Volts

The podcast explores the progressive take on the permitting debate for clean energy infrastructure in the US. It discusses the impact of permitting on the clean energy transition and proposes reforms. The role of Independent System Operators and Regional Transmission Organizations in renewable energy development is examined. The frustration with the slow permitting process is highlighted, along with the need for coordination and planning for addressing climate change. The podcast also delves into phasing out fossil fuels and involving communities in economic development.

Australian comedian Dan Ilic and climate change advocate David Roberts discuss topics such as indigenous land acknowledgement, the upcoming voice referendum, small modular nuclear reactors, the impact of the Inflation Reduction Act, innovation in connected appliances, and their journeys in energy and climate.

Saul Griffith, an Australian inventor and MIT PhD, discusses a range of interesting topics in this podcast. From his involvement in rewiring America to Australia's potential as a hydrogen superpower, rooftop solar, trade jobs in the energy industry, and the moral dilemma of climate change. He explores the importance of leadership and the challenges faced in electrifying households. The podcast also touches on perception, financing, and breaking the notion of limited government funds.

In this podcast, David Roberts delves into the complexities of Australian climate politics. He is joined by Miriam Lyons, an expert who provides an overview of Australia's history with climate policy, clean-energy resources, and current politics. They discuss the tactics used by the fossil fuel lobby, the impact of the mandatory renewable energy target, Labor's political threats, Australia's role in the supply chain of critical minerals, and the need for bold actions in decarbonization.

Liza Reed, an electricity transmission expert, discusses the challenges of building transmission in the US. Topics include the dysfunctional planning system, lack of infrastructure, complex stakeholder disagreements, and the need for standardized processes. They also explore consent-based citing, regional planning, and the role of FERC. The speakers emphasize the importance of policy-level discussions and recommend reading a report for a deeper understanding of the issues and need for reform.

In this episode, clean grid expert Chaz Teplin demystifies interconnection queues.(PDF transcript)(Active transcript)Text transcript:David RobertsBy now, you’ve probably heard that tons of new renewable energy projects are “stuck in the interconnection queues,” unable to connect to the grid and produce electricity until grid operators get around to approving them, which can take up to five years in some areas. And you might have heard that FERC recently implemented some reforms of the interconnection queue process in hopes of speeding it up.It all seems like a pretty big deal. But as I think about it, it occurs to me that I don’t really know what an interconnection queue is or why they work the way they do. So I’m going to talk to an expert — Chaz Teplin, who works on carbon-free grids with RMI — to get the lowdown.We’re going to talk through the basics of interconnection queues, why they’re so slow, what RTOs and FERC are doing to reform them, and what remains to be done (namely some friggin’ regional transmission planning).With no further ado, Chaz Teplin. Welcome to Volts. Thank you so much for coming.Chaz TeplinThanks for having me.David RobertsYou know, as I said in my intro, it seems like the clean energy community at this point has heard the term interconnection queue enough times that they all know it enough to say it, right. We know on some level that interconnection queues are slowing things down and they're backed up and that's why we're not building renewable energy as fast as we should be. But I suspect that quite a few of my listeners are roughly where I am, which is that's basically where my knowledge runs dry. I can say the words, so I'm excited to talk to you about what the heck they are, why they exist, etc., how to solve them, etc.So maybe let's just start with why is it that all of a sudden everybody's talking about interconnection queues? Why has this come to the top of the pile recently?Chaz TeplinYeah, everybody's talking about interconnection queues and there's been a recent order from FERC amid the hullabaloo. Right. So I think it's a good news, bad news story. The good news is that there's currently two terawatts of generators asking to connect to the US grid. And almost all of that two terawatts is clean energy, wind, solar and storage. So for those of us that have been in the business for a while, this is unbelievably great news. That means there's so many projects out there of clean energy mostly there's some gas, but clean energy mostly that believe it's economic to connect to the grid and they're willing to pay a fee in order to ask to connect.David RobertsAnd how much is that relative to what's currently on the grid?Chaz TeplinYeah, it's not exactly an apples to apples comparison, but two terawatts asking to connect 1.25 terawatts approximately on the US grid today.David RobertsRight. So there's more waiting to get on than exists currently on the grid. Now, we know, I'm sure you're going to say, we're going to say probably 50 times during this pod, just because something's in the queue doesn't mean it will necessarily get built. So it's not like all of that two terawatts is real or inevitable, but still, the fact that more is waiting to get on the grid than currently exists on the grid is quite striking.Chaz TeplinThat's right. And every year more is asking to connect, right? So, yeah, absolutely, it's not going to all get built. But I think it's a fairly clear demand signal that generators and developers are giving. They want to connect to the grid. They believe they can make money doing so, so it's great news.David RobertsAnd yet they are stuck there.Chaz TeplinSo that's the good news. The bad news is twofold. First, say I'm a wind or solar generator developer wanting to connect to the grid. It's going to take me years after I ask, before I even find out if I'm allowed to connect. Three, sometimes even five or more years. It depends on the grid and some of the details, but it takes years. And that adds cost and obviously time to your project that you don't want. And that's unfortunate. And second, it's bad because a lot of times what the grid operator comes back with is a really large bill that could easily make it so that your project is uncompetitive, no longer makes sense.And so you see high dropout rates. So yeah, the queue is huge. That's good. It shows that there's demand, but it's bad because projects take too long to get through the queue and even find out what the cost is going to be to connect. And often those costs are high.David RobertsThis might even be too obvious to say, but I think it's worth emphasizing at the outset that it's just a little crazy. Anyone who's an investor or who's tried to manage a project or build a project, just imagine if you had to say to your investors, not only like, this is a worthy project now, but this will be worthy in three years, or it will be worthy in five years. How do you know? It's just an insane addition of uncertainty and risk to every single solitary project.Chaz TeplinRight. And you don't know how much it's going to cost. It's like this cost of my project is a dollar a watt, plus or minus $0.50. That's not really reasonable because you don't know what the connection cost is going to be.David RobertsI know it's just an insane business environment. Like we're not sure of what your costs are, not sure how long it's going to take, and then you're trying to talk investors into sort of sticking with you through this.Chaz TeplinOne thing I want to add on that is it causes problems for developers, for investors, but it also causes problems for the grid. And the problems sort of are in this reinforcing loop. Because developers don't know where to ask to connect or how long it's going to be. They tend to put in a lot of speculative projects. Because they are hoping that one of them is a good deal.David RobertsRight. Playing the table, right?Chaz TeplinThat's right, they're playing the table and unfortunately that doing that might be good for them but it puts a huge load on the grid operator to try and process all this and makes it bad for everybody because then it makes the process take even longer.David RobertsRight.Chaz TeplinIt's an example of the rule of incenting bad behavior and then the bad behavior cycling.David RobertsRight. So let's back up then and talk about what an interconnection queue is exactly, and why they exist. Like why do utilities need every project to stand in a single file line and be approved one by one? Why?Chaz TeplinSo, there are some very good reasons and then some arguable reasons for having an interconnection queue. The clear and very good reason, and we're all glad that they exist, is because the grid operator does need to ensure that a new generator on the system won't cause some cascading set of failures that could bring down a significant fraction of the grid. That's not likely, but it's possible. The way that that would work is you would study the grid under some set of scenarios and then the key thing is then you also ask so what if something else on the grid fails that would cause transmission or cause power to flow along the transmission lines in different ways.And if you, for example, overloaded a line or a substation, that would be bad. And so you might need to upgrade that substation to make sure that when this new generator comes online you don't cause a problem.David RobertsSo you're just ensuring for each individual project that that individual project will not be sort of the straw that broke some camel's back.Chaz TeplinThat's right. And it's important to understand though that's like one piece and every grid operator studies that to make sure that there's not going to be a problem. But there's a second piece which is making sure that the power from that generator is usually going to be deliverable to load, meaning you don't have to turn it off to keep things in safe conditions. And that's a little bit different. And that's related to how grid operators plan for resource adequacy, making sure that there's always enough generation to meet load. And different grid operators do that in different ways.But a lot of the different opinions about how we should do this come down to how much we should ensure that different projects are deliverable to the system. And it's related to how grid operators again think about making sure that there's always enough generation online at a given time.David RobertsRight, so that seems like a reasonable reason to have a queue. Is that the main one?Chaz TeplinThe one that's universal right is the making sure there isn't cascading failures issue. The one that is more controversial is the connection to resource adequacy because different grids do that in different ways. And then the other related issue is that in a lot of grids today, this is the primary way we invest in the transmission system is we ask the next generator to pay for upgrades to the transmission system.David RobertsYes, this is the part I always stumble over the craziest thing to me so I want to just spend a second on it. The analogy I always hear is like a line of cars waiting to get on the freeway. The freeway can only fit so many cars. So when the freeway reaches capacity we ask the next car in line to build a new lane of the freeway, basically. So the next generator in line when capacity is reached is on the hook for paying for new transmission which is as crazy as it sounds, yes?Chaz TeplinYeah, it's pretty much like that. So it's a competition to be the car after the person had to pay because then you sort of get to nominally free ride.David RobertsExactly. Or the car before or just like not be that car. You don't want to be like that one car who it's like a lottery almost.Chaz TeplinYeah. And it's important to recognize though that it's crazy in the current system to look at it that way. But when these roles were put in place it wasn't quite as crazy as it seemed. In a world where that we're in today, where we're seeing lots of new generation that is sort of geographically constrained. You want to put low cost wind farms where it's windy, you want to put solar farms where it's sunny and the cost to build is low. Those are sort of geographically constrained. In previous eras where load was flat and we were mostly building gas plants, you can kind of build a gas plant wherever it's convenient for the grid.Chaz TeplinAnd so to continue with the analogy, you can get to your destination through lots of different highways so you're encouraged to use an empty one. But that's no longer the world we're in now. And because, and this is the key thing, because we haven't been doing significant investments in transmission, we're in this place where all of the key highways are clogged or close to being clogged and lots of cars are waiting in line to get on that highway.David RobertsSo is it the case that if you are the project that just draws the short straw and happens to be in line or at the head of the line when new transmission is needed, two questions: One, how much additional cost is that to you, does it double your cost? How much is it for a developer to pay for new transmission? Is that sort of dispositive amount of additional money? And number two, if you are the unlucky person in that spot or the unlucky project in that spot. And you hear back from the RTO that, yes, you can connect if you build a new transmission line, can you then just say, well, never mind, right, and then drop out, and then the next project behind you is the unlucky project and then why wouldn't that project also just drop out?So who accepts these additional costs? It seems like you don't have to like everybody would be trying to avoid it.Chaz TeplinThat's right, everybody's trying to avoid it. Absolutely. You aren't required to build your project when you enter the queue. You might lose your deposit. So the cost can be very large. The queues that make it all the way through, often they are ones with manageable costs and so they do get built or they run into the next set of challenges, things like supply chains currently or permitting. But those projects that do make it through the queue often are the ones that chose a good place on the grid, if you will. Like I mentioned earlier, it's sort of a cascading problem if a project drops out, that also impacts all of the projects around you. So now somebody else becomes the second car, the second car becomes the first car. And so then the RTO needs to go and restudy and say, oh, we thought that generator A was going to be online, but they dropped out, so now we have to restudy the whole thing.David RobertsAnd those studies are what take years.Chaz TeplinThe studies themselves are pretty complicated because first you have to look at every possible failure on the grid that could happen and then you have to look at, well, okay, if that fails and something else fails, what happens? That's part of the interconnection queue study and they are processor and human intensive. And so, yes, they actually take a long time to do the studies. They're expensive in terms of having the staff and even the computational capabilities to run. And so they take a long time.David RobertsSo we can get a situation here that's trying to paint a picture where all these projects are in line. A project comes to the head of the line, the RTO takes years to study, comes back and tells the project, our study concluded that we don't currently have capacity to accommodate you, so you're going to have to build a new transmission line if you want to connect to the grid. And that project says, oh, that's going to double my costs. No thank you, I'm dropping out. And then the years long study process starts over again. That's like two years a pop, three years pop with nothing happening and nothing getting interconnected. That just seems like an insanely slow way to do things.Chaz TeplinYes. And so there's been lots of ideas about how to fix some of these process-oriented challenges and some RTOs are already doing that. And FERC has made some progress this week. We'll get to there I'm sure. But yes, that is a fairly close approximation of the existing process.David RobertsIs any transmission getting built this way? It just seems like the most inefficient possible way to build transmission, too. Are there projects that get stuck with this obligation to build new transmission who do it? And are we seeing transmission getting built through this?Chaz TeplinYeah, I mean, most projects will have some interconnection cost, right? And so they do make some improvements to the transmission system. So some developers are able to make it work and they'll swallow the cost and that benefits everybody else on the system.David RobertsRight.Chaz TeplinThey pay for it. So, yes, we are building a small amount of transmission in that way. Not very much.David RobertsAll right. And also, it seems worth pointing out that in terms of transmission planning, building each increment of transmission based on what the next project in line requires also seems like the most myopic possible way to be building transmission. Like, you're not planning for the future, you're just literally reacting —Chaz TeplinYeah, that's right.David Robertson a project by project basis.Chaz TeplinYeah. And like I said, it's not crazy in a world where you don't imagine the grid needs to change very much, but it'll never get us to where we need to go with the energy transition underway. And this has big implications. In terms of economics, as ACORE has pointed out, in terms of states meeting their clean energy goals, as NRDC study recently showed, and then even in terms of reliability, which PJM in the Mid Atlantic has shown, they're worried about retiring fossil plants and these problems and the lack of ability to get projects online, being out of sync and then having reliability issues. Not having enough resource adequacy to meet demand.David RobertsRight. So this process is not going to be fast enough for any of the things we want to do to hit our carbon goals, state carbon goals, utility, carbon goals, utility, reliability. All these things require some speed and agility, which this is standing in the way of. So why is it like this? How did it get this way?Chaz TeplinYes, I mean, the current system was set up in the 2000s where natural gas was the primary generation being added and could be flexibly cited. And so in order to try and set up the system in the way that made sense, FERC suggested that we have this participant funding paradigm where new generators pay for the transmission needs that they require. That's how we got here, and there's a lot of status quo bias towards keeping that system, and there's not a lot of appetite among many for changing it dramatically.David RobertsThis I don't understand, though, because I'm not a grid expert, but even just explaining it to me in this way, it's very obvious to me that it's not working. It's obvious from the results that it's not working. It's obvious from any description of the process that it's clearly not working. It's not working for anybody, for anybody's goals. Why isn't there more appetite for large scale change? Is it just the conservatism of the industry?Chaz TeplinYeah, you're putting me in a tough spot here, David, but I think there is a lot of hesitancy to change. Cost allocation is often a problem with — if we're not going to ask new generators to pay for the transmission, who are we going to ask to pay for it?David RobertsRight.Chaz TeplinAnd then there's disagreements between again, to go back to PJM the grid I perhaps know the best, between states that have clean energy goals that are excited to do this kind of transmission planning and states without that feel like they're being burdened with other states goals. I don't think that's a good argument necessarily for not building transmission because just the economics and reliability benefits from the transmission alone are more than adequate to make a great case.David RobertsTo make a great case for ratepayer benefit, for citizen benefit. But the utilities in those states with no targets, their narrow financial interests may not always line up with — they make a lot of money through the grid being congested is one of the dark secrets there.Chaz TeplinYes, of course. There are financial actors that have a spot on the grid where power prices are higher than they would be otherwise. And if you happen to own the generator there, you're making more money. And if you did the transmission and you had to compete with that's just unavoidably true. We would hope that the stakeholder processes and the RTOs and whatnot would take the broader picture about what's best for the full system, for the economics and everything. But it's hard to make those changes and it's always hard to make a change from the status quo, especially if it was — there were long battles in the 2000s about getting to this era, so folks are always hesitant to make that effort, to really look at what could be done differently.David RobertsYeah. So let me ask what might be a naive question, but what would happen if an RTO, a regional transmission organization that's responsible for the sort of wholesale electric market in a region, just threw open the door and let projects connect? First come, first serve as they show up? Without this extended single file line process, would things come crashing down? Is that even a possibility?Chaz TeplinWell, I mean, that is basically or has been at least the ERCOT model, which is in Texas. Right. So to be clear though, they still do interconnection queue studies. They just don't worry about deliverability to the same extent. They still make sure that new projects won't cause dynamic instabilities in the grid that could cause cascading failures. Everybody does that. What happens though is you put on the developer the risk that they just will have to be curtailed much more often.David RobertsRight, because of grid congestion.Chaz TeplinYeah, that's right. It's also tightly related to the different ways that in this case, ERCOT handles resource adequacy. In ERCOT, there is no effort to make sure that there's always enough power to meet demand. They trust that high energy prices will incent developers to build projects.David RobertsRight. For the nerds, this is an energy-only wholesale market. They do not have a capacity market alongside it.Chaz TeplinThat's right. And so, because in PJM, in order to qualify for the capacity market, PJM, quite reasonably wants to make sure that you can actually deliver power to load, otherwise you're not really helping much with resource adequacy. Though there's some details there. In ERCOT, there's no such concern. They just trust that developers will look for places on the grid where they think there might be high energy prices, because there's barely enough generation to meet load, and that that will incent development and so they don't have to be as careful with that kind of analysis. And so it speeds up the system.They put more of the risk on developers that their projects will get curtailed and so they're able to make their interconnection queue process go more quickly.David RobertsAnd it works?Chaz TeplinWell —David RobertsERCOT's had some troubles lately.Chaz TeplinTheir queues are much shorter and they are able to process applications much more quickly. Every grid has been having its challenges in ERCOT especially. I'm not sure I would blame the recent outages there on this problem. The other thing that in the past, ERCOT has done well and is the solution everywhere, as we've hinted all along, is the CREZ transmission planning effort made it much easier to connect a whole bunch of wind energy.David RobertsWhat's the CREZ?Chaz TeplinYeah, this was an effort that the state and ERCOT took to recognize renewable energy zones and plan significant transmission investments that made it possible to connect all of the amazing wind in the Texas panhandle.David RobertsRight. Proactively planning and building the transmission for when they show up, rather than waiting for them to show up.Chaz TeplinExactly.David RobertsAnd then building the transmission in reaction. So that sort of takes that bit of risk off the developer's back.Chaz TeplinRight, that's right. Or you do in places where there's been proactive transmission planning, there's a surge in projects in those regions with the new transmission and the interconnection costs are much lower.David RobertsRight. And what does CREZ stand for? I can't let this go.Chaz TeplinNow you're going to get me. It's something for renewable energy zones.David RobertsYeah.Chaz TeplinAnd we would love and many folks are calling for the same thing, that we need to do a lot more of this kind of proactive transmission planning for reliability, for economics, for reducing costs to customers and to help relieve the stress on the interconnection process.David RobertsYeah. I think this is a theme here, not only in this podcast, but on all of Volts and indeed all of the clean energy world. It is mind-bogglingly crazy that we're not doing large scale regional transmission planning when that is clearly necessary to shorten these queues, to improve reliability, to reduce costs, to meet our energy emissions targets. Just name it. If you look in these models, Princeton has done these models of IRA's effect, the Inflation Reduction Act's effect and how big the effect is depends almost entirely on how much transmission gets built. Like the modeling that shows big reductions from this depend on a ton of transmission getting built. And right now we just aren't doing it. It's crazy. I know I'm just repeating myself at this point, but it's so crazy, I feel like I need to just say it over and over again.Chaz TeplinAnd we can make the argument for that based on economics, benefits to ratepayers and reliability. As you've said, in other cases, the emissions reductions are just a bonus. I think it's also important to notice where progress is being made. For example, in PJM again, my favorite grid there is now the start of some regional planning. So there's going to be a huge opportunity there to look at what that looks like.David RobertsMaybe let's take a minute to focus in on PJM because PJM is sort of like the poster child for this difficulty, right? They have the biggest queue, the slowest queue. Like, this is the problem that's most acute there. So maybe tell us a little bit about PJM, like where it is and what it is and why it has this problem so badly.Chaz TeplinYeah. So PJM is in the Mid Atlantic 13 or 14 states, District of Columbia, it's the nation's largest grid operator with 150 gigawatt peak. They have 3000 queued projects, even though they stopped taking actually projects into the queue for some time because they just couldn't process it.David RobertsSo you can't even go to PJM now and set up a new renewable energy project, basically, like you can't even get in the queue at all.Chaz TeplinYeah, I mean, they've just restarted their process. I want to acknowledge the staff at PJM and the stakeholders at PJM have a really hard job to manage this large collection of politically diverse states. And they see their job as keeping the lights on and doing so economically, and they're balancing lots of competing things. So their job is hard for sure, but the queue process, they have not done any real regional transmission planning for some time. So they've looked at where transmission projects are needed to relieve, like, immediate congestion on their system and they do a good job of building those kinds of projects, but they haven't done any of these regional transmission projects for some time.David RobertsIs their queue notably slower than other queues? Like, do their studies take longer or are they just in a particularly large and busy place?Chaz TeplinNo, objectively, their queues have been taking longer to process, typically five years.David RobertsEsh...Chaz TeplinYeah. Compared to nationally, about three years. Again, the good news is that there's lots of projects in their queues.David RobertsI sort of wonder why, though. I start to wonder why, if you're the 2970th project in the queue, why bother? Like if it's taking five years per project, you're not going to come up for approval until like the year 4000 or whatever.Chaz TeplinIt's a good question. I think these project developers though, right, they have to take a long view. They know that in five years, if they still want to have work, they got to put projects in now. And so there's a lot of speculation about where good projects will be and where they'll be able to get generations cited. And so it's worth taking the risk and we'll get to the FERC piece, but there's relatively little cost to adding your project to the queue and it potentially could be a really valuable position to do so. Really profitable to build a project there.So people do still have a lot of appetite to put projects on the queue, even with a long time horizon.David RobertsAnd do they have unique reliability problems in PJM that are either exacerbating or being exacerbated by this interconnection process?Chaz TeplinOne thing that makes it easier in PJM, I'd argue, is there's very little variable generation on their grid right now. They have very little wind and solar, less than 5% of generation in PJM is from wind and solar, whereas it's much higher in many other parts of the country. It is true. PJM has done recent studies of their own where they are very concerned about in the out years, about resource adequacy, they're looking at upcoming electrification, they're looking at coal retirements and they're concerned that they can't get new generation online fast enough. The official take on it and others take on it places the blame at different places on the system and the solution at different places.What we'd like to see is transmission planning and reforms to the queue that makes it easier to get new generation online. We think that's the opportunity with the best economics and the most reliability and of course also the bonus emissions reductions.David RobertsAnd so isn't it the case that outside of ERCOT, no RTO seems to be really like killing it on this? But didn't MISO recently do some things to have some reforms that sort of sped things up somewhat? Aren't they? I thought they made news recently with some reforms.Chaz TeplinThere is progress around the country, not to the extent that we'd like to see. MISO's process is probably seen as one of the better ones. They've had a long stakeholder process and they've identified the first of four tranches of new transmission that they have approved at the RTO level. Right. So MISO is approved. There's also good things going on in California. California has identified that they need a lot more transmission to bring more generation in from out of state. And I mentioned PJM starting up a new process and of course, FERC is looking at requiring with a new rule that regional transmission planning be more holistic.David RobertsIs it one of the things MISO is doing? And this I feel like is one of the reforms, sort of the near term easy reforms I see tossed around a lot, which is at least approving projects in batches instead of one at a time.Chaz TeplinYeah. And this is perhaps the biggest deal in the FERC order as well. So most of the RTOs now are moving towards more of a batch process. So it's not like the example, the metaphor you used earlier with the cars in line, where the last car that gets tasked with the whole lane, instead they look at looks like there's twelve cars coming online in this freeway entry. We're going to look at what it's going to cost to add all of them at once.David RobertsAnd if it requires a new transmission, then the cost of the new transmission gets spread out over those twelve projects.Chaz TeplinThat's right. They also ask more of the developers in each of these so-called clusters. They want to do more to increase the financial and the siting, make sure that they actually have the land available to them, that they're serious projects. And so this first ready, first served approach where you look at clusters of projects and require the developers to show that they're likely to actually build the project, is hoping to fix a lot of the issues that we talked about. Not all of them, there's still going to be a lot more to do. But this is something that now FERC is requiring that MISO and PJM and their new process is requiring, I believe SBP does it as well in California.David RobertsThis batching?Chaz TeplinYeah, that's right.David RobertsIt seems like if nothing else, that would impose a little sort of discipline on the queue. Like you wouldn't get in the queue so casually, like you wouldn't get in the queue unless you're really ready to go.Chaz TeplinRight.Chaz TeplinAnd these clusters sort of progress together and it handles dropouts much more efficiently so that there's less re-re-re-re-studies, still some, but — the process should move a lot faster and more efficiently. With these best practice cluster studies.Do we have empirical evidence that these reforms are going to speed things up? Or is it just hope at this point? Has it been implemented anywhere long enough for us to judge its success?I wish I had great data on that. I don't. I know that MISO for sure has been doing this now for a little while, and I'd welcome a listener to comment somewhere on whether there's data there. But I think everyone agrees that this is best practice and we're seeing better results with the process moving along more efficiently.David RobertsRight, so let's talk about FERC then. So FERC, the Federal Energy Regulatory Commission, obviously this problem has been bouncing around for a while and people have been angsty about this and we desperately need reforms of this. The chance to do it legislatively came and went. So sort of all on FERC's back now. So what exactly did FERC take upon itself to do and what did it do?Chaz TeplinYeah. So FERC Order 2023, named obviously after the year was issued last week. It's a 1500 page light read.David RobertsYikes!Chaz TeplinYeah. So I admit I have not read all of it but can summarize what a lot of folks have been talking about. So perhaps most importantly, it moves to this first ready, first served approach and this cluster study approach which includes some more requirements from developers to show their projects are serious.David RobertsSo this has force of law now like RTOs have to do that?Chaz TeplinThat's correct. The way it works is that all the RTOs will have to say, okay, we see your order, we're required to do it in certain ways. This is how we're going to change our process and then FERC approves that. And a lot of the RTOs already have a FERC approved process. Likely a lot of them will have to over the course of the next few months, revise their already approved processes to comply with the new order or ask for an exception. There's going to be a lot of action there to try and make sure that the RTOs are as aggressive as possible in how they comply with this new order.David RobertsYeah, I'm sort of wondering if we can just kind of a timeout here, but I'm just curious what the sort of disposition of the RTOs is toward this. Are they looking at this as like, oh, here come the Feds imposing onerous restrictions on us or are they on board, do they want to do this? Are there any RTOs that are sort of like pushing back or recalcitrant on this type of reform?Chaz TeplinI mean, compliance is always a burden, right? But I think FERC's stakeholder process and comment process is extremely extensive and the RTOs get a large voice in that process. So the order itself is quite long. But the comments they got on the draft order, the notice of proposed rulemaking was even longer and so shout out to all the FERC staff that had to read all those orders and try and make sense of it and final rule. So the RTOs of course are going to like some things and dislike others and have to work hard to comply.And I think that FERC did a good job of balancing the needs. Of course we probably would have asked them to go further in some ways, but a lot of what they've done is really good.David RobertsSo what else is it? There's the clustering, first ready, first served.Chaz TeplinYeah, they now need and there are studies of like how can we solve the issues that we did identify. They now have to include what FERC called alternative transmission technologies. Right. So things like new ways of moving power on the grid and other tricks that we can play to get more out of the current system. Unfortunately — also they're called GETs, grid enhancing technologies — so a lot of these technologies are really cost effective, most studies show, but they're not always adopted. And so now we probably would have liked this ruling to be a little bit stronger. We think that the opportunities for these technologies is really great and the payback times are often measured in months, not years.And so we'd like to be adopted more aggressively. They're now required to at least consider and evaluate the option there.David RobertsThat's it though, they have to consider and think about grid enhancing technologies?Chaz TeplinYeah. We haven't, I haven't especially, gone through the detailed language in the order to know exactly how that's going to look, but I think a lot will come down to how the RTOs actually comply.David RobertsLongtime listeners will remember I did a piece on grid enhancing technologies a couple of years ago and a pod on it, and it's just sort of like advanced digital stuff, as you say, to get more performance, more throughput out of existing lines. And it always struck me that if we have these technologies available and we know they're available and we know they work, then RTOs are like utilities refusal to use them violates the sort of core utility mandate for just and reasonable rates. Like, you could lower rates by using these. So it seems like it ought to be more enforceable.It seems like something that you could sue utilities over, not just like a helpful suggestion.Chaz TeplinYeah. A lot of people have made the just and reasonable argument that these are cost-effective technologies and it's just crazy not to use them to the greatest extent that we can. There's always the balance that comes back on. Are they really proven? And we have to be very conservative because we don't want to risk the grid. I think the evidence is there that that's not a great argument. And so we have projects to really try and push getting more of these GETs technologies onto the grid to reduce interconnection costs and just use our existing grid more efficiently while we build out the transmission.David RobertsYeah, and when we say more efficiently, like getting 30, 40, 50% more out of it. These are not small numbers that