There has been an epic battle over the past 20 years between two types of lithium-ion batteries: nickel manganese cobalt (NMC) and lithium iron phosphate (LFP). While NMC still boasts better energy density, LFP is making a major comeback thanks to its safer, more accessible materials and improving performance. However, China still dominates the LFP supply chain. In this episode, CEO Vivas Kumar of startup Mitra Chem weighs in on why America needs domestic production of LFP materials.

The Environmental Voter Project has a unique approach: rather than convincing people to care about climate change, it identifies people who already do, but don't consistently vote, and works to get them to the polls. In this episode, EVP founder Nathaniel Stinnett discusses how to find these voters, keep them engaged, and measure their impact.

In this episode, Beverly Craig of the Massachusetts Clean Energy Center discusses what passive house building principles entail, the benefits they generate for building occupants and the grid, and what it would take to persuade more US builders and policymakers to adopt them.

In this episode, Emily Morris of startup Emrgy discusses the promise of small-scale hydropower and the opportunities it could provide for both power infrastructure and water management.

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David Roberts

Hello Volts listeners! I thought I would start this episode with what I suppose is a disclaimer of sorts. I suspect most of you already understand what I’m about to say, but I think it’s worthwhile being clear.

Every so often on this show, like today, I interview a representative from a particular company, often a startup operating in a dynamic, emerging market. It should go without saying that my choice of an interviewee does not amount to an endorsement of their company, a prediction of its future success, or, God forbid, investment advice. If you are coming to me for investment advice, you have serious problems. I make no predictions, provide no warranties.

The fact is, in dynamic emerging markets, failure is the norm, not the exception. My entire career is littered with the corpses of startups that I thought had clever, promising products — many of whom I interviewed and enthused about! Business is hard. In most of these markets, a few big winners will emerge, but it will take time, and in the process most promising startups will die. Such is the creative destruction of capitalism. I'm not dumb enough to try to predict any of it.

More broadly, I am not a business reporter. I do not have much interest in funding rounds, the new VP, or the latest earnings report. (Please, PR people, quit pitching me business stories.) I do not know or particularly care exactly which companies will end up on top. I am interested in clever ideas and innovations and the smart, driven individuals trying to drag them into the real world. I am interested in people trying to solve problems, not business as such.

Anyway, enough about that.

Today I bring you one of those clever ideas, in the form of a company called Emrgy, which plops small hydropower generators down into canals.

Now I can hear you saying, Dave, plopping generators into canals does not seem all that clever or exciting, but there’s a lot more to the idea than appears at first blush. For one thing, there are lots more canals than you probably think there are, and they are a lot closer to electrical loads than you think.

So I’m geeked to talk to Emily Morris, founder and CEO of Emrgy, about the promise of small-scale hydropower, the economics of distributed energy, the ways that small-scale hydro can replicate the modularity and scalability of solar PV, and ways that smart power infrastructure can help enable smarter water management.

Alright, then, with no further ado, Emily Morris of Emrgy. Welcome to Volts. Thank you so much for coming.

Emily Morris

Thank you for having me. It's exciting to be here.

David Roberts

You know, I did a pod a couple of weeks ago about hydro and sort of the state of hydro in the world these days. And one of the things we sort of touched on briefly in that pod is kind of small-scale, distributed hydro, but we didn't have time to really get into it. And I'm really fascinated by that subject in general. So it was fortuitous a mere week or two later to sort of run across you and your company and what you're doing. Your sort of model answers a lot of the questions I had about small-scale hydro.

Some of the problems I saw in small-scale hydro, just because it just seems to me so at once small, but also kind of bespoke and fiddly. And your model sort of squarely gets at that. So anyway, all of which is just to say I'm excited to talk to you about a model of small-scale hydro that makes sense to me and some of the ins and outs of it.

Emily Morris

Yeah, absolutely. And I'm thrilled to be here. I'm thrilled to tell you more about our model. And I love that you called small-scale hydro bespoke because I was talking with one of the larger IOUs a few weeks back and they referred to hydro as artisanal energy. And I got such a kick out of that because it is in so many ways, hydro can often be a homeowner's pet project that has a ranch or something like that. And bringing hydro into a world in which solar panels are taking over distributed generation and utility scale, and doing it in such a standardized, modular, repeatable format, bringing that architecture into water, is something that hasn't yet really been done successfully. And what we're trying to do here at Emrgy.

David Roberts

it is kind of like a lot of this echoes solar. It's sort of an attempt to sort of replicate a lot of what's going on with solar. But we're getting ahead of ourselves. Let's start the business model is, to put it as simply as possible, is you make generators and you plop them down into canals. So let's start then with canals, because I suspect I am not alone in saying that I've gone almost all my life without thinking twice about canals. I know almost nothing about them. Like, what are they? Where are they? How many are there?

This water infrastructure kind of surrounds us is almost invisible. So just talk about canals a little bit. What are they used for and where are they and how many are there? What's the sort of potential out there?

Emily Morris

Yes, canals are almost invisible, but my goal is that after this podcast, you'll never look at a canal the same way you'll look at it, as a source of energy. That, man, we should be tapping that energy and using it. Canals are our main target market. They're really our only target market right now. We get asked all the time, well, couldn't you do this in a river? And couldn't you do this in tides? And the answer is yes. If you're focused on the engineering but as a commercial founder at Emrgy, I'm focused on the market and where can we install projects today that can be immediately delivering economic benefit and environmental benefit.

And so canals are that market. A canal is an open channel of water conveyance that's moving water from one place to another for a specific purpose. That purpose might be because it's raw water that's being delivered into the city to be treated for drinking water. It could be that it's an agricultural channel taking water from a river out to farmland. It could be an industrial flow of water that's coming from a large brewery or a large factory and delivering that into either a river or another piece of water conveyance. But canals are seemingly invisible. I'll be honest, when I started Emrgy, I thought that the technology would first thrive in a water treatment environment.

There's 30,000 water treatment plants in the US. And many tens of thousands all around the world. And that water is running 24 hours a day, seven days a week, 365. And man, the ability to take something modular that looks and feels like solar in terms of its ability to seamlessly integrate into the surrounding infrastructure, but deliver power in a baseload format was something that immediately, I thought, water treatment. Yet when I was really early in my entrepreneurial journey, we did our first pilot at the city of atlanta's largest water treatment plant. And I went out to Los Angeles and gave a white paper on it at LADWP.

And when I was there, the city of Denver had two representatives there. And they came up to me after my presentation, and they said, we think you're thinking about this all wrong. You got to come to denver and see what we've got in terms of water infrastructure. And when I went out to Denver that next couple of weeks, I spent three days touring probably 500 or 600 miles all around the Denver metro area of canals that are transporting water. You may not know that the water you drink in denver actually comes from the other side of the continental divide, and they bring it into the city of denver through a series of canals and storage reservoirs that allow for the appropriate amount of treated and stored water for the city.

And so when I was there, I thought about, okay, as a business model, being able to deliver one to ten of these modules at 30,000 water treatment plants sounds like I need a big sales force. And then looking at the Denver infrastructure and seeing hundreds of miles of uniform canal that's transporting water where thousands or tens of thousands of these generators could be deployed with one partner just made a ton of sense. And so then I started peeling back the curtain on that.

David Roberts

You say one partner. So are most of these two of the sort of features of canals? That came as somewhat of a surprise to me, and I'm sure you're familiar with this response is, first, when I thought of canals, the first thing I thought of was agriculture. I assumed they were mostly out in farmland. But what you have discovered is that they are laced throughout urban infrastructure, they are in cities.

Emily Morris

Oh, absolutely. It's both. It's certainly both. Our project we have a project with the city of Denver that overlooks the Denver skyline right there near the city. And if you overlay a map of Phoenix roadways with map of Phoenix waterways, you can see two highly sophisticated transport systems all throughout the metropolitan area. Not just Phoenix, think of Houston 22 canals and bayou's flow all throughout the urban metro area that are both a source of water or even an attraction for the city, but also have an inherent energy, sometimes too much energy during hurricane season and whatnot to be able to harvest and hopefully deliver value from as well.

David Roberts

Yeah, and so the other feature is they're not privately owned for the most part. Most of these canals are operated by a city municipal water district.

Is that sort of the standard?

Emily Morris

Yeah, that's correct. Typically there is an organization that manages the water infrastructure, the canal infrastructure. It is often public. It can be a political subdivision, like a municipality or a local not for profit organization or co-op. It also can be a private canal company, although those typically remain nonprofits. They're typically a public service for the good of the recipients of the water.

David Roberts

But the point is, you are not having to track down a bunch of individual owners of individual canals. You can get at a bunch of canals through one partner.

Emily Morris

That's absolutely the case. And it's all public record the managers of water infrastructure and their contact information. You're not going and knocking on someone's home asking if you can put something in the backyard or something like that. This is an operated and often, from their contractual perspective, they're typically buying water from an entity and selling water to a series of entities, buying water from the US Government and selling it to farmers, something like that. And so the reporting aspects about that water that flows through, they tend to be detailed. They tend to be long running. And so as you think about developing a resource assessment of how much energy is inherent in that water that you can produce electricity from, it's not necessarily like needing to go build a MET station and understand exactly what resources there.

They're typically well organized, well operated, and well documented.

David Roberts

A well characterized resource.

Emily Morris

Absolutely.

David Roberts

Okay, so you go to these canals. You make a deal with the owners of these canals, and then you go plop down energy generators into the canals. Let's talk about the generators, try to give the listeners kind of a sense of how big one of these things is and kind of what it looks like. What are you plopping down into the canal?

Emily Morris

In terms of physical size. Our generators are an eight foot cube, and they have their own precast concrete structure that holds them together. So you can think of sort of half of a precast concrete culvert, if you are familiar with the construction world, that is an eight foot cube. We do that strategically, they are easy to lift and handle.

They're easy to transport by trucking or other means. You can even containerize them if you need to. And we place those into the channels without doing any construction, any modification, any impounding of the channels, which is a really important part of the canals, because, as I mentioned before, that water is going to a destination for a purpose. And so going in and saying, yeah, we're just going to build a dam right here in the middle of your canal doesn't seem to resonate so well. And so being able to bring something in that's fully self supported can be placed into the channel and held there by its own weight.

And it only weighs about seven tons, so it's not a super heavy lift, but it's hydrostatically, designed to not shift or slide or overturn once the water hits it. And inside of that culvert or the concrete structure, there is a vertical axis turbine that looks probably very similar to vertical axis wind turbines that many of the listeners will be familiar with. And so they take advantage of the kinetic energy in the flow using the swept area of the turbine and the speed of the water, and generate torque and speed around the shaft up to the power takeoff and the generator. And so physically, they're eight foot cubes.

But from a power perspective, our smallest turbine that we sell is a 5 kilowatt turbine. And it's the same physical footprint that the 8 by 8 cube, but it can generate mechanically and electrically up to 25 kilowatts per turbine based on the depth and the speed of the water.

David Roberts

I was going to ask whether the sizes vary. So the generator, the eight foot cube is standard. All the generators come in these eight foot cubes, but the generators themselves vary in size based on the water flow.

Emily Morris

Yeah, that's exactly right. We do have a deeper water platform that goes up to about 18ft of water, and then we're working on an even deeper platform in conjunction with the DOE. But right now, our main platform is the eight foot cube. And the beauty of water is that the power is exponential by the speed of the water. And so we can place a turbine in and it can generate 5 kilowatts at say a shallower, slower speed. Or that very same equipment can put out five times the power output if placed in a different location. And so as we think about coming down the cost curve, growing to scale, we can immediately find higher density resources that make sense today, even as a young company that hasn't quite gotten fully to the quantities that other adjacent industries like solar and wind have.

David Roberts

Right. So I have a bunch of questions about that. But just this question about size brings up the question about canal size. If you have a standard sized module, I'm assuming that canals themselves are relatively standardized in size. With this eight foot cube, can you confidently say, we can go to more or less any canal and it'll work? Or do canals also vary?

Emily Morris

Canals vary, but not substantially. There are standard sizes, and our eight foot cube does cover a wide envelope of canals in the US. And abroad. We do see, though, that this is the array planning and array specification, which is how we deploy these. We never deploy them as single turbines, but really as arrays, just like solar and wind, that with the arrays. It's a very similar planning method to solar is you look at your total square footage across the canal, you look at the gradient of fall along the canal, and you plan out the optimized number of turbine modules that make sense for that canal.

So sometimes if you have a canal that's 18 feet wide, rather than build two 9 foot cubes, all of a sudden, you do two 8 foot cubes, right. And you standardize and you optimize for cost even if you're not squeezing every single ounce of power out of that flow. And I think that's one big thing that differentiates energy and distributed hydro from traditional sort of small-scale hydro is we're optimizing for cost and scale rather than for utmost efficiency, which is typically where hydro really focuses.

David Roberts

Right. And Volts listeners are very well educated on the fact that the modularity, the small-scale and modularity of solar panels are a huge piece of why they have proven so adaptable and grown so fast. Like the advantages you get from standardization and modularity vastly outweigh whatever sort of marginal gains you could get on either side in a particular canal.

Emily Morris

Absolutely. We're big believers in that, our smallest module is an order of magnitude larger than a solar module. But you should think of it absolutely in that same way. We do have people, especially the folks that are really focused in hydro, they say to us, "Oh, your modules are so small, 5 kilowatts or 25 kilowatts, that's so small." And I say to them, "No one ever goes to the solar field and say, 'Hey, your panels are so small.'" It's a totally different mindset that you have to be thinking of the module as the panel, as the individual generator that ultimately goes into the array. And yes, our arrays will likely continue to be on the distribution scale rather than on the utility scale or the large transmission scale. But no question the aggregation of modules is how power grows, this generation of renewables.

David Roberts

Well, let's try to get a sense of just how big they are power wise. So, 5 kilowatts to 25 kilowatts, what's a typical array, and then what's the output of a typical array, and then maybe just to help the listeners kind of get their head around it, how does that sort of compare to an array of solar panels? Like, if I'm the owner of a canal or a network of canals, and I'm trying to decide, do I want to put a bunch of these in there or do I want to say cover the canals with solar panels? What's the scale comparison there?

Emily Morris

Well, if you're asking me which one you should do, I would absolutely say both. The answer is both. One does not preclude the other, because this is a great real estate segment to be able to convert to renewables of all types. But when you think about our systems at 25 module, let's say that's 40 turbines to be a megawatt. And some canals are on the smaller side that we look at maybe enough for two or three modules across, some of them maybe ten modules across, just depending on the width of the canal. And so you could place 40 modules as close as, say, half a mile away across those four rows of ten, or it could be spread a much longer distance, it could be a mile or 2 miles for that.

And really we're optimizing for spacing. Obviously, you don't want to run cable to the point of interconnect any further than you have to. We're optimizing for hydraulics. You want the energy to recover after being taken out by our turbines as it flows downhill. And then ultimately, we want to co-locate these with the offtake and whether that's directly into the grid or behind the meter with a particular industrial or municipal client. Those are typically how we think about this. But when you think about covering a canal in solar panels, I don't have the specific statistics on how many linear feet equates to a megawatt or things like that, necessarily, but you're going to see, most importantly, that you need three times the power output or potentially more to overcome the differences in capacity factors. So with our system, they're typically operating 24 hours a day.

David Roberts

So in these canals that water flows through, water is constantly going through there 24 hours a day. I would think some of it at least would be sort of like scheduled or go in one direction and then another direction. Are they all steady 24 hours flows?

Emily Morris

Not everything is consistent, of course, but I would say that in the water space, the capacity factor is determined by seasonality and or maintenance schedules, but less by intermittency. It's actually pretty bad for a canal to be turned on, turned off, turned on, turned off, because you end up having other maintenance challenges, things that break issues in the canal.

David Roberts

So they want to run them?

Emily Morris

They want to run them continuously. Yes. And so depending on what the water is being used for, whether it's a certain area of cropland and therefore there's a seasonality to the flow that's fairly common, or if it's municipal, it may be a year round flow. Or depending on your region in the arid Southwest, you'll see perennial flows a lot more frequently than you will, let's say in Montana or Idaho, where there's obviously quite harsh winters.

And so in our case, we target canals that can be the most predictable in their flow and the most continuous. Yet if you have a site that is only running six months out of the year, getting to that 40% to 50% capacity factor because let's say it runs constantly through that six months of the year can still lead to an incredibly exciting impactful project overall with good returns, even though it's not on every day. Right? It's a different mindset.

David Roberts

Right.

Emily Morris

I have definitely had water districts say. "Well, what do I do in November, December, January if we're not flowing water?" And I said, "You may not think about it, but every night when you go to sleep, your solar panels also aren't working." It's just a different mindset of something not working every day for 90 days rather than not producing every night. And so doing that educational piece to where projects in terms of their output and their economic value can be highly competitive even at the shorter seasons with canals.

David Roberts

Right. So the basic point here is that while these generators may not crank out as much power as a solar panel while they're generating, they are generating much more often. They're generating around the clock. And so you have to have kind of three times the power output from a solar panel to end up matching the total power output.

Emily Morris

That's right.

David Roberts

They have the advantage of being base-loady, basically.

Emily Morris

Exactly. That's typically what we see is that for canals that are running the majority of the time, you'll ultimately need if you want the equivalent amount of annual energy, you'll need a power capacity on your solar that would be about three times larger than what you would need on the hydro side.

David Roberts

Interesting. Okay, so you go to a water district, you say, "Hey, we want to generate some power from your canals." You do an analysis of the sort of optimal kind of spacing and placing and then what, a truck comes in or a crane comes in and just sort of like drops these things one by one in the canal. It sounds like installation would be pretty straightforward and pretty low footprint, is that true?

Emily Morris

That's absolutely true. It sounds too simple to say in some ways, but yet simply lifting the turbines and placing them into the channel, making sure that they're level, making sure they're not sitting on top of debris, or boulders or something like that, that may have fallen in the canal is important. But placing them in the canal correctly is the most important aspect of the installation. That's unique to Emrgy.

David Roberts

So they're not connected in any way it's just the weight of the thing holding it in place. It's not literally not connected to anything. There's no screwing or attaching or bracketing.

Emily Morris

That's correct. There is nothing that is physically attaching it to the canal.

David Roberts

So easy to take out.

Emily Morris

Owners love this. Yes. Because they can take it out if they needed to ...

David Roberts

Or move it

Emily Morris

... often. Because these are operated channels they often will, once every five years or on some periodic schedule, drive up and down the canal or drive a bulldozer down and make sure that all the debris is out or something like that. So they love the flexibility. We tend to see that canal owners like the flexibility of being able to take them out. Now onshore each turbine, or each cross section, I should say, has a power conversion system that has both the control system as well as the power conditioning. And that is something we deliver as well. And it sits on a concrete pad on the side of the channel. But then as you connect those together electrically and then connect them to the grid, there's no innovation from Emrgy there. It's just optimization based on the appropriate electrical balance of system design.

And so as we think about partnerships with other types of developers, other renewable developers, there isn't a special skill set that installers would need to have to be able to install our system. The balance of system is essentially exactly the same as distributed solar. And all you would need to do is be able to place the turbines in the canals correctly.

David Roberts

Interesting. Yeah, I like simple and dumb. That's resilient and that's what can spread fast.

Emily Morris

And maybe I'll just mention that when I first started this business, I thought it was too simple. I assumed that somebody had already done this before, that it seemed pretty obvious. And as I looked deeper into it, I learned really the two things that I believe have held this space back that now are no longer barriers. One of them is regulatory. And that gets a little bit back to why we focus on canals in general, is that up until 2015, I believe it was all water in the US was permitted for power in the same way. So to place our system in a canal would have been permitted and regulated the same way it would in a river. And in 2015, FERC enacted the qualifying conduit exemption which stated that electric projects within water conduits or conveyance systems were exempt from FERC licensing up to 40 megawatts per project.

David Roberts

Interesting.

Emily Morris

And so now our projects are fully exempt from FERC licensing. And it's a 30-day notice of intent to FERC requesting that exemption, which is lightning fast compared to other projects.

David Roberts

Yes. So you're not dealing with permitting issues, NIMBY issues, all the sort of like land issues, all the stuff that's bedevilling wind and solar right now you're sort of doing an end run around that stuff.

Emily Morris

We'd like to think so. I mean, projects are always controversial to some extent, and every neighbor may have an idea of what they'd like to see in the canals. But in terms of general regulatory approvals and project buy in, we tend to see this being much lower barriers than many of the other types of land based systems. The other thing that was a major barrier that has since been lifted is the growing ability to use solar designed or solar inspired smart inverters for technologies and generators other than solar.

David Roberts

Let's talk about that first. Maybe, I don't want to assume first, maybe just tell listeners what does an inverter do and what does it mean for it to be smart? And maybe tell us about how those were developed in solar.

Emily Morris

Sure. So the generation of the power from the water or from the sun typically has been done over many decades and even centuries in terms of hydro, very successfully. The physics of getting energy out of a resource is something that is fairly straightforward. Now, the modern scalability of being able to replicate that in thousands of locations all around the world, conveniently into our modern electricity grid, is something that I would say has been hugely influenced through the development, industrialization and scalability of the smart inverter. And what I mean by that is actually readying the power, conditioning the power, making it grid compliant and ready for delivery into the grid, has received billions of dollars of industrial development in the solar industry to take it down in size and form factor as well as in efficiency.

And if that was not available to us, and Emrgy had to build out an industry much like solar to drive industrial development of power conversion and power delivery, to be able to install it globally, we would be on a 20- to 30-year timeline. We would need billions of dollars and or it would just be really slow. If we had to do all custom power equipment, then every utility would have to come in and do a full engineering review of what we were building, whether it would cause problems to the grid. And what we have been able to take amazing advantage of is the ability to utilize a smart inverter that was originally designed for solar and largely used in solar, and be able to use that to control our hydro-generator without invalidating its utility certifications.

You have to know quite a bit about power systems, perhaps, to know that controlling the power curve in a hydro-turbine and controlling the power curve in a solar panel is very different, a lot trickier than one might think. And being able to manage the torque and speed, to be able to manage and optimize a power point along the curve is tricky when you're trying to use a device that was made for a different industry. And so one of the biggest areas of Emrgy's technology, development and innovation is not necessarily in the. Physics in the water of how we're getting energy out of the water.

It's really how are we delivering that electricity now to the grid in the most cost effective, high efficiency and streamlined way. And being able to use the same inverters that the solar industry is using helps put us on a much closer playing field to be able to deploy these projects in an apples to apples way. And even, as you mentioned, do you do solar or hydro and canals? It's great to do both and potentially even put them right into the same inverter. And that's the beauty of where distributed generation, I believe, is going, is to a flexible environment where you can have that base load, have your peaking load, have your energy storage and share as much of the cost along the system as you can.

David Roberts

So you can just use smart inverters that are designed for solar off the shelf. There's no engineering or tweaking or fiddling you have to do.

Emily Morris

So we're prohibited from doing a ton of tweaking inside the inverter because obviously they go through quite a level of utility compliance and we can't necessarily change that. However, what we have is a power controls unit. It's a NEMA panel that looks like a standard electrical panel that sits right next to the inverter and that contains all of our fairly sophisticated controls and mechanisms to allow us to control our system and have it communicate with the solar inverter in a language that the solar inverter understands most of our innovation. And IP in that area sits in that power controls unit rather than in the inverter itself.

David Roberts

Got it. And so what do we mean when we say smart inverter? I've always kind of wondered, do people just say that because it's like sophisticated? Or is there a clear distinction between a dumb inverter and a smart inverter?

Emily Morris

I'm probably not best equipped to handle that question, but I can say that from our perspective, using the inverters that we do use enables us to have both the smart capabilities as it relates to grid following, ensuring the grid islanding or other types of issues are matched. But also for us, having the data aspect of what's collected in that inverter and the amount of information that we can pull off of it is very helpful for us. I mean, we collect data in a number of ways and using the solar inverter or the smart inverter helps us to triangulate and calibrate that data to ensure its accuracy. So, for example, the inverter will give us power output, real time data in that regard, while we also have sensors off board the system in the water that reads flow information, speed information.

And so we know if there's a change in power, is that related to a change in flow and we can calibrate that via the sensors, or is it related to an issue in the system? And using both the data off the inverter as well as off of our other data collection systems, helps us to diagnose and monitor device health as well as to especially as we continue to innovate, predict and alert water infrastructure owners of decisions they may need to make.

David Roberts

The obvious service you're providing to a water district is we're going to give you some power, some economical power. But I'm wondering about, if you're collecting so much information about water flow, is that information helpful to the canal owners? In other words, are you able to improve the actual operation of the water infrastructure itself?

Emily Morris

We are, and I believe that this will continue to evolve as the industry continues to evolve as well. But right now the water management, especially out in the field, is managed by an aging population. I think the last figure I saw that the average what they call a ditch tender or ditch rider, someone that is monitoring the health of the water conveyance system, the average age of that title is 56 years old.

David Roberts

A familiar story in so many of these areas.

Emily Morris

Yeah. So recruiting young talent, recruiting the right type of personnel is tough and so being able to provide data that can integrate back into a SCADA system or otherwise be able to inform those that are not in the field things that may be happening in the canal is definitely valuable. Now over time as well. The canals have been operated for mainly one purpose for many decades now, which is to deliver water and earn revenues off of delivering that water. They're selling the water now as they will be running water and earning revenues from generating power along the way.

Working with water districts to optimize their irrigation schedules or their deliveries, to be able to take advantage ...

David Roberts

So they could change the way they do things to optimize power delivery too?

Emily Morris

Yes, I mean, this is one of the very few generation types, particularly on the distribution grid, that is a controllable feedstock. And so to the extent that a water district can generate double the revenue by flowing water during specific times, there are incentives to do so.

David Roberts

Interesting.

Emily Morris

And we can provide those. And so aligning incentives between the water district Emrgy and the farmers that they serve to be able to really bring a powerful force of renewable energy onto the grid at the right times of day or the right times of year is something that we believe distributed hydro has a unique ability to do.

David Roberts

So I'm guessing that this is in early days, this idea of a water district sort of co-optimizing water usage and power output. I would guess that there's a lot of running room there to find efficiencies and find better ways of doing things.

Emily Morris

That's right there is it's early days. I mean, we are working one of our municipal clients, the canal that we're installed within, its only job is to manage water levels between two reservoirs. So there is a ton of operational flexibility within that section and being able to work with them on optimization of the water flows to drive power is something very straightforward. Now, there are other districts that have been doing things the same way for 50 years. And perhaps they're going to be more of the districts where you have to put the incentive out there first, let them start to see how it changes their income with a change in flow and guide them on that, and we'll see it over time.

But this is one thing that we talk about a lot at Emrgy, is how to adequately predict future behaviors with water as a function of how this partnership can work together and provide them both the data, the revenues and other services that are helpful.

David Roberts

You could even imagine water districts with an array of these turbines installed maybe playing a role in demand response type things. In other words, they might have the ability to sort of turn it up and down on demand as a source of value.

Emily Morris

Absolutely, and they can do it both on the water side as well as somewhat on the power side as well. If you're familiar with the energy water nexus, the concept that it takes quite a bit of electricity to move water, move and treat water, a lot of these water districts are huge electricity consumers. And so one thing we often talk about with districts is what are their highest consumers of electricity? Is it a particular groundwater well? Is it a particular pumping plant? Is it a particular water treatment facility? How can we both utilize the water to drive demand response and to drive smart operation of water and therefore power?

As well as should we cluster these systems around some of those highest consumers even in some ways behind the meter or along with energy storage to where they're able to keep that demand down into a whole different echelon from what they've been operating at?

David Roberts

Right. Well, this raises the question of in your installations so far, who's buying this power? Who's the modal kind of consumer? Is it the water districts themselves? I mean, they're big electricity consumers. You can see this as kind of a self contained loop kind of thing where they're sort of generating the power that they're using or are you selling it into the grid? Are you selling it to particular off takers or is there a standard model yet?

Emily Morris

There's not a standard model yet. I would say the most common models are power purchase agreements directly with the water district so buying power from us rather than from the grid. And in many cases, if we're in states that have advantageous net metering, which I know are becoming fewer and fewer each year, but able to use that type of arrangement where essentially they're receiving a bill credit and then remitting those savings onto Emrgy

David Roberts

And net metering works the same here as it does for solar panels?

Emily Morris

Yeah, exactly the same. Exactly the same. Down to the same form you fill out from the utility, all the same. And then there are certain states that have advantageous hydro avoided cost contracts where we can just pull directly on a standard offer from the IOU in the area that can allow for a bit of a streamlined contract negotiation. Then when you're meeting with the district, you're only talking about how much we're going to be paying the district to host the system and share those revenues with the IOU rather than contracting with them on power purchase directly.

