Foreign Affairs Live: Climate Change

KURTZ-PHELAN: Good morning, everyone. Welcome. This is a fairly historic occasion, I think, in a century of the Council’s history this is the first-ever full meeting conducted on Zoom. So thank you for joining us. For better or worse, I’m sure this is not going to be the last. There are also something like about five hundred members are expected to join this call, which may also be a record in terms of a Council meeting. I don’t want to sound like I’m crowing about the size of my inauguration crowd or something. But at any rate, great to have so many of you joining this morning.

This is the issue launch for the May/June issue of Foreign Affairs. This issue came to all of you a couple of weeks ago, at a moment when most of the world was in lockdown. Certainly, most of our readers were in lockdown. When most people were thinking about little besides the pandemic and the consequences economically, and geopolitically, and everything else. But we had, of course, planned this issue months before, at a time when almost no one other than really global health experts and a few Chinese health officials even knew what the coronavirus was, had ever heard the word. And we had mostly locked the issue just as this was becoming a really a global crisis, when the outbreak was starting to spread beyond East Asia.

And there was a moment, if I can raise the curtain on Foreign Affairs editorial process for a moment, when, you know, we wondered whether we needed to delay the issue and throw everything out and start over. And as we thought about it, we realized that climate changes was in many ways the—an ideal topic, one of the ideal topics, to be discussing right now. It’s a global problem, the kind of thing that experts, and policymakers, and others warn about. It’s a slow-moving crisis that’s cross-cutting. And exactly the kind of thing that we will at some point if we don’t do something about it wish we had, and wish we’d paid more attention earlier on. So it seems in some ways consonant with the pandemic and the crisis we’re facing right now.

We did—we do have a couple pieces in the issue that I’d recommend that speak a little more directly to the coronavirus. One by Minxin Pei on the effects on China and the potential for the outbreak there to destabilize the Chinese government’s power. And another by Ruchir Sharma on the U.S. economic trajectory. Today we’re going to focus on the lead package on climate change. And I have to say, after that moment of indecision in early March, I’m really pleased that we decided to stick with it.

It’s great to have Rebecca Henderson and David Victor with us this morning. They have two of the stand-out articles in the lead package. Rebecca’s is called The Unlikely Environmentalists: How the Private Sector Can Combat Climate Change. David’s is The Paths to Net Zero: How Technology Can Save the Planet. I should also mention that David wrote with an incredible set of experts that included Inês Azevedo, Jesse Jenkins, Michael Davison, and Valerie Karplus. He had brought this team together so that he—we thought he was the appropriate spokesperson here.

There are other pieces by the Nobel Prize-winning economist Nordhaus, by former Secretaries of State James Baker and George Shultz, John Podesta and Todd Stern on what a foreign policy focused on climate would look like. All of these are great pieces, but our hope is that with all of them we would really get into a discussion of what should be done, not just laying out the problem but really getting into different kinds of solutions and different kinds of steps that governments, and businesses, and others need to take to really address the problem.

So let me introduce our two speakers. I think we’re having a bit of trouble getting Rebecca back on the line, but we’ll try to get started and hope she will rejoin at some point. I’ll start by introducing Rebecca Henderson. She is the John and Natty McArthur university professor at Harvard University. She also has an appointment at the Harvard Business School. She has spent much of her career working on how organizations and businesses respond to technological change and new technological challenges, and that has recently really been focused on climate change. Her relatively new book is called Reimagining Capitalism in a World on Fire.

And David Victor is a professor of international relations and co-director of the Laboratory of International Law and Regulation in the Center for Global Transformation at the University of California, San Diego. He’s done a lot of important work on energy markets and industries and regulation. His book is called Global Warming Gridlock. And I should mention that earlier in his career he led the Council’s science and technology program for a while. So he should be familiar to many of you here with us this morning.

So I’m going to—I’m going to just ask for questions for about a half an hour and then I will hand it over to all of you for your questions. But I wanted to start, David and Rebecca, by drawing out what I think is striking about both of these pieces. In a discussion that often turns pretty grim and pessimistic, there’s really a degree of optimism, I think, in both of these articles, a sense that progress is possible, that we see meaningful steps for reducing emissions and avoiding some of those catastrophic effects of warming—at least—at least possible and in train, even if we’re not seeing them at the scale we need. So let’s start with that relative case for optimism.

David, let me—let me go to you. You know, you lay out in the piece how technology could get us to net zero emissions, and what the—what the promising technologies are, what the right mix is. Can you explain what that mix looks like to you, as you look at where the technology is, what we really need to do to reduce emission to net zero. What is likely to get us there?

VICTOR: Yeah. Well, it’s a pleasure to be back virtually at the Council on Foreign Relations. And, Dan, thanks to you and your team for all the help with this current issue.

So we’ve been working on the climate problem for thirty years and, frankly, haven’t made a lot of progress. I think there’s a built-in effort, even before the pandemic, to look for—look for optimism. The argument that we lay out in the piece is that the politics of the climate problem are structurally very, very hard. High up-front costs. The benefits are still kind of abstract to most people. They’re mostly in the future and they’re mostly in other countries. So structurally the problem is not well-suited to effective responses, unlike a lot of other international and environmental problems, even frankly global health problems.

And the argument we’re making in the piece is that the politics could be a lot easier with technological change, with improvements in technology, because it could lower the costs. I don’t think we’re going to make the cost problem disappear. It will still be more expensive to have energy systems with no emissions than energy systems with high emissions. But that’s the core of the argument. And we worked through, sector by sector, what could be done.

