Episode 37: John Larsen, Rhodium Group
Today’s guest is John Larsen, a Director at Rhodium Group who leads the firm’s US power sector and energy systems research.
John specializes in analysis of national and state clean energy policy and market trends. Previously, John worked for the US Department of Energy’s Office of Energy Policy and Systems Analysis where he served as an electric power policy advisor. Prior to working in government, John led federal and congressional policy analysis in the World Resources Institute’s Climate and Energy Program.
John is a non-resident Senior Associate in the Energy and National Security Program at the Center for Strategic and International Studies. He has lectured at several academic institutions including Johns Hopkins University and Amherst College. He holds a Bachelor’s degree in Environmental Science from the University of Massachusetts, Amherst and a Master’s degree in Urban and Environmental Policy and Planning from Tufts University.
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In today's episode, we cover:
Overview of Rhodium Group
The state of the state in US in regards to climate policy, emissions projections, energy makeup looking forwards, and the role of specific technologies and policies
Role of federal vs state government and what we can learn from history that applies looking forwards
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Jason Jacobs: Hello, everyone! This is Jason Jacobs, and welcome to My Climate Journey.
Jason Jacobs: This show follows my journey to interview a wide range of guests, to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help.
Jason Jacobs: Today's guest is John Larsen, a director at Rhodium Group. Rhodium Group is a leading independent research provider that combines economic data analytics and policy insight to help clients understand global trends. John leads the firm's US power sector and energy systems research, and specializes in analysis of national and state clean energy policy and market trends.
Jason Jacobs: Previously, John worked for the US Department of Energy's Office of Energy Policy and Systems Analysis, where he served as an electric power policy advisor. Prior to working in government, John led federal and congressional policy analysis in the World Resource Institute's Climate and Energy Program.
Jason Jacobs: In today's episode, we cover an overview of Rhodium Group, the work that it does, the types of clients it takes on, how it prioritizes that work, how it handles conflicts when they come up, and some examples of recent projects. We also have a great discussion about the state of the state here in the US, as it relates to climate policy, emissions projections, the energy makeup looking forwards, and what components go into some of that modeling.
Jason Jacobs: We also talk about the role of specific technologies and the role of some specific policy initiatives, as well, and how they fit in. And finally, we have a great chat about the role of federal versus state government, and what we can learn from history that we can apply going forwards. I enjoyed this one, and I think you will, as well.
Jason Jacobs: John Larsen, welcome to the show!
John Larsen: Thanks! Thanks for having me.
Jason Jacobs: Thanks for coming! I tracked you down; I actually read an article in Fast Company, talking about direct air capture, which led me to some quotes that you had, which led me to a report that you were one of the authors of it from the Rhodium Group, and I thought that was super relevant and interesting for the things I'm thinking about and for climate change.
Jason Jacobs: And you were gracious enough to make the time to come on the pod, so thank you!
John Larsen: Yeah, no, thanks again, and thanks for your interest in our work.
Jason Jacobs: And I am taking this from a supply closet at my co-working facility, and you're taking this from a little phone booth at your co-working facility, so we'll see how this goes.
John Larsen: Sure.
Jason Jacobs: For starters, John, maybe just tell me a bit about the Rhodium Group and what you guys do.
John Larsen: Rhodium Group is an independent research firm. We're a private firm, and the basic goal of Rhodium is to tackle and try to address disruptive trends globally. That means a lot of different things. Obviously, climate change is one of the most disruptive trends facing the earth right now.
John Larsen: There are other big shifts happening in the global macro-economy, such as the rise of China, which is also a focus of Rhodium in a completely different practice on one side of the firm, and then on the other side, we have a team focused on energy and climate. And our primary goal at Rhodium is to provide objective, independent takes on the pressing issues of our time in both of those areas.
Jason Jacobs: Is there a wall between those two? Because it strikes me that... I mean China, for example, and climate are pretty interrelated.
John Larsen: There's not a formal wall by any means. I think a big part of this comes back, as with any small startup company, like Rhodium, we're not a gigantic firm. We've been around about a decade, but it started with just two people, Dan Rosen and Trevor Houser. Dan had decades of expertise in advising on developing country macro-economic issues and trade issues, and Trevor had a strong interest, actually, in energy systems and energy markets.
John Larsen: Between the two of them, they actually started out mostly focused on China. Trevor focused on China energy and climate stuff, and Dan, thinking more about trade relationships and macro-economic policy in China, and then the two practices diverged as Trevor got more into the broader energy and climate space, and Dan found more and more interest for the trade and macro-economic topics in a separate space.
John Larsen: So, we hang out. Us on the energy and climate team at Rhodium stay in close touch with our colleagues on the other side of the firm, and always find opportunities for collaboration and actually are launching some new international energy work. On our side, China is going to be a big part of that.
Jason Jacobs: And in the areas that you mentioned, what services do you provide and for whom?
John Larsen: Yeah. We do a few different things. We do a lot of modeling. Economic and energy system modeling on the... I'm going to now mostly focus my comments on our energy and climate practice, rather than the whole firm, since that's where I sit. We do a lot of energy and climate modeling, including modeling of climate change impacts globally as well as energy system analysis. For the United States, we run a model called The National Energy Modeling System, which the US government uses, as well, to project near medium term policy impacts as well as energy trends.