David Roberts

Right. A little easier for them. And that sort of raised my next question, which is, is the business model that you go to a water district and sell it these turbines and then it operates these turbines, or is this a power as a service type of arrangement where you own the turbines and operate them and just sell the power to the districts?

Emily Morris

Yeah, Emrgy has always been organized with a goal toward power as a service. We're currently doing that, although in our first reference projects, we needed to sell the turbines just to get equipment out there, get people familiar with it, which we were successful in doing. Now we're focused primarily on a power as a service model. Although water does tend to be an industry with a high value on ownership. And so many of the districts we work with, they're either interested in being a part owner, they're interested in a future buyout option or transfer of ownership option, just because it's quite common that the manager of the water district grew up at the water district, had maybe a father or grandfather that worked there.

And so they focus on generational outcomes. They want to see long lasting systems. They don't want to see us come in, plop something in and then blaze off. They want to know that we're going to be there for the long haul, which with water power that is one of the other benefits is that this is an electromechanical system that if properly maintained, will last for many decades. It doesn't have that inherent chemical degradation.

David Roberts

Right, solar panels are I think the official is 20 years, or in practice they last a little longer than but I think they're like generally certified for 20 years of operation. What's one of your turbines? Is there a specific fixed time period that you guarantee or how long will these last?

Emily Morris

Yeah, well, we market 30 years. We seek out 30-year contracting arrangements on both site hosting and power production and sales. But truly there's nothing that drives that 30 years aside from that's what our clients are used to seeing from solar or wind or other types. For us, if these systems continue to be maintained, well, we do do an overhaul every 15 years and make sure that all the equipment is well maintained. But ultimately I was just in Idaho, a few weeks ago and there was a hydro-plant there that had similar materials, similar bearings, similar turbine blades, generators.

It was 113 years old. And I won't live long enough to know if one of our turbines can last that long, but there isn't anything inherent of the system that just breaks down and ultimately causes it not to function.

David Roberts

Right. So another question is which these days I find myself asking every guest, which is what is IRA doing for you? Is the Inflation Reduction Act helping you in some specific way either in manufacturing these things and by the way, they're manufactured here in the US?

Emily Morris

They are.

David Roberts

So that's domestic content, what's your relationship with the IRA?

Emily Morris

While we are still early in how the IRA is being implemented and transacted against within our projects, the understanding of how the IRA will provide advantage to the projects is massive for us. You're spot on. Our systems qualify for both the production tax credit and the investment tax credit. And by both, I mean either we can use either one. We meet the requirements for the domestic content requirement, and many of our projects that we're seeking are in energy communities as well.

David Roberts

Oh, right.

Emily Morris

And so the opportunity for quite a substantial tax benefit as a function of these projects. And I'll say, in addition, some of the other major IRA programs or BIL programs that funded both the Department of Energy's Office of Clean Energy Demonstrations, OCED, or the USDA's Rural Energy for America program, the REAP program, are also incredibly advantageous to our projects. A substantial amount of our project pipeline right now is in USDA REAP eligible census tracts, which means that they qualify for either loan guarantees, which provides for commercial lenders to be able to offer lower interest lending to the project, or grant programs for renewable energy systems up to a million dollars each. And so these can provide, especially given that these are not exclusive, so we can bring in both REAP loan guarantees as well as the IRA tax benefits into the same project, making them incredibly attractive even in an earlier stage of a company where we haven't yet optimized cost and whatnot.

David Roberts

Interesting, so you're already in a position where you can go to a water district and offer them a pretty sweet deal, very low upfront costs, a new revenue stream, fairly minimal maintenance. A couple of final questions. First off, you talk about sort of scale and reducing costs. These are pretty simple, as I said before, as one of the benefits. Sort of simple. You have a concrete bracket, there's a vertical turbine, there's some wires and some power control stuff. Where is the room here for technological advancement or is there room for a lot of tech advancement or are you going to get more cost reductions out of scale?

Or are you, do you think, pretty close already to this being as cheap as it can get?

Emily Morris

Yeah, I mean, in terms of tech advancement. I often describe our systems as sort of like when you drive past a wind farm and you can just tell that it was built in wind 1.0 all the turbines are sort of facing the same direction and they're sort of spaced in a finite manner. And then you drive by a newer wind facility and you can tell they're taking advantage of all of the wake of all the different turbines and they're all oriented differently and they're spaced differently. I call our system still a bit of like that 1.0 feel right?

We're designing systems and optimizing them for the canals, but there's things that we just can't simulate in any fluid dynamic software until we've got hundreds or thousands of these turbines out there operating.

David Roberts

So learning some learning by doing here.

Emily Morris

Oh, absolutely. I mean, there are times we've seen in practice where the turbines are all generating and then let's say the water district starts to they lower their flow and the turbines are no longer fully submerged in the water. And we found that if you ease off of one of the turbines in terms of its electrical loading and it starts to spin faster in freewheel, then it can ultimately push water levels up and the turbines upstream push into their optimal generating capacity. And that gets a little technical. Maybe folks listening want to call me a nerd out about that sometime, I'd love to ...

David Roberts

About hydraulics.

Emily Morris

But nonetheless, we are definitely at the tip of the iceberg in terms of understanding all the different wake effects and how to create an array that is more than the sum of its parts. So I'd say that's a big area for tech advancement. We are currently funded by ARPA-E in advancing that what we call the term we use is called dynamic tuning, tuning the systems as things dynamically change around them. Another area for advancement is certainly around hybrids and micro grids. So you made the comment earlier about solar or this and we really believe that to really become carbon free at the distribution level, it's going to be many different technologies, not one silver bullet.

And so there's no reason why you shouldn't combine either floating solar or ground mounted or spanning solar together with our system, share as much of the balance of system as possible, drive LCOE down and have a hybrid. Adding in energy storage or even adding in renewable fuels production is absolutely something that you could use our system with. And we're actually, we're funded with DOE on another one of these projects looking at micro-grids for resiliency, because a lot of times that resiliency piece in a micro-grid is diesel, right? When all else fails, you have your diesel.

And so how can we create something where hydro can be that resiliency piece as something that we're currently working on as well for tech advancement?

David Roberts

Interesting.

Emily Morris

And I think you'll see a lot of we see Emrgy as sort of the base platform, the distributed hydro as the base platform. But ultimately we're interested in pursuing how water infrastructure, which spans, as we already talked about, both rural and urban environments, can ultimately become a key facilitator of the energy transition, not just something that's invisible.

David Roberts

Would you Emrgy get into designing and installing hybrid systems or would this be like a partnership with a solar company? Or is it too early to know?

Emily Morris

We already are into designing and specifying hybrid systems and really more so on creating, for lack of a better term, sort of the universal plug right, where you could plug our system and solar and other things into our overall power architecture. And so we're not necessarily out there innovating on the solar side or on the energy storage side, but creating a way that whether it's with a codevelopment partnership or whether it's something that we can source from a manufacturer, the same way that other developers do, with a very flexible and universal application for combining generation and storage types.

David Roberts

Yeah, because if there are efficiencies available in optimizing one of your systems, I can just imagine once you get into optimizing systems that are small hydro turbines and solar panels and batteries, the more pieces you have, the more sort of room for optimization and efficiency you have, and the more sort of runway there is to bring down costs for the total system.

Emily Morris

And the more controllability you can add, then the more ultimately this becomes meaningful. At the distribution scale, I think we need more controllability and dispatchability at the distributed scale and providing that baseload resource is one of the key pieces to getting there. And so we don't claim to be experts in microgrid controls or anything like that and definitely seek partnerships in that regard. But I definitely see this as an important piece to the puzzle in how we get to be a more resilient set of carbon-free communities.

David Roberts

Maybe just say a word or two about why you think, because there's a long running argument in the clean energy world where you see this, especially in solar, where people say, well, the industrial size, utility scale solar, you get cheaper per kilowatt hour output, which I don't think is controversial. Like if you're just measuring on a per kilowatt hour basis, you're going to get cheaper power out of giant fields of solar than by scattered multiple installations. So what do you see as kind of the advantage of doing all this work in a distributed way rather than just say, like adding some big new dam or some big turbine to some big river somewhere? What do you see as sort of the advantages of power generation being distributed through urban and rural areas in water infrastructure like this?

Emily Morris

I wouldn't call myself an expert on the math, but while I think you're right that at the field the cost per kilowatt hour of a large solar farm is less. Although I don't know that that math holds. If it's the cost of that kilowatt hour to your home, and if you calculated the per kilowatt hour cost to your home for utility or transmission level solar versus local distributed energy, whether that's solar or Emrgy or anything else, I think the number is probably a lot closer and maybe surprising. I'm sure people have done the math. I personally don't know it, but I believe that as we start looking and staring down the barrel, truly, of what it's going to cost our grid, our transmission grid, to maintain modernization and resiliency, if all we do is keep building large utility scale solar farms, the price of delivery to the house is no question going to become higher and higher.

And if we can successfully generate local energy, then it should be lower cost because you're not going to have those massive grid upgrades. It should be more resilient so that if there's a wildfire halfway across the state, it doesn't affect you.

David Roberts

The micro-gridding and ability to island is huge, especially if you imagine it sort of multiplied out to every place with a series of canals, which is more or less every city of any size.

Emily Morris

No question. And so we're big believers in the distributed scale, but again, large hydro and large solar provides such a huge benefit. I think we often take strong stances without realizing all the benefits we enjoy from all the various types of assets that are on the grid. And so I think there's a need for all of it. But I absolutely think that there is a better way to becoming net zero than just covering all of our remote fields in solar and all the batteries that are needed to get there. So being able to bring that more locally in a more continuous format is one solution of, I think, all the many that we'll need to truly become net zero.

David Roberts

So, final question is a question that, as you say, you get asked a lot. Do you have an eye on other kinds of distributed water infrastructure or is this like a canal play more or less exclusively? Or are there other like, I didn't even really know about canals, so are there other hidden water infrastructure that I don't know about hiding around? Or can you imagine something this simple and modular and low footprint working in natural water features, streams or rivers or something? What's the sort of next step beyond this?

Emily Morris

Yeah, I mean, we get asked for all sorts of applications that would probably not be on your radar. Whether we can hang these off of oil rigs out in the Gulf, or can we take advantage of the intercoastal waterways on the barrier islands in Florida, or could we use these in tidal environments in Australia or in LNG plants in Singapore? I mean, you name it, we definitely get asked about anytime someone either is driving in their car, looks out the window and sees a flow of water, and they think, "Oh, we should be able to tap into that energy."

David Roberts

Right, there's energy in all of it.

Emily Morris

They're absolutely right from a physics perspective, but Emrgy is super focused on what we can do and bring value today. Because for me, a clean kilowatt hour generated today is far more valuable than a clean kilowatt hour that I have to plan for and engineer for and design for that can be generated in 2028. And so we're focused on what are near real term opportunities. I would say that we're coming full circle back around to some of the water treatment applications.

David Roberts

Yeah, I was going to ask, what if there's stuff in the water? I meant to ask this much earlier. Are most of these canals carrying clean water? And if it's not clean, if there's stuff in it, does that muck with your turbines?

Emily Morris

Certainly. If there's undesirables in the water, it's going right through our turbines. We design the turbines to avoid as much as that as possible with some fluid mechanic designs, but we have an operating mode that essentially will flush the turbines if needed. If they're stuck, if there's debris or algae or something on there, that's a very similar mechanism to what you find in a pump to flush it and get rid of any alien items. But nonetheless, I would say that in terms of water treatment, we'd be focused on effluent channels of already treated water that's returning out to a different water source.

As I mentioned before, we are doing some R&D work related to riverine and tidal resources. When I started Emrgy, I said, "Hey, we're going to pick a market that we can really master. And if we can master the product and master the base platform that can scale, amending it for a specific environment is much easier than trying to create a product in lots of different environments at the same time." So over time, perhaps you'll see us in rivers or you'll see us in tides. I don't think it'll be anytime soon. The UN Food and Agriculture Organization estimates that there's 2 million linear miles of surface water infrastructure in the world over the globe.

And so we'll be pretty busy in the canal market for a long time. And I think building a really impactful technology for this space along the way. But certainly we'd be open to collaborations or exploring other markets as those become, I believe, more accessible and developable.

David Roberts

It's exciting to me because this is sort of, as we said, modular and repeatable in the way that solar was, but at the very, very beginning of that journey that we've seen solar go through, which is scale expands, it gets cheaper. You find your ways into new niches. You find your way into applications you didn't even know you were going to get near. Just sort of like it's a self reinforcing cycle of sort of scale and cheapness and then spreading to new applications. That's been fascinating to watch in solar, and it's sort of just at the outset here in small-hydro.

Emily Morris

Absolutely. We hope we can leapfrog some of that, having learned from all the things that they've done and being able to actually adopt many of their innovations like the inverters and whatnot. But no question, this is an emerging asset class. There's still tons to learn. And as we scale, I'll like to look back on this podcast a few years from now and see how many of my predictions help.

David Roberts

Yeah, we'll have to have you back on. Alright, Emily Morris of Emrgy, thanks so much for coming on this really intriguing and exciting new area here, so I appreciate you sharing with us.

Emily Morris

This was great, 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, environmental social scientist Holly Jean Buck discusses the critique of emissions-focused climate policy that she laid out in her book Ending Fossil Fuels: Why Net Zero Is Not Enough.

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David Roberts

Over the course of the 2010s, the term “net-zero carbon emissions” migrated from climate science to climate modeling to climate politics. Today, it is ubiquitous in the climate world — hundreds upon hundreds of nations, cities, institutions, businesses, and individuals have pledged to reach net-zero emissions by 2050. No one ever formally decided to make net zero the common target of global climate efforts — it just happened.

The term has become so common that we barely hear it anymore, which is a shame, because there are lots of buried assumptions and value judgments in the net-zero narrative that we are, perhaps unwittingly, accepting when we adopt it.

Holly Jean Buck has a lot to say about that. An environmental social scientist who teaches at the University at Buffalo, Buck has spent years exploring the nuances and limitations of the net-zero framework, leading to a 2021 book — Ending Fossil Fuels: Why Net Zero Is Not Enough — and more recently some new research in Nature Climate Change on residual emissions.

Buck is a perceptive commentator on the social dynamics of climate change and a sharp critic of emissions-focused climate policy, so I'm eager to talk to her about the limitations of net zero, what we know and don't know about how to get there, and what a more satisfying climate narrative might include.

So with no further ado, Holly Jean Buck. Welcome to Volts. Thank you so much for coming.

Holly Jean Buck

Thanks so much for having me.

David Roberts

It's funny. Reading your book really brought it home to me how much net zero had kind of gone from nowhere to worming its way completely into my sort of thinking and dialogue without the middle step of me ever really thinking about it that hard or ever really sort of like exploring it. So let's start with a definition. First of all, a technical definition of what net zero means. And then maybe a little history. Like, where did this come from? It came from nowhere and became ubiquitous, it seemed like, almost overnight. So maybe a little capsule history would be helpful.

Holly Jean Buck

Well, most simply, net zero is a balance between emissions produced and emissions taken out of the atmosphere. So we're all living in a giant accounting problem, which is what we always dreamed of, right? So how did we get there? I think that there's been a few more recent moments. The Paris agreement obviously one of them, because the Paris agreement talks about a balance between anthropogenic emissions by sources and removals by sinks. So that's kind of part of the moment that it had. The other thing was the Special Report on 1.5 degrees by the Intergovernmental Panel on Climate Change, which further showed that this target is only feasible with some negative emissions.

And so I think that was another driver. But the idea of balancing sources and sinks goes back away towards the Kyoto Protocol, towards the inclusion of carbon sinks, and thinking about that sink capacity.

David Roberts

So you say, and we're going to get into the kind of the details of your critique in a minute. But the broad thing you say about net zero is that it's not working. We're not on track for it. And I guess intuitively, people might think, well, you set an ambitious target and if you don't meet that target, it's not the target's fault, right. It's not the target's reason you're failing. So what do you mean exactly when you say net zero is not working?

Holly Jean Buck

Well, I think that people might understandably say, "Hey, we've just started on this journey. It's a mid-century target, let's give it some time, right?" But I do think there's some reasons why it's not going to work. Several reasons. I mean, we have this idea of balancing sources and sinks, but we're not really doing much to specify what those sources are. Are they truly hard to abate or not? We're not pushing the scale up of carbon removal to enhance those sinks, and we don't have a way of matching these emissions and removals yet. Credibly all we have really is the voluntary carbon market.

But I think the main problem here is the frame doesn't specify whether or not we're going to phase out fossil fuels. I think that that's the biggest drawback to this frame.

David Roberts

Well, let's go through those. Let's go through those one at a time, because I think all of those have some interesting nuances and ins and outs. So when we talk about balancing sources and sinks, the way this translates, or I think is supposed to translate the idea, is a country tallies up all of the emissions that it is able to remove and then adds them all up. And then what remains? This kind of stuff, it either can't reduce or is prohibitively expensive to reduce the so called difficult to abate or hard to abate emissions. Those are called its residual emissions, the emissions that it doesn't think it can eliminate.

And the theory here is then you come in with negative emissions, carbon reduction, and you compensate for those residual emissions. So to begin with, the first problem you identify is that it's not super clear what those residual emissions are or where they're coming from, and they're not very well measured. So maybe just explain sort of like, what would you like to see people or countries doing on residual emissions and what are they doing, what's a state of knowledge and measurement of these things?

Holly Jean Buck

So the state right now is extremely fuzzy. And so I'll just back up and say that my colleagues and I looked at these long term strategies that are submitted to the UNFCCC under the Paris Agreement. Basically, each country is invited to submit what its long term strategy is for reaching its climate goals. And so we've read 50 of those.

David Roberts

Goodness.

Holly Jean Buck

Yeah, lots of fun. And they don't have a standard definition of what these residual emissions are, although they refer to them implicitly in many cases. You can see the residual emissions on these graphs that are in these reports.

But we don't have a really clear understanding in most cases where these residual emissions are coming from, how the country is thinking about defining them, what their understanding of what's truly hard to abate is. And I emphasize with this being a challenge, because what's hard to abate changes over time because new technologies come online. So it's hard to say what's going to be hard to abate in 10 or 20 years.

David Roberts

Right.

Holly Jean Buck

But we could get a lot better at specifying this.

David Roberts

And this would just tell us basically without a good sense of residual emissions across the range of countries, we don't have a good sense of how much carbon removal we need. So is there something easy to say about how we could make this better? Is there a standardized framework that you would recommend? I mean, are any countries doing it well and precisely sort of identifying where those emissions are and explaining why and how they came to that conclusion?

Holly Jean Buck

So there's 14 countries that do break down residual emissions by sector, which is like the first, most obvious place to start.

David Roberts

Right.

Holly Jean Buck

So, number one, everybody should be doing that and understanding what assumptions there are about what sectors. And generally a lot of this is non-CO2 emissions and emissions from agriculture. There's some emissions left over from industry, too, but having clarity in that is the most obvious thing. And then I think that we do need a consistent definition as well as processes that are going to standardize our expectations around this. That's something that's going to evolve kind of, I think, from the climate advocacy community, hopefully, and a norm will evolve about what's actually hard to abate versus what's just expensive to abate

David Roberts

Kind of a small sample size. But of the 14 countries that actually do this, are there trends that emerge? Like, what do these 14 countries currently believe will be the most difficult emissions to eliminate? Is there agreement among those 14 countries?

Holly Jean Buck

Well, it's pretty consistent that agriculture is number one, followed by industry, and that in many cases, transport, at least short transport, light duty transport is considered to be fully electrified. In many cases, the power sector is imagined to be zero carbon. But I will also say that the United Kingdom is the only one that even included international aviation and shipping in its projection. So a long way to go there.

David Roberts

And this is not really our subject here. But just out of curiosity, what is the simple explanation for why agriculture is such a mystery? What are these emissions in agriculture that no one can think of a way to abate?

Holly Jean Buck

I mean, I think it varies by country, but a lot of it is nitrous oxide. A lot of it has to do with fertilizer and fertilizer production, fertilizer over application and I think obviously some of it is methane too from the land sector, from cows. So I think maybe that is considered a more challenging policy problem than industry.

David Roberts

Yeah, this is always something that's puzzled me about this entire framework and this entire debate is you look at a problem like that and you think, well, if we put our minds to it, could we solve that in the next 30 years? I mean, probably. You know what I mean? It doesn't seem versus standing up this giant carbon dioxide removal industry which is just a gargantuan undertaking. This has never been clear to me why people are so confident that carbon dioxide removal is going to be easier than just solving these allegedly difficult to solve problems over the next several decades.

I've never really understood that calculation.

Holly Jean Buck

I think it just hasn't been thought through all the way yet. But I expect in the next five years most people will realize that we need a much smaller carbon removal infrastructure than is indicated in many of the integrated assessment models.

David Roberts

Yeah, thank you for saying that. This is my intuition, but I just don't feel sort of like technically briefed or technically adept enough to make a good argument for it. But I look at this and I'm like which of these problems are going to be easier to solve? Finding some non-polluting fertilizer or building a carbon dioxide removal industry three times the size of the oil industry? It's crazy to view the latter as like, oh, we got to do that because we can't do the first thing. It just seems crazy. Okay, so for the first problem here with net zero is we don't have a clear sense of what these residual emissions are, where they come from, exactly how we define them, et cetera.

So without that, we don't have a clear sense of the needed size of the carbon dioxide removal industry. That said, problem number two here is that even based on what we are currently expecting CDR to do, there doesn't appear to be a coordinated push to make it happen. Like we're just sort of like waving our hands at massive amounts of CDR but you're not seeing around you the kinds of mobilization that would be necessary to get there. Is that roughly accurate?

Holly Jean Buck

Yeah, and I think it follows from the residual emissions analysis because unless a country has really looked at that, they probably don't realize the scale of CDR that they're implicitly relying on.

David Roberts

Right, so they're implicitly relying on CDR for a couple of things you list in your presentation I saw and residual emissions is only one of those things we're expecting CDR to do.

Holly Jean Buck

There's the idea that CDR will also be compensating for legacy emissions or helping to draw down greenhouse gas concentrations after an overshoot. I don't think anybody is saying that exactly because we're not at that point yet, but it's kind of floating around on the horizon as another use case for carbon removal.

David Roberts

Yeah. So it does seem like even the amount of CDR that we are currently expecting, even if most countries haven't thought it through, just the amount that's already on paper that we're expecting it to do, we're not seeing the kind of investment that you would want to get there. What does that tell you? What should we learn from that weird disjunct?

Holly Jean Buck

For me, it tells me that all the climate professionals are not really doing their jobs. Maybe that sounds mean, but we have so many people that are devoted to climate action professionally and so it's very weird to not see more thinking about this. But maybe the more nice way to think about it is saying oh well, people are really focused on mitigation. They're really focused on scaling up clean energy which is where they should be focused. Maybe that's reasonable.

David Roberts

Yeah, maybe this is cynical, but some part of me thinks, like if people and countries really believed that we need the amount of CDR they're saying we're going to need, that the models show we're going to need, by mid century they would be losing their minds and flipping out and pouring billions of dollars into this. And the fact that they're not to me sort of like I guess it feels like no one's really taking this seriously. Like everyone still somewhat sees it as an artifact of the models.

Holly Jean Buck

I don't know, I think the tech sector is acting on it, which is interesting. I mean, you've seen people like Frontier mobilize all these different tech companies together to do these advanced market commitments. I think they're trying to incubate a CDR ecosystem. And so why does interest come there versus other places? Not exactly sure. I have some theories but I do wonder about the governments because in our analysis we looked at the most ambitious projections offered in these long term strategies and the average amount of residual emissions was around 18% of current emissions. So all these countries have put forward these strategies where they're seeing these levels of residual emissions.

Why are they not acting on it more in policy? I think maybe it's just the short termism problem of governments not being accountable for things that happen in 30 years.

David Roberts

Yeah, this is a truly strange phenomenon to me and I don't even know that I do have any theories about it, but it's like of all the areas of climate policy there are tons and tons of areas where business could get involved and eventually build self-sustaining profitable industries out of them. But CDR is not that there will never be a self-sustaining profitable CDR industry. It's insofar as it exists, it's going to exist based on government subsidies. So it's just bizarre for business to be moving first in that space and for government to be trailing.

It just seems upside down world. I can't totally figure out government's motivations for not doing more and I can't totally figure out businesses motivations for doing so much.

Holly Jean Buck

Well, I think businesses acting in this R&D space to try to kind of claim some of the tech breakthroughs in the assumption that if we're serious about climate action we're going to have a price on carbon. We're going to have much more stringent climate policy in a decade or two. And when that happens, the price of carbon will be essentially set by the price of removing carbon. And so if they have the innovation that magically removes the most carbon, they're going to be really well set up for an extremely lucrative industry. This is all of course hinging on the idea that we're going to be willing to pay to clean up emissions just like we're willing to pay for trash service or wastewater disposal or these other kind of pollution removal services.

Which is still an open question, but I sure hope we will be.

David Roberts

Yeah, it's totally open. And this is another area where this weird disjunct between this sort of expansive talk and no walk. It's almost politically impossible to send money to this greenhouse gas international fund that's supposed to help developing countries decarbonize, right? Like even that it's very difficult for us to drag enough tax money out of taxpayers hands to fund that and we're going to be sending like a gazillion times more than that on something that has no visible short term benefit for taxpayers. We're all just assuming we're going to do that someday. It seems like a crazy assumption.

And if you're a business and you're looking to make money, it just seems like even if you're just looking to make money on clean energy, it seems like there's a million faster, easier ways than this sort of like multidecade bank shot effort. I feel like I don't have my head wrapped around all those dynamics. So the first problem is residual emissions. They're opaque to us, we don't totally get them. Second problem is there's no evident push remotely to scale of the kind of CDR we claim we're going to need. And then the third you mentioned is there's no regime for matching emissions and removals.

Explain that a little bit. What sort of architecture would be required for that kind of regime?

Holly Jean Buck

Well, you can think of this as a market or as a platform, basically as a system for connecting emissions and removals. And obviously this has been like a dream of technocratic climate policy for a long time, but I think it's frustrated by our knowledge capabilities and maybe that'll change in the future if we really do get better models, better remote sensing capacities. Obviously, both of those have been improving dramatically and machine learning accelerates it. But it assumes that you really have good knowledge of the emissions, good knowledge of the removals, that it's credible. And I think for some of the carbon removal technologies we're looking at this what's called MRV: monitoring, reporting, and verification.

Is really challenging, especially with open systems like enhanced rock weathering or some of the ocean carbon removal ideas. So we need some improvement there. And then once you've made this into a measurable commodity, you need to be able to exchange it. That's been really frustrated because of all the problems that you've probably talked about on this podcast with carbon markets, and scams, bad actors. It's all of these problems and the expense of having people in the middle that are taking a cut off of the transactions.

David Roberts

Yeah. So you have to match your residual emissions with removals in a way that is verifiable, in a way that, you know, the removals are additional. Right. You get back to all these carbon market problems and as I talked with Danny Cullenword and David Victor about on the pod long ago, in carbon offset markets, basically everyone has incentive to keep prices low and to make things look easy and tidy. And virtually no one, except maybe the lonely regulators has the incentive to make sure that it's all legit right there's just like there's overwhelming incentive to goof around and cheat and almost no one with the incentive to make sure it's valid.

And all those problems that face the carbon offset market just seem to me like ten times as difficult. When you're talking about global difficult to measure residual emissions coupled with global difficult to measure carbon dioxide removals in a way where there's no double counting and there's no shenanigans. Like, is that even a gleam in our eye yet? Do we even have proposals for something like that on the table?

Holly Jean Buck

I mean, there's been a lot of best principles and practices and obviously a lot of the conversation around Article Six and the Paris agreement and those negotiations are towards working out better markets. I think a lot of people are focused on this, but there's definitely reason to be skeptical of our ability to execute it in the timescales that we need.

David Roberts

Yeah, I mean, if you're offsetting residual emissions that you can't reduce, you need that pretty quick. Like, this is supposed to be massively scaling up in the next 30 years and I don't see the institutional efforts that would be required to build something like this, especially making something like this bulletproof. So we don't have a good sense of residual emissions. We're not pushing very hard to scale CDR up even to what we think we need. And we don't have the sort of institutional architecture that would be required to formally match removals with residual emissions. These are all kind of, I guess, what you'd call technical problems.

Like, even if you accepted the goal of doing this or this framework, these are just technical problems that we're not solving yet. The fourth problem, as you say, is the bigger one, perhaps the biggest one, which is net zero says nothing about fossil fuels. Basically. It says nothing about the socioeconomics of fossil fuels or the social dynamics of fossil fuels. It says nothing about the presence of fossil fuels in a net-zero world, how big that might be, et cetera. So what do you mean when you say it's silent on fossil fuels?

