November 14, 2023

Carbon Price Power and Politics

Neal Dikeman speaks with Lisa Ann Pinkerton on Earthlings Podcast

Neal Dikeman: So we have the tools and technology to solve it. They’re not necessarily more expensive overall, but we’re going to do it the expensive way because we’re idiots.

Lisa Ann Pinkerton: Greetings Earthlings and welcome back to the podcast, the show where we’d rather not see the world’s fight against climate change become a race to be second. As you heard in the opening, our guest today illustrates for us that it is not a tech problem that we face, largely figured that out. And it’s also not a big oil versus the rest of us problem.

That might be a distraction. It might not even be a money problem. It’s a people problem, people. And this resonates with me because for years I have been saying that the climate crisis isn’t a problem for the planet. It’s a problem for humanity. The planet is going to be fine. She will survive with or without us.

Frankly, better without us, probably. But if we want to progress as a civilization, then it’s up to us to turn back the momentum of the climate crisis. No one is going to rescue us here. But before I get onto my soapbox, I’m your host, Lisa Ann Pinkerton. I lead the award winning climate tech PR firm, Technica Communications, and I support all genders in their careers with women in clean tech and sustainability.

And if you’re enjoying the show, I ask you humbly to give us a review. Would you leave Earthlings 2.0 five stars? If your answer is yes. Take a moment right now, open your podcast app, scroll down and give us some stars as many as you think we’re worthy of. That is a gift that you can very easily give to us. And it will help others find the show. Also, we’ll put a link in our show notes for you to find our YouTube channel and you’re welcome to rate us there as well. And if you’re in a financial position to support us on Patreon, please click in the link on the show notes and become a member. Every little bit counts.

And now a word from the Resource Labs Network. Today’s Away Mission involves looking objectively at the international anarchy that is the global governance system we have, and understanding why past climate change treaties failed. Why we can’t seem to phase out coal, why governments seem to be slow play this whole thing, why all this activity around renewable energy production and carbon markets and offsets and credits and emissions, it feels like we’re just doing all the things without a real plan or strategy.

As our guest points out today, if you can’t understand what motivates the largest emitters and you can’t understand what motivates politicians, then you might not be able to understand the world from their perspective and you can’t hope to find a collaborative solution. In fact, this conversation is rather timely, as the US is looking to find common ground with China on climate change, even if the countries disagree on other things like human rights or trade. As you might recall, China is a powerhouse on renewable energy production and deployment, as well as the world’s largest coal consumer. And while this feels like a juxtaposition, our guest today might say, you just don’t have all the context.

And he has a lot of context. He’s built clean energy startups. He’s a venture capitalist. He understands economics. He understands politics. And he points out that all these mechanics of how our governments operate at the global level hold both the problem and solution together. How we transition to a cleaner economy.

His name is Neal Dikeman, and he’s a founder and partner at Energy Transition Ventures. He’s also the chairman of cleantech. org, a leading virtual research institute and incubator. And he’s got over nine startups under his belt as an entrepreneur. He founded and ran the North American arm of the VC fund for Royal Dutch Shell.

He co founded Jane Capital Partners. And he ran to represent Texas in the US senate as a libertarian, where he nearly upset the race. On a side note, early in his career, In this interview with Neal, you will hear some background noise from his location, but don’t worry, it disappears in about the first 10 minutes.

Now, all of this is to say that in the game of life, Neal’s skill tree is really well filled in. And it’s this culmination of all of his personal experiences that had me asking him, how do we fix this?

Neal Dikeman: Oh, that’s cute. You think we can fix the climate crisis. Look, you have to separate that into into buckets. Whenever we want to fix, we, the global we, want to fix the climate crisis, it will get fixed relatively quickly and simply. It’s a trade problem. We’re still dealing with the basic trade issues from two decades ago.

The ones that came out of Kyoto, the emerging markets are not committing to caps and reductions, they’re still growing clean energy and growing emissions faster than we can cut emissions, the OECD now is largely on track to bring its emissions where it needs to be. But every bit of emissions with reductions we do just gets jacked up by Chinese gold plants.

And so if you want to fix climate, you have to fix the trade issues. So in climate budget terms, the sinks have to be moving in the right direction. After that, yeah, Kyoto showed us the way and Kyoto you can think of is the largest single grand experiment In all of human history, and it was an experiment designed to figure out how to scale climate, uh, mitigation, and adaptation tools, and it worked very, very, very well.

