Diving deep into decarbonization with Nathaniel Bullard

Has described it. It's like every single trend and vertical of decarbonization, and what's happened in the past and what's about to happen it. You'll need more final energy for a net zero world. You'll need a lot more electrons.

Not just what people produce but what people consume. Not just what burned, but what is actually used. But we're, you know, we're we're at a moment where you can see these things peaking, and then all sorts of questions begin to emerge. Anyway, that's not really that's not a very good argument.

Right? What we need to do really is use a lot less of these minerals for job. And the fundamental job is not a particular battery chemistry. The fundamental job is the cost of stored electrons.

Hello, everybody. Welcome back to another episode of Moto, the podcast. Today's guest needs little introducing.

We are joined by Matt Bullard. Natt is an independent analyst, company advisor, senior contributor at Bloomberg n e f, and holds many other roles as well. Today, we are taking a look at the state of climate and decarbonization.

As always, if you're enjoying the podcast, please hit like and subscribe. It really means the world to us. Let's jump in.

Now, I've got to start with the slides. Hundred and thirty seven slides and you give them all away for free.

Yep. Is I'm trying to talk about that for a second. So There's a I think there's a long history in a good way of people trying to make sense of a complex sector that's made up out of various sub sectors or a sort of new kind of mega trend composed of subsidiary big trends of their own. You know, I would say this began with sort of a famously with Mary Meeker, the investment banker, and now venture capital investor who began in the nineties with a presentation simply called Internet trends.

And she, to the great benefit of anybody who's an historian of PowerPoint presentations, has got all of them still public going back to the mid nineties. And it's just been called, as I said, Internet trends. That's it. And it sort of sought to define the circumscribed this world that was becoming the Internet.

And that arose I think because you had separate domains that themselves lived within sort of financial analysis and technical verticals. You had networks You had communications equipment, you had telcos, you had media. And I think her vision was actually all of these things are related and they're all feeding off of and into each other. And that expanded and remit until it was like like four hundred slides almost at one point.

And that was, I think, a great model for myself. Certainly for others who do this better than I do, Benedict Evans would be a very a very trenchant example in the UK who does this covering technology. And I realized that there was sort of no one covering that in climate.

And I spent fifteen years full time with Bloomberg and its predecessor company, the old new energy finance. And what you find is you you become increasingly specialized and increasingly domain bound. That's a feature, not a bug of this integrated a syndicated research service. You find yourself more and more tucked into particular places because you need more technical aptitude. You need more understanding of specific market conditions or geographies.

But, you know, the megatrend just keeps getting bigger and bigger. It goes from fifty billion dollars of investment to one point one trillion dollars in less than two decades.

And it starts to, as tech did back in the day, become its own theme. So decarbonization is a combination of industrial transformation power sector, transport, industry, food, and agriculture, plus the interaction of the climate system, plus the interaction of financial markets and capital markets. And the part that I'm particularly interested in is business, business cycles, and business creation information, which I'm sure that you and your audience are interested in as well. And so I guess the the short one sentence answer of why all of this is that We talk all the time about businesses and climate, but not the business of climate itself. What is the business of decarbonization?

How does one create a company that has enduring value and competitive advantage.

How do you create motes and defensible businesses And how do you make money in particular in areas where in the physics sort of mitigates in favor of things being a cost? Forever. I'm thinking in particular of anything related to capturing carbon. You know?

Another way to put it is that, you know, we're we're we're sort of at the the end of the beginning to go sort of church alien about it in terms of what we've been able to figure out technologically financially capable capably in terms of doing to decarbonize or about, you know, ten percent of the electricity sector, now about twelve percent decarbonize about ten percent EV sales.

The right kind of s curve shapes for things like deploying batteries, solar, and wind.

And the right I think this sort of right fractal version of a trajectory in terms of investing in energy transition and infrastructure, but also the early stage and private companies.

But like we're we've got ninety percent left to go if you actually want to get this all the way to net zero. And thinking about that insofar as possible as a whole, I thought was useful. And and hopefully, as I'm building next years, using just decarbonization as the lens, the same way that Mary Meeker said, Internet trends. That what are the trends in Internet?

I would like to know what are the trends in decarbonization. As opposed to the proper in the siloed, what are the trends in trans sport? What is the trend in industry? What is the trend in the power sector?

What is the trend in the capital markets? And it's it's hard it's hard to pull together frankly.

It's sort of it's I would sort of joke that like it's it's so difficult to do that you could only do it on your own like like I think if I sort of tasked the big team at the moment with doing it, we would end up with like tightly bounded areas that sort of communicate internally very well, but don't communicate externally very well. So I'm looking through for the same are you looking for the same kind of markers, the same sort of patterns, the same inflection points, the same moments of inception across all these different sectors? And so for for us I mean, I've been a big fan of your work for a long time, probably half a decade.

And for many of us listening and folks at Moto, we know you're from Twitter, and Bloombergberg days. Some incredible content came out from unit team back then. And of course, friend of the podcast, Michael Libriich. You used to work Michael back in the any any f days before well, when back when there was very few people really talking about climate and where the money flows are.

So could you just talk for a minute? Before we get into the detail, I wanna know what have been like over the last fifteen or so years for you? Your journey with Bloomberg or any f than Bloomberg and now on your own. What those chapters look like?

And what have you noticed? So the the chapter begins with finishing my undergraduate going to going to work in Egypt and teaching for an American school. I'm sort of getting this this sense for what it's like at the sort of the the front end of a big developing country and how integral energy energy access was to a population like that. Egypt was very highly electrified but the differences in what people had between between different aspects of the country and the culture were were really striking.