Holly Jean Buck

Yeah, so this was a desirable design feature of net zero because it has this constructive ambiguity around whether there's just like a little bit of residual emissions and you've almost phased out fossil fuels, or if there's still a pretty significant role for the fossil fuel industry in a net-zero world. And that's what a lot of fossil fuel producers and companies are debating.

David Roberts

Yes, I've been thinking about this recently in the context of the struggle to get Joe Manchin to sign decent legislation. Like, if you hear Joe Manchin when he goes on rambling on about climate change, it's very clear that he views carbon dioxide removal as basically technological license for fossil fuels to just keep on keeping on. Like, in his mind, that's what CDR means. Whereas if you hear like, someone from NRDC talking about it, it's much more like we eliminated almost everything. And here's like, the paper towel that we're going to use to wipe up these last little stains.

And that's a wide gulf.

Holly Jean Buck

I don't want to seem like the biggest net-zero hater in the world. I understand why it came up as a goal. I think it was a lot more simple and intuitive than talking about 80% of emissions reduction over 2005 levels or like the kind of things that it replaced. But ultimately, this is a killer aspect to the whole idea, is not being clear about the phase out of fossil fuels.

David Roberts

And you say you can envision very different worlds fitting under net zero. What do you mean by that?

Holly Jean Buck

Well, I mean, one axis is the temporality of it. So is net zero, like, just one moment on the road to something else? Is it a temporary state or is it a permanent state where we're continuing to produce some fossil fuels and we're just living in that net zero without any dedicated phase out? I think that right now there's ambiguity where you could see either one.

David Roberts

That is a good question. In your research on this, have you found an answer to that question of how people view it? Like, I'd love to see a poll or something. I mean, this is a tiny subset of people who even know what we're talking about here. But among the people who talk about net zero, do you have any sense of whether they view it as like a mile marker on the way to zero-zero or as sort of like the desired endstate?

Holly Jean Buck

You know, it's funny because I haven't done a real poll, but I've done when I'm giving a talk at a conference of scientists and climate experts twice I've asked this question, do you think it's temporary or do you think it's like a permanent desired state? And it's split half and half each time, which I find really interesting. Like, within these climate expert communities, we don't have a clear idea ourselves.

David Roberts

And that's such a huge difference. And if you're going to have CDR do this accounting for past emissions, for your past emissions debt, if you're going to do that, you have to go negative, right. You can't stay at net zero, you have to go net negative. So it would be odd to view net zero as the end state. And yet that seems like, what's giving fossil fuel companies permission to be involved in all this.

Holly Jean Buck

Yeah. No, we do need to go net negative. And I think one challenge with the residual emissions is that carbon removal capacity is going to be finite. It's going to be limited by geography, carbon sequestration capacity, ecosystems and renewable energy, all of these things. And so if you understand it as finite, then carbon removal to compensate for residual emissions is going to be in competition with carbon removal to draw down greenhouse gas concentrations. And so we never get to this really net negative state if we have these large residual emissions, because all that capacity is using to compensate rather than to get net negative, if that makes sense.

David Roberts

Yeah. Given how sort of fundamental those questions are and how fundamental those differences are, it's a little this is what I mean when I sort of the revelation of reading your book. Like, those are very, very different visions. If you work backwards from those different visions, you get a very, very different dynamic around fossil fuels and fossil fuel companies and the social and political valence of fossil fuels, just very fundamentally different. It's weird that it's gone on this long with that ambiguity, which, I guess, as you say, it was fruitful to begin with, but you kind of think it's time to de-ambiguize this.

Holly Jean Buck

Yeah. Because there's huge implications for the infrastructure planning that we do right now.

David Roberts

Right.

Holly Jean Buck

It's going to be a massive transformation to phase out fossil fuels. There's a million different planning tasks that need to have started yesterday and should start today.

David Roberts

Yeah. And I guess also, and this is a complaint, maybe we'll touch on more later, but there's long been, I think, from some quarters of the environmental movement, a criticism of climate people in their sort of emissions or carbon greenhouse gas emissions obsession. And when you contemplate fossil fuels, it's not just greenhouse gases. There's like all these proximate harms air pollution and water pollution, et cetera, et cetera, geopolitical stuff. And I think the idea behind net zero was, let's just isolate greenhouse gas emissions and not get into those fights. But I wonder, as you say, we have to make decisions now, which in some sense hinge on which we were going to go on that question.

Holly Jean Buck

Yeah, I mean, it was a huge trick to get us to focus on what happens after the point of combustion rather than the extraction itself.

David Roberts

Yeah, it says nothing about extraction, too. So your final critique of net zero fifth and final critique is that it is not particularly compelling to ordinary people, which I think is kind of obvious. Like, I really doubt that the average Joe or Jane off the street would even know what you mean by net zero or would particularly know what you mean by negative carbon emissions and if you could explain it to them, would be particularly moved by that story. So what do you mean by the meta narrative? Like, why do you think this falls short?

Holly Jean Buck

I mean, accounting is fundamentally kind of boring. I think a lot of us avoid it, right? And so if I try to talk to my students about this, it's really work to keep them engaged and to see that actually all this stuff around net zero impacts life and death for a lot of people. But we don't feel that when we just look at the math or we look at the curve and we talk about bending the curve and this and that, we have this governance by curve mode. It's just not working in terms of inspiring people to change anything about their lives.

David Roberts

Yeah, bending the curve didn't seem to work great during the pandemic either. This gets back to something you said before about what used to be a desirable design feature when you are thinking about other things that you might want to bring into a meta narrative about climate change. Most of what people talk about and what people think about is sort of social and political stuff. Like, we need to talk about who's going to win and who's going to lose, and the substantial social changes and changes in our culture and practices that we need. We need to bring all these things in.

But then the other counterargument is those are what produce resistance and those are what produce backlash. And so as far as you can get on an accounting framework, like if the accounting framework can sort of trick various and sundry participants and institutions into thinking they're in a value neutral technical discussion, if you can make progress that way, why not do it? Because any richer meta narrative is destined to be more controversial and more produce more political backlash. What do you think about that?

Holly Jean Buck

No, I think that the problem is we haven't invested at all in figuring out how to create desire and demand for lower carbon things. I mean, maybe the car industry has tried a little bit with some of the electric trucks or that kind of thing, but we have all this philanthropy, government focus, all the stuff on both the tech and on the carbon accounting pieces of it. We don't have very much funding going out and talking to people. About why are you nervous about transitioning to gas in your home? What would make you feel more comfortable about that?

Those sorts of relational things, the conversations, the engagement has been gendered, frankly. Lots of times it falls to women to do this kind of relational work and hasn't been invested in. So I think there's a whole piece we could be doing about understanding what would create demand for these new infrastructures, new practices, not just consumer goods but really adoption of lifestyle changes because you need that demand to translate to votes to the real supportive policies that will really make a difference in this problem.

David Roberts

Yeah, I very much doubt if you go to talk to people about those things they're going to say, well, I want to get the appliance that's most closely going to zero out my positive conditions. You're not going to run into a lot of accounting if you ask people about their concerns about these things. So these are the problems. We're not measuring it well. We're not doing what we need to do to remove the amount of CDR we say we need. We don't have the architecture or the institutional structures to create some sort of system where we're matching residual emissions and removals.

And as a narrative it's fatally ambiguous about the role of fossil fuels in the future and plus ordinary people don't seem to give much of a s**t about it. So in this presentation you sort of raise the prospect that the whole thing could collapse, that the net-zero thing could collapse. What do you mean by that and how could that happen?

Holly Jean Buck

So I think this looks more like quiet quitting than anything else because I do think it is too big to fail in terms of official policy. There's been a lot of political capital spent.

David Roberts

Yeah, a lot of institutions now have that on paper, like are saying on paper that they want to hit net zero. So it seems to me like it would take a big backlash to get rid of it.

Holly Jean Buck

Yeah. So I don't think some companies may back away from targets. There'll be more reports of targets not being on track. And I think what happens is that it becomes something like the Sustainable Development Goals or dealing with the US national debt where everybody kind of knows you're not really going to get there, but you can still talk about it aspirationally but without confidence. Because it did feel like at least a few years ago that people were really trying to get to net zero. And I think that sensation will shift and it'll become empty like a lot of other things, unfortunately.

But I think that creates an opportunity for something new to come in and be the mainframe for climate policy.

David Roberts

Net zero just seems like a species of a larger thing that happens. I don't know if it happens in other domains, but in climate and clean energy it happens a lot, which is just sort of like a technical term from the expert dialogue, worms its way over into popular usage and is just awful and doesn't mean anything to anyone. I think about net metering and all these kind of terminological disputes. So it doesn't really I'm not sure who's in charge of metanarratives, but it doesn't seem like they're very thoughtfully constructed. So let's talk a little bit about what characteristics you think a better metanarrative about climate change would include.

Holly Jean Buck

First, I think it is important that we are measuring progress towards a goal for accountability reasons. But I think there needs to be more than just the metric. I think we have an obsession with metrics in our society that sometimes becomes unhealthy or distracts us from the real focus. But I do think there should be some amount of measuring specific progress towards a goal. I think that the broader story also has to have some affect or emotional language. There has to be some kind of emotional connection. I also think we have to get beyond carbon to talk about what's going on with ecosystems more broadly and how to maintain them and have an intact habitable planet and then just pragmatically.

This has to be a narrative that enables broad political coalitions. It can't be just for one camp and it has to work on different scales. I mean, part of the genius of net zero is that it is this multi-scalar planetary, but also national, also municipal, corporate, even individual does all of that. So those are some of the most important qualities that a new frame or a new narrative would have to have.

David Roberts

That sounds easier said than done. I can imagine measuring other things you mentioned in your book several sort of submeasurements other than just this one overarching metric. You could measure how fast fossil fuels are going away. You could measure how fast clean energy is scaling up. There are adaptation you can measure to some extent. So I definitely can see the benefit in having a wider array of goals, if only just because some of those just get buried under net zero and are never really visible at all. That makes sense to me. But the minute you start talking about a metanarrative with affect, with emotion, the way to get that is to appeal to people's values and things that they cherish and feel strongly about.

But then we're back to the problem we talked about earlier, which is it seems like especially in the US these days, we're just living in a country with two separate tribes that have very, very different values. And so the minute you step beyond the sort of technocratic metric, which in a sense is like clean and clinical and value free and start evoking values, trying to create emotion, you get greater investment and passion in some faction and alienate some other faction. Do you just think that that's like unavoidable and you have to deal with that or how do you think about that dilemma?

Holly Jean Buck

I actually think people do have the same values, but they're manipulated by a media ecosystem that profits from dividing them, which makes it impossible for them to see that they do have aligned values. And I base that just on my experience, like as a rural sociologist and geographer talking to people in rural America. People are upset about the same exact things that the leftists in the cities I visit are upset about too. They really do value justice. They think it's unfair that big companies are taking advantage of them. There are some registers of agreement about fairness, about caring for nature, about having equal opportunities to a good and healthy life that I think we could build on if we weren't so divided by this predatory media ecology.

David Roberts

I don't suppose you have a solution for that, in your back pocket?

Holly Jean Buck

I have a chapter on this in a forthcoming book which you might be interested. It's edited by David Orr. It's about democracy in hotter times, looking at the democratic crisis and the climate crisis at the same time. And so I've thought a little bit about media reform, but it's definitely not my expertise. We should have somebody on your podcast to talk about that too.

David Roberts

Well, let me tell you, as someone who's been obsessed with that subject for years and has looked and looked and looked around, I don't know that there is such thing as an expert. I've yet to encounter anyone who has a solution to that problem that sounds remotely feasible to me, including the alleged experts. And it kind of does seem like every problem runs aground on that, right? Like it would be nice if people had a different story to tell about climate change that had these features you identify that brought people in with values and drew on a broader sense of balance with the earth and ecosystems.

But even if they did, you have to have the mechanics of media to get that message out to tell that story. You know what I mean? And so you got one whole side of the media working against you and one at best begrudgingly working with you. It just doesn't seem possible. So I don't know why I'm talking to you about this problem. No one knows a solution to this problem. But it just seems like this is the -er problem that every other problem depends on.

Holly Jean Buck

Yeah, I mean, we should talk about it because it's the central obstacle in climate action, from my point of view, is this broken media ecosystem and if we could unlock that or revise it, we could make a lot of progress on other stuff.

David Roberts

Yes, on poverty, you name it. Almost anything that seems like the main problem you talk about. The narrative must be able to enable broad political coalitions, but you are working against ... I guess I'd like to hear a little bit about what role you think fossil fuels are playing in this? It seems to me pretty obvious that fossil fuels do not want any such broad political coalition about anything more specific than net zero in 2050, right. Which, as you point out, leaves room for vastly different worlds, specifically regarding fossil fuels. It seems like they don't want that and they're working against that and they have power.

So who are the agents of this new narrative? Like, who should be telling it and who has the power to tell it?

Holly Jean Buck

So I think sometimes in the climate movement we grant too much power to the fossil fuel industry. It's obviously powerful in this country and in many others, but we have a lot of other industries that are also relevant and powerful too. So you can picture agriculture and the tech industry and insurance and some of these other forms of capital standing up to the fossil fuel industry because they have a lot to lose as renewables continue to become cheaper. We should have energy companies that will also have capital and power. So I do think that we need to think about those other coalitions.

Obviously, I don't think it needs to be all grounded in forms of capital. I think there's a lot of work to be done in just democratic political power from civil society too. What I'd love to see is philanthropy, spending more money on building up that social infrastructure alongside funding some of this tech stuff.

David Roberts

Yeah, I've talked to a lot of funders about that and what I often hear is like, "Yeah, I'd love that too, but what exactly be specific, David, what do you want me to spend money on?" And I'm always like, "Well, you know, stuff, social infrastructure, media, something." I get very hand wavy very quick because I'm not clear on exactly what it would be. So final subject, which I found really interesting at the tail end, I think it's fair to say your sympathies are with phasing out fossil fuels as fast as possible. And there's this critique you hear from the left-left about climate change that just goes, this is just capitalism, this is what capitalism does.

This is the inevitable result of capitalism. And if you want a real solution to climate change on a mass scale, you have to be talking about getting past capitalism or destroying capitalism or alternatives to capitalism, something like that. Maybe I'm reading between the lines, but I feel like you have some sympathy with that. But also then we're back to narratives that can build a broad political coalition, right? Narratives that can include everyone. So how do you think about the tension between kind of the radical rethinking of economics and social arrangements versus the proximate need to keep everybody on board?

How is a metanarrative supposed to dance that line?

Holly Jean Buck

Yeah, unfortunately, I think in this media ecosystem we can't lead with smashing capitalism or with socialism. It's just not going to work, unfortunately. So then what do you do? I think you have to work on things that would make an opening for that. Having more political power, more power grounded in local communities. It's not going to be easy.

David Roberts

Even if you let the anti-capitalist cat out of the bag at all, you have a bunch of enemies that would love to seize on that, to use it to divide. So I don't know, what does that mean? Openings, just reforms of capitalism at the local level? I mean, I'm asking you to solve these giant global problems. I don't know why, but how do you solve capitalism? What's your solution to capitalism? What does that mean, to leave an opening for post-capitalism without directly taking on capitalism? I guess I'd just like to hear a little bit more about that.

Holly Jean Buck

So I think that there's a lot of things that seem unconnected to climate at first, like making sure we have the integrity of our elections, dealing with redistricting and gerrymandering and those sorts of things that are one part of it. Reforming the media system is another part of it. Just having that basic civil society infrastructure, I think, will enable different ideas to form and grow.

David Roberts

Do you have any predictions about the future of net zero? Sort of as a concept, as a guiding light, as a goal? Because you identify these kind of ambiguities and tensions within it that seem like it doesn't seem like it can go on forever without resolving some of those. But as you also say, it's become so ubiquitous and now plays such a central role in the dialogue and in the Paris plans and et cetera, et cetera. It's also difficult to see it going away. So it's like can't go on forever, but it can't go away. So do you have any predictions how it evolves over the coming decade?

Holly Jean Buck

Well, it could just become one of these zombie concepts and so that really is an opportunity for people to get together and think about what other thing they would like to see. Is it going to be measuring phase out of fossil fuels and having a dashboard where we can track the interconnection queue and hold people accountable for improving that? Are we going to be measuring adaptation and focusing on that? Are we going to be thinking more about the resources that are going to countries to plan and direct a transition and trying to stand up agencies that are really focused on energy transition or land use transition?

I mean, we could start making those demands now and we could also be evolving these broader languages to talk about and understand the motion. So we have some concepts that have been floated and already sort of lost some amount of credibility, like sustainability, arguably just transition. We have Green New Deal. Will that be the frame? Is that already lost? What new stuff could we come up with? Is it regeneration or universal basic energy. I think there's a lot of languages to explore and so I would be thrilled to see the Climate Movement work with other movements in society, with antiracist movements, with labor movements and more to explore the languages and the specific things we could measure and then take advantage of the slipperiness of net zero to get in there and talk about something else we might want to see.

David Roberts

Okay, that sounds like a great note to wrap up on. Thank you for coming. Thank you for the super fascinating book and for all your work, Holly Jean Buck. Thanks so much.

Holly Jean Buck

Thank 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.

States don’t (yet) have the administrative capacity to smoothly implement the ambitious policies in the IRA; in this episode, policy strategist Sam Ricketts of Evergreen Action discusses how federal programs can help them get there.

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(Active transcript)

Text transcript:

David Roberts

States are central to climate and energy policy. After the failure of the Waxman-Markey climate bill in 2010, states carried the torch of climate policy during the long decade that Democrats were locked out of majority power in Washington, DC. Now that Dems have actually passed some federal policy — and they are unlikely to pass any more anytime soon — states are once again in the spotlight, tasked with implementing that legislation to maximize its effect.

This raises the obvious question of whether states have the administrative capacity — the people, institutions, time, and money — necessary to implement ambitious federal legislation competently.

They do not, says Sam Ricketts, but they could, and there are federal programs that can help them get there.

Nobody is better positioned than Ricketts to address the issue of state readiness. He played a key role in Jay Inslee's pathbreaking presidential campaign, which was built off of successful policies in Washington and other states. Then, as senior strategist for Evergreen Action, a nonprofit he founded with other Inslee veterans, he helped shape the ambitious trio of bills the Democrats have passed in the last year and a half: the Infrastructure Investment and Jobs Act, the CHIPS act, and the Inflation Reduction Act (or as advocates fondly refer to them, Uncles Bill, Chip, and Ira). Now he’s working with Evergreen and the Center for American Progress to educate and prepare state and local lawmakers for the post-IRA world.

I've known Ricketts for years, and there's nobody who better balances detailed knowledge of policy with a practical head for advocacy and activism. I'm excited to talk to him about the crucial role states will play in coming years, the kind of administrative capacity they will need, and the types of federal programs that can fund their capacity building.

So, enough of that. With no further ado, Sam Ricketts, welcome to Volts. Thank you so much for coming.

Sam Ricketts

Thanks for having me, David. Pleasure to be with you.

David Roberts

I'm so excited to talk about administrative capacity, the sexiest of all podcast topics loyal listeners know this is an ongoing obsession of mine.

Sam Ricketts

They've come for the good stuff.

David Roberts

Yes, exactly. So get ready to jump in. So I want to talk about state and local governments and whether they're up for this. But first, let's just briefly talk a little bit about just how central states and local governments have already been in climate policy in the US. So after you and I, well remember all too well the humiliating defeat of the Waxman-Markey Bill back in 2009, 2010. And after that, the sort of national scene was dead for ten years and everyone was off in the wilderness. And the only thing that was going on was states passing good legislation.

So maybe let's start by just talking about those states being kind of the laboratories for democracy as it were and how the states sort of pioneered stuff and learned stuff that then went into informing the federal legislation that was just passed.

Sam Ricketts

Indeed. So the first thing to your point, you mentioned that states and local governments have long been sort of the nation's leaders in developing and implementing climate and clean energy policy. And we're going to talk about what they need to do next in terms of implementation. But an important point, as you allude to here, is the progress that's just been given to us from Washington DC. The passage of Uncle Bill, Uncle Ira, Uncle Chip, the three climate uncles, so to speak. And the other initiatives that the Biden administration is advancing are really drawn from, inspired by, informed by the progress that states and local governments have made throughout the country.

And this progress, as you mentioned, really jump started over the course of the last decade and sort of in the interregnum period between the last attempt at climate legislation and this ultimately very successful one. But it goes back further, right. States began passing clean energy laws decades ago. Years ago. I mean, the first renewable portfolio standard to require utilities to start utilizing clean renewable electricity was actually passed in Iowa 40 years ago. That activity last went through states red, blue and purple alike through the 1990s. In the early 2000s, you really saw an uptick in states beginning to target greenhouse gas climate pollution directly with laws that like Massachusetts' Global Warming Solutions Act, notably, of course, the AB 32 law passed in California in 2006, sort of set economy-wide programs and sectoral programs advancing climate action.

And then in the 2000s, after the last failed attempt at federal climate legislation, you really saw this uptick. And states really carried the ball in a number of different ways and in ways that directly inspired the breakthroughs here. I mean, just a few of the items. In 2015, Hawaii became the first state in the country to pass a 100% clean electricity standard requiring utilities to get to all carbon-free electricity on their grid. And now over 20 states have that commitment in some form. About 15 have passed that requirement into law. And I would argue that that underlies President Biden's most important climate commitment that he's made and is trying to advance through both legislative and executive means towards 100% clean electricity by 2035.

A couple of the other things that were passed by states and indirectly informed things in IRA in particular were tax credits tied to labor standards. So to ensure that we're building not just clean energy and not just jobs, but clean energy supporting good family wage, high quality jobs. And notably that was inspired by things like the Clean Energy Transformation Act passed in Washington state and signed by my former boss, Governor Jay Inslee in 2019. You also see in IRA and throughout the Biden administration's initiatives a prioritized investment in disadvantaged communities to advance environmental and economic justice and things like President Biden's Justice40 initiative, which was itself directly inspired by the New York State Climate Leadership and Community Protection Act that had that Justice40 commitment for New York that was also passed in 2019.

So there's this rush of legislative and policy making in the second half of the last decade in particular, but really throughout the course of it just one more item because it's a favorite that really directly informs what we're seeing implemented now. And IRA is connecticut in 2011 was the first state in the country to establish a green bank. It's now been created in 23 state and local governments, I believe. And that directly, of course, inspired the creation of a greenhouse gas reduction fund, a $27 billion program in IRA that again is going to be now a critical tool for states and local governments to leverage to build the clean energy economy flowing out of IRA implementation.

So the first thing here is this progress that we now have so much of. It builds on the foundation established by states and local governments throughout the country. And now it's of course going to be a critical thing for them to turn to, really being drivers in implementation of these bills.

David Roberts

Yeah, I was going to say I wrote a piece for Vox a few years ago, I talked to you for it about the sort of general turn in policy thinking among climate people away from this sort of monomaniacal obsession with carbon pricing to what I called Standards Investments and Justice. SIJ never did quite get that term to catch on. But it wasn't just an intellectual turn. It wasn't just a sort of theoretical turn. It was very much states demonstrating that this is the politics that works, right. You can bang your head on that top-down carbon pricing wall over and over again.

It is the sector-by-sector standards and investments that work to get political buy in. So this wasn't just an idle exercise. This was very much showing the federal government what's possible and what works.

Sam Ricketts

Totally. Can I just say, you wrote eloquently about standards, investments, and justice. And really to your point, it's directly informed by what's really borne out in practical terms, particularly on state policy leadership, right? Both the politics and the policy conspired here to show a better and a different path that you're seeing inform the entirety of the Biden administration's climate agenda. They have advanced robust investments that are going to leverage even greater private sector investments to catalyze this clean energy transition. They are now utilizing federal administrative authorities to go after sector by sector rules to ensure they're holding automakers utilities, others accountable for following this clean energy trajectory that's now available to them, especially with robust public and private sector investment.

And then they've got this central commitment for the first time at the federal level to justice this confluence of factors that again is directly borne out and directly inspired by the leadership of state and local governments throughout the country. Which leads us to where I guess we've got to go next.

David Roberts

Let's go there then. So the federal government passed all this stuff and I feel like everybody kind of gets on a general level that it's states and localities that are going to have to implement all this stuff but I think most people understand that in a very vague way. So maybe let's flesh that picture out a little bit. What are the kinds of things that federal legislation does that the states and localities are going to be directly responsible for administering?

Sam Ricketts

The first thing is the Biden administration. We hear a lot of talk these days about Bidenomics and there were sort of a return at long last of industrial policy at the federal level. Targeted investments, economic strategies to really seize on the country's strengths, develop and maintain the industries we're going to need for a thriving and just and healthy economy.

David Roberts

Volts listeners or everyone else should go back and listen to my podcast with Brian Deese a month or two ago all about that subject.

Sam Ricketts

Totally. That was a great one and it really informs what's happening now in Washington DC. But also at the same time seeing industrial policy through in the country arguably has long been a larger part of the role of states and local governments, right, who implement federal dollars. I mean so many of the federal programs we know and love, the federal funding programs we know and love, be they Medicaid or education, energy and climate are dollars that the federal government or federal agencies pass down to states and to local governments and sometimes communities or individual consumers. But so much of it flows through state and local governments and then even the programs that don't directly flow through those governments they need to be the ones to take advantage of to help their companies and their consumers and their communities take advantage of clear hurdles, plan for, and execute on.

So there's three different types of investments I point to here in these bills that are all going to be part of what states and cities need to be administering or being attentive to as they do so. And all of them are direct opportunities and some of them are massive like untold opportunities. So there are direct grant programs, there are financing programs and then there are tax incentives and all of which state governments, local governments need to be attentive to all three of these. So just give a few examples. Direct grant programs. There's a few different programs or actually a number of different programs of course in these bills that are provided to state governments or to local governments that they can then turn and leverage for climate, for equity, for public health, for good jobs.

One is the Department of Energy has much discussed building energy rebate programs. Two different programs, one supporting energy, Home Energy Retrofits, another supporting electric appliances. Those programs are actually being run by the Department of Energy, but they're actually going to be dollars. The Department of Energy first provides to all state energy offices for those state energy offices to turn around and operationalize, working with contractors, working with local governments and providing consumers directly with rebates. Another program is the Greenhouse Gas Reduction Fund, which I mentioned is a program that combines a couple of different elements, but there's an element of it that provides money directly to states and local governments for them to deploy or to set up programs to deploy solar and storage technologies in disadvantaged communities.

A third example of this direct grant program that I think we're going to talk about a little bit more is the Climate Pollution Reduction Grants, which is an investment program directly for state and local governments basically only, and tribal and territorial governments to be able to plan and then execute on programs and policies and measures to decrease climate pollution and build their own clean energy and industrial strategies that suit their needs.

David Roberts

Yeah, we're going to come back to that one.

Sam Ricketts

Then the second category is financing programs, programs the federal government has or is newly established where they provide financing tools, loan, loan guarantees, other financial mechanisms that individual companies and projects can use to leverage more private capital, to deploy zero emission technologies or build new manufacturing facilities. And there's a few different ones of these. One is again the new GGRF for Greenhouse Gas Reduction Fund which is a new program being stood up at the EPA. Another is the USDA Rural Utilities Service has about $10 billion for rural electric cooperatives to be able to leverage to securitize and retire their coal plants and instead build clean and renewable energy for sort of a next generation rural electrification agenda for the country.

And then a third, the DOE Loan Guarantee program has got hundreds of billions of dollars of financing authority that states can help work with their local companies and projects to leverage to deploy much greater private sector capital. And this DOE one I'm particularly excited about because of its intersection with states, there's actually reforms made to the program in the infrastructure law. In Bill, Uncle Bill, the state gets a chance to work with the Department of Energy loan guarantee program to waive the technology requirement requiring this project to utilize a quote, unquote, innovative technology, one that hasn't been used before and if the state is a co-investor in the project, can leverage much greater private sector financing into deploying that project. So really a reform, a tweak to the DOE Loan Guarantee program that allows it to be more accessible and more usable, particularly state clean energy financing institutions.

And then finally — let me come to the big one — because the majority of the investments flowing through IRA are actually tax credits. Sort of automatic spending in reverse for the federal government, which are resources that an individual project owner, company, or under IRA. Actual public sector entities like public utilities, nonprofit institutions can take and leverage greater private sector or co investment in speeding much more investment into clean energy, into renewable energy, into individual consumers purchasing of electric vehicles or heat pumps, clean manufacturing facilities. The tax credits make up the majority of the funding in the bill and notably so state and local governments need to be aware of them so that they can help their companies and their consumers and their communities take advantage of those incentives.