We took a step back, to your question directly, of which technology is the most important. Right now everyone should be focused on the electric power sector. It’s the only sector globally where, frankly, we’ve made a lot of progress. We’ve seen significant reductions in emissions, especially in the United States, even without active climate policy at the federal level. That’s partly because of natural gas. Natural gas is cleaner than coal, and cheap natural gas has out-competed coal in the electric power system. But it’s also efficiency. Renewables playing a larger role. In Europe renewables are playing an even bigger role. So when you look globally, this is the only sector where we’ve made some progress.

And then when you look at the energy models, what you see is the potential for even more progress. The costs systematically are lower in the power sector than in lots of other sectors. And I think the big uncertainty, though, is how much of the economy can we electrify? About a quarter of the economy right now is electrified, so we convert energy into electricity, and we move it by wire, and it’s used. Some of the hardest—some of the sectors where it’s hardest to make big reductions in emissions, like steel, like cement, frankly a lot of buildings—high-heat applications in buildings—those are hard to electrify right now.

And so one of the big uncertainties that we draw out in the piece is what is the real potential for improving those end uses of electricity? And there are reasons for optimism. And to me—a last comment I’ll make about this is that one of the big wildcards is also whether electricity is going to end up competing with other methods for moving energy to its final uses. Right now, electricity is the clear winner. It could be that the future actually has a big role for hydrogen. You know, we convert primary raw energy into hydrogen as an energy carrier, and we move hydrogen, mainly as a gas, through pipeline networks. And you burn a lot of hydrogen in industry, where it could be used for those activities like high heating needs that a gaseous fuel can supply probably more effectively than electricity.

KURTZ-PHELAN: And as you look at electricity, do you see natural gas playing a role for a long time? Or when you project forward twenty years, what is the mix of sources—renewables, and fossil fuels, and otherwise—that you see as possible and suited to meeting the scale of the challenge?

VICTOR: Yeah, so it’s one of the great unknowns. I think this piece we’re walking back and forth between optimism around a theory of politics where technology makes the politics easier, and then being realistic about how much is unknown. And so that has important implications for how you design policy. You have to design policy to experiment, to learn quickly what works, what doesn’t work. One of the great unknowns, it’s possible the greatest unknown for the future of the oil and gas industry in particular, is what’s the future of natural gas? All the big oil and gas companies over time have become gas companies even more than oil companies. And so there are futures where gas I a central fuel that actually could be good for that industry.

What we’ve seen—the United States is the interesting case here. What we’ve seen in the United States is that natural gas has helped with shallow decarbonization—10, 15, 20 percent cuts in emissions from the power sector because gas has out-competed coal and because when you burn gas, all else equal, it’s much more efficient in generating electricity than burning coal. So that’s helped lower emissions a little bit. The key point though is that stopping global warming requires not shallow decarbonization, but deep decarbonization—80 percent, 100 percent cuts in emissions. You know, emissions from the electric power sector that are zero or maybe even negative, where you’re pulling carbon out of the atmosphere, you generate electricity, and then putting it underground.

That’s a world where it’s hard for me to see conventional natural gas playing a major role. There are a few technologies that might make that possible, but I think it’s going to be increasingly important for us to distinguish natural gas—conventional natural gas as the fuel, and the pipeline system that moves gaseous molecules around. And that’s where the issues of hydrogen are so important. We could see a future, in fact I think a likely future, where we continue to use the natural gas pipeline system, but instead of putting into that pipeline system large amounts of conventional natural gas we have more biogas, more hydrogen. And we, in effect, decarbonize the gas system, but continue to take advantage of the pipeline system, the infrastructure around the pipelines, because it’s enormously flexible.

KURTZ-PHELAN: And do you see—you know, I think when most people think about a decarbonized energy future, we see wind farms and solar farms. How big—how much success do we see on that front? And do you expect that to be the central source, as you project forward into that future? Or are there—is that likely to be significantly supplemented by other things?

VICTOR: Well, so far we’ve seen enormous success. It’s one of the most extraordinary stories in the last twenty years in the energy business is this tremendous reductions in costs of renewable power, in wind, in solar. It’s been even more dramatic in solar because the technologies are modularized. You can make lots and lots of them and ship them around the world as solar panels. We’re now starting to see something similar in batteries, where batteries can be playing a larger role in the energy system.

I would say that the likely future is an energy system where there’s a very large role or renewables—50, 60 percent, 70 percent renewables in the grid. Nobody really knows the exact numbers. There’s a big role for nuclear. We often don’t talk about nuclear power, but nuclear power is almost 20 percent of U.S. electricity right now. And keeping those existing reactors operational is a big part of keeping U.S. emissions lower than they would be otherwise. There are new reactors being built to different parts of the world—Abu Dhabi, Korea, China, and so on. So the nuclear part of this is important. But I think the dominant story for decarbonization of the power sector is going to be—will be renewables.

There are some really big technical questions about how you integrate huge volumes of renewables, which are intrinsically variable in the power they produce. You know, when the wind blows, when the sun shines. And we’re not going to stop the planet and have, you know, the sun not go down at night. And there’s been a lot of technological improvement and also, frankly, a lot of improvement in the way the markets are designed to make that easier to integrate those renewables. And so the old benchmarks that were being used—like, you couldn’t have more than 10 percent renewables on the grid—those are all wrong. Those benchmarks are falling away. Where in California, we’ll easily go through one-third renewables and not have big challenges integrating those. Hawaii even more.

The Hawaiian grid is the most interesting one to watch because it’s literally on islands—a bunch of islands. And they’re fragile, small grids. And they’re not well-connected to each other. Conditions that make it very, very hard to integrate renewables. And they’re learning how to do that there. I think we’re going to discover that there are some intrinsic limits to how far we can go with renewables. And so in addition to renewables there’s going to be a big role for nuclear, a big role for—some role for fossil fuels, with technologies that capture the pollution. But it’s a big unknown right now as to how far we can really push the renewable story.

