Resources

• Advancing Corporate Procurement of Zero-Carbon Electricity in the United States: Moving from RE100 to ZC100
• Chasing Carbon Zero (PBS Nova)
• Google’s renewable energy program
• Clean Energy Buyers Alliance
• Renewable Energy Credits (RECs)
  • U.S. Environmental Protection Agency: Renewable Energy Credits
  • Energy-Credit Buyers Beware by Auden Schendler (Harvard Business Review)
• Woody Guthrie and the Columbia River (Oregon Encyclopedia)

Guests

Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative

Guests:
Melissa Lott, Director of Research and Senior Research Scholar, Center on Global Energy Policy, Columbia University

Michael Webber, Josey Centennial Professor in Energy Resources and Professor of Mechanical Engineering, University of Texas at Austin

Transcript

Editor’s Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:
This is Climate Rising, a podcast from Harvard Business School, and I'm your host, Mike Toffel, a professor here at HBS. In today's episode, we're continuing our series of conversations about companies in net zero. I'm talking with Melissa Lott, Director of Research at Columbia University's Center on Global Energy Policy, and Michael Webber, Professor of Energy Resources in Mechanical Engineering at the University of Texas at Austin. I'll ask them what companies should consider in relation to their electricity when crafting a strategy to reach net zero climate goals and how to weigh the pros and cons of different pathways and tools to get there. Here's my interview with Melissa Lott and Michael Webber.

Melissa and Michael, thank you so much for joining us here on Climate Rising.

Michael Webber:
Thanks for having us.

Melissa Lott:
Looking forward to our conversation.

Mike Toffel:
So let's begin with an introduction. What are your roles at Columbia, Melissa, and UT Austin, Michael, and how did you get there? So Melissa, let's start with you, if we could.

Melissa Lott:
I'm the Director of Research and a Senior Research Scholar at the Center on Global Energy Policy, which sits within Columbia University School of International and Public Affairs. I also teach as a part of Columbia's Climate School. So what this means in terms of my day-to-day is that I lead a team of about 65 researchers who are based all over the world, most of them in the US, but a big and growing chunk of them on the other side of different oceans. And we work on the biggest energy policy discussions of the day, a lot of it dealing with the energy transition and how we get to net zero and mitigate climate change. I also teach climate change mitigation across campus to students from all different types of departments. And I guess if you back up in terms of how I got here, I have all the degrees I think one could want in engineering, and then I also have a policy degree.

I actually got my master's degrees both at UT Austin with Michael Webber as my advisor. And when we think about the foundation that was laid down it was this idea of how do you have impact in the world, how do you help inform decision making processes, policy processes, investments, et cetera, and what is the role of a scholar, of a researcher, of an engineer in those processes, bringing data and evidence to the table?

Mike Toffel:
Great. And you have some background also in the public sector and nonprofit sectors, I believe as well, right? Anywhere from Department of Energy to international energy agencies, so some of the flagship bodies that do energy policy work.

Melissa Lott:
Yeah, that's right. After I finished some of my degrees, I ended up spending almost a decade outside of the United States, because when I was running all these different scenarios, all these different pathways that we're developing around how the world gets to net zero, how we reduce air pollution, water consumption, how we mitigate things that we don't really like and how we maximize opportunities, the international piece of it, the emerging economies piece of it, how Asia was coming into the picture, it just kept coming up again and again and again.

Mike Toffel:
Great. Thanks Melissa. So Michael, let's turn to you. So can you talk about your role at UT Austin and how you got there?

Michael Webber:
I'm a professor of mechanical engineering. I'm the Josey Centennial professor in energy resources. Those two titles give a hint to what I do, which is I'm a teacher and a researcher in engineering, but on energy topics. I teach classes like energy technology policy, which mixes engineering and policy. Melissa sort of alluded to that. I teach entrepreneurship, I teach thermodynamics, which is a core engineering class, and I also teach for the liberal arts majors "Energy at the Movies", which is a fun class.

And then I have a research group of several professional researchers who have their PhDs in engineering, plus about eight graduate students and a handful of undergrads doing research on some of these topics that Melissa already mentioned, that are based on engineering methods with policy relevant, for example.

So doing a lot of teaching and research as a typical faculty member. I'm sort of very common in that way. And then also try to add in these international elements. I lived in Paris for a while where I was chief science and technology officer at a company called ENGIE, it's a very large electric and gas utility,. I'm now at a venture fund called Energy Impact Partners where we make venture investments in small clean tech startups. So I kind of see the world from the macro corporate, the small entrepreneurial or investor side as well as the professorial side. And that's kind of the mix of viewpoints I try to bring to my teaching and research.

