A Climate Change with Matt Matern Climate Podcast

Now the fossil fuel industry is flailing and failing, of course. And guess what? Those death rows are not pretty. Everyone lives somewhere. So you look at your own home, the gas furnace, for example, yeah, there’s always a more efficient gas furnace. Dr Gernot Wagner, he is a climate economist at Columbia Business School, author of six books, including climate shock and geo engineering. The gamble. You can’t pin this transition on wishful thinking. You can’t pin this on Oh, wouldn’t it be nice if we found the solution?

You’re listening to A Climate Change, this is Matt Matern, your host. Got a great guest on the program – Dr. Gernot Wagner got an amazing show. I’ve got so much to ask him. He is a climate economist at Columbia Business School, author of six books, including climate shock and geo engineering the gamble. He is a faculty director of climate Knowledge Initiative. Also frequent contributor to the New York Times, Washington Post and Project Syndicate. He’s a specialist on climate, economics, policy and technology solutions. Welcome to the program, Dr. Wagner.

Great to be here.

Hi Wagner. Or should we pronounce it dramatically?

Which continent are we on? So yes, Wagner is good. And just to give you a sense of the confusion here, so I have two younger brothers, both back in Austria. They are Mike and Rob. I’m the one with this name here in this country, but you know, I’ll roll with the punches. Okay, you know, I was listening to the classical music station, and they say, Wagner. And so I just was, there we go, okay, Wagner. Wagner, sorry, in a way.

So anyway, I just wanted to, kind of, you know, get a little bit of your background. You’re currently teaching at Columbia. How did you end up there? So I actually can proudly say this is the first time, I think the first time I got a job all by myself, as opposed to being the plus one was my wife. So no, so we’ve basically been moving up and down the East Coast for a bit, and it actually was always me following. My wife was a gynecologist, so that’s how we ended up in New York at NYU. In my case, they wanted her. I got a job too, and then I moved up to Columbia while my wife is still down at NYU. So yeah, I’m basically the climate policy guy at the business school, or the climate policy guy at a business school. And in some sense. Well, that says a lot by itself, right?

So, yeah, yes, business, of course, is important. I mean, for real right at the end of the day, this is all about channeling market forces, guiding investment in a big way in the right direction. How do you do that? Well, making sure that policy guides market forces in that direction, while at the same time, frankly, realizing that none of this is if it’s when right technology is pushing in the right direction. It’s not if it’s when.

But of course, the when matters a lot, and now we are back to, what does it take to make this happen? Yeah, obviously, the Trump’s Big Beautiful Bill, you know, kind of hate even saying it in that way. But it is what it was called, you know, changed a lot of climate policy. And maybe you can walk us through some of this. And I guess the the lens that I would ask you to kind of look at is, well, you know, their argument is, well, if solar and wind are so so much better, shouldn’t they win the market battle against gas and and petroleum and coal? I mean, okay, so there are some differences, right?

The final details between, you know, coal and gas and oil for that matter, but frankly, they are now. Just look at Texas. Geez. Thanks to a fellow Austro American. You may have heard of California came first right when Schwarzenegger signed all the right laws into place, California Solar Initiative and so on. California took off like 2010 2011 2012 when Texas, when solar PV and wind in Texas was basically still more or less dormant. But that picture has changed dramatically. It actually ironically changed like right around the time of like 2016 or so. You know, Trump won, and not because Trump suddenly pushed solar, not at all. Of course, quite the opposite. He tried standing in the way back then too. Meanwhile, we’ve seen this well as exponential takeoff in a state like Texas. Why? Because solar, PV, batteries, wind, are fundamentally better, cheap.

For technology. So, in a, you know, in an environment where, in some sense, nothing is standing in the way, where you can just build, build, build. That’s happening, California is still building more solar too, but it’s, you know, if you look at the line, it’s sort of a linear takeoff. It’s been linear ever since, you know, 2011-2012 Texas came in late and came in big, okay, back to the big, beautiful bill, which, yeah, is not all that. It’s made out to be, at least the beautiful part, of course. So in some sense, that’s yet again, right?

This is an attempt to stand in the way. And of course, you know plenty of harm that that effort is doing, like directly, of course, but frankly, we see that now with all the other stuff, all the executive orders and so on, in addition to this bill, trying to stand in the way of renewables, of solar, of wind, of transmission, because apparently that’s what’s needed, right? If you got out of the way, there are still incentives that will help, of course, largely because, turns out we do subsidize, directly and indirectly, fossil fuels in a big way still in this country. But never mind lack of incentives, right?

What we see now is executive orders saying, Thou shalt not build renewables again. Why is that necessary? Because on a level playing field, solar PV especially, but not just solar, wind, batteries, too, increasingly, would win. And yeah, if you know, if you have the infamous billion dollar Mar a Lago campaign dinner, right? I mean, the dinner wasn’t, didn’t cost a billion bucks, right? But it was something like, right? If you give me, if you do fossil fuel industry, give me a billion bucks, I’ll make sure to to make you whole, yeah, of course, right. That’s what this is about. Instead of vaguely paraphrasing a UN Secretary General from a couple days ago, at this point now, the fossil fuel industry is flailing and failing, of course. And guess what? Those dead for alls are not pretty.

They are not if you basically have the world’s most powerful, most profitable in many ways, in the narrow sense, right, externalize the costs, internalize the profits, if you have that industry looking at its more or less certain demise as an oil and gas focused industry. Yeah, that’s not a pretty sight. Yeah, certainly, anytime an organization or societal situation is going through a death rattle, it’s, it’s grabbing, it’s grasping, it’s, it’s doing whatever it can to to hold on for as long as it can.