KURTZ-PHELAN: And it looks like we’ll get Rebecca back momentarily. So let me—let me stick with you, David, for a couple more questions, then I can—I can move over when Rebecca reappears.

You know, I did want to ask you some more about nuclear. This in some ways seems to elicit stronger feelings than even fossil fuels in these discussions. Can you walk us through both why that—why it is so controversial, why this has been such a source of disagreement even among those who—ah, we have Rebecca—even among those who are committed to decarbonization? But also, describe what you point out on those debates, what you think the right way to think about nuclear energy?

VICTOR: Well, I think there are now two nuclear industries. There is a nuclear industry that is the Western nuclear industry of the United States, Europe. And that nuclear industry has a lot of reactors but is building essentially no new reactors—just a couple new reactors. And it’s in the West where the public opinion challenges have been most extreme.

We did an experiment a couple years ago where we asked a big sample of Americans to build an energy system that would cut emissions. And for half the sample we told them the names of technologies, and for the other half of the sample we told them the attributes of the technologies but left off the names. And there’s this huge difference between the two samples, especially for women. And I think this is an age-old problem for the nuclear power type of industry, which is because of prominent accidents, because of the fear that people have about technologies that they can’t control and catastrophic risks, they are much less willing to accept nuclear power than the energy economic models would suggest. That’s the Western world.

In the rest of the world the industry’s actually doing reasonably well. We see big build-out in China. This is before the pandemic. Big build-out in China, a pretty impressive program in Korea. The most interesting project—we talk a little bit about it in the piece—the most interesting project is the one in Abu Dhabi, which is a Korean designed reactor being built in Abu Dhabi by a team of people who speak—come from more than forty different countries, and all being done to Western standards of excellence. And so I think that’s pretty interesting.

But when you take a—if you look at this as an energy economist, and as a techno-economic person, your models tell you we should build actually a lot of nuclear, and a lot of renewables, and have efficiency. When you look at this as a political scientist, what you predict—it’s the true dismal science, and I’m a political scientist originally by training—but what you predict is that you’re going to have a lot more renewables and a lot less renewable—a lot less nuclear. And that’s because the politics—the political economy of the policies needed for renewables are just a lot more attractive than those for nuclear.

KURTZ-PHELAN: OK. Rebecca, welcome back. And thank you for that—what looks like an agile location change. So we’re glad to have you connected, even if the backdrop’s a little less august than it was before.

We were talking a bit about the case for optimism, to the extent there is one, that I think is—comes through in both of these pieces. And so I wanted to get you to talk a bit about where you see meaningful change in the private sector on these issues, and how you think that contributes to the overall solution. We’ll turn to the more—the problems and the challenges later. But lay out that argument that you make in the piece about the potential.

HENDERSON: Sure. Sure. And you’re right. The right framing is there’s potential for optimism, not that this is a done deal.

KURTZ-PHELAN: Right.

HENDERSON: So I think there are three reasons to be cheerful. The first is because even now, there are strong business cases for private firms to seek to reduce fossil fuel emissions, improve energy efficiency, and in general move towards decarbonization. Billion-dollar opportunities in plant-based food, in renewables in many parts of the world. in electric transportation, in building our infrastructure and our housing more energy efficiently.

So I think those opportunities are real. Clearly, not enough to solve the problems that we face. But they’re real, and they’re very important for two reasons. The first is that the—as firms initiate them, they drive technologies down the learning curve. And this, of course, is a central part of David’s analysis, which is we really need to advance the technology. So as firms begin to pick up these opportunities and put real dollars behind them, they provide test beds and examples of how this could work at scale.

And I think the second reason these kinds of efforts are so important are they raise the political and cultural awareness of climate change as a real problem. They make it legitimate to address. So they help address some of the very divisive political dynamics around moving forward on climate change. So I think on both those accounts individual firm action is very important.

Paradoxically, I also think it’s important because it won’t get us the whole way. And I worked with a large number of firms now who are heavily invested in making major investments in, say, clean tech. And as they work on it, and as they commit to bringing down their emissions, they become very much aware that we won’t succeed unless we can address the collective action problems inherent in dealing with climate change. And I think that has two beneficial effects.

The first is that in some industries in some places in some regions, firms are starting to band together and say: Well, I’ll use renewables if you use renewables. Let’s see if we can form local alliances that will begin to decarbonize our sort of little patch of the world. But most importantly is the increasing recognition of the need for political action. So you’re seeing groups emerge like We’re Still In. You’re seeing groups of businesspeople go to the COP process, historically, and say: No, we’re really serious about this. You see them pressuring local cities, governors, even nations to adopt some kind of carbon tax. And I think, again, that informed pressure from business is super helpful.

The other reason I’m really hopeful—and this is the central point I’m making in my piece—is that I think the finance community is waking up to the fact that if you own a very significant share of the world’s wealth, if you are, say, the government pension fund of Japan and you own 1.6 trillion (dollars) in asset, you cannot diversify away from the risk of climate change. Similar, if you’re deeply invested in passive index funds you’re not diversifying away from climate change. For you, climate change is in that sense not an externality. And I think there’s a very interesting movement now among some of the leading asset owners and asset managers to consider moving collectively to decarbonize the economy. And that, for me, is, again, not a done deal, but a very real cause for optimism.

KURTZ-PHELAN: The skeptic’s reading of all this, and you raised this explicitly in the piece, but I want to draw you out on it a bit here, is that all of this is, you know, what you call greenwashing. You know, it’s easy to go and give a speech at an international conference with great fanfare but not change business practices to a huge degree, and certainly not in costly ways. So how do we kind of tell the difference between greenwashing and real action, and what makes you think that it’s more than just a kind of publicity stunt?