Mike Toffel:
Terrific. So we've got such a blend of backgrounds, it's going to be a really interesting conversation. So the topic really of today's discussion, given it falls within a series of episodes we're doing on corporate net zero commitments and how do they go about implementing them, is to think about this net zero strategy from the lens of electricity. And so at a high level, if you're a company executive, your company's just made a net zero target or a science-based target, what do they need to consider in terms of their electricity? Melissa, can we start with you?

Melissa Lott:
When we think about stuff at a high level for an individual company or organization, step one is understanding where does your electricity come from today? And then what are the options you have in terms of reducing emissions for that? And within that, it's easy to picture the power plants that produce electricity with zero or low carbon emissions, but it actually goes beyond that for an individual company, into how are you using that electricity every single day? And depending on the type of company you are, maybe this is straightforward in that it does just about everything in your offices. Or maybe it doesn't. Maybe you have a commercial kitchen or an industrial process or something else going on that is using other types of energy that you want to think about transitioning over time.

So I think about individual companies the same way I think about national and state level and global pathways to net zero, which is that if you're moving something to net zero, you broadly want to do three things. One, you want to become as efficient as possible, you don't waste a lot of stuff. The second thing is how you can electrify a lot of your processes. There's a whole global movement around electrifying everything. I say it a little differently, it's electrify everything that makes sense to electrify. It's not everything, but it is a lot of stuff. And in your company maybe it is 90% or 100%, or maybe it's 50, depending on what you do, but you electrify as much as you can and then you get rid of the emissions from everything that supplies your energy, so that electricity, and then whatever other fuels you use.

Mike Toffel:
Great. Can you just say a little more about the distinction between electrify everything versus electrify everything that makes sense? What doesn't make sense?

Melissa Lott:
So when we look at electrifying things, we want to do it for a number of reasons. One, it can be much more efficient, but then also we have technologies that are cost competitive to actually make that electricity increasingly low carbon on the way to net zero. And so in our homes, we use electricity and maybe other things like natural gas or wood in different ways. So in my own home maybe I'm using electricity and gas and it makes a lot of sense for me to move things like cooking away from gas to electricity, it makes sense to actually move my hot water heater, the thing that I use to heat my home, away from natural gas to electricity.

Now let's go into industry, the part of the economy that supplies all the stuff that we want day to day. A lot of those processes use heat that is way hotter than the type of heat we're talking about in our homes. Some of that might make sense to electrify, but after a point it either can get really expensive or just technologically complicated to actually move that to electricity.

So you start looking at other things. So you start thinking about could I use hydrogen? Could I use some kind of synthetic gas where I combine the different atoms that I'm thinking about, the carbons and the hydrogens and the other stuff to create the thing I need in a zero carbon way? So electrification might make sense for 100% of the things in my home, but it probably doesn't make sense for 100% of things in our industry. Michael, what did I miss?

Michael Webber:
I think there are some key advantages to electrifying certain types of energy loads and there are places where it saves money and it saves energy, it avoids emissions, and it improves performance; induction cooktops, for example, light duty vehicles for personal transportation. These are things where when you make them electric, you get better efficiency and all sorts of performance benefits. But then if you think like a transoceanic or transcontinental flight, that's really hard to electrify, or marine shipping, or heavy duty trucking in many cases,, also making chemicals as building blocks for other things. It's harder to do that with electricity, for example.

Building heat is easy to electrify if it is a mild climate in a new building. But if it's a cold climate with an old building, it might be hard to retrofit the electrical systems you need for electric heating. It might be much cheaper and easier to decarbonize the molecules or fuels themselves with the biogas or synthesized gas or hydrogen or whatever it is. So there are some places where electrification makes a whole lot of sense, and then there's some places where it's just a lot harder.

Mike Toffel:
Got it. Okay, great. Let's pivot and talk about the third piece in the three step process of what Melissa described of first being energy efficiency, then electrify many things and then decarbonize the electricity. And let's dive into the decarbonize your electricity. And there's a variety of options out there that face both households as well as managers at companies. And I wonder if you can walk us through some of them and then let's talk about their pros and cons. So Michael, do you want to get us started on this one?

