 Good afternoon and welcome to today's seminar. Before I introduce my MS&E colleague, Chuck Easley, to introduce today's speaker. Two announcements. One announcement and one observation. The prequel institute through Sarah's good work has bought a copy of the speaker's recent book for each registered student. If you didn't pick it up last week, they're in the back. So pick one up on the way out. Two is just a casual observation. I got up this morning and tuned in to CNN. And the very first story was John Podesta, a senior US negotiator at COP28, Conference of Parties, pursuant to the Framework Convention on Climate Change in Egypt. And the quote from him was, the US now feels that we need to rely much more heavily on the private sector to get this job done. And I could tell you, having been to a number of those meetings, the US government always thought that they could set the rules in the private sector and do whatever they want. So I think our speaker today might take issue with that and present a more convincing way for it. So with that done, I'd like to introduce my MS and E colleague, Chuck Easley. Some of you may know him. He's a key person in the strategy and entrepreneurship group in management science and engineering. Chuck, take it away. All right, thanks very much, John. So it's my pleasure to introduce Mike Lennox. He's the Taylor Murphy Professor in Business Administration at UVA's Darden School. And from 2008 to 2016, he was the senior associate dean and chief strategy officer for the school. Prior to that, he was the academic director of Darden's Batten Institute for Entrepreneurship and Innovation. He also helped to found and served as the inaugural president at the Multiple University Alliance for Research on Corporate Sustainability. So he's been doing work in this area for about 25 years at the intersection of technology strategy and public policy. He'll talk about his recent book, The Decarbonization Imperative. It was a prior book, Can Business Save the Earth, both from Stanford University Press. But less visible are the countless young academics that he's inspired over the years, myself included. I had the privilege of working with Mike, dating back to, I think, 2002, 2003, as a research assistant. We've co-authored over the years since then. And it was really his example at the intersection of business strategy and public policy in the context of the natural environment that inspired me to pursue a career following in his footsteps as an academic. And so without him, I wouldn't be here myself, I wouldn't be here at Stanford and in MS&E without his mentorship and guidance. So thanks so much, Mike. It's a pleasure to have you here. Thank you. Thank you, Chuck. Well, that was a very kind of you to say, Chuck. And I remember when he was like 22 years old and came into my office to do some work. You have more gray hair than you did back then. I do, too. I'm going to talk about this book, The Decarbonization Imperative. It came out about earlier this year. The goal of this book was to really take the big picture as it comes to our decarbonization challenge and to really try to understand what is happening, how likely is it that we might decarbonize, and then ultimately, what could we do to perhaps make this reality or make this become reality. If we have enough time, I might also talk about some more recent work that I'm doing. It's maybe a little more technical, if you will, on uncertain learning curves. But at the heart of this is something that's very important to this work. But to start, I actually want to talk about whales. So when I was a kid, sadly, this is back in the 1970s. This was a long time ago. I was really into whales. I had a whale poster in my bedroom. I had a soft whale. And this was during a time where there was a movement to save the whales. Greenpeace and other activist organizations were trying to raise money to prevent the global whaling industry. And I raised this question or raised this story because this is kind of traditionally how we think about environmental issues. These are, as economists would call, a negative externality that is created. Whaling industry. There's an industry here, but there's this negative externality in harming the whales that people like myself valued. The way we typically try to address these is some type of maybe regulation, or payment, or tax, or maybe an Ecosian sense giving ownership rights to the whale fisheries that helps us solve this problem. But there's a different way I think about thinking about some of these environmental issues. So here we see an ancient picture here of the New England whaling industry. So the New England whaling industry was a vibrant industry in the mid-19th century. Of course, had Nantucket and others being kind of the center of this industry. And in a very short period of time, about a decade or less, this industry basically imploded and disappeared. Now why did that occur? Was there some big recognition of the cost of whaling in terms of that, again, impact it was having on those of us who valued whales? Was there regulation? Was there some kind of public upswing that caused this change? Well, no, it was very simply, one, the discovery of oil in Western Pennsylvania. And this gentleman, Abraham Geisner, who figured out how to take oil and refine it into kerosene. So the predominant use of whale oil was as a lighting in city streets and in homes. And very quickly, kerosene replaced that existing technology of whaling. If you think about what happened soon after this, about 30 years later, we had yet another disruption occur here, where Thomas Edison invents the incandescent light bulb and we start to electrify our cities in the like, replacing kerosene. This idea of technological transitions, that we have technologies that are replaced by new technologies that come along, is arguably a fundamental fact about market-based economies. If you're familiar with the works of Joseph Schumpeter, an Austrian economist from about a century ago, he talked about this idea of the gales of creative destruction that come across and reinvent industries. So a lot of my work is really thinking more fundamentally about why do these transitions occur? And then, as a matter of policy, what can be done to advance these types of transitions? So as Chuck mentioned, the last few years, I've been writing a couple of books. The first trying to be provocative with a title is Business, Save the Earth. The more recent one is really taking a deep dive on this decarbonization challenge. I'll point out my co-author, Ronny Chatterjee, is a professor at Duke, but he's actually now in the White House