1.2% of the Fortune 100 board knows anything about energy. Right? 5% know something about work like workplace diversity. And these are both equally valid and equally important, but you know, the number of people who know something about climate in the global boardroom is very, very low. And in fact, you and I are neither particularly young nor necessarily that old. But there are very few people our age that are on corporate boards, in particular of the companies where this is going to be difficult to do.
Shayle Kann
Neither particularly young, nor necessarily that old is a perfect description of how I’d like to think about my current age. All right, that this has been very fun. I’m very proud of you for finally putting together the first annual of many, I’m sure decarbonization trends, reports, everybody’s going to check it out. And I Look forward to the next one when I will have you back on and we’ll do a couple more episodes.
Nat Bullard
Thank you Shayle. The next one is probably already being written. I’ve tried to give myself a week or two of not digging in too much, but the data just keep coming.
Recommended resources:
- Nathaniel Bullard: Decarbonization: The long view, trends and transience, net zero
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