Michael Webber:
Sure. So there are a variety of ways to make electricity that do not have emissions at the point of generation, and that's like hydroelectric, wind, solar, also geothermal and nuclear. Then there are some forms of power generation that do not emit much CO2 on lifecycle, which includes bioenergy or burning wood where it actually emits CO2 when you burn it, but the trees that grew took CO2 out of the atmosphere. So on lifecycle it's slow carbon and they all have different performance features. Wind and solar are really cheap and easy to build, so they're really convenient, but they have variability based on meteorological and astronomical conditions. So based on time of year and the weather and position of air filter to the sun, you might get a different performance profile or output, which is a complication for the grid. geothermal works all the time.

Nuclear works all the time, generally speaking, except for the refueling. So they have different performance features but different prices and different levels of complexity. And then there are some that are variable like tidal energy, based on the moon's gravitational pull moving water up and down, that is variable but very predictable. We know where the tide will be say thousands of years into the future. So we can manage and plan around that, which is kind of cool. And then there's hydroelectric, which is capturing water as it falls downhill to convert that into electricity, which is baseload, meaning available all the time and dispatchable in places say like Iceland and Norway and was historically baseload in California, but now considered variable because of the droughts. And so we have some that are clearly variable, wind and solar, some that are becoming variable like hydro, and some that are sort of available around the clock in a dispatchable way, like nuclear and geothermal.

So there's a bunch of different ones and you've got to figure out what resources you have locally, which one's cheapest, which performance matches your needs, that kind of thing. And then you can build a suite of low carbon power solutions. If none of those work, you can go to coal and gas and oil and add carbon capture in some form either at the point of emissions, or a direct air capture somewhere else. So there's a lot of options and we tend to get obsessed in our policymaking with just wind or solar, but actually there's a much broader suite available to us.

Melissa Lott:
So when you think about getting all the way to net zero, because the goal is not reduce emissions by half or 80%, that was the conversation we were having 15 years ago, but the conversation we're having today is how do you get all the way to net zero? And as we do that, I think of how this all works, to Michael's point, as being a big team sport. You need lots of different folks on the field with different skill sets in order to have an affordable and reliable team that's going to win the game, which is getting to net zero. So that includes these variable renewables. It also includes energy storage,. It includes not just batteries for short term things, but stuff that can store energy over long periods of time over seasons, The next group after that are these firm dispatchable power plants. So the stuff that's around 24/7, 365, that's these geothermal power plants, these nuclear power plants, maybe some fossil fuel with carbon capture. I will say in the team sport there's also something called a goalie, which if you don't want the ball to go in the net and all your players have missed it, you still want to win. So you've got to block those carbon emissions. And what that can mean is different ways of capturing emissions or offsetting those emissions, which is another way of capturing it. So it could be something like direct air capture where you're pulling an air from the atmosphere and separating out the stuff you don't want and storing it underground.

And it can also be some kind of nature-based solution where you are figuring out how to use land better. You're figuring out where can I plant and replace trees that I got rid of in the past and actually can put back today to do better and to actually store these greenhouse gasses we don't want. But it really is a team sport. So as Michael said, we can focus on wind and solar, but you would not want a team full of just, I don't know, talk about soccer, a team full of strikers. That would be a really expensive, very inefficient and probably not going to win the game type of team. You want different skill sets.

Mike Toffel:
Great. So this has been super helpful to get a sense of the generation side, which really tends to be the domain in most cases of policy makers and of utility companies. But let's bring this down to sort of the corporate level. So you're a company that has set a net zero goal, you need to decide what are the tools that you have at your disposal. For example, if you have space on your rooftop, you can put some solar panels up, you may not have enough rooftop to accommodate all that. You could do geo-thermal. So you could do some onsite activities. There's lots of other tools when you don't have the space. So can we talk through some of those instruments? Melissa, you want to just sort of give us an overview?

Melissa Lott:
So what you're outlining is really the set of tools in the toolbox, it's demand and supply side. That's what you have as an individual corporation, as an entity. So it's like what can I do to become more efficient, which affects how and how much and when I'm using electricity in the first place, but then also on the demand side, on my side of my power meter, my electric meter, what do I want to do in terms of generating the type of energy I need? So as you say, you can put solar panels on your roof, you can get pretty creative with micro wind, other stuff that you can produce locally. But then you start stepping to the other side of your power meter and you say, okay, what are the things that I can buy? What are the things I can connect to?

