Volts (David Roberts)

The lowly circuit breaker was first patented by Thomas Edison and hasn’t been updated much since — until Atom Power CEO Ryan Kennedy came along and made a digital version. In this episode, he describes the basics of the digital circuit breaker, the ways it’s making a difference in the EV charging market, and its gamechanging potential.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

There is perhaps no building block of the electricity grid more fundamental, ubiquitous, and overlooked than the humble circuit breaker. Every electronic device that is attached to the grid runs through a circuit breaker, a device that automatically shuts off current in the case of a fault or surge.

Currently, though they have become extremely reliable, circuit breakers still rely on technology that was patented by Thomas Edison. They operate purely through electromechanical forces, with no digital control.

My guest today, Ryan Kennedy, is the first person to develop, patent, pass UL testing with, and commercialize a digital circuit breaker. It is solid state — that is, it has no moving parts — and current is controlled entirely through semiconductors.

In addition to being faster and safer than electromechanical equivalents, each digital circuit breaker contains within it its own firmware and software, which can be programmed to emulate, and thereby replace, any number of other software-driven devices like demand management systems, load controllers, meters, and surge protectors.

Kennedy's company, Atom Power, is currently focused on the electric-vehicle charging market, offering smart load balancing and management from a centralized circuit board, replacing the need for complicated hardware and software in the EV chargers themselves.

But the ultimate applications for a digital circuit breaker are endless. Everywhere they are attached, a grid becomes a smart grid and appliances become smart appliances. If even a substantial fraction of today's circuit breakers could be replaced with digital equivalents, it would bring unprecedented visibility and control to millions of distributed energy devices, enabling all sorts of sophisticated demand management.

I was extremely geeked to talk to Kennedy about the basics of circuit breakers, their application to EV charging, and the many possibilities that lie beyond.

Alright, then. Ryan Kennedy, welcome to Volts. Thank you so much for coming.

Ryan Kennedy

David, thank you for having me.

David Roberts

This is awesome. I'm so interested in this widget and its possibilities, but I think to help people get their heads around it. Before we get too deep into anything, let's just start at the most basic level. For those of us who were humanities majors and never took any electrical engineering or anything, let's just talk about what is a circuit breaker. I know people are very vaguely aware of circuit breakers. They are in a circuit box in your garage. Occasionally, your power goes out, and you wander out to your garage and flip switches around and try to see what works.

But, I think that's probably the extent of most people's knowledge. So let's just start there.

Ryan Kennedy

Circuit breakers, electrically speaking, are one of the oldest products on the market. They first were invented, at least patented by Thomas Edison to show you how far back they go. But, they're effectively a method of interrupting the flow of electricity when things go wrong. Too much current, short circuits, things like that. The purpose of the circuit breaker is to simply open the circuit when those things happen and protect from fire, primarily.

David Roberts

And, presumably, protecting the appliances and the things on the other end of the wire, too right.

Ryan Kennedy

Generally, that's the assumption, though I don't know that it's necessarily the explicit purpose. I think the more explicit purpose is to prevent fire. That could mean your equipment may go bad, in the process, but generally speaking, to prevent fire and hazardous conditions from electricity.

David Roberts

And so, every appliance, or device, or anything that uses electricity from the grid is connected to the grid through a circuit breaker. Is that true? Is that a universal rule?

Ryan Kennedy

That's right. Actually, the easiest way to visualize that is to think about the home or apartment, where you have a panel with breakers in it that typically open the front door and you can see breakers in there, and you flip switches and things go wrong. So basically, you have a big power feed from the utility that comes into that home to that panel, and then out of that panel, power gets distributed through each one of those little circuit breakers out to individual loads in your home, such as hot water, HVAC, lights, receptacles. That scales out. Commercial buildings and industrial buildings and data centers are the exact same thing.

I mean, there's more breakers, and they often get bigger, but it's the exact same architecture across the entire planet. Or the circuit breaker always is the thing that sits in front of the thing that consumes energy.

David Roberts

Right. And so, the purpose of these things is to basically shut off current if something goes wrong. How do they do that currently?

Ryan Kennedy

There's a couple of different ways, but the most predominant way is it gets into a little bit of engineering speak. So I'll try not to dive too deep, but basically, it's through thermals and magnetics. So, there's kind of two situations you would have. Let's just pick on the home a little bit because the same problems scale upward to commercial, industrial buildings. When you say, plug in way too many things into the outlet, the breaker will trip. And that's tripped through thermals, means that too much current is flowing, things get hot, and some expansion happens inside of the circuit breaker. And, mechanically speaking, it flips a spring, and causes the breaker to open.

David Roberts

So it's not a heat sensor. It's literally the heat expands something physical, and the physical change trips something.

Ryan Kennedy

It literally expands the metal inside of the breaker to open it up. That's what happens. The second, there's two methods—that was thermal—the second is called magnetic. That mechanism, it operates physically the same way. The actual springs and levers inside of the breaker open up the same way. But what causes it is different. So, magnetic happens when you have, say, a short circuit. Don't do this at home, but if you took one of your wires from your home and just put it into a pool. Lots of current flow all of a sudden, really really fast. That's called a short circuit.

And you don't want to wait for things to heat up because that's when really bad things happen. So what happens is an enormous amount of current starts flowing through that circuit breaker, creates a pretty quick magnetic field that basically pushes the metals apart inside of the breaker to open it up, as well. So it's very much a passive device in the sense that there's nothing in them that say, oh, that's that, or this is that, so, therefore, I need to do this. It's a reaction of the metals inside of the product itself. It's quite an old technology, actually.If you open up the circuit breaker, it looks like a mousetrap condensed.

David Roberts

Yeah, tiny little mousetrap that's basically set off by heat or a magnetic field. You think about electricity these days. You think about all our sort of digital devices and digital controls. And it's a little bit wild that on every single line going to every single device, there's this mousetrap, just so old fashioned. That always struck me. It's so weirdly old fashioned. A little piece of metal with, like, springs on it that springs shut to cut off your electricity. So it's very mechanical. Let's say electromechanical, as you say.

Ryan Kennedy

Yes, very established technology that is, in today's world, relatively ancient from a technological standpoint. But, to achieve those basic results of circuit protection, they work. The basic results of circuit protection.

David Roberts

Right. And it's passive, as we say, just responds to perturbations, and, I guess you would say, dumb, in that, it doesn't know there's no awareness of what's happening or why it's happening. It's just metal expands, it flips, it cuts off.

Ryan Kennedy

That's correct.

David Roberts

So there must be millions and millions and millions of these things. I mean, if there's one of these things between every electrical load and the grid, there must be billions out there in the world.

Ryan Kennedy

Likely, yes. I think your first number was correct. Millions and millions and millions.

David Roberts

So what you've done is make a digital circuit breaker, which works differently than the electromechanical. So why don't we just start with if it's not a physical reaction, if it's not a physical thing happening inside this digital circuit breaker, what is happening? How does it work?

Ryan Kennedy

We can dive into the technical and how it works, and then it'd be good to talk about kind of why we're doing that. So first, the technical. And the reason I say that is because, well, breakers work. Why do anything to them? Right? But technically speaking, what we've done is we've created a digital circuit breaker. More specifically, we call that a solid state circuit breaker. What that is is saying, hey, instead of using mechanics or mechanical devices, meaning like metal on metal, the things we just talked about to conduct electricity through a breaker, let us use semiconductors instead.

So semiconductors are a broad ranging topic, but basically means that you can control current with a small digital input much like you can on your phone or computer, et cetera. But scale that up to power and say well, let's make a circuit breaker with semiconductors so that you can now interrupt, in the case of protection, the circuits when bad things happen with semiconductors instead of mechanics. With that, we overlay. So, what happens when you go to a semiconductor approach? It is very much an analog, as if you said what's the difference in a rotary phone versus a smartphone?

It's making that leap all at once. Because now with digital control being semiconductor control at the breaker, it means that you can now put smart things inside of the breaker and make it do things and add value that it typically didn't have. That's what we're doing.

David Roberts

I just want to stress on the core function of shutting off current in danger. Even on that core function, it's faster. It's better and faster than a mechanical device. Is that right?

Ryan Kennedy

That's correct. By multiple orders of magnitude. So to give you an idea, we are, roughly speaking, about 3,000 times faster than most mechanical breakers in the market. That equates to two things. One is safety. There's some old footage of us, that we don't do so much anymore, of slapping hot wires together to kind of show that safety function. Don't try that at home either. So that's one thing which is actually quite important when you scale into larger buildings because there's more energy and more utility and short circuits can be explosive events. So it definitely helps in that regard.

David Roberts

And you say conventional circuit breakers work, but we should note that there are faults, there are fires, there are arc—what do they call them? Arc.

Ryan Kennedy

Arc flash.

David Roberts

Whatever—yeah. They're not 100%.

Ryan Kennedy

That's right. What's interesting about—not so much in residential although this can't happen in residential—but when you scale up to, like, the larger buildings, commercially in the industrial space and especially in data centers where the utility services are very large, you can have catastrophic events from short circuits that are balls of fire. Now, the breakers will open, but that doesn't mean a ball of fire didn't happen in the process. Right. So that does happen. I mean, in the worst case in my in my past life, I used to design buildings and also worked for, you know, a contracting firm.

So I've seen, particularly in one instance in a high rise building where there was a short circuit in the electrical room on, like, the 19th or 20th floor, and it blew the doors off of the electrical room. And these are like commercial grade steel doors that got blown off the electrical room. So it's an amazing force that can be had when you get into the bigger buildings. But, I digress a little bit. It certainly eliminates that problem. Let's put it that way. Go into a semiconductor just purely based on speed.

David Roberts

And that's just because a digital signal travels at the speed of light. Right. And it's just faster than any mechanical reaction.

Ryan Kennedy

Yeah, inherently a semiconductor is going to be, like I said, including propagation delays and things like that within the compute and sensing, we're around 3000 times. And to give you an idea, that's in the microsecond range as opposed to millisecond range or millisecond spurl in the case of mechanical circuit breakers. Now, okay, micro milli. But electricity does move virtually at the speed of light. So arc flash propagates not quite that quick but pretty quick. Whereas that time really really matters. So yeah, the impact to the safety is effectively arc flash just doesn't happen on the output of our product, even in the largest utility services.

David Roberts

So you get the basic function of the circuit breaker is faster and better. But then, as you say, you have this device that has semiconductors in it and you can put other stuff in there too. So maybe just describe like, I know what a circuit breaker looks like. It sort of fits in the slot in my circuit box, so I have the vague idea kind of what it looks like. What does your thing look like? Is it the same size? Does it, what is it composed of? What does it look like?

Ryan Kennedy

Today, what we have on the market doesn't look so much like what you would see in your home. It looks more the size of a commercial grade circuit breaker. So can't fit in the residential panel yet, with a strong emphasis on yet, but we do have a similar form factor of commercial grade circuit breakers.

David Roberts

And is that just the difficulty of shrinking down little computers and stuff? I mean, is it that simple?

Ryan Kennedy

Not quite the compute, it's more the power semiconductors that actually do the switching. So we're on this incredible curve that probably could take up a large portion of this conversation but also simplify it to basically mean that the world of power semiconductors is advancing quite under the hood actually of everything else that's happening. Power semiconductors are what enable electric vehicles to be as efficient and as effective as they are. Power conversion and solar—UPS has lots of things power conversion related. They are advancing at a pretty rapid rate from a power density standpoint. Power density meaning like how much power you can actually pack into that power semiconductor.

So power density is going up, size is getting smaller. That plays into our own internal strategy as a company to optimize the form factor in the coming couple of years to where it becomes much more of a universal product that can fit into existing panel boards. But today, we have—it looks like a small box that fits into our—we manufacture panel boards as well, so you don't have to figure that out, but we figured all that out for you. Make panel boards, circuit breakers, everything as a whole system.

I always say that there's two major components to a solid state breaker. There's a brain and a heart. The brain is the control system, the stuff that software defined, that makes the thing work, provides cybersecurity, things like this. And then there's the heart, which is the power semiconductor that the control system attaches to. Yeah, very much like a phone, in a way, in the sense you have a brain, you have a heart and a phone as well. And that combination creates a pretty powerful component. And electrically speaking, that's what we're doing in this space is really enabling far more than we used to.

David Roberts

Right. So maybe one way to think about it is that electromechanical, old school circuit breakers, only had hearts. And now you've added a brain to the equation.

Ryan Kennedy

You could see it that way. Yeah, absolutely.

David Roberts

And so if all these things are digital and if everyone has a little computer in it, basically, if we could think of these as tiny, tiny, tiny little smartphones, I know one thing that comes to people's mind whenever I discuss digitizing anything is security, cybersecurity. So if your power in your home or your commercial building or whatever, if every bit of it is running through a tiny little computer, people, I think, naturally wonder, like, what happens if they get hacked or someone takes over, can control the power flow through my entire building, et cetera, et cetera. So how do you deal with security?

Ryan Kennedy

Ultimately, circuit breakers are life safety devices. That's the core function. That's the phone call and the phone right? It has to make the phone call.

David Roberts

Right.

Ryan Kennedy

So we're life safety devices. So when you shift from purely hardware to software defined hardware, in any industry, the right approach is that cybersecurity is the number one priority in software. That's been our approach the whole time. Now, there's a couple of ways to dice that. One is to say, the way we describe it is, there's Stuxnet and then there's hackers. And so we want to guard against both, and we call it Stuxnet as in, if you know what that is, that was the uranium enrichment thing that read all about that some other time. But the point is, in that case, the biggest threat is to make a critical device be something that it's not supposed to be or do something that it's not supposed to do.

So that is priority one to say, okay, above all things, the breaker can't be made to be something that is fundamentally not and create an unsafe condition. So how we're attacking that is really good. I'll just tell you that, There's some secret sauce there that effectively amount to there's built in safeties that are still digital, but you basically can't get into under any circumstance. So that's priority one. And then the next priority says, okay, well, if we solve that, which we have, then the next one is to say, well, how do we keep folks from coming in and just say, shutting power off or doing funny things.

Shutting power off is probably the number one funny thing there. But how do we prevent that? So, I'd like to say that in the world of software, there's this standard out there, and you follow that standard and you're good. That is not the case with cybersecurity for anybody. It's always evolving, and you're always trying to tackle it and address issues as we go along. But the core things that we do is end encryption on both software and hardware, which means that we have encryption elements physically on the breaker, encryption elements physically on our onsite management tools and cloud software.

So that's actually quite critical, is to have the physical encryption as well as the software based encryption. There's many ways you could go about cybersecurity in the sense of many different entities have cybersecurity standards, but the one that we're headed towards now is called FedRAMP. That's really the direction we're headed from a standard standpoint. That's to do work for the federal government. Things like this, you have to be FedRAMP compliant or certified. So that's the direction we're headed. We're not certified, yet. We anticipate later this year we will be. But nonetheless, that's kind of how we've addressed it. That is one of those areas that I wish there were this, like, gold star. You got that. So everyone's good.

David Roberts

Right. Because there is a gold star in the circuit breaker safety. The heart part, the UL standard is pretty well...

Ryan Kennedy

Yeah, UL is kind of our FDA equivalent in the world of circuit breakers. Yes.

David Roberts

Right. And you guys have passed those tests?

Ryan Kennedy

We have. We're the first and only company in the world who have ever done that, for a solid state digital circuit breaker.

David Roberts

Yeah. And one thing, I don't know if we mentioned this, but this made an impression on me when I first learned about it, so I just want to throw it out there. I think when people think of networked devices, they think it won't work without the network. So it's just worth sort of emphasizing, here, that every one of these circuit breakers has the firmware and the software and the operating system inside it. So it is, in some sense, a self contained little machine like, it does its thing, even absent networking.

Ryan Kennedy

Yes. We just call that fully autonomous. So, yes, they're fully autonomous devices.

David Roberts

Right. And one more thing I wanted to mention about the move from conventional to digital and circuit breakers is that this eliminates a lot of equipment that traditionally goes around circuit breakers in sort of commercial and high value areas. Sort of safety equipment that kind of gets larded around circuit breakers. So maybe just talk a little bit about that, sort of like the kinds of things that you've consolidated into one device here.

Ryan Kennedy

Yeah, absolutely. So it's worth stating that the easy part of the power distribution world or electricity is that, as we said, there's a circuit breaker that sits ahead of everything that consumes energy. The hard part comes in where if you look at, well, what do we actually do with electricity? All electrical things require really three things. So any application of electricity requires protection, visibility, and control. This is related to HVAC, certainly related to EV charging. In the case of HVAC, you have protection in the sense of a circuit breaker that feeds the HVAC system. Inside the HVAC system, you have a control mechanism that actually controls the flow of energy in its own little way. And then you have visibility either through software or through the thermostat. You could say the same thing for basically everything, electrically speaking. EV chargers, certainly same thing. Every EV charger that's been built out there, with the exception of Atom Power, is fed from a breaker, always, inside the EV charger, whether it's a pedestal or wallbox, there's visibility and control. And you could say the same about elevators and many, many other things that we use electricity for.

So basically the way we look at it is what do we do with electricity? Well, we want to protect it, but we also want visibility and control. So what we've done is basically to say, okay, well, let's offer superior circuit protection, but let's also have the ability to have visibility and control because, well, that's what we do with electricity. All within the circuit breaker. And so I think you asked a sort of broader question like what are we doing that's kind of adding some of those things in. Inherently being a semiconductor device, it's easy to control the flow of energy. As simple as that sounds, that's monumental because it is extraordinarily difficult to make a circuit breaker that can universally control energy. Meaning, universally, as in the home or in the data center, or in a commercial building or industrial building with the same device.

David Roberts

Yeah, we should pause here, just to add, because I don't know that we ever actually mentioned it, but physical circuit breakers, old school circuit breakers are also designed for a specific voltage, right? They're sort of locked into a specific voltage. Whereas if you're doing it with computing power, you can adjust to different voltages with the same circuit breaker. Is that right?

Ryan Kennedy

So, think of it more as different amperages.

David Roberts

Amperages. Sorry, I get those confused.

Yeah, it's okay. So if you go to, name your hardware store. If you go there and you go say, "I want to buy breaker." The questions are going—your menu, I should say, is going to be, well, do you want a 15 amp, a 20 amp, a 25, a 30, a 40, 50, 60, etc. And then, you know, you, you buy that product for what it is, say, call it a 30 amp breaker to feed my, I don't know, hot water heater. That's going to be fairly typical. It's always going to be a 30 amp breaker forever and ever and ever. Which means from a UL standpoint and a safety standpoint, you can only put that on 30 amp circuits.

Right?

Ryan Kennedy

I will say, yeah, that is an interesting benefit that I think evolved along Atom Power's way, which says, well, now that you become a digital circuit breaker, you can effectively be a lot of circuit breakers in one, which is what we do. And you can program our circuit breakers from 15 amp all the way up to 100 amp. And it's you all listed for each increment in between. So that's pretty powerful when you consider, roughly speaking, it depends on your metric. About 90% of the breakers on the planet are 100 amp and less. So we're hitting a huge market with one single product.

David Roberts

Right.

Ryan Kennedy

So that's certainly one thing from a protection standpoint, and thank you for reminding me, on that. That is a feature I often gloss ever, and it is unique for what we're doing. But the visibility, obviously, through the software we have and the ability to see the breaker and control the breaker is the other thing. And to be able to tell the breaker what it is. And I think that's the key thesis within Atom Power, which is to say, well, let's not just create a digital breaker, but let's create it in a way to where you can tell the breaker what it is instead of buying a breaker.

Well, because you have to for protection and then having to buy a specific built appliance for the application that you need to perform, like EV chargers are a strong symptom of that.

David Roberts

This is a perfect segue here because the first time we talked years ago, I think you were sort of messing around with big commercial facilities and industrial buildings and kind of a little bit all over the place, but you just got $100 million investment to do, specifically EV charging applications. So tell us why all these things we're hearing about digital circuit breakers, why they're specifically well suited to EV charging.

Ryan Kennedy

So you're right about the earlier engagements we had, with great customers, were in the industrial space, primarily. Certainly prior to the investment, we saw a need, a major pain point, when it came to electric vehicle charging at scale. So charging vehicles has been around quite some time. For the longest time, it's been relegated to if it's outside of the home, to be candid, often optics put a couple here, a couple there just to have them. Right. But as we've progressed, particularly in the 2020s, here we are seeing, and we saw this is why we're in this space is we saw this, that there were some major, major problems with charging at scale.

Meaning like, instead of a few chargers put in hundreds into a single facility or complex, heck, even tens, but certainly in the hundreds, things become really problematic really fast.

David Roberts

And that's fleets. We're talking about basically fleets.

Ryan Kennedy

Fleet, multifamily, and hospitality.

David Roberts

Right.

Ryan Kennedy

Yeah, anywhere where you're going to have lots of chargers. But yeah, particularly fleets, always need lots of chargers. Multifamily, as well. So the problems start becoming quite extreme in those cases. To give you an example of what I mean by this, we, we have a project up in Queens that is roughly now it's, you know, close to 700 charging stations that's going into generally the same location that is on the same, you know, substation grid, network, etc. If you do the math on that, you're basically connecting up to between six and 7 megawatts of potential load onto that grid, just in that.

So appliances don't solve that very well, which is more or less what level two chargers are today. There are appliances that sit in front of the car and you plug it in. When you start talking about that scale, it's really critical that your infrastructure is the smart thing that can actually solve pain points such as, hey, how do we not do that?

David Roberts

How do we not have a bunch of cars charging at once and overload basically the substation, because you could fry a substation if everybody like if you had 700 chargers going all at once.

Ryan Kennedy

Absolutely. Things like that. Things like me as a customer, how do I not spend the amount of money that you would otherwise spend on the infrastructure alone to make that happen? Meaning transformers, wires, switch gear, things like that. And then, with that much energy, how do you not just say, don't overload the grid, but how do you actually, effectively, energy, manage in real time against things like peak loads, or peak demand, or time of use and keep energy cost as low as you can and charge during the right times of the day and when there's a grid event and things like this.

All that requires real time infrastructure intelligence.

David Roberts

Right. So the EV charge has to be networked with one another. They have to be communicating with one another, basically. Is that not something they can do now? If I'm looking at a fleet with a bunch of chargers today, are the EV chargers just freestanding, isolated, or did they talk to one another now in other ways?

Ryan Kennedy

Yeah, oftentimes they are. But there's where the problems really started was in the fleet, because that started becoming apparent, right, the more that they were putting in. To answer your question, can EV chargers today, outside of Atom Power, talk to one another and do some level of energy management? The answer is certainly, yes. That's the start of the conversation though, the devil in the detail says, okay, put that in and make it code compliant with our national electrical code and get the inspector to sign off on it and guarantee the billing owner that that's going to operate always, no matter what, safely. There's where things get problematic.

So, if you are the life safety device and you're already connected and you got to buy a breaker anyway, for each EV charger, things become so easy to do. Now it's built into our panels breakers. It means the National Electrical Code to the t. Inspectors have no problem with it. And there's a lot of things that become super easy all of a sudden. So without going into a ton of complexity, being the infrastructure, being the breaker, being the panel board where the breakers sit, makes it super easy to solve those major pain points with very little effort from the customers' standpoint.

David Roberts

Right. And I think the way to think about this, and kind of what turned the light bulb on for me, is if your intelligence, your software, your coordination, et cetera, is in the circuit breakers that are in the circuit board, that means the EV chargers themselves can be dumb. So that like the things that are out there in the parking lot can just be dumb conduits. Right. Because the control is elsewhere. And this is something that's always struck me about the EV charging space. It's just like you have these, today, you have these like really incredibly complex high power computers sitting out in parking lots. Which always kind of struck me as a little bit insane, that normal customers are interacting so directly with something so expensive and kind of complicated.

Ryan Kennedy

Well, you're hitting on the next pain point, which is, again, at scale that becomes very problematic that your most expensive asset in that ecosystem now sits in front of the vehicle, typically outside.

David Roberts

Right.

Ryan Kennedy

So the second question outside of the infrastructure cost is how do we not do that? Can the pedestal or wall box be—wallbox not the brand, but box...electrical—can that thing be very low cost, low maintenance, zero maintenance, preferably? Whereas if it did get damaged, really nothing happens, other than I can easily replace it. And the answer is yes, because... Yeah, you're right. And once you become intelligent infrastructure and you sit safely back in the electrical room, the pedestals that have the cord sets on them become very dumb in air quotes. But the system is really smart.

David Roberts

Right. I'm curious what sorts of things having this kind of central intelligence, controlling multiple EV chargers can do. We mentioned it's going to prevent, whatever, 700 cars from charging at once. That's the kind of baseline it's going to prevent so much power from running through the system that it fries the grid it's on. But what else can you do with that sort of central computer control?

Ryan Kennedy

Yeah, so I would say there's a ton, but the highest value ones are going to be certainly in energy management that we've been talking about here that relates more to than just to saying, hey, prevent 700 cars from charging at the same time. It says, hey, you know what, let 700 cars actually charge at the same time, but let's intelligently distribute so that they can all get a charge and not cause major problems and major electrical bills. So that's one, I mean, I would say the other one is it is extremely easy to create a campus environment as well with the system. It kind of relates to what we spoke of earlier. Like the network connectivity is completely different from any other system, as in like it's really easy to do. So it's very easy from a campus wide perspective to say, hey, how do I connect this campus of chargers to a single system, single pane of glass that also does energy management, that also saves on electric bills, things like that. So things become very easy through that network piece.

There is another element to it that says, well, kind of goes off. The programmable breaker to some degree is when you buy an EV charger today. This is another pain point. Again, at scale, it can sometimes also be a pain point, not at scale, but when you buy one today, it's fixed. In other words, level two charging, which is most of the charging, goes all the way up to 80 amps. All right, so just take that as a number. Well, if you buy a charger, it's going to come in several different flavors. You can get a 24 amp charger, you can get a 32 amp charger, a 40 amp, a 48 amp, and then on rare occasion an 80 amp because 80 amps kind of hard to do for various reasons. There's just less of those.

But nonetheless, what you buy is what you buy and you're stuck with that. So if you buy a 32 amp charger, which is most of them on the market, that's it. You're not going to get 48 amp, you know, that a Tesla needs. You're not going to get 80 amp. That a Ford f 150 needs. You got 32. So you're probably picking up this a little bit, that with a programmable breaker now, on the other hand, what I can do is we can just simply go the full range of charging through the same product.

David Roberts

Right.

Ryan Kennedy

You're buying a full level two now, regardless. You just tell it what it, again, tell it what it is. And that can happen real time. You know, I could start off as 48 amp charger and then move up to an 80 amp charger, you know, a couple of years from now as more demand picks up for adm charging with the same infrastructure with no stranded assets. And that's absolutely critical. So let's say that's another one.

David Roberts

So I got the intelligence is in the circuit board and they've got these sort of dumb chargers out in the parking lot. So like a bolt could pull up and charge at that charger and the circuit board knows the right amperage level. And then an F-150 could pull up to the same charger and get more charge because the circuit breaker knows.

Ryan Kennedy

Correct. But it's not enough to say, because you were mentioning network a minute ago. It's not enough to say, well, a programmable breaker alone solves that. It solves a major chunk of it, which says, well, I can now program my system to be 80 amp, not 48, yes. But there's another element to it which says, well, to do that, then again, think of that example of 700 chargers. Now, if I, if I boost, say, these chargers over here to 80 amp, say, call it 50 of them, right?

David Roberts

Right.

Ryan Kennedy

Now, the entire system has to communicate amongst itself because, well, they sit on the same utility to say, well, oh, those have 80 amp now. So we need to see how we can spread the rest of them intelligently, so these other folks get a charge while these get an 80 amp charge. So it's still a system level network event. Right. And we make that easy and out of the box effectively. Whereas it becomes extraordinarily difficult, if not impossible, the way things have been done today.

David Roberts

Right. Because I guess if you're buying multiple ones today, you're just sort of bricolaging them together piece by piece.

Ryan Kennedy

Correct.

David Roberts

Seems a lot more like people are being asked to kind of wing it a little bit. And as I'm sure you know, as having interacted with customers, if I'm just like an owner of a hotel or whatever, I don't want to know, you know what I mean? I don't want to have to think about this much. I just want to plug something in and have it work. There's not going to be a lot of electrical systems management from these customers.

Ryan Kennedy

You are absolutely right. And that brings us to probably, I would say, the core of how we're personally selling, but also what we're seeing the market in this space look for, which is EV charging is one of those unique animals you mentioned, hospitality, where it's unique in the sense that if you offer it and it doesn't work, the perception of your facility becomes different.

David Roberts

Right.

Ryan Kennedy

If the lights out or the TV doesn't work in the hotel room or something, it causes nowhere near the impact that your EV charger not working does. There's various reasons we think that is. But anyway, so what's happening is and you're right, those hotels, especially hotels, don't want to think about this stuff. So being able to package it up in a way that is highly effective out of the box and by the way, extraordinarily reliable. Because we're a breaker now, we're falling to a completely different standard. That becomes absolutely critical that you have a super reliable, super easy...I don't have to think about energy. I don't have to think about demand. I don't have to think about this stuff, from a hospitality, or multifamily, or fleet perspective...that becomes a very powerful thing. But it's a culmination of kind of all the is stacked on top of one another. Smart breaker panel connected, dumb pedestal system level approach.

David Roberts

Right. And this is like if I'm the hotel owner, do I just plug and play and this thing runs itself forever...or is Atom involved, somehow, in monitoring and running? Are you involved in operations at all? Once you install these things, who takes over operations?

Ryan Kennedy

I'd like to say we have a singular way of selling, but it's such an early market still that we don't. We sell all the way down to just hardware. All the way up to full managed services. So we have a 24/7 network operation center within our facility that we monitor key customer assets that we have service agreements with, particularly in hotels. That's one of those sectors that ask for that frequently because the hotels don't...they want to equate EV charging rightfully so to WiFi. You don't think about the router. Yyou don't think about gigabit or whatever that is. It needs to just work. I can connect to it, and it works. That's it. That's all I care about, rightfully so.

David Roberts

And one other question about these EV control systems. Obviously, the first thing on everybody's mind is the sort of EV facing part of it, managing which vehicles are charging and how much at what time. But of course, if you have this intelligence and software you also could think about communicating with the grid. And so, I wonder how much, because once you are getting up to 700 whatever. I don't know why we picked that number out. 700?

Ryan Kennedy

It's actually a project we have up in New York.

David Roberts

Oh yeah. Well, you've got 700 vehicle charging stations and 700 vehicles charging, potentially. You've also got a fairly large dispatchable, at least somewhat controllable load, which seems to me could be quite helpful on some congested grids. So how big of a piece is the grid facing intelligence in these things? And I guess some of that depends on utilities and whether they're ready to do this kind of thing but I just wonder are you sniffing around in that space?

Ryan Kennedy

I would say the way we're approaching it is, to answer your question, your hunch is dead on. That is a major utility concern at scale is to be able to have some level of at least visibility if not some level of demand responsibility in those events. We're not starting there, really. We're starting to satisfy what customers need right now, like, what are the most important things for them in the sectors we're in. So we see that as an evolution and it is happening. We are engaged in multiple utilities, just to put that out there. But today it's not so easy to say okay, well let's control that.

What first needs to happen is customers need to start utilizing. The utilization picks up, that utilization picks up more. Then those discussions, the real, like, "what do we do about it" discussions will start happening with utilities we predict.

David Roberts

It's going to force the question. If you've got 700 vehicle loads coming on and off your grid I mean, you kind of really can't just ignore that.

Ryan Kennedy

That's true. But with the evolution of electric vehicles and the adoption rate, all 700 aren't going to be on today. I think that's the point is, like, as more and more vehicles come onto that system—in relatively short order the next couple of years—then things become more apparent. Right. Then things become more potentially problematic for the utility. And we do expect that there's an engagement with the utilities, at various levels, for some sort of a demand response tie in. We certainly see that, but we're not day one pitching that as part of—the product is capable, absolutely capable—it's just the connection rate from the vehicles to the chargers has to pick up more and more and more and then eventually that will begin discussions once it becomes problematic for the utility, but not before it becomes problematic, typically.

David Roberts

Yes, that sounds right. So you're out there now selling these systems, these EV charging systems to fleets and campuses. I'm sort of curious, who are the customers so far? What sectors were most eager for something like this to exist?

Ryan Kennedy

Well, they initially fleet, so think parcel pickup delivery fleet. That's where we kind of started off our sales, was there. Multifamily is a close second at this point because they have the same pain points. They both need to have lots of chargers and they both have pain points associated with, well, effectively becoming a gas station. Trying to minimize costs associated with that.

David Roberts

Right. Yeah. There's one other thing I forgot to mention when we were talking about this earlier, that since you mentioned multifamily, I'll just throw it in here. Another sort of interesting application of this is if you own condos or apartment buildings or something, you might want to have certain chargers dedicated to certain people. Or you might want to have certain chargers that are available only in certain times of day. Or you might want to have one charger that's shared between two people who live in your apartment building. And all of that is of course, you can do, if you have this central control system, you can do a lot of micro fiddling with the individual spaces.

Ryan Kennedy

Yes, already built in, super easy to do.

David Roberts

And so the EV charging space is a very obvious application of this. A place where some central control of multiple devices is most obviously needed, and the demand is rising very quickly and that whole industry or set of industries is in really kind of like it's a crazy time of ferment in and around that stuff... But as we emphasized early on, as I emphasized when I wrote about this back in 2019, really there's no end to the possibilities here because the way I think about it is every single device on the grid is connected through a circuit breaker. And so if circuit breakers can become smart computing devices, then basically every device connected to the grid becomes smart or at least somewhat smart, without having to put all that programming and smarts and computing power into the appliance itself. You're putting the intelligence in the connection to the grid. I don't know, the more I think about this, the more it kind of blows my mind. That what you could do, eventually, if some substantial portion of the millions and millions and millions of circuit breakers in the country become smart. I don't know, it just seems to open up like the sky is the limit kind of thing. So I'm just curious, like, you're moving into the EV space for obvious reasons. It's hopping. There's a serious demand for precisely this sort of thing. But do you have plans?

Like what's next after that? Because I could just think of a million different...

Ryan Kennedy

We do, as I think, hopefully, the listeners have picked up and I think through our conversation here, it's probably become apparent that EV charging for us is viewed as an application of the breaker, but not as the thing.

David Roberts

Right.

Ryan Kennedy

Much like many other things are. That will be scaling in the near future, in a way that is unique, in a way that is very easy and primarily of which becomes truly universal. So we are, you know, evolving product into a form factor that, you know, like we're universal today from a product standpoint. In other words, you can put us in any building, anywhere, it doesn't matter, same product, and we're capturing 90% of the breaker market doing that. But we're in our own panel. As we evolve, that will shift into a form factor that fits into most panels, at least in the US. And can be adapted for the European markets and add further ability into the product to effectively be able to tell it what it is.

So we see a future. That the breaker that you have to buy anyway, instead of going and buying a meter or a control device or EV charger or industrial control, whatever it is, you just tell the breaker you're that thing, and it does it. That's the world we see. Now at scale, at extreme scale, I always like to think in kind of polar extremes, extreme scale of that, because consumption defines the grid, not the other way around, is you effectively could have control of the entire grid.

David Roberts

Yes.

Ryan Kennedy

Also obsolete about 80% of the electrical products on the market at extreme scale.

David Roberts

That's the other thing I was thinking about is like all those things you're talking about building into the circuit breaker. Those are entire freestanding industries, like long standing industries. This is a huge amount of stuff, consolidation here, if nothing else.

Ryan Kennedy

Correct. I think what we're trying to do is—I hate to use the phone analogy, but it's very similar, but in a little different way—is that we are looking to electrically speaking, unify the applications and unify the customers into one platform. I mean, many other industries have done that most visibly, the phone. The applications and the phones get used by everyone. And we want the same to happen in the electrical space. That there's this massive gap...that there are more electrical products on the market than probably any other industry because just over time, as the industry has evolved, we've just made specific things for specific applications for specific customers.

David Roberts

Right.

Ryan Kennedy

That's what EV chargers are. They don't have to be that way, right? The breakers have always been there, but it's not thought about much. So let's make that thing that actually does it since, well, it's part of the electrical system, right? You have to buy it anyway. It needs to be there. So let's make that the universal thing. And I think that's where you mentioned the investment. I think that's probably where Atom Power differentiated. Because if you were going to go make that kind of investment, the 100 million into, say, an EV charging company, the problem is it may not be a problem, but I mean, the way we look at it is, well, that's all that they do.

The product charges a car, you can't use it for this, you can't use it for that. That is it. That is what it's going to do. Whereas Atom Power, it's like it being an application of a universal device, means that, well, as we see this market over here take off, we apply to that market and we see this market over here, but we apply to that market. Why? Because all of them require breakers.

David Roberts

Right? So, like a facility with a central circuit board controlling multiple EV chargers, there's no reason that it couldn't plug other types of ICEs into that same circuit board, and it could coordinate all of them alongside the EV chargers, with the EV Chargers. There's nothing EV specific about it.

Ryan Kennedy

Exactly.

David Roberts

I'm thinking about scale here. One of the things I think people are starting to become familiar with are sort of smart panels at home...like this company, SPAN, has the smart panel...which is sort of doing in the home what you're talking about doing with EV chargers at big facilities, which is just controlling loads and balancing loads and timing things and all this kind of thing. So in a sense, a smart panel like this, in the home, would kind of make the home into its own little micro grid, right? This own little independently managed micro grid.

And I'm curious about scale. What does it look like as you scale bigger and bigger? Is it just stacking these little circuit breakers on top of one another to eternity?

Ryan Kennedy

That's actually a really good fundamental question, is that breakers cover a large swath of land when it comes to electrical space, right? They go all the way from, you know, technically ten amps in the US. All the way up to 5,000 amps.

David Roberts

What does a 5,000 amp circuit breaker look like? Is it..

Ryan Kennedy

A refrigerator, basically.

David Roberts

Right.

Ryan Kennedy

But, but the point is, is like, you know, when you get into big distribution systems, you start off with a goliath utility and you finally work your way down to the small, what's called Brandt circuit breaker. That basically means last breaker in the system. That's where we play, is in that Brandt circuit breaker, meaning the last breaker in the system. And like I said, 90% of those are 100 amp and less. And so you capture that market, you effectively capture most of the grid, you know, at scale. So in other words, it's like saying 100 amp and less, 90% of your loads are on that, you know, and that's what we focus.

David Roberts

I mean, if you let your mind drift in sort of futuristic utopian direction because I think about this stuff a lot. It's like what sorts of things do you think could be unlocked? What sorts of things do you think could become possible? When it's not just, you have this occasional smart load here and smart load there, but suddenly the bulk, the majority of the loads on a grid are smart controllable. I'm just curious what you think sort of like the emergent big picture effects of that will be like what will intelligence do for the grid on kind of the macro scale?

Ryan Kennedy

I think as you scale out, especially at the extreme end, you can do some pretty granular things, like, neighborhoods, electrically, are talking to one another, and that becomes apparent where you can shed load without interrupting someone's life and save a substation or save another generator from having to come online. It kind of speaks to demand response, but in a different way that says it's not brute force, shut things off. Instead, let's all talk to one another and know that, hey, the conditions look like this. This home is unoccupied, likely because the electricity consumption is so low.

The imagination, there's no limit. This is the thing, again, because the consumption of electricity is what defines everything else...is once that becomes a unified platform and understandable ecosystem made of billions of devices, that becomes very powerful in ways that I don't think we've even thought about yet. But at a high level it means that now, electrically, you can speak to one another, and it's not like by home. It's not like my home is pulling 20 kilowatts, your home is pulling 15. That doesn't tell you anything. What does tell you things is the patterns of usage, of EV charging, of HVAC, of hot water, of lights.

There's a lot there that, at scale, gives you a ton of intelligence that you can do a ton of things with, that I think the sky is the limit.

David Roberts

Yeah. At the base level, you are ensuring that every bit of electricity that's generated is used efficiently.

Ryan Kennedy

Correct.

David Roberts

And that alone is going to just take a huge whack off. I feel like the demand for new power plants and new capacity, you're going to be able to avoid a ton of new generators and new, maybe even new high voltage lines just by using the electricity you've got.

Ryan Kennedy

Yeah. You just hit the core of the company, our company's thesis. This is actually what we were founded on...which was in the future, and we started in 2014, there was going to be this probably once-in-a-century event of transferring a lot of energy—think of that, not electrically, just pure energy onto the grid.

David Roberts

Yeah.

Ryan Kennedy

So that's happened. It's certainly happening now. I think we call that the energy transition now...But we had this thesis in 2014 where we said, well, you basically have like three options there, because the grid can't sustain that level of what we were predicting what's going to be transferred on the grid, primarily by vehicles. You have kind of three options. You either create more generation, somehow, even though we're reducing generation through baseload like coal and natural gas, rightfully so. You either do that, which is going to be really hard to do, or you have large scale energy storage combined with solar, which we have one of those, not both, solar, not so much energy storage, or you have large scale demand response. But the way to do that is through a universal method, not, not a disaggregated, like, you know, thermostat adjustment or smart EV charger here, but not there thing. It has to happen at a macro level scale, at the infrastructure level. So this is fundamentally why we actually started down this path, is sort of seeing that need in the market in the future. And this was 2014.

David Roberts

This comes up over and over again. You talk about transferring the heating load in the frigid Northeastern part of the country to electricity. That's A) a huge load, and B) the timing of that load is very different than the timing of the load it's adding onto. And that's just, you either meet that with brute force by building a shitload of new generators and power lines and everything else, or you just got to get much much much smarter about how you use the power you've got.

Ryan Kennedy

Yeah. And the low hanging fruit, at least conceptually, is that you can be a lot smarter. But it's hard to actually execute on that without a universal platform that fits all industries—which at the end of the day, because again, everything's fed from a circuit breaker—that needs to be the thing that is innovated on, not a new appliance. But it's really hard to do that, super hard to do. I could go into why breakers are hard to actually innovate on, but nonetheless, it is the hardest path to pick.

David Roberts

But you're there for a big chunk of applications and can see, at least in the future, a form factor small enough to go into residential boxes. Right.

Ryan Kennedy

Yes.

David Roberts

And once it's in the box, it's programmable, which means it's not the same thing. It can be, like you keep saying, it can be a bunch of different—once it's in the box—it could be whatever we need it to be as needs evolve. This makes such sense to me. Like I remember when I first encountered it back in 2019, I was like, yeah. If you have one kind of device that is required for every single electric load, then why not make that the device that's smart, instead of creating new smart devices for every different kind of load. Why not just make the one lego building block, that's the whole grid, make that smart and then you've got all your smart devices in one? Seemed sort of like a smack your head obvious kind of thing to me. So why are you still the only one with a certified digital circuit breaker? Like I would think other people would be moving in this direction sooner or later.

Ryan Kennedy

You know what's interesting is that, I will tell you this, we were not the first ones to come up with the idea of a salt tape breaker. The idea of that actually is quite old. Traced this back to the mid-80s, of a semiconductor based circuit breaker by some large companies. So two things. One, is, I think, the natural question after that would be well, like okay, well, "why didn't anybody do it?" So, I think, there was probably—let's start there. There's probably a couple of things. One, is that the circuit breaker space is an interesting one. It really is. And the reason is because it is a super old industry. That's basically dominated by four companies, across most of the planet, who have all been building breakers for over a century each. That's just kind of the nature of this industry. So by the way, worst pitch ever. Hey, we're going to build a new breaker, where four companies dominate the planet, and it's all hardware and life safety, side note. But anyway, the point is it's a unique industry in that sense. So I think probably there were some "The Innovator's Dilemma" there a little bit because once you establish a means and methods and that's how things are done, it's really hard as a large company to move away from that and disrupt your own business.

David Roberts

Yeah. And it seems like building tiny computers is very different than building tiny electromechanical devices.

Ryan Kennedy

Yeah.

David Roberts

I don't really know very well, but it doesn't seem like a lot of transferable knowledge.

Ryan Kennedy

It's definitely a different field. Right? I mean, once you say hey, let's build a solid state breaker, you now get into the realm of power semiconductors and physics that don't haven't historically applied in traditional circuit breakers. So, there's a few things. I think one is there were some enabling technologies that evolved since the 80s like computing, especially, in sensing and speed and power semiconductors, certainly. But I think the other piece of that is a bit of "The Innovator's Dilemma" that says, well, if I'm a company who's making breakers, but I'm also a company who's making industrial controls, and I'm also a company who's now making EV chargers.

David Roberts

Right.

Ryan Kennedy

It's so difficult, so difficult to say, well, why don't we just make that one device.

David Roberts

And cannibalize all our other product lines.

Ryan Kennedy

Yeah, look, rightfully so it's difficult. Because if you've been set up that way and your company evolved that way, I mean, they're full of smart people... It's a structural challenge, right, to go do that. So I think Atom Power came out would work in a way, and that we're all from the industry. Me, specifically, I was an electrician, so I kind of used to design buildings. So I would like to say I think Atom Power had a view of the world that was much more simple and holistic, that says, well, "why should products be defined by the application? Why can't the product define the application?" Which seemed just a natural question. But then we started from there. I think that there are since Atom Power, there are emerging, I would say, technologies within established companies, as well as some startups who are trying to do effectively what we're doing. My view on this, is we welcome it because, coming from the industry, we believe what we're doing is the right thing to do. We also know we can't service every single customer base on the planet.

David Roberts

It's millions and millions, as previously discussed. Well, I'm curious, if somebody, if another company makes a digital circuit breaker, do we know already that it will communicate with yours? Or does that remain to be hashed out? Like, is there a standards are there standards issues here?

Ryan Kennedy

Well, it depends what you mean. I mean, there's a UL standard now that basically Atom Power defined the path for and establish with UL.

David Roberts

But I meant more of the software kind of intercompatibility. I don't know anything about software, so I don't even know what the question is. But insofar as this is meant to be a universal system, is it going to all be operating on the same sort of software protocols?

Ryan Kennedy

Yeah. Yes and no. So we do see a world where from an application standpoint, in other words, if you're say a facility manager and you have one pane of glass you're looking at for software, interoperability between devices is going to be necessary.

David Roberts

Right.

Ryan Kennedy

So the way we structured our product is that the sort of core firmware and stuff is proprietary because, well, it's hard to open source that, because it's life safety, it's UL. It's like there's a lot of whizbang stuff that happens in the breaker to make it do what it does, but then the layer on top of that which says, well, okay, well, let's set this up as an EV charger, that layer of software, we're open protocol and API based, as well. So you could tie even today, you can tie an existing building management system into our software, for example, the way it should be for other manufacturers if they come to the market. We haven't seen you actually come to the market, yet, because, like I said, it's super hard to do this, and I think it takes so much time and energy. Atom Power is dedicated years to this, at this point. It's a hard thing to do.

David Roberts

Was there any sort of public policy assistance or is this all private investment, and are you making money now? I'm curious because a lot of industries, when you're going up against a super giant incumbent industry, you need help to cross those first few humps. Has this all been private money so far?

Ryan Kennedy

It has, yes.

David Roberts

And you're out selling things for profit now. You don't feel like you need any help.

Ryan Kennedy

Well, I mean.

David Roberts

Not like you're going to turn down help if...

Ryan Kennedy

We always welcome help, but in the form of investment, we're capitalized for quite some time at this point, and our goal is to not ever need to raise funds again. That's kind of... So we need to be... We are post revenue, not pre-revenue, but as a company, we have to get to a sustainable level of profitability, right? Because from an investor, in a markets perspective, the markets are very harsh right now on companies in the new energy space. There's many publicly traded companies, especially the ones that went this backroute, you can see this on right now, which is kind of a Goldilocks scenario because it's a high growth market, yet if you're not profitable, investors are punishing you on valuation, specifically. So we need to become a very profitable company in this space, but to sustain ourselves and to continue to grow products, organically, right, and not continue to raise money. That's what we're headed towards.

So my point is, it's really hard to make money in the energy space, as the markets have shown. So the best companies are going to be the ones who have a sustainable technology, but also a sustainable business model to where they can take the profits and continue innovating, to further advance and create solutions to the major pain points that are out there. I mean, this is our thesis. Like, we have to become a profitable company.

David Roberts

This is really fascinating to think about the sort of these lego blocks that are really kind of composing the entire grid—thinking about all of them getting smart is really just, for a sort of grid geek—really lets your mind spin off and all sorts of interesting directions. So, thanks, for taking the time and explaining this all to us, and good luck in your next steps.

Ryan Kennedy

David, thank you. I really appreciate the conversation today.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversation like this, please consider becoming a paid Volts subscriber at Volts.wtf. Yes, that's Volts.wtf, so that I can continue doing this work. Thank you so much. And I'll see you next time.

In this episode, utility watchdog David Pomerantz discusses all the ways that utilities use ratepayer money to lobby against the clean-energy transition — and what regulators and policy makers can do to stop it.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

There are many features of US public life that I believe, perhaps naively, would be the subject of a great deal more anger were they better understood. One of those is the role utilities play in climate policy.

A rapid transition to a low-carbon energy system is necessary to avoid the worst of climate change. Happily, that transition is going to be an enormous net benefit to US public health and the US economy. It's good for quality of life, economic growth, international competitiveness, national security, and the long-term inhabitability of the planet.

But it’s not necessarily good for the companies that actually sell energy to customers — power and gas utilities. In fact, utilities are using every tool at their disposal to slow the energy transition, from lobbying to PR campaigns to donations to, as the last few years have demonstrated, outright bribery.

And here's the even more galling bit: they are fighting against the clean-energy transition using your money. They use ratepayer money — from captive customers over whom they are granted a monopoly — to fund their lobbying. They have effectively conscripted their customers, who have no choice where to get their power and gas, into an involuntary small-donor army working against the public interest.

It’s outrageous. In a new report called “Getting Politics Out of Utility Bills,” the Energy and Policy Institute — one of the best utility watchdogs out there — details some of this utility corruption and offers recommendations for how to prevent it. These are not futile recommendations to Congress, but actions that fall within the current powers of state regulators and the Federal Energy Regulatory Commission.

I have been ranting about utilities for years, and one of my most reliable sources on the subject has always been the report’s author, Energy and Policy Institute Executive Director David Pomerantz, so I was eager to talk to him to air some shared grievances, hear some enraging tales of utility shenanigans, and discuss what can be done to rein them in.

All righty, then. David Pomeranz. Welcome to Volts. Thank you so much for coming.

David Pomeranz

Thank you so much for having me.

David Roberts

I was thinking of you just earlier today as I saw a new story in the Washington Post about how the gas industry is under fire and it is now hiring Democratic politicians to shill for it. And I thought: "Golly, isn't that thematically on point?". So it seems like a perfect time to be covering this report. Before we get into specifics of who's done what and how to stop them from doing it, let's just start with power utilities are out there getting involved in politics. And let's just sort of discuss what is their net effect on politics. Like, what are they pushing for and against out there in the states and at the federal level?

David Pomeranz

That is a great question, and I think it will be important in context for your listeners who I am count myself as a loyal one, and I know many are thinking about climate change, and energy policy, and decarbonization, and the energy transition. And if they are concerned about those things then they should be concerned about utilities, political power and their political machines. So let's talk about what their political agenda is. And we're talking about both electric and gas utilities. Oftentimes the same companies, but sometimes, you know, there are utilities that sell gas only and electricity only. And they're all relevant to this conversation.

So, since you mentioned, gas utilities pushing back against building electrification, and that has certainly been in the news quite a lot this month, so we can start there, because that's really simple. The gas utilities sector is, with almost no exceptions, united in its aggressive political effort to stave off building electrification. They basically see that as an existential threat to their existence. They have for some time.

David Roberts

And it is.

David Pomeranz

Yeah, we can be honest about that, I think.

David Roberts

Yeah.

David Pomeranz

We'll talk about electric utilities, of course. You know, electric utilities have not only a role to play in decarbonized world and a transition from fossil fuels, but really like the very central role to play in it. And I wish they would, more of them would get religion on that. But gas utilities don't really. Their role is, they make money from putting methane gas in pipes and sending it to buildings and factories.

David Roberts

These companies that are both, you can sort of see a root out of this for them. But an exclusively gas utility really is, you know, destined for the trash bin of history, and knows it and is fighting it tooth and nail. But some of the stuff electric utilities are fighting, I don't think is as straightforward or obvious. Why they seem hostile to both distributed renewables, sort of consumer side stuff, and hostile to interregional transmission of the big power. So they seem hostile on sort of both ends of that. Why are they out doing that and how significant is their opposition to this stuff in the grand scheme of things?

David Pomeranz

Yeah, it's significant. It depends a bit on the issue. So maybe let's start on one end of the spectrum, with the things that they are most opposed to with the lease nuance.

David Roberts

Right.

David Pomeranz

And I would say that that is distributed resources, customer owned resources, like rooftop solar, and energy efficiency, which we maybe don't talk about as much as we should. But, for decades now, electric utilities have opposed those because it presents a threat to their business model, right? As you have kind of, like, in the high priest of helping people to understand this, electric utilities in our current model make money when they build stuff. If people are putting solar panels on their roof, or adopting technologies to use less electricity, either one of those kind of has the same effect on the electric utility. It means they don't have to build as much stuff. And so they make less money.

David Roberts

Yes, you're using less utility power.

David Pomeranz

Right. So they are opposed to that. And we'll talk about some of the most scandalous things that utilities, electric utilities, have used their political machines to do in the last few years, but a lot of it roots from this almost paranoid obsession with stopping the growth of rooftop solar in some places. So that's that. On the other end of the system in terms of, like, the bulk power system, it's a little bit less monolithic and a little bit more of a spectrum within the industry. So there are absolutely electric utilities who have figured out that they can make money by retiring coal plants and gas plants, and instead building wind farms and utility scale solar farms. So Xcel Energy kind of coined the term "steel for fuel" to represent that change. And it makes sense. Now, they're all kind of in a different place on that. Some have really embraced that transition. Some of the dinosaurs in the industry, like Southern Company, or Duke Energy, or Entergy, they're not there yet for a bunch of reasons that I think are largely cultural, frankly. They just have a lot of groupthink in their leadership and their C-suites, and they haven't figured out yet that that solution sort of helps their profits and also helps customers. It's really good for everyone. And so on that, there's some heterogeneity in the whole sector.

But there are companies who, utility companies, who absolutely, in the very recent past, have used their political power to slow down that transition too. So probably the canon example of that, and I think we should talk more about this because it's really such an important case study, is FirstEnergy in Ohio.

David Roberts

Yeah, we'll definitely get into that.

David Pomeranz

Sure.

David Roberts

And the transmission thing too. I think is maybe not intuitive for people just to understand that sort of, if your power generation and transmission is confined to your utility area, you're sort of stuck with the resources you have within that area. And insofar as you connect to other areas, and potentially get cheaper power, right? You lower the price of power generally. And utilities, especially the owners of those plants that are getting those sky high prices, don't want that either.

David Pomeranz

Yeah, this is really counterintuitive for people. And I think, unfortunately, this narrative has kind of taken over that the main obstacle to building the high voltage regional transmission lines that we desperately need to transition from fossil fuels to renewables, is like some farmers and ranchers and NIMBY, "not in my backyard" protesters.

David Roberts

Yes. Or environmentalists wielding environmental review, et cetera, and protecting salamanders.

David Pomeranz

Right. And I'm not dismissing those things as real. There are people, you know, there is a history of landowners not wanting transmission lines going on or near their property. But in my opinion, far less of a barrier and gets much more attention than it should compared to this really big structural barrier, which is these multibillion dollar companies that don't want to see transmission built, regional transmission. And that regional part is kind of the key when it comes to utilities. So, utilities are very happy to build local transmission. In fact, they're probably gold plating their local transmission assets because they can get it approved very quickly.

David Roberts

Yeah, super easy to get it greenlit.

David Pomeranz

Super easy. And it's a money making machine for them. The regional transmission assets, first of all, as with anything, they'll fight the opportunity for anybody to own those assets but them. So they will fight against any kind of merchant development of transmission, which takes a big piece of the market out that could make things cheaper for everybody. And, yeah, they'll fight against transmission lines that weaken their assets. So a good example of how this stuff all interacts is, there was a proposed transmission line to bring clean hydropower from Quebec into New England, and it was fought by local activists.

But also NextEra Energy paid $20 million to bankroll, very quietly, some of those protests, and to campaign against the transmission line because they own gas plants and a nuclear plant in the region, and so that imported hydro would have undercut the profitability of those assets. There's another case, that we documented on our website, about how Entergy, utility company that operates in Louisiana and in the south, they actually hired sort of an undercover operative, like a consultant that didn't disclose they were working for Entergy, to go to some of the meetings of MISO, the Mid Continent Independent System Operator, and basically kind of try to gunk up the works, and slow down development of transmission lines that would bring lower cost wind energy into Entergy's service territory. So they fight that too. They fight distributed resources, they fight competitive regional transmission.

David Roberts

And they fight the creation of new competitive electricity markets too.

David Pomeranz

Yes, for sure. So, we have competitive wholesale electricity markets in many parts of the country. The ones we have could use some reforms to make them work better for customers. Utilities certainly will fight those. But there are also places where we don't have any, and the biggest one is the southeast. And the utilities there, companies like Duke Energy, Dominion Energy, Southern Company, they are very aggressively using their political power, including paying groups with names like Power for Tomorrow, that pay former regulators to do some of this stuff, to argue against bringing an RTO to the southeast, which many legislators in some of those states have expressed an interest in, for both parties because they want to see cheaper electricity.

Large customers want to see it, because many of them want to have better access to clean energy, and a regional transmission operator would help with that. And the utilities are fighting that too. So it's really kind of up and down the system. A lot of solutions to decarbonization. Building electrification when it comes to gas utilities, certainly rooftop solar and energy efficiency, and in some cases shuttering fossil fuel assets, regional transmission... All of those are things we need, and all of those are things that in various parts of the country, one of the biggest reasons we're not getting those things fast enough, is because utilities are blocking them.

David Roberts

This is one of this genre of podcast I think of as the "you should be madder pod", and people really should be madder about this. So it's kind of wild. So, anything that sort of like, brings cheaper power, and decarbonization, and customer empowerment, like all these things that are good socially, and environmentally, and economically, and politically, name it. Everybody wants all these things, except for the companies that control electricity which are out fighting them, which is just really wild. You know, like any widget maker is gonna go politically lobby against a ban on widgets, you know what I mean?

Companies have, in our collective wisdom, we have decided that corporations are people, and have the right of free speech, and have the right to defend their interests, and whatever the propriety of that, it's a real thing. But, cannot make the point enough that utilities are not just another company, they're not just another private enterprise. So, give us that context too as well. Why? It's like, it's bad enough that the companies that control electricity are out comprehensively opposing better, cleaner, cheaper electricity. But these are not just normal companies, like, these are monopolies.

David Pomeranz

Yeah, they're basically state granted monopolies and that is a really important distinction. That's kind of everything. So, if you don't like the political position of some company that you buy some consumer product from, if you don't like the political position of a fast food company, you can buy your hamburgers from some other fast food company.

David Roberts

So you don't like the behavior of a certain Tesla executive.

David Pomeranz

Precisely. You can buy an EV from some other car company. It's getting easier than ever. But if you don't like the political positions of your utility, first of all, you have no recourse. You have to buy electricity. In some cases you have to buy gas, for the time being at least. First of all, it's interesting you mentioned how in our collective wisdom, or at least the collective wisdom of the Supreme Court, we've basically created kind of, like, an anything goes campaign finance environment. And that's meant to, if you believe it, if you give credence to the logic behind those court decisions, like Citizens United, it's meant to protect the free speech rights of corporations. I disagree entirely with the construct, but that's the construct.

What about the free speech rights of utility customers? Right? Like, if my utility is taking my money and spending it to sue the EPA, so that they can poison my air and water with impunity, that's political speech, you know? And I'm basically being conscripted unwillingly into an army of small dollar donors by my utility to fund that political speech. So there's case law about this. I'm not an attorney, but my First Amendment rights are being violated basically by compelling my speech. So that's one whole set of problems.

David Roberts

Let's just emphasize this real quick, because I don't know that we ever stated it clearly. But it is important for people to know that it'snnot just that your utility is out lobbying against your interests. And it's not just that you are a captive customer of that company and cannot get away from it, even if you disagree with its positions. It is also the case that the money you are being forced to give the company is being used for that lobbying. So you're not just an irritated bystander, you're literally paying for the companies to do this through bills that you have no choice but to pay. Which just seems like as straightforwardly.

I mean, it's a little wild to me that there hasn't been lawsuits about this. It's a little crazy that we allow utilities to do this in the first place. I don't know what the positive argument is for allowing utilities to conscript their customers into being dirty energy lobbyists. Are there not lawsuits?

David Pomeranz

There have been some challenges and we're starting to see more of them. I think, like a lot of issues, this one kind of only rears its head and becomes salient when a lot of people start to talk about it. Utility political influence and regulatory capture kind of thrives in the shadows, and that's sort of the default resting state almost, like, if people don't talk about it, it just kind of grows and grows like fungus in the dark.

David Roberts

Well, it's kind of true of electricity generally, it's true of your utilities generally. You don't have to pay attention to that stuff.

David Pomeranz

Interestingly, and this is a parallel to something you just talked about with Sage Welch on your show about gas stoves, there was more attention to some of these issues, like in the early 80s when there was a lot of skepticism and sort of public outrage about utilities for a lot of reasons. Electricity was expensive, it's coming off the back of Three Mile Island, and for a brief period, electric utilities were sort of treated more skeptically in terms of their political operations. And so, that's happened at other times in our history too, actually right after the stock market crash and the great depression in the late 1920s and early 1930s, which utilities had a big role in.

There, at that time, was a massive degree of concern about the political power of investor owned utilities. A lot of that manifested at the time in this very big struggle between a much larger question of how we would serve electricity in the country, would it be investor owned utilities or public power, which you had FDR sort of pushing for public power, so they're... Detour. But a long way of saying, there have been periods in our history where people do pay attention to utilities political power, and there is a lot of outrage over it, and there tends to be legal action and legislation proposed and sometimes passed and regulation. But outside of those moments, it all kind of thrives in a lack of attention.

My hope is that we are entering one of those cycles now, for a bunch of reasons.

David Roberts

You would think, right? Because decarbon it is, like, existential threat, blah, blah, blah. Decarbon by 2050, blah, blah, blah. Like, this is here now. And imperative.

David Pomeranz

Yeah, now is the time for it. And one other thing I would just say quickly about that is, even if your utility is doing some good things, even if your electric utility has gotten the memo that it needs to decarbonize, maybe it's still fighting rooftop solar on the side, but at least it's switching from, you know, it's retiring its coal plants rapidly and switching to renewables, which some are. This corruption and political spending that they do, particularly what they're doing with ratepayer money, and what they're doing, that often breaks the law, that's really bad when it happens by the sort of, quote unquote, "better utilities" also, right? Because you have a bunch of opponents that clean energy transition, like fossil fuel companies and hardcore conservatives, who don't believe in climate change, et cetera, say they don't, they are all looking for a reason, in very bad faith, to criticize the whole thing. So if you have a utility who is investing in a lot of wind, but they're doing it via political corruption, that also presents a huge backlash risk. So it's kind of bad in all its forms and, as you said, the worst part is that we're being made to fund it.

David Roberts

Yeah, I know. I think you could just say, and I think maybe you'd probably agree with this, it's just, it's ludicrous on its face, that publicly granted monopolies, who are providing an essential service that people cannot go without, are allowed to politically lobby at all. It's so familiar. I think we don't think about it, but it's just ludicrous that it's allowed at all. It ought to just be unthinkable. These should be technocratic nerds who follow instructions.

David Pomeranz

Just as one small example of this, to put a fine point on it, you have all these, like, sports stadiums and concert venues around the country that are named like FirstEnergy Stadium or the Dominion Performing Arts Center. And once you see this stuff, I mean, once you sort of see the elements of the utilities political machine, once you know to look for it, you see it everywhere. It's like they're sponsoring every nonprofit, they're naming every venue after themselves. And part of what I think is so funny about that is like, why does a monopoly actually need to advertise?

David Roberts

Exactly.

David Pomeranz

They're not competing for sales.

David Roberts

Exactly. They are not going to lose costumers, by definition.

David Pomeranz

Right. What does name recognition do for them? You can't leave them.

David Roberts

Exactly. Why do they need to have PR departments at all? Customer service departments, yes. PR? Why, it is crazy.

David Pomeranz

It absolutely is. And that's a great juxtaposition because most of them have pretty poor customer service and massive PR departments. And that's where it can be hard to quantify and measure the full breadth of their political machine, but that is something we try to do at the Energy and Policy Institute. And when you look at it, they are among the biggest spenders in their states on everything, right? They're always among the top campaign contributors. They're among the top lobbying spenders. Their trade associations are among the best funded and wealthiest in Washington, DC where they do all their lobbying.

And it comes back to that ratepayer question, right? In a perfect world, I think everyone would agree intuitively with what you just said, David. Like, why should they be allowed to practice almost any kind of politics at all, right? They're given this incredible privilege of getting a guaranteed profit margin and a monopoly. They should be essentially beholden to the will of our democratically elected officials. Not trying to shape it. But at a minimum, at a bare minimum, what we should do is make sure we get into some controls, to make sure that they're not allowed to supercharge and turbocharge that political machine using their customers money, right?That they're not allowed to hack off a few dollars out of your monthly bill every month and use it to pay for their public relations consultants, et cetera. And that is a relatively simple problem to solve with reforms. So that's what we're trying to lay out, how that can be done, in this new report that we wrote.

David Roberts

Before we get to those specific reforms, and kind of the specific channels of utility influence, and how they might or might not be blocked with reforms, let's just take a brief detour for some storytelling. Because I think when people hear the lobbying is technically legal, as absurd as it is for it to be legal, but people should not take from that the impression that utilities are lobbying within legal bounds here. The fact that they are allowed to do this, allowed to use customer money to do it, is practically an open invitation to corruption and how they have answered the invitation.

So let's talk about a few of the kind of higher profile examples that have come up in recent years. Because I think people, again, unless you really hear it put out plainly, it really boggles the mind, it beggars the imagination. Like, what they're doing is worse than anyone thinks. So, let's start with Ohio. I wrote a whole long thing about this and it was, what a rabbit hole! Like, every twist and turn you go, it's just nastier and nastier. But tell us what went down in Ohio.

David Pomeranz

For sure. This is a great time to talk about it. So, last week a criminal trial started for the former speaker of the House of Ohio, guy named Larry Householder. He is being charged with accepting bribes and being part of a racketeering scheme. Here's what happened. So, there's a large electric utility company based in Ohio called FirstEnergy. FirstEnergy for years had been trying to collect bailouts for some nuclear plants, and also for some of its coal plants that were struggling to make any money. They had tried with the Trump administration, they had tried with previous Ohio state governments, but they kept coming up empty and they found their guy in Larry Householder.

So, what Larry Householder is accused of, and what I should note, this is very important since they're technically allegations for Householder until he's proven guilty, if he is. But for FirstEnergy, that's not the case. They admitted to everything I'm about to say in what's called a deferred prosecution agreement with the federal government, to avoid going on trial. So they paid $230 million and admitted guilt to all the following. They routed $60 million through different dark money organizations. So technically, these are 501c4 nonprofit groups, that do not have to disclose their donors, and FirstEnergy did not have to disclose giving them money.

So it's kind of untraceable money that was then passed to Larry Householder. He used some of that just for his own personal use, which is what is at the center of some of the bribery charges. So, he like, used it to pay down a home of his, and he used it to pay for his defense in a lawsuit. But most of the money went to his political machine. So in 2018, most of that money went to elect a slate of republicans in Republican primaries that year in Ohio, that had sort of pledged their loyalty to Householder. They were actually in all these text messages that have come out through the legal process.

They're referred to as the "team Householder" candidates. And through the political power that Householder gained through the election of a lot of those folks, he was able to win kind of an internal Republican struggle to become the speaker of the House. And in exchange, his payback to FirstEnergy was to pass a law called House Bill 6, which passed, it was signed by Ohio governor Mike DeWine. It offered over a billion dollars in subsidies to FirstEnergy's coal plants and nuclear plants. Did some other things that don't get as much attention, but are pretty important. Kind of did this fake decoupling scheme where, some of your listeners probably know, but decoupling is a policy where if a utility adopts energy efficiency measures, so its customers use electricity, they can be made whole from that. This was like one reporter in Ohio, Kathiann Kowalski, described it as a spoonful of sugar without the medicine. So basically it was like, if Ohioans use electricity, absent the energy efficiency investments, FirstEnergy would still get all that money back. And that's ended up being what happened through the COVID pandemic.

So it was billions of dollars in handouts and bailouts to FirstEnergy. That's not even all of it. They also have, and FirstEnergy has admitted to this, they also paid over the last ten years, over $20 million to a guy named Sam Randazzo. $4 million of that came a couple of years ago, just before he was appointed as FirstEnergy's top regulator on the Ohio, the Public Utilities Commission of Ohio. And they have basically conceded, FirstEnergy has conceded that that last $4 million payment at least, was to influence his behavior as their regulator. And he was a big driving force behind passing HB 6.

David Roberts

That's not a small amount of money for a dude, for an individual dude. These are not small bribes.

David Pomeranz

No, they're lots of money. And in this case, we don't always know, as this money sort of works its way through the utility accounting machine, like, where it originally came from. In this case, we know, thanks to some audits and some good investigative reporting by folks in various states and some people on my team, that this was ratepayer money, at least some of it was, went into this bribery scheme. And amazingly, not even just from Ohio ratepayers. So, at this point, it seems certain that FirstEnergy also took money from ratepayers of its subsidiaries in Pennsylvania, and New Jersey, and West Virginia, and Maryland. And all of that money kind of got hoovered into this machine and ultimately came out the other side, went to these politicians in exchange for these laws.

David Roberts

Amazing. If there's one thing that could be more irritating than your ratepayer money being forced to lobby your state politicians, its having your ratepayer money be used..

David Pomeranz

Some other state politician.

David Roberts

For corruption in some other state. You don't even get the benefits of the corruption. I think a lot of listeners probably were aware of this, or followed this, or read my piece about it a few years ago, or a million other pieces. It was really just to sort of put a pin in it. This is not one of these things where lines were pushed or like, it's impropriety. This is very straightforward bribery and corruption. It's almost like charmingly old school in a way like this. Like, checks being handed over.

David Pomeranz

Sometimes there are gray areas and blurry lines, but not on this one. And another day that, David Anderson is one of my colleagues who's kind of led our investigative work on FirstEnergy. He said something the other day that it's wrong for utilities to spend their ratepayer money on lobbying and politics. They're not supposed to do that. They're supposed to spend shareholder money on that, which we can talk more about, but they're not supposed to spend anyone's money on bribes. Like, that's just straight up illegal. And that's what happened with FirstEnergy in Ohio.

David Roberts

Yeah, there are a bunch of examples in your report, and we could go through this all day, but I don't want to waste too much time. But just one other one, which I thought was also telling, is in Florida, which also involved a lot of very sort of straightforward interventions in the political system to get friendly Republicans elected.

David Pomeranz

So in Florida case, we're talking about a utility called Florida Power and Light. Also in the news lately because their CEO is a guy named Eric Silagy, who just unexpectedly announced his early retirement.

David Roberts

It's probably fine. Probably nothing going on there.

David Pomeranz

Yeah, nothing to do with anything I'm about to say. So, unlike FirstEnergy, Florida Power & Light disputes a lot of this. But it's been reported out, and it's pretty airtight, and they've kind of been dishonest throughout the process, so I take pretty much anything they say with it the biggest grain of salt you can find. What FPL is accused of having done is, they were paying some, again, their political consultants, and these consultants then routed money. Again, you see a common theme here to these dark money 501c4 groups that they basically created for these purposes.

And then, what those groups did was bankroll unaffiliated independent candidates for state legislative elections, who were designed to siphon votes away from candidates disfavored by the utility. In every case happen to be Democrats, not surprisingly.

David Roberts

Spoiler candidates.

David Pomeranz

Spoiler candidates. And in Florida, this has been referred to as the "ghost candidate" scandal because these people, it's not like, oh, we're going to fund a green party candidate because we think that'll take votes away from a Democrat. But it's like, a real person who really wants to hold the office and for better or worse, is running. These are people who didn't do any kind of campaigning.

They were candidates only on paper. In at least one case, the main attribute of the candidate was that they had the same last name as the democrat, which is useful if you're trying to knife and go to them. And it's pretty clear why they were doing this. That CEO who's resigning that I just mentioned, Eric Silagi, he said in an email to two other FPL executives, writing about one of the targets of this "ghost candidate scandal", a guy named Jose Javier Rodriguez, a democratic senator in Florida. He said, "I want you to make his life a living hell" to two other FPL executives. And it worked. That senator went on to lose reelection by 34 votes. So, in these state races that can have really close margins, this utility money has an effect, and that's just kind of the tip of the iceberg. FPL also, the same network of consultants and dark money groups and shady characters, they paid to have private investigators follow a newspaper columnist that had been critical of the utility. They paid for a network of these kind of fake news sites designed to spread utility propaganda.

David Roberts

My goodness.

David Pomeranz

They were trying to buy out a municipal utility in Jacksonville. And allegedly, these consultants paid by FBL created a nonprofit to advocate for marijuana legalization, and then offered one of the city councilors who was most opposed to this FPL buyout, they offered him, like, a very high paid job with the fake nonprofit they just created. So it's really like a whole massive political machine.

David Roberts

Pretty f*****g devious though.

David Pomeranz

It's diabolical, man.

David Roberts

I guess if you're just getting millions of dollars to sit around in a room and think of fuckery.

David Pomeranz

And that's literally what they do. I mean, in that sense, like other companies, this gets back to the monopoly business model issue. Like, other companies, their incentives as a business are to like, keep costs low, make better stuff, keep customers happy, grow revenues, whatever. All of the utilities profit is determined by the regulatory system, like by their public utility commissions, or appointed by governors and nominated by legislators, et cetera. So, their biggest incentive is to game all that. So that becomes the focus of the company. I mean, anything they can do. And, I think some leaders of some of these companies have maybe better ethical systems than others.

But the incentive structure is for them to do anything possible, short of getting caught by law enforcement officials, to game the system in their favor. And so, we don't need to go through all the examples, it could be hours. But it's not just red states. It's not just Florida and Ohio. ComEd in Illinois, they got busted by the department of justice and paid a 200 million dollar fine for a patronage scheme with the speaker of that House. This has happened really all over the country, and I think people hear the first energy story in Ohio and think, "oh my God. Well that's got to be the bad apple". And I'm not sure that's true. I think they're the ones who were the most egregious and got caught the worst, but if it's a difference, it's maybe a difference of degree, but not of type. Most utilities are engaged in some version of this behavior.

David Roberts

Just to reiterate again, this behavior is not just lobbying. There's weird trade groups, there's dark money groups, there's weird public relations campaigns that are not traceable back to the utilities, there's advertising. It's really a full spectrum of fuckery going on. All of which seem sort of inevitable, based on the structural incentives. I'm sure these are a lot of scummy people involved, but if you set things up this way and make it legal for them to do this, of course they're going to do this. So one other question before we get to solutions is just insofar as these things get caught, are the punishments or the threat of punishment enough to deter future examples of this?

Does anyone get strung up as an example or how far behind are lawmakers on this?

David Pomeranz

Very far behind. Unfortunately. This is actually one of the main solution sets, is around deterrence and enforcement. But that's really a missing piece of the puzzle. And I'll give you an example of how broken this is in Ohio. Let's look at what's happened to FirstEnergy. Now, the biggest penalty they've probably actually had to pay is with investor sentiment, right? Like shareholders in the company are a little bit skittish and certainly their stock dropped after the scandal, after this CEO of Florida Power and Light just announced his unexpected retirement. Next area of the parent company, their stock dropped by about 8% that day.

They may recover some of that or all of it, but they do have some price to pay on Wall Street because investors I think the sort of unspoken secret among utility investors is they see regulatory capture and utility political power as a good thing right up until the point they get caught. For them, it's like, yeah, of course we want you to control the political environment. We want you to have the Euphemism is like, good relationships with your regulators. But they don't I think they kind of are happy to hear encino evil in terms of how that happens, but they certainly don't like when it leads to, like, FBI raids and Department of justice investigations.

So there is a price they have to pay there, but the bigger price ought to come from the political system, and that has not happened. So just taking a look at FirstEnergy a rational response to what they did in Ohio, which was essentially a full scale takeover, a full scale purchase, essentially, of the legislature that's supposed to be democratically elected. I think a rational proportional response to that would have been at least exploring the idea that First Energy should should lose its charter to operate, like should lose its monopoly, find another utility that can provide those services to Ohioans. Because I would argue First Energy has lost the right to be considered for that.

That would, to me be a rational response.

David Roberts

It's hard to think of what would justify that if not this.

David Pomeranz

I agree.

David Roberts

What would be worse? I mean, totally.

David Pomeranz

And no one with power has proposed that. I mean, people like me talk about it all the time, but no one in power to do it in Ohio has proposed that. Instead, what we've seen is really a complete abdication. First of all, they haven't even fully addressed the law that was passed via these corrupt means. So the nuclear subsidies were rolled back from HP 6, but not the coal subsidies. Those are still rolling. That law I didn't even mention it before, but that law also stripped the very meager sort of renewable incentives or renewable performance standards in Ohio.

David Roberts

I remember.

That hasn't been returned. So they didn't even address kind of the law that was bought with it. But in terms of consequences, there's been almost nothing. The Public Utility Commission of Ohio, they say that they have some ongoing audits and investigations of FirstEnergy, those are on hold until the criminal investigations are over. We'll see what comes of that, if anything. Interestingly, they did have to pay this $230 million payment to the Department of Justice to avoid prosecution. But we should just put that in perspective. The company made $11 billion in revenue in 2021. $230 million is significant, but it's less than the ill gotten gains they got from HP 6. I mean, that was billions in subsidies.

Way less.

David Pomeranz

Just as one indicator of how broken our enforcement machine is on this stuff. Interestingly, before the HP 6 news exploded, like, before there were indictments and criminal charges, FERC, Federal Energy Regulatory Commission, they had just started an audit of FirstEnergy's Accounting practices. And not surprisingly, in that audit, FirstEnergy did not disclose to FERC the portions of the Excel spreadsheet that showed the bribe payments. They sort of left that out. So just a few weeks ago, actually, FERC announced that it was finding FirstEnergy for violating its duty of candor obligation with the commission, because when you're audited, you're supposed to provide all those documents.

They didn't tell auditors about $90 million in lobbying expenses, 70 million of which were dark money payments involved in that bribery scheme. For that violation, they fined FirstEnergy $3.9 million.

David Roberts

Oh my God.

David Pomeranz

And they said, well, this is kind of a fair and equitable fine based on our practices, but that's $4 million.

David Roberts

Householder got more than that. Personally, bribes, never mind the rest of it.

David Pomeranz

It's a $4 million penalty for lying, about $90 million, much of it spent on a corruption scheme that netted billions for the company. So to call it a slap on the wrist is kind of an insult to slap on the wrist. And the way regulators treat this right now, it's interesting. Public Utility Commissions and FERC actually have a lot of statutory power to fine utilities. That is like a key component of what it means to be a utility regulator is that, if you want to, you can penalize them. FERC has authority to find violations that utilities commit in its jurisdiction up to a million dollars a day for every day that they're in violation.

But they almost never use this authority. I mean, occasionally FERC will use it in cases of really, really egregious market manipulation. But on this stuff, I'm like lying or sort of quote unquote, "mistakenly charging customers for political expenses", that's almost never fined very, very rare cases, and the fines are very small. And when they do catch it, what they say is like, okay, well, you got to refund the money to Raypayers. But that's sort of like telling somebody who robbed a bank if a cop caught a bank robber mid act and said, "Oh, you know what? Just put the money back in the vault and we'll call it a day". That's basically the way regulators treat this kind of misbehavior. So there's almost no deterrent.

David Roberts

Which is to say, even from the perspective of today, what FirstEnergy did was perfectly rational and business positive. And if I were a FirstEnergy investor, I'd be like, "Nice work, do it again". There's no reason not to do it again. They get so much more out of this than anyone penalizes them for, even if they are caught. So in terms of maximizing shareholder returns, it just seems like perfectly rational behavior on their part.

David Pomeranz

And they're the ones who got caught, which is the minority, I think. Obviously, we don't know what we don't know.

David Roberts

Right.

David Pomeranz

But FirstEnergy, at least had to suffer some consequences. Like they've gone through two CEO, they fired the CEO who was responsible for much of this, and the next CEO didn't hold his job terribly long, they've had some board turnover.

David Roberts

I'm sure those guys are suffering, David. I'm sure they're on the soup line now, regretting their choices.

David Pomeranz

That's a great point. But to the extent they've had any consequences at all, it's only because they got caught and other utilities are not, or they're caught doing things that are deemed to be just on the right side of legal. So, as an example, Michigan Utilities, not caught in as much attention because there haven't been criminal charges, but they've spent tens of millions of dollars on dark money operations to control the political environment in their state and even in others. I mean, DTE Energy is a Detroit based energy company. They own some biomass plants in California as part of their unregulated part of their company.

And they routed money through a dark money group, which ultimately ended at a national laboratory, which put out a report talking about how those biomass plants would be great candidates for carbon capture and sequestration, which is what DTE is trying to do. So none of that has been prosecuted. None of it's been caught. We've tried to expose some of it. Sammy Roth at the L.A. times wrote a great story about that scheme. And and I should say, by the way, just quickly, as an aside, there are reporters around the country who are working tirelessly to expose this kind of corruption.

Too many for me to name individually, but they're really doing an incredible service to not just energy customers, but to democratic institutions that these utilities are undermining. But your central premise is, right, just a newspaper article or two. And even when there have been criminal prosecutions, the consequences are too low to deter utilities from doing this. And part of the reason we know that's true is because they keep doing it.

David Roberts

Yeah, proofs in the pudding. So with our time remaining, then having griped about this, which is deeply gratifying to me, as you know, griping about this for many years now, let's talk about what can be done. Obviously, in a sane world, in a country with an operational federal apparatus, which you'd like to see is Congress to act, right? I mean, Congress could just write a law saying utilities can't do this anymore, period, full stop. And that would be nice. As we know, Congress doesn't work, et cetera, et cetera. Half of them are bought by utilities filibuster, on and on, usual.

So we're left basically looking to either federal agencies, that Biden can control, or state governments. So what can those entities do that would have some actual bite and then some effect?

David Pomeranz

Yeah. A lot, thankfully. So that's what our new report is about. And usually the stuff that we do at EPI is just kind of like, try to expose and document all these problems. But we've been spending so long doing that, and it does seem like people care that we wanted to at least take a stab at saying, here's what we can do about it. And there's basically three things. One is having utility regulators. So this is mostly Public Utility Commissions simply pass rules and clarify the existing rules to close all these loopholes and just make clear that utilities cannot spend their ratepayer money on any kind of political influence activity and then define that activity really clearly.

By the way, if you ask utilities right now, they would say, "Well, we don't spend any ratepayer money on politics. We certainly don't spend any ratepayer money on lobbying." But that's just sort of fun with words, like, the way they define lobbying as the narrowest possible definition. And even then they're not actually following those rules, which we can get to how you prevent that problem. But the first thing is to make those rules airtight. So define, Public Utility Commissions can define all of these different kinds of politics lobbying, PR machines, advertising, political advertising, regulatory lobbying, where you're going to regulators and asking for stuff, all of it, and say you cannot use customer money for that.

If you want to do it, you can do it out of your own profits.

David Roberts

Two things. One is, so any PUC can just do this now. PUC has the regulatory authority to just do this. Now, my only question is how easy is it to distinguish utility ratepayer funds from utility, I don't know, like investor...

David Pomeranz

Profits? Yeah.

David Roberts

Profits. I'm sure there are all sorts of ways of muddling those.

David Pomeranz

There are. And that's what happened in the FirstEnergy case. I won't bore you all with it. But the answer, is it's hard to distinguish. And so that's what gets into the second leg of this tool.

David Roberts

I mean, why not just say don't do it at all with anybody's money?

David Pomeranz

That would be the perfect world. So that is something that a public utility commission couldn't do by itself, but a state legislature could. And we've seen some efforts at this. I think it's politically a bigger lift, but that doesn't mean it's not possible. There's nothing stopping a state legislature from trying to say "Utilities are different from other kinds of companies, and we think they shouldn't spend any money on politics". And clearly define what that means. Usually in the wake of big scandals, there have been some legislators, state legislators, who have proposed bills like that, like after utilities in South Carolina tried to spend billions of dollars on a nuclear plant and just built the world's most expensive piece of pipe art.

There were some legislators who proposed bills like that. I would love to see more of it. I think those kinds of bills will run into challenges in the courts, given our current campaign finance rules, but they're worth trying. And I'm not a constitutional law scholar by any means but there is reason to believe that, I think there is legal justification to treat utilities different than other companies when it comes to campaign finance.

David Roberts

I mean it's an interesting legal question because utilities sit in this really weird ontological space like they're companies. They're kind of private companies, kind of not, kind of public, kind of not. Has it been hashed through the courts whether they have all the same rights of expression as truly private companies?

David Pomeranz

I don't think it has. I'm going to get out over my skis pretty quickly talking about legal stuff. But one thing I will say, interestingly, just as a note, that maybe will pique folks interests, in the Citizens United case, the liberal justices in their minority opinion argued that the framers did not think corporations should have kind of unfettered speech, and they're different from human beings free speech rights. And of all people, Justice Scalia's rebuttal to that. He actually said well when the framers said that kind of stuff they were talking about state chartered monopoly corporations and that might be true for them, because, at the time, we had, that was common then, corporate structures were very different 300 years ago.

So comments like that do sort of open the door of this tantalizing question like, should there be legal efforts to try to treat monopoly utilities as fundamentally different? Like you said they operate in this different space., they're not like other private free market companies. Should they be treated differently from a campaign finance perspective? And I think if there are constitutional lawyers who are listening to Volts I hope they will explore that question because it's ripe for that.

David Roberts

But don't you just think like whatever the legal merits, our Supreme Court will end up getting it and doing whatever is corporate friendliest regardless of the legal merits? I mean, law feels so futile these days.

David Pomeranz

Yeah, well I'm certainly not optimistic.

David Roberts

But PUCs are squarely within their rights to say "Don't use ratepayer money".

David Pomeranz

Yes, absolutely. So that's sort of why we start there, it's just because it requires no systemic changes, no constitutional challenges, it's really simple for PUCs to say "No ratepayer money on politics".

David Roberts

And that is because, by law, utilities are supposed to spend money in whatever the most just and reasonable.

David Pomeranz

Reasonable. Exactly.

David Roberts

And so this would be under that provision basically saying it is not fair and reasonable to spend money this way.

David Pomeranz

That's exactly right. And then the challenge becomes, as you said, okay well, we can say that but how can we tell which money is very fungible? How can we tell which pot of money this political activity is being funded by? And so that requires basic transparency and disclosure reforms. So, right now, if you want to know whether a utility spend ratepayer or shareholder money on a given activity, the process basically is to wait for the utility to go in for a rate increase, and then there's a sort of quasi judicial rate case. And if you have money and can hire a lawyer, you can intervene and get status to be an intervener in that rate case, and then you can ask discovery questions with the utility and try to find out how that activity was funded. Now, to be clear, like groups do this. Earthjustice, they do an incredible job of that around the country. Sierra Club does that. Consumer advocates in every state try to do that. They're trying to protect consumers from that, but they're totally outgunned. And some utility companies don't have rate cases for five years or longer. Alabama Power in Alabama, they haven't had a legally contested sort of open rate case with public intervention since 1982. So who knows what they're spending money on.

So what we need is basically, the solution to this is having annual line item granular disclosures that utilities are made to file with the PUC in all of these areas. So anything that is vaguely political, or even adjacent to political, PUCs should be requiring them to basically submit a spreadsheet every year that says what they spent, where the money came from. And then you can kind of check. So that the first step is to make sure the rules are strong. The second step is to have these disclosures, so that you can verify that companies are following the rules.

And the third step is enforcement. So this is what we talked about before, so I won't dwell on it. But if you make the rules strong, so the utilities know them and they can't say that they screwed up by accident, and then you have the disclosures, so that members of the public or regulators can catch if they screwed up, and they did screw up, or they did break the law and they charged ratepayers for some political activity, then there have to be consequences. Otherwise there's no deterrent. And those consequences should be severe. So we're arguing, like, if a utility takes a million dollars of ratepayer money and spends it on, you know, what political trade association or some kind of politics that they're not supposed to, they should have to return that money, and then be fined, like, at least that million dollars and probably a lot more to make the deterrent adequate. So those are kind of the three steps. We've got better rules, better disclosure, better enforcement.

David Roberts

Right? And is enforcement, at least what's available today that we know works, is that mostly just financial? Is that mostly just fines? Are there other potential consequences? Because for a company like FirstEnergy that's doing billions of dollars of business and lobbying on behalf of billion dollar nuclear plants, there's just unfathomably large amounts of money being deployed here. And I'm just trying to imagine the size of fine that would compete with those amounts of money for their interest in there. You know what I mean? Can fines even get big enough?

David Pomeranz

It's a really good point. Well, I think one answer is let's try some really big fines and see how they work.

David Roberts

Let's give it a world.

David Pomeranz

Let's give it a college try. But I do agree with your premise there that some corruption, some kinds of behavior, are so bad enough that it is hard to imagine a dollar figure that could adequately deter, especially when they're all counting on not getting caught. And so, in that case, I do think this probably would be something that a legislature would need to do and would be difficult for a PUC to do unilaterally. But I do think in cases like FirstEnergy, public officials in Ohio ought to consider whether the company should be allowed to continue to operate in its current form there. So that can all be part of enforcement as well.

David Roberts

What about a legislature saying "This balance of public and private that we tried in investor owned utilities clearly isn't working, so we're just going to make you public, make you into a public utility". Has anyone tossed that out there? Is that even on the table?

David Pomeranz

I think so. People are talking about that. I mean, there are movements of people where I live, for instance, in California, who's basically suggested it's a little bit different than these political issues, but they've basically said that PG&E's criminality with regard to starting these devastating fires has been so bad that the only solution really is to have them be converted into a public power entity. There have been similar efforts like that in different pockets of the country. There's one ongoing right now in Maine, and a lot of that I think is inspired by this problem. If you talk to advocates of public power, they will say that we just can't trust these investor owned utilities to not run these political machines that threaten the integrity of our state government. And I'm very sympathetic to those views. I'm not sure if that solution will work at scale everywhere. And it's also worth noting, like public power entities aren't perfect, they also require good governance and good accountability. All you have to do is look at TVA.

David Roberts

I was going to say, and they don't necessarily perform better. I always sort of caution people about that. Like, the issues that dictate good or bad performance don't necessarily line up with public and private. But it does seem like, at the very least, if it was a public utility, it would have less structural incentive to cheat and lie. Do you know what I mean?

David Pomeranz

I think that's true. I agree with that. And so I think that option should be on the table in places where that makes sense. I'm all for people pushing for it. It's a much bigger lift, obviously.

David Roberts

Yes, all of this is pretty tough.

David Pomeranz

It is. Although, just to back up to some of these changes that would be easier for a single public utility commission to do, or a single state legislature. The kind of stuff that we're outlining in this report, I don't think it would solve every single problem when it comes to utility political machines. But something is better than nothing. The status quo is pretty bad. So let's start trying things. And these are all doable within the current system. Some of them are being explored now. So just as some bright spots, some examples. The New York state legislature recently passed a law that banned utilities from charging ratepayers for any trade associations that lobby.

I think that's progress. FERC has an open proceeding. So, inspired by a great legal challenge from the Center for Biological Diversity. So yes, who's doing lawsuits? Who's doing legal challenges on this stuff? Center for Biological Diversity has an energy justice program with great lawyers that are doing some of this. So they petitioned FERC to take a look at some of this, and FERC opened an inquiry, they got lots of comments. Everybody other than the utility said, "Yeah, we need some accounting changes and some new rules and some better transparency to prevent utilities from charging customers for trade associations, for politics, for their politically motivated charitable giving, for all that stuff".

Interestingly, even people who I don't agree with about anything agree on this. Like oil companies actually as electricity customers, weighed into the FERC docket and said, we would prefer not to pay for their lobbying. Also that happened, and FERC can act at any time. So you mentioned through federal agencies, FERC is meant to be independent, for commissioners are appointed by the President, but they don't act in his direction. But FERC can do this anytime they want. They've had this notice of inquiry proceeding. It's been responded to by all parties. They could draft a rulemaking that makes it harder for utilities to supercharge your political machine on rates.

