Capital Series: Jonah Goldman, North Cascade Strategies fmr. Breakthrough Energy

Financial Services

Aug 30

This episode is part of our Capital Series hosted by MCJ partner, Jason Jacobs. This series explores a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we take a deep dive into the world of capital and its critical role in driving innovation and progress.

Jonah Goldman was a longtime managing director at Bill Gates' firm, Breakthrough Energy. Breakthrough Energy is dedicated to helping humanity avoid a climate disaster through investment vehicles, philanthropic programs, policy advocacy, and other activities. They're committed to scaling the technologies that we need to reach net-zero emissions by 2050. Jonah helped establish the firm in 2015 and served as primary architect for all of the programs and funds.

Currently, Jonah serves as the founder and Principal at North Cascades Strategies where he works with clients and partners to creatively commercialize critical climate technologies. He also serves as a Senior Advisor for Public Affairs at Generate Capital and a Senior Advisor at the Boston Consulting Group.

We have a great discussion in this episode about the origin of Breakthrough, how Jonah found himself doing this climate work to begin with, how Breakthrough is set up, the different areas in which they operate, how they've evolved over time, and how that fits into the broader problem of climate change and the broader solution set. We then cover the nature of the problem of climate change, the best ways to address it, and some of the biggest opportunities and challenges with accelerating the transition.

Enjoy the show!

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Episode recorded on Aug 4, 2023 (aired on Aug 30, 2023)

In this episode, we cover:

[03:28]: Jonah's background
[04:50]: The focus on traditional climate solutions at the 2015 Paris COP
[06:56]: Breakthrough Energy’s inception as a bridge between public research and private capital
[08:34]: Bill Gates' commitment to real capital and the challenge to the public sector
[09:49]: Factors that contributed to people saying "yes" to Breakthrough Energy
[11:56]: Bill Gates' leadership and the global commitment to addressing climate change
[13:12]: Differences between Breakthrough Energy One and traditional venture capital
[14:12]: Need for purpose-built investment vehicles for climate technologies
[16:04]: The firm's goal of creating a commercial environment for hard technologies
[17:56]: Distinguishing climate-focused investments from general investments
[19:19]: Integrating climate considerations into all sectors
[22:10]: Perfecting purpose-built vehicles for climate investments
[23:52]: Aligning financial incentives and solving challenges to drive investments
[30:08] The need for existing players willing to take new models
[36:52] Government’s role in the clean energy transition
[41:24] Need for a multifaceted approach to solving climate
[45:15] BEV's focus on investing in hard tech
[47:41] Jonah's thoughts on company climate commitments
[52:34] His feelings about carbon markets
[55:55] The role of behavior change
[1:00:17] Jonah's current projects and who he wants to hear from

Jason Jacobs (00:00:00):
Today on the MCJ Capital Series, our guest is Jonah Goldman. Jonah was a longtime managing director at Bill Gates' firm, Breakthrough Energy. Breakthrough Energy is dedicated to helping humanity avoid a climate disaster through investment vehicles, philanthropic programs, policy advocacy, and other activities. They're committed to scaling the technologies that we need to reach net-zero emissions by 2050. Now, Jonah helped establish the firm in 2015 and served as primary architect for all of the programs and funds from its founding. We have a great discussion in this episode about the origin of Breakthrough, how Jonah found himself doing this climate work to begin with, how Breakthrough is set up, the different areas in which they operate, how they've evolved over time, and how that fits into the broader problem of climate change and the broader solution set. We then have a great discussion generally about the nature of the problem of climate change, the best ways to address it, and some of the biggest opportunities and challenges with accelerating the transition, but before we start ...
Cody Simms (00:01:12):
I'm Cody Simms.
Yin Lu (00:01:13):
I'm Yin Lu.
Jason Jacobs (00:01:14):
And I'm Jason Jacobs, and welcome to My Climate Journey.
Yin Lu (00:01:21):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (00:01:26):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change, and all the ways people like you and I can help.
Jason Jacobs (00:01:39):
And with that, Jonah Goldman, welcome to the show.
Jonah Goldman (00:01:43):
Hello. Thank you for having me.
Jason Jacobs (00:01:45):
Well, I'm psyched to have you. You strike me as one of these people who were doing important work over a long period of time, but kind of behind the scenes. Also, I mean, Breakthrough in general, as public and visible as the organization is, I think there's certain parts of the story that also don't get widely told. I was psyched when Lucas Joppa put us in touch after, because when he came on the show, he said, "You know who you should talk to?" He wasn't even thinking about the show, he's just like, "Do you know Jonah? Because you guys should talk." Anyways, I'm so glad he put us in touch, and that you agreed to come on, and a lot of what I want to learn, I haven't learned. It's not like we already had this discussion, I'm learning it live just as listeners are, so thank you.
Jonah Goldman (00:02:25):
Jason, before we start [inaudible 00:02:26] for everything you do. MCJ, it turns into a whole thing, and I know that you started it as kind of just like your own personal interest, but what a great value to the community. Even just the fact that you were talking to Lucas, and you've talked to so many, just really smart people that I admire deeply, in addition to you, I really appreciate that.
Jason Jacobs (00:02:46):
Well, thanks, Jonah. It's been a really fascinating way to learn, and intellectually stimulating, and built a lot of really solid relationships. Then, the fact that other people tune into benefit from it, it's good for the ecosystem, it's selfishly good for our strategic value in the ecosystem, and then it's good for the companies in our orbit from an investment ... it's just we've kind of found a way to really marry purpose and profit, and I just feel really fortunate to have done so. We're still pretty early, but I continue to feel like those two things are directly aligned, which was really important to me for this next phase of my career and life.
Jonah Goldman (00:03:26):
That's great.
Jason Jacobs (00:03:28):
Great. Well, for starters, maybe just talk a bit about you. I know you're doing some, you kind of have this portfolio stuff now, but maybe start with Breakthrough Energy and what you're doing there, since you were there for such a long time and just left so fairly recently.