implementing the CHIPS Act and the Inflation Reduction Act. So he's actually on the front lines of trying to make some of these transitions occur here. And we obviously have a similar mindset about how this might come about. So here's the basic argument that we make in the first book, and then we'll get to the decarbonization work. Well, first, if you look at the scope of the environmental challenges we face, climate change, of course, but many others as well, we need sustainable disruptive innovation. Sustainable, of course, in the environmental sense, though it often is hard to define what is or is not a sustainable technology, as my advisor, John Arinfeld, would often say, hard to define what's sustainable, but we can probably point out what is less unsustainable than what came before it there. And then disruptive in the economic sense here, of this idea, again, of technology transitions, disruptive technologies replacing the old here. And again, we need this across a wide number of sectors if we're gonna make significant progress on the environmental challenges we face. Key to this is this notion of innovation. And I wanna be very clear, when I think of innovation, we're really thinking about commercial viability here. You sometimes see rhetoric that says, we have all the technology we need to be sustainable, we just need to have the will to adopt it. But the way I think about this is, if a technology is not being adopted by the marketplace, there's probably some reason. Maybe it's not cost effective, maybe it's not efficient. And so again, how do we bring things to be market viable here? And markets historically have been critical to advancing innovation. Now, there's also a tendency sometimes when we talk about business insustainability to think about using my language again with the Whalane example, how do we get firms, typically large incumbent firms that have existed for a while, to internalize that externality and change their behavior. But I would challenge you that as we think about this more in terms of disruption and technology transitions, what we know more often than not when we have major disruptions and transitions, it's often that incumbent firms go out of business and it's entrepreneurs and others who come in and kind of reinvent the marketplace. To say something provocative here, I don't expect ExxonMobil to become a renewable energy company. I expect them to go out of business eventually, right? That's the way these transitions typically take place. And then last but not least, unless you think I'm a free market absolutist here and then I think the markets are gonna solve all of our problems for us, no. I believe very strongly that this innovation ecosystem emerges out of this broader institutional envelope. And that's just a fancy way of saying policy matters, what activists do matters, what universities do matter. That broader set of stakeholders have a huge influence on the ways in which innovation evolves and comes out in the markets that we observe. So in this book, we have a real simple framework we talk about for innovation here, very stylized here. But you can think of the traditional idea that you have these innovators, they're pushing new technologies, you have investors and managers helping develop and commercialize these. And of course you have the customer side and demand pool. And in that book, we really take each of these in a different chapter and talk about their incentives and how they behave. But the reason I wanted to share this is to really emphasize these other players here, the public intervenors, the regulators, the others who are playing a role in shaping that innovation ecosystem and then these private intermediaries, again, things like universities, trade associations and others that can be shaping how that innovation takes place. Okay, so that takes us to the more recent book here where we ask the big question, what is the likelihood of achieving decarbonization by 2050 if not before? And I'll talk a little bit more about that in a second. And then the more prescriptive question as a followup, what levers may be best pulled to increase this likelihood of decarbonization? And core to our work here is the following notion of what we call the industry life cycle, or as others call the industry life cycle. So there is a lot of empirical evidence looking at technology transitions and disruptions that have a very similar empirical pattern. The first thing looking at something like technical performance is the idea of an S-curve. Early on in a new technology as it's developing, we might not get much advancement in its overall efficiency. But if it is going to be disruptive, eventually we'll get to this sweet spot where we'll see exponential improvement in that technology and then eventually it levels off here. You can think about this in the way I've graphed it here, or you can think of it like a learning curve where you might be driving down costs and the like. Simultaneously we also see, of course, adoption. So we can look at an S-curve for adoption as well here. So more and more businesses or consumers adopting the new technology. And again, it will have the similar kind of S-curve shape. But as a business strategist, the one that probably interests me the most is what happens in terms of competition. So more often than not what we see is early entrance, often by entrepreneurs and the like. Eventually if the technology starts to mature, we see diversifying incumbents, existing companies starting to move into that business. Eventually we might have what we call a shakeout where the competition is so intense and so many players are in the marketplace that we see firms exiting because they're going out of business or they're merging and acquiring with one another. And then maybe we reach some more stable equilibrium in the marketplace in the number of firms. You think about social media back in the day, right? Early on we had literally hundreds of companies trying to win the war or the win the battle to be the leading social media company. And we had a company like Facebook take off and eventually have a very strong position in that marketplace after this shakeout occurred. Companies like MySpace and the like finding themselves not as successful there. So again, this is a common pattern that we see. And our premise is we can use these stylized facts to look at the data to try to have a prediction of whether or not we're going to see the disruptions we hope to see and these technology transitions in these different sectors here. All right, so let's talk about climate change now. Again, I imagine for most of you, this is nothing