We figured out that you can go take very big chunks of emissions and blow them in the head. We also figured out that those emissions reductions, if you put a normal price of carbon, don’t come from where the cool kids and the policy makers thought they were going to come from, but they get, they get done.

Yeah. Yeah, so yeah, if it were me, yeah, first thing I would do after getting the sinks moving in the right direction, because if you don’t do that, it doesn’t matter. And after cutting the trade deal with China, because if you don’t have that trade deal cut, it doesn’t matter. Yeah, then you want to do a couple of interesting, interesting things.

You, you want to fuel switch as reasonably fast as you can. You probably want to hit car size. And you want to incent energy efficiency. Thanks. Yeah, and then the quote hard abatement sectors well, we’ll just get to those in a decade or so. If you do the others right, the hard to abate sectors are not that big a deal.

Yeah, what we’re doing instead is the monument height of stupidity. We’ve decided we’re going to decarbonize every freaking sector and every freaking geography regardless of its Yeah ability to quickly and cheaply and easily decarbonize at once in parallel because we don’t have the Chinese trade deal cut and the sinks are moving against us so people are feeling desperate. Are we in to do this solution one ought to simply put a cap and trade program in place. Get a clean simple consistent price of carbon and the market will figure it out But we failed kyoto failed copenhagen failed Now, POSNAN failed.

We’re not going to get a clean, simple price of carbon. So we are going to fix climate change the most expensive possible way that we can, because we’re idiots and our policymakers are idiots. But, and we’ll get there just a decade later and trillions of dollars more. But we don’t have to. That is our idiot choice to do.

Lisa Ann Pinkerton: Why aren’t we seeing more movement from our global leaders? Like, you have a background in politics. Help me understand why we’re not seeing this political movement. And as, as a result, we, as the global, we are attempting to decarbonize everything at once because that’s what’s in our ability.

Neal Dikeman: All this is within our ability.

That’s the choice we’ve made. So, I mean, look, you got to think of it with the vested interest in insidious of all the various actors at play. Let’s start with, let’s step back and look at. The mechanisms we were using to attack climate change. The first round of attempting to address it was basically following the treaties.

And among the kind of things that had worked in the past was in the 80s, 90s, we solved acid rain. You remember acid rain being a big deal. It basically knocks in socks from power plants with a cap and trade program here in the US so the us right in the 90s essentially said let’s go do this works.

That’s cheap. It’s cost effective It’s market based. Let’s use that and so the basis of kyoto was essentially a US principle,

Lisa Ann Pinkerton: Yeah.

Neal Dikeman: 25, you know, odd years ago. China was not into its big industrialization You know GDP growth spurts yet, so we have this framework. It’s a good framework and it essentially consisted of europeans and some OECD countries Developing carbon trading mechanisms cap and trade the US refused to sign. The US for a few, and this is both US left and right, in the 2008 election I went and looked at every single Presidential candidates stance on both parties on climate change and more importantly on cap and trade. What’s the solutions and all but one, on both sides Were pro cap and trade. The Bush Clinton policy framework principles, which was no caps until China does because China is our economic partner and our economic competitor, and we cannot simply sign up to caps that adjust our cost structure if they won’t.

And the BRIC countries at the time were largely saying this was a problem created by first world in the history in over the last 100 years. First world needs to pay to solve it. That’s why the US didn’t join. It’s entirely rational. It was both left and right that refused.

Lisa Ann Pinkerton: Okay, okay

Neal Dikeman: Fast forward Kyoto ends is kind of a time delineated experiment, the next treaty is supposed to come in place. The same debate is at the table except this time china and india and a few other emissions were through the roof and growing and outgrowing ours and so the US policy makers essentially were doubling down on: this isn’t getting through the Senate. You are not going to create wealth transfers at that scale from the US to our largest economic competitor until they agree to something and the BRICs just dug their heels in and said no. Yeah, and so we end up in a weird setup where the US was out of Treaty 1 and no real mechanism to bring them into Treaty 2 and then something else happened in that interim, the US left and the European left largely realized cap and trade doesn’t have to be like knocks and socks in acid rain where you basically trade credits around between actors and the actors figure out how to get the price out.

You can use it to raise money. And fund co-benefits that was the code word back then. Yeah, the essentially the environmental justice movement kind of hijacked the Right wing, market based mechanism so you can run a cap and trade scheme that says we tax all of y’all and or we sell the credits, the allowances, you, emitter, pay me, and then I redistribute that.