these technologies enable.Chaz TeplinYeah, often. And they're fairly low cost and can be deployed a lot more quickly than building a new transmission line.David RobertsYes!Chaz TeplinThey make a lot of intuitive sense and most of the studies support that. There's always some devils in the details and so we're even doing some quantitative work there to try and show how much it could reduce costs and increase deliverability.David RobertsYeah, I need to revisit that. I need to revisit that subject on the pod. Okay, so FERC saying batch processing, you have to at least think about and consider grid enhancing technologies.Chaz TeplinWell, there is now some deadlines and penalties if the processing takes too long. So there is some stated rules about we expect you to process interconnection applications in a certain amount of time. I don't think this is like start to finish when you get in to when you get the final results of the study. It's more like how these cluster studies should progress as they go through. So we think that's good. The penalties, I don't believe, are extremely large by utility numbers, but it's still meaningful that they're there and I think it should be a way to encourage transmission owners and RTOs to move quickly.As an aside, I think this isn't in the FERC order, but just from a pure staffing perspective, it's really a challenge for the RTOs as well.David RobertsCapacity. Capacity. Capacity our favorite subject here.Chaz TeplinThat's right. Yeah. So you did a workforce pod and I don't think it was too much focused on this kind of issue, but yeah, the need for transmission engineers is far exceeding the supply. So all you engineering students out there, please go into transmission.David RobertsAll right. So that seems like those three things together seem like reasonable, incremental reforms —Chaz TeplinThat's right.David Robertsfrom FERC. So nothing bad. Is there more that FERC could have done? Like, I'm sort of curious about the kind of limits of its authority here. What would you like to see it do that it didn't do?Chaz TeplinYeah, I mean, I think the regional transmission planning and ideally even interregional transmission planning, I'd be remiss if I didn't say, like, please, we need to do everything we can to make that kind of transmission planning the default and the requirement. So that's number one, it's not a fast fix because it takes a while to build transmission —David RobertsYeah, I'm just curious whether FERC can do that because this was the whole debate over they tried to get it in the legislation and then that deal fell apart and it fell out of the legislation. And then people are like, well, we'll just go to FERC. And so I'm curious, I think a lot of people are curious whether FERC can do that to the extent legislation could have.Chaz TeplinYeah, I mean, they're not going to be able to do obviously legislation is more flexible. Right. But FERC does have a notice of proposed rulemaking on regional transmission that has been a huge focus and hopefully will come out over the course of the next year and hopefully require this transmission planning. It's definitely within their jurisdiction to my understanding, though. Though I'm not a lawyer to make that caveat.David RobertsYeah. I mean, it would just make so much more sense to go plan your transmission grid and then for the RTO to go out and say, hey, we're going to build transmission here. It can accommodate X amount of new energy bid for this spot on the grid. Right. So instead of backing into the future, you're sort of proactively filling out your grid according to your vision.Chaz TeplinThat's right. And that requires broad alignment, though, about everybody in the market trying to say, yeah, what is the future that we envision? It's not going to just be a — so it's a long and complicated stakeholder process that we're all excited to partake in.David RobertsIt'd be super nice, wasn't it, if we had federal, if we didn't have this patchwork of states with radically different visions about what they want to do and radically different targets. It'd be nice if we were sort of like everybody's on the same page and striving for the same goal. It is politically a super sticky wicket to do interregional transmission planning with states that are so heterogeneous.Chaz TeplinThe clean part of it is challenging politically but the reliability and the cost perspective isn't so bad. So the Hickenlooper bill that would have required more interregional transmission built does have bipartisan support, and we're hopeful that that will come back and there'll be a chance for a requirement there on the legislative side. But in the near term, and as for what we can do to fix these problems the FERC oder, perhaps order 2024 is really top of mind for everybody in this space.David RobertsSo FERC can do more and do you think wants to?Chaz TeplinI'm not going to guess what the current set of four commissioners are going to do.David RobertsRight? We're still lacking one, aren't we?Chaz TeplinWe're still lacking one. Yeah. So we currently, I believe, have four. Commissioner Danly's term I believe, is up or coming up but is able to stay on for, I believe, till the end of the year. So yeah, we may be down to three shortly. It would be great to have, as they say, a fully staffed and operational FERC.David RobertsYes, I'm sure Joe Manchin will find some way to screw that up and delay that appointment. I want to ask one final question, but first, I want to ask a second to final question because I forgot to ask about this earlier. This is something I've always been sort of curious about. Generation projects in the queue are one thing, but lots of projects these days will be combined generation and storage, and some projects now will be standalone storage. Are those also in the same queue and if so, are they studied the same way? Because it just seems like the performance of a storage project on the grid is going to be fundamentally different and its effect on the grid.It's going to be fundamentally different than the performance and effect of a generator. Do they all go mushed in the queues together? Are they all evaluated in the same way?Chaz TeplinThey are all in the same queue. They aren't always necessarily evaluated in the same way. And there were some reforms also in the recent FERC order about the assumptions we make about inverter-based resources which include storage, about how they're going to operate and the ability for developers to say what technologies they're using to make sure that they go well. And I believe there's some ability to change how you can add storage, like make your solar project a hybrid project. If that's not in the FERC order a lot of the RTOs are looking at or do allow you to make some of those changes.You don't have to go to the back of the line if you just add storage, which in theory should just make your resource more valuable and easy to control.David RobertsRight. I mean, this is what I'm saying. Intuitively it seems to me like a storage project is going to be good for the grid, almost categorically like, good for grid reliability, good for grid performance. There's no overloading the grid from storage. So it seems to me like storage ought to be either allowed to skip the queue or at the very least go to the head of the queue or if you attach storage to your project it seems like you ought to get some advantage in the queue.Chaz TeplinYeah, and I think another thing that RTOs can do that's really valuable is look at using retiring generation, citing things there and storage like natural gas, as I mentioned earlier, can be placed pretty much anywhere. So that's an obvious place. Hopefully, you can also connect wind or solar nearby to a retiring coal plant connection. Right. And as we repower that valuable grid connection and so storage can go there and there are fast track processes and fast track queues, if you will, for considering things like that. And a lot of the RTOs are looking at those processes and we really see that as a really valuable way to leverage the existing grid.There's a lot of fairness and cost implications and if you're a developer in the queue, you don't like to see anyone jumping the queue. So there's a lot of ways, questions about what the best way to handle that is, but yeah, that relates to storage for sure.David RobertsJust tell them like if you want to jump in the queue, add storage. It just seems to me like yes to storage as much as possible, as fast as possible.Chaz TeplinYeah. Certainly for short term duration resource adequacy challenges, there's no question that storage is an obvious solution.David RobertsFor sure. Okay, so by way of wrapping up then, let's just briefly talk about what's next. So FERC has issued this order as you say, these are good things, they're going to be improvements, they're going to speed things up a little bit. Do we think that this FERC order alone is enough to speed things up enough to catch us up where we need to be? And if not, what are the other tools in the toolbox here? What else can be done? What should sort of advocates be thinking about next?Chaz TeplinWell, there's no substitution for transmission. Okay, I know, keep being a broken record there but it's true. So leveraging gets as much as possible, leveraging the existing retiring connections as much as possible. And then the last one's a little fuzzier, but I think the RTOs have some flexibility on how they treat deliverability of resources and think about their resource adequacy. And sometimes I worry that we're overly strict about making sure a project is really deliverable. And so Commissioner Clements noted that there's something called energy only resources that typically have different, less strict rules for deliverability. So there's probably ways of getting projects on the grid more quickly by looking at some of the specific rules about how careful we have to be on deliverability.Those are going to be some complex conversations and possibly build on some long-used processes that RTOs have been using, but I think there's some flexibility there and we're excited, certainly to work with everyone to see if we can figure out ways to get more generation onto the existing grid quicker while we plan transmission.David RobertsThese all — except for maybe fully grasping and throwing ourselves into regional and interregional transmission, which is still not really on the table in any meaningful way — this all seems kind of incremental. Like, just intuitively to me it doesn't sound equal to the scale of the problem. So I'm wondering if you feel the same way. And I sort of wonder, given the need for grid reliability, as you say, the legitimate need to sort of study these things and make sure they're not going to screw up the grid, is it even possible to approve things to get on the grid fast enough to hit the targets we want to hit?Like, is there a process that moves fast enough even on the horizon here?Chaz TeplinWell, I'm an optimist, and if you look at how many gigawatts of power are likely that the RTOs themselves say are going to clear, then it's a large number, so we can actually move fairly quickly, but it's not as large as we want. And how many of those projects are going to get bogged down in really large network connection, costs are going to be hard, but perhaps there's ways to fund those. So yes, I'm an optimist that we can use our existing grid a lot better than we are today and get a lot more storage, wind, solar on the system. But yeah, it's going to be a challenge.There's no easy answer on expanding the grid to replace a lot of retiring fossil generation and grow it to substitute for the existing oil and gas industry. Right. That's a large ask to do very quickly.David RobertsIt's not something it's never been done.Chaz TeplinNo, never been done, but that's why we're here to do it for the first time.David RobertsAll right, well, thanks so much for decoding all this for us and picking apart these strands. And it sounds like as bad as this problem is currently, there are things happening, there is hope.Chaz TeplinThere is hope. The FERC order is a big deal and there's lots of dedicated stakeholders and advocates working really hard to try and fix these issues. So that's what always gives me hope.David RobertsAwesome. All right, Chaz Teplin of RMI, thanks so much for coming on.Chaz TeplinThanks so much. Always great to be here.David RobertsThank 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. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe

In this episode, influential climate blogger Joe Romm discusses whether carbon offsets are, per the title of his recent white paper, “unscalable, unjust, and unfixable.”(PDF transcript)(Active transcript)Text transcript:David RobertsCarbon offsets — whereby one party pays another party to reduce carbon emissions — are an extremely convenient thing to have for people, businesses, and institutions that have money to spend, want to do something green, and either won't or can't reduce their own emissions.So offset markets have flourished for decades, even in the face of investigation after investigation, exposé after exposé, showing that the emissions reductions they represent are dubious or outright fraudulent.Things may be coming to a head, though, especially as it slowly sinks in that the Paris Agreement in many ways renders the entire enterprise of offsets moot. If everyone is trying to get as close as possible to zero emissions by 2050, what is gained by trading those reductions back and forth?A white paper digging deep into these subjects was recently published by none other than Joe Romm. Romm has a PhD in physics from MIT and worked at the Department of Energy in the 1990s, but most people in my world know him as one of the earliest and most influential climate bloggers. He’s also authored numerous books on climate solutions.As of earlier this year, he is now a senior research fellow at the University of Pennsylvania Center for Science, Sustainability, and the Media, being run by climate scientist Michael Mann. His first report is on offsets, and it’s a doozy. I called to talk with him about the role offsets have played in the past, the reforms the UN is attempting to make to them, and their future in a post-Paris world.Okay, with no further ado, Joe Romm, welcome to Volts. Thanks so much for coming.Joe RommOh, well, thank you so much for having me, Dave.David RobertsYou know, it's funny. I'm sure you will resonate with this. Probably the number one question I get asked my entire friggin career is people writing in to say, "Hey, such and such, my utility or some firm or some company is offering me these voluntary offsets. Are they worth it? Is it worth it doing this?" And I've been meaning forever and ever and ever to do something squarely on offsets, because what I always want to tell people is, like, "No, they're kind of junkie," but I don't want to exaggerate or stereotype. And I thought maybe I was missing some nuances.So then I read your paper and realized I was missing a bunch of nuances, but they're all nuances. Showing that offsets are way worse than I imagined. Far worse than I had even dreamed. So let's get into it. Let's just start, though, in case any listeners out there don't know exactly what we're talking about. Just what is a carbon offset? And there's two basic kinds the sort of mandatory kind and the voluntary kind just run real quick through what an offset is.Joe RommSure. Well, I use a definition from the General Accounting Office: Reductions of greenhouse gas emissions from an activity in one place to compensate for emissions elsewhere. So a typical transaction is the developed country or a company, instead of reducing its own CO2 emissions, pays a developing country to reduce its emissions by an equivalent amount instead. And then if the buyer purchases enough offsets, they've been going around calling themselves carbon neutral or net zero. And I would say the interaction that most people have had with offsets, the most common one is when you're buying an airline ticket and you sort of have that option to spend a few dollars to offset your emissions, usually by planting trees.And the short answer is don't waste your money.David RobertsRight. But the idea behind it originally, and they go way, way back, the idea behind it originally is that it's kind of expensive to reduce emissions in developed countries and wealthy democracies, and there's lots of super cheap reductions waiting to be had in developing countries. So the idea was, let's flow some money from developed countries to developing countries. You'll help do some virtuous projects there and we'll reduce emissions. And it doesn't matter where you reduce emissions, right, because it's all one atmosphere and you'll get cheap reductions. That was the driving idea. And conceptually speaking, it's not crazy.It just kind of turns out that every particular turns out to be difficult to do in a rational way. So we're going to get to some specifically sort of modern or contemporary issues around offsets relating to the Paris Agreement and how that kind of changes the whole playing field. But before we even get there, let's just talk about the history of offsets and the issues that face them, the difficulties. This basic idea of like, I reduce emissions here and I sell it to you and then you count it against your total, the basic issues that they have faced.And I feel like every couple of years I see another big comprehensive sort of report come out saying, "Yeah, offsets are still mostly junk." So as far as I know, they've been junk from the beginning. But just talk about some of the basic difficulties facing offsets.Joe RommSure. And the phrase that there's this lots of super cheap emissions out there in developing countries. This is a very key phrase that we will come back to because it's that misconception that is really screwing up the way a lot of people are looking at how we're going to solve global warming.David RobertsRight.Joe RommBecause they don't exist. So the first offset was 1988.David RobertsOh, wow.Joe RommYeah, this is Mark Trexler worked on this. And this was a utility, was just trying to see could they do a project in another country. Because utilities, they figured they were going to be — they thought in 1988 they would be regulated sometime soon. So they wanted to check this out. So there was a voluntary market created and voluntary means it's unregulated. It is the wild, wild west. There is nobody out there who is saying this is a real offset and this isn't a real offset.David RobertsSo there's no government body that vets these in any way. It's all just private companies making claims.Joe RommExactly. And working with brokers or verifiers or creditors out there. And so that's sort of problem number one. Whenever you have a market that is completely unregulated, there is generally a race to the bottom. Which is to say, if I told you, "Hey, I can sell you a good carbon offset in Brazil for $20 a ton," but someone else says, "Oh, I'll sell you an offset for $5 a ton," who are you going to buy?David RobertsRight. And it's important, I think, to say here, too, like the seller has every incentive to sell as cheap as possible, the buyer has every incentive to buy as cheap as possible. Neither party in that buyer seller relationship has any incentive at all to maintain quality. There's no regulatory backstop, there's no penalty for low quality. So both have every incentive in the world to cheap out on this.Joe RommAbsolutely. And I was where you were at, at offsets until I decided to start really digging into them. So it took me like six or seven months of really looking closely to realize, "Oh, this is worse than I thought." But also it was tricky to explain, so I had to spend a lot of time trying to figure out how to explain it. And indeed there is an article, the scientific literature is like a nonstop assault on offsets. And there was an article back in 2001 that basically said, yes, one of the problems with offsets is that both sides have an incentive to exaggerate.Because the seller is getting paid a low dollar amount per ton, right? This is going to be a low dollar per ton market, right? So they have an incentive to inflate the number of tons and not even care if they're real tons or not. Now, in most markets, the buyer cares about quality and quantity, right? Caveat emptor. If someone says they're going to sell me ten real oranges but they sell me five rotten oranges, I'm going to object. But in the offset market, I'm not going to object because in fact, I'm paying a price, a fixed price.So for that price, I want to get as many — remember, this is sort of an imaginary negative quantity of things, right. So I want to be able to claim credit for as many offsets as possible for my money. And do I want to look under the hood and see if those are real offsets? I'll just say maybe some companies do, but in the vast majority of cases, nobody is really looking very closely under the hood.David RobertsRight. And you said something crucial there, too, which is what you're allegedly buying when you buy an offset is a unit of something not happening.Joe RommRight.David RobertsSo there were going to be greenhouse gas emissions. And because of this money you're spending, there won't be. So you're buying basically a hypothetical, like an alternate reality, something that didn't happen, which I think we should say, even if there were a regulator, and even if buyers and sellers both were extremely interested in quality, it's just intrinsically difficult to measure a hypothetical with precision. Right. It's difficult to say what would have happened.Joe RommRight. And this is the famous additionality problem. This problem has always been identified as one of the two or three biggest problems. How do you know that the money you're spending to fund this project, that the emissions reduction wouldn't have happened anyway? And this particularly comes into effect when we're talking about renewable energy, because a lot of offsets were renewable energy projects. Now, you've done many podcasts on these remarkable drop in renewable prices over the years, to the point where they, in the last decade, increasingly became the cheapest thing to do anywhere. So it became increasingly clear that offsets that were funding renewables, that the money from the offsets weren't making the difference.So in fact, the offset would have happened anyway, and so the buyer shouldn't get credit for something that would have happened anyway. Right. They didn't make any difference with their money. And there's another tricky feature here, which is there are two types of offsets. There's one where I pay you something that will actually reduce emissions. Like maybe I could pay you to shut down a coal plant, or maybe I could pay you to plant trees and pull carbon out of the air. But a lot of offsets, many of the most popular ones, are called avoided emissions.That's where I pay you not to cut down trees.David RobertsRight. And this raises so many issues. Like, for instance, if I own a bunch of trees, I could sell you not chopping down X parcel, and then I could just turn around and chop down Y parcel to compensate, right? So I end up chopping down just as many trees, but after you've paid me not to chop down these, I just turn around and chop down those instead. So the emissions, the trees are all the same.Joe RommThese all have names. That's the leakage problem. And you might even be good faith, maybe you're not going to. But the lumber company still needs the wood, right? The reason they're cutting down the trees, presumably not always, but in general, they're going to sell the wood. So the lumber company will just go to the next province. And the question is, how much leakage is there? And the answer is, as it turns out, there's a lot of leakage. Because, again, people aren't cutting down the trees for no reason. I mean, some people might be, but there's always a reason why they might be cutting down the trees to grow crops.But if they want to grow crops, they're going to grow crops somewhere and so, yeah, this is very, very difficult. Now, we all want by the way, we do want to stop deforestation, right? We do, in fact, want to figure out how to support ending deforestation as everyone committed. Not everyone, but a whole bunch of nations, as you know, in Glasgow made that commitment, and I think we all support it. The problem is just that you shouldn't turn that into an offset. An offset is — another way of thinking, an offset, it's a license for the buyer to pollute.I'm paying you not to pollute, so I can keep polluting.David RobertsRight.Joe RommSo you don't want to turn protecting forests into someone else's license to pollute. So there are lots and lots of problems. And indeed, there are countries, I won't name them, but there are countries out there that noticed who have a very good track record. They weren't deforesting and they realized no one was doing offset projects with them. The only way they could get offset projects, if they said, you know, we are thinking about doing some deforestation in our country, and so maybe we'd like — you know, what kind of deal that is.David RobertsYeah.Joe RommAnd people can Google that.David RobertsNice forest there. Be a shame if something happened to it.Joe RommExactly. And that's, again, paying people not to do something is — like not to grow crops, I mean, it's going to get you in trouble. And so, over time, these problems never went away. And the voluntary offset program ambled along. It was not very big through 2005. In fact, the total amount of offsets from 1988 to 2005 was about $300 million. So not a lot of money from a global perspective. Then came the Kyoto Protocol, the 1997 agreement, in which the rich nations committed to make some modest reductions by 2010, but the developing countries did not.David RobertsRight.Joe RommBut in order to make it easier for the richer countries to sign on to this protocol, it included something called the Clean Development Mechanism, the CDM. And the Clean Development Mechanism was simply an offset program. But this is a regulated offset program. This would know sometimes this is called a compliance market. It's used to comply with an agreement. And the problem was that the rich countries were buying these offsets from countries that didn't have any inventory that was tracked. They didn't have a baseline, so there was nothing to stop them from, yes, building a renewable plant and selling you that as an offset.But they could still keep building coal plants. And one of the points that I make in the paper is that between 2006 and 2022 and the CDM is still running, the Clean Development Mechanism is still running, the biggest seller of offsets was China. China sold half of all the offsets that were sold. During that time China added so many coal plants that it added almost the equivalent of total current US emissions. Right? So China simultaneously didn't develop cleanly, dramatically increased their CO2 pollution. And in the worst of all possible worlds, all the renewable plants that they were going to build anyway, they sold those to the rich countries, which then used them to actually not meet their target, right?So that resulted in net pollution. There are analyses out there in the literature which basically say the Clean Development Mechanism as a whole led to 6 billion tons more CO2 emissions.David RobertsAnd this, remember, is the regulated one. So it's not like bringing in a regulator can solve what are basically intrinsic problems. The mismatch of incentives is not something I mean, you would need the world's best regulator scrutinizing every penny and it would still be difficult. So even from the beginning of offset markets, the beginning of the voluntary market, and then accelerating with the CDM, like, I swear I've seen at least four or five massive literature reviews, reports, etc., saying all these markets are junk, the CDM market is junk, it's still junk, it's still junk, it's still junk.And that's been going on, as you say, now for over like 15 years. So are offsets finally starting to lose their luster? Are they starting to lose their reputation? And then, if that's true, what happens to companies or countries that are sort of staking their claims of emission reductions on offsets? And that's a lot of private companies at this point that are going around saying we're net zero because we bought all these offsets. What happens if the reputation of offsets finally collapses? Is it going to collapse?Joe RommIn the last 18 months since Glasgow, really, since November 2021, the price of nature-based offsets, those became the most popular. That was either planting trees or paying people not to cut down trees. And there are some emerging ones, but those are the big ones. They have collapsed 90% in price. And you are correct that there are a lot of these exposés. In fact, I have like 160 footnotes in this paper. And I mean, there are literature reviews, right, and there are major reports by independent bodies and then there's the media. And the media has been increasingly scrutinizing them.And anyone who fought Bloomberg, for instance, has been doing regular exposés and really basically calling them fake. One of the big decisive moments was in January, the UK Guardian, along with the German Die Zeit and an independent group called, I think, Source Materials. They had done a major nine-month research effort with scientists and they were looking specifically at what had been considered high-quality offsets were protecting the Brazilian rainforest. These are offsets that were bought by Shell and Disney and Gucci, and they found that 94% of them were worthless. And that 94, 95% number is not at all different, any different — there was a 2016 study of the Clean Development Mechanism by the European Commission, which looked at hundreds of the projects and they concluded that only 2% were high quality.David RobertsSo if I'm Disney, why should I care? I get to greenwash, I get to look green, I get Super Chief offsets. Maybe I just say, nobody reads these exposés, nobody cares. Everybody's doing well here. Why should Disney care about this happening?Joe RommYeah. And the answer is that finally, I would say the environmental community and the people who do care about this started using different tactics, which is to call out companies and to actually bring lawsuits. And there have been a lot of lawsuits in the last twelve to 18 months. The lawsuits are of two kinds. The most common kind is where you go to the regulator in the country, the advertising regulator, and say, this is false advertising. The Swiss regulator, for instance, ruled finally that the World Cup, the 2022 World Cup in Qatar, had been calling itself carbon neutral.That's FIFA, if I'm pronouncing it right, or FIFA, the soccer federation had been making this claim, and this was finally taken to the Swiss regulator, and the Swiss regulator said, this is all misleading. You haven't proven that you're doing anything, so please stop calling the World Cup carbon neutral. And if I can just make tell a 30-second story of just how bad that this is very symbolic of the voluntary market. As I said, renewables become so cheap, right, that it became very dubious that an offset could support a renewable project because it was going to happen anyway.So in 2019, the two biggest creditors in the world, which are Verra and the Gold Standard, they decided, we're not going to allow any offset project, we're not going to verify any offset project that involves funding renewables unless it's in a very, very poor country. But the overwhelming majority of them were not counting, so they stopped. But because this is the wild, wild west, guess what? Qatar decided it was going to launch its own offsetting verifying company, crediting company, which they did, and they said, we're going to take all comers, we will take any renewable project and we will credit it as an offset.And guess what? Guess who's going to be a big customer of ours? So yes, that is a large way that the World Cup became carbon neutral. And by the way, you can Google it, Saudi Arabia set up its own in the last couple months, they set up their own crediting firm and they are issuing offsets to their many polluting companies. So we're seeing a lot more of these lawsuits. There have been lawsuits in the Dutch court because Shell keeps trying to claim that its oil is carbon neutral or somehow good for the environment, and they've lost four times in a row.The British has something called the Advertising Standards Authority, and they've now issued guidance: Please do not use carbon neutral or net zero. Last fall Evian, if you buy a bottle of Evian water, it says carbon neutral on it. So they've now been sued for that. That is a trial that's undergoing and it has now gotten to the point where law firms, this year, law firms have been issuing memos to their clients saying, guess what, this is a very ripe area for lawsuits because this whole offset business is kind of dubious but environmentalists are like they're caring a lot more about climate change and these are starting to launch.And there was an advertising magazine, the Drum, which basically advised clients that suddenly you have to understand offsets are becoming a reputational and a legal risk. Some people may know at the end of June, a lawsuit was filed in federal court in California against Delta because Delta has been calling itself the world's first carbon neutral airline. And basically the suer said, you know, I bought this ticket because I thought you would solve the climate problem and now I learn you hadn't.David RobertsRight.Joe RommThis has started to have an impact because you may have caught the news that the very end of June, Nestle's publicly said we are withdrawing all the claims that we are planning to make about carbon neutral for Kit Kat and, guess what, Perrier water.David RobertsInteresting. So even if you're a company that doesn't care particularly about this as such, right, in terms of carbon emissions, you're going around buying these standard sort of voluntary offsets and making these claims, which is something that has been a herd activity, right. It's fine to do it because everybody else is doing it, but now the slower, weaker members of the herd are being picked off here. You're actually in some danger now of legal exposure basing the claims on these goofy offsets.Joe RommAbsolutely.David RobertsThere's two stories going on. On one hand it seems like there's a house of cards here that's about to collapse. But on the other hand, as you say, there are more and more kind of scammy people herding into this market to sell them. So it's tough to see how that shakes out.Joe RommNo one can stop that, really, because it's an unregulated market. We will get to, in a little bit, the one player who could make a real difference. But fundamentally, it is only going to be turning something that has been done for good PR, right — They were all doing this to try to say, "Oh, we're good environmental citizens. Why? Not because we're reducing our own emissions, but we're paying other people to reduce them for us." And that is now starting to lose its luster. Right. So as people start to realize and maybe get sued, maybe they'll get a group of environmentalists will write a letter saying this is a bogus claim. As that starts to become more popular.And I think that that is increasingly something that you're going to be seeing happening. It's going to become bad PR. And so it's going to be a reputational risk and a possible legal risk. And those two together, I think it's going to start dawning on people and I think one can say that no serious company should be purchasing offsets to make claims about carbon neutral and net zero. And I will say in the reverse, which is that any company that is, is not a serious company. And it's no longer just people like me saying this. The fact of the matter is that the Secretary General set up a UN expert group to look at this specific issue, which is offsets by non-government entities.And in Egypt, at Cop 27, they reported out and basically said, "No, please stop saying that you're using offsets to become net zero. You can't become net zero that way." And by the way, the biggest independent group out there working with companies to look at targets to see if they're real — you may have heard of them, the Science Based Targets Initiative — they have also said the same thing: You may no longer use offset. We're going to develop a plan for you to make a science-based target where you reduce emissions 50% by 2030 and get down very close to zero by 2050.But if you cut your emissions 50% by 2030, you can't go out into the voluntary market, buy the rest of those tons and say you're net zero. That doesn't count. So, yeah, I would say more and more of the serious players are walking away from this notion that offsets are real and can be used by companies to pretend that they're doing something.David RobertsLet's move on to what I think is an interesting, not new, but newer issue around offsets. So, as you say, the sort of explosion of the offsets began with Kyoto because developed nations were supposed to make reductions and developing nations were not obligated to do so. So under that regime, it makes sense for developing nations to sort of sell their reductions to developed nations, right? If you don't have to make them yourself, why not sell them to people who have to make them? Then comes Paris. So under the Paris agreement, the Paris framework, everybody is supposed to be making reductions, including developing nations.So then we get to an interesting problem of double counting. So if I'm a country, I reduce emissions by X and I sell those reductions to a company, the company claims the reductions via offsets, but then I also claim them under my Paris obligations. So it kind of seems like two entities are claiming them. Walk through how this works using the example used in the paper is one of Ørsted in Norway and Microsoft buying offsets from them, and then Norway also counting them. So just walk through how that worked.Joe RommYeah, absolutely. And I'm going to talk about it, not how it appeared in the paper. It took me a while to figure this out. There was a Bloomberg article in mid-May which reported on this, and it's only literally because I had been working on this for six months and had just gotten to realize that this particular deal was the problematic deal. Or, I will say, one of the two problematic deals, but the other one was solvable. And we'll get to that. So this deal in May, the Danish government announced that it was paying the bioenergy company Ørsted to put carbon capture systems on two biomass plants in Denmark, capture up to 450,000 tons of carbon dioxide a year and bury it under the Norwegian sea.And Denmark subsidized this with a fund it had set up for the very purpose of doing, you know, carbon removal and carbon capture. And so Denmark is claiming all those tons. It's putting them in its national greenhouse gas