When President Biden first took office, his administration released a series of "Day One executive actions." Among them was reforming the way federal regulations are developed and evaluated. This is not exactly something the public was clamoring for, or even aware of, but it is foundational to the administration's ability to achieve its other goals.

The agency in charge of reviewing proposed federal regulations is called the Office of Information and Regulatory Affairs, or OIRA, which sits inside the Office of Management and Budget (OMB). It is a fairly obscure corner of the federal bureaucracy that doesn't come in for much public scrutiny, but as the gateway through which all federal regulations must pass, it is immensely powerful in shaping the space of possibilities for any administration.

A few weeks ago, OIRA answered Biden's call by issuing updated versions of two crucial documents: circular A4 and circular A94. The former contains guidance for agencies on how OIRA will evaluate regulations; the latter contains guidance for how it will evaluate public investments.

These guidance documents have not been updated in over 20 years, so this development is long overdue. The new circulars contain some fairly technical updates to the way OIRA does cost-benefit analysis — and the goals toward which it deploys cost-benefit analysis — but they are incredibly important, evidence of a generational philosophical shift.

To unpack these changes, I talked with Sabeel Rahman of Brooklyn Law School, who served as acting administrator of OIRA last year while its current leader was being confirmed by the Senate. Rahman was intimately involved in designing the updated guidance, so I was eager to talk to him about the new approach, how it was developed, how it reflects Biden's priorities, and what it means for the future of climate and other regulations.

I know this sounds wonky, but it is worth your time. I promise you will come out of it excited about cost-benefit analysis.

In this episode, Jennifer Garson of the Department of Energy’s Water Power Technologies Office discusses the state of hydropower in the US and where the industry is headed.

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Text transcript:

David Roberts

For decades, hydropower has been most common source of renewable electricity in the world. (In the US, it was passed by wind a few years ago.) Pumped hydro — large hydropower facilities in which water is pumped up and run down hill to store energy — remains the most common form of energy storage, both in the US and in the world.

Even as the vast majority of media attention in the clean-energy world goes to wind and solar power, hydropower continues churning away in the background, generating and storing vast amounts of renewable energy.

Hydro has a long and storied past, but does it have a future? What's going on with hydropower these days? Is there any prospect of building new dams or of finding more power in existing dams? What's going on with small hydropower, on rivers, streams, and reservoirs? And is ocean energy ever going to be a real thing?

I've taken hydropower for granted for a long time, so I decided it was finally time to dig into these questions. To do so, I contacted Jennifer Garson, head of the Department of Energy’s Water Power Technologies Office (WPTO). The WPTO oversees a sprawling network of prizes and grants meant to encourage hydro and marine energy projects. I talked with Garson about the future of large dams in the US, the promise of small-scale hydro for local communities, and the uncertain future of marine energy.

Alright, with no further ado, Jennifer Garson, welcome to Volts. Thank you so much for coming.

Jennifer Garson

Thank you so much for having me.

David Roberts

Alright, so we normally normally here on Volts, we do the sort of deep dive into one thing. But this here we're going to attempt something slightly different, which is a broad overview of a fairly large category, larger than I think I appreciated before I started digging around and just try to get a sort of global sense of where it's at. Because I know that from my experience in clean energy, I've sort of, like, had hydro in the back of my head as kind of this steady presence, a little bit like nuclear, like a steady presence in the background, but not something where anything kind of dynamic or new is happening. And I think you probably disagree with that.

So let's get into it. So just to start with, what are the technologies encompassed by the terms "hydro" and "marine energy" that your office covers? What is the remit?

Jennifer Garson

Yeah, so glad you asked that. And it is, sort of, just by nature of our office as we're structured that, we have two very interesting, but two very different types of water power technologies. So the first that you mentioned is hydropower. Hydropower really has been delivering power for the last 100 plus years. It's both the conventional hydropower, so very large behind the reservoir, big dams that people usually envision when they're thinking about hydro. We also have smaller non-powered dams that we power with hydropower. We also have run-of-river systems that actually have diversions in addition to dams, where you actually have water flowing to the side of the river. And then we also are thinking about hydropower. Even in conduits and canals, how do you use existing water infrastructure to provide power, whether it's for water treatment or irrigation, a whole number of different ways that you could use existing infrastructure for water power.

Jennifer Garson

On the other side of the portfolio, we have marine renewable energy. So while hydropower is probably the oldest form of renewable power — although potentially, arguably wind is too — marine renewable energy is the most nascent form of renewable energy. And that's really looking out to the power of the ocean. Everything from how do we kinetically capture power, how do we use gradients to capture power. So everything from tidal power, wave power, ocean thermal energy conversion, even salinity gradients and even pressure gradients, really looking at a multitude of ways of when you look out at the ocean and see all the power that's contained in it, how do we use different power capture systems to harness multitude of ways that the ocean generates power?

David Roberts

Got it. So water on land and water at sea ...

Jennifer Garson

Water everywhere.

David Roberts

Water everywhere. So let's start then with big dams, because I think this is when you say hydropower, this is what springs to people's minds as sort of the conventional form. I think conventional wisdom is that we've got a lot of big dams in the US creating a lot of power and it's steady and it's good, but that's more or less it. And so this is my first question. It's just do you think we're going to build any more large dams in the US or large, dam-wise, are we basically tapped out?

Jennifer Garson

So that's a really excellent question. I think there's a general agreement that we are not going to be building. Any large dams on existing waterways. I think in terms of large conventional hydropower, we are most likely tapped out. Particularly here, I should say, in the United States. That isn't necessarily true elsewhere across the world.

David Roberts

Right.

Jennifer Garson

We do think about building other big structures like pump storage, but those have been now leaning more towards what we call closed-loop systems, which are two bodies of water connected, but they're usually constructed and fabricated bodies of water. They're not connected to an existing large river. So I think for the United States, we're not going to see any large behind the reservoir, conventional hydropower, big dams built on any of our riverways anytime soon.

David Roberts

Also on the subject, I've heard conflicting things about the carbon emissions of big dams. I feel like there's been some new research lately that shows that those emissions are higher than we thought. Because you're disrupting a bunch of soil, you're creating a pool where things rot and produce methane. So what's our latest state of thinking on the large dams that exist? Are there large dams that exist that we think are less of a carbon asset than we thought, that we think need to be closed down for environmental reasons?

Jennifer Garson

So I think those are actually two separate questions, one is what is the science behind say, methane or reservoir emissions, particularly given vegetation? We are conducting studies right now at the Department of Energy really trying to understand what types of sensors and measurements are needed to either validate or invalidate that as a theory. I think that there's still unsettled research on the magnitude of the impact, also the timing of the impact. So the other thing that we talk about when thinking about reservoir emissions is, if you're talking about vegetation rot at the bottom of a reservoir for a dam or a facility that's been around for a long time, does it still hold that you have emissions or methane challenges? And I think we still need to do more research on both the kind of temporal nature and the magnitude of the problem. It's not to say that we think there's no problem at all or there's a major problem.

I really think it's a critical research question that we are fundamentally trying to address with kind of true scientific method. On the environmental piece, there's obviously been a lot of both discussions and controversy about dam removal. And I would say even ten years ago, it was not a conversation that the hydropower industry was really actively engaged in or even potentially willing to engage in.

Jennifer Garson

But over the last few years, there's been a really interesting kind of convening between the environmental and the hydropower community actually under ... it's called "The Uncommon Dialogue", it was run by Stanford University that was really trying to get together the environmental and hydropower community to have tough conversations like dam removal, but also dam repair, rehabilitation, and retrofits. And we actually just announced a few weeks ago, through funding that we received under the bipartisan infrastructure law, that DOE is actually going to fund more participation in that uncommon dialogue stakeholder strategy sessions, so that we can really understand where some of the opportunities at both environmental benefits like flood management, temperature control, but also the types of tools and research that we need to understand, "What are some of the environmental implications either of leaving power dams in existence?"

Dam removal isn't necessarily something that we do within DOE, but we do support this kind of ongoing dialogue between the environmental and hydropower community, because ultimately the future of hydropower needs to be one that is sustainable and compatible with both from a climate perspective and from an environmental perspective.

David Roberts

Right. Well, on the flip side of that, my other question is not all large dams in the US are producing power, and the ones that are powered aren't necessarily producing the maximum amount of power they could produce. So how much sort of runway do we have in powering existing dams or upgrading existing hydropower facilities?

Jennifer Garson

Yeah, so there's kind of a couple of pieces in there. One is that there are 90,000 dams in the United States, and only 3% actually have power.

David Roberts

Oh, no kidding.

Jennifer Garson

Yeah.

David Roberts

Is it mainly small versus big is, like, the biggest ones have power and a bunch of smaller ones don't? Or is that not the dividing line?

Jennifer Garson

It really varies. It's not necessarily the big ones do, I mean, you think about some big dams that do have power. I think predominantly you're looking at small to medium-sized dams that aren't currently powered, and many of them were built for other reasons, like flood control, recreation, irrigation, you name it. But still, it's always been incredible to me to kind of dig into those numbers where you think that every dam must have hydro associated with it, and it doesn't.

We've been doing a lot of research, looking at what are the attributes of non-powered dams that we could potentially tap into for power purposes; how do we take advantage of this existing infrastructure and potentially provide power to it? And so, only about the top 600 dams that we have have more than 1 megawatt of potential, but they account for, actually 90% of the total non-powered dam potential. The top hundred largest dams represent about 8 gigawatts, and the top ten represent about 3 gigawatts.

Jennifer Garson

So there is quite a bit of power even within those non-powered dams. And actually, from 2000 to 2020, there were actually 36 non-powered dams that were retrofitted that added about a half a gigawatt of capacity. But then you also talk about, what do we think about for the expansion of the existing hydropower fleet?

Jennifer Garson

We all know that hydropower right now accounts for about six and a half percent of total load nationwide, but the capacity expansion, even at looking at what do we do with the existing hydropower fleet that we have, you could actually have a combined growth of about 13 gigawatts of new hydropower generation capacity through existing plants, adding power to non-powered dams and some new stream reach. We had initial estimates of about 36 gigawatts potential for new pump storage hydro capacity, too.

David Roberts

So there are then potentially gigawatts of new power to be had with dams that are already built?

Jennifer Garson

Yup.

David Roberts

And so why is it that already happening? Is it the economics? What needs to happen to really ... because we need all the clean power we can get, so it seems like this is something we should be pursuing unless there's something stopping us. So what are the barriers to making that happen?

Jennifer Garson

I mean, the answer is it's complicated because it's very dependent upon the site that we're talking about. So it could be that adding existing capacity requires additional capital and if the capital gets too high is there a customer willing to pay for that higher price of electricity? There's also complications, especially for the existing fleet for relicensing. The relicensing process for hydropower is incredibly difficult. It's surmountable, but it is difficult.

It's actually more difficult. We did a study about a year ago looking at the licensing and relicensing process for hydropower, and the number of agencies even involved in hydropower licensing actually exceeds that for nuclear.

David Roberts

Take that, nuclear-whiners.

Jennifer Garson

Exactly. Hydro has got it worse. But even with the challenges for licensing and finding capital, we still think that there's enormous promise by tapping into this existing generation fleet, particularly given the firm flexible, baseload generation power of renewables through hydropower, specifically. We even looked at a study looking at what's the black start capabilities that hydropower currently provides. Right now it's 40% of the black start capabilities is actually provided by hydro.

David Roberts

Interesting.

Jennifer Garson

And whether you're talking about spinning reserves, ancillary services, other grid services, I think we're going to need to both expand what we have in our existing fleet, but also maintain that existing fleet in order to provide the critical services that we need as more renewables come online.

David Roberts

One of the big worries in nuclear is you've got these plants that are up and running and they're scheduled to close, basically. And so there's all this agita about we've got this clean power, we're about to take it off grid. It's crazy. Are any of our big dams scheduled to close or are they more or less like can run forever as long as you maintain them?

Jennifer Garson

Again, it depends. Some are subject to licensing and relicensing. Also half of the hydropower fleet is actually federal, so part of it will stay online as long as the federal government wants to maintain those dams. But the threat of licensing or the threat of not being able to get through the relicensing process for our existing fleet could leave up to about 50% of our fleet in the next ten years is up for relicensing. We don't get that through relicensing. That means we lose a substantial amount of our power if they can't get through the regulatory process. And so we're trying to focus on even things like how do we improve the environmental performance of existing dams? How do you really think creatively about some of the upgrades that could expand some of those grid capabilities? Because if you're going to take a facility that's been online and it's been load following, it's really for keeping the lights on.

Jennifer Garson

How do you change the operational nature of those plants to also provide those grid services without degrading the existing hardware at those facilities? It's a totally new operating environment, one that we can almost take advantage of the relicensing process and do these types of upgrades, but it does mean that we have to get that non federal fleet through the relicensing process in order to keep them online.

David Roberts

This story of excess bureaucracy and paperwork slowing things down pops up ...

Jennifer Garson

Everywhere!

David Roberts

Everyone I talk to.

Jennifer Garson

Yes, sadly, but I will say we've actually seen a lot of interest on the Hill, on Capitol Hill, over the last probably two years, I'd say through a bipartisan nature at thinking about some of the challenges and opportunities in particular on hydropower regulatory reform. Now we again at DOE really just take a sort of analytical approach to understanding what that regulatory process looks like and how it exists. But even last spring there was actually a Hill committee meeting specifically on the regulatory process. It was actually in a follow on a Hill committee staff meeting that was specifically on hydro last January. So I think there's both a recognition that something needs to change and I think potentially some momentum behind trying to really take a hard look at what the hydropower fleet has to go through from a regulatory perspective.

David Roberts

Yeah, I guess it just strikes me it would be a little crazy for us when we're in this mad scramble for clean power and we have this infrastructure, a lot of which is already built, that we could just get a lot more clean power out of that we're not going for it, Gangbusters. final question about large dams, which is one of the things you hear about the future of hydropower is the threat of climate change itself and the threat of droughts and the threat basically of hydro output, which has typically been fairly reliable, becoming more sort of unpredictable and variable and a little bit less reliable. Is that something you think about a lot?

Jennifer Garson

So actually last year we conducted a really comprehensive look at the effects of drought on hydropower generation in the United States. So we did a couple of different analyses, but I'll touch on this one first. Drought obviously can and has impacted hydropower in the west, but if you actually look at it from a fleet wide perspective, the Western hydropower fleet still sustained 80% of its average generation during the worst drought this century. Now, that was a lot of times reliant on what you had as storage behind the reservoir and so we are doing a second order analysis to say what happens when you have less reservoir ability to really do an overall assessment. But there are so many smaller subregions in the west that still they don't typically always have drought super decentralized. It's usually essentialized in certain areas. So it is certainly a threat and we have a lot of work, I think, that we've been doing it. How do we look at from a forecasting perspective, not just looking at hind-cast models, don't use past as precedents, also look to the future for future climactic modeling and how do we begin to plan from both a climate resiliency perspective?

Jennifer Garson

What are the localized impacts going to be on individual sites? But when you look at it from a fleetwide perspective thus far, we actually haven't seen that much of a decline in power production across the west. That's because sometimes where we have more acute drought in some regions, we might have an abundance of water in others. If you take a look at even California, whether it's through the impact of atmospheric rivers or a historic snow pack.

David Roberts

The snowpack they've got now historic highs. Is there going to be an abundance of hydropower next year?

Jennifer Garson

It certainly could help make sure that there is a reliable amount of water to help sustain hydropower production. There's a lot of hydropower in California, but I think we still have more work to be done on both what's the forecasting and looking at snowpack melt and what it's going to mean for a next season's. Hydropower availability and how do we plan not just on a year to year basis, but over a longer period of time? So we're committing a lot of resources towards this hydrologic and climate science analysis. We also just did the most comprehensive assessment through Oak Ridge National Laboratory, it's called. And this is because of the Secure Water Act, the 9505 assessment, which really looked at an analysis of hydropower generation affected by long term climate change, specifically at the Power Marketing Administration.

Jennifer Garson

And our most recent report, which we actually just published last year, is that long term average runoff and hydropower generation are actually projected to slightly increase across the continental US, but some summer runoff is projected to decrease by the mid 21st century. So you're talking about seasonal change and so that will require us to think about storage in different ways when we can rely on hydropower. Do you shift the kind of seasonal expectation of it really fitting summer loads and potentially more in spring or even winter loads? But maintaining that flexibility and operation is going to be a key challenge, whether it's because of projected seasonal availability or just water management strategies or just the fact that when you look at it from a purely sort of quantitative perspective, our ability to know where water goes is not nearly as sophisticated right now as where electricity goes.

Like, our sensors and measurements are so far behind that which you see in the electricity sector that we feel like there's a lot of opportunity to increase sensors, monitoring and models to be incorporated into hydropower forecasting so that we have more predictability and a better understanding of just how climate change is going to impact hydropower availability. It's not to say that it's going to be easy, it's just it's more complicated than what you would imagine just looking at pictures of drought in the west.

David Roberts

So let's talk about then smaller scale hydro on rivers, streams, canals, conduits, smaller forms of river. I've heard about these sort of in the background for many, many years. As far as I can tell, it hasn't really amounted to much. And just like intuitively, when I think about building like a little dam or a little generator just for the amount of power that's coming through a stream or a river, it sounds like a lot of infrastructure for a small amount of power. So I wonder about the economics. So maybe you just tell us what is the deal with small scale hydro?

Is it a real thing? Is it growing or shrinking? Is there a lot of potential there? What do we know about it?

Jennifer Garson

Sure, I want to just set a little bit of context.

Jennifer Garson

When we talk about small hydropower, we're talking about anything between as small as 100 kilowatts, all the way up to 10 megawatts.

David Roberts

Got it.

Jennifer Garson

And, we do have this picture that large-scale hydropower is really the predominant form of power. But actually, 72% of our hydropower fleet — it's almost 1,700 plants out of the almost 2,300 total plants — produce less than 10 megawatts apiece. So even though it may be more obvious that we think about hydropower as large, it's actually almost 3.65 gigawatts of hydropower capacity is actually small.

And I think that when you think about these small hydropower facilities, a lot of times they're in places that it's serving a local load or it's serving a direct facility. And so, to me, I think the value of these smaller facilities is how they're providing power to local customers. Many of them are owned even by what you would consider more like mom and pop hydropower operators. But also when we think about the potential for non-powered dam development — so we talked a little bit earlier about, "Are the big non-powered dams big or are they small?" — 71% of the potential for non-powered dam development is actually in small dams with small reservoirs. So it may not be a simple form of power capture, but there really is a lot of potential untapped through non-powered dams.

And then you talked a little bit about run-of-river. The run-of-river potential is also there. We have been talking to different communities that are considering run-of-river systems for power. And a lot of times soon we're thinking about some of these small power dams. We get approached a lot by say, communities in Alaska where they're looking at what are their power potential in places where they're not going to be able to harness solar on a year-long perspective or be able to potentially get wind reliably. And so some of these small hydropower facilities in more kind of remote and isolated areas could provide really meaningful power to places that may not have another form of renewable energy accessible to decarbonize their systems. And to me, that's just as meaningful as adding big, huge gigawatts everywhere.

Jennifer Garson

We need to add big, huge gigawatts everywhere of renewables. But I think the potential for some of these smaller hydropower facilities could be incredibly meaningful. We also even just did an assessment last year, looking at underserved and distressed communities in the Appalachia region, where could you power non-power dams and add different forms of storage to provide almost essentially quality-base load power. And there were quite a few sites where you could provide reliable, relatively cheap power for these communities.

Jennifer Garson

Now, when it comes to the economics, it is more expensive when you look at it from a per megawatt basis. But when I think about the critical value of having hydropower serve, essentially, around the clock, I think this is where we think about decarbonizing everything from the electricity sector. We're going to have to have a higher willingness to pay for firm, flexible power.

I think, when we're thinking about the economics of small scale hydropower, we think about it in a couple of different ways. One is, what is that power going to provide at that small scale? When you're thinking about it as a firm baseload power, is it providing power to places that might not have otherwise access to renewable electricity or a clean grid? Is it in combination to with, say, a solar array and storage? We've seen a couple of small hydropower developers who are looking at it as almost like a mini micro-grid with hydro as the small baseload power. And so rather than it just being the project economics is just the hydropower facility itself, thinking about it from a project perspective: hydro with storage plus solar. And how do you think about it within that overall kind of portfolio context and not just the facility itself? That being said, funding these types of projects is not easy, whether it's because of the licensing or relicensing process or because of the high capital costs.

David Roberts

Is that a hassle for small run-of-river stuff too, the licensing stuff?

Jennifer Garson

Sure, you still need a license to operate. There are some exceptions, but you typically still need to get a license from FERC. But they have been trying especially for non-power dams and closed lip pump storage. FERC has been trying to have an accelerated permitting for these types of facilities. So the new stream reach, which is where there's no dam, that's a little bit more complicated, but for powering non-powered dams, FERC and other partners have recognized that there's already essentially been disruption to the local ecosystem. So you're not talking about a complete new build, you're talking about adding infrastructure to existing infrastructure.

But it also depends on who the owner of the dam is. A lot of developers are actually looking at powering non-powered dams that are owned by the Army Corps or the Bureau of Reclamation, trying to take advantage of existing infrastructure that's already been built by the federal government and add power. And there are a number of developers that are trying to think about developing these non-power dams through a portfolio of different non-power dams. So rather than treating it as a kind of one off project, how do they do kind of feasibility analysis, looking at a number of different non-power dams of power and treating it more like a portfolio package of power.

And that is different from the way that we've traditionally financed non-powered dams. I still think we have a way to go, and we're actually about to set out on a study with the National Renewable Energy Laboratory and Deloitte to really look at the investment landscape in hydropower. Because ever since I've been in this space, I've always heard that investment in hydropower is really hard. But when you start asking the second order question of why, you kind of get a jumbled answer of, "It's the licensing, it's the customers, it's the PPA."

So we're really trying to put a lot of rigor behind, "How do we get more momentum into developing non-powered dams? How do we try to increase the investment appetite to looking at these types of facilities and facility buildouts, whether it's expanding existing capacity at hydropower facilities or small hydropower through non-powered dams, to really fill that gap that we see 10-20 years down the line of the need for firm, flexible power resources." So I think we're in the midst of a changing investment landscape, too, about how do you value firm power?

David Roberts

Right. So it's fair to say then, when it comes to the smaller hydro on rivers and such, it's not so much the raw sort of like dollar per megawatt where you find the value. It's more in the firmness, right, which we don't fully value yet, but will, I think, soon. And the local benefits, local resilience and stuff like that.

Jennifer Garson

Yeah. And even so, we just did a demonstration last year in Idaho Falls, the Idaho Falls Power, and they were looking at how do they optimize their smaller run of river hydropower systems and tried to see whether or not adding some sort of storage medium. Ultimately, it was super capacitors. But if they add a storage medium to those smaller facilities, can they actually provide black start capabilities for their local community, recognizing that they're tied into a larger grid? And if the larger grid goes down, they don't want to lose access to the electricity they need for critical services.

Jennifer Garson

And so it's thinking about, too, in the context of some of these smaller projects, can you use them to help jumpstart the grid or provide more consistent power or provide a more predictable load for electricity consumption? But I still think it is still higher on a project economics of $70 a megawatt, roughly. But what we're trying to really dig into is what is the value inherent between, say, the $20 per megawatt you would see for solar and the 70 for hydro? Are there enough services and economics behind that higher threshold to really kind of catalyze investment into that space?

How do you provide that investment theory that shows why it's really important that some power you're going to have to pay more for?

David Roberts

There's probably a ton more to talk about there, but we have other things to hit, one of which is storage. I think Volts listeners are probably savvy enough at this point to know that the vast, vast bulk of existing energy storage is in the form of what's called pumped hydro storage, which is basically just you pump water uphill when you have power, and then when you need power, you run the water downhill through generators. Pretty simple. This is how we do most of our energy storage today. So one of the things that people say about pumped hydro is that it is geography dependent.

You have to find the right body of water in the right place with the right whatevers. So I'm curious, have we built out the sort of traditional pumped hydro that is possible or is there more room sort of same question about the large dams. Is there more room to build new pumped hydro and is there more room to get more capacity out of existing pumped hydro facilities? I know we have this new technology that's closed-loop pump hydro, which we'll talk about in a second. But just in terms of the traditional kind, is that tapped out or is there more to be had there?

Jennifer Garson

Yeah, put it in order of magnitude. About 93% of the long duration storage or even just storage capabilities. Right now on the grid is pump storage. And that's actually just from 43 pump storage plants.

David Roberts

They're very big.

Jennifer Garson

They're very big. They were actually originally built to complement nuclear.

David Roberts

Interesting.

Jennifer Garson

Yeah. So now we're thinking about what's going to complement next or continue to complement nuclear. But when you think about even the potential in our existing fleet, between 2010 and 2019, we added 1.3 gigawatts of PSH capacity just at the existing facilities that we already have online.

David Roberts

Interesting. That's a lot.

Jennifer Garson

It's almost the same amount as all other energy storage types combined that were added at that period of time. Yeah. So just making these capacity upgrades is huge.

David Roberts

How do you add capacity? Is it bigger pipes, bigger pumps? Is there any magic to that?

Jennifer Garson

Bigger pumps, different turbines, different upgrades to better not impede flow, even management practices utilizing it more. So even some of our storage facilities aren't necessarily utilized to their full capacity. And so you usually either need better control systems or kind of control strategies or equipment upgrades or environmental upgrades. There's a multitude of different upgrades that can happen to add capacity at our pump storage facilities.

David Roberts

And that's ongoing. There's still more. There's more to be had there.

Jennifer Garson

There definitely is more to be had. But I actually also want to point out we have typically thought of pump storage as these big open-loop systems. So you mentioned closed-loop. All of our facilities right now are open-loop, which means they're connected to existing waterways and rivers. So if you looked at where are we going to have big diversions from big existing waterways to other storage medium to other reservoirs, that's probably more limited. But we actually just did a whole assessment on pump storage resource characterization and resource assessment here in the US and found there's actually 15,000 additional sites for pump storage development.

David Roberts

Oh, good grief. And that's the open-loop kind you're talking about.

Jennifer Garson

That's closed-loop, actually, specifically. Closed-loop, there are more than 15,000 sites that you could actually have for additional facilities to be brought online. And there are some major closed-loop facilities that are getting pretty close in the regulatory process, and we've actually been working with some of those sites through our pump storage valuation project where we were looking at what's the cost benefit analysis and return for these different types of closed-loop systems.

David Roberts

Explain what a closed-loop system is just so people get it.

Jennifer Garson

It's basically very simple mechanical energy. You have an upper reservoir, so basically an upper ground tank, for lack of a better term. It could be at the top of a mountain, it could be at the top of a hill, but you need some sort of head so it can run down. But you have a top reservoir and a bottom reservoir and basically pipes that connect between the two. And when you have excess electricity, electricity pumps the water from the lower reservoir up to the upper reservoir. And when you need that power, you run that water right back through the turbines to go back down to the lower reservoir. So it's just basically mechanical movement of water between two bodies of water.

David Roberts

And so if you can create your own reservoirs, then all you really need, geographically, is a hill.

Jennifer Garson

Correct.

David Roberts

And there are lots of hills.

Jennifer Garson

We got a lot of hills.

David Roberts

What about underground? I feel like I've seen this bandied about where you just dig a hole and sort of use the surface of the earth as your upper reservoir and the hole as your lower reservoir. Is that a thing?

Jennifer Garson

Yeah. We've been working with a couple of different companies that are looking at underground reservoirs. There are ideas, everything from utilizing old mines, which there's some worry about from a geotechnical perspective. Will you actually have enough stability to have an upper reservoir and then the lower reservoir in the mine? But there is potential. But then there are companies like Quidnet who is essentially injecting water underground and using it to come back up and spin through a turbine for more modular underground pump storage. So I think there's definitely opportunity both above and below the ground. It just all really depends on sort of the geotechnical feasibility, site availability and just what are you going to get from round trip efficiency for different types of power?

David Roberts

Well, this closed-loop pump storage seems like a huge opportunity. Do we know, I mean, if there isn't any built yet, do we know what its economics are going to be relative to other storage possibilities?

Jennifer Garson

Yes, we know the economics pretty well. I mean, obviously the economics has changed as with every other storage technology out there with the inflation reduction act passage. But we have done a lot on sort of valuation from a per megawatt perspective. How much would you pay for these newer closed-loop pump storage facilities? The biggest challenge with anything pump storage-related is the high capital cost at the beginning of a project. And so where some of the project economics get a little more complicated is: are you looking at a ten-year payback period for storage or are you looking at it from ... some of these assets can last 100 years.

Like what's the appetite when thinking about entering into a PPA or building out a project? And there's also the complication — and this is similar to other forms of storage: Are you generation or are you transmission? Are you deferral or are you providing that power? How does your power count essentially within a PPA? The other challenge is too is oftentimes when we're looking at some of these bigger closed-loop pump storage systems, you're building them to complement renewables that haven't come online yet. So how do you also enter into types of contracts?

You're like, "Hey, we want to build this facility because there's going to be a ton of wind and solar." And if there isn't a ton of wind and solar, it's like, well, we actually need that storage. So you run into this chicken and egg scenario. What do you build first? A big closed-loop pump storage facility that's going to take seven to ten years to commission? Do you wait for the intermittent renewables to come online to a point where you need the storage? Or do you really start to look now at thinking about what does your grid look like in ten years and take a more long-term capital risk to build out some of these larger things?

David Roberts

Weird planning for the future. What a thought. When we think about the potential, if there are 15, what did you say ... ?

Jennifer Garson

15,000.

David Roberts

... sites where closed-loop pumped hydro could work, then do we know what sort of capacity that represents? I mean, that's a lot of storage.

Jennifer Garson

It's a lot, a lot, a lot, a lot of gigawatts. Now that's the site feasibility. The practical feasibility of how much could we actually develop is something that we're analyzing right now because it was only just last year that we decided to kind of reopen the book on, okay, let's not just thinking about it from where we see site developers coming in and applying FERC permits, FERC licenses, where others are really trying to determine where the best sites are suited. Let's use an analytical perspective to say, where, from a geographical perspective, could you feasibly build closed-loop pump storage?

But we're working on a second order analysis to kind of scrub, what does it look like from a total, not just technical feasibility, but practical feasibility of how much pump storage we could add? Because we don't want to say that it's going to be thousands of gigawatts without really having some analysis behind it. But we are really looking at this through both a hydrofuture study and a pump storage study that we'll have going pretty soon to look at that total, feasible storage that we can actually capture through closed-loop pump storage.

David Roberts

Because you hear all these talks about long duration storage, all this buzz, people are banding about all kinds of wacky technologies and possibilities, but you just don't hear pumped-hydro mentioned a lot in those discussions.

Jennifer Garson

I think ...

David Roberts

Need better PR.

Jennifer Garson

We do need better PR. We need better PR and all forms of water power technologies — no offense to the technologies I care about a whole lot. But no, you're right. A lot of times we're talking about long-duration storage technologies that are still kind of bench-scale prototypes. And it's things that I fundamentally believe in. But I actually, before I was in the waterpower office, spent a majority of my career in DOE on commercialization, and I've seen how long it takes for products to get from a lab prototype to bench scale to first of a pilot to actual commercializable technologies.

And my concern is if we bank all of our long-duration storage needs on technologies that are still at that pilot or commercial demo scale, we may run into kind of a tipping point on the grid where we really need what works now. But I do think that there has been more momentum both here and abroad looking at pump storage as a practical solution. And even Secretary Granholm has expressed interest in pump storage. The Loan Guarantee office is also looking at pump storage. So I do think they're slowly but surely gaining more momentum at the potential feasibility for pump storage.

We're even working now with the Tennessee Valley Authority actually looking at pump storage. Duke is looking at pump storage. I just talked to someone in Pennsylvania, in the governor's office, that's also looking at pump storage. So I think as people are looking at the practicalities of the grid, 10 to 15 years out, if we really are going to scale wind and solar, we need to start planning for storage facilities now. And the reality is that closed-loop pump storage can work. You do have high capital costs. There are geotechnical concerns, but we know that it works because it's a water battery.

You're pushing water up the hill to let it come back down. We know how to do that.

David Roberts

Very simple.

Jennifer Garson

We've been doing that a long time.

David Roberts

Final question about water as storage, which is just, and this might be kind of a naive or a silly question, but it just seems like in the future, one of the things you're constantly hearing about is water is going to become more scarce. Basically, there's a lot of competing demands for water, and climate change is messing up a lot of our sort of seasonal water provision and just there's going to be water wars, et cetera, et cetera, et cetera. So I'm just wondering, is that something you worry about, using water for this versus using water for other things? Do you think water itself is going to become sort of contested and difficult to get your hands on?

Jennifer Garson

I mean, I think clean potable water is a challenge that we are definitely going to face as a country and as a world. I mean, as a country, we're actually pretty privileged to have pretty abundant freshwater resources. Now, whether or not those would be clean enough to drink I think is a key outstanding question. But in places like the Pacific Northwest and New England and even the Midwest, water availability isn't necessarily the top concern.

Is it in the West? Yes. We actually wonder sometimes, or have been analyzing the potential for almost water abundance in areas where we don't want to have too much water because of flooding concerns or extreme events. So there's the kind of flip side of that, is it's not just about lack of water availability. Are we also building out infrastructure that can withstand higher forces of water, particularly through rivers and streams and waterways? But if you're looking at things like closed-loop pump storage, you're not going to have a ton of evaporative loss. So when you have these storage facilities, you're not really competing for fresh water availability.

You're just trying to keep the reservoirs filled. And that is very different than trying to have the water needs for, say, fossil fuel plants or even nuclear, which have pretty high intensity water needs. But on fresh water availability, that's something that on the marine side of our portfolio that we think about as a potential for wave power to actually address, is the delivery of potable water. Because I do worry a lot about our ability to provide continuous fresh potable water for not just here in the United States, but abroad.

David Roberts

Right. Well, you've set up my segue perfectly then. So let's talk about the other side of your portfolio, which is energy in the ocean and how to get it out of the ocean. This is another area where I feel like it gives me like cellulosic biofuels vibes in that there's like super exciting ten years out and then was like super exciting ten years out 20 years ago and still super exciting ten years out. Is there —

Jennifer Garson

It's like fusion! No.

David Roberts

Not that bad. Come on now. Not that bad. I'm wondering, is there reason to think that any of these ocean technologies are any closer than they were ten years ago? Is this a real thing? And maybe just also, while you're at it, tell us, what are those technologies? I know there's tidal. I know there's something with buoys going up and down. There are probably others. What are we talking about in the ocean? And is it real? Is it really going to happen?

Jennifer Garson

I think I wouldn't be directing a program for marine renewable energy. If I didn't think it was real, I'd probably try to find myself another job. No, the second question you actually asked is what are we talking about in terms of marine energy? And so the biggest sort of marine energy capture that we concentrate on are waves, tides, and then river and ocean currents. So the big buoys that falls into sort of the wave category, you can have everything from bottom mounted flaps that are trying to capture wave power to surface riding systems to systems that are within the water column.

So the complication with waves, there really hasn't been a kind of convergence on the right structure or even where in the water column is most optimal for a power capture system. But I would say unlike even ten years ago where wave energy, you had a couple of projects that were out in Europe, we now are seeing an increasing number of in water deployments of wave energy systems, and it's working. So I would say here in the United States, we just had the longest wave energy demonstration project off of the Scripps Pier in California with Calwave, where they were producing electricity using the power of waves. And they even were able to sustain through a pretty powerful storm surge because that's always really complicated matter for waves, is being able to withstand a range of different forces.

David Roberts

Right. Well, this is what comes to mind. Intuitively, out in the ocean is just a brutal place. You got the wind and the tides and the storms, but also just saltwater corrosion and I don't know, fish. There's so many things to deal with. Are they being dealt with?

Jennifer Garson

I think this isn't the first time we've dealt with infrastructure in the ocean either.

David Roberts

Right.

Jennifer Garson

It's hard, but it's not insurmountable. We're talking about materials for corrosion. We're doing research and even looking at can you use different methods to reduce corrosion impacts? Everything from coatings and materials to even the use of lasers for different etchings into materials to reduce corrosion? Biofouling is an issue. I mean, there's a lot of stuff that grows on infrastructure that's in the ocean, but we're trying to work on a multitude of ways for us to address or even potentially embrace biofouling from an environmental perspective. We do a lot in environmental monitoring around these devices. We put a substantial amount of funding on trying to understand the interaction of mammals, fish species, both from an acoustics perspective to any sort of entanglement perspective.

And thus far, with our in water deployments, we're actually seeing compatibility instead of conflict. From an environmental perspective, that's because we're trying to design these systems with the environment in mind. But it is a hard environment. But the thing is, waves, tides, they're more predictable than other forms of electricity. So if we're really trying to hit our 100% decarbonization goals in 2050 or beyond, we're going to need solutions like marine energy in order to actually hit those targets.

David Roberts

Tides come in every day.

Jennifer Garson

Tides come in every day. And actually on the West Coast, waves are predictable because you're talking about predicting waves that are coming basically from Asia. We have waves. I'm serious. It's why actually wave energy is almost easier on the west coast of Europe as it is sort of the West Coast or here for the United States because we have pretty complex models that actually can give us forecast for what our wave conditions are going to be like. So it gives us some good sense of predictability. Tides definitely 100% predictable. Unless the moon changes, which who knows?

David Roberts

Who knows? What does tidal energy look like? What do those machines look like?

Jennifer Garson

So there are a couple of different types of device designs right now in tidal energy. You're seeing more of a convergence on what tidal energy systems might or could look like, particularly looking both in the US and out in the EU. Some of them, like Verdant Power, which we supported a demonstration in New York, would look familiar to any of your listeners. It looks almost like tiny wind turbines on a triblade that goes underneath the water. So it's using the same kind of findings from wind of running a turbine, generating electricity, providing it to shore. There are other systems that are surface riding.

So there are some European companies and Canadian companies that essentially have the operations and maintenance basically on the surface and then have turbines that go and submerge underneath the water, but they're still running either two or three blade turbines to capture power. So it's taking a lot of the lessons that were already learned in the wind industry and applying it for tidal power. And tidal power, I mean, we believe it a lot for here in the United States. Is it the largest resource to capture? No, that's wave. But there's a lot of tidal energy in New England, in the Pacific Northwest, and in particular in Alaska, where the potential resource is pretty massive.

So actually we are in the next coming weeks, we have a notice of intent out already on this, but we're going to be funding a $45 million solicitation focused on tidal energy here in the United States. So both a commercial site with about $35 million and also for remote and islanded communities, and isolated communities another 10 million. So I think the the maturity of the tidal industry is definitely more mature right now than wave, but I think wave is starting to catch up. But if you look over at Europe again, they've had gigawatt hours of power provided by tidal energy at some of these sites that have already been delivered to the grid.

So it may not always be as visible. Maybe it's because it's underneath the ocean or just on top of the ocean, but there's a lot of technological progress that we see in tidal and I see in the very near term for wave.

David Roberts

And this is in financial terms the same challenge basically you're facing with all these other technologies we're talking about, which is high upfront capital costs and then that pay off over a very long period of time, which is just always a difficulty when you're talking about financing.