And I then went back to graduate school after a couple of years other work and started to study enter energy in this sort of early nascent way of like holistically with like energy policy, energy economics, trade flows and a little bit about technology. This is two thousand four. So this is the the year that the German Feed and tariff has introduced. And it's also when you start to get an equated tee in enough markets that you can look at them.

I graduated two thousand six into this landscape in which Michael had already built the company, you know, fortuitously enough, it started in two thousand and four. But looking for people who had any sort of expertise and this was very very thin, and I think despite what Michael would probably still tell you was a desultory and unimpressive undergraduate and graduate educational experience. I was one of the few people that had actually studied any of these things now. And this is, you know, I I would love to know the the history of like Imperial energy futures program.

Far as I recall, it wasn't even around at that time that I was graduating. I'm probably wrong. But it was it was unusual for somebody to come in with an experience that looked like this already academic even if it was not at all yet informed by anything in the market, I had at least done that study and was able to enter a sector, I think, in a way that would be very hard to do today if I'm candid. At least at the level that I did where you're like okay, show up and eight months later you're going to be the US solar analyst because well there's now a solar market and we need an analyst to cover it.

You know, it was either that or the wind sector, but I think that wind was already a little bit better understood and a little bit better covered. So You know, we enter this this this sort of first age where it's very much especially in the United States, just about renewable energy. You know, it's just covering what's happening in wind solar in the US in first generation and the never yet really emerged second generation biofuels.

And some very very early compliance type markets for carbon. Europe's obviously different. You've got all those things plus an actual real carbon market. And then, you know, that that took us through a financial crisis, a fair amount of government support coming around the world.

I think we used to do the numbers and it was you know, it was it was I I wanna say around seventy billion dollars. Sounds very quaint today, but of of support for -- Only. -- seventy billion dollars financial crisis.

And that that sort of carried through to the point where we also we happen to get acquired by Bloomberg, which Michael could tell you about and did tell you about in great detail. And you also sort of start to have this this transition at that point into a couple of years of being sort of range bound in total investment, improvements in technology, capital continuing to flow. But you also start to get the strategic shift where people begin talking about energy transition, you know, that it's idea that you're gonna move beyond just covering one little you know, one particular sector with a special situations group and principal investors doing all the capital into maybe an entire team stood up within a big organization that's gonna focus on ring fencing, your decarbonization, they're like, well, this one part of the company we can get to net zero by a twenty fifty or whatever.

And a lot of frankly divestment which is not really a way of decarbonizing at all. That's that's a that's a sort of balance sheet jiggery pokery to decarbonize by making it somebody else's problem.

And then that takes us through, you know, five hundred billion dollars more these days closer to, you know, would say through last year, close to a trillion dollars or so of investment. And now we're entering a sort of a new era where what we what we are all talking about and rightly I think is reaching net zero by the middle of the century.

And that means, first of all, you have to do everything. There's no sector that you can't cover. If you're a big international There's no way that you can just leave something uncovered.

It means making hard decisions not just around electricity or transportation, but around chemistry, around molecules, around for moving things from the atmosphere and requires a scale capital commitment that's like five times bigger or six times bigger than that. And also gonna be really hard to do. You know, as I said, we're sort of end of the beginning period now and I feel like the era that we're in is like looking at the last exponent between ten percent and a hundred percent is is neat. It's nifty, rhetoricly it sounds like the next move, but it's going to be so difficult and it's gonna require so much money and so much time.

But it is also therefore so interesting because the if we think about this from an overton window perspective, this is now well within the overton window that respectable people talk about this. As opposed to it being, you know, academic studies stuff or something from a think tank. It's well within what companies themselves have said is going to be their on business in the long run. So I wanna get straight into asking you some energy related questions.

Sure. And the first one is very, very basic, but no one knows the stuff like you do. So this the state of c o two levels at the moment, how bad is it? Well, bad.

I mean, it's like the the highest depending on which sort of level of science you want. It's either the highest in eight hundred thousand years or in it in three million years. Depends if you want to model something if you wanna just pull ice cores. It's sort of immaterial to me how, like like like a specific level.

It's the trajectory which if you try to chart it over that time, it's just like years of sort of like wobbling around a mean and then there's this, like, vertical line. Just to where we are today. You know, we could we can track it back and probably, you know, at this point, close to three hundred years, you know, if we wanna go back to the days of purpose built industrial extraction and transformation of crustal carbon at one form or another into atmospheric carbon.

And, yeah, we're we're way above four hundred parts per million. I think we're above four hundred and twenty parts per million. At the moment. We don't really seem to be on a trajectory that's changing that. And it's I don't have where we're we're starting to feel its impacts. In the atmosphere. And I think I don't know about you, but I rarely have discussions anymore where people doubt or impugn the science of the carbon dioxide itself.

I'll give a little frame on this. When I was starting this this work, you know, fifteen years ago, one of the key NGOs that was talking about keeping us just within what they did to find his planetary boundaries around carbon dioxide levels. Was three fifty. Right?

Three fifty parts per million was like the thing that we were meant to be hitting. And we're you know, we're like twenty percent over that at the moment. And we're we're we're not necessarily going to go to like seven hundred parts per million carbon dioxide, you know, we're not on our way necessarily to becoming Venus. But we but we're in a position where we've kind of blown past all of the other nominal points that we were meant to hit along the way to sort of make make make our temperatures easily managed.

You know? You you can read the sort of thought experiments. What if we'd begun this decarbonization in the nineties or what if we had sort of maintained the momentum that was happening in the early eighties coming out of oil crises and with the levels of r and d we had They're interesting. They're a bit and it's a bit more gross if we look at them.

But they're also they're also irrelevant. In that, like, you know, we we can't unring the bell that we've rung so far.