Jonah Goldman (00:03:44):
Yeah. So I'm kind of like an accidental committed person to this journey, because so many people kind of design their careers, especially now, to get to a point where they can be deeply involved in the climate journey, I was more accidental. In 2012, I got recruited to come to Seattle to work with Gates Foundation, and through that process I had this incredible opportunity to spend some time with Bill doing mostly policy communications work with him. After a period of time, he asked if I would come over to his personal office, again, to do largely some policy stuff, some communication stuff, just some sort of advising. Almost as an afterthought, he was like, "And I've been investing in climate technologies for about a decade, and I really have a perspective that seems to be different than what a lot of the community sees, and we should work on that as well." That was in 2014, and so it was leading into the Paris COP.
(00:04:50):
There was a lot of that COP that if you look back on it, that was deeply focused on what I would think of as the traditional pieces of the climate equation, so renewables deployment, and reduction of carbon emissions through things like efficiency. That was somewhat frustrating to somebody who sits in a position like Bill does as an innovator, as potentially the consummate innovator in history to some extent, because there were all of these other pieces of the puzzle that were not being really focused on. Of course, at the same time, the part of the investing process that he was most exposed to from an energy perspective and a climate perspective was the venture side, and the venture side was really having some serious problems, as we all know, at that point with CleanTech 1.0 really, just the doors falling out from under it.
(00:05:49):
So that started what I thought was going to be a kind of a part-time thing, and ended up being everything that I did for the better part of the next decade, which was really working with him to develop a new structure for how you commercialize critical climate technologies, with his vision being that there had to be a really creative interplay between private capital, public support, public policy, and just really creating a different environment for building a new industrial revolution, and that was something that started with his ... early on, really early on. What we recognized as one critical piece was the innovation ecosystem was just very, very dysfunctional in this particular place. So leading into COP, what we really wanted to do was try to have a, kind of reset the conversation between the public research apparatus that was going to lead to innovation, and the early stage private high-risk capital that was going to fund that, and turn those things into companies.
(00:06:56):
So that's what Breakthrough started as, was a connection between what is still called Mission Innovation, which is a public sector commitment to increase R and D, and to inspire early stage innovation through public capital. Breakthrough Energy, which was, at that point, as we led into COP, was a kind of capital without a formation. It was commitments, and they were hard commitments, and that was one thing that ... There was many things that Bill could bring that nobody else could bring, but one of them was that he demanded real commitments from the people who he was saying, "Sign up. We don't know, we don't have enough time to be able to build a vehicle for us to launch a COP in 2015, but I want you to know that my expectation is that we are together, with real capital, and we are going to be the private sector part of this."
(00:07:46):
What started out as largely a challenge to the public sector to get its act together, and to increase R and D, and to make it easier to transfer technologies out of a research, out of a government research funded pipeline, to a private venture-backed kind of posture, that we were going to be the private capitalist or catch it at the other end. We didn't know what it was going to look like. We were very unsure at that point. Again, like I said, the only thing that we knew that we had was committed capital. What happened from there was a pretty remarkable set of things, because you had a bunch of people, many of whom had the deep scars of CleanTech 1.0, who were raising their hands and getting involved with significant capital in this new endeavor.
(00:08:34):
The initial investment thesis was a really hard one that in any other kind of environment would've been very hard to raise money around, it was, "We're not going to do the easy things. We're only going to do the hard things. The hard things are capital intensive. They're going to take long times to return. We're going to create a structure of an investment vehicle that looks similar to venture capital, but isn't exactly the same thing. We're going to do things like prioritize science and technical expertise, in addition to investment expertise." All these things were novel concepts at the time, but we were able to raise the resources to get the EV1 off the ground.
(00:09:16):
We were super excited when we created that, and we hired this really impressive early, early team of thinkers to help build out what that would look like, but we had no idea whether it was going to be successful. I mean, that was a crazy thing, you just had a whole bunch of people lose a lot of money in what they considered clean technology, and we were saying, "We want you to re-up with more money into things that are harder than the things you just lost money." That's a hard thing to do, but it seemed to work.
Jason Jacobs (00:09:49):
Why did it work? I don't mean why did it work as a strategy, I mean, why did it work in terms of people saying yes?
Jonah Goldman (00:09:55):
Well, Bill, I mean, Bill has a lot to do with it, his credibility is pretty remarkable. What he was saying to these people was regardless of how he structured it. Again, it was a unique structure regardless of how he structured it, like, "I'm putting myself on the line here. I'm going to make sure that the rigor, and that this is the best opportunity that you can have to have success in this, and I'm going to make sure of that," and people trusted him about it. Then, listen, let's be honest, we went to people who could afford to do it, and that was another huge piece of the puzzle, was we were targeting people who had the resources to commit the kind of capital, and know that they have a good chance of losing it.
(00:10:37):
That's the value of his Rolodex, and it's the value of the commitment that those people have to him, and the belief that they have in his ability to be a good steward of their resource. Then it's not nothing, kind of the public connection to Bill doing something. There is a significant amount of thought leadership and effective advocacy that he committed to bring, both through his own megaphone, and his own convening power, as well as the investments that he was making in the broader Breakthrough Energy ecosystem to build a new way to do this kind of thing. I think it was exciting for a lot of people.
(00:11:14):
In 2015, the world knew that climate was going to be a thing. The breakdown in the COP process in Copenhagen was the world saying, "We're not sure that climate is going to be a thing," but the commitment that the world made in Paris was, "Oh, well, climate's a thing. We don't know exactly what the thing is. We don't know what role it's going to play, but enough people are clearly concerned about it that we're going to have a global agreement, and we're going to do a certain set of things that weren't there before." But what you didn't have in Paris, other than Breakthrough's launch, was really a organized representation of the private sector, but the private sector knew that it was going to have to move in one way or another.
(00:11:56):
I think that we benefited from a few things. I think one thing, of course, is Bill's leadership. I think that it's not like there weren't other dynamic and critical leaders before that, there certainly were, and he would certainly say that too, that we're all standing on other shoulders, but I think that he was kind of the leader that was necessary for this particular effort at this particular time, so I think that's one. I think, two, was the global moment that caused us to even do it is critically important, and number three, I think that there was an opportunity in the private sector that hadn't been exploited yet, and we had those kind of vision and the opportunity to do it, and so we took advantage of that.