And I guess, kind of pivoting a little bit, but not too much, to to the man, if you’ve written about this, the manufacturing of solar panels in in red congressional districts in you know, major solar manufacturing is going on in those districts. What do you think that it will stop, slow down? What will happen as a result of this big, beautiful bill that is probably manufacturing here in the US or US competitiveness writ large, is probably the biggest impact of this bill, right? Who’s the big winner, China, right? So, in some sense, right?

From a global climate perspective, we will continue to deploy solar we will, you know, Longi, of the largest solar developers, solar producers, manufacturers on the planet, okay, yeah, because of solar tariffs, fewer panels going to the US, and that has a real impact here for us, consumers, US households. That is bad. Those panels are going somewhere, right? And China deployed more solar PV last year than the rest of the world combined. Right? All these amazing statistics, amazing for the world and for China, not so much for us, competitiveness, especially US manufacturing, right? So what’s happening? Or what did happen?

Well, okay, again, Longi, not the only one, of course, but in this case, yes, Longji put in some like $600 million investment in illuminate, a joint venture where, technically, is the junior partner in Ohio, 1500 jobs, five gigawatts, 5 billion who Watts worth of solar PV, manufactured in the great state of Ohio, run by a Republican governor who, of course, right, shows up at the opening and has nice things to say. Of course he would. And, yes, big picture. Of course, most of these manufacturing facilities, on the one hand, offer the better deployment solar, wind, renewables deployment is happening in red districts. So yes, this is, you know, this is What’s the Matter with Kansas all over again, right?

This is basically where bubble districts, Republican Congress reps, Senators voting against their own. Districts, states, self interest, you know, to stick it to somebody mostly themselves, of course. And none of that is good. So what’s going to happen to that one plant in Ohio?

I don’t know. Big picture. We went in the US from under 10 gigawatts of PV, solar, PV manufacturing capacity to 50 earlier this year, which is approximately how many panels the US Americans install these days. So we went yeah, from not quite zero, but five gigawatts or so in 2020 or so under 10 in 21 to 50 gigawatts of solar panel assembly capacity in this country, yes, thanks to the inflation Reduction Act, yes, thanks to subsidies, and that particular sector is hurting, right? So it might still be the case that a plant like illuminate will not just survive, but thrive in many ways, because the investment has already happened, and yeah, thanks to solar tariffs and so on, tariffs on panel imports, it might still be worth it to weather the Storm and keep going.

ut of course, it’s removing investment tax credits, production tax credits, hurts the bottom line of those manufacturers, and that’s where the trend will show up negatively. We won’t see another illuminate anytime soon in this country, because those credits are gone. Well, it’ll be interesting to see how that plays out and whether or not market forces pull more investment to those areas or not. And of course, as you said, China is in the dominant position now, and we kind of let them get a further lead, I guess. Let’s let me play the devil’s advocate for a second and just say, well, China’s producing a product that is kind of like a commodity. It’s not a high tech product. Let them take solar, and we’ll take AI. What would you say to that one? Well, you need solar to power AI. That’s the first that’s the first answer. And I mean, in some sense, sure. And by the way, laundry as a company isn’t doing too well. Why? Because, yes, solar PV has turned into a commodity, right? You know, there are a dime a dozen, actually, quite literally, right?

They’re so cheap, so no, you can’t make a lot of money manufacturing those commodities. Another paraphrase, a yield by now, cover of The Economist the magazine solar PV, the three ingredients sand sun and human imagination, right? And all three are limitless. And, yeah, it’s done a dozen so cheap. No, you don’t necessarily, as an advanced economy, want to jump into that sort of industry. You’re not going to print a lot of money. Now, that said, there is, of course, a reason. There are very good reasons to want to keep manufacturing capacity, or want to onshore, for that matter, manufacturing capacity in this country, in the US, in Europe or elsewhere, it’ll cost more? Yes, there are trade offs. Well, there is such a thing called the security premium, right? There’s a green premium for us, climate folk, right?

So, yeah, certain technologies currently cost more. They do. It’s the green premium. Green steel more expensive. Somebody’s got to pay for it to climb the learning curve, slide down the cost curve. No longer needed with solar PV because it is so cheap. Well, there is a resiliency premium, a security premium, whatever you want to call it, there are good reasons to want to onshore manufacturing jobs, to want to keep those manufacturing jobs and green jobs, if you will, when it comes to PV, batteries and so on. You know, all that said, back to your question, right? Ai, yes, right. So, you know, we are suddenly in a an amazing bubble on this one, right? Where, by the way, once again, right? China might figure out how to do things much more cheaply, much better, and already has, right?

You don’t have a better name for it. It’s called Deep seek, as opposed to whatever names are. Whatever names we come up with. But of course, there are more productive users for investment dollars than commodities like solar PV these days. Never mind that, in that case, you may want to get out of the way and let the imports in, as opposed to doing both right, killing us manufacturing and making it more difficult to import the cheap panels. Well, obviously we’ve seen in situations where something as low tech as mining of metals, rare earth metals has become a big pinch point and.

If, some future time, if we completely got out of the solar panel business and let the Chinese run it, they could then have another leverage point over us in future negotiation to saying, Hey, we’re not going to give you any more solar. And it would, you know, limit our power growth in the future, which could be devastatingly bad, true. I mean, okay, now we are talking, you know, there are plenty of factors here, geopolitical factors. And, you know, yes, right transition minerals, critical minerals, whatever we want to call them. Yes, there too. China is dominant in many regards. And yeah, right, we should. It would behoove the US right to reinvest, invest in this kind of right, in the right kind of mining, if you will, right? Like, yeah, Trump is right now trying to prop up coal mines, right?