I would also add that we have, you know, we we've got rising methane levels as well. I think a lot of that honestly is probably we're getting greater granularity on measuring it. We're sort of realizing that it's both a problem and an addressable market so to speak in, you know, in the interim. And it's also something that I think people will view as a business opportunity to mitigate and to abate.

We've got I can't recall exactly where our our Corof Moreocarbon novels are, but, like, we we have other things that have radiative forcing impacts on the earth. And, yeah, the short answer is, like, bad and not any time in human history has it been like this in terms of Neville or in terms of vector? So that so that's that's the stage for this. And your most recent piece of work, which I would recommend that everybody listen to this goes straight online and downloads, which is a has described it.

It's like every single trend and vertical of decarbonization and what's happened in the past and what's about to happen. We're gonna talk about that a lot today, but we've covered the why are we even here even talking about decarbonization. I'm gonna ask a bit of a silly question here, and I'm interested to know what your thoughts are. Conventional wisdom is that the world needs growth, and growth needs emissions.

Right? And emissions and growth are intrinsically linked or or I think that they have been until now. Are we gonna have the growth that we need to get the, you know, the billions of people out of poverty and all the socioeconomic improvements that the world needs? In hopefully a a fair fair or fair ish way without the emissions.

Is is is that possible? Well, so what what I find fascinating about these discussions is that it's as though our economic growth required emissions with no energetic input. It's as if somebody was like in order to grow, I just need to emit carbon dioxide. Which is bongoni like the actual thing that we do is consume primary and final energy and the problem is there's a fairly intense correlation throughout industrial human history between primary energy, fossil fuel combustion, and therefore emissions.

And so the challenge is to not consume less energy. I really I'm I'm aligned with you on this one. I think that that's not a sort of great way to envision the future.

In particular because decarbonization itself requires an extraordinary amount of energy. Probably if we wanna reach net zero three times as much electricity as we generate today by the middle of the century.

Wow. That's that's what So, you know, going from twenty five thousand to seventy five thousand terawatt hours. But in so doing, decarbonizing that process of electricity and using that decarbonized electricity to decarbonize other things.

So I feel like this is both this is true as you look backwards, but it doesn't need to be predictive and it's also not honestly an accurate description of of the equation in the sense that, like, that's the waste part of the equation. That's not the that's not the benefit part of the equation. The benefit part of the equation is energy supply to do stuff, the ability to do work, and it just so happens that for a very long time that is required burning stuff.

One of the fascinating outputs of looking at the the modeling that that the the B and EF team has done. For the net zero a net zero future is that it actually uses less primary energy than the energy transition scenario. Because What do you mean by property energy? No.

So property energy is the energy contained that's generally speaking, it's like the energy contained in in the fuel itself. Right? Like, how much of this how much of this is it and how much is the energy content in a ton of coal, you know, in in billion cubic meters of natural gas. And, obviously, most of that is you burn things is is simply expressed as waste heat you know, the the the maximum thermal efficiencies we have are generally in the thirty to forty percent range.

Meaning that a lot of like a lot of what we have been doing in in our industrial history is simply creating heat and as a byproduct creating work as opposed as opposed to the other way around. Whereas if you are to if you were to use renewably generated electricity, which is already a final product, you know, it's ready it's ready to be used that doesn't need another transformation and you put it into say a storage battery in an electric motor for motive power you've suddenly got this much more efficient way to energize the system.

And this is something that it's very simple. I think if you're a scientist, It's not so simple if you're like a if you're anybody else and you're not attuned to the way that this works. But I think that this is a very important way of thinking about is that you end up doing unit, you'll need more final energy for a net zero world. You'll need a lot more electrons.

You'll need more renewable molecules and things like that too, of course. But you'll need less primary energy. You can you'll be you'll be consuming less of the stuff that you dig up and burn, and It's a fascinating outcome to think about. But it's part of what gives me hope that we can find ourselves on a path to do this.

But really this is a cognitive thing. This is a challenge if you've been in the business of digging up stuff and burning it to think that, like, you need to move from the primary side of the ledger to the to the final side of the ledger, not just what people produce but what people consume, not just what is burned but what is actually used. And so I do think that that we we should we should look to a future that has more final energy, less primary energy, more energy for all people, more electricity that provides the toolkit to decarbonize all that we have today and to allow people to energize their world to the extent possible, to the degree possible with something that has no emissions and that has fewer losses along the way.

Nah. You've been looking at you've been looking in in the business of following the money for quite a long time now. So can we just talk about that for a second? Where's the money going?

If we had to talk basically about in basic terms, about is it going into renewables, or is it going into fossil stuff, or is it going into abatement and carbon capture? Where where's the money going to at the moment? Good. It's a good question.

So I'll use B and EF's figures here. So last year, about fifty fifty but one point one trillion dollars and almost an an exact split within that of going towards electrified transport, which is almost entirely vehicles, but some infrastructure and renewable power generation.

I think this is a fantastic competition to kick off, by the way, between two sectors to see which one is going to invest more quickest. But combined, Yeah. One point one trillion dollars, of which, about, you know, like, close to five hundred billion is coming from each of those. They're very very close.

And then and then the remainder Twenty twenty two. Yeah. Nice. Twenty twenty two. And last year is other stuff.

It's you know, you've got a ten percent bumper that's left over for carbon capture for hydrogen for energy efficiency for some storage on the grid.

The IEA will give you different figures directionally the same, but they just add another they add other things into that mix. So It's it's really it's really interesting because, you know, a few years ago in the electric vehicle side of that of that chart would have been nil or close to nothing. So you're now seeing these things sort of grow grow gross in in scale alongside each other that the fastest growing part is is EVs's. I as I recall, the The the smallest amount of investment is going to hydrogen, but it was the fastest growing.