Well, that poisoned the right. Industry was like, look, I’m facing a ton of different regulatory pressures from every angle. I just want something. I want to know my price. So industry started to move towards Just give me a carbon tax which they don’t want but then you can just buy your way out of the problem a carbon tax doesn’t actually fix the problem because it doesn’t set a price on carbon and it doesn’t set the appropriate price on carbon. But industry loves it because they if they’re all subject to it they can just pass it through and they don’t have to do any more than the customer wants them to do and so we got in this weird dynamic where the left hijacked the mechanism from the right.

The right is now poisoned out of the discussion and the entire debate shifted to a left wing debate, which was not the way it was functioning in the early two thousands. So now, as we’re working through this mess, we come out of the great financial crisis and we have emissions out of the BRIC countries and the trading challenges of integrating China into the world economy were getting frankly worse and worse because it was getting bigger and there was a whole bunch of WTO and trade issues between the US and China that basically supplanted carbon and carbon is a trade problem, right?

When you add a price to CO2, you essentially put a new cost in the supply chain of everybody in the world.

Lisa Ann Pinkerton: Okay

Neal Dikeman: And so we ended up in this, you know mess where that cost was not priced properly and today we failed to get a carbon price. So we’re now in a world with a thousand actually a million prices of carbon. The world moved to after kind of the treaties fell this idea as well It’ll have to be bilateral us will do a deal with Chile, UK will do a deal with you know, Norway and Yeah, Japan will do a deal with Australia and then the US states started doing regional deals. And the problem is those markets weren’t linked. And so every time you throw a policy whether it’s a cap policy a subsidy a quota, Yeah, um an efficiency standard, whatever it is you create an effective price of CO2. So now we have thousands of prices of CO2 which range from a dollar a ton to a thousand dollars an effective ton. And so now we are guaranteed to get economic collateral damage in the outcome and then the left kind of doubles down on this because, well, it looks like driving social justice, co-benefits, revenue generation, punishment of emitters, and now the right doubles down on, well, hell no, because they can see the mechanisms to solve climate are just being used to drive other environmental and social objectives.

And from my perspective, the right is correct here. If you and I actually care about climate change, because the question you have to ask all of ourselves is, is climate change an existential goal or issue that has to be solved? Right now, we are not behaving like it is, and the left is not behaving like it is.

They’re behaving like it’s one of a chunk of them. So, great, if it’s one of a chunk of them, you set up a bunch of policies, and you try and go solve this, this issue. If it’s existential, You need a price on carbon or you need to shut down all CO2 emissions, but we’re not doing that. If it’s existential a CO2 tariff at the border on anything that comes out of China coordinated with the EU and this gets fixed. But we won’t do that the economic collateral damage that would be insane. Right?

So we’re behaving like it’s not existential and then talking like it is and so we’re just in a mess.

Lisa Ann Pinkerton: Yeah.

Neal Dikeman: On the positive side, unlike 20 years ago, wind and solar are now dirt cheap. They’re the cheapest electron energy source on the planet. Certainly in the best markets and probably in their average markets.

We have scaled technologies to Levels that were not even fathomable in 2001 when I started getting into clean tech. Solar is expecting to have a thousand gigawatts a year of manufacturing capacity by the end of the decade lithium ion battery classes something on, like, six to five or six thousand gigawatt hours a year.

That’s enough to literally rebuild the whole US grid every, call it, two years, and store every electron overnight. Which means between now, 2030 and 2040, between now and 2040, we can basically rebuild all the grid in probably double grid capacity if we want as a globe. These weren’t fathomable things back then.

So we have the tools and technology to solve it. They’re not necessarily more expensive overall, but we’re going to do it the expensive way. Because we’re idiots.

Lisa Ann Pinkerton: Oh God. It just seems like all these extra steps. And if we could get ourselves more organized and aligned. then we could really streamline and really focus on, okay, yes, this is an existential threat, and we’re going to solve it, and we’re going to do it in the most direct way possible as a group.

Neal Dikeman: It’s like putting up a budget bill. If you put up a clean climate bill, it could pass. We haven’t put up a clean climate bill in the US senate, ever. And until you do, the right will just battle for good reason. And then you’re essentially creating wealth transfers between states in the US and so now we’ve dropped it.

You know, the IRA, Inflation Reduction Act, it essentially doubles down on pouring subsidies in for us, but doesn’t solve the US – China trade issue, which is at the heart of solving climate. In my view, doesn’t actually deal with climate at all. Because China’s not in.