Okay, good luck. Or basically, what we are doing, frankly, is we are propping up the sort of coal mines that are then exporting the coal to the Chinese, once again, making them more competitive with our taxpayer money. We are not going to arrive coal in this country. It is woefully uncompetitive. Never mind the fact that we are trying to basically prop up the wrong kind of mines, the coal mines, while yes, not putting as much emphasis on the critical, the transition minerals, as we should. Right. We could spend billions, you know, we’re spending a micro, you know, like a few billion dollars on the rare earth minerals, when it is such an important piece of the puzzle. We should be spending more on those two. And quite frankly, that might have been a failure of multiple administrations, of not just putting the money into it and saying, Hey, we have we’ve seen this coming for decades. This isn’t like something that just came out of the blue.

Let’s pivot a little bit and talk about your being a board member on carbon plan, and tell us a little bit about what carbon plan does, and what your role in it is. Well, it’s a small but punch above its weight. Ngo, I would like to say carbonplan.org which open, transparent science, basically, is the tagline. It’s an amazing org doing just that. Yeah, full disclosure, I’m not speaking on their behalf here or anywhere. I am just a board member, but they’re doing great work, and especially right about now, right open, transparent and science ought to be mentioned in the same sentence at all times, anywhere, frankly.

Well, while US Federal science is pulling back in many, many ways, it is in many ways, sadly, incumbent upon civil society NGOs to jump in, to step in. Now, there are plenty of other reasons for a group like that to exist, of course, right? This is not just a reaction to what’s happening in Washington right now, plenty of good work to they have done long before Trump got re elected, and it’s the kind of nimble organization that can allow itself to jump from high, highly important, high leverage, if you will, topic To topic. Again, punching above its weight. It’s a tiny NGO relatively speaking to to the sort of topics it tries to tackle. So tell us, how would it How does it do that? Well, actually, okay, so here’s one example.

One of the early claims to fame was carbon plan, basically unearthing hundreds of millions of dollars of allegedly fraudulent carbon forest offsets entering the California system. Now, you know, I’m saying allegedly to cover my own legal behind here, but it’s pretty darn clear that, well, you can’t sell the same offset credit twice, let’s say, or you can claim that you ought to be paid for preserving that particular tree while you had no intention of cutting it down to begin with, for example, right? And, okay, that’s, of course, a that’s a much bigger topic, right?

This is sort of, actually, this is the sort of stuff I do in my day job. This is the sort of stuff I focus on, what are the technologies, the pathways to actually cut emissions and cheap forest offsets are not in that category. It doesn’t mean trees are bad, right? Yeah, we need to find ways to funnel lots and lots and lots of money into nature based climate solutions. All of that is good, but if it comes at the cost of investment into your actual your own supply chain to cut emissions in, let’s say, your steel or cement or whatever industry supply chain, yeah, offsets have followed the problems that.

That sort of cheapo Get Out of Jail Free card would lead you to believe in hats. It’s not a way to cut your own carbon emissions. It’s a way to tell the world that you did. And of course, that’s the really bad trade off, right? What? You basically green wash your own operation. It’s not always that extreme, right? Some of these attempts are earnest,

I would still say, No, we shouldn’t try to figure out how to do this as cheaply as possible, as quickly as possible, while not actually solving the problem, but instead actually put in the money invest in the kind of technologies that truly cut emissions. So what do you see is those technologies that truly cut emissions most kind of, most bang for buck. This is, you know, really up your alley as an economist. Well, let’s start with the building sector. Actually, here we go. Welcome to my my my home, seven, 750, square feet, 3/3, floor walk up Lower Manhattan, we spent like $1,000 to cut the gas line in in this apartment, in the apartment, not the building, just the apartment.

Initially, you know, insulate, insulate, insulate, electrify, electrify, electrify, and then, yes, decarbonize the grid, right, which is not in my purview as the homeowner, right? Yes, it is a systemic problem, of course. But those first two, insulation and electrification. Yeah, it’s basically it in the building sector, right? You know, it doesn’t include low carbon cement and the low carbon steel to put up the building in the first place. But okay, if you have a 200 year old apartment building, like in this case, seven units Co Op, then yeah, those two steps are electrification and insulation, which, okay, the 100, 100,000 bucks, right? That’s, that’s pricey, no, that does not pay for itself in any reasonable amount of time. It’s also, of course, not the only benefit, right?

Carbon, CO2 climate is not the only benefit, at least the global climate, right? The internal climate here, how much more livable the place is, of course, that is part of the equation, and I should immediately add so we did this like five, six years ago by now. Had we done this now, or had we done it last year with sort of full force of the inflation Reduction Act?

Yeah, those costs would have been 30 or so percent cheaper, in part because of subsidies. In part because the technologies are getting better and cheaper. And of course, right, we could still blow, you know, whatever it is, 5000 bucks on the the top of the line induction stove. I still don’t know what the what the Wi Fi capability does on this one, but Okay, you go to IKEA and you get the $60 induction plate, same functionality. And no, I’m not saying IKEA will solve this for us. Will Save climate change, solve save us from climate change. But yeah, that’s a sign. That’s a really important sign that not too long ago, the cheapest possible way to boil your water or heat up your food was that $300 contractor grade gas stove.