We have more investment going towards nuclear also going towards in, you know, industrial applications and residential applications like heat pumps. But the bulk of the money is going to two big sectors and sort of like, if if you wanna put it one way, four four technologies or three and a half technologies, wind, solar, storage batteries and electric vehicles. But the EVs and the storage batteries, this is sort of each one one half of each other, if you will.

And in the long run, the B and EF's outlook for for either scenario, rather the energy transition scenario which doesn't get us to net zero emissions or the net zero scenario is that just under half of all of the investment will be in electric vehicles.

And another a couple of percent going towards things that we would say would be on the demand side. So in particular things like like heat pumps. And that's kinda accident because you find yourself in a in a long term future where the drivers of capital investment are happening more on the demand side than on supply side, which is very different from the past fifteen to twenty years, and where we can start to think about interesting new levers to inform the growth trajectory. Like, let's put it this way. We we individuals make different buying decisions about cars than RWE and National Grid may about buying power generation assets.

So we've got we've got new new tools in the in the demand side of the ledger. To be to be utilized in thinking about a deep decarbonization.

And how does that compare to investment in fossil fuel things? So fossils more, like, depends. Again, b n e f number says about the same amount of s in fact, almost down to the dollar last year. So one unit of fossil fuels and unabated and unabated oil oil and gas production and unabated power generation. So one point one trillion dollars. EEA's figures which include other things actually says that for about the last five years, there's been more investment in in the renewable side of things including hydrogen or the zero carbon side of things including hydrogen, nuclear, efficiency and grids. Then there has been in fossil fuel fossil fuels The IA also says that this year we will have more money invested in solar than an upstream oil production, which is worth noting, I think.

Seems a bit you know, like, I first of a first of a kind comps like this are always kinda cheeky. Like, that's the best way to think about them. Yeah. The question is what's the what's the vector behind that? But it's it's interesting to see. I think related to that, so that it is not inherent in those figures, but is important to note is that we're we collectively in the world are are well below historical levels of fossil of of oil and gas capital expenditure.

From the last time that oil was a hundred dollars a barrel, we're down multiple hundred billion dollars a year of capital expenditure. And it looks not exactly range bound, but doesn't look to be heading at the moment into another capital investment super cycle, which is intriguing. Still think it's early days of kind of figuring out all of the interplays here. But, you know, if you'd gone back if you'd gone back to his March twenty twenty two having watched for oil prices were doing and then said to somebody, well, they're gonna be, you know, they're gonna be trading below where they were.

I think people would be quite surprised. You know, we're starting to reach the point where there there are levers to inflect the demand trajectory for oil in particular in road transport. It is, you know, it is a global good price on the margins. So as you start to shave off the top, like you start to sort of compress the marginal the marginal curve.

There there are there are some molecules, you know, coal is at an all time high, and so for that matter is natural gas. If you look at the trends, it doesn't look likely that any time in the next like ten years, we're probably gonna hit the peak of natural gas consumption.

But certainly, IEA, but others like RMI would suggest that we're we're close to the peak consumption for all fossil fuels and within that at or very near for oil and for coal in particular. I think the biggest challenge for coal is that the single largest consumer It makes its own internally ring fenced decisions about coal production that have national security reasons behind them but also have reasons such drought behind them. You know, that was the the the spike in coal consumption in China last year is largely because it had trouble with hydro production, and it was extremely hot. So you you have things that you you can't really model out of the very long run and expect to come true in the in the very near term. As I recall, China's peak demand.

It it sort of gap up in peak demand incidents from twenty twenty one to twenty twenty two was about the same as Germany's entire power generation fleet at peak capacity Wow. It was somewhere around two hundred gigawatts.

So when when that is your when that is your your delta that you're playing in, small small moves relatively can actually have fairly large absolute implications.

But we're, you know, we're we're at a moment where you can see these things peaking and then all sorts of questions begin to emerge.

That's really challenging if you're in a capital investment scenario. What do you invest for? You know, if you think about investing in the last oil the the oil and gas super cycle that was certainly before the financial crisis and then again briefly through about twenty fourteen afterwards you're on the assumption that like this is a this is a monotonically increasing demand function with the exception of global economic meltdowns.

I'm going to invest so that I stay ahead of that. If you find the scenario being more than, like, well, we're either range bound in terms of total consumption or it's gonna begin to decline, invest strategies have to change. He's now you're not you're no longer chasing the marginal barrel. You're chasing the marginal cost.

You're trying to get to places where you where you are producing at the goest possible cost instead of producing in the greatest possible volume and you start to have other imperatives. I think the the strategic imperative for the global super majors and definitely for the independence here in the US has been to de lever and get yourself to a breakeven cost that's as low as possible. And that needs that needs the interesting implications where you can produce less and return more money to shareholders which after burning through more than a hundred billion dollars of shareholder money in the US shale patch, investors are well are are are delighted to have happened.

So you've you've got strategic imperatives that I think will be changing and our goal our our our and I say this in the most honest way are really challenging to think about if that has not been the basis for an executives training in the sector and for the sector's own self education as far as what you can expect of coupling economic growth with total GDP equals this much oil, gas, and coal. Maybe you do some switches on the margin between, you know, from from oil and power generation to coal, which is what happened in the nine in the nineteen seventies in the US. And then to gas instead of coal and power industry which is happening around the world.

Oil still goes on because of cars and petrochemicals.

But thinking about how this is all going to work if they all reach a peak is is making legitimately challenging. And and to be to be fair, I think it's also hard to do because It's not in anybody's strategic framework because it never had to be in anybody's strategic framework. And what about the additional spanners in the works right now? So Costal capital is double digits. Yeah. We've got war in in Europe.