And I would say there's a couple different forms that this takes. You can either directly connect to a supply of electricity that is local, so you can sign up for a green tariff in some places where you say, "Hey, I want to make sure that my electricity demand is coming from zero carbon resources. So check the box and I'll pay that." Some different parts of the United States offer that, not everyone. Or you can step beyond that and say, "You know what? If I don't have that green tariff, can I actually buy a piece of some kind of green development of a wind farm, of a nuclear power plant, et cetera? Or can I buy credits?" So effectively I know that some good clean electricity is going into the system somewhere and it's going to in a way, maybe I don't use that actual electron, but I know it's going on the system and I'm paying for it.

So some of the technical names for these things, those credits that we purchase could be renewable energy credits or zero carbon credits, zero carbon energy credits. You can also do power purchase agreements where you basically say, "Hey, y'all build that wind farm and I'm going to guarantee that I'm going to buy some of that electricity." I think of it broadly in terms of things I can do on the demand side, on my side of the meter and the stuff that actually is beyond that is on the other side of the meter, and have different tools but they're less direct. I'm not going to probably personally build something is one example, probably.

Mike Toffel:
Okay. Michael, would you like to add?

Michael Webber:
Yeah, I think the way Melissa framed it really makes sense there is the demand and the supply. If you think of a corporation, they demand a lot of energy, which might be just electricity for their buildings, but it might be all the heat for smelting or whatever it is they're doing. And investing in efficiency is the way to start.

At a place like the University of Texas, we expect to be here hundreds of years from now just like Harvard does. And we have endowments, we have access to capital so we can do these investments in efficiency that might have a slow payoff because we think we'll be here a long time from now and it will pay for itself and has other benefits. So that's a big part of the equation. And corporations and larger entities generally are better at that than, say, individuals at the household level, just because of the expertise and the timelines and the money and that kind of thing. And then the supply side, Melissa said it like, we've got to think about who your providers are and what your supply's going to be. And then you also have to think about whether you want to have green energy available for your building on average through the course of the year.

You consume so many megawatt hours of electricity and so therefore you buy that many megawatt hours of clean electricity, whatever it is. Or do you need to do hour by hour matching where your profile of use has to match the profile of the supply, which is a big deal for when in solar because they vary so much, as we talked about, or is that to match every minute or every second? What's the resolution with which you make these things line up, and more and more the consumers, the large retail box stores, the data centers and the tech companies are demanding at least hour by hour matching if not minute by minute matching, which implies something more like nuclear and geothermal. If you have a data center that consumes 200 or 400 megawatts of power basically every minute of every day, every year, that looks more like a nuclear geothermal power plant, not wind, solar and battery.

Then there's supply, but then the details of supply get pretty messy pretty quickly depending on what kind of fidelity you want to make these things line up with.

Efficiency, decarbonize the power sector, the low carbon fuels. It's a hard thing to do, but where you draw the boundary and how closely you match in time makes it either easier or harder.

Mike Toffel:
So one of the elements you just described was the time matching resolution. And I just want to unpack that a little bit to make sure our listeners understand what the importance of that is. And at a high level it's because the grid mix varies over time, right? One might say yes, on average over the course of a year we have this much of our power is produced by nuclear, this much by solar, this much by natural gas. But at any moment in time that fluctuates. And so the point you're trying to make there is, really how correct do you want to be when you say we're procuring electric power that's renewable?

Michael Webber:
Yeah. Do you want to be correct on average or do you want to be precise and matched by the hour? If we just take Texas as an example, our peak demand for electricity tends to be on a hot August afternoon when our air conditioners are running hard or it's on a cold morning or evening in the winter when we have electric heaters that are on. And our peak wind availability for example, tends to be early morning or night in March when our demand is the lowest. So there's a big seasonal mismatch between when the wind is available and when our demand is high and then through the course of the day. The wind is higher at night than when we need it for our heating and cooling.

Solar matches a little bit better because hot days tend to be sunny, but it's still mismatched by a few hours because peak solar, say 1:00 PM, and peak demand is like 5:00 PM or 6:00 PM or something like that. So there are mismatches by hours or by days or by seasons, and you can use batteries to bridge these things and bring them together or large caverns to store gas, maybe even hydrogen someday for months at a time. California uses a snow pack and snow melt to store energy from the rain and snow in the winter you use during the summer.

you have to ask yourself how closely this has to match. And customers are starting to say more and more it needs to match. And it used to be in the old days, your demand would go up and down, but now we would ratchet power plants up and down to match the demand. But now we have demand going up and down and the supply is going up and down. So we just have additional variability we have to manage for.