Now it’s the $60 induction plate from IKEA and well, that’s the broader trend, right? These technologies are only going to get better and cheaper, while coal, oil, gas, coal prices, inflation adjusted, have been the same for like, 200 years. At this point you’re having technologies compete with commodities. And yes, okay, building sector, those technologies are pretty clear. In certain other sectors, cement and steel, they there are more pathways than just one. We don’t yet know which one is the winner. We sort of have a path towards deploying many of these technologies at scale. We need to get on with it. We need to basically have the right policy mix, the right investments, to push in the right direction fast in order to climb this learning curve and make those solutions cheaper.

Do we see well, US firms that are in the cement and steel industry and other heavy industries investing in these clean technologies, vis vis maybe in Europe, vis vis China. Are all of them proceeding in that direction, or who are the laggards? Who are the winners? Well, in fits and sports, and this applies to the US. In this case, Europe, in many ways, has a structural advantage here, because it is actually, in part, internalizing that carbon externality, right? If you know, if you treat the atmosphere like, like a toilet for your waste and don’t pay for it, then, yeah, you can get away with lots of things. So we see the most innovative steel companies, for example, in Europe, in fact, be on a path to zero carbon, low carbon, very low carbon steel. Why?

Well, because on the one hand, there’s a price on carbon. The green premium is law is lower or non existent, because, yes, you pay for polluting. You pay for the emissions that producing steel with traditional methods, coal, blast runners and so on, causes. So that’s one factor. The second, okay, where are those steel companies? The first one happens to be in Sweden, northern Sweden, near the Arctic Circle, Steger. Why? Because cheap low carbon electricity, in that case, from Norway, lots of hydro, some wind, lots of very, very cheap low carbon energy.

And Europe does have a structural advantage there. Northern Europe, in this case, has a structural advantage there. Elsewhere in Europe, disadvantage high cost of electricity, relatively speaking. And once again, we can look at China, which is doing a lot better than most of the rest of us combined on those dimensions too. So terms of hydrogen hubs, here in the US, they got started under the inflation Reduction Act. Some of them are in process. Where do you see those going over the next few years?

Are they going to be built out? Or do you think the plug has been pulled with the inflation reduction, I mean, with the big, beautiful bill. Well, a plug has certainly been pulled. And you know that might be a euphemism here for plug power, if you if you want to go into the details here, but it’s certainly the case that green hydrogen electrolyzers need subsidies at the moment, because, frankly, you know, hydrogen itself is very, very small overall, right?

Green hydrogen within the hydrogen business is currently, to put it bluntly, non existent, right? It is tiny. It takes massive upfront investment. It takes subsidies to get that industry going. Okay, so I hate to always point to China on this one, but yeah, okay, Longi, right, one of the world’s largest solar PV manufacturers in 2021 by now, formed Longji hydrogen. Why electrolyzer investments? Right? Trying to do the same for electrolyzers. What they managed to do with solar PV, and we are like 1015, years earlier than we are in with with PV at the moment. What does it take massive investments, scale economies, to get the cost down on those electrolyzers? Six out of the 10 top companies worldwide electrolyzer manufacturers are Chinese, actually, surprisingly, three of them are European.

One only is here in the US and okay, the big, beautiful bill is now removing the subsidies, the 40 5v tax credits. That was important, is important, would have been important to get this industry going now, what’s specifically happening to the hydrogen hubs? Well, you know, same, same thing in many ways, as long as we understand that federal subsidies need to continue here to get things going good.

And maybe there is some hope here, largely because oil and gas has lots of interest to to focus on hydrogen, to focus on molecules, on liquid fuels, but I’m not too hopeful for the US overall here, the 40 5v tax credits are gone, sadly, as opposed to continuing through 2032

like under the original inflation Reduction Act. Well, I saw there was a fairly recent find of hydrogen in France. They were drilling for it, and they found white hydrogen. Yes, yeah, yeah. White hydrogen, the clean stuff and or cleaner. And is there some prospect that maybe all this drilling activity, these oil companies could find more of that, which would be a boon to the hydrogen industry, and certainly cleaner energy than petroleum, right? I mean, it would be yes, right? And, of course, right, you know, in some sense, this is always the hope, right?

The hope is to find the white elephant, right? You know, like, you know, next up, we can talk about fusion, right? But so yes, of course, right. Wouldn’t it be nice? And to be clear, right? I don’t want to dismiss this at all out of hand, but okay, maybe hydrogen specifically, I think it was 1974.

So full disclosure, I was not around back then, but in 1974 The New York Times put hydrogen on the front page of its business section, and I’m vaguely paraphrasing the headline now, but something along the lines of hydrogen as the way out of the oil crisis right by the year 2000 and we’ll have the hydrogen economy, and none of what we currently experienced back then in the 70s will matter, because we’ll we’ll have found the solution.

Okay, that was 25, five years before the year 2000. Right now we are 25 years after. And it turns out we are once again, in many ways, looking at hydrogen as the solution, or, I would say, realistically, a an important solution, potentially important one. You can’t pin this transition on wishful thinking. You can’t pin this on Oh, wouldn’t it be nice if we found the solution simply by randomly drilling, or by, you know, targeted drilling, maybe. But still, and while it turns out there is a path, there is a pathway to produce clean grain hydrogen. It costs money.

At the moment. It is not so far out of the money as to be completely unrealistic, right? You know, by dreaming wishful thinking, not at all there are realistic pathways. There are companies putting money toward climbing the learning curve and climbing those scale economies to make the math work. And again, maybe this is not steel in Europe, but so staggerer is deploying massive amounts of electrolyzers, 700 megawatts worth of electrolyzers, by the way, produced by tussen Krupp nacera, tussen Krupp, German steel company, right?