inventory.David RobertsAnd we should say quickly that unlike the tree stuff, unlike the forest stuff, these really are verifiable and verified emission reductions. That's not the issue here.Joe RommRight. Certainly this is a more quantifiable and also potentially more permanent. The other problem with trees and stuff is trees aren't permanent as we're living through more and more these days. And indeed, these were emissions that were coming from Danish power plants. Right. So these were official Danish emissions that they had agreed to eventually eliminate entirely for their meeting their pledge under the Paris agreement. And so that seems very reasonable. And if that had been it, it would have been a perfectly fine deal to announce. But Ørsted also announced that it was selling over half of the same exact tons that had just sold to Denmark, to Microsoft, which also threw in some money and is also claiming them to offset some of its corporate emissions.So the same tons are being sold twice and they're being claimed twice.David RobertsRight. So what you've got is Denmark claiming these tons under their Paris pledges, and then Microsoft claiming these tons under its private pledge to reduce its emissions. Both entities are claiming the tons. And if you ask Ørsted, I mean, it's not like this is a secret that this is happening. It's right there in the press release. If you ask Ørsted, they say, "There's no problem here. This is just two separate accounting systems."Joe RommYes. When I saw this, I wrote a letter email to the person who was in the press release for the Danish government at the Danish Energy Agency. I sent an email to Ørsted and I sent one to Microsoft. Twelve days later, the Danish government writes back and says, "We don't consider this to be a double claiming because there are two different inventories we're talking about." Now interestingly, the Danish press release never mentioned Microsoft. And basically the tone of the email was, "We don't really care what Microsoft does. We're claiming them officially in our national inventory to meet our climate targets, and we don't care what anyone else does."So Ørsted said, "Yeah, it's two different inventories." And ultimately Microsoft said the same thing. But some journalists asked me, "How could there be two different accounting systems?" And I said it's easy: One's real and one's pretend. And that's what is really going on here. The voluntary market is the pretend market. I think that that has become clear over the decades that what companies are doing is pretending to do something and then really taking credit for being a good environmental actor. But clearly what this deal shows, if you knew nothing else about the voluntary market, it's clear that Denmark has every right to claim those tons, right?It did subsidize them. The tons came from their country. They're putting them in their inventory and they are actually helping to solve the climate problem. Right? They made a pledge so that's clearly the real market, the one that is recognized by the entire world. So whatever Microsoft is doing here, they're not offsetting tons.David RobertsSo, you could say, though, I mean, just so people grasp the implications of this, given that every country in the world now has pledged emission reductions under Paris, every deal is going to be like this. Every deal in the voluntary carbon market is going to take this same shape. It's going to be double counting. So the question of whether that double counting is legitimate or not, the entire fate of the voluntary carbon market rests on that question. Because if it's double counting and illegitimate, then there just won't be any reason for voluntary carbon offsets anymore. Every country that hosts emission reductions is going to want to claim them for itself under its Paris obligations.And why would it want to sell them? So, is there any way to, I mean, as you said, you can't stop the voluntary market from coming in and just saying these things because there's no regulator and it can say whatever it wants. But as you say, the UN has sort of stepped in here and tried to draw a distinction. Now tell us a little bit about that, how the UN is trying to sort of square this circle.Joe RommIt is important to realize, and this took me a long time to understand enough to know where to look in the literature. This deal isn't just exposing the voluntary market. This deal actually undermines the Paris Accord and that emerged in the literature. Within a year of Paris, somebody wrote a paper for a German think tank and ultimately there have been multiple articles, there was a report to the German Environment Ministry. Paris was designed to get every country to make commitments to reduce their emissions and then to go about the business of reducing emissions. It's not a mandatory thing, right?There's no enforcement mechanism.David RobertsRight right.Joe RommThat's very important to remember about Paris. It is a good faith effort by countries, or some people may decide whether or not how good a faith it is. But fundamentally, the nations of the world came together at Paris and made these commitments. And there is now pressure on countries to meet these targets. And obviously, as the climate keeps getting worse and worse, it will be harder and harder, I think, for countries to walk away from them. The problem with this deal is if I'm a developing country and I've made emissions reduction target, I'm disincentivized from reducing my own emissions.Because I can just sit around waiting until some rich company comes in and says "Hey, I'll buy some of those tons from you, even though you're not selling them to me and do this deal." And basically, that's what the literature said. The literature said this deal, first of all, it's not an offset. The country had already agreed it was going to make these reductions, right. Therefore it was going to happen anyway.David RobertsRight. This is the hypothetical thing. Like in Paris, all the countries committed to reductions, therefore there's no hypothetical world anymore without the reductions. The whole premise has been wiped away.Joe RommYeah, these aren't offsets — and by the way, the Gold Standard and I emailed back and forth with the Gold Standard. The Gold Standard said this. It has written articles basically saying that this deal, anyone who does this deal cannot call what they own an offset and they're not going to sign off on any such deal being called an offset. So, yes, as you say, fundamentally, Paris was the beginning and the end of voluntary offsets. And people should have realized that. When the Paris Accord was signed, everybody knew — and the Paris Accord has something called Article Six — and I'm only saying this because I know your audience is sophisticated and I think they should understand this. So Article Six is the part of the Paris Accord that deals with carbon credit trading and carbon offsets. 6.2 is carbon credit trading, 6.4 is offsets. So that was part of the Paris Accord. However, it became clear that the deal that we're describing between a company and a country is one thing, but you clearly can't allow the double counting if it's two countries. So by unanimously agreeing to the Paris Accord, the world was saying, we are going to work out the details of this Article Six and offsets at a later date.But the literature was clear that there's only two solutions to the double counting problem. So what is the double counting problem? Let's use very simple math. Imagine that Brazil has 2 billion tons of CO2 emissions and the United States has 2 billion tons of CO2 emissions. And the United States says to Brazil, we want to buy half of your tons that are the easiest to reduce. And we're going to pay you this amount of money and you're going to sell them to us and they do this deal. Now, Brazil has actually physically reduced its emissions by a billion tons, right?So it actually has a billion tons of emissions, but the United States wants to claim that it also reduces emissions a billion tons. But clearly they can't both claim that because then they would each have 1 billion tons, but the world would actually have 3 billion. They combined would have 2 billion tons, whereas the world still has 3 billion tons. Because the United States actually has 2 billion tons. So there's only two solutions to the double counting problem. Either the buyer doesn't count the tons or the seller doesn't count the tons. Right? I think that's pretty straightforward.Now, if the buyer doesn't count the tons, then it's not an offset, right? They're just helping Brazil reduce its emissions.David RobertsRight.Joe RommAnd that in Cop 27, in November 2022, the world agreed that would be called a mitigation contribution emission reduction. That the rich country was helping contribute to a greenhouse gas mitigation, helping Brazil achieve its Paris agreement, helping the world reduce greenhouse gas emissions. But it couldn't take any credit for them itself could not be used as an offset.David RobertsSo you can have a reputational boost, you can get a little green glow, you can get some good PR, but you cannot claim to be reducing your own emissions when you're the buyer in this situation.Joe RommAnd you should know that the environmental community had been urging the voluntary market to move to that exact scheme for many years. Just don't call it an offset. You can keep doing what you're doing. Rich companies can help poor countries reduce emissions. Just don't call it an offset. Just don't pretend you're buying the same thing that they're not selling to you. I mean, it always seemed obvious to me that if the country that reduced the emissions is keeping the tons, then they're not selling them to you. So how could you be buying them? And by the way, the Gold Standard agreed to do this for the voluntary market in the last year or two.The Gold Standard is basically saying, you can't do not call any of our projects offsets anymore unless you meet very strict criteria, including that it doesn't involve the Paris agreement. So the other solution is the one that is complicated. It's not that complicated, but it's sufficiently complicated that no one understands what was actually the implications of what was agreed to. So the solution where it's a real offset and the selling country, Brazil, doesn't keep the emissions reduction, Brazil has to publicly announce to the world that it is giving up those tons and it is not going to count those emissions reductions in its own inventory because it's selling them to the United States.Now, there's only one way this can happen, is if Brazil adds back the billion tons to its official inventory. And that addition, that billion tons, that's called the corresponding adjustment.David RobertsCorresponding adjustment. So the idea then is you're selling the tons. You're literally selling the tons, which means you no longer have them. So in that case, the United States could claim to be reducing its emissions, but then Brazil could not claim to be reducing its emissions. It would still have the 2 billion tons on the books.Joe RommSo put simply, the rich country gets to pretend that it made emissions reductions, even though it didn't. And the poorer country has to pretend that it didn't make any emissions reductions, even though it did.David RobertsRight. And this is now a legitimate framework in the UN. You can do this.Joe RommWhen the final rules are written. All the rules have not been agreed to. But at COP 26, the nations of the world, when the nations of the world signed off on the Glasgow accord or agreement or whatever you want to call the final document, they were unanimously agreeing that they were going to set up something called an authorized offset. And in order for an offset to be authorized, it had to come with the corresponding adjustment. The developed country had to give up those emissions reductions. And as you might imagine, this deal doesn't make a lot of sense.David RobertsWell, it does make sense in one way. We should say the one way that it does make sense, which is unlike the old regime, where neither the buyer or the seller had any incentive at all to ensure quality, now, at least if I'm Brazil and I'm selling some of my emission reductions, and I won't be able to use them on my inventory anymore, I'm, by God, going to be sure that those are high quality. Right? Like, I don't want to be selling, I don't want to be giving up my ability to reduce emissions on the cheap, right?So at least now one party in the transaction has some reason to care about quality, right?Joe RommAnd this gets to the core issue, which is these offsets won't be cheap. And this is the thing that is the complete game changer that everybody needs to understand. It's one of the reasons why I wrote this paper once I figured it out. Developing countries must not sell these off cheaply. And the reason is pretty clear. If the developing countries let the rich countries skim off their cheap emissions reductions at a low price, those developing countries, because they're all going net zero, right? This is the point. Everybody's going to zero. Those countries are going to have to go back in the market later and buy those tons back, right?Because they have to pretend they didn't make those reductions. In other words, Brazil had 2 billion tons. It cut its emissions by a billion, but it gave that up to the United States. So it has to pretend it has 2 billion even though it only has one. So in order to come net zero, Brazil not only has to reduce the remaining billion, it has to offset the corresponding adjustment bill.David RobertsThe billion it sold.Joe RommSo the only way it's going to do that is with the expensive stuff, direct air capture, whatever is the price, towards the end of the emissions reduction period. And by the way, I had to use Chat GPT to help me find a lot of these sources when the developing countries were told that by signing the Paris agreement, they were going to have to give up the tons. They weren't happy. And when Brazil, people may know, if people who follow Paris know that Brazil and some other developing countries were the obstacle, they had refused to make this agreement until Glasgow.And when Brazil finally agreed to make this deal, they added a little hook. They said, yes, we'll agree to your dumb-ass thing, but we retain the rights to make the decision ourselves as to whether we keep the tons or give them up. Which is to say, we can decide. And no one has been able to tell me, by the way, when they get to make that decision, whether they can do it at the beginning or the end. But the point that I want to make here is that since the developing countries are going to have to go back into the market to buy those tons, they better not sell those tons for anywhere near the current market price for voluntary offsets.David RobertsYeah.Joe RommAnd this gets back to the point that you made at the very beginning. The one really bad thing about the voluntary market is that it left everyone with the impression that there was this vast sea, unlimited sea, of cheap emissions reductions in developing countries that they would be able to buy up instead of doing the hard work of reducing their own emissions. Right. Because fundamentally, offsets are a way of not doing our own renewables efficiency, electrification, et cetera, et cetera, right? We're going to pay someone else to do the hard work. So, because everyone thought that this was the case, I think it has fooled a lot of companies into making the same net zero pledge. Right?David RobertsRight. They think it's cheap.Joe RommYeah, we'll solve it cheap. But the whole point is, once the country has to give up those tons, then it has to say, what is the correct price of those tons? The correct price isn't how much it cost me to do this project, it's the replacement cost.David RobertsRight.Joe RommAnd so the World Bank came out in February with a paper which explained all this, because I was sort of figuring this out and I said, this can't be true, this is all ridiculous. So the World Bank came out in February with an analysis which basically said the following: These tons aren't cheap. First of all, the offset projects themselves won't be cheap because the offset projects were only cheap before because they weren't real. Right? So they didn't say that. I'm putting in some color commentary, but basically, these projects are going to be more genuine because, as you said, Brazil isn't going to give up tons.Right. In other words, if Brazil was going to reduce these emissions anyway, right. The additionality problem, Brazil's never going to sell tons it was going to do anyway to some other country, right. Because that's rendering the action meaningless for them. So what the bank said is first of all, the tons are going to be more expensive because they're going to be realer and there's going to be fewer in each deal because the seller isn't going to want to inflate them. So the point is, the deals are going to be more expensive, a), and b), there has to be a price for giving up the corresponding adjustment.And what the bank said is the actual price is going to be somewhere between the cost to the seller to purchase the last ton it needs to meet its 2030 target, right? Because it's adding those tons on at the end, right. If you see what I'm saying. So all of those tons are it sold off the cheap emissions reductions, tree planting, whatever you want to say, shut down some coal plants, whatever is easy, right? The hard stuff like steel or concrete, all that stuff, that stuff the United States isn't buying. So the bank said the actual price for these tons should be at a minimum, what it would cost the developing country to meet its last ton.But then it added the following, which is what I basically thought, which is in fact, the actual price isn't the marginal cost for the developing country to meet the last ton, it's the marginal cost for the rich country. And this is a very important point. Imagine a world where these authorized offsets are $50 a ton. But if you look at the models, and the World Bank published the results of a GCAM model that had been done, of what it would cost countries to meet the 2030 target, the marginal cost for the US is $155 a ton for the EU and Japan, it's more like $120 a ton.The EU Market, right, the closest to a real ton on the market is what's traded on the European trading system. It's a European Union allowance. And those are currently sitting around $90 a ton of carbon. They've been oscillating between $80 and $100 a ton for the last year or so. So that's closer to a real emissions reduction by a developing country. So the point is, if these authorized offsets were being sold by Brazil and developing countries for $50 a ton, and it cost the United States at the end, $155 a ton to meet its hardest target, it's just going to keep buying the authorized offsets, right?They're going to bid the price up until it's much closer to what it costs the rich countries, because otherwise it'd be insane for the rich countries to do it themselves for $150 a ton if they could pay another country $50 a ton. So the point is, once everyone realizes this, once everybody reads my report or really starts to think about it, they're going to realize that these tons should not be sold except at at least $100 a ton.David RobertsIf we could, just — to bring this full circle. So if you're selling reductions to another country, you're not double counting, you're verifying that they're long-term permanent reductions. If you're dotting all your I's crossing all your T's and properly pricing these things, that basically the buyer is going to end up paying as much as they would need to pay to reduce their own tons.Joe RommYeah, the final ton.David RobertsWhich gets you to the final conclusion here, which is what is the point of all this anymore? If the offset markets were rational, were not double counting, were high quality, were verified, they wouldn't really pose any price savings over just reducing your own emissions in the first place.Joe RommRight.David RobertsSo what is the point of having them at all?Joe RommRight, and that is the important point. This is the thing that should have been obvious once the Paris Accord started to be put into place. If everyone in the world has to go down to zero, then it doesn't make any sense for you to sell off any of your cheap tons, right? You've got to keep them for yourselves.David RobertsRight.Joe RommSo someone might say, oh, but there's going to be all these negative emissions tons out there, right? There's going to be bioenergy carbon capture storage. There can be direct air carbon capture and storage and then we can plant an unlimited amount of trees. And I'm working on papers on all of those and people just need to understand that none of those are scalable. Trees are not scalable. Direct air carbon capture storage is not scalable, certainly not by 2050. And bioenergy carbon capture and storage is not even a climate solution. And I love doing coming out of an analysis in September with some original modeling by one of the best modeling groups in the world that are basically going to show that bioenergy carbon capture and storage not only isn't a solution by 2050, it would probably warm things up.But in any case, there is no net zero. There is only zero. There's no free lunch. Everyone is going to have to reduce their own emissions and some may take longer and some may take sooner, but it doesn't matter. Anyone who sells off their cheapest emissions reductions now to anyone else is one of two things. Either they're making a mistake or they're not going to honor the agreement.David RobertsRight? So offsets made sense in a world where some people were reducing and others weren't, or some people had to reduce and others didn't.Joe RommRight.David RobertsBut in a world, in a Paris world where everybody's going to zero, it's just a shell game. Like you're just moving these things around. In the end they all have to be reduced. Like in the end the money is the money. The reductions are the reductions. Everybody's got to reduce to zero. So the whole justification for the shell game of buying and selling these reductions has kind of like vanished out from under the market.Joe RommIt has. And I just want to use a little bit of history. The reason I think people got the wrong impression for two or three reasons. One is when carbon trading was first set up, right, the famous acid rain program, sulfur dioxide program that was set up under George H. W. Bush, that was a 50% reduction. Right. Now, in a world where every company has to cut its emissions 50%, it makes some sense if one company can easily reduce down 60% to sell those 10% to another company, that can't easily get past its own 40% reduction.David RobertsRight, this is just trading. This is credit trading. It's the whole economic justification for credit trading in any context.Joe RommRight. That's the market efficiency. Right? This is the efficiency in the marketplace. That was why economists and corporations liked that. But again, if we imagine that the acid rain program said everyone had to take their sulfur dioxide down to zero and there was no way to pull sulfur dioxide out of the air, then it would have been, again, crazy, right, for some company to sell off some extra, easy — there is no extra emissions. Right. The point is, there's no extra.David RobertsThere's no such thing as extra. There's no away.Joe RommYeah. And in this sense, by the way, even the European trading system, people will come to realize, doesn't make a lot of sense. It's good for price discovery. Those markets are very good for price discovery. How much does it really cost? And there is a 2030 target, right? Everyone doesn't have to go to zero by 2030. But when you think about it, why should Brazil sell some tons to France to meet its 2030 target when by 2050 everyone's going to zero?David RobertsYes.Joe RommI mean, you might say, oh, well, by 2050 we'll have a lot of new technologies and maybe we will. And I'm not here going to tell you what is going to exist in 2045 or not, but I think the main message is that ultimately what Paris means is you got to reduce your own emissions.David RobertsAll right? So we've established here that in a world where everybody is going to zero, it doesn't make a ton of sense to shuffle around. It certainly doesn't make sense to sell your cheapest reductions when you have to get to zero, because then you're going to just end up having to make much, much more expensive reductions at the end, or do carbon DAC or something like that at the end, which may or may not even be possible. So the whole point of shuffling around emissions between entities has kind of lost some of or all of its rationale in a world where everybody's going to zero.So then, a question. Let's take it back to the beginning, because a lot of the reason the voluntary offset market exists in the first place is that there are lots of companies and entities who, with varying degrees of good faith, want to do good things on climate and are pushed to by their customers, by their employees, want to do something good. So if you're telling them going out on the voluntary carbon market, buying these offsets and then claiming you've reached net zero is BS, complete BS. It's physical BS, it's accounting BS, it no longer makes any sense anymore.What should entities who want to help and do good things, what should they do in light of this?Joe RommWell, it is a challenge and I've been asked that question. Certainly, one thing you can do if you really want to do, quote, unquote, an offset is anyone can go to a broker and buy tons on the European trading system and retire them. Just as people did buy into the sulfur, as you know, I'm sure you remember people did buy sulfur allowances and retired them. So yes, that can be done. I mean, I suppose if it were done a lot, then the European Union might limit it. But I would say yes, you can go to the market and do that.And do you know, companies like Microsoft are funding like direct carbon removal, except that's like $500 a ton. And the point is that at that price right now, for a few dollars a ton, right, a few dollars, you can supposedly offset your airline travel, right. If the price were $100 a ton, it would cost like a third of your ticket. So a lot fewer people are going to do that, needless to say.David RobertsRight. So you can buy verified actual carbon reductions in that they're burying them and sealing them in the ground permanently if you're willing to spend whatever, $500 a ton. So your plane ticket would then be, whatever, $10,000, right.Joe RommExcept of course, as we said, you can't do that if those tons belong to another country that has its own need to reduce its emissions. That was the mistake that Microsoft made, and I admire Microsoft because they made a leading-edge commitment. They committed not only to offset all of their emissions and go down to zero without offsets, I believe, but they said they were going to offset all of their emissions since the company was incorporated.David RobertsYeah, I mean, Microsoft, I think, is acting in good faith. That's like a good example here.Joe RommExcept the problem is, and I've talked to people about them, those tons don't exist. And I don't think Microsoft realized when they made the commitment. And I think somebody out there, hopefully someone knows, someone high up in Microsoft, they are stuck with this commitment at a corporate level. But those tons don't exist unless you do the double claiming stuff. Unless you do the stuff that's obviously ridiculous. And because Microsoft has said we only want to do high-quality tons, right, they did a whole RFP for tons and they rejected 98% of the projects that were proposed to them and said we are only to do high-quality offset and removals.And I will tell you, I spent weeks trying to convince Microsoft that this was not a high-quality removal project, but I'm hopeful someone else out there can persuade them to stop doing this particular deal. I think that is going to be a challenge. Yes. There are a lot of companies out there that have made a net zero commitment without realizing, thinking again, that there was this vast sea of cheap tons in the poor country. The notion that the rich countries could skim off the easy tons from the poor know that's like climate colonialism or climate imperialism.And the other thing I would say to your audience is, right now, Singapore, Switzerland and South Korea are going around to developing countries and buying up tons. And I would love to see those contracts because my guess is they're selling those tons cheaply and they may be agreeing to have them be authorized tons and therefore they may not realize that they are basically being ripped off. And I believe that, as I say, one of the reasons I wrote the paper is so everyone in the market needs to have full information so we can't arbitrage anyone's ignorance. But the other thing is, it makes no sense to rip off anybody in this market because, again, it's voluntary.And if a developed country in three years said, wait, you guys ripped me off, they could just say, I'm voiding the deal. Right?David RobertsYeah.Joe RommWe reduced our own emissions, you can't force us to do anything. So, yes, this is a collaborative effort by the entire world to get as close to zero as possible, as quickly as possible.David RobertsYeah. I mean, maybe this even goes without saying, but I feel like the answer to what a company or an entity of goodwill should do is just reduce your own emissions.Joe RommYes.David RobertsAny entity, any country. That is job one, two and three. Right? Like, do the hard work of reducing your own emissions. That's what everybody's going to have to do eventually. And all of this sort of financial shell game to put off that reckoning, I just feel like should be over at this point. Everybody should be reducing their own emissions. And the one thing and maybe we can wrap up with this is just these BS claims of net neutrality have been circulating so long and are so casually used and are used by so many companies now that the companies that do pivot to the hard work of reducing their own emissions are on an accounting level or a PR level, going to appear to be reducing less emissions.Right. So I wonder if there's any way to sort of give them the reputational boost they deserve when they reduce emissions the right way. Do you know what I mean? How do we incentivize companies to do this the right way?Joe RommThat is definitely the challenge. I think that we can certainly do the reverse, which is to publicly criticize the companies that are doing this the wrong way. I think I said that there is one body that could at least solve a lot of this problem, which is to say the UN Framework Convention on Climate Change in Egypt, the Cop 27. The nations of the world considered, or at least the group that looks at this, considered, the possibility of banning voluntary offsets of this nature that help someone achieve their NDC, achieve their Paris target and they punted. But the fact is that if the nations of the world got together and said, if you don't have the corresponding adjustment, you don't have a real offset, they could do that.I mean, again, people could ignore them. But at know my feeling is that the mere fact, and I think people have some people have caught onto this, the mere fact that the nations of the world unanimously decided to call something an authorized offset is a pretty good indication that anything else isn't real. I mean, you could call it an unauthorized offset, but the point is one of them is in the globally recognized inventory of countries working to actually solve the problem, right? That's the real thing. Anything else is pretend. And I recognize these are very tricky issues for the nations of the world to come to agreement on, but ultimately also it's up to developing countries.You may have seen in the news that Zimbabwe, I think, was a month or two ago, publicly announced that all future offsets, that no company or entity can do an offset deal with a company in Zimbabwe. They have to go through the government. The government's going to take half the money, a quarter of the money is going to stay in the country on the project, and only a quarter is leaving the country. And I think you're going to see as more and more countries realize what's going on here, they're going to have to stop any deal that doesn't go through the country, because it's only the country that really can officially sell one of its own towns.And this is what it comes down to: Ørsted had no right to sell those tons to Microsoft because they weren't Ørsted's tons, they were the Danish government's tons.David RobertsSo the take-home here is: Reduce your own friggin' emissions.Joe RommYeah.David RobertsJust quit looking around for accounting gimmicks and just reduce your own emissions. And if you want to help fund emission reductions in developing countries, which is a perfectly wonderful and virtuous thing to do, do so. Just do not claim that you are thereby reducing your own emissions.Joe RommRight. Just say you're making a contribution claim, mitigation contribution. You're doing a good thing. And as we both know, the rich countries really actually have a responsibility to help the poor countries.David RobertsYes.Joe RommLet's not forget that part of things.David RobertsThanks so much for this, Joe. As I said, I knew offsets were dodgy, but the depth of the dodginess was a revelation. So thanks for coming on and clearing all this stuff up for us.Joe RommThank you.David RobertsThank 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. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe

Geothermal developer Fervo Energy has successfully brought online the first ever full-scale commercial power plant sourcing from enhanced geothermal systems (EGS) — a groundbreaking development both literally and figuratively. In this episode, Fervo CEO Tim Latimer discusses the company’s accomplishment and where flexible geothermal is headed.(PDF transcript)(Active transcript)Text transcript:David RobertsTraditional geothermal power, which has been around for over a century, exploits naturally occurring fissures underground, pushing water through them to gather heat and run a turbine. Unfortunately, those fissures only occur naturally in particular geographies, limiting geothermal’s reach. For decades, engineers and entrepreneurs have dreamed of creating their own fissures in the underground rock, which would allow them to drill geothermal wells almost anywhere.These kind of enhanced geothermal systems (EGS) have been attempted again and again since the 1970s, with no luck getting costs down low enough to be competitive. Despite dozens of attempts, there has never been a working commercial enhanced geothermal power plant.Until now.Last week, the geothermal developer Fervo Energy announced that its first full-scale power plant passed its production test phase with flying colors. With that, Fervo has, at long last, made it through all the various tests and certifications needed to prove out its technology. It now has a working, fully licensed power plant, selling electricity on the wholesale market, and enough power purchase agreements (PPAs) with eager customers to build many more. EGS is now a real thing — the first new entrant into the power production game in many decades.Here at Volts we are unabashed geothermal nerds, so naturally I was excited to discuss this news with Fervo co-founder and CEO Tim Latimer, an ex-oil-and-gas engineer who moved into geothermal a decade ago with a vision of how to make it work: he would borrow the latest technologies from the oil and gas sector. Ten years later, he’s pulled it off. I talked with Latimer about how EGS works, the current geographical and size limitations, how he plans to get his technology on a rapid learning curve to bring down costs, the value of clean firm power, the future of flexible geothermal, and much more. This is a juicy one.All right then, with no further ado, Tim Latimer. Welcome to Volts. Thank you so much for coming.Tim LatimerThank you for having me.David RobertsTim, this has been a long time coming. I've been tracking your adventures from afar for a few years now, and now you've reached a real milestone here, a real milestone for you, a real milestone for your company, a real milestone for geothermal power, which Volts listeners are like me, big fans of. So to help us appreciate the significance of the milestone in question, I want to back up a little bit and do some background first for listeners who have not, for whatever bizarre reason, heard my previous geothermal pods. So a couple of times we've talked and you've told me kind of this short, potted history of geothermal, the last couple of decades of geothermal, the sort of struggle to align the money and the attention and the technology and everything.So maybe by way of starting just share that with our listeners, sort of like geothermal's struggles to take off in, say, like a post-2000 context.Tim LatimerAbsolutely. Well, to do that, I probably have to explain a little bit about how geothermal works, which is straightforward in the idea, difficult in the implementation, but geothermal has been around for forever. The first geothermal power plant was built in Italy over 100 years ago. Major places like New Zealand, Iceland, and northern California built massive utility-scale power plants going back to the 70s and 80s. But essentially what happened is — as the choicest areas for drilling geothermal, the places that steam was literally coming out of the ground got tapped — we ran out of really good resources and technology couldn't keep up with the challenges needed to go deeper, go into less permeable areas, and still produce economic electricity.So geothermal has been kind of a boom and bust industry. The big technology push for a long time was the idea of something called enhanced geothermal systems, which was a DOE-led effort going all the way back to the 1970s to try to incorporate things like hydraulic fracturing, advanced drilling techniques, better subsurface characterization, to try to solve that problem and let geothermal be a more widespread resource. But many of the early technical attempts came far short of expectations, and so the industry had fits and spurts a lot of unrealized promise that never came about. And kind of the two big waves recently, in the late 2000s, there was a big push to do more geothermal energy development. And you always think about what does it take for a new tech to actually get to market? Well, you got to have the technology there, you've got to have supportive policy, and you have to have market conditions that are ready to go. And so in the late 2000s, the market conditions were there. People started caring about carbon-free electricity for the first time in a really meaningful way. We saw state RPS targets come out. We also were in a world where people thought natural gas prices were going to be exceptionally high for a long time.So people were concerned about how we were going to source electricity. And so there was huge demand for geothermal. And then between different initiatives like the loan program office and the R initiatives, putting funding into alternative energy resources in the late 2000s, geothermal really had a great moment. But what happened there is it was missing that third pillar, it was missing the technology area. So there were a lot of contracts signed, a lot of investment came into the space. There was supportive policy, but a lot of the visions of geothermal in the late 2000s sort of petered out as drilling results were underwhelming.And as a result, it put us in this decade plus of time where there was not supportive policy in the US for geothermal, where there was not investment dollars coming in. And the irony of this whole thing is all of these drilling and subsurface methods that people had tried to make work for geothermal for 50 years, all of a sudden became viable and cheap and cost-effective because of the shale oil and gas revolution. So all of a sudden it wasn't expensive to drill horizontal wells and we could image the subsurface with high degrees of clarity, but for most of 2010s the new tech showed up and in an inverse of the tech was there, but there was no policy and there was no financing.And so it's taken quite some time for this mix of better technology, supportive policy and market demand to coalesce. And it's really just been in the last couple of years where geothermal has finally had all the forces pulling together here.David RobertsYeah, that's what we sort of tried to convey with my last pod with Jamie Beard on geothermal, just how everything's finally coming together. Right now, all the pieces of the puzzle are coming to place. It's a super exciting time. So I think most people get traditional geothermal power, right? You find an area where there's some sort of volcanic activity, which just means sort of tectonic plates rubbing on each other. So you have fractures underneath the ground and then you have water. When you push water through those fractures, it heats up. So you have one well where you push the water down, the water heats up in the fractured field and then comes back up the other well and you use it to generate electricity.That is standard geothermal power. And as you say, that kind of geothermal power, which has been around for a long time, is confined to geographical areas where you find these fractures, where you find this sort of geological activity. So let's talk briefly about how to distinguish that traditional geothermal from the various other kinds we're hearing about now. There's a lot of terms flying around. So there's enhanced geothermal, there's super deep geothermal, there's closed loop geothermal. Maybe walk us a little bit through what is the technological landscape of beyond normal geothermal.Tim LatimerYeah, so the nomenclature here, what the industry has kind of settled on, and the DOE uses this nomenclature, is that first type that you described, which is very descriptive, you know, Iceland, Kenya, northern California geothermal prospects. We call that hydrothermal. And hydrothermal is those areas that have natural high temperatures, natural high flow capacity, because there's these natural fractures and permeability in the reservoir and there's water to circulate. And those areas can be tapped with relatively traditional old school technology. That's why they were drilled out in the 1970s, even though we didn't have all these technology advancements, because the geology is just better suited for it.Now, broadly, the umbrella of next generation geothermal is sort of any advanced technology method to go beyond those really shallow, high temperature, naturally high flowing resources and make them economic.David RobertsIs it the case that those natural areas, globally speaking, are tapped out, or is there runway there? How sort of like how at capacity are we for that kind of geothermal?Tim LatimerWell, the traditional geothermal industry, it's not small, but it is small relative to the total extent of the global power system. So less than 1% of global electricity, but really meaningful in certain markets. It's around 20 gigawatts installed. It grows by 5% to 10% a year. So it's not over by any means. And there's a lot of great investment in projects going on. But whenever you plot it against a resource like solar or wind and the growth that have occurred in those industries over the last decade plus, you can't even see that the line is moving because the axes are so different.So always an important resource. It's certainly not tapped out globally. But when you look at the places that are on accessible land close to power demand that have the right natural resources, it's an industry that can produce a 5% to 10% per year growth rate, not an exponential rapid, world changing growth rate like we've seen in other renewables.David RobertsSo then all the advanced is beyond that. And so what are the relevant categories there?Tim LatimerRight, so you mentioned super deep, for example. So geothermal economics are all dictated by at the end of the day it's how much flow rate can you get out of a well and how high temperature is that flow rate?David RobertsAnd flow rate is just how much water you can push through it for a given time period.Tim LatimerExactly. And so if you want to make geothermal projects more economic, you have to figure out how to lower the cost of drilling or you have to figure out how to make the temperature you're working with hotter, or you have to get the flow rate higher. So those are sort of the three levers you can pull. One of the things you mentioned there was super deep geothermal, which is interesting, which is trying to change one of those levers, which is temperature. Can you go so deep that rather than, let's say, 200 C, which is a reasonable temperature for modern geothermal, can you do 500 C or 800 C and improve the economics through drilling ultra deep and having very high temperature output?So that's sort of one way. And there's super deep there and then there's enhanced geothermal systems, which is what the DOE through the Utah Forge project and their research projects and then us at Fervo have been working on for a long time, which is, can you use methods that incorporate directional drilling, advanced drilling tools and well stimulation, principally through application of hydraulic fracturing, to improve the flow rates? So the way you improve the economics of projects is you drill wells still targeting that same temperature resource, but you do it in a way where you get so much more flow per well that it improves the economics and unlocks a much broader resource.So all of these things are next generation geothermal and the extent that it's tech that unlocks a new class of geothermal resource that goes beyond that traditional older style technology that's been around for decades.David RobertsHow do you slot closed loop geothermal? So the traditional geothermal and enhanced geothermal, both sort of they inject the water, in the ground, and then out of a pipe, and then collect the water at the other side into a new pipe. But then there's also this new closed loop, which is just the water stays in the pipe the whole time. Is that meaningful enough to be its own category?Tim LatimerYeah, it is, because it's quite distinct from traditional geothermal or enhanced geothermal. It is definitely its own category where you're just flowing and recirculating through pipes in the ground and not through these large and extensive geothermal reservoirs. That's definitely a different category.David RobertsRight. And so is it fair to say that enhanced geothermal, which is fracturing more of the ground and improving flow rate, that's the one you're doing and that's the one that's right on the verge of commercial production. The other two are where in the cycle of things?Tim LatimerBoth the other two — the nice thing about enhanced geothermal systems and the applications there is these are technologies that are very advanced and far along in their technological know-how. These are the technologies, like I say, that the Utah Forge site, which is supported by the Department of Energy, are proving out in real time. If you follow that project, every month there's a new advancement of that tech and they are commercially viable today, which is, I think, some of what we're going to talk about later, the results of our pilot project. The other technologies are both ones that still rely on radical technology breakthroughs in drilling technology.So if you're talking about an enhanced geothermal system where you're drilling to 3000 meters depth and targeting 200 degrees C, which is really the area that the Department of Energy and Fervo is going after, we can do that today with existing technology. Getting the right cost structure or drilling down to 10,000 meters depth or 800 degrees C like some of these other projects: Very promising, lot of potential, there a lot of upside. But those are things that would require radical technology step changes in performance that put it more akin to the way that we look at fusion technology breakthroughs, where it's a big prize, it's worth pursuing, but we're certainly talking about deployment timelines that are ten plus or potentially several decades in the future to get those kinds of results.David RobertsGot it. So the advantage enhanced geothermal has is it is going to depths that are familiar to the oil and gas industry. And thus the drilling technology has been worked on and perfected absolutely by the oil and gas industry. Whereas you drill deeper, you start getting hotter, you start basically having to design new kinds of drilling equipment.Tim LatimerExactly. And I can tell you Fervo in a lot of ways came from ideas that myself and my co-founder and other folks in the Stanford Geothermal Research Group started batting around over a decade ago. And one of the constraints we gave ourselves when we launched the company in 2017 is what is the most optimized, effective design that would produce attractive economics today with off-the-shelf oil and gas technology. Because anytime that you want to build a new tool to go down hole, you extend your development timeline by years or decades. And so what we were looking at is the performance curve of oil and gas drilling, because it did get ten times better in the last decade because of how many technological advancements there were in the oil and gas unconventional world.We were looking at what you can do off-the-shelf, and has that off-the-shelf performance from existing oil and gas tech gotten so good that you can drill wells in an effective and economic manner for geothermal? And that was what we set out with our thesis to prove.David RobertsWhich probably explains why you're the kind of first to the finish line. The starting line? I'm not sure.Tim LatimerThe finish of the start line, I guess you could say.David RobertsYeah, exactly. The end of the beginning.Tim LatimerThe end of the beginning.David RobertsLet's talk then about what Fervo does. So, as we said, traditional geothermal finds these areas where there are fractures in the rock where you can squirt water through it and the water heats up. The whole idea behind enhanced geothermal is you make your own cracks in the rock. Basically, you fracture the rock, which is the same thing fracking does. Natural gas fracking cracks the rocks apart and natural gas seeps out. In your case, you just want to fracture the rock so you can squirt water through. So maybe walk us through kind of what the Fervo power plant looks like.Tim LatimerYeah. So the idea behind enhanced geothermal, it works roughly the same as traditional geothermal, where you have those wells, where you pump cold water down injection wells and to calibrate here we are talking about wells that are 2000, 3000 meters depth. They're seven to 10,000ft deep, or in some cases, deeper. So these are really deep wells.David RobertsYeah, you say shallow relative to the deep — but that's not all that shallow.Tim LatimerYeah, shallow relative to deep. And this is one thing I've had to learn is these depths are quite different. And if you're not in the drilling world, we can often make the mistake of just assuming everybody knows what we're talking about. So I can be quite explicit. We're talking about wells that are 10,000ft deep here, which is mind-boggling in certain senses when you think about it, but very achievable when you think about the fact that the oil and gas industry has been doing this for 150 years, and that's what they've gotten exceptionally good at.David RobertsYeah. So you have one well, the injection well that basically squirts water 10,000ft deep, cold water 10,000ft deep, then what happens to the water?Tim LatimerSo, in a traditional geothermal system, it then finds that natural flow paths between the wells heats up to near the reservoir, temperature gets produced up the production wells, and then gets captured at the surface. And that heat is then used to power a turbine and generate electricity. And because you're using the natural heat of the earth to capture that energy, and you're not combusting something like coal or natural gas, there's no emissions associated with geothermal power.David RobertsLet's pause there for a second because I want to press on that a little bit. When we say no emissions, do we mean literally no emissions? Like, just how clean is all this? Is it literally just water and steam and there's no environmental externalities at all?Tim LatimerGenerally, yes, there's obviously risk to projects that developers like us have to be very attentive to. But when we're talking about carbon emissions from modern geothermal power projects, and I'll explain that distinction in a second, we're talking about a system that is truly a zero-emission resource. And the reason I distinguish this modern geothermal is the other surface technological breakthrough that has become mature now and unlocking the resource that we're going after is the advancement of binary cycle power generation technology. So the vast majority of new geothermal that's built in the United States now is this binary cycle.So if you go back to that first power plant in Italy 100 years ago, they had steam coming out of the ground and they slapped a turbine onto that steam and they generated electricity from that. And many of the power plants built through 2000 looked kind of similar to that.David RobertsRight. The steam itself was turning the turbine.Tim LatimerYes. And in those more old, I'd call them old school, geothermal power plants that were very high temperature, the consequence of that steam powering the turbine is then as the steam would be flashed on the other side. If there were things in that geothermal brine that was deep in the earth that were produced, those would cause emissions. So in nearly all cases, we're talking about stuff that's dramatically lower carbon emissions or other emissions from coal or natural gas power plants. But in this older style design for geothermal, there would be some operational emissions just dependent on whatever's in your geologic fluid there.Now, more modern binary cycle power plants are a very different design. And so rather than using the steam from the geothermal wells to power a turbine, what you use is heat exchangers at the surface that are closed loops. So the geothermal fluid is never exposed to the atmosphere at all, and it heats up a different working fluid. That working fluid then goes through a continuous cycle to power the turbine and the power cycle for geothermal. And then the geothermal brine is reinjected back down those injection wells with no losses and no emissions so if you look at the history of geothermal, one of the enablers of recent growth and one of the enablers of the technology approach Fervo is taking is these binary cycle power plants which have multiple benefits.They allow you to do lower temperature geothermal than those traditional resources and still be cost-effective. And they also eliminate the issues related to emissions of any kind, including carbon emissions from geothermal plants. So when we're talking about modern binary cycle geothermal plants, we're talking about a very clean resource that has no operational emissions of any kind.David RobertsTruly zero. And the water, how sort of like closed loop are you on the water? Do you have water requirements? Like, do you require a constant supply of water or is it just you're just recirculating forever?Tim LatimerIt's a very minimal amount because you are really recirculating forever. You know, people that are maybe familiar with the geysers in Northern California know that it declined and has water issues and has to source water from the local counties to make up for that depletion. But that's because it's using that system that has evaporative losses at the surface. Whenever you talk about a binary cycle system, it's much different because you're injecting all the fluid that you take up, so you're not losing fluid through that system. And so in general, you're talking about reservoirs that are fairly well connected in the subsurface, no water losses at the surface.Once you go to sufficient depth anywhere in the world, the reservoirs are always what we call saturated. They're always filled with fluid. And so these geothermal systems, by and large, all we're doing is taking the fluid that's already in the geothermal reservoir and we're recirculating it over and over again. The only change that's happening is it goes down cold, picks up heat in the reservoir, releases that heat at the surface to create electricity, and then goes back again. But we're really just recirculating that same fluid flow for decades.David RobertsDo you deplete the heat at any rate? Or is the heat sort of eternally renewing? Is there such a thing as a decline in production in a geothermal well over time?Tim LatimerIt's a good question, and the short answer is yes. But it's something that is sort of manageable and can be designed for. So you think about the actual — I'm an engineer so maybe I'll go engineer for a moment — you think about your actual energy balance of what's going on. There's a fixed quantity of heat in that block of rock that you're accessing with these wells. There's also a constant flow of new heat replenishing that. So your energy balance here is basically what are you extracting? What was there to begin with and how quick is it replenishing?David RobertsRight.Tim LatimerIt turns out most geothermal systems, you could design them to only be produced at the replenishment rate with no decline period over time. But then you'd be sacrificing a lot on the power output to be doing sort of flow that's that level, and in general, the quantity of heat and we'll talk about this, I'm sure, later. But the geothermal reservoir that we're talking about, we're talking about cubic kilometers worth of reservoir, very hot rock. So that heat resource can last for many, many decades. So, in general, you do design these systems to have some temperature decline because that's a more economically optimum way to operate it, because you can get higher production results, but it's not a very significant decline.Right. In a well-managed reservoir, this will be on the order of 1% to 2% a year. And you can always recover that either by drilling more and drilling deeper, and drilling and doing makeup drilling, or just slowing down fluid flow at some point in the future and allowing that replenishment to catch up. So geothermal is considered a renewable resource because the combination of how much heat content there is plus the replenishment means that these are extraordinarily long-life assets.David RobertsGot it. And so explain how you create fractures in the rock.Tim LatimerYeah. So again, we're not the first to do this, and it's probably worth maybe reflecting a little bit on the original 1970s Fenton Hill experiments done by the Department of Energy, where there was always this concept that if you injected at sufficient rates into injection wells, even in areas that did not have all that natural permeability, that you could create fractures that could then carry the fluid from one well to the next. And so this is something that's been trialed for a very long time. But the distinction is that in those first tests that the DOE did in the 1970s and then in the subsequent let's call it 50 or so tests that have been done around the world, many here in the US some in Japan, New Zealand, you name it. Any country that's a big geothermal producer has usually run some sort of test on enhanced geothermal systems. The vast majority, actually, all of those were done in relatively simple vertical well configurations because that's all that the technology would allow for. And so, by and large, the metrics that we look at to be commercially viable are things like how much surface area are you accessing there for the equivalent of what your radiator is down there in the subsurface, and how much volume for flow can you get? And what volume of that heat through the rock are you actually able to access?And doing it through a simple vertical well and a single zone approach just turned out to not come anywhere close to the metrics we needed to see to say, yeah, this is worth drilling. The output per well you got could not cover the expensive costs of drilling.David RobertsI suspect this is a dumb question, but my brain rebels a little bit at the thought of water pressure fracturing solid rock. It just seems like rock is real solid and water is just water. So what types of pressure are we talking about here?Tim LatimerWell, I'll say a couple of things on this. First off, are you a hiker? Do you ever go hiking?David RobertsI've been hiking before.Tim LatimerYeah. So if you ever go hiking and you can sometimes look, and if you haven't looked closely at it, I encourage you to. Whenever there's, like, an exposed rock outcrop there, a lot of times you're going to see major fractures and faults just exposed in that rock outcrop. And the thing that's fascinating about geology, that's not just something that happens when that rock outcrop is exposed at the surface. You go 10,000ft down, and rock kind of looks the same way. There are these fractures and faults, and it's complex, and there are major forces down there in a way that can really just create these different shapes and fractures and faults in the subsurface either naturally or through some sort of design.So it's something that happens all the time. And I don't know, since you asked the question, I guess I'll keep going down the engineering bent, which is when you look at actually how that rock breaks, what we're actually talking about is what we call tensile failure. So you're not actually crushing the rock right. You're actually creating enough pressure that it pulls the rock apart. And it's somewhat fascinating. Rock turns out to be extraordinarily strong in compression. You can stand on it. You can build pyramids out of it —David RobertsRight.Tim LatimerIt's really strong that way. But then for a lot of rocks, you can just pull them apart with your hands because they actually have much less tensile strength, we call it.And so what ends up happening in these systems is we can pump water down, and water is an incompressible fluid, so it carries pressure really well. So what we're doing in our designs and this is what has been done in a lot of designs for a long time now in the subsurface is we are picking very specific ports where we're opening up our well to that outside geology and that geologic reservoir and that rock and applying a lot of pressure right at that specific point. And it's enough pressure that actually can initiate these fractures, because, again, rocks are relatively weak in tension, and that's what kind of allows this to work.David RobertsSo you're taking natural fractures that are already there and just widening them, or is it the case that you can literally cause a fracture in a solid piece of rock?Tim LatimerYou can cause a fracture in a solid piece of rock. And again, this is a controlled system happening thousands of feet below. And we know to great precision what the dimensions of this look like. But, yeah, it's actually creating these new fractures that go out of the injection wells and into the production wells that create a new flow pathway that didn't exist before that allows for the controlled movement of fluid between that injection well and production well.David RobertsThat is just wild to me that you can do that at all, much less at like 10,000ft down. What is the technology that allows you to see the structure of the rock 10,000ft down?Tim LatimerWell, we're doing all sorts of characterization work here. I think, again, I sort of opened the conversation here by telling you it's simple ideas that are difficult to execute. And actually, the first tool in our toolkit to actually characterize this rock is we can drill down with what's called core bits and actually hollow out a sample of rock that's 10,000ft down and pull it up and then go run a bunch of lab tests on it. So we're doing that work regularly. And that's sort of how you kind of create a baseline for this. Beyond that, we have all kinds of different tools in our toolkit.And a lot of this is stuff that, again, didn't exist ten plus years ago or wasn't cost effective. That allows us to map out what's actually happening in the subsurface. So to your point, one of the challenges why it was so hard to drive innovation in geothermal, even though, like I said, the first tests for this were 50 years ago, was because you do the project, it wouldn't work. And then you'd be sitting around with a bunch of messy data and say, well, we know it didn't work, but we don't know why because it's 10,000ft below you and it's difficult to see.So we have tools that our predecessors didn't have access to. And one of the things that we've invested heavily in and have a lot of innovations around now is fiber optic sensing. So actually, one of the things that we use in all of our projects that, again, when we did this, in a lot of cases, it was the first time this had been applied to geothermal. When we drill our wells, we actually lay fiber optic cables along the entire length of the wells. And we have a special data acquisition system where we send laser pulses down that fiber optics.And because there's impurities in all fiber optics, those laser pulses get reflected back to the surface, and we can look at the reflections there and basically map out what those reflections look like in the fiber optics.David RobertsWild.Tim LatimerUsing that data, as we change things, we can get a very clear picture of what's happening in the subsurface. So, like, if you think back to your fifth grade science class, when stuff gets hot, it expands, right? When stuff gets cool, it contracts. So if we're trying to figure out, for example, how much fluid flow is going down each of these ports that we've opened up into the reservoir, we can actually look at the real time temperature change, because along that fiber optics, if it cools off a little bit, all those impurities get a little bit closer together.And we can read that with our fiber optics and measure in real time the temperature along the entire well. And from that temperature we can figure out everything from how much flow is going where, how much of that is getting over to the other wells that we've drilled as our production and collection wells. We can also map the fluid pathways that are going in between these wells, even if it's hundreds of feet out into the rock. And this is stuff that has given us a data set that allows us to actually understand what's happening in geothermal reservoirs that goes far beyond any sort of data we've ever had access to before.David RobertsAnd so that's what we're using to measure and verify.It's super gratifying to learn that lasers are involved.Tim LatimerOf course.David RobertsThat's always good news.Tim LatimerYou can't do any great technology without lasers. So we've got our lasers.David RobertsSo the big breakthrough here is old enhanced geothermal. All these previous attempts, basically you got one vertical well. You're jamming water down it to create fractures. But you just create fractures basically in a sort of circumference around the bottom of the well, right? And the big breakthrough here is your well goes down and then across laterally and so you have water coming out of those lateral pipes at intervals, right? Like a yard sprinkler is the diagram on your website. So you're creating these fractures over a large swath of rock, basically. So you just get more fractures out of your well is the long and short of it?Tim LatimerExactly. And so you think about what I said before. It's all about drilling is expensive. How much flow, how much surface area, how much volume can you get for each well that you drill. And so in our industry nomenclature, the term we use is zones. So every time there's fluid that's leaving that well and going from one well to the next, we call that a flow zone. And just to give a bit of history, I went to my first geothermal conference in 2015 and I'd started my career as a drilling engineer in the oil and gas industry.I became passionate about climate change. I saw that there was a way to apply my skills as a drilling engineer to a carbon free energy resource that really seemed like it needed some help. And I talked to one of the leading researchers in the space and I was captivated with this idea of multiple zones. And what drilling horizontally allows you to do is put multiple zones in a well. So in our pilot project, what we've done is drilled 8000ft straight down and then we've turned perfectly horizontal, 90 degrees, and we drilled another 4000ft over. And so rather than just having one zone at the bottom of the well where we can choose to inject fluid, that gives us just so much more length to spread that fluid out.And so when I was at this conference, I was talking to this researcher, a very respected person, a career person, and he told me that enhanced geothermal systems would never work. And I said, well, of course not. You can't get the right design metrics you need if you only have one flow zone, but I think there's an opportunity to do multiple zones. And he said, oh, we've looked at that too, and it doesn't work. And I was like, well, what did you model? And he said, well, we've done some extreme cases, we've even modeled up to three zones in one well.And I looked at him confused, because if any of your listeners are familiar with how modern oil and gas drilling works, that's quite a bit different number. And I said, well, I was thinking a lot more than three. And so whenever you think about those specific targeted design flow ports that we open up and flow fluid through in these reservoirs, these zones, in our very first project that we just completed, we have 102 different flow zones.David RobertsSo does that mean the water goes down and travels through all of those on the way to the other well?Tim LatimerExactly right. Exactly right. And what's nice about this is because we have that fiber optic technology that I was talking about, we can actually verify where that fluid flow is going and show that we're getting good distribution across the entire reservoir. So the reason we've had different results and a step change in performance, and why we've made this commercially viable when past efforts have not been successful, is rather than thinking about can we go from one zone to three, we jumped straight to the answer, which is 100 plus zones. And that gives you a radically different result.David RobertsYeah, well, this brings up one of my questions, which is, is there a physical or practical limit to the length of your lateral drilling? Like, you've got 4000ft now, and that gives you 102 zones. Could you do 8000ft and 200 zones? 16,000ft and whatever? Is there a limit to the size of one of these things?Tim LatimerThere is, at some point, a limit. It doesn't become cost-effective to drill further, but we haven't come close to hitting what that looks like yet. So just to give you an example, we've just finished our first pilot project, and the intent of that was really to prove that this all worked. So we wanted to design something, even if it wasn't full scale. But every single bit, every single unknown question, every unknown technology assumption was proven out by this. But it doesn't mean we can't make it bigger, right? So to make that concrete, this system, we drilled right around 4000ft in the horizontal distance.And we also spaced these wells about 400ft apart. And so you think about the amount of power you can get out of the system then is kind of bounded by that geometry. 4000ft long, 400ft across. That's what you're flowing the fluid through. Just to give an example of this and the flow test results that we've gotten from this and this is what we're excited to announce that this worked is we've gotten nearly the equivalent of 4 megawatts of electricity out of this two well system, which is a really great number. It starts talking about the success that this can be at the utility scale because you can do many of these wells in a single field.David RobertsYou have one well going down, one well going up, and all these fracture zones in between that the water passes through. I'm assuming when you are building commercial power plants, is it just going to be a one well down, one well up type of situation or is there a limit to how many of those could you have? Multiple down wells, multiple zones, multiple up wells, all in the same area?Tim LatimerAbsolutely. And that's what makes this so scalable and that's what brings out the potential here. This was an N equals one attempt. This was a first ever. We spent an enormous amount on data acquisition. We made a lot of design choices to make sure we were maximizing the learning from this and maximizing our chances of success. The really exciting thing we've learned about this, to get back to your original question about what are the limits, our very next project that we're going to, we're going to do larger diameter wells, we're going to space them farther apart because we collected the data that shows that we can do that.And then rather than 4000ft, we're going to drill 6000ft in the horizontal direction. And so our next project, rather than getting roughly 4 megawatts of electricity from each well system, it's going to be about double that. And so that's sort of the next move.David RobertsSo just larger wells just get you more flow, right?Tim LatimerExactly. And then the other thing that's great about this, and I know your listeners also have been informed greatly about the importance of modularity and repeatability.David RobertsThat's our next thing.Tim LatimerSo here's the key for this that's very important. If I want to design now an 80 megawatt power system using this design, it doesn't mean I have to throw the book out, start over from scratch and design a completely different system. What I need to do then is take this two well system that I already know works and just do it ten times in a row. And so that's what's very exciting about this breakthrough that we're announcing today. This isn't something that like, oh, now we're going to go 100 times bigger. So we got to go back to the drawing board and redesign everything.For us, going 100 times bigger means doing exactly what we've already done, but just 100 more units of it. And so this is the whole key of the repeatability of making this work. And the next site that we're moving to is going to be a 400 megawatt project, which means drilling wells just like we just did, but just a lot more of them. And in a very tight space, we can stack these vertically on top of each other, we can put the wells close together. And so another thing that people often care about when they look at energy resources is the surface footprint.David RobertsWhat do I see if I go to Nevada? How big or small is your surface footprint?Tim LatimerWell, what's left at the surface when you're done drilling these wells is a well head that's a few feet tall and a couple of feet wide. And that's it and it's actually quite an underwhelming thing. I've taken many visitors out to our site and they expect to see something dramatic. And —David RobertsJust the hole.what you end up seeing is a piece of metal that could fit in your living room. And so that's what's left. Now, of course, we have to connect it to power plants, and the power plants look more like they're warehouse-sized buildings.Tim LatimerBut what's beautiful about the directional drilling that we're using in these projects, another thing that you couldn't do with traditional geothermals, you have to imagine the wells have to be spaced a certain distance apart. And if you're drilling vertical wells, that means if you want your wells to be 500ft apart at the bottom of the hole, they have to be 500ft apart at the surface. If you go visit a traditional geothermal site, oftentimes every new well is a different well pad and it can be spread out over a wide area. Now we're using directional drilling, we have tight control over where we drill these wells.So we can put many, many wells on the same well pad and just drill them out in different directions using directional drilling. And so geothermal already among all the energy resources, typically scores top or near the top in terms of energy output per unit of land used. And this is actually going to be significantly better than traditional geothermal because we can put many of these wells that once we're done, have a very small surface footprint altogether on the same pad.David RobertsBut do you need like, you're starting from that central well pad, that's your injection wells, and you're going out 4000, 6000ft in different directions. Do you have to own all that land that you're going under? Because you'd have to at least own a lot of land, even if you're not sort of like marking it?Tim LatimerYeah, you do not have to own the land. The Geothermal Steam Act of 1970 was passed and signed into law that created a new mineral class for geothermal lease rights. And so what our company owns is not the land itself, but we own the exclusive right to access and develop the geothermal resources for this land. So what we have is a really small surface footprint. And then the wells, as they go, know, we negotiate with landowners. Which because a lot of these resources are in the Western US, a lot of times the landowner ends up being the US federal government.David RobertsYeah, right.Tim LatimerWe negotiate and sign contracts to specifically develop the geothermal resources that are found thousands of feet below the surface.David RobertsBut if I'm on the land that that lateral well is going beneath, I'm presumably unaffected. Like you can have buildings and farms and whatever, 4000ft down presumably is not going to bother anybody.Tim LatimerAbsolutely. Some of the more interesting geothermal power plants you can visit are in