Jennifer Garson

It is. And one of the challenges, too, for marine energy, and it's similar, I would say, to newer geothermal energy or long-duration storage, is in order to prove that it works, you have to be willing to fund some pretty serious demonstrations. And that takes a lot of capital that oftentimes, say, venture or even philanthropic capital isn't necessarily willing to take a risk on. Because to prove that the marine energy works, you have to get it in the ocean. And putting things in the ocean is a non-insubstantial cost. And so we're really trying to think about how do we demonstrate these systems take a lot of the risk and ownership on the US federal government in a way that we think will ultimately pay off. But that willingness to pay for demos or demonstrations of arrays is still going to be pretty high until you get to economies at scale.

And so we either have to bet big, which I really hope we do here in the US, or we leave potentially this enormous 57% of all US power generation potential in the US stranded because you don't have that willingness to pay for these really expensive demos. But those demos are the only way we learn.

David Roberts

Didn't we just pass a bunch of legislation that is basically fire hosing money at all these things? Is some of that money going to do what you're just talking about going to kind of kickstart marine and tidal?

Jennifer Garson

So in the bipartisan infrastructure law, we did receive about $110 billion for marine renewable energy, $40 of that is for our national marine energy centers and the other $70.4 was actually for marine energy. But if you look at that in comparison to say, the funding that we're putting into direct air capture or hydrogen, it's nowhere near the level of investment that we've received from the federal government. And it's not just ... for us, I think we've seen the same thing for sustainable aviation fuel demonstrations or geothermal demonstrations, like, I think there are still a number of technologies that's going to take a lot of capital in order to really demonstrate the feasibility and get to economies at scale that weren't necessarily funded with the enormous lug of funding that we got now. There's a lot of money going around, and it's very exciting for me as someone who's been at DOE for 13 years, but it's not going to be sufficient, I think, for really driving down the cost of the whole portfolio of solutions that we're going to need to decarbonize everything by 2050.

David Roberts

Well, and the loan office plays some role there and there's supposedly going to be a green bank did that end up making it in? I forget what ... I think the Green Bank made it in. So maybe there'll be some ongoing sources for some of this funding.

Jennifer Garson

Totally agree. And we work with our Loan Guarantee Office partners to understand what are those pathways into kind of commercial viability that. And we are also working with the Office of Clean Energy Demonstrations to understand what's the role of the Water Power Office at Derisking. Some of these pilot technologies moving into an office like the demonstration office and eventually being well primed for the Loan Guarantee Program office, because LPO really wants to see that these technologies have been successful at a pre-commercial scale. But even that gap between pilot and pre-commercial scale for some of these energy systems is more complex than just one off projects.

But we're thinking about it critically at having kind of an all of DOE approach to derisking and investing in these technologies and ultimately helping them scale.

David Roberts

The one marine technology we didn't mention is ocean thermal something something.

Jennifer Garson

OTEC is the acronym. It's Ocean Thermal Energy Conversion.

Jennifer Garson

Yes.

David Roberts

Right. I feel like I've been hearing that about that also for years and years and years and it never seems to amount to much. Is that going to, well, first of all, tell listeners what the heck we're talking about, but is that going to be a thing?

Jennifer Garson

So OTEC, for anybody who isn't as familiar with all forms of marine energy, is basically using the thermal differentiation between the warmer surface water and the deep sea cool water to, essentially, use that to harness power, without getting into more technical details.

OTEC is also really hard. The round-trip efficiencies that we've seen for OTEC have been not awesome, but there are a number of sites that are looking at both. How do we potentially use seawater air cooling, so more like ambient temperatures instead of for power generation. There are some OTEC facilities too, particularly in the Pacific Islands. It is so geographically specific for OTEC feasibility. You really need to have a pretty quick drop off of the continental shelf in order to actually have that really cold deep water and warm surface water. So it's geographically constrained. The round-trip efficiency right now still needs a lot of work and similar to the story of other types of marine energy in order to do demos, it takes a lot of capital.

But I know that there are developers looking in like Puerto Rico and Hawaii looking at the feasibility of OTEC. So I wouldn't discount it. It's just it faces some of the same challenges. But we've also been looking at even, can you lessen the amount of gradients that you need to think about Ocean Thermal Energy Capture? So we're actually working with a startup that is trying to use smaller gradients to power ocean observing systems. So if it can power it by essentially dropping the system down not that far, and using the same principle of warm to low generating power, maybe we can think about gradients in a different way, to not just be the really big, really deep pipes that are trying to run from the surface down to the deep ocean.

David Roberts

One more thing about marine energy. Tell us what is the connection between marine energy and desalination? Or what is the, let's say, the hoped for connection between marine energy and desalination? Because I often hear them kind of discussed in the same breath.

Jennifer Garson

So over the last few years, we've really been looking at the potential for how would wave energy provide potable water. It started actually with analysis that we did at the National Renewable Energy Lab, looking at the feasibility from a power perspective. Does the power performance potential for waves, is it potentially compatible with reverse osmosis or for desalination processes? And interestingly enough, we found that it could actually be a good power source. So we actually developed a prize competition called waves to water prize, where we basically opened the aperture to say, there's only a limited number of ideas here.

Can you bring us some really good ideas for wave power desalination, but starting small for things like disaster relief and recovery scenarios? Ultimately, over the course of three years, we developed systems that were both hydraulic, so kind of mechanically driven, and production of electricity to run RO systems. And what we saw through that prize, and now a subsequent $10 million solicitation that we're running right now, is there are a number of really promising solutions that, particularly on the hydraulic side, although some of the electricity, but using essentially the power of waves to run through membranes to desalinate water.

David Roberts

I have a super dumb question here, which is I'm picturing these wave machines out in the middle of the ocean. Are they producing clean water like on-site? Do you have to go harvest the water from the machine? How does the delivery of the water from the machine to where it's needed work?

Jennifer Garson

Great question. The answer right now is maybe both. I think it's more feasible to imagine that essentially the reverse osmosis system is running. You're basically pumping water back to an onshore reverse osmosis system in a high pressure pump. And so you're getting the fresh water at a tank act, actually at a pier or on the shore. So you're essentially just using piping systems so that the water delivery is onshore. There are some companies that are thinking about almost like bladders to be filled out for production in the more near shore. You're not looking at right now, like, really deep offshore, but could you collect water through these bladders, have some sort of collection methodology, and bring it back to shore?

So I think we're both looking at kind of on device production and essentially the system just being a conduit for either that power mechanical force to run a reverse osmosis system onshore. We're hopefully going to see over the next couple of years we're going to be funding a number of demos and we're seeing a number of demos also pop up in Europe in particular at looking at wave power decal. But I think we're going to need solutions for desalination that doesn't just require either really big, large energy systems or only diesel generators because we're going to need fresh water everywhere.

And we're trying to think about the simplicity of design of some of these systems so that you can essentially just throw them out in the water with an anchor and be able to provide potable fresh water.

David Roberts

That would be nice.

Jennifer Garson

It'd be awesome. Yeah, use the water to make water. What could be more simple but elegant if we can make it work?

David Roberts

So on marine energy, then, as you said at the beginning, this is unlike hydro. Marine is in a sense among the newest or nascent or sort of cutting edge versions of renewable energy. So I guess before we leave this subject, I'm just curious, the next decade in marine energy, do you expect it to reach meaningful scale in that decade or is the next decade mainly going to be about figuring it out? Sort of like where do you expect marine energy to be in ten years?

Jennifer Garson

It's a complex answer I think when you're talking about grid scale marine energy devices. I think it'll take us the next ten years to really figure it out, get these systems in and out of the water and really producing larger volumes of electricity. But what I think the next decade really holds, it's really interesting, is the possibility of marine energy powering. What maybe from an energy perspective seems less meaningful, but from an end use perspective is incredibly meaningful. And what do I mean by that? I think we're seeing a lot of interesting solutions for powering, things like ocean observing.

We know more about the surface of Mars than we do about the surface of our ocean floor and part of that is because of power limitations. And so we're working on a number of different companies that are either using kind of fixed platforms or floating platforms to provide power where we need it and that's to both understand and observe our ocean.

David Roberts

Interesting.

Jennifer Garson

And I think over the next ten years you're going to see a lot of different devices that are harnessing power for ocean observing. There's also been a lot of meaningful progress at sort of the micro-grid scale for marine energy, whether it's tidal or it's wave energy, where we actually have a device up in a community of only 75 people in Alaska and Igiugig that's producing power to their grid right now. And I think we're going to see more of these small scale devices in places where power is incredibly meaningful. Even if it doesn't sound like a lot from a megawatt or gigawatt perspective.

David Roberts

There's sort of bulk energy. Like we just need a lot of energy. But then there's also these, as you say, these local sort of resilience benefits and these benefits specifically to a lot of vulnerable communities. Maybe just say a little bit more about that sort of how you envision hydro working. Maybe not at a large energy scale, but in some of these, but like in this community in Alaska, that's quite significant for them to have steady power. So talk about that a little bit.

Jennifer Garson

I think it's a story for both hydropower and marine renewable energy that there are parts of our United States and parts of the world that they need to look to their waters in order to actually provide power, whether that's because of the seasonality or available resources. And we've been working with a number of communities, actually through a program called our Energy Transitions Initiative Partnership Project, where rather than say, here's a solution that you should have, maybe it's marine or hydro, but working with these communities to say what are your power and energy needs? And what are the types of systems that can get you to 100% renewables and off diesel dependency? And many communities that we're working with in Maine, the Pacific Northwest and Alaska in particular are looking at marine energy and small hydro as their pathways to releasing dependency from diesel generators or from really high cost other forms of energy.

And even though these are kilowatts or megawatts, it's huge.

David Roberts

Yeah, just to sort of put an exclamation point on that, you're talking about the sort of economics overall. But if you look at the economics specifically in these local situations, like diesel is gross, it's very expensive, it pollutes like crazy.

Jennifer Garson

Not only that, it's the cost, right? And right now, the last couple of years, the price vulnerability of some of our more vulnerable communities in the United States are so impacted by diesel going up to prices that are literally unprecedented. And if you're a small community, how do you absorb that?

David Roberts

Yeah, getting steady, predictable, just the predictableness of it, the predictable price of it. It's hard to put a value on that. That's very valuable in these local contexts.

Jennifer Garson

It is. And because if you are already paying a dollar, $52 a kilowatt hour, even if we're developing solutions that come in at say, 50-60 cents a kilowatt hour, that's still a substantial price savings, more predictable power and we have better health outcomes, better localized impacts. And so we take that really seriously and view it as a kind of core objective for our program, is that we really want to think about ways that we derust these technologies to give better pathways to getting off of diesel and providing more predictable power. And so when I think about the impacts in the near term, particularly on marine energy, this is one area where I think we do have the potential to make a real material impact on people's lives if we can really do wit these technologies and design them with the communities as partners and with them in mind.

David Roberts

Right, okay, well, I've kept you too long. This is all fascinating. I'm sure we could do an hour long pod on any one of these issues or topics or technologies. So by way of wrapping up, final question then. When you look ahead, you're sitting in sort of a unique place where you have a view of all these water related energy technologies over the next decade, let's say through 2030 or 2035, which is a very crucial, as you well know, a very crucial period for decarbonization. What do you think are going to be the big water power stories? Like, some of these are nascent, they're going to be developing. What do you think are going to be sort of the breakout significant stories in water power? If you had to pick a favorite one of your babies?

Jennifer Garson

Oh, you can't make me pick a favorite one. I'm going to give you a couple and break your rule. I think it's going to be the increasing importance of the role of the existing hydropower fleet in an overall grid context at really maintaining grid stability. I think we're going to see a first pump storage project, at least one break ground and start serving the grid in a way that we really need it to. And I think we are going to see a number of communities with small marine energy systems that are providing incredible, meaningful power. That's going to demonstrate the criticality of us thinking about this decarbonization at literally all scales that we need to solve everything from watts all the way through gigawatts.

But I think the backbone of the existing fleet pump storage and the criticality of small microgrid systems for places that may not have other options, where this is really well suited, are the things that I'm really excited about in the next decade.

David Roberts

Awesome. Well, Jen Garson of DOE, thank you so much for coming on. This has been hugely educational. I really appreciate it.

Jennifer Garson

Of course. Well, thank you for having me on.

David Roberts

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

Various options are at play in the EPA’s planned greenhouse gas standards for new and existing power plants. In this episode, Lissa Lynch of NRDC discusses the implications.

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Text transcript:

David Roberts

A couple of weeks ago, the policy analysts at the Rhodium Group put out a new report showing that the Biden administration's legislative achievements are not quite enough to get it to its Paris climate goals. But those goals could be reached if the legislation is supplemented with smart executive action.

Some of the most important upcoming executive actions are EPA's greenhouse gas standards for new and existing power plants. The Supreme Court famously struck down Obama's Clean Power Plan — his attempt to address existing power plants — judging it impermissibly expansive. So now EPA has to figure out what to ask of individual plants.

The agency's decisions will help shape the future of the US power sector and determine whether the Biden administration gets on track for its climate goals.

To talk through those decisions in more detail, I contacted Lissa Lynch, who runs the Federal Legal Group at the NRDC’s Climate & Clean Energy Program. We discussed the options before the EPA, the viability of carbon capture and hydrogen as systems of pollution reduction, and whether Biden will have time to complete all the regulatory work that remains.

Alright. With no further ado, Lissa Lynch from NRDC. Welcome to Volts. Thank you so much for coming.

Lissa Lynch

Thank you for having me.

David Roberts

This is a subject that I used to spend a lot of time thinking about back in the day, and it's sort of receded for a while, and now it's back. So it's very exciting for a nerd like me. So I want to just quickly walk through some history with this and then sort of hand it off to you so you can tell us where things stand now, because I don't want to assume that listeners have been obsessively following this now nearly two decade long saga. So let me just run through some history really briefly. So listeners will recall in 2007, there's a big Supreme Court case, Massachusetts vs. EPA, in which the Supreme Court ruled that CO2 is eligible to be listed as a pollutant under the Clean Air Act if EPA determines it is a threat to human health.

And then shortly thereafter, Obama's EPA officially determined that it is a threat to human health via the endangerment finding. So this is one thing I'm not sure everybody understands, and I just want to get it on the table up front. So for context, the combination of those two things, Mass vs. EPA, plus the endangerment finding, means that EPA is lawfully obliged to regulate greenhouse gases. This is not a choice. This is not something it can do or not do, depending on how it feels or who's president. They have to do it. So then that triggers the obligation, three separate obligations.

You have to regulate mobile sources, which Obama did with his new fuel economy regulations, which are still in place, as far as I know. Then you have to regulate new stationary sources of greenhouse gases, which Obama did. And as far as I know, we can come back to this in a second, but as far as I know, those new power plant regulations that Obama passed are still in effect. And then thirdly, you have to regulate existing stationary sources of greenhouse gases, which mainly means power plants. And so Obama's effort to regulate existing power plants is called the Clean Power Plan.

People may remember the fuss and ado about the Clean Power Plan as it was under development. Lawsuits were immediately launched. Of course, the Supreme Court took the extremely unusual step of putting the law on hold, basically not letting it go into implementation until it had heard this case. And then it heard the case, rejected the Clean Power Plan on the basis of the newly dreamed up, rectally, extracted Major Questions Doctrine. So that's where we stand now is we've got the mobile regs in place, although Biden is updating those too. I think we've got the new power plant regs in place, although Biden is also updating those.

But as for existing power plant regulations, there are basically none. It's been a legal mire and so Biden's got to do those too. So let's talk about what Supreme Court said about the Clean Power Plan in their ruling and how that constrains the sort of solution space that we're looking at now.

Lissa Lynch

So in West Virginia vs. EPA, that was the Supreme Court decision from last summer. The Supreme Court held that this section of the Clean Air Act that we're talking about here, section 111, does not clearly provide authority for the approach that EPA took in the Clean Power Plan. And what they did there we sort of refer to as generation shifting. In the Clean Power Plan, EPA looked at the power sector as a whole and they concluded that the best system for reducing fossil-fuel-fired power plant emissions was a combination of measures including shifting generation away from dirtier fossil power toward cleaner power.

So essentially retiring dirtier power plants and replacing them with renewables.

David Roberts

Right. So the unit of analysis here was a state's whole power fleet, not the power plant individual, but the whole power fleet.

Lissa Lynch

Right. And the reasoning for that in the Clean Power Plan context was supported by the companies themselves, the power companies themselves and the states who said, yes, this is the way that we are dealing with decarbonizing our fleets. We are looking out across our whole fleets, retiring the dirtiest sources and replacing them with cleaner generation. That's how the existing RGGI program in California cap-and-trade programs work. That's how many of the power companies that have emission reduction or clean energy targets are doing that.

David Roberts

And let's just say Republicans have been saying for decades that regulations are too restrictive and they're not flexible enough and states and power companies need flexibility. And this was perfectly flexible. This is absolutely as flexible as you could make a system. It just said to the state, do whatever you want to do to lower the average emissions of your power plant fleet. And then conservatives got what they wanted and hated it for other reasons.

Lissa Lynch

One of the things that's important about what is left on the table after this decision is there is still a considerable amount of flexibility on the compliance side. So what the Supreme Court was really dealing with was the method EPA uses for setting the level of the standard, basically setting the target that industry has to meet. So the Supreme Court explicitly took that generation shifting approach off the table for purposes of setting the level of the standard itself. And so after this decision, EPA can still set standards, in John Roberts words, "Based on the application of measures that would reduce pollution by causing the regulated source to operate more cleanly."

David Roberts

Right? So the idea here is EPA, by interpreting the Clean Air Act in such a way as to apply to the power plant fleet overall, and sort of telling states how they have to shape their overall power plant fleets. EPA was assuming too much authority, basically. Like doing something major, despite too major for the words in the Clean Air Act, which I don't want to dwell on this too long, but let's just pause here to acknowledge that. No one then in the ruling, now in the subsequent ruling, since then in all scholarship knows what the hell "major" means or when it is that an agency has crossed the line from proper regulatory interpretation into "Oops, too major."

It really just kind of sounds like and seems that major means anything bigger than John Roberts is comfortable with.

Lissa Lynch

Right? I mean, this is one of the really concerning things about the Major Questions Doctrine, just generally is that it is murky and it does have this sort of paralyzing effect on ...

David Roberts

Yes, intentionally.

Lissa Lynch

Exactly. It is explicitly anti-regulatory and explicitly sort of intended to stop agencies in their tracks and make them question, oh, is this too major?

David Roberts

And there's no answer. Right. So naturally you're going to be cautious because there's no definition of major. It's just whatever irritates John Roberts when he wakes up one day. So this was the opening salvo, I think, in a longer Supreme Court effort basically to brow-beat agencies into being timid. So anyway, point being EPA can't use the overall power fleet as a sort of benchmark through which to set this standard. So what does that leave? What's the sort of range of motion that we think we still can act in here when we're talking about these new standards?

Lissa Lynch

So now that we have this Supreme Court decision in place. EPA's got some guidelines, and they can base the next round of standards on, as Justice Roberts put it, measures that make the plants operate more cleanly. So what they're looking for now is a rule that looks more like what traditional pollution regulations of the past looked like based on scrubbers, bag houses, the stuff that you can physically attach onto the plant or do at the plant itself to reduce that plant's emissions. When it comes to reducing CO2 emissions, the options are limited.

David Roberts

Well, let me pause there. Before we get into that, I just want to say one thing that I learned from your writing that I had not known, and I don't know that it's widely known. So there's been talk ever since Mass vs. EPA that bugged conservatives, and they would love to undo that, right? Because they would just love to moot this whole thing by undoing that ruling and saying that CO2 is outside the context of the Clean Air Act and have been muttering about doing that. So the Inflation Reduction Act statutorily locks into place that ruling.

Right. It says explicitly CO2 qualifies under the Clean Air Act, and it instructs EPA to develop new standards. So there's no ambiguity about that. And it says EPA needs to set standards that are going to reduce emissions relative to baseline, where the new baseline is taking the Inflation Reduction Act itself and all its subsidies into account. So it's telling EPA calculate what all these subsidies are going to do, what the new sort of business as usual trajectory of emissions would be, and then develop regulations that reduce it further. I didn't know any of that.

Lissa Lynch

Yeah, no, this is huge. And I mean, obviously the Inflation Reduction Act is enormous. It is going to accelerate the clean energy progress that we've seen in the last decade or so by many fold. It is a huge, huge deal. And one of the provisions in this quite large law essentially reaffirms EPA's not only statutory authority, but its obligation to go ahead and set CO2 emission standards for fossil-fuel-fired power plants. And so that's a clear statement from Congress last year.

David Roberts

Clear enough even for John Roberts.

Lissa Lynch

Right. So we have always thought that that authority and obligation under the statute was quite clear, but now it's crystal clear, and they need to move.

David Roberts

And I think it's also important to absorb this new baseline idea, because the IRA itself and all the historical progress since the last round of these regs, the new expected baseline for power plant emissions is much lower now than it was when Oobama's EPA was calculating these things. Which commensurately means you're going to need tighter standards if you want to reduce further than that new baseline.

Lissa Lynch

Yeah. And it is kind of wild to look back on ten years ago. So it was ten years ago, 2013, that President Obama announced in his big climate change speech that he was directing his EPA to go ahead and set carbon pollution reduction standards under Section 111 for fossil-fuel-fired power plants. The first time that was being done. So much has changed in ten years in the power sector. And I think anyone listening to this podcast knows we are smack in the midst of a clean energy transition in the power industry. Industry itself says so.

The Edison Electric Institute says we are, quote, "In the middle of a profound long term transformation in how energy is generated, transmitted and used." Lazard, the investment firm, estimates that wind costs have fallen by 46%, solar has fallen by 77% over the past decade. So we're just in a totally different world now than we were ten years ago. And so we passed the Clean Power Plan's 2030 emission reduction targets in 2019 without the Clean Power Plan ever having gone into effect.

David Roberts

Which in retrospect makes all the Republican arguments about how this is an economy killing regulation and it's too strong and it's unrealistic and there's no way we can move that fast look utterly ludicrous, which we all said at the time, but we had to pretend that it was a real live argument. So they're saying it's too stringent, it's going to destroy the economy. And here we rocketed past it in 2019 without any regs.

Lissa Lynch

Right? And that is part and parcel with each time. There are new ambitious pollution standards set ...

David Roberts

Every time.

Lissa Lynch

Under the Clean Air Act, industry claims the sky is going to fall. This happened with the acid rain program back in the American Electric Power predicted that it was going to destroy the economy of the Midwest. Like the lights are going to go out, the sky is going to fall.

Every time and we never learn. We never learn from those previous examples. It's crazy, right?

And so the actual costs of complying with the acid rain program and reducing sulfur dioxide ended up being, I think, around a 10th of what industry had estimated. Sulfur scrubbers are now widely used. The program has been a great success. It is this great example of how we can set pollution standards and then innovate to meet them cost effectively and quicker than anyone expects. We do it over and over again.

David Roberts

Over and over again.

Lissa Lynch

And we can do it in this context.

David Roberts

Right? One more thing. Before we get to what's available for the new standards, we should mention I should mention that when the clean power plant got shut down, the legal obligation to pass regulations on existing power plants then passed to the Trump administration, which did that sort of passed a ... what was it called? The clean America ...

Lissa Lynch

The Affordable, Clean Energy Plan.

David Roberts

Yes, Affordable Clean Energy, the ACE Plan, which several analyses showed would on net have raised emissions in the power plant sector. So those got shut down in court, too. They were just completely a joke. Ludicrous so that's all the history. So here we are Biden's EPA has got to regulate existing power plants and new power plants. And it can't take this so called outside the fence line holistic approach that the clean power plant took. So it's got to set standards based on what you can do at the individual power plant level inside the fence line, as they say.

So what are the options? Actually, I'm talking way too much, but let me get one more thing out of the way and then I'll let you talk. But one of the things that faced the reason I just want people to understand this too, the reason Obama took this approach, the reason Obama's EPA took this outside the fence line holistic approach, is that if you're just restricting yourself to the individual power plant, you're stuck with either marginal improvements, right? You get the boiler to work more efficiently, you tighten up efficiency, and you can sort of marginally 3% to 5%, reduce emissions.

Or on the other side, there's carbon capture and sequestration, which especially ten years ago when Obama's EPA was contemplating it, was not very well tested, not very well proven, super expensive. So you either had sort of like a fly swatter or a nuke when it comes to the individual power plant, which is why they went with the holistic approach. So now the holistic approach is off the table. We're back to the fly swatter or nuke problem. So just tell us sort of like, what are the available options here?

Lissa Lynch

Yeah, so you kind of covered the two ends of the range, right? On one end, the very low ambition end, you can make minor improvements to the operating efficiency of the plant, the way the plant operates. That was the basis for the standards that the Trump administration issued. And as you noted, improving the efficiency of the plant makes it run better and it can be called upon to run more and therefore can end up increasing its overall emissions. That sort of rebound effect. That's a possibility. You can still reduce emissions through operating efficiency improvements. And I think there's more options that could achieve greater reductions than the ones that the Trump administration included in their rule.

But still, we're talking the very low-end, single percentage reductions in the middle, there's this option of cofiring with a lower carbon fuel. So if you're talking about coal plants, you can co-fire that coal plant partially with gas. In a gas plant, you could co-fire partially with hydrogen and you're going to bring the emissions rate of the plant down somewhat. In some of our analysis, we've estimated that a 40% cofiring coal with gas. So cofiring a coal plant with 40% gas gets you about a 20% emission reduction. So it's not nothing, but it also involves additional fossil infrastructure to get gas to a coal plant or additional infrastructure to get hydrogen to a gas plant.

And on top of several other issues with hydrogen that we can talk about a little later.

David Roberts

Well, a legal question, I guess all of this in some respect is arbitrary, but where is the line between forcing fuel-switching, which I think Supreme Court said was out of bounds, and too far, versus a rule that requires cofiring, which is like kind of like halfway to fuel switching? Is there a legal distinction there between those two?

Lissa Lynch

There's absolutely precedent for requiring cleaner fuels or fuel processes. What the Supreme Court mentioned, at least in dicta, was we don't want to see standards that would force a plant to stop existing. And so essentially, if EPA were to base the standard on total conversion from coal to gas, which some coal plants have undertaken with cheap gas prices, that I think, based on our reading of the decision anyway, would probably be too far. So full conversion probably off the table along with generation shifting. But partial cofiring is actually one of the technologies that the Obama administration considered for their Clean Power Plan, as was carbon capture.

And as you noted, the approach that they took in the Clean Power Plan, they selected because it was the most cost effective. So they ruled out carbon capture and cofiring, not because they weren't adequately demonstrated or available, they were just more expensive than the approach that EPA ended up going with.

David Roberts

But now we're forced back basically to that more expensive approach.

Lissa Lynch

Right, as I mentioned before, but want to keep reiterating, this is all about setting the level of the standard, finding it's a math problem. EPA looks at the options, and so the options as we see them are efficiency improvements, getting very little cofiring, getting somewhere in the middle, or carbon capture and storage, getting the most amount of emission reductions. They look out at that and they select the best system. Then they apply it to the plant and essentially do a math problem and come out with a number, a numerical limit for the amount of CO2 emission reductions that the plants need to achieve.

Then they hand the baton off to the states for existing sources and to the companies for new sources. So this is not a requirement to install that specific technology. It's a way to derive the level of the standard and then pass that off to the states and the companies to comply with.

David Roberts

Right. EPA sets the standard and then says to states and companies, do what you want.

Lissa Lynch

Right, as long as you can meet this number. Be creative, innovate.

David Roberts

The central question is what upon what technology is the number going to be based on exactly? This low-end, this something in the middle, and this high-end, which is carbon capture and sequestration. So here I want to talk about what the sort of arguments are around this. It says in the text of the Clean Air Act that EPA should set the standard based on the best available system. That has to be adequately demonstrated so I just want to dig in a little bit on the technical legal language here. Like what exactly or what have courts interpreted that language to mean exactly?

What is required to be adequately demonstrated? A single demonstration plant somewhere? like some good charts and graphs in a lab? Or do you have to be commercial, or does price and, you know, financial viability come into that? Like, what is EPA thinking about when it thinks about what is adequately demonstrated or best?

Lissa Lynch

Yes. Okay, so I'm a Clean Air Act lawyer. This is my favorite part. I love the Clean Air Act, and I love to talk about the language of the statute because that's actually what we're really fighting over here. EPA is tasked with establishing the standard of performance, and so that definition is in the statute. They have to determine the degree of emission limitation that can be achieved through the application of the best system of emission reduction that is adequately demonstrated considering cost, energy factors and essentially other factors. And so there's this really defined set of criteria that EPA needs to go through as they're determining what's the best system of emission reduction.

So we've been talking about adequately demonstrated that it can't be a made up technology, but it also doesn't have to be widely used by everyone. Already, the Clean Air Act is technology forcing it's forward looking.

David Roberts

Right.

Lissa Lynch

It requires the regulated source to reduce its emissions commensurate with the best control systems that are available, not the ones that are already sort of out there in use, that plants are choosing to use of their own accord. So again, in a lot of ways, this is analogous to so SO2 scrubbers which were not in widely used, they were not widely produced in the 90s, and there were all these doom and gloom predictions of how much it's going to cost.

We're not going to be able to do this. So right now, there's no limit at all on CO2 emissions from power plants. There's been no reason to innovate on carbon capture for power plants, and there is not a ton of projects out there in the world, but there are plenty to serve as an adequate demonstration for purposes of the Clean Air Act. There's essentially three parts here of carbon capture. There's capture, there's transport, and there's storage. And each part of that process is well established and has been in use for decades, especially the capture part. We've been capturing carbon for decades.

And so there's plenty of demonstration in both pilot projects and at commercial scale to be applied in the power sector. It doesn't have to be something that's already widely out there.

David Roberts

So it's sort of a holistic consideration. And EPA is sort of attempting to apply something like wisdom here. There's a balance of considerations. And I assume, and tell me if I'm wrong, that the usual suspects are arguing to EPA that that would be too strict, that a standard based on CCS would be too strict. And presumably the way they're making that argument is by saying CCS is not the best or adequately demonstrated. So what is their argument? Have you read, like, their briefs, or do they have a specific argument here?

Lissa Lynch

They do, and they're familiar. It's the same set of arguments that we've seen over and over. It's too costly, we can't do it yet. We're getting there. Just let us do this at our own pace. One of the concerning things is the argument that we need gas now, and we're okay with standards that are based on something we might do in the future. So set the standards only at a level that were ready for CCS, that were ready for hydrogen sometime in the future.

David Roberts

CCS ready.

Lissa Lynch

CCS ready. Hydrogen ready.

David Roberts

I love that phrase.

Lissa Lynch

It's just kicking the can down the road.

David Roberts

Like your own David Hawkins once said, it's like saying, my driveway is Ferrari ready.

Lissa Lynch

Exactly. And I think what's at the heart of this industry estimates that CCS can achieve 90% capture and emissions data from the projects that have been built back that up. That is not to say that EPA needs to go ahead and require a 90% emission reduction from every single coal and gas plant in the country. Right. We think it makes the most sense for EPA to draw some distinctions based on the role that the plants perform on the grid. Right. So there's a big difference between ...

David Roberts

Oh, really?

Lissa Lynch

Yes, there's a big difference between plants that are used for baseload power that are running constantly all the time, and those that are used intermittently for reliability as backup power during times of high demand.

There does not need to be the exact identical standards on those two types of plants. So plants that are running full time are emitting the most, and they should be required to reduce their emissions to the greatest degree. So we think it makes sense to have a 90% capture based standard for plants that are going to serve as baseload, that are going to run all the time. And it's the most cost effective for those types of plants to install CCS, especially when you consider the tax credit. Plants that are operating intermittently as backup are already emitting less pollution simply by running less.

And those plants can face a less stringent standard, stay on the grid as backup, and serve that really important reliability function without being required to install CCS, they can meet a lesser standard.

David Roberts

Is there a distinction between those two kinds of plants that is clean enough and clear enough to set legal limits around them because there are some fuzzy edge cases? And then, number two, are we sure that EPA like that's within EPA? Sort of. That's not major for EPA to be thinking to be sort of specifying which standards applied based on function based on operations.

Lissa Lynch

Yes. So this is the kind of detailed analytical and technical decision making that is well within the expert agency's wheelhouse. This is exactly the type of thing that the experts at the agency are normally tasked by the statute to do. They're the ones who run the numbers and figure out what's most appropriate for the specific type of plant that they're regulating. And in fact, the existing standards for new sources do include these sorts of subcategorization based on the use type of the plant. So this is not something complex and mysterious. This is based on true and visible distinctions between types of plants based on the way that they're used.

And I think it really is yet another layer of the sort of flexibility that EPA can and should build into this program. Again, none of this is a particular mandate. And so the states and the companies then have that additional choice. Well, they can run a plant full steam and install controls, or they can run intermittently, keep that plant online and face a lesser limit, or they can retire it and make their own choices about what to replace it with. This is providing more and more levels of choices to the regulated industry to comply in the way that makes sense for them.

David Roberts

Yeah. And something you mentioned in passing, I want to just highlight and put a pin in here, which is that a big argument here on your side is CCS is now being showered with subsidies. Like there are huge subsidies coming down from the Inflation Reduction Act for captured hydrogen, enough to make them economic in some cases or certainly a lot closer. So these are synergistic. I'm saying like the Biden administration's legislation is bolstering the case for these tighter standards because CCS is not just on its own now. Now it's explicitly being helped and shaped and stood up by government grants.

Lissa Lynch

That's right. And at the same time, the Inflation Reduction Act also contains a ton of money for renewables. And so that level of investment across these types of technologies really changes the overall cost of the regulations. And that's one of the things that EPA has to consider, is the overall cost of compliance to the system. And so again, when these standards are in place and states and companies are looking out across their fleet and saying, oh, what should we do? All of those incentives are going to come into that consideration for them. And it makes renewables really cheap to replace your older dirtier generation with.

David Roberts

I got one more question about the standard setting before I want to get into the politics a little bit, but some energy heads out there may be familiar with a company called NET Power, which has come up with a new, I guess it's a couple of years old now. They've built one demonstration plan, a new technology that without getting into the technological details, it's really fascinating. I might do a whole pod on it, but basically it burns natural gas. Emits no particulate pollution at all and captures 100% of the CO2 emissions as a purified stream of CO2.

So you have in NET Power a natural gas power plant with zero particulate emissions and 100% carbon capture. They've built one, it's running and working. So has there been any talk about using that as a standard? Because that would be 100% carbon reduction. Has NET Power's tech come up in these discussions?

Lissa Lynch

Yeah, for sure. I mean, it's very cool, right? It was included, the EPA put out a white paper last year asking for input, sort of preregulatory input on the technologies that are available to reduce emissions, specifically from gas plants. And they took comment on the NET Power approach, which I cannot remember the name of. Allam something.

David Roberts

Allam Cycle, I think is right. I was trying to think of that.

Lissa Lynch

And it is really cool and innovative and I hope that that is a direction that we're going to see any remaining fossil generation go in. And I think we may see that in the proposal. Again, all of what I'm talking about here is we have not seen a proposal from EPA. This is sort of NRDC's perspective on what is possible, justifiable achievable and legally defensible in court. And this is what we've been advocating for before the agency, and then we'll have to see what they come up with. We're expecting a proposal relatively soon, probably within a month or so.

David Roberts

What's really interesting to me about this, just from a political perspective, is it's a sort of weird inversion here of the typical roles. So you've got the power sector, which has been touting CCS for years, to sort of like defend the ongoing existence of fossil power plants. They sort of wave their hands at CCS and say, no, we can go clean too. So they've got Joe Manchin out up there saying, I want to go clean, but I want to do it with fossil. I literally think they've convinced him that they can eliminate their carbon emissions. And traditionally you've had sort of greens and climate people saying that's big and overly complicated and overly expensive and stupid and nobody's ever really going to do it and it's just going to make more sense to switch to clean generation.

And so now we've got this odd political inversion where the power companies are saying, whoa, whoa, whoa, CCS is not really ready. We didn't mean "ready ready," we meant just over the horizon is what we meant. That's where they like it. They like CCS just over the horizon. And all of a sudden this is like calling their bluff. Like, oh, you've been talking about this for decades. Well, how about you use it? And then on the green side, on the climate side, you have a similar inversion where now greens and green groups like yours are arguing like CCS.

Oh, it's great. Yeah, it's right there, it's ready to go, absolutely ready to serve. As the basis for a standard. It's just odd and funny and I just wonder if you have any comment on the politics of trying to herd the cats in the climate community around this message of like CCS is ready and viable, which I don't think comes naturally to a lot of factions, let's say, within the climate community.

Lissa Lynch

Well, that's well phrased. We're walking a fine line. I think our vision for the power sector and the power industry is one of net zero. And in order to get to net zero, that means a heck of a lot of renewables and a heck of a lot less fossil.

David Roberts

Right.

Lissa Lynch

For the purposes of setting pollution limits, we need a technological basis and by far and away CCS is the most effective of the options that we've got.

David Roberts

That the Supreme Court left us.

Lissa Lynch

Exactly. And I think it is very important to have limits on the CO2 emissions from power plants. I think that is sort of the baseline, most important thing from our point of view.

David Roberts

Right, well, lots of, I mean, reports, we should just say lots of reports have been done saying the legislative progress is great, but it's not enough to reach Biden's stated goal. And to reach Biden's stated goal, you need a whole of administration approach, including these standards.

Lissa Lynch

Exactly. And just to put some actual numbers on that, if we want to meet our international and domestic greenhouse gas emission reduction targets for 2030, we need to get our power sector emissions down by 80% from the 2005 sort of peak emissions. We're already about a third of a reduction, 33% -ish reduction since 2005. Our analysis and RDCs of the Inflation Reduction Act puts us now on track to cut our power sector emissions by about 65% by 2030. So that is massive and also not enough.

David Roberts

Right.

Lissa Lynch

And our estimate there is somewhere in the middle there's a really wide range of modeling of the Inflation Reduction Act and a lot of work is going to need to be done in order to get those emission reductions that we're sort of showing in that modeling. It's not a foregone conclusion.

David Roberts

Yeah, one of the wildest things going on right now is just the incredible range of projections about what the IRA will do. Right. Like the sort of government came up with, oh, that it's going to spend $370 on these tax credits and then Credit Suisse is like, actually it's more like a trillion. And then I think there was another one last week, it was like actually it's more like a trillion five. So the range of amounts of money that could come out of this bill are just huge. It's so opaque.

Lissa Lynch

It is. And a lot still remains to be written in all the guidance for these tax credits. But that sort of uncertainty aside, I think the Inflation Reduction Act is going to accelerate a bunch of clean energy and it's going to get us a bunch of emission reductions in the power sector. And at least based on our analysis, that's not quite enough. And we absolutely are going to need limits on the CO2 emissions in addition to investments in clean energy.

David Roberts

So maybe the way to summarize is just to say endorsing CCS as the basis of a performance standard is different than endorsing CCS, full stop.

Lissa Lynch

Yeah, well put. And I think what we see in the modeling reflects what I've been saying about the decision making that comes once EPA sets the standard. So when we model standards that are based on CCS and we've included the Inflation Reduction Act in the baseline, we overall get to around between 70% and 77% CO2 emission reduction by 2030. And what we're seeing in the actual generation results, there is some CCS deployment and also a ton of clean energy.

David Roberts

This is my next question, actually, and you're here answering it before I even ask it, but I just wanted to ask, as a matter of curiosity, has someone modeled what would happen if EPA sets the standards where you are endorsing and what does the modeling say about the decisions power companies are going to make? Like how many fossil fuel plants will shut down versus installing CCS? I don't know if there's like an easy answer to that.