new, but just the level set here. Here we see a, I believe this is in Greenland, a glacier melting into the ocean. Common chart we see here in terms of global atmospheric CO2 concentration that we've had this massive increase in concentration in the industrial era here. And we have this notion of a carbon budget, right? That as we continue to admit more CO2 and greenhouse gases into the atmosphere, there comes a point where we're going to achieve or hit these different rises and temperature level. And if we're gonna try to prevent us from going beyond 1.5 degrees Celsius and we're likely 2 degrees Celsius, we're going to have to limit the amount of CO2 and greenhouse gas concentration. And so the IPCC and others come up with these types of graphs where they talk about what trajectory are we likely on and what needs to happen if we're going to go to the 2 degree or 1.5 degree pathway before us. And basically all of them tell a similar story which is in the not so distant future, roughly 2050, we're going to have to get to net zero emissions in the global economy, if not before. And by the way, if we continue to increase emissions globally over the next few years, that date gets shorter and shorter moving forward here. So this is a pretty heavy lift if we're gonna take seriously the goal set by the UN and others in terms of what we're trying to restrict global climate change to. Now to me, this ends up being the most important chart for trying to understand how we might be able to address global climate change. So what we see here are scope one emissions. These are the sectors by which the emissions are actually occurring. So not surprising electricity generation, the use of fossil fuels, natural gas, coal is a significant portion of this but only about a quarter of global emissions come from electricity generation. Another 10% comes basically from the fossil fuel extraction and refinement processes or release of methane and the like in those processes. Other sectors as well, transportation, you might think it'd be bigger but on a global basis it's about 14% here. So this is of course the use of automobiles but also things like global shipping and airlines and airplanes fit into that as well. The built environment. So here we're speaking about buildings but really specifically about the use of fossil fuels for heating and also cooking within building environment there. That's why that number might be smaller than you sometimes here because we're just considering those narrow set of emissions. But two other sectors we need to talk about, industrials. So this includes the manufacturing and production of any number of products in our society but in particular we're gonna talk about steel, cement and petrochemicals. Again, about a fifth of global emissions there. And then last but not least the one I am most scared about agriculture and I'll talk more about that in a second here. About 24% of global emissions come from that sector. So when we talk about net zero, when we talk about decarbonization we're basically talking about driving each one of these sectors close to zero emissions, close to not using fossil fuels. So just to highlight, this is a really tough problem we face as a global society trying to address this. Fortunately there's kind of an emerging consensus of what this world might look like if we're gonna actually pull this off. And really at the center of it is electrification. That we need to electrify a whole bunch of things out there in our economy including of course vehicles and transportation, industrials to the extent we can. Clearly buildings, again you can electrify heating and cooking and the like. And then with that electricity that we're producing move that to zero emission sources primarily renewables in combination with batteries here to deliver on that. And then of course agriculture again is one that there is some electrification but there's some real challenges there that we'll need to address. So again, if we're gonna do this this is probably largely what the system is gonna look like in our global economy. All right so what I'd like to do now is I'm gonna run through some of these sectors and give you some opinions on where I think these are going. And I'm gonna order these and the ones I'm most optimistic about to the ones I'm probably least optimistic about at least given current trajectories that we own. So let's start with transportation. Here we see an electric vehicle out of China. The data that I have in the book this is one of the challenges of writing a book on this topic is already pretty dated because things continue to evolve. So this is from the book there. Lithium IM prices, fabulous story of reduction costs. This is that S-curve that I was talking about again. We're getting this reduction here and costs making it more viable. There's a belief here that we could reach in essence some form of parity here in the next few years where it is not completely unreasonable to think that electric vehicles will be not only superior to internal combustion engines in a number of different ways but it could actually be lower costs. There's some complexities here I'll talk about things like the price of lithium and the like that could challenge this but at least the trajectory has been what we would hope. Again, extending it out to at least 2021 we continue to move down that learning curve there. Again, a very positive story that we've seen in terms of battery technology. Similarly, when we think about the cumulative revenues and the sales piece where you're seeing exactly the pattern that we would hope to see if in fact we're going to see a disruption. In fact, we've seen a doubling of the percentage of new car sales that are electrics over the last four or five years from 1% to 2% to 4% to 8% on track for 16% this upcoming year here. So this is again in the book updating it with some more recent data here. Again, we are seeing that type of kind of exponential growth curve that we would hope to see. Again, a very, very positive story here. To go out on a limb and it's always risky to make these types of forecasts. I would argue that we are probably seeing a conversion to electric vehicles faster than you see a number of pundits talk about. When I see things that take more of a linear projection and say 30% of all new vehicles by 2030 will be electric. I think that's way underestimating what we're probably gonna see here on this transition especially if these trends continue here. Lots of things could slow us down but again, this is exactly what we would hope to see if we are gonna be experiencing a transition. We just also highlight this is