urban areas. You could do like a little geothermal tour of Munich, for example, where they have all of these geothermal power plants that also power district heating systems that are plopped down right in the middle of the city of Munich. And there's examples of that all around the world. The stuff that's happening thousands of feet below our feet has no discernible impact on the surface at all.David RobertsThe big promise has been geothermal anywhere or geothermal everywhere. You're going down 10,000ft to what, 300, 400 degrees, you said?Tim LatimerYeah, it's about 10,000ft. And the temperature we target is roughly 400 degrees Fahrenheit.David RobertsSo, is it the case that if I throw a rock at a map of the United States anywhere I hit, if I go down 10,000ft, am I going to find 400 degree rock? In other words, could I build one of these theoretically anywhere?Tim LatimerNo, not anywhere. But for me, the key question is always not can we do it anywhere, but can we do it in enough places that it makes a difference? Right. And to use an oil and gas analogy, you can't drill anywhere in the world and find oil. But that doesn't mean that oil is not an important global commodity to the energy system and geothermal is not any different. The key is can you drill in places where it's economic to drill and you can access the electric grid so you can sell your power to customers. And there is an enormous amount of that in the United States.David RobertsSo that's the limit. The limit is connection to the electrical system. Like physically you could do it anywhere, you just can't port the power out.Tim LatimerYeah, well, there's wide variations in what we call geothermal gradient. So, like where we're drilling our projects, you get to 400 degrees F at 8000ft or so. There's places that are a lot cooler where you'd have to drill to 20,000ft to get to that temperature. And so the question of how much you can develop is really a cost question more than anything else. How deep can you drill and for the right bang for your buck and get the temperature you need? And so I'd say the exciting thing about the Department of Energy launching their enhanced Geothermal Earthshots Initiative recently and one of the first things that they did was review the gradient maps of temperature at depth throughout the United States and come up with a finer resolution output of how much shallow potential there is.And they used in this report and I think a really important number was 4000 meters. And the reason 4000 meters is important is that's a depth that the oil and gas industry drills today, geothermal industry drills today, and we know we can do with existing equipment. And the important thing out of this is, as they looked over this resource, traditionally there'd been a few tens of gigawatts of resource found that way, but with higher resolution mapping. The new report out from NREL on the energy Earthshots that just came out this year, which incorporated a lot of these more advanced technologies into the assumptions, identified an additional 230 gigawatts of potential just in the United States that can be accessed with technology today.And so we're talking about several hundred gigawatts of potential that's in the right temperature range, that's at that 4000 meters or shallower depth, that's ready to go, cost effective today. That can be done. So can you do it anywhere? Not yet. Let us come down the cost curve a little bit more.David RobertsIf it follows the path of oil and gas. As you scale up, things get cheaper —Tim LatimerYes.David Robertsthe technology gets better, the available resource grows.Tim LatimerYeah. So the bet we're taking, you look at this NREL estimate, if we only ever produce a few hundred gigawatts of power in the United States, only get to the point where we're 20% to 30% of US electricity, and that's it, it's probably still worth doing. But I still think that as we get to economies of scale and come down the cost learning curve, we're going to be able to go to even deeper resources and make that work. So there's really no limit to the technical potential of what can be done here.David RobertsRight. So another thing Volts listeners are familiar with is this notion of a learning curve and this sort of famous graph. I interviewed the authors of the paper on the pod. They have this sort of famous graph about which technologies do and don't get on learning curves, and sort of like, what are the features of a technology that make it, that lend it to a learning curve. And the sort of long and short of it was modularity, repeatability, that kind of thing. You're doing the same thing over and over again. And then sort of out on the edge you have these technologies where every new project is bespoke, where you have to sort of do custom engineering for each project.In that paper, geothermal, by which I think they're referring to traditional geothermal, they have out there on the no learning curve side of this for that reason, because every new geothermal project required specialized engineering and its own specialized well drilling and etc., geothermal has not demonstrated much of a learning curve. And so your whole thesis here, starting Fervo, was to fix that, to figure out how to get geothermal on a learning curve. So talk about that a little bit what that looks like and what you need to do to make that happen.Tim LatimerYeah, that's exactly right. And this is one of my favorite papers, too. We share this paper internally for onboarding when people join Fervo because we want people to know, what is it you're doing? And the premise of this paper, and I thought it was so well articulated, is that if you want to create an energy technology revolution that actually scales to global scale, it has to be simple and it has to be repeatable. And they used multiple great examples in the paper. You look at their type one, standardized simple resources are solar PV modules and LEDs.And those are sort of self explanatory.David RobertsEveryone's the same. Every sort of mount is the same. Every field almost is the same. You're just doing the same thing over and over again.Tim LatimerExactly. And if you want to have global impact, you have to figure out how to make that happen. And so what's interesting about this is that I think a lot of things are somewhat short sighted, like how could we make this next unit cheaper? Which of course is important. But if you're doing a bunch of complexity and customization to do that, you're never going to scale the resources. So let me use the oil and gas analogy again. A conventional oil and gas basin, you drill into it, it has huge flow rates, lots of hydrocarbons there, and just pumps out gushers.And it's a simple well. It's vertical. And that's what they were drilling 100 years ago. But the challenge with that is that every geologic trap looks different. Sometimes you find a good resource and sometimes you don't. Oil and gas used to have dry holes. And so you drill one area, you get a gusher, you drill the next. It doesn't work. So you got to stop. You got to retool. You got to remap, try again. You shut down, your crews go away, you lose all the learnings. The next well looks radically different than the one you did before, and it doesn't reduce cost.And you think about a lot of the people who dismissed the shale revolution when it first started out. They had this thought, like, "Well, if this project isn't economic, drilling vertical wells, how is drilling to the same depth and then drilling horizontally for a really long way going to be economic?" Right. You're just adding to it. But what people missed was that it changed oil and gas exploration and drilling from a customized complex problem to one that was standardized. And so in oil and gas, because they can create their own permeability, they can target basically what's called the source rock.And so every well looks the same, one to the next. And the whole reason the shale technology revolution took off wasn't because those wells are cheaper. It doesn't take a drilling engineer to understand that if you drill down and sideways, that's more expensive than just drilling down, but it's because every well could look the same and you could find these huge resources. And so you start looking back ten years ago, all of a sudden these companies would report out like, "We've got 4000 wells in our inventory and every single one of them looks just like the last one that they drilled."And so it shifted oil and gas down to the bottom left. And you look at what we're doing in geothermal and it's actually the exact same pattern. Of course, if you find the next geysers or the classic Iceland resource or something that's going to be cheaper on a one-off unit basis than drilling these deeper wells with more bells and whistles. But you're always chasing something. You have dry hole risk. You drill something, you don't find it, you got to shut down, you got to retool, you can't make it modular and repeatable. So if you're able to create a well design that's robust enough that it works in any geologic setting, which is what we've done through the combination of technologies that allow us to have highly productive wells everywhere we go, we can shift geothermal down to one of those resources that is standardized.And that's the whole key. Because once one well looks just like the last one, you can start bringing it down that learning curve, which has been the most powerful force in driving global energy technology revolutions across all of the ones we've experienced in the last few years. And the key of what we're doing here is we now have a geothermal well design that does for geothermal what unconventional oil and gas did for oil and gas, which is make it standardized and repeatable. And that puts this industry on a learning curve that is not possible if you're just looking at the conventional hydrothermal resources.David RobertsAnd you think you've got that now, so you've got something that you're ready to just start cranking out copies of.Tim LatimerBasically exactly. When we started this company in 2017, we faced an enormous amount of skepticism from the traditional geothermal community and everybody else. We were told that you can't actually drill horizontal wells in geothermal reservoirs because the rock is different. You can't use fiber optics in these wells because the temperatures are too high. There was a whole list of things that we needed to prove out because in order to get on a learning curve, you have to be able to do the first unit right. And that first unit becomes the basis at which you drive cost down and you drive performance and you improve from.And so what we set out with our commercial pilot project that we've now finished, is to prove all those things that you can drill horizontally, that you can get enough surface area, that you can evenly distribute the flow across thousands of feet, even if it's 8000ft down. And what's fantastic about this is we now have all of the data to prove that works and have done it in a commercial project. And so we've now started a new learning curve for enhanced geothermal with the first project.David RobertsRight. Like the starting gun.Tim LatimerThe starting gun. And we're going to do that over and over and over again to bring more clean power onto the grid, more reliable power onto the grid. And with each iteration we're going to bring the unit cost down.David RobertsThe beginning of a new learning curve stirs the heart.Tim LatimerI think this is the right audience for it. It definitely gets me excited, but I don't find other people maybe than other volts listeners that will share the same thrill that we do at Fervo about the beginning of a new learning curve.David RobertsThis is awesome. And this is know. Here we are, an hour in. This is the significance now of what you've done. So you've put all these pieces together into a well, into a commercial sized well and they work now.Tim LatimerYes.David RobertsSo now you are ready to start basically cranking out power plants, commercial power plants, the very first enhanced geothermal working, money making power plants.Tim LatimerYes.David RobertsSo let's talk then briefly about costs. This is everybody's first question, sort of like how much does the power cost coming out of this? And this is not a straightforward question, so first let's just talk about just briefly — I think this is also something most Volts listeners will be familiar with, but it couldn't hurt to do a very brief primer on — just what is clean, firm power? Why is it valuable? How are you doing it? Why do you think it's going to be so — you're not just like power is not a commodity where it's always worth the same in all places at all times.Right. So there are timing issues, there are geographical issues, and there's this thought of the future power system which is based around it's going to be primarily based around wind and solar, which are both variable. You need something to complement that. So just say a little bit about what that means and why you think you're going to sort of fit in and profit in that niche.Tim LatimerYeah. The path to a decarbonized grid has been a multistep journey. And if you reflect back 15 years ago when the first ever RPS targets were announced and corporate 100% renewable energy procurement targets were announced, there was a lot of skepticism that any renewable energy could get built. Wind was still relatively expensive, solar was very expensive. If you go back to 2000s and so the sort of this first step on the decarbonization journey was just the massive successes of getting wind and solar cheap enough that they were economically viable to deploy. And we saw in the 2010s what the impact of those coming down the learning curve were.As now, solar is this unbelievably fast growing resource all around the world. Now, depending on what model you believe of. Course, at some point the fact that those are variable energy resources and obviously solar only works when the sun is shining limits how much more can be produced. And so sort of the next pillar of decarbonizing the grid and the next energy technology revolution that we're all now quite familiar with was the massive reduction in cost of lithium-ion battery storage. And I think there was a lot of exuberance in the mid-2010s to late-2010s, that "Great. Energy solved, solar is cheap, batteries are coming, we did it."And I think in hindsight that was clearly a little bit premature. There were a couple vocal but not necessarily listened to voices out there in the 2010s waving their hands and saying, "Y'all, this is great, we're going to get a good way there. But we need at least one more thing to make this work." Because as it turns out, and you can look at some of our favorites, are the NREL LA100 study, which is wonderful. Your listeners are probably very familiar with Jesse Jenkins and the Princeton Net-Zero America work.And what we see again and again is that even with ultra-cheap solar, even with ultra-cheap lithium-ion battery storage, even with ultra-cheap wind, if that's just what you're dealing with, you do see this inflection point where costs to decarbonize go up exponentially as you get beyond the, pick your model, 60% or 80% electricity coming from carbon-free resources. So what we know is we need at least one more thing. And this is where the whole concept of clean, firm power has come about, which is solar and wind are probably going to be the majority of the electricity supply on future decarbonized grids. Batteries are going to help extend how much of the market share solar and wind can take.But we're going to need something if we really want to get that last 20% done. And I think the big change in the last few years is a few years ago, people viewed this as the purview of academics to debate about because it seemed like a problem that was 20 years in the future.David RobertsWhen you get to 80%, right?Tim LatimerYeah. And I think what we've seen here is it's not that clean the world doesn't work the way that models do. It's not like there's some magic day where you wake up and renewable energy is now 80.1% and you're like "Oh no, we need something else." It turns out some of the growing pains of getting to that system emerge far before the 80% level. So I opened up this discussion talking about how the market and the tech and the policy have to be all there together. Well, there were some major changes around 2020 in the policy- and market-world of this.The first is that because of the success in wind and solar, all of a sudden people said, "Wow, we can maybe actually do this decarbonization thing." And the most ambitious RPS target in the country renewable portfolio standard was California's 33% target in the 2010s, and Hawaii was the first to beat them to it. And Hawaii, going back five years ago, passed the first ever 100% clean energy standard. And then California, not to be outdone, passed SB100. And now we've seen dozens of states follow suit where we've upped our ambition. And so now this isn't a question of like, "Oh, we'll cross that bridge when we come to it."It's like, "Okay, we're ready for the next step. How do we get there?"David RobertsFirm just means it's there when you need it.Tim LatimerIt's there when you need it.David RobertsYou can turn it on and off at will, which you cannot do to wind and sun, obviously. And you can do that, obviously, with natural gas. Natural gas is basically what's playing that role now. It's just missing out on the clean part.Tim LatimerAnd there's an important distinction here between the term firm and the term baseload. Sometimes they're used interchangeably, but they're really not interchangeable. Firm is an attribute of the energy resource. It's there when you need it, but it doesn't necessarily have to always be there. Baseload is a way of operating the resources. Baseload is it's on all the time. Those are two different concepts. Most baseload resources are firm resources, but it's all about how you operate them. So when you look at the solution set of what keeps the lights on in those troubling hours where we don't necessarily have enough variable renewable energy solution, you're looking at a few things.Coal and natural gas are the traditional resources that have played that role, but both of them come with carbon emissions. So if your idea is to decarbonize ,your solution set then becomes nuclear in all of its various forms, whether it's conventional or small module reactor, fusion. Or you're talking about hydro, which has its own geographic limitations and challenges. Or you're talking about a breakthrough in cost for long duration energy storage that goes far beyond the four-hour lithium-ion battery storage that we're talking about today. Or we're talking about coupling CCS onto natural gas or coal plants.David RobertsYes. If you look at decarbonization models these days and dig in a little bit, there's tons of that. There's tons of natural gas with CCS attached playing that clean, firm role, which is like, I've always even before there were technological options, I've always thought, that's not going to be it. There's no way that's going to be it. And now I'm so gratified that other alternatives are coming along.Tim LatimerYeah. And I think the role we see ourselves playing on the grid is when you look at that last 20%, which I do think that most people who think deeply about grid decarbonization say that it's there. Now the arguments aren't, "Do we solve that problem or not? Or is it a now problem?" It's "Okay is it actually 20% or is it 10 if we get cheaper on storage? Or is it actually 40?" Because all of these models made really rosy assumptions about transmission build out and we need even more firm power.David RobertsOr too many nimbies.Tim LatimerOr too many nimbies, you name it.But there's a recognition that there needs to be a role on the grid for clean, firm power. And historically, geothermal has not been included in that conversation. And broadly because people didn't believe that it was a resource that could be widely deployable and they also didn't believe that it was a resource that could get on a learning curve and get cheaper. And I think that's what we have now begun to push back on, and we've now got the data to prove it out, that this is a resource that is more widely deployable than people thought, and the costs are coming down. And it's a resource that has the characteristics to get on a learning curve.So if we invest in it today, it's going to be much cheaper in the medium to long term future. And so we're excited about our results. Some of our results have already worked their way into the most recent NREL annual technology baseline, which is what a lot of people use to sort of discern what might the grid look like in the near future under different scenarios.David RobertsSo maybe the next round of models might look a little different.Tim LatimerI can tell you the current aggressive cost cases for the NREL annual technology baseline for enhanced geothermal systems are much better and much more cost-effective than anything that's come before. And that's been really a combination of us publishing our results and making sure that those get out into the public domain, but also want to recognize the Department of Energy's leadership efforts on that. Utah Forge, which is a test bed in central Utah where they're testing a lot of these techniques, broke all kinds of drilling records on the various updates for their projects. So we're coming out of this great stagnation period of geothermal where there was really no new data for like ten years.So the NREL ATB used to model geothermal costs as if drilling technology had been stagnant for 20 years, which, when you look at the oil and gas industry that's a silly assumption, but if there's no geothermal data to update it, that has to be what you assume. The beautiful thing now is between Utah forge projects, our projects, and other efforts around the industry, we've got the data now to say it's time to get way more ambitious on these cost reduction curves for geothermal.David RobertsAnd this is so, I mean, just from a personal point of view, this was like the last piece of the decarbonized electricity system, and all the sort of extant possible solutions were sort of like slightly hold your nose. I don't want to get into how people feel about small nukes or whatever, but all of them were vaguely problematic in some way or another. This is like the first clean firm solution that is free of footnotes or caveats or skeletons in the closet. This is like a bona fide renewable clean firm. So the last thing I want to touch on which gets into this so traditionally geothermal has been thought of as a baseload resource.I.e., thought of as a clean firm resource that would be run all the time and run at a steady state all the time, which is useful. Baseload power is extremely useful, especially when it's clean and there's plenty of runway there. But even more useful would be flexible clean firm power. I.e., clean firm power that can ramp up and ramp down or store energy for a while and then release it. So flexibility is huge and Volts listeners will recall my podcast with Wilson Ricks last year about evidence that these new enhanced geothermal wells could be used flexibly.So maybe just talk a little bit about what it would mean to run a well like yours flexibly, what you could do, and how close is that to being a reality?Tim LatimerAbsolutely. So a couple of comments on this: One is geothermal historically has been run in a baseload fashion because baseload power historically has had value. There's been very few hours on a traditional grid of negative priced electricity. So if you've got a resource with no marginal cost, you're going to run it. And that's still the case as we're talking right now in July 2023 that that has value and you can see evidence of that. For example, one of the big things that really boosted the market demand for geothermal was in response to the rolling blackouts that occurred in California in August of 2020, the California public utility commission issued what they'd called their "midterm reliability ruling" that required a lot of capacity that is leading to a massive build out in battery storage on the grid.But there was already this recognition in the state of California that we have to be thinking about that next step. So they carved out what they'd call "long lead time resources" and created a 1000 megawatt procurement mandate for clean firm power to help keep the lights on in California while still achieving their decarbonization goals.David RobertsIs that the first specifically clean firm requirement that you're aware of in the country?Tim LatimerIt's the first one that we're aware of and it made a huge difference in catalyzing the modern iteration of the geothermal market. And so a lot of the power purchase agreements we've signed have been in response to this forward looking mandate that California issued on this topic. And so there's a recognition that in 2023 and throughout the rest of this decade getting any kind of power, baseload or not, as long as it's firm, is going to add value to the grid and help achieve the decarbonization reliability goals of our customers. But we also wanted to sort of skate where the puck was going.The grid is always changing. There's a few negative hours a year if you're in like Oklahoma or west Texas with wind, or in California on a spring day with sun. But every single model shows that there's going to be a lot more of those in the future. And the attribute that everybody's going to value going forward is going to be flexibility and dispatchability. So while we're signing these power purchase agreements and selling round the clock 24/7 carbon free power to our customers, we've hatched an idea of working on a more flexible resource for the future as well.And so if you think about geothermal, it actually can operate flexibly with no issues. And in fact, it makes sense if you think about countries like Kenya or Iceland or the Big Island in Hawaii that get such a high percentage of their geothermal power that by definition, it has to ramp up and down because it's a huge part of the grid. And so geothermal is ramped up and down for forever. There's no technological limitation in making it happen. But the thing that we became really interested in is because we're operating in different reservoirs than traditional geothermal, and because we're able to kind of create these closed, isolated systems, we thought, "Well, what about rather than just ramping down production. What happens if we shut in production while we continue to run our injection wells and build pressure in the reservoir?David RobertsSo like, when you talk about, like, Iceland traditional geothermal well running flexibly, you just mean it can ramp down by injecting water at a lower rate?Tim LatimerRight. Or by continuing to produce the well field, but then just bypassing the power plant so that you're not producing extra electricity with that fluid flow.David RobertsRight. So there's a ceiling, a max flow rate that you can do on a sort of baseload way, or you can go down from there.Tim LatimerRight.David RobertsAnd so your innovation is don't pump less water down, just literally put a cap on the other well where things come out. So water's still going down, but it's not coming out, which means pressure is building.Tim LatimerYes. And so this is something where we found in the Princeton Research Group and Jesse Jenkins and Wilson Rick, who you had on the podcast, some like minded folks who shared our views on what was going to be very valuable for decarbonizing the grid of the future. And we applied and got first an NSF grant and then later an RPE grant to actually test this in the field. And if you remember, because we've collaborated with Princeton and Wilson for a while on this, we thought about joining Wilson on the podcast when you discussed this last year.But what I knew at the time was that rather than talking about our modeling results, if we just waited a few more months, I could come out and tell you about real results and so we wanted to hold off on it. And the great thing about this, and I would encourage folks who are interested in this topic, Wilson did a wonderful job articulating the value to the grid and how this would work on the Volts podcast last year. But what's nice now is we've actually collected the data to prove that this works. So thanks in part to the RPE funding we got during our test phase of this project, we tested for traditional industry standard time to prove that under conventional operating conditions, this was an effective and viable way of producing geothermal power.We were very excited about the positive results there, but then we took and extended an extra time to do cycles of what we call Fervo flex, which is this idea of doing in reservoir energy storage.David RobertsRight, because if you're capping the well coming out and you're still pumping water in and pressure is building, you are effectively storing energy underground.Tim LatimerExactly. And so the idea here is we have a geothermal power plant that by itself is very valuable because it could produce 24/7 carbon free electricity. But then as we get to grids that have ever increasing levels of, in our case in the western US, mostly solar built out, we could operate it in a mode where we actually continue to inject into the reservoir throughout the daytime without producing any new electricity, taking power and using that to run our pumps to build pressure in the reservoir. And then when the sun starts to set and we're dealing with these challenging evening ramp conditions where you've got to add tens of gigawatts of power —David RobertsThe neck of the duck.Tim LatimerThe neck of the duck. We can open the wells up. And that pressure that we've stored throughout the day means that we're still getting geothermal fluid flow out, but it's coming out at a faster flow rate and temperature than just our steady state conditions. And so we can be responsive to the neck of the duck in a really powerful way. And so, to be clear, this was a shorter test than sort of the industry standard test that we ran on the geothermal round-the-clock production methods that we're very confident in now. But it's great to run a model and then get out there in the field and deal with the tens of thousands of feet and all the real-world conditions and have the field production results match the model perfectly, which they did.And we have an enormous amount of optimism about how not just 24/7 carbon-free power from geothermal, but also incorporating a flexible energy storage mechanism into the output profile here is just going to further unlock potential for geothermal.David RobertsYeah, and then you have clean, firm and energy storage in the same package. A true Swiss Army knife for the modern grid.Tim LatimerExactly.David RobertsAnd so we know that's possible. That's not something you're ready to do in a commercial setting yet. Do you have any timeline on that or any idea like when that might be a reality?Tim LatimerYeah, the power purchase agreements that we're signing up with folks right now, again, the grid still needs baseload power right now, and it's an urgent crisis. In fact, I was just reviewing the Electricity Reliability Council's report for their five-year outlook on grid reliability. And I don't want to scare everybody, but it's hard to look at it and not get scared. They break it up by grid ISO and they have an okay color and then a yellow color and a red color. The yellow color is under extreme weather conditions. This grid is going to struggle to meet demand in 2027.The red color is under normal average daily operating conditions. This grid is going to struggle to meet demand in 2027. And it's a little bit scary how much yellow and red there is on that chart. So the world still needs reliable power and it needs it fast, especially if we're going to continue this decarbonization journey, which we must. And so the products we're building for the next two to three years, at least, the utility scale products we're building are going to operate that way because that's what the grid needs. But we have continued R&D scope that as we're building out these geothermal power plants, we're going to do longer and longer test cycles of the Fervo flux methodology.So that the power plants that we build by the end of the decade are all going to have that proven out and built in as a feature of the way we operate geothermal plants of the future.David RobertsSo the plants you're building, even if they don't run that way, will be ready to run that way when it's proven out.Tim LatimerYes.David RobertsThat's an interesting proposition for a buyer, I would think, sort of like, here's the price and the value you now want and need. And here's a little hidden bonus. It might someday become even more valuable.Tim LatimerThat's right. And I don't mean to draw too big of a distinction between what we've proven already versus what we're trying to prove now. The catch on this is, as you know, and probably have had many guests on the show, people who buy utility scale power don't like risk and they don't like the words "new stuff". And so we're very clear to market this is the proven thing and we can bring it to you in the next two to three years, and it has enormous value for your decarbonization goals and your reliability goals. Also. We've got a nice topper to that that's less proven, but it could be out there.And so it is interesting, as much as power buyers want that, though, it's incredible whenever you're actually building a business, how important it is to bifurcate. Here's the proven thing versus the stuff we're really excited about, but it's going to be a new feature that we're able to add as we scale and get to market.David RobertsEspecially in a very conservative market, conservative industry. I have kept you too long, but this is all super cool. So enhanced geothermal, no longer a gleam in our collective eye, is now a real thing, ready to commercially produce power. So what's next for Fervo? Is it just, I mean, do you feel let's check in on your feelings here, Tim. Do you feel like you've kind of crested a summit here and you're ready to just like "Hell, yes. Let's just start building power plants and making some money." Do you feel like you sort of completed a phase here and the next phase is going to be a little easier? Or is it just all challenges forever in this industry?Tim LatimerThere's a reason why people talk about R&D as distinct from deployment. We've crossed the chasm now where what we're doing is, it's not you know, low technology readiness level. It's not unproven. And the work and I can tell you, I've worked on this for over a decade now. We founded Fervo six years ago. I worked on it in a research capacity for years before that. So to see steam coming out of the ground because of the thing we drew up on a napkin nearly a decade ago has been just a phenomenal experience for me personally and the whole team at Fervo.We took a moment to celebrate. But then you realize that deployment isn't easier than R&D. Deployment is just a different set of challenges. So we've had a moment now where it is "How do we do this all again and again?" And that comes down to how can we standardize, how can we bring it down, the cost structure, how can we get the right interconnection position and transmission policy that supports this?David RobertsYeah, now you're getting to really old school industrial problems, right? Like, how do we make our process efficient and all that kind of stuff.Tim LatimerSo what we've done is we've built a new system that is creating electricity in a way that has been hypothesized for 50 years but never done before. But we've just done it once and doing it a second time and a third time and then 500 more times because that's what it takes to move the needle on global carbon emissions. It's not any easier, it's just different.David RobertsBut you've got contracts now. You are officially a GENCO. A power producing company no longer a mascot for geothermal research. You're a producing company now and you've got enough contracts to keep you busy.Tim LatimerThat's right. We've got power purchase agreements lined up from now through 2028. That's going to keep us drilling and drilling for some time to come. And we've got the production test results behind us now where we can say with confidence this works. So we are a developer. We're developing a new kind of energy that has been hypothesized, but not part of the grid mix to date. And we're now trying to do it as fast as we responsibly can, because that's the only way to make a difference on the grid.David RobertsSo exciting. These are exciting times. Well, thank you so much for coming on. Congratulations for working on something for ten years and then having it work out. That's not everybody's story. So it's really amazing what you've done. And congratulations.Tim LatimerThank you.David RobertsThank 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. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe

In this episode, I have a conversation (IRL!) with longtime energy analyst Ramez Naam about a wide range of nerdy but fascinating topics.(PDF transcript)(Active transcript)Text transcript:David RobertsAs I previewed a few weeks back, on Wednesday, June 28, Canary Media held a live event in the downtown Seattle home space of beloved local independent radio station KEXP. It’s a gorgeous space, with a coffee shop and a small vinyl store, well worth a visit if you make it up this way.In addition to a lively panel about the IRA and plenty of mixing and mingling with a fascinating, diverse crowd of energy nerds, the event featured a conversation between me and energy analyst/guru Ramez Naam.We had a wide-ranging discussion covering everything from hydrogen to space-based solar power to geoengineering. Then we opened it up to Q&A and got a bunch of geeky questions about grid-enhancing technologies and performance-based ratemaking. It was so fun!As promised, it was recorded for all you wonderful Volts subscribers. Enjoy. David RobertsI just wanted to say before we started, I should have thought in advance how to say this delicately. A lot of us have been to a lot of energy events, a lot of us old hands, and especially in the early years, we got very accustomed to seeing seas of gray hair at said events. And so it's just such a thrill that things have come as far as they have and this room is full of exciting young people doing cool stuff. Makes me feel old, but it's a small price to pay.Ramez NaamAre you saying that we're old now?David RobertsYes, I'm afraid, yeah, if you do the math. Also, this is being recorded for my podcast. This will be an episode of Volts. So maybe everybody in the room say hi to Volts listeners at home. You could have been here, but you were too lazy. I'm joined today by Ramez Naam, who is a longtime energy guru I guess would be the word, forecaster, VC guy, now author of books on climate change and Sci-Fi books and other books, speaker, et cetera, et cetera. Somebody I have been looking to for wisdom since I started this back in the dark ages.So I'm excited to talk just about sort of where things are now that we've been in this game for 20 years and how things have changed and sort of what's next? So the way Mez came to my attention, and I think a lot of people's attention in this world, was a 2011 blog post in which Mez said, here's the rate at which solar is getting cheaper. I'm going to make the bold prediction that it is going to continue doing that, which you'd think wouldn't be that revolutionary of a thing to do. But anybody who knows energy forecasts knows that as long as there has been solar, there have been people forecasting that it's going to stop getting cheaper, that it's going to level out, it's going to plateau.If you look at the forecast, it's just plateau, plateau, plateau. And the reality is just down, down. And Mez just said, yeah, it's going to go down. And if you just project ahead on existing learning curves, you get what looked like ludicrously optimistic projections, which you then updated in 2015 and then updated again in 2020, and both times found that despite having been decried for ludicrous optimism, prices had in fact fallen farther than your forecast. And you did a similar post on batteries, more or less, with the same structure. So I guess the way since, I think we agree that solar, wind and batteries are going to be the core of the electrify everything century, I guess my first question is just do you think solar is going to keep doing that?Ramez NaamYeah. Well, so first, David, it's awesome to be here. We've been together for twelve years now and we met basically on Twitter, arguing with this stuff back then. So, yeah, in 2011 I wrote a piece for Scientific American, a blog post, and at the time, the IEA International Energy Agency had a forecast for solar costs, said the cost of solar would drop by about half from 2010 to 2050. And my forecast was very naive. I'm not that smart. I was very lucky. I came from tech, where we have Moore's Law, and so I just applied the very same sort of very dumb learning model to solar.And because I didn't know enough about energy to know how I was going to be wrong, it worked, more or less. So my forecast was the cost of solar would drop about a factor of ten to 2050, and it actually dropped twice as fast as I thought it would. And again, there were various things wrong in that model and I've updated them since and found where the errors are, I think. Will it keep getting cheap? The future is uncertain, but the odds are yes. So my personal forecast is the cost of solar will drop by another factor of four by the time solar is about a third of all electricity generation on Earth, something like that.Now, could it be twice as fast? Maybe that's pushing it. Could it be half that rate? Yeah, but it's already the point, so I think it is clean electricity, especially solar, and now batteries have gone through, they're entering their third phase. The first phase was all of history from the 1970s to 2010, 2015, they were in their first phase. That was totally uncompetitive, totally policy dependent. Then with a second phase where new electricity from solar to wind became cheaper in some parts of the world than building new power from gas and coal, at least during the hours of the sun shone, or that the wind did, and that's their second phase cost competitive, and now they're into their third phase.We've seen this like next era, started saying this in 2018, 2019, they hit this phase where the cost just on a pure kilowatt hour basis of, let's assume new solar, new wind would be cheaper than the operational cost of an already built coal or gas power plant. And that's happening. That happened in Indiana, it happened in Texas. Again, it doesn't deal with intermittency and what you do when the sun goes down and so on. But it's on a bulk electricity basis and there's every reason to believe this will continue. Now, solar is the fastest of these technologies.Batteries are nearly the same pace. Wind is like half the pace. And wind has various problems, doesn't scale as fast. Hydrogen electrolyzers are going to look like batteries. I think. Batteries and EVs, EVs are still in their first phase. They're still more expensive than gasoline cars, but they are plunging in price and growing in scale at twice the pace of solar. So I do think there's lots of reasons, not in every single clean tech, but in those and the ones we make in factories, mass produce in high volumes, simple single part items, if you can, that those will have a very, very rapid learning rate for decades to come.David RobertsGood stuff. So, one of the big questions about the electrify everything model is wind and solar variable. Even with batteries, the batteries we have today, you can get two, four, maybe six, eight hours out of lithium-ion batteries, but you still have variability to deal with. And so, there's this idea that sort of you're going to get to, depending on who you ask, 60, 70, 80, 90%, and you're going to have to fill in the remainder with something else. And it seems to me whether that's 60% or 90% depends a lot on just how cheap solar and wind get.So, how far do you think electrify everything is going to go? Do you think these learning curves are going to be so far and so fast that we're going to end up needing less of that supplemental stuff than is currently forecast?Ramez NaamYeah, it varies on a variety of things. It varies on geography. So, for instance, Europe is harder to power with renewables than the US. The US has more sunshine and solar gets cheap the fastest. Europe or Japan or Taiwan or South Korea are these places that have winter peaking systems and don't have a lot of sun. So, they're more dependent on wind. It doesn't get cheap as fast. It also matters how big the grid is. Like if we built a Chinese scale grid in the US, you could have solar going from New Mexico to New York. You could have wind from the great plains going out to the coast.But if we don't get transmission built, and right now we're sucking at building transmission in the US, then powering New York in winter is actually really hard. So, those are like big variables. And in general, I have my opinions on what I think is going to get cheap the fastest. But I'm in general a believer in let's have more tools in the toolkit than we think we need because some of them are not going to pan out in certain areas. So, let's invest in all of it. Let's invest in small modular reactor, nuclear, nuclear fusion, transmission grids, ultra long duration energy storage, power to hydrogen.Let's do all of it and be in a certain way of more tools than we need rather than fewer.David RobertsAll right, you're doing all the above cop-outs. I'm going to push you on this. You have solar wind and battery, you have your variable core, and then you have your supplements to even out the power, smooth out the power. Right now, what's going to occupy that role, that supplemental role is up in the air, could be a lot more storage. It could be, as you say, a lot more transmission. It could be some sort of clean, firm power like geothermal or small nukes. It could be small natural gas plants with CCS, which is what you see in the models.In the big models, they have truckloads of natural gas with CCS all playing the same basic role, which is evening out the variability of renewable energy. So, I want to know, yes, we want to invest in everything. Yes, we want to pursue everything, yes, we want to keep our options open. But in your opinion, what is the mix that's going to play that role?Ramez NaamThe most underrated of those technologies is ultra long distance, like coast to coast, continent scale transmission. It's probably the one that has the best upside and the most certainty that we can do it. But it's blocked not by economics, not by technology, but by permitting, fundamentally. And we're not doing a lot on there, I think clean firm, whether you call it nuclear vision, SMR vision, fusion, geothermal everywhere, ultra deep geothermal can get power. Any place on the Earth has a big role to play. Ultra long duration storage is a wild card. Like twelve-hour storage, I'm convinced, is like that's going to be solved.But in Europe or on the US east coast, you need weeks or months of storage. And we don't think there's a few technologies that might do that, but they're wild cards right now. I think offshore wind has a huge role to play. And floating offshore wind is one of the most underrated technologies because in deep water you basically can't do bottom out offshore wind. So around Japan or the US west coast, I think floating offshore wind is probably also a massively underrated technology. And then my very favorite total wild card in these that nobody believes in really, but me, is space-based solar.David RobertsI knew it.Ramez NaamAnd that one, my friend Greg Rainey has been talking to me about space-based solar for a decade and I'd be like "No no no, Greg, 20% of the Earth's land area is desert, space launch costs so much why would we ever do this?" But in space, there's no clouds. You can just have it. You can get 24/7 power. You can beam it to Earth as microwaves that penetrate clouds and rain. And some models show it getting in at like two or three cents a kilowatt hour. Based on things like how cheap Starship is going to make launch cost, we think.Right. And isn't space — it's getting cheaper, right? Getting up to space rapidly getting cheaper?Space launch is getting cheaper faster than solar. Only two things in history have gotten cheaper faster than solar to date, which are computing and gene sequencing, or gene printing. But right now, we're in a phase where the cost of space launch is actually dropping faster than the cost of solar. And so, that, and then you have this other advantage: if you beam power back to Earth with microwaves — there's a variety of challenges with it, let me tell you. There are a lot of challenges — but if you beam it down to the same intensity as sunlight, rectennas are like three or four times as efficient, so you get four times the power for the same land area, and it works in winter.So that's my personal wild card. There's like six startups in the whole world doing it.David RobertsHas there been solar power transmitted to Earth from space, like, as it actually happens?Ramez NaamNo. And there's various problems with it. So we've had the first experiments of transmitting — we have lots of solar in space for satellites — and we have the first experiments happening for transmitting solar from one satellite to another. But the big problem so some startups are using lasers. Lasers are BS, because lasers don't penetrate clouds and rain. So why would you do it? Doesn't matter, but one of them just raised a bunch of money. Whatever. The way to actually do it is microwaves. But the problem with microwaves is, if you want to hit a target on Earth, you need these kilometer square arrays in space, and no one's ever built anything of that size in space.So if you want Sci-Fi that's totally Sci-Fi.David RobertsAnd do you fry the birds? Do you fry the birds?Ramez NaamYou can transmit it, I mean, you could if you're really good.David RobertsIf you wanted to.Ramez NaamNo one can get that good. No one can get that good at beaming microwaves yet, but you could transmit it at like, one sunlight intensity, but get three or four times the energy on the ground in the same area. So getting to where you can fry birds is actually a really really hard problem. It's not the problem that we have right now.David RobertsInteresting. And this brings up my lonely wild card. Since you're talking about lonely wild cards, the one that only I seem to care about, which is wireless charging of electrical devices, which I always thought conceptually solves all kinds of problems. I can just imagine power transmitters seeded throughout your city and every electrical device having a receiver able to receive power through the air. I mean, those technologies exist. Like, you can power something at a distance now, even at a reasonably large distance. There are, like, sonar versions, laser versions, there's X-ray, weird X-ray versions. I just thought, like, cut the cord, all these charging difficulties go away.Basically, everything electrical is charging all the time. When I do my little "the future" meme, the future world we're going to have meme, like, it's all wireless charging. Do you have an eye on that? Is anything happening there? Do you think that's going to go anywhere?Ramez NaamI have a little bit of an eye on that, but it still doesn't solve all the problems because it's really hard to do super long distance again unless you build these — if you want to penetrate clouds anyway — unless you build these kilometer square transmitters. So I think for a short range, like within our room, there are potential or maybe for, like, mountaintop to mountaintop. But getting it across a continent without bouncing it in space is really hard, I think.David RobertsAnd you are in tech, really, and not really in politics. But I'm curious what your take is. I wouldn't say that IRA has taken care of the funding problem. I mean, I think we still need a lot more funding for everything, all the time, everywhere. But there's a huge accelerant now, at least in terms of money. So what do you see then, when you think about the US decarbonizing? What are the big remaining barriers that worry you?Ramez NaamIt's a really good question. I'd say, like, the IRA is just part of the puzzle. It's interesting. The IRA is understated. It's not $450,000,000,000 of federal spending a year. It's like trillions. Because the IRA is not a pool of money, it's a per unit subsidy. And forecasters always do what on unit forecast. They always underestimate it.Audience MemberRight.Ramez NaamSo the actual size of the IRA is actually much larger.David RobertsI think Goldman Sachs said 1.3 trillion, I think was its number, as opposed to the official number, which was 3.9 billion or 300 and something billion, but a lot more than the official forecast.Ramez NaamYeah. And I think the IRA also we talk about the US, but let's think about this globally, like, three big things happening in global climate policy over the last few years. China has further put its foot on the accelerator. India has done some I won't even count that. Vladimir Putin invading Ukraine. Putin is, like, now a climate hero. He's an a*****e, but he's done all this work because we thought natural gas was going to be the last fossil fuel we got off of. And Putin thought the natural gas exports to Europe, he had Europe over a barrel. But instead he's accelerated the pace, which Europe is getting off of gas, deploying more renewables, ultra long duration storage, hydrogen funding, fusion, all this stuff.So those are equally big. And the IRA is really big. What does the IRA and by the way, in the US. We talk about the IRA. We don't talk enough about state level policies. 29 states in the US have a binding RPS or CES. Right. And that started before the IRA, and it's actually potentially even more impactful. What does the IRA not solve? It doesn't solve permitting. And that's actually like the Achilles heel that we have. And we talk about permitting. There's a strain of environmentalism that is like "don't build it environmentalism", and that's going to kill us.That's the biggest political barrier we have in the US. Is that it's so dang hard to build things. And people talk about NEPA reform, whatever. NEPA is just the feds. Like, if you want to build something, it's this internested issue of multiple federal agencies and then multiple states and then county level and city level and every property owner. We just had the first interstate transmission line in the US. The biggest one, approved, like, two months ago, I think Arizona to California. I think it's an $8 billion project. Okay, we spent trillions, right? That $8 billion project took 18 years to get approval from multiple states, multiple counties, landowners, and so on.If that's the pace, we're just in a world of hurt. So what do I think the most important thing we can do in policy in the US is get out of the way and allow stuff to be built. NIMBY is like the death of the world if we don't stop it.David RobertsYeah. This is going to be an interesting tension. I think there was a great article in Heatmap about it just this week. Everybody should be reading Heatmap.Ramez NaamEric has an opinion on that.David RobertsAfter you're done with Canary. You should read Heatmap. And I not just toot my own horn, but I wrote about this back in 2012 or whatever, but this distinction between climate hawks and environmentalists is, how I put it, people who are primarily focused on decarbonization, people who are primarily coming out of the environmental movement with all its sort of associated commitments and whatnot. And I think this is going to be a huge tension, but it's also — do you worry at all, maybe you don't worry, I worry about a lot of the people who are yelling about permitting, want to cut down environmental review because they don't care about the environment and want more oil and gas and don't this is all bad faith from one large portion of this debate.Do you worry about being on the same side with a bunch of bad faith jerk offs?Ramez NaamI think the bad faith the bad faith actors, the actors that want, like, permanent reforms they can build more fossil fuels are on the losing side of history. They're betting on a technology that fundamentally is going to lose on cost. So I say let it come, like, in an open playing field. If it's easier to build pipelines and transmission lines. Clean electricity is going to win. So I'm totally happy taking that deal. Bernie Sanders disagrees. Right? Like he voted against the Schumer-Manchin permitting reform bill that you had one Republican vote for because he's so obsessed, obsessed with don't build fossil fuels.Well, guess what? Building more renewables is actually more important than not building fossil fuel. On a competitive basis, at least my bet, the clean energy just wins on cost. So like open the floodgates, let it in and clean energy is going to win is my personal viewpoint on that.David RobertsWhat do you make of this? Just came out another version of information that's come out over and over again over the years, which just shows that fossil fuels are not declining globally. They're not declining. We are adding on to the total energy load of the world that's what renewables are doing is increasing the total. But the actual amount of fossil fuels is not declining, which leads a lot of people to say building new renewables is not enough. We have to cut off supply at some point. What do you make of that argument?Ramez NaamSo, I think you have to look at leading indicators and trailing indicators, and the leading indicator is cost. What's going to win economically? The next derivative is like the pace of deployment increase, and then actual deployment and actual deployed stocks is a super trailing indicator. So, you look at this and ask, are we growing renewables fast enough now? Are they undoing fossil fuels? Well, actually, we might have passed peak fossil fuels in the power sector in 2022. All the growth we have not yet shrunk the internal combustion engine car fleet. But what was the — anybody want to guess? — like, what's the year in which sales of gasoline-powered cars peaks? Can we have a guess. 2017, 2018. It happened already. Now we want it to go down faster. We want retirements of ICE cars to be faster than deployments. But all the growth in vehicles and passenger vehicles is electric. So, have we peaked yet? No. And I think we'll have peak total fossil fuels and peak emissions sometime later in this decade towards 2030. It's not fast enough but the writing is on the wall. Like fossil fuels are primarily dead men walking. It's just a matter of how fast can we pull it off.David RobertsSo, let's talk —Ramez NaamI'm very opinionated here, but that's just what the math says.David RobertsSo, let's talk then about the hard to abate sectors then because they're the ones I wouldn't say we have electricity in hand, but we have a sightline to where we're going on electricity. We have a sightline where we're going on transportation. We have a sightline in buildings, although this crowd is full of people who will tell us all about the many complications of doing what we know how to do in buildings, but we know how to do what we need to do in buildings. But there are these legendary, difficult to decarbonize sectors. So, two questions.One is, do you think they still warrant that term? Do you think they're still difficult to decarbonize? And which of those worry you?Ramez NaamYeah, they are. And so I should say that what I've been saying is mostly related to power and ground transport. That's where we have really, really fast linear rates. But if you add up ground transport and power, you've got maybe 45% of global carbon emissions. Right. The really big ones are industrial emissions. Rahul talked about cement, my math is more like six, seven percent of emissions. Steel is another seven or eight. But like, industrial emissions are really hard and it's not clear that learning rates will be as fast as our renewables. So that is a big problem.That said, I wrote a piece for Tech Crunch in 2018 or something where I was really worried about this. And we've made more progress, faster on industrial emissions than I expected those four or five years ago. So, are we going to go fast enough? I don't know. But we're moving that needle and then the other one that's hard and big, we talk about aviation. Steel is four times as big as aviation, right? Like aviation we will solve eventually. But steel and cement are really big ones. But the other one that's really hard is agriculture, forestry and land use, cows and deforestation.And that one's not growing, really, but about a quarter of all emissions, it's bigger than industrial emissions. It rivals, electricity. And that's going to take a mix of just pure policy work to protect land and finding a way to feed the world's appetite for meat, which is just going to go up. Like, forget about reducing meat consumption, it ain't going to happen. Meat consumption is going to keep going like this and this. So we got to find ways to produce that meat or people think is meat at a way that's cost — And I'm actually not that bullish on alternate proteins either.I think it's got to be like mostly it's going to be fields like where we grow corn and soy and so on today and wheat and animal agriculture is my guess. We've got to find a way with a cost perspective to reduce that cost, reduce the emissions, reduce emissions of things like fertilizer 96% of emissions and protect land from being converted from forest or wetlands into crops or grazing land. And that one, cows and steel and cement keep me up more than electricity and cars.David RobertsSo, what is happening in steel? You say we're making more progress than you thought. What is the solution that you —Yeah, I think with steel, the most likely solution is power to hydrogen. Like a lot of the steel emissions — so for recycled steel ... use electric arc furnaces, you can power them with renewables. But for primary steel, we use coal as a reducing agent. Iron ore has oxygen on it. You got to strip the oxygen off. So we're using the coal. You can bust the coal. You get carbon monoxide. It binds with oxygen and strips it off. It's a reducing agent. So you can use hydrogen for that. And hydrogen does look like it's going to have a sharp production.Ramez NaamIt's not the only bet. There's other bets, I think, breakthrough invested in a company that does a form of electrolysis to extract pure iron that you can use to make steel from iron ore. So there are multiple technology pathways in each of these. But right now, hydrogen looks like the best bet, I'd say, for steel.David RobertsWell, let's talk about hydrogen for a second then, because this is like, as Amy said earlier, everybody, hydrogen is on everybody's tip of everybody's tongue. It's the next belle of the ball. Everyone loves it. Everyone thinks it's going to do everything, and you can technically do everything with it if you wanted to. This gets back a little to one of my original questions, which is how far electrification is going to go and how much you're going to need other stuff.Ramez NaamYeah.David RobertsHow big of a role do you see hydrogen playing in the final analysis?Ramez NaamHydrogen could be enormous. It could be that we build as much power gen, as much renewables to produce green hydrogen as we do for direct power into buildings and electric vehicles and so on. We'll see. I think there's things that hydrogen is not the solution, as we mentioned earlier, like hydrogen-powered cars and trucks. Forget about it. That's been clear for a decade. That's not going to be cost-competitive electrification.David RobertsYou saw the Toyota guy now —So out to lunch. They were so good on hybrids and they just totally missed the boat on electrification.He's out now doing sort of the falling on his sword thing, apologizing to everyone. And yeah, I mean, it's clear for anybody who doesn't know what we're talking about. Toyota's, it was one executive, I think it was like the legendary longtime head of Toyota was like, electricity ishmactricity, it's going to be hydrogen fuel cells. And just clung to that.Ramez NaamAnd that was a unique Japanese thing. Like Japan as a country has made some interesting on paper bets on hydrogen that just don't make any sense. Importing hydrogen across oceans. Hydrogen is so hard to move.David RobertsMixing hydrogen into your natural gas in your natural gas pipelines.Ramez NaamYeah, that might work for just distribution of the hydrogen pipeline. It is the only cheap way we know to move hydrogen today. Or using the hydrogen to make steel, for instance that you then ship round the world. But hydrogen for building heat doesn't make any sense. Hydrogen for cars doesn't make any sense. But hydrogen makes a ton of sense for steel making, maybe for high-temperature industrial heat. Hydrogen makes a ton of sense as an ingredient to make electrofuels. You can put it in existing ships and planes, whether that's ammonia or a drop-in kerosene, we'll probably never make hydrogen-powered planes.They don't make any sense. But making a drop-in fuel from hydrogen that you can burn in existing Boeings and Airbuses does potentially make sense. And hydrogen for green fertilizer, fertilizer is already like, I don't know, a $70, $80 billion market for hydrogen goes into methane-based hydrogen for fertilizer on the world today. So that's already like an enormous market that once hydrogen gets cheap enough, it has various access to.Yeah, everybody should listen to the pod I just released this morning I think. I'm not sure when this will come out, so this won't mean anything to listeners, but my last pod, a guy whose business model is off-grid renewables, feeding directly into electrolyzers, making green hydrogen, which then go directly into methanol. They're starting with methanol for ships. None of it's connected to the grid, no pipelines coming in or out. The only thing that comes out of the whole thing is trucks full of methanol. It's really interesting —It makes a ton of sense. It's way easier to move hydrogen as a product that's not hydrogen than it's hydrogen itself.David RobertsRight. That was his calculation. His calculation was it's really difficult to move hydrogen and it's really difficult these days to move electricity. So let's move the methanol. Let's make methanol and move it.Ramez NaamI will say that the policy details about hydrogen were mentioned in the earlier panel and there's a big policy fight right now of what gets counted as clean electricity for hydrogen. And there's every chance we're going to screw it up. And that the IRA is going to be interpreted by the treasury that actually controls who gets the tax credit to just let you buy grid electricity and unbundle directs, which are kind of BS, as a way to call your hydrogen green. And if that's the case, it's going to set us back for a while and we'll see how the treasury rules. But it's not looking that pretty.David RobertsAlthough, it's worth saying that it says not to get into this whole thing, but it says in the statute that the hydrogen subsidies must reduce emissions. So if they do it that way, it won't reduce emissions. So I don't see how they get around that very plain statutory language, although I'm sure if they tried hard enough —Ramez NaamI'd love to be wrong. I hope that you're right.David RobertsAnd another big battle going on around hydrogen that's maybe just worth calling out is natural gas. Companies that are dying, looking at obsolescence, flailing about for some reason to stay alive, are now talking about mixing hydrogen in with natural gas to lower the greenhouse gas intensity of the natural gas, which is just somebody compared it to pouring champagne in your municipal water supply or something like that. Just the most ludicrous use of hydrogen possible. But there's a lot of money, a lot of money behind that one. Now so a lot of opportunities for shenanigans around hydrogen.I want to ask a bigger theoretical question, because this is one of my favorite things to talk about and I'm never sure how seriously I take it, I'm never sure how serious I am about it. But when you look forward at the solar cost curve, it was ludicrously optimistic back in 2011. If you just do the same thing today, once again, like ten years out, it's just ludicrously cheap. It's just cheap beyond anything anybody knows how to process today. Wind, too, and batteries too, but mainly solar. You had a great chart about batteries, which just made the point that as they get cheaper, you find more uses for them and as you find more uses for them, they build more and they scale up and they get cheaper, et cetera, et cetera, et cetera.Same for solar. Like as it gets cheaper and cheaper and cheaper and cheaper, it's just going to be possible to put it everywhere, on everything, all the time. And so you can see in the distant future, but our lifetimes, I think a society in which power is ubiquitous and to coin a phrase, too cheap to meter, is that going to happen?Ramez NaamI think we'll always have a reason to pay for it. And as the cost goes down, appetite might go up. You look at other things, like the cost of lighting has dropped by a factor of 500 over the last century, and that's a combination of power getting cheaper, the way they produce lighting any cheaper, and efficiency, LEDs. So will the cost of power drop eventually? It will. I think that what you're going to see is right now the grid investment is sapping up most of the reduction in cost of renewables, and the cost differential of power across time and space is going to change.What I mean by that is today power costs do fluctuate by season and by location, but fossil fuel costs vary less. Whereas in the future you're going to find is like, how do you power stuff in winter, especially a place far away from the equator. So the power cost average of the year might be cheaper, but in January, like in the UK, in London, you get one 7th as much power from solar panels in January as you do in June or July. So that means that the cost of power from solar at least is going to be loosely high in winter.And guess what? UK energy use, or Germany's peaks in winter. So I think you might find much cheaper power in certain times and places, but not as much in northern latitudes in winter. And that's going to cause funky things in sort of our power pricing. That having been said, I think there's every reason to believe that in the long run, energy is going to be cheaper for people than it is today, certainly as a portion of income.David RobertsYeah, I guess I just wonder if you ever can imagine it becoming cheap enough and ubiquitous enough that we get to something like elevated global standards of living and fully autonomous luxury communism or whatever you call it.Ramez NaamMaybe. I mean, we're getting more elevated standards of living around the world today. People don't know this, but global inequality peaked in the 1970s and has been dropping since then. If you compare countries around the world, and not just within one country, poverty has dropped massively. So the number of people on Earth that don't have electricity access has dropped materially in the last 10 or 20 years. The number of people without access to clean water and food has dropped a lot in China and India, less so sub-Saharan Africa. So we are gradually increasing global abundance. Are we going fast enough?No, but it's happening, and I think there's every reason to believe that it will continue to happen.David RobertsSo let's talk about fast enough then, because obviously the counterweight to fully automated luxury communism is climate dystopia. Who knows how those might balance out? What fun? What fun? We'll all find out.Ramez NaamIt's good for science fiction.David RobertsYeah. So, I think it's clear though, that even with all the good news these days and all the momentum behind clean energy, and I think growing momentum, you could say it looks pretty clear that we're not going to hit our 1.5-degree target that we all agreed on in the UN. Not at least through the replacement of fossil fuels with clean energy alone. So, I think that people say that a lot and then there's a sad trombone and everybody's sad for a while and then we move on. But it seems like that's important and we should be thinking about what that means, what to do with that information, what we should do.Are there emergency pull handles, if emergency type things we should be doing when we think about avoiding 1.5 or trying to keep to 1.5 or compensating for not hitting for 1.5? So, how do you think about sort of if you think of the energy world as kind of going the right direction but not fast enough, what do you do about the rise in temperature in the meantime?Ramez NaamIt's a great question. Just like to put some numbers around that. When you and I both sort of got into this field, 2011, let's say we thought the world was headed for four, five or six degrees Celsius of warming. And that's the difference between now and the middle of the last Ice Age. That is truly the stuff of nightmares. That is like agriculture would fail in various large parts of the world. Probably not an extinction level event, but maybe the end of human society in certain ways.David RobertsYes. I never forget Kevin Anderson's quote, "Four degrees is incompatible with organized global society."Ramez NaamIt ain't good. Right. So the good news is we have very likely canceled that apocalypse. Like if you look at what's happened now, just in the last 24 months, we had a raft of papers saying the most recent one says the most likely outcome, there's climate dice, there's probability distributions. There's lots of unknowns in this. Most likely outcomes now are, I think the most recent papers had 2.1 and 2.4 degrees Celsius of warming. And so the good news is we should all celebrate that for a while, because that is a level of temperature that is actually compatible with the world overall growing richer.We've canceled — like, it's no longer going to be what's the movie where you have a new ice age come in, whatever — any of these day —David RobertsDay after tomorrow.Ramez NaamDay after tomorrow. We're probably not headed for that right now. So let's take a moment to actually be happy.David RobertsAnd that movie had an ice age literally coming, like, block by block. There are people running away from it.Ramez NaamThat'd be really bad. But the bad news is we have missed 1.5 degrees C. And I don't know how to say this anymore, clearly, because there are people that will tell you that we might hit it. The odds of that are minuscule.David RobertsYou can still torture a model to get the model to show us hitting it.Ramez NaamThe carbon budget, the remaining budget. The most recent papers, like, from last month, say that the carbon budget to have a 50-50 shot of staying below 1.5 C is about 250 gigatons. We're emitting about 50 gigatons of carbon per year. So that's five years of emissions. Or if we smoothly went from 2020's numbers to zero in ten years, by 2032, we'd have about a 50-50 chance of staying below 1.5. That ain't going to happen. Okay? Like, it is just not a thing. Now, the good news is to stay below two degrees C is about a trillion tons.That's about 40 years of emissions. So it's about a little over 20 years of emissions. If we had 40 years to reach zero, you have a 50-50 chance of two degrees C. That's a stretch. 