HENDERSON: So of course I worry about greenwashing. Everybody has to say something to deal with their Millennial employees. But the reason I think there is real energy and engagement against this is because companies are starting to make billion-dollar investments in the face of uncertainty. You see Spanish companies like Iberdrola investing literally billions of dollars in greening their grids. You see companies like Walmart, again, investing enormous amounts of money in taking—at the moment they’re pushing to take a gigaton of carbon out of their supply chain. Supporting all their suppliers in becoming more efficient, disseminating new technologies. I mean, this is not greenwashing. This is a huge amount of money deployed at scale.

And the reason I think that that is likely to continue is that the business case for addressing climate change at the collective level is, I think, very strong. And given the group that’s on this call, the group’s broadly familiar with the very significant economic damage and danger of political and economic destabilization that climate change brings. I think if you own some significant fraction of the world’s assets, you are going to be moved to act. I mean, the proof of the pudding—the proof of the pudding is in the eating. So I, for example, am going to watch BlackRock and Larry Fink very carefully.

Does he actually engage with firms around climate? Does he really vote against boards of directions that don’t have coherent plans for dealing with climate change? But if you look, for example, at Larry Fink’s letters over time, the first few were sort of interesting. What’s he getting at? Where are we? I mean, in this latest round he was very specific about what he’s looking for, very specific about the kind of metrics he’s going to be using. That’s the sort of progress I think that will move beyond greenwashing.

KURTZ-PHELAN: I’m struck that while neither of your pieces focuses on governmental action and policy or international institutions, you both raised policy issues in your discussions today, and addressed these explicitly in the pieces as well. So I wanted to hear from both of you what you think the policy angle here is. What are the policy steps that would be necessary to turn the progress you see, whether in technology or in these private sector decisions, into meaningful progress? Rebecca, you mentioned, you know, the need for regulatory oversight. David, you talk about a kind of virtuous cycle between the technology and the politics. But could you address really directly what you think either the U.S. government or the international institutions that deal with this need to do to turn these initial signs of progress into something really meaningful?

David, let’s start with you on this.

VICTOR: Well, so I think the key thing is you have to invest in new things. So the optimistic story that both of us are laying out, it’s based on changing the incentives. And so now we have real firms doing real things with real money, but there’s also real uncertainty. We don’t know what scales. We don’t know what doesn’t scale. We don’t know the new business models look like. We don’t know how to take really bit risks, like completely reorienting hydrocarbon production systems which would capture the pollution and put it underground. That’s a big infrastructure investment.

So I think it’s been interesting to watch firms, because firms are now doing a lot inside the fence line. And some of them with power, like Walmart, are doing things outside the fence line, but on their own supply chains. But the activities that are far beyond the fence line that involve how their consumers use the product—it’s called scope three emissions in much of the account—the carbon accounting system. That’s really hard to require of government. So I think what I’m looking for how is what are the real actions by government?

And they’re going to be more of the industrial policy type and less of carbon pricing, the cap and trade system. I think the record mostly with those market instruments, although they’re beautiful in theory, has been just dismal in practice. And that’s in part because they’re not strong enough by themselves to stabilize the investments to allow a firm to go off and place a multibillion dollar bet on something that they know is not going to be economic initially, even if it works. So that’s what they’re going to be looking for governments to do.

The last thing I’ll say on that is I think this is going to be easier to organize in small groups of countries focused on key sectors than these global conferences. So the global conference are fun to go to. They’re an umbrella of legitimacy under which all this activity happens. But they’re not where hard tradeoffs are made, where you get the incentives, where you guarantee the steel industry a market for green steel if they can successfully produce it. That’s going to require a lot more focus. And so far we see in a few industries that kind of focus, but much less.

KURTZ-PHELAN: Rebecca, what’s the—what are the regulatory priorities, in your analysis?

HENDERSON: So I completely agree with David, in that I think significant regulation and industrial policy will be necessary. Developing a completely distributed robust electrical grid, for example, is a massive regulatory undertaking. I think, however, that he’s underselling the importance of some kind of price or tax on carbon. So here I’m going to line up with my colleagues in economics, and particularly with Bill Nordhaus in his, I thought, very insightful piece on climate clubs in the issue.

I think, you know, at the moment, people can throw greenhouse gasses out their window for free. That’s a major externality. If you’re a coal company, conservative calculations suggest that you’re generating roughly double of the social costs in terms of health and climate that you’re generating in revenue. I mean, these are very significant mispricing. And I think we have some local experiments that have been really quite successful, like the New England agreement, the British Columbian agreement, that if you give firms a strong signal that fossil fuel power is expensive to burn, that they will make—that they will shift.

Now, of course there’s a concern about enacting that politically and then locking it in. I’m very hopeful that some kind of cap and dividend or tax and dividend might enable that political barrier to be overcome. But I think without a strong demand signal, you’ll go nowhere. Let me put on the table one additional policy instrument, which I think David gestured towards, but I think is worth calling out explicitly. I think federal support for transitional technologies, for fundamental research, really trying to get the virtuous cycle of technology changing is also very, very important.

KURTZ-PHELAN: All right, I’ve got twenty more questions I want to ask each of you. I’m going to ask one final quick one before we will go to members for their questions. And that last question is really about the pandemic and the extent to which it creates either new opportunities or new challenges to make progress on some of the—some of the areas that you focus on in the piece. And you could see it going either way. Or, you know, I can with my inexpert analysis. So I’m curious how you see the impact of this moment intersecting with the various efforts you’ve been looking at, much—for a much longer time, long proceeding the pandemic. So, Rebecca, we’ll go to you first on this one, before going to members for their questions.