There's a lot happening that would that it sets some of these models off in very odd directions. So it does. Those those things impact this. So it's funny, you know, you know what it sets off to my mind more than the models as it sets off the talking points?

If you go to a big energy conference, what you will hear is not so much today, but certainly nine months ago, you would hear like, well, supply chain issues, inflation, war in Ukraine. They have clearly shown us that, like, the energy transition is not on track.

Except that this is complete nonsense because it's like an almost data free assertion. I was like, well, wait a minute. We had record installations of solar. And we had record new power generation coming from wind and solar last year.

Europe, Continental Europe, in particular, jumped forward its energy its energy decarbonization trajectory by, like, maybe a decade because of quick decisions that have been made. Industrial policy has snapped to the fore in a way that it hasn't in decades.

EVs are more than ten percent of sales. EVies are displacing one and a half million barrels of of oil demand every day. The incremental additional power generation from Wyndon Soma last year is about what France generates in a year. I'm like, I don't know what other signals people are looking for to show that that it is working versus not working.

It does certainly inflect the way that people think about supply for hydrocarbons. But leaving that aside, talking about the money element is that, yes, the cost of capital for assets that are highly levered and are and have a levelized cost informed almost exclusively by capital expenditure and not operating expenditure is a thing except at least on a levelized basis, the marginal unit is still cheaper from winter somewhere than from coal or gas in particular in Europe. And we see no substantive pulling back in any of these investments friends. And so it's it's really it's really interesting to see.

I I think what's has been also fascinating. There's something I wrote about actually published last week just a day before we're recording now was what it has done to the internal strategies of the supermajors in particular in their thinking about investment. So we're starting to see a little bit of pullback in how the the five biggest international oil companies and publicly traded oil companies are treating energy transition. This is a challenge for them, frankly, you know, I'd said this in a neutral way.

You have you're going to have a sort of structurally lower return on your unlevered or unlevered renewable assets compared to today's investments in upstream oil or gas. Now that was fine when they were sort of aligned. It was an easier pitch to say gonna decarbonize, but you do have shareholders. And so we've seen some sort of rebalancing and sort of portfolio expert expectations in terms of what companies were gonna do.

Oil companies have gone from three point two to about thirty two billion dollars worth of energy transition CapEx since twenty fifteen to last year. It's gone from point eight to about eight point six percent of their total CapEx within the the supermajors going towards or the majors in general going towards energy transition. But what's interesting is they've also gone from point eight percent of energy transition investment written large towards less than three percent of total energy transition investment. So while this has become a, you know, this big it's a ten x internally, in terms of what it means to the oil and gas companies, it's only about three and a half to four x within what it means for energy transition.

Now, as some of my some of my good friends who are running companies and pretty raising money have pointed out The oil majors have played a disproportionate role in early stage financing actually. There might be more material their role in providing venture funding for a lot of these new companies than they have for asset based financing, and I think that's important to note. And they also have commitments as nominated partners into other people's other people's funds. And it'll be interesting to see how those play out.

Those are a little bit longer dated, and that gets hard to probably pull back an LP commit, a limited partner commitment that you've made.

That's difficult probably to wind down corporate venture capital fund. And we've seen one of the majors do this, Total did this recently.

So we're at we're at a place where, like, I think this is a bigger deal for the majors themselves than it is for energy transition. Like, a a a rotation back towards hydrocarbon production and processing and away from renewables, particularly renewable power generation means more for the oil companies than it does for the energy transit. That's good to know. And so if we talk about renewables for a moment, what's the current state of renewable? We at Motor, we talk a lot about batteries and collocated assets. But what's the state of renewables in general worldwide?

It's important to note that we have global markets, but we also have disproportionate shares of the developed markets in particular. And I think this is something we should be aware despite all the set of benefits, the distributed benefits that come from solar for instance and how much that should be scattered around to places where the grid is thin or nonexistent, providing power in the margin could be really useful. Most of the investment is happening in the developed markets where there's capital to provide. Probably gonna do three hundred and fifty gigawatts of solar this year installed, which sounds bananas to me as a former Solar analyst.

Like I I have to remember that I have to remember that, you know, suspend my disbelief so to speak and trust in the trust in the compound annual growth rate. But we're, you know, we're we're on the way towards let's see. At the moment, I think about eighty more than eighty percent of the marginal year on year electricity demand growth is being met by renewable power already.

We're soon to be at the point where it's more than a hundred and per the oil discussion we had just a moment ago, it's gonna have very very interesting implication when this becomes all not not just the only you know not just all of the growth but then the only growth and then forcing everything else not we can call it negative growth, but forcing them sort of out of global merit is going to be is going to be interesting. But I think what's also important is that there there is we can see in particular in batteries and in summer. If you look into the announced production, not even that far out. The announced production in the next couple of years for production capacity for wind for solar in particular and for batteries.

We're very close to, if not well above in Soma's case, what you would need to produce for a net zero scenario. We sort of have to backfill Like, the the the the capacity has been announced.

The factories need to be built, then they need to be operated. But the IEA has stated that even if you were to if you were to build every somewhere module factor that's been announced today. And if you're to run them at the historically fairly, fairly, forty percent capacity, you're still going to be producing like six hundred gigawatts of PV modules a year. You know, find yourself well within the frame of what's needed within that sector alone to to reach net zero. So having watched Sommer long enough like disbelieve suspension is an important part of the analyst's process.