2062. But it's not impossible.David RobertsIt's a stretch.Ramez NaamAnd 2.5 degrees C is more than 2 trillion tons. So that if you, like, smoothed out from today to net zero in 2100, you do a 50-50 chance, the models tell us of staying below 2.5 degrees C, and that is totally achievable. That's the good news. Okay, what's the bad news? So first, like, at 1.5 degrees C, the world does not end. It doesn't end at 1.6 degrees C, but every tenth of a degree matters. And right now, for instance, most recent papers say that every coral reef on Earth above 1.5 degrees C will experience bleaching events more rapidly than they can recover from.They won't all die on day one, but they'll just enter a period of permanent decline. Now, the planet's going to be fine after the last mass extinction event. It took about 4 million years to recover biodiversity in the oceans. That's nothing to the planet, but it's forever for human civilization. So our children and their children will not live in a place of such abundance. Okay, so what can you do? I've started to say that there's three things we can do on climate. Number one is build. That's what we just talked about, getting out of the way of permitting, having more policies to build stuff, so on.Number two is help nature adapt. And I'm going to say the things that are like my most provocative things. Maybe you're not going to like me after this, but I'll just call it how I see it. There is no such thing as wilderness on planet Earth anymore. We have modified the climate such that if you're if it's a forest, if it's a coral reef, if it's a wetlands, it doesn't exist in the same climactic band that that natural ecosystem evolved in. And so if you want to preserve those, we have to actively manage every so-called wild ecosystem on Earth, whether that's a rainforest or a forest in the Northwest or in Canada or in the tundra or things like coral reefs.And there's ways we can do that. But we have to get off of this naturalistic fallacy of like, we should just leave nature alone. You leave nature alone, it's going to die. Right? The only way to do this is we know there are some coral species that do better in high temperatures than acidity. Nobody wants to genetically engineer them, but you could be selectively breeding coral species for maximum survival rates in high temperature and helping these coral reefs adapt so that they can survive. So that's one, and then the next one is the even more controversial one is we've already geoengineered the planet.We just have. We've done it accidentally through carbon emissions, and we've also done it by things like when people talk about solar radiation management, this is scary kind of geoengineering. We're talking about reflecting more sunlight into space, cloud brightening, or injecting aerosols into the stratosphere to reflect a tiny bit of sunshine back into space. Nobody wants to do that. Okay, but let's be clear. We're already doing that, and we're undoing it unintentionally. Today, if you look at IPCC's numbers, all greenhouse gases account for about three watts per square meter of warming. That's human activity. The sulfur aerosols we're already emitting from ship fuels, from diesel engines, from coal plants, low altitude, they cause acid rain and other nasty stuff.That's about one watt per square meter of cooling. That's already a solar shield with huge air bars, bigger air bars than greenhouse gases. And guess what? We're undoing that. In 2000, the International Maritime Organization's new IMO regulations went in that reduced the sulfur content of ships. And that means that we're in for this bonus warming where we're undoing our solar shade and we're going to have more warming happening. You see it. You're going to see some satellites, shipping lanes having less reflection and more sunlight being captured.David RobertsYes. This is an irony that is not well understood in the public, I think, is that by cleaning up air pollution, we are pretty radically accelerating warming.Ramez NaamSo James Hansen and James is a little bit of a radical scientist, but he's got a paper out. He's really, really worried about unforeseen bonus warming as we cut these sulfur aerosols. So should we just start injecting some into the stratosphere? No. What? We ought to do some science. So, last year, before the IRA, the world spent about $1.1 trillion on climate tech. $1.4 if you ask the IEA, that's one times ten to the ninth. The total budget for all science into solar radiation management has been about $10 million. Right. Like one times ten to the seventh.Right. I think I've had a factor of three off there. Sorry, ten to the twelfth versus the seventh. That's 1/100,000th. As much we spend on just doing, like, computer modeling and small experiments. And so I'm a modest man. I don't think we should spend a lot of money on this, but let's spend a billion dollars a year. That's nothing. Americans spend $4 billion a year on shampoo, so a billion dollars is not much. It's like chump change. A billion dollars in climate gets you nothing. But let's spend like a small amount, a billion dollars a year on actually doing the science.Better computer models, more compute time, more funding for scientists, platforms that have sensors. When the next volcanic eruption happens, it sends stratospheric aerosols up. We can send LiDAR and spectrography and so on through them and see what happens. And some small controlled experiments, tiny ones, to actually see how this works. Just to know, do we have this tool in our toolbox so that we could deploy it? If the Arctic starts to warm exceptionally fast, we have uncontrolled methane release. And if we're not doing that, I think that's criminal. And that is the single biggest problem that we have in climate tech, the single biggest omission that we have in our climate plans today.David RobertsSo when I think about those things —Ramez NaamLike, no one's throwing a tomato at me yet.David RobertsEverybody's still chewing on it, when I think about these things, one of the things I've learned over the course of my career is that lots of ideas sound good if you can sort of stipulate a rational humanity to do them. But it turns out that's a large stipulation and in fact, we don't have one of those, and in fact, we screw everything up. So I'm just trying to imagine humanity as we currently know it with our current leaders and our current institutions trying to manage every global ecosystem, and my mind turns to various horrors.Ramez NaamAnd it could be horrific. But let's bear in mind, we're just doing it now on accident. So we have this status quo bias of like, oh, as long as it's accidental, it's fine for us to play God. But you know, like, God forbid that we start like, doing it with a plan. And some of these things like solar radiation management are so cheap that Bill Gates could afford to just do it on his own. He's not going to. But if we don't do the science, then somebody's going to do it without having data on what the effects are. So I think that's more irresponsible than actually understanding it.David RobertsYeah, I think it's in the book The Deluge, which maybe some of you guys have read. I did a podcast on it a while back. I don't know if you've read it. You really should. You would love it. It's an effort to sort of play out climate politics for the next 40 years. And one of the chapters of that book is about India rogue solar managing and leading to causing a war, basically like an invasion.Ramez NaamAnd Kim Stanley Robinson had a plot like that in Ministries of the Future as well. It's something that any small country basically could afford to do.David RobertsYeah. Crazy. Okay, I quasi deliberately left about ten minutes for a spontaneous Q and A. So if anyone has questions for me, please say so.Audience MemberI have a question. So you talked about the deep stuff with we're not likely to meet the limit to 1.5 and all that. I've been thinking a lot about options to phase out fossil fuel infrastructure potentially early to get rid of locked-in emissions, which is causing a significant chunk of that problem. So this could be a range of different options from phasing out coal plants early to creative options to get people off this sort of dependence I don't really want to bring up here. But what are your thoughts on that area in particular in terms of how much it can at least make a difference towards limiting damage overall?Ramez NaamYeah, I would say overall I'm less of a cut-off supply person because so often if you cut off supply in one place, somebody else produces it and routes around it. Right. If you like, Shell sold all of their oil fields in the Permian. Guess what? They sold them to Exxon or somebody who just produces the oil anyway. So like divestment is also it's a hard sell to me that having been said that we should try many things. And so some of those successful policies have been policies that worked with local communities. The Sierra Club's Beyond Coal campaign funded by Mike Bloomberg worked with local communities to shut down coal plants early and to find jobs for the people that worked in coal mines working these coal plants, replace them off with natural gas, with renewables and so on. Sometimes —Wildly successful before it was cool, by the way. Shout out to Sierra Club.Yeah. And so I think you can have creative stuff. But as Jessyn was saying in the previous panel, you got to have buy-in from the community, from other stakeholders, to get that sort of model built, I think.David RobertsWhat would you say if I can inject here, what would you say to someone who said, if you are willing to contemplate something as extreme as humans managing all global ecosystems and managing the atmosphere with SRM, it seems like the chances of those screwing up are high, and it would be worth a lot to avoid them. What do you think about MOM's argument for ecoterrorism?Ramez NaamI don't advocate violence. As a science fiction writer ecoterrorism is very exciting because you can, like, you can write a plot, a thriller plot around — it's hard to write a thriller plot around climate in general. But in reality, would it work or would it have negative effects or blowback? I really don't know. But one of the reasons to do the research on things like SRM is to reduce the need for someone to engage in ecoterrorism. And so I think that's worth thinking about.Audience MemberHi. Big fan of the podcast. I absolutely adore it. My name is Ben Riley. We've gone beyond just simply the energy transition. My question is related to that, which is the role of negative emissions and how do you feel about various forms and what role it has to play?Ramez NaamYeah, so again, I'm somebody who's a believer in let's build more tools than we think we might need. And I'm a big tent person. Like, I'm dubious on nuclear fission, but I'm like more power to it. Let's invest in it. Let's change the NRC, make it easier to build stuff and so on. That's more or less how I feel about CDR, too.So, personally, my bet is permanent carbon removal is just too expensive. To cut temperatures by about a tenth of a degree C, you've got to cut carbon emissions by 100 billion to 200 billion tons. And so if you're talking about $100 a ton carbon removal, you're talking about 10 or $20 trillion. And that's real money, and that's how you get to $100 a ton. So personally, I'm really excited that Stripe, Microsoft, and Google are committing billions of dollars to carbon removal advanced purchases. They've learned a lot from learning rates and so on. It's modeling up that off what we learned in solar, and I think more power to them.But I'm not making any bets in that sector because I just don't see, like, if you tell me that carbon removal could get down to, like, $10 a ton or $5 a ton, I think it might be a big part of the solution. But at $100 a ton or $50 a ton, I just don't think the world I think there will be multibillion-dollar markets. You'll have some people make a lot of money. Some venture capitalists will do well, some ... will do well, and it won't move the needle is my personal bet, but again, I'd love to be wrong.Audience MemberSo David and Mez, you've both expressed sentiment that we have sightlines to decarbonizing most essentially of the economy and that clean energy is cheap and it's getting cheaper and that it's going to outcompete fossil fuels in a lot of applications. But I'm curious about the possibility and what you see as the potential that we get most of the way there and then we get to the really hard parts and things kind of stall out in terms of the political will to accept the high cost of getting to a completely decarbonized future, which we need to get to to actually halt global warming. Because although clean energy is cheaper, probably for a lot of applications, it's questionable that an economy that uses exclusively clean energy is going to be cheaper than one that uses clean energy and also has the option to use fossil fuels where they're most cost-effective. So curious for your thoughts on that.Ramez NaamYou want to take that one?David RobertsYeah. I mean, it's an interesting conceptual question about how you think about the transition. Whether it is like a boulder rolling down a hill, gaining momentum and momentum, momentum such that it will just crush and go right through the last bits, or whether you're eating the fruit off the tree that's lowest and you have to climb higher and higher and it gets harder and harder and harder and harder. And I think there's a little bit of both. But I'm so curious what you have to think.Ramez NaamI think of it as we're on an S curve, right? And it's like renewables, let's say, just in power solar and wind are 13% of global power generation, they are entering the decade where they might have the fastest growth and we're going to see the growth accelerate. But at some point, they do hit these headwinds of as Jessyn has done, and you've done these like they cannibalize themselves. They suppress prices at the hours that they're operating with the problem of winter. And so you —Get to more difficult land.You get to more difficult land for sure. And so you do hit this challenge, whether it's at 60%, 70%, 80%, where it gets harder and harder. And so I do think most like models of decarbonization assume a curve that looks like this. We have the fastest reductions early and then it kind of goes like this. And I think that we're going to see something that's much more of like an S curve where it's going to take a while to hit the peak and then renewable like, emissions are going to drop from some sectors really fast. And then the last bit is going to be really hard and really slow.But while everyone's obsessed with hitting net zero, if we get to 10 billion tons a year by 2100, that's actually still compatible with canceling the apocalypse. So I worry more — this is to steal a memorable movie quote, I worry more about the next 20, 30, 40 50% than I do at the last 20% right now — although I do think we should invest in more technologies to try to have a head start on those sectors now than we need.David RobertsAnd just one other consideration to throw in there is that as the carbon lobby shrinks, policies to reduce carbon become easier to pass. So when you're targeting a smaller part of the economy, it's a little politically easier, I think, than it was when you're saying, everybody reduce everything.Audience MemberHi. So, under the umbrella of hot trends and climate tech, I'm curious about grid enhancing technologies, specifically both on the transmission and the distribution system. I'm curious if there are any things that either of you are particularly excited about and what do you think some of the limitations or challenges are to adopting those technologies and how do we overcome them. So, small question.David RobertsYeah, you want to go first?Ramez NaamGo ahead, sure. Yeah, I think it's fascinating. I think like the grid, I talked about permitting and long-range transmission, but interconnection queues and distribution are a more pressing problem. They're a problem for like, hooking up your renewables to the grid at all. They're a problem for things like Jessyn was talking about. How do you build an EV truck charging depot? If you want a system of high-speed chargers for electric semis, that's like a tens of megawatts power drop, that's like a small town. So building that is really hard. And the grid is not used to working fast.I'm a big fan of software control of power generation and consumption. There's lots of startups that are doing interesting things to make more efficient use of the grid. Storage at the grid edge, I think, can do a lot to make better use of the current system. And then you have some other crazy ideas. For instance, a friend of mine did her dissertation on taking high voltage AC transmission corridors — assume that you can't build more transmissions of permitting, but upgrading the power electronics on current corridors from AC to DC and you could get — this is Liza Growing — you could get triple or quadruple the power on this existing rights of way. So I think there's solutions like that that are probably still under invested in or there's Veir, it's like a superconducting tape you apply to — I don't know if that'll ever work, but that one would be cool. You can apply it to current transmission lines and again, massively increase the power on them. So I think there's room for a lot of creative solutions.David RobertsYeah, I don't think people get that on a lot of these big long-distance transmission lines. A lot of our big transmission lines, they run at like 30% capacity, like 30, 40% capacity. Just because we need a big buffer, because we don't know in real-time what's happening on that line. This gets to a larger theme, which I just was mentioning on a podcast earlier, which is I don't think people appreciate, especially people who grew up around the Internet and people who view information as sort of like modular and transmissible everywhere and everything. People think of the grid that same way, but I think people would be shocked to hear how much of the grid operates by people turning knobs and making phone calls to other people like, "Hey, you should probably use less power over there."It's weirdly primitive how we run our grid now. And that's not a technology problem. There's all kinds of grid-enhancing technology. There's all kinds of ways to get a lot more out of the existing grid and just generally moving towards digitizing the grid. To me, the barriers there are almost 100% sociopolitical, it's almost 100% utilities, which is you pull any string in this mess long enough and you end up back in utilities. It's utilities not being on top of things. So I think that's on the one hand, that's very frustrating, but on the other hand, I think that could change quickly if we ever get utilities in hand.Ramez NaamFix their incentive model.David RobertsYes, I know it changed. We don't have to get into the whole utility mess. But yeah, that's 100% about just procedures and regulations and things like that more than technology.Ramez NaamI think that was the execution of the death sentence.David RobertsI think we're done.Ramez NaamThank you all.David RobertsOh yes, okay, so we're done everybody. Thank you for coming.David RobertsThanks.Ramez NaamGive money to Canary.David RobertsThank you for listening to the Volts podcast. It is ad-free, powered entirely by listeners like you. If you value conversation like this, please consider becoming a paid Volts subscriber at volts.wtf. Yes, that's volts.wtf so that I can continue doing this work. Thank you so much and I'll see you next time. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.volts.wtf/subscribe

In this episode, Kelly Mitchell of journalistic watchdog group Documented discusses Republicans’ furious pushback against ESG funds due to their ostensible greenness, and the ridiculousness of said vehemence since ESG ratings are actually a poor reflection of companies’ true environmental impact.(PDF transcript)(Active transcript)Text transcript:David RobertsFor the last few years, the fastest growing segment of the global financial services industry has been ESG (environmental, social, and governance) funds.Here’s how it works: one of several ratings firms uses its own proprietary formula to rate how well a company is responding to environmental, social, and governance risks. An environmental risk might be: will the county where you’re locating your data centers have sufficient water supply in coming years? A governance risk might be: have you filed all the proper disclosures?Fund managers like BlackRock then gather highly rated companies into ESG funds, which are sold to investors as socially responsible. Hundreds of billions of dollars flow into ESG funds every year.Note that there’s a bit of a shell game at the heart of the enterprise. What customers and investors generally think is that a company gets high ESG ratings because it goes above and beyond in those areas, that it is trying to “do well by doing good.” But in reality, high ESG ratings simply mean that a company is responding to material risks — maximizing its profits, as public companies are bound by law to do. So Tesla gets no ESG credit for accelerating the electric vehicle market, but it can pull a low ESG rating (and fall out of ESG funds) over vulnerability to lawsuits over working conditions. (This is why Elon calls ESG “the devil incarnate.”) McDonald’s loses no ESG points for the enormous carbon impact of its supply chain, but it gains points for reducing plastic in its packaging, because regulations against plastic packaging are imminent in Europe. So investors get to feel like do-gooders and big companies are rewarded for carrying out their legal obligation to assess risks to their business. There’s not much social benefit to the whole thing, but everyone feels good and green and happy.Except now there’s a problem: Republicans bought it. The whole sales pitch — they believe it. They believe that companies in ESG funds are going out of their way to do social and environmental good … and they’re furious about it. Over the past year or two, an enormous, billionaire-funded backlash against ESG has consumed the GOP, leading to multiple congressional hearings, hundreds of proposed state bills, and red-state treasurers vowing never to do business with woke lefty activist funds like [checks notes] BlackRock. It is stupid almost beyond reckoning. And I’m just brushing the surface. To dig into the deep layers of dumb and where it all might go, I called Kelly Mitchell. She’s a senior analyst at the journalistic watchdog group Documented, which uncovered emails and other communications between the architects of the anti-ESG campaign that led to a New York Times exposé.All right then, let's do this. With us, we have Kelly Mitchell from Documented. Kelly, welcome. Thank you so much for coming to Volts.Kelly MitchellThank you, David.David RobertsKelly, when I first decided to do this episode, I started looking into it, thinking, you know what, this all seems kind of stupid. But what happened is as I dug in and explored it into the nooks and crannies, some of the background, some of the work you've done, some of the work Documented has done, what I discovered is that it is actually so much stupider than I ever could have imagined. The depth of stupidity here is remarkable. So I just want to thank you. I feel like you should get hazard pay for what you do. And I just want to thank you for immersing yourself in this. It must be wearying.Kelly MitchellIt is. It's like the Thunderdome of stupidity. But I'm glad we can talk about it.David RobertsYes, let's talk about the levels. Okay, so let's bracket for the moment what ESG actually is in reality. We'll get to that later. Bracket for the moment the merits of the criticisms that conservatives have of ESG and let's just talk about what's happening. So I think probably normal news consumers are aware that sort of ESG, or the sort of boogeyman of ESG, has come up sort of out of nowhere and is everywhere now. So maybe just tell us a little bit about what has happened here, who's doing what and what are the bills? And tell us the phenomenon we're discussing.Kelly MitchellWell, the current iteration of this phenomenon really kicked into high gear probably in about 2021. And there's been a long history of folks who have opposed corporate social responsibility, who have opposed any restriction on investment in things like coal or natural gas. But a lot of gasoline was thrown on the fire in 2021, probably for two major reasons. So first is that Larry Fink, the CEO of BlackRock, published two back-to-back letters to his clients, to corporate CEOs, basically saying that BlackRock, the largest investment firm in the world, was now going to consider climate risk as a fundamental investment risk and wanted CEOs to do the same.And the second is that in May of 2021, an activist investor company called Engine 21 or Engine No. 1 rather, bought a small slice of ExxonMobil and used that slice to wage a battle to get new board seats on Exxon's board that would take into account climate risk and against a 100 million dollar campaign by Exxon. They succeeded. And they succeeded with the help of large institutional investors like BlackRock. And I think those two moments sort of broke a lot of people's brains. Wall Street is not supposed to be against the fossil fuel industry, it's not supposed to be against the right-wing apparatus.And it provided this galvanizing moment for a lot of dark money groups to look for ways to mobilize state agencies and state legislatures against ESG.David RobertsBrains then broken, what do they start doing?Kelly MitchellThere's two fronts that open up. So first you see a big infusion of resources by groups like the Heritage Foundation by Leonard Leo's, Consumers' Research into weaponizing state treasurers to attack, quote, unquote, woke investing or ESG. And it's a smart play because state treasurers are people that nobody pays any attention to.David RobertsWhat are they? Maybe just take a minute and tell us. Like, I know that such a thing exists, but I couldn't tell you in a million years what they do.Kelly MitchellYeah. So basically they're in charge of managing large pools of money that the state uses to pay its bills for the long time, to receive tax money, to give tax money to folks who need it. And in that role they get to decide who manages that money, how that money is invested —David RobertsPension funds and the like.Kelly MitchellExactly. And so there was this big opportunity to kind of utilize these folks to start pulling money away from asset managers that they believed were in some way boycotting fossil fuels or in other ways, looking down on disfavored industries.David RobertsBeing woke.Kelly MitchellBeing too woke, not wanting to put their money into investments that were going to lose them lots of money. The worst woke sin of all.David RobertsYeah, we'll get to that later. So then the right-wing activists get to the red state treasurers and what then? What happens?Kelly MitchellSo they start to do a number of things. They begin to organize these treasurers onto big sign-on letters to do things like block appointments to the Fed, to chastise members of the Biden administration for speaking out against oil and gas. But then they start to take more direct action. You see states like West Virginia and Louisiana start to send letters to financial institutions basically saying they're no longer going to do business with them. West Virginia stops doing business with JPMorgan Chase, they stop doing business with BlackRock because they believe that these companies have been unfairly targeting and blacklisting fossil fuel investments.They also transform a lot of these treasurers into big mouthpieces for the movement. You see treasurers going on Fox News, writing letters in the Wall Street Journal, and they have this kind of air of authority because they manage money. They're going out and really criticizing woke investing from that role as a state elected official.David RobertsYeah, and as I read about this, I think traditionally, based on our rapidly crumbling norms in this nation, state treasurers were quite nonpartisan. They were quite distanced from the whole politics fight. They were supposed to be sort of technocrats. But the young generation of conservatives, they're all creatures of Fox, they're all activists. And so now they're getting in those positions as well.Kelly MitchellAbsolutely. And that's basically the deal that these treasurers were offered. If you look at the State Financial Officers Foundation, it's sort of a trade association of Republican elected state treasurers and auditors. They basically said, "Look, we're contracting with communications firms. We have access to this whole web of right-wing organizations, you're a nobody state treasurer who anyone's ever heard of. But if you join this anti-ESG effort, we're going to get you on the news. We're going to boost your op-ed, we're going to provide you communications training," and suddenly people who no one would have ever heard of are becoming household names because they've dove into this culture war issue around ESG.David RobertsYes, this is, I think, for young conservatives why you get into politics in the first place, right? It's to get on Fox News. That is the, you know, the sort of middle stage where you actually do policy and affect people's lives has just kind of fallen out of it. Now they're all just like, "What can I say? This outrageous that will get me on Fox News." What about legislation?Kelly MitchellYeah, so we saw the first round of anti-ESG legislation launch in 2021. A think tank called the Texas Public Policy Foundation basically drafted a bill. It was basically governed contracts in the state. So it said that state governments, municipal governments, can't contract with organizations that boycott the fossil fuel industry. That went into effect in September 2021, and it kind of became this great natural experiment for what the impact of these bills are. And I know we might talk about it later, but —David RobertsYeah, we're going to get to that in a second.Kelly MitchellWe see this first bill come out in 2021. In 2022, we see another 16 states kind of dabble with these anti-ESG bills. But where it really took off was this year where there were about 157 bills introduced in 36 states. So a huge amount of legislation.David RobertsIs that every red state?Kelly MitchellJust about, yeah.David RobertsI think that's almost all of them.Kelly MitchellAnd plus yeah. So they absolutely flooded the legislative market with bills this year, sometimes introducing multiple bills within a single state to discover what approach might have the best chance of success.David RobertsPeople familiar with the operation of the right wing these days will not be surprised to hear that. ALEC, The American Legislative — what is it?Kelly MitchellExchange Council.David RobertsThank you. The American Legislative Exchange Council is known, I think, at this point, for having these sort of template bills where you just fill in the name of your state. They have those bills for this, right? I mean, that's how they proliferate so quickly.Kelly MitchellThat's right. And this year, there are about five different buckets of template bills, model bills that were introduced throughout the country. Some, yeah, came through ALEC, the American Legislative Exchange Council. Others came from the Heritage Foundation. Others came from the Foundation for Government Accountability. It's been a really instrumental bill on rolling back abortion access and voting rights in this country. So bills were everything from the style that the Texas bill introduced, which was restricting contracting within the state. We saw a number of bills that specifically went after pension funds, either putting restrictions on what asset managers pension funds could work with or even more insidious, introducing language — this is what we saw in Florida, for example, this year — that said that pension managers can only consider what they call pecuniary issues, sort of fiduciary, financial-return-focused issues when making decisions. And the best case scenario, the bill is effectively worthless because pension managers are already required by law to only look out for the best financial interest of the state's pensioners.David RobertsIndeed.Kelly MitchellBut what it actually did was sort of redefine what it means to hold that pecuniary interest in heart and said that if you're looking at systemic risks that violates pecuniary interests, if you look at risks with some margin, of uncertainty that violates pecuniary interests. And if you look at just a broad suite of kind of environmental or social criteria that potentially could violate your pecuniary interest. So it's basically rewriting the rules of what risks an asset manager can evaluate or not. And that's the stuff that really, I think, scared a lot of folks in the state because hamstringing investors like that could have some really big consequences down the line.David RobertsThis, I think, gets to a key feature of all this, which is that the sort of rhetoric is like you need to just be focusing on money but in reality it's saying you cannot consider certain risks.Kelly MitchellAbsolutely.David RobertsLike there are certain threats to the money that you're not allowed to listen to, which is very different, the sort of contradiction there. So this is very much something that was sort of born and germinated in big money, right-wing circles. Right. It sort of starts with these big money groups which then sort of they just push out into the states.They have this machine basically if all the big money people get worried about X, they just push it out and suddenly it's like in every state government it's on Fox all the time. But this is clearly a sort of big money originated thing, right? There's no popular outcry here.Kelly MitchellAbsolutely. This is not a grassroots movement. I mean, I think if you polled any person on the street they would have no idea what ESG even was, let alone have an opinion about it. Yeah, this has absolutely come from you have Texas Public Policy Foundation which has been a longtime recipient of Koch money, of oil and gas industry money. Leading this you have the Heritage Foundation super deep pockets and then within all of this you have groups like Consumers' Research which have been propped up by Leonard Leo, most famous for buying a Supreme Court justice or two.David RobertsBuying a couple? Yeah, he's completing a set.And what do you give a man who already owns half the Supreme Court? You get him onto some new culture war issue and you know, we know his organizations have been pouring millions of dollars specifically into this anti-ESG woke capitalism fight. So very, very deep pockets. A lot of dark money on the right launching this effort.Yeah. Even more top-down than usual, I think.Kelly MitchellAbsolutely.David RobertsAnd it's interesting, they are pretty explicitly trying to replicate what they did with CRT. The whole critical race theory thing. They realize, like, CRT means nothing to anyone, but that means it's just an empty vessel that we can fill with all sorts of bizarre, paranoid crap. They're trying to do the same thing to ESG, make it sort of another one of these kind of right-wing buzzwords that means just anything bad you can think of.Kelly MitchellYeah, absolutely. And they've been in the situation where in recent years it's sort of fallen out of favor to be an outright climate denier. But now with ESG, they found this vehicle to sort of drag climate denial kicking and screaming into the culture war.David RobertsSame thing. You can't be anti-racist in public anymore, but you can be against CRT. You can't be sort of just outright anti-climate anymore, but you can be anti-ESG.Kelly MitchellBut you can certainly believe that ESG is part of a globalist cabal that's forcing climate action on all of us.David RobertsYeah, but one thing I wanted to get clarity on before we move on is just this is something I don't think I really got a sense of reading around is are the amounts of money that red states manage material to a giant firm like BlackRock? Like I get there are sort of PR issues here and sort of like public — how things look. But just in terms of the quantity of money, is this something that's going to materially affect the financial industry?Kelly MitchellThe short answer is probably no. So in general, blue states, even though there are fewer of them, typically have much larger pools of money in their pension system than red states. And when you talk about a company like BlackRock, I mean, BlackRock has $9 trillion. That's an amount of money I don't understand. So one of the biggest pieces of action we've seen this year is that the state of Florida pulled $2 billion out of BlackRock and that was sort of the single largest withdrawal of funds that we saw from states in the last couple of years.And $2 billion is a rounding error to BlackRock. But I think to your point where the real issue has been is that it has kind of created this chilling effect where now you see Larry Fink and BlackRock not wanting to use the words ESG. And now you have this completely bizarre phenomenon that the New York Times has dubbed "green hushing," where you see insurance companies, financial actors continuing the practices they had before of evaluating climate risk, of looking into environmental considerations, but just not talking about it anymore because they're afraid of the political attention that's going to get directed their way. So, yes, on a dollar for dollar basis, BlackRock has more money under management today than it did when this campaign began, and it'll probably have even more next year.But I think folks just don't want the ire and they don't want the spotlight.David RobertsYeah, this is just a classic example of a very small group of people with extremely unrepresentative views and interests just having the raw money to make a lot of noise and just look bigger than they are. Right, you see this over and over again. They make so much noise that somebody in BlackRock is like, well, I just don't want to deal with it. You just would, like, at some point, they just run this same scam over and over again. At some point, you'd like some leader of a big institution like Larry Fink to just say, you know what?There aren't that many of these people. They don't represent anyone. Screw them. I don't care. But no one ever does. They're so easy to intimidate.Kelly MitchellAbsolutely.David RobertsThese big leaders are —Kelly MitchellIf I was in charge of $9 trillion, I think I would feel a little more confident.David RobertsLike, I own you people. I could crush you. Yeah, I don't get it. So I want to go through a couple of amusing aspects of this whole thing. There are several. One is it seems like it's mostly been a flop so far, both with the public and even with red state business communities. So maybe tell us a little bit about what we know about polling and what we know about how the actual financial institutions in these red states are taking this.Kelly MitchellIt's been a deeply unpopular effort, I think, for its attempts to copy CRT. It hasn't hit in the same way. So first off, if you poll folks about should the government be intervening to limit investment decisions based on ESG? It's a pretty unpopular thing. I mean, even among Republicans, I think about 70% of polled Republicans oppose it when they're asked about it, and polling can be what it is. But I think in this case, the proof is in the pudding in terms of how this stuff played out in the state. So 165 bills, 83 of them dead as a doornail.Some that are sort of lingering on to maybe continue into the next legislative session, a few that are pending and haven't quite had committee hearings. But overall, this hasn't been a slam dunk. And as much as I wish it was because maybe environmental advocates were showing up in these state houses, a lot of the opposition has come from the banking community, from chambers of commerce, and from pension managers in these deep red states. And they have been coming out hearing after hearing after hearing with strong language to oppose what's happening in these bills. The bankers are worried about compliance risks and costs.The Chamber of Commerce see this as a huge assault on the free market. Pension managers are worried about how this is going to reduce returns for teachers and firefighters over the next ten years. Even in the state of Wyoming, we saw the Wyoming Petroleum Association come out to oppose the bill because they even thought it went too far because some of their members have some methane emissions plans and work, and it's helped them to attract some financing and they don't want to put that at risk.David RobertsRight.Kelly MitchellWe're talking about states where Trump won by huge margins and they're coming out in force to oppose these bills.David RobertsYou're threatening the money. It's like one thing when you're like, waving bloody flags and causing parents to go yell at school boards, but you're starting to step on the money here. And that's —Kelly MitchellI mean, a lot of money. So in some of the states that had bills specifically around pension funds, like I was talking about earlier, those often came with the highest price tags. So in the state of Indiana, their pension board