And notably those tax incentives I mentioned have this new reform called direct pay where they are now eligible for use by those who don't have tax liability, including public institutions, including local governments who are operating with the, let's say municipal utility or even nonprofit institutions. And this amount of money notably is uncapped. So it can be as much money as we can all spend.

David Roberts

A theme Volts returns to frequently there's no upper limit to the amount that these tax credits could get sent out. There's no upper limit to the amount that could be spent on them. So as I pound the table and say over and over again the size of this bill, the size of IRA is not a fixed thing. It will be as big as there are people applying for the tax credits. So anyone out there who can organize and educate people and have more people apply for those tax credits, that's going to be a bigger bill. So states and localities here really have their hands on the lever of not only how to implement the bill, but literally how big the bill is.

Sam Ricketts

Absolutely. There's much talk about how this is a $370 billion or $380 billion investment. I mean the reality is there's a fixed number of grant programs or financing programs that Congress and President Biden have invested in. And then there are these tax incentives that are uncapped and that can range much greater. They are literally only tied to the amount of money that can be spent on projects that they can then benefit from those incentives.

David Roberts

Yeah, Goldman Sachs I think, estimates $1.2 trillion rather than $3.7 billion, which is an enormous spread. All of which has to do with how many projects are going to qualify for these tax credits. And that is something that people can have control over.

Sam Ricketts

That's right. And the Treasury Department writes the rules of these things and they'll be the ones to dole out an individual cash payment as a direct pay grant or to send the tax refund to the company that takes advantage of the tax credit. But they're not out there searching out projects, working to ensure permitting works. They're not out there making sure communities are aware of these things. They're not there working hand-in-glove with companies on economic development projects. That is what states do. That is what counties do. That is what cities do. That's what individual community groups do.

But there is this massive opportunity for companies, for communities, for individual consumers to take advantage of these incentives and the rest of these investments and whether or not they do that well is going to be a thing that state and local leadership is going to play a key role in seeing through.

David Roberts

Exactly. You can have as much economic development as you can muster. Right? There's no upper limit. Like you can have all the economic development you want if you're willing to put in the work, organizing and pursuing it.

Sam Ricketts

That's right. And as we know we need to move urgently and build as much of this as we can because we are under some very tight climate math, right?

David Roberts

So we've established then that states have been an inspiration to the federal government and now we've established that the new federal legislation that has been passed in these past couple of years very importantly requires states and local governments to implement it. And indeed how big and how efficacious the bills are is more or less up to states and local governments, how well they organize and get it done. So then this brings us to the inevitable next question which is are they ready for this? Do they have economic development offices that are aware of the tax credits and understand the procedures and understand where to direct them and understand how to attract companies around them?

Do local governments have the offices to do outreach to local communities to clue them in on these tax credits? Do they have the sort of like manpower to do the research and just create the programs that can spend all this grant money? Are states and cities ready for the tsunami of money that is heading their way? Do they have the administrative capacity they need?

Sam Ricketts

Well, look, there's a gap. I like to think of it as an urgent opportunity.

David Roberts

It's an opportunity.

Sam Ricketts

It's an opportunity. An urgent one. Look, there's a definitive gap that exists across states and local governments and also tribal governments here too. I should probably mention that state and local and tribal governments are all sort of implicated as part of this sub-national government space of entities that are going to be helping to deploy dollars and are going to be dispositive about the success of these bills. They're all different. People regularly bunch them together. And here we're spending most time talking about state governments, a little bit about local governments and I'm going to continue to zero in on states because it's where I've worked before and it's what I'm particularly focused on in this moment.

But they're all going to be really important in this work and they all lack capacity, certainly to varying degrees. But I'll say state governments even just sticking with states often lack capacity. The state agencies, even the ones who have been sort of leading the most on climate and sometimes in many respects do lack capacity. And this is simply people in seats doing the work. They can lack capacity because of budgets regularly. That's the biggest reason. And then there is kind of like how the tax credits in the bill can be spent up to the level of funding that we put into them.

They'll get out what we put in. The same thing here with governmental capacity at the subnational level, there is an opportunity to do more because state agencies are regularly, red, blue and purple states alike, lacking in manpower to be able to take maximum advantage of these dollars.

David Roberts

Do you think it's fair to say that because industrial policy has been out of vogue and we've been living under this sort of well, I'll just use the word neoliberalism for the last 30 or 40 years with this sort of notion that markets are going to accomplish everything. Do you think that is part of the explanation for why some of this state capacity is lacking or has atrophied a little bit?

Sam Ricketts

Absolutely. I mean, the last 40 years of public sector disinvestment absolutely plays a role here. In particular, the public sector got hit hard after the Great Recession in particular.

David Roberts

Right.

Sam Ricketts

And budgets have only recently kind of gotten back even to those levels. They got hit again, obviously, recently during the COVID hit. And there has been investment from the federal level. Think of their COVID recovery dollars, some of the stuff that's implicated in debates right now in Congress about what can be clawed back, these are vital. Just like public sector capacity building investments, state and local budgets have regained relative health kind of quickly after COVID recovery.

But there still gaps. And there are gaps in particular in these areas where with state environmental, clean energy, industrial development that we've not invested as a society into sufficiently. And that's what leaves us with a gap.

David Roberts

And if you go look at part of the COVID money was grants to states arguably too much. But if you go look at what those states spent those grants on, it's not necessarily building their long-term administrative capacity. Sadly, obviously if you lack manpower, you lack manpower, and that's a problem. But maybe try to give us a little better sense of what are the concrete dangers here, what are the opportunities that states and cities are going to miss or botch lacking capacity? Like, one thing I worry about, and maybe this is silly, we can talk about the politics of this separately, but Obama and his stimulus money went overboard, bent over backward to make sure that none of it was misappropriated, that there was no fraud or graft.

He put so much energy into that for all the good it did him. But one of the things I worry about is states and cities that lack administrative capacity also seems to open more room for shenanigans and graft and just petty local politics kind of stuff. So flesh out a little bit the danger of lacking administrative capacity.

Sam Ricketts

A few different things, first of all, it's opportunity cost. These are all we talk often in climate policy in terms of carrots and sticks. And these are all carrots. And to the point here about being able to spend as much as we can spend. Well, carrots only deliver the nutritional value if people are eating the carrots. Right? Don't get me wrong, most people like carrots. Carrots are delicious. I like carrots. But in order to eat that carrot, people need to know that it's there. They need to know how to access it, how to ...

David Roberts

Right, somebody's got to go dig it up.

Sam Ricketts

Yes, right.

David Roberts

I don't know how far we can push this metaphor.

Sam Ricketts

We could take this metaphor, but that's an opportunity cost. And if there's people who companies don't know or can't access them, if the infrastructure is not built, if the community isn't aware, consumers aren't aware, that's going to result in less money being spent here.

David Roberts

Carrots going uneaten.

Sam Ricketts

Yes, carrots going uneaten. Thank you for grabbing that metaphor. Another thing here, and this is less of an administrative capacity challenge as it is more of wrong priorities or leadership challenges. Money being spent on the wrong thing, which is also, I mean, having administrative capacity and having it focused on the right things is critically important here. There has been some discussion about the infrastructure law, which is the bipartisan infrastructure bill and it's transportation infrastructure spending and how there is an opportunity and this is really an opportunity that exists under law with state governments and local governments, not the federal government, to use those dollars flexibly for low carbon transportation projects, not simply widening freeways and investing in more roads.

That is a challenge. It's a challenge we're not always seeing fare out in the right direction.

David Roberts

I was just reading this morning a story in E&E about some of that infrastructure money being used for a giant kajillion dollar highway widening project outside of Houston that would wipe out huge swaths of low income community just like classic old school d*****s highway mistakes, but now paid for with our new infrastructure money. So yeah, can you stop that? Is there anything that can be done about that? Like states are going to do what they're going to do? Well, I guess advocates can pay attention.

Sam Ricketts

Yeah. No, the first thing to do is to be attentive to the issue and then to develop the strategies to address it. Sometimes the states who are investing in those projects are the same ones who have made ambitious climate commitments. And it sure would be helpful for people to point out that maybe how the incongruence of those things. But the final area where things I don't want to say could go wrong. But the final area that really calls forth the need for state leadership is that states need to lead here again and the next generation of clean energy leadership, right?

Not only do they need to maximize the uptake of dollars for the job creation, for the equitable economic opportunity, for the emissions reductions that can be catalyzed by those dollars, but they also need to hold utility companies and automakers and building developers and the heavy industry accountable for using those dollars and push forward the next generation of policies that are going to cut emissions and drive the clean energy transformation. And people talk about states versus federal climate leadership and people talk about like states taking the baton now that the federal government's passed it. And I totally reject the premise.

As someone who's worked before at the state level in a governor's office, think of it much more as like a band where the state and local governments are the rhythm section, the drums and the bass, if you will. Keeping time and just always keeping a level of climate and clean energy progress going even while the federal government fits and starts. Like a lead guitarist will riff on stage and then disappear. We'll see that happen here. Even the last couple of years while President Biden and Congress have been hard at work passing these bills and taking executive action, states have been leading too.

Right, you've seen the next breakthroughs in state climate and clean energy policy continue to occur, whether that's New Jersey's groundbreaking cumulative impacts, environmental justice law, that's Washington State's Climate Commitment Act, that's Illinois's Clean Energy Jobs Act, et cetera, et cetera. And so the states need to take the next step and especially now that Congress is going to be divided and in that way states will have to take the baton because the lead guitarist is off the stage again.

David Roberts

Yeah, exactly. He's backstage smoking a joint.

Sam Ricketts

It's not entirely fair because President Biden is of course advancing things through administrative action. But especially for the time being, while we don't see major congressional action again on the horizon, states are going to have that central role in driving forward the nation's energy progress again.

David Roberts

I feel like this is a little bit underemphasized aspect of all this is that one thing states can do with all this tsunami of money that's coming down on is just use it to boost their own legislation. Like this is going to change the financial and social and political landscape in a way that is going to make more ambitious policy easier. And especially if states are smart about how they do that, right? Like a smart state can use all this money to soften the ground, to go further, to get more ambitious on climate.

Sam Ricketts

And just on that point, a few places to point to. For one, it's not all legislative. I mean public utility commissions who oversee utilities need to know that the electricity market, the system is entirely changed for the country now and the integrated resource plans that the utilities had provided them before IRA passed are not really worth the paper they were printed. On anymore because the economics of energy generation throughout the country has fundamentally changed. You add in federal rules coming down governing criteria or carbon pollution from power plants, another knock that utility commissions need to be aware of as they're engaging with utilities that they are regulating.

And the utilities are saying we need this rate increase or this deadline extension or this thing or that thing. That work. That is capacity and that is the decision at that state level by utility commissioners, appointed by the governors or sometimes elected by voters.

David Roberts

Wait. Just before you move on from that, I just want to pound the table on it a little bit, because when I think about I spend a lot of time thinking about sort of like, what are the potential impediments to this legislation doing as good as it could do. I think about workforce and NIMBY-ism, et cetera, et cetera. But one of the things I come back to is sort of utility intransigence or ignorance or intransigence or some mix thereof. I can imagine if utilities took the amount of money that's being dumped on clean energy seriously, as you say, it would completely transform all their plans, right?

Every utility in the country, now that this bill is passed, should be back at the drawing board, completely rethinking what they're doing. But of course many of them for various incentive reasons, don't want to do that and don't see a way to make as much money doing that or just are stuck in their ways or have relationships, old boy network relationships that they don't want to upset, et cetera, et cetera, et cetera. The way to handle that impediment is with beefed up well informed utility commissions, which, as you say, is 100% a state capacity issue. It just means spending the money, getting the staff in place, getting the research done, really preparing them to force utilities to toe the line.

Sam Ricketts

Totally.

David Roberts

Anyway, I just wanted to emphasize that because I think it's a hugely under discussed and important piece.

Sam Ricketts

Well, not just a few other areas where states have been stepping forward and taking advantage already of that point to Minnesota, which just earlier this year, at the very beginning of the year, passed 100% clean electricity standard, taking advantage of these new investments. I mean, the leadership of State Representative Jamie Long and Governor Tim Walls and others in the state to really bring that over the finish line had been a long time coming and they've been fighting against legislative inertia, but Minnesota did that. But they've also passed a bill to explicitly tasking the administration to maximize the flow of federal funds.

David Roberts

Interesting.

Sam Ricketts

And Minnesota is one of a few states, also looking at Wisconsin, Pennsylvania, New Mexico, a few others who are in the process of establishing nonprofit financial institutions, particularly to take advantage of the Greenhouse Gas Reduction Funds green finance program. Some states are passing incentives to sort of layer on what the federal government is providing and in some places to go beyond what the federal government has passed. Colorado just passed a robust suite of incentives and policies to go further.

David Roberts

Yes, including for EVs, because a lot of EVs are not going to be available for credits for quite a while. There's this huge national controversy over this. Colorado just stepped in and be like, well, we're going to loosen the criteria and subsidize all those EVs that are falling out of the federal subsidies, which is like, well done, Colorado.

Sam Ricketts

Well done. Exactly. Many states have established infrastructure coordinators housed by their governor or one of their agencies to coordinate across their state and with their city and county governments and stakeholders to maximize investment flows. Some of those have worked well and some of them haven't, state by state. But a key thing is there are states who are deploying different strategies to build capacity and coordinate a strategy around how to do this. Another interesting thing about it is it's happening in blue and red and purple states alike. Some of the major investments you're seeing, some of the big job creators, the battery manufacturing facilities, the big new projects are actually being announced or sighted and invested in red states or purple states.

David Roberts

Most, as I understand it, a rather large preponderance, is going to red states. Yeah, if I'm a state legislator or say I work in a state agency, I'm listening to this and I'm nodding and I'm saying, "Yes, I would love to have more effing capacity." Like, tell me something I don't know. I'm starving for capacity. I'd love to be able to do all this stuff." But state budgets are state budgets. Unlike the federal government, the state can't just print more money. So it's dependent on sort of business cycle year to year, dependent on booms and busts, and often have a lot of trouble finding stable funding for capacity.

So let's talk about where states can go to get some money and help building capacity. As it happens, Uncle Ira also contains some of that. So tell me about the Climate Pollution Reduction Grants program, CPRG. What is it and what's it for?

Sam Ricketts

So the CPRG, the Climate Pollution Reduction Grants Program in IRA, is, I think, one of the most exciting provisions in the law. It is a new $5 billion grant program housed at the EPA, the Environmental Protection Agency, that can provide the opportunity to invest in state and local and tribal government capacity and to give states and tribal governments who want to lead additional resources, to empower them to do so, to lead in the clean energy and the industrial strategies that suit their unique needs and strengths and that will challenge them to compete amongst each other for the best plans most deserving of federal investment. To help them go further.

David Roberts

Right. So there's two basic buckets here, both of which are interesting, but talk first about the money for planning.

Sam Ricketts

So this is based on a program President Biden first proposed in his American Jobs Plan, State Clean Energy Challenge Grants, which was at the very beginning of a very long and arduous legislative process. We don't need to recap in detail now, but is worth its own story. The program contains three different parts: $250 million for planning grants that are in the process of being executed right now to all states, to all territories, about 70 to 80 of the nation's largest municipal statistical areas, MSAs, and then to a number of tribal nations. There is going to be later on this year, Part B, the $4.6 billion Implementation Grant round, which is like where the big money comes in.

David Roberts

Help to implement the aforementioned plans.

Sam Ricketts

Exactly. With federal money to implement some of perhaps the best of the aforementioned plans. And then there is also, as an aside, because it's important, because it's about capacity building, $140 million in federal administrative costs that the Federal Government can use for its own cost of administering this program and can use to better support state and local governments and tribal governments with technical assistance. So, worth keeping an eye on that third bucket as well. But, obviously, the $250 million out to states and local governments and tribes right now, providing capacity as we speak and then providing opportunity for more money down the line.

David Roberts

So that first bucket is for anybody who submits a plan.

Sam Ricketts

Yes. And this is a great innovation. This is capacity building. Really excited to see how EPA is carrying out the Planning Grant round of this. It's some of the first money that's going to go out grant wise under IRA, every state, provided they submit a notice of intent to participate that was due at the end of March. And then, provided they submit a work plan and application that was due at the end of April, has an opportunity to receive a $3 million grant that they put in the agency of their choosing, whether that's the Governor's Office or the Energy Office or the Department of Environmental Protection or otherwise.

Every MSA gets a million dollars as well. Tribes also get investment, as I mentioned, as do territories. But these investments directly build capacity. They can use them to hire staff, hire consultants, build high quality tools they need, like greenhouse gas inventories, or cover other administrative costs of not just applying for the Implementation Grant in the future, but to take advantage of the rest of the money passed in IRA.

David Roberts

Right. When you invest and build the capacity, the capacity is there. Once you use it for this plan, it's still there, and you can use it for other things, like these investments in administrative capacity, pay back richly over time.

Sam Ricketts

That's right.

David Roberts

And so then the Implementation Grants, this is not going to be a give money to everybody who applies thing. This is going to be more of a competition type of thing.

Sam Ricketts

Yes. So the Planning Grant round is intended by congress to be spread widely. And I'm pleased to see how EPA has done that and done that quickly to make sure dollars are flowing in everywhere. Again, to address both like, hey, you can use this money to apply for an implementation grant in the future, but hey, you can also use this money to build yourself some capacity inside of your agencies because of all the other things that are flowing. But yes, then later this year, we're expecting an implementation grant announcement. EPA says it would come late summer, maybe it's the fall.

We're hoping, the royal we all of us hoping together, they move these dollars quickly in order to get the dollars out the door quickly, certainly as early as they can in 2024. But these would really be grants that would bolster capacity and could reward those states and local governments who come forward with the plans that show they're going to lead to the greatest catalytic change. And what I'm hoping to see what I and others are hoping to see from them with this is really investing in the state driven, local driven strategies that fit their unique needs and that reduce the maximum amount of climate pollution and achieve those breakthroughs in places that are additional to that which may occur otherwise without these grants or that which may be possible otherwise, given these states unique policy environments.

David Roberts

And this is not a new format here the idea that states are competing for federal money, the whole Race to the Top idea, this is not the first time this has been tried with federal grants.

Sam Ricketts

Indeed, it's not. Actually, a very similar amount of money was invested in a program called the Race to the Top Challenge Grants that the Obama administration executed about a decade ago, about $4 million that was spread around. I think twelve states were awarded grants that ranged in size from $75 million to $700 million or something, and those grants went to those states to pass or implement innovative leading edge education policies. But the fascinating thing about the program that I think should inform how the EPA thinks about this program is it wasn't only the states that got grants that executed their policies.

Everyone got to work writing a plan. And the majority of states, even those who didn't get a grant, would later go on to implement at least some of those policies.

David Roberts

Yes, this is what I always used to say about the Clean Power Plan, too, right? I mean, one of the that Obama tried and failed to pass, one of the great benefits of it is that it would have made every utility at least think about this stuff. And it's just a fact that once you start thinking about it, once you start planning, once you start doing the numbers, you realize, like, oh, these are good things to do regardless whether you get the federal money or not, right? So just catalyzing the planning itself does so much to generate future action.

Sam Ricketts

The Clean Power Plan is a great example of this, right? Because notably, utilities met targets much faster than they would have even if the plan had ...

David Roberts

Actually catalyzed it without even passing it all. Look at the ...

Sam Ricketts

And it catalyzed planning ... Actually that's a good example for this particular topic as well because having been in a state government at that time and been part of some of those conversations, it catalyzed planning not only by the utilities in the industry, but it actually catalyzed planning at the state government level. For the first time in many places you actually had environmental regulators who were going to be charged with implementing the Clean Power Plan, working with the PUC that regulates the utilities, working with the State Energy Office that writes the State's energy strategy.

David Roberts

Right, which is a brand new thing. So let me ask you to editorialize a little bit. You got this $4.6 billion bucket of money that you can use to help states and localities and tribal governments implement the plans that they sent to you previously. Obviously there's a ton of latitude within that. There's a ton of approaches you could take that you could do bunches and bunches and bunches of little grants. You could make it your mission to sort of give at least a little bit of money to everybody who has a plan. Or you could try to sort of concentrate money on a couple of big plans that you think could be transformative or could serve as an example to other states or some mix.

So how would you like to see EPA approach handing this money out?

Sam Ricketts

It's a great question. EPA has wide latitude as to how they design and execute this Implementation Grant Program round. And I mentioned it's $4.6 billion. I mean, recall that we were talking just a bit ago about they have an opportunity here to do a couple of different things. One is build capacity in states and local governments basically across the board, right? Because everyone needs some version of help here in order to take advantage of all of the resources that are here. But then they also have an opportunity to reward those states and local governments who are going to take advantage of that next generation of clean energy industrial policy leadership who want to use the resources to go further.

David Roberts

Right. You can fund the laggards to get them up to the starting line or you could fund the leaders

Sam Ricketts

And you can do a little bit of both. Like you can cover that for one, using some of the money, a small chunk of the money to build additional capacity. Recall that capacity building investments already been made by EPA with the Planning Grant round. What happens if they did that with basically a second planning Grant round or maybe a second, twice of the size, Planning Grant round? And that would give some money across the board to continue building capacity which, as we've just talked about, is a ubiquitous problem regardless of the state's level of leadership on clean energy.

And then you could save the majority of the funding to slice up for a select number of grants that can range from eight to nine digits of major investments. That can help provide a locus of organization and momentum for that state and local government to execute on a truly ambitious clean energy industrial strategy, again unique to its own needs, and ensuring that especially EPA should be looking out for opportunities to invest in clean energy leadership where it wouldn't be otherwise occurring. So additionality is key here, I think the EPA should obviously also be looking at plans that are going to support disadvantaged communities.

David Roberts

I meant to ask about that specifically, actually, isn't the 40% rule that 40% of all these monies have to go to disadvantaged communities? Does that apply to this bucket as well?

Sam Ricketts

Indeed it does. Actually, there's two different ways that sort of equity applies to the requirements that the administration should set out for. One, to your point, this is one of the programs that falls under the Biden Administration's Justice40 Initiative, meaning that applicants should be showing how no less than 40% of the investment benefits from their plan are going to benefit disadvantaged communities. And there's actually a second one in the statute which Congress said EPA has got to require these plans to show how they're going to reduce climate pollution both overall and in disadvantaged and low income communities.

So a couple of different ways. EPA already also in the planning grant guidance has required states to work with their city governments in developing their plans or municipal governments, and they've encouraged them also to work with disadvantaged communities. And that's an opportunity here for EPA and the Implementation Grant round as well to task applicants to show how they're going to work with and benefit disadvantaged communities with their investments, how they're going to support good jobs with their strategies. EPA has latitude here as to how to design this program. I think also there's an opportunity here to encourage states and local governments to work together, whether that's in a region and are in multiple parts of the country.

This is a time for creative strategies and for calling forth sort of that unique next generation of state clean energy leadership that we're going to need to see now and throughout the coming decade.

David Roberts

Right, one more note about this program before we move on and wrap up, because I just personally found it so delightful and clever. Listeners will recall when Obama said, "Hey, states, how would you like to have billions and billions of dollars of free money to help have better health care for your poor people?" And red states just flat turned it down. They turned down free money, which is insane, but certainly something you can imagine happening here too. But there's actually a somewhat clever and innovative feature of this program meant to address that eventuality. So tell us about that.

Sam Ricketts

Indeed, this is a really innovative piece of what EPA has done with this program. I mentioned earlier that $3 million of planning grant money is available to all states. What they had to do was submit a notice of intent to participate and follow that on with an application and a work plan. Notably, if a state chose to decline that $3 million grant, the money wouldn't dry up or disappear. It would actually be available to the largest metropolitan statistical areas in that state, MSAs in that state and across the country. And so the dollars would go to somebody and it kind of provides a double incentive for the states to say yes.

And notably, they did. 46 out of 50 states submitted a notice of intent to participate and receive their $3 million.

David Roberts

Yeah, it's one thing to say no to money. It's another thing to say no to money when you know your nemeses in your blue cities are going to get the money you're turning down. That's such a clever twist.

Sam Ricketts

And we want some national governments tool one to say yes to this, right. Because if they take the money, they're going to go build a plan that's going to reduce emissions. It might be their unique flavor of that. It should be their unique flavor of that. But it gives them an opportunity to put people in seats and to start designing strategies that are going to reduce climate pollution and that are going to allow them to build the industrial strategy that's going to work for them in the 21st century clean energy economy. And we're going to need everyone doing that eventually at some point.

David Roberts

At every level, okay, by way of wrapping up then, could we touch on I mean, this is a big $5 billion and especially $5 billion is how big is money these days? Who can judge? But like $5 billion when you're talking about state budgets is quite a bit of money. You can move some needles with that. Are there other federal programs that states can draw on or states and cities specifically to help them build administrative capacity?

Sam Ricketts

Really good question. The first thing I want to say is these investments will allow states and cities and tribal governments and territories to take advantage of the rest of the funding flows in IRA and Bill and CHIPS in new and more ways like we're talking about because they're going to build the capacity that empowers them to do so. The second part is though, there's not a lot of capacity building types of investments in these bills. There are a couple. I think the other main one spend a lot of time thinking about is the state energy program of the Department of Energy, which is the program that Department of Energy uses to support state energy programs throughout the country.

Sometimes they provide, frankly, the only funding that underpins a state energy program in some states. So a vital program, not a lot of money. It's actually money that came through that program was reauthorized and funded through the Bipartisan infrastructure law, not through IRA. But there aren't a lot of dollars in capacity building. There are other capacity building programs and technical assistance programs. Federal government and EPA actually has just announced investments in a number of TICTACs. I'm forgetting what precisely that stands for other than a delicious breath mint, which are regional entities that are going to work to provide technical assistance for disadvantaged communities in particular to help them take advantage of and community based organizations.

So there's the thriving communities program. There's a suite of federal TA programs, but not a lot that go directly into juicing the capacity of states and local governments throughout the country.

David Roberts

Right. It does seem though, like if you're a state and you're given money to do X, it makes perfect sense to spend some portion of that money to build the capacity to do X, right? It seems like you could states could spend a lot of different buckets, at least a little bit on capacity because otherwise otherwise you can't really take advantage of the money.

Sam Ricketts

No, absolutely. And there's other piece of it. The Greenhouse Gas Reduction Fund has some dollars that can be used for particular assistance. There are others, don't get me wrong. However, the flexibility provided to individual states to look across programs, some of them will get very tied into a grant associated with this particular strategy. And that's a little bit different than empowering the state or the city or the county to design its own strategy that works for it or to shift from one day to the next from one program or one project to the next, which is also a challenge.

David Roberts

Right. Okay, final question. We've been talking about governmental capacity, basically administrative capacity, which is great in rules. Is there anything that just ordinary people advocates or activists or maybe philanthropies, private philanthropies can do on this subject other than just like pay attention and cheerlead?

Sam Ricketts

Yeah, I mean, the first thing to know, as with most things, is that this is a challenge worthy of attention. That's sort of first things first. Lots of effort went in over many years to getting these bills passed for many people. Right. And there's a whole apparatus of advocacy that zeroed in on that for a very long time, as you and I know. And this is kind of a different line of work. Implementation is kind of a different line of work and it's the talk of the town now, but it's very much like attention to state and local governments is going to be dispositive in our success or failure with these bills and what we're trying to do with decarbonization and with building a just and thriving clean energy economy.

And that the attention that advocates need to provide, just like they've provided it at the halls of Congress, just like they provide it at President Biden and at his EPA and at his Interior Department, et cetera. They need to not be providing it with their City Council, with their state legislature, with their Governor's Office, with their Public Utility Commission. In some ways, it's not advocacy. In some ways, it's partnership with spreading the word to disadvantaged communities, to individual consumers that, hey, there's incentives available to you, there are investments available to you. Let's go take advantage of them and build some new, clean, better futures for our communities here.

David Roberts

Awesome. This has been excellent, Sam. And I bet if state and city people are listening to this, they are gratified to hear it wrapped up and get a little focus and direction. So thank you so much for all your work over the years. And also thanks for coming on.

Sam Ricketts

Thanks for having me, David. Real pleasure as ever.

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 Volt 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, Jessica Wilkinson and Nels Johnson of The Nature Conservancy discuss the pathway they see for a rapid, low-cost clean energy transition that minimizes impact on environmentally sensitive land.

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Text transcript:

David Roberts

A great deal of confused and misleading information is circulating about the land-use requirements of the energy transition. Everyone agrees that building the amount of clean energy necessary to reach net zero carbon emissions by 2050 will require an enormous amount of land.