different companies here. You see Nissan as an early adopter here, Toyota but Tesla of course, this is at least for US plug-in EVs has been the big success story here. They are producing more cars per their class than the combined power of what I would say are comparable. So for example, there are more Model 3 Tesla sold than BMWs, Mercedes and Audi's combined in that similar class there. So Tesla has been this incredible story. They are doing very well and now you're basically seeing all the major auto companies are coming out with more and more vehicles as quickly as they can. Ford coming out with the Ford F-150 Lightning I think is a game changer for that space if you're not aware. The F-150 has been the number one car in America sales in America for 30 years every year. So that one electrifying is a real potential win for us here. And again, it's a mix of newer entrants like a Tesla or a Rivian or a number of competitors out of China and then of course incumbents diversifying into this space. So what do I think this will look like moving forward here? First, it's interesting, often in the early stages of technology we have a battle for what we call the dominant design. So I think way back, maybe some of you are old enough to remember, before there was the iPhone, there were things like Blackberry and Palm Pilot and the like and it wasn't until the iPhone appeared that we really had the dominant form factor for mobile technology established. And to be clear, the iPhone was not an early entrant into this space. These other players had been there for many years before the iPhone appeared. That's something that happens quite frequently with new technology. If we go all the way back to the beginnings of the auto industry, there was actually a whole host of alternative drivetrains. There was the internal combustion engine power by gasoline of course. There were kerosene based engines. There was the Stanley steamer, so a steam based engine. And then interestingly, quite a few electric vehicles in the early stages of the auto industry. Not until really the 1930s that EVs actually disappear from the market there. Internal combustion engines became the dominant technology, had a huge run there of nearly 100 years. Now it's being disrupted again. So this idea of a dominant design, there are still ideas out there about fuel cells and hydrogen based fuel cells. But again, if I was a betting man, battery powered EVs have won. Those are the ones that seem to be the dominant technology, where the market is going. I'd be very surprised if we see hydrogen based fuel cells, at least for transportation and vehicles, automobiles becoming dominant at this point. Again, as we move down this learning curve, there is this hope that we'll see parity with internal combustion engines. Again, there are some concerns here about things like lithium supply and the like that might drive up the costs in the short run. Here's a hot take from Mike here that's maybe different than what a lot of people think. I am not that worried about charging infrastructure. We're beginning to see markets actually fill the void. We are seeing in the east coast where I'm from in Virginia, we have Sheets and Wawa are two of the dominant kind of gas stations slash convenience stores. They are quickly putting in EV charging stations to meet the emerging market demand for them that are coming because of this adoption of EVs. I don't wanna undersell the change dynamics here that require continuing to invest in infrastructure and building out charging, but I am not one who believes that's gonna be as big of a slowdown on this than a lot of people believe. Because again, the private markets are stepping in and providing this. I would not be surprised to see some large auto manufacturers fail during this period over the next decade or so. That could come from literally going out of business. It could also come from reformulations here. Murders and acquisitions, spinouts and the like in the space. Again, that is what's to be expected when we have these types of transitions. And if we are moving into a recession that might accelerate this, right? So this might accelerate some of these dynamics here especially since this is a very cyclical industry driven by the business cycle. So when times go poor, people tend not to buy new vehicles and that puts some stress. The last time we had a major recession in 2008, GM Chrysler all went bankrupt. Of course they reemerged, but there's gonna be tough times for the auto industry here in the short run. Last thing I'll say here is even if we can get a hundred percent of new vehicles sold being EVs, we also have to recognize it's gonna take at least a decade plus to change over the stock of automobiles in the marketplace here. So even given my optimism about the disruption happening in EVs, we're still talking at least 20 plus years here before the majority or most cars on the road would be EVs because of that turnover. It is an opportunity for policy by the way. We've historically had things like lemon laws and the like that tried to get older polluting cars off the road. There could be some opportunities here to try to get people to turn over their internal combustion engines to EVs quicker here, but we have to keep that in mind. For transportation more broadly, I should point out there are some challenges. There are some limits here. Long haul shipping and airplanes or two that while there are efforts to work on electrification in batteries, there are also some limits. For planes, for example, there are some interesting efforts around shorter haul flights that could be done with batteries. Not gonna work probably for a 747 given the weight issues that you would have in the size of the batteries. So there it's gonna be maybe in the short term biofuels and there's companies working on that or hydrogen as a solution for aviation. So again, we need more innovation, we need more change if we're gonna fully decarbonize transportation. So this is the one I'm most positive on, but it's still gonna be a tough road to get there. All right, so let's talk about electricity. Another great story here where we have seen a significant decrease in the cost of solar and wind I should put in there as well. The data here is for solar. We see both residential, commercial and utility scale, photo metallics, all of them having a similar dynamic here. We are getting to the point where in many places of the world, renewables are the low cost source of energy solution here. So that is a great story and we'll show you in a second here. That has a huge impact on what's happening to our generation mix here. There are