John Larsen: We've built several of our own tools to do global energy modeling. We've partnered with other firms on deep de-carbonization modeling. That modeling is one of the things we do, and maybe is one of the things we're well known for.
Jason Jacobs: Is that a business, or is that just for the greater good?
John Larsen: Rhodium is an interesting firm. We have a bottom line, we are a private company, and at the same time, pretty much everybody on the energy climate team is there to make a difference for the greater good. We can get into this more, but we are doing energy system analysis that we find both, A, interesting intellectually, but B, we think it's going to be informative and helpful to decision-makers, to the broader energy and climate, to debate on what to do and what not to do, all of those things.
John Larsen: So, we always try to focus our work on contributing to that broader understanding of where the solutions lie, and what the stakes are and trade-offs are. And that maybe gets to the "For whom?" part of your question. The vast majority of clients on the energy and climate practice are actually philanthropic clients. We work with most of the large energy and environmental grant-making foundations.
John Larsen: In America, where we are providing... and we have two different roles we play. One is strategic analysis that, say, a large environmental foundation wants to know where its best bang for its buck is going to be in helping to get the US move more policy action in the United States. Where should it be focusing its efforts? Both in technologies and sectors. Things like that.
John Larsen: Our modeling and other research we do can contribute to that, and then separately, and this gets to the direct air capture report you've referenced earlier, Jason, we get commissioned to do independent analysis that is just a public report. Some new piece of work that would not otherwise see the light of day gets commissioned by one or more philanthropic organizations, and they just want Rhodium to take a deep look at a certain issue, and to tell the world what we find.
John Larsen: And so, those are the two general areas in which we operate with philanthropy. Other clients we do have include, we do work with a few of the major energy and environmental advocacy organizations. We have good relationships with a couple of key think tanks in America. And on top of that, we occasionally do work for the private sector.
Jason Jacobs: If a big hydrocarbon company came to you, for example, would you do that work?
John Larsen: This gets to, what work will you take on? But we wouldn't dismiss it out of hand simply because it's a big hydrocarbon company. We've been approached by big hydrocarbon companies in the past, as well as electric power utilities, or trade associations representing some of these groups, and we work with them occasionally.
John Larsen: The big thing for us is maintaining our independent role in this broader constellation of organizations. So, if an organization comes to us and says, "We want you to write a report with this answer at the end of it," we won't take on that job. If they say, "We have no idea what the answer is, we want you to figure it out and present the answer," that's the conversation we're interested in having.
Jason Jacobs: Have there been situations where you've been commissioned to do an independent report, and the group, or groups, that commissioned you didn't like the answer?
John Larsen: Oh, yeah! Yeah, that happens.
Jason Jacobs: And what happens in those situations?
John Larsen: There's a couple things. Sometimes, what was intended to be a public report becomes a private report, where the information is still used internally by the commissioned organizations but isn't made public.
Jason Jacobs: It's like this interview! If this interview goes off the rails, it becomes a private interview, not a public interview.
John Larsen: Yeah, exactly! Which, in our view, is not the best outcome. Ideally, whatever work we've been asked to do, we think is going to be valuable to a broader group than just the people invested in it. But at the same time, the clients do have within their purview the ability to say, "You know what?" Like, "Let's just keep this among ourselves." That's one way things work out.
John Larsen: Sometimes we work with the client to find ways to get the work out in some way that still, again, maintains our independent role in all of this, and then sometimes, we just take it down. We just stop the work. We are very selective in the work we do in the first place. We always make sure we're trying to answer a question rather than backing up an answer, and that tends to weed out most of the work that would lead to those tough outcomes. But occasionally, it does happen.
Jason Jacobs: And in terms of the work that you take on, how much of it is a group or groups coming to you and saying, "We have this question we want to understand better," and how much of it is you guys saying, "We have this question we want to understand better. Who can we get to fund it?"
John Larsen: Yeah, I'd say it's about 50-50. A lot of the big independent public reports you see us put out, I'd say more than half of those are initiated by us. We see a need out there in the world, a question that's not being answered, and we try to find support to answer it.
John Larsen: But it's different depending on the situation, and frankly, the current state of affairs in the US. I should say, I primarily focus on US energy and climate policy research for Rhodium, so most of my viewpoints here are going to be US specific, obviously climate. We have a global practice and have a lot of other work. But what I was going to say was, the questions we're being asked, or the gaps we see that need to be answered, changes depending on current events.
John Larsen: Obviously, the election of 2016 very much changed the questions folks were coming to us with, and the gaps we saw needed to get filled, for example, versus prior to that.
Jason Jacobs: And tell me about your practice.
John Larsen: I've been with Rhodium now for five years, and prior to that, spent three years in the policy office at the Department of Energy under both Secretaries Chu and Moniz, and prior to that, spent six years at the World Resources Institute, which is a big, global environmental think tank. And there, I worked on US climate and energy policy.
Jason Jacobs: Dan Lashoff is coming on the pod next week.
John Larsen: Oh, excellent! Yeah, so, Dan now leads the team that I used to work on! I left there in 2011, and Dan's a good friend. I think it's great you're going to have him on. He is an excellent analyst and thinker.