Lissa Lynch

Well, so we have done lots of modeling and we've been doing it for quite a while because even before this Supreme Court decision last summer, we were anticipating that EPA was going to be constrained and in this sort of inside the fence line way. And so we've really been looking for ways to get the most ambition and the most emission reductions out of these sort of source specific basis for the standards. That range that I gave you is based on CCS and partial CCS runs. So 70% to 77% overall emission reductions depending how much you crank the dial on the ambition.

But still with some of those sort of flexibilities that I talked about in terms of the type of use of the plant and what we see in those runs is renewables and energy storage capacity tripling from now to 2030 and quadrupling by 2035. And I think that is in large part based on these new Inflation Reduction Act tax credits being just so much more cost effective. And we still do see some retrofits with carbon capture and storage and some new builds of gas with carbon capture, but not a massive amount. And so there is some uptake of the technology and there's also some reinvestment in clean energy and that kind of tracks with what you would expect, right?

And that kind of goes back to that was essentially what EPA was counting on and basing their standards off of in the Clean Power Plan and that's why they did it that way. I think we can do it this way. And that carbon capture and storage based best system of emission reduction can be shown to be available to the plants that could use it. And not all plants are going to make that choice. It's going to be up to the states and the companies to look at their options and choose whether they want to keep that plant online, and that should work.

David Roberts

So NRDC is recommending a CCS based standard for both existing-source regs and new-source regs. Is there any difference between those two that's worth sort of pulling out here?

Lissa Lynch

Yeah, so I think industry estimates that CCS can achieve 90% capture. And so given that that technology exists, we think it should be used to set the standard for at least the plants that are operating at full bore, both new and existing. When you're building a new plant, you have much greater options in terms of where you're sighting it, how you're building it. You should be required to use the latest and greatest technology on a brand new plant. So that's pretty straightforward for existing plants because they're all over the place. We rely on them already for power.

There needs to be more flexibility, there needs to be more of a phase-in sort of glide path to compliance and some flexibility for how you're going to comply and some exemptions for those plants that are going to commit to retire. You don't want to make them retrofit right before they're expected to retire, you want to just let them plan to retire at the natural end-of-life of the plant. And so giving that flexibility on the existing source side is going to be really important and has long been part of the way that the section 111 standard setting has worked to differentiate between new and existing plants.

David Roberts

So, CCS based standard in both cases, but maybe more flexibility and implementation for the existing plants.

Lissa Lynch

Exactly.

David Roberts

If EPA does use CCS or hydrogen, something like that, as the basis for its performance standard, does it have any say at all in the details of sort of how CCS or hydrogen are used or measured? Because Volts listeners just got an hour and a half earful of discussion of the clean Hydrogen Tax Credits last week, and the details are many, and they make a big gifference in how clean hydrogen is used, how it's measured sort of how its carbon intensity is assessed, how much end users are allowed to claim reductions from using it, et cetera, et cetera. Does EPA get into any of that? Or is this purely just, we're using this tech as a way to set the numerical standard, but the details of how a power plant might implement this is somebody else's problem.

Lissa Lynch

So they absolutely have some authority over how it gets used to comply with this standard. So for purposes of standard setting, they're looking kind of broadly at what the technology is capable of achieving, how it's been used in the past, how it could apply to power plants that exist now in terms of compliance, though, they've got the authority over CO2 essentially in this rulemaking. And so if a plant is going to demonstrate compliance using carbon capture and storage or hydrogen, they can absolutely include the types of rigorous monitoring and verification requirements they would need to see in order for a plant to be demonstrating compliance using one of these technologies.

David Roberts

Right? So they can get into saying, here's what does and doesn't qualify as full CCS like measured every so often, or this kind of geographical storage. They can't get into that?

Lissa Lynch

I absolutely think so. I think they have authority to say you need to have rigorous monitoring and verification from the point of capture to the point of sequestration. And that needs to be part of your demonstration of compliance for using carbon capture. For hydrogen ... It's a little trickier.

David Roberts

I'm very aware at the moment.

Lissa Lynch

To the extent that there is going to be a pathway for hydrogen to be used for compliance, it's got to take into account where that hydrogen comes from, how it's made in order to avoid net emissions increases. And I think they absolutely have that authority. Given that the purpose of this is for the best system of emission reduction, they've got to ensure that it is truly reducing emissions.

David Roberts

Maybe they can just borrow whatever treasury comes up with for the hydrogen.

Lissa Lynch

Assuming it's good.

David Roberts

Yes, true. If EPA doesn't go with CCS, doesn't go with the high end here, what do you think it will do? Will it fall back to something medium, something in the fuel blending sort of range? And just more broadly, do we have any sense at all of what EPA is thinking or which direction it's going or what to expect?

Lissa Lynch

I think in terms of publicly facing tea leaves, what we've got to look at really is that white paper from last year where they had laid out the options and said, hey, give us some comments on what you think of these options for reducing CO2 emissions from combustion turbines. From everything that we have seen from this administration, we are hoping that they're going to be ambitious. They know that this is a critical moment. They know that this is an important wedge of emissions, that the power sector is still a really significant percentage of our emissions, roughly a quarter, and that we need standards on those CO2 emissions and they need to be strong.

And it's not going to be worth all this work, honestly, if they don't make them strong. And so that has been our message to the administration, is, look, if you're going to go through the trouble of doing this all over again, let's make it worth it.

David Roberts

Is Manchin he's like the monster under my bed at this point. Is there some way Manchin could burst out of the closet and screw this up somehow? Or is he ...

Lissa Lynch

I hesitate to even speculate.

David Roberts

Can I just not think about him in this respect, or does he have some way that he could theoretically muck this up, or is this something that's finally just sort of beyond his reach?

Lissa Lynch

I think for now, the ball is in EPA's court to come out with a proposal and to take public comments and to consider them. And so for right now, this is an EPA project. Once it's finalized, it will presumably be subject to a Congressional Review Act resolution, and it will depend on who is in charge as to what happens there. And so that's when Congress gets to have its veto opportunity over regulations, which is unfortunate, but it is the world we're living in.

David Roberts

And does that just require a majority or a supermajority?

Lissa Lynch

I believe it's just a majority, but it can be blocked by the President.

David Roberts

Right. And by the time there's a new president, it'll be too late. We're coming in under the deadline that the Congressional Review Act, if it's going to happen at all, would happen under Biden and thus would be vetoed. So that's not really ...

Lissa Lynch

And so that takes place at the final rule. So we're only at the proposal stage. We've got a long way to go.

David Roberts

Is it going to get done under the Congressional Review Act just to just explain to listeners? Congressional Review Act says basically Congress can undo or veto a regulation basically within a certain window of it being finalized which is 60 ...

Lissa Lynch

60 working days, which does not equal the calendar days.

David Roberts

Right. So what you want to do is get your regulations on the books more than 60 working days prior to the next presidential election.

Lissa Lynch

Exactly.

David Roberts

Just so you're sure your guys in charge, if it happens.

Lissa Lynch

The date that we are looking at is next April, roughly a year from now, for all of these regulations. Right. Like it's not just ...

David Roberts

There's a lot these are not the only ones. There's a lot of there's a big backlog.

Lissa Lynch

It is. And we are seeing the use of the Congressional Review Act right now as we speak in this Congress with attempts to invalidate the rules that the administration has recently finalized. It is a terrible tool. It is not a good thing.

David Roberts

It's a Newt Gingrich special, isn't it? Am I right about the history? Of course, like so many malignant things in our government treat.

Lissa Lynch

But it is the world we're living in, and I think the administration is aware of the timeline that's facing them next year.

David Roberts

Interesting. So you think a proposed rule is going to show up in the next month or two?

Lissa Lynch

Yeah, we're expecting a proposed rule maybe by the end of April. And then when ... you know what happens, that gets published in the Federal Register. There's an opportunity for public comment. There's public hearings. And so there will be sort of a flurry of activity as everybody gets their comments in, and then the agency has to review those comments and address them in the final rule. That's part of the sort of Administrative Law 101. And then they have to issue the final rule and demonstrate yeah, we heard all your comments, and this is why we made the decisions that we made.

David Roberts

And that's when the lawsuits kick off.

Lissa Lynch

And that's when the lawsuits start. Exactly. We do it all over again. It's the circle of life.

David Roberts

Yes. And what do you think of the chances that this Supreme Court ends up hearing a case on this again? Do you think the conservatives can mount a legal case plausible enough to get it back into the Supreme Court?

Lissa Lynch

I would never speculate about what this Supreme Court will do, because who knows, right? Our job is to make this thing as airtight as possible. And Chief Justice Roberts gave us some guidelines and a roadmap in the West Virginia decision. He told us what he's looking for, and it's this sort of traditional looking approach to pollution control. And so that's what we're operating under. And we are urging EPA to follow those guidelines and do the most that they can within those constraints, and we'll be there to defend it with them if it comes down to that.

David Roberts

All right, awesome. Lissa Lynch of NRDC, thank you for coming and forecasting and explaining all this with us. Maybe we'll talk again in that distant future day when these things are actually on the books and the lawsuits have started. We'll talk again.

Lissa Lynch

Thank you so much for having me.

David Roberts

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

In this episode, Dan Lashof of the World Resources Institute discusses the trajectory of biofuels since the early 2000s and the implications of new biofuel standards recently proposed by the US EPA.

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Text transcript:

David Roberts

My fellow olds will recall that, back in the 2000s, biofuels were an extremely big deal in the clean-energy world, one of a tiny handful of decarbonization solutions that seemed viable. Biofuels — and the many advanced versions thereof allegedly on the horizon — dominated discussions of climate change policy.

Much has changed since then. Principally, it has become clear that electrification is the cheapest path to decarbonization for most sectors, including the transportation sector. The Biden administration has explicitly put electrification at the center of its transportation decarbonization strategy.

Biofuels, in the meantime, have gone exactly nowhere. Advanced biofuels remain almost entirely notional, old-fashioned corn ethanol remains as wasteful as ever, and new scientific evidence suggests that the carbon costs of biofuels are much larger than previously appreciated.

It's not clear if anyone has told the EPA. For the first time in 15 years, the agency is on the verge of updating biofuels production mandates first established by the Energy Independence and Security Act of 2007, and its proposed standards do not appear cognizant of these recent developments, or of the administration's larger transportation strategy.

To discuss the latest developments in biofuels and the EPA's puzzling blind spot, I talked to Dan Lashof, director of the World Resources Institute. We discussed how biofuels have developed since the early 2000s, the lack of progress in advanced biofuels, and the stakes of EPA's coming decisions.

Alright then. Dan Lashof. Welcome to Volts. Thank you so much for coming.

Dan Lashof

Really happy to be here.

David Roberts

I've been wanting to do an episode on biofuels forever because I often just pause to think, whatever happened to biofuels? Because old people like you and I will recall way back in the day, in the early times, biofuels used to be a very big deal. They used to be the top line item, the sort of the hot subject of conversation, and it's really flipped since then. So maybe just to start, let's use our little time machine squiggly squiggly fingers, time machine, go back to say 2005 to 2010, the early 2000s, and just sort of tell us what was the state of the decarbonization conversation then and what role did biofuels play in it?

Dan Lashof

Right, well, back then, Tesla hadn't built its first car. Photovoltaics cost ten times or more what they do today. And the big fight was to prevent hundreds of new coal plants from being built. So the idea that we would replace gasoline with electricity seemed far-fetched at best. And a lot of environmental advocates were focused on fighting coal. There was some discussion of alternative fuels, but when you looked at the transportation sector, biofuels seemed like one of the best options out there. And then there was this idea, there was a debate about corn ethanol from the beginning, right?

David Roberts

Corn ethanol goes back. I mean, I kind of want to distinguish between corn ethanol and kind of biofuels. The larger category, like corn ethanol, goes back farther than the rest of this stuff. Right?

Dan Lashof

Right, but back then we weren't making much of it, right? So in 2007, there was about 6 billion gallons of corn ethanol being produced, which is about 4% of gasoline consumption back then. And there was a debate about it. A lot of that debate was like about net energy balance. Remember that one?

Does it take more energy and fertilizer and tractor fuel and trucking than is in the fuel? I think that debate sort of missed the point, and it was gradually shifting to, well, we don't really care about BTUs, we care about carbon and what's its net carbon impact.

David Roberts

And I feel like the limitations of corn ethanol were around even then, which is why I remember so much buzz around cellulosic biofuels.

Dan Lashof

Yeah, right. At that time, there was new research that seemed very exciting. I was convinced that that was the future of biofuels. Right. We were going to make ethanol not from grain, not from the corn kernels, but from corn stalks, maybe from some perennial grasses like ...

David Roberts

Switchgrass.

Dan Lashof

Yeah, right. And that was going to be awesome because you wouldn't be competing with food as much, and it was supposed to be cheaper because you weren't ... as waste material or the yields were higher. So that was going to take over.

David Roberts

Yeah. Wow. We were so young then. And so then this is the sort of political atmosphere in which came the Energy Independence and Security Act of 2007, which, among its other sort of puzzling features in retrospect, was a big bipartisan energy bill passed in part to address emissions and I guess just wasn't the poison that it is now, I guess. But so part of that bill was about biofuels and setting those standards. So just tell us kind of what we did about biofuels in that bill.

Dan Lashof

To set the stage. The big political driver really was concerned about imported oil, which was peaking. It actually peaked in 2005, but it was about the same level through 2005, '06, '07.

David Roberts

Right. Because this was before the fracking revolution changed all that.

Dan Lashof

Right. And fuel economy standards for automobiles had been stagnant for a long time. So the bill had three main components. One was reform of the fuel economy standards, actually setting them on a size basis, which allowed the auto companies to kind of accept it, and then setting a target to increase them to 35 miles per gallon.

David Roberts

Is that when the light truck loophole made its way into ...

Dan Lashof

No, that was already there. This was actually designed to help address that by saying it did leave trucks and cars separate, but it said, we're going to base the fuel economy for a manufacturer based on the mix of sizes of vehicles they make. So if they make bigger cars, they don't have to hit the same level, but it reduced the sort of clip effect between a truck and a car. So it actually allowed more of these crossovers, but it also allowed unlocking an increase in the standards which had been stuck. So that was a big component. And one of the things that environmentalists were most excited about in that bill, there was also a set of energy efficiency provisions, appliance standards and other things.

And then the third big piece was the Renewable Fuel Standard.

David Roberts

And did the Renewable Fuel Standard exist prior to this or was it developed for this bill.

Dan Lashof

It did exist. I think it was first passed in 2005, but it was relatively modest. And then in the 2007 bill, well, there was this buzz about cellulosic ethanol. The thought was set a long term trajectory of increasing uses of biofuels and make sure that by 2022, most of that was supposed to be cellulosic ethanol.

David Roberts

Right.

Dan Lashof

So the standard ramped up to 36 billion gallons of total biofuels by 2022. That was the target of that 21 billion gallons was supposed to be advanced biofuels, either cellulosic ethanol or other biofuels made from something other than corn.

David Roberts

Right. And this suffice to say did not happen. It did not play out that way. So maybe sort of take us forward from 2007 to what happened to actual production of actual biofuels. Like how has the industry developed in the 15 years since then?

Dan Lashof

Well, so the corn ethanol industry grew as expected up to about 15 billion gallons which was sort of what it was supposed to be capped at subtracting 36 - 21 is 15. So that was what corn ethanol was supposed to provide. Right, they did that. Cellulosic ethanol not so much. The actual gallons of cellulosic ethanol produced in 2022 were zero. Literally zero.

David Roberts

Wait, say that, say again.

Dan Lashof

There was no cellulosic ethanol produced in 2022. There had been a couple of demonstration plants, none of them were actually operating in 2022. There was a little bit of what was considered cellulosic biofuel, about less than a billion gallons of biofuel equivalent. That mostly came from landfill gas, which was considered cellulosic. Because ...

David Roberts

Weird,

Dan Lashof

Most of what's in a landfill is woody stuff that's decaying and making methane. So if you capture that and use it in a CNG vehicle, that's considered part of this.

David Roberts

But the whole infrastructure of wild hopes about switchgrass and waste products and all of this, it came to literally nothing.

Dan Lashof

It came to literally nothing so far. Now, there's still some true believers, it's still right around the corner, kind of like. But the thing that did happen and there's about 5.6 billion gallons of the total biofuel produced in 2022 is something other than corn ethanol.

David Roberts

What is that stuff?

Dan Lashof

Most of that is bio-based diesel and that's a couple of different things. So some of that is from waste oils. So like used cooking oil.

David Roberts

Yes. I remember so much talk about used cooking oil.

Dan Lashof

So there's a little bit of that, but a lot of it is biodiesel or so called renewable diesel made from oil crops like soybeans or palm oil, which is imported and a huge problem or other oil crops.

David Roberts

Now, are those in the renewable fuel standard like or do those have a category of their own in the, in the standards?

Dan Lashof

There is a category of bio-based diesel. It's required to produce a billion gallons in 2022, and it exceeded that. But it also counts as part of this larger advanced biofuel category.

David Roberts

Yeah. You mentioned before the call that in terms of land use, that biodiesel is now rivaling corn ethanol.

Dan Lashof

Yeah, this actually shocked me when I looked into it. So we use about 30 million acres of land to produce corn that goes into making ethanol. We use another 30 million acres of prime US farmland producing soybeans that goes into biodiesel wild. And we hear much less about that, partly because it actually produces much less fuel. It's overall much less efficient.

David Roberts

Oh, the diesel process.

Dan Lashof

Yeah, it takes a lot more land per gallon of diesel than you get per gallon of ethanol because corn is not that great. No, corn is not great, but the biodiesel is even worse. And when you think about the global market for oil crops so palm oil, for example, is a major driver of deforestation around the world.

David Roberts

Right.

Dan Lashof

And that's totally fungible with soybeans and canola and other oil crops. So if we're diverting soybeans to make biodiesel in the US. That means somebody else is probably producing palm oil and may well be deforesting the rainforest to do it.

David Roberts

So the amount that was set for advanced biofuels in 2007 for 2022 just isn't being met. It's not as much biofuel as that legislation anticipated.

Dan Lashof

Yeah, so the law allowed EPA to waive the requirement if it determined that the supply just couldn't meet the number and set a level that they concluded could be met by the industry. And so that's what they've been doing consistently every year for the advanced biofuels requirements.

David Roberts

I guess I knew on some level that things had not panned out the way we hoped in 2007. But the notion that the whole hype about advanced biofuel came to literally nothing and all we basically did is just keep growing corn ethanol and biodiesel like we were before, with all the flaws. I mean, we already knew about the flaws, some of the flaws then. Speaking of the flaws, tell us about what we — insofar as you can I'm sure there's a lot, and it's difficult to summarize — but tell us what we've learned about the environmental and carbon impacts of biofuels that we didn't know when we passed this law in 2007.

Dan Lashof

Well, I'd say there's two main things. First, we know that there's a much better way to eliminate emissions from passenger vehicles. So, like I said, we didn't really believe, at least I didn't really believe, electric cars were going to be a thing back then. Now, that's clearly the way we get rid of emissions from the road. And if you do the calculation, it takes 300 acres devoted to corn ethanol powering an internal combustion engine car to move it as far as one acre of land dedicated to solar photovoltaics, to power an EV 300 to 1. And we can put solar farms in the desert and not just on actual farms.

So it's just like a completely different landscape in terms of what are the pathways.

David Roberts

Yes. And as I point out to people, solar has only gone in one direction and cellulosic biofuel has also only gone in one direction, which is nowhere. At a certain point, you got to learn from trajectories.

Dan Lashof

So that's the first thing. There's a much better way. The second thing is, I think the key conceptual shift is really, and it hasn't been incorporated into policy yet, is that land is scarce. We need to focus on the overall use of land and not just land use change. So the way I think about this is if we want to achieve net zero emissions globally by 2050 and feed 10 billion people and protect biodiversity, how do we optimize the way we use land to do all of that?

David Roberts

Right.

Dan Lashof

And if we dedicate an acre to producing biofuels, we can't use that same acre to have an old growth forest that is storing carbon in the trees and providing biodiversity.

David Roberts

Right. So for any given acre of land, if you use it for one thing, part of the cost is the opportunity cost of not using it for something else that would have absorbed more carbon.

Dan Lashof

Yeah, exactly. And of course, the opportunity cost is a pretty familiar concept in other contexts. Right. We know that if we spend $1,000 on a vacation this summer, we can't invest that money to pay for travel when we retire.

David Roberts

Right.

Dan Lashof

But for some reason, that it hasn't really been built into the way people think about land. I think there's still this notion that there's going to be a lot of spare land out there, we can reclaim land, but when you do the math, it just doesn't add up.

David Roberts

Well, about the math, though, how confident are we that we know and understand all the ins and outs? Do we have a ranking of land uses by carbon absorption? Do we have a clear sense of that ranking?

Dan Lashof

I mean, I think that's a good question. So if you've got a old forest, the best thing to do from both a carbon point of view and a biodiversity point of view is protect it.

David Roberts

Right.

Dan Lashof

Keep the carbon in the trees, keep the birds and bees flying around. And anytime you use land for something other than feeding people, it's going to put more pressure on those remaining old forests. So that's one way to think about it.

David Roberts

Right. Because I'm thinking all these land use arguments, as you well know, are frequently deployed against renewables as well. There's an opportunity cost for food production. There's even some people who say there's an opportunity cost, like whatever, put a nuclear plant, get more power for less area. There are opportunity cost for putting mirrors. So this question of the highest, best use of land from a purely carbon perspective cuts a lot of ways.

Dan Lashof

Yeah, that's true. And we have not really done a full kind of optimization of land use for achieving decarbonization. That's something I'm actually hoping to work on over the next couple of years. I think it's badly needed. There's some work that's been done that points in that direction, but not a fully integrated analysis. But to give one example, yes, there are issues around land use for renewables and certainly legitimate conflicts over how people want to see their community or their landscape look. But NREL did a study of what it would take in terms of land to get to 100% clean electricity grid by 2035, which is the Biden administration goal.

And they looked at the total amount of land that you had to dedicate to wind/solar transmission lines. That amount is smaller than the amount of land we're using for biofuels today. And those biofuels are supplying less than 10% of our transportation energy. So there's no comparison in scale.

David Roberts

Yes. Got it. So even if we don't have perfectly tuned, fine-grained distinctions here, there are plenty of crude distinctions we can make. Some of the cases are obvious, more obvious than others. And so given this new way of seeing biofuels, this sort of opportunity cost of lands carbon opportunity cost, and I assume we probably learned more stuff about biofuels in the interim in terms of the amount of energy in versus out and all this. So how do biofuels look now relative to how we thought about them then? I'm going to guess that based on our new knowledge, they look worse.

But how much worse? Like corn ethanol, for instance.

Dan Lashof

Yeah so ...

David Roberts

Not good. Not good.

Dan Lashof

No, I mean in terms of energy in versus energy out, actually, the ethanol industry has gotten more efficient. If you're ignoring the land problem, it's starting to look, you know, it looks okay. I mean, it doesn't get you to zero by anybody's calculation. But if you ignore the land issue, 30-40% reduction relative to gasoline is plausible. But once you take the carbon opportunity cost of land into account, then anytime you're dedicating an acre to grow fuel rather than either food or forests, you're going to lose. And you're going to lose it's not close it's by factors two, three or more.

David Roberts

That's true of any crop, any kind of fuel across the board.

Dan Lashof

Yeah, just because that opportunity cost is so large.

David Roberts

Interesting. So let's take this knowledge then and gallop here into 2022, I guess we're in 2023 now.

So tell us first of all, why is EPA revisiting these standards? I guess they decided in 2007 that they could see exactly 15 years into the future of biofuel demand, but no further. Was it always built into the law that 15 years, and then we'll start revisiting it.

Dan Lashof

Exactly. So Congress specified exact volume targets for every year through 2022. And again, it gave EPA the ability to adjust those if it concluded it wasn't feasible, which is what they had to do on the advanced biofuel side. But starting in 2023 ...

David Roberts

Wait, can I pause? Before we get into the change in the line, I want to ask one question about the volume thing, because it also strikes me as kind of crazy, like how gasoline performs with ethanol in it. Depends on the level of ethanol in it, right. The percentage of ethanol. And there's been a lot of arguing about how much ethanol you can blend into gasoline. But if you're specifying volumes of biofuel, you can't specify volumes of total gasoline demand that's going to fluctuate out of your control. So if demand goes way up, then the same volume looks like a smaller percentage, and if gasoline demand goes down, then the same volume looks like a larger percentage.

David Roberts

It just seems like specifying volumes is a bizarre way to approach this question, especially 15 years in advance, when you have no idea what total demand for gasoline is going to be. So you really have no idea what percentage of the total these volumes are going to be. Am I crazy, or is that just a weird way to approach this issue?

Dan Lashof

That's correct. What EPA actually does under the law when they set the targets, is they look at the volume target. They project how much gasoline will be consumed, and then the actual requirement on refineries is a percentage. So they convert the volumes into percentage when they implement it. But they've only been doing that sort of one or two years in advance. Or actually, sometimes they get to the end of the year, and then they do it looking backwards, which is a little weird, too. So then in a year like 2021, when the Pandemic shrunk demand for gasoline, it was actually the percentage requirement that was binding, and the volume was much less than what EPA had originally projected.

So that's how they implemented. But it's still a strange way to write the law. I totally agree with that.

David Roberts

The reason I ask is, it seems to me, sitting here in 2023, that the next 15 years of gasoline demand are even more difficult to forecast than they were in 2007. There's more going on. There's more forces converging from different directions. There's a lot of it's a really open question. So if you're specifying a volume, that just seems crazy. Are they doing that again? Are they going the volume direction again?

Dan Lashof

They are, but again, they convert it to percentage, and they're only looking three years. Their current proposal looks three years in advance, not 15 years in advance.

David Roberts

Got it. Okay, well, let's back up. Just tell us what's going to happen. What is EPA doing in 2023 about this? Now that these original volume standards are over, the time period is over, what's EPA going to do?

Dan Lashof

Right. So EPA has this broad discretion now, and so they proposed a rule to set the volume targets for three years, 2023 through 2025. But they basically ignored all these changes that we've just been talking about and sort of blithely went forward as if nothing has changed. And they've proposed to increase the amount of biofuel required each year, not by a huge amount, but by some. And they've said, okay, the amount of conventional corn ethanol that would be implied by these requirements is going to stay constant at about 15 billion gallons. But because of what you said, that's a huge problem.

Right. So if we're actually on a trajectory to meet our climate goals, we've got to electrify the fleet. And that means gasoline consumption over the next 20 years should go down by about 80%, according to at least some scenarios. So the current standard gasoline is blended 10% ethanol, and 15 billion gallons is already more than you can absorb at 10% of current gasoline demand.

David Roberts

Is that true? What happens if there's too much if there's too much corn ethanol and you can't blend it all in? What do they do with it?

Dan Lashof

So some states allow up to 15% ethanol.

David Roberts

Right.

Dan Lashof

And the original theory was we were going to have flex fueled vehicles that would use 85% ethanol.

David Roberts

You still see those around sometimes.

Dan Lashof

Yeah. The auto companies got credit towards meeting their CAFE standards.

David Roberts

Right.

Dan Lashof

Producing those even if they never saw a drop of E85, right. So there are a few of those vehicles around, but they're just using 10% ethanol or maybe 15% ethanol, depending on where they're fueling up. So you can maybe absorb a little bit more than 10%. But basically, by setting the requirement at a level that is more than 10% of gasoline demand, what EPA effectively has done is forced more biodiesel, because that you can substitute for diesel in the freight sector. And as we discussed, that's even worse than corn ethanol.

David Roberts

Well, you mean because they're holding corn ethanol steady and increasing the overall amount of biofuels, and we now know that cellulosic is going to be 0% of that, then all the remainder has to be biodiesel, doesn't it?

Dan Lashof

Most of it will be. I mean, again, there's some what's called renewable natural gas. So if you harvest landfill gas or dairy digesters, you can produce some fuel that way.

David Roberts

But most of the increase will come from biodiesel.

Dan Lashof

Most of the increase is biodiesel. And again, the way the law is written, it doesn't actually specify corn ethanol. It specifies conventional biofuels. So you could use biodiesel to satisfy part of that. Right. Now, this is the so called 10% "blend wall", ethanol "blend wall". That's about 14 billion gallons.

David Roberts

Got it.

Dan Lashof

And it's going down every year.

David Roberts

Wait. why?

Dan Lashof

Well, because gasoline consumption is going down.

David Roberts

Right?

Dan Lashof

And it's already going down because cars are getting more efficient under the fuel economy standards, particularly the ones that the Obama administration promulgated. And as we get more and more electric vehicles on the road, it's going to go down faster.

David Roberts

Given what we've learned about biofuels and given how they performed since 2007, what on earth is EPA doing? I guess I'm just wondering, what are the political forces, as you see them, that are pushing to keep this Frankenstein alive when it basically looks like we should just we'll talk about future uses for biofuels later and there might be something to that. But in terms of shoving corn ethanol into gas tanks, it just seems like the whole enterprise is kind of silly. So what's keeping it alive? What's propping it up? Because EPA looks like they're just, like, going forward, like you said, as if they've learned nothing.

And yet we know they have learned stuff. So what is going on? I guess I'm asking.

Dan Lashof

Well, I think there are a couple of things. Obviously, politically, you have this now incumbent ethanol industry. Companies like ADM that make a lot of money making ethanol, and they're in Midwest states that don't necessarily have a lot of people, but have two senators each.

David Roberts

But are no longer going first in the Democratic primary lineup. I wonder if that's going to change anything.

Dan Lashof

It may make a little bit of difference, but Iowa is not the only state. It's not the only state where ethanol is produced, so they still have a lot of sway. Also, I think that this idea of the carbon opportunity cost of land really has not been absorbed by policymakers at this point. So there's still, in their minds, an active debate about, oh, maybe it's 20% better than gasoline, maybe it's 40% better than gasoline. There's some studies which say that it's a little worse than gasoline, but there hasn't been an acceptance yet of this view of land as fundamentally scarce and something that you really have to be much more intentional about how you use it.

David Roberts

Well, the ethanol lobby is obviously one thing, and of course, corn state senators are, of course, one thing. I think you and I will recall when John McCain was running, what was it like the first time he ran? He was very bravely standing up against ethanol and then just got pilloried and caved on it later, as I recall. Am I making all that up? It's had such a grip on politics.

Dan Lashof

Yeah, that sounds right. And certainly I think both Obama and Clinton who were running in the primaries during the time the 2007 bill was written, were staunch supporters of ethanol. So, yeah, there's been this bipartisan support for it across the board. One notable exception has been Senator Diane Feinstein of California has always rallied against ethanol.

David Roberts

Interesting.

Dan Lashof

But to no effect.

David Roberts

And what about fossil fuel companies? Like, where are they on this whole thing? Where are they throwing their influence?

Dan Lashof

Historically, they opposed ethanol mandate. They were kind of outmaneuvered when the RFS was first done because you had both environmentalists who supported the overall law, whether they focus on the RFS or not because of the fuel economy standards and kind of the farm state senators and representatives supporting it because of the ethanol piece. So that's actually a fight they lost. Now it's a little challenging because both the fossil fuel lobby and the ethanol industry feel threatened by electric vehicles. And so there are cases where they're actually teaming up to fight electrification, which is definitely a toxic mix.

David Roberts

And isn't there some overlap of plastics and biofuels now that the fossil fuel industry might be? Because I know fossil fuel industry has big hopes for plastic to help them survive in a post fuel world. Isn't there some sort of like biofuels made out of plastics? Or am I groping here? What am I talking about?

Dan Lashof

Well, there are ways to make plastic substitutes from biomass. So you see some compostable forks that are made from cornstarch, for example. I don't think a big market compared to the ethanol market. So I don't know that that's a big player. I think from the fossil fuel industry point of view, they definitely are looking at plastics as their get out of jail free card. As oil demand for automobiles goes down, they're looking to divert both natural gas and petroleum into a huge number of new petrochemical plants to produce plastics and other things. So yeah, that's a real issue.

David Roberts

But returning to here to Biden so there was never, I guess, really a road through biofuels to zero carbon. I mean, maybe people waved their hands at it like super-future cellulosic, whatever, but in the 15 years since, we have not progressed down that road, hardly even a single step. And yet here the EPA is sort of acting like, yeah, that's still our thing on transportation. We're still going to labor away at biofuels and try to sort of marginally reduce the impact of gas. Meanwhile, you have over on the other side of the Biden administration, Biden himself the bills he's passed, his own transportation secretary on and on, being very explicit that their transportation strategy is electrification. So why isn't the right hand talking to the left hand here? What is this Janus-faced transportation strategy?

Dan Lashof

Yeah, it's a huge disconnect. I mean, right as EPA was proposing this renewable fuel standard continuation, the administration published a transportation decarbonization strategy which, as you said, absolutely focused on electrifying certainly all the passenger cars for freight. It's some combination of battery trucks and hydrogen fuel cell trucks. The one place they point to biofuels and we can talk about this more is with respect to aviation fuel.

David Roberts

Yeah, I want to get to that. In a second because that seems like a big piece of this. But just in terms of, well, a. why? I guess no one really knows why. I mean, maybe it's just path dependence, maybe it's just lobbying, maybe like EPA is not meeting with Pete Buttigieg enough. But what would you recommend, what would WRI recommend that EPA do in this situation if it had read its own administration's transportation plan? What would renewable fuel standard setting look like in light of sort of sane response to Biden's electrification push?

Dan Lashof

Right. So it's important to point out that right now we have a proposal from EPA. It's not a final rule. And so part of what we're trying to do is point out this disconnect between this proposed rule and the rest of the administration's climate strategy and transportation strategy. So hopefully it'll have an impact. We'll see. So what we recommended is setting much lower volume targets for renewable fuels going forward that are based on the amount of fuel that you can produce from biomass waste. So this is the key distinction that we're trying to make. It's one thing, the carbon opportunity cost, if you're dedicating an acre of land to produce biofuels, is high.

But there are some genuine waste resources and a lot more work needs to be done to figure out how substantial they really are. But they're not 36 billion gallons. But there are certainly significant amounts of things like corn stover, which is what's left over after you harvest the corn. You've got wheat hulls, in orchards you trim them every year, so there's woody biomass there, there's waste in the pulp and paper industry that they currently burn to make electricity, which there's much better ways to make zero carbon electricity. So there's those resources and then there's this huge amount of biomass which is starting to be pulled out of the Western Forest to reduce the risk of catastrophic wildfires.

And what happens to that now is mostly it's either left to decay at the edge of the forest or it's actually burned in a pile.

David Roberts

Either of those produce greenhouse gases, don't they?

Dan Lashof

Right, exactly. Well, you're taking carbon that was in the forest, but that had the risk of going up in flames at any point and turning into CO2. You're kind of speeding up the conversion to CO2, but hopefully reducing the risk of catastrophic fires. You look at what would happen to the biomass if you didn't use it for biofuels. And if the answer is that carbon was going to go back into the atmosphere quickly, that's a biomass resource that it makes sense to use.

David Roberts

So WRI's recommendation is that basically standards be required or volumes be required only for waste biofuels?

Only for volumes that could be produced with waste biofuels. And that essentially the conventional corn ethanol should not be viewed as achieving any greenhouse gas reductions. Now, it's important to say that doesn't mean that the ethanol market is going to disappear overnight.

Yeah. I was going to ask, are you here proposing that we basically abandon both the corn ethanol and the soybean-biodiesel markets? Because I would be all for that, but those are big, powerful players. It's not a small thing to propose abandoning them.

Dan Lashof

Yeah, well, this is definitely not going to be an easy push right. To the administration, for sure. But I think it's really important to lift up farmers in this transition. So if we eliminated the Renewable Fuel Standard overnight, the gasoline suppliers would still probably and according to EPA's analysis, they would still blend 10% ethanol into gasoline because ...

David Roberts

Really? Why?

Dan Lashof

Well, they need it to provide oxygen and octane. So one of the other factors that we haven't talked about that was going on during the early 2000s is gasoline used to contain this thing called MTBE.

David Roberts

Right, I remember.

Dan Lashof

Which was the way in which they got octane, and that created a lot of groundwater contamination. California banned it in 2002, new York banned it in 2004, and other states were moving to ban it. And so the sort of chemical function that MTBE was playing in gasoline got replaced by ethanol.

David Roberts

Got it. So they do need some kind of additive?

Dan Lashof

Yeah, there may be other things out there, but I think for now the expectation is they would still blend 10%, which would mean as we phase down gasoline consumption, as we electrify vehicles, a gradual phase down of ethanol demand.

David Roberts

Of course.

Dan Lashof

But not an overnight elimination. So I think that's the first thing to note. The second thing to note is US farmers in particular are really good at growing food. And we need that food. The world needs it more than ever.

David Roberts

Right. Isn't global food demand supposed to double? That's the statistic I always see by 2040 or 50 or whatever.

Dan Lashof

Yeah, I mean, you got a population that's going to go from about 8 billion to about 10 billion. But then also as people get richer, they eat more meat, for better or for worse. Often for worse. But in low-income countries, actually increasing protein consumption is important from a health perspective. And that means you need more animal feed. So the total amount of grain that's needed goes up by much more than the population.

David Roberts

So the contention here is that farmers would be okay if we abandoned or started ramping down our current biofuel production. Farmers would not simply be cast out onto the street.

Dan Lashof

I mean, I think this needs more work to look at what that transition is like. But like I said, corn prices right now are very high. The renewable fuels mandate probably contributed some to that, but corn prices have also been very volatile and that volatility didn't go away with the Renewable Fuel Standard. So being a farmer is still really tough and we need to recognize that. I think we have to look at a whole range of alternative or complementary income sources that we need to boost the rural economy. And that can include wind and solar revenue, right.

And it can include using biomass waste like corn stover to produce hydrogen or other carbon benefits, which we can talk about more. And then there's an opportunity to increase fertilizer production more locally using clean hydrogen. Right now, all the fertilizer that's being used, almost all of it in the US. Is being produced from natural gas, and then this CO2 just goes into the atmosphere. So if you've got sources of clean hydrogen, whether it's from electrolysis using renewable electricity, or if it's from biomass waste with carbon capture, one thing you can do with that hydrogen is make fertilizer that could be more distributed than the big fossil fuel based fertilizer plants that we currently have.

David Roberts

Interesting. And so when you say EPA should set volumes based on what can be met with waste, what does that mean numerically? Like, right now? It was 36 billion in 2022. Is that right?

Dan Lashof

That was the original law.

David Roberts

Right. And they're proposing for 2025.

Dan Lashof

Less than that, let's see, because, yeah, we never got to 36, we got to 21. And they're proposing a modest increase from that. And we're talking about the waste being more on the order of less than 10 billion gallons.

David Roberts

So, ballpark, you're recommending that they cut the volume requirements for biofuels roughly in half, or a little bit more than in half, down to what could be met through waste?

Dan Lashof

Right.

David Roberts

And aren't you also encouraging them to use a shorter time period, shorter than three years?

Dan Lashof

Right. Well, in general, I think having a little bit of a runway setting a standard for several years out makes sense. But in this case, what we said was, look, things have changed since 2007. You really need to rethink this policy and how it fits into the administration strategy. So to give yourself some time to do that rather than setting a target.

David Roberts

They had 15 years. This is what's bizarre about this. It's like they woke up yesterday morning, they're like, oh, we have to do this thing again. None of this stuff is a secret. What we're talking about, the biofuels performance, is not a secret. It's weird to me that they seem to be kind of sleepwalking into this.