And there are some individual public utility commissions who have disallowed some things, who have done some aggressive disclosures. So we point out those examples in the report. People should check them out just to show like this is possible. And our hope is that more PUCs and legislators start proposing these things and we'll see what comes of it.

David Roberts

If you're just a listener out there and you didn't realize how bad this is and are now mad per the you should be mad or about this episode, they just listen to what can people do? Is there a particular organization that's working on this? Or is it just a matter of contacting your own state's PUC or writing your legislature? Is there a place to sort of centralize this work that people can go just support?

David Pomeranz

Good question. Well, they can learn more about it at our website. So that's energyandpolicy.org. We focus pretty heavily on this stuff. In terms of groups that are taking action, I'd recommend a couple Center for Biological Diversity, as I mentioned, they are doing some great legal work on this. There's a group called Solar United Neighbors who works with rooftop solar advocates and customers, but they have operations in a lot of different states, and they have a national advocacy program, and they are invested in creating some of these kinds of changes. And then if you're not sure, like, those groups have ways in for you where you live.

The Sierra Club is involved in Public Utility Commission proceedings in most states, and they're very much invested in attacking utility political power. So that's another organization that folks can check out.

David Roberts

Yeah. And worth saying again, as I've said so many times over the years, PUC meetings are pretty sleepy. You're not going to be standing in a long line to get in one of those. So a little bit of noise goes a long way. Especially relative to a lot of other places you could make noise, like, they don't get a lot of noise there, so they care.

David Pomeranz

I couldn't agree more. These parts of state government that are responsible for regulating utilities, they're not very well known. And for people who want to become active, they can do a lot as a single person. I'll give a shout out to one activist in Arizona, a woman named Stacey Champion, who pretty much working independently, she's a very skilled person, but she didn't have lots of backers or anything really helped to bring Arizona Public Service, a utility that was behaving very badly in that state, to heal over the last years just by getting lots and lots of attention and doing great organizing work and campaigning.

So it is a place where people can make a difference and everything's harder alone. So they just kind of need to find some people who are willing to work with them on it.

David Roberts

Awesome. Okay, well, thank you so much for coming on and walking through this. It's like with so many things like you, listeners, probably vaguely know that it's bad, but it's way worse than they thought. So, David Pomeranz, thank you for coming and sharing this with us.

David Pomeranz

Thank you so much for having me.

David Roberts

Thank you for listening to the Volts podcast. It is ad free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much, and I'll see you next time.

A newly signed state law sets Minnesota on course to use 100 percent carbon-free electricity by 2040. In this episode, Minnesota House Majority Leader Jamie Long describes the decisive legislating that took an ambitious climate bill from introduction to the governor’s desk in the space of one month.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Back in 2019, I wrote for Vox that there is one weird trick states can use to ensure good climate and energy policy. That trick is: giving Democrats full control of the government. It has worked in California, Washington, Oregon, Colorado, Illinois, New Mexico, Massachusetts, New York, Hawaii — the list goes on.

As I covered in a pod a few months ago, the 2022 midterm elections brought Democrats full control — with trifectas of both houses of the legislature and the governor's office — in four new M states: Maryland, Massachusetts, Michigan, and Minnesota.

Does the one weird trick still work? Well, you’ll never guess what happened in Minnesota last week.

Gov. Tim Walz signed into law a historic piece of legislation that would set the state on a course to carbon-free electricity: 80 percent by 2030, 90 percent by 2035, and 100 percent by 2040.

My guest today is the bill’s primary author and sponsor, Minnesota House Majority Leader Jamie Long. Long, formerly legislative director for then–U.S. Rep. Keith Ellison (D-Minn.), was elected to the Minnesota legislature in 2018 and became majority leader this year. He worked closely with Senate sponsor Nick Frentz to shepherd the bill quickly through the legislature, with no extended conference committee.

It was an adept and decisive bit of legislating — not necessarily the norm for Democrats. I was excited to talk to Long about some of the ins and outs of the bill, the forces that supported and opposed it, and what's next for Minnesota energy policy.

All right, then. Representative Jamie Long of Minnesota, welcome to Volts. Thanks so much for coming. And I guess the first thing I should say is congratulations.

Jamie Long

Thank you. It's a big month out here in Minnesota.

David Roberts

Yeah, big news. I want to get into the actual bill and the actual targets and everything, but just let's do a brief bit of history to start with. You arrived in the Minnesota legislature in 2018. I'm curious when this bill was born, basically, how long has this been cooking?

Jamie Long

Sure. Well, this was my top-priority bill from my very first day I ran for office wanting to work on climate change and clean energy, and knew that 100% clean energy was the big bill that I wanted to focus my efforts on. So, we introduced this pretty early in my very first year in office. So actually, when we had the bill signing, I was looking back, and it was about four years to the week from when we had a bill signing that I'd introduced it. So, that was the first time we'd had 100% clean energy proposal in Minnesota, but we certainly had a lot of other renewable energy standards that had been tried and had failed over the years. The last time we'd updated our renewable energy standard was 2007 in the state.

David Roberts

2007. And that was, I'm guessing, the last time you had Democratic control over both Houses?

Jamie Long

No, in fact, it was broadly bipartisan. It was signed by Governor Tim Pawlenty, Republican governor, who later it became a political issue when he ran for President because the Republican primary voters were not that happy that he was a clean energy leader who took climate change seriously. But it got such broad bipartisan support, it was almost unanimous in the House and Senate at the time.

David Roberts

Wild.

Jamie Long

And that was 25% renewable energy standard by 2025 was what was passed at that time. That seemed really ambitious, but we actually met that in 2017, so we met it eight years early.

So, at the time it seemed like it was going to be a big deal.

David Roberts

If only we would ever learn from experience.

Jamie Long

I know, right?

David Roberts

That's the same story with every single one of these that's ever passed anywhere.

Jamie Long

That's right. But we do have only the second trifecta in the last 30 years in the state. We did have one in 2013, 2014. We didn't update the renewable energy standard then, but we did do some other good climate policy. But yes, unfortunately, since 2007, climate and clean energy has taken a turn for partisanship in the state. And so it has taken until we got this trifecta, and we have it barely in the Senate. This will sound familiar to the congressional story, but we have a one vote margin in the Senate, and we have a two vote margin in the House.

David Roberts

Crazy. And this was pretty rapid and decisive. Like, you guys have not been in office for that for that long.

Jamie Long

You got it. Signed within a month.

David Roberts

That's unusual to see the Democratic Party acting with such alacrity and clarity of purpose. I don't know what's going on here.

Jamie Long

Well, we felt like we heard loud and clear from Minnesota voters that this is what they wanted. There was a poll in our local paper right before the election asking voters what were their top issues for deciding on the candidates that they wanted to support. And climate was a top five issue.

David Roberts

No kidding.

Jamie Long

Our governor, Tim Walz, has been a strong supporter of 100% clean energy since day one. He was at our very first press conference with us four years ago, and he ran on this this past election cycle for his re-election, it was in his first ad. He was one of those Democrats back in the Waxman-Markey days who voted for Waxman-Markey and thought it might have cost him his seat, and it didn't. But he's always been very proud of his climate leadership and has been a really strong leader in our state.

David Roberts

So, I want to talk about some of the issues of contention, let's say in a minute, but let's just start by talking about what's in the bill. So, there's two targets for the state utilities. There's a renewable energy target and then there's a zero carbon target. So, tell us just briefly, like why are there two and what are they?

Jamie Long

Well, we wanted to have a renewable energy baseline. That was important for a lot of our partners and constituency groups that we were working with. We do have nuclear energy in the state, there are three nuclear plants, all owned by Xcel Energy. So, this wasn't really relevant for most utilities, but we wanted to have a baseline for renewable energy. So, there's a 55% renewable energy standard by 2035. But the big numbers are the clean energy standards or carbon-free energy standards and those are 80% by 2030, 90% by 2035 and 100% by 2040.

David Roberts

Got it. So, the renewable energy target is just an extension of the previous law? Yes, it's just sort of an updating of the previous renewable energy law or does it change anything substantially from that law?

Jamie Long

Well, it updates the previous law. So as I'd mentioned, our current law has 25% by 2025 and everybody's gotten there, so there's no real story there. So we have 55% now by 2035. We did update it some. The renewable energy definition at that time had a couple of things that we tweaked. One was that it constrained hydro to only small hydro. And the thought had been at that time that there was some concern that if we did large hydro we would basically push out all of the wind and solar. We would just go towards large hydro or we have access to Manitoba Hydro here and some other large hydro projects.

And so the concern was that you wouldn't get the solar and wind development that we would want. That's less of a concern now. We aren't seeing a lot more large hydro projects being built. And particularly on the timeline that we're talking about, between now and 2035, you're not really going to get a new large dam sided and constructed. So, the question was just really, were we going to let that count for utilities that are already purchasing large hydro? And we thought that would be fair. And then the other discussion was around waste energy. And so we have a facility in my city of Minneapolis that is located next to the neighborhood that has the highest black population in the city, and also happens to have the highest asthma rates in the state, there's a lot of cumulative impacts with different industrial uses in that particular neighborhood. And so we excluded that particular facility from the definition of renewable energy.

David Roberts

That's Hennepin?

Jamie Long

Yeah, the Hennepin Energy Recovery Center is what it's known as. So we excluded that as a gesture to the community and to the county that we understand this is a facility that we don't want to see be the long term solution to our waste problems in that particular location.

David Roberts

I'd like to pick up both of those a little bit. On the hydro, my understanding is that this was a subject of some contention, I mean, one is what if we just get more hydro and don't do any wind or solar, as you say, that's probably not as much of a concern. Now, although, I'm curious, you're accessing this Manitoba Hydro, could you theoretically just buy more of existing Manitoba Hydro? I'm curious, have you topped out how much you can get from there?

Jamie Long

Yeah, it's pretty well topped out. It's all spoken for between Manitoba and Minnesota. So last year there were lower water levels in Manitoba and they wound up being able to ship a little less power to Minnesota because they had to use it all from Manitoba. So both with the existing transmission and the existing need, there's no real extra capacity.

David Roberts

Bringing on any substantial new big hydro from Minnesota would mean building new dams.

Jamie Long

Yeah, and it would take longer than the time allotted.

David Roberts

I know there are sort of concerns about the pipeline from those Manitoba, the electricity lines from those Manitoba dams down to Minnesota. How did that play out? Because my understanding is that environmental groups, the reason they didn't want big hydro counted is partially because they don't want more of that. How did that sort of controversy play out?

Jamie Long

Yeah, there were some concerns from some indigenous environmental groups around large hydro. And so that was one of the reasons why we made clear it was only existing hydro. So we didn't allow for new hydro to count towards that renewable energy standard, so that we would foreclose the possibility that new construction would be eligible. So in the law, it says only as of the effective date of the act, those facilities would count.

David Roberts

I see. So even if they did build new dams.

Jamie Long

It doesn't count towards renewable energy standard. It would count towards carbon-free because we don't have technology limitations there. It's anything that's carbon-free. But for the renewable energy standard, it wouldn't count.

David Roberts

Give us a sense of where non hydro renewable energy is in Minnesota. Are the big Minnesota utilities in shouting distance of that 55% target?

Jamie Long

They are. So last year in Minnesota, we were at 52% carbon-free for the entirety of Minnesota's power generation. Now 24% of that was nuclear. So about a quarter of our power in the state's nuclear, but 28% was renewable energy. So that's pretty good. And then if you look at it based on, by utility, there is a bit of a differentiation. Minnesota Power, for example, which is the utility that services the northern part of the state, they're pretty unique because they serve some really large customers. Mines, timber. They were at 90% or so coal in the 1990s, and then as of even 2015, we're at about 75% coal. And now they're over 50% renewable.

David Roberts

Oh, wow. So they've been moving pretty quick already.

Jamie Long

They've been moving very quick already. And so we've had some good leadership from utilities in the state. Xcel Energy, our largest utility, was the first in the nation to say that they wanted to move towards 100% carbon-free electricity. And then both Minnesota Power and Great River Energy, which is our generation and transmission cooperative for most of our rural electric co-ops in the state, have also committed to carbon-free. Now, all three of those had 2050 as their target dates, so we're pushing them considerably faster than they had wanted to go, but they had set the direction that they were going to move towards carbon-free electricity, and all three of them, in the end, were supportive or neutral on the final bill. So I do give them credit for setting a direction and being willing to come along even as they were being pushed.

David Roberts

Just to clarify sort of the goals that they had set for themselves, that was all internally driven, that wasn't in response to any sort of mandates or government product.

Jamie Long

Those were public announcements. And so even before the law had passed, something like 80% of Minnesota customers were already being served by a utility that had themselves, on their own, committed to decarbonizing their electric service.

David Roberts

So this is mostly accelerating what your big state utilities are in the midst of doing already.

Jamie Long

Accelerating and mandating, which is an important distinction. But they had made these targets on their own and they weren't binding. You know, Xcel Energy at different points in time had described it as an ambition or a goal or, you know, there was a lot of flexibility in terms of how they described it and now there is not.

David Roberts

Now there's locked in. Let's talk a little bit about garbage incineration because this sort of like only comes up in some states and not in others, and I've had questions about it over the years and I've never really bothered to poke around and learn a lot about it. But my understanding is two things: one is that the main reason municipalities are doing this is not for energy. It's that they don't know what else to do with their trash. They don't have anything else to do with their trash. And my understanding is that environmental groups are largely opposed to it and would have preferred to exclude it from the zero carbon energy standard entirely.

So tell us a little bit about, just sort of like, what are the dynamics or how did that play out?

Jamie Long

So it's this interesting interplay between waste policy and energy policy, right?

David Roberts

Right.

Jamie Long

So I think most folks agree that landfilling isn't a good outcome for our waste management system. And there's disagreement though, on how much we can do in recycling and composting, and other forms of waste diversion. Environmentalists like me tend to think that we can do a lot more than we're doing. Pushing hard at the state level to do more in the recycling and organics management side. But a lot of counties in our state have moved forward with waste burning as what they view as better than landfilling. So not the outcome that they want, but better than landfilling.

You still do have to landfill though. You're landfilling all the ash that's coming out, and the ash is toxic, and you're producing localized air pollution when you're burning it. So it's certainly not an environmentally friendly solution, but nor are landfills. And so there aren't easy choices here. But when it comes to the energy space, when we're thinking about moving towards a decarbonized electric sector, when you're burning trash, it produces carbon. So right now the waste energy, at least for our 100% target, doesn't count as a fully decarbonized source. We have a few pathways that counties could pursue which I can get into if you're interested in terms of how they could continue to operate.

But they are, under our bill, either going to have to change or pay a little bit more money in a renewable energy credit to be able to continue to operate. And so it will make waste to energy harder, as a long term solution.

David Roberts

I don't want to get too deep into incineration here, but when you say improvements that they could make, does that mean there are safer and better ways to incinerate trash, or do you mean alternatives?

Jamie Long

Well, so under the bill, if you are not at 100% carbon-free electricity, one option you have is to purchase renewable energy credits.

David Roberts

Right.

Jamie Long

And this is a pretty common way to account for that sort of last couple of percent in different standards, and it was also in our previous renewable energy standards that we've had.

David Roberts

Yeah, I want to get into that later.

Jamie Long

Yeah, so that would be one option that they could pursue. They could shut down the facilities, they could not sell the power to a utility. Because we're regulating the sales to utility customers in the bill. So there are a few options, but I do hope that this will prompt some conversation in our counties about how they want to manage waste 16 years from now. I feel like there's a lot of time to figure out better alternatives than burning.

David Roberts

It's not super clear to me what the ideal state of the art is here. But yeah, like you say, there's time to figure that out. What about within the bill? Is there anything specifically for distributed solar or distributed energy? That's one of the things I heard back from some sort of state advocates is that the big utilities are fine going renewable, but they're more resistant to losing control over assets and having customer owned assets. So I wonder, is there anything, is that mentioned in the bill at all?

Jamie Long

No, we don't have a specific carve out for distributed energy. We wanted to keep our technology neutral approach intact. As you might imagine, there were lots of different requests for specific technologies.

David Roberts

Interesting.

Jamie Long

Most of those didn't go in the direction that I would call climate friendly. So we tried to keep the overall integrity of allowing for utilities to have some flexibility in how they are getting to 100% carbon-free in the bill. Now, that said, I do believe that there's going to be an awful lot more distributed energy built because of this bill. The utilities are going to need to find as much solar and wind as they can, and it's not all going to be able to be utility scale.

So I think a lot of it will be distribution grid, interconnected. But I think that a lot of that conversation is probably going to take place in other contexts later this session. So we are one month in to our legislative session, and we've been talking for a long time about our community solar program. We have the largest, I guess now second largest New York just passed us, but for a long time we have the largest community solar program in the nation. There's a lot of conversation on what to do in the distributed energy space with interconnection. I think that's going to be a hot topic in session and there's going to be a lot of interest on policy fixes in that space.

But for the purposes of the 100% clean energy bill, we felt it was important to keep flexibility for utilities and how to meet their targets.

David Roberts

Interesting. One other question about sources. I know anytime I mention energy policy on the internet, which is frequently, I get the question, well, what about nuclear? Is it nuclear just better? Why don't we just do nuclear, blah, blah, blah. You knew this was coming. So in Minnesota, you've got three nuclear plants, yes? Who are providing 25% of your power and a good chunk of existing low or no carbon, carbon-free energy. And that counts toward the standard, that energy counts toward the, the carbon-free standard for 2040. But there is also alongside that, a prohibition on new nuclear in Minnesota.

And I know there was some argument on some quarters that the prohibition should be lifted, that small modular nukes should be allowed under this technology neutral standard. The bill didn't get into that. What's the status there?

Jamie Long

Yeah, so nuclear politics is obviously complicated, not just in Minnesota. But you're right, we have three nuclear plants in the state and we have a moratorium on new nuclear plant construction.

David Roberts

And that was a bill that was legislative from previous.

Jamie Long

The 90s. It dates way back. It's not a recent choice. And the reason is that we have the closest community living near a nuclear plant anywhere in the United States, and that's the Prairie Island Indian Community, which lives like a stone throw from the Prairie Island Nuclear Plant. And so it's in their backyard, right behind their houses. And so the Prairie Indian Community has had long standing concerns about the onsite nuclear waste storage, because we don't have any long term storage solution yet for nuclear waste. And so that waste happens to be stored right on site at the Prairie Island Nuclear Plant.

And so when they were seeking permitting to store that waste on site, the compromise that was passed included a moratorium on new nuclear construction. So that's the history. The tribe remains concerned to this day about living that close to a nuclear energy plant in their community. So removing the nuclear moratorium is fraught. And there's also, I didn't have a single large utility come to me and say, "Hey, I'm ready to build a small nuclear modular reactor and I want this repealed so I can get this going".

David Roberts

Yes, this discussion is extremely theoretical at all levels.

Jamie Long

Yeah, exactly. That may be a topic of conversation that comes to the state in the future, but it didn't need to be solved in this bill because there is no real live proposal before us. All three of the nuclear reactors in the state are going through relicensing applications with the NRC. They're all at the end of their licenses or nearing them. And so that's the kind of active conversation.

David Roberts

Yeah, are you talking about several states have taken action recently to extend the life of existing nuclear plants, is that on the table or in the discussion somewhere?

Jamie Long

No, we don't really need to subsidize our nuclear plants in the state. They've been operating within competitive rates and we're regulated state, we're not deregulated. I think some of the states that have had to support their nuclear plants because they're deregulated.

David Roberts

Right.

Jamie Long

But I think there is broad support for relicensing for those three facilities. The tribe that I mentioned is in active negotiations with the utility about waste storage next to them in a relicensing application. So there may be discussions there, but I think that there is general support for extending the life of those three plants and nothing more. We really need to do with the legislature on that. But in terms of new small modular nuclear reactors, there's no real active proposals or need to solve those problems this month.

David Roberts

Let's talk a little bit about utilities and their sort of disposition towards all this. Let's start a little bit, I think with munis and co-ops, municipal and cooperative utilities. I think, probably, most folks listeners live in cities and are served by big utilities and so might not be familiar with what these things are and why they tend to be resistant to the net zero push. This is not just in your state but in many states. So maybe you could just explain sort of like, what are these little utilities and why across the country do they tend to be centers of resistance to the push to clean power?

Jamie Long

Great question. So municipal utilities are pretty straightforward. It's a utility that's run by municipality or at the municipal level to supply power. And they tend to be more of a distribution utility. They're often purchasing their power from somebody else.

David Roberts

They're just not big enough to own assets on their own.

Jamie Long

Most of them don't. Yeah, there are a couple of municipal utilities in the state that do own some of their own generation, but most of the time they're purchasing the power that they sell. And then cooperative utilities are managed by local boards that are elected and they tend to be in rural communities. That's the history. It was part of the ability to get electrification to rural America, right? And the big utilities serve the cities and there needed to be a model that helped serve rural communities and so cooperatives was a model that took off. But in Minnesota it's 40% of customers or cooperative utilities or municipal utilities.

So it's a big chunk. And if we're only focusing on our three investor owned utilities in the state, we're leaving out a lot of folks who have power delivery. So the cooperative utilities are very diverse in terms of their customer size, their location in the state. So we have some that now, once were rural, but now serve kind of a suburban membership, and then we have some that serve very small rural memberships. A lot of them tend to purchase power from these generation and transmission cooperatives. And so there's a handful of those that make the bulk of the decisions that then trickle down to the co-op.

So I mentioned Great River Energy, in our state is the largest, and so it's complex. And in terms of why they resist, well, there's a couple of reasons. One is that they have tended to not have necessarily the same pressures to move as quickly as some of the investor owned, I think Xcel Energy, Minnesota Power, those are publicly traded companies. They've got a lot of folks who are looking at their future and what might be their risks. And for Xcel, I think part of the reason they went first on saying they wanted to be the first utility to get to 100% was to get noticed, right, to make a mark on the national stage that they were a leading utility.

The boards of a lot of these local co-ops don't tend to be electricity experts. They're community members, right? They're folks who live in their communities and care about.

David Roberts

And we should say, I'll say it if you won't, rural and therefore likely quite conservative.

Jamie Long

Yes, that's right. And so their understanding of the most up to date energy policy is sometimes a little dated. So I've met often with rural cooperative boards in our state and I even have brought graphs of the cost of solar and wind over time and showed them,"Look, it's cheaper! It's cheaper". And the feedback I'll sometimes get is, "Well, it's not reliable", right? There's always kind of something else. So there has been traditionally a lot of resistance at that level. But I'll give credit to some of the large G&Ts that work with the co-ops. They've understood that moving towards renewable energy is going to save their members money.

So Great River Energy had a very large coal plant that it sold, that wasn't located in North Dakota, and it lost $170 million at that coal plant in 2019. They tried to sell that coal plant for a dollar and couldn't find anybody who would take it. So they wound up having to sell it with a very valuable high voltage transmission line, which probably down the road is going to carry mostly wind power from North Dakota to Minnesota. And by selling it, they projected that they would cut rates for their member co-ops by over 10%.

David Roberts

Wow.

Jamie Long

So, the economics are really driving a lot of the transition now for some of these rural co-ops, too. But they tend to be resistant to mandates and requirements.

David Roberts

So, I was going to ask how you brought them around, but it occurs to me that maybe you just didn't and didn't have to. Did they come around?

Jamie Long

So, the municipal utilities did not. They were the last holdouts. Every other utility association or utility in the state wound up being neutral or supportive. But the municipal utilities.

Interesting.

Were not, and in part they have local politicians who are involved in those discussions, and those tend to be from rural communities, and so you can connect the dots. For the rural cooperatives, to their credit, they came to the table. They have a very diverse membership, as I said, and there were a lot of pressure on that group. But they had one reasonable ask, which was, a lot of our co-ops are starting behind where these large utilities are. They don't have nuclear power, they don't have access necessarily to the same level of hydro as say, Minnesota Power in the north. So, they're behind. And so they asked for a longer on ramp to get to the same place. And so that seemed reasonable to me. So, we have the same standard for them in 2035 and 2040. They've got to get to 90% 2035 and 100% 2040. But for 2030, which, you know, in utility terms is very fast for planning purposes, we said, "Okay, we're going to give you 60% target for cooperative and municipal utilities in 2030". So that they had a little bit more lead time to do planning and to get on board.

And that got them to neutral. So that was a big deal that they were willing to make that agreement.

David Roberts

A couple of other, you know, sort of what are being framed as concessions to utilities because, you know, utilities, of course, if you mandate something, they immediately come back and say, well, you know, they spin this scenario where 2040 is looming, and we don't have enough, and we're spending kajillions of dollars, and we're having blackouts.

Jamie Long

Right.

David Roberts

So you have to formalize some sort of, well, you have in the bill an "off-ramp", quote unquote "off-ramp", which just amounts to, as I understand it, if the dates are approaching and the utility doesn't think they can meet the target without compromising reliability, it can go to the PUC and say, "Hey, we can't do this without compromising reliability". And the PUC will say, "Okay, here's a little extra time". Is that the long and short of it?

Jamie Long

Pretty much, so a little more to it. But this has been in our renewable energy standard laws since the beginning, because there was always sort of a concern that when you got close you might not be able to get to meet it, and then you don't want the lights to go off. Right, is the argument.

David Roberts

I always just think it's funny, like find me a state, find me a PUC in the country that's going to be like.

Jamie Long

Exactly.

David Roberts

You can't meet the target without compromising utility reliability. Sorry, we're locked in by the law, we're all just going to have to have blackouts.

Jamie Long

Yeah, too bad. the Republicans in the legislature called this the "Blackout Bill". And my last name is Long, so they called it the "Long Blackout Bill", which I thought was good. It was like maybe if my last name had been Short, then it wouldn't have been as scary. We can deal with a "Short Blackout", but that was "Long Blackout". So the 2007 standard, 25% by 2025, no one ever used the "off-ramp", right? No one needed to. They met at eight years.

David Roberts

I don't know of a utility in a state, anywhere in the country that has had to use one of these "off-ramps". Like they always meet the targets. It's always easier than they think. It's like can we learn from but.

Jamie Long

I think it is important to have this in the bill because I don't want to assume that we're going to come back and change this bill a bunch of times between now and 2040. If passed us any lesson, we haven't done this since 2007, it might be another 20 years until we get back to this. Who knows? And so right now I'm pretty confident that we can get to 100% clean energy by 2040. But maybe I'm wrong. Maybe we can only get to 98% and then do we really want to force that last 2%? So it does feel like it is worth having that mechanism in here.

But what we did do is we made sure that there were real factors that the Public Utilities Commission would have to weigh. So yes, they have to relay weigh reliability and affordability, but they also have to weigh impact on environmental justice communities. They also have to weigh the social cost of carbon. And so what is this going to mean for the overall impact on our society? So you're right. At the end of the day, if it's going to affect reliability, and importantly now the utilities will have to establish that on the record in a public hearing through the Public Utilities Commission.

So it's not just the utilities saying, "Hey, sorry, I know I'd said 100% by 2050, but Tesla couldn't do it". No, now they will have to actually put together a record and demonstrate to the Public Utilities Commission, "Hey, here is why I can't do this thing".

David Roberts

We tried.

Jamie Long

Yeah, exactly.

David Roberts

So it's not an easy thing. It's not something they could just screw around for 20 years and then invoke this.

Jamie Long

No, and they have to do it before the public. So does the utility want to go and say, "Hey, I'm going to have to be burning more dirty energy"? I mean, they're not going to want to do that unless they feel like they really have to. So I do think it's important to have that tool in there but, I would not be surprised if it's used very infrequently, if ever.

David Roberts

Yeah. So the "off-ramp" did not bug me at all, but something else that's in there has kind of bugged me, and I read a bunch of articles about this and I just didn't see anybody else pick it out or examine it at all. But it also, in the bill says that utilities can buy RECs for compliance, renewable energy certificates, which basically just means someone else somewhere else generated more renewable energy than they need for their compliance and they're selling the leftovers, and you can buy the leftovers counted towards your total for compliance. To me, that's more of a red flag than the "off-ramp" thing because, as anyone who's been listening to Volts for a long time knows, these RECs are fairly cheap.

Like if you just want to buy bulk solar and wind, like wind power from the Midwest RECs, they're pretty cheap. And in many, many cases they're going to be cheaper than actually reforming your own operations or acquiring new assets of your own. So why shouldn't I be worrying about that more? It seems like if there's something I'm going to worry about utilities doing, it's not just putting things off, it's just buying a bunch of cheap RECs to cover their obligations. So how do you think about that?

Jamie Long

Yeah, well so this has been the framework that we've had in state law since the beginning of our renewable energy standard. So it's a tool that's been around and widely accepted. The renewable energy credits vary in cost and it's, you know, hard to know exactly what a 2039 renewable energy credit will cost. But they are real. So, you know, there's sometimes there is a concern around offsets in general, and I think a lot of that is valid, but renewable energy credits are a wind or solar or other renewable energy system where there's retiring their credit for a specific use.

So it is additional renewable capacity that is being built on the grid and, at least for Minnesota, for the RECs that have been used to meet some of the earlier renewable energy standards, 60% of those are in Minnesota, and all of them are in the Midwest.

David Roberts

Is that by requirement or is that.

Jamie Long

No, that's not by requirement but that's been the way, the way it's happened and I think the Public Utilities Commission has worked with trying to make the RECs as local as possible. So they so far have been all in the Midwest, and 60% have been in Minnesota. So that is additional renewable energy that's getting built in the state, and those credits can't be retired for anybody else. So if the utilities building their own renewable energy they're going to retire the RECs for themselves. So it is real. In some ways it acts as a carbon tax on the margins.

When you're getting towards that last little bit of power that you need to meet your targets, then you're going to have to pay a fee. But we know that renewable energy is cheaper right now than fossil fuels and this is only going to put even more of a finger on the scale towards renewable energy. And if you're an investor owned utility you're going to have to go in front of the Public Utilities Commission and demonstrate why it is cheaper for your ratepayers to have a fossil fuel plant where you're paying RECs on it than wind and solar. And I just don't think that is likely to happen.

David Roberts

So you are not worried about RECs forming any substantial chunk of compliance?

Jamie Long

No, I'm not. I think that the most likely use for that will be when you have a last one or 2% and you have some sort of, I don't know, hydrogen peaker that uses some hydrogen that made from fossil fuels or something like that, that it'll take over that last couple of percent. Or something like waste energy, that I was describing before, where there's some other public policy good that you're dealing with. We have a big emerald ash borer problem in the state right now, and are cutting down a bunch of our ash trees, and we have a couple of facilities that are burning that and making energy out of it so. That produces carbon and there might be a need to have a REC for something like that.

David Roberts

And I also just sort of idly wonder when we're getting up to 2030, 2035 if compliance won't be, if more and more utilities are under compliance standards whether there are still going to be so many.

Jamie Long

Well that's right.

David Roberts

Excess RECs to sell, right? I wonder if that market is going to tighten up.

Jamie Long

Market is going to tighten up. I mean these are going to be needed for a lot of different reasons. Corporate purchasers want RECs, utilities want RECs. We're seeing these standards become more common. So, I don't know that we can count on cheap RECs forever. And there does need to be I think some mechanism to account for these hard to deal with marginal sources. And we could say that you can't burn trash and you can't burn wood, but I probably couldn't have passed that bill.

David Roberts

Right. A couple of things about the bill itself. I'm sure you're aware one of the bigs from ongoing conversations in the clean energy world these days is about permitting and sighting and the difficulty thereof, that being kind of a bottleneck. Sort of like, even if you have willing capital and willing utilities and willing everything else, you have this process of permitting and sighting that is sclerotic and slowing things down. Did you take that on at all in the bill?

Jamie Long

We did, yeah. We know that transmission is going to be a big challenge. It's a big challenge right now. We have a very constrained grid in Minnesota and a lot of renewable energy projects aren't getting built that otherwise could because the transmission costs are too high. And our regional ISO, the Midcontinent ISO in Minnesota, has announced recently a $10 billion new transmission investment in Minnesota and the region, that's the largest in US History.

David Roberts

Oh yes, we did a pod on that last year.

Jamie Long

Yeah, I listened to it. It was great. So frankly, myself and the former Republican Energy Committee chair and the Senate pushed really hard on MISO to move as quickly as they could on this because there were so many constraints. So we've been working at that level, but we also are trying to help at the state level. And we have several provisions in the bill that are designed to help with siting. One would remove a specific certificate that independent power purchasers are currently required to do, that was designed for utilities with ratepayer customers, and so it wasn't really the right fit.

Another would, for very short tie lines for solar projects, that right now have to get county approval, would move that to the Public Utilities Commission. A lot of the counties don't want to deal with that anyway. So we were trying to do some of these easy streamlining things and they all wound up being really non controversial. But to help just make it a little easier to get some of this renewable energy deployed.

David Roberts

And do you feel like there's more to do there? Like, is that something that's going to come up again in the legislative session, do you think?

Jamie Long

Well, there may be. We had four specific fixes in the bill, and these had been around for a few years, we've been working on them for a while. There may be other changes that are needed to help out. The big thing we need to do is just figure out how we can get some of these projects built in our state that MISO has approved and we need to keep those on track. Minnesota Power has proposed a really innovative transmission line in northern Minnesota that's going to connect to some new wind power in North Dakota. And so that will be an important project too.

I think they're getting some federal support for that transmission line, it was recently announced. So we have to build some of these projects out and I think there's going to be some state support to do that. For example, we're going to try to pass a pretty hefty package of state matching dollars to help out with the Federal Inflation Reduction Act, available money for transmission, and we're hoping that that will help deploy some of these projects.

David Roberts

I'm curious both about the prevailing wage provisions, and sort of beyond that, the general disposition of labor toward all this, like the role they played in all this.

Jamie Long

I think that was one of the best parts of the coalition work we did was having the broad support of our building trades and labor partners. It's not always been an easy conversation with building trades and clean energy transition, but I think seeing where the economics have pushed some of the coal plants in our state, and also recognizing that we have really good opportunities to build clean energy. A lot of the building trades in Minnesota have been really good partners in trying to help make sure that we are moving towards clean energy and that we are doing so with good union jobs. So because Minnesota was kind of an early mover in clean energy, even though we haven't been that active in recent years, we did get an early mover advantage in our, kind of the 90s into the 2000's, and we have two of the largest wind and solar installers in the country, based in Minnesota. And combined, they tell me that they've installed over 50% of all wind turbines in the US In the last decade. So we have a lot of opportunity that Minnesota workers have seen over the years to build renewable energy projects.

David Roberts

And an existing workforce that's presumably helping you, lobbying with you for all this.

Jamie Long

That's right, that knows that these are good jobs. So we put a prevailing wage requirement for all new large energy projects in the bill, which is a big deal. And then we also included local worker considerations for the Public Utilities Commission, so that they could weigh when they were approving projects if they were in fact helping employ local workers. We also put in there preference for projects that are going to be in energy transition communities where coal plants, for example, will be retiring. So that we're trying to help backfill some of the tax base in those particular communities.

So we worked hard with our labor partners and I don't know if there have been other states where the entire building trades, the statewide coalition supported 100% clean energy standard, but in Minnesota they did. And we had the bill signing at the Labor Center in St. Paul to mark what a strong partnership this was.

David Roberts

Well, it seems to me like nothing but a good thing that this element of the legislation, the sort of prevailing wages, local workers, all this kind of stuff seems to be a standard part of these state bills now. Washington, my home state of Washington, did some great stuff on this, but it seems like now it's just sort of like a standard piece of the puzzle, which strikes me as all to the good.

Jamie Long

I think that's right. And I think President Biden deserves a lot of credit on that too, to having made this labor climate partnership a real cornerstone of his clean energy agenda.

David Roberts

So, before we wrap up with just a couple of political questions. You've said a couple of times that Minnesota is the purplest, let's say, state to pass one of these things.

Jamie Long

Yes.

David Roberts

Which is true, but, you squint close up, and it's party line vote in both chambers. So, I mean, this almost feels silly to ask, but was there anything helpful or supportive from anyone on the Republican side throughout this process or did you just come into this thinking, "We're Democrats, we got to figure it out among ourselves, there's no hope"? Was that as predictable as I would have expected?

Jamie Long

Well, unfortunately it was. It was fully party line in both the House and Senate. We have had some bipartisan clean energy wins in recent years. We were one of the only split legislators in the country in the last four years, and when I chaired the Energy Committee, we had some good wins on energy efficiency and solar deployment. But for the big changes that we really need, we really weren't able to find the partnership that we wanted across the aisle. I don't think that that's true with Minnesota public, though. When you look at the public polling, and we have some public polling on our bill, it's broadly supported by the Minnesota public.

There are partisan differences, though, even in the polling. So it does show that unfortunately, we are at a place where climate clean energy policy is more polarized than I think is healthy. But I think that the good news is, we have broad buy-in now from our utilities, from our labor partners. And I think if we look back on this in ten years, you'll find that the public is going to be very supportive and the politics on this will change. I think that when the public sees the benefits that this will have for job creation, for overall cost of utility bills, and of course, for climate public health, I think that support will grow.

But I don't want to undersell what we accomplished either, which is that with a one vote margin in the Senate.

David Roberts

Yeah, I mean, let me just ask about that directly, because the Inflation Reduction Act was a friggin miracle.

Jamie Long

Right.

David Roberts

Because it all came down to the whims of one vain, relatively illinformed person and just sort of woke up on the right side of the bed. We sort of touched on some of the elements of this story, like, you brought the utilities around, at least to be neutral, not against it. Labor was for it. I mean, there weren't a lot of big organized commercial interests, seems like, against it. It's just Republicans against it. So how did you manage to keep every single senator on line?

Is there some magic dust?

Jamie Long

So Senator Frentz, who was a lead author in the Senate, and I worked really closely together throughout the entire process. And he's a rural moderate Democrat, I'm an urban progressive Democrat. So we were a good partnership. But when the Senate flipped to Democratic control, I was taking a look at some of the new members and hoping that we would be able to pass a bill as strong as the one we passed. And there was a member who won, who was the majority maker, who won in the Trump district, bright red district in the far northwest part of the state, around Morehead.

And then I started reading up on his background and turns out he's a meteorologist who has been talking about climate change on the air for 20 years in his community, and the impact that this has on agriculture. He spoke on the floor on the Senate talking about how if we don't act now, the agricultural impact in our state is going to be enormous.

David Roberts

It's kind of a lucky stroke.

Jamie Long

That was a pretty good draw. We had a member who was in a challenging part of the state in the Iron Range, as we call it, in northeastern Minnesota, but we had all of his utilities that were neutral or supportive and we had the strong support of labor. And so for him, I think it was a vote that he could take and take with confidence. So, you know, the coalition that we built really helped. But we, we didn't we didn't take this to conference committee. We, Senator Frentz and I negotiated together and got to a place where we had a bill that could pass and get the support of folks in Trump districts in greater Minnesota and Minneapolis, districts in the Metro, with one bill with no amendments through the House and Senate into the governor's desk.

So that took some work, but I'm really proud that we were able to get it done.

David Roberts

The ability to hash this out such that it didn't need to go through a long dragged out conference committee process is really a notable level of party discipline and purpose, which we don't always associate with the Democratic Party. So it's really great to see when it comes up, like, you guys did not faff about you just went straight at this thing and passed it.

Jamie Long

That's right. We knew what we wanted to do and, yeah, we got it done in a month. So it was an intense month, but I think we knew our purpose and we were aligned in our goals. And I wasn't two months ago sure that we would be able to get a bill as strong as the one we got through done. But I think Senator Frentz deserves a lot of credit for the work he did with the senators. And frankly, our partners, the utilities, deserve credit for being willing to come along, right? They understood that this is the direction we're headed.

They knew this bill was going to pass. And so the asks that they made were pretty reasonable on the scale of things. And now I think we have one of the five strongest clean energy standards in the country.

David Roberts

Two very brief questions to wrap up. One is North Dakota says they're going to sue Minnesota over the idea being that, you not buying their dirty power is a matter of interstate commerce. And thus your bill, something, something, dormant commerce clause. The illegal analysis I've read indicates that this suit has no merit. There was a suit back in 2007 that the Republicans won, but apparently it was on different grounds, the law was very different, it's a whole different thing now. I don't know if there's anything to say about this other than, it's likely to fail, but do you have any additional thoughts on it?

Jamie Long

Well, it says a lot about energy politics in the state of North Dakota. I think it says more about that than our legal chances. But we're North Dakota's biggest customer for their biggest industry. So energy is a lot of what North Dakota does and, to date, they have tended to focus on fossil fuels. Now they are moving, there is a lot of wind energy development happening in the state and to Governor Burgum's credit, he has said that he wants to move to a carbon neutral economy by 2030, or carbon neutral energy system.

David Roberts

Yeah, they got a bunch of CCS and hydrogen fantasies to work out.

Jamie Long

That's right. Yeah. So that's where most of his hopes are pinned on. But in terms of the legal challenge, no, there's nothing really there. I mean, the overall framework which is that we are regulating what Minnesota utilities sell to Minnesota customers, has been in law for all of our renewable energy standards since the inception, and North Dakota has never challenged those. So they did win a lawsuit against us after the 2007 energy bill and that was around a restriction that we had on imports of out of state coal. So that is a harder one to hold up in court and it was struck down.

But in terms of this particular provision, it's not the same. And, as I mentioned, it was in law then and they didn't sue it against it because they knew that they weren't going to be able to win. So it is unfortunate. We'll probably have to go to court with our neighbors, and that's not never fun, but we're going to win this one and the law will go into effect, and hopefully North Dakota can sell us a lot of wind power.

David Roberts

I really wonder what North Dakota thinks it is communicating to the rest of the nation with this behavior. Like, how do they think this looks? I know they're all conservative and so they're all in the bubble, they're all watching Fox, so maybe they don't know how this looks to the rest of the country, but like good grief, suing to stop the future. Anyway, so final question this is electricity. Done and done. Check, check. What about transportation? And what about heat? What about natural gas heat? Those are the two big prizes after electricity. Are you cooking up plans to go after one or both of those?

Jamie Long

Yes, we are. So on transportation, Governor Walz has been a real leader on vehicle electrification. He was the first state in the Midwest to sign on to the clean car standards out of California that are permitted for other states to sign on under The Clean Air Act and took a lot of flak for that, but stood up to the naysayers. And that's been a good commitment from him. But now we have the opportunity to do good work at the legislature, too, on electric vehicles. So I suspect there's going to be a really big package there and a very big package on transit, which I know has been something that we have wanted to fund at a substantial level for many years and haven't had the political support to do that.

David Roberts

Yeah, you have some really, sort of, in those terms, kind of progressive cities in Minnesota that could use some help, I think, becoming more walkable and transit oriented.

Jamie Long

We sure do. And they very much want it, and haven't had the support to get there. So we got another light rail line we're building out right now, we want to build a fourth. We have a lot of bus rapid transit that's being built in the region that we want to help support, as well as new bike-ped infrastructure. My city of Minneapolis tends to rank in the top five cities in the country for bike infrastructure, but that doesn't come for free, and they want more. So we need more. So that's going to be a big area.

And then in terms of buildings, absolutely. The governor has a proposal to move our new commercial construction to net zero by 2036, for our codes, which I think would be exciting. And so that would be updating our codes every three years to get to that point. So I'm hoping that we can pass that this year. And certainly that's just the first step, we do need to make sure we're looking at existing buildings, I had a building benchmark bill last year that we are hoping can move this year, too. So there's more to be done. And luckily we have a lot of session left since we were able to get this done in month one.

David Roberts

Right. How novel, just to get something done quickly, and then I imagine even elements of the public who are against it, just like, everyone prefers for this just to be done, right? Nobody enjoys these full year long dragged out, miserable. No one wants that again.

Jamie Long

No, yeah, we avoided the Manchin "Will he? Won't he?" for a year.

David Roberts

Oh, thank God.

Jamie Long

And just got her done, so that was, I think, exciting.

David Roberts

Awesome. Well, congratulations again.

Jamie Long

Thank you.

David Roberts

Representative Jamie Long. Thank you so much for coming, and thanks for all your great work in Minnesota.

Jamie Long

Thanks, David. Appreciate It.

David Roberts

Thank you for listening to the Volts podcast. It is ad free powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much. And I'll see you next time.

Even if greenhouse gas emissions halted entirely right now, we would continue to feel climate change effects for decades due to existing carbon dioxide in the atmosphere — and warming could accelerate, as we reduce the aerosol pollution that happens to be acting as a partial shield. In this episode, Kelly Wanser of nonprofit SilverLining makes the pitch for solar radiation management, the practice of adding our own shielding particles to the atmosphere to buy us some time while we step up our greenhouse gas reductions.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

One of the more uncomfortable truths about climate change is that temperatures are going to rise for the next 30 to 40 years no matter what we do, just based on carbon dioxide already in the atmosphere and the reduction of aerosol pollutants that are now shielding us from some of the worst of it. That's going to bring about potentially devastating changes that we do not yet well understand and are not prepared for.

How can that short-term risk be mitigated? One proposal is to add particles to the atmosphere that would do on purpose what our aerosol pollution has been doing by accident: shield us from some of the rising heat. No one credible who advocates for solar radiation management (SRM) believes that it is a substitute for reducing greenhouse gas emissions. Instead, it would be a way to buy a little more time to reach zero carbon.

My guest today, Kelly Wanser, is the head of a non-profit organization called SilverLining that advocates for research and policy around near-term climate risks and direct climate interventions like SRM that can address them.

I've long been curious about — and wary of — solar radiation management, so I was eager to talk to Wanser about the case for SRM, what we know and don't know about it, and what we need to research.

Okay then. Kelly Wanser of SilverLining, welcome to Volts. Thank you so much for coming.

Kelly Wanser

Thank you very much, David. I am a fan and it's a pleasure to be here.

David Roberts

Awesome. Well, I have wanted to do a pod on this subject forever. I'm going to try to be focused, but I sort of have questions that are all over the place, so let's just jump right in. The way I'm approaching this is, I think, to average people off the street, and maybe I even include myself in this. The idea of reaching up into the atmosphere and fiddling with it directly, thinking that we can dial in the temperature we want, strikes me as crazy. And I think that's probably a lot of people's intuitive response. Obviously, you have thought your way past that, going so far as to found an organization designed to advocate for this stuff.

So maybe just tell us a little, to begin with, your personal background and how you came to advocacy for geoengineering, which is not a super crowded field.

Kelly Wanser

I'll say first that you're actually not in the business of advocacy for geoengineering and it will give you some context for how I came to be doing what I do.

David Roberts

Sure.

Kelly Wanser

Really it was about — I was working in the technology sector in an area called IT infrastructure, and that's the sort of plumbing of data in the Internet and was looking at problems like how you keep networks operating. And I started to read about climate change, and I was very curious about the symptoms that we were starting to see in the climate system and where the risk really was. And I started to get to know various senior climate scientists in the Bay Area and other places, and I asked them the question like you might ask, how would you characterize the risk of runaway climate change in our lifetime? And this is maybe twelve years ago.

And they said, "Well, it's in the single digits, but not the low single digits."

David Roberts

Not super comforting.

Kelly Wanser

Yeah, I mean, my original degree was economics, so I thought, well, if you had those odds of winning the lottery, you'd be out buying tickets. If you had those odds of cancer, you'd be getting treatment. So that seemed like a really high risk to be exposed to. And then they told me about another feature of what was happening in that carbon dioxide stays in the atmosphere for a long time, keeping things warm. Comes out very slowly. So even if you stop emissions completely and there are other dynamics going on, the system will continue to warm for a while.

And so you've got another few decades of warming. So wherever you are and whatever you see, you've got some additional warming that's going to happen, which means that whatever risk point you're at, you reach a higher risk point over that period of time. And so I became very interested in that problem, because there's a mismatch between the increased risk profile of really serious and catastrophic climate events and impacts and the kinds of responses that we had to reduce the risk. So really my organization is focused on what we call "near-term climate risk," which is the 30 to 40 year time horizon where the things we need to do to ultimately fix the problem, all the ways we reduce greenhouse gases in the system, they don't work in that time horizon to meaningfully reduce the risk.

And so that's how we find ourselves here. Because getting back to your original comment, in the absence of the kind of risk situation that we're in, these ideas would be really extreme and you wouldn't consider them. So we like to use the sort of metaphor of medicine because it has many similarities to medical treatments. And medical treatments require a lot of research and they're as useful as the context of where your condition is.

David Roberts

Right. So maybe the way to phrase this is you looked around, you saw climate change, you saw that our ways of mitigating climate change are sort of slow, if you will, slow acting and long term, which leaves this short-term risk gap.

Kelly Wanser

Right.

David Roberts

So there's going to be warming over the next 30 to 40 years, regardless almost of what we do. And you're focused on how to mitigate those risks.

Kelly Wanser

Yeah. So related to that, and again, you can go to the United Nations Climate Reports, and you can see what they think is happening and going to happen they have these charts that show these curves. And the curves go up all the pathways, all the different scenarios for climate change going up through 2050, some of them bend back down because we've done a good job. But in their reports where they describe that they're projecting what's happening to people and different parts of the world over those 30 years. And right now they've come out and said, well, under their projections, as many as 1 billion people get displaced.

And you can go to websites that have simulations of what's going on and you can see places that get overwhelmed by water, that get overwhelmed by heat. And so you've got a lot of suffering, a lot of dramatic impact that's baked in. And so what we are saying is we need to do really rapid research to find out if we can do better than that. Because in the current projections, it's bad for everyone and it's terrible for quite a few people.

David Roberts

Yes, two things spring to mind confronted with that situation. One is a lot of people looking at that would say, "Well, we need to go gangbusters on adaptation." Let's figure out how to make that suffering less by adapting to some of it. And the other thing that jumps to mind is methane, which, as Volts listeners know, is a greenhouse gas, but acts on a much shorter time horizon than CO2. And so I think that the thought in some quarters is if you could rapidly reduce methane, you could have a much more rapid effect on the climate than in reducing CO2.

Why not either of those two routes?

Kelly Wanser

So, also those two routes. I think one of the things that struck me about coming into the climate space was it wasn't very well-equipped to think in terms of portfolios. So if you look at the risk profile, it's sort of like we're having these debates about should it be wind and solar, or nuclear? Should it be emissions reductions or these things? But if you look at the risk and uncertainty involved, there's a lot of uncertainty involved in all the different ways of responding to climate change. And there's a huge amount of risk, potentially existential risk.

And so from a portfolio perspective, methane reduction is one of my absolute favorites. And there are some great things happening in that field. Adaptation is a harder problem, and it was made harder because people didn't want it in the portfolio 20 years ago. And they didn't want people to think it was adoptable. So they didn't want people looking at it. Well, it turns out when you look at it, you find out it's not easily adoptable, really. You can see, like, look at Pakistan. These big extreme events happen. They're pretty overwhelming. And even in the US, we're arguably one of the best equipped places in the world to manage these things, and Austin, Texas, had a third of the city with no power.

David Roberts

Yeah, we managed to bungle it regularly, even with all our money.

Kelly Wanser

But really what it was about is saying, okay, we should have a rich portfolio here. If you thought of this as like, shares, or you thought of this as insurance policies, we'd have a portfolio of things so that when you brought that portfolio together and those things that are different profiles and there are different levels of uncertainty, we have a lot of coverage.

David Roberts

Right?

Kelly Wanser

And the problem is that this part of the portfolio, if you needed to arrest climate change quickly, if you really needed to get in there and say, oh, the ice sheet is about to go. The wet bulb effects in India are happening and we can't take it. And you needed something that operated in a sub-decade time horizon, then that's the key part of the portfolio that's empty. And we don't want to do those things. But from a risk management point of view, in terms of what's at stake, even evaluating whether we have them, that's something on deck that we really should be doing.

David Roberts

And one more thing about the risk question, the short-term risk question, and I feel like maybe more climate types have grown cognizant of this recently, but it's really an under-discussed aspect of all this, is the aerosol effect. So maybe just tell us what it is and why that adds to these worries about short-term risk.

Kelly Wanser

That is a great question, because as I was digging into this and finding out the things I'm telling you, this came up effectively. There are forces in the atmosphere that trap heat and help keep us in this sort of temperate zone that we're in. And there are forces in the atmosphere that reflect energy away. And so the particles and clouds in the atmosphere, they're reflecting sunlight away from Earth, which is part of what keeps us in this Goldilocks zone. When you look at the Earth from space and you see that shiny blue dot, that's what that is.

And these particles that come into the atmosphere, they create clouds, they live in the atmosphere. They're part of that whole system, and they come from nature, but they also live in pollution. And the particulates in pollution that come from coal plants, that come from ships over the ocean, they are mixing with clouds that are living in the atmosphere in ways that make the atmosphere slightly brighter. And it's this effect that scientists have reported is cooling the planet currently by reflecting sunlight back to space. And they don't know exactly by how much, but they think it's between a half a degree Celsius and 1.1 degrees Celsius.

David Roberts

That's not small.

Kelly Wanser

No, it's not small. It could be offsetting half the warming that the gasses would otherwise be making.

David Roberts

Yeah. Just to sum that up. So our particulate pollution to date has had the sort of perverse effect of reflecting away a bunch of solar radiation with the consequent problem that insofar as we clean up our pollution, which we are striving to do, we are going to lose that cooling effect and maybe get another one whole degree of warming which would double...

Kelly Wanser

That's right.

David Roberts

...our warming since preindustrial times. So that's a little wild.

Kelly Wanser

I was just going to say it's right there in the climate reports. And it's been there consistently, but not prominently noted, not highlighted in the sort of climate discussion. And so it's surfacing more now recently, that this was there. And we're getting very good at cleaning up pollution. One of the features of this problem is that in climate reports, when they show these effects, they'll have bar charts that show the different effects on the climate system. And they have these lines that show how much uncertainty there is. This is the most uncertain thing about the climate system.

And that uncertainty has been unchanged for 20 years. We have not been able to improve our understanding of that. And so when we in SilverLining are talking about our advocacy, we're saying we need to improve our information base, we need to quickly improve our ability to do that problem. That problem happens to be the same or very similar to the problem of what if I want to achieve this effect actively. So we think it's kind of a no brainer for society to say we need to go after that problem really hard, like the human genome, and understand what's going to happen when we take the pollution away.

And is there a cleaner, more controlled version of this that might help?

David Roberts

Right, yeah, I'm going to get some of those questions in a minute. So the aerosol effect is you have these particles up there now which talk about geoengineering. We've been geoengineering the climate ever since industrialization by throwing all these particles up, which are shielding us. So, in effect, as we clean up our particulate pollution, we are pushing the target for climate change farther and farther away. In other words, we're making a longer and longer runway for ourselves. So in addition to advocating for research, which we'll get to in a minute, it looks like your organization has because the term geoengineering, I think, as people think of it now, brings to mind all sorts of various and sundry schemes in the ocean and crumbling rocks and there's all these different notions.

But it seems like you all have settled more or less. Your main focus is on solar radiation management, SRM, which is just replacing the particles that we're taking out of the atmosphere with new particles to continue enjoying that cooling effect. Why focus in on that one rather than the others? Is there a reason to think it is the most out of all the geoengineering schemes? Why focus on this one?

Kelly Wanser

Well, we, we don't use the term "geoengineering." We don't use the term "scheme." But I will answer your question.

David Roberts

I know, I noticed that you carefully say "climate interventions" rather than "geoengineering."

Kelly Wanser

Yeah, "climate intervention" was a term the National Academy of Sciences coined in their 2015 report. And it's useful because, like you said, "geoengineering" kind of evokes the most engineering-oriented stuff, engineers in space, and there's really not a lot of engineering involved. There's a lot of science involved, and it's directed at climate. And intervention is a really good term because it's so similar characteristics to a medical type intervention. Engineering has a lot of certainty. Like, if I can do the math, I can engineer a bridge. An intervention has a lot of uncertainty and a lot of trade-offs, depending on where the patient is.

So this looks a little more like that. But to your question, we are a science-based, science-driven organization, so we follow what the scientists recommend. And so we didn't arrive at this conclusion ourselves. We took what the National Academy of Sciences and the Royal Society in the United Kingdom said. They'd done a couple of assessments where they gathered scientific experts together and asked the same question and if you wanted to reduce warming in the climate system quickly, what are the best candidates for research? And so they landed on this because there's a lot of precedent for this effect in the atmosphere.

So in addition to what pollution is causing, they've seen this effect when large volcanoes go off and release material into the outer layer of the atmosphere, the stratosphere. And they've seen that cool the climate system globally. So when Mount Pinatubo erupted in 1991, they observed about a half a degree Celsius of cooling for about a year and a half. So when people talk about all these things are terrible. Well, most of us who are 25 or older experienced this already when Mount Pinatubo went off and we didn't notice the sky was different. So we've actually lived it a little bit already.

David Roberts

In a sense, we know it works, or at least we know the physical effect is somewhat predictable.

Kelly Wanser

Again, I'm going to go back to the medical analogy because it's so similar. There are differences in efficacy and side effect profiles based on what we know today. And the reason we want to do research is to understand the efficacy and side effects better.

David Roberts

Right.

Kelly Wanser

And so in the outer layer of the atmosphere, they feel like they know a lot more about the efficacy because the stratosphere is very uniform. They've seen it with volcanoes. And so you can get a pretty good grasp, although they're finding just as early research is going on, there are pretty big differences, maybe in how you do it as to what happens. And you certainly don't want to do it like volcanoes do.

David Roberts

Why not, just out of curiosity?

Kelly Wanser

Like all at once big bursts. So it turns out that doing it from — most volcanoes are around the equatorial regions, which for some of what they're finding is like the worst place to do it and that you wouldn't do it like in one giant burst all at once. And of course, volcanoes include a lot of stuff that you wouldn't put in there that is...

David Roberts

Right.

Kelly Wanser

So what we know, or have some handle on, is that in that kind of a burst where there's material in the stratosphere for a year or two and it gradually falls out. We kind of know a bit about what the side effect profile is of that a bit. And I should say we don't know that much about the chemistry effects and the ozone layer and things like that because our measurements aren't very good. But the thing we really need to think about is, okay, if you needed to do this for a couple of decades of 20, 30, 40 years, and it's got a side effect profile in different parts of the system, maybe it's heating up the stratosphere a little bit.

And that gets to a point where you have big changes in circulation or other things. That's what they don't know.

David Roberts

It occurs to me that we've gotten this far in without ever actually really saying what we're talking about. So just for listeners who might be confused, the idea here is to deliberately inject a bunch of these particles, sulfur particles, into the atmosphere to basically do on purpose what our pollution is doing by accident reflect light away. And there are a couple of different versions of this, even if you just focus in on this is called solar radiation management. I don't know if that's the term you all use.

Kelly Wanser

Yup.

David Roberts

There's a couple of different versions even of that. So maybe just discuss like what are we concretely talking about doing? There's different layers of the atmosphere, there's different methods of throwing things up, maybe give us a sense of what it looks like in practice.

Kelly Wanser

So there's the idea that would sort of be lifting off from what they've seen with volcanoes, which is dispersing particles into the upper atmosphere, this stratosphere probably via aircraft and possibly with selected places that they're releasing the material based on what they're learning and models about what produces the best efficacy with the least side effects. And that this would probably happen in a continuous way with planes flying continuously, releasing stuff. And the net effect that they're trying to produce is about a 1% increase in the amount of sunlight the stratosphere reflects. So it's not something that you see from the ground.

It's not something that would be noticeable except for maybe certain changes in light to certain types of plants, things like that. And that would be the idea.

David Roberts

One question about that, the stratosphere you said is pretty uniform. Would interventions on that level have a uniform effect around the world or would they be localized?

Kelly Wanser

It's far more uniform. The particles get entrained in really high winds up there and disperse globally. And so you get a global effect. You might have some differentiation in how that plays out down below in weather patterns and things. And that's what people want to study. And because it's not simple, it's a really complicated system. And one of the concerns scientists have is that like reflecting sunlight up there, you're slightly heating the stratosphere and that can affect its interactions with the atmosphere below it. It can affect the way chemicals play out in the stratosphere in a way that affects the ozone layer.

And so all of those things, again, if you're really good to think about medicine, it's like oh, how does it interact with that part of the body? There are medications. So there it's really about trying to project forward, trying to figure out what is the optimized way to do this, where you get the highest efficacy and the best safety.

David Roberts

And isn't there also a whole other genre of this that has to do with clouds putting the particles in lower clouds?

Kelly Wanser

Great question. Yes, there is. And the particles that they're talking about putting in the clouds are different, too.

David Roberts

Different than the stratospheric particles.

Kelly Wanser

That's right. So in the stratosphere, their starting point is sulfur dioxide, which is like worse than pollution. And they know the most about that because it's what volcanoes put up there. Aircraft pollution is starting to waft up there too. But they're also looking at other things in the stratosphere, like calcium carbonate, which is chalk, like chalk dust.

David Roberts

Interesting.

Kelly Wanser

And even diamond dust. So those are the kind of the two other methods.

David Roberts

And the idea here is trying to maximize reflectivity while minimizing, presumably other...

Kelly Wanser

That's right.

David Roberts

Everything else.

Kelly Wanser

And in this case, especially thinking about the ozone layer. And that's important, obviously. And in fact, in the international arena, in the UN, where they've done probably the most scientific evaluation of these things to date is in the part of the UN that looks after the ozone layer, the Montreal Protocol. So they're thinking forward about that. And that's the issues in the upper atmosphere, in the low cloud layer. So we have lots of particles going up into clouds all the time, especially over land. The less polluted clouds are over the ocean, although you can see and if anyone listening to the podcast, if you Google Ship track it'll pull up pictures of cloud decks over the ocean and you can see these streaks and the clouds that are made by the emissions of ships.

And so that's like the ship particulates from the ship pollution brightening the clouds and you can see it visibly where it's really concentrated, but it's also spreading in ways that you don't see visually. So the idea here is, well, could we use a cleaner material and really optimize the effect? And it turns out one of the very best materials for doing this with is one of the materials that's part of making clouds over the ocean, which is sea salt. Sea salt spray from ocean water. And so what scientists proposed two British scientists back in the 90s was, well, maybe you could make a really optimized mist from sea spray spray it from ships in a continuous way and brighten the kinds of clouds that are really susceptible to this, and do it in more localized areas where you get a big bang for the buck.

And so you still offset a couple of degrees of warming, but you're only dispersing over like something equivalent to three to 4% of the ocean surface.

David Roberts

Interesting. And this would also have a uniform global effect because it seems much tighter area, lower clouds. It just seems intuitively, like that ought to be more of a local effect. Does that also end up spreading?

Kelly Wanser

Your intuition is correct. It is localized. And the side effects that you're most interested in is what does that do? Because you are creating concentrated areas of cooling in the system and these are all the mechanisms by which weather and atmosphere move around. So it's almost certainly likely to affect weather flows and patterns. And the thing you would be trying to learn then is are there ways for that to work in your favor and are there ways for that to be really bad? And so I'll give you two examples. And one of the reasons we're such strong advocates for research is because these kinds of questions really shine a light on where our climate models and our climate observations are weak.

So to answer these questions, you've got to really improve doing that uncertainty problem and also getting better at weather circulation. But in the very early models which we helped fund to try to represent these things, one of the possibilities that arose is that when they simulate brightening clouds over the Southern Ocean, which is one of the places that you might do it. You get these cooling currents because it cools the water below in the air in the low layer that flow onto Antarctica. And so you got this improvement in kind of an outsized cooling of Antarctica, which is a useful thing potentially.

But on the reverse side, in another targeted area of clouds, when they cooled that region, they affected weather patterns such that you got dryness in the Amazon forest region, which is a very bad thing to have.

David Roberts

Yeah.

Kelly Wanser

So in the moral to this story is that these are just very early bottle based simulations that tell you you have these kinds of questions and that it's probably given the state of the risk that we have, and given that it's one of the top two candidates, and given that studying it will help us understand what the pollution problem is going to do. Really important to study, but really hard to say for sure whether or how you should use it.

David Roberts

So these two versions of SRM, solar radiation management, the injecting particles in the stratosphere and then the cloud brightening, are those the sort of two main, most viable sort of targets for research. Like when people think about SRM, are those the kind of the two things that should come to mind?

Kelly Wanser

They are from scientific assessments and from senior scientists. There's a third one that's sort of like a tier below because it's even more uncertain than the low cloud brightening, but it is something that is already occurring. And this is in the high cloud layer. So between the stratosphere and the lower atmosphere. So the upper troposphere where you get to when you're cruising altitude on a long flight, 30,000 feet, depending on the circumstances, when you put pollution particles or similar into these high clouds, you can have the effect of either thickening them or thinning them, depending on the conditions.

And those clouds are insulating clouds, so they keep heat trapped in. Infrared radiation trapped in. So if you put particles in them in the right circumstances, you could thin them.

David Roberts

Let more heat out.

Kelly Wanser

Let more heat out. And this phenomenon is happening from air traffic, from airplanes, and we don't know enough about it.

David Roberts

Well, I have a bunch of questions about governance and moral hazard and all this, but first let's just briefly touch on the main subject of your latest report, which is just research, advocating for research. I come into this sort of like leery about doing things like this that we know so little about. But when I got into sort of reading about the kind of research we need, what's sort of remarkable is probably like two thirds of the research you're advocating is not even directly on doing these things. It's just understanding what's in the atmosphere right now, like what are the risks of short term rapid changes now?

Just very basic climate science stuff that you would think we would already be researching. I think even sort of the most committed opponent of these schemes would agree that it's crazy how little we know about this whole area of study. So maybe just like talk about what when you advocate for research, just talk about sort of the basics of what you're advocating for here. I mean, I think people will be a little bit shocked that some of this stuff doesn't already exist.

Kelly Wanser

Well, thank you for that. You're exactly right because I think we were shocked not coming from this field and just kind of looking at it as an information problem. And the problem you want to do is you want to be able to project and evaluate the risk of what the climate system is going to do. So I'd really like to know, be able to project with some confidence how the Earth system is going to respond to this warming over the next 30 years and then what it would look like if you change the things that are influencing it, either in the warming direction, the greenhouse gases, or in the cooling direction, what scientists call aerosols.

These particles. So we're coming at it saying, "Okay, we just want to help set us up to do that problem and evaluate what it looks like if you are introducing aerosols in different ways and how does that improve or not, like the risk profile of what's happening." And so then we bump into these gaps and what the problems that we can't do in the models and a lot of them center right in the atmosphere, that the models don't represent all the phenomenon that are happening in the atmosphere very well and that we don't have the observations that we need to improve them.

David Roberts

It's like insane. It's like five, six decades now. Of talk about climate change and talk about all this, but we still on some very basic levels are just not watching what's happening in the atmosphere.

Kelly Wanser

I think people assume that it's like, hey, we've got this, right? And you hear there are these satellites and you hear the scientific studies coming out that are projecting what climate is going to do. We have satellites looking at everything. And then you sort of dig under the hood and that's where solar radiation management just has an analysis problem. Because what some of the scientists in our circles have said is people want a higher standard of evidence for this. So they're saying, well, you need to be able to tell us what will happen and what the impacts will be.

And we shouldn't be having that standard of evidence for what greenhouse gas is doing and what these other aerosols are doing, but we haven't. And so we get in there and say, okay, if you really want to do this problem, here's what you need. So to give you example for the very top candidate for this is putting particles in the stratosphere. And so if you want to project what will happen, you first need a baseline of what's in the stratosphere. And it turns out we don't have that. We can't characterize what's in the stratosphere currently. So then it's very hard to do that problem.

And so the first thing that we did when we started talking to members of congress and working with NOAA is just to say we have this problem of having a baseline of what's there, which is a really important problem to solve. If you want to know if somebody else is adding material to the stratosphere, if you want to know what it will do, and so that was our starting point. And it's similar kinds of things now, where even in the low cogler, we're working on a program to put instruments on ships like the current ships that travel, that would just be taking atmospheric readings of that low atmosphere so that you would have a baseline and you'd be able to help the models and even the satellites interpret what's going on.

David Roberts

Right. So just gathering more data about what's actually in the atmosphere. So we have a baseline, because one thing the report emphasizes over and over again is that it doesn't really make sense to talk about the risk of doing these things in isolation. It's always, what is the risk of this intervention versus the risk of not doing this intervention? What are the risks we're facing as a baseline against which we are measuring the risks of this intervention? And we just don't know. That's what's wild to me. We just don't know what the current risks are. So there's no way to make an informed risk judgment because you don't know the differential.

Kelly Wanser

That's right. And we haven't really invested in it, which is another quite eye-popping reality.

David Roberts

It's wild.

Kelly Wanser

Like, globally and in the United States, climate research investments have been relatively flat for decades.

David Roberts

That is wild to me. I know. Every time I read that, I read that statistic periodically, and every time I run across it, I'm shocked all over again. Like, all this talk, all this international action, all this agita and angst, and we're not spending any more on climate research than we were two decades ago.

Kelly Wanser

This really baffled me. Coming into this, I didn't understand it, and I sort of learned there was quite a long period of time where there was an orientation that I'm kind of sympathetic to, which was, we know what we need to know. We need to reduce emissions. And so if you think about it as like two sides of an equation, and you look at the reduced emissions side of that equation, and you just focus everything on that, and you say, don't spend your energy on figuring out what's going to happen if it gets warmer, because we're not going to let it get warmer.

And really, that combined with a lot of other pressures on climate science, climate science has been in lockdown mode. I can still remember, like ten or twelve years ago. It's brutal.

David Roberts

Under siege, yes.

Kelly Wanser

Terrifying. But now we're seeing these extremes, and we've had a flat level of investment. And inside that flat level of investment in climate research, in the part that looks directly at the atmospheric observation of atmospheric basic science has actually declined in real terms.

David Roberts

Oh, my God, that is mind-boggling.

Kelly Wanser

It's heartbreaking. And that's the fulcrum for everything we need to know about what's happening and how we evaluate what we're going to do. So the good thing is it represents an opportunity if we can improve it. And I'll just finish by saying climate research investments in the United States are about three and a half billion a year, and that's everything on that side of the equation. And if you compare that to the 55 billion we spent on the three most recent storms.

David Roberts

Yes.

Kelly Wanser

And even the big money that's gone into these other programs, what we're saying is, hey, to invest an additional 60 or 70% in that bring it up to 5 and a half, 6 billion a year, that seems reasonable.

David Roberts

I really encourage listeners to go look at the report because the details of what kinds of research are needed are, like, I keep saying, sort of eye-popping because over and over again you're going to read something and be like, wait, we're not doing that already. We're not looking at that already. We're not measuring that already. That's not included in the models already. A lot of the research recommendations are just like stuff we should obviously be doing. Regardless of what you think about these direct interventions, only when we have a better understanding of these short-term climate effects can we even coherently compare what would happen if we did these interventions right.

We have a baseline against which to compare, and the details of some of that research are really interesting. But just sort of to wrap up the research part, let's just talk about that price tag so we can get a sense of the of the scale. You want to double from 3.3 billion to 6.3 or something like that, but just, you know, like I hate to be a cliche, but like, compare this to how much we spend on defense research or like pharmaceutical research or like dog food research. It's it's, you know, concretely, what price tag are you asking for?

And sort of like, where basically would that money go?

Kelly Wanser

Well, so concretely, we're asking for an additional 2.6 billion a year on top of approximately 3.5 billion. So it's less than double. And it spread across kind of the modeling and analysis of scientific workforce side of it, across observational platforms, which are the most expensive piece. So you need the airplanes that fly through the atmosphere to take readings. You need stuff on the ocean at the surface. And shockingly, the satellites that actually can look at aerosol particles in the atmosphere. They're aging out and there are no plans to replace them. Yeah.

David Roberts

So we're going to know less about aerosols.

Kelly Wanser

We're going to know less soon.

David Roberts

That seems like the wrong direction,

Kelly Wanser

So the investment in those platforms. And here's the other hold your gut thing. The US supplies most of the world's data. So if we don't do it in the US, we can't count on it coming in. There are some European programs, but the US is the biggest provider of this information.

David Roberts

Yikes. It just seems like how is it in the UN, all this sort of like, poorer and more vulnerable countries organize and they want money in the Green Fund and all this. How is it like they are the ones who are most directly at risk in this 30 to 40 year time horizon in some very direct and scary ways. Why aren't they advocating for research? Like, what's going on?

Kelly Wanser

Well, they have a lot of fish to fry, huge amount of sympathy because they're getting pummeled by the impacts and they're not getting the money they were promised to deal with the impacts or the transition. And what's striking is many of them are still ahead of the developed countries in transitioning away from fossil fuels. You take a country like Honduras, they're over accomplishing against their commitment and they're like the second or third most impacted country by climate change. Like half the country is going to disappear in the period I'm talking about. And so a lot of these countries are really impressive in how they're trying to deal with this, but they don't have good visibility of these research problems because they don't have the assets to do this problem at all.

David Roberts

Right,

Kelly Wanser

And so that gets into where you talk about the climate system is so big and so complicated that you need very high tech resources like massive supercomputers satellites, stratospheric capable aircraft that only a handful of countries actually have.

David Roberts

Yeah, I guess one additional note about the research to emphasize is just and you have a whole piece about this in the report. It's just the people from these vulnerable countries who are now more or less locked out of this research by the high sort of capital costs of it need to be brought in, right. This cannot be another sort of white dudes around a conference table undertaking. Their interests are most directly involved and they need to be involved in the research. That's just to put a pin in that.

Kelly Wanser

I'll say one more thing, and I'll give a plug to our partner at Amazon, because we care about that problem a lot and there are ways that technology can help. And so with regard to giving access quickly, getting the climate models and data sets onto the cloud, out of these big supercomputing, one off facilities and onto the cloud where people in different parts of the world can access them, has a huge potential to benefit. Takes a bit of technical work, it takes some money. But then they have supercomputing too. They have climate models, they have the data sets too.

And so we're working on this very actively right now. It's like Netflix. It's like how do we bring it to the world? And if you want those people to be able to do these problems of what is climate change going to do in my part of the world? And then what would these interventions do? You need things like that and you need them pretty fast.

David Roberts

Right. Most research, yeah, you notice of the little there has been, has been focused mostly on developed countries because that's just where the researchers tend to be.

Kelly Wanser

That's right.

David Roberts

There are huge justice implications to both these interventions. And just to emphasize again, to not doing these interventions, to not doing anything, both those have enormous justice implications which need to be centered. So yeah, if I could just sort of summarize the research bit. The part that struck me is just how much of this research seems like it ought to be happening anyway. It is uncontroversial. It's crazy that we're not doing it regardless of whether we decide or want to intervene directly or not. Understanding the short-term dynamics of the climate and the risk of tipping points and the dynamics of aerosols and all these things, we're just woefully underfunded and need more funding. That seems uncontroversial.

So I want to get to the problems that everybody when I ask about this online, everybody sort of comes up with the same question, which is just this sort of nest of moral hazard problems. And so just for listeners who aren't familiar with the term, the idea of moral hazard is the worry here. One of the worries here is if this becomes a real possibility, it will serve as an excuse to do less mitigation basically to reduce emissions less. The idea is here we have an escape hatch. Like, I had a guest on talking about modeling a few weeks ago and she was sort of talking about how in climate models we just have CCS plugged in as kind of a carbon capture and Sequestration plugged in as kind of a gap filler because we don't know what else to fill that gap with.

But it gives us sort of this false sense of security. Like, oh, we can get to the targets. Even though if you look at the models like, oh, here's a kajillion tons of a technology that does not really exist yet on any commercial scale. So it's giving us a false sense of security. And her worry is that solar radiation management is going to serve a similar role. ie. Kind of an escape hatch that you can just plug into models when you want to get the right output. That's one of the remoral hazard arguments is it'll lull us into a false sense of security and will reduce the urgency of mitigation.

I'm sure you've discussed that issue a kajillion times. What's your kind of take on it?

Kelly Wanser

Yeah, we might need a whole 'nother podcast, but...

David Roberts

I know I wish we had more time for this.

Kelly Wanser

I share the worry that it gets plugged in in a similar kind of way. I might differ in what I think that means about research because I've had this moral hazard issue come into our world in saying it's a reason not to do research, because the research itself creates this impression that you're going down this path and it opens up this option and digging into this coming from outside and looking starting to learn from people the history. Because these same arguments were made about adaptation research, and they were made about carbon dioxide removal research, and they were even made about research into reducing methane that it would distract from looking at CO2. And what kind of happens is they say, well, the research creates a moral hazard, so they sort of suppresses research.

Adaptation research is a really good example because then you didn't have it. Well, the research might have given you a lot of really interesting information that compelled thinking about emissions reduction because of the kind of adaptation s**t show that...

David Roberts

I know, the more you know about adaptation, the more — it's not like you're going to be like, "Oh that's easy, that's easy."

Kelly Wanser

Let's just do that on planet Earth would have been to have just tons of adaptation research. That really blew my mind, actually. And so when I think, I guess, or our premise is that information actually helps. And when you dig into these climate interventions, they're not magic. And I sat with conservatives and Republicans in Congress and said to them, look, what the science tells you is the least amount of additional things you put in the atmosphere, the safer it is.

David Roberts

Yeah, which is just completely ...

Kelly Wanser

It's showing you where the thresholds are, and I can have that conversation. And so we say there's at least we need to look at the evidence that when we start to dig into this, there's also evidence could be highly motivating of pushing on emissions reductions and pushing on the things we can do, that's in addition to all ... the fact that we want to fill gaps and information that will help all these other parts of the climate problem, we're saying that we think society actually with more information, can do a better job and that information itself isn't bad.

David Roberts

Well, most people would agree with that up to a certain extent, I think, but then gathering information is one thing, but how do you at a certain point when you're talking about doing these things it's so complex, there's no way to predict or model completely in advance what's going to happen. So ultimately you have to do some of this stuff to find out what's going to happen. And I guess a lot of people just wonder sort of like how do you half do this? What does an experiment along these lines even look like? And ultimately, like how much can you learn without doing it on a big broad scale?

And then once you've done it on a big broad scale it's sort of like the Pandora's box is open. It's one thing to understand the climate better, but how do you understand doing these things without doing them?

Kelly Wanser

I think if you think about the steps of what you can learn, in what ways. So the thing that scientists are proposing doing are releases of plumes, like small batches of plumes, like the equivalent of what comes out of the smoke stack of a ship or of an aircraft. And that gives you a lot more information than you have now about how the particles behave when they hit the atmosphere and how they disperse. And that is information that right now, if you want to model this stuff, you're just taking a wild flaming guess, and then everything downstream of that is based on your wild flaming guess.

And so if I want to know like what are the exactly right size of particles and those really teeny in earth terms experiments give you that first order information that you can plug into models and then your models of what happens at a bigger scale are a lot smarter. And so that level, like I think scientists have said they've recommended it already in scientific assessments, but people are confused because it's sort of conflated with, "Oh, previous folks in the space have said this is cheap and easy to do and we got a guy out there saying you can throw up balloons." It's like I've dug a tiny hole, but I'm building a skyscraper. What you would need to engineer the climate system is tens of billions of dollars of investment in something that would be able to influence the planet at a really big scale.

And so you have this inflection point where there's a bunch of science you need to do to even advise countries or the world as to what would make sense as far as regards investment like that, if anything. So no one is going to be off doing this at the kind of scale that would really have a major impact without a really big investment.

David Roberts

Well, let's talk about this then, because it is sort of...

Kelly Wanser

I let myself in for that one, didn't I?

David Roberts

This kind of conventional wisdom, or at least often repeated in this space, that sulfur particles and squirting them up into the atmosphere is relatively cheap compared to other things such that like a single interested country or even a single interested billionaire could do a big chunk of it themselves. So before we discuss the kind of security and governance implications of that, just is that true?

Kelly Wanser

Well, I think what's happened, as some research has started to happen there's the things that sort of physicists and modelers do with the information that they have and the numbers that they have and aren't taking into account a lot of the complexity, a lot of the uncertainty, or even a lot of the way the world really works. And so then you dig in and you say, oh, no, what it looks like is you need platforms capable of reaching the stratosphere if you're going to work up there. There's only a handful of countries that have that one species programs, and you would need to scale up very substantially, like any sort of capacity for that, which is not within the means of more than a handful of countries and really not in the means of any individual billionaire either. And also, by the way, none of them are stepping in to spend their whole net worth this way either.

So I think that was kind of when you do it in the back of the envelope and you know very little, you can sort of be optimistic about that. But when you dig in, the reality is it's probably a subset of the world's developed countries or countries with a lot of assets who would be players in that. Now, in the low cloud layer, it's a little bit different because you've got these cloud seeding efforts that are coming up and springing up to try to address local impacts and there are ways that cloud brightening could be used that people are starting to look at. And so you could get regional things that could affect other people and things like that that are more widely available or potentially used.

So these are questions that need to be thought about. And again, science and observation really helps you and it's not a good space to be flying blind in.

David Roberts

Right.

Well, the broader question of governance, I guess, is one thing that really just vexes people about. This vexes me about it, too, which is just like whenever I read or listen to someone like you talk about it, I'm like just like cool heads.

Reasonable people taking all the right precautions, building institutional capacity such that scientists are in the driver's seat of this thing and policymakers only doing what scientists sort of advise them. And there's international cooperation and there's knowledge sharing, et cetera, et cetera. It sounds delightful when sensible people discuss it as though sensible people will be in charge of it. But of course, a glance at recent world history reveals that quite frequently sensible people are not in charge. You said that the bar for getting seriously involved in this is higher than maybe people think. But it certainly seems like this is something that people could be doing sort of half ass experiments with in various ways.

How do you I guess just what's your confidence that a sensible international knowledge transparent knowledge sharing system is going to be in place to manage doing this research and taking these experiments and trying this versus scientists losing control over it and insane capitalists or rogue nations or whatever taking it and running with it? Is there an answer to that question like what's the best we can do to try to keep this under the control of sensible people?

Kelly Wanser

Well, that's a good question. And I think one of the reasons that SilverLining exists is really that question, which is if you think about the climate conditions getting potentially worse and worse and people being more inclined to take kind of radical actions how do you put yourself in a position to be smart, to be equitable, and to be as safe as you can in that context? So it definitely appears that when you have a sharing of information and you have cooperation around science and information, it calms everybody down. And there's a lot of when we have conversations with policymakers, whether it's in Congress or the UN.

And we say, yeah, you know, we're here to talk about science anyd how we step forward on scientific work and cooperation and feel like, great, because we can do that as as policymakers and we can work across the aisle. We can work with people we don't agree with on other things. If we're in the science lane and that's been true in our experience in the US where we've worked across the aisle in Congress and we've gotten Republicans to increase basic climate, basic science budgets in a Republican Congress.

David Roberts

Well, that's something.

Kelly Wanser

Yeah. And so when you're talking about science and you're talking about ways of the technology can improve science and sharing information, same at the UN level. And then as we started to dig into how do different things work in the UN and where do they work well and where don't they work well and why? And we worked with a couple of experts, Dan Bodanski, who wrote the book on international climate law, and Sue Biniaz, who is the current Deputy Climate Advisor for the US to look at that question in the context of this subject and what emerged is like what we are interested in, SilverLining is what is most effective in terms of outcomes?

What produces the best outcome in the environment, what produces the best outcome in safety for people? And the absolute best case of that is the Montreal Protocol for the Protection of the Ozone layer. And so we really have gone up close and personal to figure out why does that work? And yeah, people say, "Well, it's a narrow problem, but actually it's quite similar to this one. You've got a smaller number of actors, you've got a sort of focus thing they're emitting. You've got all the countries of the world not only agreeing to that, but they've agreed that changes in it, expansions of it, everybody makes their commitments."

It's really interesting. And they have this feature that's different from the other UN fora the scientific and technical assessment panels that make the evaluation of what's going on and what needs to be done are fully independent of the nation states. Their reports are written completely independently. And if you look at the IPCC, where the UN does their climate work, they negotiate kind of the top line summary of what those reports say...

David Roberts

Yeah.

Kelly Wanser

...with the countries. And so, again, we could do a whole podcast on this. But I would say that really looking at the Montreal Protocol, a. because it does apply to this particular thing as it would operate the stratosphere and b. because understanding how that works is really important because all the countries of the world are continuously meeting every year and we went to their meeting.

It's calm, people are calm. It's incredible. So figuring that out and how we can translate that onto other things, I think it's a really good idea.

David Roberts

Yeah. If only all international cooperation and agreements could be as calm and sensible as Montreal.

Kelly Wanser

Right.

David Roberts

This does seem like an area where really going overboard to keep the science independent seems super important because this is just this whole thicket of issues here is going to implicate countries in a lot of like sort of our interests versus global interests. There's going to be a lot of ulterior motives, I think involved. Everybody's going to be sort of thinking, on the one hand, how can we improve the world and the state of science? On the other hand is like, how can we make out best in a world where people are messing with solar radiation?

So it does seem like independent science is more important even than normal.

Kelly Wanser

And it's really important to your point from before, that other countries, especially the most impacted to developing countries, have the same level of access to information and can evaluate it for themselves.

David Roberts

Is there kind of a short-term goal of yours? Like, is there a particular development or institution you'd like to see funded or just like a first step, is there something kind of tangible people can look forward to and advocate for if they want to see more progress on this?

Kelly Wanser

Well, certainly they can support SilverLining. We're like a medical foundation, so we fund research directly so that we can help advance some of the initial critical research, like getting the climate model supporting some of these problems, some of the lab work and things like that. And that feeds into our broader advocacy, which is trying to get the US government to invest in research aggressively. And like you said, some of these assets that we need to understand the atmosphere and climate system for people who are in a position to help influence attention on the fact that we have gaps in our understanding of what influences on the atmosphere due to the climate.

And that's not acceptable. And we need to improve on that really fast.

David Roberts

Right. It's a little wild that we just spent we just passed a bill spending hundreds of billions of dollars on manufacturing and stuff, and literally like a rounding error on any of those sums would have been enough to double our research budget. It's a little wild.

Kelly Wanser

Yeah. So anything people can do to kind of be in there for the atmosphere. We're alone on the Hill right now lobbying for increases in budgets for atmospheric observations and research.

David Roberts

I guess I don't understand. Why are scientists themselves not more self interestedly, advocating for this? Like, why don't you have allies?

Kelly Wanser

Very interesting. I talked to them about because, like, the astrophysics community, the telescope people, man, they get those big telescopes. They're really good at it. But part of it is that climate research is classified and has emerged as a basic science. It's very academic, and it hasn't involved big applied efforts. And technologies have come in relatively recently, so they've been pretty good at getting, like, super computing attached to national labs. But in general, it's very academic. There's been a lot of downward pressure on climate scientists in terms of sticking their necks up. And so it just hasn't had those same drivers, and it doesn't have a commercial community like bioscience or space.

There's no money in it for anybody.

David Roberts

You got to wonder once we understand these things a lot better and get a lot better at it if there might emerge commercial applications. Can you imagine that?

Kelly Wanser

It's changing quickly because there are obviously economic interest in being able to make better predictions. And as the climate system gets more volatile and there are more risks, that information becomes more valuable. So the landscape is changing, but that upstream part, which is, do we know what's specifically in the atmosphere? And can we model that from its tiny components down to what it's doing to the climate system? That piece is so basic and so general to everyone that nobody's there.

David Roberts

Interesting. Well, thank you for coming on and clarifying this. I feel like this is a subject where there's just lots of weird mythologies and hang ups and access to grind floating around and not a lot of sort of basic knowledge of what's actually happening and what needs to happen, so I appreciate your work on this. And thanks for coming on and sharing with us.

Kelly Wanser

Well, I really appreciate your questions and the opportunity to talk about it. Love your show. Thanks for having me.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much. And I'll see you next time.

In this episode, Brian Deese, outgoing director of the National Economic Council and an influential advisor to President Biden, discusses the opportunities and challenges in Democrats’ new focus on industrial policy.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Brian Deese has had a remarkable two years. As President Joe Biden’s top economic advisor and director the National Economic Council, he has played a key role in defining and implementing Biden's policy approach.

In April of last year, he delivered some “remarks on a modern American industrial strategy” that laid out a vigorous approach to investing in economic sectors deemed important to national and economic security.

And by all accounts Deese played a pivotal role in seeing the strategy into law, through the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act, which together amount to the greatest reinvestment in US infrastructure and manufacturing — and, specifically, clean energy industries — in generations.

The pivot to unapologetic industrial policy is a big change for Democrats. Deese has moved in those circles for a long time — ten years ago he was a young wunderkind advisor to Obama, making The New Republic’s list of “Washington's most powerful, least famous people” — so as he prepares to depart the administration, I was eager to talk with him about what the shift to industrial policy means, why the US needs to onshore key supply chains, and the work ahead for Democrats in implementing their new laws.

All right, then. Brian Deese, welcome to Volts. Thank you so much for coming.

Brian Deese

Oh, I'm really happy to be here.

David Roberts

I had, I'll say, a little banter, maybe a couple of jokes scheduled here for the front end of the pod. But then I looked at my list of questions for you, and we don't have time for any jokes, Brian. We don't have time for any banter.

Brian Deese

Very serious, very quick.

David Roberts

We got to get deadly serious right off the bat here. So let's start here in 2012. Ten years ago, you were the deputy director of the NEC under Obama. And in 2022, ten years later, you were the director of the NEC under Biden. And I'm just curious how things have changed, how America's sort of strategic economic outlook has changed in that ten years. And specifically, I'm curious whether the sort of vigorous investment in industrial policy that we're going to talk about here in a little bit, the kind of stuff that has been going on under Biden, whether you were recommending that to Obama at the time, or whether there's something importantly unique about this present moment.

Brian Deese

Well, look, I think a lot of the world has changed since that period, both in policy and economic terms. If you think back to 2012, we were both right on the back end of a historic and transformational policy accomplishment in the enactment of the Affordable Care Acts, which changed the fabric of our economic and social safety net in important ways right on the front end of that implementation. And at the same time, in a period of very challenging and slow recovery from the Great Recession that was made worse by a failure of policy, a failure of the ability for Congress to overcome Republican opposition at the time, to invest more, to try to help to drive a stronger recovery. You look over those ten years, we live through a period that a number of people have characterized as secular stagnation where our output was constrained and that had a lot of impacts on quality, on labor markets.

And then of course, we lived through this once in a century event of the global pandemic and in many ways historically unprecedented in modern human history. And I think that that helped to bring to the forefront a set of economic challenges that had persisted over that decade and much longer. But we're now really to the floor, particularly the vulnerability of supply chains and the weaknesses in our industrial capacity as a country. And so those things together helped to crystallize the economic strategy that Biden as a candidate put out in 2020 and really have been pursuing, that in some important ways have similarities to things we were promoting at the time.

Significant investment in physical infrastructure is something that has been clearly necessary for a long time, but in some ways have important differences. I think we've got a different approach to clean energy and clean energy deployment at scale, which I'm sure we'll get into here, but also the prioritization of key geostrategic priorities like rebuilding semiconductor capacity here in the United States. So I think the landscape looks very different now economically both because of some of these significant economic changes but also policy changes as well.

David Roberts

What you're talking about and sort of what's come to the fore over the last ten years policy wise goes under the umbrella term of industrial policy. There's been a lot of kind of hype and talk lately about kind of the return of industrial policy. But I'm not totally sure that average listeners really have a sense of what that means. So maybe just let's just start by saying what do we mean by having versus not having an industrial policy? And where has industrial policy been for the last like two or three decades versus the last two or three years which has seen a really vertiginous sort of pivot around this subject.

So maybe let's just start by defining what we're talking about.

Brian Deese

Yeah, sure. And look, I use the term industrial strategy, which is obviously very similar to industrial policy, but a bit broader in ways that I'll explain. And I think at its core, the idea behind an industrial strategy is that the private market on its own, private actors operating to maximize their own utility, will end up under investing in areas of the economy that have strategic and economic significance and that by using targeted public investment you can unlock greater economic opportunity and crowd in greater private investment in those areas. And so an example of this is in physical infrastructure that allows you to unlock productive capacity of the economy.

And we have a great history of this in the United States, from the interstate highway system to the intercontinental railroad, where public investments in laying the foundation for private capital helped unlock greater productivity, greater innovation across the United States. I think what happened is that in the late 1970s, early 80s, there was a broader philosophical push around what now people talk about as trickle down economics that basically at its core had the view that any government or intervention was by definition going to pervert markets and crowd out private capital. And so the dominant paradigm became one of tax cuts, often skewed toward the highest income folks. Thus, the trickle down but also deregulation getting the government out of the way in all cases.

And I think that that philosophy helped to feed a sense that if you were doing industrial policy, it was in fact a dirty word. You were, by definition, perverting a private market or picking winners, the government picking winners versus picking losers. And as a result, a lot of the policy conversations steered away from even mentioning the word. And so I think that obviously that has changed. And it's changed. Things have changed certainly earlier than the last couple of years. But I think in the last couple of years, particularly in the wake of the pandemic, there's been more of a recognition that some of these basic ideas of having active and energetic government investment to help crowd in and build more capacity in strategically important areas is not only not a dirty word, it's absolutely necessary to address the economic and national security priorities we face.