Jason Jacobs (00:12:34):
You talked about how this had similarities to venture, but was different, what are some of the ways that it was different? I also want to distinguish that Breakthrough Energy Ventures has capital, and you talked about this fund one, but it's not the only thing that the overall Breakthrough organization does. So maybe it'd be helpful to both answer what's different about Breakthrough One versus venture, but also give some context of where Breakthrough One fits into the overall story of Breakthrough as an organization, or multiple organizations since I'm not sure if they're technically one organization or several.
Jonah Goldman (00:13:12):
The difference was largely in the structure. We're talking about ... If you look at the team that was organized right away with Breakthrough, the first team that Bill brought in, you had as much investment in the technical expertise as you did in the investment expertise, and you had a commitment to doing a fair amount of company building at the early stage through the networks that the team was bringing in. It was itself innovative in that. It was also, like I said, it was harder, the targets were harder targets than traditional venture would find. So we decided early, early on that there'd be an investment thesis that would require technologies to have this half a gigaton target. So that's not that the company could get to half a gigaton reductions, but that the technology pathway could lead to a half a gigaton reduction. That is only the biggest things, it leaves a lot of the pieces of the puzzle that are, again, the easy stuff off the table.
(00:14:12):
The third thing is that structurally it looked a little bit different than a traditional venture fund, in the sense that there was board, that board, it has responsibility over the fund. Those are kinds of things that just looks sort of different because of the fact that this thing was going to had a different risk profile, and it was investing capital into different types of companies. On the overall Breakthrough thing, it was always the goal that the investment activities would be married to this larger effort to basically shift the market environment so that technologies could be successful. That's to say it's not just that we were looking to have the technologies in the portfolio be successful, but these types of technologies to be successful.
(00:15:02):
So there are distinct organizations, as there have to be, and those organizations are very responsible to what their obligations are, so that's to say you've got a bunch of investment funds, and their obligations are to their LPs, and to returning value to the investors. Then you've got nonprofits whose obligations are to the public, and they are deeply committed to that, and then you've got other kind of facilitating entities to be able to make sure that everybody can move forward in the same way. But the goal of the network, of the Breakthrough Energy Network, has always been to make it easier to commercialize hard technologies. So when we were thinking about building out an advocacy and policy apparatus, it looked different than a traditional climate advocacy organization because our goal was, how are you creating a commercial environment through regulation and policy incentives for these technologies to succeed?
(00:16:04):
We started having conversations in 2017 that looked a lot like what the Inflation Reduction Act ended up looking like, a lot of conversations about the infrastructure, but it looked like the infrastructure bill. We started having conversations in Europe about how the commission could apply creative capital alongside our capital to develop new ventures in Europe. It was very much a different approach from the policy and advocacy side. Then, when Bill decided to write a book, the reason he decided to write a book was he's like, "We need to just explain what's happening. This is the most complicated thing we've ever tried to do as a species, so we need to simplify it so people can understand how these things relate to each other." There was a purpose, it wasn't ... I mean, he is a lifelong learner, and education is super, super important to him.
(00:16:55):
I don't want to undercut how important that element of it was, but a lot of it was so we could say, "This is a reference for the world to understand why these things are integrated, why they need to be integrated, why we need to build systems around them, why we have built systems for the previous set of technologies, and why we need to move to a new set of technologies, and how we can do it, and why we can be optimistic about it." I think that's the chapters that are still to be written in some respects, because what I think has happened, and I think Breakthrough should get a lot of credit, I know that I'm biased, but I think Bill and Breakthrough should get a lot of credit for, let's call it narrowing the valley of death, in the sense that there is an early stage ability to raise capital into funds, and to finance early stage companies, that I don't think would've happened without that leadership leadership. Now the question is, how you actually get to the scale piece? That, I think, is a piece that we haven't yet figured out.
Jason Jacobs (00:17:56):
Gosh. Well, there's so many different ways that we could go from here. Maybe the first is just more of a philosophical question, where if you believe that ... because I heard you on another podcast, I think it was Chris Hayes, and you were talking about how before abundant energy and after abundant energy, but then abundant energy was phase two, and now we need phase three, where it's abundant clean energy. Of course, energy, and you also talked about this, energy is just one piece of the equation, because energy powers all these other things that we do, which also need to be done differently to reflect the fact that they need to be done in a more sustainable way, without screwing them up or screwing up our ability to have an abundant life.
(00:18:39):
Given that, it's like, "Well, okay, the problem's climate change," but each sector has its own dynamics, each part of the world has its own dynamics, yet all of these things are so interrelated like BEV, or even MCJ, for example, we're climate-focused. In 10 years or in 20 years, does the climate-focused, it's not a vertical, I don't even know what to call it, but the climate-focused groups within different verticals, does that go away and just get hardwired into just general operating in these verticals? Or do you think that it's an element that will sustain?
Jonah Goldman (00:19:19):
Well, if it's an element that is as distinct as it is now, I'm investing in climate or I'm investing in something that's not climate, then we fail to solve the problem, and we're all going to have the negative effects that we've been seeing over this past summer escalate significantly. There's so many places where you hear pessimism that I'm like ... But if you look back to those days in 2015 when I, like I said, I'm a newcomer to this, when I started, we are so far. I think that everybody would've hoped we would've been further, but nobody would've expected we would've been this far in this journey. The amount of capital that is committed, the amount of things that are happening, the incredible innovation that's going on, the regulatory efforts, all of those things have moved forward significantly.
(00:20:08):
But to your point, one of the things that I think we tend to fail to realize, is we're just not great collective students of history. If we think about the fact that when, I think it was like 1857 or something like that, was when the first oil well was drilled in Pennsylvania, that wasn't done with the level of sophistication that our current project finance system is able to do that now. So that's to say, "Take the climate thing out of it, if you want to build a refinery now, you know exactly what capital it's getting, what return, and what risk profile." That's not the way the first refineries were built. When Rockefeller was lighting all of the streets with kerosene, there wasn't a very sophisticated structure, and so capital was taking much, much higher risks at places where capital now doesn't take high risks.