So Steger is going to be competing with tussen Krupp on steel stagger is way ahead here on the low carbon steel front. Meanwhile, they’re buying the electrolyzers from disencrypt and Sarah and that the amazing thing here is that we see these investments right. Billions of dollars worth of investments happening as we speak, not because of wishful thinking, not because, oh, you know, wouldn’t it be nice if we drilled down and the clean energy would just spew out, but because there’s a realistic technological and investment pathway to make this transition happen.

Well, I know that the Biden administration was one of their goals was to create hydrogen. That was $1 I think, a kilogram. And I don’t know how close anybody is to getting reaching that goal. What’s What’s your understanding? Well, okay, on the green hydrogen front, we are not right. So we are like, you know, four plus dollars. So photo, 10, $12 or so per kilogram, which is why these $3 a kilogram subsidies for green hydrogen are very much needed right now for that green hydrogen to compete with gray hydrogen, right?

With the we produce plenty of hydrogen, as we speak, for the petrochemical industry, right? We need it ammonia production and so on. Where does that hydrogen come from, from gas, right from, from a fossil fuel. So, and, of course, it’s energy intensive to produce the hydrogen. It’s worth it because of the uses in the petrochemical industry. And maybe, you know, to take a step back here. So again, hydrogen is sort of seen as, you know, the solution or this, maybe you might be familiar with this, this infamous sort of Swiss Army Knife meme, right?

Hydrogen is the Swiss Army knife of of decarbonization, okay, yeah, I’ve, I have a Swiss army knife. I like it. It’s a funky gadget. It’s amazing, right? It’s essential. When you’re out hiking and you don’t have any other tool, right? It’s really cool. Here’s the problem. It’s a shitty knife. It’s a shitty magnifying glass. It’s a shitty everything, right? Like, you know, it’s cool to have it all in one but it’s not built for purpose for any one of these users. Now, I’m not saying that hydrogen is bad at everything, no. But I guess, to finish that particular story, the creator of this particular meme has since maybe more or less disavowed, not disavowed having created it. But basically says, Look, this has gone too far. No, green hydrogen is not the solution. Hydrogen is not the solution for everything.

Here it has. It fuses at a cost, and that cost currently is definitely higher for green hydrogen than that dollar per kilogram, you know, holy grail of, you know, having sort of the equivalent of grid parity here for hydrogen, right? The equivalent. Have we seen the cost curve go down towards that? And are we making really substantial strides on that cost curve, similar to what we saw on the solar and wind front as as their cost curves dropped. I mean, cost is certainly down from where you were, you know, 1015, or however many years ago, when, you know, it was just a figment of some people’s imagination. Of course, right?

Is there a realistic path where you say, okay with the investments we currently see, we will get that cost down further? No, not really, not in this country. Are the Danes kind of delusional when they say they want to be the Saudi Arabia of wind and create all this green hydrogen and ship it to Germany? Or is that? Is that a realistic possibility for somebody who can produce electricity cheaply, like the Danes are doing?

With wind to create a bunch of green hydrogen and kind of make it competitive with other fuel sources. Well, it turns out Denmark is the Saudi Arabia of wind, right? What is it? 110% of their demand for electricity produced by wind, right? So, yes, right? There is a lot.

There is Denmark going to supply hydrogen to the rest of the world? No, it’s a tiny country. But frankly, Denmark is an amazing case study for another reason, right? It was, you know, the O N G, right? Dong, the Danish oil and natural gas company formerly known as that, that has basically transitioned itself over the course of about a decade, from oil, coal, including coal and gas, into what is it? 80% offshore wind. But Orsted right now? Okay, Orsted as a company right now has some problems, in part because of what’s happening in the US, right? Or is that, like investors and others lost 15% on November 6, I believe market value, but yeah, there are corporate transformation stories here, success stories. And of course, hydrogen plays a role in that equation, right?

If you do, you know, print cheap carbon free electricity. Are able to produce cheap, carbon free electricity, and you add electrolyzers into the mix. All you all, all you need now is water, right? And, you know, is the demand for hydrogen in Europe, in northern Europe, hell yes, right? You know, this is, this is where all the steel companies are. This is where the tuition crops of the world are, or Tata Steel, for the matter, Tata Steel Netherland, in this case, which, yes, has a plan to transition its entire production, 5 million tons of steel a year, into low carbon green hydrogen. Produce steel that takes a lot of electrolysis, that takes a lot of cheap green hydrogen, yeah, and obviously that that takes into account that there’s, there’s a societal benefit to having clean green steel versus dirty steel.

And, you know, I have to have a full disclosure. I’m on my second hydrogen car out here in California, so I’m kind of a hydrogen, you know, acolyte, I guess, you know. But I’ve heard from others that, hey, hydrogen probably isn’t the best source of energy for a car, but it might be better for trucks, for eventually, planes and trains and ships and and whether or not you see those numbers penciling out on any of those fronts, any I mean, I’m glad others have told you that, so I don’t need to quiz you on on the hydrogen car. But, yeah, it turns Okay. Turns out right. Batteries are getting so cheap, so fast and so much better, so fast that, yeah, much like for buildings, right? It would be nuts to burn hydrogen in your, you know, stove to boil the water. We solve that problem. It’s an induction stove.