Lisa Ann Pinkerton: Right

Neal Dikeman: And it’s and now we have a we have a green job trade war with the EU over the IRA Which the environment doesn’t care about that.

The environment just cares that CO2 and GHGs go down. The economy cares: Do you have a clean price of carbon and an equal one. So that we take it out in the least cost path to GDP? We are doing literally the exact opposite. Borrowing insane amounts of money pouring them into programs that are all probably directionally correct, but there’s no framework in that mechanism to order which CO2 things should be done right and China just builds more coal plants.

Lisa Ann Pinkerton: So it’s like, to me, it’s like, if this was really, so by the time this truly becomes an existential threat, in the sense that your average person is demanding something be done about it, it’s too late.

Neal Dikeman: No, it’s not too late.

Lisa Ann Pinkerton: So if we get above two

Neal Dikeman: If we want to solve it, we’re a decade away. That’s been true since probably 2010.

Lisa Ann Pinkerton: What about, but if we, but if we pass some tipping points that we can’t reverse, then,

Neal Dikeman: well, it gotta be painful.

Lisa Ann Pinkerton: Yes

Neal Dikeman: You gotta flood some cities, you’ll do what, whatever. But you know, humans have dealt with that before. That’s why after, Copenhagen failed the world started talking about adaptation and mitigation, right?

Lisa Ann Pinkerton: Mm-Hmm. .

Neal Dikeman: We pretend we don’t because that’s not a good, a good, good selling point.

Lisa Ann Pinkerton: Because the younger generations would have no incentive to go out and get a J. O. B. and work for a big corporation if they knew in 30 years the, climate change is going to just devastate the planet and they’re going to be really in dire straits.

Neal Dikeman: Climate change, climate stress, you know, this psychological impact. I don’t want to have kids because I have, you know, I, yeah, because the climate might be bad. It’s like we literally created that stress point for ourself. Yeah. But if you’re in emerging markets, you got to kind of look at the other side of it.

If you don’t live in the US or Europe and you’re not fabulously wealthy and you’re worried about, you know, getting energy and all of that and clean water, then, okay. I mean, this is really far down your list. Yeah. When it is climate and CO2 just moves across borders and doesn’t care whether it’s put in in China or taken out in the US or trees planted in Brazil. Then you have a bigger problem. You cannot solve it with money. You have to solve it with caps or behavioral change or a CO2 price, which gets us the best of all worlds. But we’re not going to get that.

Lisa Ann Pinkerton: So what we’ve learned from the Life at 3C episode that we did that economists anticipate that GDP will go down as climate rises, the temperature rises, and um, and that of course mitigating climate change is going to be ultimately less expensive than adapting to it.

Neal Dikeman: Maybe. Yeah, there’s a whole bunch of people that built very pretty little scenarios on that. I’m not saying it’s not correct. I’m saying, yeah, I, I have no idea how I would vet or verify that model.

Lisa Ann Pinkerton: I, and I, you know, that’s a fair point.

Neal Dikeman: The Chinese policymakers today, and probably most of the Chinese nationals, and we use China just a favorite kind of, you know, foil here.

It’s a much broader than China problem. Yeah. They are worried about much more important things. And frankly, they don’t care if our GDP goes down, if their GDP goes up.

Lisa Ann Pinkerton: So what do we do then? Do we just wait around for China to decide, uh, when it’s ready to stop building new coal plants and, and start reducing its carbon emissions?

Neal Dikeman: Depends on how much economic damage you’re willing to bear.

Lisa Ann Pinkerton: Mm hmm.

Neal Dikeman: If you really believe that GDP is going down. Like, dramatically from climate change, and it has to be solved today to fix that. You throw up carbon tariffs and you smash the world economy now to reset it and regrow. I don’t believe that and I think tariffs are stupid in general. And, uh, they’re very un libertarian, which is my political party. Um, and, uh, I think they’d be counterproductive. Trade wars are bad on, all levels. But yeah, I mean just imagine trying to get that through the tech pros in Silicon Valley. We’ve decided to put up a, you know, a a 500 a ton tariff on China.

Yeah, that ain’t happening.

Lisa Ann Pinkerton: No, no.

Neal Dikeman: The, um, but what’s going to happen? I mean, BRICs have already signaled when they will take the change. And that is basically when their GDP growth hits the right, the inflection point, and they get out of the middle income trap, whether that happens or not. I think the bigger challenge is the, the climate, to be honest, is the graying of the world population.

Lisa Ann Pinkerton: Okay. Tell me more about that. What do you, why do you say that?