(00:21:07):
What I think we're doing in a productive way is, like I said before, we're sort of narrowing this valley of death, but as we're narrowing it it's getting deeper. That's to say it's easier to be able to raise the smaller amounts of venture capital to do the higher risk things, than it is to raise the large amounts of capital to do first of a kind commercial projects that don't have the same kind of proven economics that [inaudible 00:21:33]. That's a thing that people talk about more now than they did before, which I think is exactly what we need to be talking about. But we're trying to figure out how to fit it into a financing system that was purpose-built for very different assets, so until we solve that problem ... but once we solve that problem, then I think the world opens up significantly. Then we're no longer climate investors or non-climate investors, you're investors in the building sector, you're investor in the energy sector, and they're all climate investments because that's a very clear demonstrated productive future of investment, and that's what we're looking for.
(00:22:10):
But right now, what we haven't done is figured out how to build the purpose-built vehicles to create that future. If we don't do that, I don't know how we are successful, because there's just too many of these things where capital is going to flow to the place that it is comfortable. We know and we often forget, which is one of the things that Bill, I think, demonstrated really, really well in the book, was what we're talking about almost exclusively are non-differentiated products that we're trying to sell at premium, and that is just a very unnatural thing for a capitalist system to be able to do effectively. One of the big places where that premium needs to be applied is at this place where you need to spend lots of money, but there's still engineering risk, or regulatory risk, or market risk. We need to figure out how to perfect that by having a much more targeted conversation about how you organize capital, about how you deliver incentives, about how you are pricing things in a market, about where you're building regulatory support, and we're not quite there yet.
(00:23:22):
I know that that sounds like a lot to do, but again, I'm optimistic because we were nowhere near this conversation just six or seven years ago. We are at the point now that if we figure this out, then there's going to be eminent investment opportunities for the trillions of committed capital there is right now to invest in climate, but right now that capital is not going to flow to this thing, and therefore that capital will not flow. The question is whether we can perfect that.
Jason Jacobs (00:23:52):
It's just so tricky because, for example, general partner after general partner will come on this show, and they'll say, "We are not concessionary in any way. We expect to produce and be measured by market-based returns," and then it's like, "Okay, well, what's your LP base look like?" It's like, "Oh, most of them are mission-aligned," and it's like, "Well, why?" What's missing? If you expect market-based returns, why doesn't the market expect market-based returns? Then when you say climate it's like there's a lot of ... like two ships passing in the night, because I'll say climate and be talking about carbon accounting, and someone else will say climate and be talking about full batteries, and someone else will say climate and be talking about battery swapping for mobility, and someone else will be talking about shipping, and it's like, "That's all climate."
(00:24:38):
But if you look at actually business models, types of risks, et cetera, they look vastly different from each other. So what's the question there? I guess, one question is, what's keeping mercenary capital on the sidelines, in your view, and how much on the sidelines are they still? Then, the second question is, how do you deal with the generalist versus specialist dilemma, given that if you're a specialist in climate, you're actually a specialist nowhere. You're a generalist. You're a generalist.
Jonah Goldman (00:25:05):
Yeah, I'm certainly not a specialist in anything. So on the first question, I think that the answer is this answer, that capital that you're talking about is capital that is only interested in a single thing, and that is returns. There is not a single dollar that is invested primarily in something that would be labeled climate capital, that is only interested in that singular thing, or else they would put their money someplace else. There's not like you can't make money in this stuff, people have made a lot of money in this stuff, but you can make safer money other places, and that's the piece that we need to solve, that approach.
Jason Jacobs (00:25:43):
So the risk return ratio is out of whack relative to some other sectors?
Jonah Goldman (00:25:46):
I think that that's probably accurate. Here's the thing, I think that what we've seen is it's a lot easier to make money, and it's a lot easier to make more money than it ever has been, which is why you have institutional investing platforms offering this stuff, and not just their feel good clients participating. So diversified portfolios who include this stuff, and they are successful things, but they're still broken out from the other pieces of the puzzle, for the most part. There's certainly plenty of infra dollars that are going into this stuff because it's the best thing to invest in at a particular time, but that's a small portion versus what you were talking about earlier, which is like, or you were implying in your question, which I totally agree with, which is that as long as it continues to be climate investing, it is not dominant investing, and this needs to be dominant investing.
(00:26:44):
The transition to that is going to be from when large capital feels comfortable that this is the way to make lots and lots of money, and in some ways the best example is when things graduate into that category. To some extent, gridscale wind and solar has graduated to that category, and that's phenomenal. What we need is more and more things graduating to that category, but there's nobody who's investing in novel long duration energy storage, certainly not carbon removal technologies, or new ways to make cement and steel, or new ways to make plastics or new ... I mean, those things are not things that are showing up in traditional investment, those things are in climate investment portfolios, and whether or not you can make money long-term on those things is still to be determined, because they need to be the dominant source of those commodities in the market, and then sure, hopefully the goal is that there isn't this distinction. This is just you have an asset class, and that asset class is all things or mostly things that are productive from a climate perspective.
(00:27:55):
First of all, there's something that we just have to be honest with ourselves about, which is innovation takes time, and deployment of this stuff takes time. There's a lot more technologies focused on how you create new building materials that are closer to that aperture in the market than there were five or seven years ago, and that's a huge success story. The question now is, are they butting up against something that makes it impossible for them to get to that category?
(00:28:24):
I think that that's probably right, that what we need to do in order to move that is to focus on this one piece of the puzzle, how we're able to take early commercial projects, build them in a new way with new types of capital, organized in a different way with different incentives, in order to get them to the point where everybody just feels comfortable investing in them, they're profitable, they dominate their markets, they are the only things that are dealing with their total addressable markets, they're crowding out traditional sources of how you make these kinds of things, and that's not as much a part of the conversation as it needs to be. We are not building vehicles that are leading to that up.
Yin Lu (00:29:07):
Hey, everyone, I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ Membership Community, which was born out of a collective thirst for peer-to-peer learning, and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn, and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out the community, a number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early stage investments have been made, as well as ongoing events and programming like monthly women climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more.
(00:29:53):
Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks, and enjoy the rest of the show.