David Roberts

And I think one could fairly argue that there's no such thing as a giant industrialized wealthy democracy that does not have some sort of industrial strategy. It's just whether you're upfront and honest about it right. Or whether it's sort of buried in the tax code and you're sort of quasi-ashamed about it, but you can't, practically speaking, literally just let the market do whatever. It's not practical industrial strategy has always been there.

Brian Deese

Well, that's right. And I would say that one of the interesting things about, I think, the evolution and the reinvigoration of this conversation, this public conversation, is that one of the hallmarks of effective industrial strategy is transparency.

David Roberts

Exactly.

Brian Deese

And so we back our way into potentially really self-defeating the industrial strategy approaches when we, as you say, we end up there. We don't admit it or we don't acknowledge or we don't actually identify what are our policy goals. Transparency is a key element of, I think, doing industrial strategy effectively, both for economic reasons and for political economy as well, so that people can understand why you're doing what you're doing and then can hold you accountable to whether the thing you were trying to get done actually happens.

David Roberts

Right. And this notion of picking winners, I guess I'm curious sort of how the US. learned to stop worrying and love picking winners. All the traditional sort of objections to this, government doesn't know what's going to be next, government makes bad bets, government distorts things. What do you make of those worries? I mean, are you worried about making some bad bets or getting some things wrong? How do you think about the dangers of picking winners, which are real dangers?

Brian Deese

Yeah, like any critique, there's a kernel of something really important in that catchphrase of the government shouldn't pick winners and losers. And I think that the caution, the important caution is the closer that the government gets to actually directly picking individual companies or individual counterparties in a way where there is a sort of a high stakes economic interest there. You do need to worry about waste, you need to worry about corruption. And we know that in different countries and different parts of our history, those things certainly are worthy of being paranoid about. But I think the core mistake that people extended from that critique for too long was to say that that was a concern that meant that you shouldn't engage in the enterprise altogether.

And one of the things that I believe and I think that we have tried to build into our policy approach is wherever possible, the best way, I believe, to try to drive industrial strategy outcomes is to provide long term and technology neutral incentives to encourage investment where the government is not actually going in and identifying and picking a particular winner. Now, there are some cases where that is necessary. And we could talk about the semiconductor program that we're putting in place where because our capacity has eroded as a country and because of the scale necessary to build semiconductor fabrication capabilities, there are only a small handful of companies around the world who even have that capability. And so in that case, we needed to design a policy that was going to provide grants directly to companies on a competitive basis.

But precisely because of that, we are putting an extraordinary amount of thought into the way to run that competitive process in a way that guards against some of the downside risk and captures some of the upside opportunities, but wherever possible. And a lot of what is in the Inflation Reduction Act around clean energy is actually trying to lay that foundation of signaling to private companies and the private market that there will be long term predictable incentives in place. But then not having the government say, we think that this particular technological application is going to be more successful than this.

David Roberts

Right. More like picking winning areas of investment than picking winning companies, right?

Brian Deese

Yeah. The way I like to think about this is look, if you want to know our American industrial strategy in a nutshell right now, we have identified three broad areas that we believe will have big returns in terms of productive capacity and our economic and national security. And those are infrastructure innovation with semiconductors at the center of it and clean energy. And so we are picking those. We're picking broadly that those are areas that for geostrategic reasons and for economic reasons and for what we know about, where you can get productivity enhancements in our economy. But then wherever possible within those, we're not trying to say the government is best positioned to figure out whether this particular technology for generating clean hydrogen in this particular application is going to be more effective than this other one.

We're trying to say we need more clean energy capacity. Clean energy supply. We need it faster and cheaper than we have gotten it to date. That's an existential project. And if we do it in the United States, we'll build manufacturing industrial capacity here, we'll be able to capture greater export share of a very fast growing global market. And for all those reasons, that's the industrial strategy part of this.

David Roberts

That segues nicely to my next question, which is that a big part of the thrust of the big three bills that were passed — the Infrastructure Act, CHIPS, and the Inflation Reduction Act — is onshoring, basically bringing more of the supply chain into the US. So let's just talk about that a little bit. The case for onshoring, if I put my sort of conventional economist hat on, it doesn't fit very well, it's too tight, it constrains blood flow in my brain.

Brian Deese

But I wish we were on video so I could see that hat.

David Roberts

Yeah, you can imagine me grimacing while I'm wearing it. But the traditional economist take is why not just buy whether it's semiconductors or lithium-ion batteries or the materials for lithium ion batteries, why not just buy them wherever in the world they could be made for cheapest? Would it not benefit all global consumers if whoever can make those for the cheapest makes them and sells them to everybody else? This is sort of the basic Econ 101 justification for trade, right? For international trade is specialization. Some people can do things cheaper than others. Why do we need to make these things domestically?

What is the threat exactly of international supply chains which are, it should be pointed out, ubiquitous. Like most of the stuff we get and use in the US. We don't make here. We don't dominate the supply chain. So why in these particular areas do we need to bring mining and processing and manufacturing the whole supply chain into the US.

Brian Deese

So I think there's two broad answers to that question. The first is the rise of China in the global economic system. And the second is the embedded risk that we have now seen made explicit around brittle and just in time supply chains. So let me take the two in order. The first is that that kind of stylized. Let's just try to find the lowest cost producer. Again, there is a lot that we shouldn't look through and we should harvest in that basic intuition. But one of the things that it misses is that over the course of the last 20 years, China's rise in the global economy has been achieved through non market economic means in many instances.

And so the Chinese economic model, where you either steal or expropriate technology, use significant non-market subsidies and other tools to build capacity to then dominate particular industries, is a constructive challenge to that basic model. And there are some clear national security implications where there are technologies that we believe, for national security reasons, we need to deny in certain instances.

David Roberts

Can I press on that just a little bit? Because this is I find that a lot of people refer to the danger of China dominating, say, the lithium-ion battery supply chain in those terms, sort of vaguely like it's national security. It's a threat. And I find it all a little hand-wavy. So I just like to hear what concretely do we think China would or could do? Like, China selling us a bunch of stuff? That's a two way relationship. It hurts them also if they cut us off from buying the stuff they're making so tangibly, what do we worry China might do?

Brian Deese

Right? So, look, and I think you're right that it's important that we be specific in these contexts and in our policy to avoid broad-brush characterizations. First, there are certain direct military applications for cutting edge technology that we have to be particularly aware of. And without going into the kind of detail that I shouldn't. If you look at, for example, the export control regime that we have put in place for leading-edge semiconductor technology, we are trying to be quite intentional about being specific and tailored and targeted in those purposes, but in controlling some leading-edge, the most sort of advanced chip technology because of its direct use application, in particular military applications.

Okay, so that's one category. There's a second category about the fact that if part of the Chinese model is to employ slave labor or to violate basic rights and norms, that you don't want to be reliant on a dominant supplier where the basic technological capacity to produce key inputs is subject to those outcomes. And so the upstream solar supply chain is a good example of this. Right. Where over the course of the last decade plus, because of a variety of different means and tools, China dominates those markets and does so in ways that we can't rely.

It creates instability because we can't rely on a producer, where if the production is only done as a function of unacceptable basic human behavior, then the technology and the capacity doesn't exist elsewhere to pivot. And you've created an acute supply chain vulnerability.

David Roberts

Yeah, I guess another way of putting that is if there's only one producer, none of the buyers have any leverage over the producer, basically.

Brian Deese

That's right. And that's why I think that the second piece of where I think conceptually why we should care is this notion of supply chain resilience. And one of the things that we did when we first came into office, the first month it was February of 2021 was the president issues an executive order to identify the key supply chains and do a full forensic analysis of where the vulnerabilities and the chokes points were, where you had the dynamic you just described of one dominant technological owner or one dominant supplier, where you might create those types of vulnerabilities.

Right? And the answer to those questions is not and should not always be that you just need to bring every one of those supply chains to the United States and have the production happening here.

David Roberts

I assuming you even could do that.

Brian Deese

Because it's neither feasible nor advisable to try to have all of it in the United States. But at the same time, there's clear lessons and clear outcomes where having homegrown industrial capacity and the technological and the innovation benefits that come from that is an absolute necessity. So there are areas like leading-edge semiconductor production where we in the United States do need to have that homegrown capacity to produce and the technological spillovers that come from that. That does not mean that the goal is that the United States is going to produce all or even most of the leading-edge semiconductors that are produced in the United States.

But once you have that capacity and you have more diversification of players who are capable of doing it, you're reducing your vulnerability. And that's true of the upstream battery supply chain, of the solar supply chain as well.

David Roberts

So it's mainly about resilience and national security.

Brian Deese

Yeah. And I think you are right, and it is right to push policymakers to be specific rather than vague about the applications in those contexts because there is a risk, as you say, of just sort of justifying any particular market intervention on those terms. But I think that because of the work in the analysis that we've done, at least in the areas where we have taken seriously and put into place industrial strategy policies, I think that we can demonstrate what does resilience mean? Right? What does it mean? What is the goal in terms of trying to get leading-edge semiconductor production here into the United States?

And certainly as we go and we implement and execute, we should be held to account, to actually identifying those goals and then seeing if we are meeting them.

David Roberts

What about those cases? And it does seem like there could be cases where industrial strategy is in some tension with climate strategy. And so, as an example, let's take these EV credits in the IRA. They are the new version. The new generation of EV credits are tied to some pretty strict domestic content requirements and domestic manufacturing requirements, arguably so strict that no one meets them yet. So it seems like, intuitively, I can see how that's good for industrial strategy, maybe even good for the US economy and good for resilience to manufacture and do more of that stuff onshore.

But it also seems like, intuitively, that's going to slow down the spread of EVs in the US. If we are putting a speed bump, basically between us and us adoption of EVs from a climate perspective, you just want to lower emissions as fast as possible, as much as possible, the cheapest, fastest way you can. And this is not the cheapest, fastest way. Right? Deliberately it's not. It's got an eye to resilience and redundancy. So how do you think through that tension?

Brian Deese

I actually think that to have a durable, effective climate strategy that also operates with the urgency that the issue deserves, you have to factor in this concept of resilience or you're not going to succeed across longer periods of time. And I think the upstream solar supply chain example that we were just discussing illustrates that. If the idea into the current global market with the reality of how China and other actors operate, is that a narrow, fastest, cheapest without any factoring in anything else mentality results in China dominating key input components. To the degree that there is no other producer, then it's not a durable strategy to reduce emissions over the time period that we need to do this.

Because even as we act with urgency, this is a project that is going to operate across the next two decades and longer. And so I think that you need to have strategies that are focused on driving down those costs as quickly as feasible, but factoring in that cost reductions into brittle and unreliable supply chains are not actually going to deliver those cost reductions in a reliable way over longer time frames. So the electric vehicle credit example that you raised, again, the legislative process is imperfect, and there's lots of ways in which the bills are imperfect.

David Roberts

That's the kindest way I've ever heard it described.

Brian Deese

Well, I had a but there, which is the status quo prior to the enactment of this law, was that the credits had a very different structure whereby many of the leading electric vehicle producers had grown themselves out of getting any credit.

David Roberts

Yeah.

Brian Deese

And so the status quo ante was not unmitigated credits everywhere. This approach sets a different bar. Not once you sell 200,000 vehicles, you no longer get a credit. And instead it sets the bar of saying, can you move more quickly to try to get to more resilient supply chains? And while I recognize that that does have some of the impacts that you're describing, I will also say, having talked to a number of the companies that operate in this space, a number have said to me, look, I'll be honest. When this bill was in its final drafting stages, we were incredibly concerned about all of this.

And in the weeks and months afterward, it has totally changed our behavior. We are reorienting. We are investing in particular ways. Interesting things that we thought were hard or impossible may still be hard, but we're now making them possible. And so, look, we'll have to see. And as I said, I wouldn't claim that we've got that element or some other elements perfect, but it's a high bar to drive toward a different goal.

David Roberts

Looking back on this in ten years, say, do you think our move to onshore some of the supply chain will look faster and easier than we anticipated in advance?

Brian Deese

Look, I think any strategy to address the climate crisis today needs to do at least two things. One, is have a credible way to massively drive down the cost curves of deployable technologies to decarbonize the power sector, the transportation sector, the built environment, et cetera. And two, to do so in a way that creates resilient supply chains for the input components for all of that building that we're going to need. And that the strategy that will succeed in really driving the mission direction we need. We'll have to have both of those components. And so I am hopeful that because of the action that we have taken over the last two years, we've given the United States now a historic set of tools to achieve both of those outcomes and to achieve both those outcomes at a scale and a speed that many would have thought was not possible even a couple of years ago.

That doesn't guarantee success in the outcome, but it certainly puts us in a very different position than we were a couple of years ago.

David Roberts

Let's turn a bit and talk about one of our favorite subjects here on Volts, namely administrative capacity. I would say that serious industrial strategy needs administrative capacity, right? It's almost axiomatic. And so Rob Meyer had a piece in the New York Times recently, sort of making the case that the recent US ambitions, as expressed by these three bills, especially IRA, are somewhat exceeding our administrative capacity. In Germany, for instance, you have government departments that work very closely with certain industrial sectors, sort of hand in glove to do some planning and to adapt along the way to see what those sectors need.

We don't really have that. And tax credits are kind of a blunt instrument, a blunt force tool, I guess. We have the Loan Programs Office in DOE, which is doing amazing things under Jigar. But our administrative capacity in the federal government in the US seems to have withered a little bit over the last several decades of this kind of neoliberal period we've been going through. Do you think we have the administrative capacity necessary to do something of this scale and speed?

Brian Deese

Well, look, I appreciate the challenge, and Rob and I went back and forth on, I think what his thoughtful New York Times speaks to this effect. I think the answer is that we need to build that administrative capacity. But the one thing that we can't do is we can't wait for the chicken to produce the egg at the stylized utopia where the United States builds all the administrative capacity necessary for this kind of big national project and then and only then gets to passing the legislation is not only not how our political system works, but the intensity of the need for speed on clean energy and climate change doesn't really give us the luxury of doing that. But I would say do we need to build more administrative capacity across the board?

Yes. Are we making big strides and innovating in new ways? Yes. You mentioned LPO and the work that Secretary Granholm and Jigar are doing. There are other great examples of that. We've stood up a joint program office between the Department of Transportation and the Department of Energy to do electric vehicle charging implementation across the country and showing how do you actually build the administrative capacity to get two different agencies to work together with 50 states to coordinate to actually do that. So yes, we are building that car while we charge it or whatever the right analogy is.

But we're showing good results. A lot of people said you're never going to get all 50 states to even apply for this because some don't even have the capacity to do so. But through an iterative process of building capacity at the federal level, building capacity at the state level, we just yesterday, we're recording this on the 16th, yesterday released the Electric Vehicle guidance for how we're going to get interoperability standards. We worked with key companies, including Tesla around them, announcing for the first time to open up parts of their network. These things need to work together.

But I think the right answer to that constructive challenge is how do we build this at the same speed and urgency that we need to address the issue. Last point, I'll say you made the point about tax credits. Tax credits are blunt, but they can be enormously effective in the American system. Right. We're going to do this in the American system in a way that is different than some of the European models and otherwise. And having long term technology neutral tax incentives is among the most powerful and efficient ways to give private capital providers the incentive to pull forward investment.

And we know that that investment is among the most powerful ways to drive cost curves down and it also requires less administrative capacity to your point. So, I wouldn't discount that, even as I agree that there are a number of places where we need to build up that capability and we need to do it quickly.

David Roberts

Yeah, but by no means do I want to bad mouth tax credits — they made the point many times. They are the quiet workhorses of the progress made thus far. They don't get as much attention and argument and sort of team sports as you get around other policies, but they've been in the background for decades now, just chugging away with demonstrable results. So, administrative capacity is one aspect of implementation, but implementation of course, is a broader subject, a big thorny subject. There's a common critique of sort of people on the left that they fight and fight and get a bill passed and then they go home and watch Netflix.

And of course with something big like this, three big bills like this, all the devil is in the details in the implementation. So I'm sort of curious how you think about trying to avoid what Leah Stokes calls in her great book "The Fog of Implementation". Sort of just curious what are your worries implementation-wise? What are you worried could go wrong and how are you thinking about just following up and making sure this is done well?

Brian Deese

Yeah, well, I think one of the key elements is to maintain consistent leadership and urgency from the president, from the White House, from the key leaders across federal agencies, and to make sure that there is a consistent effort to try to connect the technical and the programmatic implementation with concrete outcomes that people can see in their lives and in their communities.

And obviously that's important from a political perspective, but I actually think it's quite important in maintaining the kind of culture and dynamic to avoid that fog of implementation that there needs to be a kind of urgency to being able to say if we are undertaking a national project to eliminate lead pipes in 10 million homes and 400,000 schools, that everyone involved in that process, from the EPA administrator down to the regional EPA offices down to the state grantees and onward understand that there are targets and metrics and milestones and you want to go into communities and you want to be able to show and demonstrate when that is happening because that's going to keep people forward, leaning forward rather than leaning back. Other big things that will keep me up at night issues is we do need to reform and change the way that we do permitting.

That's not just an issue of federal permitting, it's state and local. And the other thing is, I do think that there's a need to, at the grassroots and the community level, help connect and unlock the enthusiasm and the openness to recognize that a particular investment, again, be it in a wind farm or a small scale nuclear facility or in a rail corridor, is actually connected to this larger project. And there's not only an openness and acceptance, but an enthusiasm around trying to move more quickly rather than putting up roadblocks.

David Roberts

What about workforce? I hear from all over these days like, we don't have enough electricians, we don't have enough plumbers, we don't have enough sort of trade. We're moving into this period where there's going to be a frenzy of building and construction work and just the need for trade labor and we seem short on it. How much do you worry about that and what sort of things are the Feds doing to kind of help with that?

Brian Deese

It's an enormous priority. And for this year 2023 and next year 2024, connecting more people with these new job and career opportunities has got to be a top priority of implementation, I would say. While I recognize and I hear often the concern, I also think a lot of people are missing how much opportunity there is there because for the first time, and this is to go back to our very early conversation about sort of secular stagnation dynamics of having output below potential, we have a dynamic now where incentives are really aligned. Private companies are prepared to invest in job training and invest in paying workers and showing them that there are career paths and opportunities.

And so a lot of the opportunity is making sure that we are connecting those employers with the training providers that we know work effectively and efficiently, community colleges, union registered apprenticeship programs, et cetera, and then going and being proactive about reaching out to workers and communities that may have been overlooked. Right. So we are looking to try to get a million more women working in the trades and in construction than we've had in this country. And there's extraordinary job opportunities, extraordinary career opportunities. And I think one of the reasons why you see such a gender split is that employers and trainers in that space have either explicitly or implicitly built these things in ways that they haven't reached out to those communities.

And so we're going to have to be creative about doing things like that. But I think this also creates a lot of opportunity to bring more people into these trades and to do so in a way where you're giving them more upward mobility as well.

David Roberts

Another big subject that I know you probably had to address a bunch, but I would like to just grapple with a little bit are the sort of foreign policy / trade implications of all this. It looks to me like these three bills represent a pretty explicit pivot away from the sort of free trade consensus that has reigned in US politics in both parties really for decades now. And you see sort of trade partners in South Korea and Europe kind of freaking out about this a little bit. They're calling the stuff in the IRA "protectionism". They're sort of threatening protectionist policies of their own.

Are you worried that this sort of dramatic disruption of the free trade status quo is going to run afoul of some longtime trade relationships? Do you worry about this sort of global trade regime holding together amidst this?

Brian Deese

I don't. And here's why: The first is that the Inflation Reduction Act itself is going to be enormously beneficial to our trading partners and allies. And I think that we are making real progress with our European partners and others in helping them see and understand that that's the case. And that's because at core, the Inflation Reduction Act reflects two things. One, the United States meeting and stepping up to its obligation to actually meet its clean energy and climate commitments in a credible way, which is a priority that many of our allies, including our European partners but also others, have been urging the United States to do for years.

And also a commitment to use US taxpayer dollars to dramatically accelerate cost reductions in key next generation clean energy technologies that the world needs in these countries need as well. Now, we also all share the need to have more secure and resilient supply chains to the conversation we're having earlier. And the other, I think key and important part is that we are operating into a sector, we're talking about clean energy in this context where the world is way short supply. So we need dramatically more deployed clean energy technologies and capabilities in the United States. We need that in Europe, we need that in Canada, we need that in Australia, we need that across Asia, we need that everywhere.

So the United States stepping up and showing a viable scalable model to do so, in a way that will help drive down global costs, and in a way that puts the United States in a credible position to meet our commitments actually creates much more opportunity than constraint. And what it requires is harmonization and effective economic diplomacy and making sure that there is transparency and making sure that we are not doing things that would create unproductive or inefficient subsidy races. But at the core, the United States stepping up and investing in our own industrial capacity in these spaces is first and foremost the right thing to do for our country, the right thing to do for our workers and communities. But it also will have these global benefits as well. And I think that we will, over the course of this year, have a lot of opportunity to actually build partnerships against this.

David Roberts

So you're not worried about sort of like if we put domestic requirements and we put, say, a border adjustment or something like that, and then another nation will do it, and then we'll ramp ours up and they'll ramp theirs up and you will end up in trade wars. That will slow the sort of act as a slowing force on the spread of these technologies. You just don't think that's going to manifest?

Brian Deese

Look, I think you're identifying a risk. But I would say from where I sit, both on the substance and the economic diplomacy of this, there is more opportunity than risk in that area. So it's always a risk. It's always a risk that you should take seriously. But if we were having this conversation several years ago, the dominant conversation would be whether, how and in what context could you ever envision building a durable political coalition in the United States to pass any meaningful legislation that would increase clean energy and energy security and do so in a way that would put the United States in a position where it could actually sit at a table with the Europeans and talk credibly about them how to increase global ambition. And that would be the conversation, right? We are in a different conversation that certainly it has risks, but it's a higher class conversation if the goal is how to deploy clean energy globally at scale.

David Roberts

Good problems to have. Another sort of aspect of that similar family of worries is that if the US follows China's lead and starts sort of lavishly subsidizing its own industry and the EU follows, the US. Starts lavishly subsidizing its own industries, these developed nations sort of look inward. There's a worry sort of floating around that developing nations will end up sort of getting screwed, not getting the investment they need. So how do you sort of balance the need, which you've laid out here, for the US. To invest in itself, for a bunch of reasons, with the parallel need for developed nations to invest in helping developing nations build capacity themselves and lower their own emissions?

Do you think those are in tension at all?

Brian Deese

I don't think they need to be, and in fact, I think that they can operate together. But you're right to absolutely raise the issue. Look, I think it is incredibly important for the credibility of global climate progress for the United States to be able to credibly meet its own commitments. And that's important for developing as well as developed countries, number one. Number two, the United States being a place where we are investing taxpayer money to drive down technologies that will be particularly important in deployed applications in developing economies means that developing economies can also benefit from driving down those cost curves as well.

But I think it also goes to the need for the United States and other countries together to continue to increase our game in building partnerships with key developing countries to demonstrate that we can together bring climate finance at very significant scale into their economies to help drive this transition.

David Roberts

Because that has not been happening, right?

Brian Deese

Well, look, I would say there is a model that we need to build on the JETP initiative that we have launched, which stands for Just Energy Transition Partnership with South Africa and Indonesia, the partnership we launched with Egypt at the COP this year. These are models to demonstrate the potential of US investment, lower cost clean energy technologies, policy reforms to create more stable investment environments in these countries, and then the ability to actually bring private capital at scale into big, important projects. That's what it's going to take, but we're going to have to do that at a scale that we have not done yet. But I think the action that we're taking in the United States creates significantly more opportunity for that than constraint.

Again, it's sort of a similar, I guess I would say a similar story. Much work yet to be done, but we're definitely better positioned having taken the action that we have in the United States than if we hadn't.

David Roberts

Right. Let's talk then about the US being slow. This has been an increasing subject of conversation in liberal circles recently. I'm sure you've heard and seen this idea that US is entering this period where we badly need to rebuild ourselves, our industries, our infrastructure, not just because of climate, just because a lot of it is falling apart. We just have been under investing for a long time. But when we do invest, it's very slow and this manifests in a bunch of different areas. But I'm just curious how you untangle all those factors that are going into making the US building in the US slow and expensive.

How do you increase the pace without running roughshod over vulnerable communities? The fight over permitting reform did not auger well for this debate. It did not seem to suggest that it was going to be easy to resolve this debate. So just on the big picture level, how do you think about the US. Being slow and expensive and what can the federal level, what can you do to shake that loose?

Brian Deese

Yeah, I think it may be the biggest and most significant challenge that we face. And to go to your question about what we at the federal level we can do, we can commit to and then execute on doing business differently. Right. So we need to have the kind of accountability and transparency around project timelines that we have not always had in the past. We need to deploy efficiencies and creativity and innovation that we know is out there, but deploy it at a much broader scale. Some things that sound very simple, like we have a program called Dig Once, right, where we are coordinating between road projects and broadband projects and transmission projects.

So that if we're going to have a right of way, we should be trying to operate all of the digging projects that we're going to do as much as we possibly can in the same right of way at the same time. Now that sounds simple, but actually it's an innovation that if deployed, can have a geometric impact on speed. But then there's also more sophisticated design, technological approaches that we can use and we can borrow from other countries and we can do things like you had mentioned, labor. One of the things on these big complicated projects that project sponsors are finding is having a project labor agreement working up front to actually demonstrate how you're going to make sure that you've got the right people on the right time to do the work that is needed in a quality way.

Helps to reduce bottlenecks, helps to reduce cost overruns and time overruns. And so those are all things that we at the federal government can do, we've got to do in a more systematic way and at scale. Having legislation that would give some key reforms to the permitting process would help on that score. But there is also a lot that we can keep doing and working. And you made a really important point. We have to demonstrate that we can do all of this in a way that also builds more fairly than we have in the past. And so there's nothing simple about that project.

But we do have I often hear these conversations about permitting that move immediately to a certain sense of defeatism. Well, the United States just moves slowly and things cost a lot and therefore this is all going to go sideways. And I think we can point to practical examples of success and then we need to build on those.

David Roberts

One of the big bottlenecks in terms of building, in terms of things going slowly is transmission and energy, long distance transmission famously holding back the rest of the clean energy economy and it's just very difficult to build. There's landowner NIMBYs, there's state NIMBYs county NIMBYs, there's baroque bureaucracy on and on. There was some stuff in the Infrastructure Act, I believe, that did some good on transmission, a little bit in IRA. The permitting reform didn't end up going through. So that was the biggest thing. So I'm curious now that sort of the period of legislating is probably over what tools are left in the Biden administration's toolbox that can shake loose transmission and get that moving.

Do you guys have ideas on that score?

Brian Deese

We do. It's a great question. It's a super important policy. We've been working hard at this. I don't want to get too far ahead of where we will be,and our agencies will be shortly. But I think I could say that I think you'll see from us shortly that there are tools within our existing authority, under existing statutes that will allow us to very significantly prioritize and streamline the process at the federal level in terms of agency approvals and also use our federal authorities in ways that create stronger and more significant incentives for not only project sponsors, but also states and localities, municipalities to operate in line as well.

And one of the things that to go back to the culture point that I was making earlier, one of the things that we have now, ever since the infrastructure bill passed, is Secretary Granholm. She's got it, she's trying to make it famous, this map where she's got the transmission lines that need to get built right and they need to get built and they need to get built at scale. And to the point about success, we can already identify that there are a handful on that map that have moved from yellow to green and are moving forward in a way that was not true a year ago or even six months ago. But these additional authorities, I think you'll see us moving out on in the course of the next couple of months will give us more to work with and I think make 2023 a year where we can really accelerate on that front.

David Roberts

Sweet. One other follow up on the slowness question another big area of congestion is housing. This is also a hot topic lately. I think it feels like it's become more and more clear to more and more people that constraints on housing in high economic opportunity areas is not just a local issue. It is in the aggregate having serious macroeconomic effects on the US. It is a serious in other words, it is a serious nationwide problem, not just sort of quirk of coastal states. What, if anything, can the feds do? Because so much of that is local or state.

Are there levers available at the federal level that can shake that mess loose a little bit?

Brian Deese

I'm so glad you raised this question. It's a hugely important issue and we have a housing supply crisis in the United States, which is a crisis that has developed over the course of years, basically going back to the Great Financial Crisis. And if we don't build more supply of affordable and dense housing, then we get exactly the dynamics that you just described and it's harder for people to move to opportunity and find affordable places to live.

We have been dogged on this issue and there's a couple of things that we can do. The first is that we can build into some of our existing federal grant programs and new federal grant programs in the investments in infrastructure and otherwise incentives that says that if localities actually have more coherent land use and zoning policies that encourage this type of building, then that's going to be a plus up for them in receiving federal grants for something like, for example, public transportation, which makes a lot of sense if you think about it, which is we shouldn't be spending federal dollars on public transportation into an environment where they're not going to build coherent housing.

Secretary Buttigieg has done this in a couple of ways, but we've never done before and we're now franchising that to other grant programs. The second is we could pass legislation. The Low Income Housing Tax Credit and something called the Neighborhood Homes Tax Credit. Bipartisan support for these pieces of legislation that provide incentives for people to build dense rental, multifamily and single family housing, again in areas where they have local land use policies that encourage this type of building. And there's bipartisan support for that type of legislation. I know that there have been conversations across time of trying to advance this.

Both of those steps are things that we could do. You are right that the decisions operate in many cases at the state or the local level, but we can provide a powerful incentive to encourage and invest in those communities that are doing the right thing.

David Roberts

Could have done a whole pod on politics but I mostly left that out. But I'm just curious. Looking back now, it seems striking that Democrats went into this latest session heads full of extremely ambitious dreams. The original Build Back Better Bill was robust. Let's say it had a little bit of everything in it over time. We just saw that get stripped down and stripped down and stripped down but somehow the climate piece, the clean energy piece, survived more or less intact through that entire sausage making process. What are we to make of that? Does it all just come down to sort of like whether Joe Manchin woke up on the right side of the bed or are there larger political lessons to be learned from the sort of resilience of this one piece of the Democratic agenda?

Brian Deese

One of the takeaways that I have is that it has been important for us to change the policy and the political approaches to trying to radically and dramatically build clean energy capacity in the United States. And that one of the important parts of how President Biden has approached this. And frankly, Democrats in Congress — and a lot of Republicans too — is to focus on this as about building our capacity, our manufacturing capacity and our energy security by dint of having more homegrown, affordable, reliable energy and to do that and to build a strategy that can achieve very significant climate ambition. But it is based fundamentally on that investment opportunity.

And that has, I hope and expect, will be an important takeaway over the last couple of years is that even as this process has been challenging and winding across time, if you look across the infrastructure bill as well as the CHIPS bill, but also, obviously, the Inflation Reduction Act. What you see is that these types of investment approaches have a lot of salience. And they have a lot of salience because they're focused on places and people and giving people economic opportunity and helping to drive significant emissions reductions across the country. But based on that core opportunity, I think that is very different from the political conversation that we had in 2009 and 2010 on this issue.

It's different than the conversations we've even had over the course of the decade since and I'm hopeful that it will lead to a more durable political environment for us to drive forward these policy pieces that are going to be hugely important for our economy and our country and our planet in the future.

David Roberts

You are credited alongside Chuck Schumer with bringing Manchin around. I don't suppose you want to give us any secret insight on what was the magic key, the magic phrase, what sort of sorcery achieved that?

Brian Deese

No. Look, Joe Manchin is an independent thinker, independent minded guy. And he has spent an enormous amount of time thinking about these issues. And he has always, throughout this process, prioritized the importance of energy security and moving on the climate goals and the climate priorities that we needed to move with a focus on American capacity and energy security. And I think that he always brought a ton of insight into what was necessary. And a lot of this was about listening and understanding and understanding places where we had principal disagreements, but at the end of the day, trying to get at those core issues where the policies themselves were less at odds.

And so Senator Manchin always has and always will operate independently based on his own principles. But I was fortunate enough to be part of this process, part of a team to ultimately get us to the finish line. It was a long process, that's for sure, but better for the country that we're on the other side of it.

David Roberts

Just in terms of being placed kind of at the center of history and seeing things unfold. It's been quite a two years you've lived through there at the center of everything, so I hope you're able to catch up on some sleep.

Brian Deese

Well, thank you for that. And I hope that we can continue to have these conversations about what I think are a set of incredibly important climate and clean energy challenges, but also a really high class set of challenges compared to where we were a couple of years ago. And so that's what leaves me pretty fundamentally optimistic about all this.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please. Consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much, and I'll see you next time.

Under a new partnership, Heirloom Carbon Technologies captures carbon dioxide from the air, then passes it to CarbonCure Technologies, which permanently sequesters it in concrete. In this episode, CEOs Shashank Samala of Heirloom and Robert Niven of CarbonCure give the lowdown on this pioneering carbon removal project.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Last month saw the announcement of a pioneering project: a company called Heirloom Carbon Technologies will capture carbon dioxide from the ambient air and then hand it off to a company called CarbonCure Technologies, which will inject the CO2 into concrete made by a company called Central Concrete. It will mark the first time ever that carbon from the air is permanently sequestered in concrete.

Heirloom, with runs the US’s only operating direct air capture (DAC) facility, does not use the familiar capture technique that involves giant fans. Instead, it binds carbon to exposed rock and then cooks it out using electric kilns — and then binds more carbon to the rock, in a circular process. It claims the capture is cheaper and more efficient than previous methods.

CarbonCure injects the CO2 into a concrete mixer, where it mineralizes, becoming permanently captured even if the building using the concrete is demolished. In the process, it strengthens the mix, requiring less cement and cutting costs.

Direct air capture (DAC) has faced a great deal of skepticism, and concrete has the reputation as one of the worst carbon offenders, so this project — one of the first that can fairly be called carbon removal — could go a long way toward convincing investors that the former can help the latter change its ways, with a technology that is, at least some day, commercializable.

I talked with Heirloom CEO Shashank Samala and CarbonCure CEO Robert Niven about their respective processes, how they work together, and what the project says about the future of carbon removal.

All right, Shashank Samala, CEO of Heirloom Carbon Technologies, and Robert Niven, CEO of CarbonCure. Welcome to Volts. Thank you guys for coming.

Robert Niven

Thanks very much for having us.

David Roberts

This is really a nifty project you guys are working on together. It's two separate pieces that normally I would probably do a pod on each. So we're going to have to, or at least I'm going to have to be less wordy than normal to squeeze it all in in 1 hour. I want to talk about both halves of it. So let's start with Shashank. The first half of this process is Heirloom’s process of removing carbon from the air. Can you just explain quickly how that process works, what it looks like?

Shashank Samala

Sure. So, Heirloom, if you're not aware of who we are, our goal is to basically remove a billion tons of CO2 from the atmosphere annually by 2035. And our whole goal is to help reverse climate change. And the way we do that is through a process called limestone looping. Essentially what that means is we use a rock that is very abundant in nature, limestone, that has a natural propensity to pull carbon from the air. What we do is we basically give superpowers to limestone to pull a lot more carbon than it otherwise would naturally.

So how it works is we start with limestone, we put that into a kiln, we heat it up, and we pull out the CO2 that's already sequestered in the limestone, which makes the leftover lime highly thirsty for CO2. So we take advantage of that natural property by laying it out on trays. Think about baking trays. I lay them out on trays, and then we vertically stack those trays, very tall, and the air brings in the CO2. And the the lime sitting on the tray acts as a sponge, pulls up the CO2 molecules. From there, it becomes limestone again after it pulls it up. And we do that in about three days.

Naturally, it would take many months to pull carbon from the air. We did that in three days using our well treated algorithms and technology.

David Roberts

So in three days means the lime is full, absorbed as much CO2 as it can.

Shashank Samala

Exactly. We don't go all the way up to 100%. We go up to about 85%, which is sort of the optimal point, we realized. And then, yeah, it becomes limestone again, which is great, because that's what you started with. So we can recycle limestone by putting it back into the kiln, pull out the CO2 we captured, and then store it underground or store it into concrete, which you're doing with Carbon here.

David Roberts

Right. So one of the questions I had is you crush up this lime and spread it out on, well, calcium carbonate is limestone. Calcium carbonate ...

The chemical formula. Exactly right, the calcium carbonate.

And then after you bake it, take CO2 out. Then what is the chemical remainder?

Shashank Samala

Calcium oxide.

David Roberts

Calcium oxide. Right. So you have calcium oxide laid out on trays, becoming calcium carbonate. Then you take the calcium carbonate, cook it, get the CO2 out of it, and then do the whole thing over again.

Shashank Samala

Exactly. We just keep doing that. It's a super simple chemical process to pull carbon from the air.

David Roberts

You have this calcium oxide, and it's absorbing CO2 from the air. That just sounds like an ambient chemical process. How can it be accelerated? What does it even mean to accelerate that?

Shashank Samala

So, technically, calcium oxide, we hydrate it, it becomes calcium hydroxide. Basically, there's a water molecule binding onto the calcium oxide. But essentially what we realized is that there's a specific parameter space where particle size, particle size distribution, thickness of the bed, humidity, temperature, airflow, there's all these different variables that dictate how fast calcium hydroxide likes to bind on to CO2 molecules. So it just so happens that in nature, there's a specific parameter space where this happens, and in nature, it doesn't see that parameter space as often. What we do is essentially make it see that all the time.

And how we specifically do that is really the IP. But we've collected millions and millions of data points over the last few years, doing lots of small experiments, adjusting thickness, adjusting particle size, surface area, all of these things. And we found that parameter space. And as the weather changes throughout the day, we have to change that parameter space. So essentially, we babysit these trays. If you look at, essentially, what this technology looks like is you have these tall stacks of trays, and in the middle, you have a little robot that goes up and down, and every few hours, it's babysitting these trays so that they can be carbonating as fast as they possibly could.

David Roberts

So is this all in a big climate controlled facility of some kind? I mean, presumably, you have to control the climate because you need specific conditions.

Shashank Samala

Yeah. So, fortunately, we were able to not have it be fully climate controlled. So if you actually if you come to Brisbane, our headquarters, where we have this pilot facility, this is actually sitting outside in ambient conditions. Yes. So this robot is actually creating a microclimate for each tray every few hours. So because what we're trying to do is try to symbiotically work with nature to pull carbon, right. And nature gives you humidity and temperature and airflow. Right. We don't want to put forced airflow, these large fans, pushing air through. We want to leverage wind. We want to leverage humidity.

And then when it doesn't get enough from nature, we complement it. We accelerate it with a few things.

David Roberts

And so when you have this calcium carbonate that's absorbed all the CO2 and you put it in the kiln, what does that kiln look like? How's it powered? And how hot does it have to get?

Shashank Samala

So the kiln is actually super simple. It's like your toaster oven. Effectively, it's electric. It can be run by renewable energy. Essentially, it's a metal tube, and you have an electric heating element, and just like your toaster oven, that sort of surrounds it. And then you have insulation ceramic that keeps the heat inside. And then that's it. You essentially send calcium carbonate through that metal tube. It stays in there for the order of minutes.

David Roberts

And how hot is the inside?

Shashank Samala

It's about 850 to 900 degrees C.

David Roberts

Oh, wow. Really hot.

Shashank Samala

It's hot. Electric kilns can actually go way higher than that. That's one of the questions we get. It's like, oh, you're using electricity. Why are you not? You would think that you would use natural gas or some other form of combustion to get that temperature. It's like no, the electric arc furnaces for steel actually go up to, like, 14,000, 15,000 degrees C. So, yeah, we need about 850, 900 C. And then, you know, it's only there for seconds to minutes.

David Roberts

Oh, really? So the CO2 comes out pretty easily.

Shashank Samala

Yeah, exactly. So there's only two things that come out. It's CO2 and calcium oxide. The CO2, it's pure. We capture that gas and compress it. And then the calcium oxide, we reuse it again.

David Roberts

And what's the sort of energy balance here? It just strikes me that it must take a lot of you're saving energy by letting natural conditions do the air circulation and humidifying and all that, but you're using a lot of energy in the kiln. I'm just sort of curious how energy intensive this is per sort of captured ton of CO2. I guess there's not a big comparison base of other carbon capture technologies to compare it against, but well, the lens.

Shashank Samala

We when we first started looking for which approach to use to pull carbon from the air, two things were important to us. One was use abundant, abundant minerals, abundant processes.

David Roberts

Did you start with the idea of mineralization, or did you just come to this with just a blank sheet of paper and say, what's the best way to capture carbon?

Shashank Samala

So I actually came in from the mineralization perspective. So I was looking at rocks. I was talking to lots of scientists working on using rocks to pull carbon because it's just like an abundant mineral to start. And if you want to pull gigatons of CO2. You need to have abundant minerals that are also trillions of tons of rock in the Earth's crust. And then we realized, actually, just using rocks won't get you the economics and the land. We wanted to use as little land as possible. We want to use as little water and energy as possible.

So we needed to engineer it a little bit to ensure that we use as little energy as possible.

David Roberts

In terms of materials, how much is lost in the full cycle of sort of you're mining the limestone to begin with, I guess, right? There are limestone mines around already. Limestones abundant. So you're mining the limestone to begin with. Once the limestone goes through, one of these whole cycles gets cooked, replaced, absorbed, absorbed again, cooked again. How much material is lost in those cycles?

Shashank Samala

So, so far we found very small material losses. Essentially, that's one of our main metrics over the last couple of years as we were scaling it up to actually putting this outside. And one of the things we get, it's like, hey, if you put these rocks out there, doesn't the wind blow everything off? Essentially what happens is when this is hydrated, it actually turns into a crust. It's like a cake. So, yeah, we've seen very small material losses, and we will continue to tweak the entire process to reduce it even further.

David Roberts

But your materials are pretty cheap. They're not the big cost center.

Shashank Samala

It's not. I mean, the material itself is like less than half a percent of the entire CapEx. Limestone is, You can buy it for $20 or $30 a ton. It's the second most mine material on the planet. You have way more than you need.

David Roberts

One additional question I wanted to ask about the process is you make a big deal about modularity. And this is a subject close to the heart of Volts listeners. We just did a pod a few weeks ago about sort of what kinds of technologies get on learning curves and what kinds don't and sort of what features of a technology lend it to rapid learning. And one of those features is of course modularity is it have easily reproducible bits. So just say a little bit about how you sort of had that in mind as you designed the process.

Shashank Samala

It was absolutely number one for me. I come from a manufacturing background. Before this I had an electronics manufacturing company where we basically built lots of circuit boards in a factory. One of the things that humanity really understands and knows is how to build things in mass volumes with a very steep learning curve. Right? And we saw that with solar panels, lithiumion batteries, cars. Tell the team here it's like you're trying to build cars, not airports. Right? Airports are on site custom construction and the folks who are working on one airport are not going to the next airport.

The learnings don't don't translate.

David Roberts

When people think about a big direct air capture facility. I think probably what comes to mind is something like an airport, a big bespoke one time thing, but you are trying to avoid that.

Shashank Samala

Yeah. So there's a difference between modularity and the plants, right? So the plants themselves need to have modules that are mass produceable or built in a factory so they can just be brought to the site, bolt them to the ground, ready to go, instead of having to build up from the ground up on the site. So essentially you're trying to minimize on site construction. So there's always like solar panels, right? They need to be bolted down to the ground. There is some concrete slabs involved and wiring and plumbing, et cetera. But you want to minimize that as much as possible and that's the fundamental idea behind Heirloom.

Like our tray is basically the smallest module and we make lots and lots of trays.

David Roberts

One doesn't think of trays as something that have a lot of room for innovation. Is there anything special about the trays?

Shashank Samala

There's a few things that are custom and it so happens that the world, we needed such large trays that we went to the vendor that makes the largest trays in the world and they just would not make the trays that we needed. So we actually make custom trays. Yeah, they're large, so we make the world's largest trays. They use traditional manufacturing processes, extrusion, thermal, formula, et. They're not complicated and that's one of the principles behind Heirloom too. We don't want to come up with a new manufacturing process. The world has immense just lots and lots of experience building all sorts of things and we just want to leverage them and scale them to the max because that's how you get 2 billion tons of CO2 remove it as fast as possible.

David Roberts

So the trays a module, the trays stack.

Shashank Samala

Are also and the next level of module.

David Roberts

Is a module. And presumably the kilns are pretty standard issue. They don't have to be tweaked or whatever for individual.

Shashank Samala

Yeah, traditionally, if you go to a cement factory, kilns are actually these massive onsite built kilns. But we use an electric kiln technology that we're actually going to be releasing a few weeks here that is modular. So you essentially stack a couple of cylinders on top of each other.

David Roberts

Oh, interesting. So you did a little design work of kilns of your own?

Shashank Samala

Yeah, we did some here. We were working with a technology partner to do that too.

David Roberts

This whole process, presumably, if you sat down to try to figure out what's the best process for capturing air carbon, you looked at the traditional. I think when most people think of direct air capture, if they think of it at all these days, the few people who think about it at all think about the big machines out in the desert with the fans sort of pulling air over a sorbent. Is your process more efficient than that in terms of sort of energy and material input versus CO2 output?

Shashank Samala

Yes. At the end of the day, what we're trying to do is use abundant materials that are incredibly cheap and use as little energy. That is thermodynamically possible. Really, all of our energy is in that back end where we are regenerating the sponge, which is common across all directory capture technologies. That's sort of second law of thermodynamics. You have to put in some energy to regenerate the sorbent. And for us, we want to essentially lower that regeneration energy as much as possible and then not use energy when we can leverage nature and other things.

David Roberts

It strikes me then that the cost of energy is going to be one of your big top line items. How big is the cost of energy in your overall picture?

Shashank Samala

At scale, it's more than half. And that's exactly where you want to be, right? Because laws of physics tells us that you have to put in energy to do gas separation, especially gas separation that is as hard as 400 parts per million. So if you design a system and you look at the long term economics, you want to make sure that, you know, at long term, almost all of all of that is energy, because that's something you cannot beat. Like energy creates your cost floor.

David Roberts

Right.

Shashank Samala

If your CapEx ends up being a much bigger proportion, well, you haven't really designed or engineered it. Well, that's what I tell the team. It's like you want your cost floor to determine by physics and not engineering. So that's why we use very simple trays. We're just putting a bunch of rocks and a bunch of trays and using a metal tube, on the other hand, and putting some insulation around it. So you want to keep that as low as possible so that your your $100 a ton. That's really our cost target. You've probably heard of the cost target.

$100 per ton. That's really the cost point where it's affordable for humanity to do this at a billion ton scale and actually make a meaningful impact.

David Roberts

And of course, it's like renewable electricity is galloping down the aforementioned cost curve. So insofar as you can hit your ride to it, it's going to tear you down the cost curve too.

Shashank Samala

Yeah, exactly. The nice thing about renewable energy for us is you can pull carbon from the air anywhere, right? It can be in the Gulf Coast. It can be New Zealand, it can be South Africa, India, Indonesia. Wherever you go, the concentration of CO2 in the air is exactly the same. And that's what our technology works with. So we will go to places where renewable energy supply is high, but the demand is low, so we don't take away the supply that could have been used for food production or putting our buildings.

David Roberts

So ideally then, these facilities would be colocated with some big renewable energy just to minimize ...

Exactly.

Transmission costs and all that. Two final questions. One is, you mentioned the $100 cost per ton target. Can you give us a sense of where you are on the road to that? Is there a number?

Shashank Samala

Yeah, so we're in the sort of high hundreds of dollars per ton right now and essentially we are at the demonstration scale, right? We are building this by hand, engineers are building them. We built a couple of Formula One cars effectively, and we need to get to a stage where we can mass produce Toyotas off of the factory line. What is Formula One cars cost these days? Like millions of dollars versus $20,000 Toyota. So at the end of the day, the material inputs are so cheap, limestone and trays and metal tubes, that at scale, we should be able to hit that cost.

And for us, it's all about how do you get there as fast as possible.

David Roberts

Yeah. And if you're chosen super cheap material and renewable energy, which is super cheap, and if those are your only two inputs, logic says you're going to get cheap eventually as you approach the cost of the materials. So the final question is this. At the end of this process, you have CO2, which you can do anything with. Are you deliberately staying out of the business of doing something with it? I mean, is the model always to just hand off the CO2 to someone else who's going to do something with it?

Shashank Samala

Yeah, there's a lot of things you can do with CO2, but for us, there's only two things you can do so far. One we are looking at is concrete, working with folks like CarbonCure and putting it underground. And both are permanent. And an incredibly important principle is permanence because CO2 stays in the air for 1000 years. So you don't want to pull carbon from the air only for that gas to go back in the air ten years later, 100 years later, we're just pushing the buck into the future. So for us, it's incredibly important that we permanently sequester it into something so it doesn't come back out.

And the only two things we've found so far with that type of over 1000 year durability is concrete, where essentially you're binding CO2 into a rock, it mineralizes and then putting it underground. And that is something that humanity has over five decades of experience putting CO2 underground. And it's permanent and we know it's safe.

David Roberts

But are you planning at all to get into the permanent storage business? Or is the idea that you produce the carbon and some other entity is running the storage facility, how does that work?

Shashank Samala

Some other entity is running the storage facility. We're going to be focused on really building an incredibly efficient, cost-effective capture system. And we will work with a whole set of partners to put a billion tons of CO2 stored somewhere permanently.

David Roberts

I've heard you say this in other interviews, too. But just to be clear, the vast bulk of it, especially once we get scaling up towards whatever, billions and billions of tons, the vast bulk of that is going to be stored in underground caverns. The amount that can be used in a way that permanently sequesters it is a relatively small fraction of the total amount that's going to be produced.

Shashank Samala

Yeah, I mean, as much as possible, every ton of concrete we can put CO2 into, we will do that. That is our first priority. Right? Because essentially you're creating a stronger building material. It's a value added product and it's permanent. You're checking all the boxes and that's better than putting the waste underground. So every ton of concrete, we can do that. We will absolutely want to do that. And when we can't, we will put that underground. And most likely at a gigaton scale, most of that will likely be underground, but it's hard to predict the future, right?

David Roberts

Right.

Rob, let's talk to you then, because here is where we get to the part of the relay race where Shashank hands you the baton, or rather hands you a bunch of tanks of CO2. So describe for us then the CarbonCure process, which starts with a source of CO2. You get the CO2 from Heirloom and then what?

Robert Niven

Sure, I'd be happy to jump into that just to help the audience understand, is we're both carbon removal companies, but coming at it from both ends of the process.

Shashank on the capture ourselves on the relay race, receiving that CO2 and doing something with it. CarbonCure has been in business for about ten years. We're a Canadian company and we have about 700 plus customers worldwide that every day are using CO2 to mineralize it in concrete. To make a better, stronger concrete that provides some cost efficiencies by cement efficiency. By making stronger concrete, you need less cement which provides that economic incentive.

And low carbon concrete is in great demand in the market, not only private sector, but we're seeing a lot of policy incentives as well.

David Roberts

So you're in the business, you're sequestering carbon, you're doing it today, you're getting CO2 from someone and sequestering it in concrete. Do you have any what's the current scale so we can get our heads around kind of what's involved there?

Robert Niven

We have everything connected through the cloud and you can actually pull up our our home page and you can see the numbers go up every second about how many metric tons and it's just about 250,000 metric tons to date. So the key difference here is that most of our CO2 to date is received from what's called post-industrial sources. So these are our large emitters and rather than diverting those emissions into the atmosphere, they're capturing it, compressing it. And companies that are industrial gas companies are taking that CO2 and selling it to a multitude of different industries.

And we're a relatively new user of that CO2.

David Roberts

The big one is beverages.

Robert Niven

Food and beverage is a big one. Yes, food and beverage. Also some CO2 is used in things like enhanced oil recovery which some other DAC companies are pursuing. So lots of different ways that you can use CO2. But the main point is there's a large existing commodity market for CO2. The key thing here and what's really special about our work with Heirloom is that this is direct air capture source of CO2, right? And by getting CO2 from the air it allows you to actually reverse the effects of climate change and pull down the parts per million of CO2 in the air rather than limiting and reducing the rate of emissions that go into the air, so there is a distinction.

David Roberts

Additionality is the term of art here. This is 100% additional CO2.

Robert Niven

Well, I would still say that it's also additional if you're using postindustrial CO2. The key difference here is like this actually enables you to get into removal, a pure removal kind of category.

David Roberts

Right.

Robert Niven

For ourselves, we've always seen this as we'll develop huge and a multitude thousands of storage centers, which is also called a concrete plant to most people. We'll run ahead as fast as we can and develop all of this demand for CO2. And then as DAC gets online is that we'll have the optionality to be able to use that CO2 when it's available.

David Roberts

Will there be degrees of greenness of concrete depending on the source of CO2? Have you thought about that? Sort of like different levels of concrete?

Robert Niven

I think so. We sell carbon credits as part of our business model and we definitely hear from our credit buyers is that they're willing to pay more if it's using atmospheric sources of CO2.

David Roberts

Interesting.

Robert Niven

Such as DAC or biogenic source or whatever it is, whatever can get CO2 out of the air. There is a demand for that. The other group that really matters are the people that purchase the concrete. So these would be architects, engineers, building owners. They're also really excited and probably not as sophisticated on the CO2 sourcing question, but I wouldn't be surprised if that starts to become higher in their consideration. The other point that was brought up by Shashak earlier was permanence. That is very, very important for everybody is we don't want to be going through all of this trouble to put away CO2 for it to just bubble out again in 30 days, like what's the point? So that's very important.

David Roberts

So when you say you inject CO2 into the concrete process, spell out a little bit what that means, what that looks like for people who are not that familiar.

Robert Niven

Most people, if they're familiar with CarbonCure are aware of our readymix technology. But CarbonCurever the last three years has expanded by creating technologies that use CO2 in the concrete value chain in different ways. But let's start off with the ready mix technology. So whenever concrete, if anyone's visited a concrete plant, there's about 125,000 of these locations worldwide, about 7000 of them in the US. They're basically all the same. They are mixing sites that take aggregates, rocks, cement, water and a few performance enhancing chemicals to mix those all up in a huge mixer. And then they pour that into a concrete truck, which you are all aware of and seen driving around the road.

And then that's delivered to the construction site so that if we go back and look at that mixer is all those ingredients are being added. And just like Shashank is like if we're really going to meet scale is we want to have a modular system that in our case retrofits these existing concrete plants very, very cheaply and very very quickly without disrupting their production. In fact, it takes us a day, we don't charge any CapEx and the system starts to use that is enabled to start using that CO2 and becomes a carbon removal factory. It starts mineralizing CO2 the next day and it has all these value added benefits without creating a price premium on the product.

David Roberts

Oh, interesting. So this is not some bespoke process that you have to build a concrete plant around. You're literally just going to an existing concrete plant, slapping something on that takes a day to add and then from the concrete plant owner's perspective, that's it. Nothing else changes. They don't have to do anything else operationally to accommodate this at all.

Robert Niven

We automate everything. That's the key. And it's the same design principles that Shashank has brought into his company. Of course, he's done it fully, separately is you want to make this as simple as possible to scale because the concrete industry just does not have the discretionary budget to start. Spending a lot of risk capital in these kinds of solutions. So we've done all that for them.

David Roberts

And they're very small C conservative too, for obvious reasons.

Robert Niven

Perhaps it comes in all different flavors of concrete producers, but they all want to work on this, but they have a lot of limitations. So what we've tried to do is make it as simple as possible, but also do it in a way that they receive the most rewards and that can be in the form of cost efficiencies and production, being able to tap into this rapidly growing demand in the market for low, so they can sell more. We always recommend to keep the price at parity and also participate in carbon markets. So we create the incentive structure and make it really simple to adopt and quick so that producers can start to mineralize CO2 as quick as possible.

So back to your question how the process looks like is we're actually adding CO2 into the mixer and please come to our website as well. We actually have footage and video of what's happening and then we also have some animation on what's happening at the chemical level. But essentially by adding CO2, it's a very similar type of reaction and thermodynamics as Heirloom. And that that CO2 is very quick to react in seconds with the concrete and it reforms a mineral, a calcium carbonate, if we go back to that again, but in a specific size called it's a nanomaterial, which provides all these performance benefits for concrete as it develops its strength, which then leads to some commercial benefits.

And then we also use CO2 to treat the main wastewater from the plant and that's called our reclaimed water technology. So it's a second way that we can mineralize a lot more CO2 on the concrete plant, but at a different site of the concrete plant where all their wastewater is being collected is we can actually treat that water to have it upcycled so it can be reused instead of version cement and water. And then finally we can make CO2 into aggregates, but all three of those can be bundled together to be able to drive down the carbon footprint of concrete.

David Roberts

Yeah, this was my question when I was looking at your website. If I'm a concrete plant owner, can I get all of those versions? Like, can I get CO2 in my wastewater and CO2 in my mixer and CO2 in my aggregate? And are they additive? Like, will that result in three times the carbon removal?

Robert Niven

Yeah. And that's how we're building this business, is to create multiple ways to mineralize CO2 in the concrete value chain and then surround that by doing all the enabling work. So we make it a very easy decision for concrete producers to do that. I will caveat that we don't have the aggregate technology commercialized, but the other two we do. In fact, we had the first pilot with Heirloom that was at the Central Concrete Facility, which is a division of Vulcan Materials in San Jose, California. That plant is the first in the United States to have the reclaimed water and the ready mixed technology.

So they're one of now two plants in the US. That are able to provide that combo, which is really exciting,

David Roberts

Interesting and do the strengthening benefits you're talking about, do you get double those too? When you do both the stages of adding carbon.

Robert Niven

The ready mix technology gives you that strength benefit and then on the reclaimed water, jury is still out on redefining the strength benefit. But what it definitely does is it allows you it's a substitution effect, is that you're actually able to recover the cement in that wastewater and then use that instead of virgin cement. So at the end of the day, it's the same effect using less virgin cement to make concrete.

David Roberts

Right.

Robert Niven

But you're achieving that by mineralization. What's cool about the reclaimed water technology is we actually won the Carbon Xprize for this technology, which was defined as the world's most scalable CO2 utilization technology.

David Roberts

Interesting. What happens to the water today? Is it just thrown out or what happens to the reclaimed water?

Robert Niven

Most of it just gets thrown out today. The traditional way of doing that is it would go into large settling ponds, they would scoop out the settled material, which by the way, is valuable cement and chemistry. That producer paid a lot of money for. And there was a lot of CO2 release to make that that would often just get landfilled and then the water would get sometimes treated for PH and then discharged. So we're able to turn all that process and eliminate it by reusing it in a circular manufacturing type of design.

David Roberts

Interesting, a question about the strength benefits, are the strength, by which we just mean the cement is a little stronger and so you have to use a little bit less cement in the concrete. So your savings that way, are those savings in terms of strength enough to pay for the thing? Or do you have to value the sequestration on some level to make this pencil out?

Robert Niven

We are able to provide the low carbon concrete to the market in combination through our carbon credit sales and through these manufacturing efficiencies of using less cement, we're able to provide that concrete at no price premium by using a blend of both contributions. And that's very important. Like a year ago, if you go onto your podcast catalog, Rebecca Dell was on the show talking about how green premium is really, really important. We need to find ways to eliminate that to unlock adoption in building materials. And green premium is really anything can inhibit mass adoption. That's what's really important is that we don't apply that green premium.

So that the market whether that be the government which is the largest buyer and we're seeing a lot of buy clean type legislation or private sector which have a lot of sustainability targets from corporate actors are able then to make these kinds of procurement decisions without compromising on price and certainly not compromising on quality, and working with the same suppliers that they've worked with for years prior.

David Roberts

Maybe this is a naive question, but if I'm a concrete manufacturer and I can have this done and installed in a day, it's not going to affect my operations. It's going to save me a little money on reducing cement, it's going to make me a little money on selling carbon credits. And otherwise I'm selling a more or less identical product at a more or less identical price. Why wouldn't I do that? What would stop someone from doing this?

Robert Niven

Yeah, I would say just education. But we're already, like I would say I don't know for sure, but probably the fastest growing technology in the concrete sector. Concrete sector is not known to be rapidly adopting new technologies, but I would say we are growing at a very rapid rate. And certainly there are different kinds of concrete producers which normally adopt technology faster than other types of producers profiles. And we're seeing that happen. And the rate of adoption is happening far faster when we see those market signals like the procurement policies or even requiring environmental product declarations in the procurement process.

So those kinds of things really accelerate this transition to the market. There's a reason why so much innovation is happening in San Francisco in the concrete sector, is because there's a lot of companies that operate there that are really walking the talk. And the concrete industry is enabled, empowered to bring their best forward. But if concrete producers are in markets where they're never hearing someone talk about decarbonisation, yeah, they have 20 other things that, that they can prioritize, that they need to work on.

David Roberts

Right? So you need some valuation of the carbon benefits to kind of push this up to the priority list.

Robert Niven

And it doesn't have to be a premium, right. When you say valuation, it just needs to be identified. Like an example would be of Microsoft. When they're building, they're asking all of their suppliers to say, I want to reduce our carbon target by X. And then they go around and they say, what can you do for me? What can you do for me? What can you do for me? When the concrete producer hears that loud and clear, and they may win that bid over a competitor if they have some ideas and they can bring something to the table.

David Roberts

I want to get a sense of scale before we move on from the process. Sort of if I'm producing concrete and I'm using your process to inject CO2, say I do both of the available options and I get CO2 injected into my wastewater and I get CO2 injected into my mixer, is the end product of that carbon negative or how close is it to carbon negative? Give a sense of scale, like how much of the carbon in the process is being offset by this?

Robert Niven

Yeah, it's one piece of the pie. To get to carbon negative or neutral concrete is we're going to need some substantial changes on the cement side as well. And there are some fellow companies within our investors portfolio. A great example would be like a Brimstone who are working on the cement side. We're working with whatever cement is coming down the line and we're adding if you sort of combine the reclaimed water and ready mix, you're getting another 10% to 15%. But that's 10% to 15% off of a global commodity with a huge volume and we can do it today with very little CapEx and it's permanent.

So if you think about a marginal abatement cost curve, it's like this is the furthest left on that curve. This is the thing that is easy to implement at scale. It has a significant percentage reduction, but off of a huge number, the volume of concrete is enormous. There's about 40 billion tons of concrete produced or 4.2 billion tons of cement.

David Roberts

And what's the number? I think it's 8% of global emissions, something like that.

Robert Niven

We use the word the number 7% and most of that's cement. And the reason it's so big is because so much concrete is being used, it's second only to drinking water in production. Yeah.

David Roberts

So you can take 10% to 15% of the CO2 basically out of the final product, but more than that is going to require deeper changes in the process.

Robert Niven

And that doesn't include our aggregate technology. So that will layer in a lot more. But we need to work together all the way along the value chain. The traditional cement sector are doing things like they're using supplementary cementitious materials instead of cement and that means using things like fly ash and slag. The problem is those materials are declining in availability, they're doing things like fuel switching, so using waste materials, energy efficiency, all those traditional things should be done. But then there's also some real deep tech stuff going on right now about fundamentally changing the cement process or chemistry.

But that's going to take a lot of money and we still have a lot of time ahead of us. So we need to get going today on those immediately deployable solutions.

David Roberts

Right, so you've got a solution here you can just slap on existing concrete, plant boom, you get your ten to 15, maybe a little bit more CO2 out.

Robert Niven

And we've shown that this is not only applicable in the United States, but we're operating in many many emerging markets and really only about 2% of cement is being produced in the US. It's the emerging markets. That's where we really impact climate.

David Roberts

Right. And that's where it's growing.

Robert Niven

That's where people is in concrete they haven't built out. There's a lot of population growth and we're already going into those markets now because we know that it takes a bit of incubation time and in some markets we're seeing that already entering into that scaling phase.

David Roberts

So you need CO2 as an input to your process. Is there any supply issue? CO2 easy to get and I'm also curious how much you pay for Heirlooms CO2 versus more traditionally acquired CO2? Is there a big price differential?

Robert Niven

So the first part of your question is, is there supply chain issues? Yes. Our industry, the concrete industry has been massively impacted over the last twelve months by cost and supply of cement and in our case cost and supply of CO2. Really? Believe it or not you can't buy CO2 in certain markets.

David Roberts

a shortage of CO2.

Robert Niven

And the price is skyrocketing because of it.

David Roberts

No kidding.

Robert Niven

It's a really perverse situation. So we need a lot more air loops and we need them to get them into market faster to start to diversify the supply of CO2 because some of the traditional emitters that you would have been collecting that CO2 are now changing their process so that that CO2 isn't becoming available anymore. Ethanol is the largest supplier of CO2 in the industrial gas market in the United States. So today if the price varies so much it's largely dependent on transportation. Very commonly we're paying well over $500 a ton for CO2. We haven't gotten to that stage with Heirloom where they have the volume, the capacity to have those discussions yet but we really encourage them to move along as fast as they can to get to that billion ton target because that gives us a lot more CO2 that we can work with.

So we're exploring all different options for CO2 supply because just from a supply constraint or supply chain disruptions we're very encouraged to solve for that problem now.

David Roberts

It's just something that sort of kind of confuses me. And maybe you both can take a swing at this answer, but I'm seeing a process here at your demonstration plant where we're digging a limestone up, doing a bunch of stuff that strips the CO2 out of it, and then injecting the CO2 back into the concrete process, where it then becomes limestone again. Why not just dig up the limestone and put it directly in the concrete? It seems like a lot of physical processes to sort of end up where you started. Maybe just sort of help me understand that kind of how is this not kind of running in place in sort of energetic and CO2 terms?

I'm sorry if that was a very vague question.

Shashank Samala

What we are trying to do is pull CO2 that is already in the air so you need a sponge to pull up that carbon and we find that calcium oxide which is derivative of calcium carbonate is highly alkaline. It's highly thirsty for that CO2 and then that's how you create the limestone and then you're essentially looping the limestone through the cycle.

David Roberts

The limestone you're finding that you're mining has already absorbed CO2, right? That's what it's been doing. It's what it's been doing. So in a sense, it's already absorbed it. Why not just put it directly into the concrete, do you know what I mean?

Robert Niven

Yeah, maybe my perspective solves that on that bit better. The way that I think about Heirloom is if you take a sponge and you put it into your kitchen sink and then you pick up collects water and then you squeeze it out, then you put it back in and squeeze it out. So it just happens to be calcium. But for our process, there may be some listeners who are from civil engineering and understand concrete a bit deeper, and they say, well, concrete already carbonates, right? So there is a natural process that's already happening, but that's limited to the exterior skin of concrete and it's not value added, it doesn't provide those performance benefits.

So some way of looking at that is like, yeah, if you left concrete exposed to the air for 1000 years, which not too many buildings are around for a thousand years, is you might get that full carbonation extent. But even if you did that, you wouldn't get all the benefits, the performance enhancing benefits that come from carbonating actively in a certain way that create this nanomaterials, which provides the cement savings. And it's also done in a very short time frame within seconds. And so that's a key difference here is the time. And the other thing is, if you let carbonation happen passively, that's called weathering carbonation is it actually has the opposite effects on performance.

David Roberts

Oh, really?

Robert Niven

Yeah, it'll actually cause the PH to drop and then it will make the steel corrode, which makes said structure made with that concrete to have durability issues and may fail. So engineers like myself are trained to limit carbonation because you don't want that carbonation layer to get to the steel, because then that causes that concrete to fail. So you take many, many steps to stop that from happening. The way that we're doing it is different in that we're actually deliberately carbonating to a certain extent. So you get all these performance enhancing benefits and that's a really important nuance.

David Roberts

One question is this sort of demonstration project of Heirloom on the one side, CarbonCure on the other side, pulling CO2 out of the air, putting it in concrete. I obviously see the benefits in terms of like educating the public, making carbon capture and sequestration more real and tangible to people, showing investors that things are happening here, all these effects. But looking down the roadways is the sort of direct capture to concrete pipeline. Is that going to be a real business? Is that going to scale up? Or is this mostly just for demonstration purposes?

Robert Niven

If they can provide CO2 for less than $500, we've already shown it scalable. Right. So for us, that's the marker. And we're more than happy to work with Shashank and Heirloom because if they can provide us cheaper CO2 on a reliable supply and the market would prefer atmospheric CO2, I'll do that all day, every day. But we're already showing today that using CO2 and concrete is immediately scalable and used in emerging markets, developed economies, what have you.

Shashank Samala

Yeah, the awesome thing about concrete is it's the most abundant commodity, the industrial commodity that we produce. It's like 12 billion tons of concrete that we make. So that's the awesome thing, right? That's why this demonstration, I think, is so powerful. This is not just a small test, that it is a signal for what's to come. And I tell Rob every time I see him, tell me what is the price where we can put CO2 in every ton of concrete that they're at and plants that they're not yet at? Right. To reduce that cost per ton on the concrete plant side, where it is just economical, no brainer for a concrete plan to add Heirloom CO2 into the CarbonCure process.

So, yeah, that's the thing that's exciting.

David Roberts

Has anyone done the math on the total sequestration potential of concrete globally? I mean, do we have a sense of scale here? The limits?

Robert Niven

Well, the theoretical limit is half the weight of cement could be carbonated.

David Roberts

Oh, wow.

Robert Niven

But I'm not saying you want to do that. I'm saying, theoretically, that Stoichiometry says that if there's 4.2 billion tons of cement, you could conceivably mineralize 2.1 billion tons. And that doesn't include all the aggregate. So you put all the aggregate on on top of that. And aggregate is the vast majority, about 85% 90% of the of the mass of of concrete. So you could really get to certainly hundreds of millions low billion tons of CO2 mineralization in the concrete value chain through carbonating, directly through concrete, like what we're doing, or by using CO2 to make aggregates.

There's a few companies that are doing that as well. So it does become sizable. But I really want to emphasize it's, the value added nature and the immediate nature of this, like the time value of carbon is important in climate change discussions.

David Roberts

Yeah.

Robert Niven

A lot of solutions are targeting to come online and start scaling in 2030-something. This is happening now, right? And we need to do as much that we can, especially if there's very little CapEx requirement and no price premium.

David Roberts

So I've kept you long enough, I guess I'd ask the same question to each of you to conclude it's the nature of carbon removal that it's not producing a product that is valuable enough in and of itself to pay for itself. There's going to have to be a market created for removed CO2. We're going to have to sort of generate a market around this if it's going to pay for itself. So I guess I just asked both of you, by way of concluding shashank you first, what sorts of policies can help you or would most directly help you scale up?

Shashank Samala

So two types of policies. One is a compliance market that essentially requires corporations to effectively price carbon as an externality and have a cap for carbon emitted so that carbon that is not abated or reduced needs to be offset and removed. And there's a price for that.

David Roberts

And this is something a few companies are doing kind of voluntarily, right? Like the stripe constellation of companies are basically sort of modeling what that would look like. But that's got to be made law at some point, right? You're not going to get enough voluntary companies to ...

Shashank Samala

No, according to APCC. We need to be removing five to 10 billion tons of carbon from the air by 2050. And if you want to see that type of scale, if you want to see that type of it's a trillion dollar market at $100 a ton. That's a trillion dollars of revenue every year that we need to get to. So it's amazing and we're so fortunate to work with folks like Frontier Stripe, Shopify, Microsoft, who are all early buyers of this technology, but we need thousands more and policy and compliance markets is what gets us there.

The second type of policy is what 45Q is doing today. You may have heard of it. It's a tax credit. It's a direct pay for direct recapture that is stored permanently. So, you know, we're fortunate and, and, you know, really we, we appreciate everyone who, who worked on the Inflation Reduction Act, having that passed last year, that is such an important element. It's at $180 per ton subsidy. It's it's stackable on top of what customers pay us that helps us bring down the cost of, of carbon removal so it is affordable to everyone. So, you know, that is something that, you know, not just the US.

But, you know, every other count ry, europe and Asia should adopt something similar. So compliance markets and subsidies like 45Q really help us come down the cost curve.

David Roberts

Is there a country doing more than the US for this or they are their models to look to where they're going more sort of gangbusters on on DAC?

Shashank Samala

Canada is actually pretty close. I don't think they've passed this yet, but there's a pretty large CapEx, I think it's called the Production Tax Credit that might be even more compelling than 45Q depending on how that's written. So, yeah, super fortunate that US and Canada, that is the type of competitive battle we want, right? This sort of geopolitical competition to see which country can help us decarbonize the planet. And in the past it was some countries in Europe that were sort of good hearted and have these policies like the subsidy for solar in the early 2000s.

But now you're seeing countries compete against each other to bring clean tech and climate tech into their country. So I think it's warring from a good hearted nature to a competition, which is exactly what the planet wants. So that's what we should all be up to, optimistic and excited about.

David Roberts

And how about you, Rob? What's your policy wish list? What's on top?

Robert Niven

I would echo what Shashank said, certainly. And about we need many more credit buyers of some of the same names, like the Shopifys and Stripes. That really the Microsoft's and Patches that drove the world of demand for these credits. 45Q, for sure. For us, though, the most important policy are these low carbon, concrete, or buy-clean type procurement policies.

David Roberts

Right.

Robert Niven

New Jersey just passed landmark policy just a couple of weeks ago. It was based upon similar work done in New York and Hawaii and California. We saw a lot of it in the Federal Infrastructure Act. That's what really drives us.

David Roberts

Are there federal procurement buy-clean elements in the Infrastructure Act?

Robert Niven

Yes. If I recall, it's about $4 billion in incremental spend on low carbon material purchases. That is very important for our business, and that's what will drive the storage piece within concrete especially. And then that in turn will drive the DAC side or the carbon capture side. So that was really important. And they're designed in a way that also requires a strong reporting element using LCA documents like environmental product declarations, and you need those to compare the different options in a third party verified way. So that procurement policy is very important based upon the kind of models like we're seeing in New Jersey with its LECCLA Bill.

David Roberts

Interesting. Well, thank you guys for coming on and walking us through. It's really interesting. I think if nothing else takes a very abstract discussion, what can often be a very abstract discussion about carbon and carbon removal and all this and just makes it very tangible. One of the things I love about this is that on both sides, this is not PhD chemistry or whatever. It's trays of rocks and squirting CO2 into a mixer. I love the there's a ruggedness, I guess, to simple processes that I really like. So it's been really fun to talk through.

Robert Niven

You're welcome. Although I will say we have a lot of PhDs working on our team as well, so I don't want to diminish the great work that they're doing to make it look this simple. You need to work extra hard.

Shashank Samala

Yeah, exactly. There's just a lot of engineering and science that goes into making things simple and scalable. So, yeah, you have lots of PhDs and great engineers on the team.

David Roberts

All right, Shashank Samala and Rob Niven, thank you so much for coming on and talking us through. This is super fascinating.

Shashank Samala

Thank you so much for having us.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much, and I'll see you next time.

In this episode, Erik M. Conway discusses his new book The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market, coauthored with Naomi Oreskes.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

In 2010, historians of technology Erik M. Conway and Naomi Oreskes released Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming, a book about weaponized misinformation that proved to be extraordinarily prescient and influential.

Now Oreskes and Conway are back with a new book: The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market. It's about the laissez-faire ideology of unfettered, unrestrained markets, which was invented and sold to the American people in the 20th century through waves of well-funded propaganda campaigns. The success of that propaganda has left the US ill-equipped to address its modern challenges.

On March 8, I interviewed Conway at an event for Seattle's Town Hall, where we discussed the themes of the book, the hold free-market ideology still has over us, and the prospects for new thinking. The organizers were kind enough to allow me to share the recording with you as an episode of Volts. Enjoy!

Megan Castillo

Good evening, everybody. My name is Megan Castillo. I'm Town Hall's program manager. On behalf of the staff here at Town Hall Seattle and our friends at Finney books, it's my pleasure to welcome you to our presentation with Eric Conway and David Roberts. Conway's new book, "The Big Myth," is the subject of tonight's talk. Please join me in welcoming Eric Conway and David Roberts.

David Roberts

Hey, everybody. Thanks. I'm just going to jump right in. Several things I'd like to get into, but just to start, one of the things that really the book really gets across well, I thought, which I don't know that I fully appreciated, is the extent to which this idea of unfettered, unregulated free capitalism is an invention of the 20th century. It's not what capitalism ... the founders and architects of capitalism, it very much goes against their larger philosophy and their larger kind of moral sentiments. And the way it does this is by elevating property rights, basically trying to they call it the "indivisibility thesis" that property rights and political freedom are one and the same.

And any limitation on property rights is de facto a limitation on political freedom. That's new, that was not original to capitalism. So maybe talk a little bit about property rights and how they sort of what the pivot these groups did with that concept in the 20th century, in the early 20th century.

Erik Conway

Okay, so that's a jump forward from a book that starts with child labor laws in the 19th century. What I think you're bringing up is the tripod of freedom that the National Association of Manufacturers concocts in the late 1930s as part of their effort to undo the New Deal of the Roosevelt administration. And the idea of the tripod of freedom was, if you think about a three-legged stool there's what they would call industrial freedom or business freedom, religious freedom, and political freedom are the three legs of the stool. So if you remove industrial freedom, businesses freedom to do what they want, then the stool falls.

This is a slippery slope argument that equates business freedom with the other two first amendment freedoms. That's what they spent a decade and millions of dollars, 1930s dollars, promoting through billboard campaigns and materials made for schools and movies and so forth in order to try to convince the public that that's the American way, even though it is a pure invention. In the 19th century, of course, lots of business was regulated and the corporate form itself was primarily a tool used by states. States would create a corporation to accomplish a thing like the Erie Canal Corporation to build and run that canal system for the state.

And roads were done this way and so forth. And through a whole complicated process, the corporation sort of slowly gets disentangled from the state in the 19th century so that by 1935, we can imagine corporations that are no longer state functions.

David Roberts

Yeah, one of the wild things is learning that early corporations had to go to states and say, "Can we be a corporation?" And the states would be like justify why? Like tell us why. What public good are you serving? It's just a wild inversion of things. And also another piece of this is, and maybe this doesn't come into it as much until the Austrian economists that get brought over, and I guess this would be in the 60s, kind of 50s and 60s, Hayek and the other one whose name is not coming to my mind. Yeah, but this idea that not only is business freedom core to American freedom but the role of the business person, businessman, I guess they always said back then, is explicitly not to be decent, not to be good, solely to make money.

So the idea is that if you have these like purely self-interested actors, the magic of aggregating them produces social good, but the individual not only has no obligation to do public good with their business or their corporation, in a sense they're sort of like violating the spirit of capitalism if they do it. Which again is like would send Adam Smith rolling in his grave. Only if you could just say a little bit about how they conceive of the morality of the business person or the morality of business and how that changed from what Adam Smith laid out.

Erik Conway

So that invention of what we now call shareholder value we can trace really back to Chicago school economist. It's mostly popularized by Milton Friedman, though he didn't concoct the term. The idea is, in his 1962 book Capitalism and Freedom he takes a more extreme view of that than the Austrian economist did. Hayek, for example, actually thought there was grounds for workmen's rights of some kind and that there were some justifiable kinds of social mitigations of industrial freedom, as did Adam Smith. Yet Friedman's ideals are what take over in the course of the early eighties. I think it's in the 1980s that the idea really takes off around General Electric Corporation.

For example, those of us of a certain age remember Neutron Jack just dismantling General Electric and removing the basic ideas that the company had served in the 30s and 40s, for example, of investing in its community in order to have healthy communities around its plants and so forth. And all that goes away in that era of the 80s. So you can see, for example, in the movie "Wall Street," if anybody remembers that from the 80s, there's a great speech about Teldar paper by Michael Douglas and how it exists only to serve its shareholders. And that's where all the profits should go, and its only social good should be ensuring the continued flow of finance to the shareholders.

And all other good things are supposed to fall out of that, except what else actually fell out of that is workers livelihoods and so forth. It's a fascinating reinvention. In fact, as we begin to bring those Austrian ideas into the US in the 30s and 40s, they become simplified, and they become oversimplified as they're put through the businessmen cycle. Because the businessmen in the United States were simply unwilling to accept even the social protections that Hayek and Adam Smith and so forth had thought were necessary in that decade. And so they commissioned economists to essentially rewrite Hayek.

David Roberts

Globalization goes with this too, because the more you're a multinational company, the less pretense or need you have to pretend like you need to nurture a particular community, right? If one falls apart, you just go find cheap workers somewhere else. Another thing the book really brought home that I did not fully appreciate... I mean, I guess I knew just from being a journalist that business is out there advocating for leave us alone. But I don't think I appreciated the scale and how long that's been going on. I mean, your book sort of describes waves starting in the late 19th century of government would try to do some decent thing.

There'd be a huge propaganda effort against it. Finally, government would win some new protection for workers. Then business turns around, claims moral credit for the protection against workers, and argues against the new thing that's about to happen via billions of dollars of propaganda over and over. There's like three or four waves of this. So maybe just talk a little bit about how extensive this effort was. Like they're going after schools and libraries, morning cartoons. I mean, they really thought it through about how to go wide.

Erik Conway

Well, so we started the book with child labor laws in the 19th century because it's the beginning of the conversion of the National Association of Manufacturers from what had originally been a very protectionist organization. They were founded not at all for free markets, they were founded to promote tariffs, the idea being that tariff walls would protect American manufacturing during the period in which the United States developed. And they begin turning against the idea of government itself around the issue of child labor and workplace safety because those things both threatened to cost the money in various ways. They used child labor in order to reduce wages, and they used well, frankly, they managed to convince the courts that workplace safety problems were actually the fault of the workers and not themselves.

And so there's a long fight by reformers in the United States to both provide better workplace protections and to eliminate child labor that ultimately businesses lose and then basically change their tune and decide that, well, we supported removal of child labor all along. That's sort of the first wave of the story. And that first wave takes it set in in the 1930s and then NAM changes actually kind of fundamentally in the 30s for a very internalist sort of reasons. The National Association of Manufacturers had originally largely represented small businesses, not large. They have a leadership change in the 30s in which essentially they're taken over by large manufacturers.

And then those large and much wealthier manufacturers begin to believe that it's in their interests to try to change the political tone of the United States. And World War II really helps them show how the Roosevelt administration engaged in an enormous public propaganda campaign to support the war. And our manufacturing friends learn a whole lot about how to spread messages. And we don't get into it a great deal in the book because there's so much material. But for example, I pick up with a story of a congregationalist minister in los Angeles becomes quite famous nationwide for setting up an organization known as Spiritual Mobilization.

Spiritual Mobilization's idea was to try to reconvince Americans of the moral basis for free market capitalism and to spread that through the churches. He was a minister. He attracted, of course, the interest of the National Association of Manufacturers, very key to our story. And in particular, one of their leaders by the name of J. Howard Pew, who is president of Sun Oil and Pew, becomes Fifield's biggest backer for spiritual mobilization. Spiritual mobilization operates throughout World War II, actually and into the 1950s. And they tried to develop curriculum to push out into seminaries as well as putting materials out into churches and so forth for free market ideals.

Now, it's important to understand that as a congregationalist, Fifield was a theological liberal and J. Howard Pew was not. He was very much a theological conservative. So he takes that idea in 1946 and he starts founding new organizations to do the same thing but into the conservative churches. And so the Christian Freedom Foundation was one of his creations. Magazine Christianity Today is one of his creations. He attracts Norman Vincent Peale from the first marble church and so on. And he becomes an enormously successful entrepreneur of the idea of shoving free market capitalist views into American religion.

And that's just one thread of the propaganda story that we tell.

David Roberts

Yeah, I was going to say it's creepy enough trying to sort of conflate free market capitalism with America, with America's founding and America's founding values, but then it gets conflated with Christianity. They get merged in a way that only has gotten creepier and creepier over time. I frequently look around today at various and sundry propaganda campaigns still ongoing and wish to myself that the institutions we have set up to seek truth and accuracy, namely academia and journalism, would be more stalwart in their resistance to propaganda campaigns. And it's tempting for people in the present day to say, oh, what's happened to the media?

What happened to the old media? But you read through your book and you sort of realize, like academia and journalism were never particularly they didn't put up a very good fight, let's say, against all this stuff.

Erik Conway

No. Another of the stories we tell again about the breadth of these campaigns, it's around the National Electric Light Association, which doesn't exist anymore. It folded after its propaganda campaign was exposed. This is an organization that existed into the 1920s, like the National Association of Manufacturers. It took up the effort to prevent regulation of the electrical utility industry. And one of the ways they did it was by paying academics to author studies that they could use to prove, quote unquote, "that privately provided electrical power was cheaper and more reliable than publicly provided and produced power." Except there was lots of evidence that that wasn't true for both Europe and Canada, which not only tended to have cheaper electricity rates, but also much more widespread electrification.

One of the things that we've all forgotten by now, because we were almost all, maybe all of us, were born after electrification is completed. But in the United States, electrification stalled at the city borders and it stalled at the city borders for decades because utilities figured it simply wasn't profitable for them to string lines across rural America.

David Roberts

Europe beat us to rural electrification. I don't think I really knew that before I read ...

Erik Conway

Yeah, well, most people have forgotten, but they beat us to rural electrification because they saw it, well, in a couple of different ways. One was program of improvement, but another big one was, remember, there really was a threat of the communists and socialists taking over in Europe, and that was, of course, used as a foil here in the United States, too. But what the European politicians did was they simply decided, well, we're going to take on some of the claims of the reformers and actually do them in order to forestall the revolution. Bismarck was actually pretty successful for a while, and many other of the European countries were successful at more than a little while.

And we kind of tell that story, too. But to answer your question is there were paid academics then as well who were not only not attempting to get at the truth, but were fairly well, I would say that they had already been indoctrinated. They already believed that free market, if you couldn't even say such a thing existed, was the proper way. I would say the better way to say it really is private enterprise is a better way to do it. It's a better frame. One thing I haven't said yet, but I want to make sure I do, is that Naomi and I don't believe there's such a thing as a free market.

Markets are constructs. They're social constructs. Birds and bees and so forth don't have them. We all regulate markets in some way, either by law or by the guys that break your knees if you don't pay up. They're all forms of market regulation, and some are preferable to others.

David Roberts

Yeah, and they bought off so many editors and newspapers, too, in just like the chintziest ways. They just mail them a pamphlet or take them out to dinner and boom, they got great press coverage. It's very disheartening.

Erik Conway

But I would even say that they didn't have to be bought off, necessarily. Partly that's social pressure you're talking about, which we've all experienced, being invited to the right parties and so forth, and we don't really get into that because sociology is not our subject. But it's also the case that many of these editors were raised in the same propaganda, especially nowadays were raised in the same propagandaized malu that everybody else was. And it's hard to decide that all these things you've been taught for most of your life are wrong. It's very hard to decide that.

I'm sure that most of what I've been taught through most of my life is sort of true, at least. But I'm not always sure, and I have to think hard about it nowadays.

David Roberts

One thing that comes across also is big business has been organized and at this for a long time, well over a century now. But they weren't really successful for a while. Like, they fought and fought and fought against the New Deal. But the New Deal mostly went forward and mostly remained popular. And it's like wave after wave of propaganda until around, like, the 70s Carter era and Reagan era. So what converged there in history to allow this to break out from basically being kind of a fringe view to it's common sense now, sort of common wisdom, meddlesome bureaucrats and government inefficiency and picking winners.

These are all phrases that ordinary people know now sort of sifted down into the popular consciousness now. So what was it that allowed it to finally overwhelm resistance and win?

Erik Conway

Well, I think the first thing we've already said we've had this decades long propaganda campaign that helped lay the groundwork, and that's the main subject of our book. And then part two is the 70s. We have a whole series of intersecting crises in the United States. And we talk about the inflation of the 70s from the economic perspective being that big crisis. And the advantage that the free marketeers had was that they had an answer that was different than the standard answer. And Naomi and I are not the first to think about it this way. They had a different answer than the economics of the last 40 years, which had been successful, maintained a relatively growing and prosperous economy, much more prosperous for how do I want to put it more equitable prosperity than what we have now or prior to World War II, frankly.

And yet that seemed to be breaking down in the so that's the way we see it. And because they had an answer and because Carter then has, of course, a great foreign policy crisis as well. And honestly, I think Jimmy Carter believed some of the free market mantra in that his administration really launches the era of deregulation, right? It's the Carter administration that undoes airline regulation and trucking regulation and begins undoing rail regulation. And there's even banking deregulation in the Carter administration. And so they begin getting rid of a lot of, in fact, the leftover artifacts of the New Deal in the Carter administration.

And what Naomi and I do is we discuss that, what was done, what effects they began to have. And honestly, to some degree, we are supporters of it. Except there's one place that we think they went wrong, really, and that is they didn't apply labor protections that had existed under the New Deal laws. So trucking, for example. And that's they're kind of the poster child for deregulation because ten years after the trucking deregulation law, most of the trucking unions had collapsed. Most of the trucking businesses that had existed collapsed and they'd been reformed into new nonunion trucking organizations.

Wages collapsed and so on. And so deregulation helped reduce the inflationary period. Trucking is a major expense to move stuff around, but at the same time it also crushed wages, which benefits inflation, but not the workers and so on. So that's our story of the conversion. And I'm sure you could write others because in the couple of chapters we had, we could barely scratch the surface of what it was, I think, a very complex and challenging period.

David Roberts

I know you're a historian, so history is your thing. But as you look around now, maybe you and Naomi have talked about this. Do you feel like the hold of kind of the free market mythology is loosening? Do you think we're heading in another direction now? What's your take on the current state of this? Because it seemed to sort of hit its peak in sort of like Bill Clinton. When you got a Democratic president saying the era of big government is over, you've sort of, like, won at that point. You've won the argument. Where do you think we are now with all this stuff?

Erik Conway

Boy, I wish I knew. Being a historian, we're bad at crystal ball kinds of things. It's certainly interesting to me that the current president and his predecessor are not free marketeers, neither of them, but in quite different ways. Right. Trump is still backers of kind of Reagan style deregulation gutting environmental agencies and that sort of thing. He did those kinds of things but at the same time was almost doing the 19th century idea of tariff protectionism.

David Roberts

Really old school.

Erik Conway

Really old school. I know some people have called it neo-feudalism, but I don't see it that way. But then again, since I'm a 20th century guy, there wasn't a lot of feudalism for me to study. So maybe I'm wrong. But I do find it intriguing that it's no longer the default position of either party, that the idea of unregulated markets are to continue to be dominant. But what comes next? I don't know. That's the challenging and terrifying part to some.

David Roberts

And neither of them seem to get much internal pushback from their own party over that.

Erik Conway

No, exactly.

David Roberts

There doesn't seem to be like an organized presence for it anymore.

Erik Conway

Right. And instead it's patchwork. But that's not the word I want. It's more a matter of what they perceive to be immediate self interest at the party level. And so there's lots of discussion now of big-tech regulation and to some degree I would support it depending on the details, but it's not clear to me what that would be. For example, it's an interesting political moment to live in.

David Roberts

Antitrust is sort of poking its head up again.

Erik Conway

Yeah, we might actually enforce antitrust statutes for the first time in decades, maybe.

David Roberts

Final question, and this is my plaintive question I ask everyone, and especially when I spend a lot of time talking about the media environment, the sort of epistemic environment and Fox and the right wing media and all of this misinformation and stuff. But one thing I'm constantly lamenting or wondering about is why, when you look back over this 150 year period almost, and you see these repeated waves of propaganda against government, basically against government as such, not against this or that in particular, but just government is bad. Like government's inefficient and bad, wave after wave. Why do liberals or progressives or whatever you want to call them, why does the left, why do the people who believe that government can improve people's lives as it demonstrably has many times through our history?

Where are their propaganda campaigns? Where is the think tank that's just devoted to arguing that government is good? I can name ten on the right that are devoted purely to the subject of how government is bad. Is there one on the left that's just government is good as opposed to this immigration group and this crime group, whatever? Why does the side of social democracy, mixed capitalism, the stuff that seems to work, why does it not have a propaganda arm or effort? Or why does it never seem to fight for itself as such? Do you have an answer to that question?

Erik Conway

I don't have a good answer. The usual joke you get is that they just don't have the money. And maybe that's true, but I think there's actually a better argument in another book, and I'm really hoping the name of this author comes to me. But unfortunately, I read this. It was published after we'd finished our manuscript. But there's an argument about back in the 1970s that the Consumers Rights Movement undermined precisely that argument because the government was so complicit in allowing itself to be used by corporate lobbyists because the corporate lobbyists had been so successful in ensuring regulations were written in ways that benefited the incumbents right.

The existing big three carb manufacturers and so forth. And I can remember when we were doing the book tour for what little book tour we had for Merchants of Doubt. I was up in, I think, Alberta province in Canada, and I wish I knew who this was, but I was talking to an economist over a beer who told me a great story about one of the Carter administration's economists. And the person I was talking to was saying that really, it's not that he believed in free markets, it's that he believed that corporations could rig government to do essentially whatever they want to use the government to build and sustain their own monopolies.