Dan Lashof

That's a fair point. I don't have an explanation for that. But given where we are, we thought one of the things that we could suggest to give the administration a little more time to rethink this would be to start with only one year standard, and then hopefully the next phase, they would more fully account for the changes, particularly in electric vehicles going forward.

David Roberts

Is it in law that they have to set standards every so often, or is this going to be like setting new standards every year or two years or three years forever? Or how does it work going forward?

Dan Lashof

They have to set standards for each year, but they can choose to set it for one year at a time, or three years at a time, or five years at a time? That's up to the EPA at this point.

David Roberts

A slight side question, but I would like a little bit of international context here. Like, are other countries that have been sort of doggedly pursuing biofuels all this time, despite all the trends heading in the other direction, are they a big dominant industry? And question in other countries, what's the international take on biofuels right now?

Dan Lashof

Well, the one country that has probably the most significant ethanol industry other than the US is Brazil.

David Roberts

Right.

Dan Lashof

And they make ethanol from sugar cane, which is more efficient than corn. But I think it's still subject to similar carbon opportunity cost problems.

David Roberts

Do you think it still fails the land test?

Dan Lashof

I think so. I haven't actually done that calculation, but I think it's a similar issue. And then the other issue where biofuels are used not for transportation, but there actually have been a significant part of the European renewable mandate.

David Roberts

Yeah, biomass for electricity, right?

Dan Lashof

Well, yeah, electricity and co generation plants. So they're using wood pellets, some of which come from the US southeastern forest. A bunch of them come from Romania. Scientists have been raising concerns about this for a long time.

David Roberts

That's very controversial, too, right? Biomass in Europe's standard.

Dan Lashof

Right. And they've been supposedly tightening their requirements so that it's supposed to be like waste. So if you talk to the wood pellet industry, they'll say, oh, no, we're not harvesting trees, we're using these biomass waste. But there was an investigative report a few months ago that looked at Romania where it's very clear that biomass pellets that were labeled as coming from waste were actually big trees that had been harvested and chopped up. So there's a huge problem there.

David Roberts

Interesting.

Dan Lashof

This all comes back to this unfortunate notion that biomass is inherently carbon neutral, because after all the carbon in the biomass that came from the air through photosynthesis so putting it back to the air, that shouldn't be a problem.

Right. But the problem is, of course, that's true of fossil fuels also, right?

David Roberts

True.

Dan Lashof

There's a time issue that you have to take into account. And so this notion of the carbon-debt, if you harvest forest to produce energy, has not been factored into a lot of these standards.

David Roberts

It sounds like over there, it's probably more of a forestry-industry shenanigans thing than a farming industry shenanigans thing.

Dan Lashof

Yeah, it is. But then I think around the world, there's also various places where biodiesel is being used and promoted through policy, where you've got a palm oil industry in Indonesia, for example, and other places where that's been promoted. So there is a global aspect to this that also needs a lot of attention. And I think what the US does sets a precedent that other countries look to. So it's another reason why we really have to get this right, but nobody.

David Roberts

Else is dumping corn into gas tanks specifically.

Dan Lashof

Not at these volumes, no.

David Roberts

And really, why would you? Okay, I wanted to leave a little bit more time for this, but just sort of by way of wrapping up. I think we can agree, for reasons we've discussed, that biofuels in personal transportation are silly. We're electrifying, we're on the way, there's just no point anymore in — I guess you could make an argument for gas. Cars are going to be around a while longer and at least you can marginally reduce the impact of gas. But given what we know about the carbon opportunity costs and all that, it's not even clear that's helpful.

So in personal transportation, biofuels are silly, I think, but there are, as people are constantly saying, areas we don't know how to decarbonize yet. And so I wonder if you were sort of canvassing, what are the plausible positive uses of biofuels in the world? We're heading toward a decarbonized world. What are they still good for?

Dan Lashof

Right, so I think there's a couple of use cases that could make sense, but again, really depending on taking the carbon opportunity cost into account and really focusing on waste feedstock. So one is aviation. Of all the sectors that people have said are hard to abate, aviation really is hard to abate. And I don't think we know what the long term answer is there, but certainly whatever biomass resources we have that are truly beneficial to use for fuel, replacing jet fuel with so called sustainable aviation fuel, that's one possibility that could make a lot of sense.

David Roberts

Pausing on that, I mean, I saw a calculation on Twitter, so take this for what it's worth, but if you're comparing the volumes necessary to, say, replace 10% to 15% of gasoline volume and the volumes necessary to replace total aviation fuel volume, they're not way off from one another. So in other words, if biofuels really, if we're really setting out to replace all bunker fuel, not just jets use, but has other uses too, with biofuels, that's going to be a lot of biofuels still.

Dan Lashof

That's right. And I don't think there's enough waste to supply the whole aviation sector, but it can supply a meaningful part of it. So that's one use. What we do with the rest of the aviation ...

David Roberts

Fly less, Dan.

Dan Lashof

Fly less. That could be a thing. I don't know that that's very likely, but it would be good. They're short haul aviation. There's electric planes, which ...

David Roberts

Trains!

Dan Lashof

... really cool. Trains would be a lot easier for short haul. And people are talking about hydrogen. I don't know if that's going to be a thing for aviation. The solution there, quite frankly, might be that's the one place left where you would actually burn petroleum and then compensate for those emissions with direct air capture.

David Roberts

Right.

Dan Lashof

I don't love that solution, but right now I don't have a better answer for aviation. So that's a tough one. The other thing for biofuels, and this figures prominently in a lot of decarbonization scenarios, such as the Princeton Net-Zero study is making hydrogen by gasifying biomass and then capturing the CO2. And if you put the CO2 underground, the net effect could actually being a negative emission fuel.

David Roberts

Right. It's similar to BECCs. Right. Similar to burning biomass.

Dan Lashof

Right. It's a form of BECCs. But instead of making electricity, where we have lots of options of better ways to make electricity, if you make hydrogen, you're competing with electrolytic hydrogen, which in the long run is probably cheaper. But if you account for the benefit of actually removing carbon from the atmosphere this way so if you're using, for example, corn stover, there's several hundred million tons of corn stover produced every year in the US. Given how much corn we're producing now, now a third of that corn is currently being produced for ethanol. So maybe that declines somewhat, but there's still going to be a lot of corn stover.

David Roberts

So you take the corn stover, you gasify it and you get CO2 and hydrogen, you bury the CO2, you use the hydrogen to make fuels. Is that the idea?

Dan Lashof

Right. Use hydrogen to make fuels, or use it to make fertilizer or use it to make steel, whatever you're going to use hydrogen for. That makes sense.

David Roberts

That is such a long chain of conversions. It's just like you're losing so much along the way there. It's hard for me to believe that that's going to end up being the best we can do. But I don't have any other ideas either.

Dan Lashof

Yeah, I mean, there are a few companies that are trying to commercialize it. Like I say, it's not a large source of the total hydrogen. So if you look at Net-Zero study or others and say, what does the energy system look like in 2050? We're using a bunch of hydrogen. Most of that comes from electrolysis, some of it in these studies comes from this biomass pathway. But it's actually a significant share of the net carbon removal because every ton of corn stover that you convert to hydrogen plus CO2 is actually producing 1.8 tons of CO2. And so a couple hundred million tons of carbon removal potentially from doing this.

And if you value both the hydrogen and the carbon removal, it starts to look like a sensible thing to do.

David Roberts

Right. But aviation and maybe hydrogen, those are sort of like the biofuels of the future. That's more or less what we can think of to do with them.

Dan Lashof

And then I think the other thing is to substitute for plastics made from petroleum. That could be another ...

David Roberts

Is that ever going to I mean, I feel like that's been right around the corner almost as long as cellulosic biofuels. Is that a thing that's really going to happen?

Dan Lashof

Not as long as natural gas is super cheap and they keep producing more of it. Right. So, I mean, it's hard to compete, but if you're trying to squeeze the last ton of fossil carbon emissions out of the system, then it starts to look like a plausible thing to do.

David Roberts

Interesting. Okay, well, this is substantially more than I've thought about biofuels in many, many years. Thank you for coming on it and catching us up. And I guess if we're just sort of taking away the main takeaway here, it's just that EPA should, like, read Biden's Transportation Decarbonization Strategy.

Dan Lashof

That would be a good start.

David Roberts

All right. Dan Lashof, World Resources Institute. Thank you for coming on and catching us all up.

Dan Lashof

Alright. Thanks.

David Roberts

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

In this episode, Project InnerSpace founder and executive director Jamie Beard, who has been instrumental in influencing oil and gas personnel to move into the geothermal industry, discusses exciting recent developments in geothermal and the opportunities ahead.

(PDF transcript)

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Text transcript:

David Roberts

Things are starting to come together for geothermal. Political awareness has seen an uptick. Investment is flowing in. Startups, many staffed by veterans of the oil and gas industry, are swarming to take advantage of existing geothermal opportunities and expand those opportunities. New technologies and techniques are reaching the demonstration phase.

It’s an exciting time.

At the center of it all is Jamie Beard, who for more than a decade now has served as a kind of pied piper luring people out of oil and gas and into geothermal. (Here’s her 2021 TED Talk.) A one-time energy and regulatory lawyer, Beard founded the Geothermal Entrepreneurship Organization, dedicated to educating and training oil and gas personnel to move into geothermal. (GEO recently helped launch the Texas Geothermal Institute to expand that work.)

She is also the founder and executive director of Project InnerSpace, a nonprofit dedicated to advancing the geothermal industry. It recently launched an initiative to build a Global Heat Flow Database, which would help map subsurface resources across the globe. It also plans to invest in new geothermal technology companies that are ready to launch first-of-a-kind demonstration projects.

Beard has been my go-to resource on geothermal for years, so I was thrilled to bring her on the pod to discuss the current state of the industry, the migration of personnel and expertise from oil and gas to geothermal, and the path to global scale for the industry.

All right then. Jamie Beard of Project InnerSpace. Welcome to Volts. Thank you so much for coming.

Jamie Beard

Oh, my gosh. David Roberts. Hello. It's nice to see you again.

David Roberts

Yeah, it's been a while since we talked. You know, when I was working on a piece on geothermal for Vox a few years ago, I don't know how many years ago, my family makes fun of me because everything pre pandemic is about five years ago. Yeah, I guess it was 2020. And my sense then around geothermal was that there was this sort of kind of a surge of interest, call it ten to 15 years ago, and a surge of investment. And then that kind of tailed off, kind of the air went out of that balloon a little bit lost steam.

There you go. That's the pun I was looking for. And then my sense was that as we were talking back in 2020, a bunch of strands trends were just starting to come together for a new big resurgence, a renaissance of geothermal. I want to talk about the future of geothermal, the immediate future, the near term future, the midterm future. But first, I would like to just start with a snapshot of, like, what is happening in the industry now? Is it still the case that only conventional geothermal wells are actually being dug and operating? What's the kind of snapshot of the industry?

Jamie Beard

Well, no, it's no longer just the case that conventional is being dug, which is really cool. And that's actually a difference between now and 2020. So when we talked back in the day, you're right to use renaissance, we were just about at the beginning of one, right? So it was like there's all this stuff that was very buzzy, but there wasn't really a whole lot in the ground. There were some teams that were kind of thinking about it, but nobody was really doing it yet. So there are some teams that have gotten out and done stuff in the last couple of years, and that means demonstrations, and that means that wells have been drilled, and that means that demonstrations and pilots have been done.

And that's also meant that the oil and gas industry has gotten increasingly excited and started investing. So the landscape has changed quite a bit in the last three years in terms of momentum and also investment dollars, which is really cool, I guess, to start with.

David Roberts

I should have done this at the very beginning, but I shouldn't assume that listeners read that piece on geothermal.

Jamie Beard

Well, everybody in the world has.

David Roberts

I would like to think so, but just in case there's a few out there who have it, I just want to make a very basic distinction. Geothermal to date, mostly, almost exclusively has been what's called hydrothermal, which is you go find places where there are natural riffs and reservoirs of thermal activity, and then you go down there and exploit that heat. So that's what geothermal has been from like the dawn of time up until about five minutes ago. You go find these areas where the heat already exists, that's conventional geothermal, and you stick a straw down and get the steam up and make electricity.

Then there is coming what's called advanced geothermal, whereas you go make your own reservoir, you dig down and you crack the rock to create basically an artificial or a human made fracture, which then the hot water comes, fills the cracks, then you stick a straw down, et cetera. You make your own reservoir. And then there are sort of beyond that, kind of like what you might call cutting edge. I don't know what the exact term is. Cutting edge technology research where people are trying to do things like closed loop geothermal, where instead of just having the heat be dispersed in this natural reservoir, you're just tubing water down, letting it heat up and tubing it back up.

Jamie Beard

These are very accurate terms.

David Roberts

I hope everybody's keeping up. And then there's wacky cutting edge drilling technology, like using lasers and plasma sound waves, plasma millimeter waves, god knows what else. That's the cutting edge. That's just like the landscape, just in case people don't know. So most of what's happened to date in the history of geothermal has been conventional geothermal. And as far as I know, in terms of commercial operating geothermal plants, they're still almost all conventional hydrothermal, are they not?

Jamie Beard

Yeah, that's right. There are a few commercial egs plants in the world, but they are very few. And the rest is the Iceland kind of geothermal, the geothermal that we see on the surface. So it's the traditional stuff, but even that there's not much of it in the world. Right?

David Roberts

Right.

Jamie Beard

It's still quite small, but anyway, yeah, so you caught everybody up to 2020 with your article. So everybody that's listening, go read David's article from 2020. It'll catch you up to then, and then we'll cover the last three years.

David Roberts

Now, right now what I want to know is, is there still interest in conventional hydrothermal? Are people still trying to dig those wells? Is that still like a going concern? Or is everyone turning their attention now to egs, which is enhanced geothermal systems, which is this make your own reservoir thing, scalable geothermal? Is everybody going in that direction now?

Jamie Beard

No, not everybody, and I don't think everybody should. When it comes down to it, there's a whole lot of conventional geothermal in the world that has not been developed. There a lot. Even though conventional geothermal, or hydrothermal as it's called, is geographically limited, there's still a whole lot of it out there that we could be leveraging. Right.

So if you look at the oil and gas industry and how they're engaging in geothermal, about half of the entities are going to dip their toe in to geothermal by pursuing conventional hydrothermal projects first and then the other. Half is looking and thinking, well, we'll just skip over that and go for the gold. Go for the stuff that we can scale and do anywhere. Right. And so there definitely a split in the community on that. But I think when it comes down to it, we're going to, over the next ten years or so, develop a whole lot of hydrothermal before we end up in scalable stuff.

David Roberts

My impression of hydrothermal was always that there are a couple of places where the sort of activity is intense enough to give you the heat you need to really make electricity efficiently, but there wasn't a ton of it because it couldn't compete kind of with wind and solar. Have there been developments in conventional hydrothermal geothermal that make it more attractive for investment? Like have costs come down, has permitting or siting gotten easier? What's the kind of state of play?

Jamie Beard

Sadly, that's not the case with we're going to get into that. Yeah. No, there's not been much by the way, of regulatory, unfortunately. But I think your question about costs coming down yes, a lot of that has happened because of technology transfer from the oil and gas industry over the past years that have helped revitalize, for instance, underperforming wells for hydrothermal. The heat is not usually the problem. The problem is having sufficient water naturally occurring underground in your reservoir to sustain your output. So you need to have enough water coming up out of the ground to run your power plant.

And if you don't have enough, or if your well declines, over time, which does happen with hydrothermal. Eventually you start running out of water and wells decline. There are ways to revitalize old wells, and that's being tried. There are ways to enhance the fracture network in hydrothermal systems and that's being tried, right? Yes. And quite frankly, hydrothermal is a really nice 24/7 baseload source of clean energy. And so what we're finding in terms of cost is that there are markets that will sustain a premium for baseload simply because there's so much solar and wind. Right?

David Roberts

Yeah, that's what I've been thinking about, is just that the value of dispatchability in and of itself is rising. So I thought that might be sort of affecting the economics of geothermal.

Jamie Beard

That's right.

David Roberts

Actually, let's pause here to talk about permitting and siting. You hear a lot of complaints, really from everyone about this subject, from every industry. But the geothermal people complain that it's very difficult to get a well started, even relative to oil and gas wells.

Jamie Beard

Yes.

David Roberts

So maybe just tell us quickly. These permitting and siting problems, I assume, face all kinds of geothermal, the hydrothermal and the advanced stuff. So what's the problem now? And is there any solution on the horizon?

Jamie Beard

All right, so in a nutshell, so we don't put everybody to sleep. In the United States, most of the really low hanging fruit for geothermal development exists on Bureau of Land Management land, federal land that is subject to the National Environmental Policy Act, or NEPA. And it's an extensive set of environmental regulations that require a lot of review before doing a project on federal land. And geothermal projects are subject to NEPA. What that means, essentially, is that for the multiple phases of a project, in order to get a project developed on federal land, you're looking at a permitting timeline of six or eight or even ten years to get a project off the ground, which is completely ridiculous.

You can't get projects funded under that scenario.

David Roberts

Is that also true for oil and gas well? Is that true for everything, or is there unique barriers?

Jamie Beard

So here's the thing. This is what I was just about to point that out, which is oil and gas drilling on federal land has been excluded from this process through a categorical exemption.

David Roberts

What? Isn't that nice for them?

Jamie Beard

Well, that's whether they lobbied for it. And here's the problem. Geothermal doesn't have a lobby. And so what we end up with here is a scenario where you can get an oil and gas well drilled on federal land in no time, very quick, in a geothermal well, which is clean energy. And the same process as drilling the oil and gas well is going to take you a decade. It kills projects. This kills projects, right? When you ask what's the solution, I am loathed to say politics, because who knows, right? And are we going to wait around for that?

My personal opinion is no. Let's go around it so that's why I've been focusing all my efforts on state and private land, because we're just not going to do the federal you're.

David Roberts

Just going to throw your hands up about federal land and go to other.

Jamie Beard

And that's how we go fast. And that's why most of these demonstrations are in Texas.

David Roberts

Interesting. That's hilarious. And are there state permitting and siting issues or are things generally better at the state level?

Jamie Beard

Well, look, if you focus on oil and gas states that have streamlined permitting for oil and gas and that have friendly regulatory environments to oil and gas, no, you got no problems. Right. I think the trend is going to be and quite frankly, this is the way it should happen if we're not going to sit around and wait for politics, we need to be focused on deploying pilot geothermal projects in states that are used to oil and gas permitting. Right. Those are going to be the oil and gas states. And they just so happen, many of them, to have excellent geothermal resources so we can get projects permitted in twelve months or less instead of a decade.

And we've seen that happen with one of the projects in Texas. They were off to the races in a matter of months to do their pilot. Yeah,

David Roberts

Texas.

Jamie Beard

Go go drill, baby drill.

David Roberts

Does have its merits.

Jamie Beard

Right.

David Roberts

Since you sort of brought up oil and gas, let's talk about a little bit about how in the last ten years, techniques developed and perfected by the oil and gas industry are coming to geothermal. I think people know, once again, assuming they read my article.

Jamie Beard

Read the article.

David Roberts

They know that fracking is part of that, but it's bigger than just that. So what is the sort of knowledge transfer that's been happening?

Jamie Beard

Yeah. So it's all of the learnings of the shale boom. Let's back up on the shale boom. So all of a sudden, 20 or so years ago, global geopolitics got rearranged by natural gas. And I think a lot of folks kind of skip over why that happened. Right, it happened, and we all realize it happened. But why? Why is the reason geothermal is now a thing? Because it was this gigantic flourish of technological development that came out of the oil and gas industry and 10 or 15 years of massive leapfrogs in what we can do when we're drilling and engineering the subsurface.

And that includes fracking, but it also includes a lot of other cool things.

David Roberts

When we say fracking, we mean fracturing rock to create natural gaps that are then filled, in natural gas's case by natural gas, in this case by ...

Fluid.

Hot water. But that's what we are referring to, by fracking. I just didn't want to assume people knew.

Jamie Beard

Yeah, right. So hydraulic fracturing, so the process of applying pressure to a well bore in order to enhance or create new fractures or pore space in rock. And that process can be used for more than one thing. Like right now, we use it to produce more gas than we normally could from a reservoir. But it just so happens that that technique in creating or enhancing fractures and rock is really helpful if we want to engineer the subsurface to create a geothermal reservoir. Right. So it's a really good example of kind of a bad word that comes out of the oil and gas. Really polarizing word, right?

David Roberts

Yeah.

Jamie Beard

That can kind of be repurposed into a really interesting and big opportunity for the future of clean energy.

David Roberts

Kind of a side thing. But I wanted to ask in the industry, what is the sort of state of thinking on how to tiptoe around that?

Jamie Beard

Oh my gosh.

David Roberts

Do they want to just address it full on and say it's fracking but it's different? Or do they want to just come up with a different word for it? What's the kind of state of play?

Jamie Beard

What a good question. David, I love talking to you. This is an excellent question. So it's super controversial what you just asked and nobody really wants to talk about it. Right?

So this is the way I see it going. You've got geothermal entities and the government tiptoeing around it, so they're trying to call it something else because they don't want to get mixed up with oil and gas and all that. Right.

So let's keep it nice and simple and let's call it other stuff. So they've called it things like hydro-shearing and hydro-fracking just to try to avoid the word fracking.

David Roberts

Come up with a boring enough term and everybody will just slide right past it.

Jamie Beard

Right, right. Like nobody's going to notice kind of thing. Right. The oil and gas industry, by and large, adopts the opinion, "well, that hell, we just spent the last 20 years perfecting this amazing technique that rearranged geopolitics and can revolutionize the future of geothermal. We're going to call it what it's called, damn it." Right. Then you have some entities saying, yeah, but it might be easier from a community relations standpoint to not dive right in there. So you do have some controversy in oil and gas. My personal opinion is we need to call a spade a spade. Right.

And I think there's going to be some intellectual work that we need to do as human beings to get over polarized and loaded terms. But we need to be honest with one another about what we're doing. And if we rename something that is what we are doing a technique for geothermal. It's not producing oil and gas, it's producing clean energy. That's awesome. But we are doing a technique that's called a thing.

David Roberts

Yeah, it looks a little shady when you ...

Jamie Beard

Well, it doesn't build trust. Right. If we start trying to call it something else, that's not a trust building exercise. And I think that's a lot of what we need to be doing for geothermal is trust building.

David Roberts

Well, let's briefly address here then, the kinds of concerns people might have when they hear the word "fracking". So I think people have a lot of muddled ideas in their head about what the dangers of natural gas fracking are. But tell us why this is different and why people shouldn't worry, or if they should worry a little bit, how much should they worry?

Jamie Beard

Well, okay, you're going to get the direct story from me, David. This is the no bullshit answer here, which is the way hydraulic fracturing has been utilized by the geothermal industry so far has been a very simple version. It's been very low tech. So they're just trying to apply pressure and enhance existing fractures. But it's a very basic method of hydraulic fracturing that's been used. And I think when it comes down to it, when you're fracturing to enhance a reservoir to circulate water or another fluid, like, we can get to this later, but like, supercritical CO2 is the new cool trend to use as your working fluid for geothermal systems.

And it's a really cool idea, but if you are enhancing the subsurface to make that clean energy system work better, why not? As long as you're doing it safely and responsibly and leveraging the learnings of the last 20 years about how we do that safely and responsibly. I think when you start thinking about hydraulic fracturing in the oil and gas context, the types of images that come to mind are lighting your faucet on fire kind of these very polarizing and upsetting images. Right?

And I do think that that is a result of ten or 15 years of bad blood. Mistrust and bad blood between oil and gas and environmental and climate activists. And I'll just go ahead and say, just for full disclosure, I am an environmentalist and a climate activist. I am not in or from the oil and gas industry. In fact, quite the opposite. So I understand all of those sentiments. I grew up wanting to oil and gas be damned. I mean, I was going to bring them down kind of thing. So I get all that. The differences, though, between the way geothermal wells are fractured and oil and gas wells are fractured.

There are some in oil and gas. They're using a variety of chemicals to enable that process.

David Roberts

Yeah, this is what I emphasize to people, is most of what you associate with the damages of natural gas fracking have to do with the fluids being injected and leaking into the groundwater and etcetera. And geothermal just doesn't use those same fluids.

Jamie Beard

That's right. Well, right now, let's pause for a second and say, yes, there are a lot of differences in techniques and fluids used and also where natural gas is located, you oftentimes have to drill through water tables to produce and get to natural gas reservoirs. And when you have those sorts of close in geographical distance between water tables and oil and gas resources, you have the potential to have problems, particularly if you're fracturing the subsurface. Geothermal is different. Right. So because in the case of hydrothermal, you're in a hydrothermal reservoir, you're in the water table, it's a reservoir that's full of water, and your intent is producing that water to the surface.

Right. So it's a different kind of game in geothermal. Just off the bat, but I'll say part of the excitement, this is where we need to do some intellectual work, in bringing people together and not fighting about this. But but we're going to have to think about this. A lot of the benefit that we will see over the coming years, coming out of the oil and gas industry into geothermal, is actually adapting some of those more complex techniques that they use in hydraulic fracturing and oil and gas and adopting them into geothermal, applying them to make the geothermal reservoirs function properly.

Does that mean we need to transfer the chemicals and these ... no, not necessarily. But what we do want to do is transfer the really cool, cutting edge stuff like multistage fracturing, where you're actually engineering the reservoir in really specific ways to where they're parallel structures that you're fracking to connect with one another, and therefore you can predict how the fluids will flow amongst them. They're more complicated engineered subsurface reservoirs. And if we can do that like we're doing it for natural gas. Now in the geothermal context, EGS in particular, what we're saying is engineered or enhanced geothermal systems, they will work better.

And what that means is they will have better output. What that means is they will be cheaper to build. Right. So some of that transfer we do want and we should support, but I think we need to figure out how to separate the good from the bad when we think about fracking or the "f" word. So we call it.

David Roberts

And also the other question that I get constantly, I'm sure you get it several times a day, is about earthquakes. People have this real fixation on the idea that geothermal digging is going to cause earthquakes. Was there ever anything to that? Is there currently anything to that? Is that a real worry or is that kind of a myth?

Jamie Beard

No, it's a real worry. Absolutely. It's something that we should absolutely be focused on and considering. Here's the thing. The cases in the world where seismicity, or I'll back up induced seismicity, so geothermal systems have natural seismicity associated with them all the time. It just happens. What we don't want is to be causing that seismicity by our actions. So we are interfering with the subsurface in a way that causes seismicity, particularly seismicity that is detectable by humans. Right. So seismicity that is above a level that becomes noticeable. And there have been cases where geothermal systems, particularly EGS projects, where they're going in and fracking these reservoirs, have caused induced seismicity and some of them have been significant.

They not only detectable, but damage causing induced seismicity. And I will say there is kind of an obsession in media, right, about geothermal. It's like, oh, there's all this awesome stuff happening, but earthquakes, it's always this thing. It's kind of the boogeyman. And I would say in those situations where there has been induced seismicity related to an EGS project, in 100% of the cases, that was because the system lubricated an existing fault that was underneath the system. Therefore, that system should have never been located or sited where it was being developed. And there's a reason this is happening, which is the geothermal industry is so fractured and regional.

It's kind of a mom and pop shop kind of industry. You've got entities out there just kind of developing projects, but not really sharing best practices and standardization, developing protocols that everyone is following, et cetera. And in those types of situations, you'll have mistakes and some of the mistakes end up on international news, right? And that's what you have for geothermal. And that's also David, kind of, and I think this is going to be ironic to probably some of your listeners that I'll say this, but standardization and establishment of protocols and data sharing and getting things like this under control at scale, the oil and gas industry is really great at that.

David Roberts

Well, we're going to get back to that, but that's a great segue to my next question, which is tell us about what Project InnerSpace is. Project InnerSpace is nonprofit. You have to advance geothermal. The plans have two phases, which I would like to talk about in turn. The first phase, what you're trying to do now, what just got launched and is underway, is basically, as far as I can tell, an attempt to map and better understand what's beneath the surface. So just tell us a little bit about InnerSpace and what this phase one looks like.

Jamie Beard

Awesome. Thank you for asking this. We kind of forgot about that part right at the beginning. Hello, I'm Jamie Beard. I run Project InnerSpace. Project InnerSpace is a nonprofit that I founded this last May. So it's a newly launched entity. The purpose of InnerSpace is to address two major barriers that are standing in the way currently of geothermal reaching exponential scale in growth. And essentially what we're trying to do at InnerSpace is put ourselves out of business by 2030. So we're trying to run a sprint and make ourselves completely irrelevant by the end of this decade.

First is phase one, which you mentioned, which is building a global, high resolution, global map of where the geothermal resources are and how deep they are so we can understand the low hanging fruit.

David Roberts

And this doesn't exist. Imagination, like in some library somewhere that seems like that should be happening already.

Jamie Beard

You'd think, amazingly, it doesn't exist. Some places in the world have done a better job than others at estimating we have some maps of the United States that were done by Southern Methodist University in the early 2000s. We did a little poking around on that, actually, with SMU a couple of years ago to see how accurate those maps were. And it turned out the maps are a little bit inaccurate on the wrong side for geothermal. So it's actually a rosier picture for geothermal than those maps show, which could interfere. And frankly, since so many projects are on the margin economically, having maps that are even 10% off matters.

It matters, right. So we need to get this stuff right. We need to know where the resources are, how deep the resources are, and what temperature they are before we start siting projects.

David Roberts

So right now a geothermal company just wanders out into the landscape and starts digging.

Jamie Beard

That's exactly right. Yeah. I mean, they do the best they can, but there's a lot of money that goes into subsurface exploration. Oil and gas spends billions of dollars doing subsurface exploration for oil and gas.

David Roberts

I'm surprised some of that isn't transferable, they would know enough.

Jamie Beard

That's what InnerSpace phase one is. Right?

So it's like, all right, oil and gas industry, y'all have a lot of data and we would like to use that to build a really high resolution, detailed global map that's interactive and free for the world so that everybody can use it, including governments, but also startups and everybody in between.

David Roberts

So this will just save a lot of exploration costs. It will help startups skip some of that exploration stage and just know where to go.

Jamie Beard

That pre-project risk. Yeah.

David Roberts

And it will give us a better global sense of what the resource is.

Jamie Beard

That's right. So it's not going to be high resolution enough to say this is the exact spot we want to put our plant. We can't do all that. That's a little bit too much for a map of this size. But what we can say is these are the regions in the developing world where there's a lot of low hanging fruit for geothermal and there are huge population centers here and wow, this country is poised to be adding a lot of coal capacity over the coming decades. So, wow, let's just slip geothermal in here instead.

David Roberts

Is this about sort of like rationalizing and checking and ordering existing data? Or does this involve people going out into the field and I don't know what it would look like digging holes ...

Jamie Beard

Drilling a hole.

David Roberts

Drilling holes and testing.

Jamie Beard

We will not be drilling any holes in phase one. Thankfully. Phase one is a fast sprint too. So we're going to publish in 24 months. What we're doing is we're grabbing all the data that's out there that's imperfect. And most heat flow data in the world that's out there is imperfect, meaning it's not cleaned, it's not organized. It needs to be QC'd before it can be utilized and relied on. So. We're going to take all the data that's out there, clean it and get it in really good shape. Then we're going to collect as much oil and gas data as we can.

So this is data that the oil and gas industry has from the millions and millions of wells they've drilled globally. So they know ...

David Roberts

It's not proprietary, they're willing to share it?

Jamie Beard

Some of it is, but they're willing to share the pieces that we are able to clean to keep proprietary. So we can do that. So we'll have a subset of data that's never been used for the purpose of geothermal exploration before, which is going to be really helpful because it turns out when they drill for oil and gas wells, they take the temperature of the well as they drill all the way down to the bottom. And that's really helpful in predicting how hot it will be deeper and also in like formations in other places in the world. So what we'll do after we get all this data is add in some AI.

So we're going to do some predictive analytics on it, right? So we'll be able to predict more accurately than we do currently places in the world where we don't have a lot of existing data, what to expect in those formations in terms of depth and quality of the geothermal resources.

David Roberts

Interesting. And then phase two will be investing in sort of demonstration projects, first of a kind projects helping a lot of these new technologies, these new startups, establish the fact that they are possible ...

Jamie Beard

Game changers.

David Roberts

This is what I want to talk about is we discussed earlier there's Egs, which is just sort of fracking making your own reservoir, but then there's deeper and deeper and deeper stuff people are pushing towards. And that super deep stuff is where you get into really mind blowing, game changing type of stuff. We're basically like super-efficient, super-hot, always on available anywhere, this kind of stuff.

So the second phase for Project InnerSpace is investing in some of these first of a kinds. And what I am curious about is sort of of all those technologies that I wrote about and that people are passing back and forth and some of them sound quite Sci-Fi. Who is ready to go start digging. Like what are the advanced geothermal technologies that are to the point that they're ready to start producing. When you start investing in these first of a kinds, what are they going to look like? Like first of a kind, what?

Jamie Beard

So phase two is a fund. It's a billion dollar fund and it will invest in up to 20 1st-of-a-kind pilot projects in different places in the world. And phase one will help inform where we put them right. So we're going to use that data to help inform that process. But the portfolio will be broad. So geothermal is vastly underfunded in every possible way across every single concept to be honest. And so we're going to cast as broad a net as we can to have as high an impact as we can in terms of proving out scalable geothermal concepts.

And so geothermal, I don't think that we should look at geothermal as a one size fits all type of thing, where if we can just make this one kind of system work, it could be applicable anywhere in the world. That's probably not going to be the case because the subsurface in different places in the world looks really different. There's different types of rock, there's different types of heat flow, right? So different types of geothermal systems will excel in different types of subsurface reservoirs. And so I think we need to cast a really wide net on the types of concepts that we'll fund with phase two.

And so that will include EGS, but it will also include closed-loop. It will include EGS and closed-loop hybrids. So systems that mix both so they'll go down and they will directionally drill this radiator style, radiator style system into the rock, but they will also fracture around that to enhance heat flow going to that well bore, right? So that's pretty cool because what you do in a hybrid kind of system is you eliminate the risk of fracture evolution over time. You're not pressurizing the fractures and trying to circulate fluid through them and then making them change over time.

They're static, right? They're just sitting there.

David Roberts

You fracture the one time and then it does the rest of the work for you. And closed-loop is so, I mean, I'm the farthest thing from a technical person in the world, but it's intuitively appealing because it's just so much more contained. Like your fluid is exactly you know, exactly what the fluid is, exactly how much it is, how fast it's moving.

Jamie Beard

And you get out what you put in. Right? And also closed loops are really cool because you can use non-water working fluids that work better than water in closed loop. And that's where supercritical CO2 comes in. It heats up faster than water. We have a lot of CO2 laying around. Let's use it, right? It's cool. And the turbines on the surface can be redesigned to actually run directly off of supercritical CO2. So direct drive by CO2, which is very promising and very cool. So the fund is going to cast a wide net on these things, right?

We're looking at power production projects with Cogeneration of industrial heat. So looking at industrial heat decarbonization with some of the concepts, a coal plant conversion might be possible.

David Roberts

What about the lasers? What are ...

Jamie Beard

The drilling concepts? Yeah.

David Roberts

Are those real enough that they're ready to start digging?

Jamie Beard

Well, I don't imagine that we will be deploying one of these next gen drilling concepts in phase two, because we are deploying phase two starting in a year and a half or two years. So those concepts are not quite ready for commercial deployment, and these are commercial pilots. So we're going out and building power plants with this money. And we'll have 20 power plants when we're done. They're not quite ready, but that's not to say they won't be. Right.

So these cool, we're going to vaporize rock kind of concepts, they're sexy enough for venture capital and they're well funded. Right. So they're running a sprint. And we may see some of these concepts deployed in the near term, but probably not near enough term for phase two. Let's see, definitely by the end of the decade, we'll see one in the field, my guess.

David Roberts

And this is all basically different ways of bringing up heat that you use to boil water and create steam and run a turbine. Right. I mean, this is all ...

Jamie Beard

Very simply yes.

David Roberts

Just about getting heat.

Jamie Beard

That's right. We're just trying to harvest heat so we can harvest heat for heat, so we can harvest it to use in an industrial process so we don't have to burn fossil fuels to produce that heat, which I think is a no brainer for geothermal, but we can also use the heat to produce electricity. And we're focused on that as well.

David Roberts

Since you mentioned it. I wanted to ask about this, too. A lot of this is another thing that I feel like has sort of captured public interest, maybe slightly out of scale with its reality. But how big of a piece of the geothermal pie is going to be repowering fossil fuel facilities? Because people really love that idea.

Jamie Beard

You mean converting existing plants to geothermal?

David Roberts

Yes, like a coal plant. Instead of getting the heat to run the turbine from coal, you just get it from underground. But the turbine already exists. The power plant already exists. The ...

Jamie Beard

Transmission structure.

David Roberts

Transmission to and from already exists. So it's a great idea. I just wonder great idea. How big of a deal is that going to be?

Jamie Beard

Well, so there are a couple of things about geothermal right now that are really good at catching headlines because they sound so cute. Right? And that's one of them. And another one is oil and gas well reuse. You hear that one all the time, right? Yeah. Oh, let's just reuse. All right. Okay.

David Roberts

Both those I wanted to ask about. The second one I'm super skeptical about, just for obvious ...

Jamie Beard

Which one the coal plant?

David Roberts

Reusing wells.

Jamie Beard

Yeah.

David Roberts

You're drilling in different places, looking for different.

Jamie Beard

Yes, Right. And you're not looking for heat when you're drilling for oil and gas. You're looking for oil and gas. You're avoiding oftentimes. Yes, that's true. All right, so let's look at coal first. I really like the idea. In fact, InnerSpace has just funded a coal plant conversion study. Right.

So we are studying the top 20 candidates for coal plant conversion in the United States to geothermal. We're going to prioritize them by economics and subsurface characterization and we'll get a good picture of that. I like the idea. Could we go and do a megawatt to megawatt coal plant conversion today on the existing footprint of the plant with geothermal? Maybe ... Maybe in a really hot place, a hot subsurface. Hot in the subsurface, right. So say we go to Nevada, where you've got really attractive geothermal gradients and you try your very best. So we get the best in oil and gas to drill this well as cheaply as they can.

And by the way, it's not one well, it's many wells to do it. Megawatt for megawatt. We could probably technologically do it. It's feasible to do it. The problem becomes this, though. It's not economically feasible to do it. Not right now.

David Roberts

It all just comes down to how deep you can get. Right? I mean, ultimately it all just comes down to getting deeper. Getting deeper, cheaper.

Jamie Beard

Well, yes. So it depends. This is all about energy density, essentially. So if you want to look at it like energy density, the deeper you go, the more energy dense your output for geothermal. Right?

So if you're drilling to 600 degrees Celsius and you're producing at the surface 600 degrees Celsius fluids, that's awesome. I mean, that is natural gas power plant style enthalpy. And that's pretty awesome. And then you can start talking about plants that are gigawatts, right? Big plants, like coal plants. But right now, what we're calling that in geothermal land is super-hot. So super-hot rock or SHR, my favorite.

David Roberts

Finally the energy world comes up with a cool term, finally, right?

Jamie Beard

Exactly. Just add super to it and that makes it cool. Right. So those systems are theoretical right now, not super well understood. How we would fracture in, for instance, you've gone so hot that the rock is now plastic. It's not hard anymore. It's soft. So how do you fracture that and have the fractures not close

David Roberts

And have your drilling equipment not melt?