Jason Jacobs (00:30:08):
Another thing you talked about on the episode with Chris was how there's debate about whether we are just swapping out, like keeping the system the same, but swapping out the components with cleaner ones, kind of piecemeal until we've got them all, but the system is the system versus needing a new system. That's something we can talk about, but I actually want to take the conversation in an adjacent direction, and talk about the early stage innovation system. So if you look at the limited partners, and you look at the general partners in VC, and growth equity, and lenders, and stuff like that, is it about convincing the existing players, and building a bridge so that the existing players and existing models get comfortable pulling the trigger in this area? Or do we actually need new kinds of players and new kinds of models?
Jonah Goldman (00:30:58):
Well, I think we need existing players willing to take new models. I don't know that we have time to create completely new capital structures that are going to completely re-evaluate how they look at investments.
Jason Jacobs (00:31:12):
Although, I mean, that's basically what you guys did as a little, well, big compared to MCJ, but small compared to the assets required to facilitate the transition. BEV, in some sense, is like a proof of concept, right?
Jonah Goldman (00:31:26):
Oh, sure.
Jason Jacobs (00:31:26):
For a new way of doing things.
Jonah Goldman (00:31:28):
But that's what I'm saying, we need more creative applications. One of the places where I spend a lot of my time is working with the folks over at Generate, which I think is one of the most ... it's similar to Breakthrough in the sense that it's also a creative application of capital to this new, but specific. But what Scott, who you've had on the show, and I have talked about, is about how I think one of the most impressive things that Generate did, that that group of founders did, was build a creative capital application that was comfortable enough to traditional investors. I think that that is the kind of sweet spot that needs to be built in now. I think we need to look at a different phase, but you still ... What they did, and what they continue to do, is they do attract more of the traditional investors into a climate-focused kind of investing, but ultimately they see it as the future, building the new infrastructure of the future that's climate smart. That's the kind of thing that we need.
(00:32:30):
So that's to say I don't think that we're blowing up capital structures, because I don't think capital structures are willing to be blown up. I also don't think that they probably should, they're investing in a whole lot of other things. We will continue to say that things shouldn't be called climate investing, they should just be called investing. We know there's a lot of investing going on that has nothing to do with this stuff, that's very comfortable in current capital structures, and that will remain comfortable in current capital structures. Also, if wishes were horses, even if we wanted it to be completely restructured, that's not going to happen. It's maybe a fun academic exercise, but at the end of the day, I think what we need to do is to say to people, "We have a economy that's been going for a long time, and we know generally what it spends its money on, and energy and things related to energy are a big part of what it spends its money on. So there's a lot of money to be made if you can figure that equation out."
(00:33:26):
What we need to do is have some manipulation through largely regulatory policy and voluntary methods, to shift in this transitional phase a new way to do things. We're going to do it in a way that is most comfortable to traditional capital, not because I have any kind of deep love for traditional capital, because otherwise we're not talking about a realistic outcome. But what you do need to have is some level of, first of all, you need to, I think, connect incentives to impact better than we do right now. There is this sort of quasi-financial element that goes on climate investing, that is largely based on the credit received by the investor from a climate perspective, and those things are not well-aligned with what the world needs in order to solve the climate problem.
(00:34:15):
So that's one thing that needs to change, because that actually has a significant amount of capital flow associated with it, whether that's carbon credit buying, or it's investing in things that are going to decarbonize a small supply chain, but not a much ... a commensurate amount of investment could have a much more significant investment in market creation, or any one of these things needs to be right-sized. There needs to be an incentive provided, and that incentive needs to be directly aligned with what we need to solve the climate problem. I think that's one thing that needs to happen. There has to be a regulatory structure that is going to make it much easier for capital to find these types of investments productive, and a belief from capital that these policy and regulatory structures are permanent enough that it can commit. That's old problem, new application.
(00:35:12):
We need capital to have a reliable view of the regulatory structure, and then we need capital providers to be able to say, "I can see myself with significant upside down the road if I'm creative in the shorter term." That's the part that I think that ... I think that there's a willingness for that, I don't know that there is enough vehicles that have been created that fit into category. That is to say you have people who are talking realistic language to investors, giving them a very well-developed and researched thesis on why they should invest differently than they have before, and it's a collection of all these things. It's beneficial from a regulatory perspective. You're going to align your climate credit commitments, and then you have expertise that is dedicated to the things that we need right now, which is taking technologies and scaling them. That is a different set of expertise than what was necessary a few years ago, which is the early stage innovation.
(00:36:22):
It's not to say ... I hate the people who are saying, "Is it innovation or deployment?" That's just ... I think that's, honestly, I can't say anything else, but that's dumb. I mean, every productive industry innovates while it deploys, and we can do that here too. What I'm saying is that innovation should be informed by scale right now in a really significant way, and so those pieces need to be aligned different than they are right now for us to solve the problem.
Jason Jacobs (00:36:52):
Another thing I picked up from that other podcast I listened to that you were on, was you had mentioned the kind of libertarian streak in Silicon Valley. There's certainly a school of thought out there that unbridled capitalism is more powerful than any other force, and that the market should do its job, and when the stuff is better, faster, cheaper, then it'll take over, and until it does, it doesn't deserve to. Then there's others that say that the markets don't factor in externalities, and that the policies and incentives from the government need to play a pivotal role in accelerating any areas where things aren't yet better, faster, cheaper, like solar in the early days, as an example. That the government can almost do what BEV did, and kind of step in on a temporary basis, to kind of build a bridge to get these technologies to a point where it does make sense in a purely greedy way for the market-based capital to come in. How do you think about the role of government in the transition? Is it case by case or are there general principles that you think are healthy or unhealthy?
Jonah Goldman (00:38:00):
Yes. The first thing is that the idea that better, faster, cheaper is going to win means that we're going to be relying on fossil fuels until we all die, because they are better, faster, and cheaper right now. If that's all that we care about, is the end result of what they provide, then they will be better, faster, and cheaper.
Jason Jacobs (00:38:20):
I feel like that clip is going to be taken wildly out of context-
Jonah Goldman (00:38:24):
I'm sure it will.
Jason Jacobs (00:38:24):
And now it's just going to circulate.
Jonah Goldman (00:38:24):
Yeah, sure.
Jason Jacobs (00:38:24):
Look, what Bill Gates' guy said about fossil fuel.