And the only solution to this was to sweep away all the rules. The problem with that is that then you have to keep doing that, right? Because every generation of corporate titan gets the rules written again to protect itself. And I mean, that was the only fly I could see in that argument. But to go back to your question, the problem that liberal activists would have is that because a lot of people on the left, I think, actually agree with that. And I even think that there's merit to it because I've seen it so often in my own research career.

Corporations do get state and federal governments to write rules that benefit them. And so that undermines the whole notion of a pro government propaganda campaign, right? Because maybe it's just that all of the leftists have very mixed feelings about it. And honestly, I think we should I don't want to say one of the things I hope you will get out of our book is that we're not saying that all corporations are bad or that the government is always good because neither of those positions are true. They're not.

David Roberts

Okay, well, I'd love to hear from the audience. Let me just say this is a subject about which I feel many people will be tempted to have more of a comment than a question. And I just want to get out ahead of that and say, if you have comments, save them for afterwards. You can talk to us afterwards. People came to hear Eric talk, so try to keep your questions concise. Yeah, just come on up to the podium if you have questions, or if not, I'm going to keep asking them.

Audience Member

I have a process rather than content question. So I'm a retired oceanographer. I'm familiar with your co-authors work in the scientific field. So it's kind of a dual question of, you guys seem to be stepping out of your area of technical and scientific expertise into the economic world, and I'm curious about the process of how the two of you work together on this?

Erik Conway

Okay, so we did the book because we wanted to follow up "Merchants of Doubt", in which, if you're not familiar, was really a history of four physicists and how they spent their retirement careers working to cast doubt about the truth of environmental problems. And what we concluded was that they were believers in market fundamentalism, the idea that only free markets could protect political freedom. In other words, basically a 1980s version of the Tripod of Freedom from 1935. And so in this book, we wanted to tell the history of market fundamentalism, so that's why we did it.

Audience Member

Can you tell us who we is?

Erik Conway

Oh, sorry. Naomi Oreskes. She's the lead author in the book, and I'm Eric. Process, so I guess I'm the one who had spent a lot of time or a lot more time in economic history initially because I'm a historian in technology, and you really can't separate technology from business and economics to a lesser degree. So I guess to some degree, you can blame me for the initial ideas. And then once we had sort of gotten the book proposal sold, process was we separate the chapters, figure out who's doing what, whose expertise more aligned to one idea or the other.

And then it's a whole lot of researching and writing and mailing chapter drafts, back and forth and so on. Kind of the early core of the book is built around material from the Hagley archives, which it's a business history library and archives on the Dupont family estate in Delaware. The Dupont family did History of the United States enormous favor, frankly, in turning over some of their original powder factory buildings to be a business history archive. And that's how I can tell you exactly what J. Howard Pew was doing and setting up these organizations, because he was proud of it.

He wrote to people about it. He helped get a textbook by an economist by the name of Tarshis removed from university curriculum on grand claims to trustees and so forth, that the guy was a communist when actually he was just a Keynesian economist. And that prepared the way for Paul Samuelson's textbook to become the dominant textbook in American economic education for most of our lifetimes. But Samuelson, seeing what happened to Tarshis, revised it to make it satisfactory to the market fundamentalists who'd gone. After Tarshis and Samuelson told us that story. But we can know these things because archives exist.

And sometimes even the people that we criticize are the people that made it possible for us to know that.

David Roberts

Yeah, they don't come across in the book as any of them as particularly bashful or embarrassed about the fact that They're ...

Erik Conway

They're proud of it.

David Roberts

Waging massive propaganda campaigns.

Erik Conway

No, they're proud of it because they believe in what they're doing.

David Roberts

I have another question, which maybe is more philosophical, but this is something I've gone back and forth over the years too, which is at no point from the late 19th century forward, really, at no point ever are any of these business titans who are waging these propaganda campaigns acting consistently according to free market principles. All of them happily welcome subsidies. When subsidies are available, all of them will happily tax their competitors. None of them ever in history have turned down something that would benefit them on the basis of free market principle. So you could make the argument that what's going on here is about power.

They have power and the microphones and the money. They don't even really believe the arguments. So in a sense, the only thing that can counteract that, insofar as you view it as a bad thing, is counterpower. And in a sense, arguing as though sincere ideas are in the driver's seat here is kind of like a bait and switch. I feel like they just laugh when we go off and write arguments and research things and care about facts like they're just playing us. They don't care about the facts. They're just exercising power. How central is the argument to all this?

And how much of it is just a cover for corporate power that can only be sort of restrained by power?

Erik Conway

Well, first off, self interest is fundamental to their depiction of free market capitalism, right? One thing they certainly internalize is that everyone acts in their own self interests, including themselves, and they happen to be in a position to use their power to maximize their self interest, even if it harms others. So you can argue that they are actually acting according to principle. It just isn't a very satisfactory answer, right?

David Roberts

Well, it's not a free market principle, right?

Erik Conway

It's not a free market ...

David Roberts

Principle of self interest.

Erik Conway

Yes, that's right. It's not really a free market principle. So you can see, for example, in the paper of J. Howard Pew, and he's writing to Rose Wilder Lane, the daughter of Laura Ingalls Wilder. He goes through some contortions at times to defend his own or what she perceives to be his own violations of principle because, whereas J. Howard Pew is willing to compromise to improve his standing, in a lot of ways, Lane wasn't, she really was an ideologue. Well, she kind of drives herself out of the movement, in a sense, because she's more extreme than they were and continue to be.

So it gives you an example that there actually were people even inside, for a while, even inside this conservative movement, who were principled and would actually manage to drive themselves away because they wouldn't make those compromises. But they're not the ones that had power, or rather that retained power, as you say, because they were acting in the those that remained were acting more in the interests of power than in pursuit of the free market principles. So, again, I keep saying that there's no such thing as a free market. There's always a regulated market. And it's just how and by whom that we're talking about.

David Roberts

Well, to this day, I think there are like seven true libertarians somewhere in DC. Who are constantly pained by their betrayal by the Republican Party, which is coming up on 150 years now. You'd think they would see the next one coming, but still .. Hi.

Audience Member

So I'm a little bit outside of my element here because I've not read the book, but usually in a big myth, and I look forward to it that you and Naomi arrestes have written what were the little myths? What are the little myths, and can you articulate them that are backing up that big myths? I mean, we can come to our own conclusions, but can you articulate those?

Erik Conway

Oh, they're legion. Well, I kind of told you one. There's the Tripod of Freedom. That's a set of mythologies that the National Association of Manufacturers concoct in 1935. The idea that industrial freedom has anything to do with the Bill of Rights is laughable.

It just doesn't exist there any more than the kind of maximalist interpretation of property rights. My character, Fifield, to give you another example of a myth, tries very, very hard in his campaigns to bring the clergy around to the idea that property rights are sacred, that they descend from God and not from the fifth Amendment to the Constitution, which makes them, if you ever bother to read it, modifiable by act of law, which we can't modify God by active law. So there's another myth. The individualist mythology is another one. And we don't explicitly criticize that in the book.

It's already too big a book. But rugged individualism is another area of mythology that is built into this idea of the free market in the so there are a whole network of sub-myths that go into what they are. What we don't do is we don't make give you a typology, a chart of all the different sub-myths, and we just didn't think about the problem that way. We were trying to tell you partly a story and partly a well evidenced history and less rigorous philosophical analysis, I guess you can say.

David Roberts

Yeah, well, one thing that comes across is you'd like to think there's a marketplace of ideas, speaking of myths, just a marketplace of ideas where ideas compete based on their rigor. But of course, these ideas were at every juncture, very well funded and pushed. And I always thought it's not hard to understand why rich, powerful people in society welcome a philosophy that characterizes success in a market as a matter of heroic overcoming individual effort. I mean, of course, the people who won want to believe that, right? In that sense, it's in a tradition of hundreds of years of mythologies that mainly serve to justify the place of the people in charge.

Erik Conway

Well, so I guess there's two stories built into that question. In the marketplace of ideas, milton Friedman didn't rise to the top in a free market because the Chicago School of Economics program was built on the funding of a foundation, the Voelker Foundation, which was run by a gentleman, by named Harold Luhnow. And it's their money that got the Chicago School's free market program going and supported Friedrich Hayek there at the School of Social Thought ...

David Roberts

Got us into Readers Digest, which I thought was just excellent detail.

Erik Conway

Well, yes, this is the power of money, right? Because not only could they afford to support faculty members for a decade or two to get the free market ideals built into academia, they could spread them through cartoons and so forth. Right. So none of us live in a free marketplace of ideas anyways, because money can boost the ideas that people with money want boosted. And Milton Friedman is a great example of how that came about. So marketplace of ideas? Well, it's a very rigged market, much like General Electrics, electricity markets,

Much like all markets.

Audience Member

You brought up Milton Friedman. So shock therapy, right?

Erik Conway

Yeah.

Audience Member

Right. All over the world, or especially South America. But I wanted to ask you, your historian, I mean, the more you read, you can become depressed. But one question to you about could potentially the reason why there is no thorough backlash or a fight against this propaganda is because a lot of the intellectual stuff that we learn about just they're so wrapped up in the hypocrisy of all the stuff that we've done as a society, including propaganda, capitalism, that they're just, like, useless, that they can't germinate, they can't forment this type of backlash that you're talking about.

David Roberts

Well, your colleague up here, what do you think about that?

Erik Conway

I would say that they would have a hard time selling it here. I'll take back to the idea. Remember I told you this story briefly about Lorie Tarshis being having his textbook suppressed by a propaganda campaign and aimed at trustees of universities and so forth in the 1950s, and therefore Samuelson's textbook becoming dominant. That's an American story, and it largely didn't happen in the rest of the world. So economics programs in Europe are much more intellectually diverse than they are here because that kind of story didn't happen. Right. The rigged market here resulted in one outcome, a very similar thought throughout most of American academics, which is not really so much true in Europe.

Now, the question was about the public. But ideas generally have to come from somewhere, right? And if all the economic departments in the United States basically think the same way then where do the ideas get started? In left wing think tanks. There's not very many of those, as we were discussing earlier. And they start out from a position of less credibility precisely because they're think tanks. Right. There's no independent work on that kind of going on.

David Roberts

No liberal "Little House on the Prairie."

Erik Conway

Well, there's not that either. So I would say to you that part of the problem is you start out with having fewer ideas that can be marketed and then you don't have the infrastructure for marketing them to get the change across that you might want. But again, that's beyond our subject. Other people have written about the think tank world than not us.

Audience Member

I'm curious in your research for this book whether you came across any industries where deregulation and free market ideas actually made a more equitable or efficient outcome. You talked about how the electricity market is not a good market for free market principles but I'm curious whether you researched anything where it did improve it.

Erik Conway

Well, so efficiency is a difficult term because efficiency is often well, the definition of efficiency matters, doesn't it? If you're talking about cost effectiveness, for example it's much more cost effective to buy property in poor neighborhoods or near poor neighborhoods and make them dumps. Right? So efficiency often leads to inequity. And so we don't often see efficiency and equity going hand in hand at least not in the United States. But to be honest, we weren't looking for that because our story was built around a propaganda campaign by people who weren't interested at all in equity. Not at all.

In fact, they discuss and we have a little bit about this in the Christian capitalism chapter they openly discuss the idea that some people really are superior and should rise to the top and equity is simply not equity is not the American way. So following that thread we would never have found what you're asking about. So I hope it's true that at some level you can have relative efficiency and relative equity. But that's not what our actors were talking about.

David Roberts

Yeah, they very explicitly say attempts to improve equity are ipso facto going to suppress economic growth. Like they don't they don't even allow the possibility that you can do both at once. They set them up as being diametrically opposed.

Erik Conway

Yeah, which I actually which I believe, anyways is a fundamental misunderstanding of Adam Smith's capitalism. His basic idea is that the circulation of capital improved everything. But what he meant, I think, was circulation top to bottom. Right. The money has to reach the people at the bottom because that's where most people are and improve their lives and that's what drives the system. If you have the concentration of wealth at the top then it becomes not only less equitable, it becomes a less efficient and less generative economy. But that's me. I think a great many economists don't think in terms of top to bottom circulation of wealth that's more circular in their minds or something, but I don't think that's what Smith meant.

The concentration of wealth strikes me as being less effective long term and it's certainly less stable. I'm sure I've got more questions though.

Audience Member

So it's certainly easy to be cynical about corporations talking about ESG. But overall would you say that the increasing talk about and emphasis on ESG is a bit of a backlash to some of this capitalism and free market mythology? Or is it pure whitewashing?

Erik Conway

Oh, I wish I knew. But being a historian, even the present is blurry to me. It's easier to see the past in a lot of ways, but it seems to me at one level a welcome response to the shareholder value idea in which the company only has the interests of its shareholder at stake. And the EEC movement strikes me as being at least better than that, that there is some other set of interests and values at stake there. I hope it's not all whitewashing or greenwashing rather as the term goes. But like I said, I don't study the present particularly strongly.

So people ask me questions like what are the best companies for environmental things? And I have no idea, none whatsoever.

David Roberts

It's worth pointing out though that as we speak the usual suspects are mounting an enormous very well funded propaganda campaign against ESGs. Specifically like there's Republican states passing laws against it. So it's real enough to cause them to mobilize against, I guess so something.

Audience Member

Yeah. Comment question. Since 1968 I'm looking at the Gini coefficient from FRED database here. It's risen from 38.6 to 49, which is incredibly high measure of inequality. And since that time there's been six different agencies added to the federal government. And you just discussed heavily on we don't have a free market and we have a very strong governmental regulatory capture system.

How do we overcome that? And probably the biggest beneficiary we see today is the world's richest man, Elon Musk. With SpaceX, with governmental money. We've got all kinds of carbon capture systems with these batteries and his new cars. All we doing, we're just handing him money. And isn't government the problem there? I mean you talk about this okay ...

David Roberts

I think we got it. What do you think, Eric?

Erik Conway

Absolutely. We have a less and less equitable society and we don't spend a lot of the book trying to figure out what's at fault there. Personally, I would blame capital gains tax more than just Elon Musk or the expansion of or the addition of federal agencies. Don't get me started on Musk because I have always seen him as being nothing really but a successful harvester of federal dollars and also a really good propagandist, until recently.

David Roberts

He's really off his game lately.

Erik Conway

Yes, he used to be good at the whole fanboy thing, and maybe he still is and I'm just left the family, I don't know. But regulatory capture, real problem.

David Roberts

Can we throw in the Supreme Court removing all limits on campaign, on finance spending, and we throw that in there. If you don't like corporate capture, then.

Erik Conway

That's another again, we don't go there in the book. It's already too big a book. But yes, the equation of money and speech is a whole other level of corporate capture. Right. It doesn't just allow unlimited lobbying spending, but an unlimited political advertising spending. And that just reinforces the propaganda power of things. And I guess I would say back to the original question, I actually don't know how you break the cycle here. It's one of those things where historians can help you diagnose the way the world is, but not necessarily help you fix it. Because I don't know how to undo the equation of money and speech.

I don't know how you build a government that can't be captured somehow.

David Roberts

But I mean, there are governments out there in the world that are more competent, that are less wasteful, that are less captured, like there are better and worse administrative states. So at the very least, you can do better than we're doing.

Erik Conway

Yeah, that's right. And so one of the things we intended to do with the book and ultimately didn't because we decided other people were already writing about it is that the idea that there are varieties of capitalism and Europeans practice much different varieties by and large, than we do and that is wrapped up in the kinds of states they have built, right. And that just takes us back to the idea that there aren't actually any free markets. Markets are embedded in states, they're embedded in particular cultures, and those things can be changed. It's just a question of so what I posed to my audience is the question really is what kind of state versus-slash market do we want?

Because we're the ones that have to choose and then have to figure out how to make the politicians do what we want. And that's a tough road to haul, particularly when we have this basic problem of the equation of money and speech and therefore the richest man in the world gets to decide who gets heard. And by unabout what.

David Roberts

I'll get to your question one second. But I also just wanted to throw in that some of these big states that have huge taxes and robust welfare programs actually have the freest markets, like Finland or whatever. They have fewer regulations on business. They have enormous taxes and enormous redistribution. But the business sector itself is relatively free compared to ours. So we're not even getting the free market we're promised, much less all the rest of it. Alright, final question.

Audience Member

So I'll get historical 60, 70 years back, the straw man of communism gets beaten to death for a couple of decades. And to what role did business, American big business, play in that particular bonfire? Or was there another path? Or was that whole anti-communism deal more of an invention of the wealthy?

Erik Conway

Well, so the anti-communist crusade of the business community goes back well into the 19th century because they were terrified of the communist potential revolution of eliminating private business. So they were always leaders of the anti-communist charge, and they used that as a foil to oppose unionization.

They would use it to oppose they did, in fact, use it to oppose child labor laws because it was taking children away from their families and making them wards of the state and so on. We tell all that story. So it's been that rhetoric, that anti-communist rhetoric has been a big business rhetoric for more than a century. They were fundamental to helping spread that set of ideas throughout the United States for longer than any of us have been around.

David Roberts

Yeah, there's another thing I discovered through the book is how far back the knee-jerk response of socialism goes. They were using that from the jump. I didn't know how recent that was. It turns out that's been all the way through.

Erik Conway

It's been a universal curse. Now for conservatives for more than a century. It's lost, as far as I can see, any meaning or any relationship to what the socialists actually originally wanted or intended.

David Roberts

Alright, last question. Sneak one more.

Audience Member

I mean, there's a lot of corporations that one would argue do a lot of good things. Like Boeing has been a corporation that's provided an immense amount of jobs and pensions, and it's a lot of our economy. And then you could argue that corporations just need regulation by government to be good to create wealth. But I guess my question is, as a historian, what countries in the world have done a better job than the United States on all these things we're talking about? I mean, it's good to criticize all this stuff, and it's definitely lots to criticize, but are there any countries that stand out as an example of what we should be more like?

Erik Conway

Well, first I want to say again, I don't want to come across with the idea that all corporations are bad or that everything corporations do is bad because markets are tools, there are constructs, and they can be very powerful tools for positive things when they're well run. And the second thing I would say is that it's also a mistake to think that government can do everything. Boeing was run by engineers for about half a century and that Boeing did enormously positive things. By and large. I used to study aviation history, and they're still around because actually for a long time, they didn't have a lot of military contracts.

They managed to survive on just commercial businesses, which almost nobody in aerospace did. And that's a positive thing. And as you were saying, help really build this city. Well, that's a whole other story. Well, Boeing bought Douglas or Douglas bought Boeing with Boeing's money or something. Yeah. Anyway, where I wanted to go with that was that I wish we could also talk about corporate culture changing because in what you see in Germany, for example, is the corporations, the corporate leaders don't fight particularly hard against their unions. They have a different, completely different, really set of social contracts there in which they still are very productive and yet they don't have the very hostile labor management relationships that we do.

And that's fundamentally to me about the internal culture of corporations and also what business leaders are taught in business schools and economics departments and so forth. So again, I don't want to convince you that the government is always right or that the government is the only thing that can save us, but there are a lot of changes that that would need to be made, one of which is corporate culture. Another of course is would be a better culture of public service and in the government because a lot of the government either stopped doing its regulatory job like FERC and the California Energy Crisis in 2000, decided, well, it just wasn't going to regulate. And that's a failure of the idea of service, public service too, as well as corporate penetration of companies.

David Roberts

I mean that's a classic example of Enron out there propagandizing for markets and just rigging ...

Erik Conway

Unregulated markets.

David Roberts

... up one side and down the other, like farthest thing from a free market participant you can imagine.

The question was about what about employee-owned corporations.

Erik Conway

What I'd say is a little bit of a dodge of the question because I don't know a lot about the longevity of such companies or what kinds of goods or bads that they do. But what I would say is that again, our study was really of propaganda and we have this idea of private free markets and yet we live in a very mixed economy, as you say. There are not just shareholder owned companies, there are worker owned companies, there are nonprofit companies all over the place. I actually work for one. So that's not the free market mantra we're talking about, is not the whole story of America.

And sometimes we not just Naomi and I, but we all forget that there are other kinds of business and capitalism possible. And that's what I'd say, that there are other opportunities to build businesses that aren't shareholder valued returns to private shareholders.

David Roberts

Alright, thank you everyone. Thanks for coming. Thanks Eric for coming out. Thanks for the book.

Erik Conway

Thanks for coming.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf. So that I can continue doing this work. Thank you so much. And I'll see you next time.

Every year, the Business Council for Sustainable Energy partners with BloombergNEF to produce the Sustainable Energy in America Factbook, a compilation of charts, graphs, and statistics about the US clean-energy industry and where it's headed.

The 2023 edition is out and it shows a record year for investment in clean energy and installations of renewables — alongside record demand for natural gas and record investment in gas infrastructure.

To chat about some of the numbers, I contacted Lisa Jacobson, president of BCSE. We talked about the momentum behind clean energy, the enormous investments uncorked by the Inflation Reduction Act, the supply-chain difficulties that plagued the industry this year, the backlash to ESG investing, and the surge in energy storage.

BIPOC communities are most likely to bear the effects of climate change, but BIPOC-led environmental justice groups are severely underfunded in climate philanthropy. In this episode, Abdul Dosunmu of the Climate Funders Justice Pledge talks about his group’s aim to challenge big donors to give more equitably.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Whether it’s suffering the effects of fossil fuel pollution or fighting back against it, black, indigenous, and people of color (BIPOC) are on the front lines of climate change.

Yet they are starved for resources. More than a billion dollars a year goes toward climate philanthropy, but of that amount, little more than 1 percent goes to BIPOC-led environmental justice groups.

The two-year-old Climate Funders Justice Pledge, run by the Donors of Color Network, is trying to change that. It challenges big donors to a) be more transparent about where their grants are going, and b) within two years of signing the pledge, raise the amount going to BIPOC-led groups to 30 percent.

The pledge, featured in a just-released report from Morgan Stanley and the Aspen Institute on how to increase the impact of climate philanthropy, has already led to more than $100 million in annual commitments to BIPOC-led groups.

I talked with Abdul Dosunmu, who runs the pledge campaign, about why BIPOC leadership is important to the climate fight, how transparency changes the behavior of foundations, and how to improve the relationship between environmental justice groups and big funders.

Alright. Abdul Dosunmu. Welcome to Volts. Thank you so much for coming.

Abdul Dosunmu

Thank you so much for having me.

David Roberts

This is an interesting topic to me with lots of ins and outs, but let's start with just, I'd like to get a sense of what is the pool of philanthropic money available to climate and environmental organizations? And then how much of that currently is going to EJ groups?

Abdul Dosunmu

The Morgan Stanley-Aspen report, that we were honored to be part of, and was just released really details a stark challenge in terms of what the author of the report, Randall Kempner, says is both the quantity of climate philanthropy and the quality of climate philanthropy. So, on the quantity side, according to the report, only about 2% of all global philanthropy is focused on climate.

David Roberts

That's wild to begin with, honestly.

Abdul Dosunmu

Insanely wild. And what's interesting about that, what's hard to square about that is the fact that if you ask philanthropists how urgent the crisis is, 85% of them say it's extremely urgent. So they're talking one game but walking another game.

David Roberts

Right.

Abdul Dosunmu

So, of all global philanthropy, only about 2% is focused on climate. And then of that 2%, only about 1.3% of it is focused on BIPOC-led environmental justice organizations. So if you think about the quantity versus quality framework that Randall has, the Morgan Stanley-Aspen report is really focused on the quantity side of it. The climate funders justice pledge, which I lead, is focused on the quality side of it.

David Roberts

Right. We'll get to that in just one second. I got a bunch of questions about that, but I just want to in terms of quantity, do we know that 2% that goes to climate related stuff. Do we know what that number is? I don't have any sense of scale at all.

David Roberts

Is that a billion dollars? A few million?

Abdul Dosunmu

So our data, and I'm not sure Randall goes into this in the report, but our data is really focused on about 1.3 billion or so of climate funding.

David Roberts

Got it.

Abdul Dosunmu

So we're looking at single digit billions. But we also know that in recent years, frankly in recent weeks, that number is steadily escalating as new Climate Funders come onto the scene with last names like Bezos, and Powell, Jobs, and others. And so we really don't have a solid sense of what that new number is.

David Roberts

Right.

Abdul Dosunmu

But in terms of the 1.3% number that we focus on at CFJP, we're looking at about 1.34 billion of that which was awarded to National Climate Funders. And of that, only about 1.3% is going to BIPOC-led environmental groups.

David Roberts

So that's less than 20 million. Say something in that neighborhood, right?

Abdul Dosunmu

Absolutely.

David Roberts

One other distinction on this is I know that there is giving that gets categorized under EJ activities, which is separate from money actually going to EJ led groups.

Abdul Dosunmu

That's right. So that's a critical distinction, and you've really just jumped in on the core part of the work that I do. We believe that it's important that EJ work is funded when it is BIPOC-led just as much as it's funded when it's not. And currently what we have is a system where EJ work led by communities of color, conceptualizing communities of color is not funded at the same scale that other work might be funded. And the reality of that is that there are deep consequences because as we often say, the communities that are closest to the problem are closest to the solutions, but they're also the furthest away from the resources.

David Roberts

So let's get right into that then. I guess probably a lot of listeners will take this as self-evident, but when you go to big funders, people sitting on big endowments and stuff, and you are trying to make the case that BIPOC-led groups are important to tackling climate change, what's the case? What's the evidence? What do you tell them?

Abdul Dosunmu

Well, we start with a basic concept that says that the climate does not discriminate, people and systems do. And the reason we start there is that we really want to drive them to the data that most of your audience will probably be familiar with around the fact that most frontline communities, the communities that are hit first and worse by the effects of climate change are Black and Brown communities. Most fenceline communities are Black and Brown communities that when it comes to the ways in which this crisis is manifesting itself on the ground and in people's lives, it disproportionately impacts BIPOC communities. So we start there.

That if you're actually interested in mitigating the effects of this crisis, by necessity, you would start with BIPOC communities, right? The second piece is if you're actually interested in shifting the systemic landscape that has led to this crisis, you would start with BIPOC communities. And here's what I mean by that. Power differentials in society is what has created the condition for exploitation, extraction, and pollution. It's the power differentials that have created the foundations of this crisis. It's the fact that certain communities have been politically disenfranchised and subjugated and those are also the communities that have been impacted by environmental exploitation and extraction.

David Roberts

Yeah, I feel like this is an important point because sometimes what you hear from, I don't know that they'll say it publicly a lot anymore, but sometimes what you hear in private from climate people is climate is about emissions. And we should attack emissions, right? We should be lowering emissions. And insofar as you are being distracted by other social, like you're mixing your ice cream of peanut butter or whatever, like you're letting your social issues get involved in your emissions issues, you're just going to be less effective at reducing emissions. I think that mindset still has quite a hold on quite a few people.

So this point that they're linked is important, I think.

Abdul Dosunmu

You said. You don't know if people will actually share it publicly. I hear it almost every day.

David Roberts

So they still do say it publicly.

Abdul Dosunmu

They still do say it publicly.

David Roberts

Right, that there is a sense that you can somehow disconnect the climate crisis from the social and racial inequities that exist in our society, when in fact, the communities that have been the most exploited and the most extracted have been communities that have been denied political voice, right. And they've been BIPOC communities. I often tell the story of a neighborhood in my hometown, Dallas, Texas, called the West Dallas neighborhood. And it's largely Black and Brown, historically has been as a result of housing segregation. And this community was home for 50 years to a lead smelter plant. And this lead smelter plant obviously polluted the environment.

Abdul Dosunmu

It also poisoned generations of young Black and Brown kids growing up in that community. And it was the political powerlessness of that community, it was the political subjugation of that community that allowed that lead smelter plant to operate with impunity for 50 years. And this is the critical point that we make. It was the rising up of that community. It was the mobilization of that community that ultimately booted that lead smelter plant from the community. And so it's important for us to see that these things are linked

David Roberts

Just to sort of restate, the whole problem of environmental pollution generally, including climate, is this ability to basically produce waste and impacts that you don't pay for.

Abdul Dosunmu

That's right.

David Roberts

But you can't do that unless there's some community that's disempowered enough that it can't stop you from doing it, right? I mean, the whole setup relies on there being disempowered communities that have no choice but to accept this junk.

Abdul Dosunmu

That's exactly right. I have a dear friend in the movement, Felicia Davis from HBCU Green Fund, who says we don't just have a climate crisis, we have a power injustice crisis.

David Roberts

Right. And relatedly, I think, another old piece of conventional wisdom, though, this I think has been changing in recent years. But if you go back I've been doing this for close to 20 years now, and if you go back like 15 years, I think the sort of conventional wisdom was climate is something that educated, affluent, White people worry about because they have the luxury and time to worry about it. And BIPOC communities, vulnerable communities, EJ communities have other things to worry about that are more proximate and more difficult and they don't have time to worry about climate change.

And thus those communities are not going to be a big part of a social movement for climate change. And of course, now the data shows that that's wrong, like almost inversely wrong. So what is the level of kind of knowledge and engagement among these communities on the subject of climate change?

Abdul Dosunmu

Well, and this is a key point that I like to make. The first part of that that I would like to deconstruct is this notion that climate is separate from the other issues that impact these communities, right? That in many ways, part of the innovation and the imagination that these communities are bringing to the fight is to recognize the interconnections between climate and housing, climate and labor policy, climate and transportation, right? That they are uniquely positioned to see that climate is connected to a whole range of other systems that decide and define how we live. So that's part of the deconstruction that has to be made.

David Roberts

And you might also say that a White affluent businessman is uniquely positioned to want to not see those interconnections, right? Like there's a lot of incentive not to see them if you benefit from them, basically.

Abdul Dosunmu

Right. There is a desire to focus the fight against the climate crisis on a little intervention here, a little technology here. And the reality is that the crisis is the result of systems that shape how we live. And in order to fight the crisis, we've got to actually change those systems, right? And communities of color are uniquely positioned to be able to understand that and to lead that fight.

David Roberts

And that shows up in the data, and surveys, and polls and stuff. Do you feel like that sentiment, that knowledge is pretty widely dispersed in those communities at this point?

Abdul Dosunmu

Oh, absolutely. I think one of the things that we do at CFJP is we actually look at and profile a lot of the movement work that is happening on the ground in communities. And so we're not just talking at a level of theory, we're talking at a level of understanding the movements that are being led by communities of color. So there is a reason that billions of tons of greenhouse gas emissions are disrupted every year by indigenous organizers. There is a reason that it was the BIPOC-led organizations that pushed President Biden on Justice40, and that conceptualized the New Jersey and California environmental justice laws that preceded Justice40.

There is a reason that the Climate Justice Alliance, for instance, has had a massive impact on shifting away from extractive energy practices. And so it's important for us to see that we don't need a poll to tell us, all we need to do is look at the work and the organizing that is happening in these communities and see the ways in which it is moving the needle on this conversation.

David Roberts

Yeah, and I'll just say, from my perch, my perspective, like, I remember when the climate bill was being put together back in 2008 and 2009, I don't know if you were unfortunate enough to be in this area when that was happening, but EJ was it wasn't absent, but it was clearly an add on, right? It was like an amendment. It was like a thing you stick on at the end as an afterthought. And it's been remarkable to me just to see, over the years, EJ just becoming much more assertive and having a much bigger place at the table.

David Roberts

To the point now that the Democratic, official sort of Democratic Party climate agenda has it right there at the core, and it's included in a lot of these Inflation Reduction Act grants. So it's like night and day in terms of the engagement on both sides. To me, obviously there's a long way to go, but I've seen the change.

Abdul Dosunmu

That's absolutely right. And that change was led by BIPOC-led organizations. And here's why that's important, right? Obviously, you know this better than I do. We're dealing with a movement that has historically excluded and alienated the voices of People of Color. And there are organizations out there that are doing this work around diversity, equity, and inclusion in the environmental movement, right? And the data has never been good. It's always been bad. And here's the core point that we make. I draw an analogy. One of my favorite football teams, I'm a great Texan, I'm a great Dallasite.

So the Dallas Cowboys, what we're doing right now in the climate movement is the equivalent of the Dallas Cowboys finally making it to the Super Bowl but fielding only about a 10th of a team on the field. That's what we're doing right now in the movement. Our best players, our most imaginative players are not on the field because we have historically excluded them.

David Roberts

Let's talk about that. So the Climate Funders Justice Pledge, what is it specifically? What is it asking of large philanthropies?

Abdul Dosunmu

So it's pretty simple, which is not to say that they always receive it as such.

David Roberts

Not easy. Easy and simple are different.

Abdul Dosunmu

Easy and simple are different. But it's pretty simple. It says two things. Number one, it says commit to transparency. So we call on the nation's top climate funders, primarily institutional funders, so we're talking foundations, big foundations to commit to transparency, right? And what that means is we ask them specifically, "how much of your current climate giving is focused on BIPOC-led environmental justice organizations? Not just environmental justice organizations, but BIPOC-led EJ organizations." And we define that very concretely.

We say 50% of your board has to be People of Color, 50% of your senior staff has to be People of Color, and you have to have an explicit mission of serving communities of color. So how much in dollar amounts of your current climate giving is going to BIPOC-led environmental justice organizations? That's a transparency component.

David Roberts

And that information is not available today.

Abdul Dosunmu

It's not easily available. And to be honest with you, most funders have not asked themselves those questions, right?

So one of the things that has been a learning journey for us is actually getting feedback from funders that have taken the pledge. And what they tell us is that for them, the most transformative part of it has been the transparency component because they had never actually looked at the data.

David Roberts

I bet they're not finding out good things, right? They're not pleasantly surprised.

Abdul Dosunmu

No, they're not. In the main, they are not pleasantly surprised. I mean, the data is what it is, right, nationally. And part of what we wanted to do with this pledge is we wanted to make that data available to communities and movements so that they could actually hold these funders accountable, right? And so that the funders who are committed to environmental justice can hold themselves accountable. So it matters that a Kresge Foundation, for instance, says, "you know what, what has been most imaginative about this for us is that it has forced us to go internal and look at our data."

So that matters. And we don't just ask for the data, and hoard it, or put it in a report that we release annually. We actually post that number on our website. So if you go to our website, you can find that number for each of the funders that have taken the pledge. And then we do a whole bunch of media amplification around it because we actually want communities to organize around this data.

David Roberts

What's a typical number, like Kresge or whatever, once they looked, what are they finding?

Abdul Dosunmu

Well, Kresge is actually, they're an anchor pledger of ours, which is great. And I don't want to misquote their number. If I'm remembering correctly, they were under the 30%, probably in the 20s range. And it's important to note that, again, they have had this as a commitment for a very long time. So actually challenging them to, "okay, let's look at the data," has been super helpful for them.

David Roberts

Interesting. Okay, so transparency is step one.

Abdul Dosunmu

Step one is transparency. And I actually looked at the number. They're actually at 33%. Let me give Kresge their credit, they're at 33%.

David Roberts

I'm going to guess that's unusually high.

Abdul Dosunmu

They are one of the leaders in the field, no question about it. It is very high for the pledgers that we have, and they are making continued strides. So the transparency piece is very important because it allows us to have conversations like this one. "Where is this funder? Where is that funder, and how can we hold them accountable to the commitments that many of them have?" Right? So let me just put a pin in this and say after George Floyd, we saw a number of funders make new commitments around environmental justice, around BIPOC communities. And in the couple of years since, we've seen most of those commitments fade into the background, right?

And so this has become a tool that communities can use to actually hold funders accountable to what they say they're going to do.

David Roberts

Got it.

Abdul Dosunmu

And then the second component of the pledge is the 30% requirement. So what we say is after you tell us your number, if you're not at 30% and a good number or not, we challenge you to within two years of taking the pledge to get to 30%. So scale your grant making to at least 30% going to BIPOC-led environmental justice organizations over the course of two years.

David Roberts

Can I ask where 30% came from? I mean, is it just sounds reasonable or is there something more to it than that?

Abdul Dosunmu

You know, if you look at it, BIPOC communities, about 40% of the population, what we said was 30% seems like a good floor. It is not intended to be a ceiling. And what we hope to see is that over time, that number is far exceeding 30%. But at least as a floor, 30% felt right to the networks of movement organizers and leaders that we pulled together to help develop this campaign.

David Roberts

And so this funders pledge has been going on for how long, and what's the state of play? Are foundations signing on? How much money have you shifted? How long has this been running?

Abdul Dosunmu

So you're talking to me pretty much on the eve of our two year anniversary. And so we've been around for a couple of years. And to date, twelve of the Top 40 climate funders have taken the pledge.

David Roberts

Interesting.

Abdul Dosunmu

32 foundations overall have committed to at least one portion of the pledge. And so some of them will say we'll do transparency, but we're not quite ready to go to 30%.

David Roberts

Right.

Abdul Dosunmu

And we accept that because sunlight is the best disinfectant.

David Roberts

Yeah, I think you're right that transparency is the big piece here. It's like that dream where you wake up in school, and you're naked in school or whatever, all of a sudden everybody can see ... that alone, I think is going to create a lot of push.

Abdul Dosunmu

Right. Nobody wants to be at the bottom of the list, right. Nobody wants to be in single digits when everybody else is in double digits. And the ones who are in double digits, like Kresge, they want to do better, right? They want to get more shine. They want to tell their story, more impactfully. And so we offer the transparency piece not just as stick, but also as carrot to those who are doing well in this fight, and want to help us tell the story, and amplify the mission. And so what we have seen is that there is momentum around the pledge.

And we're very proud to say that we have helped to catalyze a new baseline, funding baseline through the pledge for BIPOC-led organizations of around $100 million in the two years that we have been around. But $100 million is really just a drop in the bucket because right now we're seeing, again, as I said earlier, new funders come into the field every single day.

David Roberts

Well, this was my very next question, is do we have any sense of what sort of dollar figure we would be talking about if this succeeded, if all the big philanthropies signed on, and if all the big philanthropies actually did it? Do we have any idea sort of like, what the ultimate pool of money is?

Abdul Dosunmu

So I don't have that hard number, but I can tell you that our campaign has a goal, right? An aim of catalyzing $500 million. So if we could get to $500 million, we feel like we would be radically transforming the possibilities for BIPOC-led environmental justice organizations. But that's going to require that we make the transition, the pivot, from what I would call the legacy funders, right? So legacy funders like Pisces, and Kresge, and Schmidt, and Rockefeller Brothers and Hewlett and ... a number of the ... MacArthur, a number of the others that have Heising-Simon's Energy Foundation, Packard Foundation, a number of those that have taken the pledge.

We've got to make the transition from just those to now some of these more entrepreneurial startup funders in the space, like a Bezos, like a Waverley Street, like a Sequoia.

David Roberts

Have you talked to any of them? I mean, I assume you're reaching out. I guess one of the questions I'm sort of curious about is, is there a big difference in culture that you found between these established groups and the new ones coming in?

Abdul Dosunmu

There is. We are outreaching every day to the new funders. One of the reasons I make the distinction between legacy and entrepreneurial is that when you're a legacy funder, you have deeper roots in communities because you've been funding them for a long time, or at least you've been giving lip service to funding them for a long time, right? And so you're more susceptible to their accountability, right?

David Roberts

Right.

Abdul Dosunmu

You're more accountable to them than a new funder who's coming in, who is somebody who's made a bunch of money in tech and just wants to give it away out of a good spirit and a good heart. But there isn't the same level of connectivity there to communities, and so that has been the biggest challenge. And then the other piece of this is when you're an entrepreneur and you've come in right on the heels of having made a lot of money, a lot of money in business, you tend to think you know how to do things.

David Roberts

What? Tech guys?

Abdul Dosunmu

I know, it's a crazy thought, right?

David Roberts

Yeah. I was going to say I don't want to cast aspersions, or use any stereotypes, but when I think about tech-bros fresh off making billions of dollars like sensitivity to racial justice is not what leaps to mind.

Abdul Dosunmu

Well and they may have the sensitivity, some of them, but they also have the kinds of neurosis that come from having made a lot of money and been very successful, and you think you kind of know everything, right? And so oftentimes they will come into the field and say, "here is what I want to do on climate," and it has no relationship to what communities actually are doing and need to do. That's really probably the biggest culture challenge that we face is that it's both the accountability piece, and it's the part of this that understands that, ultimately, this is a learning experience both for the funder and for the broader field. This is not top down, it's bottom up, and the best solutions come from the bottom up.

David Roberts

As you've talked to foundations, have you received any straight up kind of disagreement about your goals?

Abdul Dosunmu

Well, we mostly don't get that, right. We mostly get, "well ... we're going to work on ... " That's my impersonation. "We're going to work on it, and we're going to see, and talk to us in six months and ..." that sort of thing. But every now and then you do just hear "no, we're just not going to do it."

David Roberts

Right.

Abdul Dosunmu

But generally that doesn't come from a disagreement with the goals or the objectives of the campaign because it's hard to disagree with the goals and objectives of the campaign. It generally comes from a sense of, "you know what, this is just not part of our agenda. This is not what we do, and we're not going to have anybody external to our organization directing our strategy."

David Roberts

Yeah.

Abdul Dosunmu

And so that's generally where most of the resistance comes from.

David Roberts

If you imagine a huge new flood of money descending on these groups, over the course of the next two or three years, you can imagine ways that that could go poorly. That's a big disruptive thing. And one of the things I was thinking about is when you talk to these small groups, often what they'll tell you they need is just operating expenses. Like they need to be able to pay decent salaries, right? Just to begin with. Trying to run a whole movement on underpaid people is difficult, and they need sort of just like cost of living, cost of operations, operations money.

Abdul Dosunmu

Right.

David Roberts

And what you often find, or what they tell me they run into when they talk to funders is, of course, funders are wealthy, and therefore overestimate their own cleverness, and often have their own ideas about what they want groups to do. So I worry, like, is this going to be the right kind of support? And you can certainly imagine a big new pot of money coming with a bunch of sort of big footed demands about how these groups do things, right? Like, you can imagine big funders trying to sort of dictate the strategies of these groups rather than listening and learning from them.

So I don't know how you go about, I mean, I don't know exactly what I want you to say in the switch, but are we confident that this support is going to be the kind of support that these sort of small struggling groups need most?

Abdul Dosunmu

Right. You are really touching on a critical part of this that our campaign is going to be doing more work on. It hasn't been a core part of it thus far because we really see ourselves as the accountability mechanism in the field, but we do think there's an opportunity for us to engage on these questions. So to start, what we really need is a shift in the culture of philanthropy, right? And so part of that shift is a shift in the "philanthropy knows best" mindset. And we've been talking about that. Part of that shift is a shift in the desire of philanthropy to really dictate all of the terms of engagement. And they do that primarily by focusing most of their grant making on program grants.

Right.

And so you might get a grant to run a specific program, but you're not going to get a grant to actually scale your organizational capacity.

David Roberts

Right. This is a notorious complaint from nonprofits across the board from time immemorial, right. They're like, we can get a grant to do a specific thing, but we just need, like, printer paper,

Abdul Dosunmu

Right! "We can get a grant to do a specific thing, but we need to hire people to do the thing, and we need to be able to offer them insurance, health insurance, and we need to be able to keep the lights on in the building." And that is a part of this conversation that, again, we have not touched on, but we see there's an opportunity for us to touch on as we continue to move forward. So those are really the two of the areas where there's room for additional intervention. The other thing I'll say is this. It's a bit of a vicious cycle that these groups are in because they don't get the funding, so they can't build the capacity. And because they don't have the capacity, that lack of capacity is used as a pretext to deny them more funding, right?

So it's a vicious cycle. And now we're in a moment where there's some $500 billion coming down from the federal government, on climate related resources. And a lot of that is sort of focused on, or earmarked on a climate justice lens. And we're happy about that, right? We fought for that, the movement organized for that. But the concern that we have now is that because of this disparity in funding and private philanthropy, many of the organizations that are BIPOC-led, that are going after these grants won't be able to successfully compete because they've been locked out of the private funding, right?

And so a lot of work is being done on the ground, and movements, and organizations to actually try to help organizations build capacity over time to be able to compete for these new dollars that are coming down and to actually be able to fulfill the spirit of Justice40, but we need more funding to do that, and the private funding market is critical.

David Roberts

Yeah. And another thing I've heard from these groups, these are most often pretty small under-resourced groups. And another thing I've heard is that even the process of applying ...

Right ...

For these things, is burdensome, and difficult, and expensive. Like, if you're a two, or three, or four person operation, it's nothing for a Kresge to sort of send someone out to hear your pitch. But for you to make the pitch is a lot of hours of labor which you can't really well afford. And I've heard from groups where they say, they'll come consult with us and ask us how to do better in their EJ funding and et cetera, et cetera, and we make these elaborate presentations and then they vanish and we never hear from them again.

So I just wonder, are there broader ... you could imagine a regime where a big wealthy funder pays some small stipend to a group to offset the cost of consulting, the sort of free consulting they do, or the cost of applying for grants or something like that. And that would just be can you think of are there larger ways that we need to change the relationship between small EJ groups and big funders, beyond just the monetary beyond just giving them money, in terms of just the kind of social aspects and cultural aspects of their interaction? Are there larger reforms we need in that aspect?

Abdul Dosunmu

How much time do we have?

David Roberts

I thought you might have something to say about that.

Abdul Dosunmu

Right. I have the privilege of wearing a bunch of hats in my work.

David Roberts

Yeah, I meant to say, I read your LinkedIn page. I had to take a nap halfway through. You're a busy man.

Abdul Dosunmu

I'm a busy man. I do a lot, and I sit across a lot of different buckets, right. And so on the CFJP side of things, obviously, I'm wearing a bit of a philanthropic hat. We don't necessarily consider ourselves philanthropy, but we're not movement. We're somewhere in between, right. But we definitely wear a philanthropic hat. And then in my other work, I actually lead a grassroots voting organization of Black lawyers and law students. And so on one side of my work, I am challenging funders to do more. And then on the other side of my work, I am living every day the ways in which this system is inequitable toward founders of color and leaders of color.

And so I see this from both sides. Really, I think the first place to start in this conversation is with a conversation. And so typically the exchange between funder and organization is a one-way conversation, right. It's a one-way street.

David Roberts

Yeah. Speaking of power differentials.

Abdul Dosunmu

Exactly. These broader power differentials in society are being replicated in how foundations engage with organizations. "And so you can apply for a grant if we invite you to apply, we want it in this 60-page application format."

David Roberts

And then you get the grant. And like we need a 60-page report every year.

Abdul Dosunmu

That's right, "we need the 60-page report every year. Oh, and by the way, you probably won't get the grant in time to actually do the work you need to do with it because we're going to take our time delivering the grant to you, and you interface with us and interact with us when we invite you to."

David Roberts

Right.

Abdul Dosunmu

That has to change. And so part of the culture change that you're talking about that so many organizations are advocating for, starts with making that one-way conversation, a two-way conversation, and actually listening to organizations on the ground and having those organizations inform your grant making practices, right?

So let me go back to Kresge for a minute. One of the other things that they have said to us has been impactful for them is actually the transformation that the pledge has wrought in their grant making practices, in their day to day grant making practices, and how they engage, and how they interact with grantees.

David Roberts

So that just means they've been learning by doing, they've been learning by interacting with these groups?

Abdul Dosunmu

That's right. That's right. Absolutely. And we've heard that from multiple funders. And so really what has to happen is that the funder has to become a learner, right. And that's what we're pushing through this pledge. We're challenging funders to become listeners and learners and actually hear from the organizations on the ground about what needs to change in their grant making practices in order to be more equitable. And a lot of them are making changes. I think that's really where this starts is the conversation, shifting it from one-way to two-way.

And one of the things, by the way, that we have tried to do is that a number of these funders have said, "well, how do I actually get this data? How do I actually get the demographic data information? How do we kind of navigate that?" And what we have done is actually provide resources for them, so that when they're seeking out this data, they're not creating more layers of burden on these groups, right? So we have tried to incorporate that even into our own program.

Right, so these groups don't have to sort of do another report on our demographic makeup, et cetera, et cetera. So that's a little bit more public. And it also occurs to me I mean, maybe this is even too obvious to point out, but it also occurs to me that it would be nice if these big funders going to these groups were not like 18th century British royals visiting the islands like strangers in a strange land. Like, it might be nice if they were composed if the makeup of the actual big funders changed.

Well, there you go. There you go. I mean, you've made exactly one of the critical points, which is that the work that Green 2.0 and so many other organizations are doing to actually change the makeup of these funders is directly connected to our work. Because you're absolutely right. You should not be visiting these communities as though you're visiting from Mars. You should have people on staff in senior positions who are deeply rooted in these communities, that know the work that's happening, that know the challenges facing these organizations and are directly invested in this work, right? Part of what I have seen in the time that I've been doing this work is that there are so many brilliant folks across the country who are directly and deeply invested in this work, and they are the people who have been laboring in obscurity.

They are the people who've been laboring without resources. And in order for this system to change, the system of philanthropy to shift, part of what we've got to do is bring those voices from the outside in and make sure that they actually have the ability to transform these funding institutions. And that last point is critical because it is not enough to have People of Color faces in high places if they do not have the ability to actually engineer change.

David Roberts

I used to work for a nonprofit. The first journalistic organization I worked for, Grist, was a nonprofit. And especially back when I first started, we were very small. There's like four or five of us. So I became intimately familiar with the grind of begging foundations for money. Luckily, I didn't have to do that part for long, but I saw enough of it. And one thing that just struck me immediately and overwhelmingly is that we were an organization that was specifically targeting young people. We wanted to be sort of irreverent, and funny, and just all these kind of things that appeal to young people.

But the people we're talking to and begging for money are, to put it bluntly, White boomers. They're older White people who are not necessarily who you'd go to to learn about what the youth of today want out of a journalistic outlet, right? And so I wonder if you have gotten any sense that younger people in general are hipper to this issue than their elders?

Abdul Dosunmu

In some ways, yes, and in some ways, no, right. And so what's clear is that younger people just generally understand the climate crisis better than their elders. So we start there, right. You have less of a case to make to younger folks about the urgency of this crisis, but I think it's important for us to be clear that when it comes to age, that does not necessarily portend more enlightenment on racial justice issues.

David Roberts

Yes.

Abdul Dosunmu

Again, I work in sort of the democracy space, and I think there's always this assumption that the younger the electorate gets, the more progressive it's going to get, just because younger people have grown up in more diverse environments. On some level, I think that is true, but I would not want to bet the house on that. And I think we have to continue to be more intentional about cultivating, even among younger people, an understanding of the racial justice implications of this crisis. And so, as a case in point, I was in Miami for the Aspen Climate Conference last week.

David Roberts

Yes.

Abdul Dosunmu

And I did a number of panels during the week, and most of the programming had a climate justice angle to it, right. Most of the speakers referenced it. It was rare that you would sit through an hour long panel, and it wouldn't come up.

David Roberts

Right.

Abdul Dosunmu

But I'll be honest, there were still rooms that I walked into where I was the only Black person in the room. And I don't want to put any blame on anybody. This is not me trying to do that. This is not about assigning blame. But it is about recognizing that even among the cool, hip kids who are invested in the climate movement, that investment in racial justice still needs to be intentionally and actively cultivated. And we cannot assume that it is going to happen by osmosis.

David Roberts

Right.

Abdul Dosunmu

Or that it will happen just because younger people are younger people, right.

David Roberts

Just because the arc of history right.

Abdul Dosunmu

The arc of history is long, but it bends towards justice. I firmly believe that. But I also believe that we have to bend it.

David Roberts

Yeah, there's a reason it bends towards justice, because all the people are working to bend it, right?

Abdul Dosunmu

All the people are working to bend it. And so I think there is more consciousness than ever about climate, and there's more consciousness than ever about racial justice, but we still have to do the work to actually translate that consciousness into action.

David Roberts

Well said. Well said. Thank you. Abdul Dasumo, thank you so much for coming on. This is very illuminating. I'm glad you took the time.

Abdul Dosunmu

Thank you so much for having me. Thank you for the platform. It was an honor to be with you.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much, and I'll see you next time.

In this episode, Dan Lashof of the World Resources Institute discusses the trajectory of biofuels since the early 2000s and the implications of new biofuel standards recently proposed by the US EPA.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

My fellow olds will recall that, back in the 2000s, biofuels were an extremely big deal in the clean-energy world, one of a tiny handful of decarbonization solutions that seemed viable. Biofuels — and the many advanced versions thereof allegedly on the horizon — dominated discussions of climate change policy.

Much has changed since then. Principally, it has become clear that electrification is the cheapest path to decarbonization for most sectors, including the transportation sector. The Biden administration has explicitly put electrification at the center of its transportation decarbonization strategy.

Biofuels, in the meantime, have gone exactly nowhere. Advanced biofuels remain almost entirely notional, old-fashioned corn ethanol remains as wasteful as ever, and new scientific evidence suggests that the carbon costs of biofuels are much larger than previously appreciated.

It's not clear if anyone has told the EPA. For the first time in 15 years, the agency is on the verge of updating biofuels production mandates first established by the Energy Independence and Security Act of 2007, and its proposed standards do not appear cognizant of these recent developments, or of the administration's larger transportation strategy.

To discuss the latest developments in biofuels and the EPA's puzzling blind spot, I talked to Dan Lashof, director of the World Resources Institute. We discussed how biofuels have developed since the early 2000s, the lack of progress in advanced biofuels, and the stakes of EPA's coming decisions.

Alright then. Dan Lashof. Welcome to Volts. Thank you so much for coming.

Dan Lashof

Really happy to be here.

David Roberts

I've been wanting to do an episode on biofuels forever because I often just pause to think, whatever happened to biofuels? Because old people like you and I will recall way back in the day, in the early times, biofuels used to be a very big deal. They used to be the top line item, the sort of the hot subject of conversation, and it's really flipped since then. So maybe just to start, let's use our little time machine squiggly squiggly fingers, time machine, go back to say 2005 to 2010, the early 2000s, and just sort of tell us what was the state of the decarbonization conversation then and what role did biofuels play in it?

Dan Lashof

Right, well, back then, Tesla hadn't built its first car. Photovoltaics cost ten times or more what they do today. And the big fight was to prevent hundreds of new coal plants from being built. So the idea that we would replace gasoline with electricity seemed far-fetched at best. And a lot of environmental advocates were focused on fighting coal. There was some discussion of alternative fuels, but when you looked at the transportation sector, biofuels seemed like one of the best options out there. And then there was this idea, there was a debate about corn ethanol from the beginning, right?

David Roberts

Corn ethanol goes back. I mean, I kind of want to distinguish between corn ethanol and kind of biofuels. The larger category, like corn ethanol, goes back farther than the rest of this stuff. Right?

Dan Lashof

Right, but back then we weren't making much of it, right? So in 2007, there was about 6 billion gallons of corn ethanol being produced, which is about 4% of gasoline consumption back then. And there was a debate about it. A lot of that debate was like about net energy balance. Remember that one?

Does it take more energy and fertilizer and tractor fuel and trucking than is in the fuel? I think that debate sort of missed the point, and it was gradually shifting to, well, we don't really care about BTUs, we care about carbon and what's its net carbon impact.

David Roberts

And I feel like the limitations of corn ethanol were around even then, which is why I remember so much buzz around cellulosic biofuels.

Dan Lashof

Yeah, right. At that time, there was new research that seemed very exciting. I was convinced that that was the future of biofuels. Right. We were going to make ethanol not from grain, not from the corn kernels, but from corn stalks, maybe from some perennial grasses like ...

David Roberts

Switchgrass.

Dan Lashof

Yeah, right. And that was going to be awesome because you wouldn't be competing with food as much, and it was supposed to be cheaper because you weren't ... as waste material or the yields were higher. So that was going to take over.

David Roberts

Yeah. Wow. We were so young then. And so then this is the sort of political atmosphere in which came the Energy Independence and Security Act of 2007, which, among its other sort of puzzling features in retrospect, was a big bipartisan energy bill passed in part to address emissions and I guess just wasn't the poison that it is now, I guess. But so part of that bill was about biofuels and setting those standards. So just tell us kind of what we did about biofuels in that bill.

Dan Lashof

To set the stage. The big political driver really was concerned about imported oil, which was peaking. It actually peaked in 2005, but it was about the same level through 2005, '06, '07.

David Roberts

Right. Because this was before the fracking revolution changed all that.

Dan Lashof

Right. And fuel economy standards for automobiles had been stagnant for a long time. So the bill had three main components. One was reform of the fuel economy standards, actually setting them on a size basis, which allowed the auto companies to kind of accept it, and then setting a target to increase them to 35 miles per gallon.

David Roberts

Is that when the light truck loophole made its way into ...

Dan Lashof

No, that was already there. This was actually designed to help address that by saying it did leave trucks and cars separate, but it said, we're going to base the fuel economy for a manufacturer based on the mix of sizes of vehicles they make. So if they make bigger cars, they don't have to hit the same level, but it reduced the sort of clip effect between a truck and a car. So it actually allowed more of these crossovers, but it also allowed unlocking an increase in the standards which had been stuck. So that was a big component. And one of the things that environmentalists were most excited about in that bill, there was also a set of energy efficiency provisions, appliance standards and other things.

And then the third big piece was the Renewable Fuel Standard.

David Roberts

And did the Renewable Fuel Standard exist prior to this or was it developed for this bill.

Dan Lashof

It did exist. I think it was first passed in 2005, but it was relatively modest. And then in the 2007 bill, well, there was this buzz about cellulosic ethanol. The thought was set a long term trajectory of increasing uses of biofuels and make sure that by 2022, most of that was supposed to be cellulosic ethanol.

David Roberts

Right.

Dan Lashof

So the standard ramped up to 36 billion gallons of total biofuels by 2022. That was the target of that 21 billion gallons was supposed to be advanced biofuels, either cellulosic ethanol or other biofuels made from something other than corn.

David Roberts

Right. And this suffice to say did not happen. It did not play out that way. So maybe sort of take us forward from 2007 to what happened to actual production of actual biofuels. Like how has the industry developed in the 15 years since then?

Dan Lashof

Well, so the corn ethanol industry grew as expected up to about 15 billion gallons which was sort of what it was supposed to be capped at subtracting 36 - 21 is 15. So that was what corn ethanol was supposed to provide. Right, they did that. Cellulosic ethanol not so much. The actual gallons of cellulosic ethanol produced in 2022 were zero. Literally zero.

David Roberts

Wait, say that, say again.

Dan Lashof

There was no cellulosic ethanol produced in 2022. There had been a couple of demonstration plants, none of them were actually operating in 2022. There was a little bit of what was considered cellulosic biofuel, about less than a billion gallons of biofuel equivalent. That mostly came from landfill gas, which was considered cellulosic. Because ...

David Roberts

Weird,

Dan Lashof

Most of what's in a landfill is woody stuff that's decaying and making methane. So if you capture that and use it in a CNG vehicle, that's considered part of this.

David Roberts

But the whole infrastructure of wild hopes about switchgrass and waste products and all of this, it came to literally nothing.

Dan Lashof

It came to literally nothing so far. Now, there's still some true believers, it's still right around the corner, kind of like. But the thing that did happen and there's about 5.6 billion gallons of the total biofuel produced in 2022 is something other than corn ethanol.

David Roberts

What is that stuff?

Dan Lashof

Most of that is bio-based diesel and that's a couple of different things. So some of that is from waste oils. So like used cooking oil.

David Roberts

Yes. I remember so much talk about used cooking oil.

Dan Lashof

So there's a little bit of that, but a lot of it is biodiesel or so called renewable diesel made from oil crops like soybeans or palm oil, which is imported and a huge problem or other oil crops.

David Roberts

Now, are those in the renewable fuel standard like or do those have a category of their own in the, in the standards?

Dan Lashof

There is a category of bio-based diesel. It's required to produce a billion gallons in 2022, and it exceeded that. But it also counts as part of this larger advanced biofuel category.

David Roberts

Yeah. You mentioned before the call that in terms of land use, that biodiesel is now rivaling corn ethanol.

Dan Lashof

Yeah, this actually shocked me when I looked into it. So we use about 30 million acres of land to produce corn that goes into making ethanol. We use another 30 million acres of prime US farmland producing soybeans that goes into biodiesel wild. And we hear much less about that, partly because it actually produces much less fuel. It's overall much less efficient.

David Roberts

Oh, the diesel process.

Dan Lashof

Yeah, it takes a lot more land per gallon of diesel than you get per gallon of ethanol because corn is not that great. No, corn is not great, but the biodiesel is even worse. And when you think about the global market for oil crops so palm oil, for example, is a major driver of deforestation around the world.

David Roberts

Right.

Dan Lashof

And that's totally fungible with soybeans and canola and other oil crops. So if we're diverting soybeans to make biodiesel in the US. That means somebody else is probably producing palm oil and may well be deforesting the rainforest to do it.

David Roberts

So the amount that was set for advanced biofuels in 2007 for 2022 just isn't being met. It's not as much biofuel as that legislation anticipated.

Dan Lashof

Yeah, so the law allowed EPA to waive the requirement if it determined that the supply just couldn't meet the number and set a level that they concluded could be met by the industry. And so that's what they've been doing consistently every year for the advanced biofuels requirements.

David Roberts

I guess I knew on some level that things had not panned out the way we hoped in 2007. But the notion that the whole hype about advanced biofuel came to literally nothing and all we basically did is just keep growing corn ethanol and biodiesel like we were before, with all the flaws. I mean, we already knew about the flaws, some of the flaws then. Speaking of the flaws, tell us about what we — insofar as you can I'm sure there's a lot, and it's difficult to summarize — but tell us what we've learned about the environmental and carbon impacts of biofuels that we didn't know when we passed this law in 2007.

Dan Lashof

Well, I'd say there's two main things. First, we know that there's a much better way to eliminate emissions from passenger vehicles. So, like I said, we didn't really believe, at least I didn't really believe, electric cars were going to be a thing back then. Now, that's clearly the way we get rid of emissions from the road. And if you do the calculation, it takes 300 acres devoted to corn ethanol powering an internal combustion engine car to move it as far as one acre of land dedicated to solar photovoltaics, to power an EV 300 to 1. And we can put solar farms in the desert and not just on actual farms.

So it's just like a completely different landscape in terms of what are the pathways.

David Roberts

Yes. And as I point out to people, solar has only gone in one direction and cellulosic biofuel has also only gone in one direction, which is nowhere. At a certain point, you got to learn from trajectories.

Dan Lashof

So that's the first thing. There's a much better way. The second thing is, I think the key conceptual shift is really, and it hasn't been incorporated into policy yet, is that land is scarce. We need to focus on the overall use of land and not just land use change. So the way I think about this is if we want to achieve net zero emissions globally by 2050 and feed 10 billion people and protect biodiversity, how do we optimize the way we use land to do all of that?

David Roberts

Right.

Dan Lashof

And if we dedicate an acre to producing biofuels, we can't use that same acre to have an old growth forest that is storing carbon in the trees and providing biodiversity.

David Roberts

Right. So for any given acre of land, if you use it for one thing, part of the cost is the opportunity cost of not using it for something else that would have absorbed more carbon.

Dan Lashof

Yeah, exactly. And of course, the opportunity cost is a pretty familiar concept in other contexts. Right. We know that if we spend $1,000 on a vacation this summer, we can't invest that money to pay for travel when we retire.

David Roberts

Right.

Dan Lashof

But for some reason, that it hasn't really been built into the way people think about land. I think there's still this notion that there's going to be a lot of spare land out there, we can reclaim land, but when you do the math, it just doesn't add up.

David Roberts

Well, about the math, though, how confident are we that we know and understand all the ins and outs? Do we have a ranking of land uses by carbon absorption? Do we have a clear sense of that ranking?

Dan Lashof

I mean, I think that's a good question. So if you've got a old forest, the best thing to do from both a carbon point of view and a biodiversity point of view is protect it.

David Roberts

Right.

Dan Lashof

Keep the carbon in the trees, keep the birds and bees flying around. And anytime you use land for something other than feeding people, it's going to put more pressure on those remaining old forests. So that's one way to think about it.

David Roberts

Right. Because I'm thinking all these land use arguments, as you well know, are frequently deployed against renewables as well. There's an opportunity cost for food production. There's even some people who say there's an opportunity cost, like whatever, put a nuclear plant, get more power for less area. There are opportunity cost for putting mirrors. So this question of the highest, best use of land from a purely carbon perspective cuts a lot of ways.

Dan Lashof

Yeah, that's true. And we have not really done a full kind of optimization of land use for achieving decarbonization. That's something I'm actually hoping to work on over the next couple of years. I think it's badly needed. There's some work that's been done that points in that direction, but not a fully integrated analysis. But to give one example, yes, there are issues around land use for renewables and certainly legitimate conflicts over how people want to see their community or their landscape look. But NREL did a study of what it would take in terms of land to get to 100% clean electricity grid by 2035, which is the Biden administration goal.

And they looked at the total amount of land that you had to dedicate to wind/solar transmission lines. That amount is smaller than the amount of land we're using for biofuels today. And those biofuels are supplying less than 10% of our transportation energy. So there's no comparison in scale.

David Roberts

Yes. Got it. So even if we don't have perfectly tuned, fine-grained distinctions here, there are plenty of crude distinctions we can make. Some of the cases are obvious, more obvious than others. And so given this new way of seeing biofuels, this sort of opportunity cost of lands carbon opportunity cost, and I assume we probably learned more stuff about biofuels in the interim in terms of the amount of energy in versus out and all this. So how do biofuels look now relative to how we thought about them then? I'm going to guess that based on our new knowledge, they look worse.

But how much worse? Like corn ethanol, for instance.

Dan Lashof

Yeah so ...

David Roberts

Not good. Not good.

Dan Lashof

No, I mean in terms of energy in versus energy out, actually, the ethanol industry has gotten more efficient. If you're ignoring the land problem, it's starting to look, you know, it looks okay. I mean, it doesn't get you to zero by anybody's calculation. But if you ignore the land issue, 30-40% reduction relative to gasoline is plausible. But once you take the carbon opportunity cost of land into account, then anytime you're dedicating an acre to grow fuel rather than either food or forests, you're going to lose. And you're going to lose it's not close it's by factors two, three or more.

David Roberts

That's true of any crop, any kind of fuel across the board.

Dan Lashof

Yeah, just because that opportunity cost is so large.

David Roberts

Interesting. So let's take this knowledge then and gallop here into 2022, I guess we're in 2023 now.

So tell us first of all, why is EPA revisiting these standards? I guess they decided in 2007 that they could see exactly 15 years into the future of biofuel demand, but no further. Was it always built into the law that 15 years, and then we'll start revisiting it.

Dan Lashof

Exactly. So Congress specified exact volume targets for every year through 2022. And again, it gave EPA the ability to adjust those if it concluded it wasn't feasible, which is what they had to do on the advanced biofuel side. But starting in 2023 ...

David Roberts

Wait, can I pause? Before we get into the change in the line, I want to ask one question about the volume thing, because it also strikes me as kind of crazy, like how gasoline performs with ethanol in it. Depends on the level of ethanol in it, right. The percentage of ethanol. And there's been a lot of arguing about how much ethanol you can blend into gasoline. But if you're specifying volumes of biofuel, you can't specify volumes of total gasoline demand that's going to fluctuate out of your control. So if demand goes way up, then the same volume looks like a smaller percentage, and if gasoline demand goes down, then the same volume looks like a larger percentage.

David Roberts

It just seems like specifying volumes is a bizarre way to approach this question, especially 15 years in advance, when you have no idea what total demand for gasoline is going to be. So you really have no idea what percentage of the total these volumes are going to be. Am I crazy, or is that just a weird way to approach this issue?

Dan Lashof

That's correct. What EPA actually does under the law when they set the targets, is they look at the volume target. They project how much gasoline will be consumed, and then the actual requirement on refineries is a percentage. So they convert the volumes into percentage when they implement it. But they've only been doing that sort of one or two years in advance. Or actually, sometimes they get to the end of the year, and then they do it looking backwards, which is a little weird, too. So then in a year like 2021, when the Pandemic shrunk demand for gasoline, it was actually the percentage requirement that was binding, and the volume was much less than what EPA had originally projected.

So that's how they implemented. But it's still a strange way to write the law. I totally agree with that.

David Roberts

The reason I ask is, it seems to me, sitting here in 2023, that the next 15 years of gasoline demand are even more difficult to forecast than they were in 2007. There's more going on. There's more forces converging from different directions. There's a lot of it's a really open question. So if you're specifying a volume, that just seems crazy. Are they doing that again? Are they going the volume direction again?

Dan Lashof

They are, but again, they convert it to percentage, and they're only looking three years. Their current proposal looks three years in advance, not 15 years in advance.

David Roberts

Got it. Okay, well, let's back up. Just tell us what's going to happen. What is EPA doing in 2023 about this? Now that these original volume standards are over, the time period is over, what's EPA going to do?

Dan Lashof

Right. So EPA has this broad discretion now, and so they proposed a rule to set the volume targets for three years, 2023 through 2025. But they basically ignored all these changes that we've just been talking about and sort of blithely went forward as if nothing has changed. And they've proposed to increase the amount of biofuel required each year, not by a huge amount, but by some. And they've said, okay, the amount of conventional corn ethanol that would be implied by these requirements is going to stay constant at about 15 billion gallons. But because of what you said, that's a huge problem.

Right. So if we're actually on a trajectory to meet our climate goals, we've got to electrify the fleet. And that means gasoline consumption over the next 20 years should go down by about 80%, according to at least some scenarios. So the current standard gasoline is blended 10% ethanol, and 15 billion gallons is already more than you can absorb at 10% of current gasoline demand.

David Roberts

Is that true? What happens if there's too much if there's too much corn ethanol and you can't blend it all in? What do they do with it?

Dan Lashof

So some states allow up to 15% ethanol.

David Roberts

Right.

Dan Lashof

And the original theory was we were going to have flex fueled vehicles that would use 85% ethanol.

David Roberts

You still see those around sometimes.

Dan Lashof

Yeah. The auto companies got credit towards meeting their CAFE standards.

David Roberts

Right.

Dan Lashof

Producing those even if they never saw a drop of E85, right. So there are a few of those vehicles around, but they're just using 10% ethanol or maybe 15% ethanol, depending on where they're fueling up. So you can maybe absorb a little bit more than 10%. But basically, by setting the requirement at a level that is more than 10% of gasoline demand, what EPA effectively has done is forced more biodiesel, because that you can substitute for diesel in the freight sector. And as we discussed, that's even worse than corn ethanol.

David Roberts

Well, you mean because they're holding corn ethanol steady and increasing the overall amount of biofuels, and we now know that cellulosic is going to be 0% of that, then all the remainder has to be biodiesel, doesn't it?

Dan Lashof

Most of it will be. I mean, again, there's some what's called renewable natural gas. So if you harvest landfill gas or dairy digesters, you can produce some fuel that way.

David Roberts

But most of the increase will come from biodiesel.

Dan Lashof

Most of the increase is biodiesel. And again, the way the law is written, it doesn't actually specify corn ethanol. It specifies conventional biofuels. So you could use biodiesel to satisfy part of that. Right. Now, this is the so called 10% "blend wall", ethanol "blend wall". That's about 14 billion gallons.

David Roberts

Got it.

Dan Lashof

And it's going down every year.

David Roberts

Wait. why?

Dan Lashof

Well, because gasoline consumption is going down.

David Roberts

Right?

Dan Lashof

And it's already going down because cars are getting more efficient under the fuel economy standards, particularly the ones that the Obama administration promulgated. And as we get more and more electric vehicles on the road, it's going to go down faster.

David Roberts

Given what we've learned about biofuels and given how they performed since 2007, what on earth is EPA doing? I guess I'm just wondering, what are the political forces, as you see them, that are pushing to keep this Frankenstein alive when it basically looks like we should just we'll talk about future uses for biofuels later and there might be something to that. But in terms of shoving corn ethanol into gas tanks, it just seems like the whole enterprise is kind of silly. So what's keeping it alive? What's propping it up? Because EPA looks like they're just, like, going forward, like you said, as if they've learned nothing.

And yet we know they have learned stuff. So what is going on? I guess I'm asking.

Dan Lashof

Well, I think there are a couple of things. Obviously, politically, you have this now incumbent ethanol industry. Companies like ADM that make a lot of money making ethanol, and they're in Midwest states that don't necessarily have a lot of people, but have two senators each.

David Roberts

But are no longer going first in the Democratic primary lineup. I wonder if that's going to change anything.

Dan Lashof

It may make a little bit of difference, but Iowa is not the only state. It's not the only state where ethanol is produced, so they still have a lot of sway. Also, I think that this idea of the carbon opportunity cost of land really has not been absorbed by policymakers at this point. So there's still, in their minds, an active debate about, oh, maybe it's 20% better than gasoline, maybe it's 40% better than gasoline. There's some studies which say that it's a little worse than gasoline, but there hasn't been an acceptance yet of this view of land as fundamentally scarce and something that you really have to be much more intentional about how you use it.

David Roberts

Well, the ethanol lobby is obviously one thing, and of course, corn state senators are, of course, one thing. I think you and I will recall when John McCain was running, what was it like the first time he ran? He was very bravely standing up against ethanol and then just got pilloried and caved on it later, as I recall. Am I making all that up? It's had such a grip on politics.

Dan Lashof

Yeah, that sounds right. And certainly I think both Obama and Clinton who were running in the primaries during the time the 2007 bill was written, were staunch supporters of ethanol. So, yeah, there's been this bipartisan support for it across the board. One notable exception has been Senator Diane Feinstein of California has always rallied against ethanol.

David Roberts

Interesting.

Dan Lashof

But to no effect.

David Roberts

And what about fossil fuel companies? Like, where are they on this whole thing? Where are they throwing their influence?

Dan Lashof

Historically, they opposed ethanol mandate. They were kind of outmaneuvered when the RFS was first done because you had both environmentalists who supported the overall law, whether they focus on the RFS or not because of the fuel economy standards and kind of the farm state senators and representatives supporting it because of the ethanol piece. So that's actually a fight they lost. Now it's a little challenging because both the fossil fuel lobby and the ethanol industry feel threatened by electric vehicles. And so there are cases where they're actually teaming up to fight electrification, which is definitely a toxic mix.

David Roberts

And isn't there some overlap of plastics and biofuels now that the fossil fuel industry might be? Because I know fossil fuel industry has big hopes for plastic to help them survive in a post fuel world. Isn't there some sort of like biofuels made out of plastics? Or am I groping here? What am I talking about?

Dan Lashof

Well, there are ways to make plastic substitutes from biomass. So you see some compostable forks that are made from cornstarch, for example. I don't think a big market compared to the ethanol market. So I don't know that that's a big player. I think from the fossil fuel industry point of view, they definitely are looking at plastics as their get out of jail free card. As oil demand for automobiles goes down, they're looking to divert both natural gas and petroleum into a huge number of new petrochemical plants to produce plastics and other things. So yeah, that's a real issue.

David Roberts

But returning to here to Biden so there was never, I guess, really a road through biofuels to zero carbon. I mean, maybe people waved their hands at it like super-future cellulosic, whatever, but in the 15 years since, we have not progressed down that road, hardly even a single step. And yet here the EPA is sort of acting like, yeah, that's still our thing on transportation. We're still going to labor away at biofuels and try to sort of marginally reduce the impact of gas. Meanwhile, you have over on the other side of the Biden administration, Biden himself the bills he's passed, his own transportation secretary on and on, being very explicit that their transportation strategy is electrification. So why isn't the right hand talking to the left hand here? What is this Janus-faced transportation strategy?

Dan Lashof

Yeah, it's a huge disconnect. I mean, right as EPA was proposing this renewable fuel standard continuation, the administration published a transportation decarbonization strategy which, as you said, absolutely focused on electrifying certainly all the passenger cars for freight. It's some combination of battery trucks and hydrogen fuel cell trucks. The one place they point to biofuels and we can talk about this more is with respect to aviation fuel.

David Roberts

Yeah, I want to get to that. In a second because that seems like a big piece of this. But just in terms of, well, a. why? I guess no one really knows why. I mean, maybe it's just path dependence, maybe it's just lobbying, maybe like EPA is not meeting with Pete Buttigieg enough. But what would you recommend, what would WRI recommend that EPA do in this situation if it had read its own administration's transportation plan? What would renewable fuel standard setting look like in light of sort of sane response to Biden's electrification push?

Dan Lashof

Right. So it's important to point out that right now we have a proposal from EPA. It's not a final rule. And so part of what we're trying to do is point out this disconnect between this proposed rule and the rest of the administration's climate strategy and transportation strategy. So hopefully it'll have an impact. We'll see. So what we recommended is setting much lower volume targets for renewable fuels going forward that are based on the amount of fuel that you can produce from biomass waste. So this is the key distinction that we're trying to make. It's one thing, the carbon opportunity cost, if you're dedicating an acre of land to produce biofuels, is high.

But there are some genuine waste resources and a lot more work needs to be done to figure out how substantial they really are. But they're not 36 billion gallons. But there are certainly significant amounts of things like corn stover, which is what's left over after you harvest the corn. You've got wheat hulls, in orchards you trim them every year, so there's woody biomass there, there's waste in the pulp and paper industry that they currently burn to make electricity, which there's much better ways to make zero carbon electricity. So there's those resources and then there's this huge amount of biomass which is starting to be pulled out of the Western Forest to reduce the risk of catastrophic wildfires.

And what happens to that now is mostly it's either left to decay at the edge of the forest or it's actually burned in a pile.

David Roberts

Either of those produce greenhouse gases, don't they?

Dan Lashof

Right, exactly. Well, you're taking carbon that was in the forest, but that had the risk of going up in flames at any point and turning into CO2. You're kind of speeding up the conversion to CO2, but hopefully reducing the risk of catastrophic fires. You look at what would happen to the biomass if you didn't use it for biofuels. And if the answer is that carbon was going to go back into the atmosphere quickly, that's a biomass resource that it makes sense to use.

David Roberts

So WRI's recommendation is that basically standards be required or volumes be required only for waste biofuels?

Only for volumes that could be produced with waste biofuels. And that essentially the conventional corn ethanol should not be viewed as achieving any greenhouse gas reductions. Now, it's important to say that doesn't mean that the ethanol market is going to disappear overnight.

Yeah. I was going to ask, are you here proposing that we basically abandon both the corn ethanol and the soybean-biodiesel markets? Because I would be all for that, but those are big, powerful players. It's not a small thing to propose abandoning them.

Dan Lashof

Yeah, well, this is definitely not going to be an easy push right. To the administration, for sure. But I think it's really important to lift up farmers in this transition. So if we eliminated the Renewable Fuel Standard overnight, the gasoline suppliers would still probably and according to EPA's analysis, they would still blend 10% ethanol into gasoline because ...

David Roberts

Really? Why?

Dan Lashof

Well, they need it to provide oxygen and octane. So one of the other factors that we haven't talked about that was going on during the early 2000s is gasoline used to contain this thing called MTBE.

David Roberts

Right, I remember.

Dan Lashof

Which was the way in which they got octane, and that created a lot of groundwater contamination. California banned it in 2002, new York banned it in 2004, and other states were moving to ban it. And so the sort of chemical function that MTBE was playing in gasoline got replaced by ethanol.

David Roberts

Got it. So they do need some kind of additive?

Dan Lashof

Yeah, there may be other things out there, but I think for now the expectation is they would still blend 10%, which would mean as we phase down gasoline consumption, as we electrify vehicles, a gradual phase down of ethanol demand.

David Roberts

Of course.

Dan Lashof

But not an overnight elimination. So I think that's the first thing to note. The second thing to note is US farmers in particular are really good at growing food. And we need that food. The world needs it more than ever.

David Roberts

Right. Isn't global food demand supposed to double? That's the statistic I always see by 2040 or 50 or whatever.

Dan Lashof

Yeah, I mean, you got a population that's going to go from about 8 billion to about 10 billion. But then also as people get richer, they eat more meat, for better or for worse. Often for worse. But in low-income countries, actually increasing protein consumption is important from a health perspective. And that means you need more animal feed. So the total amount of grain that's needed goes up by much more than the population.

David Roberts

So the contention here is that farmers would be okay if we abandoned or started ramping down our current biofuel production. Farmers would not simply be cast out onto the street.

Dan Lashof

I mean, I think this needs more work to look at what that transition is like. But like I said, corn prices right now are very high. The renewable fuels mandate probably contributed some to that, but corn prices have also been very volatile and that volatility didn't go away with the Renewable Fuel Standard. So being a farmer is still really tough and we need to recognize that. I think we have to look at a whole range of alternative or complementary income sources that we need to boost the rural economy. And that can include wind and solar revenue, right.

And it can include using biomass waste like corn stover to produce hydrogen or other carbon benefits, which we can talk about more. And then there's an opportunity to increase fertilizer production more locally using clean hydrogen. Right now, all the fertilizer that's being used, almost all of it in the US. Is being produced from natural gas, and then this CO2 just goes into the atmosphere. So if you've got sources of clean hydrogen, whether it's from electrolysis using renewable electricity, or if it's from biomass waste with carbon capture, one thing you can do with that hydrogen is make fertilizer that could be more distributed than the big fossil fuel based fertilizer plants that we currently have.

David Roberts

Interesting. And so when you say EPA should set volumes based on what can be met with waste, what does that mean numerically? Like, right now? It was 36 billion in 2022. Is that right?

Dan Lashof

That was the original law.

David Roberts

Right. And they're proposing for 2025.

Dan Lashof

Less than that, let's see, because, yeah, we never got to 36, we got to 21. And they're proposing a modest increase from that. And we're talking about the waste being more on the order of less than 10 billion gallons.

David Roberts

So, ballpark, you're recommending that they cut the volume requirements for biofuels roughly in half, or a little bit more than in half, down to what could be met through waste?

Dan Lashof

Right.

David Roberts

And aren't you also encouraging them to use a shorter time period, shorter than three years?

Dan Lashof

Right. Well, in general, I think having a little bit of a runway setting a standard for several years out makes sense. But in this case, what we said was, look, things have changed since 2007. You really need to rethink this policy and how it fits into the administration strategy. So to give yourself some time to do that rather than setting a target.

David Roberts

They had 15 years. This is what's bizarre about this. It's like they woke up yesterday morning, they're like, oh, we have to do this thing again. None of this stuff is a secret. What we're talking about, the biofuels performance, is not a secret. It's weird to me that they seem to be kind of sleepwalking into this.

Dan Lashof

That's a fair point. I don't have an explanation for that. But given where we are, we thought one of the things that we could suggest to give the administration a little more time to rethink this would be to start with only one year standard, and then hopefully the next phase, they would more fully account for the changes, particularly in electric vehicles going forward.

David Roberts

Is it in law that they have to set standards every so often, or is this going to be like setting new standards every year or two years or three years forever? Or how does it work going forward?

Dan Lashof

They have to set standards for each year, but they can choose to set it for one year at a time, or three years at a time, or five years at a time? That's up to the EPA at this point.

David Roberts

A slight side question, but I would like a little bit of international context here. Like, are other countries that have been sort of doggedly pursuing biofuels all this time, despite all the trends heading in the other direction, are they a big dominant industry? And question in other countries, what's the international take on biofuels right now?

Dan Lashof

Well, the one country that has probably the most significant ethanol industry other than the US is Brazil.

David Roberts

Right.

Dan Lashof

And they make ethanol from sugar cane, which is more efficient than corn. But I think it's still subject to similar carbon opportunity cost problems.

David Roberts

Do you think it still fails the land test?

Dan Lashof

I think so. I haven't actually done that calculation, but I think it's a similar issue. And then the other issue where biofuels are used not for transportation, but there actually have been a significant part of the European renewable mandate.

David Roberts

Yeah, biomass for electricity, right?

Dan Lashof

Well, yeah, electricity and co generation plants. So they're using wood pellets, some of which come from the US southeastern forest. A bunch of them come from Romania. Scientists have been raising concerns about this for a long time.

David Roberts

That's very controversial, too, right? Biomass in Europe's standard.

Dan Lashof

Right. And they've been supposedly tightening their requirements so that it's supposed to be like waste. So if you talk to the wood pellet industry, they'll say, oh, no, we're not harvesting trees, we're using these biomass waste. But there was an investigative report a few months ago that looked at Romania where it's very clear that biomass pellets that were labeled as coming from waste were actually big trees that had been harvested and chopped up. So there's a huge problem there.

David Roberts

Interesting.

Dan Lashof

This all comes back to this unfortunate notion that biomass is inherently carbon neutral, because after all the carbon in the biomass that came from the air through photosynthesis so putting it back to the air, that shouldn't be a problem.

Right. But the problem is, of course, that's true of fossil fuels also, right?

David Roberts

True.

Dan Lashof

There's a time issue that you have to take into account. And so this notion of the carbon-debt, if you harvest forest to produce energy, has not been factored into a lot of these standards.

David Roberts

It sounds like over there, it's probably more of a forestry-industry shenanigans thing than a farming industry shenanigans thing.

Dan Lashof

Yeah, it is. But then I think around the world, there's also various places where biodiesel is being used and promoted through policy, where you've got a palm oil industry in Indonesia, for example, and other places where that's been promoted. So there is a global aspect to this that also needs a lot of attention. And I think what the US does sets a precedent that other countries look to. So it's another reason why we really have to get this right, but nobody.

David Roberts

Else is dumping corn into gas tanks specifically.

Dan Lashof

Not at these volumes, no.

David Roberts

And really, why would you? Okay, I wanted to leave a little bit more time for this, but just sort of by way of wrapping up. I think we can agree, for reasons we've discussed, that biofuels in personal transportation are silly. We're electrifying, we're on the way, there's just no point anymore in — I guess you could make an argument for gas. Cars are going to be around a while longer and at least you can marginally reduce the impact of gas. But given what we know about the carbon opportunity costs and all that, it's not even clear that's helpful.

So in personal transportation, biofuels are silly, I think, but there are, as people are constantly saying, areas we don't know how to decarbonize yet. And so I wonder if you were sort of canvassing, what are the plausible positive uses of biofuels in the world? We're heading toward a decarbonized world. What are they still good for?

Dan Lashof

Right, so I think there's a couple of use cases that could make sense, but again, really depending on taking the carbon opportunity cost into account and really focusing on waste feedstock. So one is aviation. Of all the sectors that people have said are hard to abate, aviation really is hard to abate. And I don't think we know what the long term answer is there, but certainly whatever biomass resources we have that are truly beneficial to use for fuel, replacing jet fuel with so called sustainable aviation fuel, that's one possibility that could make a lot of sense.

David Roberts

Pausing on that, I mean, I saw a calculation on Twitter, so take this for what it's worth, but if you're comparing the volumes necessary to, say, replace 10% to 15% of gasoline volume and the volumes necessary to replace total aviation fuel volume, they're not way off from one another. So in other words, if biofuels really, if we're really setting out to replace all bunker fuel, not just jets use, but has other uses too, with biofuels, that's going to be a lot of biofuels still.

Dan Lashof

That's right. And I don't think there's enough waste to supply the whole aviation sector, but it can supply a meaningful part of it. So that's one use. What we do with the rest of the aviation ...

David Roberts

Fly less, Dan.

Dan Lashof

Fly less. That could be a thing. I don't know that that's very likely, but it would be good. They're short haul aviation. There's electric planes, which ...

David Roberts

Trains!

Dan Lashof

... really cool. Trains would be a lot easier for short haul. And people are talking about hydrogen. I don't know if that's going to be a thing for aviation. The solution there, quite frankly, might be that's the one place left where you would actually burn petroleum and then compensate for those emissions with direct air capture.

David Roberts

Right.

Dan Lashof

I don't love that solution, but right now I don't have a better answer for aviation. So that's a tough one. The other thing for biofuels, and this figures prominently in a lot of decarbonization scenarios, such as the Princeton Net-Zero study is making hydrogen by gasifying biomass and then capturing the CO2. And if you put the CO2 underground, the net effect could actually being a negative emission fuel.

David Roberts

Right. It's similar to BECCs. Right. Similar to burning biomass.

Dan Lashof

Right. It's a form of BECCs. But instead of making electricity, where we have lots of options of better ways to make electricity, if you make hydrogen, you're competing with electrolytic hydrogen, which in the long run is probably cheaper. But if you account for the benefit of actually removing carbon from the atmosphere this way so if you're using, for example, corn stover, there's several hundred million tons of corn stover produced every year in the US. Given how much corn we're producing now, now a third of that corn is currently being produced for ethanol. So maybe that declines somewhat, but there's still going to be a lot of corn stover.

David Roberts

So you take the corn stover, you gasify it and you get CO2 and hydrogen, you bury the CO2, you use the hydrogen to make fuels. Is that the idea?

Dan Lashof

Right. Use hydrogen to make fuels, or use it to make fertilizer or use it to make steel, whatever you're going to use hydrogen for. That makes sense.

David Roberts

That is such a long chain of conversions. It's just like you're losing so much along the way there. It's hard for me to believe that that's going to end up being the best we can do. But I don't have any other ideas either.

Dan Lashof

Yeah, I mean, there are a few companies that are trying to commercialize it. Like I say, it's not a large source of the total hydrogen. So if you look at Net-Zero study or others and say, what does the energy system look like in 2050? We're using a bunch of hydrogen. Most of that comes from electrolysis, some of it in these studies comes from this biomass pathway. But it's actually a significant share of the net carbon removal because every ton of corn stover that you convert to hydrogen plus CO2 is actually producing 1.8 tons of CO2. And so a couple hundred million tons of carbon removal potentially from doing this.

And if you value both the hydrogen and the carbon removal, it starts to look like a sensible thing to do.

David Roberts

Right. But aviation and maybe hydrogen, those are sort of like the biofuels of the future. That's more or less what we can think of to do with them.

Dan Lashof

And then I think the other thing is to substitute for plastics made from petroleum. That could be another ...

David Roberts

Is that ever going to I mean, I feel like that's been right around the corner almost as long as cellulosic biofuels. Is that a thing that's really going to happen?

Dan Lashof

Not as long as natural gas is super cheap and they keep producing more of it. Right. So, I mean, it's hard to compete, but if you're trying to squeeze the last ton of fossil carbon emissions out of the system, then it starts to look like a plausible thing to do.

David Roberts

Interesting. Okay, well, this is substantially more than I've thought about biofuels in many, many years. Thank you for coming on it and catching us up. And I guess if we're just sort of taking away the main takeaway here, it's just that EPA should, like, read Biden's Transportation Decarbonization Strategy.

Dan Lashof

That would be a good start.

David Roberts

All right. Dan Lashof, World Resources Institute. Thank you for coming on and catching us all up.

Dan Lashof

Alright. Thanks.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much, and I'll see you next time.

In this episode, Project InnerSpace founder and executive director Jamie Beard, who has been instrumental in influencing oil and gas personnel to move into the geothermal industry, discusses exciting recent developments in geothermal and the opportunities ahead.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Things are starting to come together for geothermal. Political awareness has seen an uptick. Investment is flowing in. Startups, many staffed by veterans of the oil and gas industry, are swarming to take advantage of existing geothermal opportunities and expand those opportunities. New technologies and techniques are reaching the demonstration phase.

It’s an exciting time.

At the center of it all is Jamie Beard, who for more than a decade now has served as a kind of pied piper luring people out of oil and gas and into geothermal. (Here’s her 2021 TED Talk.) A one-time energy and regulatory lawyer, Beard founded the Geothermal Entrepreneurship Organization, dedicated to educating and training oil and gas personnel to move into geothermal. (GEO recently helped launch the Texas Geothermal Institute to expand that work.)

She is also the founder and executive director of Project InnerSpace, a nonprofit dedicated to advancing the geothermal industry. It recently launched an initiative to build a Global Heat Flow Database, which would help map subsurface resources across the globe. It also plans to invest in new geothermal technology companies that are ready to launch first-of-a-kind demonstration projects.

Beard has been my go-to resource on geothermal for years, so I was thrilled to bring her on the pod to discuss the current state of the industry, the migration of personnel and expertise from oil and gas to geothermal, and the path to global scale for the industry.

All right then. Jamie Beard of Project InnerSpace. Welcome to Volts. Thank you so much for coming.

Jamie Beard

Oh, my gosh. David Roberts. Hello. It's nice to see you again.

David Roberts

Yeah, it's been a while since we talked. You know, when I was working on a piece on geothermal for Vox a few years ago, I don't know how many years ago, my family makes fun of me because everything pre pandemic is about five years ago. Yeah, I guess it was 2020. And my sense then around geothermal was that there was this sort of kind of a surge of interest, call it ten to 15 years ago, and a surge of investment. And then that kind of tailed off, kind of the air went out of that balloon a little bit lost steam.