Jamie Beard

It'll melt. But that's the thing. That's why all these kind of cool new drilling methods are being researched and produced, because they are relying on materials that actually just melt and vaporize the rock instead of drilling them. There may be a situation where we can actually drill into 600 degrees Celsius semiplastic rock in the future. I think what this comes down to, though, is economic feasibility. We can probably do it now, like I was mentioning with the coal plant conversion, right? We could get the best in class to go drill those wells, and they've done it.

Like oil and gas has drilled 300 Celsius offshore, no problem. We could do it. But do we have the $500 million to do it? No, we don't. No, we don't, actually. Right. And that makes it economically infeasible right now. So the question really will become for these kind of cool, sexy, super deep systems, is can we get the cost down? Or is something so dramatic going to happen over the next decades in terms of our energy markets, that we're going to be able to afford to develop these systems. And I'm hoping yes. Right. That's my hope.

David Roberts

What you want to do just in terms of broad, big picture for the industry is get the low hanging fruit first. Build a bunch of plants, get the learning, bring the cost down.

Jamie Beard

Learning curve.

David Roberts

And it's not necessarily the case that the places the coal plants are, are where the low hanging fruit is.

Jamie Beard

Right, exactly. Though some of them are.

David Roberts

No reason to start there.

Jamie Beard

Yes. And we're going to find the ones that are, because some of them are, but not all of them are. And you are exactly right. That where we start is baby steps. And that is exactly, David, how shale happened. Right. We ended up with a little bit, a little bit, a little bit more, uhoh, this is a lot, a lot, a lot, bam. Change the world. Right. And it was just like this was about taking baby steps. And so for geothermal, it'll be the same. Right? Let's go and find the easiest stuff to do first. That's probably going to be in sedimentary basins, because they're soft, the rock is soft, and oil and gas, for instance, understands how to do it because they've been doing it for shale.

David Roberts

Well, let me ask this, because I had a pod recently on learning curves and on what kinds of technologies do and don't get on them. And a big piece of what gets on a learning curve is technologies that are more modular, more factory produced, and not so kind of bespoke to each individual location. So I'm curious sort of in the current state of play for geothermal, how bespoke is it in an individual location? How modularized is it? And what room is there to sort of modularize it in a way that will accelerate that learning?

Jamie Beard

It is the perfect example of getting on a learning curve and particularly transferrin from oil and gas to geothermal. I think, David, you saw it recently we published a report called The Future of Geothermal in Texas. And there was a chapter in that report that dealt with transferable learnings from oil and gas and learning curves. And the outcome of that report was essentially, well, hell, if we just transferred what we've already got, let's not even talk about what we need to develop or what we could. Let's just talk about what we've already got in oil and gas and let's transfer that into geothermal.

How much do we reduce cost off the top? Just transfer what they already do in oil and gas into geothermal. And yeah, modular, the way they do oil and gas, David, is called pad drilling. It's manufacturing. It is ultra-modular. I mean, they literally stamp out oil and gas wells, 200ft from one another in a line. Right. It's manufactured. Right. It's the definition of modular. But if we grabbed all of that technology and just transferred it in wholesale to geothermal. No innovations required. We've got 43% cost reduction off the top for geothermal. That's huge, right? I mean, that is not considering new stuff.

That is what we've already got. That is a huge opportunity. Huge opportunity.

David Roberts

This is another good segue then, because I want to talk about this larger sort of relationship between oil and gas and geothermal. This is of course your bailiwick, your sweet spot. This is your bag. So this is another one of these sort of like folktales about geothermal going around. Oil and gas, You can just transfer to geothermal. Same skills. It's great. It's going to cause this flow.

Jamie Beard

It's becoming a headline too. Yeah, it's another cute headline.

David Roberts

Yeah. I'm just curious, to what extent is that a reality? Number one, to what extent are the skills really transferable? And number two, to what extent is it happening? The geothermal industry is so tiny compared to oil and gas, so it's not like leakage to geothermal is going to show up in the statistics of oil and gas employment, I think, anytime soon. In a major way. I mean, tell me if I'm wrong.

Jamie Beard

But no, you're not wrong.

David Roberts

What is the nature of that? How much of that is reality and how much of that is acute headline?

Jamie Beard

So I think the headlines get it a little bit wrong, but I think we need to look at it differently. So we need to adjust what we're thinking here. So skills transfer and all that? Yes, I mean, almost 100%. It is so synergistic in terms of skill set, transferring from oil and gas to geothermal that we're talking about minimal training certificate level, let's just get you up to speed kind of thing, but otherwise go.

David Roberts

Interesting, so drilling really is just drilling then.

Jamie Beard

It is drilling. Drilling is drilling. You're either drilling for oil, you're drilling for heat, you're drilling for water. It doesn't matter, you're drilling.

David Roberts

Right.

Jamie Beard

So when it comes down to it, awesome. So you've got this highly skilled workforce of millions globally. Let's go, right? We don't have to build that for geothermal. It's there. So how do we transfer it? Right, well, this is my opinion. We transfer it not by taking people out of oil and gas and putting them in this nascent and tiny industry we call geothermal. We do that by turning the geothermal industry into oil and gas or vice versa. Right, so we get the oil and gas industry to look at geothermal as a viable and exciting future business model where they themselves, the oil and gas entities, then become massive geothermal developers and producers using their own workforce.

David Roberts

Right?

Jamie Beard

And we've started to see that already. We're starting to see the very beginning of that trend where you've got Chevron that's about to develop a geothermal project in California.

David Roberts

Is there a big major, is there an oil major with like a full fledged geothermal ...

Jamie Beard

Team!

David Roberts

Department, team, whatever.

Jamie Beard

They all have them now, all of them. And David, in 2020, when you did your article, none of them had them.

David Roberts

Interesting.

Jamie Beard

That's how fast this is happening. Every single oil major has a dedicated geothermal person. Some of them have like VP of geothermal. We've got executives in geothermal now with whole funded teams. Some of them have a portfolio of geothermal companies that they've invested in. I mean, this has all happened in the last three years. So we're talking about traction. Like, read David's article first to get a 2020, but then between 2000 and 2023, there has been so much that's happened within the oil and gas industry for geothermal.

David Roberts

And in terms of their motivations, the oil and gas majors motivations, how much of this is hedging against us being in what is possibly a dying industry and we need something else to do versus geothermal actually being like remunerative to the point that it would actually attract their attention regardless.

Jamie Beard

All right, both I think if you're an oilfield service company or a drilling contractor, so you're the one with the skilled labor and the rigs. You're looking at geothermal and thinking, okay, there's our future business, right? They need rigs, they need drillers. That's what we should do. Right? So you have some very fast movers in that space and they are leading the pack in oil and gas. So you have like Baker Hughes is out there kicking butt. They're one of the ones that has a geothermal team and they're out there really pushing another one Neighbors Drilling contractor, just really pushing hard and getting out there and making investments.

That's awesome. But you have the operators, the majors, like the Chevron, Shells, BPs of the world who are also looking at geothermal and thinking, where in the world is this most relevant for us in terms of where we own assets, where we operate assets? How can we pull geothermal in as a value add into a portfolio and eventually, maybe, build it into a massive, globally scalable opportunity where we're drilling millions of projects, right? And so you look at geothermal in terms of scale. If we were drilling at the scale of oil and gas, if we're drilling geothermal at the scale of oil and gas, we solve energy.

That's it. We solve energy by 2050. Right? And that's the opportunity for oil and gas.

David Roberts

So you genuinely think it's not a PR play for the big oil and gas?

Jamie Beard

No, I mean, you can't greenwash with geothermal, right? It's core competency. I'll be the first one to say it. You go on any majors website and they've got wind turbines splashed all over the place.

David Roberts

Algae. They used to have algae.

Jamie Beard

Yeah, algae, whatever. Solar panels. I mean, you'd think you were at a solar manufacturer or whatever. You're on oil majors website, it's all crap, right? I mean, that is greenwashing. Absolutely. If you look at the scale of their renewables investments versus the scale of their investment and their core competencies. Note, core competencies meaning subsurface. So what do we do with that? Well, we grab that core competency and we turn it to something that is future facing, right? Which is like, fine, stay subsurface experts. Awesome. Do CCUS, geothermal, and mining because we need lithium and we need clean, baseload power, right?

And we need to store a whole lot of carbon. So you all are the subsurface experts. Go. And that is really working. And I don't think you can really shake a stick at that in terms of greenwashing because it's core competency. They're doing what they know how to do.

David Roberts

And I have to believe that there are as a card carrying greeny, I have a deep and abiding hostility toward oil and gas companies. But I have to believe there are people in there who are good people and want to do good things. And this is an actual I know you share this sentiment. This whole notion that they were ever going to get into renewable energy in a big way I thought was always kind of silly. It's just a different just a completely different business.

Jamie Beard

Not the same business model.

But this, I have to believe that psychologically, there are a lot of people, oil and gas, who are gratified by this and excited by this because it's a real exit. It's a real exit out of the past into the future, not just BS hand waving.

Yeah, you are absolutely right. Over the past three years in some of the majors. The way this has happened and built into what it is is through grassroots movements in the employees. They start beating down the doors of executives and having roundtables about geothermal and all of a sudden it builds into this thing. And all of a sudden they're presenting it to the board and the C suite and then they've got a program. I mean, that's awesome. And I can absolutely attest to oil and gas as a villain industry. It's not so easy to look at an individual across the table that works in the oil and gas industry and be like, you villain.

That's not the case. Right. It's just not. I mean, these are people that love the environment and have families and are really freaking skilled at what they do. And they're humans, right? And you sit across the table from these guys and they know how to drill. Good Lord. Y'all go drill. Let's just change what you're drilling for.

David Roberts

You made a point. I heard in another interview, which I found really interesting and you sort of implied it or talked around it a little bit so far. But I want to get straight at it, which is the question of how to scale geothermal up so that it's more than a niche, kind of extra. I was looking at the new electricity capacity installed sort of graph that the EIA just came out with and I was sort of gratified that you can actually see geothermal with the naked eye now.

Jamie Beard

Oh, yeah, really? So it's like 1%.

David Roberts

Yeah, it's like a tiny little stripe at the top. You can see it, but so we all want the idea is to scale it up so that it's a big player to rival wind and solar. Your sort of argument is that the way wind and solar got to where they are was by all kinds of policy help and subsidies over the course of decades, basically. And so if we want geothermal to follow that route, it will also take decades. And we don't have decades. So your theory, how do we scale it up quickly? And you have an answer to that, so that's what I like to hear.

Jamie Beard

Yeah, I mean the answer to that is the oil and gas industry, right? So we can sit here and wait 20 years and fund startups to grow into giants and fund RnD and hope for the best. Or we can convince an incredibly capable and skilled industry that there's a market based approach here and that they can do what they know how to do and also solve energy and climate. And we're talking about the type of scale here that we start drilling for geothermal like we drill for oil and gas between 2030 and 2050. That exceeds world energy demand, I mean future world energy demand.

David Roberts

Do you mean if the scale of geothermal drilling were equal to the scale of oil and gas drilling?

Jamie Beard

Correct. In number of wells per year, yes. So we're talking about if we did that, I'm talking about with conservative estimates too. So 70,000 wells a year globally, 10 megawatts a pop, which is pretty damn low for a geothermal project. We end up at 146% of future global energy demand by 2050, and that's for heat and for electricity, 77%. Bam.

David Roberts

Interesting. I mean, that's not going to happen, is it? That's like a theoretical boundary. But how realistic do you think it is to get to that scale that quickly? Like it would be? Not many industries have ever done that.

Jamie Beard

Well, oil and gas did it with shale, let's just do it again.

David Roberts

Just do it again. Is there as much money in geothermal as there was in shale, though?

Jamie Beard

Well, so, look, I think you have to ... you can't compare geothermal to oil and gas in that way, right? Because geothermal is never going to make for oil and gas companies what oil and gas makes for oil and gas companies. But you also have these companies trying to build offshore wind farms and struggling with single digit returns. Geothermal is going to be higher than that, right? So there's going to have to be a little bit of a shift where you look at geothermal as an oil and gas entity and you say, "Ha, we're probably going to max out at about 15% return, but hell, we can drill a million of them. That sounds pretty good. Let's go." Right, so there's going to be a little shift. It's going to be a lot of wells for less returns than oil and gas. And I think if you compare geothermal with wind and solar, it looks pretty darn good to an oil and gas company.

David Roberts

Yeah. And of course, what the rate of return is, is somewhat affected by policy. So policy could get in there and at least tweak the incentives.

Jamie Beard

You can keep having hope for this, David, you keep hoping for the politics and whatever. We'll just go drill in Texas or what ... you know.

David Roberts

IRA happened. Well, let's conclude here then, and let's just talk because I'm a policy guy. And I have to ...

Jamie Beard

I know you do that. You keep doing that, David. I love it. Somebody's got to work on it.

David Roberts

So, two questions by way of wrapping up. One is, was there anything in IRA in the Inflation Reduction Act or the Infrastructure Act or CHIPS, now that I think about it, in the legislation that Democrats just passed, was there anything for geothermal? And did you feel like in all the frenzy of activity leading to that stuff, that geothermal had a voice up there in those circles? Like, does it yet have a voice? That's my first question. The second question is just what policy, if you were less cynical about policy and still had policy hopes, what would those hopes be for?

Jamie Beard

Oh, good, these are great questions. Okay, so, yes, there was lip service to geothermal in the IRA, unfortunately not well fitted. So it's ITC and PTC, they're meant to apply now across all types of renewables with a longer time frame to benefit from them. The problem, though, with geothermal, particularly on federal land, is the development and the permitting. Time frame is so darn long that you almost can't even make it even with the extended window under the IRA. Your second question was, well, did geothermal have a voice? Clearly no, because we ended up in the same spot.

Right. Where it's like, well, we're trying to fit geothermal, which is pretty darn unique, under a one size fits all policy to fit and solar and wind that are very streamlined in terms of permitting and much more predictable with very little ... no subsurface risk. Right, so it's like no, essentially no. Is it better than it was? Yes. But is it going to fix anything? No, probably not. So that's my answer there. I have hope for the future, though. I think when it comes down to geothermal, we're probably going to need to build a lot of individual state alliances that then go and build a coalition that go after federal.

Right. So it's like when we get a bunch of states and governors and state legislatures involved and motivated and feeling like that geothermal could be a really viable future economy in those states. And this is what. We're doing right now in Texas, if we can build that across other states that would really benefit from geothermal in the future, we may have a shot at getting geothermal a more impactful voice on the federal level.

David Roberts

But if that coalition came together, pressured the feds, and the feds did something, would that just be under the general heading of permitting reform, the kind of permitting reform that everybody is clamoring for now, or is there something more unique?

Jamie Beard

No that's so boring. Yeah, you told me I could pick just whatever, right? In terms of what the federal government could do, that would be really cool and impactful. And if you're going to let me have that leash, I will just take it and say, yeah, sure, fix permitting. Yes, please. But that's easy. If we want to really accelerate geothermal in a way that it catches geothermal up with other renewables, that geothermal has been substantially underfunded comparatively. Right. If we really want to catch geothermal up, then we need to say make an office of subsurface energy, put geothermal CCUS and lithium in it, and build it ARPA-E style.

Interesting, right? So we've got high risk, high reward type, big investments going toward trying to figure out how to do all these three things really well.

David Roberts

DOE has got the Earthshot, right? I mean, it's putting some money toward that kind of stuff.

Jamie Beard

Yeah, but David, we're talking about like $200 million here, $100 million there, and we're comparing that for geothermal with a billion here and a billion, right? And so it's like, what are we doing? You all right? What are we doing here? So I would put the billions in the office of subsurface energy, put an industry advisory board, engage with that, and go, that would be ARPA-E style, high risk, high reward. How do we build this fast? Go, if I was in charge, that's what I would do.

David Roberts

So the game plan then the strategy here is get oil and gas interested, get them moving, get them funding startups, get them interested, get states interested and on board via oil and gas being interested. And then take your coalition of states and oil and gas industry to the federal level and move the Feds on permitting and just general more attention and money to Geothermal. That's the game plan.

Jamie Beard

That's the game plan. InnerSpace is launching ten more. So we did the future of geothermal in Texas. We just published that a couple of months ago. We're launching ten more states this year.

David Roberts

Oh, interesting.

Jamie Beard

We're building the coalition.

David Roberts

Is Washington just at a ...

Jamie Beard

No sorry

David Roberts

No geothermal activity in Washington?

Jamie Beard

No, it's not that. Washington is great. You've got awesome geothermal resources. We're focused though, on oil and gas state, traditional energy states, oil and gas states, right. So we're really focused on states that have a real interest in their current oil and gas economies and focused on getting them excited about building that into a geothermal economy.

David Roberts

I got to say, if you manage to navigate the red-blue divide with an energy source without getting Hoovered into culture war on either side, that's going to be a real historical accomplishment.

Jamie Beard

Yeah, that's something to keep eyes on. More on that later. We'll talk about that one. We'll come back in a couple of years, David. We'll see. How that's going.

David Roberts

Awesome. Well, the pace things are going, I'd love to have you back in three years. I'm sure it'll be transformed. Exactly. We'll be on to some other use for lasers. All right, Jamie Beard of InnerSpace, thank you so much. I've been meaning to have you on forever. This is beautiful. This is exactly what I wanted. Thank you so much for coming on.

Jamie Beard

Awesome, David. Thanks so much. This is fun.

David Roberts

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

The exact definition of “clean” hydrogen, interconnected with the definition of “clean” electricity, has enormous implications for the distribution of federal tax credits to boost the industry. In this episode, hydrogen expert Rachel Fakhry of the Natural Resources Defense Council discusses what’s at stake.

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Text transcript:

David Roberts

Volts subscribers understand that a decarbonized energy system will require lots and lots of hydrogen, to store energy and to serve as a fuel in applications that are otherwise difficult to decarbonize. They also understand that while 95 percent of the world's hydrogen is currently produced using fossil fuels, there is a carbon-free way to produce hydrogen.

It involves running electrical current through an electrolyzer, which splits hydrogen out of water. (Volts listeners heard all about electrolyzers a few episodes ago.) But the resulting hydrogen is clean only if the electricity that is run through the electrolyzer is clean. That's the recipe for clean hydrogen: clean electricity plus electrolyzers.

Democrats also understand the need for clean hydrogen to scale up quickly, and they included tax credits for clean hydrogen production in the Inflation Reduction Act.

And therein lies the rub. The IRS is currently in the process of determining exactly how those tax credits will be structured and to whom they will be available. At issue is a question that sounds simple but turns out to be devilishly complex: what exactly counts as clean hydrogen? More specifically, what exactly counts as clean electricity?

The details matter enormously — up to $100 billion worth of subsidies are on the line. Big companies from BP to NextEra are lining up to try to make the standards as lax as possible, to maximize their short-term profits. But lax standards could perversely end up increasing greenhouse gas emissions, as electrolyzers come online, gobble up the available clean energy, and push grid managers to start up fossil fuel plants. (For more, read Canary Media’s deep-dive series on the hydrogen tax-credit battle.)

To get to the bottom of all this, I’m excited to talk with Rachel Fakhry, who runs the hydrogen and energy innovation portfolio at the Natural Resources Defense Council, about the technical details of this fight, the ability of the industry to meet higher standards, and the enormous stakes involved, for the industry and the larger project of decarbonization, in getting it right.

So with no further ado, Rachel Fakhry. Welcome to Volts. Thank you so much for coming.

Rachel Fakhry

Thanks so much for having me Dave.

David Roberts

You're brave to come on and address this subject. It is big and complex and hairy. There's a lot of ins and outs, "a lot of strands in the Duder's head." So let's start. So we get we need a bunch of hydrogen. We get we need it to be clean. We get basically what clean hydrogen is, sort of. So let's just start first by talking about what are these tax credits? What does the Inflation Reduction Act contain for clean hydrogen?

Rachel Fakhry

So the IRA offers one of the largest subsidies for clean hydrogen in the world. It is a production tax credit which ranges between $0.6 to up to $3 per kilogram of each hydrogen produced. And the three kilogram, as I'm sure we'll talk, is kind of the big prize that all the projects are gunning for. It is a technology-neutral credit. So there's no colors green, blue, pink, any of that. It all depends and is tied to the life cycle greenhouse gas emissions of hydrogen. That top prize of $3 can only be eligible for clean hydrogen that achieves zero point 45 kilogram of carbon per kilogram of hydrogen relative to today's status quo hydrogen that's gas derived uncontrolled, which is roughly around ten.

So to get that top rise, you have to reduce emissions from status quo by 95%, which is a lot.

David Roberts

Right.

Rachel Fakhry

You have to be very clean to get that. And it's a very long list credit. It lasts for ten years for each project that gets it, and projects that commence construction as late as early 2033 would still be eligible. So what this means is that by 2045, you could still have hydrogen projects that are getting taxpayers dollars. Even if we think the technology is going to improve and drop in price and so on, there are going to be projects still heavily subsidized.

David Roberts

Yeah, it's a lot of money. One thing I would add, just in case listeners are not familiar ... listeners have probably heard production tax credit and investment tax credit, PTC and ITC, tossed around just for anybody who doesn't know a production credit, you get a certain amount of money per quantity of the subsidized thing produced. So, in other words, this is you get the subsidy per ton or per kilogram of hydrogen produced versus the investment tax credit, which subsidizes capital costs of building the thing in the first place. And these have somewhat different dynamics, which I think we can return to later.

But this is specifically, it's the production of hydrogen per kilogram that gets the subsidy. And you note the subsidy for the lowest, for the cleanest hydrogen, is $3 a kilogram, which is huge. What's the next tier like? What do you get if you don't quite reach that threshold?

Rachel Fakhry

It's a big cliff. You drop from three to one dollars per kilogram.

David Roberts

What?

Rachel Fakhry

Yeah. And this is, I think, an excellent indicator of the type of hydrogen Congress really wanted to incense. They really wanted to incent the cleanest of the cleanest.

David Roberts

Yeah. So this is actually an important background fact about these subsidies, is they're non-linear. They don't scale up linearly with the cleanness. There's, as you say, a big cliff like the jump from not meeting that top threshold to meeting it gets you from one dollar per kilogram to $3 per kilogram, which is a huge increment. So all of which is to say, how you define how exactly you structure who is in that top tier matters enormously. There's an enormous amount of money on the line.

Rachel Fakhry

Absolutely, we'll get to that. But it all hinges on how treasury guidelines will look like for determining the life cycle greenhouse gas emissions, which in turn will determine whether you get the top prize or something much more reduced. But since you mentioned that it's a lot of money indeed, this is an uncapped credit. It depends on how much hydrogen you actually produce, but we think this could be more than $100 billion. Our colleagues at Energy Innovation have produced a really useful number, essentially taking one of the larger hydrogen projects being announced in Texas between AES-Air Products, large electrolyzer powered by wind and solar on-site.

They estimate that between the hydrogen tax credits and the renewable tax credits, it could be a $30 billion subsidy for just one project.

David Roberts

Holy shit. So I just want to flesh that elbow just to make that clear for listeners. You have a big sort of solar and wind renewable energy installation attached to an electrolyzer in this Texas project and you're getting the tax credits for wind and solar and you're getting the tax credits for producing the hydrogen. That just means like, as you say, $13 billion. That's a huge ...

Rachel Fakhry

It's a $30, actually 3-0.

David Roberts

$30 billion in subsidy. Criminy, yeah. So the point is, as a background for all the rest of this discussion, we are dumping a ton of money on clean hydrogen specifically, all of which is to say this fight over how to define it, over what counts and what doesn't is not an arcane technical matter here.

There are billions and billions and billions of dollars of subsidies on the line depending how we answer these questions that we're going to get into.

Rachel Fakhry

That's absolutely right, Dave. Yeah.

David Roberts

So NRDC and a coalition of partners has put forward what they call the three pillars of clean hydrogen. Did that originate with you? Where did the three pillars framework come from?

Rachel Fakhry

I'm happy to say we had nothing to do with the origination. Also very happy to claim credit. The three pillars are decidedly not new. They're already at the heart of a debate around the effectiveness of voluntary renewable corporate procurement. So these are not new dynamics we're bringing to the hydrogen debate. We're actually having the hydrogen debate ride the broader issues within the market like any other energy resource.

David Roberts

So these three pillars are the idea is if you meet these three criteria, then you count as truly clean hydrogen. And every one of these criteria is controversial. Every one of these is being fought out now between industry that wants lax standards and your coalition that wants strict standards. So let's go through the three pillars.

Rachel Fakhry

Great.

David Roberts

The first one is additionality, which I think people probably have some vague familiarity with. But let's spell out what it means in this context.

Rachel Fakhry

Before we do that actually, just to step back on a couple of things. Yes, you're right. There's a lot of contention around at least two of the three pillars. But it's funny because everyone is kind of picking and choosing what they like and don't like. So you have folks who are fine with hourly matching others who are okay with additionality. So everyone will get to it. But within the opposition, we're seeing this kind of like cherry picking within the bouquet of pillars, what works and what doesn't work. But let's start with why do we even need the pillars? And as you noted, the pillars are additionality, deliverability, and hourly matching.

So why do we even need those pillars? As you've alluded to, the credits entirely hinges on how the lifecycle of hydrogen or lifecycle emissions of hydrogen are determined, which means that the Biden administration treasury, in collaboration with the OE, EPA, and the White House, will essentially determine how this credit will impact our energy system. But calculating life cycle greenhouse gas emissions can be quite tricky, and the complexity really varies from project configuration to another. So, for example, if you have an AES-Air Products-like project where you have a big electrolyzer not connected to the grids, only powered by renewable energy on-site, easy, that's a zero emissions rate.

However, when you move to a different configuration of electrolyzers that are grid-connected, drawing grid power and buying credits or offsets to net out those emissions, it becomes really complicated. And this is the classic kind of complexity of offset systems.

David Roberts

Yes, anybody familiar with the arguments over offsets will be somewhat familiar with these concepts.

Rachel Fakhry

Exactly. So we need some parameters and rules around how these offsets are accounted for since there's so much money at stake and so much emissions at stake. And this is especially true for electrolysis. Now, electrolysis is an energy-hungry process, which means that even if it draws small shares of fossil fuel electricity, that would have significant emissions. So, for example, an electrolyzer that is powered by the average grid today would have twice the emissions of status quo hydrogen and 40 times the threshold of 0.45 threshold to be eligible for the $3 per kilogram.

David Roberts

Yes. That's so wild that I just want to put an exclamation point next to it. So everybody understands our starting point here is if you just make your electrolyzed hydrogen with the average grid electricity, with the sort of average mix of sources that we have on the US grid. Not only will you be 40 times more carbon intensive than the threshold for the subsidy, you'll be twice as carbon-intensive as making the hydrogen directly from fossil fuel. So the difference between drawing on, as you say, this project in Texas has its own renewable energy installation next to it. so right, it's very clear where that's getting energy.

The difference between that getting clearly clean energy and getting average grid energy is not a small increment of greenhouse gases. The average grid electricity is vastly more carbon intensive than what we're aiming for here. So all of which is just to say you can't just build an electrolyzer and plug it into the grid and call it clean because you're not getting clean power. Basically.

Rachel Fakhry

That's absolutely right. So if we are subsidizing projects that have twice the emissions of today's status quo hydrogen, then that's going to increase your emissions of the system as a whole. And now this is inarguable, what we're seeing coming out of Princeton. An upcoming study by Energy Innovation, a recent study by Rhodium Group, all agree that absent the three pillars which we'll discuss, emissions will increase in this decade, completely contrary to where we need to go and subsidized by what is a climate bill.

David Roberts

Yes, it would be wild to spend $100 billion of public money to substantially raise carbon emissions. That would be a perverse outcome, let's just say.

Rachel Fakhry

Absolutely an awful story. Let's now dig into the pillars. You can think of them as parameters around those offsets that will be used, that are the only ones that will ensure that the offsets are effective at truly netting out all the emissions being driven by electrolysis. Happy to dig into it some more, but I should note from the outset that after a thorough legal analysis, I can announce with confidence that the three pillars are legally necessary and that treasury has all the authority it needs to implement them rigorously.

David Roberts

And I want to get into this a little bit later after we go through them, but my question is, can they not are they legally allowed not to use them? Because the industry is encouraging. But we'll get into that in a minute. First, we've been talking around the three pillars. Let's go through them. The first one is additionality, which people, I think energy aware people understand is if you just plug your electrolyzer into the grid, you're getting grid power, which is dirty. If you plug your electrolyzer into the grid and specifically consume renewable energy from the grid, the way that where you can just buy renewable energy certificates RECs, and say, I consumed this much and I bought this many RECs to offset it.

If you're doing that, you're not necessarily using clean energy because you're drawing from existing renewable energy, which means whoever else was using that existing renewable energy now gets bumped to something else, et cetera, et cetera. Bump, bump, bump down the line until the last person in the line is using whatever gets turned on when demand exceeds supply, which is generally fossil fuels. So all of which is just to say you're not using clean energy unless you're using new clean energy that you are bringing online to power your project. Is that roughly the sum of it?

Rachel Fakhry

That's absolutely correct. If you're going to bring new load on the system as an electrolyzer, you have to support new clean supply or additionality, although we're starting to move more towards new clean supply, which is going to be a more intelligible term for a lot of people. As you said, if you add demand to the grid, you don't bring new supply with it. As you say, the marginal generators will turn on to supply the added demand, and this will be gas. So you're going to end up having highly emitting hydrogen without supporting nuclear supply. And I always like to use this kind of visual of a world where additionality or new clean supply are not required.

This means that technically all existing nuclear generator in the US can sell their credits for hydrogen production because there's absolutely no requirement for the credits that will be used to offset emissions to come from new resources. They can come from existing resources which could be nuclear generators. There is enough nuclear generation to supply enough nuclear credits to dwarf even a high estimate of hydrogen production between now and 2030. So what this means is hydrogen production between now and 2030 where hydrogen electrolyzers could plug to the grid, do absolutely nothing, draw on grid power, have high emissions and purchase these cheap nuclear credits without really doing anything to the grids to really net out their emissions.

David Roberts

Right? And just to reiterate, all that power that is going to the electrolyzers from the nuclear used to be going somewhere else. So whoever was using that power before that's now additional demand on the system. And again, when demand exceeds supply, the marginal generator gets turned on and that's fossil fuels. So all those electrolyzers coming online and simply claiming that nuclear power, you'd get the truly perverse outcome of the electrolyzers claiming to be clean, but total emissions on that grid going up substantially.

Rachel Fakhry

That's correct. Absolutely. This is becoming, I think, inarguable in many sense that additionality is fundamental for the system to remotely work. And again, this is corroborated by all the studies that we're seeing here princeton Energy Innovation, Rhodium, and many, many EU studies which we can glean a lot of things from.

David Roberts

But you say it's clear and fundamental nonetheless. There are industry players specifically saying that the additionality, I mean, the additionality pillar is sort of the main axis of dispute here. This is precisely what big utilities don't want, an additionality requirement. And they have a lot of arguments for why. But one of the things they say, one of the arguments they had, which struck me as at least semi-plausible, is their sort of thing is you're doing these models like Princeton modeled all these electric ledgers coming online without the additionality requirement showing that it raised substantially raised grid emissions.

The industry's counter is, well, we have all these broad emission reduction policies. We got like cap-and-trade in Washington and California. We got the EPA coming out with standards on power plants and we got blah, blah, blah. So it's just not plausible that emissions overall are going to go up. It's the broader economy-wide emission reductions that are going to take care of emission reductions that shouldn't be our responsibility, basically, like we should just be able to use the existing clean energy.

Rachel Fakhry

Let's address that because we always hear this argument, right? Like why are you adding all these rules when the grid is getting cleaner and everything's going to be merry and great and we don't need to think about it? Let's take the IRA because it's always posited as the reason why we know the grid is going to get cleaner, so we don't have to worry about anything. The IRA is historic, right, and we're all very excited about it. And it has the potential to be a game-changer for the market. However, it's mostly carrots, very little sticks, so the outcome of it remains really not guaranteed.

We have a lot of work to do to make sure it's implemented in a way that actually delivers on all its potential. That's one, two, no matter how clean the grid gets in the next seven, eight years, you're still going to have the issue of marginal emissions. Right. Because marginal generators for the foreseeable futures will still be gas. So even if the grid is getting on the whole cleaner, and your electrolyzers are still running during those evening hours when the sun isn't shining, the wind isn't great, turning on marginal emissions or marginal generators, that would still be, on the whole, a very dirty hydrogen resource.

So essentially basing loosening up rules based on the hubris that everything is going to become clean. So when I have to worry about it, it's just demonstrably false.

David Roberts

Yes. It seems premature to be making policy premised on the notion that we're going to succeed in this long term thing of reducing emissions. It's a little early for that.

Rachel Fakhry

Exactly. And actually, right before I came in, I was doing a quick back of the napkin envelope calculation. Even if the grid were to be 80 plus percent cleaner than today, by 2030, you really still don't have a lot of margin to use grid power. No more than 10-20%. Again, electrolysis is power hungry, so even the smallest amount of fossil fuels will blow you right out of the IRA threshold.

David Roberts

Right. And I'll pause to say this, and I might repeat it a couple of times throughout the pod. This is not to say that an electrolyzer can't plug into the grid and start making hydrogen. It's just to say you're not going to get $3 per kilogram of subsidy if you do that. Right. These are not like harsh restrictions. We're talking about whether we're going to give you tens of billions of dollars. That's not the mean parent.

Rachel Fakhry

Exactly.

David Roberts

It's just some basic rules. We don't want to subsidize increased emissions. So it sounds simple, right? Like, if I'm I'm going to bring an electrolyzer online, I just bring a solar farm along with it. I use the solar farm's energy to run my electrolyzer. That's clearly additional, right. If I'm building on site renewable energy next to my electrolyzer at the same time, that's clearly additional. It's not as clear in some other fuzzy cases. So, like, let's say I come online and I sign a PPA for power with a solar and wind farm that was built a year and a half ago.

Right. So it's new-ish, but it's also the case that maybe if my electrolyzer hadn't come online, that clean power would be going to someone else, so I'm just displacing existing clean energy. So what exactly in these edge cases? What are we defining as new and additional? Is there some sort of threshold like the renewable energy must be built within six months, or how do we get specific there?

Rachel Fakhry

Yeah, that's a great question. There are several schools of thoughts. We haven't settled it. I think everyone agrees that this has to be the most straightforward way for developers, because, believe it or not, we're not in the business of suffocating this industry, Dave. We just want to make sure it's actually clean and in line with what we need. So you have a school of thought that says, look, simplify, just say anything after the IRA, or anything built after the IRA will count as new.

David Roberts

For ten years.

Rachel Fakhry

Yes, exactly. Yes. Pro. It's very easy to administer. I'm not a big fan of it because you put it well, this would have been built anyway. So by adding demand to a system that was being built not for me, something else will turn on the system, and that will likely be at least a mix of fossil fuels. You have another school of thought that wants to mirror what the EU did, the Europeans did. So they adopted a moving vintage, as opposed to that fixed vintage, and said, okay, additionality counts as a PPA signed with a new window solar farm that comes online within 36 months of the electrolyzer.

That is interesting. It's not perfect, but we have to be able to administer the system. I like this moving vintage. You can add the condition that additionality could be met by showing, say, in signing the PPA, that the electrolyzer accounts for much of the financial risk or helps secure the funding. You could add more conditions, but I like the moving vintage a lot more than the fixed vintage. And then you can layer on some PPA conditions to carve out the incremental financial effect of adding electrolyzer on the grid to window solar farm.

David Roberts

Right. And we should acknowledge in the end, there's some element of the arbitrary here because there is no absolute metaphysical correct answer in a lot of these cases. Right. Like, these are all about counterfactuals. Would the renewable energy have been built in the absence of this electrolyzer? And like any counterfactual, there's no definitive ... there's no way of being definitive. Right. You're just using heuristics in the end, you have to define some thresholds somewhere. But this is not an area where sort of precision and certainty are really possible.

Rachel Fakhry

That's correct. A system that works well, that is rigorous enough to minimize against the worst, I think, is good enough for us.

David Roberts

And the last thing about additionality is, of course, the big argument from industry is this will substantially raise costs, it will wipe out the cost advantage we have against existing gray hydrogen and it will strangle the industry in the crib and it will never get going. And in some sense, this is all too about a counterfactual. We're all arguing about what would happen if we did x and so no one can really definitively say, but what evidence do we have that that's wrong?

Rachel Fakhry

The dead on arrival claims obviously are being branded right that we are going to say ...

David Roberts

Yes, dead on arrival.

Rachel Fakhry

Absolutely. So I would love to talk about the costs for the three pillars as a package because I think this is the really interesting one.

David Roberts

Okay, but yeah, let's put the cost off tour through the pillars then. That's a good idea. The second pillar is much more simple, we can get through it pretty quick. So the first pillar is additional. For your electrolyzer to be clean, it has to be drawing from new renewable energy. The second is regionality, which means your electrolyzer has to be drawing new clean electricity from the grid you're on, from the regional grid you're consuming on. So you can't just buy like if you're on a super dirty grid and you're buying clean energy, that's made in California, right?

Like clean energy in California is not displacing nearly as much carbon as clean energy on your dirty grid where you're operating would. So grids are not equivalent right, in terms of carbon emissions. So you need to be displacing carbon on your grid. And that's pretty straightforward. And as far as I can tell, most everybody agrees roughly with this idea. I think insofar as there's any controversy, it's just sort of like where do you draw the line? What is the same grid? Is there controversies there worth getting into?

Rachel Fakhry

You're right, this is one of the least contentious pillars. Everyone agrees that there has to be some geographic bound to the clean energy you claim is netting out your effect.

David Roberts

Right.

Rachel Fakhry

In terms of how do you define the boundaries, there are several options that could work. We're still considering which one makes the most sense. The simplest one is to say, look, as long as the electrolyzer and the new clean supply are located in the same load balancing authority, that's good enough for us. That's very simple. However, it could have some issues because some load-balancing authorities are very large and streaked with a lot of congestion. Like for example, MISO is an excellent one, it's the one load-balancing authority and yet there's a big transmission constraint between MISO North and MISO south.

Meanwhile, under that system you could still locate your electrolyzer and your new supply anywhere you want with disregard to the actual congestion and whether you're actually netting out your emissions with this clean energy project that you supported or not. So the other approach, which is a hybrid, quite interesting, and I'm leaning towards that one. It says, okay, let's break it out between RTO regions and non-RTO regions. Within RTO regions like PJM, MISO, ERCOT, so on. We have to look at the LMPS, which are a good proxy for congestion, locational, marginal prices, right?

David Roberts

And those are set around a particular node on the grid. And the node on the grid is what just is there a clear definition of what counts as a node? Is it just where there's a transformer or what?

Rachel Fakhry

That's a good question. I mean, usually, it's going to be the place that sets the price. I don't know how to explain it in engineering terms, unfortunately.

David Roberts

Well, just say it's the atomic unit. Let's say if you're looking at grids, sort of like a grid is made up of nodes.

Rachel Fakhry

Correct. And it's the excellent, kind of the best proxy. We have to understand the supply and demand dynamics around a granular piece of the grid. So I like this because RTOs already report LMPs they already report them and collect them and so on. So the notion is that electrolyzers and the clean energy supply that is netting out their emissions need to be located within a region where the LMP differential is not bigger than X.