system said it would reduce pension incomes by over $6 billion. In the state of Kansas, they said $3.6 billion in reduced pension returns.David RobertsYou mean if these laws are passed.Kelly MitchellIf these laws are passed, yeah, because it's going to restrict who they can do business with, and it can restrict the amount of risk that they can continue to evaluate when making investment decisions.David RobertsThere was a study maybe that's what you're referring to, was it in Texas, where they sort of because Texas passed this bill and then they measured the increase in borrowing costs. It's not theoretical. It's been detected.Kelly MitchellThe effects yeah, that was the benefit of Texas going first is we got to see what the real life impact of these bills are that restrict contracting. And University of Pennsylvania Wharton School did a study on the municipal bond market in Texas before and after this bill, and they found that within the first eight months of implementation, it cost those municipal governments almost half a billion dollars.David RobertsGood grief.Kelly MitchellAnd if you're talking about small towns in Texas, like an extra million or $2 million you're paying to service a bond, I don't understand how these legislators go to these folks and say, "Oh, you're not going to build your library this year, but guess what? We really stuck it to the globalist cabal." So it's all good guys.David RobertsYes. It's amazing. It's such a punching yourself in the face phenomenon, right? That's just one of the levels of stupidity here, is like, even if the bills passed, none of the hated targets will be inconvenienced in the slightest. Like no one is going to be hurt by this that they're trying to hurt. They're literally just hurting themselves.Kelly MitchellRight. They're literally just like reducing the amount of money a firefighter can retire on, having a little less money for roads in a small town somewhere. And all just to make a political point in the culture war.David RobertsSo the business community hates it, the banking community hates it, the public hates it. The attempt to replicate CRT is not working. Another amusing aspect of this, I thought, is that if you could go back five years, ten years, and make your index fund hyper woke by taking all the oil companies and gas companies out of it, you would have performed like gangbusters these past five to ten years. Like energy stocks have been for s**t these last five to ten years.Kelly MitchellAbsolutely. I mean, oil and gas was the worst performing sector of the entire market in the 2010s. Like, you would have been better off, yeah. Just taking your money and putting in a pile and lighting half of it on a fire than investing in a lot of energy companies during that period. We saw hundreds of bankruptcies during that time. So, yes, it would have been a much sounder investment philosophy in 2010 to pull oil out of the equation.David RobertsYeah. If you had gone woke, you wouldn't be so broke.Kelly MitchellAbsolutely.David RobertsWhich is hilarious to me. Another amusing aspect: Our favorite presidential candidate, Vivek Ramaswamy.Kelly MitchellOh, yes.David RobertsPeople might sort of know him peripherally. He's one of these Republicans running for president, and he's sort of made his name by being kind of the lead anti-ESG guy, the lead critic of "woke capital," upon which he allegedly has some credibility because he's a finance guy, he's a money guy. So it turns out, I couldn't believe this, it turns out he runs a fund that he wants states to do business with. Like, he's literally a competitor in this space trying to work up this hysteria to hurt his competitors. It could not be more like it's not even hidden.Kelly MitchellYeah. To his credit, he's the most transparent grifter in this entire fight. His whole story is amazing. Right. So he founds this pharma company, and then after BLM takes off, he has to quit because it's so hard to, I don't know, say true things. After BLM —David RobertsHe's one of these guys who cancels themselves because he just knew he was going to get canceled.Kelly MitchellRight. He pre-canceled himself to go become an anti-woke crusader, and then he really immerses himself in the dark money. Right. So he's a frequent guest at Heritage Foundation. He's part of Teneo, which is another Leo Leonard sort of vehicle for young, up and coming culture warriors on the right. He embeds himself with the State Financial Officers Foundation and starts making all these connections with state treasurers, and then he decides to, I'm sure by coincidence, launch his own investment firm, Strive Asset Management. And then we see in case after case, how he uses the relationships he formed through the State Financial Officers Foundation with treasurers through Heritage to gain kind of special access to pension fund managers.So you can look at all these emails with pension fund managers where he's getting a special introduction from the treasurer and they're talking about how fun it was that they all had that steak dinner together. And then he goes before these pension fund managers to pitch either his proxy advising services. So he'll help you kind of vote your shareholder resolutions or he'll hold on to your money and directly invest it. So he's playing both ends, sort of churning up the anti-woke sentiment and then trying to find a way to profit off of it.David RobertsYes. And the state of Indiana went for it.Kelly MitchellYeah.David RobertsTheir pension fund is now signed up with what is it? Strive.Kelly MitchellStrive Asset Management. Yeah, they signed up for the proxy advising firm and a reporter out there was able to get a leaked copy of the contract and it included a $4,000 per hour fee for Vivek Ramaswamy's personal consulting services. Good work if you can get it.David RobertsI know. So he's out on Fox stirring up anti-ESG sentiment, then going with his own fund to hoover up that business and subsequently making $4,000 an hour advising Indiana. Even by our degraded standards these days, such a transparent grift. And nobody says "boo". Like, he's on the team. So boggling.Kelly MitchellAbsolutely.David RobertsOkay, so you've got this massive anti-ESG movement that's sort of stirred up by the right-wing money people through the right-wing money groups, through these treasurers in red states, opposed by the public, opposed by the red state business and banking community, a failure. Where it succeeds, where it is passed, it just causes states to lose money without hurting the woke targets at all. And it's just sort of the site of an amazing amount of grift. So just like all that together just makes it such a perfect crystalline example of conservative politics circa 2023. So let's talk about then, just briefly, because this is, I think, the real mind blower and something that a lot of listeners probably don't know. A lot of —I think a lot of people even involved in this argument don't know, which is what is ESG really doing? What is it really? Because I think people have the impression that you take your company to these ESG ratings firms, right? There are these firms out there that will assess your company and give you an ESG rating. And if they give you a high rating, then you can be part of an ESG fund. And there's tons and tons and tons of money flooding into these funds. So there's reason to want to be highly rated on ESG. These ratings firms, the sort of intuitive understanding that people on the street have is the rating firm goes and looks and tries to find out, are you a do-gooder? Do you have sort of like charitable initiatives? Like, are you doing good things on race? Are you doing good things on climate because of the goodness of your heart? And if you are, then we'll give you some points, right, so that the people who rate high on ESG do so because they are do-gooders, that are doing good in the world. That, I think, is people's intuitive understanding of what ESG is, but that is, in fact, not at all what ESG is.In fact, ESG is how you react to risks to your business posed by environmental, social, and governance issues. So, for instance, I'm sorry I'm ranting here, but this blew my mind as it sank in. Like, McDonald's, for instance, is highly rated in ESG funds. Why? Because they're doing something on plastic packaging. Why does that get them a good rating? Not because they're doing it out of the goodness of their heart, but because a bunch of European countries are contemplating regulations on plastic packaging. So McDonald's is reacting to a business risk by paying attention to its packaging, whereas McDonald's is an enormous source of climate pollution throughout its supply chain.But according to the ESG ratings firms, there's no imminent threat of regulations on that stuff that might affect McDonald's. So the fact that McDonald's isn't doing anything on climate is neither here nor there. It just doesn't affect their rating at all. The climate is immaterial to their rating because it's not currently posing the business a risk. So it's literally the opposite of what people think. These are not out of the goodness of your heart, do something good for the world. It's literally assessing businesses based on whether they are responding to risks. But do people who are following this fight get this, even like the pro ESG people?How well understood do you think this is?Kelly MitchellI mean, I think this is the layer where the entire ESG story jumps into absolute brain melting territory.David RobertsThat's just why I'm ranting. I can't even —Kelly MitchellI will give a shout out to Kate Aronoff at the New Republic, who I think has probably done the best piece so far on this. Just this whole idea of the right coming after this "woke investor class" when obviously no such thing exists. To the extent BlackRock or any of these guys are talking about climate risk, it is recognizing with eyes open that the world is decarbonizing. So depending on what industry you are in, how is that going to affect your bottom line? It's recognizing that the climate is changing in different ways. And if you have operations perhaps near a coastline or in a floodplain or in an area where wildfires are sparking up every five minutes, that's going to have a real impact on your business.It recognizes that there's an incredible amount of public political pressure for new regulations. The plastic stuff you mentioned that is eventually going to change and that the companies that are aware of these risks and can adapt to these risks and are taking the proactive steps now are the companies that are going to be successful in the long run. This is all in service of people continuing to make more money. And ESG overall, I think has been a pretty great thing for the oil industry because there are these rating agencies and each of them kind of have their own sort of standards and metrics that they use.David RobertsYeah, we should just pause to say people take these ESG ratings for granted. But these are mysterious black boxes. They're just, private firms, who do not even tell you, who do not even necessarily have to tell you what criteria they're using.Kelly MitchellAnd they all use different criteria. So I think in this muddiness, right, in the muddiness of having different rating agencies, in the muddiness of no one understanding what ESG even means, oil companies are kind of in the sweet spot right now where they get to put out their methane reduction plan. They get to put out their 2050 net zero plan. They get to kind of speak the language of risk and responsiveness, but they don't really have to do anything because at the end of the day, as of today, this moment, there is no government agency that's going to come and round you up and put you in cuffs if you're lying about your ESG plan.And so oil companies have kind of had the best of both worlds in some ways, where they can speak the language of sustainability via ESG without really having to do anything. And banks get to do the smart bank thing, which is evaluate risk, but they still get to pour billions and billions of dollars into oil and gas companies because they can make the claim that there's no existing regulation that makes that too risky of an investment for them.David RobertsRight. And then when there are regulations, which are a bunch happening on methane, right, methane is subject to furious regulation all over the place. Of course, oil companies have to do something about it. They have to. They literally have to. And yet they all get brownie points on these ESG funds for doing the thing that they have to do. So it's not like the ESG funds are saying you are going above and beyond on methane. You oil companies, so you get extra points. It's just like you're responding to this obvious looming risk, here are some brownie points.And they're all doing it. So they're all getting the points for it, right. So it's not you're even distinguishing among and between oil and gas companies on this?Kelly MitchellNo. And it's like when I ask my kids to clean their room or take the trash and they're like, well, what are we going to get out of it? I'm like, that's just the rule of living here. You don't get points for it. The stuff we reward these guys, we're just basic compliance with the law. We're like, wow, you're really stepping up.David RobertsYou get points for not breaking the laws.Kelly MitchellRight? But I think it speaks to sort of another fear that has animated the ESG stuff. So I spoke to the Larry Fink letter and the Engine No. 1 letter. But the other kind of looming threat that is driving a lot of this anti-ESG work is the threat that the Securities and Exchange Commission is actually going to throw a wrench in this plan and put in place some requirements that will force companies to disclose their emissions in a much more rigorous way and to actually have some teeth and enforcement behind ESG claims as we started to see in Europe. I mean in Europe, if you lie about your ESG goals, they do come and lock you in bank jail or whatever you do.But I think the fear of our government through the SEC actually starting to take some action and move ESG out of this black box amorphous "We're just just making sure companies evaluate risk" and actually force companies to put plans on the table that they're going to comply with and to really disclose the emissions impact of their products when used as directed. That stuff is scary and it's probably the place where for all the hilarity of the anti-ESG movement, what a disaster this has been in the states, what a disaster it's been in congress when they've tried to hold hearings. The one place where potentially it has had some impact is that it has given the illusion that there is enough resistance to climate action in the financial sector that maybe the SEC should be a little more cautious in implementing rules or maybe congress, because this is a hip new culture war thing, maybe congress should pitch back.David RobertsThere are sides and if the SEC does something it's taking a side exactly.Kelly MitchellIt moves it out of that risk management, let's keep our financial system in working order space. And now suddenly the SEC having a disclosure requirement becomes a culture war issue. And that's where potentially things get a little less hilarious than the bulk of the anti-ESG movement.David RobertsWell, one background question that I think occurs to a lot of people right around at this point in the discussion, which is if in reality ESG is just businesses responding to material risks to their bottom line, why is it a special thing? Why isn't it just part of the natural operation of business?Kelly MitchellYeah, it should be part of the natural operation of business. I think the biggest issue is that it's really easy for businesses to do that when there are these immediate, time-bound, practical, tangible risks. Like if you know that a road is going to be built near your factory, you can have a plan for that. I don't know why that's the best example I can think of a tangible material risk. But when it comes to some issues like climate change, or if you have some issues like addressing some really big disparities around race or gender in the workplace, they're so big.And the time horizon is so long, that I just don't think companies are very well built to figure out how to integrate that into their business decision. So in the best case of ESG, if you're steelmanning ESG, it actually provides a framework for companies to try to evaluate some of those really kind of long-term risks in a way they're not typically suited to do.David RobertsAnd I think you could fairly say that just the way public opinion is moving and the way sort of advanced democracies are moving. There's just more attention to these issues.Kelly MitchellAbsolutely.David RobertsMore regulations, more laws, more action. And so it's just, I think, areas that corporations traditionally were just not that cognizant of, didn't have to be that cognizant of. So I think that's why it sort of has this sort of air of novelty to it, because it is a little bit new for them to be caring about this.Kelly MitchellDefinitely. And they have to, for better or for worse. Yeah.David RobertsAnd they have to, which is the most cosmically, stupid — oh, and this is also a good time to — I opened this up on Twitter and the one question a ton of people have because this is sort of one of the times when ESG broke the surface of the news cycle and kind of poked itself into everyone's attention. Which is why Tesla lost its ESG rating. And then Elon Musk subsequently comes out — what I forget his exact words.Kelly MitchellLike ESG is the devil, I think is literally a tweet.David RobertsYeah, the devil incarnate. That was it. There you go. So people were confused by that, because people have it in their heads that ESG ratings are just a rating of how good a company is for the environment and society. Right. Which is not, again, not what these ratings are. So, like, if there are no imminent regulations forcing people to switch to EVs, then there's no brownie points for making EVs. Right. Whereas what they got dinged for was the race stuff. Right. Which is a material threat that they are not responding to.Kelly MitchellYeah, I think that too. And then there's the G, which I think is the piece of ESG that no one really likes to remember is there, which is governance. And that covers really basic issues like, do you have an independent board of directors or is it all your dad's golf buddies? And Tesla has suffered from some very serious governance issues.David RobertsYes. Are you making massive decisions on the fly on Twitter, half-joking might be like a governance issue. For instance, as you say, these dumb critiques of ESG tend to occlude the reasonable critiques of ESG, of which there are many. One of which is just, why is this a basket? Why are these three things in a basket together? It just muddies everything for them to be mushed together like this.Kelly MitchellYeah, it's really wild, actually. So the whole reason we got started looking at this anti-ESG work back in 2020, 2021 —David RobertsSay briefly what Documented is doing and how you ... I forgot to ask that early on, but sort of how did you dig up stuff on this?Kelly MitchellSo, Documented is an investigative watchdog group. We cover oil and gas issues, but also sort of democracy issues, things like voting rights and just the large influence of the dark money right. Increasingly creeping over our politics. And with this issue in particular, the way we came about the anti-ESG movement is for a while, we were attending industry conferences for the oil and gas industry, and we were noticing this trend that at every conference there would be some presentation from an ESG consultant that was actually there to talk to the oil industry basically about how to boost its ESG scores.And they would say things like, ESG doesn't have to mean green. It's just about saying this in your document and saying this in your document. And say —David RobertsIt hardly has to mean anything, really.Kelly MitchellExactly. It was all about how the oil industry effectively could kind of game the murkiness of ESG to attract more investments. And so we were following that for a while and about to potentially do a little write up exposé on some of those consultants that were making big money from this. And then, yeah, it was kind of around that time, that 2021, 2022 space, where suddenly the script flipped. And it wasn't really necessarily about how to game ESG anymore. It was about how ESG is sort of a threat to democracy and low energy prices and the stability of America.And it got politicized just really quickly. And so that's kind of where we started, just filing thousands of public records requests and tracking how this was playing out in different states.David RobertsI don't know if this is like a function of me paying more attention these days than I used to, but it seems like the scheming of the evil empire has just gotten less and less hidden. These emails you have uncovered are just like, I don't know, they're all in a bubble together, so I guess they just don't no longer feel any need at all to kind of, like, use euphemisms or to disguise what they're doing. It's all very straightforward. So let's talk about these hearings, because nothing really came of them. But I feel like we just need to at least spend a minute on how dumb these hearings are, even, again, relative to our degraded baseline standards for how dumb a congressional hearing can be, these were some spectacularly dumb hearings.Some of the accusations in these hearings. Are just —Kelly MitchellYeah, so the house oversight committee held two hearings in the last month or so on ESG, and, oh, man, they were a mess. So to start off, the star witness in the first hearing was the attorney general of Alabama, Steve Marshall. If for some reason the attorney general of Alabama is familiar to you, it's because he's been sort of a longtime leader in the Republican Attorneys General Association, including heading up the org that sent robocalls directing people to the January 6 insurrection. So he has a couple of questions about the election, but he's here to tell us the facts on ESG.David RobertsHe's just asking questions. Yeah, he's an attorney general. Not, we should just point out, say, pension manager or no, someone in the financial industry. Someone who knows anything about the financial industry.Kelly MitchellNo, but he has some feelings about cabals. Basically, the testimony from the attorneys general, who were their star witnesses and the members of the Republican caucus was like a bingo card of culture war catchphrases. Like, we had to talk about Bud Light and Dylan Muvaney. We had to talk about a cabal of global elites.David RobertsOh, the SVB. The bank.Kelly MitchellWe had to talk about that bank.David RobertsThat only went under, as we all know, only went under because of wokeness.Kelly MitchellWe had Representative Grothman worried that ESG meant that certain men of, quote, European descent would no longer be able to get jobs in this country.David RobertsThis is what we all know ESG is moving toward, not allowing corporations to hire white people anymore.Kelly MitchellExactly. My favorite, though, was Lauren Boebert. She described with a complete straight face, BlackRock, not as the world's largest asset manager, not as the world's second largest investor in fossil fuels. She described them as a left-wing activist fund.David Roberts$9 trillion. Imagine if lefty activists had a $9 trillion fund on their side. Just imagine the possibilities.Kelly MitchellOh, man. So, yeah, they basically brought out all the hits. I think they probably had to pinch themselves under the table to not say, like, the Jews and just talk about global elites and their secretive cabals instead. I mean, the anti-Semitism was certainly dialed up to ten on this one.David RobertsSo there's the cabal, and they're saying insofar as they're making any tangible accusations, they're trying to say to their base that these companies like BlackRock are boycotting fossil fuel companies, gun companies, agriculture companies, all the companies that are crucial to the heartland, et cetera, et cetera, et cetera. And just, you know, they're not.Kelly MitchellThey're definitely not at all. Yeah. I mean, look at any major oil company in this country, and look at who the top investors are, and it's all the companies that are supposedly boycotting them.David RobertsThis is a hearing that Katie Porter, who has been to her share of hearings, called the stupidest hearing I've ever been a part of, which is, if you can get that out of Katie Porter, who's sat through a lot of dumb hearings, that's very impressive. So I just hardly know what to say about it. So is anyone in charge over there? And if so, what do they want out of this? As we've seen, insofar as they succeed in any of the things they're trying to do, it does literally nothing but hurt their own states. It just makes borrowing more expensive.It just makes running the pension fund more expensive. It increases the bills for municipal budgets. Is there a discernible goal here?Kelly MitchellAny goal would be a little bit of speculation on my part, but that's why you come on a podcast. So you can just wildly speculate —David RobertsWildly speculate here that's what we do.Kelly MitchellI think for a lot of the individuals involved, to them it's like a ticket to higher office, quite frankly. We talked about how the treasurers have gotten communication support through doing anti-ESG work. So Riley Moore of West Virginia is riding his recent anti-ESG fame to make a congressional bid. There's a number of places where you're seeing state reps and treasurers who have been on the forefront of this anti-ESG movement seek higher office, governor's offices, AG's offices. So I think for them it's really a personal branding issue. It gives them a stake in the culture war for their base.And then I think for the folks with really deep money, like the Leonard Leos of the world, the folks who are running some of the bigger dark money groups like Heritage, it potentially accomplishes a couple of things. Like Leonard Leo has talked about how he basically wants to build a Federalist Society for everything. It's not enough that he built an organization —David RobertsWhat a nightmare phrase that is.Kelly MitchellIt's terrifying, right? And he sees himself saying "Okay, I was able to do this for the courts. I was able to cultivate young lawyers, young judges through the Federalist Society and then eventually" —David RobertsWidly successfully.Kelly MitchellWildly successful. And now he's saying, okay, well how do we do that in entertainment, how do we do that in finance? How do we do that in other areas of government? And so I think this is potentially a bit of a little salvo for him to see how he can sort of cultivate and deploy his own network.David RobertsGet some drones into the financial industry.Kelly MitchellOr boost the profile of actors like Vivek Ramaswamy or these are sort of state treasurers that he wants to have a long term stake in. And then I think from the perspective of the oil and gas industry, they've had a really interesting role in this. They're not the folks who are on the ground lobbying for these bills. They are not the folks testifying in Congress. They've actually been quite quiet on the anti-ESG stuff, I think, because they want to have their cake and eat it too. Like they like the ESG apparatus for what it's able to get them in the near term and muddy —David RobertsThey're pulling in all kinds of investment through it.Kelly MitchellExactly. So they're not going to cut off that gravy train just yet.David RobertsJust literally the opposite of what Boebert et al. are saying. They're saying ESG channels investment away from oil and gas and ESG literally does the opposite by doing these notional mild steps, many of which are required by regulation anyway. Oil and gas companies get more investment, extra investment.Kelly MitchellBut what I think they do like is people in state houses, people in Congress falling on a sword to talk about how the worst thing we could ever do as a society is cut off financing to the fossil fuel sector, whether or not that's what ESG is doing at all. You have these champions of investing in industry now in all of these states and you have a lot of resistance within Congress to SEC regulations around climate disclosure. And so what I think that the fossil fuel industry has gained in this process is just creating potentially some new champions and potentially creating a little bit of doubt among the Biden administration and other regulators about how —David RobertsSpooking people.Kelly Mitchellhow aggressively, exactly, they can move on this front. And so I think that will be something that's paid dividend. We haven't talked about it quite as much, but it's like we know that American Petroleum Institute has been in the mix with the treasurers a bit. We know they're coming out now publicly in favor of a bill that's going to be marked up this July in Congress around these issues. So they are starting to creep into the mix a little bit here through the trades. But I think the world is better for them when there are more people who want to block action on climate change.David RobertsYeah, I wonder that's the calculation for them, the sort of tangible benefits of ESG as currently operating for them versus the sort of more difficult to quantify, but possibly quite larger benefits of just kind of shifting society away, spooking society away from taking climate seriously.Kelly MitchellExactly.David RobertsA real devil's bargain there. So I just want to pause to say, like, yes, there are some of those potential benefits attenuated benefits, but really even more than the usual right-wing kind of moral panic, two-minute hate or whatever they call it, even more than usual, this is like almost entirely self-contained and without consequence. You know what I mean? It's just a show for the show's sake. There's not even things in the world that are hinging on it anymore. It's just they are just performing for one another now.Kelly MitchellAbsolutely. I mean, it's your best audience but no, I'll give you just one example. So, I was at a petrochemical conference earlier this year and not the greatest champions of the environment historically, but the whole conference was a love note to ESG. And you had guys come to the stage and they say, "Look, you might hear a little bit about the political pushback, but in reality no serious investor is going to stop looking at ESG criteria." And that's how folks are opening their speeches. And I was able to talk with a pretty high up exec in a global petrochem conference and I asked her that, I said, "Look, with all this political pushback, are you going to be changing your practices?Are you going to be abandoning your DEI initiative? Are you going to abandon your ESG initiative if you're given political cover to not have to do it?" And what she told me was "No, because we'll never be able to hire anyone again." And so I think this stuff is so baked into the system where investors can't look away from these risks anymore, companies can't look away from these risks anymore. There's a real question of how much anyone here is really going above and beyond. But yeah, the fighting from the movement on the edges is super performative.David RobertsYeah, just like dealing with risk. That's the thing, the big companies will do a lot of things in service of right-wing culture wars, but they won't risk money. They won't risk their bottom line. That's where they draw the line. It's like, "Wait a minute, we're actually making money off this hold up. We'll take down pride displays, but we're not going to risk money." I guess, insofar as it's almost entirely performative. How do you anticipate it playing out? Is anything going to come out of this? Is there a next step? Is it going to go anywhere or is this just going to sort of fade and they'll be hysterical about something else next month?Kelly MitchellI think there are two places where we see it heading and they're both around legal issues. So they've kind of played the legislative card for the time being. I think what we'll see next is we've had a number of attorneys general, similarly organized through the Republican Attorneys General Association, who have threatened to bring antitrust cases against companies that are part of any partnerships.David RobertsWhat is the European group? Zero —Kelly MitchellYeah, there's a G fans and an N fans and a Glasgow.David RobertsYeah, I forget what all the acronyms are for, but there's lots of these associations of companies who are about taking these risks seriously and trying to alter their portfolios in response. Is that I mean, with legal issues these days, it's almost immaterial to ask if there's any merit to it since if it gets to the Supreme Court, who gives a crap with it?Kelly MitchellLeonard Leo stacked the deck for us.David RobertsExactly, because Leonard Leo finished his job there. But is there any merit to the antitrust angle here?Kelly MitchellMy understanding is if there is, it's slim and it's probably if there's any place where there may be some merit to it, it's with insurance companies. Now, I won't explain why because I'll say a bunch of things that aren't probably true, but that's sort of the legal read I've been given. And I think that's why we've seen a number of insurance companies who have dropped their membership in some of these alliances. And interestingly enough, none of them have rolled back any of their climate-related policies. Like, they're all still taking into account climate risk. They're just not going to do it through these global alliances because their lawyers have informed them that potentially there is some amount of risk involved.David RobertsRight. Why take on the hassle? That's the thing to intimidate these people. It's like a little bit of hassle, why bother?Kelly MitchellSo I think we'll see the antitrust stuff continue to rev up and again, it's like, yeah, when you have people like Ken Paxton, when you have some of these AGs that are just really aggressive and really political, like you said, they'll bring a suit whether the merits are there or not. And so I think that could create a bit of a chilling effect.David RobertsIf there's anything goofier than Republicans suddenly pretending to care about high school girls sports, it's Republicans suddenly worrying about trust.Kelly MitchellReal champions of antitrust —David RobertsAntitrust champions. There's one thing they worry about. It's corporate concentration of power.Kelly MitchellSo we may see that, and I think it will follow the same path of being mostly very stupid and nonsensical, but then having these little moments of real-world impact along the way because people get spooked. And then the other area where we could see some evolution is we've now seen two class action-esque lawsuits filed. So one in New York State against the New York State pension system, and one in Texas, but actually against the American Airlines pension board, whoever manages the board, and basically their lawsuits against those two pension bodies for either divesting from fossil fuels or for offering ESG options in their pension fund.David RobertsJesus.Kelly MitchellMy sense again is neither of them have an incredible amount of standing. I mean, the American Airlines one is wild to me because it's not even that they took this guy's pension money, the guy who's suing and invested it in some vehicle he didn't like. It's just that they offered ESG funds in the menu of funds that pensioners can self-select. So it was a complete opt-in environment, but just the existence of that opt-in checkbox is sort of prompting his lawsuit.David RobertsGood lord.Kelly MitchellSo what I could see happening potentially is that similar to the legislative strategy where they just threw nearly 200 bills across a number of states to these hearings where they're testing out every conspiracy theory. Maybe we enter this phase with antitrust action from AGs and or these private citizen suits where they're again, just sort of trying to test the water and see if there's any ground here to stand on.David RobertsWell, pushing it into the legal realm is that's where Leonard Leo has already done his work. So the merits are going to matter a lot less in that territory than when you're talking to actual money people who actually care about actual money. Super dumb. But I think it's fair to say, just by way of kind of summarizing and tell me if you agree, the broad global trend of big money taking climate risk into account is unstoppable. You're not going to turn the clock back on that?Kelly MitchellNo, it's left the station and you can't not take it into account. There's too much actual change happening in the world for any sound money manager to ignore it at this pace. So in the long run, I think this is where the investment community is headed. I think a lot of executives will take this stuff and integrate it into their company's decision making.David RobertsAnd young people, one of the reasons all this started is that whether you like it or not, old guy on the board, young people care about this stuff and you need to be able to hire young people.Kelly MitchellAbsolutely, yeah. I think for the oil industry in particular, it is a huge problem for them. They offer very good salaries, like, they pay their workers very well. Now, sometimes they're not always doing the most desirable work, but they pay well. They've been a great ticket to opportunity in a lot of communities and they are struggling to hire given their current reputation. And so, yeah, this type of action is what makes it palpable for a young engineer to come work for ExxonMobile.David RobertsYeah, and I forgot to actually mention, even though it's in the headline of this pod, but the reason we're doing this now is that July is, according to Republicans, ESG month. This means at least for the next month, it's going to be an absolute festival of dumbassery and further ridiculous hearings.Kelly MitchellI think they're doing two a day on some days this month. They're doing double-header ESG hearings in the middle of July, which is a real way to know an issue.David RobertsHow many conspiracies are there? Like, how do they fill up the time? I'm not going to hurt myself by watching, but I honestly wonder sometimes, once you've run through the top-ten, Fox News — What do you talk about after that?Kelly MitchellI think you just rinse and repeat.David RobertsAll right, thank you so much, Kelly. Thank you for digging into this and documenting what's going on and thank you for walking us through it. And again, I commend you for maintaining your psychological health throughout this process.Kelly MitchellThanks, David. No, it's been fun and, yeah, thanks for having me on. I really appreciate it.David RobertsThank 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. This is a public episode. 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