John Larsen: On our practice for us, on the US energy team at Rhodium, it's all about informing what the pathways forward are for the United States to solve climate change. We don't have a particular policy answer that we think is the one. I think that maybe makes us different than say, some of the think tanks in this space, or some of the coalitions in the space, for example, some of the new carbon tax coalitions that are out there, or carbon pricing coalitions.
John Larsen: In the sense that, we don't have a firm, "This is the way to solve climate change in the United States." Instead, we're really trying to focus on, "Okay. If folks are having a conversation around a clean energy standard, let's help inform what that could achieve, what the design elements and trade-offs are within that policy, and start to inform the broader debate of, 'Is this a good or a bad idea?' And beyond that, what are ways it could be improved over time?"
John Larsen: And so, that's a big part of the role I see us playing here. We've got work we've done recently on carbon tax policy, that we did in collaboration with Columbia Global Center on Energy Policy, basically saying, refreshing a lot of the work that had been done over the past decade around, if you're going to price carbon in the US, what emission reductions and energy system changes should you expect? Given different tax rates, for example.
John Larsen: We've got a whole slew of new work with that think tank coming down the pipe in the next few months. We're working with a couple of environmental groups on things ranging from, what are the trade-offs among different carbon pricing policies for the US going forward? To some new work on electric system resilience and reliability, and whether or not it's a good idea to prop up coal and nuclear plants to maintain reliability in the US.
John Larsen: The work we've done recently on direct air capture is another good example of new independent research focused on the cutting-edge technologies we're going to need for the long run in solving climate change. Let's see! I know I'm missing several things.
John Larsen: But maybe one other thing we do every year that is worth noting at this stage is something called Taking Stock, and that's our report that comes out... it just actually came out a week or two ago, that looks at, given current policy in the United States, no new action but policy changes over the past year, and everything on the books, as well as a better understanding of where we expect... or various folks expect, technology cost and performance to go, and energy prices to go in the near future, what is the pathway that the US is currently on with regard to greenhouse gas emissions?
John Larsen: Are we on track to meet the US's international climate change goals for the Paris Agreement or not? Are we expecting the US to have emissions stay flat or go up over time? That kind of question. And spoiler alert, this is all public work you can see online, but our latest report basically finds that, no, the Paris goals are not within reach under current policy, new action is needed. In fact, the Obama administration had a 2020 goal that they made in Copenhagen of a 17% reduction below 2005 levels by 2020.
John Larsen: We find probably the best-case scenario is 16%, so, not currently on track for that goal. At the same time, we do find that emissions are most likely going to be flat. Decline in the near term, and then be flat into the 2020's. Which is better news than emissions skyrocketing into the future, but it's obviously horrible news when we know that emissions need to be going down dramatically over the next several decades.
Jason Jacobs: What assumptions are made in that report when it comes to things like per capita consumption?
John Larsen: We start... this is using one of our flagship models, The National Energy Modeling System, and we start with the Energy Information Administration's input assumptions. So, we have their assumptions both on US macro-economic growth into the future, as well as consumption estimates, and then on top of that, the sectoral breakdown within the economy. You know, how much is services versus manufacturing, and things like that.
John Larsen: And long story short, consumption goes up per capita, because consumption and per capita GDP goes up over time. We're fully expecting that. There's no real deviation from historic norms on that front. What we do see, though, is that as renewable energy gets cheaper, as natural gas prices stay cheap, we see a lot of coal plants exit the electric power system under current policy. We actually also see, and this is bad news for emissions, a lot of nuclear plants exit the electric power system.
Jason Jacobs: Because of costs?
John Larsen: Yeah, yeah, they just... let's put it this way, unless you're valuing the attributes that nuclear generators provide to the broader energy system, namely zero emitting power, they can't compete.
Jason Jacobs: And density, too! Right? From a land use standpoint.
John Larsen: Yeah, absolutely. I mean, there's all of that. Never mind the fact that these plants are already built and running. There's no capital costs involved any more here, it's just opex. But the opex, the operational costs of nuclear plans, generally speaking used to be a bargain, but energy costs have come down. Wholesale power energy costs have come down so much between cheap renewables and cheap gas, that nuclear plants are just getting increasingly uncompetitive in the market. We actually see substantial generation leading the market over the next decade, unless there's some new policy intervention.
Jason Jacobs: Are you guys strictly just surfacing information, or are you focused at all on getting stuff done with that information?
John Larsen: The short answer is getting stuff done. Then there's two... well, at least two ways we do that. One is, this initial projection range that we put out there in taking stock is our starting point for any future analysis we do this year and into next year. For example, we have plans to look at... right now, there's active deliberations in the House and the Senate around extending certain clean energy tax credits.
John Larsen: We are probably going to do some work to analyze, well, what does that mean for wind deployment, solar deployment, battery deployment in the wholesale power markets? What is it going to mean for greenhouse gas emissions? So, that's a getting-stuff-done exercise, but you need to know a starting point first. Like, where are we before we even talk about new policy? And that's a big part of what these projections are for.
Jason Jacobs: You surface the information and make it easier for other people to see what stuff they need to get done. Is that correct?