But is there enough land? Will the transition require industrializing green fields and virgin forests and other environmentally or culturally sensitive lands? Can the energy transition be done big enough and fast enough while still remaining respectful of natural resources and other species? What mix of technologies will go most lightly on the environment?

To provide a definitive answer to these questions, The Nature Conservancy launched its Power of Place project — first in California, then for the greater American West, and now, this week, for the entire nation.

Using various metrics related to wildlife, ecosystems, cultural resources, and protected natural areas, the Power of Place project attempts to comprehensively map out sensitive land areas. It then tallies up the amount of clean energy required to reach net zero by 2050 and tries to match those needs to the available lands, to see if there is a pathway to net zero that protects them.

The good news is that, with some wise planning, the amount of environmentally sensitive land impacted by a business-as-usual clean-energy transition can be substantially reduced at relatively low cost.

To discuss this and other findings of the report, I contacted Jessica Wilkinson (Power of Place project manager) and Nels Johnson (the project’s science and technology lead) of The Nature Conservancy. We discussed the technology shifts that will enable a lighter footprint, the policies that could help encourage them, and the best ways to avoid community resistance.

Alright, then. Jessica Wilkinson and Nells Johnson. Welcome to Volts. Thank you so much for coming.

Jessica Wilkinson

Thank you for having us.

Nels Johnson

Yeah, thanks for having us, David.

David Roberts

Jessica, let's start with you. The subject of land-use and renewable energy, there's a lot of weird information and misinformation floating around about this, a lot of weird myths, a lot of sort of people with strong opinions who don't know what they're talking about. So what inspired this series of reports, the Power of Place reports? What inspired you to start undertaking this project?

Jessica Wilkinson

Yeah, this is precisely one of the reasons that we were inspired to do this project under sighting, as usual. Like the way that we're proceeding now with a renewable energy build-out, we are seeing an increase in local opposition, and we are seeing concerns about land-use issues. And land-use and environmental issues are indeed kind of one of the obstacles that's popping up in the way of us being able to meet our clean energy goals and meet our clean energy goals rapidly. So we really started this work in California, which was the first time we kind of developed this Power of Place methodology and that refurbished report came out in 2019.

We refined it and then released Power of Place West in 2022. And this is kind of the next iteration where we further refined it. And each time we've kind of added new kind of levels of detail and asked some slightly different questions. But the land-use issue is exactly one of the reasons we've done this. So really what we're trying to do is question the premise of whether or not we really need to make these huge trade offs between conservation and climate.

David Roberts

I think the conventional wisdom is that if we switch from fossil fuels to renewables there are a lot of advantages. But one of the disadvantages is you need a bunch of land and you're going to end up consuming a bunch of crop land or environmentally sensitive land or land that the locals don't want you on. All this kind of stuff. And so your take is that that stuff is exaggerated. So what is the power of place? What is it meant to convey?

Jessica Wilkinson

Yeah, it's not to say that it's exaggerated, it's real, it's happening. The question is how much of it is avoidable?

David Roberts

Right.

Jessica Wilkinson

So what we are seeking to do is ask that question do we need to make all these huge trade offs for nature and for people on the path to decarbonization? So we've asked in Power of Place, it's a modeling exercise and you can ask the model, okay, go achieve net zero emissions by 2050, economy-wide. And model please kind of exclude these environmental data layers and let's see if that changes, whether we can get there, the pace at which we get to that goal and what the cost differential is.

David Roberts

Right before we jump into what you found, how would you describe the status quo of land-use planning and energy?

Jessica Wilkinson

This is a relatively new land-use, right? I mean, this is not something a lot of communities have seen before. They're leasing it for the first time and they may be seeing it come at them really quickly. And so there is a response. Just like local governments adopt local land-use planning and zoning for industrial uses, for commercial uses, for residential uses, they are adopting ordinances to ensure that the renewable energy is going to places where that community would prefer to have it. So we are seeing a lot of local ordinances go up around the country.

There have been projections from NREL. That report they released recently said that there were 3,000 local governments that adopted ordinances. And I think it's important to keep in mind that just because this is happening, just because these ordinance are being adopted doesn't necessarily mean that they're being adopted to block wind and solar. In every case, some of them are again, just a natural reaction to land-use planning and a desire to direct it to places that the community feels is most appropriate. Certainly, and the NREL study from 2022 showed that some of them are overly restrictive and likely intended to be.

But I think it's important not to assume that just because there is an ordinance, it was intended to block renewables.

David Roberts

To what extent is this response and there is a very widespread backlash happening. To what extent is that a fair critique of the way renewable energy has been planned and cited thus far? And to what extent is it just sort of an inevitable reaction to social change?

Jessica Wilkinson

Right. We have looked at this and we do think that more or less about half of the renewable energy that is being deployed now is in areas that at least the Nature Conservancy might consider to be highly sensitive to wildlife inhabitant.

David Roberts

Yeah, that's a lot.

Nels Johnson

I'll just add one sort of thought here about where are we today in terms of planning for this major infrastructure build-out that's coming our way? So first of all, just the scale of it is really huge. It's something like on the order of the interstate highway system that we built between the, in terms of the land area, in terms of the investment, in terms of the pervasive effects, mostly for good. But if it's not done in the right places, it can cause adverse impacts to natural areas, to local communities. So one way of thinking of this is we plan a lot for transportation, for housing, for commercial and residential development.

And up until now, we really haven't done spatially explicit energy planning. And that's one of the things we're hoping to accomplish with this series of power place studies is encouraging at all levels. Utilities, state energy offices, the federal government, regional transmission organizations, all to get more explicit about where are the best places to put all this infrastructure, and engaging the public at the community level, variety of levels to provide input into that planning.

David Roberts

Well, it does seem like if you sort of measure the amount of backlash that has been produced by the amount of renewable energy so far, and then you multiply that by the amount of renewable energy we're going to try to build over the next decade or two, if you apply that same multiplier to the backlash, that's a very big backlash. Right. I guess part of the point here is that it's less, maybe less about poor planning than just no planning. There's just not a lot of coordinated planning around the renewable energy build-out yet.

Nels Johnson

Yeah, I think that's fair to say that right now there's very little planning that the public has an opportunity to engage in and that needs to change to promote wider acceptance of this build-out. People have to have a voice in what that energy future looks like for them and they need to be reassured that they're going to get benefits out of the development that's taking place and that the energy isn't just being produced in their backyard and sent hundreds of miles away to a different user.

David Roberts

I want to come back to this question of public participation because I have a few troubled thoughts about it. But first, so this report, this is a national report and you created several different scenarios for different kinds of pathways to zero carbon by 2050, which have varying impacts on sensitive lands. And sort of like you did these increments like here's, we can avoid 10% of these damages, 20% of these damages, all the way up to 90%. So one question I had about the scenarios up front was because I feel like this is another sort of mythology that's floating around is in any of these scenarios, did you run into an absolute shortage of good land?

In other words, did you at any point encounter like there's just not enough suitable places to build enough renewable energy to do what we're talking about doing? Did that come up at all?

Jessica Wilkinson

Yeah, I mean, you'll see that kind of our big take home message that we really lead with is that we can get to net zero emissions by 2050 while avoiding impacts to most natural and working lands. Not all, but most. And we recognize that there still are going to be trade offs. However, what this study did show is that we can reduce those trade offs significantly with some better planning. So there won't be none, there won't be zero trade offs. We think we can reduce those trade offs significantly and but by doing that, by reducing environmental and social trade offs, we really can accelerate the renewable energy build-out and avoid some of that conflict, which some of which is unnecessary.

Nels Johnson

We've found that there is enough land for all of those scenarios to get built. What's important to recognize is that wind is probably the most land intensive of these technologies. And so as you reduce impacts, you do start to constrain wind a little bit more. But even so, there's more than enough land for wind to be accommodated. So for example, in the Power Place West report, we found that there was three times the amount of land available for low impact wind sighting in the western United States. Even under the most protective approach to natural areas and agricultural lands, we would still have more than enough to accommodate wind.

David Roberts

Right. So whatever land issues we run into, not having enough land is not going to be one of them. Because I think people have in their head some very inflated ideas about because this stuff about land-use has been floating around so long. I think people have very inflated ideas about the amount of land required and just thought we should clear that up front. There's enough land.

Nels Johnson

Yeah. And with solar in particular, we have lots and lots of flexibility for where we put solar.

David Roberts

What the report shows is here's the energy mix for a 10% reduction in land impacts, 20%, 30%, 40%. And as you are moving up that scale and avoiding more and more of these impacts. What you see is that wind declines and solar grows. So insofar as you are taking land-use impacts into account, you are shifting somewhat from wind to solar, at least relative to sort of baseline projections. I just want to know why that is, because it's a little bit counterintuitive to me, because my impression is, and I think a lot of people's impression is that solar takes the most land, is the most sort of like sprawling per kilowatt.

So why is it that when you restrict land-use to more appropriate swathes of land, why do you shift from wind to solar? Just maybe explain that a little bit more.

Nels Johnson

Well, so the main reason, David, is that solar project actually are much more efficient in the use of land compared to wind. So, for example, a wind project that's 100 megawatts needs about 9,200 acres to accommodate those turbines. Those turbines have to be separated by a certain distance so they don't interfere with each other. And so you need a project area, about 9,200 acres. A solar project the same size 100 megawatts nameplate capacity needs about 430 acres. So it's significantly smaller. Now, within that wind project area, of course, not all the area is being impacted. In fact, only about 3% of it is.

You have the turbines and you have the road, and you have a power line that's connecting it all to the main grid, and those areas in between are available for agriculture. Right? So wind is really compatible with agriculture, but when it comes to species, when it comes to habitats, that's not always true. So when, for example, you clear a turbine pad, if it's in a forest, for example, you create what's called an edge effect, and that extends about 400 feet into the forest. And so that area is no longer good habitat for a variety of species, and it changes the kinds of plants that will grow there and other things.

David Roberts

But even so, if you're only impacting 3% of that 9,200 acres, I mean, even if you have little islands of impact around the turbines, it still seems like a relatively small area that you're impacting them.

Nels Johnson

Yeah, of course, it depends on the species. So when you take prairie chickens, lesser prairie chickens and greater prairie chickens, they're both very sensitive to tall structures in grassland environments because tall structures are associated with places that hawks and eagles can see. And so they have an aversion to being in areas near large tall objects, including wind turbines. So that area is larger than the separation distance from those turbines. I see. That's kind of the indirect or displacement effect we see for certain species. So bottom line is, wind is very compatible with agriculture. It's less compatible with some species, particularly birds and bats.

David Roberts

Speaking of compatibility with agriculture, let's talk a little bit about ... Jessica, one of the things the report does is focus on a couple of strategies, I guess, to build out renewable energy in such a way as to impact lesser use. One of those is colocation. One of those is agrovoltaics. Can you maybe just tell us real quick what those two are and why the report sort of singled those out?

Jessica Wilkinson

Yeah. So this Power Place National really, again, was an evolution from some previous work where we were trying to ask some novel questions. And this issue in particular land saving approaches, really is a novel approach to decarbonization scenario planning. And what we wanted to do is in addition to considering how the mix of technologies changes the footprint, we wanted to consider how land saving approaches and there's a lot of different land saving approaches out there. One could argue nuclear is a land saving approach, but we wanted to consider how some land saving approaches could again affect the overall footprint and therefore kind of maybe by reducing that footprint, reduce some conflict.

And the three kinds of land saving approaches that we're able to really kind of dig into because the data were there were agrovoltaics colocation of wind and solar and then fix tilt solar. So those are the three that we really kind of dove into deeply.

David Roberts

And was that because you thought that those were the three most potent or just three common ones? Or why those three?

Jessica Wilkinson

There was robust data that was robust enough for us to consider this. This is the first time folks have taken a stab at this. So it's pretty novel approach. And for the colocation of wind and solar there, we're looking at wind and solar on the same project area. And when we looked at this approach, it was really promising for agrovoltaics. It's again an apportment and promising strategy for producing food and generating solar energy on the same land. Not all crops are compatible.

David Roberts

Just so listeners know what we're talking about, agrivoltaics is just putting solar panels on agricultural land, on the same land where food is being grown.

Jessica Wilkinson

Exactly. And it's very popular conceptually. It's not like, at the moment, super scalable. But we wanted to ask how much more agrivoltaics could we do as a way to again get some of these co-benefits? And what we did find was that by using agrivoltaics we could grow the amount of agrovoltaics we currently are projected to have from 216 square miles to about 600 square miles. So that's a significant increase.

David Roberts

It's a significant increase. But is it a significant impact in the context of the overall land-use picture? Like, is this a big player in the final mix, do you think?

Nels Johnson

It's not currently a big player. And we don't project it to be under the assumptions we used. We do think it has the potential to grow with technological innovations and more incentives and more experience. So, for example, agrivoltaics that we looked at primarily are focused on fruit and vegetable crops there is some evidence that potatoes, wheat, cattle can benefit from agrivoltaics too, but there's just not enough data for us to be able to model the effects of agrivoltaics in those settings. But hopefully over the next few years we'll start to see more experience and that may expand the role that agrivoltaics can play in the future.

David Roberts

Why agrovoltaics and not aggri-wind, wind-agra, whatever the wind equivalent is? It seems like I mean, intuitively there's so much space between wind turbines, it seems almost more sensible to try to do agriculture amidst the wind. Is that not a thing?

Nels Johnson

It is a thing. And in fact, a fair amount of the wind that's being deployed now is in agricultural landscapes. And that's what we show as well. The area that we show being directly impacted in agriculture, that's cropland, that's a subset of the most productive, at least from a human food point of view, areas croplands, about 2% of them we project could be directly impacted by 2050. But that indirect impact or the area of agriculture that's in wind projects is going to be significantly larger than that. But that land benefits potentially from those wind turbines because the farmer or the rancher is getting an income stream not just from the agriculture they're doing between the wind turbines, but also the revenue they get for leasing land for that energy production.

David Roberts

People understand the land saving benefits of agrivoltaics are very sort of intuitively obvious. Similarly with colocation, like if you put the wind and solar in the same place, then you don't need two places. It seems straightforward enough. But what's the deal with this fixed tilt solar? Explain that a little bit. The land saving benefits, what's involved there?

Nels Johnson

The main land saving benefit from fixed versus tracking is that the fixed panels are able to be packed together in tighter rows than the tracking. The tracking needs more space between the rows of PV panels in order to do that tracking. So that makes those tracking panels have a higher capacity to convert sunlight into energy. You can actually squeeze more energy capacity into the same amount of land using fixed PV. So at least in areas where there's not that much difference in the capacity advantage for tracking over fixed, fixed can be one of your land saving approaches because it uses somewhat less land than the ...

David Roberts

Oh, interesting, that is not at all what I would have predicted. I would have predicted that tracking because it has higher capacity, because it produces more power, you just need less of it and thus would cover less land. But that turns out to be wrong.

Nels Johnson

Well, except as you go further south, then the advantage for the tracking really starts to pay off, including and exceeds what you can gain by packing more fixed into the same amount of area. Because that tracking differential, once you're further south in the southwest, places like Nevada or places like Georgia and Florida, there you're always going to have tracking is going to be the technology of choice. Fix probably doesn't make sense in those kinds of settings.

David Roberts

Interesting. Okay, so the report takes sort of a close look at these three land saving, let's say, technologies fixed versus tracking, agrivoltaics and colocation. But those are mostly just novel inquiries to figure them out. The bulk of the land saving that's done in these scenarios is by shifting the technology balance. Is that fair? Like that's the primary instrument in what is or is not saving some land.

Nels Johnson

So there are three steps that we kind of recommend. So one is use environmental and social data no matter what technologies you're using. Then look at those technologies you have available and figure out which combination makes sense for your region, for your landscape to achieve your climate goals, as well as your conservation and local community goals. And that may involve substituting solar for wind and maybe adding storage to the solar so you can better make up for the gap that the wind might leave behind.

And then the last is within those technologies that you have, say, solar. What are your options for saving land, for example, agrivoltaics. One thing I want to say about land saving approaches are two things that we didn't model as variables, but we assumed fairly high levels of implementation and that is efficiency and distributed or rooftop solar. So we made some pretty aggressive assumptions about how much rooftop solar will be built by 2050. We assume that about 35% of available rooftops would have solar 30 years from now, which is at the high end of projections that are out there. And so it's a decent chunk of the solar contribution, but it doesn't get us all the way to where we need to go.

It gets us something like about 10% of how far we need to go.

David Roberts

But a big piece of land saving via solar is by moving the solar onto rooftops.

Nels Johnson

It is an important piece and we should certainly support efforts that make economic sense to get solar on rooftops because it means there's somewhat less that has to go out in the landscape somewhere else.

Jessica Wilkinson

But I would say if you look at the main kind of figure that shows how total land-use impacts shift based on the different impact reduction scenarios we looked at and how the mix of technologies changes, I guess one way to look at it is we didn't challenge the model super hard on pushing the envelope on rooftop. We asked the model to kind of push the envelope as much as possible in considering how shifting technologies makes a difference, how agrovoltaics and colocation and switching from tracking to fixed makes a difference. There's a lot of opportunity, I think really to push the envelope more and challenge some of those assumptions about rooftop solar and policy policies that we can get in place really to kind of nudge us up as much as we possibly can because ultimately that and energy efficiency are some of the best land saving approaches.

David Roberts

Right. And energy efficiency, I guess, is obvious enough that don't have to spell it out too much, but just the less energy you use, the less you have to build, so the less land you use. Yeah, I meant to ask about efficiency in rooftop solar because I noticed that they were not highlighted, but those are the main things I generally hear from people when they talk about how to save lands. Another question, Jessica. You mentioned earlier that you could view nuclear power as a land saving technology. This is something you hear very frequently from nuclear fans, that it uses tons less land than wind and solar for the same amount of power.

So I was a little surprised. I mean, I guess I would have expected that as you move toward reducing these impacts, you're going to get lots and lots more nuclear out of the model. But that didn't happen. It was a big shift from wind to solar, but there wasn't really a huge shift in anything else. I guess sort of bioenergy kind of declines sharply once you get up to avoiding a bunch of impacts. But the main technology shift was from wind to solar. So what explains that? Why not more nuclear if you're trying to save land?

Jessica Wilkinson

I think it really comes down to cost.

David Roberts

Nuclear's old Achilles heel.

Jessica Wilkinson

Yeah. And as part of this study, the modeling, we work very closely with Evolved Energy and Montara Mountain Energy and Grace Wu at UC Santa Barbara. And Evolved has the kind of energy capacity modeling expertise. And so what we're telling the model to do here is try and avoid natural and working lands as much as you can model and consider cost. And so as we're seeing cost play out in how the mix of technologies changes and it would select nuclear if it were competitive from a cost point of view to more wind and more solar.

David Roberts

So then a follow up question about that. Then you say rooftop solar can save X amount, but advances in technology or policy, we could and should push that higher in the name of saving land. Do you take that same basic approach with nuclear? Like, would you support reforms? Do you support reforms that make nuclear either technologically, these smaller, allegedly cheaper nuclear plants that are allegedly coming sometime soon, or just regulatory reform? Do you support pushing the envelope on nuclear as well in the name of land preservation?

Jessica Wilkinson

So the Nature Conservancy, kind of, has focused a lot on the process also being incredibly important, having the local communities have a very important role to play here. And this is one of those technologies that for sure that we need to be particularly sensitive about. But we do acknowledge that current nuclear production is really necessary component of reducing emissions in the short term and even possibly in the long term, provided there are improvements for people and wildlife in the cost, safety and environmental performance of nuclear technology and as well as waste storage and mining practices.

David Roberts

Nels, one thing that jumps out at me as a longtime fan of electrification is that the scenario that performs best in terms of land preservation, sensitive land preservation, is the high electrification scenario. Why is that?

Nels Johnson

Because it gives you more flexibility in how you get to net zero. So you have a range of technologies, some of which are more spatially efficient than others, and so that gives you the option. So nuclear, for example, is one of those very efficient options. And so as we reduce impacts, push really hard to reduce impacts, the model starts to choose some additional nuclear because it is so efficient.

David Roberts

So it does boost a little bit. Nuclear does get a little bit.

Nels Johnson

It about doubles the amount of nuclear that's online by 2050 when we really work hard to reduce impact. So it's not a lot, but it does increase somewhat. Keep in mind that the experience with the small modular nuclear plants isn't in the commercial space yet, so our data is very limited. And so the model just isn't able to really get enough good data to make it a cost effective option. Based on what we know now, that may change in the future. And I'll just say that's true of all technologies. So could be technology breakthroughs in lots of different places.

For example, I was listening to the show with Jamie Beard on geothermal not too long ago, and that's one of those technologies where there really could be a breakthrough that really makes it a much more attractive way of getting to net zero. But currently our data on geothermal is not exactly very promising in terms of cost effectiveness. But there's some really interesting innovations going on right now, really change that picture.

David Roberts

And it is notably light on land geothermal.

Nels Johnson

It is.

David Roberts

That is worth noting.

Nels Johnson

That isn't to say there aren't other issues, but generally it's more spatially efficient. You do have to look at aquifer effects and things like that and there can be things that are important to really avoid or mitigate with geothermal. But yeah, overall breakthroughs in geothermal could lead us to much more land efficient approaches to getting to net zero in 30 years.

David Roberts

Jessica, what are energy communities and what role do they play in this? One of the results is that if you move to this more land sensitive approach, these more land sensitive scenarios, you end up with more jobs in energy communities, which seems like a good thing, but A. what's an energy community? And B. why do you end up with more jobs in them?

Jessica Wilkinson

Yeah, so we didn't necessarily say anything about jobs, but when we were working on the modeling and building the assumptions, we had the passage of the Inflation Reduction Act, so big deal. And so we wanted to consider. How that tax credit that is included in the Inflation Reduction Act would affect ... So IRA gives a 10% tax credit for clean energy deployment in energy communities and it has super wonky definition, as you would expect, it includes areas with historic fossil fuel production and processing.

David Roberts

Right. So these are communities that were embedded in the fossil fuel economy and we're worried about them because we're moving away from fossil fuels.

Jessica Wilkinson

Right. And energy communities, the definition also included brownfields. But treasury is still working out kind of the technical definitions for a lot of this.

David Roberts

Right.

Jessica Wilkinson

Which made it hard when we were building this model several months ago. But kind of the mapping that has been done around the fossil fuel production aspects of energy communities is a little bit clearer. So we looked only at those and we were able to model areas again, those areas associated with historic fossil fuel industries, as I mentioned, evolved models, the evolved energy energies, their models takes into account kind of price. And we weren't able to kind of build that 10% tax credit into the energy model just because the rules haven't been set quite yet. Instead, and we might get to this, we use this dynamic scoring approach in this study and we basically put a finger on the scale in favor of these communities.

We gave them a negative social impact score to just see whether or not if we're incentivizing them, we see more of the renewable energy build-out in these communities.

David Roberts

So kind of an attempt to simulate an incentive.

Jessica Wilkinson

Exactly. And what we did find was that when we do that, we do see an additional 10% of the clean energy deployment being directed to these communities. So about 32% of the total 2050 energy portfolio in our scenario is built in these energy communities. And under one of the scenarios we looked at most closely, the 70% impact reduction scenario, 23 million people in those communities — live in those communities that host clean energy projects compared to 21 million people in the setting as usual scenario. So we do see a larger percentage of the portfolio happening in these communities and more people live in those communities.

When we again put our thumb on the scale for those energy communities.

David Roberts

And are there land implications to that or is that just more about social impacts?

Jessica Wilkinson

Sure, there's land implications as well. Yeah, so there's going to be benefits to those communities and there'll be impacts as well.

Nels Johnson

One thing I'll just point out about the energy communities, one of the reasons why the modeling finds them very attractive for energy development is because it's likely they have the infrastructure and the energy capacity models out there looking for places that have certain characteristics. And these energy communities have the kinds of characteristics energy models looking for. So that makes them relatively attractive for new energy development. It's obviously a different kind of energy development, but it can take advantage of some of the same infrastructure. There are likely already existing transmission lines. There's road access, there's a worker force nearby.

So that's partly why we see such a large proportion of the build-out going to these communities.

David Roberts

And the land is sort of already affected.

Nels Johnson

Yeah, from a conservation point of view there's some benefit because these communities often have lands that have been previously developed for earlier forms of energy production.

David Roberts

Right. One other technical question is you're modeling finds as all modeling finds that building out renewable energy to hit the 2050 target is going to require an extraordinarily large amount of transmission infrastructure, new transmission infrastructure. But you find that an approach that is sensitive to these land and social impacts ends up using a lot more transmission, but a lot less more than in the baseline scenario. So why is that? What is it about being sensitive toward land that gets you less need for transmission?

Nels Johnson

The main story there, David, is that as we're reducing impacts to natural areas and to croplands, it's moving away from wind projects, for example, in the Great Plains that are quite distant from population centers where the energy demand is, to solar projects that are typically located closer to population centers and demand centers. So that is a big part of the explanation.

David Roberts

So the shift from wind to solar sort of carries a reduction in transmission.

Nels Johnson

And then that reduces the transmission need both in terms of interregional transmission movement because you don't have to move as much between, for example, the Great Plains in the Southeast, as one example, but also the gen-tie lines. These are the lines that connect the wind project or the solar project onto the grid. And so both of those transmission requirements goes down. It's still a massive increase in what we have today. So we need at least two and a half times, or three and a half times at the upper end to move energy between regions of the country to get to net zero.

So that is a massive expansion from where we are today. The last two decades we saw very little expansion in transmission and that's really going to have to change as we convert most of the transportation fleet to electric vehicles. That is just going to really require us to expand transmission to keep up with all that new demand.

David Roberts

And given how difficult it is, that does seem to serve as a recommendation for this sort of land sensitive approach since anything that can avoid the need for transmission is probably also going to avoid delays.

Nels Johnson

Yeah, and one thing we looked at more closely in the Power Place West report, we didn't have the time and the computing power to do it at the national level as much, but we looked at, well, what are the forms of transmission expansion that are available? And it's not just necessarily building a new line through a new right of way, but it can be things like colocating new wires on existing transmission towers. It can be reconductoring, that is, replacing the steel cable with carbon cables. It can be using what are called grid enhancing technologies that are software, for example, or new conductors and things like that, which enable the system that you already have to move more energy more efficiently.

And then, for example, two way energy flows in places where you only had one way energy flow. So all those things together we found in the west could account for half of the transmission capacity that we need to grow in the next 30 years. So that's a really good news story that we can invest in these approaches right here and now and make a big difference in that capacity while trying to figure out where are those big new lines going to go because we inevitably are going to need new transmission lines.

David Roberts

Right, but we can get a lot of just to sum that up, we can get a lot of new capacity without new lines or new land.

Nels Johnson

Yeah. So the idea here is to focus on those options as much as we can now, to make as much progress as we can while the longer term planning and investment for those new lines that inevitably are needed can take place.

David Roberts

Right. Jessica, let's get to the $6 billion question on everyone's mind, which is when you ramp up these strategies for being more sensitive toward land, avoiding environmentally sensitive land, avoiding adverse social impacts, how much is the additional cost over and above sort of the baseline status quo projections?

Jessica Wilkinson

Right. Well, at least the $1.87 trillion question. So existing studies have shown that as resighting today using sighting as usual scenario, the cost of meeting net zero emissions by 2050 is $1.87 trillion. So a significant price tag and that scenario where we use sighting as usual will also impact 250,000 sq mi of land. So that's an area larger than the state of Texas. So we looked at how under these kind of impact reduction scenarios from setting as usual, ramping it up to a 90% impact reduction scenario, how the cost change. And what we found was that half of the impacts to land can be reduced.

So under that 70% impact reduction scenario, half of those impacts can be reduced.

David Roberts

So that's half of wait, that's half of the amount of land is going to be impacted.

Jessica Wilkinson

Yes. Under that 70% impact reduction.

David Roberts

Half of the 250 what you ...

Jessica Wilkinson

Yes.

David Roberts

250,000. So the 70% reduction case gets you down to 125 ...

Jessica Wilkinson

About right, yes.

David Roberts

... thousand acres?

Jessica Wilkinson

You save an area the size of Arizona. Not too bad.

David Roberts

And how much does it cost to save an Arizona-sized amount of land from development?

Jessica Wilkinson

Right. So that comes at a 6.3% cost increase over the current trajectory.

David Roberts

Interesting.

Jessica Wilkinson

And that's not nothing, particularly for lower income communities and families. However, we really think that is kind of likely to be pretty high because those costs may be offset by lower cancellation rates, shorter permitting times, and lower monitoring and mitigation costs. So into the sighting as usual scenario, we expect a lot more conflict, and we see higher cancellation rates, we see longer permitting times. If there's a lot of both environmental and social kind of value in an area as that Q and A defines it, and we think that although it comes at a 6.3% cost increase, it really can be kind of offset by some of those lower cancellation rates.