It’s electrification, right? And yes, I would say that for light duty vehicles to speak in the abstract here, electrification is the answer, right? An electric motor, an EV, is simply much, much more efficient than than internal combustion engine, whether this is oil, petroleum or hydrogen, for that matter. So, yeah, I would say we’ve solved that problem, and the battery costs are coming down even. What does it last 18 months? Again, another minus 50% for batteries. Now, okay, that said, right, you know what’s the extreme end on mobility. In this case, it’s aviation, right? Yeah, turns out Airbus just pulled back on their hydrogen plane endeavor. So there are real questions there too, of course, but you know, Airbus is definitely not working on an electric plane right across the Atlantic anytime soon, with 300 passengers, right?

Electrification there is running up against all the obvious limits, and okay, trucking, shipping is somewhere in between. Now, okay, the cheaper and better batteries get, the more they will be the solution for trucking as well, and possibly even shipping, if you will, right? But, yeah, this is where hydrogen liquid fuels, ammonia, ammonia and so on, come in, or there might be real potential. Or electrification is running up against its limits, at least according to where we are today. I certainly don’t want to discount that the Swiss Army Knife component of hydrogen, right? Sort of looking for and finding solutions that maybe we haven’t even thought of yet. There is some flexibility here for molecules that electricity alone does not provide that said, like duty vehicles, cars, vehicles and many, many other users, households.

But electrification is the answer. Let’s pivot to carbon pricing. And I’ve heard some mumblings or grumblings that maybe the Republicans might support some kind of carbon pricing. Certainly George Bush had and others back in the day had talked about doing this. That’s kind of the pure economic way to do it is that a possibility. Is the California carbon market a an alternative to that? And do you see any other carbon pricing public policies being rolled out across the planet in any jurisdiction that are kind of making some headway?

Okay, so, as a PhD economist, right, I’m obligated to tell you that, yes, carbon pricing would be nice. And what is it? 3,600 of my closest friends, fellow economists, right, all signed this letter A while ago, basically saying, a beautiful, uniform carbon price is the answer, and we can trade away other things, like, you know, EPA authority for stationary source air pollution and so on. I did not sign that. I’m fairly proud of not having signed that because the implicit price of the EPA standards, and, like, $200 per ton of here too, yeah, slightly more stringent, better closer to where we need to be, than the $50 beautiful uniform carbon price. Now that said, of course, right, it would be amazing. And frankly, we should work toward that, of course, right? We’ve got to price the negative externality back to the atmospheric sewer, right? Unless, unless we find a way to avoid using the atmosphere as a free toilet, right? The incentives will, sadly continue to push in the wrong direction.

Okay, back to Earth, right, back to carbon pricing. Yeah. Where do we see it? Okay, thanks to fellow Austro American, right? We have it in California, by the way, pretty amazing system in the sense that it covers 85% of all California emissions, all greenhouse gasses. Europe, the world’s largest carbon market, carbon pricing system only, quote, unquote, ETS one only covers about 50% and only CO two emissions. Now Europe is expanding that system. Europe is clearly moving in the right direction there, and we see the positive impact that carbon pricing can does and will have if and when. And, yeah, we, by the way, see lots and lots of reasons for optimism in all sorts of places. Pop quiz, who has the world’s highest carbon price right now? Actually, for real, did you happen to notice? I do not know. It turns out right, like, you know, the usual answer is sort of, you know, oh, the Nordics, right? Sweden, Denmark and Norway, or whoever, right? Who came early and strong?

It’s Uruguay. Uruguay as the world’s highest carbon tax, you know, hundreds, 30 plus dollars or so equivalent, right? Okay, so, and China, by the way, has an emissions trading system, intensity based. But still, India has a coal tax, right? Not a carbon tax, not a carbon market, not any sort of comprehensive policy, but there is $1 per ton of coal, $3 or so, almost per ton of CO two carbon price in India, and the revenue is being used to subsidize solar, PV and renewables now there too, right? Much like with decarbonization in general, the question is only when, not if things are moving in the right direction, and California is doing lots and lots of the right things on that front, and not just in the carbon market. Right climate policy writ large. Back to your question, what do I think is the prospect of a US, federal carbon price, federal emissions trading system? Well, we tried very, very hard. 2007-2008 Obama era climate policy push.

Waxman Markey backflip last year. Waxman Markey climate bill, it passed the House. It did. It won enough votes in the House. It actually had a qualified majority in the Senate. It didn’t reach the 60 vote threshold in the Senate, despite the what was then called the tripartisan legislation, independent Lieberman part of the mix and well, we’ve not tried since right a federal carbon pricing system here in the US, the inflation Reduction Act pass, did pass with 60 votes, with 50 plus VP in 2022 and it does many, many of the right things, especially, of course, on the subsidy front in terms of price. It has a price system in there for methane, for fugitive methane, right? 900 bucks or so per ton of methane. And guess what? When Trump came in, of course, he got rid of that. That was one of the quid pro quos for his bodies in the oil industry, right? So do you see kind of.

If this is unilateral disarmament by, say, California and the EU and Uruguay and others that are taxing carbon, are they kind of doing the heavy lifting, waiting for the rest of the world to catch up with them? Or do you see the benefit? What are the benefits to California in this pricing model? I mean, certainly the Wall Street Journal editorial page is constantly savaging California and its energy pricing and everything related to energy on a daily, if not weekly basis. I mean, sure, but you know, yeah, skip the Wall Street Journal editorial page to keep your sanity. But you know, read the read the Week in Review. That’s a lot more change, even within the journal, right?