Jonah Goldman (00:38:27):
Yeah. Yeah. Right. Right. But they'll edit out this next part, which is they're better, faster, and cheaper because there was the interrelationship between the people who were developing those things, and the regulatory environment that they were developed. The idea that these things happen without each other is just, I think naive. These are the most heavily regulated industries in the world, and they're regulated everywhere in the world, and they've been regulated for good reason. It's good that we regulate things like building codes to make sure that our buildings don't fall down. It's good that once we find something that fits into the category of, "I can build with this and the buildings aren't going to fall down," that we then say, "Let's actually make sure that everybody who's building with those things don't allow the buildings to fall down." We want regulation, even the most libertarian of us, even though we won't say. We want there to be a regulatory environment for these things that are the glue that holds the entire economic activity [inaudible 00:39:24], and so the idea that we're going to be able to do this without that is just [inaudible 00:39:29].
(00:39:30):
The other thing is, is that, similar to that these things were built through tons and tons of government incentive. It's not just a productive regulatory environment, it's direct investment from the government into these things. If you look at the Department of Energy's largest budgets for years, it was the fossil fuel budgets. It was how we were able to do R and D to be able to drill deeper, to be able to build the natural gas infrastructure, to do all that kind of stuff. The governments have provided incentives for fossil fuels and fossil fuel-based activity for generations, and those things have led to these things being the fastest and cheapest things. So the idea that somehow we're going to then recreate this world without that kind of interplay between the private sector and the public sector, I don't understand where that comes from because it just is, again, we are poor collective students of history, but that's not even the problem now, with this, this is the problem of we're a collective students of the present because this is happening right now.
(00:40:36):
I tend to get frustrated with placing blame in the climate world because we're all to blame for this thing. It's because we live modern lifestyles, and our modern lifestyles are to blame, and unless we're going to go back to ... I mean, even the nomenclature, the reference point is pre-industrial. How much temperature change we've had since the pre-industrial world? We do not want to go back to pre-industrial times. I don't think that there's anybody on the planet that's going to ... well, very few people on the planet, not enough to make a meaningful difference in the planet's carbon footprint are going to elect to go back to pre-industrial times. So that's no longer on the table, the only thing that's on the table is to try to figure out how we re-engineer our modern lifestyle, and all of these things are things that are in heavily regulated industries.
(00:41:24):
What I was saying before was that Silicon Valley had a productive libertarian streak for the thing that it tends to do very well, which is things where it makes it hard to make a lot of money when there's government interference in things like software development, and social networks, and those sorts of things. But the idea that kind of ethos can be translated into this sector is crazy, I mean, you look at Tesla, the idea that Tesla could be built without a significant advantage from the LPO, and a whole bunch of research from DOE into lithium-ion advancements, and roads that are created by government, and supported by taxpayers, that are made out of asphalt and cement that is contributing to climate change, these things are deeply integrated systems. None of them are independent of public engagement, and so instead we should stop. Similar to what I think of the dysfunction between the innovate and deploy conversation, it's like none of this ... There are very few options when it comes to solving climate, we have to do everything.
(00:42:35):
We have to have more creative capital structures to invest differently in projects. We need to have new regulatory structures that are going to make it easier for those projects to be successful. We need to have different consumer behavior enabled by products that consumers want to buy in order to lead to lower climate intensity. We need to have more education. We need to have better political patterns. There's all kinds of things that need to happen, but these things are not ... it's not a menu of options, we need to do all these things, and we need to do them well. As far as what the productive relationship is, is that they're actually .. instead of fighting the role that government plays, there should be deep integration with the role that government plays. This is a huge money-making opportunity, the private sector should look at this and be like, "Yeah, let's move in this direction," or at least a lot of it, but even the legacy companies have tons of money to be made if they're able to be the ones who are dominating the infrastructure of the future.
(00:43:35):
If it's being done the way it was done, I mean, the first time we did this, it was done by interactions between the public and private sector. It may not have been interactions that we like to think of, that are good interactions, but those interactions created a regulatory system that allowed us to be able to build out a global productive economy. I think that we just need to be much, much more focused on communities that are affected because we did some terrible things, but that's a policy design thing, that's not a who takes the reins thing.
Jason Jacobs (00:44:12):
One question, and this is more of a clarification for listeners because I want to be careful that they don't get the wrong message. When you say half a gigaton per year threshold because you want to work on the biggest stuff, is it that that's the only stuff that matters? Or is it that you thought that there's a dearth of capital for the biggest, hardest stuff relative to others? Because it's something we wrestle with, like we're hesitant, for example, to use a gigaton or half a gig, or just carbon threat, or GHG threshold because ... Re-skilling the labor force so that there's people out there that can do HVAC, and electricians, and build transmission lines, and things like that, that is a big opportunity for impact from a climate standpoint, but wouldn't show up in a gigaton threshold, or winning the hearts and minds of hundreds of millions of people. If there was a media platform that could educate, inspire, mobilize to act, well, that's high impact, but how do you translate that to a gigaton threshold?
(00:45:10):
I just wanted to know the reasoning there, and also, as I said, just kind of clarify for listeners so that they don't get the wrong message.
Jonah Goldman (00:45:15):
Yeah, no, that's an important clarification. Again, we don't live in a binary world here, we live in a very, hopefully complimentary world from an investment perspective, policy perspective, et cetera. There were not vehicles to invest in the hard tech, and this was a vehicle to invest in the hard tech, and we wanted to make sure that we were investing in the highest impact part, so that's one reason. The second reason is there will be a ton of enabling technologies, software enabling technologies, other low cost, kind of low investment technologies that are successful in a decarbonized world. Those technologies will find natural investors because they're easy to scale, they don't have all of the problems that the hard tech problems had. There is another thing where it's like, "We didn't want to invest in things that were easy to invest in," that was one of the things we were looking for originally, and we were building a technical team that was very focused on the technical side of things.
(00:46:15):
The workforce training and deployment piece of the puzzle, that is a very important piece of the puzzle. It's an important piece of the puzzle even if we're not trying to transition. We've got a workforce certainly in a lot of these key trades, whether it's electricians or plumbers, that we're just not developing talent like we should be developing that talent in order to do whatever the country or the world needs to do to move forward. We definitely want those new tradespeople to be focused on how you can do the things that are going to lead to the lowest carbon climate impact. We need to be able to train people in installing heat pumps, and we need to be able to train people in how those heat pumps can interact with solar panels, and that is a different thing. So all of these things are necessary.