Neal Dikeman: We have never run an economy of any type industrial, pre-industrial, industrial or industrial post-industrial or modern with a graying population with an older population.

Lisa Ann Pinkerton: Okay

Neal Dikeman: Japan and a few other countries are now learning how we’ve staved it off with immigration. But, China, it looks to me in a world of hurt. China’s GDP may just collapse all its own. We may solve climate just because China turns off all the coal plants because they don’t need them because they got less people. You know, I think that’s a hard again a hard model to figure out. So the the biggest determinant of long run success for all of us in climate is Basically energy intensity per unit of GDP. So if the whole world had the GDP per capita that california does, we don’t have a problem. But it doesn’t and the China’s race has been to get the GDP per capita up and they’ve been ignoring the energy intensity per unit of GDP and the derivative of that while they grew. Because getting per capita up is the key. But we got an opportunity here is we will have disruption from graying of the economy.

We’re going to have that. We’ve had been having disruption for the last 20 years from globalization, right? These are not either ors and they’re not necessarily worsening climate change or making it better. They’re just kind of over macro trends as impactful as climate change in this discussion. We’re now expecting disruptions from climate change. And arguably we’re seeing some or the beginnings of it or however you want to kind of estimate your little model on what climate change impact is on GDP. And we’ve also got mountains of debt in global economies, including ours, that basically look like you’re going to have to inflate your way out of and the GDP pain for that is going to be insane. And so I don’t think there’s a lot of clear cut answers of how all these variables interact, right.

I will tell you, we’re going to see more volatility in prices of all types, especially commodities. Energy transition almost guarantees volatility. Energy is not inflationary. Energy is deflationary. When you look at it in real terms, the price is flat to down a little. It’s just kind of the tail wagging the dog in this inflation discussion.

And so that will help some. We now have the ability to continue to drive energy costs down and we’ve shown as a globe we have a good ability to drive GDP per unit of energy up compared to where we were in say 1940 or 1965. Not every place in the world is doing that. So if you can, and this was one of the grand bargains of Kyoto is, Yeah, we’d create these carbon credits, and we would ship, yeah, technology to China, India, or Brazil, or, or, yeah, wherever, to build projects with Western tech, and then we would finance that with carbon credits to get a clean price of CO2 and equalize it across the globe.

That is very hard when China is now the manufacturing hub of the world, and they don’t need cash, and they’re short, or getting short people. And they’re trying to get their own GDP per capita up and they’re building, coal plants to do it. So now that grand bargain doesn’t work. We’re going to have to find a different one if we want to solve the problem. But it does start with the partners on the other side have to decide that climate change is existential as we can it is It’s almost economic suicide to try and solve climate change from the US and Europe without engaging the rest of the world. It’s like your job number one, if you have a big massive problem, you got to create buy in to the problem and then to the solutions. Even if that’s not the best, fastest way to do it. We’re still in the buy in creation phase.

Lisa Ann Pinkerton: Oof. Earthlings. Let me give you a moment to take all of that in. It is a lot of information to process, and we’re only halfway through our conversation with Neal. There is more to come. And I don’t know about you, but I love Neal’s unique and provocative perspective. It’s exactly the tough love that we need if we’re going to get serious about having a livable planet in the future.

At least, I believe. In part two of Neal’s interview, we will dive deeper into the social and political factors that are even keeping us from agreeing that climate change is an existential issue. And if you don’t want to wait until next week to hear the rest of the episode, you can go to our Patreon page and become a subscriber.

There you can download the second half of this insight rich episode to learn how we, as a collection of Earthlings, can balance our individual differences, our self preservation, economics, trade, and climate change on this beautiful blue green space flower that we call home.

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About the Author
neal dikeman

Neal Dikeman


Author Neal M. Dikeman is the Chairman of online network and cleantech think tank, and a partner at early stage venture capital fund, Energy Transition Ventures. He has cofounded half a dozen cleantech and energy startups, previously worked in venture capital at Jane Capital Partners and Royal Dutch Shell. He has been one of the most prolific writers on the subject of cleantech, as chief blogger for, named a 50 Best Business Blog by the London Times. He authored What is Cleantech?, the first brief history of the term cleantech,, 2008, What is the Energy Transition?, 2020, author of a book chapter on cap and trade in The Green Movement, Greenhaven Press, alongside George Will and John Kerry, and a former cleantech columnist for CNET/, Christian Science Monitor, and Sustainable Industries Magazine.