challenges. You need batteries to make this work because of the interminancy of solar and wind. That raises some of the costs here. That's not reflected in these charts. But again, really positive story here about what's happening to the price of these products. As a result, this is US here, cumulative US solar installations. You can see this kind of takeoff here driven mainly by utility scale, but it's interesting to see how much residential and commercial installations are also rising here as well. So again, positive story, we're seeing the increases we would hope. And then even maybe more exciting to me, this is the mix of new installations in the US. And so what we're seeing here again is basically the demise of coal. So coal as a new source of generation has largely disappeared. And even natural gas, which up to like three or four years ago was still over 50% of our new generation capacity, has largely gone away in the last few years here as solar and wind in particular have really come to dominate new generation here. So that's exciting. And again, what we'd hope to see. All right. And then last one, at least here in terms of competition, I couldn't get better data than this, but this idea again, that we're seeing more entry by people being solar installers. You could also see a little bit of this in solar manufacturing, that's a little bit more mature than the installation side. Again, what we would hope to see in this early stage of the industry evolution here is market entry by different players. And so again, electrical generation from low carbon sources, you see significant progress made especially by China in this regard. The US has been an upward trend as have many of the industrialized countries of like Western Europe, but even India showing an uptick there. Okay, that's the end of the positive story. Now let's get to the negative story here. So if we look at worldwide electricity production, one, we continue to consume more and more electricity, which is driving up production. While there has been this wonderful story with solar and wind, it is still an incredibly small part of the story. And by the way, in parts of the world, things like coal are continuing to be bought to market here and build out. So we've got a long, long way to go before we can decarbonize this sector. We need obviously to replace that oil, gas, and coal with these other sources. Quick thoughts for you, by the way, on things like hydro and nuclear. Arguably these are the original low carbon sources of electricity here. The world has largely been pulling away from nuclear. In the United States, there's basically one nuclear plant under construction right now. Countries like France, which were lead adopters at one point in time had like 80, 90% of their electricity came from nuclear. I've actually been pulling back. Japan, not surprisingly, has been pulling back. It's interesting to see what's happened in Ukraine. Now there's a rush to maybe turn some of these nuclear plants back on. But for a variety of reasons, it doesn't seem like that one is one that at least many utilities are pursuing. Hydro, similar kind of problems. There are parts of the world where we're seeing additional hydro come onto the market, but there's a lot of environmental resistance to it for obvious reasons. And so we're not seeing much of that at all, like for example in the United States. So again, we need that solar and wind in particular to grow quite significantly here if we're gonna make progress. And I mentioned the intermittency problem. This is some data from California actually here. Just highlighting some of the challenges you have on the grid with renewables, which again, the sun doesn't always shine, the wind doesn't always blow. Natural gas tends to be the source that allows us to scale up and down generation as needed because you gotta match demand with supply in our electrical grid in the moment. So just some data, it varies not only across the day, but also the time of year. And I think the hope here is again, this idea of this integrated distributed system of generating electricity and electrifying will help solve some of this problem. So if you think about everyone having an electric vehicle in the garage, solar panels on the roof, maybe a battery charger on the wall, you can start to do some interesting things in terms of setting the load for electricity. What you wanna try to avoid are those spikes in demand so you can levelize it by basically saying like only charge your car in the middle of night rather than during the day when demand for electricity is higher and the like. So there is some hope that if we went towards this system, that's going to allow us to handle this intermittency problem. But again, it should not be underestimated that this creates some complexities for our grid as we put more solar and wind on it, even if it is the low cost source here that we're gonna need to address. And again, batteries and storage are gonna be an important part of that story. So again, with decreasing costs, positive story here, we should see more and more adoption of renewables. We'll probably see further shakeouts among installers and manufacturers. Again, that's to be expected as the industry evolves here. It's interesting to note a number of tech companies may be located out here in the Bay Area have been really accelerating the push to disrupt what I call behind the meter. So you think about the things that are happening in the home. That's really kind of quite fascinating. It changes the nature of the relationship for the electric utility. I've been arguing that utilities need to start thinking to themselves, not as integrated producers of electricity that sell it to a consumer, but rather as a two-sided market maker who is basically buying and trading electricity from individual homeowners to other homeowners, to other commercial interests and the like. And again, that helps with the intermittency problem. Last but not least, I do some work on what we affectionately call non-market strategy. It's how corporations react to the public sphere, things like corporate lobbying and the like. And I'm generally a positive guy, but a little bit of cynicism here, which is I worry that as this transition starts to take place, we will increasingly see fossil fuel companies using what we might call non-market strategies, basically lobbying and other things to try to slow this down. Because if I am right on some of these trends, well, I actually probably see a global glut of oil and gas, though I know that's not the world we live in right now, and that's gonna drive prices down. And so there's some