HENDERSON: So, first, I think it’s really important to be aware of the fact that the pandemic could be bad news for our efforts to arrest climate change. It’s entirely possible we’ll come out of this experience poorer, more divided, less capable. And that will translate into our response to climate change. I don’t think that needs to be the case. There’s a lot of talk about building back better, which is how do we learn from the pandemic to do things differently? I myself am hopeful for a couple of reasons. The first is, I think that the mishandling of the pandemic in the United States by the federal government has very—has thrown the importance of having a functional, capable technically adept government into sharp relief.

So I’m hopeful that that will begin to tone down some of the rhetoric around we don’t really need the government, the government isn’t important, let’s just get rid of regulation, what’s regulation to me? That has been, I believe, a major barrier to political change in the U.S. If a significant fraction of the business community can be reminded through this experience that, yes, we need a strong government, we need to have those capacities to address public goods problems that the private sector doesn’t have, that might lay the groundwork for a much more productive conversation around climate change.

I think the other reason I’m optimistic is that as others have said, we were warned about the pandemic many times, but I think humans have an enormous degree of difficulty investing now to deal with problems that are coming later. I mean, how many people have trouble going to the gym, even though the science is really good, and we know we should go. Right today, I don’t want to go. And I’m hopeful that seeing the fact that we failed to prepare for the pandemic caused us an unbelievable amount of time, and grief, and human suffering might help us underpin the case for acting against climate change. That’s my hope.

KURTZ-PHELAN: David, do you share that optimism?

VICTOR: Well, I share the analysis. I think we don’t know. It’s actually very important to recognize how—where our mental models don’t work well for forecasting, when everything is changing. I think we have two big scenarios. One scenario is: The pandemic makes this—makes climate much harder to address because it changes political priorities and makes us poorer, and on, and on, and on. And the other scenario is we’re going to build back better, and we’ll recognize how awesome government is, and so on. If I had a hundred poker chips right now I’d put eighty-five on the first on and fifteen on the second one. And I would love to have a different voting, but I don’t think I could justify the different kind of voting.

I just want to underscore one thing in particular, which is this has been a giant test of government. And what we’ve seen around the world is this huge variation in the capabilities and quality of government, that’s going to affect people’s trust in government, trust in institutions, a lot of other things. I expect that because government has to play such an important role in providing public goods, more than just pricing carbon to create static optimization but to create the incentives and new technologies, what we’re going to see is something similar play out in climate.

Where we have governments that are highly capable and qualified, and really do invest in these kind of technologies, and do a pretty good job, and end up being the leaders. And then a lot of other governments, including I’m sad to say probably the federal government of the United States, that have a harder time doing that. And so we’re going to see this highly variable landscape, where the leaders are those that combine political interests along with the skill of doing something like an industrial policy needed for deep decarbonization.

KURTZ-PHELAN: Great. I will restrain myself from following up on some of those points and pass the mic, figuratively, over to members, so that they can join the conversation with questions. A reminder that this meeting is on the record. And as always, please state your name and affiliation, and please limit yourself to one relatively concise question so we can get as many as possible. And again, there are several hundred people on the call, so we’d like to get as many questions in as possible. I should also say, if that’s the good cop urging, that the moderator does have the technological ability to mute you. So if you go on too long, that maybe the option that has to be resorted to. So with that, let me pass it to the moderator with instructions, then we will go to questions.

OPERATOR: (Gives queuing instructions.)

Our first question will come from Fred Hochberg.

Q: Hi, there. I chair the Export-Import Bank of the United States.

So we do a lot of financing of renewable and nuclear. And the question is—it’s probably more for David—with battery—with the length of time to build a nuclear plan, which could be easily ten years, wouldn’t battery technology get—make the advances that in some way obviates the need for nuclear, or the advantages of nuclear? Because if you have good battery storage, you really make renewable sort of baseload power. And how do those two interact?

VICTOR: Yeah. So just very briefly on that, I think there’s a big difference between the battery applications that we can see in the near future, which aren’t really creating baseload power but they’re creating renewable power plants that can operate a few more hours during the day and are, therefore, more reliable. But when you go to very high levels of renewables in the system, then overnight storage, multiday storage, the capacity to have a flexible production of zero-carbon electricity, those—that value goes up. And that’s a world where nuclear is not the only competitor who can do that, but it remains one of the competitors. Not at the cost levels we’ve seeing in the West, but at the cost levels we’re seeing in Korea, China. I think nobody really knows quite what the Abu Dhabi project costs—at least, nobody who’s not in the middle of that project. But the leading examples in the world, the new-build nuclear remains actually a pretty attractive option.

KURTZ-PHELAN: Rebecca, we lost you for this, the portion of the conversation where we talked about nuclear energy. Do you see that as an important part of this effort in the work you’re doing with the private sector? Or where do you fall on what is a fairly polarizing debate?

HENDERSON: I completely agree with David, in that the underlying economics seem very favorable to nuclear. And with the new generation technology, the risks of a major disaster or of a terrorist incident are much reduced. I run into it rarely amongst the private sector firms with whom I talk. Some of the—some of the people who produce nuclear power are very keen on the idea, but it’s not something I’ve seen elsewhere.

KURTZ-PHELAN: OK. Sorry, moderator, for that interruption. And we’ll go back to questions.

OPERATOR: Our next question will come from Paula DiPerna.

Q: The Carbon Disclosure Project, and met David several times in my life, as the—with the Chicago Climate Exchange. So particularly I’m interested in what you both think the impact of the falling energy prices and the—you know, all of the energy industry disruption due to the COVID impact—how that will play out in terms of some of these technologies which, you know, seem like they could be cost effective, but maybe aren’t if you’re starting with minus-$30 a barrel of oil.