David Roberts

Right?

Rachel Fakhry

That is a very good proxy for okay, there's no congestion between the two that's roughly deliverable or mostly deliverable projects. Developers already hedge against LMPS and signing contracts. This is not new to look at forecast of LMPS. So we think this is a familiar tool.

David Roberts

Right, so the data and information is there to make these calculations. Now, we wouldn't have to produce any new data, right?

Rachel Fakhry

But to continue that for non-RTO regions like the Southeast, where utilities don't necessarily report those, we're fine keeping it to the LBA or the load balancing authority because anyway, those tend to fit nicely with state boundaries. So congestion will not be unmanageable there.

David Roberts

Okay, so that's additionality got a new clean energy, regionality it has to be in some definition, local clean energy. And then the third pillar is another controversial one. This is temporal granularity, which to put it in a more human-normal way is just you need to match your consumption to production of renewable energy or clean energy on an hourly basis rather than the more conventional yearly basis. So again, Volts listeners who have been paying attention will be familiar with this general notion. There are lots of corporate players now like Google. Google wants to go zero energy.

And the easiest low-impact way to do that is just say we consume X a year, we're going to go buy renewable energy certificates for X amount. Boom, we offset our use, we're clean. That's sort of like step one. But Google realizes that's not really accurately, that's not accurately about your emissions and how much you're offsetting. So Google wants to move to an hourly system where it's measuring how much its consumption is matching up to renewable energy production on an hour-by-hour basis, so that it can truly be zero carbon, so that it can truly offset its actual emissions in the actual world, not just as an accounting practice, right?

So this notion is out there. So the idea here is that electrolyzers that want to be counted as clean should be required to do that. They should be clean on an hourly basis. This is extremely controversial for a bunch of reasons, but let's start what industry wants, or what the constellation or next era the utilities want is just they're like, look, we have this system of yearly renewable energy certificates, yearly RECs, it works perfectly well. Why can't we just offset our energy on a yearly basis like everyone else does? Why are you making us do this bespoke granular thing?

So just what's wrong with yearly offsetting?

Rachel Fakhry

You've already teed it up really well. This is not a new dynamic, right? This is where there's much more demand for granular tracking to really effectively claim that you are powered by clean energy. Annual matching is just no longer seen as an effective way of reducing emissions and still sends a signal that fossil fuels are needed. And this exact same thing applies to hydrogen, right? So suppose there's a Dave Roberts electrolyzer contracted with a new solar power project, but you run this electrolyzer at night or both when the sun is shining, when there's no sun, turning on the marginal generator and producing very high emissions.

However, you have the sufficient volumetric amount of solar RECs that were produced from the solar project you contracted with that are enough to on paper.

David Roberts

Right. So on an accounting basis ...

Rachel Fakhry

Correct.

David Roberts

I have offset my emissions. But in the real world, the solar is producing the energy during the day, I'm consuming energy during night. So in the real world, I consumed dirty power almost that entire time.

Rachel Fakhry

And there's something perverse here, which is the cleaner the grid gets, the less your solar power will likely start abating emissions during the day because you'll have more solar on the system. And when you turn on at night as an electrolyzer for the foreseeable future, gas will always be the marginal resource. So on the whole, you'll be producing a lot more emissions than you're actually reducing. So it's an interesting perverse effect that may happen with a cleaner grid. All this to say that hourly matching is necessary to meet statutory requirements to meet the IRA threshold of 0.45 kilogram per kilogram to get the $3 per kilogram.

And this is corroborated by, again, Princeton, upcoming Energy Innovation study, even Rhodium study, which was not very friendly to hourly launching in near term, found that without hourly matching, emissions could increase cumulatively by roughly 100 million metric tons this decade. Enormous, right?

David Roberts

We spent $100 billion to raise emissions. 100 million tons.

Rachel Fakhry

There we go. That's the US scarce system for you. This is why we absolutely need this. It's corroborated by studies, you cannot reach the IRA threshold without tracking your consumption on an hourly basis with the clean energy project that you procured with.

David Roberts

Right. So there's two big objections to this from industry. The first is from industry and also is shared by some other analysts, which is just that the system of hourly matching, basically producing hourly RECs rather than yearly RECs is just not mature. It's just not ready. There's not enough people doing it. And forcing the industry to wait on that, getting stood up and sophisticated enough to work would delay the industry in these crucial first few years. So a lot of the argument is just over. How baked is hourly matching? How ready is it?

Rachel Fakhry

Yeah. I find this to be a little bit of a lazy argument because it clearly does not look at the state of play on the ground nor what the experts say could happen within less than two years. So I think now even for folks who are out there saying this is not doable in the near term, it needs time. Even those folks agree that there are no technical challenges to doing this. This is really not rocket science. Generation is already metered. Consumption is already metered. You just need a REC in the middle that can capture the hourly variations.

David Roberts

And people are doing it. It's not just that it's doable now, but people are doing it.

Rachel Fakhry

Exactly. The two biggest registries in the US. M-RETS and PJM are now offering hourly tracking. M-RETS has been doing this for three years, even in places where M-RETS and PJM, I mean PJM is new. But even in places where M-RETS does not track, there are third-party tracking mechanisms. There are utilities that are not sophisticated, necessarily smaller, kind of like Madison Gas and Electric, for instance, in Wisconsin offering 24/7 tariffs that require hourly matching. The momentum is in this direction. The Biden administration put out an executive order now requiring that the federal government by 2030 hourly amount.

David Roberts

The federal government's going to have to start accounting for hourly ...

Rachel Fakhry

If the Feds can do it anyone can do it.

David Roberts

Yeah. And let's just pause and stress here that PJM is a big Midwestern wholesale power market and balancing area that has developed and implemented hourly matching just in the last year. So this is like a big industry player. These are not like little startups or whatever that are doing this.

Rachel Fakhry

And they did that because of customer demand. Right. Again, everyone tries to blame the pillars on hydrogen. The market is heading in this direction anyway. This is just about meeting what the law requires and making sure we're actually consistent with the direction of the market. So it's already being done. M-RETS has said multiple times, look, we're willing to track anywhere in the US or roughly anywhere in the US. But if registries want to scale themselves from annual to hourly, experts say, look, you can scale very fast because there are no technical issues here. You could scale within 12 to 18 months.

That is much less than what electrolyzers will need to scale. Right. They'll need two years plus. So again, I always say it's a lazy argument because it doesn't take into account what's already happening, how long it took for it to happen, and how fast things can scale if everyone else wants to do it as well.

David Roberts

Yes, and one thing I also point out is right now the big companies that don't want to mess with it, don't want to mess with hourly matching are whinging and whining about it. But if you put it on paper and made it a requirement, all of a sudden they would be advocates for it and boosters of it and would be accelerating it. This is the thing. It's like if there's $100 billion pot at the end of the rainbow, of course, utilities are going to figure out how to hourly match. Like utilities will do a lot of things for $100 billion, you know what I mean?

So this whole idea that like, oh, thanks for offering the $100 billion, but it's such a hassle, come on guys, if there was $100 billion on the line, I'm pretty sure you all could figure out how to do this.

Rachel Fakhry

Absolutely. I mean, Hydrogen Europe in the European context was a big trade group for hydrogen companies and so on, who fought the European Commission tooth and nail for two years against hourly branding messages that this is not doable it's. Impossible after the passage of the European rules requiring hourly starting in 2030 but with no grandfathering. Which means project have to start doing hourly really effectively today. Anyway, they came out to say, yeah, this is doable, singing the same song. It's going to be more expensive, but hey, it's going to be doable. So it's a really interesting sneak peek into what you were saying of when there's such a big prize at the end of the tunnel and something already happening with all the technical elements already in place, we should not be worried, it should not happen, it can't happen, it will happen and it can't happen.

David Roberts

Right. Like you say, this whole fight went down in Europe and got settled and now they're doing it. So it's doable. So you're confident that if this was made a requirement by the time the first electrolyzers started coming online, which would be two or three years out at least, just to get them built, hourly matching could be ready. You're confident of that?

Rachel Fakhry

Yes, and I'm definitely not the expert about that. I have listened to the big experts who have done this, who are the ones who have the biggest stake in doing this. They all agree this could be done in a very short period of time and it's already being done. So technically, M-RETS, again, I have to repeat, can do it almost everywhere in the country. If there needs to be some nationwide harmonization between various regions and so on. This could be done really fast.

David Roberts

Right. So the other thing that sometimes comes up in the context of this hourly idea is that if you are really only going to be operating your electrolyzer in the actual hours where clean energy is producing, you are by necessity going to be starting and stopping your electrolyzer. You're going to be cranking it up when the clean power comes online and cranking it back down when the clean power goes offline because there's no point in producing if you're not getting that big fat subsidy. And the sort of conventional wisdom is, I think that electrolyzers are one of these big industrial applications where the finances, the business case depends on it running constantly and that if you force it to ramp up and down to matched coming and going power, you're going to ruin the economics and people won't build them.

What do you say about that flexibility question of electrolyzers?

Rachel Fakhry

Great, let's address that and then definitely want to get to the cost because the jury is no longer out as to whether it's doable. Hourly margin is doable. Now the jury is out as to, wow, is it going to be super costly and suffocate the industry. So I would love to get to the cost piece, but on the flexibility, false period. Electrolyzers are designed for intermittency, specifically PEM electrolyzers. And I know you've had that great conversation with Electric Hydrogen and Raffi Garabedian. They're one of the foremost PEM manufacturers. They're designed for intermittency, so they can absolutely handle that. Now, this is where kind of okay, from a technical standpoint, there's nothing that stops electrolyzers from ramping up and down.

Let's get to the cost piece, which is the real big one here. I think the first question we need to ask is what are the operational parameters that will make electrolyzer pencil out? Is it running 24/7 or something less than that? And what we're seeing is that they don't need to run 24/7 to achieve cost-competitive economics. It's somewhere closer to 50% to 70%. And the reason is that the more you operate, that's okay for your CapEx, that's good, but you're going to start capturing higher and higher power prices. Electricity prices are the biggest cost component of electrolyzer.

So at some point you're going to start having diminishing returns with higher and higher operations. And that is not at all kind of new information. We've known this for a while. The IEA, IRENA, even Hydrogen Europe. Again, that industry trade group I mentioned have all agreed that or shown that really optimal operations are between 50% to 70%. So we've established it. We don't need 24/7 operations. We need somewhere between 50% and 70%.

David Roberts

And 70% capacity factor, what they call running 50% to 70% of the time.

Rachel Fakhry

Correct. Absolutely. The good news is what we're seeing from a range of analyses being done by developers, OEMs, independent research groups, is that with hourly matching. You can achieve those levels in many places in the US. And the winning strategy is to oversize a wind and solar hybrid in a region with decent wind and solar, it doesn't have to be best in class and you can achieve those levels of operation and be very cost competitive.

David Roberts

Right, just to flesh out that picture you just painted, because I think it's really interesting. So we were talking about how if you build an electrolysis and you build say, a wind and solar hybrid power plant next to it, attached to it, not even attached to the grid, just attached to it, obviously the resulting hydrogen is clean, right? That's the unambiguous case. Then there's a second option which is also unambiguously clean, which is building the same arrangement, connecting it to the grid, but never drawing power from the grid. Right. Only using the locally produced power, but then overbuilding that wind and solar power so that it's producing more than you need.

And then exporting the extra to the grid as another income stream. So you get a couple of things from that. One, wind and solar tend to be anti-correlated, right? So like one's on when the other is not. So you're going to cover more of your get your capacity factor up and you get extra money from selling your extra renewable energy to the grid so that's the completely off-grid and then the sort of one-way connection to the grid. Both those are viable options where you're only consuming the local clean energy you generate. But in the second case, you're also selling excess clean energy, which is improving your economics.

Rachel Fakhry

Absolutely. And it could be good for the grid too because you're probably only going to sell that power during high grid hours or high grid prices.

David Roberts

Right.

Rachel Fakhry

Which means that the grid really needs it, right? So you could actually be helpful. You don't need to sell that much excess, right, because some folks are saying, well, what if you don't have that ability to sell your excess? The economics will still work. Oversizing a wind and solar hybrid seems to be a really interesting case for those early electrolyzers that need to run more than a certain share because they're so expensive.

David Roberts

So you oversize your wind and solar to the point that you get your electrolyzer up to the capacity factor that you need it to be economic. And then if you just curtail the rest of that wind and solar waste, it basically still the economics work out you say.

Rachel Fakhry

What we're seeing, yes, it would still work. The credits are rich enough to make things work. And let's translate the credit from a dollar per kilogram to a dollar per megawatt hour because folks kind of understand the dollar per megawatt hour a little bit more.

David Roberts

Right.

Rachel Fakhry

At the current efficiency of electrolyzers, you can generally produce about 20 kilograms hydrogen per megawatt hour of power you consume. You're getting $3 per kilogram for every kilogram of hydrogen you're producing. So that's a total of roughly $60 per megawatt hour of subsidy, which means that you're willing to pay power price of up to $60 per megawatt hour and the PTC is still going to kind of make you whole. Now, things are a little bit more complicated than that, but this shows you just the significance of this subsidy in terms of how much it could reduce the input costs to your system.

David Roberts

Right. Coming back again to the enormous size of this subsidy relative to the industry. So the industry's sort of complaint, as is familiar with the proposal for any new regulation of any kind, is that this regulation will cripple the industry. It's too much, too restrictive, too much hassle. It's going to strangle the industry in the crib. It's not affordable. And just to throw a specific worry in there amidst that, one of the sort of concrete worries is that if these restrictions raise the price of green hydrogen in the short term, one perverse effect might be that more of the market turns to blue hydrogen, which is hydrogen made with fossil fuels, but then with carbon capture and storage attached to it.

And that carbon capture and storage is also going to get a big fat subsidy out of the inflation reduction act. So the worry here that I've heard articulated is you make truly clean hydrogen more expensive. You're just going to shift the whole market to blue hydrogen and then they're going to get sort of locked in. You're going to get path dependence, you're going to get blue hydrogen sort of making itself a place in the market, even though everybody knows in the long, long term we need it all to be green.

Rachel Fakhry

Right.

David Roberts

Do you think there's anything to those worries?

Rachel Fakhry

I would love to say one more thing before we close up on the pillars because it kind of is related to this argument that oh, we're going to suffocate the market so much that blue is going to win. What is really interesting in what we're seeing from opposition to the pillars is something I alluded to earlier, which is we're now seeing the opposition sort of splitting. And you have renewable developers that do not like any of that starting to come around to additionality or new supply because it's like, hey, I could sell more wind turbines.

David Roberts

Right. Why on earth would they be opposed to this? This is a requirement that a bunch more renewable energy get built.

Rachel Fakhry

Exactly. This is where the hourly matching piece comes in. Right. So you have a next era in Florida that has very little access to wind, if any. Well, maybe it can't do hourly matching because it's going to be pretty low utilization of its electrolyzer if it's only following solar. Today that may not work. Now, in a few years, as electrolyzer prices drop and you can run your electrolyzer much less, hey, let the market be the market. Right? But today what we're subsidizing, we want to make sure they're actually clean projects. NextEra may not be able to do that.

So now you have NextEra kind of saying, "Maybe additionality is fine, hourly matching is out of the picture." Meanwhile, you have Constellation, the nuclear giant, right? Would love to talk more about their plans because they're truly incredible. They're fiercely fighting additionality or new supply because it doesn't allow them to utilize a lot of their existing nuclear plants. But they love hourly because nuclear generates 24/7.

David Roberts

Hourly is nothing to nuclear.

Rachel Fakhry

Nothing to nuclear, right? They come on top compared to any other resource. So you have Constellation fiercely supporting hourly, fiercely opposing additionality. So it's kind of a bouquet where everyone just chooses whatever maximizes their own.

David Roberts

Whatever is going to work best for their short-term profits. Let's just say.

Rachel Fakhry

Emissions be damned. Right. But let's get to the blue hydrogen question because this is a new argument that I'm truly fascinated by. I don't see any evidence of that. So the 45Q carbon capture and storage tax credits are indeed generous and in some pockets of the US. Yes, indeed. We expect that blue hydrogen could be competitive and be deployed by utilizing the 45Q credits. But we're not seeing blue hydrogen projects' levelized cost of hydrogen dropping to less than $1, which is kind of the threshold for today's hydrogen, or dropping to even zero and negative, which we're seeing in some places in the US.

Where renewables are particularly great. We're hovering around zero, right? So I don't see the huge subsidy that we're seeing in some pockets for electrolytic hydrogen. And blue deals with its own challenges. Right. You need to be close to a carbon storage basin. You may need carbon pipelines.

David Roberts

Well, you need carbon capture.

Rachel Fakhry

Correct.

David Roberts

That works, which is itself. It's not something that's been shown in the US.

Rachel Fakhry

Exactly. Blue hasn't had a merry, or CCS hasn't had a merry trajectory so far. I don't know why blue hydrogen is going to just mushroom all over the place. If you take the one blue hydrogen project that's been proposed in Louisiana by Air Products, that's been held up in public opposition for months now. So besides the fact that CCS has not been easy to deploy, you have to be close to a carbon storage basin. You may need pipelines. Public opposition is a real thing here for more gas infrastructure. So it's one of these illusory scare tactics being branded that if you actually unpack dynamics, I don't see any evidence of that.

David Roberts

So no worry about blue hydrogen. And I kind of agree. Everybody keeps deploying CCS in these theoretical model ways and I keep kind of thinking like somebody needs to actually go build a couple of these things and show that they work. Before we continue any of these conversations.

Rachel Fakhry

Build a couple that work. First yeah.

David Roberts

One way to address the sort of notion that these three pillars raise costs too much is to point out that there are existing projects being built that will meet the three pillars that are penciling out. Talk a little bit about what we're seeing happen now.

Rachel Fakhry

Sure. The AES-Air Products project that we discussed, that's one of the bigger projects in the US. That's going to be three-pillar compliance.

David Roberts

Are they building on-site? They're entirely on-site renewables?

Rachel Fakhry

I believe so, yes. Fully hourly matched. So it will go up and down with the production of wind and solar. Intersect Power, historically, big solar developer moving into hydrogen. They have a bunch of projects in the pipeline that are three pillars compliant. They're one of the best voices out there demonstrating this is doable. Right. And I do want to point that I know we've joked around and there's a lot of industry players that are trying to steer billions of dollars to maximize their profits. But there's a subset of industry players have been just excellent. Right.

Intersect Power, Electric Hydrogen, whom you met with, Synergetic, others have been really just fantastic at showing that this is absolutely feasible. And if you look at Europe and the rest of the world, these three pillars compliant projects are popping up everywhere.

David Roberts

And the European hydrogen, whatever, body that has more or less came out and said, "We've looked into this, we believe the three pillars are doable."

Rachel Fakhry

Absolutely. I mean, everyone keeps pointing to and happy to speak to the EU case, but everyone keeps saying, look, they pushed their hourly matching to 2030. That's not doable. It's a wildly different context. First of all, if you look at, there's no grandfathering. So projects can start monthly, that's fine, but they have to switch to hourly by 2030. They sign long-term contracts. No one's going to sign a contract for 15-20 years based on first monthly matching and then hourly, they're going to set themselves up from the outset to be able to hourly match that's one.

Two, the Europeans have a regulatory barrier to implementing hourly matching that we don't. They have to pass a federal law first, have it translated to 27 member state laws.

David Roberts

Yeah.

Rachel Fakhry

That was one of the reasons why the delayed hourly matching, again, without allowing grandfathering, we don't have any of that. Right. So just the EU context keeps getting branded left and right, but the devil is in the details and we can glean a lot from that. And I'm hoping we can get back to that because it's an important example.

David Roberts

One of the things you hear industry say is if you force us to make the hydrogen in close physical proximity to the renewable energy, we're going to end up like renewable energy far away from load. And that will mean we'll have to transport the hydrogen, we make long distances to where it needs to be used and that transport, the building of that transport infrastructure is going to sort of offset whatever emission gains you think you're making by forcing us to be near the renewable energy. You're not taking hydrogen, the transport of the produced hydrogen into account. So how do you think about that?

Rachel Fakhry

Well, first of all, no one's opposed to grid-connected projects. So I don't know where this hypothesis comes from that we're forcing projects to be very close to renewables.

David Roberts

Hey, if you well, at least in the region, right? The same region.

Rachel Fakhry

Correct. If you can do your three pillars and connect to the grids and produce your hydrogen closer to your load, that's great. We support that as long as you do your pillars. The second kind of comment I have to this is if you look at the map of where hydrogen demand is today, it's going to be in areas where there's a good resource of renewable energy. So it's mostly Texas and the Gulf, but also in the Great Plains midwest region for ammonia and refineries. And we know that those existing customers will likely be the biggest source of demand in this decade for clean hydrogen because they already have existing supply chains, and so on

David Roberts

Making clean fuels.

Rachel Fakhry

Yeah, replacing existing status quo hydrogen with cleaner hydrogen. Let's put it this way. Yeah, that's going to be the bulk of demand in this decade. Which means that if you look at the map, you're not far off from sources of good within solar. Which means that this transport thing looks pretty manageable. If you consider where the sources of clean hydrogen in this decade will likely be, they're in pretty good resource regions. The third piece that I think is key to keep in mind is that the 45V tax credits are not the only subsidy on the table.

Right? They can't solve every single industry problem. This is where it becomes kind of part of a menu of subsidies. So the DOE Hydrogen hubs, money biggest DOE demonstration project in its history, is going to help address a lot of these ecosystem issues.

David Roberts

Yeah, the idea is to build these hubs where you're sort of like you've got the renewable energy and the electrolysis and the hydrogen consuming end use basically being built next to one another. So you eliminate ...

Rachel Fakhry

Absolutely. You have other stuff that you have the hubs. The Doe hydrogen shot is also spending a lot of money to create a hydrogen ecosystem. States are now passing and contemplating hydrogen-specific tax credits for end uses. So all this to say that we can't burden the tax credits with solving every single industry question, we can't gut them just because we want to think about all these things.

David Roberts

And also I'm inclined to say, like, look, guys, we're like we're subsidizing the crap out of the renewable energy, we're subsidizing the crap out of the electrolysis to the point that some of these projects basically the US government is going to be paying you to do this. You guys can maybe cover transport. It doesn't seem like a huge ask.

Rachel Fakhry

I have a feeling they'll figure that one out. This feels to me like a grasping-at-straws kind of thing, but the transport is going to be impossible. There are options. Do grid connections just meet your pillars? Essentially.

David Roberts

Let's go back to Constellation for a minute because this is just a gripe, but I feel like I want to cover it. Constellation is a utility that is benefiting from recently passed subsidies designed to keep existing nuclear plants open. Right? There's a whole separate debate in the energy world. People are familiar with it. Should we let them close on schedule? Should we pay to keep them open? A couple of states have passed these huge subsidies to keep them open, and Constellation is currently wallowing in those subsidies. And it's worth noting a lot of the people who it is now criticizing and fighting against in this hydrogen debate are some of the very people who went to bat for it to get it those nuclear subsidies, right?

Like it's now badmouthing Princeton's modeling. But of course, that crew at Princeton has been laying itself on the railroad tracks trying to get these existing nuclear plants subsidized. So just to say, like, we're wallowing in nuclear subsidies and now we want to turn around and be allowed to just plug electrolyzers into our existing nuclear plants and layer on a whole new giant subsidy is just like I don't know what the right word is. It's greedy. It seems crude and greedy if I'm being totally honest. Maybe you have nicer words.

Rachel Fakhry

Sadly, don't. Well, yeah, of course, they're not very happy with the Princeton folks who are kind of standing between them and enormous profits above and beyond what they were already doing. So fully agree with you. First of all, I think Constellation is basking in subsidies at this point. They're very well taken care of. Actually, right before this podcast, I was speaking to a nuclear lawyer, NRDC, and kind of asking her, hey, could you just remind me of all the subsidies that the nuclear can now tap into? She actually had to take a couple of seconds just to see where she could where to start because there are so many buckets.

David Roberts

Get the calculator out.

Rachel Fakhry

Exactly. So Constellation, as I alluded to earlier, is fiercely fighting and loving policymakers against requiring additionality or new clean supply because that would not allow them to utilize their existing nuclear plants for hydrogen production and maximum profits. No new clean supply or no additionality would be an absolute gold mine for Constellation.

Yeah.

They have two very lucrative options. One is to divert their existing nuclear power to hydrogen projects. So essentially collocate electrolyzer with their nuclear plant and divert a share of the output of that nuclear plant to hydrogen production. And this seems to be Constellation's main plan.

As I mentioned earlier, the tax credits, the hydrogen tax credits are roughly equivalent to $60 per megawatt hour. Constellation is not getting that at the market. On the market, power prices are way lower than that. Maybe 2022 was an off-year, but generally, they're way lower than that. So they're like, "Light bulb. There's a huge lucrative opportunity for us to divert our power away from the grid and utilize this very lucrative opportunity to produce hydrogen with our power."

David Roberts

Basically changing nothing else, right, like just harvesting a giant new set of subsidies, having changed operationally almost nothing.

Rachel Fakhry

Absolutely. And that would be terrible for emissions. Could you imagine megawatts and gigawatts of diverted nuclear energy from the grid? That would be terrible for emissions, result in nefarious grid impacts in terms of prices, reliability, and emissions be damned. Actually, this is playing out in Illinois right now. This is Constellation's powerhouse where they have a lot of their nuclear capacity. They have plans to divert their power away from the grid. We estimate that emissions in Illinois could increase by 7% somewhere up to 45%, depending on how much of the output you're actually diverting and completely torpedoing over the state's clean energy goals.

David Roberts

Yeah, basically wiping out the gains of their big, hard-fought, complex clean energy legislation, which they just passed.

Which, by the way, supported Constellation, even if they're not getting a lot of money from it for multiple reasons. But it supported Constellation because supposedly it was helping support that decarbonization. So it's a perilous terrain that's, number one, it's divert our power, get $60 per megawatt hour. We're not getting on the market. Hugely lucrative option number two is just sell large volumes of credits, kind of like Rex, but for nuclear from their existing nukes, because there's currently no market for those credits outside of a few states. And this is a huge volume of credits. Right. As I mentioned to earlier, there's enough potential nuclear credits to completely cover all hydrogen production that we could expect between now and 2030.

Rachel Fakhry

So this is the same thing, is you're doing nothing on the grid, getting paid for generation already very heavily subsidized by the US taxpayer, and allowing electrolyzers to just plug on the grid, purchase credits that mean nothing, and increase emissions, right? So to sum up, this is a gold mine for Constellation without doing anything.

David Roberts

I mean, it's a gold mine for them, whichever way it turns out. That's kind of the rub here. Like they're awash in subsidy money no matter what they do. They're just trying to stack it now.

Rachel Fakhry

Absolutely. And again, emissions, impacts on the grid, so on and so forth, to be damned. So it is, unfortunately, blatant greed. And they're out there claiming that nuclear is getting left out and that this is unlawful. And the best part is that no one wants to outlaw the use of nuclear for hydrogen. There are options, right? For instance, if you operate your nuclear plant that can count as nuclear supply, you could do that. They refuse that, not lucrative enough.

David Roberts

You could build new nuclear. Everybody keeps saying how great nuclear is, but why didn't build some new on it and hook that up to electrolyzer?

Rachel Fakhry

We even gave them the option of, hey, look at what the Europeans did. They said during low-priced hours, which are a good proxy for clean grid, we can relax hourly requirements and sell your credits during those low-priced hours because it's a proxy for some generator curtailing somewhere. So this kind of can count as nuclear supply if you spur that generator. Not enough hours for us. So we are not in the business of suffocating nuclear. We're in the business of making sure it meets the same requirements as everyone else.

David Roberts

Right. Or they could just make the hydrogen and not get a giant subsidy. There's no one telling them they can't do that. Again, nothing's being prohibited here.

Rachel Fakhry

Correct.

David Roberts

It's just like if we're going to give you a bunch of money, we'd like to have a few conditions on it.

Rachel Fakhry

Absolutely. That's absolutely right.

David Roberts

So just to review where we've been so far, there's these three pillars that characterize truly clean hydrogen. It's additional. It comes from new energy, comes from energy that's on the same grid you're on and it is matched up hourly with your consumption. Europe has more or less embraced these conditions. It's different timing on the hourly for various reasons. But the European Commission has said these are absolutely doable. This will not strangle the industry in the crib. So I have two questions about this. One is one argument you hear is it just stands to reason that more requirements and tighter requirements are going to slow the pace of development relative to no requirements.

Right. We'd build more electrolyzers if we could get the subsidy for any damn thing we do. So it's going to slow the industry. And what's most important here, and this is the argument I think appeals to a lot of people and this is the argument Rhodium uses, I'm sure you're familiar. Their whole thing is, yes, slightly looser additionality requirements would potentially raise greenhouse gas emissions in the near term. But that is worth it because you're radically accelerating the scaling up of electrolyzers and the scaling up of green hydrogen, which is going to reduce way more emissions in the long term than whatever this short-term surge is.

So basically like the short-term surge is worth it because you're buying huge long-term reductions. So what do you make of that trade-off is my first question.

Rachel Fakhry

First of all, increasing emissions is against statutory requirements.

David Roberts

I want to get back to that. But first, on the merits.

Yeah, you're blatantly flouting the law, right? The IRA is meant to be given to projects that reduce emissions by 95% relative to today's hydrogen. You are subsidizing projects that have twice as much. So if you're already flouting statutory requirements by adopting some sort of a phase-in or transition periods like what Rhodium suggests. That's one. Two, I have full respect for Rhodium and we have worked with them a ton, but fully disagree with this notion of a trade-off. Right. As I mentioned earlier, what we're seeing from financial analyses, from projects already being kind of doing the three pillars.

Rachel Fakhry

The three pillars will not harm scale. They will ensure healthy, durable scale. NRDC has been one of the first big enviros to come out in support of hydrogen three years ago and say, look, this is an important tool in the toolbox, we should scale it. However, this doesn't mean we have to scale it recklessly. Right. We have to make sure it's actually being done right. So I fully disagree with this notion of a trade-off between near-term emission increases against the law and scaling the industry. You could do both. The third piece, which people tend to forget, what will slow down this industry is public opposition.

Could you imagine if the US taxpayer knows that they're subsidizing increased emissions? That's not going to be pretty. And hydrogen is already a very contentious resource.

David Roberts

Yeah, it's contentious, but also it's still a little bit kind of undefined, a little bit it's a little bit fuzzy. So like, these next few years and how it gets treated and how it gets introduced to the broader public is very important. Right.

Rachel Fakhry

That is the first touch point. I fully agree with you and I love one of the quotes by Paul Wilkins, I think is the vice president of Electric Hydrogen in Washington Post. He said, look, if in five years this tax credit shows that this industry is increasing emissions, that's going to be terrible for our industry. So that will slow down scale. It's not the and that always gets just glossed over.

David Roberts

Right.

Rachel Fakhry

Love to discuss this EU approach because I know that Rhodium ended up recommending that, but keeping it quite open ended.

David Roberts

Yeah, and I think Rhodium endorsed the idea is just that you start with yearly accounting and work your way up to hourly. You start with sort of broad regional requirements and then work your way up to more specific. It's same like you start with I think they want to start with monthly RECs and work their way, this idea of phasing in, so you can get started quickly and then phase in tighter requirements over time. What do you think is wrong with that approach?

Rachel Fakhry

It's trying to mirror the EU, and I think this is very misguided. Right. Because the EU has a wildly different context. First of all, the EU has sticks. They have their emissions trading system which will help climb down and really minimize any emissions increases from loose rules in the near term. We don't have that. That's one. Two, the EU does not have a production tax credit like we do. All of their subsidies are more on the demand side. So creating demand signals. That means that there's going to be a rush to the cheapest supply. Cheapest supply generally means that you want to operate during low-priced hours as an electrolyzer because that's the biggest cost for you.

And this generally means you're going to hover around the cleaner hours. We don't have that. We have a production tax credit that is worth $60 per megawatt hour that will incentivize electrolyzers to keep running as much as they can because ...

David Roberts

They're going to run maximal. When you're paid not for your sort of CapEx to build, but for your output, you obviously are incentivized to output as much as possible, as many hours as possible.

Rachel Fakhry

Absolutely. And then the third piece, which I alluded to earlier, the hourly matching phase in wildly different contexts in the EU, again, they have a regulatory barrier we don't, which is one of the reasons why they delayed it. We don't need to do that. Wildly different context. We should not be blindly mirroring the EU. So I think we're open to discuss what a rigorous phase-in period could look like for the US, but it should not be mirroring the EU.

David Roberts

Right, well, energy Innovation, and by the way, I should just say a lot of what I learned about this, I learned by listening to Chris Nelder's Energy Transition Show where he interviewed Eric Gimon from Energy Innovation. If you want, like the super nerdy technical dive into all this, if this isn't giving you enough, whatever freaks out there who still don't feel like they got enough from this, there's plenty more there. But one of the things energy innovation is recommending is a phase-in but sort of different starting strict but crude, not relying on sort of sophisticated hourly matching at the beginning but just starting with sort of rough and ready but relatively strict guidelines. And then evolving over time to something that's a little bit more granular and precise and a little bit looser.

Because Eric's point, which makes sense to me, is you don't often see industry passively agreeing to standards that they've gotten used to getting tighter. Right. But every industry would welcome standards that they're getting used to getting looser. Right. So his sort of thing is like, we don't have the sophistication to do it precisely. Now let's be strict and crude and then evolve toward slightly looser and smart. What do you make of that?

Rachel Fakhry

Yeah, I think this is more related to the point they made in their comments that the most precise way of calculating life cycle greenhouse gas emissions of hydrogen projects is to adopt the marginal emissions approach, which I know you hate that term, Dave, but emissionality essentially you net out. You have to have a very granular way of accounting for what you're inducing on the grid and what you're netting out by locating somewhere and kind of going that way. I know that they're slightly moving away from that because it's not easily implementable that's something we flirted with as well a few months ago. And what we're hearing is like this is elegant and nice, but from a developer standpoint this may not be very workable.

So the three pillars are very good proxy right, for ensuring that your emissions are close to zero.

David Roberts

Right. The ideal here is a sort of shimmering ideal in the distance is that for any given hour of power consumption, you know, in the end eventually you're going to be able to know specifically which generators provided it and specifically how much greenhouse gas were involved. Like just as you can precisely know how much power you're using, you're eventually going to be able to precisely know how many greenhouse gases you're producing or displacing or avoiding. Right? That's all going to be sort of available in one giant transparent registry and everybody's going to agree how to calculate it and we're going to be able to base a lot of policy on that.

I mean, it's going to solve a lot of tricky kind of short-term accounting and tracking and policy puzzles are going to be solved once all that information is transparent and available. But as you say, that's a ways off.

Rachel Fakhry

Absolutely. We strongly support this move to more granularity to give really the more accurate signals for what to invest in. I don't think it's necessary for this credit. The three pillars are straightforward enough for developers. They're rigorous enough to meet the IOA requirements. I'm supportive of just retaining that. Now one can create a little bit of exceptions or derogations like what the EU did. So for example, if the grid gets really clean, like 90-95% clean, then maybe we can relax the additionality required. Or if LMPS are extremely low, which indicates renewable energy curtailment for instance, then maybe we can relax hourly matching.

We're open to that as long as the rigor of the system is maintained. So I don't think we need to completely overhaul to a marginal emissions approach to bake in a little bit more precisions for the outer years.

David Roberts

Right. And presumably, there'll be a lot of learning as we do this, how to make it work better. So this might be a dumb question but so say you're treasury and you read the Rhodium report and for whatever reason, it strikes you as highly compelling and you're thinking, yeah, let's set some relatively loose additionality requirements. Even though we'll get a little bit more greenhouse gas emissions in the short term, we'll get a lot more reductions in the long term. My thing is which, as you said, that's just against the law. The law says very clearly 0.45 threshold for greenhouse life cycle emissions is very clear.

So I guess my question is just isn't some of this kind of an academic debate? Like the IRS can't just contravene the clear written intent of the law. It's got to hold whatever details it puts in, it's got to result in that threshold, or else it doesn't meet the law. Right. So is a lot of this just an academic debate? Like, what am I missing? They don't seem to have the latitude that industry is acting like they have.

Rachel Fakhry

Absolutely fully agree with that. And the treasury has been pretty tight-lipped about all this, so it's really hard to see where they're landing. But you're spot on. Weak rules that clearly flout statutory requirements would be both unlawful and a complete abdication of responsibility. So I wouldn't be surprised at all if many groups end up suing, should the rules be very weak. But let's talk about this legal piece. We have been doing a bunch of legal analyses with other groups, and look, the case for the pillars is ironclad, right? Because the way lifecycle emissions are defined in the law requires that they account for emissions that projects induce on the system.

So if I'm an electrolyzer and I'm purchasing cheap credits from the existing nuke or renewable or so on and driving more gas on the system.

Right, you induce that grid operator to turn on that extra gas.

Correct. There is virtually no project in the US that today will qualify under this boundary of emissions. If they're not driving nuclear supply that is hourly match and deliverable, it's impossible for them to comply with 0.45 without these three pillars.

David Roberts

Right.

Rachel Fakhry

If you want to make this credit workable, those need to be in. If you want no projects to qualify unless they're colocated with a new source of supply, then you can do that. But I don't think that's the intent of the law. I don't think developers will be happy with that if it's only the behind-the-meter projects are able to qualify. So the three pillars are absolutely necessary, and if they're flouted so blatantly then that's just unlawful in a sense.

David Roberts

All this feels a little bit pointless to me because the law is super clear and if they come out with standards that allow higher threshold they're just going to get sued by a bunch of environmental groups. I mean that would be a crappy outcome to have to wait. We don't have a lot of time to wait and mess around with lawsuits. But surely treasury knows it doesn't have as much latitude as industry seems to frame it as having.

Rachel Fakhry

Hopefully, Dave, let's send them this little excerpt.

David Roberts

You don't have to; it's crazy. I'm not a lawyer, but the law is so clearly written that there just doesn't seem to be a lot of fuzziness here. But who knows what our beloved Supreme Court could find if it ever finds its way up there. It's just a small side question in terms of projects built entirely off-grid, right? One and then projects built with a one-way connection to the grid. Two and then projects that are just grid connected that just contract to have new solar and wind added to that grid. Do you have any sense of what the balance will be like right now?

There's some off-grid projects being built. Right. So clearly, those are workable. Are people going to gravitate toward grid-connected over the long term because it's cheaper, or do you have any sense of what kinds of projects are most likely to get built?

Rachel Fakhry

Yeah, that's very unclear. What we're seeing is most of the projects moving now are behind a meter. Indeed.

David Roberts

Do you know why? Is there a clear answer to why?

Rachel Fakhry

If I had to speculate, there's so much less risk.

David Roberts

Yeah, everything's much cleaner. Every answer is much clearer.

Rachel Fakhry

Exactly. There's less risk overall, which I'm sure is very great for your rate of capital and so on.

David Roberts

Yeah, right.

Rachel Fakhry

But the level of fierce opposition we're seeing for the grid-connected kind of three-pillar system tells me, oh, there's a lot of interest in connecting to the grid at some point soon. So we're seeing mostly behind the meter. But I expect that the grid-connected projects will certainly start popping up soon.