John Larsen: Well, it's both. It serves a utility purpose for us in future work, but at the same time, there is no other organization in the US providing a full accounting of where the US is on track for with regard to emissions. So, that information alone is useful to a variety of organizations, to say, "What else do we need to be doing?"
Jason Jacobs: Yeah, it's not at all to marginalize the role, I think it's a critically important one. It was more just to understand where you fit in the stack. So, you guys are surfacing the information that then gives insight and paints a fuller picture of where we are, and what the most impactful things would be to do, but then, for example, if the most impactful thing to do would be to put a carbon tax in place..., and I'm just making that up, but if it would be, then there's firms that would then focus on advocacy, and there's firms that would focus on lobbying-
John Larsen: Yeah. Exactly. And we don't do any of that. You're absolutely right. We're putting that out into the public domain, people could run with it. With the intention for people to run with it.
John Larsen: Beyond that, actually, we have a product called our US Climate Service, which is a combination of three things. It's access to Rhodium analysts. It's much more granular data underlying our projections, so a user can see not just national greenhouse gas emissions trends by sector, and by gas, but can actually do that for any one of the 50 US states.
John Larsen: And then, beyond that, additional... if you want to know exactly, which coal plants and nuclear plants are going to stay or go under a different energy scenario, given energy scenario, we have the data. People can access all that. That's a user-defined dashboard, so they can log in and get access to those data. And then, on top of that, we also do private quick turn research notes that look at different current events in the US climate and energy policy, and get Rhodium's independent take on what these events are going to mean.
John Larsen: All of that is accessible to the users of our climate service, and the reason why I bring that up is, again, this is the next level of down of data and insight that any user, which, again, includes private companies, philanthropy, advocacy groups, and anybody is welcome to jump on board, can use this to actually inform in a much more granular level their advocacy and lobbying, and any other outreach they want to do.
Jason Jacobs: Do you take stances as an organization?
John Larsen: We don't take stances as far as, "This is the policy for you," What we basically say is, "This is what X action is going to achieve or not achieve." And we try to be transparent about how we get there, and why we get there, and what those reasons are, and the question is... it goes beyond that to, "Is this policy better than that policy?" We don't say yes or no. We say, "Here are the trade-offs between the two options."
John Larsen: So, what we're really trying to do is help people understand the choices and trade-offs involved with any policy pathway as opposed to saying, "We've got the solution." And the reason why we do that is, there's several reasons. One is, an independent research firm using simply objective research to back up our take on anything certainly means that you need to be... There's no single-line answer, right? There's always a nuance, there's always a range, there's always things you need to be aware of, caveats, things like that. That's the first thing.
John Larsen: Second thing is that in this turbulent and dynamic federal system, we've got in the United States, there's no single answer to anything. You got to be ready for any opportunity to help accelerate the clean energy transition. So, picking up a horse in the race is probably not our best role here. It's better for us to be able to be in a position to survey all the options, and be ready to provide insights on anything that's moving forward, as opposed to saying, "This is the only way to solve the problem."
Jason Jacobs: I guess, can we talk a little bit about just the state of the state, in terms of where we are in the de-carbonization fight? And where we need to be, and what some of the most impactful things might be for us to accelerate the path to getting there?
John Larsen: Yeah, absolutely. I mean, maybe it's worth starting with what we said a few weeks ago in taking stock for 2019, which is, the US is not on track for meeting any of its international goals, period. And it's always worth noting that the international goals are what the US or previous US administrations have signed up the country to meet, which may or may not align with the pace the US really needs to get on, the globe really needs to get on, to solve climate change. It's worth noting that, almost certainly, we need to be doing even more.
John Larsen: And instead, depending on energy prices and macro-economic growth going into the future, we see something close to 13 to 20% below 2005 levels by 2025, is what we're seeing as far as total net greenhouse gas emission reductions for the US. Like I said, we're right at around 13 today, so the good news in that story is that emissions aren't going up. We don't see emissions going up.
John Larsen: The bad news, obviously, is that treading water is the last thing we need to be doing right now. We need to be diving deep and getting emissions down as quickly as possible, and 20% is certainly not fast enough.
John Larsen: But it's not a uniform story. It's not like every single energy sector in the US is underperforming. The US electric power sector has a lot of good things to talk about. Renewables and energy storage are getting cheaper by the day, and more and more competitive, and we see those resources growing rapidly into the future. It's just a question of how quickly.
John Larsen: Coal plants are retiring at a brisk clip. We see, there are some scenarios that by 2030, we have less than 100 gigawatts of coal left on the US energy system by 2030, which is less than one-third the size of the fleet last year. And that's with no new policy action! Which is pretty interesting.
John Larsen: The bad news is, natural gas is cheap and also emits CO2. We see that fuel playing a dominant role going into the future under almost any scenario. Then we mentioned the role of nuclear earlier. Depending on how competitive renewables and natural gas are, we could see a nuclear fleet that is just slightly smaller than the one we have now, or one that is 75% smaller than the one we have now by 2030, which would be... with renewables and natural gas filling in behind that zero meaning generation, but the problem is there's still more CO2 per kilowatt hour than those nuclear plants currently generate.