HENDERSON: David, why don’t you take that?

VICTOR: Well, we don’t know right now. My view is that the direct impact of falling prices for fossil fuels on the competitiveness of renewables has been overplayed because in a lot of places these are longer-term contracts. And that’s what really determines which energy sources get bought. To me, the more important impacts are different, and they come in two areas. One is the impact on capital budgets, to recognize that some of the projects that are really promising for deep decarbonization, like these big carbon capture and storage schemes, they’re capital intensive. They require a long vision. We’re not seeing a lot of that from the corporate sector. We’re seeing a lot of that in government right now, but not focused on advanced energy technologies. So that’s one concern I have.

The other concern I have is supply chains. We’ve seen enormous disruption to supply chains. And all else equal, the disruption to supply chains right now had a bigger impact on renewables than on other parts of the energy system. It’s a more global industry, sourcing problems coming out of China, and more significant. And so some of that will get caught up, but I think—and this is really more a point for Rebecca—the question of how people manage supply chain risk is now much more top-of-line than it was before the pandemic.

HENDERSON: I mean, just to pick up on David’s point, I’m hearing concern about supply chain risk everywhere. And I think the stability of the last twenty, thirty years have enabled managers, leaders to relax into having highly extended supply chains with minimal inventories. And there’s now deep rethinking of the degree to which that makes sense. My own belief is we won’t pull back from globalization, but that the supply chain will have much more buffer—many more buffers in it, and much more sort of explicitly—it’ll be designed for resilience as well as designed for low cost. That would be my guess.

KURTZ-PHELAN: Great. Next question.

OPERATOR: Our next question will come from Somini Sengupta.

Q: Hi, there. Thanks for doing this.

So on these two scenarios that you’ve both painted, what are the next sort of landmarks, the next announcements from capitals, like, that you’re really looking for to show you which path the world might take, particularly big, industrial economies? Thanks.

KURTZ-PHELAN: Rebecca, do you want to start there?

HENDERSON: Sure. So I’ll leave it up to David to talk about the political landmarks, but so far as the private sector is concerned what I’m hoping to see is more announcements like those that Shell made either last week or the week before, major commitments to significant decarbonization amongst the big industrial companies. So I have the pleasure of being on the board of a nonprofit called Ceres which works with investors to support them in working with companies to decarbonize. And Ceres was instrumental in putting together a coalition called the Climate Action 100.

So that’s about a third of the world’s invested assets committed to working with firms to do things like adopt the carbon—the recommendations of the Task Force for Carbon Disclosure, to adopt explicit plans with dates, and milestones, and numbers as to how they’re going to address decarbonization. I think if we continue to see those moving forward at the rate—even roughly the rate we saw before the pandemic, I will be enormously encouraged. Politically I’m not expert, but I hope to see the issue still in the headlines and still playing a major role in elections around the world. I think that would be a very good sign.

KURTZ-PHELAN: David?

VICTOR: Yeah, I think I agree with that. I think it is interesting that we are in some sense reverting back a little bit to where we were before the pandemic, where we’re seeing more of these encouraging announcements out of the European headquartered firms than out of the firms that are headquartered in other parts of the world. And that reflects the politics.

I’m looking at two things in particular. One is I want to see whether governments create credible stability around the policy environment. So take, for example, the emissions trading program, these—one of the ways that market incentive instruments are put together. We see a big cratering prices, including in the best system in the world, the European Emissions Trading System. And so there’s a big effort now to try and create stability around those prices, in effect to take the trading system and turn into more like a tax mechanism, where you create a more reliable price incentive. I’m going to be watching to see whether those actually have durability.

The other thing we’re watching for, of course, is stimulus. The first four waves in the U.S. have had essentially nothing on green energy. So far the European green deal seems to be more reliable and robust. We’ll see. There’s a lot of fiscal pressure. It’s interesting to compare what’s going on now with what happened in 2009, with the stimulus programs there. In 2009, all the major stimulus programs had a much greater investment in advanced energy technology. In the United States, for example, the money for the most important Department of Energy program, the ARPA-E program, which is an incubator for advanced technologies, came from that stimulus program. A lot of smart meter deployments came from that stimulus program.

So far, we’ve seen very little of that in the stimulus programs right now. So I’m going to be watching for, you know, round five, round six, to see whether finally we actually get some—built back better some green growth into the stimulus programs. I’m not super optimistic, but that’s what I’m watching.

KURTZ-PHELAN: What are you watching for from China? What do you expect the effect to be on their green energy policy?

VICTOR: I think the Chinese are going to continue to invest in the model that they had before. Which, you know, they’re doing—first of all, they’re doing a lot of industrial policy around electric vehicles, buses in particular. They’re the world’s leader in electric buses. Some interesting advanced industrial energy systems. But also a lot of conventional coal, and more efficient than our coal but still coal based. I think the shock of all this creates more license for China to continue to do what they’ve been doing with the Belt and Road Initiative. It could well be that we’re going to see a vacuum emerge in African and maybe India because of all the crises associated with the pandemic that the Western countries can’t or won’t fill. And so we’ll see a larger Chinese presence as a result of that. I’m not a China expert, but structurally that—it looks like we’re headed that direction.

KURTZ-PHELAN: Great. Let’s go to the next question.

OPERATOR: Our next question will come from Anne Luzzatto.

Q: Hi. Thank you so much.

How do you see the role of carbon sequestration—actually pulling gaseous carbon from the air—by either encouraging individuals to create private carbon sinks or by converting agricultural and household waste to biochar through a process called pyrolysis? And then assigning a value to this new beneficial material through the use of a cryptocurrency? This is a way for individuals—and to scale—so that individuals can actually play a role in this problem. It sounds interesting to me. I’d be curious about your reaction.