There you go. That's the pun I was looking for. And then my sense was that as we were talking back in 2020, a bunch of strands trends were just starting to come together for a new big resurgence, a renaissance of geothermal. I want to talk about the future of geothermal, the immediate future, the near term future, the midterm future. But first, I would like to just start with a snapshot of, like, what is happening in the industry now? Is it still the case that only conventional geothermal wells are actually being dug and operating? What's the kind of snapshot of the industry?

Jamie Beard

Well, no, it's no longer just the case that conventional is being dug, which is really cool. And that's actually a difference between now and 2020. So when we talked back in the day, you're right to use renaissance, we were just about at the beginning of one, right? So it was like there's all this stuff that was very buzzy, but there wasn't really a whole lot in the ground. There were some teams that were kind of thinking about it, but nobody was really doing it yet. So there are some teams that have gotten out and done stuff in the last couple of years, and that means demonstrations, and that means that wells have been drilled, and that means that demonstrations and pilots have been done.

And that's also meant that the oil and gas industry has gotten increasingly excited and started investing. So the landscape has changed quite a bit in the last three years in terms of momentum and also investment dollars, which is really cool, I guess, to start with.

David Roberts

I should have done this at the very beginning, but I shouldn't assume that listeners read that piece on geothermal.

Jamie Beard

Well, everybody in the world has.

David Roberts

I would like to think so, but just in case there's a few out there who have it, I just want to make a very basic distinction. Geothermal to date, mostly, almost exclusively has been what's called hydrothermal, which is you go find places where there are natural riffs and reservoirs of thermal activity, and then you go down there and exploit that heat. So that's what geothermal has been from like the dawn of time up until about five minutes ago. You go find these areas where the heat already exists, that's conventional geothermal, and you stick a straw down and get the steam up and make electricity.

Then there is coming what's called advanced geothermal, whereas you go make your own reservoir, you dig down and you crack the rock to create basically an artificial or a human made fracture, which then the hot water comes, fills the cracks, then you stick a straw down, et cetera. You make your own reservoir. And then there are sort of beyond that, kind of like what you might call cutting edge. I don't know what the exact term is. Cutting edge technology research where people are trying to do things like closed loop geothermal, where instead of just having the heat be dispersed in this natural reservoir, you're just tubing water down, letting it heat up and tubing it back up.

Jamie Beard

These are very accurate terms.

David Roberts

I hope everybody's keeping up. And then there's wacky cutting edge drilling technology, like using lasers and plasma sound waves, plasma millimeter waves, god knows what else. That's the cutting edge. That's just like the landscape, just in case people don't know. So most of what's happened to date in the history of geothermal has been conventional geothermal. And as far as I know, in terms of commercial operating geothermal plants, they're still almost all conventional hydrothermal, are they not?

Jamie Beard

Yeah, that's right. There are a few commercial egs plants in the world, but they are very few. And the rest is the Iceland kind of geothermal, the geothermal that we see on the surface. So it's the traditional stuff, but even that there's not much of it in the world. Right?

David Roberts

Right.

Jamie Beard

It's still quite small, but anyway, yeah, so you caught everybody up to 2020 with your article. So everybody that's listening, go read David's article from 2020. It'll catch you up to then, and then we'll cover the last three years.

David Roberts

Now, right now what I want to know is, is there still interest in conventional hydrothermal? Are people still trying to dig those wells? Is that still like a going concern? Or is everyone turning their attention now to egs, which is enhanced geothermal systems, which is this make your own reservoir thing, scalable geothermal? Is everybody going in that direction now?

Jamie Beard

No, not everybody, and I don't think everybody should. When it comes down to it, there's a whole lot of conventional geothermal in the world that has not been developed. There a lot. Even though conventional geothermal, or hydrothermal as it's called, is geographically limited, there's still a whole lot of it out there that we could be leveraging. Right.

So if you look at the oil and gas industry and how they're engaging in geothermal, about half of the entities are going to dip their toe in to geothermal by pursuing conventional hydrothermal projects first and then the other. Half is looking and thinking, well, we'll just skip over that and go for the gold. Go for the stuff that we can scale and do anywhere. Right. And so there definitely a split in the community on that. But I think when it comes down to it, we're going to, over the next ten years or so, develop a whole lot of hydrothermal before we end up in scalable stuff.

David Roberts

My impression of hydrothermal was always that there are a couple of places where the sort of activity is intense enough to give you the heat you need to really make electricity efficiently, but there wasn't a ton of it because it couldn't compete kind of with wind and solar. Have there been developments in conventional hydrothermal geothermal that make it more attractive for investment? Like have costs come down, has permitting or siting gotten easier? What's the kind of state of play?

Jamie Beard

Sadly, that's not the case with we're going to get into that. Yeah. No, there's not been much by the way, of regulatory, unfortunately. But I think your question about costs coming down yes, a lot of that has happened because of technology transfer from the oil and gas industry over the past years that have helped revitalize, for instance, underperforming wells for hydrothermal. The heat is not usually the problem. The problem is having sufficient water naturally occurring underground in your reservoir to sustain your output. So you need to have enough water coming up out of the ground to run your power plant.

And if you don't have enough, or if your well declines, over time, which does happen with hydrothermal. Eventually you start running out of water and wells decline. There are ways to revitalize old wells, and that's being tried. There are ways to enhance the fracture network in hydrothermal systems and that's being tried, right? Yes. And quite frankly, hydrothermal is a really nice 24/7 baseload source of clean energy. And so what we're finding in terms of cost is that there are markets that will sustain a premium for baseload simply because there's so much solar and wind. Right?

David Roberts

Yeah, that's what I've been thinking about, is just that the value of dispatchability in and of itself is rising. So I thought that might be sort of affecting the economics of geothermal.

Jamie Beard

That's right.

David Roberts

Actually, let's pause here to talk about permitting and siting. You hear a lot of complaints, really from everyone about this subject, from every industry. But the geothermal people complain that it's very difficult to get a well started, even relative to oil and gas wells.

Jamie Beard

Yes.

David Roberts

So maybe just tell us quickly. These permitting and siting problems, I assume, face all kinds of geothermal, the hydrothermal and the advanced stuff. So what's the problem now? And is there any solution on the horizon?

Jamie Beard

All right, so in a nutshell, so we don't put everybody to sleep. In the United States, most of the really low hanging fruit for geothermal development exists on Bureau of Land Management land, federal land that is subject to the National Environmental Policy Act, or NEPA. And it's an extensive set of environmental regulations that require a lot of review before doing a project on federal land. And geothermal projects are subject to NEPA. What that means, essentially, is that for the multiple phases of a project, in order to get a project developed on federal land, you're looking at a permitting timeline of six or eight or even ten years to get a project off the ground, which is completely ridiculous.

You can't get projects funded under that scenario.

David Roberts

Is that also true for oil and gas well? Is that true for everything, or is there unique barriers?

Jamie Beard

So here's the thing. This is what I was just about to point that out, which is oil and gas drilling on federal land has been excluded from this process through a categorical exemption.

David Roberts

What? Isn't that nice for them?

Jamie Beard

Well, that's whether they lobbied for it. And here's the problem. Geothermal doesn't have a lobby. And so what we end up with here is a scenario where you can get an oil and gas well drilled on federal land in no time, very quick, in a geothermal well, which is clean energy. And the same process as drilling the oil and gas well is going to take you a decade. It kills projects. This kills projects, right? When you ask what's the solution, I am loathed to say politics, because who knows, right? And are we going to wait around for that?

My personal opinion is no. Let's go around it so that's why I've been focusing all my efforts on state and private land, because we're just not going to do the federal you're.

David Roberts

Just going to throw your hands up about federal land and go to other.

Jamie Beard

And that's how we go fast. And that's why most of these demonstrations are in Texas.

David Roberts

Interesting. That's hilarious. And are there state permitting and siting issues or are things generally better at the state level?

Jamie Beard

Well, look, if you focus on oil and gas states that have streamlined permitting for oil and gas and that have friendly regulatory environments to oil and gas, no, you got no problems. Right. I think the trend is going to be and quite frankly, this is the way it should happen if we're not going to sit around and wait for politics, we need to be focused on deploying pilot geothermal projects in states that are used to oil and gas permitting. Right. Those are going to be the oil and gas states. And they just so happen, many of them, to have excellent geothermal resources so we can get projects permitted in twelve months or less instead of a decade.

And we've seen that happen with one of the projects in Texas. They were off to the races in a matter of months to do their pilot. Yeah,

David Roberts

Texas.

Jamie Beard

Go go drill, baby drill.

David Roberts

Does have its merits.

Jamie Beard

Right.

David Roberts

Since you sort of brought up oil and gas, let's talk about a little bit about how in the last ten years, techniques developed and perfected by the oil and gas industry are coming to geothermal. I think people know, once again, assuming they read my article.

Jamie Beard

Read the article.

David Roberts

They know that fracking is part of that, but it's bigger than just that. So what is the sort of knowledge transfer that's been happening?

Jamie Beard

Yeah. So it's all of the learnings of the shale boom. Let's back up on the shale boom. So all of a sudden, 20 or so years ago, global geopolitics got rearranged by natural gas. And I think a lot of folks kind of skip over why that happened. Right, it happened, and we all realize it happened. But why? Why is the reason geothermal is now a thing? Because it was this gigantic flourish of technological development that came out of the oil and gas industry and 10 or 15 years of massive leapfrogs in what we can do when we're drilling and engineering the subsurface.

And that includes fracking, but it also includes a lot of other cool things.

David Roberts

When we say fracking, we mean fracturing rock to create natural gaps that are then filled, in natural gas's case by natural gas, in this case by ...

Fluid.

Hot water. But that's what we are referring to, by fracking. I just didn't want to assume people knew.

Jamie Beard

Yeah, right. So hydraulic fracturing, so the process of applying pressure to a well bore in order to enhance or create new fractures or pore space in rock. And that process can be used for more than one thing. Like right now, we use it to produce more gas than we normally could from a reservoir. But it just so happens that that technique in creating or enhancing fractures and rock is really helpful if we want to engineer the subsurface to create a geothermal reservoir. Right. So it's a really good example of kind of a bad word that comes out of the oil and gas. Really polarizing word, right?

David Roberts

Yeah.

Jamie Beard

That can kind of be repurposed into a really interesting and big opportunity for the future of clean energy.

David Roberts

Kind of a side thing. But I wanted to ask in the industry, what is the sort of state of thinking on how to tiptoe around that?

Jamie Beard

Oh my gosh.

David Roberts

Do they want to just address it full on and say it's fracking but it's different? Or do they want to just come up with a different word for it? What's the kind of state of play?

Jamie Beard

What a good question. David, I love talking to you. This is an excellent question. So it's super controversial what you just asked and nobody really wants to talk about it. Right?

So this is the way I see it going. You've got geothermal entities and the government tiptoeing around it, so they're trying to call it something else because they don't want to get mixed up with oil and gas and all that. Right.

So let's keep it nice and simple and let's call it other stuff. So they've called it things like hydro-shearing and hydro-fracking just to try to avoid the word fracking.

David Roberts

Come up with a boring enough term and everybody will just slide right past it.

Jamie Beard

Right, right. Like nobody's going to notice kind of thing. Right. The oil and gas industry, by and large, adopts the opinion, "well, that hell, we just spent the last 20 years perfecting this amazing technique that rearranged geopolitics and can revolutionize the future of geothermal. We're going to call it what it's called, damn it." Right. Then you have some entities saying, yeah, but it might be easier from a community relations standpoint to not dive right in there. So you do have some controversy in oil and gas. My personal opinion is we need to call a spade a spade. Right.

And I think there's going to be some intellectual work that we need to do as human beings to get over polarized and loaded terms. But we need to be honest with one another about what we're doing. And if we rename something that is what we are doing a technique for geothermal. It's not producing oil and gas, it's producing clean energy. That's awesome. But we are doing a technique that's called a thing.

David Roberts

Yeah, it looks a little shady when you ...

Jamie Beard

Well, it doesn't build trust. Right. If we start trying to call it something else, that's not a trust building exercise. And I think that's a lot of what we need to be doing for geothermal is trust building.

David Roberts

Well, let's briefly address here then, the kinds of concerns people might have when they hear the word "fracking". So I think people have a lot of muddled ideas in their head about what the dangers of natural gas fracking are. But tell us why this is different and why people shouldn't worry, or if they should worry a little bit, how much should they worry?

Jamie Beard

Well, okay, you're going to get the direct story from me, David. This is the no b******t answer here, which is the way hydraulic fracturing has been utilized by the geothermal industry so far has been a very simple version. It's been very low tech. So they're just trying to apply pressure and enhance existing fractures. But it's a very basic method of hydraulic fracturing that's been used. And I think when it comes down to it, when you're fracturing to enhance a reservoir to circulate water or another fluid, like, we can get to this later, but like, supercritical CO2 is the new cool trend to use as your working fluid for geothermal systems.

And it's a really cool idea, but if you are enhancing the subsurface to make that clean energy system work better, why not? As long as you're doing it safely and responsibly and leveraging the learnings of the last 20 years about how we do that safely and responsibly. I think when you start thinking about hydraulic fracturing in the oil and gas context, the types of images that come to mind are lighting your faucet on fire kind of these very polarizing and upsetting images. Right?

And I do think that that is a result of ten or 15 years of bad blood. Mistrust and bad blood between oil and gas and environmental and climate activists. And I'll just go ahead and say, just for full disclosure, I am an environmentalist and a climate activist. I am not in or from the oil and gas industry. In fact, quite the opposite. So I understand all of those sentiments. I grew up wanting to oil and gas be damned. I mean, I was going to bring them down kind of thing. So I get all that. The differences, though, between the way geothermal wells are fractured and oil and gas wells are fractured.

There are some in oil and gas. They're using a variety of chemicals to enable that process.

David Roberts

Yeah, this is what I emphasize to people, is most of what you associate with the damages of natural gas fracking have to do with the fluids being injected and leaking into the groundwater and etcetera. And geothermal just doesn't use those same fluids.

Jamie Beard

That's right. Well, right now, let's pause for a second and say, yes, there are a lot of differences in techniques and fluids used and also where natural gas is located, you oftentimes have to drill through water tables to produce and get to natural gas reservoirs. And when you have those sorts of close in geographical distance between water tables and oil and gas resources, you have the potential to have problems, particularly if you're fracturing the subsurface. Geothermal is different. Right. So because in the case of hydrothermal, you're in a hydrothermal reservoir, you're in the water table, it's a reservoir that's full of water, and your intent is producing that water to the surface.

Right. So it's a different kind of game in geothermal. Just off the bat, but I'll say part of the excitement, this is where we need to do some intellectual work, in bringing people together and not fighting about this. But but we're going to have to think about this. A lot of the benefit that we will see over the coming years, coming out of the oil and gas industry into geothermal, is actually adapting some of those more complex techniques that they use in hydraulic fracturing and oil and gas and adopting them into geothermal, applying them to make the geothermal reservoirs function properly.

Does that mean we need to transfer the chemicals and these ... no, not necessarily. But what we do want to do is transfer the really cool, cutting edge stuff like multistage fracturing, where you're actually engineering the reservoir in really specific ways to where they're parallel structures that you're fracking to connect with one another, and therefore you can predict how the fluids will flow amongst them. They're more complicated engineered subsurface reservoirs. And if we can do that like we're doing it for natural gas. Now in the geothermal context, EGS in particular, what we're saying is engineered or enhanced geothermal systems, they will work better.

And what that means is they will have better output. What that means is they will be cheaper to build. Right. So some of that transfer we do want and we should support, but I think we need to figure out how to separate the good from the bad when we think about fracking or the "f" word. So we call it.

David Roberts

And also the other question that I get constantly, I'm sure you get it several times a day, is about earthquakes. People have this real fixation on the idea that geothermal digging is going to cause earthquakes. Was there ever anything to that? Is there currently anything to that? Is that a real worry or is that kind of a myth?

Jamie Beard

No, it's a real worry. Absolutely. It's something that we should absolutely be focused on and considering. Here's the thing. The cases in the world where seismicity, or I'll back up induced seismicity, so geothermal systems have natural seismicity associated with them all the time. It just happens. What we don't want is to be causing that seismicity by our actions. So we are interfering with the subsurface in a way that causes seismicity, particularly seismicity that is detectable by humans. Right. So seismicity that is above a level that becomes noticeable. And there have been cases where geothermal systems, particularly EGS projects, where they're going in and fracking these reservoirs, have caused induced seismicity and some of them have been significant.

They not only detectable, but damage causing induced seismicity. And I will say there is kind of an obsession in media, right, about geothermal. It's like, oh, there's all this awesome stuff happening, but earthquakes, it's always this thing. It's kind of the boogeyman. And I would say in those situations where there has been induced seismicity related to an EGS project, in 100% of the cases, that was because the system lubricated an existing fault that was underneath the system. Therefore, that system should have never been located or sited where it was being developed. And there's a reason this is happening, which is the geothermal industry is so fractured and regional.

It's kind of a mom and pop shop kind of industry. You've got entities out there just kind of developing projects, but not really sharing best practices and standardization, developing protocols that everyone is following, et cetera. And in those types of situations, you'll have mistakes and some of the mistakes end up on international news, right? And that's what you have for geothermal. And that's also David, kind of, and I think this is going to be ironic to probably some of your listeners that I'll say this, but standardization and establishment of protocols and data sharing and getting things like this under control at scale, the oil and gas industry is really great at that.

David Roberts

Well, we're going to get back to that, but that's a great segue to my next question, which is tell us about what Project InnerSpace is. Project InnerSpace is nonprofit. You have to advance geothermal. The plans have two phases, which I would like to talk about in turn. The first phase, what you're trying to do now, what just got launched and is underway, is basically, as far as I can tell, an attempt to map and better understand what's beneath the surface. So just tell us a little bit about InnerSpace and what this phase one looks like.

Jamie Beard

Awesome. Thank you for asking this. We kind of forgot about that part right at the beginning. Hello, I'm Jamie Beard. I run Project InnerSpace. Project InnerSpace is a nonprofit that I founded this last May. So it's a newly launched entity. The purpose of InnerSpace is to address two major barriers that are standing in the way currently of geothermal reaching exponential scale in growth. And essentially what we're trying to do at InnerSpace is put ourselves out of business by 2030. So we're trying to run a sprint and make ourselves completely irrelevant by the end of this decade.

First is phase one, which you mentioned, which is building a global, high resolution, global map of where the geothermal resources are and how deep they are so we can understand the low hanging fruit.

David Roberts

And this doesn't exist. Imagination, like in some library somewhere that seems like that should be happening already.

Jamie Beard

You'd think, amazingly, it doesn't exist. Some places in the world have done a better job than others at estimating we have some maps of the United States that were done by Southern Methodist University in the early 2000s. We did a little poking around on that, actually, with SMU a couple of years ago to see how accurate those maps were. And it turned out the maps are a little bit inaccurate on the wrong side for geothermal. So it's actually a rosier picture for geothermal than those maps show, which could interfere. And frankly, since so many projects are on the margin economically, having maps that are even 10% off matters.

It matters, right. So we need to get this stuff right. We need to know where the resources are, how deep the resources are, and what temperature they are before we start siting projects.

David Roberts

So right now a geothermal company just wanders out into the landscape and starts digging.

Jamie Beard

That's exactly right. Yeah. I mean, they do the best they can, but there's a lot of money that goes into subsurface exploration. Oil and gas spends billions of dollars doing subsurface exploration for oil and gas.

David Roberts

I'm surprised some of that isn't transferable, they would know enough.

Jamie Beard

That's what InnerSpace phase one is. Right?

So it's like, all right, oil and gas industry, y'all have a lot of data and we would like to use that to build a really high resolution, detailed global map that's interactive and free for the world so that everybody can use it, including governments, but also startups and everybody in between.

David Roberts

So this will just save a lot of exploration costs. It will help startups skip some of that exploration stage and just know where to go.

Jamie Beard

That pre-project risk. Yeah.

David Roberts

And it will give us a better global sense of what the resource is.

Jamie Beard

That's right. So it's not going to be high resolution enough to say this is the exact spot we want to put our plant. We can't do all that. That's a little bit too much for a map of this size. But what we can say is these are the regions in the developing world where there's a lot of low hanging fruit for geothermal and there are huge population centers here and wow, this country is poised to be adding a lot of coal capacity over the coming decades. So, wow, let's just slip geothermal in here instead.

David Roberts

Is this about sort of like rationalizing and checking and ordering existing data? Or does this involve people going out into the field and I don't know what it would look like digging holes ...

Jamie Beard

Drilling a hole.

David Roberts

Drilling holes and testing.

Jamie Beard

We will not be drilling any holes in phase one. Thankfully. Phase one is a fast sprint too. So we're going to publish in 24 months. What we're doing is we're grabbing all the data that's out there that's imperfect. And most heat flow data in the world that's out there is imperfect, meaning it's not cleaned, it's not organized. It needs to be QC'd before it can be utilized and relied on. So. We're going to take all the data that's out there, clean it and get it in really good shape. Then we're going to collect as much oil and gas data as we can.

So this is data that the oil and gas industry has from the millions and millions of wells they've drilled globally. So they know ...

David Roberts

It's not proprietary, they're willing to share it?

Jamie Beard

Some of it is, but they're willing to share the pieces that we are able to clean to keep proprietary. So we can do that. So we'll have a subset of data that's never been used for the purpose of geothermal exploration before, which is going to be really helpful because it turns out when they drill for oil and gas wells, they take the temperature of the well as they drill all the way down to the bottom. And that's really helpful in predicting how hot it will be deeper and also in like formations in other places in the world. So what we'll do after we get all this data is add in some AI.

So we're going to do some predictive analytics on it, right? So we'll be able to predict more accurately than we do currently places in the world where we don't have a lot of existing data, what to expect in those formations in terms of depth and quality of the geothermal resources.

David Roberts

Interesting. And then phase two will be investing in sort of demonstration projects, first of a kind projects helping a lot of these new technologies, these new startups, establish the fact that they are possible ...

Jamie Beard

Game changers.

David Roberts

This is what I want to talk about is we discussed earlier there's Egs, which is just sort of fracking making your own reservoir, but then there's deeper and deeper and deeper stuff people are pushing towards. And that super deep stuff is where you get into really mind blowing, game changing type of stuff. We're basically like super-efficient, super-hot, always on available anywhere, this kind of stuff.

So the second phase for Project InnerSpace is investing in some of these first of a kinds. And what I am curious about is sort of of all those technologies that I wrote about and that people are passing back and forth and some of them sound quite Sci-Fi. Who is ready to go start digging. Like what are the advanced geothermal technologies that are to the point that they're ready to start producing. When you start investing in these first of a kinds, what are they going to look like? Like first of a kind, what?

Jamie Beard

So phase two is a fund. It's a billion dollar fund and it will invest in up to 20 1st-of-a-kind pilot projects in different places in the world. And phase one will help inform where we put them right. So we're going to use that data to help inform that process. But the portfolio will be broad. So geothermal is vastly underfunded in every possible way across every single concept to be honest. And so we're going to cast as broad a net as we can to have as high an impact as we can in terms of proving out scalable geothermal concepts.

And so geothermal, I don't think that we should look at geothermal as a one size fits all type of thing, where if we can just make this one kind of system work, it could be applicable anywhere in the world. That's probably not going to be the case because the subsurface in different places in the world looks really different. There's different types of rock, there's different types of heat flow, right? So different types of geothermal systems will excel in different types of subsurface reservoirs. And so I think we need to cast a really wide net on the types of concepts that we'll fund with phase two.

And so that will include EGS, but it will also include closed-loop. It will include EGS and closed-loop hybrids. So systems that mix both so they'll go down and they will directionally drill this radiator style, radiator style system into the rock, but they will also fracture around that to enhance heat flow going to that well bore, right? So that's pretty cool because what you do in a hybrid kind of system is you eliminate the risk of fracture evolution over time. You're not pressurizing the fractures and trying to circulate fluid through them and then making them change over time.

They're static, right? They're just sitting there.

David Roberts

You fracture the one time and then it does the rest of the work for you. And closed-loop is so, I mean, I'm the farthest thing from a technical person in the world, but it's intuitively appealing because it's just so much more contained. Like your fluid is exactly you know, exactly what the fluid is, exactly how much it is, how fast it's moving.

Jamie Beard

And you get out what you put in. Right? And also closed loops are really cool because you can use non-water working fluids that work better than water in closed loop. And that's where supercritical CO2 comes in. It heats up faster than water. We have a lot of CO2 laying around. Let's use it, right? It's cool. And the turbines on the surface can be redesigned to actually run directly off of supercritical CO2. So direct drive by CO2, which is very promising and very cool. So the fund is going to cast a wide net on these things, right?

We're looking at power production projects with Cogeneration of industrial heat. So looking at industrial heat decarbonization with some of the concepts, a coal plant conversion might be possible.

David Roberts

What about the lasers? What are ...

Jamie Beard

The drilling concepts? Yeah.

David Roberts

Are those real enough that they're ready to start digging?

Jamie Beard

Well, I don't imagine that we will be deploying one of these next gen drilling concepts in phase two, because we are deploying phase two starting in a year and a half or two years. So those concepts are not quite ready for commercial deployment, and these are commercial pilots. So we're going out and building power plants with this money. And we'll have 20 power plants when we're done. They're not quite ready, but that's not to say they won't be. Right.

So these cool, we're going to vaporize rock kind of concepts, they're sexy enough for venture capital and they're well funded. Right. So they're running a sprint. And we may see some of these concepts deployed in the near term, but probably not near enough term for phase two. Let's see, definitely by the end of the decade, we'll see one in the field, my guess.

David Roberts

And this is all basically different ways of bringing up heat that you use to boil water and create steam and run a turbine. Right. I mean, this is all ...

Jamie Beard

Very simply yes.

David Roberts

Just about getting heat.

Jamie Beard

That's right. We're just trying to harvest heat so we can harvest heat for heat, so we can harvest it to use in an industrial process so we don't have to burn fossil fuels to produce that heat, which I think is a no brainer for geothermal, but we can also use the heat to produce electricity. And we're focused on that as well.

David Roberts

Since you mentioned it. I wanted to ask about this, too. A lot of this is another thing that I feel like has sort of captured public interest, maybe slightly out of scale with its reality. But how big of a piece of the geothermal pie is going to be repowering fossil fuel facilities? Because people really love that idea.

Jamie Beard

You mean converting existing plants to geothermal?

David Roberts

Yes, like a coal plant. Instead of getting the heat to run the turbine from coal, you just get it from underground. But the turbine already exists. The power plant already exists. The ...

Jamie Beard

Transmission structure.

David Roberts

Transmission to and from already exists. So it's a great idea. I just wonder great idea. How big of a deal is that going to be?

Jamie Beard

Well, so there are a couple of things about geothermal right now that are really good at catching headlines because they sound so cute. Right? And that's one of them. And another one is oil and gas well reuse. You hear that one all the time, right? Yeah. Oh, let's just reuse. All right. Okay.

David Roberts

Both those I wanted to ask about. The second one I'm super skeptical about, just for obvious ...

Jamie Beard

Which one the coal plant?

David Roberts

Reusing wells.

Jamie Beard

Yeah.

David Roberts

You're drilling in different places, looking for different.

Jamie Beard

Yes, Right. And you're not looking for heat when you're drilling for oil and gas. You're looking for oil and gas. You're avoiding oftentimes. Yes, that's true. All right, so let's look at coal first. I really like the idea. In fact, InnerSpace has just funded a coal plant conversion study. Right.

So we are studying the top 20 candidates for coal plant conversion in the United States to geothermal. We're going to prioritize them by economics and subsurface characterization and we'll get a good picture of that. I like the idea. Could we go and do a megawatt to megawatt coal plant conversion today on the existing footprint of the plant with geothermal? Maybe ... Maybe in a really hot place, a hot subsurface. Hot in the subsurface, right. So say we go to Nevada, where you've got really attractive geothermal gradients and you try your very best. So we get the best in oil and gas to drill this well as cheaply as they can.

And by the way, it's not one well, it's many wells to do it. Megawatt for megawatt. We could probably technologically do it. It's feasible to do it. The problem becomes this, though. It's not economically feasible to do it. Not right now.

David Roberts

It all just comes down to how deep you can get. Right? I mean, ultimately it all just comes down to getting deeper. Getting deeper, cheaper.

Jamie Beard

Well, yes. So it depends. This is all about energy density, essentially. So if you want to look at it like energy density, the deeper you go, the more energy dense your output for geothermal. Right?

So if you're drilling to 600 degrees Celsius and you're producing at the surface 600 degrees Celsius fluids, that's awesome. I mean, that is natural gas power plant style enthalpy. And that's pretty awesome. And then you can start talking about plants that are gigawatts, right? Big plants, like coal plants. But right now, what we're calling that in geothermal land is super-hot. So super-hot rock or SHR, my favorite.

David Roberts

Finally the energy world comes up with a cool term, finally, right?

Jamie Beard

Exactly. Just add super to it and that makes it cool. Right. So those systems are theoretical right now, not super well understood. How we would fracture in, for instance, you've gone so hot that the rock is now plastic. It's not hard anymore. It's soft. So how do you fracture that and have the fractures not close

David Roberts

And have your drilling equipment not melt?

Jamie Beard

It'll melt. But that's the thing. That's why all these kind of cool new drilling methods are being researched and produced, because they are relying on materials that actually just melt and vaporize the rock instead of drilling them. There may be a situation where we can actually drill into 600 degrees Celsius semiplastic rock in the future. I think what this comes down to, though, is economic feasibility. We can probably do it now, like I was mentioning with the coal plant conversion, right? We could get the best in class to go drill those wells, and they've done it.

Like oil and gas has drilled 300 Celsius offshore, no problem. We could do it. But do we have the $500 million to do it? No, we don't. No, we don't, actually. Right. And that makes it economically infeasible right now. So the question really will become for these kind of cool, sexy, super deep systems, is can we get the cost down? Or is something so dramatic going to happen over the next decades in terms of our energy markets, that we're going to be able to afford to develop these systems. And I'm hoping yes. Right. That's my hope.

David Roberts

What you want to do just in terms of broad, big picture for the industry is get the low hanging fruit first. Build a bunch of plants, get the learning, bring the cost down.

Jamie Beard

Learning curve.

David Roberts

And it's not necessarily the case that the places the coal plants are, are where the low hanging fruit is.

Jamie Beard

Right, exactly. Though some of them are.

David Roberts

No reason to start there.

Jamie Beard

Yes. And we're going to find the ones that are, because some of them are, but not all of them are. And you are exactly right. That where we start is baby steps. And that is exactly, David, how shale happened. Right. We ended up with a little bit, a little bit, a little bit more, uhoh, this is a lot, a lot, a lot, bam. Change the world. Right. And it was just like this was about taking baby steps. And so for geothermal, it'll be the same. Right? Let's go and find the easiest stuff to do first. That's probably going to be in sedimentary basins, because they're soft, the rock is soft, and oil and gas, for instance, understands how to do it because they've been doing it for shale.

David Roberts

Well, let me ask this, because I had a pod recently on learning curves and on what kinds of technologies do and don't get on them. And a big piece of what gets on a learning curve is technologies that are more modular, more factory produced, and not so kind of bespoke to each individual location. So I'm curious sort of in the current state of play for geothermal, how bespoke is it in an individual location? How modularized is it? And what room is there to sort of modularize it in a way that will accelerate that learning?

Jamie Beard

It is the perfect example of getting on a learning curve and particularly transferrin from oil and gas to geothermal. I think, David, you saw it recently we published a report called The Future of Geothermal in Texas. And there was a chapter in that report that dealt with transferable learnings from oil and gas and learning curves. And the outcome of that report was essentially, well, hell, if we just transferred what we've already got, let's not even talk about what we need to develop or what we could. Let's just talk about what we've already got in oil and gas and let's transfer that into geothermal.

How much do we reduce cost off the top? Just transfer what they already do in oil and gas into geothermal. And yeah, modular, the way they do oil and gas, David, is called pad drilling. It's manufacturing. It is ultra-modular. I mean, they literally stamp out oil and gas wells, 200ft from one another in a line. Right. It's manufactured. Right. It's the definition of modular. But if we grabbed all of that technology and just transferred it in wholesale to geothermal. No innovations required. We've got 43% cost reduction off the top for geothermal. That's huge, right? I mean, that is not considering new stuff.

That is what we've already got. That is a huge opportunity. Huge opportunity.

David Roberts

This is another good segue then, because I want to talk about this larger sort of relationship between oil and gas and geothermal. This is of course your bailiwick, your sweet spot. This is your bag. So this is another one of these sort of like folktales about geothermal going around. Oil and gas, You can just transfer to geothermal. Same skills. It's great. It's going to cause this flow.

Jamie Beard

It's becoming a headline too. Yeah, it's another cute headline.

David Roberts

Yeah. I'm just curious, to what extent is that a reality? Number one, to what extent are the skills really transferable? And number two, to what extent is it happening? The geothermal industry is so tiny compared to oil and gas, so it's not like leakage to geothermal is going to show up in the statistics of oil and gas employment, I think, anytime soon. In a major way. I mean, tell me if I'm wrong.

Jamie Beard

But no, you're not wrong.

David Roberts

What is the nature of that? How much of that is reality and how much of that is acute headline?

Jamie Beard

So I think the headlines get it a little bit wrong, but I think we need to look at it differently. So we need to adjust what we're thinking here. So skills transfer and all that? Yes, I mean, almost 100%. It is so synergistic in terms of skill set, transferring from oil and gas to geothermal that we're talking about minimal training certificate level, let's just get you up to speed kind of thing, but otherwise go.

David Roberts

Interesting, so drilling really is just drilling then.

Jamie Beard

It is drilling. Drilling is drilling. You're either drilling for oil, you're drilling for heat, you're drilling for water. It doesn't matter, you're drilling.

David Roberts

Right.

Jamie Beard

So when it comes down to it, awesome. So you've got this highly skilled workforce of millions globally. Let's go, right? We don't have to build that for geothermal. It's there. So how do we transfer it? Right, well, this is my opinion. We transfer it not by taking people out of oil and gas and putting them in this nascent and tiny industry we call geothermal. We do that by turning the geothermal industry into oil and gas or vice versa. Right, so we get the oil and gas industry to look at geothermal as a viable and exciting future business model where they themselves, the oil and gas entities, then become massive geothermal developers and producers using their own workforce.

David Roberts

Right?

Jamie Beard

And we've started to see that already. We're starting to see the very beginning of that trend where you've got Chevron that's about to develop a geothermal project in California.

David Roberts

Is there a big major, is there an oil major with like a full fledged geothermal ...

Jamie Beard

Team!

David Roberts

Department, team, whatever.

Jamie Beard

They all have them now, all of them. And David, in 2020, when you did your article, none of them had them.

David Roberts

Interesting.

Jamie Beard

That's how fast this is happening. Every single oil major has a dedicated geothermal person. Some of them have like VP of geothermal. We've got executives in geothermal now with whole funded teams. Some of them have a portfolio of geothermal companies that they've invested in. I mean, this has all happened in the last three years. So we're talking about traction. Like, read David's article first to get a 2020, but then between 2000 and 2023, there has been so much that's happened within the oil and gas industry for geothermal.

David Roberts

And in terms of their motivations, the oil and gas majors motivations, how much of this is hedging against us being in what is possibly a dying industry and we need something else to do versus geothermal actually being like remunerative to the point that it would actually attract their attention regardless.

Jamie Beard

All right, both I think if you're an oilfield service company or a drilling contractor, so you're the one with the skilled labor and the rigs. You're looking at geothermal and thinking, okay, there's our future business, right? They need rigs, they need drillers. That's what we should do. Right? So you have some very fast movers in that space and they are leading the pack in oil and gas. So you have like Baker Hughes is out there kicking butt. They're one of the ones that has a geothermal team and they're out there really pushing another one Neighbors Drilling contractor, just really pushing hard and getting out there and making investments.

That's awesome. But you have the operators, the majors, like the Chevron, Shells, BPs of the world who are also looking at geothermal and thinking, where in the world is this most relevant for us in terms of where we own assets, where we operate assets? How can we pull geothermal in as a value add into a portfolio and eventually, maybe, build it into a massive, globally scalable opportunity where we're drilling millions of projects, right? And so you look at geothermal in terms of scale. If we were drilling at the scale of oil and gas, if we're drilling geothermal at the scale of oil and gas, we solve energy.

That's it. We solve energy by 2050. Right? And that's the opportunity for oil and gas.

David Roberts

So you genuinely think it's not a PR play for the big oil and gas?

Jamie Beard

No, I mean, you can't greenwash with geothermal, right? It's core competency. I'll be the first one to say it. You go on any majors website and they've got wind turbines splashed all over the place.

David Roberts

Algae. They used to have algae.

Jamie Beard

Yeah, algae, whatever. Solar panels. I mean, you'd think you were at a solar manufacturer or whatever. You're on oil majors website, it's all crap, right? I mean, that is greenwashing. Absolutely. If you look at the scale of their renewables investments versus the scale of their investment and their core competencies. Note, core competencies meaning subsurface. So what do we do with that? Well, we grab that core competency and we turn it to something that is future facing, right? Which is like, fine, stay subsurface experts. Awesome. Do CCUS, geothermal, and mining because we need lithium and we need clean, baseload power, right?

And we need to store a whole lot of carbon. So you all are the subsurface experts. Go. And that is really working. And I don't think you can really shake a stick at that in terms of greenwashing because it's core competency. They're doing what they know how to do.

David Roberts

And I have to believe that there are as a card carrying greeny, I have a deep and abiding hostility toward oil and gas companies. But I have to believe there are people in there who are good people and want to do good things. And this is an actual I know you share this sentiment. This whole notion that they were ever going to get into renewable energy in a big way I thought was always kind of silly. It's just a different just a completely different business.

Jamie Beard

Not the same business model.

But this, I have to believe that psychologically, there are a lot of people, oil and gas, who are gratified by this and excited by this because it's a real exit. It's a real exit out of the past into the future, not just BS hand waving.

Yeah, you are absolutely right. Over the past three years in some of the majors. The way this has happened and built into what it is is through grassroots movements in the employees. They start beating down the doors of executives and having roundtables about geothermal and all of a sudden it builds into this thing. And all of a sudden they're presenting it to the board and the C suite and then they've got a program. I mean, that's awesome. And I can absolutely attest to oil and gas as a villain industry. It's not so easy to look at an individual across the table that works in the oil and gas industry and be like, you villain.

That's not the case. Right. It's just not. I mean, these are people that love the environment and have families and are really freaking skilled at what they do. And they're humans, right? And you sit across the table from these guys and they know how to drill. Good Lord. Y'all go drill. Let's just change what you're drilling for.

David Roberts

You made a point. I heard in another interview, which I found really interesting and you sort of implied it or talked around it a little bit so far. But I want to get straight at it, which is the question of how to scale geothermal up so that it's more than a niche, kind of extra. I was looking at the new electricity capacity installed sort of graph that the EIA just came out with and I was sort of gratified that you can actually see geothermal with the naked eye now.

Jamie Beard

Oh, yeah, really? So it's like 1%.

David Roberts

Yeah, it's like a tiny little stripe at the top. You can see it, but so we all want the idea is to scale it up so that it's a big player to rival wind and solar. Your sort of argument is that the way wind and solar got to where they are was by all kinds of policy help and subsidies over the course of decades, basically. And so if we want geothermal to follow that route, it will also take decades. And we don't have decades. So your theory, how do we scale it up quickly? And you have an answer to that, so that's what I like to hear.

Jamie Beard

Yeah, I mean the answer to that is the oil and gas industry, right? So we can sit here and wait 20 years and fund startups to grow into giants and fund RnD and hope for the best. Or we can convince an incredibly capable and skilled industry that there's a market based approach here and that they can do what they know how to do and also solve energy and climate. And we're talking about the type of scale here that we start drilling for geothermal like we drill for oil and gas between 2030 and 2050. That exceeds world energy demand, I mean future world energy demand.

David Roberts

Do you mean if the scale of geothermal drilling were equal to the scale of oil and gas drilling?

Jamie Beard

Correct. In number of wells per year, yes. So we're talking about if we did that, I'm talking about with conservative estimates too. So 70,000 wells a year globally, 10 megawatts a pop, which is pretty damn low for a geothermal project. We end up at 146% of future global energy demand by 2050, and that's for heat and for electricity, 77%. Bam.

David Roberts

Interesting. I mean, that's not going to happen, is it? That's like a theoretical boundary. But how realistic do you think it is to get to that scale that quickly? Like it would be? Not many industries have ever done that.

Jamie Beard

Well, oil and gas did it with shale, let's just do it again.

David Roberts

Just do it again. Is there as much money in geothermal as there was in shale, though?

Jamie Beard

Well, so, look, I think you have to ... you can't compare geothermal to oil and gas in that way, right? Because geothermal is never going to make for oil and gas companies what oil and gas makes for oil and gas companies. But you also have these companies trying to build offshore wind farms and struggling with single digit returns. Geothermal is going to be higher than that, right? So there's going to have to be a little bit of a shift where you look at geothermal as an oil and gas entity and you say, "Ha, we're probably going to max out at about 15% return, but hell, we can drill a million of them. That sounds pretty good. Let's go." Right, so there's going to be a little shift. It's going to be a lot of wells for less returns than oil and gas. And I think if you compare geothermal with wind and solar, it looks pretty darn good to an oil and gas company.

David Roberts

Yeah. And of course, what the rate of return is, is somewhat affected by policy. So policy could get in there and at least tweak the incentives.

Jamie Beard

You can keep having hope for this, David, you keep hoping for the politics and whatever. We'll just go drill in Texas or what ... you know.

David Roberts

IRA happened. Well, let's conclude here then, and let's just talk because I'm a policy guy. And I have to ...

Jamie Beard

I know you do that. You keep doing that, David. I love it. Somebody's got to work on it.

David Roberts

So, two questions by way of wrapping up. One is, was there anything in IRA in the Inflation Reduction Act or the Infrastructure Act or CHIPS, now that I think about it, in the legislation that Democrats just passed, was there anything for geothermal? And did you feel like in all the frenzy of activity leading to that stuff, that geothermal had a voice up there in those circles? Like, does it yet have a voice? That's my first question. The second question is just what policy, if you were less cynical about policy and still had policy hopes, what would those hopes be for?

Jamie Beard

Oh, good, these are great questions. Okay, so, yes, there was lip service to geothermal in the IRA, unfortunately not well fitted. So it's ITC and PTC, they're meant to apply now across all types of renewables with a longer time frame to benefit from them. The problem, though, with geothermal, particularly on federal land, is the development and the permitting. Time frame is so darn long that you almost can't even make it even with the extended window under the IRA. Your second question was, well, did geothermal have a voice? Clearly no, because we ended up in the same spot.

Right. Where it's like, well, we're trying to fit geothermal, which is pretty darn unique, under a one size fits all policy to fit and solar and wind that are very streamlined in terms of permitting and much more predictable with very little ... no subsurface risk. Right, so it's like no, essentially no. Is it better than it was? Yes. But is it going to fix anything? No, probably not. So that's my answer there. I have hope for the future, though. I think when it comes down to geothermal, we're probably going to need to build a lot of individual state alliances that then go and build a coalition that go after federal.

Right. So it's like when we get a bunch of states and governors and state legislatures involved and motivated and feeling like that geothermal could be a really viable future economy in those states. And this is what. We're doing right now in Texas, if we can build that across other states that would really benefit from geothermal in the future, we may have a shot at getting geothermal a more impactful voice on the federal level.

David Roberts

But if that coalition came together, pressured the feds, and the feds did something, would that just be under the general heading of permitting reform, the kind of permitting reform that everybody is clamoring for now, or is there something more unique?

Jamie Beard

No that's so boring. Yeah, you told me I could pick just whatever, right? In terms of what the federal government could do, that would be really cool and impactful. And if you're going to let me have that leash, I will just take it and say, yeah, sure, fix permitting. Yes, please. But that's easy. If we want to really accelerate geothermal in a way that it catches geothermal up with other renewables, that geothermal has been substantially underfunded comparatively. Right. If we really want to catch geothermal up, then we need to say make an office of subsurface energy, put geothermal CCUS and lithium in it, and build it ARPA-E style.

Interesting, right? So we've got high risk, high reward type, big investments going toward trying to figure out how to do all these three things really well.

David Roberts

DOE has got the Earthshot, right? I mean, it's putting some money toward that kind of stuff.

Jamie Beard

Yeah, but David, we're talking about like $200 million here, $100 million there, and we're comparing that for geothermal with a billion here and a billion, right? And so it's like, what are we doing? You all right? What are we doing here? So I would put the billions in the office of subsurface energy, put an industry advisory board, engage with that, and go, that would be ARPA-E style, high risk, high reward. How do we build this fast? Go, if I was in charge, that's what I would do.

David Roberts

So the game plan then the strategy here is get oil and gas interested, get them moving, get them funding startups, get them interested, get states interested and on board via oil and gas being interested. And then take your coalition of states and oil and gas industry to the federal level and move the Feds on permitting and just general more attention and money to Geothermal. That's the game plan.

Jamie Beard

That's the game plan. InnerSpace is launching ten more. So we did the future of geothermal in Texas. We just published that a couple of months ago. We're launching ten more states this year.

David Roberts

Oh, interesting.

Jamie Beard

We're building the coalition.

David Roberts

Is Washington just at a ...

Jamie Beard

No sorry

David Roberts

No geothermal activity in Washington?

Jamie Beard

No, it's not that. Washington is great. You've got awesome geothermal resources. We're focused though, on oil and gas state, traditional energy states, oil and gas states, right. So we're really focused on states that have a real interest in their current oil and gas economies and focused on getting them excited about building that into a geothermal economy.

David Roberts

I got to say, if you manage to navigate the red-blue divide with an energy source without getting Hoovered into culture war on either side, that's going to be a real historical accomplishment.

Jamie Beard

Yeah, that's something to keep eyes on. More on that later. We'll talk about that one. We'll come back in a couple of years, David. We'll see. How that's going.

David Roberts

Awesome. Well, the pace things are going, I'd love to have you back in three years. I'm sure it'll be transformed. Exactly. We'll be on to some other use for lasers. All right, Jamie Beard of InnerSpace, thank you so much. I've been meaning to have you on forever. This is beautiful. This is exactly what I wanted. Thank you so much for coming on.

Jamie Beard

Awesome, David. Thanks so much. This is fun.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's Volts.wtf so that I can continue doing this work. Thank you so much, and I'll see you next time.

The exact definition of “clean” hydrogen, interconnected with the definition of “clean” electricity, has enormous implications for the distribution of federal tax credits to boost the industry. In this episode, hydrogen expert Rachel Fakhry of the Natural Resources Defense Council discusses what’s at stake.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Volts subscribers understand that a decarbonized energy system will require lots and lots of hydrogen, to store energy and to serve as a fuel in applications that are otherwise difficult to decarbonize. They also understand that while 95 percent of the world's hydrogen is currently produced using fossil fuels, there is a carbon-free way to produce hydrogen.

It involves running electrical current through an electrolyzer, which splits hydrogen out of water. (Volts listeners heard all about electrolyzers a few episodes ago.) But the resulting hydrogen is clean only if the electricity that is run through the electrolyzer is clean. That's the recipe for clean hydrogen: clean electricity plus electrolyzers.

Democrats also understand the need for clean hydrogen to scale up quickly, and they included tax credits for clean hydrogen production in the Inflation Reduction Act.

And therein lies the rub. The IRS is currently in the process of determining exactly how those tax credits will be structured and to whom they will be available. At issue is a question that sounds simple but turns out to be devilishly complex: what exactly counts as clean hydrogen? More specifically, what exactly counts as clean electricity?

The details matter enormously — up to $100 billion worth of subsidies are on the line. Big companies from BP to NextEra are lining up to try to make the standards as lax as possible, to maximize their short-term profits. But lax standards could perversely end up increasing greenhouse gas emissions, as electrolyzers come online, gobble up the available clean energy, and push grid managers to start up fossil fuel plants. (For more, read Canary Media’s deep-dive series on the hydrogen tax-credit battle.)

To get to the bottom of all this, I’m excited to talk with Rachel Fakhry, who runs the hydrogen and energy innovation portfolio at the Natural Resources Defense Council, about the technical details of this fight, the ability of the industry to meet higher standards, and the enormous stakes involved, for the industry and the larger project of decarbonization, in getting it right.

So with no further ado, Rachel Fakhry. Welcome to Volts. Thank you so much for coming.

Rachel Fakhry

Thanks so much for having me Dave.

David Roberts

You're brave to come on and address this subject. It is big and complex and hairy. There's a lot of ins and outs, "a lot of strands in the Duder's head." So let's start. So we get we need a bunch of hydrogen. We get we need it to be clean. We get basically what clean hydrogen is, sort of. So let's just start first by talking about what are these tax credits? What does the Inflation Reduction Act contain for clean hydrogen?

Rachel Fakhry

So the IRA offers one of the largest subsidies for clean hydrogen in the world. It is a production tax credit which ranges between $0.6 to up to $3 per kilogram of each hydrogen produced. And the three kilogram, as I'm sure we'll talk, is kind of the big prize that all the projects are gunning for. It is a technology-neutral credit. So there's no colors green, blue, pink, any of that. It all depends and is tied to the life cycle greenhouse gas emissions of hydrogen. That top prize of $3 can only be eligible for clean hydrogen that achieves zero point 45 kilogram of carbon per kilogram of hydrogen relative to today's status quo hydrogen that's gas derived uncontrolled, which is roughly around ten.

So to get that top rise, you have to reduce emissions from status quo by 95%, which is a lot.

David Roberts

Right.

Rachel Fakhry

You have to be very clean to get that. And it's a very long list credit. It lasts for ten years for each project that gets it, and projects that commence construction as late as early 2033 would still be eligible. So what this means is that by 2045, you could still have hydrogen projects that are getting taxpayers dollars. Even if we think the technology is going to improve and drop in price and so on, there are going to be projects still heavily subsidized.

David Roberts

Yeah, it's a lot of money. One thing I would add, just in case listeners are not familiar ... listeners have probably heard production tax credit and investment tax credit, PTC and ITC, tossed around just for anybody who doesn't know a production credit, you get a certain amount of money per quantity of the subsidized thing produced. So, in other words, this is you get the subsidy per ton or per kilogram of hydrogen produced versus the investment tax credit, which subsidizes capital costs of building the thing in the first place. And these have somewhat different dynamics, which I think we can return to later.

But this is specifically, it's the production of hydrogen per kilogram that gets the subsidy. And you note the subsidy for the lowest, for the cleanest hydrogen, is $3 a kilogram, which is huge. What's the next tier like? What do you get if you don't quite reach that threshold?

Rachel Fakhry

It's a big cliff. You drop from three to one dollars per kilogram.

David Roberts

What?

Rachel Fakhry

Yeah. And this is, I think, an excellent indicator of the type of hydrogen Congress really wanted to incense. They really wanted to incent the cleanest of the cleanest.

David Roberts

Yeah. So this is actually an important background fact about these subsidies, is they're non-linear. They don't scale up linearly with the cleanness. There's, as you say, a big cliff like the jump from not meeting that top threshold to meeting it gets you from one dollar per kilogram to $3 per kilogram, which is a huge increment. So all of which is to say, how you define how exactly you structure who is in that top tier matters enormously. There's an enormous amount of money on the line.

Rachel Fakhry

Absolutely, we'll get to that. But it all hinges on how treasury guidelines will look like for determining the life cycle greenhouse gas emissions, which in turn will determine whether you get the top prize or something much more reduced. But since you mentioned that it's a lot of money indeed, this is an uncapped credit. It depends on how much hydrogen you actually produce, but we think this could be more than $100 billion. Our colleagues at Energy Innovation have produced a really useful number, essentially taking one of the larger hydrogen projects being announced in Texas between AES-Air Products, large electrolyzer powered by wind and solar on-site.

They estimate that between the hydrogen tax credits and the renewable tax credits, it could be a $30 billion subsidy for just one project.

David Roberts

Holy s**t. So I just want to flesh that elbow just to make that clear for listeners. You have a big sort of solar and wind renewable energy installation attached to an electrolyzer in this Texas project and you're getting the tax credits for wind and solar and you're getting the tax credits for producing the hydrogen. That just means like, as you say, $13 billion. That's a huge ...

Rachel Fakhry

It's a $30, actually 3-0.

David Roberts

$30 billion in subsidy. Criminy, yeah. So the point is, as a background for all the rest of this discussion, we are dumping a ton of money on clean hydrogen specifically, all of which is to say this fight over how to define it, over what counts and what doesn't is not an arcane technical matter here.

There are billions and billions and billions of dollars of subsidies on the line depending how we answer these questions that we're going to get into.

Rachel Fakhry

That's absolutely right, Dave. Yeah.

David Roberts

So NRDC and a coalition of partners has put forward what they call the three pillars of clean hydrogen. Did that originate with you? Where did the three pillars framework come from?

Rachel Fakhry

I'm happy to say we had nothing to do with the origination. Also very happy to claim credit. The three pillars are decidedly not new. They're already at the heart of a debate around the effectiveness of voluntary renewable corporate procurement. So these are not new dynamics we're bringing to the hydrogen debate. We're actually having the hydrogen debate ride the broader issues within the market like any other energy resource.

David Roberts

So these three pillars are the idea is if you meet these three criteria, then you count as truly clean hydrogen. And every one of these criteria is controversial. Every one of these is being fought out now between industry that wants lax standards and your coalition that wants strict standards. So let's go through the three pillars.

Rachel Fakhry

Great.

David Roberts

The first one is additionality, which I think people probably have some vague familiarity with. But let's spell out what it means in this context.

Rachel Fakhry

Before we do that actually, just to step back on a couple of things. Yes, you're right. There's a lot of contention around at least two of the three pillars. But it's funny because everyone is kind of picking and choosing what they like and don't like. So you have folks who are fine with hourly matching others who are okay with additionality. So everyone will get to it. But within the opposition, we're seeing this kind of like cherry picking within the bouquet of pillars, what works and what doesn't work. But let's start with why do we even need the pillars? And as you noted, the pillars are additionality, deliverability, and hourly matching.

So why do we even need those pillars? As you've alluded to, the credits entirely hinges on how the lifecycle of hydrogen or lifecycle emissions of hydrogen are determined, which means that the Biden administration treasury, in collaboration with the OE, EPA, and the White House, will essentially determine how this credit will impact our energy system. But calculating life cycle greenhouse gas emissions can be quite tricky, and the complexity really varies from project configuration to another. So, for example, if you have an AES-Air Products-like project where you have a big electrolyzer not connected to the grids, only powered by renewable energy on-site, easy, that's a zero emissions rate.

However, when you move to a different configuration of electrolyzers that are grid-connected, drawing grid power and buying credits or offsets to net out those emissions, it becomes really complicated. And this is the classic kind of complexity of offset systems.

David Roberts

Yes, anybody familiar with the arguments over offsets will be somewhat familiar with these concepts.

Rachel Fakhry

Exactly. So we need some parameters and rules around how these offsets are accounted for since there's so much money at stake and so much emissions at stake. And this is especially true for electrolysis. Now, electrolysis is an energy-hungry process, which means that even if it draws small shares of fossil fuel electricity, that would have significant emissions. So, for example, an electrolyzer that is powered by the average grid today would have twice the emissions of status quo hydrogen and 40 times the threshold of 0.45 threshold to be eligible for the $3 per kilogram.

David Roberts

Yes. That's so wild that I just want to put an exclamation point next to it. So everybody understands our starting point here is if you just make your electrolyzed hydrogen with the average grid electricity, with the sort of average mix of sources that we have on the US grid. Not only will you be 40 times more carbon intensive than the threshold for the subsidy, you'll be twice as carbon-intensive as making the hydrogen directly from fossil fuel. So the difference between drawing on, as you say, this project in Texas has its own renewable energy installation next to it. so right, it's very clear where that's getting energy.

The difference between that getting clearly clean energy and getting average grid energy is not a small increment of greenhouse gases. The average grid electricity is vastly more carbon intensive than what we're aiming for here. So all of which is just to say you can't just build an electrolyzer and plug it into the grid and call it clean because you're not getting clean power. Basically.

Rachel Fakhry

That's absolutely right. So if we are subsidizing projects that have twice the emissions of today's status quo hydrogen, then that's going to increase your emissions of the system as a whole. And now this is inarguable, what we're seeing coming out of Princeton. An upcoming study by Energy Innovation, a recent study by Rhodium Group, all agree that absent the three pillars which we'll discuss, emissions will increase in this decade, completely contrary to where we need to go and subsidized by what is a climate bill.

David Roberts

Yes, it would be wild to spend $100 billion of public money to substantially raise carbon emissions. That would be a perverse outcome, let's just say.

Rachel Fakhry

Absolutely an awful story. Let's now dig into the pillars. You can think of them as parameters around those offsets that will be used, that are the only ones that will ensure that the offsets are effective at truly netting out all the emissions being driven by electrolysis. Happy to dig into it some more, but I should note from the outset that after a thorough legal analysis, I can announce with confidence that the three pillars are legally necessary and that treasury has all the authority it needs to implement them rigorously.

David Roberts

And I want to get into this a little bit later after we go through them, but my question is, can they not are they legally allowed not to use them? Because the industry is encouraging. But we'll get into that in a minute. First, we've been talking around the three pillars. Let's go through them. The first one is additionality, which people, I think energy aware people understand is if you just plug your electrolyzer into the grid, you're getting grid power, which is dirty. If you plug your electrolyzer into the grid and specifically consume renewable energy from the grid, the way that where you can just buy renewable energy certificates RECs, and say, I consumed this much and I bought this many RECs to offset it.

If you're doing that, you're not necessarily using clean energy because you're drawing from existing renewable energy, which means whoever else was using that existing renewable energy now gets bumped to something else, et cetera, et cetera. Bump, bump, bump down the line until the last person in the line is using whatever gets turned on when demand exceeds supply, which is generally fossil fuels. So all of which is just to say you're not using clean energy unless you're using new clean energy that you are bringing online to power your project. Is that roughly the sum of it?

Rachel Fakhry

That's absolutely correct. If you're going to bring new load on the system as an electrolyzer, you have to support new clean supply or additionality, although we're starting to move more towards new clean supply, which is going to be a more intelligible term for a lot of people. As you said, if you add demand to the grid, you don't bring new supply with it. As you say, the marginal generators will turn on to supply the added demand, and this will be gas. So you're going to end up having highly emitting hydrogen without supporting nuclear supply. And I always like to use this kind of visual of a world where additionality or new clean supply are not required.

This means that technically all existing nuclear generator in the US can sell their credits for hydrogen production because there's absolutely no requirement for the credits that will be used to offset emissions to come from new resources. They can come from existing resources which could be nuclear generators. There is enough nuclear generation to supply enough nuclear credits to dwarf even a high estimate of hydrogen production between now and 2030. So what this means is hydrogen production between now and 2030 where hydrogen electrolyzers could plug to the grid, do absolutely nothing, draw on grid power, have high emissions and purchase these cheap nuclear credits without really doing anything to the grids to really net out their emissions.

David Roberts

Right? And just to reiterate, all that power that is going to the electrolyzers from the nuclear used to be going somewhere else. So whoever was using that power before that's now additional demand on the system. And again, when demand exceeds supply, the marginal generator gets turned on and that's fossil fuels. So all those electrolyzers coming online and simply claiming that nuclear power, you'd get the truly perverse outcome of the electrolyzers claiming to be clean, but total emissions on that grid going up substantially.

Rachel Fakhry

That's correct. Absolutely. This is becoming, I think, inarguable in many sense that additionality is fundamental for the system to remotely work. And again, this is corroborated by all the studies that we're seeing here princeton Energy Innovation, Rhodium, and many, many EU studies which we can glean a lot of things from.

David Roberts

But you say it's clear and fundamental nonetheless. There are industry players specifically saying that the additionality, I mean, the additionality pillar is sort of the main axis of dispute here. This is precisely what big utilities don't want, an additionality requirement. And they have a lot of arguments for why. But one of the things they say, one of the arguments they had, which struck me as at least semi-plausible, is their sort of thing is you're doing these models like Princeton modeled all these electric ledgers coming online without the additionality requirement showing that it raised substantially raised grid emissions.

The industry's counter is, well, we have all these broad emission reduction policies. We got like cap-and-trade in Washington and California. We got the EPA coming out with standards on power plants and we got blah, blah, blah. So it's just not plausible that emissions overall are going to go up. It's the broader economy-wide emission reductions that are going to take care of emission reductions that shouldn't be our responsibility, basically, like we should just be able to use the existing clean energy.

Rachel Fakhry

Let's address that because we always hear this argument, right? Like why are you adding all these rules when the grid is getting cleaner and everything's going to be merry and great and we don't need to think about it? Let's take the IRA because it's always posited as the reason why we know the grid is going to get cleaner, so we don't have to worry about anything. The IRA is historic, right, and we're all very excited about it. And it has the potential to be a game-changer for the market. However, it's mostly carrots, very little sticks, so the outcome of it remains really not guaranteed.

We have a lot of work to do to make sure it's implemented in a way that actually delivers on all its potential. That's one, two, no matter how clean the grid gets in the next seven, eight years, you're still going to have the issue of marginal emissions. Right. Because marginal generators for the foreseeable futures will still be gas. So even if the grid is getting on the whole cleaner, and your electrolyzers are still running during those evening hours when the sun isn't shining, the wind isn't great, turning on marginal emissions or marginal generators, that would still be, on the whole, a very dirty hydrogen resource.

So essentially basing loosening up rules based on the hubris that everything is going to become clean. So when I have to worry about it, it's just demonstrably false.

David Roberts

Yes. It seems premature to be making policy premised on the notion that we're going to succeed in this long term thing of reducing emissions. It's a little early for that.

Rachel Fakhry

Exactly. And actually, right before I came in, I was doing a quick back of the napkin envelope calculation. Even if the grid were to be 80 plus percent cleaner than today, by 2030, you really still don't have a lot of margin to use grid power. No more than 10-20%. Again, electrolysis is power hungry, so even the smallest amount of fossil fuels will blow you right out of the IRA threshold.

David Roberts

Right. And I'll pause to say this, and I might repeat it a couple of times throughout the pod. This is not to say that an electrolyzer can't plug into the grid and start making hydrogen. It's just to say you're not going to get $3 per kilogram of subsidy if you do that. Right. These are not like harsh restrictions. We're talking about whether we're going to give you tens of billions of dollars. That's not the mean parent.

Rachel Fakhry

Exactly.

David Roberts

It's just some basic rules. We don't want to subsidize increased emissions. So it sounds simple, right? Like, if I'm I'm going to bring an electrolyzer online, I just bring a solar farm along with it. I use the solar farm's energy to run my electrolyzer. That's clearly additional, right. If I'm building on site renewable energy next to my electrolyzer at the same time, that's clearly additional. It's not as clear in some other fuzzy cases. So, like, let's say I come online and I sign a PPA for power with a solar and wind farm that was built a year and a half ago.

Right. So it's new-ish, but it's also the case that maybe if my electrolyzer hadn't come online, that clean power would be going to someone else, so I'm just displacing existing clean energy. So what exactly in these edge cases? What are we defining as new and additional? Is there some sort of threshold like the renewable energy must be built within six months, or how do we get specific there?

Rachel Fakhry

Yeah, that's a great question. There are several schools of thoughts. We haven't settled it. I think everyone agrees that this has to be the most straightforward way for developers, because, believe it or not, we're not in the business of suffocating this industry, Dave. We just want to make sure it's actually clean and in line with what we need. So you have a school of thought that says, look, simplify, just say anything after the IRA, or anything built after the IRA will count as new.

David Roberts

For ten years.

Rachel Fakhry

Yes, exactly. Yes. Pro. It's very easy to administer. I'm not a big fan of it because you put it well, this would have been built anyway. So by adding demand to a system that was being built not for me, something else will turn on the system, and that will likely be at least a mix of fossil fuels. You have another school of thought that wants to mirror what the EU did, the Europeans did. So they adopted a moving vintage, as opposed to that fixed vintage, and said, okay, additionality counts as a PPA signed with a new window solar farm that comes online within 36 months of the electrolyzer.

That is interesting. It's not perfect, but we have to be able to administer the system. I like this moving vintage. You can add the condition that additionality could be met by showing, say, in signing the PPA, that the electrolyzer accounts for much of the financial risk or helps secure the funding. You could add more conditions, but I like the moving vintage a lot more than the fixed vintage. And then you can layer on some PPA conditions to carve out the incremental financial effect of adding electrolyzer on the grid to window solar farm.

David Roberts

Right. And we should acknowledge in the end, there's some element of the arbitrary here because there is no absolute metaphysical correct answer in a lot of these cases. Right. Like, these are all about counterfactuals. Would the renewable energy have been built in the absence of this electrolyzer? And like any counterfactual, there's no definitive ... there's no way of being definitive. Right. You're just using heuristics in the end, you have to define some thresholds somewhere. But this is not an area where sort of precision and certainty are really possible.

Rachel Fakhry

That's correct. A system that works well, that is rigorous enough to minimize against the worst, I think, is good enough for us.

David Roberts

And the last thing about additionality is, of course, the big argument from industry is this will substantially raise costs, it will wipe out the cost advantage we have against existing gray hydrogen and it will strangle the industry in the crib and it will never get going. And in some sense, this is all too about a counterfactual. We're all arguing about what would happen if we did x and so no one can really definitively say, but what evidence do we have that that's wrong?

Rachel Fakhry

The dead on arrival claims obviously are being branded right that we are going to say ...

David Roberts

Yes, dead on arrival.

Rachel Fakhry

Absolutely. So I would love to talk about the costs for the three pillars as a package because I think this is the really interesting one.

David Roberts

Okay, but yeah, let's put the cost off tour through the pillars then. That's a good idea. The second pillar is much more simple, we can get through it pretty quick. So the first pillar is additional. For your electrolyzer to be clean, it has to be drawing from new renewable energy. The second is regionality, which means your electrolyzer has to be drawing new clean electricity from the grid you're on, from the regional grid you're consuming on. So you can't just buy like if you're on a super dirty grid and you're buying clean energy, that's made in California, right?

Like clean energy in California is not displacing nearly as much carbon as clean energy on your dirty grid where you're operating would. So grids are not equivalent right, in terms of carbon emissions. So you need to be displacing carbon on your grid. And that's pretty straightforward. And as far as I can tell, most everybody agrees roughly with this idea. I think insofar as there's any controversy, it's just sort of like where do you draw the line? What is the same grid? Is there controversies there worth getting into?

Rachel Fakhry

You're right, this is one of the least contentious pillars. Everyone agrees that there has to be some geographic bound to the clean energy you claim is netting out your effect.

David Roberts

Right.

Rachel Fakhry

In terms of how do you define the boundaries, there are several options that could work. We're still considering which one makes the most sense. The simplest one is to say, look, as long as the electrolyzer and the new clean supply are located in the same load balancing authority, that's good enough for us. That's very simple. However, it could have some issues because some load-balancing authorities are very large and streaked with a lot of congestion. Like for example, MISO is an excellent one, it's the one load-balancing authority and yet there's a big transmission constraint between MISO North and MISO south.

Meanwhile, under that system you could still locate your electrolyzer and your new supply anywhere you want with disregard to the actual congestion and whether you're actually netting out your emissions with this clean energy project that you supported or not. So the other approach, which is a hybrid, quite interesting, and I'm leaning towards that one. It says, okay, let's break it out between RTO regions and non-RTO regions. Within RTO regions like PJM, MISO, ERCOT, so on. We have to look at the LMPS, which are a good proxy for congestion, locational, marginal prices, right?

David Roberts

And those are set around a particular node on the grid. And the node on the grid is what just is there a clear definition of what counts as a node? Is it just where there's a transformer or what?

Rachel Fakhry

That's a good question. I mean, usually, it's going to be the place that sets the price. I don't know how to explain it in engineering terms, unfortunately.

David Roberts

Well, just say it's the atomic unit. Let's say if you're looking at grids, sort of like a grid is made up of nodes.

Rachel Fakhry

Correct. And it's the excellent, kind of the best proxy. We have to understand the supply and demand dynamics around a granular piece of the grid. So I like this because RTOs already report LMPs they already report them and collect them and so on. So the notion is that electrolyzers and the clean energy supply that is netting out their emissions need to be located within a region where the LMP differential is not bigger than X.

David Roberts

Right?

Rachel Fakhry

That is a very good proxy for okay, there's no congestion between the two that's roughly deliverable or mostly deliverable projects. Developers already hedge against LMPS and signing contracts. This is not new to look at forecast of LMPS. So we think this is a familiar tool.

David Roberts

Right, so the data and information is there to make these calculations. Now, we wouldn't have to produce any new data, right?

Rachel Fakhry

But to continue that for non-RTO regions like the Southeast, where utilities don't necessarily report those, we're fine keeping it to the LBA or the load balancing authority because anyway, those tend to fit nicely with state boundaries. So congestion will not be unmanageable there.

David Roberts

Okay, so that's additionality got a new clean energy, regionality it has to be in some definition, local clean energy. And then the third pillar is another controversial one. This is temporal granularity, which to put it in a more human-normal way is just you need to match your consumption to production of renewable energy or clean energy on an hourly basis rather than the more conventional yearly basis. So again, Volts listeners who have been paying attention will be familiar with this general notion. There are lots of corporate players now like Google. Google wants to go zero energy.

And the easiest low-impact way to do that is just say we consume X a year, we're going to go buy renewable energy certificates for X amount. Boom, we offset our use, we're clean. That's sort of like step one. But Google realizes that's not really accurately, that's not accurately about your emissions and how much you're offsetting. So Google wants to move to an hourly system where it's measuring how much its consumption is matching up to renewable energy production on an hour-by-hour basis, so that it can truly be zero carbon, so that it can truly offset its actual emissions in the actual world, not just as an accounting practice, right?

So this notion is out there. So the idea here is that electrolyzers that want to be counted as clean should be required to do that. They should be clean on an hourly basis. This is extremely controversial for a bunch of reasons, but let's start what industry wants, or what the constellation or next era the utilities want is just they're like, look, we have this system of yearly renewable energy certificates, yearly RECs, it works perfectly well. Why can't we just offset our energy on a yearly basis like everyone else does? Why are you making us do this bespoke granular thing?

So just what's wrong with yearly offsetting?

Rachel Fakhry

You've already teed it up really well. This is not a new dynamic, right? This is where there's much more demand for granular tracking to really effectively claim that you are powered by clean energy. Annual matching is just no longer seen as an effective way of reducing emissions and still sends a signal that fossil fuels are needed. And this exact same thing applies to hydrogen, right? So suppose there's a Dave Roberts electrolyzer contracted with a new solar power project, but you run this electrolyzer at night or both when the sun is shining, when there's no sun, turning on the marginal generator and producing very high emissions.

However, you have the sufficient volumetric amount of solar RECs that were produced from the solar project you contracted with that are enough to on paper.

David Roberts

Right. So on an accounting basis ...

Rachel Fakhry

Correct.

David Roberts

I have offset my emissions. But in the real world, the solar is producing the energy during the day, I'm consuming energy during night. So in the real world, I consumed dirty power almost that entire time.

Rachel Fakhry

And there's something perverse here, which is the cleaner the grid gets, the less your solar power will likely start abating emissions during the day because you'll have more solar on the system. And when you turn on at night as an electrolyzer for the foreseeable future, gas will always be the marginal resource. So on the whole, you'll be producing a lot more emissions than you're actually reducing. So it's an interesting perverse effect that may happen with a cleaner grid. All this to say that hourly matching is necessary to meet statutory requirements to meet the IRA threshold of 0.45 kilogram per kilogram to get the $3 per kilogram.

And this is corroborated by, again, Princeton, upcoming Energy Innovation study, even Rhodium study, which was not very friendly to hourly launching in near term, found that without hourly matching, emissions could increase cumulatively by roughly 100 million metric tons this decade. Enormous, right?

David Roberts

We spent $100 billion to raise emissions. 100 million tons.

Rachel Fakhry

There we go. That's the US scarce system for you. This is why we absolutely need this. It's corroborated by studies, you cannot reach the IRA threshold without tracking your consumption on an hourly basis with the clean energy project that you procured with.

David Roberts

Right. So there's two big objections to this from industry. The first is from industry and also is shared by some other analysts, which is just that the system of hourly matching, basically producing hourly RECs rather than yearly RECs is just not mature. It's just not ready. There's not enough people doing it. And forcing the industry to wait on that, getting stood up and sophisticated enough to work would delay the industry in these crucial first few years. So a lot of the argument is just over. How baked is hourly matching? How ready is it?

Rachel Fakhry

Yeah. I find this to be a little bit of a lazy argument because it clearly does not look at the state of play on the ground nor what the experts say could happen within less than two years. So I think now even for folks who are out there saying this is not doable in the near term, it needs time. Even those folks agree that there are no technical challenges to doing this. This is really not rocket science. Generation is already metered. Consumption is already metered. You just need a REC in the middle that can capture the hourly variations.

David Roberts

And people are doing it. It's not just that it's doable now, but people are doing it.

Rachel Fakhry

Exactly. The two biggest registries in the US. M-RETS and PJM are now offering hourly tracking. M-RETS has been doing this for three years, even in places where M-RETS and PJM, I mean PJM is new. But even in places where M-RETS does not track, there are third-party tracking mechanisms. There are utilities that are not sophisticated, necessarily smaller, kind of like Madison Gas and Electric, for instance, in Wisconsin offering 24/7 tariffs that require hourly matching. The momentum is in this direction. The Biden administration put out an executive order now requiring that the federal government by 2030 hourly amount.

David Roberts

The federal government's going to have to start accounting for hourly ...

Rachel Fakhry

If the Feds can do it anyone can do it.

David Roberts

Yeah. And let's just pause and stress here that PJM is a big Midwestern wholesale power market and balancing area that has developed and implemented hourly matching just in the last year. So this is like a big industry player. These are not like little startups or whatever that are doing this.

Rachel Fakhry

And they did that because of customer demand. Right. Again, everyone tries to blame the pillars on hydrogen. The market is heading in this direction anyway. This is just about meeting what the law requires and making sure we're actually consistent with the direction of the market. So it's already being done. M-RETS has said multiple times, look, we're willing to track anywhere in the US or roughly anywhere in the US. But if registries want to scale themselves from annual to hourly, experts say, look, you can scale very fast because there are no technical issues here. You could scale within 12 to 18 months.

That is much less than what electrolyzers will need to scale. Right. They'll need two years plus. So again, I always say it's a lazy argument because it doesn't take into account what's already happening, how long it took for it to happen, and how fast things can scale if everyone else wants to do it as well.

David Roberts

Yes, and one thing I also point out is right now the big companies that don't want to mess with it, don't want to mess with hourly matching are whinging and whining about it. But if you put it on paper and made it a requirement, all of a sudden they would be advocates for it and boosters of it and would be accelerating it. This is the thing. It's like if there's $100 billion pot at the end of the rainbow, of course, utilities are going to figure out how to hourly match. Like utilities will do a lot of things for $100 billion, you know what I mean?

So this whole idea that like, oh, thanks for offering the $100 billion, but it's such a hassle, come on guys, if there was $100 billion on the line, I'm pretty sure you all could figure out how to do this.

Rachel Fakhry

Absolutely. I mean, Hydrogen Europe in the European context was a big trade group for hydrogen companies and so on, who fought the European Commission tooth and nail for two years against hourly branding messages that this is not doable it's. Impossible after the passage of the European rules requiring hourly starting in 2030 but with no grandfathering. Which means project have to start doing hourly really effectively today. Anyway, they came out to say, yeah, this is doable, singing the same song. It's going to be more expensive, but hey, it's going to be doable. So it's a really interesting sneak peek into what you were saying of when there's such a big prize at the end of the tunnel and something already happening with all the technical elements already in place, we should not be worried, it should not happen, it can't happen, it will happen and it can't happen.

David Roberts

Right. Like you say, this whole fight went down in Europe and got settled and now they're doing it. So it's doable. So you're confident that if this was made a requirement by the time the first electrolyzers started coming online, which would be two or three years out at least, just to get them built, hourly matching could be ready. You're confident of that?

Rachel Fakhry

Yes, and I'm definitely not the expert about that. I have listened to the big experts who have done this, who are the ones who have the biggest stake in doing this. They all agree this could be done in a very short period of time and it's already being done. So technically, M-RETS, again, I have to repeat, can do it almost everywhere in the country. If there needs to be some nationwide harmonization between various regions and so on. This could be done really fast.

David Roberts

Right. So the other thing that sometimes comes up in the context of this hourly idea is that if you are really only going to be operating your electrolyzer in the actual hours where clean energy is producing, you are by necessity going to be starting and stopping your electrolyzer. You're going to be cranking it up when the clean power comes online and cranking it back down when the clean power goes offline because there's no point in producing if you're not getting that big fat subsidy. And the sort of conventional wisdom is, I think that electrolyzers are one of these big industrial applications where the finances, the business case depends on it running constantly and that if you force it to ramp up and down to matched coming and going power, you're going to ruin the economics and people won't build them.

What do you say about that flexibility question of electrolyzers?

Rachel Fakhry

Great, let's address that and then definitely want to get to the cost because the jury is no longer out as to whether it's doable. Hourly margin is doable. Now the jury is out as to, wow, is it going to be super costly and suffocate the industry. So I would love to get to the cost piece, but on the flexibility, false period. Electrolyzers are designed for intermittency, specifically PEM electrolyzers. And I know you've had that great conversation with Electric Hydrogen and Raffi Garabedian. They're one of the foremost PEM manufacturers. They're designed for intermittency, so they can absolutely handle that. Now, this is where kind of okay, from a technical standpoint, there's nothing that stops electrolyzers from ramping up and down.

Let's get to the cost piece, which is the real big one here. I think the first question we need to ask is what are the operational parameters that will make electrolyzer pencil out? Is it running 24/7 or something less than that? And what we're seeing is that they don't need to run 24/7 to achieve cost-competitive economics. It's somewhere closer to 50% to 70%. And the reason is that the more you operate, that's okay for your CapEx, that's good, but you're going to start capturing higher and higher power prices. Electricity prices are the biggest cost component of electrolyzer.

So at some point you're going to start having diminishing returns with higher and higher operations. And that is not at all kind of new information. We've known this for a while. The IEA, IRENA, even Hydrogen Europe. Again, that industry trade group I mentioned have all agreed that or shown that really optimal operations are between 50% to 70%. So we've established it. We don't need 24/7 operations. We need somewhere between 50% and 70%.

David Roberts

And 70% capacity factor, what they call running 50% to 70% of the time.

Rachel Fakhry

Correct. Absolutely. The good news is what we're seeing from a range of analyses being done by developers, OEMs, independent research groups, is that with hourly matching. You can achieve those levels in many places in the US. And the winning strategy is to oversize a wind and solar hybrid in a region with decent wind and solar, it doesn't have to be best in class and you can achieve those levels of operation and be very cost competitive.

David Roberts

Right, just to flesh out that picture you just painted, because I think it's really interesting. So we were talking about how if you build an electrolysis and you build say, a wind and solar hybrid power plant next to it, attached to it, not even attached to the grid, just attached to it, obviously the resulting hydrogen is clean, right? That's the unambiguous case. Then there's a second option which is also unambiguously clean, which is building the same arrangement, connecting it to the grid, but never drawing power from the grid. Right. Only using the locally produced power, but then overbuilding that wind and solar power so that it's producing more than you need.

And then exporting the extra to the grid as another income stream. So you get a couple of things from that. One, wind and solar tend to be anti-correlated, right? So like one's on when the other is not. So you're going to cover more of your get your capacity factor up and you get extra money from selling your extra renewable energy to the grid so that's the completely off-grid and then the sort of one-way connection to the grid. Both those are viable options where you're only consuming the local clean energy you generate. But in the second case, you're also selling excess clean energy, which is improving your economics.

Rachel Fakhry

Absolutely. And it could be good for the grid too because you're probably only going to sell that power during high grid hours or high grid prices.

David Roberts

Right.

Rachel Fakhry

Which means that the grid really needs it, right? So you could actually be helpful. You don't need to sell that much excess, right, because some folks are saying, well, what if you don't have that ability to sell your excess? The economics will still work. Oversizing a wind and solar hybrid seems to be a really interesting case for those early electrolyzers that need to run more than a certain share because they're so expensive.

David Roberts

So you oversize your wind and solar to the point that you get your electrolyzer up to the capacity factor that you need it to be economic. And then if you just curtail the rest of that wind and solar waste, it basically still the economics work out you say.

Rachel Fakhry

What we're seeing, yes, it would still work. The credits are rich enough to make things work. And let's translate the credit from a dollar per kilogram to a dollar per megawatt hour because folks kind of understand the dollar per megawatt hour a little bit more.

David Roberts

Right.

Rachel Fakhry

At the current efficiency of electrolyzers, you can generally produce about 20 kilograms hydrogen per megawatt hour of power you consume. You're getting $3 per kilogram for every kilogram of hydrogen you're producing. So that's a total of roughly $60 per megawatt hour of subsidy, which means that you're willing to pay power price of up to $60 per megawatt hour and the PTC is still going to kind of make you whole. Now, things are a little bit more complicated than that, but this shows you just the significance of this subsidy in terms of how much it could reduce the input costs to your system.

David Roberts

Right. Coming back again to the enormous size of this subsidy relative to the industry. So the industry's sort of complaint, as is familiar with the proposal for any new regulation of any kind, is that this regulation will cripple the industry. It's too much, too restrictive, too much hassle. It's going to strangle the industry in the crib. It's not affordable. And just to throw a specific worry in there amidst that, one of the sort of concrete worries is that if these restrictions raise the price of green hydrogen in the short term, one perverse effect might be that more of the market turns to blue hydrogen, which is hydrogen made with fossil fuels, but then with carbon capture and storage attached to it.

And that carbon capture and storage is also going to get a big fat subsidy out of the inflation reduction act. So the worry here that I've heard articulated is you make truly clean hydrogen more expensive. You're just going to shift the whole market to blue hydrogen and then they're going to get sort of locked in. You're going to get path dependence, you're going to get blue hydrogen sort of making itself a place in the market, even though everybody knows in the long, long term we need it all to be green.

Rachel Fakhry

Right.

David Roberts

Do you think there's anything to those worries?

Rachel Fakhry

I would love to say one more thing before we close up on the pillars because it kind of is related to this argument that oh, we're going to suffocate the market so much that blue is going to win. What is really interesting in what we're seeing from opposition to the pillars is something I alluded to earlier, which is we're now seeing the opposition sort of splitting. And you have renewable developers that do not like any of that starting to come around to additionality or new supply because it's like, hey, I could sell more wind turbines.

David Roberts

Right. Why on earth would they be opposed to this? This is a requirement that a bunch more renewable energy get built.

Rachel Fakhry

Exactly. This is where the hourly matching piece comes in. Right. So you have a next era in Florida that has very little access to wind, if any. Well, maybe it can't do hourly matching because it's going to be pretty low utilization of its electrolyzer if it's only following solar. Today that may not work. Now, in a few years, as electrolyzer prices drop and you can run your electrolyzer much less, hey, let the market be the market. Right? But today what we're subsidizing, we want to make sure they're actually clean projects. NextEra may not be able to do that.

So now you have NextEra kind of saying, "Maybe additionality is fine, hourly matching is out of the picture." Meanwhile, you have Constellation, the nuclear giant, right? Would love to talk more about their plans because they're truly incredible. They're fiercely fighting additionality or new supply because it doesn't allow them to utilize a lot of their existing nuclear plants. But they love hourly because nuclear generates 24/7.

David Roberts

Hourly is nothing to nuclear.

Rachel Fakhry

Nothing to nuclear, right? They come on top compared to any other resource. So you have Constellation fiercely supporting hourly, fiercely opposing additionality. So it's kind of a bouquet where everyone just chooses whatever maximizes their own.

David Roberts

Whatever is going to work best for their short-term profits. Let's just say.

Rachel Fakhry

Emissions be damned. Right. But let's get to the blue hydrogen question because this is a new argument that I'm truly fascinated by. I don't see any evidence of that. So the 45Q carbon capture and storage tax credits are indeed generous and in some pockets of the US. Yes, indeed. We expect that blue hydrogen could be competitive and be deployed by utilizing the 45Q credits. But we're not seeing blue hydrogen projects' levelized cost of hydrogen dropping to less than $1, which is kind of the threshold for today's hydrogen, or dropping to even zero and negative, which we're seeing in some places in the US.

Where renewables are particularly great. We're hovering around zero, right? So I don't see the huge subsidy that we're seeing in some pockets for electrolytic hydrogen. And blue deals with its own challenges. Right. You need to be close to a carbon storage basin. You may need carbon pipelines.

David Roberts

Well, you need carbon capture.

Rachel Fakhry

Correct.

David Roberts

That works, which is itself. It's not something that's been shown in the US.

Rachel Fakhry

Exactly. Blue hasn't had a merry, or CCS hasn't had a merry trajectory so far. I don't know why blue hydrogen is going to just mushroom all over the place. If you take the one blue hydrogen project that's been proposed in Louisiana by Air Products, that's been held up in public opposition for months now. So besides the fact that CCS has not been easy to deploy, you have to be close to a carbon storage basin. You may need pipelines. Public opposition is a real thing here for more gas infrastructure. So it's one of these illusory scare tactics being branded that if you actually unpack dynamics, I don't see any evidence of that.

David Roberts

So no worry about blue hydrogen. And I kind of agree. Everybody keeps deploying CCS in these theoretical model ways and I keep kind of thinking like somebody needs to actually go build a couple of these things and show that they work. Before we continue any of these conversations.

Rachel Fakhry

Build a couple that work. First yeah.

David Roberts

One way to address the sort of notion that these three pillars raise costs too much is to point out that there are existing projects being built that will meet the three pillars that are penciling out. Talk a little bit about what we're seeing happen now.

Rachel Fakhry

Sure. The AES-Air Products project that we discussed, that's one of the bigger projects in the US. That's going to be three-pillar compliance.

David Roberts

Are they building on-site? They're entirely on-site renewables?

Rachel Fakhry

I believe so, yes. Fully hourly matched. So it will go up and down with the production of wind and solar. Intersect Power, historically, big solar developer moving into hydrogen. They have a bunch of projects in the pipeline that are three pillars compliant. They're one of the best voices out there demonstrating this is doable. Right. And I do want to point that I know we've joked around and there's a lot of industry players that are trying to steer billions of dollars to maximize their profits. But there's a subset of industry players have been just excellent. Right.

Intersect Power, Electric Hydrogen, whom you met with, Synergetic, others have been really just fantastic at showing that this is absolutely feasible. And if you look at Europe and the rest of the world, these three pillars compliant projects are popping up everywhere.

David Roberts

And the European hydrogen, whatever, body that has more or less came out and said, "We've looked into this, we believe the three pillars are doable."

Rachel Fakhry

Absolutely. I mean, everyone keeps pointing to and happy to speak to the EU case, but everyone keeps saying, look, they pushed their hourly matching to 2030. That's not doable. It's a wildly different context. First of all, if you look at, there's no grandfathering. So projects can start monthly, that's fine, but they have to switch to hourly by 2030. They sign long-term contracts. No one's going to sign a contract for 15-20 years based on first monthly matching and then hourly, they're going to set themselves up from the outset to be able to hourly match that's one.

Two, the Europeans have a regulatory barrier to implementing hourly matching that we don't. They have to pass a federal law first, have it translated to 27 member state laws.

David Roberts

Yeah.

Rachel Fakhry

That was one of the reasons why the delayed hourly matching, again, without allowing grandfathering, we don't have any of that. Right. So just the EU context keeps getting branded left and right, but the devil is in the details and we can glean a lot from that. And I'm hoping we can get back to that because it's an important example.

David Roberts

One of the things you hear industry say is if you force us to make the hydrogen in close physical proximity to the renewable energy, we're going to end up like renewable energy far away from load. And that will mean we'll have to transport the hydrogen, we make long distances to where it needs to be used and that transport, the building of that transport infrastructure is going to sort of offset whatever emission gains you think you're making by forcing us to be near the renewable energy. You're not taking hydrogen, the transport of the produced hydrogen into account. So how do you think about that?

Rachel Fakhry

Well, first of all, no one's opposed to grid-connected projects. So I don't know where this hypothesis comes from that we're forcing projects to be very close to renewables.

David Roberts

Hey, if you well, at least in the region, right? The same region.

Rachel Fakhry

Correct. If you can do your three pillars and connect to the grids and produce your hydrogen closer to your load, that's great. We support that as long as you do your pillars. The second kind of comment I have to this is if you look at the map of where hydrogen demand is today, it's going to be in areas where there's a good resource of renewable energy. So it's mostly Texas and the Gulf, but also in the Great Plains midwest region for ammonia and refineries. And we know that those existing customers will likely be the biggest source of demand in this decade for clean hydrogen because they already have existing supply chains, and so on

David Roberts

Making clean fuels.

Rachel Fakhry

Yeah, replacing existing status quo hydrogen with cleaner hydrogen. Let's put it this way. Yeah, that's going to be the bulk of demand in this decade. Which means that if you look at the map, you're not far off from sources of good within solar. Which means that this transport thing looks pretty manageable. If you consider where the sources of clean hydrogen in this decade will likely be, they're in pretty good resource regions. The third piece that I think is key to keep in mind is that the 45V tax credits are not the only subsidy on the table.

Right? They can't solve every single industry problem. This is where it becomes kind of part of a menu of subsidies. So the DOE Hydrogen hubs, money biggest DOE demonstration project in its history, is going to help address a lot of these ecosystem issues.

David Roberts

Yeah, the idea is to build these hubs where you're sort of like you've got the renewable energy and the electrolysis and the hydrogen consuming end use basically being built next to one another. So you eliminate ...

Rachel Fakhry

Absolutely. You have other stuff that you have the hubs. The Doe hydrogen shot is also spending a lot of money to create a hydrogen ecosystem. States are now passing and contemplating hydrogen-specific tax credits for end uses. So all this to say that we can't burden the tax credits with solving every single industry question, we can't gut them just because we want to think about all these things.

David Roberts

And also I'm inclined to say, like, look, guys, we're like we're subsidizing the crap out of the renewable energy, we're subsidizing the crap out of the electrolysis to the point that some of these projects basically the US government is going to be paying you to do this. You guys can maybe cover transport. It doesn't seem like a huge ask.

Rachel Fakhry

I have a feeling they'll figure that one out. This feels to me like a grasping-at-straws kind of thing, but the transport is going to be impossible. There are options. Do grid connections just meet your pillars? Essentially.

David Roberts

Let's go back to Constellation for a minute because this is just a gripe, but I feel like I want to cover it. Constellation is a utility that is benefiting from recently passed subsidies designed to keep existing nuclear plants open. Right? There's a whole separate debate in the energy world. People are familiar with it. Should we let them close on schedule? Should we pay to keep them open? A couple of states have passed these huge subsidies to keep them open, and Constellation is currently wallowing in those subsidies. And it's worth noting a lot of the people who it is now criticizing and fighting against in this hydrogen debate are some of the very people who went to bat for it to get it those nuclear subsidies, right?

Like it's now badmouthing Princeton's modeling. But of course, that crew at Princeton has been laying itself on the railroad tracks trying to get these existing nuclear plants subsidized. So just to say, like, we're wallowing in nuclear subsidies and now we want to turn around and be allowed to just plug electrolyzers into our existing nuclear plants and layer on a whole new giant subsidy is just like I don't know what the right word is. It's greedy. It seems crude and greedy if I'm being totally honest. Maybe you have nicer words.

Rachel Fakhry

Sadly, don't. Well, yeah, of course, they're not very happy with the Princeton folks who are kind of standing between them and enormous profits above and beyond what they were already doing. So fully agree with you. First of all, I think Constellation is basking in subsidies at this point. They're very well taken care of. Actually, right before this podcast, I was speaking to a nuclear lawyer, NRDC, and kind of asking her, hey, could you just remind me of all the subsidies that the nuclear can now tap into? She actually had to take a couple of seconds just to see where she could where to start because there are so many buckets.

David Roberts

Get the calculator out.

Rachel Fakhry

Exactly. So Constellation, as I alluded to earlier, is fiercely fighting and loving policymakers against requiring additionality or new clean supply because that would not allow them to utilize their existing nuclear plants for hydrogen production and maximum profits. No new clean supply or no additionality would be an absolute gold mine for Constellation.

Yeah.

They have two very lucrative options. One is to divert their existing nuclear power to hydrogen projects. So essentially collocate electrolyzer with their nuclear plant and divert a share of the output of that nuclear plant to hydrogen production. And this seems to be Constellation's main plan.