There are the pockets here, or the news coverage, for that matter, right? You know, Epstein and exclusives and so on. But okay, fine, right? So actually, I mean part of the answer here, and this is not a California store, right? This is looking to Europe, now, into China, for that matter, or, yeah, from a narrow minded, myopic, if you will, self interested sense. You know, Germany overdid it early on in 2005 or so, from a narrow, self interested perspective. Now, what’s the right reaction for the rest of us? It’s to brush up on our German and Chinese and start writing thank you notes to German and Chinese households for subsidizing the learning curve and sliding down the cost curve for the rest of the world. Right? The rest of the world benefits. Now that was the subsidies, the solar feed in tariffs and so on back then. Now it was the push for renewables that enabled that carbon pricing system to come in soon thereafter. Why? Well, for the obvious reasons, right? You need carrots and sticks.

So, of course, the right policy mix is a combination. It’s not just the carrots, nor is it just the sticks. Of course, it takes a combination. It takes the right sequencing, by the way, too, right? Presumably, first push for renewables, then price carbon. Now what Europe is up to these days is yet another acronym, if you will, right. Bureaucracies are good with that, but for good reason, C Bab, carbon, border adjustment mechanism that there’s a price for each ton of CO two emitted within Europe or not, not each, but a good portion, and especially a good portion in in all the industries where it matters. And what is the implication here? Well, it creates the sort of incentives. It creates leakage, where the European company says, Okay, wait, it costs us money to produce here. Why don’t we just produce it elsewhere and export it back into Europe? Okay? That’s where C ban comes in. A carbon tariff, right?

There’s a useful tariffs, the smart kind of tariffs, where you link the tariff to the carbon content of those imports, and you basically help put everyone on the same playing field. If you produced a ton of steel in Europe, you pay a price. If you produced a ton of steel in Korea, say, okay, and you then import that back into Europe, you pay the same price thanks to the carbon tariff. And yes, of course, right. That’s the sort of mechanism, policy mechanism, that creates an ever expanding carbon club, climate club, if you will, where somebody gets started, jurisdiction, European Union, in California or elsewhere, gets started. And then basically these, this tariff system lifts all boats. It lifts the level of ambition. And that too. Of course, can only go, go one way, which is good, which is fantastic.

Last point on this, it turns out we even have, right now, more or less a bipartisan proposal to to do that right, because in some sense it’s easier to tax them, not yourself. So yes, we have, you know. Senator Whitehouse. Senator Whitehouse, not the White House, but Senator Whitehouse, Democrats Rhode Island and Republicans introduce basically the same bills, equivalent bills, saying, let’s assess a carbon tariff, a smart kind of tariff, even though, of course, we don’t yet have a federal carbon pricing mechanism in this country. Oh, that’ll be interesting to see if that goes anywhere.

I when I ran again, when I ran against Trump in 2020 as a Republican, I criticized him on many fronts, and one of the things that I saw was the C BAM carbon tariffs in in Europe. And I thought that was a good idea, and so kind of proposed that myself and here in the US, and unfortunately, that didn’t get adopted. But it seems like kind of a brilliant policy, and in that it kind of holds everybody to a common standard. It does right. And you know it senator, Cassidy bill. Cassidy, Louisiana. Right? Who introduces something has introduced something similar? And, you know, is it going somewhere right now in the current political climate? No, sorry, it won’t, right, not, not with the current White House, right? You know, would it have happened under your presidency?

Yes, right? And, well, that’s the, I guess that’s the hope, right? It is the sort of system that, frankly, the sort of market based system, right? That, okay, to put it bluntly, Republicans ought to like, right? It is the efficient, effective instrument, the efficient tool here, and yeah, in that case, okay, in some sense, fine, right? Like, let’s straight away some different kind of regulations that are more costly, that are more direct, in favor of the sort of policy that actually has a much wider impact, especially, of course, once it’s in place and gets ratcheted up right and it also hits other things, like labor and that you would adjust for labor, so you don’t allow countries that are paying kind of slave wages to undercut American workers by charging or paying them way below market rate.

So said, our American workers are protected as well. So it’s kind of a win, win across the board. It could be right. Well, designed, absolutely right. It could be so tell us, what are the things that you’re working on that you think are the hottest topics out there, and maybe how we can follow you, support you and your colleagues. Well, okay, so you introduced me by mentioning the climate Knowledge Initiative at Columbia Business School. And, yeah, that’s, that’s, that’s pretty exciting. It’s basically helping guide attention, consensus, if you will, toward the sort of solutions that we know work right, the sort of stuff that can cut emissions, 8090, more percent, as opposed to the, if you will, many, many, many potential solutions that might actually cut emissions 5% more quickly, or 10% or maybe even 20% immediately, but then lock ourselves in yet again, right? So the concrete example is, again, maybe building everyone lives somewhere.

So you look at your own home, the gas furnace, for example, yeah, there’s always a more efficient gas furnace, right? That’s 510, 20% more efficient. But then that’s it, right? You’ve bought the gas furnace, and you’ve locked yourself in yet again, whereas the electrification, the heat pump, that is much, much more efficient, just based on the raw physics, provides the pathway toward truly decarbonizing the building sector, and it’s exactly that right guide away from the solutions that seem like the quick fix might even pay for themselves, right? Efficiency is good. Efficiency pays almost immediately, and guiding toward the sort of solutions that can actually cut emissions. And of course, it’s not just the building sector right now. We are talking cement and steel and the power sector writ large.