KURTZ-PHELAN: David, you have written about this for Foreign Affairs. So I will hand it to you first.

VICTOR: Can I first just say I believe this is the first CFR general meeting that has discussed pyrolysis. So another high-water mark today.

KURTZ-PHELAN: Great.

VICTOR: So thank you, Anne, for that question.

I think there’s a—it’s interesting. When you really create a strong incentive to go work the problem, there’s all kinds of partial solutions, silver buckshot. There’s no kind of silver bullets, but there’s a lot of partial solutions. So partially converting biomass into a form where it doesn’t decay as quickly, which is more or less what pyrolysis does, that’s an interesting example. My sense is that the small, the boutique kinds of solutions are going to be very hard to scale because of the monitoring problem. So there are a lot of companies now that have made pledges to be net zero in their emissions over the next couple decades. And the rabbit they’re going to pull out of the hat for that are these big international offsets and credits, and things like that. And the—they will—they will face massive scrutiny about the quality of those offsets and the question of what could be monitored and not.

And so all else equal, that’s going to create an incentive for large industrial scale programs that can be monitored more easily than others. There’s—just to tag a couple of other technologies that are interesting here, you could reengineer the plant systems of commodity crops so that the roots actually express more material. The leading idea is a cork-like material called suberin. So they express more of that. And then you do no-till agriculture, and then in effect store the carbon underground. You store a massive amount of carbon that way. We’re doing a lot of work on industrial machines that would suck carbon out of the atmosphere. Super-duper expensive right now, but with investment the costs will come down. In a world that needs quickly to go to net zero emissions, those kinds of industrial options actually become very attractive.

KURTZ-PHELAN: Rebecca, do you want to add anything on pyrolysis or anything else?

HENDERSON: The only thing I will add is that before the current emergency I had a constant stream of young entrepreneurs in my office focused on these kinds of technologies. Enormous interest in agriculture, in technologies like pyrolysis and the development of using genetic engineering to change crops. I mean, what I would like to add to this is the drive and passion and engagement amongst young entrepreneurs to try and make this work. So I’m very hopeful that if we could begin to get some of the incentives right, we would see an explosion of innovation.

VICTOR: Yeah. And ninety-seven out of a hundred of them are going to fail. It’s just we don’t know which three are going to succeed right now, so. (Laughs.)

HENDERSON: Oh, yeah. But that’s how this works. You want all of those—all of them to throw themselves at this problem with everything they have. (Laughs.)

KURTZ-PHELAN: Thank you. Next question.

OPERATOR: Our next question will come from Francisco Blanch.

Q: Hi. I’m not sure if you can hear me now. But I had a question for David, and maybe for Rebecca as well. I mean, you’ve painted a very—I’m with Bank of America, by the way.

And you’ve painted a pretty good, pretty positive outcome here. But let’s just review a little bit of what’s happening to energy prices globally. We’ve had a massive implosion in oil and gas, which is going to make transportation and, frankly, every other energy price out there pretty cheap, except for the one that you’ve been highlighting as being the main driver of emissions reductions, which is natural gas. Because a lot of the gas that went to displace coal was effectively free gas coming from the associated production to oil. So how do you think things play out in 2021, given this potentially dangerous cocktail of fuel prices. And then also, I mean, if we have another four more years of Trump in—Trump administration, how does that end up playing out for 2021? Thank you.

VICTOR: Well, let me take the second one first, because I think it’s sometimes easier to predict what happens if we have four more years of Trump, which is we’ll have four more years of the regulatory rollback programs and so on at the federal level, and we will have created a very powerful incentive for the states to go off and do whole bunch of stuff on their own. And so you’re going to see a—even more than we’re seeing right now, where the Trump administration has already created an incentive for state-based activity that’s gone up by something like a factor of five compared to before Trump. It’s a huge surge in that decentralization. And that might actually, for a while—not forever, but for a while—not be so bad, because it’s going to be more experimentation and stuff.

So I don’t want to try and be super optimistic. I’m almost always pessimistic. About the prospects for dealing with a global public good like climate, so please don’t misread today as I’m suddenly drinking some magical Kool-Aid about our capacity to solve these kind of problems. The harder question to predict is the impact on energy markets. I am more pessimistic than the IMF about broad-based quick recovery, especially for the United States. So that seems likely to—the economic troubles seem likely to go longer. We’re seeing a lot of disruption in the products markets, and the oil markets because of just huge changes quickly and the infrastructure can’t keep up. That’ll get stabilized a little bit.

My expectation is that actually natural gas is going to remain inexpensive. You’ll remove the natural gas associated with the shale oil production in particular, but the straight-up shale gas production still remains very, very cost effective. So I don’t see a world where gas becomes extremely expensive. What I do see is a world where governments are under stronger and stronger pressure to backstop these markets, backstop investments in renewables and efficiency with direct regulatory incentives, and not just rely on the price mechanism. And that’s why I don’t think the gyrations in the prices are going to have as big an impact on the fuel mix. They’ll affect which power plant gets turned on which day. But they’re not going to have as big an effect on the longer-term fuel mix because of that role of the backstop in policy.

HENDERSON: Can I throw in something on the political question? Dan, would that be OK?

KURTZ-PHELAN: Of course.

HENDERSON: We teach at the Harvard Business School a simulation developed by my colleague John Sterman at MIT called En-ROADS, where you divide the students up into groups representing the major power blocks of the world and ask them to negotiate to fix climate. And it’s an amazing exercise, because it makes the students really aware of how difficult this is going to be. So I recommend it to anyone who is trying to persuade their organization that this is an issue. And it gives you some insight into the geopolitics. What happened the last time we ran it, this was before the pandemic, is everyone in the room writes off the Americans. It’s clear they’re not going to do anything.