David Roberts

To what extent does the model of the status quo incorporate those conflicts? I mean, you sort of can't can't you're just sort of guessing how big those impacts are going to be? But they're going to be there, right? I mean, does the model take them into account at all?

Jessica Wilkinson

It really can't. There's there have been a few studies that we've relied upon that show kind of how much these, you know, sighting in sensitive areas from an environmental perspective does drive up the costs. And the studies that do exist demonstrate that when projects are cited in the more environmental sensitive areas, they have a higher cancellation rate, they have longer permitting times, and as one would expect, more monitoring is required. And there may be other kinds of ways to minimize impacts that would be asked of the developer than if they were in an area that, for example, was a mine land or a landfill or other kind of degraded lands.

David Roberts

So you think 6.3% is what the model shows as additional cost, but we think maybe the status quo modeling is underestimating costs because it's not being able to predict all these conflicts over land-use. So maybe the costs are closer to comparable than at first blush. You think?

Nels Johnson

Yeah. David, those soft costs are just not really available for monitoring. As Jessica said, we have some specific places where we have pretty good evidence of what those costs are, but we just don't have nationwide data. The other thing that's important to notice is that we're also avoiding costs that are occurring when we convert natural habitats or croplands. And there's a cost of that, too, which isn't in the modeling.

David Roberts

Oh, you mean the cost of, like, lost nature?

Nels Johnson

Lost nature. If we could put a dollar price tag on that, if we could.

David Roberts

So those aren't in the model at all. They're priced at zero.

Nels Johnson

They're not. We're just modeling technology and land costs when it comes to these costs.

David Roberts

Right. So if you wanted to say that untouched land or unmolested land has some value that you would destroy if you developed it, that would change the final sort of cost balance outlook?

Nels Johnson

It could. We just wanted to take as narrow a view of costs as we had really good data for just so that we could have an apples to apples kind of comparison here. And that's why we limited ourselves to data that's really well vetted and reliable and that's the technology cost data and land cost.

David Roberts

Right, but I think it's fair to say that how you are going to view that 6.3% additional cost varies quite a bit based on how much you value land right. And how much you value untouched natural land.

Nels Johnson

Absolutely. And by the way, in terms of those soft costs that we talked about, project cancellation rates, permitting delays, there's really an important business case to be made here and we and others are working on that, but we just don't yet have the nationwide data.

David Roberts

Right. The business case just being it's more sensible to go to more appropriate land if for no other reason than to avoid the hassle and blowback and lawsuits and et cetera.

Nels Johnson

Yeah, the way I've heard some energy developers call it, it's kind of the land analytics. What is it about the place? You're thinking about the analytics, about a bunch of data related to that piece of land that relates to project success. There are lots of analytics that wind or solar developers look at.

David Roberts

Do we know that? Is that sophisticated yet? Like, do we have a good sense of the full characterization of land that ends up being economic to develop?

Nels Johnson

We don't have good enough data. Companies probably have better data than we're aware of because it's a business and that data can be proprietary. But we think there are a growing number of companies that actually are starting to pay attention to, as I say, this notion of land analytics.

David Roberts

Interesting. And Jessica, one of the ongoing discussions, let's say, areas of discourse in the clean energy world is about NIMBY-ism and about community feedback. And the sort of gathering conventional wisdom, I think, is that there's too much too many ways for communities to slow and halt things, too many ways for them to sue, too many laws and regulations that they can exploit. And thus that, like NIMBY-ism has all the power. And part of the solution is to move power out of local hands up higher on the chain, up to the.

David Roberts

State or federal government.

David Roberts

But you in this report at the end recommend more public process, more engagement with the public. So how do you square that? How does that not end up slowing things down?

Jessica Wilkinson

Right, I mean, we think there needs to be a balance. We need to make sure that the communities where this infrastructure is being developed have a voice, not only that, but that they're meaningfully engaged. And we also see a backlash when states try to go too far in taking away that local community role. And it can exacerbate, frankly, the backlash against renewable energy. This transition is not going to happen in the next five years. It's going to happen, we hope, as soon as possible, but it's going to take a few decades. And we really need to have these renewable energy developers have a long term social license to operate.

So we need to be finding ways not only to get that balance right between state control and local control, but we also need to make sure that we get the balance right in terms of how we share the benefits of this transition. And I think there's growing recognition about that as well. I think there's some encouraging signs there. The Infrastructure Investment and Jobs Act directed about $760,000,000 in grants to state and local governments for economic development activities and communities affected by transmission, actually. And I think New York State is a place where they were trying to find the balance of that in their 2019 legislation, where they created this one stop permit review process.

That is great. And then they also acknowledge that in order to be eligible for that, you needed to demonstrate that you've consulted, hopefully more than just consulted with the host community and that you have a community benefit agreement in place. We need to make sure that the local communities that may be seeing a lot of this development in their communities are sharing in the benefits as well.

David Roberts

Yeah, I feel like that's an underrepresented perspective in this debate, which is that maybe if you engage communities earlier and share more of the benefits with them, you could speed things up and then maybe part of the slowness is your standard capitalist rapaciousness trying to capture all the profit and not share any with the communities involved. Like maybe you could speed things up if you shared some of the money, basically.

Jessica Wilkinson

Absolutely.

Nels Johnson

We really want to emphasize that when developers do the right thing, they show how they've avoided impacts, they show how they are working with communities to deliver benefits that the community wants they should be rewarded. And we think one of the most effective ways to reward them is to get them at the head of the queue in terms of permit review, in terms of interconnection queues. Because if companies go beyond what some of their competitors are doing to do the right thing, they need to be rewarded for that.

David Roberts

Interesting. Well, that segues perfectly to my final question, which is sort of what policy recommendations fall out of this? One that seems very obvious is instead of not planning, let's plan. What are the others? Jessica, what are the main sort of policy recommendations that fall out of this for you?

Jessica Wilkinson

Yeah, so we really were thinking about our audience as being those that do energy planning, state governor's offices and energy offices. So we kind of thought about the recommendations in terms of those audiences. And for energy planners at all levels, local, state, regional, national, kind of our solution is that they use the methodology outlined in Power Place to make sure that as they're planning for a clean energy future, they're doing so in a way that maximizes benefits to climate, to nature and to people.

David Roberts

Are they just not doing that at all now? Is it land? Is this sort of like environmental sensitivity of land, is that playing any role at all in the planning right now?

Jessica Wilkinson

Only a little bit. I mean, to the extent that they do and there have been some states that have they maybe are taking off the table, like in the way that you are telling the model avoid this place if you can, if you can't, but take it into consideration. They will, for example, include those lands that are currently off the table, like national parks and wildlife refuges and that really are off the table, but they tend to not include those other lands that maybe aren't regulated in that same sense. They're not designated as high priority conservation areas but we know they're really important either because they're wetlands or they are endangered species habitat or are lands that are going to be important under the changing climate to ensure that we have resilient and connected land in the future.

David Roberts

So the first recommendation is just take this into account when planning.

Jessica Wilkinson

Take this into account, use the high resolution conservation, land-use and demographic data that we do have. And then for policymakers, what we show in some of the particularly in the regional snapshots we have in this report is that different geographies are going to need different incentives and we need to tailor those incentives to the particular geographies and the specific kind of conditions. Is it highly agricultural? Is it amenable to agrovoltaics? We're going to need to adopt incentives to encourage the right mix of technologies and land saving approaches that make the most sense in those geographies. And then as Nels alluded to for those projects that are well designed and have lower environmental, social and economic risk, we do think that it's appropriate for them to be able to jump the line, not cut the line, but get to the front line for interconnection consideration and for environmental and environmental review and permitting.

Nels Johnson

And it's really important to recognize that there are states where this is starting to happen. New York, California in particular have explicit approaches to avoiding and minimizing environmental and social impacts.

David Roberts

What are they using? Is it just like a financial incentive or is it a jump the queue kind of thing or what? Do we know what works?

Jessica Wilkinson

I think we're still learning. We're very much in the learning stage. There are states that incentivize provide incentives to solar developers, for example, that build on landfills and mine lands and brownfields. There's a lot of great examples of that. Does it solve the problem? No, probably not. But it certainly helps. And then New York was that example where they do have this one stop shopping for renewable energy permitting if you are consulting with the community and demonstrate that if you have a community benefit agreement. So we are seeing a lot of really interesting innovation and I think we're in an exciting time right now to try and get this right.

And now is the time we really need to get it right.

David Roberts

Yeah. Before we headlong into this stampede of growth, which just makes as someone who has become, over time sensitive to these possibilities for blowback, just the whole prospect of this giant wave coming, just the number of possible problems, it just makes me clench up.

Jessica Wilkinson

I think our findings are really encouraging. We we can avoid a lot of these impacts, we believe, but we need to get the planning and the policy incentives right, and we need to do it now.

David Roberts

Awesome. Okay, well, that's a perfect note to wrap up on. Jessica Wilkinson and Nels Johnson, thanks so much for coming, this fascinating report.

Nels Johnson

Thank you.

Jessica Wilkinson

Thanks so much for having us, David.

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 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.

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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?

Jessica Bateman

Theoretically. However, there are some real constraints that are just naturally occurring. Like, you can't feasibly build more than so many units on a space because cities still have the ability to maintain and create things like setback requirements, minimum lot sizes, et cetera. So height restrictions, if they have a two story height restriction in a single family neighborhood, that would apply to a Duplex as well. So I think so much of this is making people comfortable with what is the new normal and that this is not going to result in a complete overhaul of neighborhoods, that the cranes aren't going to come in and make everything look completely different.

It's going to kind of meld seamlessly. I live in Olympia, and I live down the block as little apartments and ADUs and a school, and there's a shelter and a grocery store. It's all a part of my close knit community and it's cool.

David Roberts

And it's fine. It's all fine.

Jessica Bateman

Right. And it's going to be great.

David Roberts

The one other thing that didn't pass that I wanted to mention, because insofar as there's any sort of note of off note or note of dissent about all the great housing progress that got made this year, is that the tenant protections bill did not pass. And I think there are people in the environmental justice community saying sort of the housing supply without the tenant protections is just going to screw us again. So maybe just explain what were the tenant protections and do you think they'll be back?

Jessica Bateman

Yeah. There were two bills. One was basically a rent anti-rent gouging bill that would have given the Attorney General the authority to take people to court if they are deemed to be increasing rent at a rate that is exploiting people and rent gouging super important. That did not pass. And then we also had a bill that would cap, like an inflationary cap on how much a landlord can increase rent year over year. Neither of those bills passed. These types of bills have for years failed to move forward in the legislature. I think there's a significant skepticism amongst lawmakers that these are bills that will help solve the problem.

So I think there's a lot of work that continues to need to be done building a coalition to make that reality different, to see a different outcome.

David Roberts

Do you think they'll solve the problem? Like, is this the policy you would pick to protect sort of low income homeowners?

Jessica Bateman

I support a reasonable cap on, like, an inflationary increase like they did in Oregon. I don't think that's going to solve the problem. I think it's going to be a near term fix that will ultimately not address the underlying issue, which is a lack of supply. I haven't seen a lot of data tell me that rent control actually results in lower prices for renters. And the underlying solution is really that we need to make housing available to more people. We need housing that's abundant. We need people to have choice. There needs to be competitive options for people, which right now it's essentially a monopoly.

And there's so much of a limited supply that people are able to just the demand is so high, they're exorbitant costs. But this is going to continue for a while. So in the meantime, we will continue to have people that are getting hundreds of dollars rent increase, $1,000 rent increase. And I am terrified as a lawmaker about my constituents being evicted and not having anywhere to go, because there is literally nowhere to go. So I see that as an interim step. The rent gouging. I think that if there is an aggressive and systematic increase in rent that is deemed to be gouging, I think that the Attorney General should have the ability to investigate that and hold people accountable for that because that is happening.

But there are people that really fundamentally believe that rent control is an essential solution and without it, that we are not going to see people be protected, that people will continue to fall victim.

David Roberts

Yeah. This is a deep and long standing debate in the urbanism world, a very heated debate. Are those kind of forces fixed in place or do you think there's enough wiggle room that this has a chance next time around?

Jessica Bateman

There would need to be a significant amount of work to build a coalition and to talk with lawmakers and to make I mean, the reality is that rent control bills and rent stability bills have died year after year in the legislature. So you have to be really honest about how do you change that outcome. And if there's not enough support amongst lawmakers now, how do you change that? And you do that by talking to them, getting broader coalitions of people together to talk about what's happening now to people and what will continue to happen, and coming up with a solution that legislators can support.

The legislature is filled with groups and organizations that represent them and the people that represent the landlords and the multifamily housing associations have a very large presence in the legislature and are there every day.

David Roberts

And people who get evicted do not have a large lobbying presence.

Jessica Bateman

No, they don't.

David Roberts

Speaking of forming coalitions and changing the political balance of power and political dynamics, I got some questions about how that happened. I talked to some of your colleagues and people who are involved in and around this stuff and they all you were singing your praises along exactly this lines, which is this middle housing bill failed last time and then you did the work of building a bigger coalition. Because in the politics, from my point of view, like someone who lives in Seattle and is continuously frustrated, it just seems like NIMBYs are like, everywhere and have a lock on everything and have a lock on every process from the local level to the state level. Somehow you overcame that.

So maybe just tell us a little bit about what the modern pro-housing supply coalition looks like.

Jessica Bateman

Well, first we had the most diverse freshmen class of lawmakers arrive this year, and so ...

David Roberts

The young people are coming. The young people are coming.

Jessica Bateman

Exactly. Young people. They're closer to the issue of housing instability, insecurity. They're more likely to be renters.

David Roberts

Yeah, they're all living it.

Jessica Bateman

Right. We've got members of Color now in our caucus. That number keeps growing as well. They also are disproportionately them and their constituents are disproportionately impacted by a lack of housing. So that was huge because they ultimately really changed the dynamic towards the more progressive side of this conversation. And I made it my mission. Last year, I went out and met with people in District. I went and met with the association of Washington Cities who was very much opposed to my bill last year. I met with their Legislative Priorities Committee and said, this is why I'm passionate about this topic.

David Roberts

They ended up endorsing your bill, didn't they?

Jessica Bateman

Yeah, a week before it passed.

David Roberts

Still though.

Jessica Bateman

After 25 hours of negotiating with them, they ...

David Roberts

Still kind of blew my mind, I mean, this is for listeners. This is the AWC. The association of Washington Cities.They just represent all these little, whatever, 260, all these little cities and towns around Washington. And I would say it's fair to generally characterize their past behavior as on the NIMBY-ish side of the spectrum.

Jessica Bateman

They've been opposed to legalizing middle housing statewide for years. And so last year they didn't take it really seriously in terms of negotiating. And this year we did a lot of work. Prior to session, I reached out to them, and then during session I continued to do that. But I think fundamentally, when I looked at the problem of the bill not passing last year, I thought, this bill is being talked about in such a wonky way. From a zoning perspective, we have to talk about this like it's a kitchen table issue because it is. It's impacting where people are growing up, where they're not growing up, where they're taking jobs.

If they're taking jobs, it's impacting people like my dad who contemplated postponing retirement so he could help his daughter with a home. It's impacting people's daily lives in all types of ways. And we needed to talk about it like that. And because it impacts the environment and climate change is something we've talked about, we need to be talking to environmental organizations. And because it impacts and exacerbates these inequities with opportunity we need to be talking to organizations and communities of color labor, and we also need to be talking with people that build housing.

David Roberts

Yeah. How would you characterize labor's disposition toward housing supply currently?

Jessica Bateman

Well, the Washington State Labor Council last year at their conference passed a resolution stating that they supported eliminating single family zoning.

David Roberts

Hey, well, alright. It's one of these things that I've learned when talking about unions, never to sort of assume the obvious thing, but you'd think, like, building lots more housing would be looked upon favorably by the people who build houses. But I guess you can't always assume that.

Jessica Bateman

It took them some time to come to that conclusion. The young people are coming. Like the environmental organizations that supported this bill five years ago, I don't think that would have happened. They had an influx of new, young, diverse members getting on their boards and saying, hey, climate and housing are definitely linked, and we need to be taking this seriously.

David Roberts

So you think environmental groups coming around that was significant in the politics of this?

Jessica Bateman

Oh, 100%. Absolutely. Futurewise was the premier organization that I worked with last year. It was sightline. So to have Futurewise really leading the charge with an actual dedicated lobbyist, this was one of their two priorities that their board voted on. Sierra Club, Washington Conservation Voters. Absolutely.

David Roberts

That's great.

Jessica Bateman

We have folks that are serving in the legislature that they associate the old school environmentalism as a different one than today. Today we know that dense housing is good for the environment, and it didn't used to be associated that way.

David Roberts

And population, the old school environmental, if you told them if you limit housing, you're going to limit inflow of population, they're like, exactly right. Population. People are bad, people are bad. You still hear some of that, but I think that's fading, at least in terms of their active public.

Jessica Bateman

I've been working on this issue for eight years, and I've seen a change in how environmental groups talk about this issue and who's showing up at those tables for environmental organizations. Personally, when Futurewise told me that they were making this bill one of their top two priorities, I almost cried. And I said thank you, because not only I would love your help as a lawmaker, it really helps to have an organization support your work, but also to me, it did represent a C-change in how we're talking about housing and land use, and that gives me a lot of hope for the future.

David Roberts

So you got environmentalists on board more or less. You got unions more or less on board. Even the AWC, the Association of Cities, is titularly on board. If I'm thinking about state politics, who do I identify as sort of the concentration of opposition? Is there like, an organized faction that opposes this stuff, or is it just kind of ambient NIMBY sentiment?

Jessica Bateman

Before it was the AWC, but not this year. So the entire time that I worked with them, they were negotiating in good faith in terms of wanting to eventually get to a yes if they could. And so they were not actively opposed to the bill. They were neutral, and then they got to support at the very end. We did have a lot of the old school environmentalists individually emailing legislators and saying that middle housing conflicts with preserving the environment and tree maintenance.

David Roberts

The trees, my God, it's like a trigger word for me.

Jessica Bateman

Now. Tell me about it. I was on city council for five years. So yeah, that was kind of it. And then individual cities that were members of the AWC, but not speaking for the whole association, like the city of Auburn being a prime example, they were very much opposed. But that was basically it. There was no organized those were more tangential. There was no organized group.

David Roberts

And a similar question, how would you characterize the Republican Party's disposition toward these issues? Certainly at the federal level and in the sort of face of the party is very much like, we must preserve the suburban style of life at all costs. Joe Biden is coming to force you out of your house, et cetera. But you had a Republican co-sponsor, which is somewhat brain scrambling for me. So are they split on it? How would you characterize where they're at on these issues right now?

Jessica Bateman

I would say at first that politics nationally is different than it is at the state level. And I know that's what we see in the news, and I don't watch the news, but that's what people are used to and accustomed to for their lens at the state level. I work with Republicans. I get along with Republicans. We could be on the opposite sides debating a bill, and then we go to lunch in the member cafeteria and we sit next to each other and talk about kids and pets and it's very cordial and affable. So I would say that legalizing middle housing, despite being like a free market, right aligned theory policy, that a lot of Republicans, it conflicts with their big government, the state telling cities what to do, when actually, in reality, cities are telling property owners what they can and cannot do with their properties.

So it really ...

David Roberts

These people are supposed to hate meddlesome regulations, right.

Jessica Bateman

The message of local control, which is current law, middle housing cities currently have the authority to make their own local zoning decisions, and that's called local control colloquially. Well, this is when people talk about it, they call it preempting, preemption of local control. It's very much of like the federal government coming in and the state government coming in and preempting. Well, local control doesn't have a really great history either if we want to go back in history on that. And yet that message is really hard for Republicans to get away from because that strikes a chord with them.

David Roberts

Well, also local control disproportionately empowers the aforementioned older and whiter people, which also coincidentally happen to be the sort of base of the Republican Party, so it's not the ...

Jessica Bateman

Also the Democratic Party.

David Roberts

This is not all about policy. It's very much about them having power.

Jessica Bateman

Yeah, I mean, the people who vote in elections tend to be older whiter property owners. So that could be said, it could be true of Democrats as well.

David Roberts

True.

Jessica Bateman

However, we did get some Republicans. So the fact that Representative Barcus was a co-sponsor was huge. He was my number two on the bill. He didn't just co-sponsor it. He was the number two, which is extremely significant. Actually. His office is right across the street from my house.

David Roberts

Who does he represent?

Jessica Bateman

He has a property management company and then he represent, I think it's District 2. It's like right abuts my district, south. So Lacey and Tumwater south. And so he believes fundamentally that we need to have more housing that's available and that abundant housing is a significant pathway to a solution. That's why he co sponsored the bill. And he did a tremendous amount of work outwardly, talking with people, going on interviews, podcasts, radios, really stepping out and defending this bill. And then in his own caucus, when it came to the floor, he had to describe it to his caucus members and whatever he said to them inside, that caucus was successful because we got a ton of Republicans to support the bill in the House.

David Roberts

Really?

Jessica Bateman

Yeah, it was a vote. We have 98 members.

David Roberts

So this was bipartisan in a real way, not just the, like, one rebel Republican?

Jessica Bateman

No, they voted a significant number of them voted for it on the House floor.

David Roberts

Does that extend to other housing bills? Is that a general move on housing policy? Or was there something in particular about middle housing that resonated, do you think?

Jessica Bateman

I think the middle housing bill, I mean, it was pretty amazing objectively how much support it got. I think some people voted for the bill honestly because they just saw how hard I worked it and were like, just, okay, fine, leave us alone, Jess. I hope not. I hope that they really wanted the policy, but me meddling and getting in their way might have had something to do with it. But he really cultivated a sense of what the bill was, helped them understand it. That's the other thing that people underestimate the influx of bills that we get and how the sheer number and magnitude.

So when you have someone right in the other party that is shepherding it, that's the other thing. Like throughout the whole process when I was negotiating with the AWC, I was constantly checking in with him, letting him know what was happening, where it was going. So he was attuned so when it eventually got to the House floor, he knew the bill. It wasn't like a different bill because it changed a lot. But then it went to the Senate and we didn't have a Representative Barcus in the Senate. So all the Republicans over there, that was a brand new bill to them that they didn't understand and know.

And Senator Trudeau was the sponsor in the Senate. It didn't move in the Senate. So then she was the person who shepherded it over there and did an incredible job getting that bill passed. I still don't believe that it passed. It's going to be signed on Monday and until it's signed, I still don't believe that it happened.

David Roberts

This is how I feel about the Inflation Reduction Act to this day. Is there a Republican co-sponsor for the TOD bill, for the Transit Oriented Development Bill or any of these other sort of big ones?

Jessica Bateman

I don't think that the TOD bill got a Republican co-sponsor. And a lot of the supply bills, they garnered Republican support because like the streamlining permitting process and design review, et cetera. But the TOD bill the Republicans are not shy about telling you they will not support a bill that has minimum affordability requirements in it.

David Roberts

That's just what a bizarre place to draw a line in the sand. We will not help poor people. If you try to help poor people, we're out.

Jessica Bateman

Well, they view it as and you could talk to Representative Barkus about this because he's kind of the housing lead over there. But I think from what I've heard, the best way to get more housing is to make it easier to build more housing. And there's certain things I agree with that, I think ...

David Roberts

Why not both?

Jessica Bateman

Right. There's also politics and I think there might be political reasons why they might have that position as well. I'd let them articulate that. But my point is that if we want a bill to pass, we have to figure out we have the majority in the House so we can move it on our own.

It always helps to have Republican supporters as well, if possible. So any path forward would have to figure out that in some way.

David Roberts

Yeah, I'm just so curious just from a political standpoint about because this issue does not on the merits cleanly fall along what you would think of as ideological lines. It's more of a culture war split. And I'm just so curious. But to summarize, it's not monolithic opposition to anything having to do with housing as it is on, let's say, many other public policy issues, at least it's mixed.

Jessica Bateman

In the House especially. I mean, the Republicans, they have a listserv that I subscribe to and they talked about the progress that they made on housing and they mentioned the middle housing bill. And so leadership has supported the fact that their members supported that bill and they're talking about it publicly. That's awesome to a significant degree. Yeah. But I think the Senate was a little different. We heard the floor speeches on the Senate be different than they were in the House, much more focused. I mean, Senator Fortunado in the committee, in the Housing Committee, his first question was, he said, I don't like this bill, and I don't like it because my next door neighbor might sell their property and someone might build multifamily housing on it, and that would be right next to me.

David Roberts

Well, at least he's effing honest, right? This might personally inconvenience me and reduce my property value.

Jessica Bateman

I think he also added renters might live there because then ...

David Roberts

Worse yet, imagine they might even ride bikes.

Jessica Bateman

And Representative Barcus, I looked at him and I was like, do you want to respond to that? And he said, well, first, we love renters. Thank goodness. Because I was like, I don't even know where to go with that. I mean, I was in shock. I'm newer here, and this is my first in person session. So I was a little surprised by the comment, but Representative Barcus did a really good job. But my point is, I think as younger Republicans maybe get elected or the same kind of diversity of their caucus happens, hopefully we'll see the change in attitude around what used to be a controversial issue and I think is now becoming much more mainstream and honestly supported by the average constituent.

David Roberts

Interesting. I'm a little curious. When will the middle housing take effect? I'm sort of curious. Once the aforementioned older whiter people who live in the single family neighborhood see things happening, I'm guessing at least some of them are going to go complaining to the representatives, and it will be the politics for Republicans will get complicated somewhat. So A, when will things start happening as a result of this bill? And B, are you worried at all about kind of backlash to implementation?

Jessica Bateman

I'm not worried about a backlash to implementation because of my own experience in the city of Olympia after we passed our own middle housing. It is not a fundamental change that happens overnight. And in fact, we're going to have to do more work. It's not just about legalizing these home types. It's making sure that we have the workforce to build them, which we currently don't, that we have financing products for people to buy these different types of homes that typically haven't been purchased by people. There's a ton of work that's going to have to go into incentives, like a ton of stuff, when it will be implemented.

It's going to be a rolling implementation based on cities and which counties they're in based on their comprehensive planning process updates, super wonky. I know the largest more populated counties, Snohomish, King, Pierce. They're going to be implementing in 2024. They're the next cycle. And then 2025, another group of cities, and 2026, et cetera. So it's going to be a rolling implementation. They have six months to adopt building codes, which are the codes that allow for the housing. Department of Commerce is going to be doing model ordinances for them because some of the smaller cities are like, we don't have the staff, we don't ever done this before, which isn't a hollow argument actually.

And so Department of Commerce is going to be doing a lot of work in the next year and ongoing I anticipate coming back next session and there are a lot of other things that we're going to have to address and so I'm looking forward to working on more housing legislation in the future.

David Roberts

Awesome. Okay, final question. I kept you much longer than I said I would, but I love this housing stuff. I think most of where housing policy, the rubber hits the road is the sort of interplay in local municipalities and states. But is there anything in particular that the federal government could do that would make your job substantially easier, that would make these housing reforms substantially easier? Is there one or two things you could point to?

Jessica Bateman

I mean, they could say that any federal funding, the requirement is you have to legalize, you can't make it illegal to build middle housing.

David Roberts

Right nationwide middle housing bill, that would be something.

Jessica Bateman

I mean, it's not legalizing middle housing nationwide. It would be saying if you want our money, you need to have policies that are aligned with our climate and equity goals. You can't have climate and equity policies that conflict with our goals if you want our money. And right now they've taken what was considered a proactive and progressive position of incentivizing based on making these good decisions. So much more of a carrot approach. But listen, we are not going to make progress like New York. They just went through and we're trying to be more aggressive with legalizing, more modest home types statewide and that quickly fizzled out with pressure from stakeholder groups that were opposed.

And that was a governor supported initiative. Just like last year, 1782 was a governor request legislation. We don't have time. The urgency to make sure that we have a planet that we can live on, that we have housing that's affordable for people in places where they want to live. I mean, the time was ten years ago and we need to take it really seriously and do everything. There's just really common sense things and making funding a prerequisite that you have policies that allow people to live in your cities is one of them.

David Roberts

Awesome. Well, thank you so much for this super educational and interesting and heartening and thank you so much for all your work on this issue. I feel like the state is going to be better for your efforts. So, Representative Jessica Bateman. Thanks again for coming on.

Jessica Bateman

Thank you so much for the opportunity.

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, 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.

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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, 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.

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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, 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.

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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.

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.

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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.