They sort of look at that and be like stop disbelieving it and just remember that every time you disbelieve it in the past that happened anyways, you know, you can you can analyze it very carefully in terms corporate strategy is, what the mindset is behind it, but it tends to go on. It's a highly distributed sector with highly distributed, highly competitive thinking. And just go ahead and saying like, listen. This is this is we're more likely than not to be able to hit this fairly easily. Like, if we wanted to do a terawatt of PV a year in a sector that has a high twenties compound growth rate.

We we need to double it one more time, and then we need to grow at another fifty percent.

In a sector with, like, a twenty eight percent, you know, twenty point twenty five percent compound growth rate. That doesn't require a lot of imagination to get there, and it's important to look at it and and not assume priori that there is some kind of limit to that happening. And I say that only because every other time it's happened, it's been pretty silly.

It just hasn't it hasn't worked. You know, I I I have recollections as I'm sure you do from earlier days, a a great engineer who would swear up and down to you that you can never do more than five percent PV penetration in any grid. Alright. Well, not to sound too much to to Jeff Gold Bloom in Jurassic Park, but you know life finds a way. Right? And it finds a way because there is a business imperative to do so. You know, capacity once in it once built, once to run, you know, products once produced want to be installed, power, you know, assets once installed want to be energized energy once available wants to be consumed and you know the cool thing is that I think we can take on faith that it's definitely within technical and financial feasibility to ship seven hundred gigawatts a year of PD modules.

And then it's up to the market to decide what's gonna happen with that? Like what's the best use for it? And this is another thing that I think people sort of discount is that if you manufacture your job is to manufacture a product and to an to a healthy extent, allow the market to determine where that is meant to go. Now we've seen in the solar sector in particular over time, there are some periods in which companies internalize that to to say, I'm gonna go develop assets. I'm gonna become a greenfield developer of assets using my own material.

But still, the bulk of what happens is that a product is made and sold it goes into the market, and the market, and market participants determine what to do with it. We talked a lot about solar there. What about what about batteries? What's your view on the impact that they're gonna have?

And I'm not even And that's informed. Yeah. I'm not as informed on batteries as I'm on Sowars. You can tell it's once a Soware enters always.

What what what I found always at first, it's mapping to a very established trajectory in the same way that Solar was. Second, we've had a near we've had near term impact from the commodities and the cost of capital input. To it. You know, last year, the price of EV of batteries at the index and that will ticked up a little bit.

What I'm excited about and I should probably throw this question back to you is what's coming in terms of diversifying the technological capability. And this is where I want to sort of question my own priors on solar. So bear with me another Sommer analogy. But like what we saw in Sommers that like you met a thousand new Sommer semiconductors bloom and they all withered and died with the exception of one sides crystalline silicon.

It was just hard to make a differentiation between them when the prime determinant of value was cost and then the cost of energy that came out of it.

With batteries though, I'm super interested to see what happens in terms of moving from you know, we've had one trajectory towards sort of the the the ever greater efficiency and energy density of today's high performance lithium ion batteries. But we're starting to see sort of competing trajectories from lithium iron phosphate, MFP batteries which is if I recall correctly, we're sixty two percent of all EV batteries in China by by volume last year. And then coming behind that sodium ion batteries which we're starting to see enter the wild through promised production on the part of major manufacturers.

I think this is gonna be really cool because it's the case where you can see differentiation and performance you know, you maybe you have lower efficiency, but you also have much lower cost. So that'll now is a differentiation in terms of where these battery chemistries are gonna be deployed. I would love to see grid install batteries at scale and at volume that are that are different than what we have today. As well as eventually moving into the sort of the longer duration, let's say, multiple days of storage where where that's needed.

Again, what I think is exciting and healthy here is that this competition will happen in the daylight. It will happen with competitive tenders and RFPs, it will happen with manufacturers, engineers, quality controllers, bankers, looking very carefully at what's there and saying I think this is gonna fit and you know, let's let the competition happen. But I'm gonna put it back to you, and I want you to tell me, like, what do you think as you look ahead on on the battery the battery universe? It's similar to solar, but it's quite different too because you have different use cases.

The solar use case is quite carbon copy copyable, but the use case for batteries are very different. I think the thing that always surprises me, and it doesn't get talked about enough, is there's a lot of but naysayers around electric vehicles and batteries. And a lot of them suddenly, have a huge moral compass around minerals. Right?

Which in itself, in itself, is quite ironic, you know. If you're gonna go and, you know, wear fast fashion and and consume all the other minerals, then and and all those other issues with the modern capitalist system. This is the one you have an issue with. But anyway, that's not really that's not very good argument.

Right? What we need to do really is use a lot less of these minerals. And that's exactly what happens. If you if you look at the data, the amount of cobalt, which is used in the generation of myself looking at now compared to ten years ago, is is orders of magnitude less.

I mean, these the the the economics of these minerals and the the supply chain which nobody's happy with. It's not like there's some people on the earth, some people who are building batteries battery cells -- Right. -- who are saying, yes, I love this supply chain. I want you know, the the the the the Congo to be the single source for all of it.

Nobody wants that. And so they're designing out these kind of minerals, but it just doesn't get talked about enough. I don't think. It doesn't get talked about nearly enough.

It is it is amazing how often, you know, that pops into the mentions so to speak. Like, what what about this? I was like, Would you like to talk about, like, what two centuries of a hydrocarbon extraction has done? Like -- Yeah.

-- come on now. Like like like it's It's most I find these arguments mostly insincere. I think they actually are very they're they're specifically much more important than they are generally important if that makes sense. And I, like, a thousand percent support being like, look, this needs to be done as absolutely well as possible with the most attention to social justice, to equity, to pollution, to opportunity for everyone.

It really does. But I think sector itself is generally aligned with that. So I find I find most of the arguments against to be in very bad faith.

And and and also very, to your point, very uninformed regarding the actual trajectories that are there. As you say, It's not like there's any beneficiary within the sector to high degrees of concentration and structural shortages.