Melissa Lott:
And for those who want a real world example, Google's been really public about their renewable energy goals and let's reach 100% renewables so that we can say that we're supplying our company with zero carbon power from renewables all the time. And they said, "Hey, we've reached our goal on an annual basis." I think it was, Michael, was it 2017? I think that's right. And they put it online and said we did that. But actually when we run the numbers, what we figured out is that a significant part out of the year, we were relying on fossil fuel power plants to supply electricity because I don't care if I have enough electricity over the course of a year. I care that my lights are on all the time. That's the bottom line.

And so within that, they said, "Let's just be honest, we did reduce our emissions, absolutely, but did we get to 100% to net zero? No, we didn't." And so what do we need to do to support the build out of technologies that allow us to legitimately say we are getting all of our electricity with zero carbon stuff? And in a way corporates have a very, very powerful position to help drive the mix of technologies we need to get the entire grid to the final place of net zero because by saying we need to match on an hourly basis, that's a different mix of technologies than if you just care about for over the course of a year doing it.

But I want to highlight something that Michael just said, which is in big parts of the world, including southern California, you'll see multiple weeks where the wind and the sun are just not that great. And when you look at how you keep electricity affordable and reliable, you want a different mix of things than just those technologies. And in some parts of the world, it's a couple of months where just both of those things are not so great. So they're wonderful, sometimes, not others. You need a mix of technologies at the end of the day to get 100% to net zero.

Michael Webber:
In Southern California it's called June gloom or the gray May or whatever. There's even a terminology for it, because it's a part of the weather pattern.

Mike Toffel:
Wow. All right. So that's helpful. So you've revealed the importance of this time matching issue and the resolution. The other piece I think to watch out for are some critiques that have been levied at some of these tools. So for example, unbundled RECs have gotten some criticism that says, well, if you're just buying the environmental gains of renewable power that has already been installed and is already being procured by someone else, are you just enriching the solar or wind provider? Or are you actually stimulating any demand for new renewables on the grid? How do you help companies think through which of these tools are more robust to criticisms like that?

Michael Webber:
That's a great question. I mean, we know that credits can work and that cap and trade markets can work. They work great for acid rain, for example, the United States where cap and trade market was kind of a coming together of environmentalists worried about acid rain and market-based policy makers who wanted to use market mechanisms. So this was really a great collaboration and a great compromise. And it worked. Cap and trade for acid rain worked faster than people expected. It was less expensive than people expected. The benefits to cost ratio was like 40 to one. Yeah, it cost them billions of dollars, but then we had tens and tens of billions of dollars of benefits in the process. It did not bankrupt utilities and it used a sort of credit regime for this. For the emissions you avoid, you could then sell. And for people who couldn't really afford to add the scrubbers or swap the fuels or whatever they need to do to, just buy the credit.

So we know that a well-designed credit market can work. And then we've seen some struggles in the RECs, renewable energy credits or the carbon credit markets in Europe, for example. In Europe with the emissions trading scheme, too many credits were allocated, so the credits lost value. They were kind of meaningless for a while. So they ratcheted down what the inventory was and then it became useful again. RECs were useful for a while to help kickstart the wind industry in Texas, but seemed to become less relevant as time went on. it seems to me that market design is really important here, that for a market to work, there has to be some scarcity, otherwise you don't have price signal. And if you have too many credits given and it therefore loses scarcity and therefore price collapses, zero won't drive decisions. There are other ways you can drive decisions to save with tax credits or something else that. We might just need a carbon price and ancillary services for liability.

Melissa Lott:
And I think of RECs as being kind of the first step in your training plan to run a marathon. So you want to run the whole marathon that's getting done at zero. The first step's actually providing some kind of financial incentive to the build out ideally of a new renewable energy project because you want it to be additional l in the system. That's step one. You're at a slow jog and that's good and you could do that. But if you're in a position to actually go to a run faster, you want to do that. we talked about it in a paper we published a few years ago around corporate procurement of renewables about how actually those renewable energy credit markets did spur investment and did support additional investment.

But did they put us on the full path to net zero? No. They did speed some stuff up, but it didn't put us on the full path. And as an individual company, it comes down again to your goals. If you want a solid science-based target to net zero that you're achieving as a company, you've got to think about things like time matching. You have to think about things like additionality. You got to think about things like am I actually receiving these electrons or not? Am I supporting the full decarbonization of the grid or not? And increasingly both the time and also location of these sources is really becoming top of mind and top of the discussion.