As I mentioned earlier, the tax credits, the hydrogen tax credits are roughly equivalent to $60 per megawatt hour. Constellation is not getting that at the market. On the market, power prices are way lower than that. Maybe 2022 was an off-year, but generally, they're way lower than that. So they're like, "Light bulb. There's a huge lucrative opportunity for us to divert our power away from the grid and utilize this very lucrative opportunity to produce hydrogen with our power."

David Roberts

Basically changing nothing else, right, like just harvesting a giant new set of subsidies, having changed operationally almost nothing.

Rachel Fakhry

Absolutely. And that would be terrible for emissions. Could you imagine megawatts and gigawatts of diverted nuclear energy from the grid? That would be terrible for emissions, result in nefarious grid impacts in terms of prices, reliability, and emissions be damned. Actually, this is playing out in Illinois right now. This is Constellation's powerhouse where they have a lot of their nuclear capacity. They have plans to divert their power away from the grid. We estimate that emissions in Illinois could increase by 7% somewhere up to 45%, depending on how much of the output you're actually diverting and completely torpedoing over the state's clean energy goals.

David Roberts

Yeah, basically wiping out the gains of their big, hard-fought, complex clean energy legislation, which they just passed.

Which, by the way, supported Constellation, even if they're not getting a lot of money from it for multiple reasons. But it supported Constellation because supposedly it was helping support that decarbonization. So it's a perilous terrain that's, number one, it's divert our power, get $60 per megawatt hour. We're not getting on the market. Hugely lucrative option number two is just sell large volumes of credits, kind of like Rex, but for nuclear from their existing nukes, because there's currently no market for those credits outside of a few states. And this is a huge volume of credits. Right. As I mentioned to earlier, there's enough potential nuclear credits to completely cover all hydrogen production that we could expect between now and 2030.

Rachel Fakhry

So this is the same thing, is you're doing nothing on the grid, getting paid for generation already very heavily subsidized by the US taxpayer, and allowing electrolyzers to just plug on the grid, purchase credits that mean nothing, and increase emissions, right? So to sum up, this is a gold mine for Constellation without doing anything.

David Roberts

I mean, it's a gold mine for them, whichever way it turns out. That's kind of the rub here. Like they're awash in subsidy money no matter what they do. They're just trying to stack it now.

Rachel Fakhry

Absolutely. And again, emissions, impacts on the grid, so on and so forth, to be damned. So it is, unfortunately, blatant greed. And they're out there claiming that nuclear is getting left out and that this is unlawful. And the best part is that no one wants to outlaw the use of nuclear for hydrogen. There are options, right? For instance, if you operate your nuclear plant that can count as nuclear supply, you could do that. They refuse that, not lucrative enough.

David Roberts

You could build new nuclear. Everybody keeps saying how great nuclear is, but why didn't build some new on it and hook that up to electrolyzer?

Rachel Fakhry

We even gave them the option of, hey, look at what the Europeans did. They said during low-priced hours, which are a good proxy for clean grid, we can relax hourly requirements and sell your credits during those low-priced hours because it's a proxy for some generator curtailing somewhere. So this kind of can count as nuclear supply if you spur that generator. Not enough hours for us. So we are not in the business of suffocating nuclear. We're in the business of making sure it meets the same requirements as everyone else.

David Roberts

Right. Or they could just make the hydrogen and not get a giant subsidy. There's no one telling them they can't do that. Again, nothing's being prohibited here.

Rachel Fakhry

Correct.

David Roberts

It's just like if we're going to give you a bunch of money, we'd like to have a few conditions on it.

Rachel Fakhry

Absolutely. That's absolutely right.

David Roberts

So just to review where we've been so far, there's these three pillars that characterize truly clean hydrogen. It's additional. It comes from new energy, comes from energy that's on the same grid you're on and it is matched up hourly with your consumption. Europe has more or less embraced these conditions. It's different timing on the hourly for various reasons. But the European Commission has said these are absolutely doable. This will not strangle the industry in the crib. So I have two questions about this. One is one argument you hear is it just stands to reason that more requirements and tighter requirements are going to slow the pace of development relative to no requirements.

Right. We'd build more electrolyzers if we could get the subsidy for any damn thing we do. So it's going to slow the industry. And what's most important here, and this is the argument I think appeals to a lot of people and this is the argument Rhodium uses, I'm sure you're familiar. Their whole thing is, yes, slightly looser additionality requirements would potentially raise greenhouse gas emissions in the near term. But that is worth it because you're radically accelerating the scaling up of electrolyzers and the scaling up of green hydrogen, which is going to reduce way more emissions in the long term than whatever this short-term surge is.

So basically like the short-term surge is worth it because you're buying huge long-term reductions. So what do you make of that trade-off is my first question.

Rachel Fakhry

First of all, increasing emissions is against statutory requirements.

David Roberts

I want to get back to that. But first, on the merits.

Yeah, you're blatantly flouting the law, right? The IRA is meant to be given to projects that reduce emissions by 95% relative to today's hydrogen. You are subsidizing projects that have twice as much. So if you're already flouting statutory requirements by adopting some sort of a phase-in or transition periods like what Rhodium suggests. That's one. Two, I have full respect for Rhodium and we have worked with them a ton, but fully disagree with this notion of a trade-off. Right. As I mentioned earlier, what we're seeing from financial analyses, from projects already being kind of doing the three pillars.

Rachel Fakhry

The three pillars will not harm scale. They will ensure healthy, durable scale. NRDC has been one of the first big enviros to come out in support of hydrogen three years ago and say, look, this is an important tool in the toolbox, we should scale it. However, this doesn't mean we have to scale it recklessly. Right. We have to make sure it's actually being done right. So I fully disagree with this notion of a trade-off between near-term emission increases against the law and scaling the industry. You could do both. The third piece, which people tend to forget, what will slow down this industry is public opposition.

Could you imagine if the US taxpayer knows that they're subsidizing increased emissions? That's not going to be pretty. And hydrogen is already a very contentious resource.

David Roberts

Yeah, it's contentious, but also it's still a little bit kind of undefined, a little bit it's a little bit fuzzy. So like, these next few years and how it gets treated and how it gets introduced to the broader public is very important. Right.

Rachel Fakhry

That is the first touch point. I fully agree with you and I love one of the quotes by Paul Wilkins, I think is the vice president of Electric Hydrogen in Washington Post. He said, look, if in five years this tax credit shows that this industry is increasing emissions, that's going to be terrible for our industry. So that will slow down scale. It's not the and that always gets just glossed over.

David Roberts

Right.

Rachel Fakhry

Love to discuss this EU approach because I know that Rhodium ended up recommending that, but keeping it quite open ended.

David Roberts

Yeah, and I think Rhodium endorsed the idea is just that you start with yearly accounting and work your way up to hourly. You start with sort of broad regional requirements and then work your way up to more specific. It's same like you start with I think they want to start with monthly RECs and work their way, this idea of phasing in, so you can get started quickly and then phase in tighter requirements over time. What do you think is wrong with that approach?

Rachel Fakhry

It's trying to mirror the EU, and I think this is very misguided. Right. Because the EU has a wildly different context. First of all, the EU has sticks. They have their emissions trading system which will help climb down and really minimize any emissions increases from loose rules in the near term. We don't have that. That's one. Two, the EU does not have a production tax credit like we do. All of their subsidies are more on the demand side. So creating demand signals. That means that there's going to be a rush to the cheapest supply. Cheapest supply generally means that you want to operate during low-priced hours as an electrolyzer because that's the biggest cost for you.

And this generally means you're going to hover around the cleaner hours. We don't have that. We have a production tax credit that is worth $60 per megawatt hour that will incentivize electrolyzers to keep running as much as they can because ...

David Roberts

They're going to run maximal. When you're paid not for your sort of CapEx to build, but for your output, you obviously are incentivized to output as much as possible, as many hours as possible.

Rachel Fakhry

Absolutely. And then the third piece, which I alluded to earlier, the hourly matching phase in wildly different contexts in the EU, again, they have a regulatory barrier we don't, which is one of the reasons why they delayed it. We don't need to do that. Wildly different context. We should not be blindly mirroring the EU. So I think we're open to discuss what a rigorous phase-in period could look like for the US, but it should not be mirroring the EU.

David Roberts

Right, well, energy Innovation, and by the way, I should just say a lot of what I learned about this, I learned by listening to Chris Nelder's Energy Transition Show where he interviewed Eric Gimon from Energy Innovation. If you want, like the super nerdy technical dive into all this, if this isn't giving you enough, whatever freaks out there who still don't feel like they got enough from this, there's plenty more there. But one of the things energy innovation is recommending is a phase-in but sort of different starting strict but crude, not relying on sort of sophisticated hourly matching at the beginning but just starting with sort of rough and ready but relatively strict guidelines. And then evolving over time to something that's a little bit more granular and precise and a little bit looser.

Because Eric's point, which makes sense to me, is you don't often see industry passively agreeing to standards that they've gotten used to getting tighter. Right. But every industry would welcome standards that they're getting used to getting looser. Right. So his sort of thing is like, we don't have the sophistication to do it precisely. Now let's be strict and crude and then evolve toward slightly looser and smart. What do you make of that?

Rachel Fakhry

Yeah, I think this is more related to the point they made in their comments that the most precise way of calculating life cycle greenhouse gas emissions of hydrogen projects is to adopt the marginal emissions approach, which I know you hate that term, Dave, but emissionality essentially you net out. You have to have a very granular way of accounting for what you're inducing on the grid and what you're netting out by locating somewhere and kind of going that way. I know that they're slightly moving away from that because it's not easily implementable that's something we flirted with as well a few months ago. And what we're hearing is like this is elegant and nice, but from a developer standpoint this may not be very workable.

So the three pillars are very good proxy right, for ensuring that your emissions are close to zero.

David Roberts

Right. The ideal here is a sort of shimmering ideal in the distance is that for any given hour of power consumption, you know, in the end eventually you're going to be able to know specifically which generators provided it and specifically how much greenhouse gas were involved. Like just as you can precisely know how much power you're using, you're eventually going to be able to precisely know how many greenhouse gases you're producing or displacing or avoiding. Right? That's all going to be sort of available in one giant transparent registry and everybody's going to agree how to calculate it and we're going to be able to base a lot of policy on that.

I mean, it's going to solve a lot of tricky kind of short-term accounting and tracking and policy puzzles are going to be solved once all that information is transparent and available. But as you say, that's a ways off.

Rachel Fakhry

Absolutely. We strongly support this move to more granularity to give really the more accurate signals for what to invest in. I don't think it's necessary for this credit. The three pillars are straightforward enough for developers. They're rigorous enough to meet the IOA requirements. I'm supportive of just retaining that. Now one can create a little bit of exceptions or derogations like what the EU did. So for example, if the grid gets really clean, like 90-95% clean, then maybe we can relax the additionality required. Or if LMPS are extremely low, which indicates renewable energy curtailment for instance, then maybe we can relax hourly matching.

We're open to that as long as the rigor of the system is maintained. So I don't think we need to completely overhaul to a marginal emissions approach to bake in a little bit more precisions for the outer years.

David Roberts

Right. And presumably, there'll be a lot of learning as we do this, how to make it work better. So this might be a dumb question but so say you're treasury and you read the Rhodium report and for whatever reason, it strikes you as highly compelling and you're thinking, yeah, let's set some relatively loose additionality requirements. Even though we'll get a little bit more greenhouse gas emissions in the short term, we'll get a lot more reductions in the long term. My thing is which, as you said, that's just against the law. The law says very clearly 0.45 threshold for greenhouse life cycle emissions is very clear.

So I guess my question is just isn't some of this kind of an academic debate? Like the IRS can't just contravene the clear written intent of the law. It's got to hold whatever details it puts in, it's got to result in that threshold, or else it doesn't meet the law. Right. So is a lot of this just an academic debate? Like, what am I missing? They don't seem to have the latitude that industry is acting like they have.

Rachel Fakhry

Absolutely fully agree with that. And the treasury has been pretty tight-lipped about all this, so it's really hard to see where they're landing. But you're spot on. Weak rules that clearly flout statutory requirements would be both unlawful and a complete abdication of responsibility. So I wouldn't be surprised at all if many groups end up suing, should the rules be very weak. But let's talk about this legal piece. We have been doing a bunch of legal analyses with other groups, and look, the case for the pillars is ironclad, right? Because the way lifecycle emissions are defined in the law requires that they account for emissions that projects induce on the system.

So if I'm an electrolyzer and I'm purchasing cheap credits from the existing nuke or renewable or so on and driving more gas on the system.

Right, you induce that grid operator to turn on that extra gas.

Correct. There is virtually no project in the US that today will qualify under this boundary of emissions. If they're not driving nuclear supply that is hourly match and deliverable, it's impossible for them to comply with 0.45 without these three pillars.

David Roberts

Right.

Rachel Fakhry

If you want to make this credit workable, those need to be in. If you want no projects to qualify unless they're colocated with a new source of supply, then you can do that. But I don't think that's the intent of the law. I don't think developers will be happy with that if it's only the behind-the-meter projects are able to qualify. So the three pillars are absolutely necessary, and if they're flouted so blatantly then that's just unlawful in a sense.

David Roberts

All this feels a little bit pointless to me because the law is super clear and if they come out with standards that allow higher threshold they're just going to get sued by a bunch of environmental groups. I mean that would be a crappy outcome to have to wait. We don't have a lot of time to wait and mess around with lawsuits. But surely treasury knows it doesn't have as much latitude as industry seems to frame it as having.

Rachel Fakhry

Hopefully, Dave, let's send them this little excerpt.

David Roberts

You don't have to; it's crazy. I'm not a lawyer, but the law is so clearly written that there just doesn't seem to be a lot of fuzziness here. But who knows what our beloved Supreme Court could find if it ever finds its way up there. It's just a small side question in terms of projects built entirely off-grid, right? One and then projects built with a one-way connection to the grid. Two and then projects that are just grid connected that just contract to have new solar and wind added to that grid. Do you have any sense of what the balance will be like right now?

There's some off-grid projects being built. Right. So clearly, those are workable. Are people going to gravitate toward grid-connected over the long term because it's cheaper, or do you have any sense of what kinds of projects are most likely to get built?

Rachel Fakhry

Yeah, that's very unclear. What we're seeing is most of the projects moving now are behind a meter. Indeed.

David Roberts

Do you know why? Is there a clear answer to why?

Rachel Fakhry

If I had to speculate, there's so much less risk.

David Roberts

Yeah, everything's much cleaner. Every answer is much clearer.

Rachel Fakhry

Exactly. There's less risk overall, which I'm sure is very great for your rate of capital and so on.

David Roberts

Yeah, right.

Rachel Fakhry

But the level of fierce opposition we're seeing for the grid-connected kind of three-pillar system tells me, oh, there's a lot of interest in connecting to the grid at some point soon. So we're seeing mostly behind the meter. But I expect that the grid-connected projects will certainly start popping up soon.

David Roberts

Be really interesting to see how that plays out. Okay, final question, and God bless all you listeners for your extraordinary patience. This is a complicated one. There was really no way to boil this one down. But final question. This is like everything in IRA. This is a carrot, right? A big subsidy, a big payout, and specifically, it's a supply-side subsidy. This is literally a per kilogram of output subsidy. So it's all about supply. If you are taking a step back and thinking about, in the long term, how to construct a robust and effective market for hydrogen in the clean energy system, are there demand-side policies that you think would work well to complement this really giant battering ram of a supply-side subsidy?

What should we be doing on the demand side? Or is supply side is the battering ram enough?

Rachel Fakhry

Great question. And this really gets to the core of, look, the tax credits are a big prize. They're not the only one, right? So we can't burden them and loosen the crap out of them because we're worried that the industry won't scale otherwise. I disagree with that. I think there's a good analogy to the renewable energy growth. The wind and solar tax credits obviously were a big driver of deployment. They were not the only driver. Right. State RTS has played an important role, corporate voluntary procurements played a really big role.

David Roberts

Yeah, demand side was huge all along.

Rachel Fakhry

Absolutely. So that's exactly the same case here. There's this giant, generous supply side push. It has to be and already is coupled by subsidies on the other side. What we're seeing globally, and this applies to the US, is one of the main barriers of getting hydrogen projects built is the lack of end uses. It's the lack of demand. Right. That's why only a very small share of projects go from announcement to FID.

David Roberts

And just to be clear, this is not lack of demand for hydrogen. There's lots of hydrogen used. It's lack of specifically demand for the still slightly, somewhat more expensive clean hydrogen.

Rachel Fakhry

Correct. No longer in many places. Yes, spurring end-use is going to be important, especially since we didn't speak of that, but maybe that's another episode. Hydrogen should not be used everywhere. Right. This is a resource that is energy intensive. It has its place in some important hard-to-electrify sectors like steel and maybe shipping and so on. Not widespread in the economy. So focus demand side policies could be really interesting here to really divert the market to the, quote unquote, "good uses." Right. So the hydrogen hubs are going to be really interesting. And again, this is a big subsidy we keep forgetting.

David Roberts

Yeah. Have they talked about what end uses qualify or what they're going to put in those hubs as end uses?

Rachel Fakhry

It's very unclear. But the DOE's hydrogen roadmap, which kind of sets the vision for the department, for how they will go about their hydrogen deployment, is pretty damn good. It's all focused on deploying hydrogen in hard-to-electrify applications where it's actually needed and doesn't have better alternatives. So if they were to make good on that roadmap, and I really hope they do, they will select the hubs that actually have the high-value end uses and not the low-value end uses like blending in pipes.

David Roberts

Yes. Let's just say when we talk about low value, like the idea of blending hydrogen into natural gas pipelines to marginally reduce the climate impact of natural gas just seems to me like the lowest possible use of what is effectively like champagne. Be like dumping champagne in your water supply or something. I don't know what the right analogy is. You want to save champagne, it's expensive and you want to save it for the best highest uses of it. And this is a big fight with the natural gas industry, of course, because they want their natural gas pipelines to stay up and running as long as possible.

They want all that infrastructure, they want themselves to survive. And so the idea that they could mix in a little hydrogen and go on, they love it. But as you say, that's a whole separate fight, a whole separate pod about hydrogen end uses.

Rachel Fakhry

Absolutely. And this has a real implication on the production because if we recklessly open the floodgates of supply in this decade with very loose rules, then where is this hydrogen all going to go? Right. The end uses that are the most primed to go, unfortunately, today are the ... Barring, replacing existing hydrogen with cleaner, which is good. It's all these other bad end-uses, including blending, because steel and other good end uses aren't quite commercially viable just yet. So all this to say the hubs are going to be a big end-use driver. Public procurement tools are really interesting.

So the federal government is one of the largest buyers, for instance, of steel for public infrastructure projects. There's a lot of money in the IRA now for the federal government to clean up some of their cement and steel and so on that they purchase. If there is a procurement for green steel that is hydrogen derived, then that's really interesting. Right. You're trying to create a very strong, stable demand signal, and we're seeing some states like Colorado, Illinois, Pennsylvania starting to contemplate state-specific tax credits focused on using hydrogen in specific end uses. I'm not going to get behind those proposals.

They're not great, but I think it's the right kind of thinking, right? Let's start trying to be more targeted with where we're driving this resource in the economy.

David Roberts

Right. So you're saying if we're going to sort of jam an enormous amount of supply into the system really quickly, we should also implement some demand-side policies to guide the hydrogen thusly produced to its highest and best uses?

Rachel Fakhry

Absolutely. We have to be very cautious about where we're using it and divert it to the right places, for sure.

David Roberts

Okay. Goodness, that's a lot. It just goes to show in the energy world, you're like, clean hydrogen. Let's do that. And then so many devils in the details.

Rachel Fakhry

I'm hoping this was less wonky than Eric Gimon, whom I have utmost respect to, but even my mind was turned into a pretzel listening to that episode.

David Roberts

Yeah, I think we hit a nice, good middle spot. This is like the 301 class. More than the 101, but less than the grad seminar. That's my aspiration.

Rachel Fakhry

That's where students either drop or ...

David Roberts

The ones who can get past this pod. They're definitely headed for expert expertise. Rachel Fakhry of NRDC, thank you so much for coming on and talking through this all so plainly and simply and clearly. I super appreciate it.

Rachel Fakhry

Thanks so much, Dave.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much, and I'll see you next time.

Various options are at play in the EPA’s planned greenhouse gas standards for new and existing power plants. In this episode, Lissa Lynch of NRDC discusses the implications.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

A couple of weeks ago, the policy analysts at the Rhodium Group put out a new report showing that the Biden administration's legislative achievements are not quite enough to get it to its Paris climate goals. But those goals could be reached if the legislation is supplemented with smart executive action.

Some of the most important upcoming executive actions are EPA's greenhouse gas standards for new and existing power plants. The Supreme Court famously struck down Obama's Clean Power Plan — his attempt to address existing power plants — judging it impermissibly expansive. So now EPA has to figure out what to ask of individual plants.

The agency's decisions will help shape the future of the US power sector and determine whether the Biden administration gets on track for its climate goals.

To talk through those decisions in more detail, I contacted Lissa Lynch, who runs the Federal Legal Group at the NRDC’s Climate & Clean Energy Program. We discussed the options before the EPA, the viability of carbon capture and hydrogen as systems of pollution reduction, and whether Biden will have time to complete all the regulatory work that remains.

Alright. With no further ado, Lissa Lynch from NRDC. Welcome to Volts. Thank you so much for coming.

Lissa Lynch

Thank you for having me.

David Roberts

This is a subject that I used to spend a lot of time thinking about back in the day, and it's sort of receded for a while, and now it's back. So it's very exciting for a nerd like me. So I want to just quickly walk through some history with this and then sort of hand it off to you so you can tell us where things stand now, because I don't want to assume that listeners have been obsessively following this now nearly two decade long saga. So let me just run through some history really briefly. So listeners will recall in 2007, there's a big Supreme Court case, Massachusetts vs. EPA, in which the Supreme Court ruled that CO2 is eligible to be listed as a pollutant under the Clean Air Act if EPA determines it is a threat to human health.

And then shortly thereafter, Obama's EPA officially determined that it is a threat to human health via the endangerment finding. So this is one thing I'm not sure everybody understands, and I just want to get it on the table up front. So for context, the combination of those two things, Mass vs. EPA, plus the endangerment finding, means that EPA is lawfully obliged to regulate greenhouse gases. This is not a choice. This is not something it can do or not do, depending on how it feels or who's president. They have to do it. So then that triggers the obligation, three separate obligations.

You have to regulate mobile sources, which Obama did with his new fuel economy regulations, which are still in place, as far as I know. Then you have to regulate new stationary sources of greenhouse gases, which Obama did. And as far as I know, we can come back to this in a second, but as far as I know, those new power plant regulations that Obama passed are still in effect. And then thirdly, you have to regulate existing stationary sources of greenhouse gases, which mainly means power plants. And so Obama's effort to regulate existing power plants is called the Clean Power Plan.

People may remember the fuss and ado about the Clean Power Plan as it was under development. Lawsuits were immediately launched. Of course, the Supreme Court took the extremely unusual step of putting the law on hold, basically not letting it go into implementation until it had heard this case. And then it heard the case, rejected the Clean Power Plan on the basis of the newly dreamed up, rectally, extracted Major Questions Doctrine. So that's where we stand now is we've got the mobile regs in place, although Biden is updating those too. I think we've got the new power plant regs in place, although Biden is also updating those.

But as for existing power plant regulations, there are basically none. It's been a legal mire and so Biden's got to do those too. So let's talk about what Supreme Court said about the Clean Power Plan in their ruling and how that constrains the sort of solution space that we're looking at now.

Lissa Lynch

So in West Virginia vs. EPA, that was the Supreme Court decision from last summer. The Supreme Court held that this section of the Clean Air Act that we're talking about here, section 111, does not clearly provide authority for the approach that EPA took in the Clean Power Plan. And what they did there we sort of refer to as generation shifting. In the Clean Power Plan, EPA looked at the power sector as a whole and they concluded that the best system for reducing fossil-fuel-fired power plant emissions was a combination of measures including shifting generation away from dirtier fossil power toward cleaner power.

So essentially retiring dirtier power plants and replacing them with renewables.

David Roberts

Right. So the unit of analysis here was a state's whole power fleet, not the power plant individual, but the whole power fleet.

Lissa Lynch

Right. And the reasoning for that in the Clean Power Plan context was supported by the companies themselves, the power companies themselves and the states who said, yes, this is the way that we are dealing with decarbonizing our fleets. We are looking out across our whole fleets, retiring the dirtiest sources and replacing them with cleaner generation. That's how the existing RGGI program in California cap-and-trade programs work. That's how many of the power companies that have emission reduction or clean energy targets are doing that.

David Roberts

And let's just say Republicans have been saying for decades that regulations are too restrictive and they're not flexible enough and states and power companies need flexibility. And this was perfectly flexible. This is absolutely as flexible as you could make a system. It just said to the state, do whatever you want to do to lower the average emissions of your power plant fleet. And then conservatives got what they wanted and hated it for other reasons.

Lissa Lynch

One of the things that's important about what is left on the table after this decision is there is still a considerable amount of flexibility on the compliance side. So what the Supreme Court was really dealing with was the method EPA uses for setting the level of the standard, basically setting the target that industry has to meet. So the Supreme Court explicitly took that generation shifting approach off the table for purposes of setting the level of the standard itself. And so after this decision, EPA can still set standards, in John Roberts words, "Based on the application of measures that would reduce pollution by causing the regulated source to operate more cleanly."

David Roberts

Right? So the idea here is EPA, by interpreting the Clean Air Act in such a way as to apply to the power plant fleet overall, and sort of telling states how they have to shape their overall power plant fleets. EPA was assuming too much authority, basically. Like doing something major, despite too major for the words in the Clean Air Act, which I don't want to dwell on this too long, but let's just pause here to acknowledge that. No one then in the ruling, now in the subsequent ruling, since then in all scholarship knows what the hell "major" means or when it is that an agency has crossed the line from proper regulatory interpretation into "Oops, too major."

It really just kind of sounds like and seems that major means anything bigger than John Roberts is comfortable with.

Lissa Lynch

Right? I mean, this is one of the really concerning things about the Major Questions Doctrine, just generally is that it is murky and it does have this sort of paralyzing effect on ...

David Roberts

Yes, intentionally.

Lissa Lynch

Exactly. It is explicitly anti-regulatory and explicitly sort of intended to stop agencies in their tracks and make them question, oh, is this too major?

David Roberts

And there's no answer. Right. So naturally you're going to be cautious because there's no definition of major. It's just whatever irritates John Roberts when he wakes up one day. So this was the opening salvo, I think, in a longer Supreme Court effort basically to brow-beat agencies into being timid. So anyway, point being EPA can't use the overall power fleet as a sort of benchmark through which to set this standard. So what does that leave? What's the sort of range of motion that we think we still can act in here when we're talking about these new standards?

Lissa Lynch

So now that we have this Supreme Court decision in place. EPA's got some guidelines, and they can base the next round of standards on, as Justice Roberts put it, measures that make the plants operate more cleanly. So what they're looking for now is a rule that looks more like what traditional pollution regulations of the past looked like based on scrubbers, bag houses, the stuff that you can physically attach onto the plant or do at the plant itself to reduce that plant's emissions. When it comes to reducing CO2 emissions, the options are limited.

David Roberts

Well, let me pause there. Before we get into that, I just want to say one thing that I learned from your writing that I had not known, and I don't know that it's widely known. So there's been talk ever since Mass vs. EPA that bugged conservatives, and they would love to undo that, right? Because they would just love to moot this whole thing by undoing that ruling and saying that CO2 is outside the context of the Clean Air Act and have been muttering about doing that. So the Inflation Reduction Act statutorily locks into place that ruling.

Right. It says explicitly CO2 qualifies under the Clean Air Act, and it instructs EPA to develop new standards. So there's no ambiguity about that. And it says EPA needs to set standards that are going to reduce emissions relative to baseline, where the new baseline is taking the Inflation Reduction Act itself and all its subsidies into account. So it's telling EPA calculate what all these subsidies are going to do, what the new sort of business as usual trajectory of emissions would be, and then develop regulations that reduce it further. I didn't know any of that.

Lissa Lynch

Yeah, no, this is huge. And I mean, obviously the Inflation Reduction Act is enormous. It is going to accelerate the clean energy progress that we've seen in the last decade or so by many fold. It is a huge, huge deal. And one of the provisions in this quite large law essentially reaffirms EPA's not only statutory authority, but its obligation to go ahead and set CO2 emission standards for fossil-fuel-fired power plants. And so that's a clear statement from Congress last year.

David Roberts

Clear enough even for John Roberts.

Lissa Lynch

Right. So we have always thought that that authority and obligation under the statute was quite clear, but now it's crystal clear, and they need to move.

David Roberts

And I think it's also important to absorb this new baseline idea, because the IRA itself and all the historical progress since the last round of these regs, the new expected baseline for power plant emissions is much lower now than it was when Oobama's EPA was calculating these things. Which commensurately means you're going to need tighter standards if you want to reduce further than that new baseline.

Lissa Lynch

Yeah. And it is kind of wild to look back on ten years ago. So it was ten years ago, 2013, that President Obama announced in his big climate change speech that he was directing his EPA to go ahead and set carbon pollution reduction standards under Section 111 for fossil-fuel-fired power plants. The first time that was being done. So much has changed in ten years in the power sector. And I think anyone listening to this podcast knows we are smack in the midst of a clean energy transition in the power industry. Industry itself says so.

The Edison Electric Institute says we are, quote, "In the middle of a profound long term transformation in how energy is generated, transmitted and used." Lazard, the investment firm, estimates that wind costs have fallen by 46%, solar has fallen by 77% over the past decade. So we're just in a totally different world now than we were ten years ago. And so we passed the Clean Power Plan's 2030 emission reduction targets in 2019 without the Clean Power Plan ever having gone into effect.

David Roberts

Which in retrospect makes all the Republican arguments about how this is an economy killing regulation and it's too strong and it's unrealistic and there's no way we can move that fast look utterly ludicrous, which we all said at the time, but we had to pretend that it was a real live argument. So they're saying it's too stringent, it's going to destroy the economy. And here we rocketed past it in 2019 without any regs.

Lissa Lynch

Right? And that is part and parcel with each time. There are new ambitious pollution standards set ...

David Roberts

Every time.

Lissa Lynch

Under the Clean Air Act, industry claims the sky is going to fall. This happened with the acid rain program back in the American Electric Power predicted that it was going to destroy the economy of the Midwest. Like the lights are going to go out, the sky is going to fall.

Every time and we never learn. We never learn from those previous examples. It's crazy, right?

And so the actual costs of complying with the acid rain program and reducing sulfur dioxide ended up being, I think, around a 10th of what industry had estimated. Sulfur scrubbers are now widely used. The program has been a great success. It is this great example of how we can set pollution standards and then innovate to meet them cost effectively and quicker than anyone expects. We do it over and over again.

David Roberts

Over and over again.

Lissa Lynch

And we can do it in this context.

David Roberts

Right? One more thing. Before we get to what's available for the new standards, we should mention I should mention that when the clean power plant got shut down, the legal obligation to pass regulations on existing power plants then passed to the Trump administration, which did that sort of passed a ... what was it called? The clean America ...

Lissa Lynch

The Affordable, Clean Energy Plan.

David Roberts

Yes, Affordable Clean Energy, the ACE Plan, which several analyses showed would on net have raised emissions in the power plant sector. So those got shut down in court, too. They were just completely a joke. Ludicrous so that's all the history. So here we are Biden's EPA has got to regulate existing power plants and new power plants. And it can't take this so called outside the fence line holistic approach that the clean power plant took. So it's got to set standards based on what you can do at the individual power plant level inside the fence line, as they say.

So what are the options? Actually, I'm talking way too much, but let me get one more thing out of the way and then I'll let you talk. But one of the things that faced the reason I just want people to understand this too, the reason Obama took this approach, the reason Obama's EPA took this outside the fence line holistic approach, is that if you're just restricting yourself to the individual power plant, you're stuck with either marginal improvements, right? You get the boiler to work more efficiently, you tighten up efficiency, and you can sort of marginally 3% to 5%, reduce emissions.

Or on the other side, there's carbon capture and sequestration, which especially ten years ago when Obama's EPA was contemplating it, was not very well tested, not very well proven, super expensive. So you either had sort of like a fly swatter or a nuke when it comes to the individual power plant, which is why they went with the holistic approach. So now the holistic approach is off the table. We're back to the fly swatter or nuke problem. So just tell us sort of like, what are the available options here?

Lissa Lynch

Yeah, so you kind of covered the two ends of the range, right? On one end, the very low ambition end, you can make minor improvements to the operating efficiency of the plant, the way the plant operates. That was the basis for the standards that the Trump administration issued. And as you noted, improving the efficiency of the plant makes it run better and it can be called upon to run more and therefore can end up increasing its overall emissions. That sort of rebound effect. That's a possibility. You can still reduce emissions through operating efficiency improvements. And I think there's more options that could achieve greater reductions than the ones that the Trump administration included in their rule.

But still, we're talking the very low-end, single percentage reductions in the middle, there's this option of cofiring with a lower carbon fuel. So if you're talking about coal plants, you can co-fire that coal plant partially with gas. In a gas plant, you could co-fire partially with hydrogen and you're going to bring the emissions rate of the plant down somewhat. In some of our analysis, we've estimated that a 40% cofiring coal with gas. So cofiring a coal plant with 40% gas gets you about a 20% emission reduction. So it's not nothing, but it also involves additional fossil infrastructure to get gas to a coal plant or additional infrastructure to get hydrogen to a gas plant.

And on top of several other issues with hydrogen that we can talk about a little later.

David Roberts

Well, a legal question, I guess all of this in some respect is arbitrary, but where is the line between forcing fuel-switching, which I think Supreme Court said was out of bounds, and too far, versus a rule that requires cofiring, which is like kind of like halfway to fuel switching? Is there a legal distinction there between those two?

Lissa Lynch

There's absolutely precedent for requiring cleaner fuels or fuel processes. What the Supreme Court mentioned, at least in dicta, was we don't want to see standards that would force a plant to stop existing. And so essentially, if EPA were to base the standard on total conversion from coal to gas, which some coal plants have undertaken with cheap gas prices, that I think, based on our reading of the decision anyway, would probably be too far. So full conversion probably off the table along with generation shifting. But partial cofiring is actually one of the technologies that the Obama administration considered for their Clean Power Plan, as was carbon capture.

And as you noted, the approach that they took in the Clean Power Plan, they selected because it was the most cost effective. So they ruled out carbon capture and cofiring, not because they weren't adequately demonstrated or available, they were just more expensive than the approach that EPA ended up going with.

David Roberts

But now we're forced back basically to that more expensive approach.

Lissa Lynch

Right, as I mentioned before, but want to keep reiterating, this is all about setting the level of the standard, finding it's a math problem. EPA looks at the options, and so the options as we see them are efficiency improvements, getting very little cofiring, getting somewhere in the middle, or carbon capture and storage, getting the most amount of emission reductions. They look out at that and they select the best system. Then they apply it to the plant and essentially do a math problem and come out with a number, a numerical limit for the amount of CO2 emission reductions that the plants need to achieve.

Then they hand the baton off to the states for existing sources and to the companies for new sources. So this is not a requirement to install that specific technology. It's a way to derive the level of the standard and then pass that off to the states and the companies to comply with.

David Roberts

Right. EPA sets the standard and then says to states and companies, do what you want.

Lissa Lynch

Right, as long as you can meet this number. Be creative, innovate.

David Roberts

The central question is what upon what technology is the number going to be based on exactly? This low-end, this something in the middle, and this high-end, which is carbon capture and sequestration. So here I want to talk about what the sort of arguments are around this. It says in the text of the Clean Air Act that EPA should set the standard based on the best available system. That has to be adequately demonstrated so I just want to dig in a little bit on the technical legal language here. Like what exactly or what have courts interpreted that language to mean exactly?

What is required to be adequately demonstrated? A single demonstration plant somewhere? like some good charts and graphs in a lab? Or do you have to be commercial, or does price and, you know, financial viability come into that? Like, what is EPA thinking about when it thinks about what is adequately demonstrated or best?

Lissa Lynch

Yes. Okay, so I'm a Clean Air Act lawyer. This is my favorite part. I love the Clean Air Act, and I love to talk about the language of the statute because that's actually what we're really fighting over here. EPA is tasked with establishing the standard of performance, and so that definition is in the statute. They have to determine the degree of emission limitation that can be achieved through the application of the best system of emission reduction that is adequately demonstrated considering cost, energy factors and essentially other factors. And so there's this really defined set of criteria that EPA needs to go through as they're determining what's the best system of emission reduction.

So we've been talking about adequately demonstrated that it can't be a made up technology, but it also doesn't have to be widely used by everyone. Already, the Clean Air Act is technology forcing it's forward looking.

David Roberts

Right.

Lissa Lynch

It requires the regulated source to reduce its emissions commensurate with the best control systems that are available, not the ones that are already sort of out there in use, that plants are choosing to use of their own accord. So again, in a lot of ways, this is analogous to so SO2 scrubbers which were not in widely used, they were not widely produced in the 90s, and there were all these doom and gloom predictions of how much it's going to cost.

We're not going to be able to do this. So right now, there's no limit at all on CO2 emissions from power plants. There's been no reason to innovate on carbon capture for power plants, and there is not a ton of projects out there in the world, but there are plenty to serve as an adequate demonstration for purposes of the Clean Air Act. There's essentially three parts here of carbon capture. There's capture, there's transport, and there's storage. And each part of that process is well established and has been in use for decades, especially the capture part. We've been capturing carbon for decades.

And so there's plenty of demonstration in both pilot projects and at commercial scale to be applied in the power sector. It doesn't have to be something that's already widely out there.

David Roberts

So it's sort of a holistic consideration. And EPA is sort of attempting to apply something like wisdom here. There's a balance of considerations. And I assume, and tell me if I'm wrong, that the usual suspects are arguing to EPA that that would be too strict, that a standard based on CCS would be too strict. And presumably the way they're making that argument is by saying CCS is not the best or adequately demonstrated. So what is their argument? Have you read, like, their briefs, or do they have a specific argument here?

Lissa Lynch

They do, and they're familiar. It's the same set of arguments that we've seen over and over. It's too costly, we can't do it yet. We're getting there. Just let us do this at our own pace. One of the concerning things is the argument that we need gas now, and we're okay with standards that are based on something we might do in the future. So set the standards only at a level that were ready for CCS, that were ready for hydrogen sometime in the future.

David Roberts

CCS ready.

Lissa Lynch

CCS ready. Hydrogen ready.

David Roberts

I love that phrase.

Lissa Lynch

It's just kicking the can down the road.

David Roberts

Like your own David Hawkins once said, it's like saying, my driveway is Ferrari ready.

Lissa Lynch

Exactly. And I think what's at the heart of this industry estimates that CCS can achieve 90% capture and emissions data from the projects that have been built back that up. That is not to say that EPA needs to go ahead and require a 90% emission reduction from every single coal and gas plant in the country. Right. We think it makes the most sense for EPA to draw some distinctions based on the role that the plants perform on the grid. Right. So there's a big difference between ...

David Roberts

Oh, really?

Lissa Lynch

Yes, there's a big difference between plants that are used for baseload power that are running constantly all the time, and those that are used intermittently for reliability as backup power during times of high demand.

There does not need to be the exact identical standards on those two types of plants. So plants that are running full time are emitting the most, and they should be required to reduce their emissions to the greatest degree. So we think it makes sense to have a 90% capture based standard for plants that are going to serve as baseload, that are going to run all the time. And it's the most cost effective for those types of plants to install CCS, especially when you consider the tax credit. Plants that are operating intermittently as backup are already emitting less pollution simply by running less.

And those plants can face a less stringent standard, stay on the grid as backup, and serve that really important reliability function without being required to install CCS, they can meet a lesser standard.

David Roberts

Is there a distinction between those two kinds of plants that is clean enough and clear enough to set legal limits around them because there are some fuzzy edge cases? And then, number two, are we sure that EPA like that's within EPA? Sort of. That's not major for EPA to be thinking to be sort of specifying which standards applied based on function based on operations.

Lissa Lynch

Yes. So this is the kind of detailed analytical and technical decision making that is well within the expert agency's wheelhouse. This is exactly the type of thing that the experts at the agency are normally tasked by the statute to do. They're the ones who run the numbers and figure out what's most appropriate for the specific type of plant that they're regulating. And in fact, the existing standards for new sources do include these sorts of subcategorization based on the use type of the plant. So this is not something complex and mysterious. This is based on true and visible distinctions between types of plants based on the way that they're used.

And I think it really is yet another layer of the sort of flexibility that EPA can and should build into this program. Again, none of this is a particular mandate. And so the states and the companies then have that additional choice. Well, they can run a plant full steam and install controls, or they can run intermittently, keep that plant online and face a lesser limit, or they can retire it and make their own choices about what to replace it with. This is providing more and more levels of choices to the regulated industry to comply in the way that makes sense for them.

David Roberts

Yeah. And something you mentioned in passing, I want to just highlight and put a pin in here, which is that a big argument here on your side is CCS is now being showered with subsidies. Like there are huge subsidies coming down from the Inflation Reduction Act for captured hydrogen, enough to make them economic in some cases or certainly a lot closer. So these are synergistic. I'm saying like the Biden administration's legislation is bolstering the case for these tighter standards because CCS is not just on its own now. Now it's explicitly being helped and shaped and stood up by government grants.

Lissa Lynch

That's right. And at the same time, the Inflation Reduction Act also contains a ton of money for renewables. And so that level of investment across these types of technologies really changes the overall cost of the regulations. And that's one of the things that EPA has to consider, is the overall cost of compliance to the system. And so again, when these standards are in place and states and companies are looking out across their fleet and saying, oh, what should we do? All of those incentives are going to come into that consideration for them. And it makes renewables really cheap to replace your older dirtier generation with.

David Roberts

I got one more question about the standard setting before I want to get into the politics a little bit, but some energy heads out there may be familiar with a company called NET Power, which has come up with a new, I guess it's a couple of years old now. They've built one demonstration plan, a new technology that without getting into the technological details, it's really fascinating. I might do a whole pod on it, but basically it burns natural gas. Emits no particulate pollution at all and captures 100% of the CO2 emissions as a purified stream of CO2.

So you have in NET Power a natural gas power plant with zero particulate emissions and 100% carbon capture. They've built one, it's running and working. So has there been any talk about using that as a standard? Because that would be 100% carbon reduction. Has NET Power's tech come up in these discussions?

Lissa Lynch

Yeah, for sure. I mean, it's very cool, right? It was included, the EPA put out a white paper last year asking for input, sort of preregulatory input on the technologies that are available to reduce emissions, specifically from gas plants. And they took comment on the NET Power approach, which I cannot remember the name of. Allam something.

David Roberts

Allam Cycle, I think is right. I was trying to think of that.

Lissa Lynch

And it is really cool and innovative and I hope that that is a direction that we're going to see any remaining fossil generation go in. And I think we may see that in the proposal. Again, all of what I'm talking about here is we have not seen a proposal from EPA. This is sort of NRDC's perspective on what is possible, justifiable achievable and legally defensible in court. And this is what we've been advocating for before the agency, and then we'll have to see what they come up with. We're expecting a proposal relatively soon, probably within a month or so.

David Roberts

What's really interesting to me about this, just from a political perspective, is it's a sort of weird inversion here of the typical roles. So you've got the power sector, which has been touting CCS for years, to sort of like defend the ongoing existence of fossil power plants. They sort of wave their hands at CCS and say, no, we can go clean too. So they've got Joe Manchin out up there saying, I want to go clean, but I want to do it with fossil. I literally think they've convinced him that they can eliminate their carbon emissions. And traditionally you've had sort of greens and climate people saying that's big and overly complicated and overly expensive and stupid and nobody's ever really going to do it and it's just going to make more sense to switch to clean generation.

And so now we've got this odd political inversion where the power companies are saying, whoa, whoa, whoa, CCS is not really ready. We didn't mean "ready ready," we meant just over the horizon is what we meant. That's where they like it. They like CCS just over the horizon. And all of a sudden this is like calling their bluff. Like, oh, you've been talking about this for decades. Well, how about you use it? And then on the green side, on the climate side, you have a similar inversion where now greens and green groups like yours are arguing like CCS.

Oh, it's great. Yeah, it's right there, it's ready to go, absolutely ready to serve. As the basis for a standard. It's just odd and funny and I just wonder if you have any comment on the politics of trying to herd the cats in the climate community around this message of like CCS is ready and viable, which I don't think comes naturally to a lot of factions, let's say, within the climate community.

Lissa Lynch

Well, that's well phrased. We're walking a fine line. I think our vision for the power sector and the power industry is one of net zero. And in order to get to net zero, that means a heck of a lot of renewables and a heck of a lot less fossil.

David Roberts

Right.

Lissa Lynch

For the purposes of setting pollution limits, we need a technological basis and by far and away CCS is the most effective of the options that we've got.

David Roberts

That the Supreme Court left us.

Lissa Lynch

Exactly. And I think it is very important to have limits on the CO2 emissions from power plants. I think that is sort of the baseline, most important thing from our point of view.

David Roberts

Right, well, lots of, I mean, reports, we should just say lots of reports have been done saying the legislative progress is great, but it's not enough to reach Biden's stated goal. And to reach Biden's stated goal, you need a whole of administration approach, including these standards.

Lissa Lynch

Exactly. And just to put some actual numbers on that, if we want to meet our international and domestic greenhouse gas emission reduction targets for 2030, we need to get our power sector emissions down by 80% from the 2005 sort of peak emissions. We're already about a third of a reduction, 33% -ish reduction since 2005. Our analysis and RDCs of the Inflation Reduction Act puts us now on track to cut our power sector emissions by about 65% by 2030. So that is massive and also not enough.

David Roberts

Right.

Lissa Lynch

And our estimate there is somewhere in the middle there's a really wide range of modeling of the Inflation Reduction Act and a lot of work is going to need to be done in order to get those emission reductions that we're sort of showing in that modeling. It's not a foregone conclusion.

David Roberts

Yeah, one of the wildest things going on right now is just the incredible range of projections about what the IRA will do. Right. Like the sort of government came up with, oh, that it's going to spend $370 on these tax credits and then Credit Suisse is like, actually it's more like a trillion. And then I think there was another one last week, it was like actually it's more like a trillion five. So the range of amounts of money that could come out of this bill are just huge. It's so opaque.

Lissa Lynch

It is. And a lot still remains to be written in all the guidance for these tax credits. But that sort of uncertainty aside, I think the Inflation Reduction Act is going to accelerate a bunch of clean energy and it's going to get us a bunch of emission reductions in the power sector. And at least based on our analysis, that's not quite enough. And we absolutely are going to need limits on the CO2 emissions in addition to investments in clean energy.

David Roberts

So maybe the way to summarize is just to say endorsing CCS as the basis of a performance standard is different than endorsing CCS, full stop.

Lissa Lynch

Yeah, well put. And I think what we see in the modeling reflects what I've been saying about the decision making that comes once EPA sets the standard. So when we model standards that are based on CCS and we've included the Inflation Reduction Act in the baseline, we overall get to around between 70% and 77% CO2 emission reduction by 2030. And what we're seeing in the actual generation results, there is some CCS deployment and also a ton of clean energy.

David Roberts

This is my next question, actually, and you're here answering it before I even ask it, but I just wanted to ask, as a matter of curiosity, has someone modeled what would happen if EPA sets the standards where you are endorsing and what does the modeling say about the decisions power companies are going to make? Like how many fossil fuel plants will shut down versus installing CCS? I don't know if there's like an easy answer to that.

Lissa Lynch

Well, so we have done lots of modeling and we've been doing it for quite a while because even before this Supreme Court decision last summer, we were anticipating that EPA was going to be constrained and in this sort of inside the fence line way. And so we've really been looking for ways to get the most ambition and the most emission reductions out of these sort of source specific basis for the standards. That range that I gave you is based on CCS and partial CCS runs. So 70% to 77% overall emission reductions depending how much you crank the dial on the ambition.

But still with some of those sort of flexibilities that I talked about in terms of the type of use of the plant and what we see in those runs is renewables and energy storage capacity tripling from now to 2030 and quadrupling by 2035. And I think that is in large part based on these new Inflation Reduction Act tax credits being just so much more cost effective. And we still do see some retrofits with carbon capture and storage and some new builds of gas with carbon capture, but not a massive amount. And so there is some uptake of the technology and there's also some reinvestment in clean energy and that kind of tracks with what you would expect, right?

And that kind of goes back to that was essentially what EPA was counting on and basing their standards off of in the Clean Power Plan and that's why they did it that way. I think we can do it this way. And that carbon capture and storage based best system of emission reduction can be shown to be available to the plants that could use it. And not all plants are going to make that choice. It's going to be up to the states and the companies to look at their options and choose whether they want to keep that plant online, and that should work.

David Roberts

So NRDC is recommending a CCS based standard for both existing-source regs and new-source regs. Is there any difference between those two that's worth sort of pulling out here?

Lissa Lynch

Yeah, so I think industry estimates that CCS can achieve 90% capture. And so given that that technology exists, we think it should be used to set the standard for at least the plants that are operating at full bore, both new and existing. When you're building a new plant, you have much greater options in terms of where you're sighting it, how you're building it. You should be required to use the latest and greatest technology on a brand new plant. So that's pretty straightforward for existing plants because they're all over the place. We rely on them already for power.

There needs to be more flexibility, there needs to be more of a phase-in sort of glide path to compliance and some flexibility for how you're going to comply and some exemptions for those plants that are going to commit to retire. You don't want to make them retrofit right before they're expected to retire, you want to just let them plan to retire at the natural end-of-life of the plant. And so giving that flexibility on the existing source side is going to be really important and has long been part of the way that the section 111 standard setting has worked to differentiate between new and existing plants.

David Roberts

So, CCS based standard in both cases, but maybe more flexibility and implementation for the existing plants.

Lissa Lynch

Exactly.

David Roberts

If EPA does use CCS or hydrogen, something like that, as the basis for its performance standard, does it have any say at all in the details of sort of how CCS or hydrogen are used or measured? Because Volts listeners just got an hour and a half earful of discussion of the clean Hydrogen Tax Credits last week, and the details are many, and they make a big gifference in how clean hydrogen is used, how it's measured sort of how its carbon intensity is assessed, how much end users are allowed to claim reductions from using it, et cetera, et cetera. Does EPA get into any of that? Or is this purely just, we're using this tech as a way to set the numerical standard, but the details of how a power plant might implement this is somebody else's problem.

Lissa Lynch

So they absolutely have some authority over how it gets used to comply with this standard. So for purposes of standard setting, they're looking kind of broadly at what the technology is capable of achieving, how it's been used in the past, how it could apply to power plants that exist now in terms of compliance, though, they've got the authority over CO2 essentially in this rulemaking. And so if a plant is going to demonstrate compliance using carbon capture and storage or hydrogen, they can absolutely include the types of rigorous monitoring and verification requirements they would need to see in order for a plant to be demonstrating compliance using one of these technologies.

David Roberts

Right? So they can get into saying, here's what does and doesn't qualify as full CCS like measured every so often, or this kind of geographical storage. They can't get into that?

Lissa Lynch

I absolutely think so. I think they have authority to say you need to have rigorous monitoring and verification from the point of capture to the point of sequestration. And that needs to be part of your demonstration of compliance for using carbon capture. For hydrogen ... It's a little trickier.

David Roberts

I'm very aware at the moment.

Lissa Lynch

To the extent that there is going to be a pathway for hydrogen to be used for compliance, it's got to take into account where that hydrogen comes from, how it's made in order to avoid net emissions increases. And I think they absolutely have that authority. Given that the purpose of this is for the best system of emission reduction, they've got to ensure that it is truly reducing emissions.

David Roberts

Maybe they can just borrow whatever treasury comes up with for the hydrogen.

Lissa Lynch

Assuming it's good.

David Roberts

Yes, true. If EPA doesn't go with CCS, doesn't go with the high end here, what do you think it will do? Will it fall back to something medium, something in the fuel blending sort of range? And just more broadly, do we have any sense at all of what EPA is thinking or which direction it's going or what to expect?

Lissa Lynch

I think in terms of publicly facing tea leaves, what we've got to look at really is that white paper from last year where they had laid out the options and said, hey, give us some comments on what you think of these options for reducing CO2 emissions from combustion turbines. From everything that we have seen from this administration, we are hoping that they're going to be ambitious. They know that this is a critical moment. They know that this is an important wedge of emissions, that the power sector is still a really significant percentage of our emissions, roughly a quarter, and that we need standards on those CO2 emissions and they need to be strong.

And it's not going to be worth all this work, honestly, if they don't make them strong. And so that has been our message to the administration, is, look, if you're going to go through the trouble of doing this all over again, let's make it worth it.

David Roberts

Is Manchin he's like the monster under my bed at this point. Is there some way Manchin could burst out of the closet and screw this up somehow? Or is he ...

Lissa Lynch

I hesitate to even speculate.

David Roberts

Can I just not think about him in this respect, or does he have some way that he could theoretically muck this up, or is this something that's finally just sort of beyond his reach?

Lissa Lynch

I think for now, the ball is in EPA's court to come out with a proposal and to take public comments and to consider them. And so for right now, this is an EPA project. Once it's finalized, it will presumably be subject to a Congressional Review Act resolution, and it will depend on who is in charge as to what happens there. And so that's when Congress gets to have its veto opportunity over regulations, which is unfortunate, but it is the world we're living in.

David Roberts

And does that just require a majority or a supermajority?

Lissa Lynch

I believe it's just a majority, but it can be blocked by the President.

David Roberts

Right. And by the time there's a new president, it'll be too late. We're coming in under the deadline that the Congressional Review Act, if it's going to happen at all, would happen under Biden and thus would be vetoed. So that's not really ...

Lissa Lynch

And so that takes place at the final rule. So we're only at the proposal stage. We've got a long way to go.

David Roberts

Is it going to get done under the Congressional Review Act just to just explain to listeners? Congressional Review Act says basically Congress can undo or veto a regulation basically within a certain window of it being finalized which is 60 ...

Lissa Lynch

60 working days, which does not equal the calendar days.

David Roberts

Right. So what you want to do is get your regulations on the books more than 60 working days prior to the next presidential election.

Lissa Lynch

Exactly.

David Roberts

Just so you're sure your guys in charge, if it happens.

Lissa Lynch

The date that we are looking at is next April, roughly a year from now, for all of these regulations. Right. Like it's not just ...

David Roberts

There's a lot these are not the only ones. There's a lot of there's a big backlog.

Lissa Lynch

It is. And we are seeing the use of the Congressional Review Act right now as we speak in this Congress with attempts to invalidate the rules that the administration has recently finalized. It is a terrible tool. It is not a good thing.

David Roberts

It's a Newt Gingrich special, isn't it? Am I right about the history? Of course, like so many malignant things in our government treat.

Lissa Lynch

But it is the world we're living in, and I think the administration is aware of the timeline that's facing them next year.

David Roberts

Interesting. So you think a proposed rule is going to show up in the next month or two?

Lissa Lynch

Yeah, we're expecting a proposed rule maybe by the end of April. And then when ... you know what happens, that gets published in the Federal Register. There's an opportunity for public comment. There's public hearings. And so there will be sort of a flurry of activity as everybody gets their comments in, and then the agency has to review those comments and address them in the final rule. That's part of the sort of Administrative Law 101. And then they have to issue the final rule and demonstrate yeah, we heard all your comments, and this is why we made the decisions that we made.

David Roberts

And that's when the lawsuits kick off.

Lissa Lynch

And that's when the lawsuits start. Exactly. We do it all over again. It's the circle of life.

David Roberts

Yes. And what do you think of the chances that this Supreme Court ends up hearing a case on this again? Do you think the conservatives can mount a legal case plausible enough to get it back into the Supreme Court?

Lissa Lynch

I would never speculate about what this Supreme Court will do, because who knows, right? Our job is to make this thing as airtight as possible. And Chief Justice Roberts gave us some guidelines and a roadmap in the West Virginia decision. He told us what he's looking for, and it's this sort of traditional looking approach to pollution control. And so that's what we're operating under. And we are urging EPA to follow those guidelines and do the most that they can within those constraints, and we'll be there to defend it with them if it comes down to that.

David Roberts

All right, awesome. Lissa Lynch of NRDC, thank you for coming and forecasting and explaining all this with us. Maybe we'll talk again in that distant future day when these things are actually on the books and the lawsuits have started. We'll talk again.

Lissa Lynch

Thank you so much for having me.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much, and I'll see you next time.

In this episode, Jennifer Garson of the Department of Energy’s Water Power Technologies Office discusses the state of hydropower in the US and where the industry is headed.

(a)

(Active transcript)

Text transcript:

David Roberts

For decades, hydropower has been most common source of renewable electricity in the world. (In the US, it was passed by wind a few years ago.) Pumped hydro — large hydropower facilities in which water is pumped up and run down hill to store energy — remains the most common form of energy storage, both in the US and in the world.

Even as the vast majority of media attention in the clean-energy world goes to wind and solar power, hydropower continues churning away in the background, generating and storing vast amounts of renewable energy.

Hydro has a long and storied past, but does it have a future? What's going on with hydropower these days? Is there any prospect of building new dams or of finding more power in existing dams? What's going on with small hydropower, on rivers, streams, and reservoirs? And is ocean energy ever going to be a real thing?

I've taken hydropower for granted for a long time, so I decided it was finally time to dig into these questions. To do so, I contacted Jennifer Garson, head of the Department of Energy’s Water Power Technologies Office (WPTO). The WPTO oversees a sprawling network of prizes and grants meant to encourage hydro and marine energy projects. I talked with Garson about the future of large dams in the US, the promise of small-scale hydro for local communities, and the uncertain future of marine energy.

Alright, with no further ado, Jennifer Garson, welcome to Volts. Thank you so much for coming.

Jennifer Garson

Thank you so much for having me.

David Roberts

Alright, so we normally normally here on Volts, we do the sort of deep dive into one thing. But this here we're going to attempt something slightly different, which is a broad overview of a fairly large category, larger than I think I appreciated before I started digging around and just try to get a sort of global sense of where it's at. Because I know that from my experience in clean energy, I've sort of, like, had hydro in the back of my head as kind of this steady presence, a little bit like nuclear, like a steady presence in the background, but not something where anything kind of dynamic or new is happening. And I think you probably disagree with that.

So let's get into it. So just to start with, what are the technologies encompassed by the terms "hydro" and "marine energy" that your office covers? What is the remit?

Jennifer Garson

Yeah, so glad you asked that. And it is, sort of, just by nature of our office as we're structured that, we have two very interesting, but two very different types of water power technologies. So the first that you mentioned is hydropower. Hydropower really has been delivering power for the last 100 plus years. It's both the conventional hydropower, so very large behind the reservoir, big dams that people usually envision when they're thinking about hydro. We also have smaller non-powered dams that we power with hydropower. We also have run-of-river systems that actually have diversions in addition to dams, where you actually have water flowing to the side of the river. And then we also are thinking about hydropower. Even in conduits and canals, how do you use existing water infrastructure to provide power, whether it's for water treatment or irrigation, a whole number of different ways that you could use existing infrastructure for water power.

Jennifer Garson

On the other side of the portfolio, we have marine renewable energy. So while hydropower is probably the oldest form of renewable power — although potentially, arguably wind is too — marine renewable energy is the most nascent form of renewable energy. And that's really looking out to the power of the ocean. Everything from how do we kinetically capture power, how do we use gradients to capture power. So everything from tidal power, wave power, ocean thermal energy conversion, even salinity gradients and even pressure gradients, really looking at a multitude of ways of when you look out at the ocean and see all the power that's contained in it, how do we use different power capture systems to harness multitude of ways that the ocean generates power?

David Roberts

Got it. So water on land and water at sea ...

Jennifer Garson

Water everywhere.

David Roberts

Water everywhere. So let's start then with big dams, because I think this is when you say hydropower, this is what springs to people's minds as sort of the conventional form. I think conventional wisdom is that we've got a lot of big dams in the US creating a lot of power and it's steady and it's good, but that's more or less it. And so this is my first question. It's just do you think we're going to build any more large dams in the US or large, dam-wise, are we basically tapped out?

Jennifer Garson

So that's a really excellent question. I think there's a general agreement that we are not going to be building. Any large dams on existing waterways. I think in terms of large conventional hydropower, we are most likely tapped out. Particularly here, I should say, in the United States. That isn't necessarily true elsewhere across the world.

David Roberts

Right.

Jennifer Garson

We do think about building other big structures like pump storage, but those have been now leaning more towards what we call closed-loop systems, which are two bodies of water connected, but they're usually constructed and fabricated bodies of water. They're not connected to an existing large river. So I think for the United States, we're not going to see any large behind the reservoir, conventional hydropower, big dams built on any of our riverways anytime soon.

David Roberts

Also on the subject, I've heard conflicting things about the carbon emissions of big dams. I feel like there's been some new research lately that shows that those emissions are higher than we thought. Because you're disrupting a bunch of soil, you're creating a pool where things rot and produce methane. So what's our latest state of thinking on the large dams that exist? Are there large dams that exist that we think are less of a carbon asset than we thought, that we think need to be closed down for environmental reasons?

Jennifer Garson

So I think those are actually two separate questions, one is what is the science behind say, methane or reservoir emissions, particularly given vegetation? We are conducting studies right now at the Department of Energy really trying to understand what types of sensors and measurements are needed to either validate or invalidate that as a theory. I think that there's still unsettled research on the magnitude of the impact, also the timing of the impact. So the other thing that we talk about when thinking about reservoir emissions is, if you're talking about vegetation rot at the bottom of a reservoir for a dam or a facility that's been around for a long time, does it still hold that you have emissions or methane challenges? And I think we still need to do more research on both the kind of temporal nature and the magnitude of the problem. It's not to say that we think there's no problem at all or there's a major problem.

I really think it's a critical research question that we are fundamentally trying to address with kind of true scientific method. On the environmental piece, there's obviously been a lot of both discussions and controversy about dam removal. And I would say even ten years ago, it was not a conversation that the hydropower industry was really actively engaged in or even potentially willing to engage in.

Jennifer Garson

But over the last few years, there's been a really interesting kind of convening between the environmental and the hydropower community actually under ... it's called "The Uncommon Dialogue", it was run by Stanford University that was really trying to get together the environmental and hydropower community to have tough conversations like dam removal, but also dam repair, rehabilitation, and retrofits. And we actually just announced a few weeks ago, through funding that we received under the bipartisan infrastructure law, that DOE is actually going to fund more participation in that uncommon dialogue stakeholder strategy sessions, so that we can really understand where some of the opportunities at both environmental benefits like flood management, temperature control, but also the types of tools and research that we need to understand, "What are some of the environmental implications either of leaving power dams in existence?"

Dam removal isn't necessarily something that we do within DOE, but we do support this kind of ongoing dialogue between the environmental and hydropower community, because ultimately the future of hydropower needs to be one that is sustainable and compatible with both from a climate perspective and from an environmental perspective.

David Roberts

Right. Well, on the flip side of that, my other question is not all large dams in the US are producing power, and the ones that are powered aren't necessarily producing the maximum amount of power they could produce. So how much sort of runway do we have in powering existing dams or upgrading existing hydropower facilities?

Jennifer Garson

Yeah, so there's kind of a couple of pieces in there. One is that there are 90,000 dams in the United States, and only 3% actually have power.

David Roberts

Oh, no kidding.

Jennifer Garson

Yeah.

David Roberts

Is it mainly small versus big is, like, the biggest ones have power and a bunch of smaller ones don't? Or is that not the dividing line?

Jennifer Garson

It really varies. It's not necessarily the big ones do, I mean, you think about some big dams that do have power. I think predominantly you're looking at small to medium-sized dams that aren't currently powered, and many of them were built for other reasons, like flood control, recreation, irrigation, you name it. But still, it's always been incredible to me to kind of dig into those numbers where you think that every dam must have hydro associated with it, and it doesn't.

We've been doing a lot of research, looking at what are the attributes of non-powered dams that we could potentially tap into for power purposes; how do we take advantage of this existing infrastructure and potentially provide power to it? And so, only about the top 600 dams that we have have more than 1 megawatt of potential, but they account for, actually 90% of the total non-powered dam potential. The top hundred largest dams represent about 8 gigawatts, and the top ten represent about 3 gigawatts.

Jennifer Garson

So there is quite a bit of power even within those non-powered dams. And actually, from 2000 to 2020, there were actually 36 non-powered dams that were retrofitted that added about a half a gigawatt of capacity. But then you also talk about, what do we think about for the expansion of the existing hydropower fleet?

Jennifer Garson

We all know that hydropower right now accounts for about six and a half percent of total load nationwide, but the capacity expansion, even at looking at what do we do with the existing hydropower fleet that we have, you could actually have a combined growth of about 13 gigawatts of new hydropower generation capacity through existing plants, adding power to non-powered dams and some new stream reach. We had initial estimates of about 36 gigawatts potential for new pump storage hydro capacity, too.

David Roberts

So there are then potentially gigawatts of new power to be had with dams that are already built?

Jennifer Garson

Yup.

David Roberts

And so why is it that already happening? Is it the economics? What needs to happen to really ... because we need all the clean power we can get, so it seems like this is something we should be pursuing unless there's something stopping us. So what are the barriers to making that happen?

Jennifer Garson

I mean, the answer is it's complicated because it's very dependent upon the site that we're talking about. So it could be that adding existing capacity requires additional capital and if the capital gets too high is there a customer willing to pay for that higher price of electricity? There's also complications, especially for the existing fleet for relicensing. The relicensing process for hydropower is incredibly difficult. It's surmountable, but it is difficult.

It's actually more difficult. We did a study about a year ago looking at the licensing and relicensing process for hydropower, and the number of agencies even involved in hydropower licensing actually exceeds that for nuclear.

David Roberts

Take that, nuclear-whiners.

Jennifer Garson

Exactly. Hydro has got it worse. But even with the challenges for licensing and finding capital, we still think that there's enormous promise by tapping into this existing generation fleet, particularly given the firm flexible, baseload generation power of renewables through hydropower, specifically. We even looked at a study looking at what's the black start capabilities that hydropower currently provides. Right now it's 40% of the black start capabilities is actually provided by hydro.

David Roberts

Interesting.

Jennifer Garson

And whether you're talking about spinning reserves, ancillary services, other grid services, I think we're going to need to both expand what we have in our existing fleet, but also maintain that existing fleet in order to provide the critical services that we need as more renewables come online.

David Roberts

One of the big worries in nuclear is you've got these plants that are up and running and they're scheduled to close, basically. And so there's all this agita about we've got this clean power, we're about to take it off grid. It's crazy. Are any of our big dams scheduled to close or are they more or less like can run forever as long as you maintain them?

Jennifer Garson

Again, it depends. Some are subject to licensing and relicensing. Also half of the hydropower fleet is actually federal, so part of it will stay online as long as the federal government wants to maintain those dams. But the threat of licensing or the threat of not being able to get through the relicensing process for our existing fleet could leave up to about 50% of our fleet in the next ten years is up for relicensing. We don't get that through relicensing. That means we lose a substantial amount of our power if they can't get through the regulatory process. And so we're trying to focus on even things like how do we improve the environmental performance of existing dams? How do you really think creatively about some of the upgrades that could expand some of those grid capabilities? Because if you're going to take a facility that's been online and it's been load following, it's really for keeping the lights on.

Jennifer Garson

How do you change the operational nature of those plants to also provide those grid services without degrading the existing hardware at those facilities? It's a totally new operating environment, one that we can almost take advantage of the relicensing process and do these types of upgrades, but it does mean that we have to get that non federal fleet through the relicensing process in order to keep them online.

David Roberts

This story of excess bureaucracy and paperwork slowing things down pops up ...

Jennifer Garson

Everywhere!

David Roberts

Everyone I talk to.

Jennifer Garson

Yes, sadly, but I will say we've actually seen a lot of interest on the Hill, on Capitol Hill, over the last probably two years, I'd say through a bipartisan nature at thinking about some of the challenges and opportunities in particular on hydropower regulatory reform. Now we again at DOE really just take a sort of analytical approach to understanding what that regulatory process looks like and how it exists. But even last spring there was actually a Hill committee meeting specifically on the regulatory process. It was actually in a follow on a Hill committee staff meeting that was specifically on hydro last January. So I think there's both a recognition that something needs to change and I think potentially some momentum behind trying to really take a hard look at what the hydropower fleet has to go through from a regulatory perspective.

David Roberts

Yeah, I guess it just strikes me it would be a little crazy for us when we're in this mad scramble for clean power and we have this infrastructure, a lot of which is already built, that we could just get a lot more clean power out of that we're not going for it, Gangbusters. final question about large dams, which is one of the things you hear about the future of hydropower is the threat of climate change itself and the threat of droughts and the threat basically of hydro output, which has typically been fairly reliable, becoming more sort of unpredictable and variable and a little bit less reliable. Is that something you think about a lot?

Jennifer Garson

So actually last year we conducted a really comprehensive look at the effects of drought on hydropower generation in the United States. So we did a couple of different analyses, but I'll touch on this one first. Drought obviously can and has impacted hydropower in the west, but if you actually look at it from a fleet wide perspective, the Western hydropower fleet still sustained 80% of its average generation during the worst drought this century. Now, that was a lot of times reliant on what you had as storage behind the reservoir and so we are doing a second order analysis to say what happens when you have less reservoir ability to really do an overall assessment. But there are so many smaller subregions in the west that still they don't typically always have drought super decentralized. It's usually essentialized in certain areas. So it is certainly a threat and we have a lot of work, I think, that we've been doing it. How do we look at from a forecasting perspective, not just looking at hind-cast models, don't use past as precedents, also look to the future for future climactic modeling and how do we begin to plan from both a climate resiliency perspective?

Jennifer Garson

What are the localized impacts going to be on individual sites? But when you look at it from a fleetwide perspective thus far, we actually haven't seen that much of a decline in power production across the west. That's because sometimes where we have more acute drought in some regions, we might have an abundance of water in others. If you take a look at even California, whether it's through the impact of atmospheric rivers or a historic snow pack.

David Roberts

The snowpack they've got now historic highs. Is there going to be an abundance of hydropower next year?

Jennifer Garson

It certainly could help make sure that there is a reliable amount of water to help sustain hydropower production. There's a lot of hydropower in California, but I think we still have more work to be done on both what's the forecasting and looking at snowpack melt and what it's going to mean for a next season's. Hydropower availability and how do we plan not just on a year to year basis, but over a longer period of time? So we're committing a lot of resources towards this hydrologic and climate science analysis. We also just did the most comprehensive assessment through Oak Ridge National Laboratory, it's called. And this is because of the Secure Water Act, the 9505 assessment, which really looked at an analysis of hydropower generation affected by long term climate change, specifically at the Power Marketing Administration.

Jennifer Garson

And our most recent report, which we actually just published last year, is that long term average runoff and hydropower generation are actually projected to slightly increase across the continental US, but some summer runoff is projected to decrease by the mid 21st century. So you're talking about seasonal change and so that will require us to think about storage in different ways when we can rely on hydropower. Do you shift the kind of seasonal expectation of it really fitting summer loads and potentially more in spring or even winter loads? But maintaining that flexibility and operation is going to be a key challenge, whether it's because of projected seasonal availability or just water management strategies or just the fact that when you look at it from a purely sort of quantitative perspective, our ability to know where water goes is not nearly as sophisticated right now as where electricity goes.

Like, our sensors and measurements are so far behind that which you see in the electricity sector that we feel like there's a lot of opportunity to increase sensors, monitoring and models to be incorporated into hydropower forecasting so that we have more predictability and a better understanding of just how climate change is going to impact hydropower availability. It's not to say that it's going to be easy, it's just it's more complicated than what you would imagine just looking at pictures of drought in the west.

David Roberts

So let's talk about then smaller scale hydro on rivers, streams, canals, conduits, smaller forms of river. I've heard about these sort of in the background for many, many years. As far as I can tell, it hasn't really amounted to much. And just like intuitively, when I think about building like a little dam or a little generator just for the amount of power that's coming through a stream or a river, it sounds like a lot of infrastructure for a small amount of power. So I wonder about the economics. So maybe you just tell us what is the deal with small scale hydro?

Is it a real thing? Is it growing or shrinking? Is there a lot of potential there? What do we know about it?

Jennifer Garson

Sure, I want to just set a little bit of context.

Jennifer Garson

When we talk about small hydropower, we're talking about anything between as small as 100 kilowatts, all the way up to 10 megawatts.

David Roberts

Got it.

Jennifer Garson

And, we do have this picture that large-scale hydropower is really the predominant form of power. But actually, 72% of our hydropower fleet — it's almost 1,700 plants out of the almost 2,300 total plants — produce less than 10 megawatts apiece. So even though it may be more obvious that we think about hydropower as large, it's actually almost 3.65 gigawatts of hydropower capacity is actually small.

And I think that when you think about these small hydropower facilities, a lot of times they're in places that it's serving a local load or it's serving a direct facility. And so, to me, I think the value of these smaller facilities is how they're providing power to local customers. Many of them are owned even by what you would consider more like mom and pop hydropower operators. But also when we think about the potential for non-powered dam development — so we talked a little bit earlier about, "Are the big non-powered dams big or are they small?" — 71% of the potential for non-powered dam development is actually in small dams with small reservoirs. So it may not be a simple form of power capture, but there really is a lot of potential untapped through non-powered dams.

And then you talked a little bit about run-of-river. The run-of-river potential is also there. We have been talking to different communities that are considering run-of-river systems for power. And a lot of times soon we're thinking about some of these small power dams. We get approached a lot by say, communities in Alaska where they're looking at what are their power potential in places where they're not going to be able to harness solar on a year-long perspective or be able to potentially get wind reliably. And so some of these small hydropower facilities in more kind of remote and isolated areas could provide really meaningful power to places that may not have another form of renewable energy accessible to decarbonize their systems. And to me, that's just as meaningful as adding big, huge gigawatts everywhere.

Jennifer Garson

We need to add big, huge gigawatts everywhere of renewables. But I think the potential for some of these smaller hydropower facilities could be incredibly meaningful. We also even just did an assessment last year, looking at underserved and distressed communities in the Appalachia region, where could you power non-power dams and add different forms of storage to provide almost essentially quality-base load power. And there were quite a few sites where you could provide reliable, relatively cheap power for these communities.

Jennifer Garson

Now, when it comes to the economics, it is more expensive when you look at it from a per megawatt basis. But when I think about the critical value of having hydropower serve, essentially, around the clock, I think this is where we think about decarbonizing everything from the electricity sector. We're going to have to have a higher willingness to pay for firm, flexible power.

I think, when we're thinking about the economics of small scale hydropower, we think about it in a couple of different ways. One is, what is that power going to provide at that small scale? When you're thinking about it as a firm baseload power, is it providing power to places that might not have otherwise access to renewable electricity or a clean grid? Is it in combination to with, say, a solar array and storage? We've seen a couple of small hydropower developers who are looking at it as almost like a mini micro-grid with hydro as the small baseload power. And so rather than it just being the project economics is just the hydropower facility itself, thinking about it from a project perspective: hydro with storage plus solar. And how do you think about it within that overall kind of portfolio context and not just the facility itself? That being said, funding these types of projects is not easy, whether it's because of the licensing or relicensing process or because of the high capital costs.

David Roberts

Is that a hassle for small run-of-river stuff too, the licensing stuff?

Jennifer Garson

Sure, you still need a license to operate. There are some exceptions, but you typically still need to get a license from FERC. But they have been trying especially for non-power dams and closed lip pump storage. FERC has been trying to have an accelerated permitting for these types of facilities. So the new stream reach, which is where there's no dam, that's a little bit more complicated, but for powering non-powered dams, FERC and other partners have recognized that there's already essentially been disruption to the local ecosystem. So you're not talking about a complete new build, you're talking about adding infrastructure to existing infrastructure.

But it also depends on who the owner of the dam is. A lot of developers are actually looking at powering non-powered dams that are owned by the Army Corps or the Bureau of Reclamation, trying to take advantage of existing infrastructure that's already been built by the federal government and add power. And there are a number of developers that are trying to think about developing these non-power dams through a portfolio of different non-power dams. So rather than treating it as a kind of one off project, how do they do kind of feasibility analysis, looking at a number of different non-power dams of power and treating it more like a portfolio package of power.

And that is different from the way that we've traditionally financed non-powered dams. I still think we have a way to go, and we're actually about to set out on a study with the National Renewable Energy Laboratory and Deloitte to really look at the investment landscape in hydropower. Because ever since I've been in this space, I've always heard that investment in hydropower is really hard. But when you start asking the second order question of why, you kind of get a jumbled answer of, "It's the licensing, it's the customers, it's the PPA."

So we're really trying to put a lot of rigor behind, "How do we get more momentum into developing non-powered dams? How do we try to increase the investment appetite to looking at these types of facilities and facility buildouts, whether it's expanding existing capacity at hydropower facilities or small hydropower through non-powered dams, to really fill that gap that we see 10-20 years down the line of the need for firm, flexible power resources." So I think we're in the midst of a changing investment landscape, too, about how do you value firm power?

David Roberts

Right. So it's fair to say then, when it comes to the smaller hydro on rivers and such, it's not so much the raw sort of like dollar per megawatt where you find the value. It's more in the firmness, right, which we don't fully value yet, but will, I think, soon. And the local benefits, local resilience and stuff like that.

Jennifer Garson

Yeah. And even so, we just did a demonstration last year in Idaho Falls, the Idaho Falls Power, and they were looking at how do they optimize their smaller run of river hydropower systems and tried to see whether or not adding some sort of storage medium. Ultimately, it was super capacitors. But if they add a storage medium to those smaller facilities, can they actually provide black start capabilities for their local community, recognizing that they're tied into a larger grid? And if the larger grid goes down, they don't want to lose access to the electricity they need for critical services.

Jennifer Garson

And so it's thinking about, too, in the context of some of these smaller projects, can you use them to help jumpstart the grid or provide more consistent power or provide a more predictable load for electricity consumption? But I still think it is still higher on a project economics of $70 a megawatt, roughly. But what we're trying to really dig into is what is the value inherent between, say, the $20 per megawatt you would see for solar and the 70 for hydro? Are there enough services and economics behind that higher threshold to really kind of catalyze investment into that space?

How do you provide that investment theory that shows why it's really important that some power you're going to have to pay more for?

David Roberts

There's probably a ton more to talk about there, but we have other things to hit, one of which is storage. I think Volts listeners are probably savvy enough at this point to know that the vast, vast bulk of existing energy storage is in the form of what's called pumped hydro storage, which is basically just you pump water uphill when you have power, and then when you need power, you run the water downhill through generators. Pretty simple. This is how we do most of our energy storage today. So one of the things that people say about pumped hydro is that it is geography dependent.

You have to find the right body of water in the right place with the right whatevers. So I'm curious, have we built out the sort of traditional pumped hydro that is possible or is there more room sort of same question about the large dams. Is there more room to build new pumped hydro and is there more room to get more capacity out of existing pumped hydro facilities? I know we have this new technology that's closed-loop pump hydro, which we'll talk about in a second. But just in terms of the traditional kind, is that tapped out or is there more to be had there?

Jennifer Garson

Yeah, put it in order of magnitude. About 93% of the long duration storage or even just storage capabilities. Right now on the grid is pump storage. And that's actually just from 43 pump storage plants.

David Roberts

They're very big.

Jennifer Garson

They're very big. They were actually originally built to complement nuclear.

David Roberts

Interesting.

Jennifer Garson

Yeah. So now we're thinking about what's going to complement next or continue to complement nuclear. But when you think about even the potential in our existing fleet, between 2010 and 2019, we added 1.3 gigawatts of PSH capacity just at the existing facilities that we already have online.

David Roberts

Interesting. That's a lot.

Jennifer Garson

It's almost the same amount as all other energy storage types combined that were added at that period of time. Yeah. So just making these capacity upgrades is huge.

David Roberts

How do you add capacity? Is it bigger pipes, bigger pumps? Is there any magic to that?

Jennifer Garson

Bigger pumps, different turbines, different upgrades to better not impede flow, even management practices utilizing it more. So even some of our storage facilities aren't necessarily utilized to their full capacity. And so you usually either need better control systems or kind of control strategies or equipment upgrades or environmental upgrades. There's a multitude of different upgrades that can happen to add capacity at our pump storage facilities.

David Roberts

And that's ongoing. There's still more. There's more to be had there.

Jennifer Garson

There definitely is more to be had. But I actually also want to point out we have typically thought of pump storage as these big open-loop systems. So you mentioned closed-loop. All of our facilities right now are open-loop, which means they're connected to existing waterways and rivers. So if you looked at where are we going to have big diversions from big existing waterways to other storage medium to other reservoirs, that's probably more limited. But we actually just did a whole assessment on pump storage resource characterization and resource assessment here in the US and found there's actually 15,000 additional sites for pump storage development.

David Roberts

Oh, good grief. And that's the open-loop kind you're talking about.

Jennifer Garson

That's closed-loop, actually, specifically. Closed-loop, there are more than 15,000 sites that you could actually have for additional facilities to be brought online. And there are some major closed-loop facilities that are getting pretty close in the regulatory process, and we've actually been working with some of those sites through our pump storage valuation project where we were looking at what's the cost benefit analysis and return for these different types of closed-loop systems.

David Roberts

Explain what a closed-loop system is just so people get it.

Jennifer Garson

It's basically very simple mechanical energy. You have an upper reservoir, so basically an upper ground tank, for lack of a better term. It could be at the top of a mountain, it could be at the top of a hill, but you need some sort of head so it can run down. But you have a top reservoir and a bottom reservoir and basically pipes that connect between the two. And when you have excess electricity, electricity pumps the water from the lower reservoir up to the upper reservoir. And when you need that power, you run that water right back through the turbines to go back down to the lower reservoir. So it's just basically mechanical movement of water between two bodies of water.

David Roberts

And so if you can create your own reservoirs, then all you really need, geographically, is a hill.

Jennifer Garson

Correct.

David Roberts

And there are lots of hills.

Jennifer Garson

We got a lot of hills.

David Roberts

What about underground? I feel like I've seen this bandied about where you just dig a hole and sort of use the surface of the earth as your upper reservoir and the hole as your lower reservoir. Is that a thing?

Jennifer Garson

Yeah. We've been working with a couple of different companies that are looking at underground reservoirs. There are ideas, everything from utilizing old mines, which there's some worry about from a geotechnical perspective. Will you actually have enough stability to have an upper reservoir and then the lower reservoir in the mine? But there is potential. But then there are companies like Quidnet who is essentially injecting water underground and using it to come back up and spin through a turbine for more modular underground pump storage. So I think there's definitely opportunity both above and below the ground. It just all really depends on sort of the geotechnical feasibility, site availability and just what are you going to get from round trip efficiency for different types of power?

David Roberts

Well, this closed-loop pump storage seems like a huge opportunity. Do we know, I mean, if there isn't any built yet, do we know what its economics are going to be relative to other storage possibilities?

Jennifer Garson

Yes, we know the economics pretty well. I mean, obviously the economics has changed as with every other storage technology out there with the inflation reduction act passage. But we have done a lot on sort of valuation from a per megawatt perspective. How much would you pay for these newer closed-loop pump storage facilities? The biggest challenge with anything pump storage-related is the high capital cost at the beginning of a project. And so where some of the project economics get a little more complicated is: are you looking at a ten-year payback period for storage or are you looking at it from ... some of these assets can last 100 years.

Like what's the appetite when thinking about entering into a PPA or building out a project? And there's also the complication — and this is similar to other forms of storage: Are you generation or are you transmission? Are you deferral or are you providing that power? How does your power count essentially within a PPA? The other challenge is too is oftentimes when we're looking at some of these bigger closed-loop pump storage systems, you're building them to complement renewables that haven't come online yet. So how do you also enter into types of contracts?

You're like, "Hey, we want to build this facility because there's going to be a ton of wind and solar." And if there isn't a ton of wind and solar, it's like, well, we actually need that storage. So you run into this chicken and egg scenario. What do you build first? A big closed-loop pump storage facility that's going to take seven to ten years to commission? Do you wait for the intermittent renewables to come online to a point where you need the storage? Or do you really start to look now at thinking about what does your grid look like in ten years and take a more long-term capital risk to build out some of these larger things?

David Roberts

Weird planning for the future. What a thought. When we think about the potential, if there are 15, what did you say ... ?

Jennifer Garson

15,000.

David Roberts

... sites where closed-loop pumped hydro could work, then do we know what sort of capacity that represents? I mean, that's a lot of storage.

Jennifer Garson

It's a lot, a lot, a lot, a lot of gigawatts. Now that's the site feasibility. The practical feasibility of how much could we actually develop is something that we're analyzing right now because it was only just last year that we decided to kind of reopen the book on, okay, let's not just thinking about it from where we see site developers coming in and applying FERC permits, FERC licenses, where others are really trying to determine where the best sites are suited. Let's use an analytical perspective to say, where, from a geographical perspective, could you feasibly build closed-loop pump storage?

But we're working on a second order analysis to kind of scrub, what does it look like from a total, not just technical feasibility, but practical feasibility of how much pump storage we could add? Because we don't want to say that it's going to be thousands of gigawatts without really having some analysis behind it. But we are really looking at this through both a hydrofuture study and a pump storage study that we'll have going pretty soon to look at that total, feasible storage that we can actually capture through closed-loop pump storage.

David Roberts

Because you hear all these talks about long duration storage, all this buzz, people are banding about all kinds of wacky technologies and possibilities, but you just don't hear pumped-hydro mentioned a lot in those discussions.

Jennifer Garson

I think ...

David Roberts

Need better PR.

Jennifer Garson

We do need better PR. We need better PR and all forms of water power technologies — no offense to the technologies I care about a whole lot. But no, you're right. A lot of times we're talking about long-duration storage technologies that are still kind of bench-scale prototypes. And it's things that I fundamentally believe in. But I actually, before I was in the waterpower office, spent a majority of my career in DOE on commercialization, and I've seen how long it takes for products to get from a lab prototype to bench scale to first of a pilot to actual commercializable technologies.

And my concern is if we bank all of our long-duration storage needs on technologies that are still at that pilot or commercial demo scale, we may run into kind of a tipping point on the grid where we really need what works now. But I do think that there has been more momentum both here and abroad looking at pump storage as a practical solution. And even Secretary Granholm has expressed interest in pump storage. The Loan Guarantee office is also looking at pump storage. So I do think they're slowly but surely gaining more momentum at the potential feasibility for pump storage.

We're even working now with the Tennessee Valley Authority actually looking at pump storage. Duke is looking at pump storage. I just talked to someone in Pennsylvania, in the governor's office, that's also looking at pump storage. So I think as people are looking at the practicalities of the grid, 10 to 15 years out, if we really are going to scale wind and solar, we need to start planning for storage facilities now. And the reality is that closed-loop pump storage can work. You do have high capital costs. There are geotechnical concerns, but we know that it works because it's a water battery.

You're pushing water up the hill to let it come back down. We know how to do that.

David Roberts

Very simple.

Jennifer Garson

We've been doing that a long time.

David Roberts

Final question about water as storage, which is just, and this might be kind of a naive or a silly question, but it just seems like in the future, one of the things you're constantly hearing about is water is going to become more scarce. Basically, there's a lot of competing demands for water, and climate change is messing up a lot of our sort of seasonal water provision and just there's going to be water wars, et cetera, et cetera, et cetera. So I'm just wondering, is that something you worry about, using water for this versus using water for other things? Do you think water itself is going to become sort of contested and difficult to get your hands on?

Jennifer Garson

I mean, I think clean potable water is a challenge that we are definitely going to face as a country and as a world. I mean, as a country, we're actually pretty privileged to have pretty abundant freshwater resources. Now, whether or not those would be clean enough to drink I think is a key outstanding question. But in places like the Pacific Northwest and New England and even the Midwest, water availability isn't necessarily the top concern.

Is it in the West? Yes. We actually wonder sometimes, or have been analyzing the potential for almost water abundance in areas where we don't want to have too much water because of flooding concerns or extreme events. So there's the kind of flip side of that, is it's not just about lack of water availability. Are we also building out infrastructure that can withstand higher forces of water, particularly through rivers and streams and waterways? But if you're looking at things like closed-loop pump storage, you're not going to have a ton of evaporative loss. So when you have these storage facilities, you're not really competing for fresh water availability.

You're just trying to keep the reservoirs filled. And that is very different than trying to have the water needs for, say, fossil fuel plants or even nuclear, which have pretty high intensity water needs. But on fresh water availability, that's something that on the marine side of our portfolio that we think about as a potential for wave power to actually address, is the delivery of potable water. Because I do worry a lot about our ability to provide continuous fresh potable water for not just here in the United States, but abroad.

David Roberts

Right. Well, you've set up my segue perfectly then. So let's talk about the other side of your portfolio, which is energy in the ocean and how to get it out of the ocean. This is another area where I feel like it gives me like cellulosic biofuels vibes in that there's like super exciting ten years out and then was like super exciting ten years out 20 years ago and still super exciting ten years out. Is there —

Jennifer Garson

It's like fusion! No.

David Roberts

Not that bad. Come on now. Not that bad. I'm wondering, is there reason to think that any of these ocean technologies are any closer than they were ten years ago? Is this a real thing? And maybe just also, while you're at it, tell us, what are those technologies? I know there's tidal. I know there's something with buoys going up and down. There are probably others. What are we talking about in the ocean? And is it real? Is it really going to happen?

Jennifer Garson

I think I wouldn't be directing a program for marine renewable energy. If I didn't think it was real, I'd probably try to find myself another job. No, the second question you actually asked is what are we talking about in terms of marine energy? And so the biggest sort of marine energy capture that we concentrate on are waves, tides, and then river and ocean currents. So the big buoys that falls into sort of the wave category, you can have everything from bottom mounted flaps that are trying to capture wave power to surface riding systems to systems that are within the water column.

So the complication with waves, there really hasn't been a kind of convergence on the right structure or even where in the water column is most optimal for a power capture system. But I would say unlike even ten years ago where wave energy, you had a couple of projects that were out in Europe, we now are seeing an increasing number of in water deployments of wave energy systems, and it's working. So I would say here in the United States, we just had the longest wave energy demonstration project off of the Scripps Pier in California with Calwave, where they were producing electricity using the power of waves. And they even were able to sustain through a pretty powerful storm surge because that's always really complicated matter for waves, is being able to withstand a range of different forces.

David Roberts

Right. Well, this is what comes to mind. Intuitively, out in the ocean is just a brutal place. You got the wind and the tides and the storms, but also just saltwater corrosion and I don't know, fish. There's so many things to deal with. Are they being dealt with?

Jennifer Garson

I think this isn't the first time we've dealt with infrastructure in the ocean either.

David Roberts

Right.

Jennifer Garson

It's hard, but it's not insurmountable. We're talking about materials for corrosion. We're doing research and even looking at can you use different methods to reduce corrosion impacts? Everything from coatings and materials to even the use of lasers for different etchings into materials to reduce corrosion? Biofouling is an issue. I mean, there's a lot of stuff that grows on infrastructure that's in the ocean, but we're trying to work on a multitude of ways for us to address or even potentially embrace biofouling from an environmental perspective. We do a lot in environmental monitoring around these devices. We put a substantial amount of funding on trying to understand the interaction of mammals, fish species, both from an acoustics perspective to any sort of entanglement perspective.

And thus far, with our in water deployments, we're actually seeing compatibility instead of conflict. From an environmental perspective, that's because we're trying to design these systems with the environment in mind. But it is a hard environment. But the thing is, waves, tides, they're more predictable than other forms of electricity. So if we're really trying to hit our 100% decarbonization goals in 2050 or beyond, we're going to need solutions like marine energy in order to actually hit those targets.

David Roberts

Tides come in every day.

Jennifer Garson

Tides come in every day. And actually on the West Coast, waves are predictable because you're talking about predicting waves that are coming basically from Asia. We have waves. I'm serious. It's why actually wave energy is almost easier on the west coast of Europe as it is sort of the West Coast or here for the United States because we have pretty complex models that actually can give us forecast for what our wave conditions are going to be like. So it gives us some good sense of predictability. Tides definitely 100% predictable. Unless the moon changes, which who knows?

David Roberts

Who knows? What does tidal energy look like? What do those machines look like?

Jennifer Garson

So there are a couple of different types of device designs right now in tidal energy. You're seeing more of a convergence on what tidal energy systems might or could look like, particularly looking both in the US and out in the EU. Some of them, like Verdant Power, which we supported a demonstration in New York, would look familiar to any of your listeners. It looks almost like tiny wind turbines on a triblade that goes underneath the water. So it's using the same kind of findings from wind of running a turbine, generating electricity, providing it to shore. There are other systems that are surface riding.