EVs are great for people with garages to charge them in, but what about everyone else? In this episode, Gabe Klein of DOE’s Joint Office of Energy and Transportation talks us through new approaches to EV charging for people in multifamily residences in urban settings, including new business models, new technologies, and even new vehicles.

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.

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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)

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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.

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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.

A full quarter of global energy use goes toward heat that powers industrial processes. To provide clean industrial heat but avoid the variability often associated with renewable energy, a company called Rondo makes a thermal battery, storing renewable-energy heat in bricks. In this episode, Rondo CEO John O’Donnell talks about this breakthrough technology and the opportunities that thermal storage promises to open.

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

Electricity gets the bulk of the attention in clean-energy discourse (this newsletter is, after all, called Volts) but half of global final energy consumption comes in the form not of electricity, but of heat. When it comes to reaching net zero emissions, heat is half the problem.

Roughly half of heat is used for space and water heating, which I have covered on other pods. The other half — a quarter of all energy humans use — is found in high-temperature industrial processes, everything from manufacturing dog food to making steel or cement.

The vast bulk of industrial heat today is provided by fossil fuels, usually natural gas or specialized forms of coal. Conventional wisdom has had it that these sectors are “difficult to decarbonize” because alternatives are either more expensive or nowhere to be found. Indeed, when I covered an exhaustive report on industrial heat back in 2019, the conclusion was that the cheapest decarbonization option was probably CCS, capturing carbon post-combustion and burying it.

A lot has changed in the last few years. Most notably, renewable energy has gotten extremely cheap, which makes it an attractive source of heat. However, it is variable, while industrial processes cannot afford to start and stop. Enter the thermal battery, a way to store clean electricity as heat until it is needed.

A new class of battery — “rocks in a box” — stores renewable energy as heat in a variety of different materials from sand to graphite, delivering a steady supply to various end uses. One of the more promising companies in this area is Rondo, which makes a battery that stores heat in bricks.

I talked with Rondo CEO John O'Donnell about the importance of heat in the clean-energy discussion, the technological changes that have made thermal storage viable, and the enormous future opportunities for clean heat and a renewables-based grid to grow together.

All right, John O'Donnell of Rondo. Welcome to Volts. Thank you for coming.

John O'Donnell

Thank you. It's a great pleasure.

David Roberts

I am so excited to talk to you. I've been geeking out about thermal storage for over a year now, just wanting to do something on it, and there's so much there. And I find that unlike a lot of electricity topics which I cover, there's just not a lot of baseline familiarity out there among, let's say, normal people. So there's a ton to cover from the ground up. So I want to start at the highest possible level, which is to say, let's just talk about heat. Like in the clean energy world, electrical power gets a lot of attention, a lot of discussion, a lot of technological development.

Everybody's got their favorites, everybody knows what's going on. But then there's also heat, which is the sort of weirdly ignored not so much anymore, but up till pretty recently ignored. So maybe just start with an explanation of why heat is important if you care about clean energy, why you should care about heat?

John O'Donnell

Thank you. Sure. That's a great question. And that context you just provided is, of course, dead on. There's a really simple answer. Heat. Industrial heat is 26% of total world final energy consumption. Whether you are making baby food, or fuel, or cement, or steel, the manufacturing processes vastly predominantly use energy in the form of heat, not electricity. Globally, it's three quarters of all the energy used by industry is in the form of heat. Again, whether you're pasteurizing milk or melting steel. And the DOE has just created a new office focused on this topic. We're thrilled about it.

Their assessment is that industrial heat is 11%, I think, of all total US CO2 I'm in California. Here in California, we burn more natural gas for industrial process heat than we do for electric power generation. And to a first approximation, as you just mentioned, no one knows that.

David Roberts

Right. So heat is a huge portion of final energy consumption. It's a huge portion of global CO2 emissions. So maybe give a sense of like, what percentage of total heat final consumption is industry, like how's the total heat-pie divided up.

John O'Donnell

So when I said 26% of world — that's industrial heat, right. So that's not buildings, that's not other heating sources.

David Roberts

Right. Heat is a bigger category than that.

John O'Donnell

I mean, if you take actually heat for buildings and heat for industry, together they're like 60% of all the natural gas used in Europe. But within industrial heat, people sort it out by a couple of different things. One of them is the temperature. There's a lot of heat in cooking processes. That's around 150°C in the form of steam all the way up to the highest temperature heat in making cement, that's around 1800°C. About 95% of total heat is used in processes that need it below 1500°C, about maybe half to two thirds of industrial heat is below about 400°C.

There's a fairly steep curve. About half of all industrial heat, something like that, is delivered as steam.

David Roberts

Right. Steam is the lower end of the temperature spectrum. I recall looking at these charts of sort of what industries use, what levels of heat. Up at the super high heat, you have pretty singular industries, like steel's up there and concrete's up there. But down in the lower heat registers, where you're using just steam, there's a bunch of little industries clustered up there. Most of the industries are using that.

John O'Donnell

That's right. All of these have been things that people say are hard to decarbonize because across many of these industries, they're making commodities, whether it's steel or tomato paste that are relatively low margin and for which the cost of heat is a very significant portion of the total cost of production. So this is a sector where all these processes use heat in somewhat different ways. The cost of that energy is really critical to the competitiveness of that industry and what commodities cost consumers. And there have not been great solutions until recently that could provide decarbonized heat at the same or lower cost.

David Roberts

So the situation is there's a huge chunk of our energy that goes toward heat, a huge chunk of that goes toward industrial heat. And there's been comparatively little work on finding zero carbon versions of that heat. That's the problem we discussed the last time we talked, probably three or four, five years ago. Everything pre-pandemic is a haze. But I think it was around five years ago I covered this big comprehensive report on industrial heat options, like, what can we do about industrial heat? And it went through the options, and basically the conclusion was that continuing to do it with fossil fuels and just capturing the emissions post combustion was the cheapest option for a lot of these heat uses.

And I dutifully reported that. But I didn't like it. I didn't like the idea that that's the best we can do is create these Rube Goldberg machines where we're digging up carbon, burning it, capturing the carbon, burying the carbon again, et cetera. I was like, surely that's not the best we could do. But things have changed a lot, since then. So maybe just run through what are the low carbon heat alternatives and which ones have emerged recently, and what has changed that has helped them emerge?

John O'Donnell

Yeah. Thank you. You said for a long time there hasn't been much work on this. I would say partly there hasn't been so much success on it. I've been working on for 15 years.

David Roberts

No offense, John.

John O'Donnell

And in two previous solar companies we wound — who are a lot of the team here at Rondo worked with me there — we wound up delivering more than half of all the solar industrial heat that's running worldwide right now. But to say that's a drop in the bucket is oversizing a drop you asked exactly the right question. What are the options? Because the world has really changed.

There has always been the option of burning biomass, which is more or less sustainable, but very high cost, high air pollution, and very, very limited availability. Other kinds of biofuels, like renewable natural gas, if we take it to a giant scale, it might power as much as 1% of our industrial heat. And it's easy to laugh about, but it's true. The thing that has profoundly changed is what the wind and solar PV industries have accomplished over the last 15 years. The 95% reduction in cost means that intermittent electricity is becoming — has become — the cheapest form of energy that humans have ever known.

And it's now cheaper than burning stuff as a source of heat, but it's intermittent. So how do we take that intermittent electricity and use it to deliver the continuous heat? I mean, you turn on a smelter or a factory or even a tomato paste plant, you run it for months or a year on end, it has to have continuous heat or it will be damaged.

David Roberts

It's worth just pausing to emphasize this. The vast majority of industrial processes are continuous. They cannot run intermittently. They cannot stop and start with the sun and the wind. It just would be wildly uneconomic.

John O'Donnell

That's a beautiful and concise way of saying it. Like there are processes where if they get a half second interruption in their energy supply, it takes a week to restart the process. Reliability is a very big deal. So what are the tools we have for that? Intermittent electricity, which is becoming plentiful. And in places right now, you can have essentially unlimited amounts briefly every day at prices far below fuel prices. We have hydrogen, electrolytic hydrogen, make hydrogen, compress it, store it, and then combust it. That works. Although electrolyzers are today expensive, they're coming down in cost.

But the laws of physics bite you in that you get about one unit of heat for every two units of electricity because of the chemical steps involved.

David Roberts

Right. All the conversions.

John O'Donnell

Yes.

David Roberts

But can you just dump hydrogen into existing boilers and kilns? Like, is existing equipment hydrogen ready, as they say?

John O'Donnell

Not exactly. It's hydrogen ready for a few percentage of hydrogen. But when you look at a boiler, 95% of its lifetime cost is the fuel, not the boiler. So upgrading boilers to run that other fuel, that's something that you would do if the economics of that fuel were sensible.

David Roberts

Got it.

John O'Donnell

Right? Now at taxpayer expense. We're creating a period where hydrogen, electrolytic hydrogen is going to get down to the same cost as fossil fuel in the US with tax credits. But again, intermittent electricity by itself today is cheaper than fossil fuel. Doesn't need tax credits to get it to that point. And now there is this emerging class of electric thermal energy storage systems that don't do chemistry. They just convert electricity to heat directly and then store the heat. Because heat storage, another thing you could do I skipped over is you could, of course, store electricity in a battery.

Right.

Which would be the most expensive thing.

But if you have a coffee thermos on your desk, it's storing energy as it happens. The energy stored in your coffee thermos is more energy than the energy stored in your laptop battery, and it's a bit cheaper than your laptop battery. Storing heat is cheap right now in the thermos. What do you have? You have hot water, which stores a lot of energy per degree, and an insulation thing around it, depending on how good the insulation is, that'll tell you how long that thing will store energy. All those things have been around for a long time, and suddenly, okay, how are we going to heat these things electrically?

How are we going to use simple technology? Because most people who are working on electric thermal storage are doing simple things. There are some exotic things using conductive materials, liquid metal things, but there are simple things that people are doing also.

David Roberts

You're hitting directly on something. That is why I love this area so much, why it sort of kind of caught my imagination so much. Like, you really have a situation here where electricity was just more expensive than fossil fuels for these purposes up until like five minutes ago.

John O'Donnell

Exactly.

David Roberts

In terms of looking for opportunities for just storing. Now that electricity is cheap, we're looking for ways to store it and use it as heat in a lot of ways for the first time. And what that means is there's like, very simple low hanging fruit all over the place. The way I think about it is, like, my generation maybe like younger people than me, when we think of technology or advanced technology, we generally think digital, and that generally means opaque. Like, we don't know what's going on in there. Even cars these days. Like, so little of it is mechanical anymore and so much of it is digital and computerized.

It just seems opaque to us. And these technologies of storing electricity as heat are so delightfully simple. Like, you're literally just heating up a rock and that's, like, you might say that heating up a rock is literally the oldest energy transfer mechanism that humans have available to them. It's probably the very first way we moved energy ever, literally. So it's just fun to me in that it's almost like a childlike sense of discovery to it. Anyway, that's just my that's completely off topic, but ...

John O'Donnell

One of the electric thermal energy storage technologies actually uses rock. And on the outside of the pilot it says, welcome to the new Stone Age. And there's a mastodon as the mascot. So, yes, it's a well understood thing.

David Roberts

So just to sort of summarize where we've been so far, you need all this heat. Up until very recently, it was overwhelmingly cheaper to do it by combusting fossil fuels. A lot of the alternatives to fossil fuels are more expensive than fossil fuels. But now recently, along comes renewable wind and solar electricity, which are cheaper than anything. So now the challenge is, well, how do you get the heat from the wind and solar electricity? As you say, the applications are running around the clock. Wind and solar come and go. So in between the wind and solar and the applications, you need something that's going to store that wind and solar that can release it in a steady flow.

John O'Donnell

Exactly.

David Roberts

So that's the new thermal storage technologies that are emerging now are sitting right in that space, including Rondo. So if you're talking about something sitting in that space, what do you need out of it? What are the sort of metrics by which you judge the performance of that thing that's sitting in between the renewables and the application?

John O'Donnell

Great question. So obviously you need safety, efficiency, cost, temperature at which the heat can be delivered.

Right.

Some other things as well. One of them is the faster that you can charge the system and deliver energy continuously. If you can charge it, if it takes you typical batteries, they charge and discharge at the same rate. But here we'd like to charge perhaps during the solar day in six or 8 hours and deliver for 24 hours continuous. If you could charge in about 4 hours, we find that's even more valuable. The periods of curtailment and the periods of zero and negative electricity prices in electricity grids are short.

So the ideal thermal storage can charge very rapidly. You can control its charging like other batteries, it could participate in providing grid services and it can run continuously, shut it down once a year for inspection and when the factory that it's connected to is shut down and just sit there and require low O and M, operating and maintenance, costs.

David Roberts

Yeah, and I presume low losses too.

John O'Donnell

Yeah, that's right.

David Roberts

But I want to pause and just emphasize the first point you made just so people get it. We have these wind and solar all come online at the same time because they're all using the same wind and sun. So what you have are these periods of oversupply. I think people are familiar with this. You get oversupply more than the grid can use and today that just goes to waste. It's curtailed. That energy is not used. And so what you're doing is proposing to come along and use it. But if that's your economic sweet spot, those couple of hours of curtailed energy, you need your battery to charge as much as possible during those couple of hours.

In other words, charge really quickly because the amount of energy available in those curtailed hours, especially in coming years, is going to be potentially huge. Right. So you need to stuff a lot of energy in your heat battery really quickly.

John O'Donnell

That's right. Now the early deployments of heat batteries will use what is curtailed today. One of the things that we see that's uniquely pretty cool about this class of electric thermal storage is the total amount of energy that industrial heat needs is really large for scale. I think we had a 52 gigawatt system peak in California not long ago. We've got about 20 gigawatts of PV in the state. Just repowering the boilers and furnaces that we have right now in California needs 100 gigawatts of new generation to replace those fuel BTUs, about 40 of those gigawatts can actually be built without any connection to an electricity grid.

One of the things that's great about ETES powering industry is we're headed for a world where industrial electrification is not creating more problems for the grid, but we'll get there. But this matter of fast charging rate means that new generation projects that are serving the grid, the best ones, the cheapest ones, will be built selling part of their power to thermal storage. Like during the peak and curtailed hours and then delivering those broader shoulder renewable power to the electricity grid. And we're seeing again and again that that's a formula for low energy prices for the industrial and for lower prices to the grid.

There's an interesting synergy.

David Roberts

Yeah, we're going to get into that synergy in just a second, but I want to focus on how we're evaluating the heat battery. So we want it to absorb a bunch of energy quickly.

John O'Donnell

Fast, charge. Yeah.

David Roberts

And then we want it to hold that energy with very little losses. And this is the other fact about thermal storage that blew my mind that I do not think is widely appreciated, which is the incredibly low losses here. People are accustomed to, I think if you want to store energy in hydrogen, you're losing about 50% of your energy through all the convergence. Like a 50% efficiency ish yes, batteries, lithium-ion, depending, you're getting up to don't know what the standard average is, but just heating up a rock, you get 90% to 95% of that heat back out of that rock.

That is wild to me.

John O'Donnell

That's right. Yeah. The least efficient of the thermal energy storage systems are around 90%. We happen to be 98%.

David Roberts

That's just crazy. So the heat just sits there in the rock and doesn't go anywhere?

John O'Donnell

Well, fill up your thermos with hot coffee, take the thermos and wrap it in a couple of blankets, open it up, three days later the coffee is still hot. It's not like a chemical system where there's self discharge or something. The only place energy can go is either lost to the environment through insulation or delivered to the target. So it's a lot easier than it sounds. A lot of people think, "Oh, this efficiency couldn't be possibly the case." It really is almost embarrassingly simple.

David Roberts

And now my question though is when we say 95-98%, what are the time horizons of that? Like if I fully charge your thermal battery and we're going to get into the guts of your thermal battery here in a second, but if I fully charge a Rondo battery and then just don't do anything to it, how long would it take for all that heat to be lost? Like what is the time horizons we're discussing here?

John O'Donnell

Again, the use case that we're considering that we're targeting, is it's discharging continuously?

David Roberts

Right. It doesn't need to hold it that long. Theoretically, I'm wondering.

John O'Donnell

Theoretically that's right, because the one place where you are holding energy, we've got a food factory that runs shift work. They operate one shift five days a week. So yeah, you're storing some energy and you got more energy on Monday than you did on Friday afternoon. The short answer is we lose about 2%, 2.5% per day. So if you were holding energy multiple days, there would be self discharge. But that's because we were designing for a particular use case. Again, you could decide the rate at which your thermos loses heat by if you wrap it in a blanket ... you could make it store energy for months on end.

Then the question is, is that valuable? If you really want to store energy for months on end? If you want to move energy from July to January, chemical storage is a great thing because it doesn't have self discharge.

David Roberts

Right.

John O'Donnell

If you are in a place where you can have a salt cavern and you can make hydrogen in July and pull out in January, okay, that's great.

David Roberts

Right? Because the hydrogen you pull out in January contains the exact same amount of energy ...

John O'Donnell

Exactly.

David Roberts

... as you put in the hydrogen.

John O'Donnell

As long as it didn't leak out. But yes.

David Roberts

So in the hours today's, maybe multiple days, rarely a week time horizon that you're working in, you're getting 98% efficiency. 98% of the energy that goes in comes back out to the application.

John O'Donnell

Yes. In that use case. That's right.

David Roberts

I think now that we're focused in here on the heat battery, let's just discuss what the Rondo heat battery is, and maybe while you're telling us, tell us what some of the other options in this space are. I know people are heating up. You're heating up bricks. Some people are heating up giant chunks of graphite. I think sand is on the table. I don't even know what all the options are. But what are people trying in that space?

John O'Donnell

The one technology that's been at scale for quite a while, that's been used by the solar industry since the 1980s is using nitrate salts, which melt at around 250 degrees. Salts? That's right. They're stable up to about 600°C. And so you can have a big tank of cold salt, which is something like 600 degrees Fahrenheit. It looks like a transparent liquid, but stay away from it. And a tank of hot salt, and you heat by pumping from one to the other and pull the heat out going the other way. I built my first molten salt test facility back in 2008 at a national lab.

David Roberts

I remember there was a hype cycle around molten salts that has kind of faded. Why has it faded? Like, why are rocks preferable?

John O'Donnell

The more you know about it, the less you like it. It's one thing to use it in a solar power station where there's nothing in there for a mile away except for the turbine. It's quite another thing for an energy storage facility to be put inside a factory where people are working. When I mentioned safety first, you don't want a system that can catch fire or spill a superheated liquid that would burn everybody or release toxic gases. I'm not aware of any molten salt projects that haven't sent at least one person to the hospital. So there's the molten salt systems.

And again, they work. They're proven but they have proven challenges.

David Roberts

They just require a lot of engineering to contain.

John O'Donnell

Well, and that's another matter that you've talked about previously, which technologies get cheap, right? Molten salt systems are a lot like they have the nuclear reactor characteristic that everyone is bespoke, those tanks at that site with that engineering and there has not been much learning capable to drive cost out. The modular approach, the factory manufactured approach, eludes that technology. Now there are a lot of people exploring how do we do modular factory manage. And one of the things that you first do if you want to store heat is, okay, what's it cheap to store heat in?

As you mentioned stone, crushed rock, various kinds of rocks in a box or sand in a cylinder where you build an industrial strength hairdryer. You blow superheated air through the rock or the sand bed. And then when you want heat, you push cool air the other way through the sand or the rock bed. That works. There are people taking it to scale. It has temperature and cost challenges. What you find in every one of these cases, the rock is cheap, but the box costs a lot.

David Roberts

And the fans, I assume like the fans and that kind of engineering adds to the ...

John O'Donnell

That's right. And remember now that your fan has to blow at your peak charging rate. And there's an example of a technology that leads you to it's more expensive to charge fast. But the big problem with those unstructured materials is when they heat up, they expand and you have to have a container strong enough and then when they cool, they shrink and settle and then the next day they expand again and they slowly turn into dust over at a rate. So the material looks really cheap, but the system turns out to be not so cheap.

Right then you mentioned there are a lot of interesting science experiments with new materials that have never been used this way before. When we started Rondo, we did a really careful look at everything that's out there. There are people using liquid silicon. It melts at 14° Celsius stores a lot of heat. Just like ice melting in a glass absorbs a lot of heat melting and releasing silicon. Freezing silicon is a really good thing for high temperature heat. But what do you make the glass that's holding that silicon-ice? How do you keep it like there are a lot of challenges that companies have been working on for years and it's probably going to take another decade before that technology is at the point that an ordinary project finance guy will say, yes, that's as low risk as PV. I'll invest in that at the same finance rate. And that time to bank ability is one of the biggest issues. If you want a technology to go big fast, everybody's got to agree it's boring and low risk and that's a challenge with new materials. Graphite is another material that's interesting. It has higher heat capacity than rock or brick, especially when it gets hot, but it catches fire at 560°C. So you want to store energy at 1500° or 2000°.

You've got to keep it in some atmosphere so that it can't catch fire for 30 years and it's conductive electrically, which could be great. But anyway, there are interesting engineering challenges and there are at least four companies working on that. One of them is also looking at using that graphite not for electricity to heat, but electricity to heat to electricity. Using PV cells to capture the light from the graphite.

David Roberts

Is that Indora?

John O'Donnell

Antora.

David Roberts

Antora. Yeah, I talked to them, too. And in terms of like science-fiction geeky fun, that one is just a great one. They heat the graphite up, it gets so hot that the energy comes back out as light.

John O'Donnell

Light.

David Roberts

So they have it covered in shutters that they can open incrementally. And the light can either shine on tubes full of fluid if you want heat, or these special PV modules that they built especially for it. If you want electricity, like the whole conceptually, that's very satisfying.

John O'Donnell

It's super cool. My first job was infusion power, where you have a reactor that wants 100 million degree plasma right next to a superconducting magnet that has to be five degrees. The Antora PV challenge when they solve that that technology is cool for electricity to electricity because it could turn out to be long duration, no moving parts storage. It's hard for us to see that. That's an example of we're going to do something deeply innovative. How long will it take to prove that it's bankable and what we're doing is much more boring? The back to electricity is their superpower is back to electricity.

David Roberts

Yeah, I want to discuss that. Like the ability to go back to electricity and what, you'll come to that. We'll get to that. But you guys have settled on rather than any of these materials science fun time experiments. Bricks.

John O'Donnell

Yeah. Okay. Somebody told me this the other day. How many gigawatts of batteries are there in the world right now, do you know?

David Roberts

I don't.

John O'Donnell

Somebody told me there are about three gigawatts of batteries in the world right now.

David Roberts

Lithium-ion batteries, you mean?

John O'Donnell

Yeah. So how much heat storage is running in the world right now? As we speak, there's about 30 gigawatts of heat storage running right now. In 1828 was the first patent for a thing called a cowper stove, which is a tower with a thousand tons of brick in it that has air passages that on a 1 hour cycle. The still combusting exhaust of the blast furnace is blown down through that tower and heats all the brick to about 1500°C. And then for about 20 minutes, fresh air is drawn up through the tower and it's providing the inlet air to the furnace and it's delivering 115 megawatts heat for about 20 minutes.

David Roberts

Crazy.

John O'Donnell

And then it's heated again. These. Things are heated and cooled 24 times a day. They last 30 years. There's a million tons of that brick in service right now at the blast furnaces around the world.

David Roberts

And these are just ordinary brick-bricks that people are familiar with. Like, what are bricks made of?

John O'Donnell

What, are they the term they use? Yeah, there are a bunch of different materials, but two of the most abundant elements in Earth's crust are silicon and aluminum. Silica, silicon dioxide, alumina, aluminum oxide are two of the most important minerals. Different bricks are made of different mixtures of silica and alumina. And there are other kinds of bricks as well that are even higher temperature, but they call it aluminosilicate brick. It's higher temperature brick than in your fireplace. Looks a lot like it. And it's what is in every if you have a ceramics kiln, that's what's in your ceramics kiln liner.

It's in a cement kiln, and it's again, used in all kinds of areas. People have been making brick like this for thousands of years. Brick is made from dirt. I mean, certain kinds of dirt. You mix it up, you put a little binder, you throw it in a kiln, and you've got your brick.

David Roberts

So if I'm looking inside a Rondo box, am I literally just looking at a stack of bricks?

John O'Donnell

Pretty much. The one thing that's different ... our breakthrough. So the brick, as you know about brick, it's brittle. If you drop a brick, it'll break.

David Roberts

Right.

John O'Donnell

You also know that brick is not a good heat conductor. That's why we make fireplaces out of it. So if we want to heat it fast, we have to heat it uniformly. If you stuck a brick and you had, like, one side in a bucket of water and the other side in a fire, the brick might fracture. But if you put the brick in the middle of the fire, it'll heat up rapidly to the temperature of the fire. It's one of those ideas that once you see it, it's obvious. But it only took 80 design revisions.

If you look inside a Rondo unit, what you'll see is a brick stack that's full of these open chambers. It's a checkerboard of open boxes surrounded by brick, and brick surrounded by these open boxes. And electrical heaters are embedded directly in the stack, and they provide radiant heat within those open boxes. And because thermal radiation of every object in the universe goes as the fourth power of its temperature in degrees Kelvin, as I know you remember.

David Roberts

Of course.

John O'Donnell

Things that can see each other get to become the same temperature by exchanging heat. So the result of this was we found a way to directly, rapidly heat the brick.

David Roberts

And this is an alternative to blowing hot air over the bricks.

John O'Donnell

That's right.

David Roberts

Which, a. would require more engineering and more money, but b. also might not heat them uniformly, like might heat one side before the other side or something like that.

John O'Donnell

Hot air. You can heat them uniformly, like the blast furnaces do that. But in that case, you have the same electrical heater that's in something like a hairdryer. And inside a hairdryer, the heaters are mostly radiating to the metal plates, which in turn are heating the air, which in turn would in this case, heat the brick. There'd be a couple of hundred degrees difference between the final temperature of the brick and the temperature of the wire. In our case, that's about five degrees.

David Roberts

So instead of using the wire to heat the air, to heat the brick, you're just sticking the wire in the brick, and the wire is heating the brick directly.

John O'Donnell

That's right. So we just last week, we announced the world's highest temperature thermal energy storage system running. That's not because we use different heating materials than others. It's because of that physics insight that led to that structure. That's right.

David Roberts

Got it. Okay, just quickly, what are some of the engineering challenges here? Do the bricks expand and contract when they are heated, or do they degrade over time? What sort of things are you dealing with here with bricks that you had to overcome?

John O'Donnell

Yeah, there were lots of things because what we're talking about is kind of at some level obvious, and people have done really good work on this previously. But the challenge is you have to think about, yes, the bricks expand and contract, so build your structure. But the nice thing is they're freestanding. They don't need a container to hold them in. So if you build your structure properly, it can freely expand and contract.

David Roberts

So there are like spaces between the bricks in which they can ...

Where they're touching when they're hot and spaces open up when it's cold. Exactly. Other big challenges consider if you have a storage system and one area has some airflow blockage so that during discharge, it's not getting as cool as another area the next day when you put heat in, it's going to wind up hotter than another area. And the day after that, even hotter thermal runaway that would cause failure because one part was too hot. If you have that possibility, you have to run the whole thing cooler. So it turns out one of the hard problems, one of the hard engineering problems is making sure that the temperature inside the material is uniform.

John O'Donnell

And it's uniform not just when the unit is new, but when it's 30 years old.

David Roberts

Your promise here is that this Rondo battery has the same capacity and the same performance characteristics in 30 years that it does today. Is that the idea?

John O'Donnell

That's exactly right, yeah.

David Roberts

And no other battery? There's no other battery that can say that.

John O'Donnell

I think that's true. But here, there's a million tons of this material running in the world, and those guys have much higher mechanical force on it. They build 30 meters tall things. We build eight meter tall things. They heat and cool it 24 times a day. We heat and cool it once a day. Lasts 30 years for them. Pretty clear it's going to last longer than that for us. Yeah.

David Roberts

And let me ask about getting the heat out to where it needs to go, because as I have been reading about, I did a thing on a company a while back that was using concentrating solar to superheat a fluid. And they could get to these levels of heat that are germane to concrete and whatever the higher end, the higher temperature applications, but only at a particular spot. Right. It's got to be right where the sun is and where everything's coming together in that one spot. And then, of course, you face the challenge of how do I get that heat to where it needs to be without losing a bunch of the heat?

And this is sort of, obviously the other half of the thermal energy challenge. And there's sort of two challenges. One is making it into steam right. For all these lower temperature applications, and then, I don't know, making it into what, for the steel or the super high energy. I don't even know how you transfer that high version of heat. So what are you using on the back end?