John Larsen: That's obviously a troubling sign. And that's just one sector, but that's probably the best performing sector as far as science for hoping... and often one that everybody points towards saying, "Look, we've got momentum, we're on the right track." And then some people even say, "The electric power sector is largely solved," when it comes to climate change. I would argue we're not seeing that. We're seeing bright spots, but we're not seeing a uniform winning of the war, so to speak, on getting emissions, de-carbonizing the electric power sector without additional policy.
Jason Jacobs: And when you project out the math, how do you factor in things like carbon removal and sequestration?
John Larsen: Well, first of all, we see very little of it in our current policy projections, even with... there is a tax credit now for carbon capture and utilization-
Jason Jacobs: 45Q?
John Larsen: 45Q right. Even with 45Q in place, we see relatively little CCUS, Carbon Capture and Utilization and Storage projections, in part because the main opportunities... for example, one would think that pursuing CCUS on coal plants would be a good move, given 45Q, since there's tons of CO2 coming out of those plants and could be used for other purposes, but the problem is most of the coal plants are retiring, or are at the end of their useful life anyway.
John Larsen: So retrofitting those plants is probably not the most economic opportunity for those projects. We do see some opportunities in the industrial sector, and there's some new cutting edge generation technologies, that could potentially be able to take advantage of the 45Q tax credit, like the net power plant technology. I don't know if you've heard about that. That's all promising, but that's all still early stage tech, which usually doesn't play a big role in our projections. We're mostly looking at what's already commercial and moving out the door.
John Larsen: By a large, we don't see, in our current policy projection CCUS coming on line. I will say that we have some work we haven't published yet on what a carbon tax would do in the United States, specifically a bill, the one bipartisan carbon tax bill in Congress, which Francis Rooney, and Ted Deutch are the two House members that have sponsored it. If that bill were in place... we actually see about half of all the natural gas generation in the power sector in America has carbon capture, equipped by 2030. So a serious carbon price can change the picture.
Jason Jacobs: A few things I've been wrestling with that I just love to get your brain around, one is that, some people say that natural gas is a bridge and nothing more, than that ultimately, we need to get off it as quickly as we can. Other people say that natural gas with CCUS, and that could be a long term solution. What is your analysis? [inaudible 00:27:10].
John Larsen: One thing I'll say, and this brings in the role of director of Capture Technology as well into this discussion. I think it's overlooked. We talked a little bit about it already, we put out a report in may on director of Capture Technology, and how to get it to scale in the United States. The director of Capture takes CO2 out of the ambient air, as opposed to carbon capture, which takes CO2 out of the smokestack. Then you can use that CO2 either for an input into products, or you can put it underground for permanent storage, and actually reduce the total atmospheric concentration of CO2 around the world.
John Larsen: The reason why I bring up Director of Capture as part of this is, here's the way I personally look at it. Natural gas is going to be cheap for a wicked long time, going forward. It's been shipped out for a decade in the US. we're already starting to see relative prices in other markets come down. For example, in Europe 10 to 12 bucks an MMBTU used to be the normal price. Now we're starting to see seven. Seven is still more than double what we're seeing in the United States, but relatively speaking, it's cheaper. The relative point is important.
John Larsen: But looking strictly at the US, the Marcellus Shale formation is just a bottomless pit of natural gas. They can't get it to market fast enough in the Permian, in West Texas, because of lack of infrastructure. There's just cheap gas everywhere. It comes up with the oil that is coming up through fracking and in the Bakken, and the Permian and elsewhere. It's just going to be around for a while.
John Larsen: So you have two questions when it comes to what's the role of natural gas. One is, is there a climate safe way to use this fuel for things we can do to decarbonize the broader energy system or achieve carbon removal? That's one question. The other question is, regardless of the answer the question one, what is it going to take for other technologies to beat this cheap gas, because it's just going to be cheap?
John Larsen: When I started in this business 15 years ago, coal was always the price to beat in the electric power sector. Everybody's benchmark was, well, can renewables beat coal? Well, the good news is, renewables beat coal hands down almost everywhere now, which is amazing. Why aren't renewables taking over the world? Because gas is even cheaper. So we've got to deal with that price dynamic, if we're going to get all these other technologies to win.
John Larsen: I just don't mean that in the electric power sector. I mean, decarbonizing industry, when a world with cheap gas becomes more challenging unless we find a way to use the gas, turns out in the industry, there's any number of industrial processes that have high temperature, heat needs. And turns out most of the ways you get that heat is by burning stuff. So you're either burning natural gas, or you're going to be burning synthetic natural gas that's made from CO2 and hydrogen from clean sources. You're going to do it from renewable natural gas, from bio gas for example, or you're going to strap a carbon capture device onto that industrial plant and put that CO2 underground. That's how you're going to decarbonize, after you burn, not before.
John Larsen: To answer your question head on. We see in Rhodium lots of ways to deal with the methane leak problem that comes with natural gas. So the entire supply chain natural gas results in a high lease of methane, which has a high global warming potential gas, it's bad, you need to deal with it. There are any number of ways and technologies that can actually reduce those leaks to a point that reduces that climate threat substantially. Doesn't make it zero, but can minimize it to a point where you can start to see a world for natural gas, outside of that methane leak problem.