Or Yeah, the name of the game is to channel attention investment toward the solutions that can actually get us to zero sooner rather than later. Those technologies exist. It’s about figuring out how to get to speed and scale, do it quickly and do it at scale and climate knowledge initiatives. Purpose is precisely that. Mission is to basically point to those investable, scalable technologies. And yes, call it the nonsense while we’re at it. Yeah, it is where I look at it. And I think lots of people that we’re going to have to do it here in the US, on the state and local level, what are the the kind of the exciting local and state initiatives that you see that are supporting the type of work that you’re proposing? I mean, to be clear, right? There’s a lot happening, right?

So as so often, right? When things go wrong at the federal level, it’s states and cities, maybe especially where lots of the action is, and that’s certainly the case, right? We see that in California, we see that in New York, we see that in plenty other states, in part, run by Republican governors, right? Or, deep red states, if you will, where lots of the very necessary investments are in fact happening, not just being tolerated, but being supported at the state level.

Get sort of the latest climate news, perhaps coming out of New York, for example, is Governor Hochul announcing investment, a plan, working on a plan toward investing into nuclear, nuclear power, gigawatts, nuclear power, goal for New York, right? Okay, we took a step backwards by shutting down our existing nuclear. From a climate perspective, that was clearly a step backwards. And no, nuclear is not the cheapest, low carbon technology. It’s not going to happen for the next five years or longer, right?

So there are cheaper, faster ways of doing this. Ought it be part of the investment mix? Yes, it does not everywhere. But, you know, New York Yes, is probably among the states where it could have a real where it could make a real positive difference. And okay, climate Knowledge Initiative, we actually just ran a nuclear workshop here at Columbia with precisely that goal in mind, right? Trying to figure out what is the role in the low carbon, high efficiency world, what are the type of technologies, many different kinds of nuclear power here. And maybe you mentioned, you mentioned Wall Street Journal before, so actually, I wrote, like the Big Weekend Review piece in the journal that’s a while ago by now, three years ago by now, on nuclear right?

So that would never appear on the Wall Street Journal editorial page. You know, literally the first sentence, because climate change is real, and we need to do something about it. Let’s figure out whether nuclear can play a role. But yes, that’s an important question to ask, and it’s important to look to nuclear, geothermal, for that matter, and other technologies that can, should, and frankly, will help us decarbonize while also, I know I sound like a broken record, but we’ve just got to be clear that there are technologies that might seem boring, that might seem not the sort of cutting edge climate tech stuff, but There are techs like solar PV and wind and batteries that are so cheap these days that the name of the game there is not R and D and figuring out how to make them even cheaper, although that’s happening anyways, it’s frankly a matter of deploying them fast, putting money to work.

Because those pathways are known. Those technologies are known. And yes, they pay for themselves many times over. Well, one final question before we go on, just you brought it up in the nuclear a number of companies are kind of looking at these small nuclear, modular nuclear reactors, and whether you’ve cost done the accounting, or, you know, not run the numbers on it. And are those good investments? And why is it that Germany is kind of shutting down its all of its nuclear facilities? It seems like that’s green power. And, I mean, obviously it’s political.

But could they be persuaded, or are they going to be persuaded this new government to maybe keep those, keep those running. Okay? So, I mean a definite maybe now it turns out it’s not about keeping them running, right? Germany did shut them down. And I would say, unfortunately, from a climate perspective, nah. Okay. You know that decision was made literally over a weekend in March 2011 and anyone who knows anything about nuclear knows what happened then, right?

Fukushima, March 11, 2011, so that was yes, that was a political reaction. That was the pH chemist, conservative chancellor of Germany, pivoting and pivoting fast. Now, from a climate perspective, phasing out nuclear before phasing out coal. Yeah, of course, that was a mistake. And yes, there is now some potential, I would say, for looking at nuclear even within Germany. And, you know, full disclosure, I’m Austrian, or native Austrian, at least. And you know, looking at what’s going wrong up north is sort of Austrian pastime, right? So I can, I can, I can spend a lot more time on this that’s ahead. Okay, back to your question on small modular reactors, you know, SMRs or xmrs, right? You know, micro reactors? Yeah, there is a lot of excitement here, in some sense, not because it’s cheaper, necessarily, but because, well, they are much smaller, they are much smaller investments, right?

It is, I would say, more difficult to see how we would finance a new large reactor, even though the technology is better known. And on a per megawatt, per gigawatt perspective, it’s actually cheaper, right? So instead, what we might see, what we are seeing, what we will see even more of in the near future is loss of investment into these SMRs and xmrs, because, frankly, they come in smaller packages, right?

So it’s the Microsoft, the Googles of the world, the hyperscalers investing in these technologies largely because, okay, now we’re back to AI, right? Because there’s so much demand for electricity, so much demand for clean electricity, that yes, there too scaling solar PV, scaling renewables is a big, maybe the biggest, part of the answer. But nuclear certainly has a role to play there too well. Thank you so much.

Dr. Gernot Wagner for being on the show, pleasure talking with you, kind of nerding out here on economics. And yeah, my undergrad degree was in economics, so I kind of, you know, a wannabe economist turned into a lawyer. So, you know, great having you on the program. Everybody should follow you on social media and check out what you’re doing, as well as supporting the work of the nonprofits that you’re involved in as well. Please give everybody what those channels are so they can check you out. So it turns out it’s Gwagner. Gwagner.com that’s pretty much me everywhere.

So yeah, thank you for the opportunity. Noting out is always fun, and look forward to continuing the conversation.

Okay, definitely look forward to collaborating with you in the future and appreciate all the great work that you’re doing and keep it up.

Thanks so much. This was fun.

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