Mike Toffel:
So if RECs are the warmup track to the marathon?

Melissa Lott:
I don't do marathons just for the record. I run slowly.

Mike Toffel:
if you look at the portfolio that a company describes in their sustainability report, and if one that says we rely heavily on RECs, you're like, okay, they're on the warmup track. What does a portfolio look like to you that you're like, wow, they're running in full gear? Now, you might say the easy one to me would be like,, they're developing all their rooftops, all their lawns, they're doing all everything new capacity onsite. But so few companies have the opportunity to do that, that they're in some manner paying others to do something on their behalf. And so is this power purchase agreements that are guaranteeing new capacity, is that sort of the gold standard or what should we be looking for?

Michael Webber:
There's a key performance question or a key consumption question for how energy is used at a company, which you can think of in terms of megawatts or megawatt hours per square meter or square mile or whatever it is. If you have a low building, say two stories that's spread over a large area in a sunny climate and all you need is lighting and cooling heating, you maybe can get there with solar panels on site. If you're in a high rise, 40 storeys high with a small footprint with a lot of people there, you cannot get enough solar panels on the roof to power the building. And if you're at a smelter, say a steel mill or a glass furnace or a large industrial site, you might have trouble getting whatever you want on site unless it's say nuclear or coal plant or combined, heat powered natural gas.

So there's just fundamental technical parameters of well, what do you need and what's the density of power or energy over what footprint and land will drive a lot of the decisions. And most people cannot self-generate enough, other than some sort of low-rise buildings in some cases. And so you have to buy from others. And that means you need to maybe set some standards about the cleanliness or reliability. Usually companies focus on price and reliability, but they're starting to talk about price reliability and the cleanliness as well. They will also include things like lack of reliability where they'll intentionally say, "You can turn my building off in order to prop up the grid, but then I want a lower rate of power."

So lack of reliability is actually one of the features they might design for. So it will depend on place to place. And if we all do that collectively through the local utility or whatever our provider is of energy, that provider will then have to think of their suite of solutions to meet all these varying loads of everybody. So there's no one answer. It's going to vary a lot from place to place for sure.

Melissa Lott:
You see a lot of companies, I mentioned Google earlier, but I'll mention the Clean Energy Buyers Alliance, which used to be the Renewable Energy Buyers Alliance and now it's Clean Energy, which is a really interesting statement that relates to all the stuff we were talking about earlier. But if you were a massive company to Michael's point, you have a lot more direct power, no pun intended, to actually change the type of electricity you're getting. You can build stuff on site, you have buying power when it comes to working with your utility. You just have different options. You can invest in efficiency differently, et cetera. If you are a smaller one location mom and pop deli or maybe you've got a few coffee shops in a town, these types of things. The question is, okay, what can I do directly, absolutely? What can I do in partnership with other companies who are driving towards the same goal?

So where can we actually say, you know what? Together we have buying power and we can work with our local utility and say, "If you offer this rate," we will sign up. So there's power there and you see the similar type of power in terms of community groups coming together and requesting the same thing, but it's about stepping all the way towards net zero. You talked about gold standard, the expectation these days is not, again, half the way there. It's about going all the way to net zero and being able to do that in a really robust technological way. So location and timing matters.

Mike Toffel:
So one of the tools that you mentioned in that white paper that you just referenced, Melissa, and we'll put that in the show notes, is green tariff, which means some places, the utility company has already done this for you or they will offer a 100% green option. But a critique of that sometimes comes with saying, well, if they're just purchasing from an existing infrastructure, how is paying them more a premium for them to pay someone else a premium, how is that actually greening the world? Can you speak to that critique? It's like on the one hand it seems such a powerful simple critique, but I know there's an important counter narrative to it.

Melissa Lott:
Yeah, so a couple different things I'll say about green tariffs. One is the details really matter. And so going back to the what are you actually buying? Are you getting green electrons on the system at every moment you need it? So the details matter. So when an organization is saying these green tariffs are happening, "I've got 10 green tariffs I can sell," just to give a very generic, no specifics on it. "I've got 10 units of electricity that I can sell in a green tariff in this way, and actually I have demand for 15 or 20 or 40," I'm going to have to make investments and I'm going to have to make decisions that will be informed through having a revenue stream.