complex dynamics here about how the fossil fuel companies engage with these different markets here. I think we just gotta keep in the back of our mind. All right, next on my list is buildings in the built environment. This is HQ2 up in Arlington, Virginia, that Amazon is looking to build here. First, US sources here, about half and half. So half of it's electricity. The other half is natural gas, fossil fuels. Most of it being used for heating, but there's also water heating, a little bit for cooking and other. Again, that's residential. It's almost identical, not quite identical, for commercial buildings. It's kind of a similar story here. So basically for decarbonization of our buildings, at least in this sense, what we need to be doing is driving the right half of that graph to electricity. You wanna try to electrify those sources to then drive it to the grid and then decarbonize the grid is the current thinking. Well, the good news is there are commercially available alternatives that can be used to do this, right? We have things like heat pumps and the like that are relatively efficient and cost effective. One of the challenges is though, it does vary quite a bit by region. So there are parts of the United States where heat pumps make perfect sense and there's other parts where they're not as effective because it's too cold or too warm and the like. And we just have to recognize that. The other problem that we face here is we're really talking about retrofitting a huge installed base of technology and infrastructure. So how do we get all of these existing buildings and existing homes to decarbonize and get off of fossil fuels? That's a significant capital investment that needs to occur. But again, from a market's perspective, at least there are alternatives and they're by and large competitive with existing fossil fuel technologies. I would highlight that estimates on global building energy use despite energy efficiency will still be increasing likely over the foreseeable future. This is just driven by economic development and growth here. So again, buildings are getting more efficient. They're using less energy, but we're building more. So just got to keep that in our back of our mind as well. So I've changed my language here slightly. Instead of saying how will a disruption in business and buildings play out, I'm saying how could a disruption in buildings play out? Because I would argue that in terms of some of these dynamics I was talking about earlier, especially with EVs, not quite clear to me that we're seeing the same market uptake on some of these possibilities here. I do think we're gonna see increasing pressure to electrify, especially driven not only by cost but resilience in terms of think of what's happened in natural gas prices and what we're seeing in Europe there. This idea that by going with electricity and renewables, we might actually reduce some of our risks to the volatility of gas and oil prices, I think we'll continue to drive. We still need continued investment in innovating these clean alternatives, like heat pumps and the like, drive those costs down so it makes it even a better value proposition to be adopting these technology. There are these interesting ideas about negative emission technologies in the built environment. I think those pressures will hopefully continue to be out there to get buildings to not only be decarbonized but actually net negative. And this idea of like, how do we retrofit our existing structures? And I think that's gonna be the hard part to me. How do we get the collective will and financial capital to go out and really reform a lot of existing buildings? Might come from public pressure on firms and it might actually come from simply government intervention here to somehow subsidize those capital expenditures. And again, we can think more about policy interventions. All right, again, declining optimism that I have for industries here. So let's talk about industrials. Again, they come in many different forms, but again, I want us to focus on steel, cement and petrochemicals, which are by far the majority of emissions that are coming out of the industrial sector. Here we see data on the US energy sector by use. A couple of things I would observe. First of all, it's interesting to note that demand for electricity, or excuse me, demand for energy has been relatively stable over the last 30, 40 years. That is a reflection of increased energy efficiency because at the end of the day, these industry sectors have been growing. So the fact that we've been able to keep total energy demand relatively flat is a great story about the value of energy efficiency here. You see spikes and the like, a lot of that's driven by the economy. So when we go into recession, we build less. So that's why you see some of those declines. For example, in 2008 and the like. But the point at the end of the day is renewables and electricity have grown significantly, but they still make up a small percentage of the overall consumption of energy in the industrial sector. So natural gas and petroleum in particular are still significant use cases. Coal, interesting enough, has been dying out as it's used in industrials here. If we talk about steel, here you see demand for steel. First thing I would observe is while it would be helpful if we could substitute away from steel, it is hard to envision how we do that. Steel is arguably one of those things that's a backbone of our industrialized world here. If you wanna build a skyscraper, you're gonna have to use steel. And so that trend line of increasing production of steel will likely continue. It's influenced a little bit, of course, by the business cycle, but the general trend has been increasing and there's reasons to believe that that will be very hard to bend down in terms of overall demand. You'll also notice two basic technologies. We have electric arc furnaces. Those can be relatively easily decarbonized by using renewables as the electrical source for those. And then you have basic oxygen furnaces, which are gonna be very hard to decarbonize. There are some hopes of using hydrogen as a speed source into steel production that could hopefully get us to be decarbonized, but you do not see that adopted in the marketplace here. I have no data to share with you of companies and adoption patterns here that reflect changes in steel production at this point in time. So this is one of those that's much more kind of early stage innovation work being done to think about how we decarbonize steel, but there is really nothing in the marketplace if you will, at least at scale that's impacting that. One of the