John Larsen: From there, you need to have technologies that are really going to use gas in a zero carbon way. The net power Allam cycle, super-critical CO2 electric power generator, is one example of that, where you get 100% capture of the CO2, and then you can use that for geologic storage. There are other ways to... I mean, I've seen some companies talk about how you can actually electrify the natural gas in the pipeline, which removes about 10% of the carbon. Just immediately, it turns into carbon black, which is a chemical input. And then Meanwhile, you can still use that remaining natural gas that is now 10% less carbon intensive in pipeline applications for commercial uses.
John Larsen: Now, that doesn't mean we need to use gas everywhere all the time to solve climate change. In fact, most of the analysis we've done says that natural gas, all fossil fuels will play a much smaller role in a decarbonized world than they do now. What I mean by that is, well, we've got to stop burning stuff wherever we can. So electrifying vehicles. Getting them off of internal combustion engines and over to batteries is going to be an important factor. That doesn't answer natural gas, but it does reduce petroleum demand.
Jason Jacobs: Is what I'm hearing though that, ideally natural gas wouldn't be but since it's going to be either way, we should do the best we can with it, since it's not going anywhere for as far as the eye can see? Is that what I'm hearing?
John Larsen: That's a big part of my take. I feel it's going to be extremely challenging on an economic basis to completely zero out natural gas use in the next 10, 15, 20 years and get to de-carbonization without some pretty drastic moves. Which is different than saying, there is going to be some gas demand in the industrial sector we're going to have to handle... there's an open question about... back to the electric power sector for a second, renewables can almost certainly power in a much greater share than they do today. But getting to 100% adds some incremental costs that could be quite substantial.
John Larsen: If we had even that last 10 to 15% being powered by some other dispatch-able resource, like 100% capture of natural gas or nuclear, that would probably lower the overall cost of decarbonizing the power sector. Then if you just look at natural gas with 100% capture versus nuclear for a second, just looking at those two, turns out the capital cost for natural gas plant with CCUS is probably lower than a nuclear plant. Meanwhile, the fuel is cheap. And you don't have a long term fuel storage question you got to handle. So there's some attractive opportunity.
Jason Jacobs: Are you assuming that we're talking about the big light water reactors, or have you looked at advanced nuclear as well?
John Larsen: We've looked at advanced nuclear, and it certainly has a promise. The thing is, we're pilot testing a hundred percent capture of natural gas plants in the United States now. And we might have a pilot for an advanced, either a new scale, the small module reactors or something like that. We might have our first pilot in five or six years. And just looking at the speed of deployment here, there's certainly some interesting developments on how to use gas in a low carbon way, that I think are maybe more advanced than advanced nuclear reactors.
Jason Jacobs: If both were ready to go today, and they were just head-to-head, is gas with carbon capture more attractive than nuclear today? If they were both in the same place on the readiness curve.
John Larsen: Let's put it this way, I usually try to keep the tent as wide open as possible for solutions, rather than remove them. Remove solutions just because this problem is so gigantic, and we got to take everything we can to throw out the problem. If they were ready today, I would say, let them compete in a carbon priced electric power market and see what happens.
Jason Jacobs: Another thing I've been wrestling with is that if you take net new emissions, and you look at them as a percentage of the carbon that's already up there, I've been told by some people that net new emissions almost don't matter. Because we have such a big problem with what's already there, that we need to figure out how to remove massive amounts of carbon. That instead of being 80% focused on emissions reduction, and 20% of that, should be flipped. How do you feel?
John Larsen: I think they both matter a lot. I think new emissions matter to staving off the very worst impacts of climate change from super high emissions and high concentration scenario. And every time we can avoid, it's going to help the globe get away from those scariest outcomes.
John Larsen: That said, I completely agree that the CO2 in the atmosphere today poses zone risks that need to be dealt with. I think carbon removal has been an underappreciated and under researched area, as far as all the different roles that need to be... technologically, all the different things we need to do to start to reduce not just emissions, but concentrations of greenhouse gases in the atmosphere.
John Larsen: You will often hear that carbon removal could be a get out of jail free card for new emissions, for example, like these two issues are linked in so many different ways. They trade off, you just present it. And the reason... what we did under direct air capture report found that, at least for the United States, you can't get to a net GHG emission reduction goal in the US without carbon removal. It's going to be an essential part of it, and that's just to get to a net avoided emissions situation.
John Larsen: From there, you then need to keep scaling up that carbon removal, in order to get to a net concentration reduction over the rest of the century. So you're going to need these technologies and options no matter what. And I say technologies, but I should say, on the carbon removal side, there's a portfolio of opportunities both with... and that what we think of as the natural sequestration side of things, like forests and soils, and all sorts of things on that side, as well as technological carbon removal, like direct air capture.
Jason Jacobs: I don't get a lot of disagreement from people that we need lots of carbon removal. I think where I get disagreement is that people say, "Well, yeah, we need it, but it's a toy, and it'll never be an industrial strength!" And then the second thing they say is that the math will never work. Well, they say, "Who's going to pay for it?"
John Larsen: There's been a lot of research around what a carbon constrained economy or world looks like, right? And that's really about avoiding new emissions. I don't think anybody has really gone the next step to say, "What is the national or ultimately global agreement or framework that's going to actually achieve the net negative emissions that we're going to need over decades to get to a reduction in concentrations?"