David Roberts

Be really interesting to see how that plays out. Okay, final question, and God bless all you listeners for your extraordinary patience. This is a complicated one. There was really no way to boil this one down. But final question. This is like everything in IRA. This is a carrot, right? A big subsidy, a big payout, and specifically, it's a supply-side subsidy. This is literally a per kilogram of output subsidy. So it's all about supply. If you are taking a step back and thinking about, in the long term, how to construct a robust and effective market for hydrogen in the clean energy system, are there demand-side policies that you think would work well to complement this really giant battering ram of a supply-side subsidy?

What should we be doing on the demand side? Or is supply side is the battering ram enough?

Rachel Fakhry

Great question. And this really gets to the core of, look, the tax credits are a big prize. They're not the only one, right? So we can't burden them and loosen the crap out of them because we're worried that the industry won't scale otherwise. I disagree with that. I think there's a good analogy to the renewable energy growth. The wind and solar tax credits obviously were a big driver of deployment. They were not the only driver. Right. State RTS has played an important role, corporate voluntary procurements played a really big role.

David Roberts

Yeah, demand side was huge all along.

Rachel Fakhry

Absolutely. So that's exactly the same case here. There's this giant, generous supply side push. It has to be and already is coupled by subsidies on the other side. What we're seeing globally, and this applies to the US, is one of the main barriers of getting hydrogen projects built is the lack of end uses. It's the lack of demand. Right. That's why only a very small share of projects go from announcement to FID.

David Roberts

And just to be clear, this is not lack of demand for hydrogen. There's lots of hydrogen used. It's lack of specifically demand for the still slightly, somewhat more expensive clean hydrogen.

Rachel Fakhry

Correct. No longer in many places. Yes, spurring end-use is going to be important, especially since we didn't speak of that, but maybe that's another episode. Hydrogen should not be used everywhere. Right. This is a resource that is energy intensive. It has its place in some important hard-to-electrify sectors like steel and maybe shipping and so on. Not widespread in the economy. So focus demand side policies could be really interesting here to really divert the market to the, quote unquote, "good uses." Right. So the hydrogen hubs are going to be really interesting. And again, this is a big subsidy we keep forgetting.

David Roberts

Yeah. Have they talked about what end uses qualify or what they're going to put in those hubs as end uses?

Rachel Fakhry

It's very unclear. But the DOE's hydrogen roadmap, which kind of sets the vision for the department, for how they will go about their hydrogen deployment, is pretty damn good. It's all focused on deploying hydrogen in hard-to-electrify applications where it's actually needed and doesn't have better alternatives. So if they were to make good on that roadmap, and I really hope they do, they will select the hubs that actually have the high-value end uses and not the low-value end uses like blending in pipes.

David Roberts

Yes. Let's just say when we talk about low value, like the idea of blending hydrogen into natural gas pipelines to marginally reduce the climate impact of natural gas just seems to me like the lowest possible use of what is effectively like champagne. Be like dumping champagne in your water supply or something. I don't know what the right analogy is. You want to save champagne, it's expensive and you want to save it for the best highest uses of it. And this is a big fight with the natural gas industry, of course, because they want their natural gas pipelines to stay up and running as long as possible.

They want all that infrastructure, they want themselves to survive. And so the idea that they could mix in a little hydrogen and go on, they love it. But as you say, that's a whole separate fight, a whole separate pod about hydrogen end uses.

Rachel Fakhry

Absolutely. And this has a real implication on the production because if we recklessly open the floodgates of supply in this decade with very loose rules, then where is this hydrogen all going to go? Right. The end uses that are the most primed to go, unfortunately, today are the ... Barring, replacing existing hydrogen with cleaner, which is good. It's all these other bad end-uses, including blending, because steel and other good end uses aren't quite commercially viable just yet. So all this to say the hubs are going to be a big end-use driver. Public procurement tools are really interesting.

So the federal government is one of the largest buyers, for instance, of steel for public infrastructure projects. There's a lot of money in the IRA now for the federal government to clean up some of their cement and steel and so on that they purchase. If there is a procurement for green steel that is hydrogen derived, then that's really interesting. Right. You're trying to create a very strong, stable demand signal, and we're seeing some states like Colorado, Illinois, Pennsylvania starting to contemplate state-specific tax credits focused on using hydrogen in specific end uses. I'm not going to get behind those proposals.

They're not great, but I think it's the right kind of thinking, right? Let's start trying to be more targeted with where we're driving this resource in the economy.

David Roberts

Right. So you're saying if we're going to sort of jam an enormous amount of supply into the system really quickly, we should also implement some demand-side policies to guide the hydrogen thusly produced to its highest and best uses?

Rachel Fakhry

Absolutely. We have to be very cautious about where we're using it and divert it to the right places, for sure.

David Roberts

Okay. Goodness, that's a lot. It just goes to show in the energy world, you're like, clean hydrogen. Let's do that. And then so many devils in the details.

Rachel Fakhry

I'm hoping this was less wonky than Eric Gimon, whom I have utmost respect to, but even my mind was turned into a pretzel listening to that episode.

David Roberts

Yeah, I think we hit a nice, good middle spot. This is like the 301 class. More than the 101, but less than the grad seminar. That's my aspiration.

Rachel Fakhry

That's where students either drop or ...

David Roberts

The ones who can get past this pod. They're definitely headed for expert expertise. Rachel Fakhry of NRDC, thank you so much for coming on and talking through this all so plainly and simply and clearly. I super appreciate it.

Rachel Fakhry

Thanks so much, Dave.

David Roberts

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

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

(PDF transcript)

(Active transcript)

Text transcript:

David Roberts

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

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

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

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

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

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

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

John O'Donnell

Thank you. It's a great pleasure.

David Roberts

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

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

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

David Roberts

Right. Heat is a bigger category than that.

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

David Roberts

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

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

John O'Donnell

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

David Roberts

No offense, John.

John O'Donnell

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

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

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

David Roberts

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

John O'Donnell

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

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

David Roberts

Right. All the conversions.

John O'Donnell

Yes.

David Roberts

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

John O'Donnell

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

David Roberts

Got it.

John O'Donnell

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

Right.

Which would be the most expensive thing.

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

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

David Roberts

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

John O'Donnell

Exactly.

David Roberts

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

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

John O'Donnell

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

David Roberts

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

John O'Donnell

Exactly.

David Roberts

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

John O'Donnell

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

Right.

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

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

David Roberts

Yeah, and I presume low losses too.

John O'Donnell

Yeah, that's right.

David Roberts

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

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

John O'Donnell

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

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

There's an interesting synergy.

David Roberts

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

John O'Donnell

Fast, charge. Yeah.

David Roberts

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

That is wild to me.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

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

David Roberts

Right.

John O'Donnell

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

David Roberts

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

John O'Donnell

Exactly.

David Roberts

... as you put in the hydrogen.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

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

David Roberts

They just require a lot of engineering to contain.

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

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

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

David Roberts

Is that Indora?

John O'Donnell

Antora.

David Roberts

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

John O'Donnell

Light.

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

I don't.

John O'Donnell

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

David Roberts

Lithium-ion batteries, you mean?

John O'Donnell

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

David Roberts

Crazy.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

David Roberts

Right.

John O'Donnell

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

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

David Roberts

Of course.

John O'Donnell

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

David Roberts

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

John O'Donnell

That's right.

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

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

John O'Donnell

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

David Roberts

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

John O'Donnell

That's exactly right, yeah.

David Roberts

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

John O'Donnell

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

David Roberts

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

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

John O'Donnell

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

David Roberts

Got it.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

That's right.

David Roberts

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

John O'Donnell

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

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

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

David Roberts

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

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

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

Interesting.

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

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

That's right.

David Roberts

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

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

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

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

David Roberts

Good grief.

John O'Donnell

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

David Roberts

An enormous opportunity to build more renewable energy.

John O'Donnell

Yeah.

David Roberts

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

John O'Donnell

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

David Roberts

Right.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

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

David Roberts

Right.

John O'Donnell

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

David Roberts

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

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

John O'Donnell

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

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

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

David Roberts

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

John O'Donnell

That's right.

David Roberts

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

John O'Donnell

That's what negative prices means.

David Roberts

That's so mind-blowing.

John O'Donnell

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

David Roberts

Yeah. That's just crazy.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

Yeah, we agree.

David Roberts

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

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

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

David Roberts

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

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

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

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

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

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

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

What else could we do with heat batteries?

John O'Donnell

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

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

David Roberts

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

John O'Donnell

That's right.

David Roberts

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

John O'Donnell

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

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

David Roberts

Right. All the filters and whatnot.

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

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

John O'Donnell

That's right.

David Roberts

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

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

And it's already there.

John O'Donnell

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

David Roberts

Interesting.

John O'Donnell

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

David Roberts

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

John O'Donnell

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

David Roberts

Is that, no limit?

John O'Donnell

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

David Roberts

Interesting.

John O'Donnell

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

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

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

David Roberts

Right?

John O'Donnell

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

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

David Roberts

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

John O'Donnell

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

David Roberts

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

BIPOC communities are most likely to bear the effects of climate change, but BIPOC-led environmental justice groups are severely underfunded in climate philanthropy. In this episode, Abdul Dosunmu of the Climate Funders Justice Pledge talks about his group’s aim to challenge big donors to give more equitably.

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David Roberts

Whether it’s suffering the effects of fossil fuel pollution or fighting back against it, black, indigenous, and people of color (BIPOC) are on the front lines of climate change.

Yet they are starved for resources. More than a billion dollars a year goes toward climate philanthropy, but of that amount, little more than 1 percent goes to BIPOC-led environmental justice groups.

The two-year-old Climate Funders Justice Pledge, run by the Donors of Color Network, is trying to change that. It challenges big donors to a) be more transparent about where their grants are going, and b) within two years of signing the pledge, raise the amount going to BIPOC-led groups to 30 percent.

The pledge, featured in a just-released report from Morgan Stanley and the Aspen Institute on how to increase the impact of climate philanthropy, has already led to more than $100 million in annual commitments to BIPOC-led groups.

I talked with Abdul Dosunmu, who runs the pledge campaign, about why BIPOC leadership is important to the climate fight, how transparency changes the behavior of foundations, and how to improve the relationship between environmental justice groups and big funders.

Alright. Abdul Dosunmu. Welcome to Volts. Thank you so much for coming.

Abdul Dosunmu

Thank you so much for having me.

David Roberts

This is an interesting topic to me with lots of ins and outs, but let's start with just, I'd like to get a sense of what is the pool of philanthropic money available to climate and environmental organizations? And then how much of that currently is going to EJ groups?

Abdul Dosunmu

The Morgan Stanley-Aspen report, that we were honored to be part of, and was just released really details a stark challenge in terms of what the author of the report, Randall Kempner, says is both the quantity of climate philanthropy and the quality of climate philanthropy. So, on the quantity side, according to the report, only about 2% of all global philanthropy is focused on climate.

David Roberts

That's wild to begin with, honestly.

Abdul Dosunmu

Insanely wild. And what's interesting about that, what's hard to square about that is the fact that if you ask philanthropists how urgent the crisis is, 85% of them say it's extremely urgent. So they're talking one game but walking another game.

David Roberts

Right.

Abdul Dosunmu

So, of all global philanthropy, only about 2% is focused on climate. And then of that 2%, only about 1.3% of it is focused on BIPOC-led environmental justice organizations. So if you think about the quantity versus quality framework that Randall has, the Morgan Stanley-Aspen report is really focused on the quantity side of it. The climate funders justice pledge, which I lead, is focused on the quality side of it.

David Roberts

Right. We'll get to that in just one second. I got a bunch of questions about that, but I just want to in terms of quantity, do we know that 2% that goes to climate related stuff. Do we know what that number is? I don't have any sense of scale at all.

David Roberts

Is that a billion dollars? A few million?

Abdul Dosunmu

So our data, and I'm not sure Randall goes into this in the report, but our data is really focused on about 1.3 billion or so of climate funding.

David Roberts

Got it.

Abdul Dosunmu

So we're looking at single digit billions. But we also know that in recent years, frankly in recent weeks, that number is steadily escalating as new Climate Funders come onto the scene with last names like Bezos, and Powell, Jobs, and others. And so we really don't have a solid sense of what that new number is.

David Roberts

Right.

Abdul Dosunmu

But in terms of the 1.3% number that we focus on at CFJP, we're looking at about 1.34 billion of that which was awarded to National Climate Funders. And of that, only about 1.3% is going to BIPOC-led environmental groups.

David Roberts

So that's less than 20 million. Say something in that neighborhood, right?

Abdul Dosunmu

Absolutely.

David Roberts

One other distinction on this is I know that there is giving that gets categorized under EJ activities, which is separate from money actually going to EJ led groups.

Abdul Dosunmu

That's right. So that's a critical distinction, and you've really just jumped in on the core part of the work that I do. We believe that it's important that EJ work is funded when it is BIPOC-led just as much as it's funded when it's not. And currently what we have is a system where EJ work led by communities of color, conceptualizing communities of color is not funded at the same scale that other work might be funded. And the reality of that is that there are deep consequences because as we often say, the communities that are closest to the problem are closest to the solutions, but they're also the furthest away from the resources.

David Roberts

So let's get right into that then. I guess probably a lot of listeners will take this as self-evident, but when you go to big funders, people sitting on big endowments and stuff, and you are trying to make the case that BIPOC-led groups are important to tackling climate change, what's the case? What's the evidence? What do you tell them?

Abdul Dosunmu

Well, we start with a basic concept that says that the climate does not discriminate, people and systems do. And the reason we start there is that we really want to drive them to the data that most of your audience will probably be familiar with around the fact that most frontline communities, the communities that are hit first and worse by the effects of climate change are Black and Brown communities. Most fenceline communities are Black and Brown communities that when it comes to the ways in which this crisis is manifesting itself on the ground and in people's lives, it disproportionately impacts BIPOC communities. So we start there.

That if you're actually interested in mitigating the effects of this crisis, by necessity, you would start with BIPOC communities, right? The second piece is if you're actually interested in shifting the systemic landscape that has led to this crisis, you would start with BIPOC communities. And here's what I mean by that. Power differentials in society is what has created the condition for exploitation, extraction, and pollution. It's the power differentials that have created the foundations of this crisis. It's the fact that certain communities have been politically disenfranchised and subjugated and those are also the communities that have been impacted by environmental exploitation and extraction.

David Roberts

Yeah, I feel like this is an important point because sometimes what you hear from, I don't know that they'll say it publicly a lot anymore, but sometimes what you hear in private from climate people is climate is about emissions. And we should attack emissions, right? We should be lowering emissions. And insofar as you are being distracted by other social, like you're mixing your ice cream of peanut butter or whatever, like you're letting your social issues get involved in your emissions issues, you're just going to be less effective at reducing emissions. I think that mindset still has quite a hold on quite a few people.

So this point that they're linked is important, I think.

Abdul Dosunmu

You said. You don't know if people will actually share it publicly. I hear it almost every day.

David Roberts

So they still do say it publicly.

Abdul Dosunmu

They still do say it publicly.

David Roberts

Right, that there is a sense that you can somehow disconnect the climate crisis from the social and racial inequities that exist in our society, when in fact, the communities that have been the most exploited and the most extracted have been communities that have been denied political voice, right. And they've been BIPOC communities. I often tell the story of a neighborhood in my hometown, Dallas, Texas, called the West Dallas neighborhood. And it's largely Black and Brown, historically has been as a result of housing segregation. And this community was home for 50 years to a lead smelter plant. And this lead smelter plant obviously polluted the environment.

Abdul Dosunmu

It also poisoned generations of young Black and Brown kids growing up in that community. And it was the political powerlessness of that community, it was the political subjugation of that community that allowed that lead smelter plant to operate with impunity for 50 years. And this is the critical point that we make. It was the rising up of that community. It was the mobilization of that community that ultimately booted that lead smelter plant from the community. And so it's important for us to see that these things are linked

David Roberts

Just to sort of restate, the whole problem of environmental pollution generally, including climate, is this ability to basically produce waste and impacts that you don't pay for.

Abdul Dosunmu

That's right.

David Roberts

But you can't do that unless there's some community that's disempowered enough that it can't stop you from doing it, right? I mean, the whole setup relies on there being disempowered communities that have no choice but to accept this junk.

Abdul Dosunmu

That's exactly right. I have a dear friend in the movement, Felicia Davis from HBCU Green Fund, who says we don't just have a climate crisis, we have a power injustice crisis.

David Roberts

Right. And relatedly, I think, another old piece of conventional wisdom, though, this I think has been changing in recent years. But if you go back I've been doing this for close to 20 years now, and if you go back like 15 years, I think the sort of conventional wisdom was climate is something that educated, affluent, White people worry about because they have the luxury and time to worry about it. And BIPOC communities, vulnerable communities, EJ communities have other things to worry about that are more proximate and more difficult and they don't have time to worry about climate change.

And thus those communities are not going to be a big part of a social movement for climate change. And of course, now the data shows that that's wrong, like almost inversely wrong. So what is the level of kind of knowledge and engagement among these communities on the subject of climate change?

Abdul Dosunmu

Well, and this is a key point that I like to make. The first part of that that I would like to deconstruct is this notion that climate is separate from the other issues that impact these communities, right? That in many ways, part of the innovation and the imagination that these communities are bringing to the fight is to recognize the interconnections between climate and housing, climate and labor policy, climate and transportation, right? That they are uniquely positioned to see that climate is connected to a whole range of other systems that decide and define how we live. So that's part of the deconstruction that has to be made.

David Roberts

And you might also say that a White affluent businessman is uniquely positioned to want to not see those interconnections, right? Like there's a lot of incentive not to see them if you benefit from them, basically.

Abdul Dosunmu

Right. There is a desire to focus the fight against the climate crisis on a little intervention here, a little technology here. And the reality is that the crisis is the result of systems that shape how we live. And in order to fight the crisis, we've got to actually change those systems, right? And communities of color are uniquely positioned to be able to understand that and to lead that fight.

David Roberts

And that shows up in the data, and surveys, and polls and stuff. Do you feel like that sentiment, that knowledge is pretty widely dispersed in those communities at this point?

Abdul Dosunmu

Oh, absolutely. I think one of the things that we do at CFJP is we actually look at and profile a lot of the movement work that is happening on the ground in communities. And so we're not just talking at a level of theory, we're talking at a level of understanding the movements that are being led by communities of color. So there is a reason that billions of tons of greenhouse gas emissions are disrupted every year by indigenous organizers. There is a reason that it was the BIPOC-led organizations that pushed President Biden on Justice40, and that conceptualized the New Jersey and California environmental justice laws that preceded Justice40.

There is a reason that the Climate Justice Alliance, for instance, has had a massive impact on shifting away from extractive energy practices. And so it's important for us to see that we don't need a poll to tell us, all we need to do is look at the work and the organizing that is happening in these communities and see the ways in which it is moving the needle on this conversation.

David Roberts

Yeah, and I'll just say, from my perch, my perspective, like, I remember when the climate bill was being put together back in 2008 and 2009, I don't know if you were unfortunate enough to be in this area when that was happening, but EJ was it wasn't absent, but it was clearly an add on, right? It was like an amendment. It was like a thing you stick on at the end as an afterthought. And it's been remarkable to me just to see, over the years, EJ just becoming much more assertive and having a much bigger place at the table.

David Roberts

To the point now that the Democratic, official sort of Democratic Party climate agenda has it right there at the core, and it's included in a lot of these Inflation Reduction Act grants. So it's like night and day in terms of the engagement on both sides. To me, obviously there's a long way to go, but I've seen the change.

Abdul Dosunmu

That's absolutely right. And that change was led by BIPOC-led organizations. And here's why that's important, right? Obviously, you know this better than I do. We're dealing with a movement that has historically excluded and alienated the voices of People of Color. And there are organizations out there that are doing this work around diversity, equity, and inclusion in the environmental movement, right? And the data has never been good. It's always been bad. And here's the core point that we make. I draw an analogy. One of my favorite football teams, I'm a great Texan, I'm a great Dallasite.

So the Dallas Cowboys, what we're doing right now in the climate movement is the equivalent of the Dallas Cowboys finally making it to the Super Bowl but fielding only about a 10th of a team on the field. That's what we're doing right now in the movement. Our best players, our most imaginative players are not on the field because we have historically excluded them.

David Roberts

Let's talk about that. So the Climate Funders Justice Pledge, what is it specifically? What is it asking of large philanthropies?

Abdul Dosunmu

So it's pretty simple, which is not to say that they always receive it as such.

David Roberts

Not easy. Easy and simple are different.

Abdul Dosunmu

Easy and simple are different. But it's pretty simple. It says two things. Number one, it says commit to transparency. So we call on the nation's top climate funders, primarily institutional funders, so we're talking foundations, big foundations to commit to transparency, right? And what that means is we ask them specifically, "how much of your current climate giving is focused on BIPOC-led environmental justice organizations? Not just environmental justice organizations, but BIPOC-led EJ organizations." And we define that very concretely.

We say 50% of your board has to be People of Color, 50% of your senior staff has to be People of Color, and you have to have an explicit mission of serving communities of color. So how much in dollar amounts of your current climate giving is going to BIPOC-led environmental justice organizations? That's a transparency component.

David Roberts

And that information is not available today.

Abdul Dosunmu

It's not easily available. And to be honest with you, most funders have not asked themselves those questions, right?

So one of the things that has been a learning journey for us is actually getting feedback from funders that have taken the pledge. And what they tell us is that for them, the most transformative part of it has been the transparency component because they had never actually looked at the data.

David Roberts

I bet they're not finding out good things, right? They're not pleasantly surprised.

Abdul Dosunmu

No, they're not. In the main, they are not pleasantly surprised. I mean, the data is what it is, right, nationally. And part of what we wanted to do with this pledge is we wanted to make that data available to communities and movements so that they could actually hold these funders accountable, right? And so that the funders who are committed to environmental justice can hold themselves accountable. So it matters that a Kresge Foundation, for instance, says, "you know what, what has been most imaginative about this for us is that it has forced us to go internal and look at our data."

So that matters. And we don't just ask for the data, and hoard it, or put it in a report that we release annually. We actually post that number on our website. So if you go to our website, you can find that number for each of the funders that have taken the pledge. And then we do a whole bunch of media amplification around it because we actually want communities to organize around this data.

David Roberts

What's a typical number, like Kresge or whatever, once they looked, what are they finding?

Abdul Dosunmu

Well, Kresge is actually, they're an anchor pledger of ours, which is great. And I don't want to misquote their number. If I'm remembering correctly, they were under the 30%, probably in the 20s range. And it's important to note that, again, they have had this as a commitment for a very long time. So actually challenging them to, "okay, let's look at the data," has been super helpful for them.

David Roberts

Interesting. Okay, so transparency is step one.

Abdul Dosunmu

Step one is transparency. And I actually looked at the number. They're actually at 33%. Let me give Kresge their credit, they're at 33%.

David Roberts

I'm going to guess that's unusually high.

Abdul Dosunmu

They are one of the leaders in the field, no question about it. It is very high for the pledgers that we have, and they are making continued strides. So the transparency piece is very important because it allows us to have conversations like this one. "Where is this funder? Where is that funder, and how can we hold them accountable to the commitments that many of them have?" Right? So let me just put a pin in this and say after George Floyd, we saw a number of funders make new commitments around environmental justice, around BIPOC communities. And in the couple of years since, we've seen most of those commitments fade into the background, right?

And so this has become a tool that communities can use to actually hold funders accountable to what they say they're going to do.

David Roberts

Got it.

Abdul Dosunmu

And then the second component of the pledge is the 30% requirement. So what we say is after you tell us your number, if you're not at 30% and a good number or not, we challenge you to within two years of taking the pledge to get to 30%. So scale your grant making to at least 30% going to BIPOC-led environmental justice organizations over the course of two years.

David Roberts

Can I ask where 30% came from? I mean, is it just sounds reasonable or is there something more to it than that?

Abdul Dosunmu

You know, if you look at it, BIPOC communities, about 40% of the population, what we said was 30% seems like a good floor. It is not intended to be a ceiling. And what we hope to see is that over time, that number is far exceeding 30%. But at least as a floor, 30% felt right to the networks of movement organizers and leaders that we pulled together to help develop this campaign.

David Roberts

And so this funders pledge has been going on for how long, and what's the state of play? Are foundations signing on? How much money have you shifted? How long has this been running?

Abdul Dosunmu

So you're talking to me pretty much on the eve of our two year anniversary. And so we've been around for a couple of years. And to date, twelve of the Top 40 climate funders have taken the pledge.

David Roberts

Interesting.

Abdul Dosunmu

32 foundations overall have committed to at least one portion of the pledge. And so some of them will say we'll do transparency, but we're not quite ready to go to 30%.

David Roberts

Right.

Abdul Dosunmu

And we accept that because sunlight is the best disinfectant.

David Roberts

Yeah, I think you're right that transparency is the big piece here. It's like that dream where you wake up in school, and you're naked in school or whatever, all of a sudden everybody can see ... that alone, I think is going to create a lot of push.

Abdul Dosunmu

Right. Nobody wants to be at the bottom of the list, right. Nobody wants to be in single digits when everybody else is in double digits. And the ones who are in double digits, like Kresge, they want to do better, right? They want to get more shine. They want to tell their story, more impactfully. And so we offer the transparency piece not just as stick, but also as carrot to those who are doing well in this fight, and want to help us tell the story, and amplify the mission. And so what we have seen is that there is momentum around the pledge.

And we're very proud to say that we have helped to catalyze a new baseline, funding baseline through the pledge for BIPOC-led organizations of around $100 million in the two years that we have been around. But $100 million is really just a drop in the bucket because right now we're seeing, again, as I said earlier, new funders come into the field every single day.

David Roberts

Well, this was my very next question, is do we have any sense of what sort of dollar figure we would be talking about if this succeeded, if all the big philanthropies signed on, and if all the big philanthropies actually did it? Do we have any idea sort of like, what the ultimate pool of money is?

Abdul Dosunmu

So I don't have that hard number, but I can tell you that our campaign has a goal, right? An aim of catalyzing $500 million. So if we could get to $500 million, we feel like we would be radically transforming the possibilities for BIPOC-led environmental justice organizations. But that's going to require that we make the transition, the pivot, from what I would call the legacy funders, right? So legacy funders like Pisces, and Kresge, and Schmidt, and Rockefeller Brothers and Hewlett and ... a number of the ... MacArthur, a number of the others that have Heising-Simon's Energy Foundation, Packard Foundation, a number of those that have taken the pledge.

We've got to make the transition from just those to now some of these more entrepreneurial startup funders in the space, like a Bezos, like a Waverley Street, like a Sequoia.

David Roberts

Have you talked to any of them? I mean, I assume you're reaching out. I guess one of the questions I'm sort of curious about is, is there a big difference in culture that you found between these established groups and the new ones coming in?

Abdul Dosunmu

There is. We are outreaching every day to the new funders. One of the reasons I make the distinction between legacy and entrepreneurial is that when you're a legacy funder, you have deeper roots in communities because you've been funding them for a long time, or at least you've been giving lip service to funding them for a long time, right? And so you're more susceptible to their accountability, right?

David Roberts

Right.

Abdul Dosunmu

You're more accountable to them than a new funder who's coming in, who is somebody who's made a bunch of money in tech and just wants to give it away out of a good spirit and a good heart. But there isn't the same level of connectivity there to communities, and so that has been the biggest challenge. And then the other piece of this is when you're an entrepreneur and you've come in right on the heels of having made a lot of money, a lot of money in business, you tend to think you know how to do things.

David Roberts

What? Tech guys?

Abdul Dosunmu

I know, it's a crazy thought, right?

David Roberts

Yeah. I was going to say I don't want to cast aspersions, or use any stereotypes, but when I think about tech-bros fresh off making billions of dollars like sensitivity to racial justice is not what leaps to mind.

Abdul Dosunmu

Well and they may have the sensitivity, some of them, but they also have the kinds of neurosis that come from having made a lot of money and been very successful, and you think you kind of know everything, right? And so oftentimes they will come into the field and say, "here is what I want to do on climate," and it has no relationship to what communities actually are doing and need to do. That's really probably the biggest culture challenge that we face is that it's both the accountability piece, and it's the part of this that understands that, ultimately, this is a learning experience both for the funder and for the broader field. This is not top down, it's bottom up, and the best solutions come from the bottom up.

David Roberts

As you've talked to foundations, have you received any straight up kind of disagreement about your goals?

Abdul Dosunmu

Well, we mostly don't get that, right. We mostly get, "well ... we're going to work on ... " That's my impersonation. "We're going to work on it, and we're going to see, and talk to us in six months and ..." that sort of thing. But every now and then you do just hear "no, we're just not going to do it."

David Roberts

Right.

Abdul Dosunmu

But generally that doesn't come from a disagreement with the goals or the objectives of the campaign because it's hard to disagree with the goals and objectives of the campaign. It generally comes from a sense of, "you know what, this is just not part of our agenda. This is not what we do, and we're not going to have anybody external to our organization directing our strategy."

David Roberts

Yeah.

Abdul Dosunmu

And so that's generally where most of the resistance comes from.

David Roberts

If you imagine a huge new flood of money descending on these groups, over the course of the next two or three years, you can imagine ways that that could go poorly. That's a big disruptive thing. And one of the things I was thinking about is when you talk to these small groups, often what they'll tell you they need is just operating expenses. Like they need to be able to pay decent salaries, right? Just to begin with. Trying to run a whole movement on underpaid people is difficult, and they need sort of just like cost of living, cost of operations, operations money.

Abdul Dosunmu

Right.

David Roberts

And what you often find, or what they tell me they run into when they talk to funders is, of course, funders are wealthy, and therefore overestimate their own cleverness, and often have their own ideas about what they want groups to do. So I worry, like, is this going to be the right kind of support? And you can certainly imagine a big new pot of money coming with a bunch of sort of big footed demands about how these groups do things, right? Like, you can imagine big funders trying to sort of dictate the strategies of these groups rather than listening and learning from them.

So I don't know how you go about, I mean, I don't know exactly what I want you to say in the switch, but are we confident that this support is going to be the kind of support that these sort of small struggling groups need most?

Abdul Dosunmu

Right. You are really touching on a critical part of this that our campaign is going to be doing more work on. It hasn't been a core part of it thus far because we really see ourselves as the accountability mechanism in the field, but we do think there's an opportunity for us to engage on these questions. So to start, what we really need is a shift in the culture of philanthropy, right? And so part of that shift is a shift in the "philanthropy knows best" mindset. And we've been talking about that. Part of that shift is a shift in the desire of philanthropy to really dictate all of the terms of engagement. And they do that primarily by focusing most of their grant making on program grants.

Right.

And so you might get a grant to run a specific program, but you're not going to get a grant to actually scale your organizational capacity.

David Roberts

Right. This is a notorious complaint from nonprofits across the board from time immemorial, right. They're like, we can get a grant to do a specific thing, but we just need, like, printer paper,

Abdul Dosunmu

Right! "We can get a grant to do a specific thing, but we need to hire people to do the thing, and we need to be able to offer them insurance, health insurance, and we need to be able to keep the lights on in the building." And that is a part of this conversation that, again, we have not touched on, but we see there's an opportunity for us to touch on as we continue to move forward. So those are really the two of the areas where there's room for additional intervention. The other thing I'll say is this. It's a bit of a vicious cycle that these groups are in because they don't get the funding, so they can't build the capacity. And because they don't have the capacity, that lack of capacity is used as a pretext to deny them more funding, right?

So it's a vicious cycle. And now we're in a moment where there's some $500 billion coming down from the federal government, on climate related resources. And a lot of that is sort of focused on, or earmarked on a climate justice lens. And we're happy about that, right? We fought for that, the movement organized for that. But the concern that we have now is that because of this disparity in funding and private philanthropy, many of the organizations that are BIPOC-led, that are going after these grants won't be able to successfully compete because they've been locked out of the private funding, right?

And so a lot of work is being done on the ground, and movements, and organizations to actually try to help organizations build capacity over time to be able to compete for these new dollars that are coming down and to actually be able to fulfill the spirit of Justice40, but we need more funding to do that, and the private funding market is critical.

David Roberts

Yeah. And another thing I've heard from these groups, these are most often pretty small under-resourced groups. And another thing I've heard is that even the process of applying ...

Right ...

For these things, is burdensome, and difficult, and expensive. Like, if you're a two, or three, or four person operation, it's nothing for a Kresge to sort of send someone out to hear your pitch. But for you to make the pitch is a lot of hours of labor which you can't really well afford. And I've heard from groups where they say, they'll come consult with us and ask us how to do better in their EJ funding and et cetera, et cetera, and we make these elaborate presentations and then they vanish and we never hear from them again.

So I just wonder, are there broader ... you could imagine a regime where a big wealthy funder pays some small stipend to a group to offset the cost of consulting, the sort of free consulting they do, or the cost of applying for grants or something like that. And that would just be can you think of are there larger ways that we need to change the relationship between small EJ groups and big funders, beyond just the monetary beyond just giving them money, in terms of just the kind of social aspects and cultural aspects of their interaction? Are there larger reforms we need in that aspect?

Abdul Dosunmu

How much time do we have?

David Roberts

I thought you might have something to say about that.

Abdul Dosunmu

Right. I have the privilege of wearing a bunch of hats in my work.

David Roberts

Yeah, I meant to say, I read your LinkedIn page. I had to take a nap halfway through. You're a busy man.

Abdul Dosunmu

I'm a busy man. I do a lot, and I sit across a lot of different buckets, right. And so on the CFJP side of things, obviously, I'm wearing a bit of a philanthropic hat. We don't necessarily consider ourselves philanthropy, but we're not movement. We're somewhere in between, right. But we definitely wear a philanthropic hat. And then in my other work, I actually lead a grassroots voting organization of Black lawyers and law students. And so on one side of my work, I am challenging funders to do more. And then on the other side of my work, I am living every day the ways in which this system is inequitable toward founders of color and leaders of color.

And so I see this from both sides. Really, I think the first place to start in this conversation is with a conversation. And so typically the exchange between funder and organization is a one-way conversation, right. It's a one-way street.

David Roberts

Yeah. Speaking of power differentials.

Abdul Dosunmu

Exactly. These broader power differentials in society are being replicated in how foundations engage with organizations. "And so you can apply for a grant if we invite you to apply, we want it in this 60-page application format."

David Roberts

And then you get the grant. And like we need a 60-page report every year.

Abdul Dosunmu

That's right, "we need the 60-page report every year. Oh, and by the way, you probably won't get the grant in time to actually do the work you need to do with it because we're going to take our time delivering the grant to you, and you interface with us and interact with us when we invite you to."

David Roberts

Right.

Abdul Dosunmu

That has to change. And so part of the culture change that you're talking about that so many organizations are advocating for, starts with making that one-way conversation, a two-way conversation, and actually listening to organizations on the ground and having those organizations inform your grant making practices, right?

So let me go back to Kresge for a minute. One of the other things that they have said to us has been impactful for them is actually the transformation that the pledge has wrought in their grant making practices, in their day to day grant making practices, and how they engage, and how they interact with grantees.

David Roberts

So that just means they've been learning by doing, they've been learning by interacting with these groups?

Abdul Dosunmu

That's right. That's right. Absolutely. And we've heard that from multiple funders. And so really what has to happen is that the funder has to become a learner, right. And that's what we're pushing through this pledge. We're challenging funders to become listeners and learners and actually hear from the organizations on the ground about what needs to change in their grant making practices in order to be more equitable. And a lot of them are making changes. I think that's really where this starts is the conversation, shifting it from one-way to two-way.

And one of the things, by the way, that we have tried to do is that a number of these funders have said, "well, how do I actually get this data? How do I actually get the demographic data information? How do we kind of navigate that?" And what we have done is actually provide resources for them, so that when they're seeking out this data, they're not creating more layers of burden on these groups, right? So we have tried to incorporate that even into our own program.

Right, so these groups don't have to sort of do another report on our demographic makeup, et cetera, et cetera. So that's a little bit more public. And it also occurs to me I mean, maybe this is even too obvious to point out, but it also occurs to me that it would be nice if these big funders going to these groups were not like 18th century British royals visiting the islands like strangers in a strange land. Like, it might be nice if they were composed if the makeup of the actual big funders changed.

Well, there you go. There you go. I mean, you've made exactly one of the critical points, which is that the work that Green 2.0 and so many other organizations are doing to actually change the makeup of these funders is directly connected to our work. Because you're absolutely right. You should not be visiting these communities as though you're visiting from Mars. You should have people on staff in senior positions who are deeply rooted in these communities, that know the work that's happening, that know the challenges facing these organizations and are directly invested in this work, right? Part of what I have seen in the time that I've been doing this work is that there are so many brilliant folks across the country who are directly and deeply invested in this work, and they are the people who have been laboring in obscurity.

They are the people who've been laboring without resources. And in order for this system to change, the system of philanthropy to shift, part of what we've got to do is bring those voices from the outside in and make sure that they actually have the ability to transform these funding institutions. And that last point is critical because it is not enough to have People of Color faces in high places if they do not have the ability to actually engineer change.

David Roberts

I used to work for a nonprofit. The first journalistic organization I worked for, Grist, was a nonprofit. And especially back when I first started, we were very small. There's like four or five of us. So I became intimately familiar with the grind of begging foundations for money. Luckily, I didn't have to do that part for long, but I saw enough of it. And one thing that just struck me immediately and overwhelmingly is that we were an organization that was specifically targeting young people. We wanted to be sort of irreverent, and funny, and just all these kind of things that appeal to young people.

But the people we're talking to and begging for money are, to put it bluntly, White boomers. They're older White people who are not necessarily who you'd go to to learn about what the youth of today want out of a journalistic outlet, right? And so I wonder if you have gotten any sense that younger people in general are hipper to this issue than their elders?

Abdul Dosunmu

In some ways, yes, and in some ways, no, right. And so what's clear is that younger people just generally understand the climate crisis better than their elders. So we start there, right. You have less of a case to make to younger folks about the urgency of this crisis, but I think it's important for us to be clear that when it comes to age, that does not necessarily portend more enlightenment on racial justice issues.

David Roberts

Yes.

Abdul Dosunmu

Again, I work in sort of the democracy space, and I think there's always this assumption that the younger the electorate gets, the more progressive it's going to get, just because younger people have grown up in more diverse environments. On some level, I think that is true, but I would not want to bet the house on that. And I think we have to continue to be more intentional about cultivating, even among younger people, an understanding of the racial justice implications of this crisis. And so, as a case in point, I was in Miami for the Aspen Climate Conference last week.

David Roberts

Yes.

Abdul Dosunmu

And I did a number of panels during the week, and most of the programming had a climate justice angle to it, right. Most of the speakers referenced it. It was rare that you would sit through an hour long panel, and it wouldn't come up.

David Roberts

Right.

Abdul Dosunmu

But I'll be honest, there were still rooms that I walked into where I was the only Black person in the room. And I don't want to put any blame on anybody. This is not me trying to do that. This is not about assigning blame. But it is about recognizing that even among the cool, hip kids who are invested in the climate movement, that investment in racial justice still needs to be intentionally and actively cultivated. And we cannot assume that it is going to happen by osmosis.

David Roberts

Right.

Abdul Dosunmu

Or that it will happen just because younger people are younger people, right.

David Roberts

Just because the arc of history right.

Abdul Dosunmu

The arc of history is long, but it bends towards justice. I firmly believe that. But I also believe that we have to bend it.

David Roberts

Yeah, there's a reason it bends towards justice, because all the people are working to bend it, right?