(00:47:02):
We knew that we were able to do a lot with Breakthrough, but we weren't going to be able to do everything, and what we wanted to do is make it easier for other investors to do a lot of these other things. I mean, you look around the table of Breakthrough and there's plenty of people who are investing in those things also, but you have to have some focus for a fund, and that was the focus fund.
Jason Jacobs (00:47:21):
When you see all these big companies that are making these ambitious net-zero commitments, how do you feel about that? Specifically, do you think that those are helpful or detrimental to accelerating the transition?
Jonah Goldman (00:47:41):
Well, it goes back to what I was saying before, that the incentives have to be aligned with the impact, but the fact that you have ... It's very, very hard right now to be a large company and not to have some level of climate commitment. I think it's almost entirely a good thing. The fact that you can make a climate commitment that isn't going to have a lot of impact, that's not a good a thing. The network of people who are responsible for holding accountable what commitments are either accepted or not accepted, really need to work on right-sizing, not right-sizing, but aligning impact to commitments. There are some companies that are doing that themselves. That's to say there are some companies that understand that a traditional alignment between what is now valued, and the commitment a company can make is not necessarily going to lead to the impact that we want to see. Those companies should be celebrated and rewarded for it, but they tend to be companies that have lots of money, and that can make these kinds of commitments.
(00:48:50):
I, and everybody else like to point to Microsoft, and Google, they're doing real, real stuff that is moving this world forward, regardless of whether they get the formalized credit for it. They get plenty of formalized credit, and Stripe with Frontier. These are truly innovative things based on a corporate culture that's committed to it. But then there's a whole bunch of other actors, who either have decided not to invest or can't afford to invest in doing that kind of thing. Don't have board structure supportive of it, and so instead they're making commitments that are based on what passes [inaudible 00:49:28] or doesn't pass [inaudible 00:49:29], as opposed to trying to be the vanguard. Many of those commitments ... I'm not blaming entirely those firms, because I think that they're working with what they have provided to them. What we were talking about before, which is where is the incentive for a firm to make a higher risk investment in a project that has the potential to scale a market for a clean product that may fail, and is not going to have a deep impact on that firm's direct emissions?
(00:50:04):
The question I always ask is, what's more important, a firm's direct emissions or a firm's commitment to scaling the entire turnover of what causes those emissions? In my mind, it's the latter. Obviously, I said it in kind of a push-pull kind of way, but it is really the difference. I often think back about the investment that Amazon made in Rivian years and years ago, and right now the dominant credit that Amazon gets for that investment is the number of Rivian vans that are either replacing internal combustion vans, or are being added to the fleet when you're not adding internal combustion. That's the climate credit that Amazon's getting. But subsequent to that investment, Stellantis and Daimler, they created their products and made major offtake agreements with other big last mile delivery firms, and that to me is way more important.
(00:51:05):
I feel confident we're going to solve the last mile delivery problems from a climate perspective. I think that the initial investment from a leading firm like Amazon into Rivian was not an inconsequential part of that structure, but they don't get credit for the market shaping piece of it, they get credit for whether or not they're replacing vans. That, to me, is a mismatch of what credit we're giving for what activities we're hoping to have, and for them, they don't care, it works out both ways for them.
(00:51:33):
But when you're talking about somebody who's in the building sector, and that person is either going to be able to pay more for a current clean cement product, that may have a marginal reduction in the impact of cement, a very marginal reduction, almost a rounding error, but it's the cleanest product available now, but you're paying a premium for it, is it better for them to pay that premium? Or is it better for them to invest that premium in the next generation of a clean cement plant that has risks, and that is going to create a product at the earlier stages that has an even higher premium? In my mind, it's way more valuable, the latter is way more valuable, but the former is what you get credit for, you don't get credit for the latter, so that I think is a big problem. I think that that represents billions of dollars ultimately, without even getting into the dysfunction in the offset market that should be completely reinvested into these new technologies.
Jason Jacobs (00:52:34):
That was my next question actually, was just given these commitments, obviously there's hard work that needs to be done to clean up your own shop, but then how do you feel about carbon markets, voluntary credits, offsets, that whole world, is it ... I guess, I'll ask that with a lens to ... maybe you could speak to how you feel about it in the short-term, the medium term, and the long-term.
Jonah Goldman (00:52:56):
Sure. The first thing is that obviously there's a lot of different products on the market, some of them have more integrity than others, and we should get rid of the ones with low integrity. We should just not have those available. They have to either be officially or unofficially regulated out of existence because there are ways of resources, and those resources should be applied in a much different way, even if they are applied to a credit system that is better. There needs to be a market for carbon removal, and that market is going to be satisfied only by people who can't otherwise satisfy climate commitments. There's no way we get to our climate goals without building a market for carbon removal, and it can't just be natural. Although there are natural systems that are necessary, certainly to protect, and probably to invest in, although I think that probably is a lot more limited of the scope than we're doing right now.
(00:53:47):
I think we do need a lot of engineered carbon solutions, and those things cost money, and so we need to figure out how to create a market for something that has no natural market. So all of that, I think is the way that we should be thinking about offset, but there is a lot of capital going into that activity that could go into what I think is the ... what I've been at least advocating for, in this conversation, as the key thing that we really need to do, which is to figure out a way to help develop these assets in a way that ultimately allows them to be profitable. Some of that, and you mentioned something, but I don't think I reacted to it, which is there has to be some allowance for concessional capital to come into these things, because traditional investors, no matter how creative you are in financial engineering, no matter how big of a portfolio you get, these types of projects are going to need some concession in them, public or private concession.
(00:54:41):
This is a source of private concessional finance that could be easily applied at this stage. Unlike the offsetting capital, this is capital that's very, very high risk, but there's potential return, or potential recycling, or potential something to be able to make it productive capital along a value chain beyond just that particular investment. We don't have those products. We haven't yet figured out things like ... We easily figured out that one of the things that helped solar to grow were things like racks and PPAs, and things like that with commingled electrons. We can't do that with steel. We can't do that with cement. We can't do that with plastics. There is a question of whether or not an exchange system can be created for those types of things to be able to accept a premium, but not necessarily need to accept the product itself. I think that there's a lot of creative applications that can happen there, but those kinds of things are the things that are going to probably bring some of this either fully concessional or partially concessional capital into these types of things, while aligning climate incentives to impact outcomes.