John O'Donnell

Yeah. So every combined cycle power station in the world has a jet engine that's generating electric power. Its exhaust is around 605 C. That exhaust is passed through a boiler, a heat recovery steam generator that drives a steam turbine that makes extra electric power. So the world knows how to build those boilers that run on about 600 C air.

David Roberts

Got it.

John O'Donnell

The Rondo storage is much hotter temperature than that we mix down. And for the systems that are delivering steam, we work with leaders who build conventional boilers and we've engineered the heat battery to include that boiler. So the basic heat battery models are exact drop in replacements for particular models of industrial boilers. They're just about the same size. Stick us next to your existing one, hook us up to the pipe.

David Roberts

You're replacing a fossil fuel run boiler with a heat battery and a boiler in the same space.

John O'Donnell

Yeah. We think of the heat battery as from the substation to the steam flange in that case. So it is a like for like drop in replacement. The less work the customer has to do, the better off we are.

David Roberts

Yeah, I was going to ask it. We might as well discuss this now, because this is obviously one of the this is something you run into with battery chemistries all the time. Right. Which is just like there's so much existing infrastructure that even if you have something clever and fancy and new that's super cheap, if it requires all the facilities to update themselves, you're just starting way, way behind the eight ball.

John O'Donnell

That's right.

David Roberts

So to what extent is the sort of Rondo heat battery plug and play like in a low temperature steam application and like a steel plant, can you wander into any of these and just switch out with no pause.

John O'Donnell

All of the energy. So the top four categories in the United States, the Doe just gave a talk recently and the top four categories in descending order of industrial heat use are chemicals, food and beverage, paper products (That includes everything from toilet paper to cardboard,) then cement, and then steel. So for chemicals, about a third to 50% of all the heat is steam. For food and bev and paper products, it's all steam. And for cement and steel, none of it is steam. So we are simultaneously, we're delivering drop in boilers today and simultaneously with our investors and partners building and developing the calciners, the ethylene crackers, the kilns, to drive particular industrial processes.

Because you made this point about the solar tower. Yeah, you have a spot that's 100 meters up in the air where you can have your heat. But what we want, the heat is in some process unit. And look, we have 200 years of designing industrial process units that are powered by fuel. Which of those can we retrofit? Where will we need to design new things? We were given a grant by the Danish government. We have a project underway to design and pilot a true-zero cement process, intermittent electricity to zero-emission cement. Most of the work in that project is the design of a calciner that instead of internal combustion, runs on superheated air or superheated CO2.

So it doesn't all happen all at once, but it does all happen, but some of it will. The high temperature things will take more work to integrate because industrial plants today were designed with magnificent engineering and heat balance and efficiency burning fuel. And so, as it happens, everything that runs on steam, easy drop in all the high temperature processes. We have work underway now and hope to have results over the next couple of years that use the same thermal storage platform.

David Roberts

But this first commercial battery that you've deployed now, which by the way was just last week, I think, what application is that or what temperature level is that?

John O'Donnell

Yeah, that's targeting steam, steam, steam, steam and steam. The particular installation is at a fuel producer and it's at a biofuel producer. Whether you're making renewable diesel from soybeans or animal fat or ethanol from corn, about half the total carbon intensity of that fuel is fossil fuel that was burned to produce that biofuel. And we can set that to zero. So we can produce biofuels that are about half the carbon intensity of what they are today. Interesting, our customer is really a visionary that's going to zero because the other thing that's been talked about a lot with biofuels is combining carbon capture of the biogenic CO2 in those facilities.

As it happens, using Rondo for the heat eliminates about half the total carbon intensity using carbon capture, eliminates about the other half and together you get about essentially a zero-CI, zero-carbon-intensity fuel. That little unit we just started up is the pilot for deployment of a series of larger ones to do exactly that, to produce zero carbon biofuel.

David Roberts

Very interesting. So let's pull the lens back a little bit, maybe talk about business model. Is the idea long term that if I'm say I'm a manufacturing facility and I'm making I don't know what baby food, is the idea that I buy a Rondo unit and install it in my factory? Or is the idea that Rondo comes in, sets things up and sells me heat as a service? In other words, am I buying the equipment or am I buying the heat? Or some of both.

John O'Donnell

Yeah. Over time, there are as many answers to that question as there are to how conventional gas turbines and steam turbines are sold. Right. Sometimes people own their own cogeneration plant. Sometimes they contract with someone else to provide them electricity or heat as a service. The renewable heat as a service business will develop the same way. In the United States today, there's a huge community of developers who know how to shave a few pennies off solar and wind electrons, but have never really looked at these industrial facilities. In Europe, actually, there are already renewable developers who are out there originating renewable industrial heat projects.

So, first of all, Rondo is offering, on four continents, commissioned, guaranteed installed heat batteries. That's the foundation. We are also originating and financing heat as a service, principally in North America.

Interesting.

Because, again, whether you make baby food, as you said, or steel, you don't drill gas wells to get the fuel to run your process. You buy energy as a service, your capital dollars, most folks want to spend it on their own processes. And this class, this thermal energy storage class, is arguably creating one of the great business opportunities of our time for the development community, because we all know wind and solar deployment is slowing down, not because of reduced demand, but because of congestion.

And I think the interconnection queue time in England is now 13 years.

David Roberts

Yes, there's like a terawatt now, I think, waiting in the queues.

John O'Donnell

Right. Rondo heat batteries. Our basic unit, the RHB 300, needs 70 megawatts of generation. Typical installations may have two to ten at a single site. These are utility scale energy demand and they can be built with no grid connection.

David Roberts

Right. So the idea is you go build a solar farm or a wind farm that is just attached to these batteries.

John O'Donnell

That's right.

David Roberts

And then you're selling the heat from the batteries. So at no point do you need the electricity grid. You're not waiting for the interconnection or anything else, that these are a coupled unit. Wind and solar being so cheap, the implications are endless and often counterintuitive. Like when I hear I could either buy heat from a conventional boiler or I could buy heat from someone who had to go out and build an entire utility scale renewable energy installation and a couple of heat batteries. Intuitively, that just sounds more expensive. But are wind and solar so cheap now that that's competitive?

John O'Donnell

Yes, absolutely. And it depends, right, because one of the things that's exactly the right matter that you just raised someone is making an investment that's going to provide 40 years of energy to your facility. They're going to sell it to you on a contract, they're going to care about your credit worthiness and your willingness to sign that contract. That's one of the things that's unique here. It's different than selling electricity to a utility. On the other hand, from your standpoint, someone is saying you can get off the fossil fuel price roller coaster. Not surprisingly, there are a lot of people in Europe who ... and we've seen that in US.

Prices have been fourteen, they've been two, they're ten. And they are also in places that have carbon prices. You can have a permanent. This lack of volatility and exposure to regulatory matters also is a strategic advantage. A friend of mine said, why were all the factories in England built on the coast? Because where it was cheap to bring the coal, low cost, reliable energy supplies are the foundation for industrial investment.

David Roberts

So you're free from fluctuations in fossil fuel prices and you're free from any worry about escalating carbon prices or other carbon related regulations. Basically, like two huge worries because as you say, for a lot of these facilities, the cost of energy is the bulk of the costs. And to have the bulk of your costs fluctuating 500x back and forth over the course of a couple of years is just an insane way to try to run an industrial facility.

John O'Donnell

That's right. This matter of what kind of risks do we take? People say, oh, it's risky to work with this new technology, but look at the risks that we just were used to taking. And we're entering this new world where we're not talking about a green premium, we're talking about the same or lower energy cost with these reduced risks. And then, of course, depending on what the commodity is, low carbon aluminum trades at a price premium on the London Metals Exchange. Low carbon fuels trade at much higher prices in California and Germany. And for consumer facing brands, there are buyers, coops of producers who are seeking low cost effective renewable heat sources so they can offer to the market low carbon commodities.

David Roberts

Yeah, I mean, it seems like there ought to be a bunch of market actors that are just ready to embrace this. Like, for one thing, as you say, just on a quantity basis. If you take all that energy that we're using for heat and transfer that to electricity, you need a lot of new electricity and a lot of new clean electricity. So it seems to me like renewable energy developers ought to be over the moon about this, like beating down your door. Are they lining up to be proponents for renewable heat in the industry generally or have they not caught on yet?

John O'Donnell

In some places the answer is yes. As I mentioned, Europe is very aggressively moving in this direction and a number of folks over the last few years have said "this Rondo thing sounds too good to be true. Come back to me when you're operating something commercial." We're now operating something commercial. So the short answer to your question is yes, because again, these projects offer this mix of speed and certainty that we're not tied up in a grid queue. Scale, utility scale, there's a lot of commercial industrial C&I Solar, where people are building 2 MW here, 2 MW there.

It takes the same amount of brain power and lawyer time to do the two megawatt project versus the 400 megawatt project that the same facility would use for heat, and returns now that we're in an era where that's the coolest thing is that the numbers work for the heat user, they work for the financier, they work for the builders of the solar fields and they work for us. And that's a new world and economic tailwinds driving it. It will keep going faster and faster. The size you mentioned, I think at the end of 2021, there was about 1000 gigawatts of wind and 1000 gigawatts of solar each in the world.

The IEA did an assessment of industrial heat and their number is it's about 9000 gigawatts of new generation that's going to be required to replace the oil, coal and natural gas now being burned.

David Roberts

Good grief.

John O'Donnell

That's worldwide, right? And so it's only, what is it, 20% of that in the US. Yeah, that's right. It's only a few thousand gigawatts in the US.

David Roberts

An enormous opportunity to build more renewable energy.

John O'Donnell

Yeah.

David Roberts

A similar question is, and I have always had this question about electric vehicles too, which is electric utilities are sort of notoriously stressed, worried about this death spiral, they're worried about grid defection. And you represent potentially just a wild new load, a new responsibility for them. Something that natural gas utilities were doing, were handling, is now all going to transfer and be their responsibility, which is just a way for them to grow and invest and just a wild new opportunity for them. Why aren't they at the front of the line beating down the door, trying to make this happen faster?

John O'Donnell

That's a great question, and they are. One of our investors is Energy Impact Partners, whose backers are the North American electric power industry. And for sure the lowest cost way that we're going to decarbonize all of civilization is electrification. And for sure the electric industry is at the heart of that. One of the things that's really profound about what we're doing for them is that electrification, you install an electric furnace. That furnace is now running on wind power 30% of the hours of the year. And the other 70%, it's a new load on gas fired or coal fired power stations until the grid has fully decarbonized.

David Roberts

Right.

John O'Donnell

These thermal storage systems, these things can be dispatched by the utility the same way they dispatch generation. The deal is not that I want a megawatt continuously, the deal is I want 24 megawatt hours today. You deliver them when it's convenient. These things become an asset in the electricity grid and a solution to these problems of variability and over generation and balancing.

David Roberts

Right. In the same way that sort of any controllable load helps grid stability. These are controllable.

John O'Donnell

Yeah, but people talk about controllable load, demand response, for example, is a load that you expect to run all the time, but you can turn it off during emergencies. That's not this, this is something that no, no, you're going to dispatch it so that it never takes a single megawatt hour of spinning reserve or gas fired power generation. You're going to dispatch it so that it never raises the peak demand on your transmission or distribution system. You can manage it with telemetry from the grid operator. It's different than anything that's come before. It's like lithium-ion batteries in that sense, but at a tiny fraction of the cost.

And we're not trying to solve from moving electric power from noon to 07:00 p.m.

David Roberts

Right.

John O'Donnell

We are taking that electric power and replacing gas combustion principally in North America, and oil and coal combustion. We're opening an entirely new segment to renewable deployment. So, yeah, the electric utilities are getting engaged now. They face all kinds of issues with the regulatory frame that we have for electricity. Of course, they're already facing those matters as renewables deploy. And there are some new challenges, but there are people actively working that issue and we're thrilled to be working with them.

David Roberts

So if I'm, I've got this manufacturing facility, I've got a big Rondo battery and I'm trying to decide between two options. One is I could build my own off-grid behind the meter generation, solar and wind. I could put my own solar and wind up, or I could just get on the grid and time my charging so that I'm chasing the clean energy on the grid so that I'm only charging when there's clean energy on the grid. Do we have any sense of which of those will be more economic or why you'd want to go one way rather than the other?

I'm just wondering how many of these sort of self contained, off-grid, purpose built renewable energy installations there are going to be, it seems to me intuitively like that ought to be more expensive and what you ought to prefer is just for the grid itself to clean up so you have more, so it's easier. But what are the choices there?

John O'Donnell

These questions are right at the heart of the matter. You're dead on. And I'll give you the long answer. The short answer is it depends. And it depends primarily on where you are. Pre-war economics, one project in Europe, large operation, that wanted to replace a 250 megawatt gas boiler. They could install a 250 megawatt electric boiler and eliminate their scope one. Their actual scope one, plus scope two would go up because they're in an area that's about 40% wind. And now, if 60% of the energy is coming from a coal plant, you were worse off.

But from an economic standpoint, they were paying $35 a megawatt hour for gas fired heat. The electricity price annually would have been about €68 sorry. Per megawatt hour. But upon a study, given the presence of offshore wind in that area, their expected energy price on a long term buying in the cheapest 4 hours a day was under €10 a megawatt hour. So that's an example where the grid connected thing is exactly right, and it will only take four years to get the grid upgrade done, of which about three months is construction. So in a lot of places, the grid connection for grid projects is a matter.

Oklahoma last year had 2000 hours of negative wholesale prices. If you put a project in Kansas or Oklahoma, you have energy prices that are slightly negative on an annual basis. If you can charge very rapidly, if you are allowed to participate in the wholesale market, there are regulatory obstacles.

David Roberts

But in theory, in Oklahoma, during a time of negative wholesale prices, your facility that's running off a Rondo heat battery could be paid to charge itself.

John O'Donnell

That's right.

David Roberts

Is that how that works? Is that what negative prices means?

John O'Donnell

That's what negative prices means.

David Roberts

That's so mind-blowing.

John O'Donnell

Well, again, and we have lots more of that coming. I know you've spoken to folks about the IRA. The production tax credit coming to solar is going to broaden the areas of the country where we see intermittent negative prices. Because, of course, if I'm getting $20 megawatt hour for tax credit, I'm perfectly happy to generate when prices are negative $19, right?

David Roberts

Yeah. That's just crazy.

John O'Donnell

Technologies like this that can absorb those periods are going to lift the price floor. They're going to benefit all the generators, especially the generators that can't turn off. And we're pretty excited. But again, it's can we connect to the grid? Can we capture those prices?

David Roberts

Because if you can, there's enough heat to absorb all the curtailed power in the US, times a gazillion. Theoretically, if you could hook up all heat to electricity, you'd never curtail again, or at least not for decades. Probably.

John O'Donnell

Of course, subject to where is the heat-load versus where is the curtailment? Some curtailment is regional associated with total generation. You know, some of it is transmission constrained. But to a first approximation of the answer yet, that was correct, yes?

David Roberts

Yeah, that again, seems just a crazy business opportunity for everyone involved.

John O'Donnell

Yeah, we agree.

David Roberts

But you do expect to see these off grid, custom built renewable energy installations, purely powering heat batteries in areas, say, where the grid is congested, or the grid is dirty or the interconnection queue is unusually long. You do expect to see those pop up?

John O'Donnell

Well, as I mentioned earlier, and just for scale, California has on the order of 20 gigawatts today. We need 100 gigawatts of new PV just to replace the BTUs of fuel now being burned for industrial heat. About 40 of those gigawatts, because of where the things are cited, could be built with no grid connection at all. And most of them will need some kind of grid connection. We see again and again that the new renewable project development model is going to be building a project that part of its electricity goes to industrial heat, into a heat battery, and part of it goes to the grid.

And that, that's the sweet spot that delivers lower cost electricity to the grid. And we're absorbing what would have been curtailed power from that new purpose built thing to get all the power we need for the factory or the cement kiln or whatever.

David Roberts

Right. Yeah, if I'm a renewable developer and I catch wind, that there's this whole category of renewable projects that don't require this unholy paperwork nightmare that they all go through. Now again, I just can't imagine that they're not going to be stampeding in this direction. I mean, I hear them complain about this constantly.

John O'Donnell

What are the required conditions? Obviously the financial community we have to get our minds around. Okay, how are we structuring these projects where most of the energy is going to a single factory rather than to the utility? Let me think about the credit worthiness of that. And then for the moment, how long will it take to retire the Rondo technology risk? How do we backstop that? And we're busy building systems and projects that this first one of course, is the first step at commercial scale to build the track record. But again, there's a reason why we chose these century proven materials specifically, so that once you turn one of these things on and operate for six months, there's nothing left to prove.

We know it works and we already know everything is durable.

David Roberts

The brick heats up, the brick cools down. It's not again, it's so simple.

And exact ... but that exact material, there's a million tons of doing that around the world. Doing that right now in much more severe service. But yes, it's simple. That's right.

And I would imagine also that this space is going to see a lot more entrance competition. Of course, once it's kind of uncorked and it becomes clear what the opportunity is.

John O'Donnell

Look, trillion dollar markets don't happen without lots of people trying to enter them and nothing could be better, right? That's what we urgently need.

David Roberts

Right. One other question about industry, about location matters. You mentioned industry clustering along a coast where the coal is available. As more and more of our industrial activity in general and civilization gets hooked up to cheap renewable energy. Do you see something like over the course of I mean, I guess this will take years and decades, but do you imagine areas of intense renewable capacity like with lots of sun and lots of wind becoming new attractors to industry? Do you see global industry starting to migrate to renewable energy? Is it that much of a chunk of the cost of an industrial facility that it might be worth someday literally moving to it?

John O'Donnell

The short answer to your question is yes. Just look at what happened with the shale gas revolution in the US. Vast investments in petrochemical and other manufacturing immediately shifted to where huge employment growth shifted to where that low cost energy was. And there's a question of how fast these transitions happen. Vasila Smill likes to talk about, "oh, it takes a really long time," but there are lots of examples where that is not true. Just, again, when the rules changed and combined cycle gas fired power generation was allowed in the US. We saw giant capital flows and giant rates of transformation.

Now, that took awareness. It took enough experience that investors could say, oh yeah, I'll build that giga project because I know it's going to work. It took awareness of the kind that you are building that these opportunities exist, but the long term. Yes, absolutely. That's right.

David Roberts

That'll be such an interesting geopolitical like of all the forces in the last 50 years or whatever that have moved industry around the globe, this will be just a completely new version of that. It's going to scramble all the previous alliances.

John O'Donnell

Yeah, but there is one example that's even faster, which is not just the long term, but the right now. A couple of weeks ago, I spoke at the Munich Security Conference in a session with a number of industry CEOs and Ursula von der Leyen, the European Commission president and president. Wevine said, look, there are three wars underway. There's the ground war, there's the energy war. He thought he would bring us to our knees. And there's a clean energy war, mostly with China. And a huge challenge before us today is how do we get off gas? But we need to get off gas without deindustrializing.

There have already been giant plant shutdowns and layoffs because of the unavailability of gas right now and the forecast unavailability of gas longer term. Europe's bullets in the energy war are clean electrons, domestically produced, stable, low cost sources of energy. And again, we and all the other electric thermal storage technologies because we save twice as much gas per kilowatt hour as hydrogen. We're an important part of speeding up that transition there and preserving an existing industrial base. I think the same thing is true in the US as well as carbon prices come into the world. As gas prices rise, the competitiveness of US manufacturing on the world stage is going to be affected by how fast can we make this transition to renewables.

And it doesn't happen all at once. But there are beyond the climate drivers, beyond the huge business response that we've just seen in the last five years, to the climate drivers, the pledges, and not just pledges, but action that we're seeing across all kinds of industrial producers. We are really at an amazing moment. I kind of wish we had gotten started with what we're doing here at Rondo five years ago. But five years ago what we were doing was stupid, right?

I mean, go back ten. What we're doing somebody could have figured out earlier.

David Roberts

I said it at the outset, I'll say it again, I say it over and over again. Wind and solar being as much cheaper now as they were five to ten years ago is just like it's not an incremental change, it's a phase change. It's a flip to a different system. All we're doing now is just like sort of one at a time here and there in different industries, in different places, kind of opening our eyes to like, oh, this is a completely different landscape, like completely new opportunities. It's a different world now. It's going to take a while just to absorb the implications of super cheap renewables.

John O'Donnell

Yes. And the thing we know for sure is that every year somehow those cost reductions will continue, right? We have some short term supply chain things, but somehow, I mean, I worked in the electronics industry for decades and everybody every year said, oh, Moore's Law is over, it can't keep getting better.

David Roberts

They say it every year for wind and solar too, right?

John O'Donnell

Yeah, exactly. And you look back over every five year period, every year's forecast was wrong, it fell faster than that. It's reasonable to assume we're going to continue to be in that, so that this era that we're entering, it keeps getting better and better. Our storage technology and the other storage technologies will cost reduce as they come down. But the storage technology is only 20% of the cost of the total project. The fact that the wind and solar are coming down so steeply, this cost advantage is going to continue to open for the people who have made this transition onto renewables.

David Roberts

It's really interesting watching people in industry try to sort of skate to where the puck is going to be, as they say, sort of like start off on something that might not be economic when you first start developing it, but you're going to meet that cost curve, right, in five years, and then your business model will become viable. It's a real tricky timing there. There's a lot of people trying to sort of coordinate that dance just right.

John O'Donnell

Yes, but my point is we're already at that point where we're at break even or better, we're not waiting five years. That's one of the big difference of this class versus there are a lot of things that are just as you said, we're investing now because we're hope it's going to be cheaper in the future.

David Roberts

We're already at that point, right, so a final question. I wanted to ask you a little bit more about this, but maybe we can try to do it quick, which is just you've got these things that store electricity as heat, fairly cheaply for a long time, with very low losses. The applications you're overwhelmingly focused on are industrial, because as we've discussed, industrial heat is huge, difficult to decarbonize, giant market opportunity. But I'm just wondering, it seems like there are probably other uses that we could think of for boxes of heat. Are you actively pursuing any or alternatively, like, do you see any out there over the horizon that you might get to eventually?

What else could we do with heat batteries?

John O'Donnell

There are two big things we've been pulled into that. If you'd asked me a couple of years ago, I would have said, oh, that's going to happen much later. One of them is industrial Cogeneration. PURPA back in the 1980s established special tariffs for Cogens because it's the most thermodynamically efficient way of delivering electric power and heat. Repowering Cogens with renewable heat makes them more efficient. A unit that delivers industrial steam and electric power is 95% efficient. It's more efficient than any lithium-ion battery, although it's only delivering about 20 or 25% of its energy as electricity, and the rest is heat.

Almost every industrial Cogen, the industrial needs so much heat that that Cogen is exporting power to the grid as a side effect of delivering all that steam. So, renewable cogeneration, or they also call it combined heat and power, is an area that we see distributed generation. 20 MW here, 50 there, ten there. That is decarbonizing small industries, but providing baseload distributed high value generation to the grid.

David Roberts

Briefly, what does that look like, though? What is a cogen? Because cogen, just for listeners maybe, who aren't familiar, you're using a turbine to generate electricity and then you use the excess heat from the turbine ...

John O'Donnell

That's right.

David Roberts

For whatever you need. So what does it look like in this case?

John O'Donnell

You said it exactly right. Instead of throwing the heat away into a condenser, you are using that heat as medium pressure steam, making tomato paste or paper or chemicals or any of the things. And so you have a facility that the heat battery, or today, a natural gas boiler makes high pressure steam, goes through a turbine, medium pressure steam goes to the factory and electricity comes out from the turbine. Exactly the same thing. Now you've got a heat battery making high pressure steam and driving combined heat and power. So really it's 95% efficient. Electricity in to heat and electricity out and you are exporting back to the grid.

So that's one. The other has been a surprise. Again, it's something I would have said we wouldn't be engaged in. I think just today there was the announcement that the latest EPA rule is going to cause another 15 gigawatts of coal retirements. Coal-fired power stations people think of as about 40% efficient. That's about right. But that's about an 85% efficient boiler, times a 47% efficient turbine, minus the loads associated with air pollution cleanup.

David Roberts

Right. All the filters and whatnot.

Keep the turbine, knock down the boiler, make that a giant long duration electricity storage. That's now in one of those places where there was negative prices, you have anchors for development. We have several projects where developers are looking at these conversions as enabling the construction of a huge renewables cluster, sometimes an offshore wind landing point, or onshore wind development. And right there, reusing one of those things.

So this would look like, say, a bunch of offshore wind turbines generate electricity. They generate excess. The excess is stored in a heat battery, and then that heat battery is used to run an existing turbine.

John O'Donnell

That's right.

David Roberts

Like at a coal plant to produce power. It would just be a dispatchable. It would be like a peaker plant.

John O'Donnell

However you want to use it. That's right. Whether you want to use that to take intermittent and now get to base load underneath the intermittent. But it's an electricity storage approach that reuses all the infrastructure, including the turbine. It is lower efficiency than electrochemical batteries. It's far lower cost. Those are large projects. I'd say that's the other one that's a little longer term out the cogeneration, though, the combined heat and power is more efficient than any other electricity storage technology. Right. More efficient. So I think those things will happen first, and we'll see about both of them.

David Roberts

If I'm repowering a coal plant turbine, that electricity to heat to electricity conversion is lower efficiency than what I would get from electricity to lithium-ion battery to electricity.

John O'Donnell

That's right. But the coal turbine provides other services, like inertia that are needed to make the grid work.

David Roberts

And it's already there.

John O'Donnell

It's already there. It's already operating. There's. The first of these conversions using molten salt. That's underway right now in Chile.

David Roberts

Interesting.

John O'Donnell

AES announced a project recently that had been in development for a long time. We're very interested to see how fast that sector moves. And all of our focus is on the industrial side. But as I said, we've been pulled into some of these projects.

David Roberts

Yeah, that's interesting. There's a lot of talk from a lot of different directions about repowering these turbines, these existing turbines that exist. I know the geothermal people are big into that idea, but it just does make intuitive sense. Like, you have all these quite sophisticated and expensive turbines built all over the place. Why not just go take out boilers and use renewable heat instead? To power them and then sort of like open your eyes, you're like, oh, we're like we're surrounded with turbines.

John O'Donnell

Yes. But this brings us back to one of the little laws of physics about temperature. The higher the temperature of heat, the more efficiently it can be converted to electricity. Those coal plants use burning coal. Geothermal systems make heat at lower temperatures. They can't directly because we're the highest temperature storage. We're the only one today that can repower those coal plants at higher than their original efficiency.

David Roberts

Is that, no limit?

John O'Donnell

No, it's removing the losses from the boiler and removing the losses from the station load. So basically, it's getting the net power efficiency much closer to the gross and leaving the gross unchanged.

David Roberts

Interesting.

John O'Donnell

Pardon me, diving in too deep. But there's very interesting synergy with other lower temperature heat, with waste heat recapture and with geothermal heat, where some of our customers are showing us stuff, where they're combining high temperature heat from storage and recapturing some lower temperature heat. And it's going to be very interesting to see how that develops.

In terms of innovation for Rondo itself. And I promise this really will be the last question. I'm just wondering, brick is simple and the whole system is simple. As we've been saying, that's part of the that's part of the delight of it. But I'm wondering, where are opportunities for big innovation? Do you have materials science? Is it within reach to heat bricks up hotter than you've got them to get up to the full, whatever 1500°C or whatever insane super hot? What's the innovation horizon for you?

Well, the driver for us, first of all, is speed, speed and speed to scale.

David Roberts

Right?

John O'Donnell

We're manufacturing in two locations now. A lot of our material science will be driven by qualifying other sources of materials. We've produced now on three continents, little pilot scale things. So one chunk of material science is about just getting this 2 million ton a year scale. The company formal goals are 1% of world CO2 in a decade and 15% in 15 years. And there are no material blockers to doing that. It's okay. Did we execute properly? Did we find the finance and developer partners? But to your point, the pieces today we're using the most expensive brick materials, the highest temperature, highest strength there will be innovations in simply reducing cost by the system is way overdesigned for reliability as we gain experience.

All kinds of cost reductions come from that. But as I mentioned, we have two international cement manufacturers today as investors. We have this project with some Danish universities and a cement plant builder. We're working on high temperature applications where most of the development is the process equipment that will need the heat. And then we'll be taking this core technology and connecting it to those other things. But speed, scale, cost and then temperature and serving these other industries are the priorities.

David Roberts

Thank you so much. For spending all this time with me. As you can tell, I find this particular area so interesting and fascinating. And it will be interesting to come back and talk again. Maybe in two or three years, who knows?

John O'Donnell

Thank you, Dave. It's a real privilege to speak with you. I'm just delighted. Thanks so much.

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.

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.

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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, 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.

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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.

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