Abdul Dosunmu

All the people are working to bend it. And so I think there is more consciousness than ever about climate, and there's more consciousness than ever about racial justice, but we still have to do the work to actually translate that consciousness into action.

David Roberts

Well said. Well said. Thank you. Abdul Dasumo, thank you so much for coming on. This is very illuminating. I'm glad you took the time.

Abdul Dosunmu

Thank you so much for having me. Thank you for the platform. It was an honor to be with you.

David Roberts

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

In this episode, Erik M. Conway discusses his new book The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market, coauthored with Naomi Oreskes.

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Text transcript:

David Roberts

In 2010, historians of technology Erik M. Conway and Naomi Oreskes released Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming, a book about weaponized misinformation that proved to be extraordinarily prescient and influential.

Now Oreskes and Conway are back with a new book: The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market. It's about the laissez-faire ideology of unfettered, unrestrained markets, which was invented and sold to the American people in the 20th century through waves of well-funded propaganda campaigns. The success of that propaganda has left the US ill-equipped to address its modern challenges.

On March 8, I interviewed Conway at an event for Seattle's Town Hall, where we discussed the themes of the book, the hold free-market ideology still has over us, and the prospects for new thinking. The organizers were kind enough to allow me to share the recording with you as an episode of Volts. Enjoy!

Megan Castillo

Good evening, everybody. My name is Megan Castillo. I'm Town Hall's program manager. On behalf of the staff here at Town Hall Seattle and our friends at Finney books, it's my pleasure to welcome you to our presentation with Eric Conway and David Roberts. Conway's new book, "The Big Myth," is the subject of tonight's talk. Please join me in welcoming Eric Conway and David Roberts.

David Roberts

Hey, everybody. Thanks. I'm just going to jump right in. Several things I'd like to get into, but just to start, one of the things that really the book really gets across well, I thought, which I don't know that I fully appreciated, is the extent to which this idea of unfettered, unregulated free capitalism is an invention of the 20th century. It's not what capitalism ... the founders and architects of capitalism, it very much goes against their larger philosophy and their larger kind of moral sentiments. And the way it does this is by elevating property rights, basically trying to they call it the "indivisibility thesis" that property rights and political freedom are one and the same.

And any limitation on property rights is de facto a limitation on political freedom. That's new, that was not original to capitalism. So maybe talk a little bit about property rights and how they sort of what the pivot these groups did with that concept in the 20th century, in the early 20th century.

Erik Conway

Okay, so that's a jump forward from a book that starts with child labor laws in the 19th century. What I think you're bringing up is the tripod of freedom that the National Association of Manufacturers concocts in the late 1930s as part of their effort to undo the New Deal of the Roosevelt administration. And the idea of the tripod of freedom was, if you think about a three-legged stool there's what they would call industrial freedom or business freedom, religious freedom, and political freedom are the three legs of the stool. So if you remove industrial freedom, businesses freedom to do what they want, then the stool falls.

This is a slippery slope argument that equates business freedom with the other two first amendment freedoms. That's what they spent a decade and millions of dollars, 1930s dollars, promoting through billboard campaigns and materials made for schools and movies and so forth in order to try to convince the public that that's the American way, even though it is a pure invention. In the 19th century, of course, lots of business was regulated and the corporate form itself was primarily a tool used by states. States would create a corporation to accomplish a thing like the Erie Canal Corporation to build and run that canal system for the state.

And roads were done this way and so forth. And through a whole complicated process, the corporation sort of slowly gets disentangled from the state in the 19th century so that by 1935, we can imagine corporations that are no longer state functions.

David Roberts

Yeah, one of the wild things is learning that early corporations had to go to states and say, "Can we be a corporation?" And the states would be like justify why? Like tell us why. What public good are you serving? It's just a wild inversion of things. And also another piece of this is, and maybe this doesn't come into it as much until the Austrian economists that get brought over, and I guess this would be in the 60s, kind of 50s and 60s, Hayek and the other one whose name is not coming to my mind. Yeah, but this idea that not only is business freedom core to American freedom but the role of the business person, businessman, I guess they always said back then, is explicitly not to be decent, not to be good, solely to make money.

So the idea is that if you have these like purely self-interested actors, the magic of aggregating them produces social good, but the individual not only has no obligation to do public good with their business or their corporation, in a sense they're sort of like violating the spirit of capitalism if they do it. Which again is like would send Adam Smith rolling in his grave. Only if you could just say a little bit about how they conceive of the morality of the business person or the morality of business and how that changed from what Adam Smith laid out.

Erik Conway

So that invention of what we now call shareholder value we can trace really back to Chicago school economist. It's mostly popularized by Milton Friedman, though he didn't concoct the term. The idea is, in his 1962 book Capitalism and Freedom he takes a more extreme view of that than the Austrian economist did. Hayek, for example, actually thought there was grounds for workmen's rights of some kind and that there were some justifiable kinds of social mitigations of industrial freedom, as did Adam Smith. Yet Friedman's ideals are what take over in the course of the early eighties. I think it's in the 1980s that the idea really takes off around General Electric Corporation.

For example, those of us of a certain age remember Neutron Jack just dismantling General Electric and removing the basic ideas that the company had served in the 30s and 40s, for example, of investing in its community in order to have healthy communities around its plants and so forth. And all that goes away in that era of the 80s. So you can see, for example, in the movie "Wall Street," if anybody remembers that from the 80s, there's a great speech about Teldar paper by Michael Douglas and how it exists only to serve its shareholders. And that's where all the profits should go, and its only social good should be ensuring the continued flow of finance to the shareholders.

And all other good things are supposed to fall out of that, except what else actually fell out of that is workers livelihoods and so forth. It's a fascinating reinvention. In fact, as we begin to bring those Austrian ideas into the US in the 30s and 40s, they become simplified, and they become oversimplified as they're put through the businessmen cycle. Because the businessmen in the United States were simply unwilling to accept even the social protections that Hayek and Adam Smith and so forth had thought were necessary in that decade. And so they commissioned economists to essentially rewrite Hayek.

David Roberts

Globalization goes with this too, because the more you're a multinational company, the less pretense or need you have to pretend like you need to nurture a particular community, right? If one falls apart, you just go find cheap workers somewhere else. Another thing the book really brought home that I did not fully appreciate... I mean, I guess I knew just from being a journalist that business is out there advocating for leave us alone. But I don't think I appreciated the scale and how long that's been going on. I mean, your book sort of describes waves starting in the late 19th century of government would try to do some decent thing.

There'd be a huge propaganda effort against it. Finally, government would win some new protection for workers. Then business turns around, claims moral credit for the protection against workers, and argues against the new thing that's about to happen via billions of dollars of propaganda over and over. There's like three or four waves of this. So maybe just talk a little bit about how extensive this effort was. Like they're going after schools and libraries, morning cartoons. I mean, they really thought it through about how to go wide.

Erik Conway

Well, so we started the book with child labor laws in the 19th century because it's the beginning of the conversion of the National Association of Manufacturers from what had originally been a very protectionist organization. They were founded not at all for free markets, they were founded to promote tariffs, the idea being that tariff walls would protect American manufacturing during the period in which the United States developed. And they begin turning against the idea of government itself around the issue of child labor and workplace safety because those things both threatened to cost the money in various ways. They used child labor in order to reduce wages, and they used well, frankly, they managed to convince the courts that workplace safety problems were actually the fault of the workers and not themselves.

And so there's a long fight by reformers in the United States to both provide better workplace protections and to eliminate child labor that ultimately businesses lose and then basically change their tune and decide that, well, we supported removal of child labor all along. That's sort of the first wave of the story. And that first wave takes it set in in the 1930s and then NAM changes actually kind of fundamentally in the 30s for a very internalist sort of reasons. The National Association of Manufacturers had originally largely represented small businesses, not large. They have a leadership change in the 30s in which essentially they're taken over by large manufacturers.

And then those large and much wealthier manufacturers begin to believe that it's in their interests to try to change the political tone of the United States. And World War II really helps them show how the Roosevelt administration engaged in an enormous public propaganda campaign to support the war. And our manufacturing friends learn a whole lot about how to spread messages. And we don't get into it a great deal in the book because there's so much material. But for example, I pick up with a story of a congregationalist minister in los Angeles becomes quite famous nationwide for setting up an organization known as Spiritual Mobilization.

Spiritual Mobilization's idea was to try to reconvince Americans of the moral basis for free market capitalism and to spread that through the churches. He was a minister. He attracted, of course, the interest of the National Association of Manufacturers, very key to our story. And in particular, one of their leaders by the name of J. Howard Pew, who is president of Sun Oil and Pew, becomes Fifield's biggest backer for spiritual mobilization. Spiritual mobilization operates throughout World War II, actually and into the 1950s. And they tried to develop curriculum to push out into seminaries as well as putting materials out into churches and so forth for free market ideals.

Now, it's important to understand that as a congregationalist, Fifield was a theological liberal and J. Howard Pew was not. He was very much a theological conservative. So he takes that idea in 1946 and he starts founding new organizations to do the same thing but into the conservative churches. And so the Christian Freedom Foundation was one of his creations. Magazine Christianity Today is one of his creations. He attracts Norman Vincent Peale from the first marble church and so on. And he becomes an enormously successful entrepreneur of the idea of shoving free market capitalist views into American religion.

And that's just one thread of the propaganda story that we tell.

David Roberts

Yeah, I was going to say it's creepy enough trying to sort of conflate free market capitalism with America, with America's founding and America's founding values, but then it gets conflated with Christianity. They get merged in a way that only has gotten creepier and creepier over time. I frequently look around today at various and sundry propaganda campaigns still ongoing and wish to myself that the institutions we have set up to seek truth and accuracy, namely academia and journalism, would be more stalwart in their resistance to propaganda campaigns. And it's tempting for people in the present day to say, oh, what's happened to the media?

What happened to the old media? But you read through your book and you sort of realize, like academia and journalism were never particularly they didn't put up a very good fight, let's say, against all this stuff.

Erik Conway

No. Another of the stories we tell again about the breadth of these campaigns, it's around the National Electric Light Association, which doesn't exist anymore. It folded after its propaganda campaign was exposed. This is an organization that existed into the 1920s, like the National Association of Manufacturers. It took up the effort to prevent regulation of the electrical utility industry. And one of the ways they did it was by paying academics to author studies that they could use to prove, quote unquote, "that privately provided electrical power was cheaper and more reliable than publicly provided and produced power." Except there was lots of evidence that that wasn't true for both Europe and Canada, which not only tended to have cheaper electricity rates, but also much more widespread electrification.

One of the things that we've all forgotten by now, because we were almost all, maybe all of us, were born after electrification is completed. But in the United States, electrification stalled at the city borders and it stalled at the city borders for decades because utilities figured it simply wasn't profitable for them to string lines across rural America.

David Roberts

Europe beat us to rural electrification. I don't think I really knew that before I read ...

Erik Conway

Yeah, well, most people have forgotten, but they beat us to rural electrification because they saw it, well, in a couple of different ways. One was program of improvement, but another big one was, remember, there really was a threat of the communists and socialists taking over in Europe, and that was, of course, used as a foil here in the United States, too. But what the European politicians did was they simply decided, well, we're going to take on some of the claims of the reformers and actually do them in order to forestall the revolution. Bismarck was actually pretty successful for a while, and many other of the European countries were successful at more than a little while.

And we kind of tell that story, too. But to answer your question is there were paid academics then as well who were not only not attempting to get at the truth, but were fairly well, I would say that they had already been indoctrinated. They already believed that free market, if you couldn't even say such a thing existed, was the proper way. I would say the better way to say it really is private enterprise is a better way to do it. It's a better frame. One thing I haven't said yet, but I want to make sure I do, is that Naomi and I don't believe there's such a thing as a free market.

Markets are constructs. They're social constructs. Birds and bees and so forth don't have them. We all regulate markets in some way, either by law or by the guys that break your knees if you don't pay up. They're all forms of market regulation, and some are preferable to others.

David Roberts

Yeah, and they bought off so many editors and newspapers, too, in just like the chintziest ways. They just mail them a pamphlet or take them out to dinner and boom, they got great press coverage. It's very disheartening.

Erik Conway

But I would even say that they didn't have to be bought off, necessarily. Partly that's social pressure you're talking about, which we've all experienced, being invited to the right parties and so forth, and we don't really get into that because sociology is not our subject. But it's also the case that many of these editors were raised in the same propaganda, especially nowadays were raised in the same propagandaized malu that everybody else was. And it's hard to decide that all these things you've been taught for most of your life are wrong. It's very hard to decide that.

I'm sure that most of what I've been taught through most of my life is sort of true, at least. But I'm not always sure, and I have to think hard about it nowadays.

David Roberts

One thing that comes across also is big business has been organized and at this for a long time, well over a century now. But they weren't really successful for a while. Like, they fought and fought and fought against the New Deal. But the New Deal mostly went forward and mostly remained popular. And it's like wave after wave of propaganda until around, like, the 70s Carter era and Reagan era. So what converged there in history to allow this to break out from basically being kind of a fringe view to it's common sense now, sort of common wisdom, meddlesome bureaucrats and government inefficiency and picking winners.

These are all phrases that ordinary people know now sort of sifted down into the popular consciousness now. So what was it that allowed it to finally overwhelm resistance and win?

Erik Conway

Well, I think the first thing we've already said we've had this decades long propaganda campaign that helped lay the groundwork, and that's the main subject of our book. And then part two is the 70s. We have a whole series of intersecting crises in the United States. And we talk about the inflation of the 70s from the economic perspective being that big crisis. And the advantage that the free marketeers had was that they had an answer that was different than the standard answer. And Naomi and I are not the first to think about it this way. They had a different answer than the economics of the last 40 years, which had been successful, maintained a relatively growing and prosperous economy, much more prosperous for how do I want to put it more equitable prosperity than what we have now or prior to World War II, frankly.

And yet that seemed to be breaking down in the so that's the way we see it. And because they had an answer and because Carter then has, of course, a great foreign policy crisis as well. And honestly, I think Jimmy Carter believed some of the free market mantra in that his administration really launches the era of deregulation, right? It's the Carter administration that undoes airline regulation and trucking regulation and begins undoing rail regulation. And there's even banking deregulation in the Carter administration. And so they begin getting rid of a lot of, in fact, the leftover artifacts of the New Deal in the Carter administration.

And what Naomi and I do is we discuss that, what was done, what effects they began to have. And honestly, to some degree, we are supporters of it. Except there's one place that we think they went wrong, really, and that is they didn't apply labor protections that had existed under the New Deal laws. So trucking, for example. And that's they're kind of the poster child for deregulation because ten years after the trucking deregulation law, most of the trucking unions had collapsed. Most of the trucking businesses that had existed collapsed and they'd been reformed into new nonunion trucking organizations.

Wages collapsed and so on. And so deregulation helped reduce the inflationary period. Trucking is a major expense to move stuff around, but at the same time it also crushed wages, which benefits inflation, but not the workers and so on. So that's our story of the conversion. And I'm sure you could write others because in the couple of chapters we had, we could barely scratch the surface of what it was, I think, a very complex and challenging period.

David Roberts

I know you're a historian, so history is your thing. But as you look around now, maybe you and Naomi have talked about this. Do you feel like the hold of kind of the free market mythology is loosening? Do you think we're heading in another direction now? What's your take on the current state of this? Because it seemed to sort of hit its peak in sort of like Bill Clinton. When you got a Democratic president saying the era of big government is over, you've sort of, like, won at that point. You've won the argument. Where do you think we are now with all this stuff?

Erik Conway

Boy, I wish I knew. Being a historian, we're bad at crystal ball kinds of things. It's certainly interesting to me that the current president and his predecessor are not free marketeers, neither of them, but in quite different ways. Right. Trump is still backers of kind of Reagan style deregulation gutting environmental agencies and that sort of thing. He did those kinds of things but at the same time was almost doing the 19th century idea of tariff protectionism.

David Roberts

Really old school.

Erik Conway

Really old school. I know some people have called it neo-feudalism, but I don't see it that way. But then again, since I'm a 20th century guy, there wasn't a lot of feudalism for me to study. So maybe I'm wrong. But I do find it intriguing that it's no longer the default position of either party, that the idea of unregulated markets are to continue to be dominant. But what comes next? I don't know. That's the challenging and terrifying part to some.

David Roberts

And neither of them seem to get much internal pushback from their own party over that.

Erik Conway

No, exactly.

David Roberts

There doesn't seem to be like an organized presence for it anymore.

Erik Conway

Right. And instead it's patchwork. But that's not the word I want. It's more a matter of what they perceive to be immediate self interest at the party level. And so there's lots of discussion now of big-tech regulation and to some degree I would support it depending on the details, but it's not clear to me what that would be. For example, it's an interesting political moment to live in.

David Roberts

Antitrust is sort of poking its head up again.

Erik Conway

Yeah, we might actually enforce antitrust statutes for the first time in decades, maybe.

David Roberts

Final question, and this is my plaintive question I ask everyone, and especially when I spend a lot of time talking about the media environment, the sort of epistemic environment and Fox and the right wing media and all of this misinformation and stuff. But one thing I'm constantly lamenting or wondering about is why, when you look back over this 150 year period almost, and you see these repeated waves of propaganda against government, basically against government as such, not against this or that in particular, but just government is bad. Like government's inefficient and bad, wave after wave. Why do liberals or progressives or whatever you want to call them, why does the left, why do the people who believe that government can improve people's lives as it demonstrably has many times through our history?

Where are their propaganda campaigns? Where is the think tank that's just devoted to arguing that government is good? I can name ten on the right that are devoted purely to the subject of how government is bad. Is there one on the left that's just government is good as opposed to this immigration group and this crime group, whatever? Why does the side of social democracy, mixed capitalism, the stuff that seems to work, why does it not have a propaganda arm or effort? Or why does it never seem to fight for itself as such? Do you have an answer to that question?

Erik Conway

I don't have a good answer. The usual joke you get is that they just don't have the money. And maybe that's true, but I think there's actually a better argument in another book, and I'm really hoping the name of this author comes to me. But unfortunately, I read this. It was published after we'd finished our manuscript. But there's an argument about back in the 1970s that the Consumers Rights Movement undermined precisely that argument because the government was so complicit in allowing itself to be used by corporate lobbyists because the corporate lobbyists had been so successful in ensuring regulations were written in ways that benefited the incumbents right.

The existing big three carb manufacturers and so forth. And I can remember when we were doing the book tour for what little book tour we had for Merchants of Doubt. I was up in, I think, Alberta province in Canada, and I wish I knew who this was, but I was talking to an economist over a beer who told me a great story about one of the Carter administration's economists. And the person I was talking to was saying that really, it's not that he believed in free markets, it's that he believed that corporations could rig government to do essentially whatever they want to use the government to build and sustain their own monopolies.

And the only solution to this was to sweep away all the rules. The problem with that is that then you have to keep doing that, right? Because every generation of corporate titan gets the rules written again to protect itself. And I mean, that was the only fly I could see in that argument. But to go back to your question, the problem that liberal activists would have is that because a lot of people on the left, I think, actually agree with that. And I even think that there's merit to it because I've seen it so often in my own research career.

Corporations do get state and federal governments to write rules that benefit them. And so that undermines the whole notion of a pro government propaganda campaign, right? Because maybe it's just that all of the leftists have very mixed feelings about it. And honestly, I think we should I don't want to say one of the things I hope you will get out of our book is that we're not saying that all corporations are bad or that the government is always good because neither of those positions are true. They're not.

David Roberts

Okay, well, I'd love to hear from the audience. Let me just say this is a subject about which I feel many people will be tempted to have more of a comment than a question. And I just want to get out ahead of that and say, if you have comments, save them for afterwards. You can talk to us afterwards. People came to hear Eric talk, so try to keep your questions concise. Yeah, just come on up to the podium if you have questions, or if not, I'm going to keep asking them.

Audience Member

I have a process rather than content question. So I'm a retired oceanographer. I'm familiar with your co-authors work in the scientific field. So it's kind of a dual question of, you guys seem to be stepping out of your area of technical and scientific expertise into the economic world, and I'm curious about the process of how the two of you work together on this?

Erik Conway

Okay, so we did the book because we wanted to follow up "Merchants of Doubt", in which, if you're not familiar, was really a history of four physicists and how they spent their retirement careers working to cast doubt about the truth of environmental problems. And what we concluded was that they were believers in market fundamentalism, the idea that only free markets could protect political freedom. In other words, basically a 1980s version of the Tripod of Freedom from 1935. And so in this book, we wanted to tell the history of market fundamentalism, so that's why we did it.

Audience Member

Can you tell us who we is?

Erik Conway

Oh, sorry. Naomi Oreskes. She's the lead author in the book, and I'm Eric. Process, so I guess I'm the one who had spent a lot of time or a lot more time in economic history initially because I'm a historian in technology, and you really can't separate technology from business and economics to a lesser degree. So I guess to some degree, you can blame me for the initial ideas. And then once we had sort of gotten the book proposal sold, process was we separate the chapters, figure out who's doing what, whose expertise more aligned to one idea or the other.

And then it's a whole lot of researching and writing and mailing chapter drafts, back and forth and so on. Kind of the early core of the book is built around material from the Hagley archives, which it's a business history library and archives on the Dupont family estate in Delaware. The Dupont family did History of the United States enormous favor, frankly, in turning over some of their original powder factory buildings to be a business history archive. And that's how I can tell you exactly what J. Howard Pew was doing and setting up these organizations, because he was proud of it.

He wrote to people about it. He helped get a textbook by an economist by the name of Tarshis removed from university curriculum on grand claims to trustees and so forth, that the guy was a communist when actually he was just a Keynesian economist. And that prepared the way for Paul Samuelson's textbook to become the dominant textbook in American economic education for most of our lifetimes. But Samuelson, seeing what happened to Tarshis, revised it to make it satisfactory to the market fundamentalists who'd gone. After Tarshis and Samuelson told us that story. But we can know these things because archives exist.

And sometimes even the people that we criticize are the people that made it possible for us to know that.

David Roberts

Yeah, they don't come across in the book as any of them as particularly bashful or embarrassed about the fact that They're ...

Erik Conway

They're proud of it.

David Roberts

Waging massive propaganda campaigns.

Erik Conway

No, they're proud of it because they believe in what they're doing.

David Roberts

I have another question, which maybe is more philosophical, but this is something I've gone back and forth over the years too, which is at no point from the late 19th century forward, really, at no point ever are any of these business titans who are waging these propaganda campaigns acting consistently according to free market principles. All of them happily welcome subsidies. When subsidies are available, all of them will happily tax their competitors. None of them ever in history have turned down something that would benefit them on the basis of free market principle. So you could make the argument that what's going on here is about power.

They have power and the microphones and the money. They don't even really believe the arguments. So in a sense, the only thing that can counteract that, insofar as you view it as a bad thing, is counterpower. And in a sense, arguing as though sincere ideas are in the driver's seat here is kind of like a bait and switch. I feel like they just laugh when we go off and write arguments and research things and care about facts like they're just playing us. They don't care about the facts. They're just exercising power. How central is the argument to all this?

And how much of it is just a cover for corporate power that can only be sort of restrained by power?

Erik Conway

Well, first off, self interest is fundamental to their depiction of free market capitalism, right? One thing they certainly internalize is that everyone acts in their own self interests, including themselves, and they happen to be in a position to use their power to maximize their self interest, even if it harms others. So you can argue that they are actually acting according to principle. It just isn't a very satisfactory answer, right?

David Roberts

Well, it's not a free market principle, right?

Erik Conway

It's not a free market ...

David Roberts

Principle of self interest.

Erik Conway

Yes, that's right. It's not really a free market principle. So you can see, for example, in the paper of J. Howard Pew, and he's writing to Rose Wilder Lane, the daughter of Laura Ingalls Wilder. He goes through some contortions at times to defend his own or what she perceives to be his own violations of principle because, whereas J. Howard Pew is willing to compromise to improve his standing, in a lot of ways, Lane wasn't, she really was an ideologue. Well, she kind of drives herself out of the movement, in a sense, because she's more extreme than they were and continue to be.

So it gives you an example that there actually were people even inside, for a while, even inside this conservative movement, who were principled and would actually manage to drive themselves away because they wouldn't make those compromises. But they're not the ones that had power, or rather that retained power, as you say, because they were acting in the those that remained were acting more in the interests of power than in pursuit of the free market principles. So, again, I keep saying that there's no such thing as a free market. There's always a regulated market. And it's just how and by whom that we're talking about.

David Roberts

Well, to this day, I think there are like seven true libertarians somewhere in DC. Who are constantly pained by their betrayal by the Republican Party, which is coming up on 150 years now. You'd think they would see the next one coming, but still .. Hi.

Audience Member

So I'm a little bit outside of my element here because I've not read the book, but usually in a big myth, and I look forward to it that you and Naomi arrestes have written what were the little myths? What are the little myths, and can you articulate them that are backing up that big myths? I mean, we can come to our own conclusions, but can you articulate those?

Erik Conway

Oh, they're legion. Well, I kind of told you one. There's the Tripod of Freedom. That's a set of mythologies that the National Association of Manufacturers concoct in 1935. The idea that industrial freedom has anything to do with the Bill of Rights is laughable.

It just doesn't exist there any more than the kind of maximalist interpretation of property rights. My character, Fifield, to give you another example of a myth, tries very, very hard in his campaigns to bring the clergy around to the idea that property rights are sacred, that they descend from God and not from the fifth Amendment to the Constitution, which makes them, if you ever bother to read it, modifiable by act of law, which we can't modify God by active law. So there's another myth. The individualist mythology is another one. And we don't explicitly criticize that in the book.

It's already too big a book. But rugged individualism is another area of mythology that is built into this idea of the free market in the so there are a whole network of sub-myths that go into what they are. What we don't do is we don't make give you a typology, a chart of all the different sub-myths, and we just didn't think about the problem that way. We were trying to tell you partly a story and partly a well evidenced history and less rigorous philosophical analysis, I guess you can say.

David Roberts

Yeah, well, one thing that comes across is you'd like to think there's a marketplace of ideas, speaking of myths, just a marketplace of ideas where ideas compete based on their rigor. But of course, these ideas were at every juncture, very well funded and pushed. And I always thought it's not hard to understand why rich, powerful people in society welcome a philosophy that characterizes success in a market as a matter of heroic overcoming individual effort. I mean, of course, the people who won want to believe that, right? In that sense, it's in a tradition of hundreds of years of mythologies that mainly serve to justify the place of the people in charge.

Erik Conway

Well, so I guess there's two stories built into that question. In the marketplace of ideas, milton Friedman didn't rise to the top in a free market because the Chicago School of Economics program was built on the funding of a foundation, the Voelker Foundation, which was run by a gentleman, by named Harold Luhnow. And it's their money that got the Chicago School's free market program going and supported Friedrich Hayek there at the School of Social Thought ...

David Roberts

Got us into Readers Digest, which I thought was just excellent detail.

Erik Conway

Well, yes, this is the power of money, right? Because not only could they afford to support faculty members for a decade or two to get the free market ideals built into academia, they could spread them through cartoons and so forth. Right. So none of us live in a free marketplace of ideas anyways, because money can boost the ideas that people with money want boosted. And Milton Friedman is a great example of how that came about. So marketplace of ideas? Well, it's a very rigged market, much like General Electrics, electricity markets,

Much like all markets.

Audience Member

You brought up Milton Friedman. So shock therapy, right?

Erik Conway

Yeah.

Audience Member

Right. All over the world, or especially South America. But I wanted to ask you, your historian, I mean, the more you read, you can become depressed. But one question to you about could potentially the reason why there is no thorough backlash or a fight against this propaganda is because a lot of the intellectual stuff that we learn about just they're so wrapped up in the hypocrisy of all the stuff that we've done as a society, including propaganda, capitalism, that they're just, like, useless, that they can't germinate, they can't forment this type of backlash that you're talking about.

David Roberts

Well, your colleague up here, what do you think about that?

Erik Conway

I would say that they would have a hard time selling it here. I'll take back to the idea. Remember I told you this story briefly about Lorie Tarshis being having his textbook suppressed by a propaganda campaign and aimed at trustees of universities and so forth in the 1950s, and therefore Samuelson's textbook becoming dominant. That's an American story, and it largely didn't happen in the rest of the world. So economics programs in Europe are much more intellectually diverse than they are here because that kind of story didn't happen. Right. The rigged market here resulted in one outcome, a very similar thought throughout most of American academics, which is not really so much true in Europe.

Now, the question was about the public. But ideas generally have to come from somewhere, right? And if all the economic departments in the United States basically think the same way then where do the ideas get started? In left wing think tanks. There's not very many of those, as we were discussing earlier. And they start out from a position of less credibility precisely because they're think tanks. Right. There's no independent work on that kind of going on.

David Roberts

No liberal "Little House on the Prairie."

Erik Conway

Well, there's not that either. So I would say to you that part of the problem is you start out with having fewer ideas that can be marketed and then you don't have the infrastructure for marketing them to get the change across that you might want. But again, that's beyond our subject. Other people have written about the think tank world than not us.

Audience Member

I'm curious in your research for this book whether you came across any industries where deregulation and free market ideas actually made a more equitable or efficient outcome. You talked about how the electricity market is not a good market for free market principles but I'm curious whether you researched anything where it did improve it.

Erik Conway

Well, so efficiency is a difficult term because efficiency is often well, the definition of efficiency matters, doesn't it? If you're talking about cost effectiveness, for example it's much more cost effective to buy property in poor neighborhoods or near poor neighborhoods and make them dumps. Right? So efficiency often leads to inequity. And so we don't often see efficiency and equity going hand in hand at least not in the United States. But to be honest, we weren't looking for that because our story was built around a propaganda campaign by people who weren't interested at all in equity. Not at all.

In fact, they discuss and we have a little bit about this in the Christian capitalism chapter they openly discuss the idea that some people really are superior and should rise to the top and equity is simply not equity is not the American way. So following that thread we would never have found what you're asking about. So I hope it's true that at some level you can have relative efficiency and relative equity. But that's not what our actors were talking about.

David Roberts

Yeah, they very explicitly say attempts to improve equity are ipso facto going to suppress economic growth. Like they don't they don't even allow the possibility that you can do both at once. They set them up as being diametrically opposed.

Erik Conway

Yeah, which I actually which I believe, anyways is a fundamental misunderstanding of Adam Smith's capitalism. His basic idea is that the circulation of capital improved everything. But what he meant, I think, was circulation top to bottom. Right. The money has to reach the people at the bottom because that's where most people are and improve their lives and that's what drives the system. If you have the concentration of wealth at the top then it becomes not only less equitable, it becomes a less efficient and less generative economy. But that's me. I think a great many economists don't think in terms of top to bottom circulation of wealth that's more circular in their minds or something, but I don't think that's what Smith meant.

The concentration of wealth strikes me as being less effective long term and it's certainly less stable. I'm sure I've got more questions though.

Audience Member

So it's certainly easy to be cynical about corporations talking about ESG. But overall would you say that the increasing talk about and emphasis on ESG is a bit of a backlash to some of this capitalism and free market mythology? Or is it pure whitewashing?

Erik Conway

Oh, I wish I knew. But being a historian, even the present is blurry to me. It's easier to see the past in a lot of ways, but it seems to me at one level a welcome response to the shareholder value idea in which the company only has the interests of its shareholder at stake. And the EEC movement strikes me as being at least better than that, that there is some other set of interests and values at stake there. I hope it's not all whitewashing or greenwashing rather as the term goes. But like I said, I don't study the present particularly strongly.

So people ask me questions like what are the best companies for environmental things? And I have no idea, none whatsoever.

David Roberts

It's worth pointing out though that as we speak the usual suspects are mounting an enormous very well funded propaganda campaign against ESGs. Specifically like there's Republican states passing laws against it. So it's real enough to cause them to mobilize against, I guess so something.

Audience Member

Yeah. Comment question. Since 1968 I'm looking at the Gini coefficient from FRED database here. It's risen from 38.6 to 49, which is incredibly high measure of inequality. And since that time there's been six different agencies added to the federal government. And you just discussed heavily on we don't have a free market and we have a very strong governmental regulatory capture system.

How do we overcome that? And probably the biggest beneficiary we see today is the world's richest man, Elon Musk. With SpaceX, with governmental money. We've got all kinds of carbon capture systems with these batteries and his new cars. All we doing, we're just handing him money. And isn't government the problem there? I mean you talk about this okay ...

David Roberts

I think we got it. What do you think, Eric?

Erik Conway

Absolutely. We have a less and less equitable society and we don't spend a lot of the book trying to figure out what's at fault there. Personally, I would blame capital gains tax more than just Elon Musk or the expansion of or the addition of federal agencies. Don't get me started on Musk because I have always seen him as being nothing really but a successful harvester of federal dollars and also a really good propagandist, until recently.

David Roberts

He's really off his game lately.

Erik Conway

Yes, he used to be good at the whole fanboy thing, and maybe he still is and I'm just left the family, I don't know. But regulatory capture, real problem.

David Roberts

Can we throw in the Supreme Court removing all limits on campaign, on finance spending, and we throw that in there. If you don't like corporate capture, then.

Erik Conway

That's another again, we don't go there in the book. It's already too big a book. But yes, the equation of money and speech is a whole other level of corporate capture. Right. It doesn't just allow unlimited lobbying spending, but an unlimited political advertising spending. And that just reinforces the propaganda power of things. And I guess I would say back to the original question, I actually don't know how you break the cycle here. It's one of those things where historians can help you diagnose the way the world is, but not necessarily help you fix it. Because I don't know how to undo the equation of money and speech.

I don't know how you build a government that can't be captured somehow.

David Roberts

But I mean, there are governments out there in the world that are more competent, that are less wasteful, that are less captured, like there are better and worse administrative states. So at the very least, you can do better than we're doing.

Erik Conway

Yeah, that's right. And so one of the things we intended to do with the book and ultimately didn't because we decided other people were already writing about it is that the idea that there are varieties of capitalism and Europeans practice much different varieties by and large, than we do and that is wrapped up in the kinds of states they have built, right. And that just takes us back to the idea that there aren't actually any free markets. Markets are embedded in states, they're embedded in particular cultures, and those things can be changed. It's just a question of so what I posed to my audience is the question really is what kind of state versus-slash market do we want?

Because we're the ones that have to choose and then have to figure out how to make the politicians do what we want. And that's a tough road to haul, particularly when we have this basic problem of the equation of money and speech and therefore the richest man in the world gets to decide who gets heard. And by unabout what.

David Roberts

I'll get to your question one second. But I also just wanted to throw in that some of these big states that have huge taxes and robust welfare programs actually have the freest markets, like Finland or whatever. They have fewer regulations on business. They have enormous taxes and enormous redistribution. But the business sector itself is relatively free compared to ours. So we're not even getting the free market we're promised, much less all the rest of it. Alright, final question.

Audience Member

So I'll get historical 60, 70 years back, the straw man of communism gets beaten to death for a couple of decades. And to what role did business, American big business, play in that particular bonfire? Or was there another path? Or was that whole anti-communism deal more of an invention of the wealthy?

Erik Conway

Well, so the anti-communist crusade of the business community goes back well into the 19th century because they were terrified of the communist potential revolution of eliminating private business. So they were always leaders of the anti-communist charge, and they used that as a foil to oppose unionization.

They would use it to oppose they did, in fact, use it to oppose child labor laws because it was taking children away from their families and making them wards of the state and so on. We tell all that story. So it's been that rhetoric, that anti-communist rhetoric has been a big business rhetoric for more than a century. They were fundamental to helping spread that set of ideas throughout the United States for longer than any of us have been around.

David Roberts

Yeah, there's another thing I discovered through the book is how far back the knee-jerk response of socialism goes. They were using that from the jump. I didn't know how recent that was. It turns out that's been all the way through.

Erik Conway

It's been a universal curse. Now for conservatives for more than a century. It's lost, as far as I can see, any meaning or any relationship to what the socialists actually originally wanted or intended.

David Roberts

Alright, last question. Sneak one more.

Audience Member

I mean, there's a lot of corporations that one would argue do a lot of good things. Like Boeing has been a corporation that's provided an immense amount of jobs and pensions, and it's a lot of our economy. And then you could argue that corporations just need regulation by government to be good to create wealth. But I guess my question is, as a historian, what countries in the world have done a better job than the United States on all these things we're talking about? I mean, it's good to criticize all this stuff, and it's definitely lots to criticize, but are there any countries that stand out as an example of what we should be more like?

Erik Conway

Well, first I want to say again, I don't want to come across with the idea that all corporations are bad or that everything corporations do is bad because markets are tools, there are constructs, and they can be very powerful tools for positive things when they're well run. And the second thing I would say is that it's also a mistake to think that government can do everything. Boeing was run by engineers for about half a century and that Boeing did enormously positive things. By and large. I used to study aviation history, and they're still around because actually for a long time, they didn't have a lot of military contracts.

They managed to survive on just commercial businesses, which almost nobody in aerospace did. And that's a positive thing. And as you were saying, help really build this city. Well, that's a whole other story. Well, Boeing bought Douglas or Douglas bought Boeing with Boeing's money or something. Yeah. Anyway, where I wanted to go with that was that I wish we could also talk about corporate culture changing because in what you see in Germany, for example, is the corporations, the corporate leaders don't fight particularly hard against their unions. They have a different, completely different, really set of social contracts there in which they still are very productive and yet they don't have the very hostile labor management relationships that we do.

And that's fundamentally to me about the internal culture of corporations and also what business leaders are taught in business schools and economics departments and so forth. So again, I don't want to convince you that the government is always right or that the government is the only thing that can save us, but there are a lot of changes that that would need to be made, one of which is corporate culture. Another of course is would be a better culture of public service and in the government because a lot of the government either stopped doing its regulatory job like FERC and the California Energy Crisis in 2000, decided, well, it just wasn't going to regulate. And that's a failure of the idea of service, public service too, as well as corporate penetration of companies.

David Roberts

I mean that's a classic example of Enron out there propagandizing for markets and just rigging ...

Erik Conway

Unregulated markets.

David Roberts

... up one side and down the other, like farthest thing from a free market participant you can imagine.

The question was about what about employee-owned corporations.

Erik Conway

What I'd say is a little bit of a dodge of the question because I don't know a lot about the longevity of such companies or what kinds of goods or bads that they do. But what I would say is that again, our study was really of propaganda and we have this idea of private free markets and yet we live in a very mixed economy, as you say. There are not just shareholder owned companies, there are worker owned companies, there are nonprofit companies all over the place. I actually work for one. So that's not the free market mantra we're talking about, is not the whole story of America.

And sometimes we not just Naomi and I, but we all forget that there are other kinds of business and capitalism possible. And that's what I'd say, that there are other opportunities to build businesses that aren't shareholder valued returns to private shareholders.

David Roberts

Alright, thank you everyone. Thanks for coming. Thanks Eric for coming out. Thanks for the book.

Erik Conway

Thanks for coming.

David Roberts

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

Every year, the Business Council for Sustainable Energy partners with BloombergNEF to produce the Sustainable Energy in America Factbook, a compilation of charts, graphs, and statistics about the US clean-energy industry and where it's headed.

The 2023 edition is out and it shows a record year for investment in clean energy and installations of renewables — alongside record demand for natural gas and record investment in gas infrastructure.

To chat about some of the numbers, I contacted Lisa Jacobson, president of BCSE. We talked about the momentum behind clean energy, the enormous investments uncorked by the Inflation Reduction Act, the supply-chain difficulties that plagued the industry this year, the backlash to ESG investing, and the surge in energy storage.