Jason Jacobs (00:55:55):
Probably the last big bucket, or I guess, there's plenty of other big buckets if we had more time, but one we haven't touched on that I think is important is behavior change, and that could be consumer purchasing behavior, that could be trips, that could be ... There's a lot of anger from certain subsets of the world around things like big yachts, or private jets, or things like that. How do you think about behavior change generally in terms of right and wrong, and also in terms of how important or essential it may or may not be to the transition?
Jonah Goldman (00:56:33):
It's kind of a hard conversation to have because you seem insensitive if you say individual behaviors don't really have an impact, and you have so many people who want to have an impact. I don't think individual behaviors have no impact. I think individual behaviors, especially in the West, where there is significant amounts of disposable income, I think the two primary behaviors that can affect climate outcomes are your purchasing power, and your electoral power, and if those things are aligned, then I think that they can be meaningful additions into an equation that leads us to the climate solutions that we're hoping for. Buying an EV is clear market indicator that you will accept an EV, and ultimately these are consumer markets that need to be affected. Deciding not to eat beef, which I know is a controversial thing, especially in the US, especially in parts of the US, is potentially the most impact individually you can have, unlike your personal relationship with climate change, and it's a clear marketing.
(00:57:44):
But you don't have to necessarily not eat beef as much as buying these alternative products from time to time to be able to create these markets. The market creation activities of the North and the West are very, very important in giving investor confidence at the earliest stages, in building retail confidence, and all those different pieces, and that shouldn't be under-counted. What we also shouldn't do is overvalue some of that stuff. I understand why there's generally people who are like, "Private aviation is a huge problem." The truth is, is that aviation is the problem, and if you solve the aviation problem, you solve the private aviation problem. Maybe you have problems with the system that allowed for people to be flying privately, but that's not a climate problem. I know people will say that's what led to our climate problems, but again, I think that that is a simplified version of what really led to our climate problems.
(00:58:43):
I think that what [inaudible 00:58:44] mostly focused on is how you solve the aviation problem, because I don't think aviation is going away. Same thing with huge yachts, I think that some of that huge yacht stuff seems absolutely crazy to me too, but ... I'm not in any position to even buy a little one, but we need to build big ships that travel across the ocean, and we need to figure out how we fuel those big ships that travel across the ocean if we want to continue in a globally interconnected economic environment, which I think that despite some political resistance, I think that's what the world really wants. So it's not about someone's yacht, it's about whether or not we can create a global shipping apparatus that doesn't lead to major climate impacts.
(00:59:29):
Again, I don't want to devalue people's advocacy for equity and fairness, and the fact that we do have a crazy set of ... lack of tax incentives in this country, all that stuff are all valuable things, and in fact, work that I've done in the past, but they're not climate things. This is such a big problem we don't need to add onto the problem. We still need to solve this problem, and that I think is going to be hard enough. It shouldn't devalue the other important issues out there in the world, but we should be clear on what our priorities are, why they are what they are, and how they're going to create the outcomes that we're hoping for from a climate perspective.
Jason Jacobs (01:00:13):
So what are you up to now, Jonah, and what are you thinking about?
Jonah Goldman (01:00:17):
Right now, I'm doing a few things with different partners. I get to spend a bunch of my time with, like I said, with Generate, which is awesome because that's a super innovative and exciting place to spend some time. I'm spending a bunch of time as a senior advisor with BCG, which is a really cool, of all of the major consulting platforms, I think that they're the furthest along in thinking about how they can enable clients to really help solve this problem, and so that's a really cool group of people to be part of. I'm doing that part-time. Then I also have my own thing called North Cascade Strategies, that is largely just a couple of clients that I'm super interested in talking to, and a couple of startups, a couple of other creative capital formation vehicles that I'm working with to think through how they can look at the future, and then trying to figure out ultimately what I really want to do next. That's also a part-time job, but right now I'm just having fun working with people who are truly committed to this, and want to be creative actors in the ecosystem.
Jason Jacobs (01:01:19):
Who do you want to hear from, if anybody? For anyone listening that might be intrigued by what you have to say, and what you're up to.
Jonah Goldman (01:01:26):
The thing I'm most focused on ... I know that anybody who's spent this time listening to me going on, is this gap with these early commercial, with building early commercial infrastructure, and those people who are thinking about it creatively, or who want to work together in thinking about it creatively, and you're interested from either from a capital perspective or a project perspective, I'm all ears. I'm trying to figure out ... it's a hard, hard problem to figure out, and I'm looking forward to working with creative people who are interested in figuring it out.
Jason Jacobs (01:01:59):
Jonah, any parting words for listeners? Anything we haven't covered that you wish we did?
Jonah Goldman (01:02:03):
I think that we covered a lot, and obviously there's a lot, this is as wide a landscape as there is on the planet. I guess, I'd say this, I think that we need to have a little bit of celebration in this community. I think it's a pretty remarkable group of people who are committed to doing this thing, all of whom that I know could be doing other things, and are choosing to do this thing, and I think that's a pretty amazing thing. I remember early, early on conversations with Bill, and his thing was, "We need the smartest people in the world focused on this problem," and we're getting close to that. I have talked to some pretty damn smart people all the time who are focused on this problem.
(01:02:44):
I want to probably end where I started, which is congratulations to you. Congratulations to this community. We haven't made all the progress we want, we haven't made all the progress we should have made, and we've made a hell of a lot of progress. I'm just really grateful that I get to spend some time participating with these great people trying to solve this problem.
Jason Jacobs (01:03:03):
Awesome. Well, Jonah, this was, as you said, a super wide-ranging awesome discussion, and grateful for all the work that you've done, excited to see what you do next. Thanks again for joining us on the My Climate Journey Podcast.
Cody Simms (01:03:16):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos, and unleashing problem-solving capacity.
Jason Jacobs (01:03:25):
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Cody Simms (01:03:47):
Thanks, and see you next episode.