And that matters. And that's powerful. So it goes back, I think often to that same conversation with RECs, are we supporting things that are additional,? Am I just supporting keeping things in the system or not? And over time, what I think we've consistently seen and what we highlight in that paper is just that the demand pull effect saying, "I want this, can you give it to me? If so, I'll pay you more," is really strong. So we often talk about pushes and incentives on the supply side and it's like the demand pull matters a heck of a lot.

Michael Webber:
It's a huge market signal.

Melissa Lott:
Huge.

Michael Webber:
Because if people are telling you, "I will pay you more if you do this," then the sellers will say, "Oh, that's awesome. I make better profit margins or command higher revenue or whatever it is for that option, I'll provide that." I mean, we don't pay the same price for all forms of our drinks. There are high end of wines and champagnes we've paid more for than beer or soda. And that differentiation sends a market signal.

Mike Toffel:
Great. So I have one last question in the weeds here that you guys have been doing such a great job of helping to navigate.

So if you could buy more, say virtual purchase power agreements than you need of electrons, and the goal here is to more than offset the amount of greenhouse gasses that you would emit from your own electricity. Let me give an example. Let's say the electricity that you consume over the course of a year results in 10 tons of greenhouse gas emissions. And so normally you might say, well, I'm going to go and buy a PPA or virtual PPA to try and use the same amount of megawatt hours elsewhere, even outside of my grid, and I'm contributing there so that I can continue to purchase the electrons from my grid and feel good that I'm stimulating the renewables market. And in doing so, normally you think, well, that's going to kind of net out what I'm doing, although not fully, as Melissa has pointed out.

But what if I said I'm going to do 2X. And so now instead of offsetting the 10 tons of greenhouse gas emissions and for 10 tons I'm removing somewhere else, I'm going to try and avoid 20 tons somewhere else. it's perhaps an alternative to a carbon offset, which you think about the traditional carbon offsets or tree planting or combusting methane gas, it's a totally different type of offset. But I don't see anyone, I don't see a market for this as an offset. And I wonder if you can speak to why.

Michael Webber:
Let me put some numbers on it. So a year and a half ago in Iceland when they started doing carbon capture and sequestration, and Melissa's been there and I've been there, it's an incredible site. It was like $1,000 a ton. at some point, maybe they'll come down to just a couple of hundred dollars a ton, maybe even someday below $100 a ton. So it costs a lot to remove one ton of CO2 from the atmosphere today actively. And if you were instead to say buy a megawatt hour of wind or solar-powered electricity, and that one megawatt hour offsets one other megawatt hour of coal-fired electricity, that one megawatt hour coal would've released about one ton of CO2.

And for a PPA, you might be able to get that megawatt hour of wind or solar for like $40 a ton or $40 a megawatt hour. And if it's displacing coal, that means you avoided a ton of CO2 for $40. And so question, is it better to pay 500 bucks to remove a ton or $40 to avoid a ton? This is a pretty good deal if you can only pay 40 bucks. So that isn't a place where your megawatt hour is displacing one megawatt hour from coal. But our grid is not 100% coal except in certain locations, and those areas are decarbonizing. So if you go to the Pacific Northwest where there's basically no coal, if you pay 40 bucks for that megawatt hour, you're not displacing a megawatt hour coal, you're displacing 90% of a megawatt hour from hydro and 10% from natural gas.

And all of a sudden the amount you'd have to pay to remove that ton of CO2 is in the many hundreds of dollars per ton, which is about the same price as removals, but avoidance is not as good of removals. So the answer will depend on what you're displacing. And today, in some districts it might be one for one coal, but over the next 30 years that will diminish, and therefore your costs go up. So it's a good idea, but it doesn't have longevity in the market because of the changing fuel mix, I think is the answer. But it's clever, but the math doesn't work out except in a few places for just the next few years.

Mike Toffel:
Terrific. That's a really helpful explanation. So let me bring us up out of the weeds and look forward. So I want to get each of your takes on what you see as the biggest challenge and or opportunity looking ahead in this space. So Melissa, could we start with you?

Melissa Lott:
So the biggest opportunity in this space is actually creating tools that make this whole thing a lot easier, because how many companies actually have the staff in house to figure out if they've time matched their electricity and it's zero carbon and their contracts actually line up. And so once that is easier and streamlined, a lot more folks do it. that activation energy, it takes you to get started, so many companies simply don't have the manpower for that. And if it's not a priority, because there's a lot of other things going on, it falls by the wayside. And so that's where I see just a tremendous opportunity to make this simpler, make it a check the box exercise.