John Larsen: Instead, we look at the IPCC reports. And they say, "You're going to need to do this, if you want to avoid the worst!" But nobody has really thought of the actual policy frameworks in a holistic manner. There's always like, "Well, here's how we'll save the rain forests, carbon!" Or, "Here's how we'll do more soil carbon!" But nobody has really thought through the total package.
John Larsen: And as far as carbon removal being a toy, I might have started there a year ago, before we started our direct air capture work, but we've really found that, at least in the case of direct air capture, the technology is ready to go. It is ready for commercial scale up. It's definitely beyond the lab and the bench. And in fact, you've got major companies attracting serious private capital to start that scale up, and it's really exciting. The question really is, are we going to do it fast enough?
Jason Jacobs: Well, one of them is coming on the pod tomorrow, Steve Oldham.
John Larsen: That's excellent. Carbon engineering is one of the three big direct air capture companies doing all of this right now, and probably has the most ambitious scale up plans. So it's really exciting stuff.
Jason Jacobs: Do you think in order for it to get there, does it require a price on carbon?
John Larsen: In the long run, yes. You're not going to get the... the incentives and the framework, you need to get to hundreds of millions of tons and billions in tons of net removal of carbon from the atmosphere, without a serious carbon price that is set up in a way to actually directly incentivize carbon removal. And if anybody on that show wants to learn more, read our report. We can talk about this in depth.
Jason Jacobs: What's that report called, John?
John Larsen: This is called capturing leadership. I forget the exact subtitle, but it's advancing direct air capture technology in the United States. You'll find it on rhg.com.
Jason Jacobs: Capturing leadership policies for the US to advance direct air capture technology.
John Larsen: There you go.
Jason Jacobs: We'll link to it as well.
John Larsen: Yeah, that'd be great. So on the long run, yes, carbon price of some sort, carbon trade, carbon tax. The actual mechanism is less important, but you need the incentives and pricing to be sufficient. In the near term though, there are a lot of other policy options available, RD&D, Research Development and Demonstration programs. The US, for example, has spent $11 million total on our RD&D for direct air capture, in the history of RD&D.
John Larsen: Meanwhile, the United States spends over 1.3 billion a year over the last decade on nuclear RD&D, just put it in context. And there are the actual legislation in Congress now that would stand up a carbon removal program at the Department of Energy, and actually provide a step change in funding for those efforts. So that's a bright spot, if it gets past. RD&D is important.
John Larsen: Beyond that, though, finding any way to build direct air capture plants, any reason, 45Q, the tax credit is certainly going to be important. California has a low carbon fuel standard that directly incentivizes carbon removal with direct air capture. We find that government procurement of direct air captured, and carbon removal could be one way to do this. You can make fuels out of direct air capture of CO2, if there's a fuel mandate that [assertivises 00:40:11] direct air capture, that's another way to do it.
John Larsen: There's lots of options here, or ramping up 45Q payments for direct air capture could be another way to do it. There's lots of different ways to get there beyond a carbon price. What matters right now is putting steel on the ground and getting CO2 out of the air. Getting experience with this technology at scale, so that innovators can drive down the cost and really get this technology in the mainstream.
Jason Jacobs: What would you say to the argument that, deploying this technology at scale would just give emitters an excuse to keep them in?
John Larsen: The premise is wrong. In order to get to even a 80% reduction from '05 by 2050, which is the old benchmark for the United States, everybody now points at a minimum, a net zero emission reductions by 2015. There is no space for fossil fuels. It is cheaper to get those out of the system, than it is to just build a bunch of direct air capture plans. And even when you get all that fossil out of the system, you're still going to need direct air capture, and other carbon removal options, because there are other parts of the economy, mostly outside the energy system that are really hard to decarbonize.
John Larsen: Agriculture is probably the best example. All the methane and [N2L 00:41:32] from crops and livestock. There's no carbon capture device you can put on that to deal with it. For example, HFC emissions from refrigerators and everything like that. That's not going to go away anytime soon. So you're going to need carbon removal to offset those other really hard to decarbonize sectors, while also going all the way, dialing up all the options we have to bring carbon out of the energy system.
Jason Jacobs: I know what our current federal administration... it's a hard road to get impactful climate policy at the federal level with right now. But another question I have is, because the energy makeup and the challenges are so different from state to state, even if we had a different federal administration in place, is federal really where the action is or do the states have an important role to play?
John Larsen: My first applied carbon policy analysis and work was at the World Resources Institute in the mid 2000s under the Bush administration, where the Northeast states were starting to construct the first cap and trade program for CO2, which is still going on today, the Regional Greenhouse Gas initiative. California was just starting to inch down the road to designing its AB32 platform. And at the time, there was half a dozen Midwestern states that were seriously talking about some carbon price, at least for the electric power sector, maybe going beyond.
John Larsen: I was involved in a lot of those conversations. What I saw then was pressure. I saw new ideas and new political pressure at the state level, driving the policy dialogue that eventually influenced the next federal window. So when President Obama was elected, a lot of those efforts dialed down, because there was a presumption that the feds were going to come in and take care of this problem once and for all.
John Larsen: We had the whole Western Marquis adventure, which is probably for another podcast. But in the meantime, those states helped set the groundwork for that first round of federal deliberation on what comprehensive climate policy could do. Now, we didn't get over the finish line. There's probably lots of reasons why that happened, but going on now, well, I'm seeing a lot of the same thing, only the ambition is dialed up in order of magnitude.