So there are some European companies and Canadian companies that essentially have the operations and maintenance basically on the surface and then have turbines that go and submerge underneath the water, but they're still running either two or three blade turbines to capture power. So it's taking a lot of the lessons that were already learned in the wind industry and applying it for tidal power. And tidal power, I mean, we believe it a lot for here in the United States. Is it the largest resource to capture? No, that's wave. But there's a lot of tidal energy in New England, in the Pacific Northwest, and in particular in Alaska, where the potential resource is pretty massive.

So actually we are in the next coming weeks, we have a notice of intent out already on this, but we're going to be funding a $45 million solicitation focused on tidal energy here in the United States. So both a commercial site with about $35 million and also for remote and islanded communities, and isolated communities another 10 million. So I think the the maturity of the tidal industry is definitely more mature right now than wave, but I think wave is starting to catch up. But if you look over at Europe again, they've had gigawatt hours of power provided by tidal energy at some of these sites that have already been delivered to the grid.

So it may not always be as visible. Maybe it's because it's underneath the ocean or just on top of the ocean, but there's a lot of technological progress that we see in tidal and I see in the very near term for wave.

David Roberts

And this is in financial terms the same challenge basically you're facing with all these other technologies we're talking about, which is high upfront capital costs and then that pay off over a very long period of time, which is just always a difficulty when you're talking about financing.

Jennifer Garson

It is. And one of the challenges, too, for marine energy, and it's similar, I would say, to newer geothermal energy or long-duration storage, is in order to prove that it works, you have to be willing to fund some pretty serious demonstrations. And that takes a lot of capital that oftentimes, say, venture or even philanthropic capital isn't necessarily willing to take a risk on. Because to prove that the marine energy works, you have to get it in the ocean. And putting things in the ocean is a non-insubstantial cost. And so we're really trying to think about how do we demonstrate these systems take a lot of the risk and ownership on the US federal government in a way that we think will ultimately pay off. But that willingness to pay for demos or demonstrations of arrays is still going to be pretty high until you get to economies at scale.

And so we either have to bet big, which I really hope we do here in the US, or we leave potentially this enormous 57% of all US power generation potential in the US stranded because you don't have that willingness to pay for these really expensive demos. But those demos are the only way we learn.

David Roberts

Didn't we just pass a bunch of legislation that is basically fire hosing money at all these things? Is some of that money going to do what you're just talking about going to kind of kickstart marine and tidal?

Jennifer Garson

So in the bipartisan infrastructure law, we did receive about $110 billion for marine renewable energy, $40 of that is for our national marine energy centers and the other $70.4 was actually for marine energy. But if you look at that in comparison to say, the funding that we're putting into direct air capture or hydrogen, it's nowhere near the level of investment that we've received from the federal government. And it's not just ... for us, I think we've seen the same thing for sustainable aviation fuel demonstrations or geothermal demonstrations, like, I think there are still a number of technologies that's going to take a lot of capital in order to really demonstrate the feasibility and get to economies at scale that weren't necessarily funded with the enormous lug of funding that we got now. There's a lot of money going around, and it's very exciting for me as someone who's been at DOE for 13 years, but it's not going to be sufficient, I think, for really driving down the cost of the whole portfolio of solutions that we're going to need to decarbonize everything by 2050.

David Roberts

Well, and the loan office plays some role there and there's supposedly going to be a green bank did that end up making it in? I forget what ... I think the Green Bank made it in. So maybe there'll be some ongoing sources for some of this funding.

Jennifer Garson

Totally agree. And we work with our Loan Guarantee Office partners to understand what are those pathways into kind of commercial viability that. And we are also working with the Office of Clean Energy Demonstrations to understand what's the role of the Water Power Office at Derisking. Some of these pilot technologies moving into an office like the demonstration office and eventually being well primed for the Loan Guarantee Program office, because LPO really wants to see that these technologies have been successful at a pre-commercial scale. But even that gap between pilot and pre-commercial scale for some of these energy systems is more complex than just one off projects.

But we're thinking about it critically at having kind of an all of DOE approach to derisking and investing in these technologies and ultimately helping them scale.

David Roberts

The one marine technology we didn't mention is ocean thermal something something.

Jennifer Garson

OTEC is the acronym. It's Ocean Thermal Energy Conversion.

Jennifer Garson

Yes.

David Roberts

Right. I feel like I've been hearing that about that also for years and years and years and it never seems to amount to much. Is that going to, well, first of all, tell listeners what the heck we're talking about, but is that going to be a thing?

Jennifer Garson

So OTEC, for anybody who isn't as familiar with all forms of marine energy, is basically using the thermal differentiation between the warmer surface water and the deep sea cool water to, essentially, use that to harness power, without getting into more technical details.

OTEC is also really hard. The round-trip efficiencies that we've seen for OTEC have been not awesome, but there are a number of sites that are looking at both. How do we potentially use seawater air cooling, so more like ambient temperatures instead of for power generation. There are some OTEC facilities too, particularly in the Pacific Islands. It is so geographically specific for OTEC feasibility. You really need to have a pretty quick drop off of the continental shelf in order to actually have that really cold deep water and warm surface water. So it's geographically constrained. The round-trip efficiency right now still needs a lot of work and similar to the story of other types of marine energy in order to do demos, it takes a lot of capital.

But I know that there are developers looking in like Puerto Rico and Hawaii looking at the feasibility of OTEC. So I wouldn't discount it. It's just it faces some of the same challenges. But we've also been looking at even, can you lessen the amount of gradients that you need to think about Ocean Thermal Energy Capture? So we're actually working with a startup that is trying to use smaller gradients to power ocean observing systems. So if it can power it by essentially dropping the system down not that far, and using the same principle of warm to low generating power, maybe we can think about gradients in a different way, to not just be the really big, really deep pipes that are trying to run from the surface down to the deep ocean.

David Roberts

One more thing about marine energy. Tell us what is the connection between marine energy and desalination? Or what is the, let's say, the hoped for connection between marine energy and desalination? Because I often hear them kind of discussed in the same breath.

Jennifer Garson

So over the last few years, we've really been looking at the potential for how would wave energy provide potable water. It started actually with analysis that we did at the National Renewable Energy Lab, looking at the feasibility from a power perspective. Does the power performance potential for waves, is it potentially compatible with reverse osmosis or for desalination processes? And interestingly enough, we found that it could actually be a good power source. So we actually developed a prize competition called waves to water prize, where we basically opened the aperture to say, there's only a limited number of ideas here.

Can you bring us some really good ideas for wave power desalination, but starting small for things like disaster relief and recovery scenarios? Ultimately, over the course of three years, we developed systems that were both hydraulic, so kind of mechanically driven, and production of electricity to run RO systems. And what we saw through that prize, and now a subsequent $10 million solicitation that we're running right now, is there are a number of really promising solutions that, particularly on the hydraulic side, although some of the electricity, but using essentially the power of waves to run through membranes to desalinate water.

David Roberts

I have a super dumb question here, which is I'm picturing these wave machines out in the middle of the ocean. Are they producing clean water like on-site? Do you have to go harvest the water from the machine? How does the delivery of the water from the machine to where it's needed work?

Jennifer Garson

Great question. The answer right now is maybe both. I think it's more feasible to imagine that essentially the reverse osmosis system is running. You're basically pumping water back to an onshore reverse osmosis system in a high pressure pump. And so you're getting the fresh water at a tank act, actually at a pier or on the shore. So you're essentially just using piping systems so that the water delivery is onshore. There are some companies that are thinking about almost like bladders to be filled out for production in the more near shore. You're not looking at right now, like, really deep offshore, but could you collect water through these bladders, have some sort of collection methodology, and bring it back to shore?

So I think we're both looking at kind of on device production and essentially the system just being a conduit for either that power mechanical force to run a reverse osmosis system onshore. We're hopefully going to see over the next couple of years we're going to be funding a number of demos and we're seeing a number of demos also pop up in Europe in particular at looking at wave power decal. But I think we're going to need solutions for desalination that doesn't just require either really big, large energy systems or only diesel generators because we're going to need fresh water everywhere.

And we're trying to think about the simplicity of design of some of these systems so that you can essentially just throw them out in the water with an anchor and be able to provide potable fresh water.

David Roberts

That would be nice.

Jennifer Garson

It'd be awesome. Yeah, use the water to make water. What could be more simple but elegant if we can make it work?

David Roberts

So on marine energy, then, as you said at the beginning, this is unlike hydro. Marine is in a sense among the newest or nascent or sort of cutting edge versions of renewable energy. So I guess before we leave this subject, I'm just curious, the next decade in marine energy, do you expect it to reach meaningful scale in that decade or is the next decade mainly going to be about figuring it out? Sort of like where do you expect marine energy to be in ten years?

Jennifer Garson

It's a complex answer I think when you're talking about grid scale marine energy devices. I think it'll take us the next ten years to really figure it out, get these systems in and out of the water and really producing larger volumes of electricity. But what I think the next decade really holds, it's really interesting, is the possibility of marine energy powering. What maybe from an energy perspective seems less meaningful, but from an end use perspective is incredibly meaningful. And what do I mean by that? I think we're seeing a lot of interesting solutions for powering, things like ocean observing.

We know more about the surface of Mars than we do about the surface of our ocean floor and part of that is because of power limitations. And so we're working on a number of different companies that are either using kind of fixed platforms or floating platforms to provide power where we need it and that's to both understand and observe our ocean.

David Roberts

Interesting.

Jennifer Garson

And I think over the next ten years you're going to see a lot of different devices that are harnessing power for ocean observing. There's also been a lot of meaningful progress at sort of the micro-grid scale for marine energy, whether it's tidal or it's wave energy, where we actually have a device up in a community of only 75 people in Alaska and Igiugig that's producing power to their grid right now. And I think we're going to see more of these small scale devices in places where power is incredibly meaningful. Even if it doesn't sound like a lot from a megawatt or gigawatt perspective.

David Roberts

There's sort of bulk energy. Like we just need a lot of energy. But then there's also these, as you say, these local sort of resilience benefits and these benefits specifically to a lot of vulnerable communities. Maybe just say a little bit more about that sort of how you envision hydro working. Maybe not at a large energy scale, but in some of these, but like in this community in Alaska, that's quite significant for them to have steady power. So talk about that a little bit.

Jennifer Garson

I think it's a story for both hydropower and marine renewable energy that there are parts of our United States and parts of the world that they need to look to their waters in order to actually provide power, whether that's because of the seasonality or available resources. And we've been working with a number of communities, actually through a program called our Energy Transitions Initiative Partnership Project, where rather than say, here's a solution that you should have, maybe it's marine or hydro, but working with these communities to say what are your power and energy needs? And what are the types of systems that can get you to 100% renewables and off diesel dependency? And many communities that we're working with in Maine, the Pacific Northwest and Alaska in particular are looking at marine energy and small hydro as their pathways to releasing dependency from diesel generators or from really high cost other forms of energy.

And even though these are kilowatts or megawatts, it's huge.

David Roberts

Yeah, just to sort of put an exclamation point on that, you're talking about the sort of economics overall. But if you look at the economics specifically in these local situations, like diesel is gross, it's very expensive, it pollutes like crazy.

Jennifer Garson

Not only that, it's the cost, right? And right now, the last couple of years, the price vulnerability of some of our more vulnerable communities in the United States are so impacted by diesel going up to prices that are literally unprecedented. And if you're a small community, how do you absorb that?

David Roberts

Yeah, getting steady, predictable, just the predictableness of it, the predictable price of it. It's hard to put a value on that. That's very valuable in these local contexts.

Jennifer Garson

It is. And because if you are already paying a dollar, $52 a kilowatt hour, even if we're developing solutions that come in at say, 50-60 cents a kilowatt hour, that's still a substantial price savings, more predictable power and we have better health outcomes, better localized impacts. And so we take that really seriously and view it as a kind of core objective for our program, is that we really want to think about ways that we derust these technologies to give better pathways to getting off of diesel and providing more predictable power. And so when I think about the impacts in the near term, particularly on marine energy, this is one area where I think we do have the potential to make a real material impact on people's lives if we can really do wit these technologies and design them with the communities as partners and with them in mind.

David Roberts

Right, okay, well, I've kept you too long. This is all fascinating. I'm sure we could do an hour long pod on any one of these issues or topics or technologies. So by way of wrapping up, final question then. When you look ahead, you're sitting in sort of a unique place where you have a view of all these water related energy technologies over the next decade, let's say through 2030 or 2035, which is a very crucial, as you well know, a very crucial period for decarbonization. What do you think are going to be the big water power stories? Like, some of these are nascent, they're going to be developing. What do you think are going to be sort of the breakout significant stories in water power? If you had to pick a favorite one of your babies?

Jennifer Garson

Oh, you can't make me pick a favorite one. I'm going to give you a couple and break your rule. I think it's going to be the increasing importance of the role of the existing hydropower fleet in an overall grid context at really maintaining grid stability. I think we're going to see a first pump storage project, at least one break ground and start serving the grid in a way that we really need it to. And I think we are going to see a number of communities with small marine energy systems that are providing incredible, meaningful power. That's going to demonstrate the criticality of us thinking about this decarbonization at literally all scales that we need to solve everything from watts all the way through gigawatts.

But I think the backbone of the existing fleet pump storage and the criticality of small microgrid systems for places that may not have other options, where this is really well suited, are the things that I'm really excited about in the next decade.

David Roberts

Awesome. Well, Jen Garson of DOE, thank you so much for coming on. This has been hugely educational. I really appreciate it.

Jennifer Garson

Of course. Well, thank you for having me on.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much and I'll see you next time.

In this episode, Sabeel Rahman, former acting administrator of the federal Office of Information and Regulatory Affairs, discusses updates to regulatory policy that reflect a positive new approach to how climate (and other) regulations will be assessed and crafted.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

When President Biden first took office, his administration released a series of "Day One executive actions." Among them was reforming the way federal regulations are developed and evaluated. This is not exactly something the public was clamoring for, or even aware of, but it is foundational to the administration's ability to achieve its other goals.

The agency in charge of reviewing proposed federal regulations is called the Office of Information and Regulatory Affairs, or OIRA, which sits inside the Office of Management and Budget (OMB). It is a fairly obscure corner of the federal bureaucracy that doesn't come in for much public scrutiny, but as the gateway through which all federal regulations must pass, it is immensely powerful in shaping the space of possibilities for any administration.

A few weeks ago, OIRA answered Biden's call by issuing updated versions of two crucial documents: circular A4 and circular A94. The former contains guidance for agencies on how OIRA will evaluate regulations; the latter contains guidance for how it will evaluate public investments.

These guidance documents have not been updated in more than 20 years, so this development is long overdue. The new circulars contain some fairly technical updates to the way OIRA does cost-benefit analysis — and the goals toward which it deploys cost-benefit analysis — but they are incredibly important, evidence of a generational philosophical shift.

To unpack these changes, I talked with Sabeel Rahman of Brooklyn Law School, who served as acting administrator of OIRA last year while its current leader was being confirmed by the Senate. Rahman was intimately involved in designing the updated guidance, so I was eager to talk to him about the new approach, how it was developed, how it reflects Biden's priorities, and what it means for the future of climate and other regulations.

I know this sounds wonky, but it is worth your time. I promise you will come out of it excited about cost-benefit analysis.

With no further ado, Sabeel Rahman, welcome to Volts. Thank you so much for coming.

Sabeel Rahman

Thanks so much for having me.

David Roberts

This is awesome. I'm so excited to talk about this.

Sabeel Rahman

It is wonky, but it is awesome ...

David Roberts

Wonky and awesome. I've had sort of a side obsession with these issues for a long, long time, and this is really a perfect opportunity to jump into them. But before we jump into too many wonky details, I want to do some scene setting just so people know, kind of have a sense of what we're talking about in general. So when Biden came in, he issued this sort of list of "Day One," what they call "Day One priorities." And one of those was to update regulatory policy, basically how regulations get assessed and crafted. This is not something I think the public is beating down the door demanding this.

This is something that has a behind the scenes air about it, but it's also clearly a political priority. So maybe just to start with, let's just talk about what is the Office of Management and Budget, OMB, what is OIRA, which is the Office of Information and Regulatory Affairs?

Sabeel Rahman

Yes, absolutely.

David Roberts

First try.

Sabeel Rahman

There we go.

David Roberts

What, OIRA is within it, and why what they do seems to have such political presence in the administration that it made its way to the top of this Day One priority list just to sort of set the scene.

Sabeel Rahman

Yeah, absolutely. That's great. And thanks so much, David. And you're exactly right. This is very much kind of behind the scenes type of sets of issues, but really, really important for all the day-to-day stuff that government needs to do, and especially in this moment when we're thinking about the climate crisis or we're thinking about trying to address systemic inequality. So the fact that this was part of the Day One suite of actions from the present is, I think, pretty indicative. So there was the headline stuff, the new climate regulations, the Equity Executive Order, responding to COVID right there's, all of that headline stuff.

And then this regulatory review piece was also there because that's actually part of the back-end to make all those other policies work. So we're used to thinking about the President comes in, president can make all kinds of sweeping policy decisions or kind of really important policy decisions. The day to day of how that happens involves the federal agencies. And the agencies, they can make enforcement actions, they can spend money or they can write rules. And it's that rule writing part that goes through the Office of Information and Regulatory Affairs. And so this office that you talked about, OMB, the Office of Management and Budget, builds the President's budget every year.

They handle the budget side, but they also do a lot of really important work in terms of management. So how do agencies manage their personnel, operate strategically, have the highest impact for the resources they have. And then there's OIRA, which is the regulatory part, sort of the third pillar of OMB. OIRA works with the agencies will review under executive order going back to Clinton era and a practice actually dating even further behind that, OIRA will review major federal regulations, in part for the policy, in part for legal issues, but also, most importantly, to make sure they're consistent with the President's vision.

And that makes it a really important nexus for all of this stuff, which is also partly why it can come in the crosshairs at times.

David Roberts

Right? And a question about that, OIRA, what sort of police powers does it have? If an agency develops a regulation, sends it to OIRA for review, and OIRA finds a problem, can OIRA just say, "No, you got to go back and try again"? Or is it suggestions? What power does it have?

Sabeel Rahman

Right, so it's quite a powerful office, and I should say, obviously spent the first years of the Biden administration in OIRA and was acting head of the office until the confirmed administrator came in a few months ago. But the powers under the original Clinton Executive Order, which continues to be in effect to this day, really makes OIRA the kind of last stop in the policy making approval process. So agencies have to get OIRA clearance for significant regulations now to get OIRA clearance. That's not just what does OIRA think, what does that office think? The wire clearance process is really a kind of governmental peer review.

So the idea is that through OIRA, OIRA will get sister agencies, other parts of the West Wing, anyone who might have a point of view on the policy at hand to make sure everyone's on the same page. Right? And it's really that coordination that's the biggest kind of stick in that. If someone's got a problem, if people aren't on the same page, the rule is not going to go forward until there's at least an understanding about, okay, here's what it does, here's what it doesn't do. Everyone's comfortable with this, right?

David Roberts

So it's sort of like the last stop a regulation goes to before going out to the public and consequently has enormous gatekeeping significance, even though it's completely more or less outside of public view, unless except for a small handful of nerds paying close attention to these things. And just to mention, you mentioned this in passing, but just to clarify to listeners, you were the acting administrator of OIRA for the first two years of Biden's term while the current administrator was going through the process of getting confirmed. So these changes we're going to talk about. You were central in shepherding them through and shaping them, were you not?

Sabeel Rahman

Yeah, I think that's fair to say. There was an acting administrator in the first year, and I came in as the number two and then took over in the second year. But this was very much a big part of our day to day and a big part of the important work. Because going back to your first question, you can think about the individual regulations that are important trying to move good policy on labor issues or on COVID or on equity or on climate, but they all have to work through this existing regulatory review process. And so if we don't update that right.

This process has been in place for decades, then you're trying to shoehorn kind of cutting edge policy through very old procedures, right? And it's got to be updated. So this is a big part of the work for sure.

David Roberts

Yeah, and a final note on staffing, the administrator in question who has just confirmed is Richard Rivez. Richard Rivez, who is a law professor at NYU, one time dean of the NYU Law School, and a longtime heavyweight academic expert in exactly this stuff, cost-benefit analysis, et cetera, et cetera, which I just think is sort of an indication you watch staffing to see what administrations care about. This is, to me, appointing him indicates that Biden is taking this very seriously.

Sabeel Rahman

Yeah, I think that's right. And Ricky is fantastic. His leadership has already been tremendous in his first couple of months. But exactly right. He's certainly an expert in cost-benefit analysis in the regulatory state. He's done a lot of work on climate and energy. A lot of his academic work coming in was also about how to make sure that distributional questions don't get lost in conventional analysis. And when you look at the draft, you'll see a lot of those sensibilities woven through. Now, that's not just Ricky, right? The President, in his Day One memo calls out specifically climate, equity, distribution, future generations, human dignity, all these things that we want good policy to be able to speak to.

The charge was to go look at the review process and make sure that those values don't get squeezed out, don't get lost, that they're incorporated in a way that's rigorous and evidence based and all of that kind of stuff.

David Roberts

Right. One more background kind of philosophical note just to sort of set the table here also is debates about cost-benefit analysis go way back and are vigorous and ongoing. And there is a school of thought that says the process is sort of inherently conservative, inherently against pro social, long term action, and it should be scrapped in favor of something else. And then there's this other sort of school of thought, which I think Ricky Rivez is a good example of, which says, no, it is possible to sort of rethink and reimagine cost-benefit analysis in a way that serves pro-social, dare I even say progressive ends.

And what we're looking at here is that school of thought showing what it can do. Overall, what we're seeing here is an effort to make cost-benefit analysis more, let's say, pro social and far seeing and less of the sort of conservative process that it has traditionally been. Is that fair?

Sabeel Rahman

I think that's fair. And I would say it's an effort to make the cost-benefit really the impact analysis because it's not just costs and benefits, right? There's other stuff that don't fit into those buckets. So it's really about a more holistic impact analysis and to make that sort of as strong and robust and cutting edge as it can be. And this was part of the President's Day One charge as well, because if you look at that original memo, that memo sort of reaffirmed the President's commitment to the enterprise of impact analysis, to the conventional sort of role that OIRA plays, but set this task that the role needs to be exercised in this more modern, cutting edge way.

And that's what for me, reading it in context of the other sort of substantive Day One commitments was really important because that's the substance that the process has to be in sync with.

David Roberts

Right.

Sabeel Rahman

Because we got big things that we're trying to do on climate, on equity, on all the crises that were swirling at that time. So I think you're exactly right about the broader philosophical debate. I should say this is so important because my own entrey into this, I'm a political theorist by training I spent before the administration I was President racial equity advocacy organization Demo.

So we did a lot of work on these kinds of issues. And it's a very real debate that I imagine will continue and should continue about what is the right way to review and analyze public policy. But what I think is true, sort of regardless, is that we need something much more multifaceted holistic flexible than what we had before, even under previous Democratic administrations.

David Roberts

Yeah, what we've got now clearly doesn't work. So let's talk about then specifically what's happening. So there are two documents guidances being updated here. The first one is called Circular A4, which is basically guidance on how OIRA assesses regulations. And then there's Circular A94, which has to do with how OIRA assesses public investment. And my understanding is that the issues and updates in A94 regarding public investment more or less track what's going on in A4. So I'm going to mostly focus on A4 we can touch on. If you have specific things to say about A94 later, we can get back to it.

But I think if we cover A4, we'll more or less be hitting the big issues in A94 too. So A4 is a guidance for what OIRA is doing when it does this regulatory review. So maybe let's just start with what is this circular A4? Where did it come from? And how long has the sort of existing guidance been around? Like, who wrote the one we're using now?

Sabeel Rahman

Yeah, absolutely. So there's a whole world of government documents that is not beyond the executive orders, and we're entering into it now. So Circular A4 has never been updated. It was first issued in 2003 during the Bush years and has stayed in place since then. So that, right off the bat, I think tells you a lot, right, about just kind of how important this update is. The fact that it's a circular that's really guidance not just for OMB and OIRA, but it's meant to be guidance for the agencies. The idea is that the agencies are using it as their sort of touchstone of here's what we should be striving towards.

This is also the kind of stuff that OIRA, when your rule comes in to OIRA for final review, this is the stuff that OIRA is going to kick the tires on. And so it really kind of sets up those conversations. The other thing that's really important to know that it's a technical document. I mean, it's technical. If you read it, it's technical to read. But even its status is as a technical document, less as a political document because it actually goes through and the version that's released now is about to go through public comment and peer review.

And so the idea is that it's supposed to represent a sort of expert state of the field that is not meant to be kind of changing every time the White House changes hands. It's really meant to be. This is what public policy and social science across the board, people agree that this is a kind of best practice. Right?

David Roberts

Got it.

Sabeel Rahman

And so the ambition here is to update that old document but really update it in a way that has that seal of approval from, you know, the evidence and the research and, and, and the field yeah. So that it can have some lasting, lasting staying power.

David Roberts

Right. So this is not something that was ever intended to be sort of updated administration to administration. It's supposed to be sort of a stable guiding document over time, but maybe like having it be 20 years old is maybe a little bit longer between ...

20 years is probably too long. And I'm sure we'll get into the weeds of you can definitely see the drift that has happened right. As the world has moved on in the last 20 years.

Yeah. So several changes to A4 substantive changes that I want to get into, but one just sort of kind of technical change right off the top that I kind of thought was interesting is because I've discussed it on Volts before, is what triggers OIRA review. And so currently the threshold was if the regulation has $100 million or more of impact, that triggers full OIRA review, which is a pretty exhaustive process. It's time consuming and staff consuming and that threshold has been raised to $200 million, as far as I can tell, just to sort of reflect inflation, et cetera.

But the effect will be fewer regulation, like the number of regulations that needed OIRA review is sort of piling up and getting unwieldy and staffing shortages. So among other things, this will free up OIRA staff a little bit to focus a little bit more on the truly significant regulations. And I always like administrative capacity is one of my passions.

Sabeel Rahman

Absolutely.

David Roberts

This is sort of a way of freeing up some administrative capacities.

Sabeel Rahman

That's exactly right. And the new executive order also puts a provision that that now $200 million dollar threshold will be updated automatically every three years indexed to GDP. Which is ...

David Roberts

Makes a lot of sense.

Sabeel Rahman

... technical and wonky, but just removes this problem of like a number that may or may not have made sense 20 years ago, definitely doesn't make sense now. Just like make it an automatic thing. And it is really a capacity management tool to your point. Like our civil service, I think is incredibly important. They're a crown jewel of our democracy as far as I'm concerned, and it takes staff time and attention and resources to make good policy in service of the public.

You got to focus the efforts right on the most important stuff.

David Roberts

Alright. Okay. So let's talk about we're going to go through three big changes in A4. The first one is an update of discount rates. And discount rates are not something I think that are widely understood or widely discussed in the public. I once did a long piece on it. It was one of the first sort of super long wonky things I ever wrote. Just the wildly positive reaction sort of set me off on my career path. So I have a sort of fondness for discount rates, but let's just explain briefly, if that is even humanly possible, what do we mean by a discount rate and what is its significance?

Sabeel Rahman

So the basic idea is how do we trade-off or weigh impacts that might happen today versus impacts that might happen a long time in the future? And in general, if you have a higher discount rate, you're really favoring impacts that happen right now because you're discounting impacts that might happen, say, 100 years, 200 years in the future for a lot of day-to-day stuff that doesn't really matter all that much. But anytime you're talking about policy, the obvious big one is climate crisis policy. But anything that is going to have a longer term multigenerational tale of impact.

If you don't have the discount rate right, you're going to be systematically off. You're either going to be overweighting to the present and undercounting the future right in terms of costs or benefits. And we talked about how long it's been since A4 is updated. A4 has written into it a 3% discount rate that was written in in 2003. And so that's been the rate that agencies have been using for a long time. That's not the rate now. By all the best science out there.

David Roberts

The way sometimes I try to explain it to people is like, what if I offered you I made you choose between I could give you $100 today or $105 in a year.

Sabeel Rahman

Totally.

David Roberts

Or how about $106 in a year, $107? How much would it take for you to delay getting your money? And if you would take $200 a year from now to compensate for $100 now, you have like 100% discount rate. Or conversely, if you're like $100 a year from now, $100 now, either one is exactly the same to me that's a 0% discount rate, like future benefits are worth exactly as much to me as present benefits. And it's just I think a good heuristic sort of indicates how much do we value future benefits. So a couple of things about this.

One thing I want to ask about is the 3% discount rate that's in the previous A4, the unupdated A4 was developed via a procedure. And the new I saw Ricky give a presentation on this. The new discount rate, which is now 1.7%, was developed basically by using the same procedure, just updated numbers. So what is that procedure? How do you come to this number?

Sabeel Rahman

It's super wonky. There's a model that OMB and a lot of folks in the field have been using to basically try to take into account all the different complicated factors that might weigh into the kinds of policy impacts that might happen over the long run. You're trying to factor in changes in human behavior, changes in market conditions, all the stuff like that. So what the proposal? The new A4 proposal has actually done is two things. One is it's done a straight, just keeping the old formula, but updating the data with the latest data that we have right up to 2022, or at least through 2021 as far as data was available, and running those numbers, that gets you on the same model, a much lower number because it's got more recent data baked into it of 1.7%.

But the new version is also put out for peer review and public comment. And one of the questions that is being asked of expert reviewers is, are there variations to the model that should be considered now? That's a heavier lift, right? Because then you have to construct a new model. It has to be sort of something that meets field wide approval in terms of peer review and all of that. But the advantage of putting both of these out is say, okay, if we take a kind of small C conservative approach and keep the old model but just update the data, that already gets you a much more up to date number.

David Roberts

But the old formula is drawing on it's sort of indexing on market interest rates, right? Mainly, is that the main sort of indicator that the discount rate is being derived from?

Sabeel Rahman

There are a lot of inputs. That's one of the biggest ones. And in fact, one of the debates is basically in terms of the methodology, how much should one just sort of look to market interest rates full stop? And that's one of the modeling questions.

David Roberts

We're calling it a modeling question, but really it's a philosophical it's a philosophical question because if you're looking at market rates, you're looking at sort of intra generational, like how much do individual investors care about their individual benefits in the future versus their individual benefits today? But when you're talking about something like climate change, you're talking intergenerational sort of how much do I value benefits for my children versus costs for me? Which might not be the same thing. Market rates might not be a good indicator of how much we value subsequent generations, right?

Sabeel Rahman

Totally. And it's also not clear how much are market rates, in fact pricing in the real catastrophic risks of climate or other types of existential threats. And in the new A4, there's some nice language sort of framing that the point of discounting is to really try to also take into account some of those kind of really hard to quantify really catastrophic dangers that might come down the line. So it is a broader kind of conceptual and as well as analytic question.

David Roberts

Yeah, this was sort of the point of my piece that I wrote originally which is really like moral these are moral and philosophical debates sort of being waged undercover of math or undercover of models. So I wonder running the same formula gets you to a 1.7% discount rate, but then you also put the model out for comment, and I wonder, is there any sort of room in the guidance if an agency decides, well, the regulations we're developing have extraordinarily long time horizons and intergenerational effects, and so we would like to use a smaller discount rate? Like is there room for agencies to have sort of their own initiative here?

Sabeel Rahman

So there is room for that. And arguably the old A4 had some room for this too, although you can imagine this was rarely took up on that offer because it's really hard to calculate this stuff, right. Agencies often don't have the bandwidth or the kind of person power to build their own model from scratch. So that's why the default number is really important. But the new version does include a discussion about or the new proposal anyway. It does include a discussion about there might be instance circumstances where the particular nature of the policy or the issue might have different dynamics and in those cases agencies can and should come up with variations and probably just as a best practice like run it with the 1.7 and then run it with the variation.

So you kind of can show like have some an informed decision. But that's absolutely in there. And I think a general theme I would say of this new A4 is creating much more informed flexibility, right? That where things don't fit. Here's a good default, we've updated it, but where it doesn't fit, let's talk about how to make it work because the policy goal should be front and center and then you should build an analysis that can inform that rather than trying to shoehorn everything into a straitjacket.

David Roberts

One other question about discount rates is one of the places where discount rates come into climate policy is the effort to determine a social cost of carbon. Which is another thing we've talked a lot about on this pod and another thing that I think Biden is updating. So just maybe talk a little bit about just even if you just change from 3% to 1.7% how that might sort of affect how highly you price carbon, right?

Sabeel Rahman

So it is very big direct effect. Now we can talk in a minute about sort of the mechanics around the social cost of carbon update because that's happening in a different process. But basically this point about discounting future impacts has a big implication for how we might price the economic costs, the social costs of a ton of carbon pollution in the air. Basically, the higher the discount rate, the lower that social cost of carbon is going to be. Because many of those costs that might arise from too much carbon are long term costs, right? They're going to really manifest in the future.

And so for discounting that then the cost can look really small. Now, this is important because you know this better than me, David, but in the social cost universe, one of the things that the Trump administration did, they put out their estimate of the social cost of carbon as extremely low. And part of how they got to that low number was to say, well, we're going to have a really high discount rate, among other things, right? And so if you do the math, then you get this really low number. Well, okay, but if that discount rate is not rooted in reality, then of course that number is kind of meaningless.

David Roberts

And also to get back to the intergenerational thing, you can derive some pretty absurd results from a high discount rate. All of humanity goes extinct in whatever 2100 under like a 7, 8, whatever, percent discount rate. We would hardly care today that's going to happen. So you can get absurdities on both ends with discount rates. Okay. So the sort of default 3% discount rate now has been lowered to a default 1.7% discount rate. And that is, all things being equal, going to make more regulations look cost justified as a rule of thumb. It's going to be easier to justify regulations that have long term benefits under this new discount rate.

Sabeel Rahman

Yeah, and I would say that's just that it's more accurate, right? Because a lot of those regulations have those long term benefits. If we're talking climate, if you're talking lead poisoning, say, is another example inter-generational, not quite in the climate space, those benefits are there, we just weren't counting them. Right, and that's important to your point that regulations, people care as a policy matter, as a political matter, as a legal matter, how do the benefits stack up against the costs that we can put numbers to?

David Roberts

And I think it's intuitive too. I think if you just ask average people on the street like, do you care a lot about the welfare of your children? I think this is reflective, I think, of ordinary intuitions too. Okay, so discount rate is the first big thing that's updated in A4. But there are a couple of other really big and interesting changes too. The second one I want to talk about is distribution, basically. So I think tell me if this is accurate. I think traditionally OIRA cost-benefit analysis just looked at aggregate costs and aggregate benefits without distinguishing among who, what is the nature of the recipients of those costs and those benefits.

And that has some pretty straightforwardly counterintuitive results. So, for instance, one regulation would prevent a disaster in a poor neighborhood. One regulation would prevent a disaster in a rich neighborhood. The latter clearly has higher benefits, right. Just because the property on the line is worth more. And I think it's intuitive to people that there's something wrong with that. Right? There's something wrong with that. So for the first time, this new A4 tries to introduce sort of distributional impact analysis. So maybe just tell us, what would that look like? What does that mean?

Sabeel Rahman

Yeah, and this is another one of those things that I think under the old version there are a few sentences about, oh, you might consider a distributional impact it's not really dwelled upon. And there are definitely folks in OMB who had been pushing for this for a long time, just as pure analytic to your point. You can't really say you're doing a real analytic treatment of a policy if you're not thinking about those types of very real impacts. We would all say that, or I hope you would all say that, like $100 extra dollars for Jeff Bezos is not the same thing as $100 extra dollars for really anyone else, but in particular working class folks, right?

So the new version has a much more expanded in depth discussion about distributional analysis. First, in terms of pressing agencies to really take it seriously. Second, in terms of giving just much more detail about how and when one might do that. So you should pay particular attention to distribution analysis to the new A4 talks about when you're choosing between different alternative policy designs. Suppose you have one version that might score a little better in terms of net benefits, but like, it's concentrating all the costs on people who are least able to bear those costs, and another version which is still scoring, you know, net beneficial, but is a much more even distribution of those benefits and of those costs.

That's a relevant fact for decision makers before they decide on what the final policy should be. So that's something that the new A4 says agencies should look into.

David Roberts

Does it provide a formula sort of telling you how much weight does income, or is it just sort of like pay attention?

Sabeel Rahman

It does a little bit of both. I think the general charge, as I read it in the new document is saying that you should look into this. And here are some methods by which you might do that disaggregating the impacts by the relevant constituencies, whether that's by income or taking a racial breakdown or whatever the right bucketing is. But it also gives a discussion of what's called income weighting. And this is provided not as a requirement, but as a like, here's a tool that you could use as a way to sort of shorthand estimate how much should we weigh a dollar to a poor person versus a dollar to an ultra-rich person.

The new document has put an estimate of 1.4 as an estimate for what's called the income elasticity of marginal utility. Meaning how much more is that marginal dollar worth to you, depending on where you are in the income level. And so that's a pretty new important thing to actually have that number crunched and they're available sort of on the table for agencies to use as a shorthand.

David Roberts

This is a little bit of an aside, but it's a point that I think is worth making, which is, I think when people think about at least people in our world, when they think about federal agencies, I think, tend to think about like EPA, which has a sort of staff of dozens and all these sort of PhD economists on staff, armies of analysts. But most agencies are not that big and don't have that much administrative capacity and can't sort of sit down and develop their own models for these things. This is not like a heavy hand of central wonks here. The agencies need this.

They need this guidance, they want help doing these things.

Sabeel Rahman

Yeah, I think that's such an important point and I think this is also not a flipping of the switch, right? Like having the new guidance, you also then need to your point kind of to have some time for the agencies to get used to this, to build some muscle, to build some capacity. And so I think getting this out now with a couple of years still left in this first term, to actually then have some runway for agencies to start using these new approaches, see what's working, see what's most helpful. I think that's the kind of work that I would anticipate Ricky and Revesz and the team to be digging into going forward.

David Roberts

One other question about this. When we're talking about distributional impacts, are we just thinking of income or are there other indicators?

Sabeel Rahman

Right, so absolutely income, but also could be broken down in different ways. And so you have to look at in the guidance itself, it actually has this whole section saying that the agency, depending on the policy, should really be thoughtful about what is the most informative and relevant set of breakdowns. And it might be more than one income, race, geography, sexual orientation, there are a bunch of different ways that one might break it down. You obviously can't do every category for every policy that would be multiply really fast. But I think the point of the guidance is to say think about what are the constituencies and communities who are most likely to be impacted differently by the policy.

And then devise an approach, ideally quantitative, but if not even using qualitative assessment of what you can to think about rigorously, how are those different communities being impacted? And then having that inform the policy choice. Because at the end of the day, it's not a make work exercise. Right. The point of this is are we making good policy that serves the public and that is attuned to the very real disparities that we have in our country, right? That's the issue. So this gives a framework to do that, but it's really going to then be up to the agencies working with OMB and OIRA folks to make it real.

David Roberts

Kind of already asked this once, but I want to return to it. So if I'm an agency reading this, do I read this as I have to convince OIRA that I thought about this? Or is this a gentle suggestion from OIRA that I can take or not take? Is this now going to be a sort of a requirement for new regs?

Sabeel Rahman

It's a great question in part because I think different OIRAs have different styles depending on the administration, right? When I was there, we very much saw ourselves as working hand in glove in partnership with the agencies to make good policy, right? But that said, OMB's role is also to sort of kick the tires on whether it's the budget or the regs. And so I do think it's not a you must do this, but it is a very, very strong suggestion about the kinds of things that one should look into. And look even now, under the old A4, it's not like every regulation does every single thing that A4 talks about because there's so much in there.

So in that sense, there's lots of tailoring, lots of flexibility on what's needed. But it is very much a like, this is the bar, this is what we're going to be looking for. And when OMB comes asking for stuff, the agencies know that they got to pay attention to that.

David Roberts

Okay. So first, updated discount rate, second, the strong suggestion that agencies do some distributional impact analysis. The third thing, which is also quite interesting, I think, for insiders, because this has been a point of contention for a long time, is the suggestion that agencies take the international impacts of regulations into effect. And it was, we mentioned earlier, the Trump administration's sort of ludicrously low social cost of carbon. Part of how they came to that ludicrously low number is very explicitly ostentatiously, even saying we don't give a damn about how our regulations impact other countries, that we just don't care.

The only numbers that are feeding into our calculations are how does this benefit or cost Americans? I think just as sort of ostentatiously says, no, that's real dumb and also morally horrific. So what exactly does A4 say about international impacts? Is it similar to distributional in that this is a strong suggestion?

Sabeel Rahman

I think of it as opening up the aperture to allow first stuff that had been squeezed out before. Right? So not every rule is going to have massive global implications, but many of them will, and those ought to be taken into account. And so I read this section for those falling along at home. The geographic scope of analysis, there's a lot of great language in there about the different ways in which global effects might come into play. So it might be that there are non US citizens who are living abroad and face certain impacts that might have parallels in the US.

So they're good proxies. There might be experiencing an externality of US decisions. Climate comes to mind there as well. So there are a lot of different kind of variations laid out in the guidance. The point is that the guidance says that you should think about the global effects and incorporate them into your analysis. It even talks about how, if it makes more sense, include that as a separate thing, right, that you have your traditional analysis, but then you could also sort of provide a separate analysis of the impacts abroad, if that's the more sort of feasible way to get at it.

But you really should be thinking about it.

David Roberts

And is this similar in that you've provided a formula that agencies can use or not use? And if there is a formula, I'm wondering sort of like how much less do we value a foreign life relative to an American life? Is there a number there on how much discounting we're doing geographically?

Sabeel Rahman

Right. So not in A4. The discussion A4 is more qualitative in terms of just guidance to the agencies. And I think, like with distributional analysis and discount rates, there'll be rules where there will be trade offs that have to be weighed, I think, compared to right now, where we don't have consistent analysis of what those trade offs might even be, it's hard to even make good judgments about them. Right? And so I think the idea here is let's take that on, do the analysis, do the work. And then there are all sorts of reasons why a policy might come down one way or another.

It's hard for A4 to be prescriptive in that way, but A4 can say you need to take these issues seriously, right?

David Roberts

At least think about it.

Sabeel Rahman

Yeah.

David Roberts

So those are the three big things. And like I said earlier, roughly those same issues are reflected in A94. When they're talking about public investment, I think maybe one thing worth picking out on A94 and talking about specifically is and this was a little bit of a mind blower to me A94 as it exists has a 7% discount rate for investments in public infrastructure. Which just seems to me crazy, because public investments in particular are designed for long term benefit. That's the whole point. Like infrastructure investments and stuff like that are like we have a whole history in our country of huge investments we made that paid off handsomely over the long term but wouldn't have penciled out under a 7% discount rate.

So where the heck did that 7% discount rate come from in our public investment considerations. And how does A94 change that?

Sabeel Rahman

Big difference between A4 and A94 is that A94 is focused exactly on, as you said, David, the kind of government's expenditure on public investments. It's always been sort of related to A4, but a little bit different. The 7% number in A94 was aligned with A4 originally, and that A4 had a 3% number and then also had as an upper bound for those types of capital investment related rules, had that 7% in there. But that also is really in sore need of updating. And so that's what A94 does. I think what you'll see in the new version, without getting too deep into the weeds, is that the new version is more aligned with the new version of A4.

The numbers are a little bit different to sort of take into consideration the particularities of what, say, the budget side of OMB has to take into account when they're dealing with federal investments in buildings and stuff like that. It's a little bit different from regulation. So that's where the divergence comes from. But that old 7% number, I think, is reflective of where we were with the thinking on this stuff in the early two thousands.

David Roberts

Is there a new number for discount rates for public investments or is it not that simple on this side?

Sabeel Rahman

Yeah, it's a little bit more complicated for the investment side, but that's also going for the same kind of peer review and public comment. So I think we'll know more in the coming months about where A94 lands. Exactly. But what's exciting and important is that A94, the last revision was in, I think, 1992, not quite as old as A4, but still pretty old.

David Roberts

Yeah, that's wild. And A94 also gets into distributional stuff and international stuff.

Sabeel Rahman

Really important, yeah, really important distributional and global effect language in there.

David Roberts

And part of this, I think part of the point of all this, one of the points of all this was to align A4 and A94 better, so we have some sort of coherent they had kind of drifted apart in a way that made no sense.

Sabeel Rahman

Totally. And full props to the OMB Chief Economist team who they sort of are the keepers of A94 in the sort of OMB ecology. I know they've been working really hard on all this.

David Roberts

So those are the three big changes. Are there other changes in A4 that you think are worth calling out? Like there's something having to do with risk and risk tolerance and risk assessment that I don't even know how to create a coherent question about, but feel free to talk about it.

Sabeel Rahman

Totally. Yeah. No, I appreciate that. I think there are three other buckets of things that I'll just highlight briefly because they're important and also, I think really brings this up to 2023. So one is what you were just alluding to. There are a bunch of things that will mean a lot more to our economist and economic modeler friends who might be listening, but they really amount to kind of bringing A4 into line with sort of cutting edge of economic theory. So how do we take into account uncertainty and uncertain effects that we don't know with perfect certainty these estimates, right?

Let's factor that in. Taking into account risk and risk aversion, right? People are willing to pay more to be protected from the risk that something might go haywire. It's kind of typical understandable human behavior, but that's not always baked into the models. So there's some technical stuff. That's bucket one. The second bucket is there's a lot of really interesting what I think of as like macroeconomic structure, things that are baked into this new version. So normally reg reviews, reg analysis would be you're looking at the new regulation almost at a micro level. Like, you're just looking at that regulation and you're kind of holding the rest of the world kind of constant.

But the new A4, it talks about, for example, business cycles. There might be regulations that have different benefits and costs when we're in a recession versus when we're not. If you think about, for example, social insurance policies, if they're designed to be countercyclical, those benefits really only kick in under certain conditions that may not be around when the regulation is being written, right? So it incorporates that. It incorporates a lot of great new thinking about market concentration and competition that's been a big focus of this administration, being attuned to the ways in which concentrated ownership of industries can lead to higher prices, less stable production, kind of all the antitrust, anti-monopoly stuff that is happening.

So that's baked into A4 much more. So these kind of like big macroeconomic conditions.

David Roberts

Macroeconomic context, which you would think is like totally like duh, of course.

Sabeel Rahman

Right. And then the last bucket is also another like you'd think, of course it's not rocket science, but it's a really important shift is that the new A4 has a lot more language and guidance about what to do with those impacts that you can't put numbers to because they're obviously real. And there and it even talks specifically about things like civil rights and civil liberties, democracy, equity. These are goals for good public policy. They may not have number values and in some cases ought not to have number values.

David Roberts

Or the welfare of other species. If I can just ...

Sabeel Rahman

Yeah, there's a section there about ecosystems and ecological impacts as part of the hard to quantify discussion. So there's tons of really important implications of that that you could imagine for everything from ecology to equity that I think this new A4 is much, much better at.

David Roberts

And those, I think, are really sticky to deal with because there's no formula. I mean, even a candidate formula, right? There's just no way to come up with a formula for how, like, you know, how much should EPA weigh beauty or whatever. Or whatever. But as you say, those things exist and matter. So is this just basically OIRA saying to agencies, take note of think about these things, like, take these things into consideration. Is that all there is to it?

Sabeel Rahman

I think it's two things. One is that take into consideration and bring those considerations into your analysis. Because a lot of times agencies are thinking about that stuff, but they've struggled in the past at times to bring those very real considerations into an impact analysis, given how narrow the old A4 used to be. And so then you had this kind of weird, right? Like, we know that part of what we're trying to do is protect ecosystems or protect the dignity of disabled persons who a curb cutout is expensive to have on every sidewalk, but absolutely critical to just look at basic human dignity if you're a disabled person of a particular kind.

Let's take that obvious real factors that are in any human decision about this kind of stuff and let's actually give it a proper pride of place in the analysis, and then it's up to the agency to sort of make the all things considered best decision. And that's something that would be worked out through the review process with DOT might come to a particular view about what the rules should be for lavatory access for disabled persons on an airline. That's going to have costs. It's going to have qualitative considerations about basic civil liberties, human life and safety and dignity.

And then if we can get everyone on the same page through the review process that this makes sense, this is good, then that should be the way we go.

David Roberts

Right, so this is or saying we're going to give you wide-latitude to think about these things and incorporate these things.

Sabeel Rahman

Yeah, absolutely. And a lot of times I think people who are more attuned to the hard sciences might feel like this stuff can be squishy and amorphous. I always found it very straightforward. Give us your reasons. Like any good like any good piece of writing. Give your reasons, give your evidence. And just because it's qualitative doesn't mean you don't have reasons and you don't have evidence. So talk about it.

David Roberts

And even if you think it's arbitrary to pick a particular number, it's quite clear that the number is not zero, right. The default has been zero, which is clearly against our common values.

Sabeel Rahman

Absolutely.

David Roberts

Okay, so that's a lot of changes. A lot of changes to pack in this technical circular. One other thing I saw at one point the term cost-effectiveness analysis. Is there some effort to replace the whole sort of notion of cost-benefit analysis with something else? What's the deal there?

Sabeel Rahman

Yeah, I would put in the theme of much more flexibilities right, to get the right kind of analysis for the policy at hand. So I think people are familiar with traditional benefit cost-benefit analysis where you kind of monetize everything on both sides of the ledger and then you sum it up and then you're done. But especially when you're talking about things that might not be quantified quite as well. Right. There are other variations that the new A4 talks through in more detail. So cost-effectiveness is one suppose you have a kind of easy to understand qualitative goal that may not have an exact number that you can measure, but you can measure the costs.

Right. So we want to increase safety in the workplace. We can proxy that in different ways, but the proxies are all kind of imperfect and we know how much it would cost to increase the safety requirements or slow down production so that people aren't hurting themselves in a horrible way. Right. So then you can sort of do a cost effectiveness comparison of how much boost to your goal are you getting for some higher cost? And then the policymaker can say, yeah, that's justified because that goal is really important. We've done some work to know what the costs are, and we think this is the overall more cost effective way to get to that goal compared to some other variation.

David Roberts

Right. This is something that debates over cost-benefit analysis have been batting back and forth for a long time, which is the sort of premise of cost-benefit analysis is you let the cost-benefit analysis tell you what your goal is, whereas cost-effectiveness is, here's the goal. Now let's work backwards what is the most cost-effective way to reach that goal, which is a very different way of approaching.

Sabeel Rahman

Yeah, absolutely. And I think if I could pin down sort of the ethos of this overall A4, I think you just put it really nicely, David. The analysis should be informing the policy, not the other way around. Right. And so there's another variation on this that's called breakeven analysis that's also talked about in the new A4. It's a similar kind of idea that let's say we can't actually put a hard number to the benefits, we can't monetize it for whatever reason, but can we figure out sort of like, what's the threshold that if we think the benefits are above that number, then we know we more than break even.

So even if we can't put a hard number to the benefits, we know with good certainty that the benefits are above this level of what the cost might be. And so these are all imperfect, right. I think for folks who are wary of quantified and monetized cost-benefit analysis, I think these will not get you all the way there from that critique. But what it does do is give you a lot more options to say, let's stop shoehorning good policy judgment into an old straitjacket process.

David Roberts

Right. Another of the Biden administration's big priorities, big pushes, is to bring the public more fully into these deliberations.

Sabeel Rahman

Yep.

David Roberts

And I just wonder, I have a couple of questions about that. One is just what does A4 say about that? In what way do you recommend that agencies do this?

Sabeel Rahman

I'm really glad you asked this because this is also something I feel super strongly about and I think they've done some good work on this. So alongside A4, the President also issued, when the new A4 came out, an Executive Order, which included some new requirements around public participation. So one, it's a much stronger emphasis for the agencies to do more proactive early engagements with impacted constituencies as they're designing their rules. So by the time a rule comes into OIRA review, a lot of it is I don't want to say cooked already, but a lot of work has already been done.

And a lot of times it's much more impactful and meaningful to have robust public participation earlier in the process, especially if you're talking about underserved constituencies or impacted groups, right? Those are the voices that you need to hear early on. So there's a general charge under this administration in a number of different Executive orders actually, to press agencies to do more of that proactive early engagement. Then there is a switch to the OIRA review process itself to open up that process to more participation as well. So right now, an interested party could request a meeting with OIRA when they're reviewing a rule to give their views.

It's kind of a wonky thing. Not that many people know about it.

David Roberts

How is that different from public comment?

Sabeel Rahman

It's very similar to public comment, but it basically takes place during the OIRA review process before the rule goes out for public comment. And the rationale is there might be nuances or details that if you're from an impacted community, you might have some additional information that might be worth making sure is emphasized or shared as an input. Those are not backs and forths. Right. They're basically listening sessions. But the new Executive Order continues that practice and charges OIRA with making that much more accommodating and inclusive, especially to historically marginalized communities, communities whose voices may not have sort of K-Street lobbyists, right. Easy for them to go.

And then the last thing that it does, it also puts a lot more meat on this process that's called petition. So communities, civil society groups, individuals can petition agencies to push them to take action on an issue that maybe the agency hasn't thought about before or hasn't been as proactive on those petitions, then kind of sit there. The new process creates some more coordination so that when someone brings a petition, OIRA is also aware of that.

OIRA can then also sort of check with the agency, like, hey, this petition, what's the response to this petition? How are we responding to the needs that folks are bringing to you? So these are a lot of little pieces here and there but the sum total of it is to try to improve that participatory and inclusive aspect of the rulemaking process.

David Roberts

Well, one other question about that, which is I'm sure you're aware of the sort of larger conversation going on around liberalism these days which is that it's become slow and that NIMBYs are stopping everything and it's hard to build anything and it's hard to move quickly. And basically we've become sclerotic. And sometimes that critique takes the form of saying basically like the public has too many ways of inserting itself and exercising a veto here and we need to streamline things and do things faster. And this seems intuitively on the surface at least, to tack against that.

So how do you think about the kind of need for moving expeditiously relative to the need for public participation?

Sabeel Rahman

Right, it's such an important question. I'm glad you asked it. I think there are two things to bear in mind. One is just on these proposals here. These are all very much sort of inputs. These are not decisional or veto types of discussions. Right. So I think things still move along and the overall time frame of the regulation OIRA has a clock under the old Executive Order which has stayed in place for how long it ought to be taking on rules.

David Roberts

Although can we just say it has frequently exceeded that alleged clock. I remember all the complaining about OIRA that used to go on when Cass Sunstein was in charge under Obama. Like OIRA was frequently charged with slow walking these regulations.

Sabeel Rahman

I wasn't there during that time. But one of the things that I'll say is when there's a delay, usually it's because there's actually a dispute as opposed to someone's just kind of holding it up. But one thing I'm really proud of with this administration and this OIRA is that if you take ARP, for example, we set an OMB, a two week cap, a two week ceiling on any this is American Recovery Plan at the height of the economic freefall right in spring 2021. All that money had to get out the door because the economy was in such grave danger.

People were hurting right during COVID, so we set and we kept to a two week turnaround. Every single piece of ARP policy came through OIRA, went through OIRA review and was done in two weeks or less because we had to, right? And I say that to say where there's will and focus and dedication, the process moves. And one thing I really like about this administration's approach is that it has tried to balance we got to get stuff done with. We got to also kind of have evidence and do things robustly. So to come back to participation then I think that the critiques are important and well founded.

But to my mind it's not a choice between participation or effectiveness, it's a question about what kind of participation to make the policies effective. So you're not going to have good policy if you don't hear from the people you need to hear from. But b, there's a way to hear from them in a way that is efficient. Right. This is why that upstream early engagement is so valuable because you get everyone together, you get all the inputs you need and then you design the policy right the first time around and then you don't have to have 50,000 kind of nipping at your heels types of conversations downstream.

People are going to disagree, that's fine, you can litigate disagreements at the next election or with the next regulation or whatever, but that doesn't mean we shouldn't be hearing from people.

David Roberts

Yeah, and there is a value just to being heard. I think a lot of people, they might not say this explicitly, but I think a lot of these groups will feel like there's progress being made just if they are convinced that they are genuinely having a voice in this.

Sabeel Rahman

And that's something I saw a lot of in the time I was in government too, that it is really important the government serves the people and it's hard to convince people you're serving them if you're not actually hearing from them or seeing them. Right. And that doesn't mean that you have to do everything that everyone says because we have a big country. But I do think that's an important piece of this.

David Roberts

What's the process now? So this is A4 and A94 have been put out for both public comment and peer review, which are separate processes. So what happens next? What's the road?

Sabeel Rahman

So over the next maybe couple of weeks, there's still some time left in the public comment period. So if you have listeners who might have views about either of these documents after listening to this, they should absolutely weigh in, particularly if they have expertise on some of these issues. So public comment is ongoing that will close in a couple of weeks ...

David Roberts

Kind of pause there on public comment. I'm just curious if you have any sense or guesses about how public comment is going to unfold. My gut instinct is because most of these changes will have the effect of making it easier to pass big regulations in the public interest, that industry is just going to knee jerk, be against them and rail against them in public comment. Is that sort of how you expect public comment to shape up this sort of like public interest groups versus industry yet again? Or is there more nuance to it?

Sabeel Rahman

I hope it ends up being more nuance than that because there's a lot here. Obviously. I think that's anytime you're talking about regulation, we live in the world, we have to be attuned to that dynamic. But I think my hope would be that there's enough here that is evidence based, empirically, rigorous, and just like obvious updates, right? Like what you're talking about on discount rate and on distribution analysis and so on, that I hope we'll get a range of comments. It'll be particularly important, too, to sort of get comments from the field, as you were saying, from economists, but also anthropologists and sociologists and people who are working it in community on the grassroots level about what kind of distribution analysis will actually help, you know, make sure their voices are counted right.

Like, I think we want to cast it open so it's not just the same, you know, conventional wonks as as much as we do want to hear from them too.

David Roberts

Industry lawyers.

Sabeel Rahman

Right. I think a bigger set would be lovely because this is some of the source code of an executive branch that can honest to God serve the public interest and serve all of us. I really believe that. So I hope we hear from more people. So first there's comments. Once that comment period wraps up, the peer review should be happening. I'm not sure exactly when, but I assume they'll be doing it in parallel to that because peer review can take a long time.

David Roberts

And is this peer review just like the same that academics are familiar with?

Sabeel Rahman

Yeah, exactly. It's meant to be a similar process. So the government actually has a pretty standard peer review process for technical documents that this review, I assume, will be following. And that's modeled on sort of scientific, academic peer review procedures. So that will go for a couple of months as well. And then these documents should be finalized. The timeline they gave was no longer than a year. Basically by play it forward a few more months, maybe it's a little sooner, maybe it's a little later, but I think it's going to move pretty quickly, especially once the comment period closes, just because this is way overdue and is important.

David Roberts

And you think these will be finalized in time to actually inform the writing of substantial regulations from the Biden administration?

Sabeel Rahman

I hope so. I think that certainly is the goal with this charge coming out on day one and then now the full proposal out here at the start of year three. So I really hope that's the case.

David Roberts

And once they're in place, I guess I'm wondering how resilient they are. Like, if there's a DeSantis administration in 2024, is there anything stopping them from just ripping these up and going back to something older? Do these have any resilience against political chicanery or an administration can do what it wants?

Sabeel Rahman

That's a tricky question in a world where when you look at what's happening in places like Florida and elsewhere. I think what ... I'd say two things about that. One is that it is meant to have staying power. And part of the point of making sure this document goes through peer review and goes through public comment and goes through all the things that a long lasting, non political technical document ought to go through. This is that kind of enterprise. And so the old A4 lasted for 20 years, and this new version is very much an update to that.

It's not junking the old enterprise at all. So I think the hope would be that that would continue. Now, that said, when you have people on the right continuing to organize around things like Schedule F, the Trump administration's plan to junk most civil service protections, for example, there's a lot of stuff that is brewing on the right. Just to say that is really aimed at destroying a well functioning, evidence based and transparent bureaucracy. But that's a broader question. That's not an A4 question. That's a broader question for all of us to say that, okay, yes, we're having a debate about policy and about all sorts of kind of horrifying other things that are happening too, on the far-right.

But at some point, we got to say, if we got to have a government that serves the public understanding that the public doesn't always agree on a lot of policies, we can do that, right? We can do that with evidence and with transparency and with good procedures that allow for participation and evolution of ideas. There's a way we can do that. It's possible to have a government in this country that is effective and that deals with our complexity and our diversity, but not if you have bad actors who come in with a desire to bring a wrecking ball, right?

David Roberts

If they want to come nuke the administrative state, A4 is not going to stop them.

Sabeel Rahman

Right. And I think it's sort of for all of us who care about these issues, I think it's important for us to care about wonky stuff like A4. But I also think it's important for us to care about those kinds of existential threats to the project of shared collective government in the first place.

David Roberts

Yes. Alright, well, that seems like a great place to wrap up Sabeel Rahman, this has been so helpful, so clarifying, and I love getting into the wonky guts of stuff because, as you say, it's a source code. It's going to affect everything that comes out of the government after this. So it's really great to get a clear view of it. Thanks so much for coming on.

Sabeel Rahman

Yeah, thanks, David, for having me. This was great.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming paid volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much, and I'll see you next time.

In this episode, Vero Bourg-Meyer of the Clean Energy States Alliance discusses the barriers that keep lower- and medium-income customers from installing rooftop solar, the types of efforts most likely to overcome these barriers, and how to keep momentum moving forward.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

For all its explosive growth in recent years, rooftop solar is far less frequently installed by low- and middle-income households than by wealthy ones. Though that disparity is diminishing somewhat over time, it remains large.

The barriers keeping lower-income consumers from solar go well beyond the financial (though financial barriers are substantial), ranging from credit histories to low-quality and poorly insulated buildings to lack of supportive policy.

State policymakers, foundations, and non-profit groups have been trying for years to overcome this problem. Finally, the pieces are beginning to fall in place and it is becoming clearer which kinds of interventions work and which kinds don’t.

No one knows more about the history, design, and successes of these programs than Vero Bourg-Meyer of the Clean Energy States Alliance. She has been analyzing and advocating for these policies for years (she just came out with a report on how foundations can help), so I was eager to talk to her about the rationale for low-income solar programs, the features that make them work, what's in the Inflation Reduction Act that can help, and what further policies are needed.

Okay, then, with no further ado, Vero Bourg-Meyer, welcome to Volts. Thank you so much for coming.

Vero Bourg-Meyer

Well, thank you so much for having me. I'm delighted to be here.

David Roberts

Cool, so there's a lot to talk about here with this topic, which I've had sort of, like, in the corner of my eye for years and years now, these programs for low-income and mid-income solar, getting solar to low-income, mid-income people, I sort of had it on my periphery forever. And so I'm happy to jump in directly. My sense of the sort of state of play among the wonks is the best way to help poor people is to give them money. And if you have money to help them and you want to do something other than just give it to them, you need to sort of justify, like, why is this better than just giving them money?

Vero Bourg-Meyer

Yeah.

David Roberts

So I guess to start with, my first question is just why should we care about specifically getting solar on these households versus just helping them with money? So what is the sort of justification for this kind of whole area? Why do we want to get solar on low- and middle-income households?

Vero Bourg-Meyer

Well, so there are two questions in there, right? So one question is that there's a climate question. Obviously, we want solar not because we think it's great for savings and all that, but also because we have a climate crisis that's ongoing and we need to do something about this. So that's the reason why we want solar. But why LMI communities and I'll use LMI in a kind of loose way. LMI stands for low- and moderate-income. LMI sometimes is just low-income and that generally means kind of in this area, generally it means below 80% area median income.

Some people also define it as below 120%, but without going too much in the details, that's generally what it means. So the reason why you want to make sure people have access one of the reason you want to make sure those people have access to solar is they spend a much higher percentage of their income on their utility bills as the rest of us. About almost four times as much as you or me. And I'm lumping us in the same income brackets. I don't know if that's correct. So they spend a lot of money on their utility bills.

And so obviously when you're giving them away month after month after month to reduce those utility bills, that can have a really outsized effect on them. Right? So it's not just the cost of purchasing the solar to begin with, it's the continuing saving over the lifetime of the asset that you'd have to kind of look at.

David Roberts

It's kind of like giving them money every month.

Vero Bourg-Meyer

Yeah, essentially. Yeah. Assuming there is a saving, which it has to be structured that way. It doesn't just happen like that. And then there is the resilience benefit that you can get when paired with batteries. And I was saying earlier, I'm going to use low-income communities as kind of LMI communities, very generally speaking. But we're also talking here about communities of color in communities that generally, because of redlining, have older housing stock houses that are not well insulated. When you start with that and you add storage, you get a really huge resilience benefit for them.

LMI also means higher rate of chronic diseases, right. So you need your dialysis machine to work all the time, not just some of the time. So that's another really big reason. But I'd say your question though, about why not just give them money? If you kind of put aside, is it politically pragmatic to just give them money? Which I don't think at this stage it is. We tend to wage a war on the poor instead of waging a war on poverty in this country, right?

David Roberts

Yes.

Vero Bourg-Meyer

So setting that aside, if you're looking at who deploys the solar in this country, it's the private sector, right? And there are other barriers that are kind of standing in the way of LMI communities getting solar other than just the initial funding. The initial funding is a big part of it, but there's also lots of other reasons why customers don't trust the developers. Developers are not interested in serving or generally not all of them.

David Roberts

Let's talk about those a little bit. Let's talk about those barriers. Because I know intuitively, as you say, the obvious barrier, I think, which jumps out at everybody is just not enough money. That's what low-income means. But that's not the only reason that deployment of rooftop solar is lower in these communities even than what you would predict based on income, right? The barriers that go beyond income. So let's talk about some of those. Like, what are the kind of things that are stopping these households from accessing rooftop solar?

Vero Bourg-Meyer

Well, so the funding one, I don't want to just fully put it aside, right. Because that's a really huge one, the upfront cost, and just for your listeners who may not be familiar with the cost of solar for a regular household. So if you look at the average size of a solar asset in this country, which is about seven kilowatt, I believe, and then the average cost between $3 and $4 per watt. So that's what? That's $25,000, roughly, that you have to find.

David Roberts

That's not small for anyone ...

Vero Bourg-Meyer

It's not small. And that upfront cost you and I have access to other kind of funding. We have access to financing, right? Low-income communities might people might have a lower FICO score or no FICO at all, or maybe even no bank.

David Roberts

FICO is just a credit score, right?

Vero Bourg-Meyer

Yes, that's right. Yeah, that's a credit score that's being used by lenders to decide how much they want to charge you, essentially, and whether they will even charge you, whether they will agree to give you a loan. Not to mention if you are really struggling to put food on the table, the idea of taking on additional debt is just not always interesting, at least not for everybody. We can get back to that. So a big barrier beyond the funding is the physical barrier, right?

So the site suitability, what's called site suitability criteria, roofs could be in a really poor shape. If you have issues of lead and asbestos in your house, it's really hard to get a contractor to go in and crawl in your attic to go install something. They're just not going to want to do it. And then there are some things that are kind of more linked to the type of housing you might be looking at, right. So single family homes is one thing. Multifamily homes have specific issues. You could think of where the meters are located. That's kind of a dumb one, but it really is a problem.

So if you have meters that are specifically dedicated to apartments, that's great. If you have one meter and then everybody kind of shares, that's creating kind of more issues. So, yeah, physical barriers are a big one. And also the way that the subsidies that we've mostly been using for solar up to this point so the tax credits, primarily. So the investment tax credit, up to this point, the PTC, the production tax credit, wasn't open to solar. Now it is with the IRA. You can't monetize the ITC if you don't have a tax basis, right. The non-taxable entities, affordable housing, the non-profit developers, none of those can access the ITC.

Could access the ITC until the IRA with direct pay. And then as an individual, a homeowner that does not pay taxes cannot utilize that in a very obvious way. So there are ways to kind of go around that. But generally speaking.

Isn't it also the case that LMI people are more likely to rent or more likely to live in apartment buildings where they don't?

Well, it depends actually ...

David Roberts

Isn't that also a problem?

Vero Bourg-Meyer

I mean, it is an issue. You'll find those traditional kind of split incentive issues, but it's not necessarily the case that it's everywhere. I don't have in mind the number, the percentage of renters versus homeowner on top of my head, but it really depends on the states. And I think that's when you're a state policymaker, you're looking at kind of building a solar program. Your housing market is not a monolith, and your solar market as a result is also not a monolith. So you have to really dedicate brain space to creating solutions that are really tailored to what you're trying to tackle to specific issues in your state.

David Roberts

So, barriers, we've got the obvious one. Finance and funding got physical site suitability, meaning like, the actual buildings themselves might need work before they're even ready for ... One that springs to mind always when I think about these communities is just who's reaching out to them and talking to them and educating them. Is awareness a big barrier?

Vero Bourg-Meyer

Big time. And I would say those kind of behavioral barriers exist both on the developer side and on the customer side. On their developer side, they just will not market to them, right?

David Roberts

Right.

Vero Bourg-Meyer

They just viewed as not good customers, which is definitely not the case. There are studies out there showing about the same kind of default rates as ODA loans, right?

David Roberts

Oh, really?

Vero Bourg-Meyer

Good enough. Yeah. So if it's good enough for a giant trillion dollar industry, I think it should be good enough for solar. And there's nothing as boring as an ODA loan. So I think we could do this. But on the developer side, that's really just a perceived risk kind of issue. And on the customer side, there are trust issues as well. Right?

David Roberts

Yes.

Vero Bourg-Meyer

Lots of fly by night action.

David Roberts

Yeah, I was going to say scams are quite common. These people tend to be targets of a lot of scams.

Vero Bourg-Meyer

Yeah. So one that you hear about and I don't have specific data on this, just kind of stories, but one that you hear about all the time is developers coming in and then promising a big government subsidy because they're thinking about the tax credit, and then a homeowner will just go for it and then realize oh, wait. I can't monetize this at all. This is not working for me. I'm not getting the money. This money is just paper and I don't have anything to apply it to. So, yeah, that's dishonest. Business practices are also out there.

So all is to say it requires a lot more effort for customer acquisition and you can't just sit and expect those customers to come to you. And obviously, as a developer, if you have the choice between targeting that group over here that you think is going to be much better at paying, which it isn't, but you think it's going to be the case, and also naturally trust you more versus a population that trusts you less and it's harder to get to. Well, the choice is easily made.

David Roberts

Right, there's all these sort of like, I don't know what to call them, soft costs, I guess. Just like developers tend to be in the socioeconomic bracket of a certain type of customer and then everything becomes easier. Communication, right. Like they understand one another, et cetera, et cetera.

Vero Bourg-Meyer

And then you have other things like language barriers, obviously.

David Roberts

Right.

Vero Bourg-Meyer

And that can be a big one in some communities.

David Roberts

So it's not just effort, it's who is going to talk to them. Like choice, finding someone that is trusted within those communities to communicate absolutely is a big deal.

Vero Bourg-Meyer

Yeah.

David Roberts

So we're going to get a little bit into how states are doing this later. But just I want to start with the IRA because obviously everything in the energy world is different now. We're in a new world. We're all discovering this new world. So what specifically did IRA do for LMI rooftop solar?

Vero Bourg-Meyer

Lots.

David Roberts

Of course.

Vero Bourg-Meyer

I would say lots, but lots in ways that aren't necessarily fully clear at this stage. I mean, the way I think about it is because I work at the Clean Energy States Alliance, right? I look at it from a state policy maker perspective. How can they build programs around what the federal government put together and that kind of funding? So the three big buckets and I'm not telling you anything you don't know, obviously, but just to organize my thoughts, the three big buckets are the tax credits, the Greenhouse Gas Reduction Fund, and the Loan Program's office.

And I'll start with the least obvious one, which is the Loan Program Office, the innovation ... so there's something called Title 17 that offers clean energy loan guarantees, right? And that up to IJA. So that's pre-IRA, until IJA, someone applying for this, was required to show some sort of innovative element, right?

So the loan program's office wasn't going to say, "Oh sure, I'll guarantee your solar thing over there, that looks great." No, it has to be something a little bit more exciting than that.

David Roberts

That's sort of the point of LPO, right? Seed innovative things.

Vero Bourg-Meyer

Yeah, well, since IJA that's not the case anymore.

David Roberts

And by the way, we. Should say IJA is the hell I don't know what it stands for. The infrastructure ... the Infrastructure Act.

Vero Bourg-Meyer

The Bipartisan Infrastructure law. So what does I stand for? Infrastructure and Investment and Jobs Act or something. So the kind of the first big piece of climate legislation passed in this new era that we are in the projects that are supported by a state energy finance institution can access loan guarantees now from Title 17 from LPO without having to show that they're super fancy and innovative. And the funding then for LPO was also expended through IRA. The IRA really put in a lot more cash into this thing that they started doing. I'll give you an example to show you how this relates to low- and modified-income solar.

So imagine a community solar developer wants to develop some solar that benefits LMI communities and they go and get some grants from the state to serve a specific area. The developer now has access to an LPO loan guarantee and they could say, I need a construction loan. Go out, find that construction loan is typically the most expensive part of the process in terms of capital cost. And now they can talk to their private lender and say, hey, I got this grant from the state. That means I can apply for this loan guarantee. How about you give me a lower rate because DOE is going to be there and guarantee that I'm a good bet for you. Right?

So that's a really interesting kind of piece of the equation that I guess doesn't really get talked about much unless you work at LPO.

David Roberts

Federal loan guarantees can basically lower the cost of capital for developers.

Vero Bourg-Meyer

And it doesn't have to be that the state participates in the way of grants. They could be doing things like a loan loss reserve or straight up loan. They could invest in however way that they want. They just have to support the project, at which point the project becomes eligible for an LPO guarantee. And that's as long as that support is being done by this state energy finance institution. Which can be a big number of things, but it could be a state energy office. So the folks I work with.

David Roberts

Or a state green bank.

Vero Bourg-Meyer

Yeah, absolutely. So that's one pocket of money in the IRA. The next kind of pocket of money that can really have an impact on LMI communities in terms of solar deployment would be the Greenhouse Gas Reduction fund. So that's an EPA program in total. So it's got a bunch of buckets, it's got a $7 billion bucket that they're calling it Solar For All. Actually, the implementation framework came out yesterday from EPA, so it's all very new and exciting. This was the talk of the town this morning. So there's a $7 billion bucket for cold solar for all that will only apply for the benefit of LMI communities.

And that's $7 billion that the states can apply to, in its states, municipalities, tribes. But essentially what EPA wants to see is they want to see solar, rooftop solar, community solar distributed storage and upgrades. And the really cool thing about that and the rules that we just learned about yesterday is that electrical panel upgrades, roof repairs, they are covered under that.

David Roberts

This addresses the site suitability stuff we're talking about so you can get some money to prepare your house for solar.

Vero Bourg-Meyer

Absolutely. And hopefully you can enjoy the benefit of a well built solar program that your state are going to put together.

David Roberts

Right. So states put together some kind of program and then go to the EPA and say, hey, we have this program, give us some money to fund it.

Vero Bourg-Meyer

That's the idea. That's the idea. And then there are two more buckets in there that could apply to solar. I mean, solar is part of it, but then it's open to kind of different types of applicant. There's a $14 billion bucket that focuses on kind of clean investments. So that's going to go to two to three national non-profits. So the point there is to leverage funding and private sector lending or investment, generally speaking, at a national level. So do things really big, essentially. And 40% of that is as part of the justice 40 framework, is going to go to LMI communities and the remaining $6 billion is to capitalize organizations that are directly lending or providing financial assistance and technical assistance to LMI communities.

So the $6 billion bucket and the $7 billion bucket are all LMI and the $14 billion bucket is 40% LMI.

David Roberts

That's a lot of billions.

Vero Bourg-Meyer

Yeah, that's a lot of billions. Exactly. And I think the fun part of this is when you work in and around state government is everybody is super excited but no one knows what's going to happen. And there's a lot of like, how are we going to do this?

David Roberts

Yeah. I guess it goes without saying that these monies have not started dispersing yet, right? We're just figuring out the rules for them. So no state has yet gotten this money?

Vero Bourg-Meyer

No, not yet. But then at CESA we are actually going to be working on trying to build some sort of a template program for states that they can use and replicate. Because the key here, particularly with the $7 billion bucket, is that it's going to go quick. I know it sounds ridiculous, it's a ridiculous thing to say, but they are opening in the summer and then the money has to be out of EPA within like a year, essentially.

David Roberts

No s**t.

Vero Bourg-Meyer

Yeah.

David Roberts

Wow.

Vero Bourg-Meyer

Yeah.

David Roberts

So there's like a bunch of we're hurting toward the trough here.

Vero Bourg-Meyer

Yep.

David Roberts

And once you divide that up among 50 states, I guess it's maybe not as big as it looks on the surface. So I guess the other bucket is the tax credit which ...

Vero Bourg-Meyer

Yes, the tax credit. And so the tax credit is a fun one because ... I mean, they're all fun.

David Roberts

Nothing like money. Nothing like money for the study.

Vero Bourg-Meyer

Yeah, exactly. Going to solar for LMI communities to get us excited. But the tax credit is really big, right?

And it seems like every other week there is another study that comes out and says, "Hey, this is going to be this big. No, it's just kidding. It's this big."

David Roberts

Right? It's uncapped. Which means we've been over this on the pod before, but just for listeners who don't know, these tax credits are not ... there's no upper limit set. So how much money the Feds are going to spend on these tax credits depends entirely on demand just how many people apply for them. And so, as you say, we keep getting these new analyses saying, "It's going to be a $3 billion program, no, $5 billion, no, $10 billion." The estimates of how much of this is going to be demanded keep going up and up.

Vero Bourg-Meyer

Yeah. And it's really big. There's one piece. So the part of it that ... there are a couple of parts that are exciting. There's one piece that's the structure, the change in the structure of the tax credits that can make a huge difference in some institutions that before the IRA did not have access to tax credits, now can have access to tax credits. And then there is a piece of it that actually is capped, but that we don't exactly know how that's going to work. So let me start with this last one first. There is a new LMI, what we're calling an adder.

So it's an allocation and it will be either 10 or 20% extra. So 20 percentage points or 10 percentage points extra on top of whatever else you have. So either your 30% base or your 40% or your 50% if you're meeting all of the criteria that the statute has set. And that is capped at 1.8 gigawatt per year. So the way this is going to work is not like the rest of the tax credits where you just kind of go through your projects and your tax credits work the normal way. This one is allocated after the fact.

So it's a whole process that projects are going to have to go through with treasury. And at this stage, it's a little bit unclear how this is all going to work. There are some rules that were just issued, I want to say about a month ago, but don't quote me on that just recently, let's say. And the way this is working for 2023 at least, is that we're only going to have about 60 days, depending on the category. You find yourself in 60 days to apply for the tax credit within a whole year.

David Roberts

After your project is done.

Vero Bourg-Meyer

Well, no, that's the kicker. That's the kicker. You can't apply retroactively. You have to wait. You can't place in service your project before those 60 days. So that's the part where we're not too sure how this is going to work. And then DOE, treasury are going to have to figure this out because it doesn't quite fit a traditional residential solar business model.

David Roberts

This is sort of like where non-profits like CESA come in, right? Like you figure this out, hopefully you set up some sort of template, right, some sort of template that businesses can use so that every project doesn't have to sort of learn all of this from scratch.

Vero Bourg-Meyer

We can help find the information list. But yeah, at this stage, we're not sure how that's going to work, but it's potentially still very big. And then on the structural front, so direct pay and transferability are those new two fancy things that we can do with tax credit. So direct pay being you go through your project, you finish your pleasant service, et cetera, et cetera, and instead of receiving tax credit at some point, so after you file taxes and request all that, at some point you get direct payment from the government. So that's really exciting for all the non-profits that previously did not have access to that.

And I'm talking there's so many non-profits, I think maybe that's something that people don't necessarily see. There are a lot of non-profits working with and for and organized by as well, LMI communities, right?

So we're talking affordable housing, we're talking health clinics, we're talking homeless shelters, all sorts of stuff.

David Roberts

So just the shift to direct pay alone is sort of an equity is a justice thing, right, because it's mostly going to be non-profits.

Vero Bourg-Meyer

Yeah, I mean, it's too bad that they didn't want to just when we're talking about kind of giving money directly, I think tax credits are way that the government kind of gives out money directly, right? And they decided when they passed the IRA, Congress decided, "We're going to do this only for non-profits." Why not for people? I don't know.

David Roberts

Yes, you do know, though. His name is Joe Manchin, right? Let's not pretend we don't know why all the flaws in this bill are in there.

Vero Bourg-Meyer

Yeah.

David Roberts

Okay, so there's buckets and buckets of money in the IRA of various places for LMI communities, LMI developers, non-profits who want to work with LMI communities to go get so let's talk a little turkey then about what these programs look like. What are the sort of tools that states use to reach these communities? And maybe if you want, you can use Connecticut as your sort of standard bearer, because as I understand it, they have the top of the line program.

Vero Bourg-Meyer

Yeah. But I should say they had because it's finished. It terminated. The program terminated.

David Roberts

Oh, it was like a set amount of money they dispersed and then ...

Vero Bourg-Meyer

No, they were looking for a specific megawatt capacity and they reached out and then the legislature was like, "Yeah, you're done. You're moving on to solar, to solar and storage." So now they're doing solar and storage with justice instead of just solar with justice, which is also really exciting. And I should say part of my work at CESA is working as part of the Scaling Up Solar project, which is a DOE funded project. So my salary, part of my salary comes from DOE. We tried to help states replicate the Solar for All program from Connecticut, and it was a really successful program.

I like to talk about it in terms of how much of the savings that people get, because that always blows people away. So there is a VIC study that kind of shows the kind of savings that the customers from the Connecticut Solar for All program received. And we're talking $1,300 a year. That is ginormous.

David Roberts

Per household.

Vero Bourg-Meyer

Yes. That's not chump change, nothing. And then within that, you have about $700 worth of solar and then you have efficiency stacked on it. So what they did that was really smart to start with is that they looked at all the incentives that were available in their states and there was part of it, the efficiency part, that was really just managed by the utilities, and they were like, well, let's make sure that we do those two things together.

And solar plus efficiency in general, it's a winning combination. I want to say, in terms of savings for anyone, not even just for LMI communities, but if you stack your incentives and you stack your products, solar and efficiency together works really, really well. So you remember at the beginning when we're talking about how this upfront cost is really an issue and there is no access to financing that's available for you if you are in a certain income bracket. So the program is really a lease program. So it's third party ownership, TPO. And I should mention that there is a bit of a debate in the advocacy world out there on the kind of the value of TPO versus direct ownership.

So some people are really married ...

David Roberts

Yeah, I've been tuned into this for a long time and I heard debates about it. Not only like, financial debates, like, which is better financially, but also which is better for the homeowner and obviously third party ownership, which, just to explain to listeners who don't understand it's, just a company owns the solar panels on your roof and what you're buying from them. You buy the power from them, basically. So you as the household do not have to pay for the panels and the installation. The company pays for that, they own it, and you're just basically buying the cheap power.

So that's what third party ownership means. So what is the debate?

Vero Bourg-Meyer

So the debate is, when you're using third party ownership, some people will say, well, you're not getting all the benefits, all of the wealth creation that happens with solar, which if you're looking purely financially that's true. Yes, that's correct. I don't think there is any need to debate that. Anyone who's ever looked at a solar model can tell you that's true. But the issue there, I think, is that what I personally think is that we can walk and chew gum at the same time. We can utilize third party ownership models for what they're really good for, which is giving access to solar, to families, so that they can get savings right now, right?

Not tomorrow, not in five years, when we figured this out, not hypothetically, once a project magically comes online, maybe potentially, perhaps mayhaps in the future, but like right now. Right. And in most of the programs that I can think of, state programs that focus on third party ownership, there is some aspect of trying to convince the developer that there needs to be a pathway to ownership. Right?

And I think that's actually been folded now into the greenhouse gas reductions fund solar for all competition that we were just talking about.

David Roberts

Isn't it standard in these TPO arrangements that you can buy the panel at the end of whatever the lease period is?

Vero Bourg-Meyer

Right. Yes, it is very standard. I think what we're talking about here is accelerating that. Right. So how do you make a pathway so that at the end of, let's say six years? Because that's about when tax credits or tax equity investors would get out of that investment. In about six years or seven years, is there some way that you can help that customer actually purchase the panels directly? Straight up. Right. And I think there are developers out there thinking through this. There are states out there thinking through this. And I don't think we need to be married to one system or one deployment model over another.

I think they all are good for some things and less good for other things.

David Roberts

So you can get a little bit of a hybrid, then you can get some sort of benefits of TPO and then maybe ownership in the longer term.

Vero Bourg-Meyer

Yeah, absolutely. And then to go back to the Connecticut, because I kind of went astray there to go back to the Connecticut model, it's a public-private partnership between the Connecticut Green Bank and a company called PosiGen. They are a developer that was born out of Katrina, essentially, and that really was born in New Orleans to try to help folks get over the consequences of Katrina and really bring some resilience benefit to customers. So what they do is that they stack up efficiency and solar incentives, as I was mentioning earlier. And what the state of Connecticut also did with the Connecticut Green Bank did, is that they created an elevated incentive.

So an extra amount of money if you met some income qualification criteria. So if you are meeting those criteria, you're getting extra money, PosiGen comes to your house, and then no matter what, you have to go through what's that called? An efficiency test, essentially.

David Roberts

Efficiency audit.

Vero Bourg-Meyer

Thank you. So you go through your audit and then the company will tell you, okay, well, here are the things we can do kind of on the cheap, the minimum we can do. Or here are some extra kind of much deeper retrofits that we could do on your house that will bring you much deeper savings.

Which one do you want? And they give them a choice. And in addition to that, you get your solar. So the other thing that the Connecticut Green Bank did at the time, which is not necessarily required for that kind of a project to work or that kind of a program to work, but that was really helpful in the context and that's something that states have to think about was to support the company in a different way financially as well. So they offered subordinated debt to the company because at the time PosiGen was a new company, the market was untested.

They were like, "Okay, well, if you need to be successful serving these customers, if you need an extra bit of support over here, we'll provide that and that money goes back to the state." So it's just an investment like any other investment. And that really helps that developer be motivated to serve those customers really well. So these are kind of just on the financial side and on the behavioral side ...

David Roberts

Just pause here on the financing. So the idea here is PosiGen comes to your door and says, we'll give you an efficiency audit. We'll figure out what you'll need, you'll stack it up and we'll do it for no money down.

Vero Bourg-Meyer

For no money down, right.

David Roberts

From the homeowner or the building owner's perspective, this is just a no brainer, right? Does anyone say no to this?

Vero Bourg-Meyer

The no money down is just the first piece, I think it's no money down and cash flow positive, right?

David Roberts

Right. So you're making money off it from the word, from the word go.

Vero Bourg-Meyer

From the get go, you got to make a certain target. And the way that they access those customers as well and how they decided who to enroll in the program, they did not use FICO scores. So as a company, just generally speaking, they do what's called underwriting to savings. So they look at how strong of a saving they can give a customer and then they essentially bet that it's going to work and that it's going to be strong enough for them to be able to recover their money. So if the customer doesn't make money, they don't make money.

David Roberts

Okay. So that seems to me to overcome or at least substantially overcome the funding barrier. And then if you're not using FICO scores, you're sort of overcoming or getting around the kind of credit score barrier. What about just the sort of like education and community engagement piece? How did Connecticut approach that?

Vero Bourg-Meyer

So they did a lot of community based marketing and that's been shown to work really well to sell solar in general. And there's been actually also studies looking at the type of messaging that works in LMI communities versus non-LMI communities and turns out the messages need to be about the same. People want savings. People want something fancy and new that works really well, and they want environmental benefits.

David Roberts

Let me put something cool on your house and you'll make money from the second yeah, you don't have to fine tune that a lot for different audiences. It seems like a pretty universal appeal there.

Vero Bourg-Meyer

Yeah. But one of the reasons that really worked is that the Connecticut Green Bank was super involved in selling the program really hard. Right. So no one wakes up in the morning and says, oh, I'm going to figure out how to put this expensive piece of infrastructure on my roof.

David Roberts

Not these households, right? That's probably not the top of mind.

Vero Bourg-Meyer

Exactly. And even without that, I can't remember when that was exactly. But a few years ago there was some study about priorities in spending for people. Energy was like the last one.

No one wants to think about it, basically.

No one wants to think about it, just people interested.

David Roberts

So Connecticut was aggressive then at sort of like very aggressive reaching these communities.

Vero Bourg-Meyer

Yeah. And that means going to fairs and running solarize campaigns, which are bulk purchasing campaigns for solar and co-branding stuff. Right. So you talk about this trust issue question if the state is there to say, no, seriously, this is a good program, we stand behind it, we picked these people. And then in addition to that, they also vetted all of the contractors that were being used. So it's more believable for a customer that has trust issue than if some guy came to your door and said, yes, trust me, I'm totally going to put something free on your house.

It's going to be great.

David Roberts

So it has official state backing, right?

Vero Bourg-Meyer

Yeah, absolutely. Which I think is really important.

David Roberts

Are there other pieces of the Connecticut program that are particularly that other states should.

Vero Bourg-Meyer

If you're looking at purely the lease program? Well, I should also mention it's a lease, right. It's not a PPA, so as opposed to a PPA where and there are pros and cons to using each of those. But a PPA, a customer's bill will go up or down depending on how much the sun is shining that particular month, right. And if you're very low income, that could be a problem for you. Right. Seasonality could be an issue. If it's the summer and I don't know, if you're not in a state that has good net metering policies, you could end up paying more than you anticipated.

And that's problematic, obviously. A lease the big difference is that the payment is stable. It's always the same thing every month. So it's nice that kind of being able to see over the horizon and say, yeah, this is how much I'm spending for energy. And so there are lots of other things that they did on the financing side and on the kind of the state programming side that are, I'd say, a little too complex to explain without a paper support. But they're really cool programs at the Connecticut Green Bank. I encourage anyone who's even just a little bit interested in kind of state level policy innovation to really go and look at the annual report is a great place to start because they do really cool stuff.

David Roberts

Are other states taking note? I know Rhode Island. I've seen in your work that Rhode Island sort of learned, seems like learned from Connecticut and more or less kind of took those lessons. Are these things actively spreading in states or other states?

Vero Bourg-Meyer

Hopefully, if we do our job right. Hopefully. And in Rhode Island. So the format that was followed was pretty much the same, except that we didn't have efficiency there. As an added piece, the main difference is that Rhode Island, the Rhode Island program, so the Affordable Solar Access Pathways, or ASAP, that came out post IRA. So that means the low-income adders, the ITC adders, are folded into the program.

David Roberts

So it's sort of built around the IRA money.

Vero Bourg-Meyer

Yes. And then the way that this is going to work so they also just selected they ran an RFP and selected a vendor, which also happens to be PosiGen. That's going to be the first. So that's brand new information. I think it's public for PosiGen, but I'm not sure whats fully public yet. But I cleared it with them. I'm allowed to say it. The big thing there is that when the RFP was launched, we asked the private sector, what level of incentives do you need to get to this level of savings for a homeowner? And then not only that, but what levels of incentives or what kind of money are you going to send back to the consumer or to the program?

Whichever you choose. If you get access to extra incentives through the tax credits. Right. So now you have not 30%, but maybe 40%, maybe 50%, maybe 60%. How is that shared with the customer, with the ultimate customer? So that's one of the questions that was being asked in the ...

David Roberts

Yeah, I guess you do want to take care to design these things. So you're not sort of like inadvertently just using public money to make a particular solar company richer, super rich.

Vero Bourg-Meyer

Yes. Because, I mean, it's great that they're motivated to do this and you do want the private sector motivated to do this, but ultimately it's got to create benefits for the LMI consumer.

David Roberts

Right.

Vero Bourg-Meyer

That's the most important piece of this.

David Roberts

So if I'm a state and I am looking at Connecticut and saying, "Hey, that's cool what you did. You created enormous savings for these households. You installed whatever megawatts of new solar. Our state wants to do something similar." It strikes me that this is, among other things, just administratively there's a lot of pieces of the puzzle here. There's a lot of sort of so what are the kinds of things that if I'm a state that wants to replicate this or do something similar, what do I need in place before I do this? And then one of the questions that always comes up for me is a simple one, which is just sort of how do you identify LMI communities?

Is there a common national metric or is every state sort of every state kind of bespoke figuring it out on their own? And just in general, if I'm a state, what do I need to do to get ready if I want to do something like this?

Vero Bourg-Meyer

So on the question of what the states have to do to get ready, I think that probably the most important thing. If you wanted to do the same thing as Connecticut, would be make sure that your legislation enables third party ownership very clearly because there's nothing that turns off a contractor or developer quite so quickly as telling them. So we're not too sure, we're not entirely sure what the regulatory context is like. But just before you can enable LMI solar, you have to have a friendly solar policy, just generally speaking. Right?