things you do hear about and might very well need to be the solution is carbon capture, carbon capture and storage. So capturing the carbon emissions in steel production and storing it hopefully underground and the like, there is some interesting work taking place on that. I would argue that carbon capture and storage will not happen naturally in the market unless there is some price on carbon. And the reason for that is this is an additional cost to the steel companies. So if you're going to be capturing carbon and storing it, that's gonna add to your production costs and unless there's some market signal that's gonna encourage you to do that, you're not gonna take that additional cost. And again, this is a global industry and in fact most steel production, the vast majority of it takes place in China. So even if the US could address this, you need China to address their steel production if we're gonna make progress on this. And this kind of highlights this for cement. China again is by far the vast producer of cement in the world, India, Vietnam being other large producers here. Better story in terms of cement production, so that's been more level over the last few years and the like, so we don't see quite the same increase in demand. It's another one of those products that is just simply part of our global industrialized economy. It's hard to see how we substitute away from cement. And again, there is innovation taking place in green cements, cements that can actually not only not produce as many greenhouse gas emissions but actually absorb CO2 in the curing process, so being net negative, that's very, very exciting and not market ready yet. So until you can drive down that cost curve to make it comparable to existing cement production, it's gonna be very hard to get significant global adoption of those green cements. We need to do it, but again, we're not there and again, I can't show you a set of companies that are like leading the way in this space because it's just really not in the marketplace yet. Am I depressing you yet? I hope I hope not, but this is the reality we're facing here. Here we see key thermoplastics, so again, petrochemicals here. Again, they are part of the backbone of our global economy. They find their way into any number of different products and services here. And as you can see, despite the concerns about them, they have been growing and forecasted to continue to grow moving forward here. Again, there could be substitution away from these. There are innovative efforts for like bioplastics in the lake that can hopefully get us off of the use of some of these, but there's a lot of work to be done in these areas to move us off of these current trajectories and trends. So again, how could a disruption take place? Because again, I don't see it happening right now. Again, increasing pressure to electrify and decarbonize industrials in general, that I think is starting to occur if you look at things like data centers. Many of the data center providers, Amazon, Microsoft, and the like are moving towards the use of renewables to power their sources there. So that's a good sign. Some substitution away from steel and cement and petrochemicals, that's a good thing. However, hard for me to see us do this at scale. There's some things like structural timber if you're familiar, structural timber can be a substitute for steel and large building construction. My understanding is like the highest you can get, I think in Europe, they just built like a 20 story building with structural timber. They're making progress with that. If you want to buy all the big skyscraper, it's not gonna work. Just doesn't structurally work. But again, innovation might help with that. We need significant investments in these clean alternatives. We need to drive down the cross curve of green cement and bioplastics and the like to try to get these alternatives out in the marketplace. And then last but not least, while I'm not a big fan of this, I do think we gotta think about ways of incentivizing carbon capture and storage in these sectors here. It feels like it's gotta be part of the solution. It's gonna require maybe public mobilization to price carbon, maybe direct regulation by governments here. And again, this arguably isn't as much a US story as it is a China story. For cement and steel, China's the big player here. What's gonna incentivize them to start to think about doing this to reduce their carbon emissions? All right, if I haven't depressed you enough, agriculture. So if we look at agriculture emissions, again, this is scope one. So sometimes you see scope three about the transport. None of that is here. This is just directly from agricultural activities. You see things in the kind of brownish color, 13%. The use of synthetic fertilizers, nitrogen-based fertilizers releases nitric oxide into the atmosphere. It's a significant impactful greenhouse gas. That's a concern. Rice cultivation is one that has some concerns. There's burning of crop residuals, but the big one is basically livestock. So in churric fermentation, basically beef, belching and farting, excuse my language. And then of course, manure management as well creates significant methane emissions in that sector. And just to highlight, this is really at the end of the day a beef problem here. So beef in the form of meat or dairy, over 60% of our emissions in this sector or animal emissions are coming from this sector. So, just to further depress you, I'm sorry again. This is actually a very positive story. There are many things, back in the 70s we talked about significant population growth, about stripping our ability to match it. What we've been seeing actually is a decrease, a significant decrease in birth rates that lead us to believe that there might be a soft landing to population growth here around 10 billion people, excuse me, 10 billion people by the end of the century there. But even with that soft landing and that positive story, we're still talking about moving from about 7 billion to 10 billion people over the next 70 years, which is a significant increase in the demand for food. And so we're gonna need to significantly increase our output of food while significantly reducing the carbon intensity and the footprint of that food. So that is gonna be a tough call. And just again, another projection here, but we've been seeing this data over the last few decades, the use of nitrogen-based fertilizers here in both developing countries and developed countries has been significantly increasing and projected to continue to do so, to produce the yields, to produce the food we need to meet that need. And for