And it becomes clear very quickly that the actions of China are completely central. That if China decides to take the lead, that if China decides to work with the developing countries to address carbon emissions, then that is potentially a very powerful lever. And if China can form an alliance with India, then—so at least it was fascinating to see that evolve in the room. I’m not a political scientist but talking to others who’ve been through this kind of dynamic, apparently that emerges often. I’m curious, David, do you think that’s right? Do you think that if the U.S. remains, like, not engaged at the federal level that the Chinese will really step forward?

VICTOR: Eventually. I think the critical question is when do they see climate impacts affecting national—their security and their welfare? The analysis of climate impacts shows the Chinese are actually very vulnerable, especially northern China, an arid landscape, the coastal zones, almost all the economic activity’s on the coast. They’re vulnerable. The snowpack. And so the data—if I were a Chinese leader, I would be terrified about this issue. But you know, the short term often prevails over the long term. And that’s no different in China.

KURTZ-PHELAN: Let’s go—I think we have time for one more question. So let’s go to another member.

OPERATOR: Our last question will come from Lawrence Bender.

Q: Hi. Thank you very much. I’m the co-chair of the board of the Institute of the Environment at UCLA. And I made that movie, it’s fifteen years ago now, An Inconvenient Truth, if you ever heard of that.

My question is this: Here in California, with everything we’ve done, we’re still a net positive emitter because of all the fires that have occurred. And we’ve done a model—a microclimate model that shows L.A. county over the century, is 75 percent of it is baked in already. Seventy-five percent of the heat, it’s about—that’s coming on is already baked in, even if go to—even if we go to zero. My question is, with California at this point still being a net positive emitter, knowing the amount of time that we have to, again, flatten that curve—to use the one that we’re all using now—how do you two beautifully optimistic people feel we’re going to actually flatten the curve soon enough that everything that we’re discussing today?

KURTZ-PHELAN: Rebecca, why don’t you go first, then we’ll let David close. And, David, this is your chance to make very quickly you’re not an optimist. I don’t want to leave people with that misimpression. But, Rebecca, go to you first.

HENDERSON: Yeah. You know, I’m going to open by saying I’m not an optimist in the sense that I think that the odds of our keeping temperature increases to less than one-point-five are very small. David’s illustration of the poker chips, how many poker chips do you put on we’re going to hold it before one and a half? Very unlikely. I believe, alas, that the odds are we’re going to a very bad place. But it can always be worse. Three degrees is much worse than two. Four degrees is completely catastrophic. We need to move as hard and aggressively as we can. For me, the question is not, you know, will we make it in time, can it be done? I mean, yes, if we had a massive political, cultural, technological revolution we could definitely do it. We have the technology, certainly the pathways to get to the technology, and we have the resources. On our current trajectory, will we get there? Almost certainly not.

But the consequences of not getting there are so great that we have to push. Humans are really surprising. We do things that nobody expected. I’m still stunned that women now count as pretty much full human beings, and that people with black and brown skins ditto. I mean, that is a massive social change that no one could have expected. In World War II the Russians moved their entire economy a thousand miles east in about six months. I mean, properly motivated we can do amazing things. So I think how we should think about this is do everything we can to lay the ground, make clear what the pathways are, push like crazy, but not waste time in needless optimism.

VICTOR: Yeah. I think—I agree with that. I think it’s important to not to confuse realism with defeatism. So I’m not optimistic in terms of the overall picture, but I’m not defeatist in the piece that we wrote, and Rebecca’s piece, and others, that they show ways to get there. Three things very quickly. We won’t flatten the curve as fast as people want. I guess now everyone wants to flatten every curve so watch out of just flattening everything. We won’t make as much progress because the politics are so hard about this. And so I don’t think two degrees is feasible. One-point-five is essentially impossible. Two degrees is not feasible. But we have a lot of choices in the midcentury and beyond that.

Second implication of that is that adaptation is really important. And there’s a big tendency in the climate world to talk mostly about controlling emissions and not enough about how you manage the impacts and so on. In the special issue I think there are eight or so articles. One is about adaptation and the rest are about controlling emissions and so on. And that’s—we’re going to shifting that balance. And the third thing I’ll say very quickly about California—California is a very interesting case. California is a leader on climate. But the leaders have become way too obsessed about how awesome they are as leaders, and not attentive enough to followership.

This is a global problem. Emissions accumulate in a global atmosphere. And so leadership to first order is irrelevant without followership. And I’m very concerned that the leaders have been too focused on doing expensive fancy things that work at home that don’t scale globally when it’s whatever happens to the rest of the world that matters much, much more.

KURTZ-PHELAN: Great.

HENDERSON: Do I have—

KURTZ-PHELAN: Go ahead.

HENDERSON: Do I have time to jump in?

KURTZ-PHELAN: You do.

HENDERSON: I’m co-chair of the Harvard Committee on operations and climate. To David’s point, we have committed to become carbon neutral. And the whole push of our effort is where do we put our money such that we drive global technologies, that we drive global solutions. It doesn’t do us any good to put a windmill or a solar array in Massachusetts if it doesn’t affect the broader system. So for us, I think, David, we need to take your point and really generalize it, and say all of those of us who have committed to bringing down emissions should be looking for where are the leverage points globally, where are the technology leverage points, not simply scoring points by, yes, I offset X gigaton.

KURTZ-PHELAN: That’s a great note to end on. Thank you so much to Rebecca Henderson and David Victor, both for the wonderful essays and for joining us this morning. And thanks to all of you for making this experiment work, I think relatively well. Sorry we can’t do it in person, but really great to have this conversation, nonetheless. Thanks so much, everyone.

VICTOR: Thank you.