So do you have net metering enabled? What I'm going to say is not relevant to the Connecticut program, but do you have community solar enabled? Is it authorized in your state? Can everybody do it? Or is it something that only the two utilities that are in the state can do and oh, by the way, they don't want to do it, so it's just not happening. So these things are good places to start. But in terms of how you figure out where your low- and moderate-income communities are located, there's tons of different ways of doing it.

There are states that have gone through very lengthy process stakeholder processes and regulatory processes you can think of. California is one, New York is another, to try to figure out what constitutes a disadvantaged community or low- and moderate-income community. There are lots of different terms floating out there. And those states have gone through the process and they've talked to people whose livelihoods are really directly touched by these things, right. Not just policymakers, but people in communities. And then the federal government kind of stacks on top of it and says, well, I'm going to define low-income community for this program this different way, and then for that other program a different way.

So it's a bit of a mishmash of all sorts of definition. Often you'll have for the state definitions, a mix of ethnic and racial kind of threshold, foreign languages. You'll have poverty levels, essentially. You can have sometimes unemployment levels. But yeah, this mapping question is complicated.

David Roberts

Well, the IRA has a ton of adders and sort of set asides for justice communities. So it seems to me like this is a national concern. You need some common metric because there's so much money at stake here, it really matters how these things get defined.

Vero Bourg-Meyer

So you do need some common metric, but also states are very different, right? So a state like Vermont, which is very rural and very white, is going to be different from a state like, I don't know, California, which has a lot of urban spaces and a lot of people of color, big Hispanic population. So you can't quite blanket define everything. But I think some at least definition of what the factors need to be. Right?

So states maybe need to have a definition that fits those four criteria that include race and ethnicity, that include poverty level, that include XYZ with kind of flexibility, and what those need to be might be helpful. One of the things that we're trying to do that we're working in Colorado on a community solar program and on a community solar project or pilot project for manufactured homes. And Colorado does a lot of work with the Weatherization Assistance program WAP. They've been doing a lot of work on that for a long time. And they were the first state to use federal dollars to be authorized to use federal dollars from the WAP program to install solar.

They're moving away from that at the moment because it's too complicated. But they still want to coordinate the WAP program and the solar program. The Web program is going to use whatever the WAP program uses, which is a percentage of the federal poverty level, whereas the other programs that they're going to build are going to be using their local flavored, definition of income and race and ethnicity and et cetera, et cetera. Right. So it's all a big mess, but a big beautiful mess.

David Roberts

Big, beautiful mess. Oh, one thing I wanted to double back on, I meant to ask you this when we were talking about Connecticut, specifically about the renter issue, because this is something, this is something I get questions about all the time, like I rent, like what can I do?

Vero Bourg-Meyer

Community solar.

David Roberts

Is this how I mean, you mentioned that Connecticut doesn't have community solar as a big piece.

Vero Bourg-Meyer

No, they do have community solar.

David Roberts

Is this the primary way of overcoming this sort of landlord tenant split incentive?

Vero Bourg-Meyer

I think it is. I think it is, although so there are some programs there's a program in Hawaii, for instance, through the Hawaii Green Infrastructure Authority that's allowing renters to participate in leases, essentially, and they have on bill financing that's enabling that with the Hawaii Electric Company. And that's working, I think hopefully it will work really well. That's a new program. It's called the Gems Energy Services program. But yet, just generally speaking, outside of exceptions like that of Hawaii, community solar is definitely the way to go. I mean, it's the way to go not for renters only, but also if you just have trees around your house and you can't access the sun.

David Roberts

What if you want to get solar panels on a big apartment building, an apartment building, say, that is occupied mostly by LMI people? Is there anything in these programs that can work with landlords or get around that?

Vero Bourg-Meyer

Yes, so I think the SOMAH program in California would be one that applies to that. And it applies to affordable housing, really. So the way that it's structured, and I'm not super familiar with it because it's not what I focus on. But one of the interesting pieces is, so heard, the way that they define the Department of Housing and Urban Development, the way that they provide funding for folks is that they request that the rent and the utility be kind of lumped into one payment, which is good for a number of things. But then when you start installing solar on something, it makes it more difficult because any changes to how much you pay in utility will trigger an increase in your rent.

So that's not super helpful. And they worked with the program in California. They worked with HUD to kind of get rid of that. So that was a good piece of the puzzle. And they are renters. They're renters. But you got to work directly with the non-profits that own the affordable housing. And that's not easy. They have lots of things to figure out and lots of other issues to figure out. Right?

David Roberts

Yeah. That seems like an area where, like a super simplified model that you could just replicate across would be helpful. We're running out of time. And one of the big things I wanted to ask you about was the reason that this whole conversation was prompted in the first place was a new report that just came out, which is specifically looking at how non-profit foundations can sort of enter this LMI solar space induce, help, support. We don't have a ton of time, but maybe you could just say a few words about if I'm a foundation and this seems like a good thing that I want to do, are there models?

How do I get involved?

Vero Bourg-Meyer

Yeah. So first you should read the report.

David Roberts

Of course, always read the report.

Vero Bourg-Meyer

Energize your impact. It's on the CC website. But what I'm going to say is true, I think, for states, it's true for the federal government, it's true for the foundations, it's true for the green banks. If you are building or looking interested in supporting LMI solar, you need three pieces. You need the capital, you need the customers, and you need the capacity, the capital. There are tons of different ways for foundations to provide capital. That's what the report is about. And we focus on really we go in depth in some of the fancier ways, the guarantees, the equity investments.

David Roberts

There's grants, there's loans, there's loan guarantees.

Vero Bourg-Meyer

Yeah. And equity. I didn't know that before starting this research. I had absolutely no idea that foundations could do equity investments. It blew my mind when I thought that was possible. So that's your capital. Then you have your customer side. Where are you going to find your customer? How do you help people find customers? That's the second big bucket. And the third bucket is the capacity. And there are models in there that kind of look through how you build capacity in LMI communities, and particularly in either the LMI serving institutions or the non-profits that kind of support these communities.

And one model I guess that I'd like to point out is called Technical Assistance Fund from our sister organization, the Clean Energy Group that's explained in the report is really about finding that trusted third party advisor to help a community figure out or a community institution figure out, like, what are the options out there. To start with, if you want to build a pipeline of projects, you need to actually help the projects be born. And that sounds completely obvious to say, but you can have all the capital in the world if there are no projects to apply it to because people don't know what they need. Do I need a big battery or a small battery?

Do I need a battery at all? Like, what kind of solar can I use? Can I put it on my house? Can I put it on my hospital? Should I put it in a field over there? How does this work? Just generally speaking.

David Roberts

Who is that? Who is that? Who are those trusted? How do you find those people? Who are those entities?

Vero Bourg-Meyer

They're contractors. And I think the fact that they're trusted just means that they're not selling you the final products, right? So generally speaking, developer will be the person that tells you, this is what you need. Believe me, this is what you need, and I'm going to sell you. Exactly. And that does not necessarily inspire trust. So you really want kind of a third party there to be able to help figure out what the options are. And these are just essentially engineering firms that look at your situation, look at your needs, and try to help you make sense of it.

So that's a big thing.

David Roberts

So a foundation can just support and fund those?

Vero Bourg-Meyer

Yeah, absolutely. I think that's a really fundamental piece of the equation. There's a piece, an editorial piece that was written by Joe Evans, who works at the Kresge Foundation and who is absolutely brilliant in all this stuff, but also wrote an op-ed aptly named "It's the demand side, stupid." And I think it's not subtle, but it gets to the point, right? It's like you need all of it, right? You need the capital, the consumers, and the capacity for this to be successful.

David Roberts

And you need to basically cultivate and educate customers. Like, this is one of those kind of areas where you just can't rely on a market in some sense because you're creating market demand by educating.

Vero Bourg-Meyer

Oh, it's absolutely it's all about building markets. It's all about building markets.

David Roberts

Right. This has been awesome. As a final question, I just was wondering sort of what is the prize here? Say we just got low- and moderate-income households up to parity so that they're installing solar at the same rate, say, as other households. How much power in terms of like megawatts and gigawatts, is this a substantial amount of energy we're talking about, or is this mostly about these sort of extra energy benefits for these communities or is this really a substantial amount of it's big.

Vero Bourg-Meyer

Yeah, it's big. I was thinking earlier, if you don't care about all the reasons why you would need solar on LMI buildings, if you have no human there's not a human bone in your body that thinks it's just fair and good and just and for some reason you only think about the grid.

David Roberts

I know some people like this.

Vero Bourg-Meyer

Yeah. They're out there. There are some of them. The solar potential of low- and moderate-income household is about 40%, 42% to be precise, according to NREL, of the total US residential potential, right. It's a pretty big chunk that's out there.

David Roberts

So it's almost half the rooftops.

Vero Bourg-Meyer

Yeah.

David Roberts

So that's not a small market too.

Vero Bourg-Meyer

No, it's not a small market. It's a big market. It can have a huge impact in terms of the grid and the climate and obviously a huge human impact for the people that are buying it.

David Roberts

Right. And it's worth saying, because I don't know if we mentioned it earlier, but the households themselves get immediate benefit in terms of their energy bills lowering, and they get positive income to start off with. But over time, this stuff also accrues right. These benefits also accrue to the next generation. Air pollution lowering affects children. So these benefits are ...

Vero Bourg-Meyer

Compounding.

David Roberts

Compounding over time.

Vero Bourg-Meyer

Absolutely.

David Roberts

Vero, thank you so much for coming and decoding this area for me. It sounds like lots is happening.

Vero Bourg-Meyer

No, thank you.

David Roberts

The money is raining down and we're all dancing around.

Vero Bourg-Meyer

Yeah, we're all dancing around trying to figure out how is this all going to work? This is a very exciting time. And if there is one thing that I would want people to remember, is that LMI solar really matters. It can make a huge difference in people's lives. And it doesn't happen by accident. It needs to be designed. So get out there and design stuff.

David Roberts

Awesome. Thank you so much for coming on.

Vero Bourg-Meyer

Thank you so much. Bye.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much and I'll see you next time.

The Inflation Reduction Act is ambitious climate policy, but history shows that ambitious policy is not always followed by ambitious implementation. In this episode, Hahrie Han of Johns Hopkins University and David Beckman of the Pisces Foundation talk about Mosaic, a grant-making coalition that aims to help build a robust movement infrastructure to ensure that vulnerable and underserved groups can take full advantage of the significant funding offered by the IRA.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

For all that has been written about the Inflation Reduction Act, the most salient fact about it remains widely underappreciated. What is significant about the bill is not just that it sends an enormous amount of money toward climate solutions, but that the money is almost entirely uncapped.

The total amount of federal money that will be spent on climate solutions via the IRA will be determined not by any preset limit, but by demand for the tax credits. The more qualified applicants that seek them, the more will be spent. The Congressional Budget Office estimated the bill’s spending at $391 billion, but a report last year from Credit Suisse put the number at $800 billion and a more recent Goldman Sachs report put it closer to $1.2 trillion.

Big companies will have teams of lawyers to tell them when they qualify for the tax credits, but there are also billions of dollars in the IRA that are meant to be spent on vulnerable and underserved communities. Those communities do not typically have teams of lawyers.

Who will work to enable them to take full advantage available of the money? Getting that done will require campaigns, relationships, and grassroots mobilization. It will require movement infrastructure.

A relatively new grant-making coalition called Mosaic is attempting to help build that infrastructure by dispersing money to the frontline organizations that comprise it. Mosaic is a cooperative effort among large national environmental groups like NRDC, big foundations, and various smaller regional, often BIPOC-led groups.

It has pooled philanthropic money and thus far given almost $11 million of it to dozens of relatively small groups and campaigns — 85 percent of them BIPOC-led, 87 percent of them female-led — selected by a governing committee from well over a thousand applicants. The governing committee contains a super-majority of representatives from frontline communities; the foundations have a super-minority.

To discuss the need for movement infrastructure, the Mosaic effort, and the possibilities IRA offers for frontline communities, I contacted Dr. Hahrie Han, a professor of political science at Johns Hopkins University, and David Beckman, one of the founders of Mosaic and the current president of the Pisces Foundation. We talked about what movement infrastructure is, the failure of the climate movement to build enough of it, and Mosaic’s theory of change.

So, without any further ado, Hahrie Han and David Beckman. Welcome to Volts. Thank you so much for coming.

Hahrie Han

Thanks so much for having us.

David Beckman

Yes, thanks David.

David Roberts

I want to start with you, Hahrie. You have written in the past, and one of the themes of your work is that social welfare legislation or policy can often fail to reach, let's say, its full potential if there isn't the sort of civic and movement infrastructure around it to help it succeed. So maybe you can just talk for a little bit about what do we mean by infrastructure here? What does infrastructure mean? And maybe also what I think would be helpful is maybe you could cite some examples of times you think legislation or reforms fell short of what they could have done because of a lack of infrastructure.

And then maybe some examples of when there was infrastructure and that was helpful.

Hahrie Han

Yeah, I think that's a great question. There are so many instances when in trying to tackle some of our stickiest social problems, we put an enormous amount of attention and effort into trying to build the coalitions that we need to pass the policies that we want. If we think about any of the landmark legislation that we've had in recent decades, from the Affordable Care Act to the IRA to any other of these big kind of efforts, they've taken years or decades even to pass because of all the work that it takes to get them through. But then what so much research and so much history has taught us is that if there isn't the same kind of effort that goes into the implementation, that the gains that we made with policy alone are really fragile.

There's one famous book that looks at some of these gains, these policy wins, and calls them a "hollow hope" if they're not accompanied by the kind of infrastructure that you're talking about. And we just have a lot of those kind of examples throughout history. So to give a couple of them. For example, this book, "The Hollow Hope," starts with landmarks court legislation like Brown v. Board of Education, where, if you actually look at the ability of that one decision by the Supreme Court to actually translate into integration on the ground. It didn't actually achieve its goals, and its actual outcomes felt really hollow until you saw this mobilization of a lot of the school districts and parents and communities on the ground to make real the promises that were in that Supreme Court hearing.

David Roberts

That particular example is kind of telling since that infrastructure withered a little bit and now those gains are being reversed. So it's not just a one time thing like sort of implementing it and making it real is perpetual effort.

Hahrie Han

Yeah, I think that's a great point, right, because the thing that I always like to remind people is that any policy gains that we have are really fragile because they can always be reversed on the one hand, as you point out. But then also because oftentimes when policy gets implemented, it drifts away from what the original goals are. There's a famous political scientist, Jacob Hacker at Yale who looked a lot at basically welfare policy and a lot of social policies. And what he finds is that if you look at the impact of those policies on people's lives, that often there's a big gap between what legislators intended and what actually happened because of that process of drift.

And that I think is also a really important point because what it tells us is that you don't need Congress to take another action to reverse policy gains, but in fact, it can just be ignoring a process that can lea to that kind of drift.

David Roberts

Entropy, basically. Like if you're not continually reinforcing it, it naturally will start to erode.

Hahrie Han

Yeah, exactly. That there's just kind of natural chaos in the system. Or sometimes there are people that are actively working to undermine the ability to achieve those goals.

David Roberts

Yes.

Hahrie Han

Totally.

David Roberts

And they never quit. And they seem to have great infrastructure. If I could just insert one of my perpetual gripes in there. Like infrastructure working against social welfare legislation is just robust and seemingly permanent.

Hahrie Han

Yeah, it's easier to stop something than to create something new. And it's also easier to organize people around their prejudices and to organize people around hope.

David Roberts

Yes, indeed. So what are some examples then of the other side where sort of the infrastructure has come together around a law and made it?

Hahrie Han

So one example that I like actually is the Community Reinvestment Act, which is not a perfect act by any stretch of the imagination. So I know that there are lots of ways in which we wouldn't necessarily hold it up as a paragon of legislation.

David Roberts

Can you tell us what that is?

Hahrie Han

Basically, the Community Reinvestment Act was passed essentially to try to stop redlining in poor and Black communities. And so when it first began to come out in 1970s, 1980s, a lot of banks weren't lending to certain communities because they would literally draw red lines around neighborhoods where they wouldn't make investments. The Community Reinvestment Act was passed as a way to try to stop that redlining. One of the things that was really important that they did in passing the Community Reinvestment Act is that they essentially created these mechanisms through which communities could have continual oversight over the way that banks were acting.

And so the Community Reinvestment Act essentially created these boards that were an accountability mechanism for banks. And alongside the Community Reinvestment Act, there was a bill called the Home Mortgage Data Act. HMDA, it's what it's called for short. And what HMDA did was it made available the data that these local communities would need to be able to look in and see whether or not the banks were making investments in the ways that they should. So that alone doesn't actually cost government a ton of money. But by creating that accountability mechanism, what it did was create this ongoing hook, essentially around which communities could organize and essentially hold banks accountable.

And so over time, we've seen trillions of dollars of investments being driven into lower income communities because of the Community Reinvestment Act.

David Roberts

And so what do we mean then? I mean, we're talking about infrastructure here, sort of vaguely. What do we mean concretely by having the infrastructure in place to make these laws perform the way we want? What is it comprised of?

Hahrie Han

So, that's that's a complicated question. In my mind, movement infrastructure has a lot to do with the relationships, with the structures and the vehicles and the resources that a movement needs to be able to respond to the kind of strategic challenges that are going to come its way. And so I think one mistake that people make a lot in thinking about movements is to think about the most effective movement as being the one that has the best plan at the beginning. But actually, what we find is that the most effective movement is the one that can best respond to the contingency that comes up that it didn't expect.

And what do you need to respond to contingency? Well, you need to have strong leaders, good people who are interconnected with each other. You need to have resources that you can deploy. You need to have vehicles that can move nimbly and agilely in response to things that might come up that you don't expect. There are a range of those kinds of things that I think comprise the movement infrastructure that enable that response.

David Roberts

David, let's go to you for a second. The Mosaic effort is an effort to build this kind of infrastructure. So I want to talk about what that infrastructure is, but let's back up a little bit. Mosaic is a coalition of all these big, long-time foundations and big green groups that have come together with the sort of explicit goal of changing the way environmental philanthropy is done. So let's start then, with that. What is wrong with environmental philanthropy? Why does it need to change? What are its sort of flaws and shortcomings today?

David Beckman

Well, that's a big question, too. Let me just say about Mosaic. It is really the name hopefully paints a picture of the idea and the theory, which is that it's not just the big organizations, but it's all of the organizations and the people, the activists and the advocates that are individually doing important work but are not collectively able to keep pace with the extraordinary challenges and the opponents that you referred to. They can do better in a more connected fashion. And what's been missing is the investments in that connectivity and the tools that Hahrie discussed. And we can talk about what they mean in the context of the IRA.

But part of the reason that those tools that are so essential to movement success are missing is because, in the main, big philanthropy hasn't invested in them. Bridgespan, one of the leading social sector consultancies, has published a whole report about how field building, which is another way of looking at this, is one of the most effective, yet underinvested strategies in philanthropy. So this is an endemic problem, I think, that has a lot to do with the fact that infrastructure is so important, but it's invisible in some sense. It's not vivid. It isn't like you can't take a picture of the forest that you've saved.

It's the conditions, the how that you get to that result.

David Roberts

Right, it's not obvious also what the metrics are, right? Like, if you're doing it right or not, it's not clear what you're it's difficult to measure.

David Beckman

That's right. It's difficult to measure. So your question about philanthropy, of course there's lots of different philanthropies and there's more coming on the scene happily every day. But in the main, big environmental philanthropy funds in an atomistic way. It funds narrowly. It funds in a way that is exclusive instead of inclusive, and it tends to concentrate power. So four aspects that are not well suited to big scale social change and not well suited to implementing something of the scale of the IRA. And let me just give you a couple of facts about this. The atomistic part is really concentrating resources in single organizations and not building the fields that make them stronger.

The connections that Hahrie is talking about narrow. In 2018, the Environmental Grant Makers Association, which is not an association of every environmental funder, but many of the really large ones, surveyed its members and found that just 200 nonprofits of the perhaps 15,000 that focused on the environment got over 50% of the $1.7 billion that its members donated in 2018. And that is astounding, if you think about it, 15,000 or so registered 501(c)(3)s and 200 are getting half the money. And that year, five nonprofits got 13% of that $1.7 billion funding pie. The Nature Conservancy, World Wildlife, EDF, and the place I used to work, NRDC, four of those got $100 million dollar grants from the Bezos Earth Fund a couple of years later.

So you've got deep concentration. And then BIPOC organizations are funded at just a fraction between, say, 1% and 10%, depending on the study you look at. So there's not an inclusive focus. And last, something we're trying to address with Mosaic, most of the decisions are made by program officers and boards. Relatively few people with a certain type of demographic background, usually not always. And so there isn't much investment in participatory grant making, which is what we're modeling with Mosaic, where leaders actually get to compare and to cogenerate strategy and then to deploy money themselves as opposed to having to ask for it from a philanthropy.

So atomistic narrow, exclusive and concentrating isn't a recipe for success in general, and certainly not with respect to the IRA.

David Roberts

This is so reminiscent like this is a critique of left versus right philanthropic funding that goes back decades, since I remember paying attention. It's always the right is investing in infrastructure, right in the organizations, in the relationships. Like, you look at the Federalist Society that is basically all about relationships and look at the tentacles it has sent out into US society, just remarkably successful. And then you hear people on the left saying, "I can get a grant for a particular campaign or a particular accomplishment or a particular policy, but it's impossible to get just operational funding, just basic funding for my organization to survive."

And those who do get it, as you say, are so concentrated, and when a single group gets so much money, it creates this perverse incentive for the group to sort of put its own interests first, right, to keep getting the money. So you get almost a resistance to cooperation and a resistance to working with others.

David Beckman

Yeah. Well, the competition for money I have experienced myself when I was an advocate and lawyer doing environmental justice work and water advocacy and the things I did at NRDC, there's no question that it gets in the way. And part of the problem is there's not enough money because the organizations I mentioned, I think, are good organizations. So the issue isn't that they shouldn't be funded. It's that everyone else needs to be funded, too. And money needs to flow in ways which are both equitable and fundamentally effective for large scale social change and philanthropy in the main.

Not always, but in the main has missed that. And that's a big problem.

David Roberts

I wanted to ask kind of a practical question about Mosaic. So you have this grant making board, this representative board that has a lot of diverse people on it, and you have over 1000 relatively small scale applicants and what sounds like a really labor intensive process by which all these applicants are vetted. And the board discusses them with one another and they're winnowed down and et cetera, et cetera. I mean, I was reading about this in The Chronicle of Philanthropy or whatever the heck it's called, and it just sounds exhausting. People involved were saying it's exhausting.

It's like finals week all year. And yet the result of that is $11 million, which is, in the context of these small groups, obviously nothing to shake a stick at. But like Bill Gates, it's just dropping $100 million here and there on this and that company. So I'm just asking about, I guess, the ratio of soft costs of work, of time intensiveness versus the amount of money that's being deployed. Do you think that's sustainable in the long run?

David Beckman

Yeah, it's a good question. Well, the good news is that Mosaic is about to announce $10 million in additional funding. So it's a new effort that is beta testing a lot of the concepts that we're talking about and learning along the way. So I've been able to participate, which is a really interesting experience as somebody who also spent a decade and a half as an advocate and then runs a foundation, a private foundation that's in a more traditional mode. And it's true it takes a lot of time, but I'll tell you, it takes a lot of time the other way, too.

So it's not really a question so much of how much time, but what is the quality of the time that's invested. And I think the benefit of participatory grant making that I see, particularly when it's done well and leaders are involved, is that it itself is infrastructure. There are relationships that are formed, ideas that are exchanged, trust that is built, theories of change that are debated. And the environmental movement, as you know, both of you know, is fractious and doesn't always agree with each other. And so there's a value there that I think is differentially impactful compared to several program officers or one making decisions.

Should there be more money in participatory grant making? Absolutely, and in fact, there's a study that says that just a fraction of foundations participate in any way with grant making approaches that devolve power to other people. And I think that's partly because there's not a lot of good examples of where it's worked. So hopefully, one of the things that Mosaic and other efforts can do is to demonstrate the benefit of this approach for others.

David Roberts

Can you just very briefly describe the approach? It's a committee and there are meetings. Is there more to it than that?

David Beckman

Yeah, it's just like a meeting, David. There are a couple of things. First of all, the application process seeks collaborative proposals. So that in itself is different. Usually, in my experience, it's like a single NGO approaching a single foundation. So already, from the beginning, the proposals are done in a different way. They're done online, they can be done verbally, which I think is a really good progressive approach. There's no long 15-page proposal that is required. So that's an attempt to lower the barriers of entry. And then there's this fabulous staff that has incredible data crunching capacity, that looks for heat maps and does some initial vetting.

And then the leadership that makes the decisions is not involved in all of that. So it's not that everybody's engaged at that stage. But then we met in for three days and went over, did a whole kind of retreat, and reviewed the top section of proposals that the staff had prepared. And that was a debate like some of the best debates I've been involved as an environmental advocate, where people are talking about what is needed, where how do you compose a grant slate that's equitable and effective? How do you fund the grassroots? How do you fund relationships between the Big Greens and others, networks and communications and the rest?

So what comes out of it? I think and I can compare because I run a foundation, I think is a really good way to approach things that really deserves a place much more solidly in the mainstream of environmental grant making.

David Roberts

Hahrie from your perch as Mosaic is sifting through all these applicants, what kinds of things should it be looking for? What are the ingredients of this sort of movement infrastructure that you're talking about that you can identify in groups? Are you looking for certain kind of people, certain kind of strategies, certain kind of goals or financial structures. How would you go about building movement infrastructure? What are the sort of indicators that you're looking for among grantees?

Hahrie Han

It's a great question. So I think that in thinking about movement infrastructure, in the end what we're trying to do is identify individuals and organizations that aren't just the kind of individuals and organizations that can do a thing, but that can become the kind of people that do what needs to be done, right? And so this kind of gets back to the idea that when you're thinking about implementing a bill as large as the IRA or building a movement as broad as what we need in the environmental movement, you have to anticipate the fact that there are going to be challenges coming your way. You can't anticipate.

And so I have to think about who are the kind of people that are going to be able to respond to that? What are the kind of organizations that can respond to that? And so then how do I actually think about and identify that at time one without knowing what the challenges are that they're going to be investing in time two?

David Roberts

Yeah, exactly.

Hahrie Han

The things that would look for would be things like what is the extent to which they're building networks among their people that are bridging versus just bonding. And so the idea of a bonding network is one in which people are connected to other people who are a lot like them. Bridging networks are ones that not only create those bonds, but also enable people to bridge across to different kinds of people who aren't necessarily like them. And so what that means is that you have an organization that's constantly growing and renewing itself. I would look for organizations that are investing in building a kind of inclusive leadership in the way that David was describing, partly because I think obviously there are moral reasons why we would want to make sure that we have an inclusive leadership, but partly also for strategic reasons.

There's a lot of research that shows that the movements that can best anticipate and respond to contingency this is true not only for movements, but actually for corporations as well are ones that have lots of different kind of for lack of a better word, kind of sensors out in the community to sort of understand what are the changes that are coming our way and how do we figure out how we can anticipate, how we need to remake ourselves for the future. And so if you don't have that kind of diversity of people giving you input, then you're not able to respond nimbly to the constantly changing world around you. So there are a lot of things like that that I think begin to give us a sense.

David Roberts

Yeah, I think this is such an important point and maybe I'll touch that back to you also, David, because I feel like and I've done a couple of pods on this recently, been thinking about it recently and this idea of trying to fund a more diverse give money to more diverse groups and et cetera. It's so often framed in terms of sort of representation as kind of an end in itself, like a moral good in itself. It's just good to have other people there because you want to check the box. But the point of all this and this is the point that comes across in management literature and all this is not just that it's good, but that diverse groups make better decisions.

It's an improvement in your ability to do good things. It's not just for looks or not just for box checking. It makes you perform better. And I wonder David, if you've you know now that you've really gotten your hands dirty trying to assemble a group like this, I wonder your thoughts on that, if you found that to be the case.

David Beckman

Absolutely. And I would just to add to what you said a second ago for many grant makers, again, not all, but I see and hear a lot that makes me think that equitable grant making for some is their charity, not their strategy.

David Roberts

Right. Yes.

David Beckman

And there's a big difference. There's a big difference. There's certainly a moral imperative to fund communities and people who have more than their fair share of problems and who have been deprived of money from big institutional funders historically. So that stands on its own. But the point you're making is not only I think about the fact that better, more creative and interesting solutions come up which do, but that you can build power that way. As Hahrie's pointing out by bridging between what could be sort of atomistic, semi-competitive or worse, communities within a movement and to find some sort of working relationships, if not stronger relationships, productive relationships that allow big, important social change to happen.

And that I think is one of the most important things that's missed when we pick fractions within a movement, either the Big Greens if you're talking about the environmental movement or frontline organizations, I think both can play a role and they can play a synergistic role when their collective impact is built on some relationship. And sometimes that isn't that we're going to totally agree, it's not kumbaya, let's all get along. It's that often when you're in relationship and you're in those rooms you can find that you might disagree about two or three things and maybe those are not going to get resolved but there's three or four things that you can agree on and through that kind of doorway you can make progress that you couldn't make otherwise. And that's why some of the effort in answering the question you asked earlier I think is worth it because it's not just process or overhead, it is actually the work, it is actually the infrastructure.

David Roberts

Another question for you Hahrie is about backing up from the implementation, just the legislation itself. It seems to me like not only should environmental philanthropists be thinking in terms of infrastructure and implementation, but obviously legislators should too. Like, you can do better or worse in the text of a law on those terms. And this is something I feel like this is another critique of Democrats that goes way back, which is that they don't lose well, right? Like they don't lose in a way that improves their chances the next time. And even when they do pass legislation, it's not like always part of the goal of the legislation should be to make future reforms easier, to make future reforms more likely.

So I wonder, a. do you see anything in the IRA that qualifies as kind of that like an eye on infrastructure building?

Hahrie Han

Right.

David Roberts

And if not, what would you like to see, like, in future legislation? What are the sorts of things you might put in legislation that would help this infrastructure building?

Hahrie Han

Yeah. I think it's so important in designing policy to think about what the feedback effects that you're creating, because a lot of the most effective policies that we've seen throughout history are ones that have these feedback effects that essentially what you want to do is create a feedback effect that strengthens the constituencies that you want to strengthen and then either weakens or divides the opponents to the bill, right. And that's how you create the kind of loops that you're talking about that enable the passage of the next set of reforms, make them even more likely than they were before with the IRA.

I think the opportunity that's on the table is the fact that so much of this money is essentially being delegated out through state agencies and other local governmental agencies that are operating at many different levels of government. And the extent to which this money can be doled out in a way that builds what I like to think of as relational state capacity, right. The ability of these governments to co govern and work in partnership with community leaders and community groups on the ground that only then makes the next generation of reform and policy and funding and implementation that much stronger.

And so I feel like a lot of the design questions that we have on the table right now about how this money gets allocated through this network of state and local agencies and other intermediaries is going to be really important in helping determine the extent to which we have those kind of feedback loops or not.

David Roberts

Yeah. And something I've actually heard from people in the back rooms involved in building IRA is that among Democrats in Congress, there's been a learning, let's say, that you don't necessarily want to channel all your money through state governments, right. Because there are a lot of perverse state governments who will do things like refusing billions of dollars of free. Federal money so that they can keep their poor people from having health care, that kind of thing, right. Like they've learned from the past that you can't rely on. So a lot of the IRA is sort of built around the idea of going straight to communities, straight to local communities, which I thought is heartening that the Democratic establishment is learning things.

Hahrie Han

Right, yeah. And it's heartening, partly because it's learning how to play that political game, right. But also heartening because then that implicitly builds this capacity and these capabilities in these local communities in a way that can have greater effects down the road.

David Beckman

Yeah. And if I could just add to that, just to connect something we've been talking about. So what does it look like to make a grant on movement infrastructure? A couple of the grants that Mosaic is making this year focus on a really bridging network of 17,000 plus climate advocates, policymakers, academics. It's just connecting that group. Another grant is facilitating rural implementation and trying to create networks that make it easier for folks who may not be as commonly working in the areas of electrification and tax incentives and so forth to pry those opportunities. And there's another grant that's actually focused on government officials themselves and educating them about the opportunity, not in environmental terms, even necessarily, but in terms of what they can do for their communities.

So those are ways of sort of spurring the kind of relationships that Hahrie is talking about.

David Roberts

From where you're sitting here. So you got a bird's eye view of dozens and dozens and dozens of small groups who want money. So I wonder part of shifting funding from a couple of big groups to a wide variety of small groups is about just sort of like hedging your bets and building infrastructure. But I wonder if you found among the applicants just ideas and strategies that are not represented among the big groups. In other words, like genuinely new ideas for how to approach things. I wonder if you could just talk about some of the applications and the patterns that emerged.

David Beckman

Well, one of the things that's amazing is that it's such a diverse set of ideas. And from a philanthropic practice perspective, when you're not relying on a single individual to vet potential proposals, I mean, nobody knows everybody, and everybody's got a limit to their day. You just get an eye-opening kind of response. And I think that was something that everybody CEOs of big groups are part of Mosaic CEOs of smaller groups, EJ groups, felt. So some of what we saw is a desire to sort of shift the terms of debate. And I don't know how that, I don't think, is very well-funded in mainstream environmental philanthropy.

Different theories of change, different approaches to the economy, questions around how to frame economic growth in different ways, indigenous perspectives on the protection of the environment and elevating the rights of nature. As a theory, these are not directly related to a tax incentive for decarbonizing your house, but they come through and they're interesting perspectives that don't get a lot of play. More practically, we saw a lot of really interesting collaborations between different organizations, some of which work together, some of which don't, and are using the opportunity to apply for a collaborative grant to stretch their wings in ways which, as Hahrie saying, may grow into something that has nothing to do with the proposal before us. One interesting proposal was to build solar capacity in communities of color using the tax incentives and actually, I think, direct grants that are available for solar installation, not only generally, but in underserved communities to turn that into a workforce development effort for brown and black people.

So there's a whole set of things that I think are going to be helpful in actually reaching the goals of the IRA which are not guaranteed to happen and can build for the future.

David Roberts

One other question I wanted to ask in terms of what was on your mind as you're picking grantees is, and this is anyone who listens to the pod will know that this is an enduring obsession of mine. But it seems like one of the basic headwinds facing implementation of the IRA, facing basically any progressive effort, is this massive, extremely well developed propaganda apparatus on the other side that has basically captured rural America, has almost entirely captured rural America. And in a sense, like any attempt to do anything reality based in the face of that just gets swamped. So I wonder if there were a lot of ideas among the applicants about, to put it dramatically, information warfare about how to fight back against what is the inevitable tide of misinformation about this bill, about these technologies, et cetera, et cetera. Was that a theme?

David Beckman

Yes, but maybe in a more positive sense that the IRA, I think to the credit of its designers, is itself a pretty profound attempt to push back on that narrative. But because really what we're talking about is decarbonization in theory, but the practice of it is through electrification of power and cars and incentives for clean energy and right down to what any of us, as people who live in a home could get a credit or a refund for purchasing like a heat pump. And there is, in the IRA, specific money that goes both to vulnerable communities, EJ communities, as well as to rural communities, which there are 40 million people in the US who live in rural communities, 50% of the land mass of the country.

And so we're talking about a significant space in the country and a lot of people. The opportunity, for example, to decarbonize rural electrical cooperatives which have really relied on coal, which has very significant public health impacts, in addition, is a huge opportunity that isn't necessarily cloaked in environmental terms. It's a great opportunity to reduce cost and to create jobs. And there's a whole set of parts of the IRA that are entirely focused on farm communities and forest communities that involve credits and other types of incentives for regenerative agriculture, for dealing with water scarcity, increasing water scarcity, and things that just have basic bottom line benefits economically and are part of cleaning up and making the economy greener in those areas.

So I see those set asides, or those components, set asides is probably not the right word, for environmental justice and for rural communities as a really powerful step. And I think it connects a lot to what Hahrie is talking about in terms of will this change the experience of people who might think of environmental groups as not their friend and really recontextualize what this is about.

Hahrie Han

And if I can chime in here just on the question of disinformation that is spreading in so many of our communities and especially in a lot of these rural communities. I've been doing a lot of work recently studying evangelical communities which operate in a variety of different kinds of contexts. But one of the things I've really learned from the way a lot of evangelical churches organize their communities is they have this idea that belonging comes before belief. That so often, I think, when we think about building an environmental movement, there's sort of this implicit assumption that belief comes before belonging, right?

Like that you've got to sign on to this idea that we all need to decarbonize before we're going to invite you into our meetings. And if you show up in your Range Rover and your hunting gear, maybe you're not going to feel as welcome as you do otherwise. And these churches have the very opposite idea where they say, look, you don't have to believe in God. You don't have to believe in any God, and especially our God. We're not going to be shy about what we stand for, but you're a part of us no matter what.

And they have this attitude of radical hospitality. And that's really undergirded by a lot of research that we have on disinformation, where when you're trying to combat that kind of propaganda, the least effective thing you can do is throw a lot of scientific evidence at someone who ...

David Roberts

Fact sheets.

Hahrie Han

Right. But the best thing that you can do is have someone who they trust, with whom they feel this sense of belonging, come and talk to them and present an alternative narrative. And so, in that sense, I feel like a lot of the work that Mosaic is doing in investing in these community based organizations that can build those communities of belonging in rural areas across America is another really important piece of combating this kind of disinformation.

David Roberts

Yeah, I think that's such an important point. I mean, you have results that support this basic conclusion from sociology, from neurology, name your field. It all is coming together to basically show that social relationships are primary and very often your beliefs are derived from those rather than vice versa, as you're saying. This is also a long-time criticism of the left and this is sort of conventional wisdom at this point. Unions were sort of the left's tool. Unions and liberal churches were the left's tool for doing that, just for literally bringing people together in the same room so they can see and smell one another and share beers.

And that stuff is so important. And unions have withered notoriously and liberal churches have kind of withered and the left has nothing to replace them. So in that sense, I think it's just great to be funding these super basic, just like get in a room together, group type things.

David Beckman

And if I could just say, one of the challenges practically with the Hahrie's talking about radical hospitality is that let's just say that the federal government doesn't come with radical hospitality even if it's offering billions of dollars that can be used. So breaking that down, how do you apply for money? How do you even track? I'm a lawyer. I have difficulty with the Federal Register and I was trained and supposedly I'm supposed to be competent in that. And a lot of the investments that we're making and others I think hopefully will be too, is about creating some basic kind of open doorways that make the opportunities accessible and relatable when they are not, in any of our lives necessarily top of mind.

We're also supporting faith communities through Mosaic and veterans who are trying to organize around climate change and other new or newer voices, nurses and healthcare professionals who I think reflect some of the experience and the research that Hahrie is talking about where it's a lot better to have somebody who you trust, who is in relationship with you, talk to you about an issue that you might not hear. The same if it's sort of an environmental leader on television or something like that.

David Roberts

Yeah. And this is to Hahrie's earlier point. Once that relationship is established, it works for the next thing too, right?

David Beckman

Yeah.

David Roberts

That's, I guess, what we mean by infrastructure. Like, once it's there, it's built and it operates beyond the immediate context. Hahrie, I wonder one sort of question I had is a lot of the money in the IRA is just for very practical, prosaic stuff machines, retrofits, whatever. And so most of the attention around all this is sort of building these networks, building this infrastructure to allow people to access that money. But I wonder if you've given any thought or David, I'd be interested to hear your thoughts on this too, is whether the money itself can be spent in such a way as to serve this goal.

Spent in such a way as to encourage infrastructure. You know, not only sort of trying to get the money, but trying to direct the money in ways that are reinforcing of this larger goal.

Hahrie Han

You know, one thing that I think about is this question of what are the mechanisms of accountability that are being created through the way the IRA gets deployed? Because ultimately that question of accountability is the one that's going to determine the extent to which these ongoing feedback loops are created in the ways that would favor ongoing reform or not. And so as all this money is being deployed for heat pumps or other basic machines that are needed to help decarbonize the entire economy, I think it's not just about spending that money once, right, but it's about restructuring the way the economy works in these certain kind of communities. And how can that be done in a way that will continue to ensure that the kinds of voices that we want at the table are continually there and that those voices are strengthened through the development of this whole new system?

David Beckman

Yeah, two thoughts on that. One, that a very kind of visual thing came to mind because there's a part of the IRA that is focused on environmental justice and on transportation projects in the that literally physically split communities, usually Brown or Black communities. And the opportunity actually to reconnect is quite a beautiful visual metaphor for what you're asking about and I think would almost naturally create the opportunities for communities to rediscover their connections in ways that have been literally physically severed by decisions. But beyond that, and more broadly, I think this is where advocates activists come into play because I think a couple of possibilities are out there.

One is that the IRA is successful, but the experience of individuals and even companies is very solitary. I go to Home Depot, I get something from my house that costs less, or I can fill out a form and get a rebate check from somebody. That's a solitary experience. It may be very marginal in terms of anybody's psychological thinking about these issues, but if environmental organizations or those that are interested in these issues are able to surround those sorts of economic activities with new connection opportunities, information that as Hahrie says it is relatable where trusted messengers are delivering it.

So that act of participating in the IRA's opportunities is also an act of stepping forward and opening yourself up to, well, you know what? That heat pump actually performs better than what I had before. Maybe some of these environmental ideas aren't so crazy. That's where you get chess not checkers. And that's so essential that activists and advocates working on climate really seize this opportunity to work dimensionally around these opportunities. Because if they don't, I think we could have a different level of success, but not something that would be as systemically transformational as is possible.

David Roberts

Right, yeah, I think about the analogy in fitness or weight loss, one of the sort of most common forms of advice now is find a group or a community or even just another person and make your goals public like put your goals out there and then be sort of accountable to that other person. Or I think about the conversation about game-ifying things. Just sort of like make things that are solitary social in some way, where you get social reward or social feedback or you have social accountability. A., that's good for you to have those networks, but also, like, you're just more likely to do those individual things if you have some social network that they're involved in.

And your answer made me think of how you would think about doing that with IRA, right? Like somehow making the act of going to get your heat pump social in some ways so that it brings some feedback or accountability or so it weaves you more into some sort of group setting.

David Beckman

Right, that's the play. That's the thing to do. And that can make a huge difference. Ask can organizing around money that is not actually available to individuals but is going to so many parts of the economy that impact people directly? Like ports, there's $3 billion for ports and $3 billion for reconnecting communities, I mentioned that a minute ago. And on and on. And that involves influencing government actors, as Hahrie was pointing out earlier, both to take advantage of the opportunities and then to do so well to propose projects that are going to make a difference. That's a classic organizing opportunity.

David Roberts

And of course, if you have the infrastructure in place, you can reward politicians who do the good thing, thereby showing the other politicians that there's positive feedback to be had in this direction.

David Beckman

Yeah.

David Roberts

David, one more question for you, which is slightly prosaic, but I have been thinking about it a lot, which is just this sort of initial round of throwing open the gates of environmental philanthropy money to this much wider variety of participants, smaller groups, et cetera, et cetera. In a sense, the initial rush of it is like a sugar high. Like it's great, I think everybody's excited. But over time you do need the foundation's obsession with metrics and accountability, I think we can all agree, has maybe sometimes gone overboard and results in a lot of paperwork and a lot of unnecessary difficulty and gatekeeping.

But those needs are not made up, right? So are there any sort of performance metrics or what does accountability look like when you're moving into this kind of fuzzier relational stuff? What would it take for a grantee to lose their funding? What do you have in place in terms of accountability? Or have you thought about that a lot?

David Beckman

Well, it's a good question and it's a question, I think that people in philanthropy and people who are looking for money think about a lot. The baselines, I think, are important, what's the context in which we're operating and a lot of the there's kind of basic due diligence that an organization is a 501(c)(3) and so forth and so on. But beyond that, whether it's a Mosaic context or a more traditional foundation. A lot of the metrics are artificially simplified, and they become, at times, bean counting operations. And I know this because I used to propose those to foundations when I was doing advocacy.

David Roberts

It's easier, right? I mean, one of the things about it, it's very easy if you have a simple marker.

David Beckman

Right, I'm going to write a report, and then I can send the report to the funder and say, look, I wrote a report, and if I'm lucky, I got on David's podcast, so I got brought attention to it. And I'm not suggesting that those things don't make a difference. I used to write reports, and I think they can make a difference in the right circumstances. So the question becomes, what are we comparing to? And I think where we are right now is sort of a bit of an artifice. Having said that, you can evaluate and learn from movement building just as you can grants, just as you can from any other.

You just need a much more relational touch. And I would ask Hahrie might want to jump in on this because she's looked so carefully at the types of outcomes that occur. And I think the outcomes that we're looking for, we're looking to be patient funding. We're looking to recognize that we're not going to necessarily see some sort of vivid and tangible, like ribbon cutting, in a year, and that we're not really asking people to propose things to us which we know as a collective. Making decisions from the advocacy community, from the field, are simply unrealistic. So I think one of the most important things to do is to recognize that if we're going to build resilient organizations, that that in itself is the outcome we're looking for, as opposed to some sort of simplified, kind of artificially linear, kind of gantt chart that we can say was met or wasn't met.

Hahrie Han

I totally agree with what David was saying. And an analogy that I use sometimes in thinking about this is the idea that in the corporate world, in the for-profit world, we invest in companies all the time based on their assets, right? And that I would be foolish, in fact, as an investor, if I only evaluated a company's profits in the prior year and didn't look at their assets going forward, that I should, in fact, be really making judgments based on what they can do in the future. And I think in the same way, for movements, a lot of philanthropy, I think, tend to only hold movements accountable for the equivalent of their, quote unquote "profits."

But really, what they should be investing in is what those assets are going forward. And I think one of the things that's really exciting about what Mosaic is doing is trying to strengthen those assets and then continually invest in them over time.

David Beckman

Yeah. One, just as a quick vignette, we've been doing this only a couple of years but it's long enough now to start hearing from grantees who themselves report in excited tones how amazing it is from their perspective to be able to get funding for things that would simply not even be possible in other contexts. And what it means if you're a small hub for advocacy in appalachia to have some communications money or to have some of the things that maybe the larger organizations just take for granted. And we're going to be developing a lot of that information because I think you're onto something, David.

That mainstream philanthropy. To move hundreds of millions and billions in these directions is what we need to do. And that we're not going to be able entirely to tell people just to trust us, that we have to meet folks where they are and focus on developing sort of a comfort and a conversance with what we're attempting to do here.

David Roberts

What about and I guess I throw this one to both of you too. We're so behind the eight ball on climate change and a lot of other environmental problems that a lot of solutions are relatively obvious. Like, a lot of the things that need to be done are relatively obvious and uncontroversial. But you can sort of imagine different demographics coming at this from different places having some pretty fundamental disagreements about the theory of change or even sort of what kind of society we're shooting for. There's sort of a climate socialist left and then there's like a very sort of establishment center-left kind of big environmental group.

And there are real philosophical and ideological disagreements. And I wonder just how do you deal with those when they can we find enough in common that they can be kind of papered over and we can move forward together? Or do you worry about those emerging in a more enduring way?

David Beckman

Well, I mean, as you know, David and Hahrie those cleavages have already emerged in enviornmental advocacy. And I think we're in the midst of a reckoning about how larger organizations have operated, how big philanthropy operates the role of a just transition versus simply looking for tons of reduction. Part of Mosaic's, kind of, birth came not from me but from 18 months of really cogentive development with 100 different leaders that really looked at those questions. I think as much as infrastructure is important intangible ways as Hahrie is emphasizing, the relational components are essential. And they don't resolve every question whether you're in business or you're in sports or whatever you're doing in life, your own relationships.

The fundamental question isn't whether people can truly agree on every last detail. It's whether they can form more productive relationships in the advocacy work they're doing. That's the goal. And if you can make an advocacy community of 15,000 organizations like 10% better that is a net effective investment that's huge in terms of its outcome. So we're having these conversations as part of Mosaic and they're going on across the field. And the question is, where do you build the infrastructure to have them in ways that are reperative? One of the focuses of Mosaic is about relationships and trust.

And some people look at that when we show a PowerPoint. They're like relationships and trust. What does that have to do with the environment or climate? Well, actually ...

David Roberts

It has everything has everything to do with everything.

David Beckman

That's right. But it's not a commonly you can look at a lot of foundation websites before you're going to find relationships and trust.

Hahrie Han

Difference and disagreement is inherent to any kind of collaborative effort, especially one at the scale, though, that we're talking about. And I think the idea that we're going to be able to either paper over or ignore those differences or get everyone to just get along sometimes feels like it's a frustrating way to approach the problem. And what we know from a lot of previous experiences and research and so on, is that what makes it possible for these kind of coalitions to navigate those kind of deep strategic differences like the ones you're describing about? Is the extent to which they create equitable power sharing agreements so that the super left-y groups and the center-left groups can kind of have the sense that we know we're not going to all agree on everything in the end, but we're going to be really clear about how we're going to make decisions together, about what we're going to do and how we're going to allocate resources.

David Roberts

We're going to be heard, right. So often it's just about that as much as anything else.

Hahrie Han

Right, and so having a participatory board where there's this transparent governance process just kind of starts to create those habits of learning how to share power across lots of different theories of change.

David Roberts

I think that working together in person or like face to face often shows people that despite our differences, there is actually a time we can work together on there and we do have more in common than we thought. Whereas the common communicative environment these days of social media is more or less structured to have the opposite effect, right, to sort of exaggerate differences and to encourage people to dig in and be the most extreme version of their selves. So anything that works against that is a social good in my book.

Hahrie Han

Yeah. I think that sometimes we mistake attention for power. And part of why social media can be so alluring is because it gets you lots of attention and the more divisive you are, the more attention you get. But to actually build power, you have to build those kind of bridges. And so what we have to do is kind of break that idea that having more attention is necessarily the same as having power.

David Beckman

Yeah. And I'll just say quickly that Mosaic launched into the teeth of the pandemic and we've made far more progress when we were able to actually meet together. It's a very different thing to look at somebody through. Effectively, whether it's your handheld screen or a screen on your desk, tends to reinforce the sort of archness that people can bring into a room where there are diverse perspectives, but there's nothing like the in-person meetings and even the socialization between people who don't know each other just to create a little bit of grace between them.

David Roberts

A final question that I'd like to hear you both weigh on, which is very general, but just this shift in approach that Mosaic sort of represents, of focusing on movement infrastructure, focusing on relationships and just sort of infrastructure building and having a much more diverse, pluralistic decision making structure, sharing power, all this kind of stuff. Very much for reasons we've discussed. Tax against a lot of the sort of trends and tendencies on the left in the past few decades. What's the theory of change here? What would you like to see if this catches on? Like, you know, in a positive world where this new strategy catches on?

What would you like to see in, like, five to ten years? What can you imagine improving? What is the sort of theory of change here if this new approach takes over? What do you think is possible in the next five to ten years?

Hahrie Han

My mind goes back to the point that you were making, David, earlier, which is that there's been this long standing pattern where it feels like the right invests in the kind of deep work that is needed to make large scale shifts in society and politics. And the left feels like it's swimming along in the shallow end all along the way. And we're in a moment right now where clearly the change that we need is deep and not shallow, and it's got to operate quickly and also in the long term. And so for me, it's like when you build this kind of infrastructure and mechanisms like Mosaic, what I would love to see in five years, ten years, is a kind of deepening of the movements and the network of organizations that are able to continually advance the kind of agenda that we really need.

And so you can think back to the early decades of the rise of a lot of the kind of organizations that comprise the right. They sort of started at the same place that we are now, in a way, and steadily built over a couple of decades. That kind of death that is now being deployed.

David Beckman

Yeah. And I'll just build on that. I think, from a very practical sense, the conversation we're having today is about profound existential challenges that we're facing with climate change and beyond. I hold, as somebody who's devoted my professional life to this, both real pride in our grantees and the work that's being done. Where would we be without the laws that we've got and the work that's. Been done. And at the same time, this recognition that so many have that notwithstanding our best efforts, that those efforts aren't adding up to keep pace with the scale of the change that we're facing.

And so, very practically, Mosaic and things like it, if it can be a model, is designed to create a more powerful and effective environmental movement that can effectuate the big change that we need. Not just theorize about it, not just plan for it, not just write about it, but actually implement it at scale and over the time period that's available to us, which, with climate, is not that long, by 2030. That's what we need to be focused on, and that's what Mosaic and things like we've been talking about today are really directed toward.

David Roberts

A positive note to wrap up on. Hahrie Han, David Beckman, thank you so much for coming on and talking through all this stuff, and good luck with your efforts.

David Beckman

Thanks so much.

Hahrie Han

Thank you for having me.

David Roberts

Thank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversations like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf, so that I can continue doing this work. Thank you so much, and I'll see you next time.

In this episode, Washington State House Rep. Jessica Bateman talks about championing an ambitious and successful bill that aims to increase housing density in Washington, and the politics of housing in general.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

After decades of effort by urbanists, which often felt like the work of Sisyphus, housing has arrived as a political issue. Big environmental groups have come around to the idea that dense housing is a crucial climate strategy, support is growing from unions worried that their members can’t afford to live where they work, and polls show that the public is increasingly convinced that there is a housing crisis.

Over the last five years, a wave of good housing legislation has been building on the West Coast, spreading from California to Oregon and now to Washington state. In this last legislative session, some 50 housing bills were put forward in the Washington legislature and more than a half dozen passed, any one of which would have been historic.

One of the most significant bills that passed this session — and one of the biggest surprises — was House Bill 1110, which legalized so-called “missing middle” housing statewide. Every lot in the state will now be permitted to build at least two units of housing, four units when located near transit, and up to six units if some portion are set aside for low-income homeowners.

And that's just one bill. Other bills would legalize accessory dwelling units (ADUs) on all lots in the state, require municipalities to integrate climate change into their growth plans, sharply restrict local design review, and ease permitting of multi-unit residential housing. It's a feast.

The lead sponsor of HB 1110 is Rep. Jessica Bateman, who represents the capital city of Olympia. She was elected in 2021 and quickly established herself as a champion of equitable housing and a tireless organizer. Through sheer force of will, she brought together a broad coalition that was able to push the bill over the finish line, defying predictions.

Like Washington state Rep. Joe Fitzgibbon, who I interviewed for Volts back in 2021, Bateman is widely seen as a rising star in the legislature. I was excited to talk to her about her bill, the wave of other housing bills this session, and the broader politics of housing at the state level.

Alright, then. Representative Jessica Bateman. Welcome to Volts. Thank you so much for coming.

Jessica Bateman

Thank you so much for having me.

David Roberts

I'm so excited to talk to you. I've got so much I've got so much I want to ask you about. But let's just briefly start before we get into the nuts and bolts of the bills, et cetera, maybe just tell us a little bit about you're new to the Washington legislature as of 2021. So maybe just tell us a little bit about your history and how you came to the legislature and how you picked up an interest in housing along the way.

Jessica Bateman

Well, I am new to the legislature, but I'm not new to legislative politics. I was a legislative assistant for three and a half years to former State Representative Chris Reykdal. He's now the Superintendent of Public Instruction. And before that, I came to Olympia to go to Evergreen. That's how I got involved in politics in my first campaign for I-1163. That's how I got started working as a legislative assistant, and then I became a planning commissioner for the City of Olympia working on comprehensive planning, and then I ran for City Council, was there for five years.

On city council. We dealt significantly with a growing unhoused population in Olympia and how we were going to manage and deal with that, which led me to working on permanent supportive housing and also more broadly, housing policy and how we create and build housing in Washington and the systemic barriers to doing that. We also worked on passing middle housing legislation while I was there. And when I came to the legislature, my goal was to legalize middle housing statewide. I didn't know I was going to do that in my second year as a legislator.

David Roberts

Don't get used to this heady success. I don't think it's typical.

Jessica Bateman

It was just by happenstance representative Nicole Macri had sponsored a middle housing bill for a couple of years, and she had other work that she was doing. So last year in 2022, I sponsored House Bill 1782, and then this year it was House Bill 1110.

David Roberts

Well, we're going to get into that in just a minute. So you've had your hands on housing policy directly at a municipal level, and this is kind of where the rubber hits the road with all this stuff. A slightly more general question, it seems like I and a bunch of other people I mean, not really me. I'm peripherally interested. But I know a bunch of people who have been banging their head on this wall for years. Decades of just urbanism housing in general, the dominance of cars, the lack of housing, et cetera. All this. And it seems like in the last, I don't know, call it five years, the dam has broken a little bit and things are happening.

Like, there's tons of bills passed in California recently, Oregon, and now Washington. I was looking at the list on Siteline for the listener. Sightline is a local non-profit research house. Awesome on housing. They list 50 bills related to housing that were proposed in the ledge this session. I mean, obviously not all of those passed, but it seems like housing has finally kind of roared onto the agenda. And I just wonder if you have any insight into how or why that happened and if you feel like do you have any sense that you're part of a movement, like a group of people here who are pushing this?

Or is this just like one of these things where the time was right and history turned and things changed?

Jessica Bateman

I think it's a lot of all of those things. Honestly, the reason why we were able to take action on housing this year is multifaceted. One of the core issues is that our housing crisis continues to get worse. And as it gets worse and is experienced by people across the state, different generations, people are seeing their kids living at home. People like my dad, who just retired from Boeing, and watching his youngest, my little sister, who's a nurse, not being able to get a starter home of her own like he did, build her own family. It's a lot more relatable how the housing crisis is impacting people.

And it's a kitchen table issue that people, if they're not struggling with not being able to find a first home, which in Washington, first time homeowners, can only afford a home in three counties, and they're all in eastern Washington. That was a number from session, it might have gotten worse now. They're struggling with rent prices and seeing hundreds of dollar rent increases that put them more at risk of becoming homeless. And as a result of that, they're asking questions like, why can't we have more housing? Or what can we do to stop this? And thinking about having neighbors that live in middle housing becomes less ...

There's less stigma associated with it when people see it as something that their families could benefit from. Having said that, we've had a housing crisis that has been growing for years. And we have seen those that are in housing policy have really experienced a lot of frustration watching a lot of good housing bills die over the years. And last year, 1782, my middle housing bill died. Fantastically. In a year when the housing crisis was bad then, we'd seen 15%, 20% year-over-year increases in home prices. And so last interim, I and a group of other House Democrats got together, and we're talking about what are the barriers to passing housing legislation.

And there's a number of them, but one of them was the structure and the way that we organized our committees. We had a local government committee, which is where all the zoning and land use policies went. That's how you create more housing. And then all the symptoms of not having enough housing, like tenant protections, helping folks stay where they are, keeping them housed, that was in another committee. And then you had the investment in truly affordable housing through the Husing Trust Fund in a different committee. So we worked to create one committee that was all housing, everything housing holistic view.

And I think that was integral because as you saw, I mean, if you look last year versus this year, how many housing bills made it through the process, there was a significant uptick. And I also think us talking about the connection between housing and climate. I've been working on this issue for eight years, and my very first City Council race, the environmental organizations in my community, called me a developer-shill, because I was pro- unabashedly pro-housing.

David Roberts

That's just automatic now, though. That's just like part of the landscape ...

Jessica Bateman

Totally, which is why come up with something new because that's what's been thrown at me for eight years. However, it is frustrating as someone who partners with organizations and environmental groups to have them not see that connection, which is very real. Like if we're not going to address land use, then we're not going to realistically address our climate goals in Washington state. So to see premier environmental organizations stepping up and saying land use and climate are inextricably linked, we have to address both. And also, on the other side, equity. The way that communities have excluded people by race and by economic means through single family neighborhoods is very explicit.

And so we had a coalition this year that really focused on working families, communities of color, the environment all coalescing around the one issue that really does impact all those different facets. Because even though we're going to get into a wonky conversation, I'm sure at the end of the day this is really about people. And people having an opportunity to have a home, people having stability, people having the ability to put down roots in their community, to build equity, start families, have livable, walkable neighborhoods, have a future. That's what this is about.

David Roberts

I love both sides of that answer, but I particularly love the first side since a recurring theme on this podcast is that in the spirit of Elizabeth Warren procedure matters, the structure of the bureaucracy matters, administrative capacity matters, it's boring, no one pays attention to it, but it really does matter. It really does affect results. Okay, one more general question. I think sort of ordinary people at this point have probably grokked that there's housing problem going on. But some of the questions I get are like to what extent is it a West Coast thing versus a countrywide thing?

To what extent is it an urban thing versus a statewide thing? How universal is it? Like is Washington particularly bad or is it just bad like all the other states are bad because housing policy is bad everywhere.

Jessica Bateman

I mean, the country has millions of homes behind to keep up with population growth for building and constructing housing. So it's obviously not Washington state, or West Coast specific. However, you do see the real struggle to build housing commensurate with population growth in especially those high opportunity areas where people are really going to for jobs and economic opportunity. They also can be areas that are really good at weaponizing public policy to prohibit housing from being built. And that's a real challenge, which is one of the reasons why we have to address it at the state level.

Which is why you've seen California and Oregon. Oregon was first. But Oregon, California and Washington state. I do think if there's data that shows that Washington is particularly bad in terms of our per capita construction of housing, I think we are the lowest for that.

David Roberts

No kidding. Yikes.

Jessica Bateman

So we do lead the pack, unfortunately. But on the West Coast in particular, it is nationwide, but it is also really, I think, dramatic on the West Coast, where you see so many people wanting to come here for jobs and for opportunity. And in Washington state, it's not just impacting the large cities like Spokane, Seattle, or Tacoma, that statistic earlier about first time home for first time home buyers. It's only affordable in three counties, and they're all on the east side of the state in really kind of rural, expansive counties where there's not a lot of job opportunity.

So a part of this is about where do people want to live and what systemic policies do we have that make it difficult to build housing? And that is not specific to any one city. The vast majority of cities outlaw middle housing or anything other than single family homes in the vast majority of their areas where they can build housing. That's not specific to only Washington state. Other states are also in that vein as well.

David Roberts

So let's get to middle housing then, in your bill. I want to cover this bill, and then maybe we can mention talk about a couple of the other bills briefly at the end. But just by way of introducing this subject, I have like a little 32nd rant. I feel obliged to deliver because every time I talk with a policymaker in Seattle, I talk about this. What you see in Seattle, and I think this is typical of a lot of growing cities, is you got a lot of people coming here, you've got these single family neighborhoods that are fixed in place that won't allow anything to be built.

And so all new population, basically any working class people who move here, are put in big apartment buildings along giant arterials. So what you have increasingly in Seattle is a completely two-tiered bifurcated system. You're either living in a nice house in a quiet single family neighborhood, or you're in a big apartment building on a five lane, six lane street. And it's terrible on so many levels, but it's just so grossly unjust. And it just puts this sort of economic inequality in physical form all around you. And what's missing there? What's missing between these big apartment buildings on the arterials and the quiet single family homes, is what's called middle housing.

So maybe just start by telling listeners, maybe who aren't up on these debates, what do we mean by middle housing? And then let's talk about your bill.

Jessica Bateman

Well, your observation is correct both in the description of what middle housing is and constitutes. So middle housing is everything between a single family home and an apartment or multifamily housing. So that could be a duplex. Two units that are connected, threeplex, fourplex, sixplex. My bill goes up to a sixplex. I think technically middle housing can go. I'm not sure how large they can go, but the largest that we have in my bill is up to a sixplex. The description that you gave is very apt in Seattle and the vast majority of cities, but using Seattle as an example, they only allow the construction of single family homes in over 75% of the city.

And so you have this economic and racial segregation where people that have historical wealth or connections or intergenerational wealth, they've been able and they have these homes. The median home price in Seattle is almost a million dollars. And then you have the new people that have no way of accessing homes like that to buy or to rent. And it's also about a person's health. Whether or not you get cardiovascular activity is do you live near a park? Do you feel safe to go to that park? Do you have sidewalks?

In terms of upward mobility and our investment in that from the state and education, well, so much of your lifetime income earning potential and your opportunity is based on your zip code and the people that live around you and the opportunities that are provided.

David Roberts

And also if I could just insert also I've seen it. I'm pretty sure this has been said explicitly in Seattle planning documents is that these people who live on the arterials are referred to by city planners as buffers, basically for that air pollution that the cars create and the noise pollution that the cars create. Buffers to protect the single family homeowners from that nasty pollution, which is just, like, manifestly grotesque, I think.

Jessica Bateman

Right, and our opportunity is really dependent upon that opportunity being available to others. And so I have a little sister, she's 27. I own a home. I won the lottery, I got lucky and I bought a home at just the right time. I have a fixed mortgage. I know year over year, give or take, how much that's going to increase. There's a significant amount of stability there that I want other people to have. And also, I couldn't afford my home today if I had to buy it now. As a legislator who has two jobs, so also as a city council member, having gone through that experience, we tried to pass middle housing legislation and it took us over two years, 44 public meetings, 1,200 pages of written comment, three public hearings.

And I can tell you that the way that we have these processes at the local government level, we hear from predominantly homeowners and older whiter, male homeowners that would like to maintain their property values. They have a definite stake in the status quo staying as it is. And it's by design, and it's been that way forever. And it's not embedded with equity because folks that don't live in the community yet, they're not voicing how new housing would provide them with an opportunity. You just add so many layers.

So that's why having a statewide floor for zoning is so important. It also creates stability and predictability for people that build housing so they can know statewide it's predictable, which is great. So the bill as it stands now, it went through a lot of changes in the process. It would apply to cities 20,000 or greater. Cities that are 20,000 to 75,000 would have to allow, will have to allow two units on all parcels, that allow residential construction. They would also have to allow four units near transit and four units anywhere if one unit is affordable. And that's up to 60% AMI for renters and up to 80% for a person who's going to buy the home.

David Roberts

One of the things I was wondering about, reading about this is this category of cities from 20,000 to 75,000 is that most of them what is the sort of distribution of cities here? Because I know the cap for that was lower in the previous bill and it got raised some. So you're including more cities now. And I don't have any sense of what percentage of cities or which.

Jessica Bateman

I'd have to look at the numbers. What I can say is the bill started at any city of 6,000 or greater, so it impacted more cities when it started. And that was by design. We wanted to be really ambitious at the start. The vast majority of cities in Washington are small. There are over 260 and most of them are small. So when we increase that population threshold, the implementation at 20,000, we knocked off a whole bunch of cities. But the ADU bill that passed, which we can talk about, applies to all cities. And so the thought was for these smaller communities that really pushed back on how this change in housing would impact their community and what their community felt like and what their community needed, we could argue that, okay, well, the ADUs felt they felt less opposed to that.

David Roberts

Right.

Jessica Bateman

That drives me crazy because it's not embedded in best practices or data or science.

David Roberts

Well, what in a housing policy is not ultimately like comes down to feels. There's not a lot of rational discussion around this where you look. So from 20,000 to 75,000 every lot, you can build at least two things. And if you're close to transit, four things. And if you set aside one apartment for low income housing, four things.

Jessica Bateman

Correct.

David Roberts

And then 75,000 up is all one big category?

Jessica Bateman

Yes. That's four units anywhere, six units near transit, and six units anywhere, if two are affordable.

David Roberts

Has Inslee signed it yet? It is passed the House and the Senate, and it's waiting for a signature, or has been signed?

Jessica Bateman

it's going to be signed on Monday the 8th.

David Roberts

By the time this pod is out. So when this is law, if I'm a single family homeowner anywhere in the state, in a big-ish city, I can sell my home and my lot to a developer. The developer can knock down the house and build a fourplex. That can happen anywhere in a city over 75,000?

Jessica Bateman

Correct.

David Roberts

So it's four anywhere, six close to transit, and then six with some affordability?

Jessica Bateman

Right. And then we have that third category, which is the contiguous cities, which are cities that are right up along it's kind of technical, but the largest city in a county of 275,000 or greater, so using Thurston County, Maya County, for example, the largest city is Lacey. Any smaller city that abuts up to it is a contiguous city has to allow duplexes everywhere. And so that was it started out being in the 75 category, so it would have allowed more homes and hounds near transit and anywhere if one or two were affordable. That got narrowed down in the Senate so it's just two anywhere.

David Roberts

But just for listeners, the reason this category exists is because there's all these like Seattle is surrounded by all these little communities, sort of satellite communities that are kind of part of the Seattle sort of municipal area. They're not really small towns per se.

Jessica Bateman

Yeah, the thought being we want to make more housing available and abundant where people are and where people want to go. And naturally that's where economic opportunity and social opportunity exists. So Seattle being the largest city in the state, you have all of these smaller cities that are adjacent. It makes sense that they would also we want housing to be there too.

David Roberts

Well, this is huge. This seems like a genuinely huge and fundamental change. We can get into the politics of it later. But I want to touch on a couple of other aspects. What does it say about parking? Because parking is also sort of roaring onto the agenda as a thing people are starting to care about and look at and think about the negative effects of what does it say in particular about — because a lot of cities, I think listeners are familiar, a lot of cities have parking minimums. So theoretically one way a city could avoid this missing middle housing is by putting parking minimums.

So if you build four units on your lot, if you're required to put four parking spaces in, that kind of is going to eat a lot of the space and inhibit a lot of the growth. So what does it say about parking?

Jessica Bateman

Love the parking. All the feels about parking. Parking adds ... not only does it add cost to constructing homes, it also takes up in our urban areas valuable space that could otherwise be used to house a person. So we prioritize vehicles over people when we create minimum parking requirements. It also doesn't make sense because you would want the person who's building the housing to make a market-based decision about: is it marketable to build this now? Will I be able to sell it or rent it if there is no parking? They're going to be much more aligned with that objective.

David Roberts

Yeah, there's something weirdly Soviet about how we think about parking. Why should bureaucrats be picking a number out of the air and deciding that's the minimum, it's just so goofy. We don't do that with any other service, product or service.

Jessica Bateman

So much of housing policy is really about the people that are currently housed wanting things to stay the same. And when other people move here, they inevitably it's more people, it's more traffic, it's more noise, it's more interactions. And so a lot of these policies underneath them, it's really about the people that are currently here kind of wanting to buffer themselves from any kind of impact.

David Roberts

Yes, I am subscribed to my local next door, and I can tell you anytime a new apartment building is announced, anytime new housing is announced anywhere, that is the first comment. Where are people going to park?

Jessica Bateman

Yeah, people get really upset about it. So the bill started out more ambitious, and it ended up you cannot have minimum parking requirements for the homes that are available near transit. So for the two units and the four units near transit, no parking minimums in the neighborhoods. We initially started with only being able to require one space per lot, and that got expanded to one space per unit. So if it's a duplex, you can require two parking spaces if it's a fourplex, four and sixplex. Six. And yeah, your guttural response is correct. That was a concession that I had to make.

They can also, if they want more parking, they can go through a process to appeal essentially to the department of commerce to say, we feel like more parking is necessary, but they have to demonstrate that it is because of some impact to public safety. We were pretty explicit in how they actually have to provide evidence for that, because, well, cars are kind of inherently dangerous anyway, so it'll be hard for them to make that case. So there is some restriction on how much they can require. It's not as much as I would have liked, but again, this is a watershed moment in terms of land use policy in Washington state, and I'm optimistic about us in the future being able to come back and make tweaks if necessary.

David Roberts

Kind of a side note, but I'm curious. A lot of these bills pivot around what is and isn't close to transit. So are there complications in identifying exactly what does and doesn't count as a transit stop, or what does and doesn't count as close to transit? Because a lot of money and a lot of rules are now hinging on that distinction?

Jessica Bateman

Yeah, and I know one question came up recently about, I think, trolleys in Seattle, which was not something that we accounted for in the bill, but actually, apparently by the definition in the bill for frequent transit would qualify. So the department of commerce is going to be going through a process to answer some more of these specific questions as it relates to what constitutes the different forms of transit. It does get really technical really quickly. And we were also concerned with one thing we heard a lot was bus stops can change and that is technically true.

But we want housing near transit because the utilization of transit is predicated on density. So that's really necessary. But there's going to be some more fine tuning of specific definitions around things like whether trolleys qualify or not. We did take out ferry terminals. That was something that was taken out. I have to go back and look at the exact specific definition that we ended up with for transit, though.

David Roberts

I'm curious about how exactly this is going to interact with local municipal government. It's worth stating, does not dictate any citing or design issues. It doesn't tell local governments that they have to cite anything anywhere in particular or design anything any particular way. It's just sort of minimum requirements. But I'm sure there was and will be resistance from some local governments sort of notoriously around Seattle, like out on the islands, Mercer Island and whatever. They are enthusiasts about pulling up the drawbridge and not letting anybody else come out there, not letting anybody else live there, not letting transit come there.

So I'm wondering, are you worried about shenanigans by local governments trying to circumvent these things? For instance, I think there's an exception for environmentally sensitive land and maybe there's something about historical land. I can imagine local communities abusing those rules. Sort of like what do you foresee in terms of the push and pull between this law and local governments who for whatever reason don't want to do it?

Jessica Bateman

Right, I think it's human nature to want to keep things the way that they are. And I don't inherently have ill will towards people that think that way because it's just kind of like how people tend to operate. But I do think it's our responsibility as lawmakers to be thinking about planning for the present, but also the future. And so that's why the statewide legislation is so important, because at the local level, so much of the response is inflammatory. It's an inflammatory and I'm talking like inflammation because people get really upset and they go to their city council folks and you are the closest to the people there and you just naturally want to make them feel better.

And you also I think there's a part of this that some cities feel like the state's coming in and telling them what to do. So I do anticipate that cities will try to find creative and innovative ways to circumvent this legislation. And I'm already thinking about ways that we can ensure that cities are held accountable for their responsible, fair share of providing housing. California has created an Office of Housing Accountability and they actually review housing elements in good detail. And the Attorney General there has a way of holding folks responsible if they don't do what they're required to by state law.

So that's one thing that I'm looking at. And then also really analyzing how historic districts are deemed valid.

David Roberts

Oh my goodness, so much shenanigans there in Seattle. Please do something about that. All of Wallingford neighborhood is trying to become historical, which is just goofy.

Jessica Bateman

So we need parameters, I think on I am a fan of historic architecture. I'm a housing nerd. I'm going to Palm Springs next week and I'm going to take a tour of the mid-century modern houses ...

David Roberts

I did that very fun.

Jessica Bateman

Right? And we also know as people have weaponized SEPA, a really good environmental policy to obstruct creating more housing. They also weaponize things like historic districts to obstruct the creation of more housing and to keep their neighborhoods kind of covered in amber and staying that way for all time. So those are kind of two areas that I'm looking at.

Also, I would say that these laws will become effective in the next round of comprehensive plan updates. So it's going to be a rolling implementation based on the city's comp plan update. The largest cities going in 2024 and then they've got six months for implementation to pass their building codes. So 2024-ish for the next round, the first round of cities. So we have some time, but I'll be thinking this interim about ways that we can prevent those very things from happening.

David Roberts

And is there provisions in there about homeowners associations and their covenants and things like that? I feel like I saw something mentioned that it's ...

Jessica Bateman

So the bill applies to all future homeowners associations. So if you create and build a homeowners association, this law applies to you. It does not apply to homeowners associations retroactively because we can't change the land use of a contract that already exists that people entered into when they purchased a home.

David Roberts

Interesting.

Jessica Bateman

So there are people that argue that we can and there're really smart legal experts that tell us, no, you in fact cannot do that. Other states that have passed similar legislation have not made it apply retroactively. I would also add the bill itself, it was kind of a wing and a prayer that this bill survived this year.

David Roberts

Yes, I know. I've been reading about it.

Jessica Bateman

It came back from the dead a number of times. So I think there's an interest definitely because there was a lot of conversation about there's no secret that not having this apply to current homeowners associations. There are a number of them in Washington state.

David Roberts

Yeah, I was going to ask, do we have a sense of how common that is, how big of a swath of housing those covenants cover?

Jessica Bateman

I don't have that figure off the top of my head, but it's larger than one would assume and the equity component is really bad. I mean, if you look at some of the areas, this bill will not be applying to some of the wealthiest whitest economically.

David Roberts

Those are the places with the covenants, right? I mean, those are the places with homeowners associations.

Jessica Bateman

Yeah. So there's an interest because of this bill. I think a lot of people in the legislature are talking about, hey, what can we actually do? And how can we push the envelope and look at this issue of homeowners association? So I anticipate we'll see some legislation on that next year.

David Roberts

And is there anything in the bill along economic justice lines sort of anti-displacement? I know the one provision is you can build bigger buildings if you set aside a unit for affordable housing. Is there more all along those lines?

Jessica Bateman

So one bill that we passed a couple of years ago was House Bill 1220, which requires all cities to assess displacement risk. And Seattle has done that. You can see a map that Seattle has. And so what this bill does is it allows cities that have deemed an area to be at risk, a high risk for displacement. They can basically pause implementation for up to ten years. That law, House Bill 1220, requiring cities to do an assessment of at risk for displacement. It also requires that they have a better mapping out of the housing needed for different income bands.

We can go really into the weeds on comprehensive planning processes in Washington state, but cities have never been required before to go into detail on the different income bands of housing needs. So those two things were brand new. They just went into effect. They're in effect now, brand new. And so the question came up with the bill was, how do we protect for displacement in areas with classic examples, south Seattle, and I don't think we've answered that question thoroughly yet. I don't think cities know how. And that's what they said to us when they realized what they were going to have to do for implementation of 1220.

We don't know what to do for displacement. And they kind of looked at us like, give us money to give people money. And the state, you want to talk about the numbers? I mean, we need a million homes over the next 20 years. Half of them need to be affordable at up to 50% AMI. That is not a number that the state can budget for the Housing Trust Fund. I mean, as a comparison, just the data, the Housing Trust Fund, which is our largest bucket of funding for affordable housing in Washington, that's capital dollars for the construction of truly and meaningfully affordable housing, was created 1986.

We've built 55,000 affordable homes since then.

David Roberts

Yeah, not quite on pace for half a million.

Jessica Bateman

Right, so what that tells me, and the whole premise of House Bill 1110 and some other supply side bills, is we need to figure out sustainable and progressive funding and revenue for massively increasing our investment in truly affordable housing. And at the same time, we have to make it systematically easier to build homes of all shapes and sizes a. to respond to the market and the demand there because let's be clear, half of those homes also need to be 50% and above AMI. And we have nurses like my little sister that also can't find an affordable home for her which is not spending more than 30% of her income on housing. So we need housing all over the place and of all shapes and sizes.

And the supply side bills this year are really focused on looking at there's some obvious low hanging fruit ways that we are making it difficult, in some cases impossible to build nimble, smaller, more modest homes that are also better for our environment and also increase equity in our communities.

David Roberts

Right. And for some reason this is controversial, but I feel like it's also worth noting that just building a bunch more homes is in and of itself an affordability strategy that's when you increase supply, prices come down. This is not controversial in any other market or any other area of public policy, but for some reason it's very controversial here. But ...

Jessica Bateman

It is.

David Roberts

Housing supply is an affordability policy.

Jessica Bateman

Right. I mean, one of the other things I think about with our investment because advocates for affordable housing will rightfully say, well, you need to increase the investment in the housing trust fund. And I agree that we do. As long as we have these restrictive policies that make it really difficult and expensive to build housing, the price per unit cost that the state is investing. We'll house more people if we make it easier and cheaper and more efficient. And that's not just like me saying that as a talking point, that's really true. There's a ton of research that shows us how we make it more difficult and expensive to build housing.

But minimum parking requirements are a clear example and we get pushback the same people who demand that any new housing has to be affordable also push back on maintaining minimum parking requirements. So going back to the displacement question, we're going to have to continue to do more work because I think simply saying that we can pause implementation of building more housing is not a sufficient answer to anti-displacement.

David Roberts

Yeah, well, let me ask on that exact note, maybe this is obvious and I'm just not getting it, but why do we assume that enabling more middle housing in these areas would produce displacement? Like what's the connection there?

Jessica Bateman

The argument that we heard from a couple of cities was you're going to see land values increase and demand in these areas already exists and with the opportunity there, you're going to see people being priced out either in their rent or selling their homes and having a developer come in and build the sixplex. That is then not affordable. And I can't argue that the value will go up and we will see some tear downs happen, although tear downs of existing structures happen only when it's economically a good decision for a developer to do that. Like in Olympia, my home and my property.

The structure is the most valuable asset on the property. It would make no sense for a developer to come in and bulldoze it down unless they were going to make a significant amount to recoup those costs and then make a profit. But in some areas, like Seattle, that might happen because of the land value, cost is so high and the demand is so high. But I would also argue on the flip side that say a black family that owns a single family home, should they not be able to sell it and make that profit and make decisions about what they want to do with that investment?

David Roberts

It seems like a species of argument, which I hear a lot of, which always slightly baffles me, which is like we can't let these places get nice because then people will want them and come buy them. So the only way to protect poor people in their housing is to keep the places they live grimy and unattractive and low value. That does not seem like a viable or attractive long term solution to me. Like that can't be the way we're protecting people.

Jessica Bateman

Right. And that's what the cities, they're saying it's inherently more affordable housing, naturally occurring more affordable housing. And that by legalizing middle housing in those areas, we are going to displace the people that currently live there. And so that was the argument that we heard and the compromise was allowing for the folks, those areas to pause implementation.

David Roberts

Right. Let's talk about a couple of other bills. This one, the middle housing bill, is sort of your baby. A couple of others which you did not sponsor but voted for, which I think are at least worth noticing. The other big one I think on housing is ADU reform accessory dwelling units for people who are not nerdy on this topic, which just means you can build a nice little unit on your property, a second unit on your property and rent it out or sell it to someone. What does the ADU bill do?

Jessica Bateman

So that's House Bill 1337, sponsored by Representative Mia Gregerson, who has been fighting for this bill for years and it finally passed, which is amazing. You can build an ADU on any lot. Actually, I think two ADUs on any lot, it lifts local barriers on ADUs.

David Roberts

Any lot period in the state.

Jessica Bateman

Yeah, it impacts cities smaller than the middle housing bill. Yeah. So for the cities that are included in the middle housing bill, they'll have the choice, the ADUs count towards the unit count. So unfortunately you won't be able to like in cities where fourplexes are legal, you can't do a fourplex and two ADUs, but you could do a duplex and two ADUs. The whole point, both of them, is to offer more flexibility and that is successful. So it caps impact fees and parking mandates, legalizes two per lot and sets baseline standards for minimum lot sizes and the ADU size and height.

I didn't sponsor that bill, so I don't know all of the technical details, but I do know that it works in concert with House Bill 1110.

David Roberts

Right. And then one other worth mentioning, just for my friend Mike's sake, is single staircase buildings have been legalized. This is way nerdy in the weeds for housing people, but this is something that a lot of people have really set their hearts on. Were you involved in that at all? Or could you explain the benefits of a single staircase building or why that's an issue at all?

Jessica Bateman

Yeah, I wasn't involved at all, but I was thrilled to see it move forward. And I think we made some changes in the house that requires the state building code to develop recommendations for single stair buildings for up to six stories and to adopt those changes by 2026. And that's important because when you have the requirement of two staircases that takes up valuable space that could be used for housing people, it also puts limitations on where things like windows can be in terms of the architecture of the building and the design of the building. So it can make it a much more livable space by being able to utilize that square footage for something other than a staircase.

They do that in other countries and it's completely safe up to six stories. So it was really a common sense solution, I think. And I know that the people who build houses and architects and designers are very excited about it, and rightfully so.

David Roberts

One of the things that has vexed local urbanists here in Seattle and I'm sure in other cities too, is what's called design review, which is you propose a building, you come up with the plans, your building, obeys all the codes, is ready to go. And then it has to go through this design review process where a board of architects ...

Jessica Bateman

Volunteer architects.

David Roberts

Yeah, volunteer architects come and be like that brick shade is a little too dark red. I'm into more of a lighter red. And then you have to have another meeting and another meeting, and this adds millions of dollars onto the cost of building anything and takes forever and appears to benefit no one, as far as I can tell, other than the volunteer architects who get a sense of power over all the buildings.

So that ODS process has been not nuked. There was a bill that would have nuked it that didn't pass, but it's been ...

Jessica Bateman

I know, I wanted that one.

David Roberts

It's been reduced to one meeting, right? Is that what happened?

Jessica Bateman

Yeah, one meeting. And it requires the local design standards to be clear and objective. And so that means subjective is what the current process is, where you have volunteer ... listen, I get it. Architects, that's what they do. That's their job. And when you're given it's like the luxury of infinite choices and the luxury. So much of this process is all centered around the people that already have housing. Like the people that are on the committee, the volunteer architects, they have homes and they're being asked like, what shade of terracotta versus brick red should it be? And when it's the most obnoxious.

It's when they're making these decisions about something that is currently a parking lot, a completely unused space that could be housing during a housing crisis. And they're taking years to do it. And so by establishing this as clear and objective and not subjective is a huge improvement. And then also by not allowing more than one public meeting is also a huge improvement. One of my observations is this is so asinine for people that are not in these circles, that don't see these processes all the time, but the people that have been doing it for years, that are on these design review or local governments, this is just how they work.

Right. And so it takes people from the outside looking in, going, this is not the best way to do things we do need.

David Roberts

Oh my god. Anybody I try to explain it to, they're like, really? That happens to every building. What?

Jessica Bateman

Right. And you can have a set list of like, here are the shades of color for a certain area. It's in a book. Like, it doesn't have to be this group of people that is really subjectively looking at this and evaluating it.

David Roberts

Right. There were a couple of other bills that reduced permitting barriers that were good. The one other bill I did want to call out is 1181, which is basically tells cities to integrate climate change into their planning. Maybe you could just tell us what that bill does.

Jessica Bateman

Yeah, House Bill 1181 is sponsored by Representative Davina Duerr and it requires cities to add a climate element to their comprehensive plans, which is a mandatory planning process they have to do. It's incredibly important because it does things like have them account for how are you going to reduce vehicle miles traveled and making the connection between land use and vehicle miles traveled and where you put housing and how you have energy in your buildings and putting those things all together. It's really essential for cities to be required to do that. Some cities were already doing things like that, but it was really only certain cities and usually more progressive liberal cities.

David Roberts

Right. So this is just you have to consider that stuff. You have to take it into account.

Jessica Bateman

You have to take it into account. You have to plan for how you're going to address it.

David Roberts

Right. That's a lot of bills. A lot of pretty big bills. There are a couple of big ones that didn't pass. I think probably the most significant one that went down this year was the one about transit-oriented development, which again, for non-nerd listeners is just this idea that transit stops, transit locations are obvious areas for density. That's where you want to put a lot of people. You want a lot of development around transit stops. And a lot of times that's just prohibited by current law. I saw a lot of predictions at the beginning of the session were that that was the one that was going to pass and that your bill was going to have trouble.

And then one thing happened, and then another thing happened and somehow yours got through and this one didn't. Can you explain what that bill does and is it going to rise from the dead next time around?

Jessica Bateman

So the Transit Oriented Development Bill is sponsored by Senator Leos and it would require cities to legalize higher density housing near major transit areas and more frequent transit. The idea being like in Seattle and these high economic opportunity areas in and around transit, you want to have more housing be the standard. So things like more stories of housing being an option for multifamily housing, more.

David Roberts

Than sixplexes, presumably. Right.

Jessica Bateman

We're talking about 100, right? Yeah.

David Roberts

Big buildings.

Jessica Bateman

Yeah. They ended up using far floor area ratio in the bill, which is really talk about wonky and confusing. No offense. Sightline. Thank you. So the bill did not it made it through the Senate. And I think, honestly, that people didn't really understand what it did, which happens sometimes. And then when it got to the House, a lot of emphasis and focus was on the fine details and there became a lot of negotiation and concern and feedback, a lot of conversations about minimum affordability requirements. There continues to be a growing number of people in the Democratic Caucus in the House that really believe that you have to have affordability requirements if you're going to let developers build this higher density housing.

David Roberts

I don't want to beat the subject to death, but I have to pause there. Again, I'm sure you've been involved in these discussions. I just want to know. It sounds to me like those worries about affordability requirements were a big part of what led to the bill not passing. And I'm just like, in what world is the no bill passing better than the status quo? Because as we were saying, build a bunch of big apartment buildings around transit, it's going to lower the average housing prices. Like it is an affordability strategy. So what is the ... could you explicate that debate a little bit more so I understand what the hell is going on.

Jessica Bateman

I've heard people say that it's possible to build more affordable housing because where I come from, you know, the work that I've done, you know, I've talked with developers. I'm not an expert in the creation or construction of housing, but I tend to believe that we should make it easier to build housing of all shapes and sizes because we make it incredibly difficult, expensive to do. And we have to own that. We have to be really honest about that accept what the problem is. And then if we want truly affordable housing, we need to subsidize it, we need to pay for it because expecting someone to do that themselves, whether or not that's a noble goal, it's less likely to happen than if we make it easier to build the bare minimum.

You can't build what's not legal to build, so you can't build a seven story building if it's illegal to do so. Middle housing, you can't build a sixplex if it's not legal to do so. In my bill, there is an incentive to go higher and include affordability. That's a choice. Some non-profits, especially things organizations like Habitat for Humanity, will take advantage of that. We have folks that believe that the developers can, if we do a minimum threshold of affordability requirements, that they absolutely can do that. We should expect them to do that. And then we have folks that think that you should let the market decide.

And then some folks like me that think we should also be investing more in affordable housing and subsidizing that cost and increasing that investment. There's a lot of other tools and things that we can do to do that. Also things like Land Trust and how can we partner with communities so they can invest in some of these opportunities and create truly affordable housing with our help and assistance? At the end of the day, if the housing doesn't get built, no one gets housed. And that figure of up to a million people over the next 20 years, half needs to be truly affordable and half needs to be 50 AMI and above.

We still need housing for the 50 and above. So no housing versus housing. I mean, I can't really understand that argument either. However, what I will say is that Representative Reed was the person who worked diligently once it got to the house and she did a tremendous job trying to piece that thing together and keep it moving and ultimately was not able to do that. The other thing I would say is that 1110 was worked on much further in advance, had more time for people to process. It was introduced last year and then during interim I was meeting with people across the state, building a coalition, visiting with the AWC.

The TOD bill was relatively new for people. They didn't weren't as familiar with it. We are going to have to come back to it because if we're going to be honest with ourselves about transit and the CO2 that comes from it in Washington, I don't see how we're going to be able to address that without having TOD.

David Roberts

Yeah, people have a lot of really weird hang ups about tall buildings. I think this bill invokes a lot of those. But if you go to the Vancouver suburbs, they have rail stops and they're surrounded by tall buildings and then they sort of go out from there and it's perfectly nice tall buildings are not scary.

Jessica Bateman

Yeah, we're running out of land. We have a growth management act that stipulates where we need to build new housing, which is in cities. We need to preserve our rural areas, our farms, our forest lands and ecosystems. We have to build up. And what I ask people when they're opposed to housing is where are the magical homes going to be built? Because we have to build them somewhere. We are not going to stop people from moving here or people from having children. You have to go up. That's the only option. So I'm looking forward to a future where we have abundant homes of all shapes and sizes for everyone and where people aren't afraid of taller buildings and it doesn't disrupt what they think is the character of their neighborhood.

I think the character of the neighborhood is defined by the people that are in it and a sense of community and opportunity. So I think we're in the liminal space right now where people are coming to terms with the single family home with the white picket fence and the garage and the lawn. That's not the reality for all the homes in the future like it was in 1950. And it wasn't environmentally good back then either.

David Roberts

So you're pretty confident the TOD bill will be back next time around?

Jessica Bateman

I think so. And I think there's going to be a lot of work that will be done during interim to see where we can get more support for that bill and see how to move forward.

David Roberts

And then another bill that failed was lot splitting, which maybe just very briefly explain what the significance of that is and why you think it failed.

Jessica Bateman

Oh, boy. So it was really sad that the lot splitting bill died. That was by my co-conspirator in housing Representative Barcus, and it allows for people to more easily split a lot. So, for instance, I have a good friend, single mom, she's got a lot. She's got a single family home. It's large enough. She'd like to split it and build an adu and sell it. And the process is quite cumbersome, difficult to navigate and expensive. And so this bill would make it easier for people to do that legally so they can sell the second unit.

And it's important for opportunity when we have bills, legalizing ADUs and middle housing because people will want to take advantage of those things and they want to be able to create equity and make an investment. So it makes that more difficult.

David Roberts

Right. And this, you think, will also be back, or is there some irradicable level of opposition somewhere or is this just something that also you think people need to sort of wrap their heads around?

Jessica Bateman

I think the bill will come back next year. I think that there's an entire year from now for people to kind of wrap their minds around all the bills that passed. And I think they'll become more comfortable with something like that. I think there was some concern around the overabundance of housing that might be created if lot splitting passes two. I definitely think that was a part of it.

David Roberts

Oh, right. Because if you split your lot in two, then all of a sudden you can make four units because you have two lots, right?