And that's where that's where these highly distributed, you know, high unit volume sectors are fantastic at finding new ways to do to do the fundamental job, and the fundamental job is not a particular battery chemistry. The fundamental job is the cost of stored electrons.

That's it. Right? Like, and there's there's some differentiation based on particular applications.

But again, that's that that will be determined in a very supple way in the market. Like, it's not like government sit down and are gonna be like, Nope. Here's our once every five year tender for batteries.

Yeah. Exactly. That's not, you know It's not gonna happen.

Right? And then never gonna specify if I you know, no government is gonna specify, here's the chemistry that you're on out to pitch us, and that's it. No. Like, like, it's it's it's well, I'm sure from this function of competition.

Yeah. Never say never. You never know. Yeah. Well, I I look forward to the, you know, to this sort of the co the the cobalt working group you know, you know, popping up at the EU that require certain percentages.

But, you know, by by about the time that that comes to bear by about the time that that's out of committee, as we would say in the US, it will be irrelevant. The market will have moved past them. As if there's some executives somewhere at Samsung SDI, rubbing their hands together at the delights of having so much of their supply chain stuck in Africa. It just doesn't doesn't make any sense, but whatever.

I wanna move on to something that is proprietary I've heard you speak a few times now in lots of different settings, but particularly about a new framework that you have about you call it the ages, the three ages of decarbonization. Yeah. Yeah. Could you talk a little bit about how you're thinking there?

What's the framework and how you apply it?

So the the the the framework was that we've we've built these sort of first year and, like, I will I will call I'll step back and call them my snides, like, first year consultant snides. Like, strangely, they were the the hardest ones to build when I was building this last year. But, basically, thinking that we have these sorts of, like, three overlapping and compounding waves of thinking about decarbonization. You know, the first is looking at a world mostly of renewable energy driven mostly by subsidy, mostly in a specific set of markets. And mostly with limited applications.

Wind and solar, bioenergy to an extent, carbon markets in Europe, the kinds of people that did this were themselves small teams, small companies, specialized groups. Every kind of instrument behind them was fairly bespoke in particular on the financing. Like, you had just a couple of people working on this thing or a small PE fund that was doing it.

And as that as that as this sort of becomes a, you know, a a a victim of its own success, you sort of have to widen the frame to thinking about more more activity and decarbonization. And that's energy transition which comes next and includes everything that went before, but also includes electrified transport and battery energy storage, the early intimations of thinking about decarbonizing heat, and it has a bigger frame. It involves bigger companies. The group's within a company working on it or themselves bigger.

They're doing everything they went before in renewable energy. That doesn't go away. But the strategic frame adds this extra layer of capability. And it also if we think about it as an abstraction layer within the company has moved itself up from special situations group to maybe strategic planning within a big company.

There's an SVP for x, you know, there might it might report to the CFO or the chief strategist. It's definitely something that the CEO is aware of on more than a boardroom quarterly meeting periodicity.

And that's sort of where we are right now. We're talking a lot more about the next one, which is net zero. And obviously, it's everything that went before, but it's now doing the the remaining ninety percent of decarbonizing electricity and and sales of transport on the ground, but then also shipping rail, if we can do it, aviation, if we can do it. Heavy duty transport on the on the surface, class a trucks and whatnot. It's also going after industry. So it's going after making steel cement, aluminium, It's going after food and agriculture things that don't sort of fall within that same industrial framework but are very very essential. It involves attacking things like methane and CFCs, not just carbon dioxide.

And it needs the company no out. Like, if you're gonna said that you have a net zero approach, like, you you can't cheat it. There's no way to go in and say, well, I did ninety percent net zero and ten percent will be just sort of abstracted away or it's somebody else's problem. You also talk about managing carbon so, you know, removing it from the atmosphere and finding a a geologic home for it or or using it in some meaningful way and that's economically viable.

And it seems like the logical next step because it is from a sort of like climate strategy perspective, it is the next step, except that it's extremely difficult to do.

And companies, when they make these commitments, can kick them out so far, it to to be sort of blunt about it, that whatever decision make -- In the future, -- made that decision, it's not gonna have to do it. It might be like, it's out it's beyond their frame. If I if if I'm a an executive in his or her late fifties to early sixties and I say, this company that I am a professional steward of is going to hit net zero by twenty fifty, that will occur when I'm either my in my mid eighties or potentially my early nineties. I would hope that I'm no longer running that company by that point.

And I think it's important for us to remember that, like, this is it's both evolutionary rhetoricly and in terms of how companies, I think, arrange their own thinking, but it is absolutely revolutionary in what it entails. And so my sort of goal in proposing this is to have help people consciously think through okay well what does that actually mean? It was easy to say it's difficult to do. In retrospect, the thing the pre the prior waves we've gone through were at the time they were hard to say, and they ended up being easier than people thought, to some extent.

This stuff is easy to say, and it's gonna be very, very hard to do. And The other reason I I I pause it that is that because, like, more than eighty percent of global GDP of global emissions and of global energy are covered by one of these targets already and many of the key industries have got forty to seventy percent of their production today one way or another assigned to get themselves to net zero by the middle of the century. And like, this is hard. This is not harder than just saying, Well, I'll convert every warehouse to being on a virtual PPA power purchase agreement for Sommer and what be dang.

I'm done. And now I've, like, you know, I've I've hit my energy transition target for my warehouses or I've shifted all of my night duty vehicles to EVs's over the course of a decade. Great.

That's a little bit easier than saying, like, I'm going to decarbonize cement production or steel things like that. And there's exciting activity happening, but, you know, one of the things that I focused on in the back third of my my presentation was how are you gonna how are you gonna think about this as a company besides just like it's an opportunistic investment like who do you partner with? Who do you acquire? What do you get rid of?