Mike Toffel:
That's super interesting. It also casts a new light on why Google is working on this so intensively, not only because they might have a lot of cash, but what do they do if not have lots of data and have lots of data analysts, and they create a lot of tools.

Melissa Lott:
And for them as a company that operates in so many different places, it benefits them too if they don't have to create a custom suite of projects for every single place they operate. I mean, that's a good thing for them. And they also are supporting broader change.

Mike Toffel:
Great. Michael, how about you?

Michael Webber:
These are great comments that Melissa just made there. There's just so many ways we can improve the dialogue with better tools and everything else. I think that our biggest hurdle is actually entrenched interests. People who have done things one way and either are afraid of change or hesitant to change or make money and are personally rich from the current way of doing things and really explaining the future, that everyone has a place in the future, and here's how you can make money in the future. Here's how the future will be comfortable for your cultural familiarity with energy, whatever it is, overcoming that. And that's all like non-tangible, it's behavioral and philosophical. I feel like that's what we confront the most. And maybe that's just my Texas bias where a lot of the Texas view is, "Well, we did it this way for 150 years and it made us rich. Why would we change now?" And I think that opinion's more universal than we'd like to admit. So I think we've got to change our thinking, and that's slow.

Melissa Lott:
And I'll add one thing to that, which is that not disagreeing with anything you just said, Michael. One extra step is also there's a lot of interests that are regulated to be that way. So when you look at how utilities are performing and investing, often they're actually required to behave that way. And so if you want that to change-

Michael Webber:
Required by law not to be innovative. Yeah, that's right.

Melissa Lott:
Yes. And so even if they want to change, this isn't me personally in my personal life, and if I'm privileged and have opportunities to change things, I can. This is, I am legally required to behave a certain way because I'm providing this good to people and my state or my region has regulated me in this way, has required me to do certain things. And so those incentives, the mechanism for changing them is different.

Mike Toffel:
Great. So final question. Some of our listeners are interested in dedicating their careers to business and climate change in some manner. And I wonder if each of you could share some advice for them?

Michael Webber:
Yeah, and I have the honor and privilege of teaching a lot of students in a direct instructional setting at the university, but also I do a lot of online training and continued education for people trying to make a career change, so this is something I see. And I guess the thing I want to remind people of is that it's easy to imagine the science or engineering career and energy, but in fact, the energy world needs everybody. There's room for artists and poets and marketers and business people and accountants and lawyers and policy makers. You name it. You don't have to be an engineer or a scientist. So I think that's an important misconception.

And if you look at the history of energy, there's always been certain public informational campaigns. Musicians like Woody Guthrie wrote songs about the Columbia River to help create motivation to create hydroelectric power, for example. And we need helicopter pilots to do the installation of the wires and poles in remote settings, and we need truck drivers. You name it, there is a place for you in the energy sector. So figure out what you love and do that and there'll be a place for you. And I just encourage you to get some experience and some knowledge, but it's not one discipline or another. We need everybody.

Mike Toffel:
Great. Melissa?

Melissa Lott:
100, 1,000% that. Everyone can contribute to this in different ways. And the idea that it's just engineers or just people who work at utilities and power plants or people that are electricians and install light bulbs is like, no, it's way broader than that. And everyone has a lever to pull in their corporation, in their lives, when it comes to this. The other thing I'll just say is that to the point Michael alluded to around career changes, when I started in this work, the thing I do today, the real details of what my day-to-day looks like, that didn't really exist.

And it was something that was on my mind, and I thought it was something I would love doing and could have big positive impact doing, but there wasn't a natural home for me. And so figuring out how to create the thing that you want to be and you want to do and you want to see that will have the impacts you want to have in the world, that's really important. There's a lot of different career paths you can follow. And creating one that is a combination of many of them is, I would say, a really powerful path for many of us.

Mike Toffel:
Great. Well, Melissa and Michael, thank you so much for spending time. I feel like I just had a masterclass in electricity and the energy transition, and I hope our listeners feel similarly. I'm sure they will. So thank you so much for spending time with us here on Climate Rising.

Michael Webber:
Thanks for having us. Great conversation.

Melissa Lott:
Yeah, I really enjoyed the discussion. Thanks for inviting us.

Mike Toffel:
That was my conversation with Melissa Lott, director of research at Columbia University Center on Global Energy Policy, and Michael Webber, professor of energy resources and mechanical engineering at the University of Texas at Austin.