John Larsen: You have 100% clean energy standards getting put in place in a lot of key states. You've got a more economy wide carbon pricing underway. You've got more states talking about low carbon fuel standards, you've got really aggressive energy efficiency standards and building codes. You've got all this stuff happening. And what that leads to is two things.
John Larsen: One, those states are going to reduce emissions through those actions no matter what. Now, it's not going to solve the US problem, but it's going to help. One of the reasons why we don't see emissions going up in our mid term projections is because of all the state policy action that's been put in place for the past decade.
John Larsen: The other thing though, is that you then have members of Congress in the Senate and the House that can point back to their state and say, "I'm for this policy, because my state is already doing, and it's creating jobs or it's not leading to crazy energy price fights. It's all good news." And so you've got a lot of learning by doing and proving the concept that I think is critical to whenever we get to that next opportunity at federal level.
Jason Jacobs: Well, it's a weird analogy, but it's like a whole foods is going to roll out a new brand of yogurt or something. They'll pilot it at four stores before they roll it out nationwide.
John Larsen: Yeah, exactly. The states have always played a critical policy experimentation role in lots of different policy areas. I mean, Obamacare came from Massachusetts, for example. And there's lots of other countless examples here. But I think with clean energy and with solving climate change, there's a lot going on. I would also know, back to the question about carbon removal, you're actually seeing states taking the lead and maybe even some unconventional states taking the lead on carbon removal policies.
John Larsen: New York just passed its new economy wide emission reduction targets in which they actually say, the standard, I think, is something like an 85% cut on emissions, and a 15% increase in carbon removal, for example. And you're going to see more and more states, I think, trying to tackle what a net zero world really looks like. That's going to provide some really good examples for the feds, when they come back to this issue.
Jason Jacobs: So two questions left John. One is just if you had a big pot of money, say 100 billion dollars and you could put it towards anything to maximize its impact de-carbonization, where would it go and how would you allocate it?
John Larsen: There's a few things I'd say. One is, I would spend some money on finding a way to accelerate electrification in buildings and transportation. So this could be funding think tanks or even Rhodium to do the analysis and lay the groundwork for what this could look like. I think electrification of end users is going to be really critical to solving this problem. I fear we're not going to do it nearly as fast as everybody says we're going to do it, and that's going to present some serious challenges in de-carbonization. So dealing with that problem probably, a key critical one.
John Larsen: The second thing I'd do is probably finding a way to either pay off a bunch of coal plants to retire and replace it with clean energy, would be certainly one way to get some big points on the board quickly, and $100 billion will go a long way to doing that. Maybe get help to leverage funding for 10 to 20 new net power plants by 2030, or something like that, complete with 100% capture and removal would be another way to do it. I'd say at least those two things, are probably top of mind for me.
John Larsen: Then of course, my new favorite technology, let's build 50 million tons of capacity for direct air capture and renewable by 2030. With 100 billion dollars, you could probably find a lot of that.
Jason Jacobs: I'm so glad we're having this discussion before my chat with Steve tomorrow. And then the last question is just, we've got all different kinds of listeners on the show, but a common thread is that they care about climate change, and want to understand it better and learn from all these different perspectives, and hopefully have a bigger impact themselves.
Jason Jacobs: So what advice do you have for listeners out there who are wrestling with this challenge in how to have as big an impact as they can?
John Larsen: Two things that are kind of my right off the bat and they reflect my experience in the space is, always keep an open mind to new solutions. I find that being more inclusive and less exclusive when it comes to both technologies and policies and stakeholders and the things you need to be thinking about in solving this problem. Being more inclusive is better, because you're going to find things you never thought were possible or never even thought existed, when you take that frame. That's the first thing I'd say.
John Larsen: The second thing is, always be skeptical when somebody says they've got a solution. It's always important to understand and kick the tires on anything on the table, including what Rhodium does, I will say that, not because they may be nefarious or have malicious intent, but because anybody who says they've got the answer to an extremely complex global collective action problem, it's just worth running to ground how that fits into the bigger picture. It's always be questioning and trying to learn more is the next thing to say.
John Larsen: And then the last thing is, we need to get points on the board and we are getting there in certain niche opportunities, like with renewables. This problem is decade old in nature, and we're not going to solve it overnight. So keep your eye on the long run and don't lose heart in the near term. And when there's bad news on one day, there's always going to be another opportunity to move the ball forward and we've all got to be keeping our eyes on the prize.
Jason Jacobs: I think that's great. I really like that by the way, inclusive but skeptical. I may have to steal that with attribution.
John Larsen: Go for it.
Jason Jacobs: Yeah, this has been great John. Thanks so much. We covered a lot of ground. I appreciate you coming on the show.
John Larsen: Sure Jason. Yeah. No, thanks for having me, and good luck with the next round of folks you talk to.
Jason Jacobs: Hey, everyone, Jason here. Thanks again for joining me on my climate journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note that it's .co, not .com. Someday we'll get .com, but right now, .co.
Jason Jacobs: You can also find me on Twitter at @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. Before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers maybe say that. Thank you.