Where's your competitive advantage gonna go? How do you think about the fact that, you know, you could be in an energy transition process in a big company, and it has left completely untouched ninety percent of your property plan equipment. Like if you're actually going to decarbonize all power generation are you gonna do with all of your old stuff? Like like and and part of that for me is to be constructive.

I'm of the mind that a lot of these things will be reused You know, I I called it maybe my most abstract bit of writing ever, the ship of theseus argument that, like, the value of a Brownfield asset somewhere is is sort of schrodingerion in the near term. Like, it's either a giant environmental liability, billions of dollars to clean up, or It has multiple hundreds of millions of dollars worth of transmission connection, construction lay down feed water You don't need to worry. This is very cynical, but you don't need to worry about about precise on-site disturbance of soil if you're covering the entire area with something new or remediating the entire area, you know, and and what is the value of the asset back to the ship of theseus is If you rebuild this entire thing, right, you've rebuilt every rivet of it.

What is it? Is it still an energy asset? Is it a liability? Are you going to put into this site that used to have a subcritical coal plant?

Is it going to be full of batteries? It gonna be a new demand center where you stop at full of electrolyzers and you draw from a decarbonized grid? Is it going to host small modular reactors?

Or question mark, like how are people going to start to view this and the associated human capital that goes with them and especially in location only specific human capital into in in into these new places? How are we going to con how are we gonna consider what people are capable of doing with all of these assets? So this is very hand wavy. I will be the first to say. But I think it's useful and hopefully after being after arriving at it on the back end of like a hundred and twenty very evidentiary slides that these are the kind of questions that I hope people are asking of themselves.

And so now the two questions that everybody gets asked. The first one is if you got anything you wanna plug and we're gonna put links to a load of your content in the show notes. So I'll just say to anybody who's listening, check now on Twitter is a great place to find him. But not anything that you're working on that you wanna talk about or you wanna plug. Here's your chance. I'm work I'll be working on the next one of these the next one of these decks as soon as I get as soon as I get the chance. Like, I have a I have a sort of running file of things that I feel like I need to be visualizing putting into the next framework.

I'm practically salivating because the statistical review at the erstwhile BP statistical review was published mere minutes before we started recording, so I cannot wait to dig in and find out what's happening in the world and the world's energy stocks and flows. I think that that's the main one. It's like, look for this one, you know, early next year as soon as I get time to to settle into it. But I really need the time.

I've got dozens of things that need building. I've already built another fifty small. It's the good follow on last year's. And I'm just trying to figure out what the story is.

It's a very salutary process. It's very iterative. I wouldn't call it easy, but it's rewarding.

And I've gotta say, big fan of the logo. The colors in the logo match the colors in a slide every time. Love that. I I I put them out of work into that. You know? I I was it it was actually part of my budget when I when I sort stepped out to do these things independently was to hire a very good designer.

If you if you wanna pitch, I will pitch Sabrina Yenn of Kasava Studios who did my my colorways, built the built the logo, helped me visualize what was there. And honestly, that that in and of itself was a very important part of the process for May. Though these are things that are not within one's own capability to determine when you for a very large corporation, but are if you're independent.

And it helps it it helps it be memorable. It helps it be mine. And I think carrying through lines of all this stuff across across various visuals is is useful. To me, it was it was a it was a fun part of the process.

And now I wanna ask you the most exciting question, really. And I'm really interested to know what you have to say about this. What's your contrarian view What's the thing that you believe with all of this macro knowledge that you have and all the experience? You know, what's what what do you believe that Perhaps not everybody else does about the world of energy.

I think that the the changes that come will be faster than the changes to date. That's my contrarian view. Is that actually the last the last exponent, if you will, to get from ten percent to a hundred percent decarbonization is actually going to be the one that moves the fastest rather than the slowest. And that is very contrary and I think because this gets very much into sort stocks and flows question.

You know, there's all this that we've con that we that we do right now. There's all of us we built to run our current system.

It's huge. And in fact, it's all at its peaks where, you know, basically, all time peaks and emissions and in the and therefore by definition and consumption of the things that provide those emissions But, you know, the trajectories of the of the instruments of change are as fast as they've ever been if not faster with much greater scale.

And the fact that the the overton window now includes the deepest possible decarbonization or even net zero as the way that companies need to think and the way that individuals can align their own thinking is extremely exciting. So that's my that's my contrarian view is that it'll move faster. I'm not saying it's gonna be easier, but that it'll move faster now than it has been moving to date. It's very difficult when you have an extremely high embedded base and you have a very low level of exponential growth. We're starting to see them kind of come into the same frame where people pay attention to them, you know. The first trillion is the hardest, so to speak.

But now watching watching the change to come, I think, I I I think that I'm very hopeful that people want to attack the most difficult problems. At every level from the entrepreneurial write up to the multinational company, I think that governments themselves are pretty committed to helping support these paths along the way. That's things like, you know, the IRA and fit for fifty in Europe.

And that if we look at the generation below us, we're both fathers.

I think that our respective children's expectations will be entirely around a world where by the time they're our age, there are hopefully, no net emissions.

Incredible. Nah, we're gonna leave it there. I wanna say a massive thank you for coming on. I know you've got plenty going on moving continent and all of the stuff you're working on at the same time.

Yep. But it really has been a privilege. For anybody who's listening, check out do read the show notes, go to all the links, check out Matt on all mediums, You'll learn a ton, we certainly do. And remember, hit like, subscribe, and all the good buttons, it means the world to us.

Thanks, Nat. See you next time. Thanks, you.