those of you who love whole foods and organic farming, wonderful, that's not gonna solve this problem. On a global basis, maybe from 7 billion to 10 billion people, small community farming, that's not gonna solve this. This is a big industrial problem that we need to address. Now on the positive side, there are burgeoning ag innovations. There's vertical farming is a really interesting way to in essence electrify, if you will, the production of food. There are viable competitors, viable companies out there. We have two actually out of the business school of Darden who are doing quite well. The problem there is it's gonna be pretty narrow where we can apply this, things like tomatoes or other what we call truck crops, this can be useful. You're not gonna do wheat and corn and the things we do at scale in a vertical farming. There's genetic modification, this controversial topic but it has and is a potential way to help address some of these. Smart and precision farming using digital technologies to increase yields has some promise. On the livestock side, methane capture, we're seeing this where you cap, for example, a pond that might have the waste from a pork facility or a pig facility, capture that methane, probiotics. And then my favorite, clean meat, isn't aware which is lab grown meat. This is a real thing. There's lots of venture capital dollars flowing into this. There is progress being made but we're still a long way from scalability on this, a long way when clean meat can actually kind of replace the beef of livestock that we currently use. So how could a disruption here? Again, I don't really see a big disruption yet so how could it occur? Well, the easy answer is like we should consume less meat, right? As an economist, the easy answer like how do we do that? Well, we should put a tax on cows. Can you imagine a cow tax in the United States? As much as I think that would be wonderful, I cannot imagine like the US Congress passing a cow tax. So there are some real limits to the policy levers we can pull to try to reduce that consumption. And oh, by the way, developing economies as they become more developed tend to have a greater desire for protein and including beef and livestock. So we have the problem that growing economies might actually start to consume more meat, not less, at least if they follow the trajectory we've seen in other countries here. So again, we need significant investment in these clean alternatives but I am skeptical of whether they're scalable. So it really gets to the third bullet point. We really need a fourth agricultural revolution in the world, three over the course of humankind here, that both increases yields while minimizing the need for farmland. I don't know about you, I have no idea what this looks like but we need this if we're gonna make this progress. The one I would say positive I would say for the sector is we do have this idea of natural offsets, growing forest, growing seagrass for example. I think we're gonna have to take all of those efforts just to offset the agricultural industry here. And again, what are the incentives to do this? Where are the market incentives to grow forest and seagrass gonna come? There might be both private and public incentives to kind of price greenhouse gas emissions. I do think there's gonna be increasing pressure to grow these carbon offset markets and to finance them but they still have a long way to go to become a mature here. So at the end of the day, we really need a robust technology industrial policy here and I'll just simply say there is no silver bullet in my mind here. What we try to come up with in the book is just a whole set of policy options and I'm of the mindset that we need to be pulling as many levers as possible, especially in our highly political-sized climate here in the United States. While things like a carbon tax or a price on carbon I am totally in support of, they don't seem like they're coming anytime soon. So what other levers are available to us to pull here? And I think really emphasizing that this is about technology transitions, this is about the future of different markets, how do we create jobs, how do we create economic growth? Are gonna have to be part of the narrative in order to motivate action here and I think those stories are reasonable to tell. At the end of the day though, we have a lot of work to do. All right, I've run a little long, I'm just gonna skip the fun little charts here I was gonna talk about. If you have interest in learning careers we can talk more about that but I'll leave you with a few final thoughts here. First of all, I think a sector-based approach to climate change and decarbonization is important to really get our hands around the scope of the problem here. I think it will require a concerted effort by sector. We need to think about steel, we need to think about cement, we need to think about agriculture here. We're gonna need to think of an innovative mix of public and private incentives here and interventions here to accelerate these trends. And this idea again that you gotta be thinking of all the levers in the toolkit. There is no silver bullet here, there is no one solution. We need to be thinking of all of them. And from a business standpoint, you need to be thinking about this as market opportunity. What are the new markets that can be created? What are the new technologies here? This is not all about just getting large, incumbent firms again to reduce their emissions. This is much about transition and invention of the new than it is just about change your current behavior. All right, with that, thank you very much. Thanks, we have enough time for a few questions. Is that right? We can do maybe one or two general questions. You can clap, that's great, thank you. Yeah, thanks Michael for that terrific tour through sector by sector. It was just tremendous in the balance between public and private action and perspectives was very, very unique. But we can take a few questions now real quickly. Anybody have, we have right up the aisle there. Anybody on this side? Thank you so much, that was really inspiring. Recently there's a lot of books and literature that's coming around climate change and just like ways to tackle it from an industrial and like from a startup point of view, from a policy point of view. What was the driver behind you writing this book and how did you try to differentiate it from what's out there? Yeah, and I think you're right. I mean, John Doar has a new book that's kind of very similar in spirit to what we tried to do. I do think this notion of thinking of technology transitions is important. To pick on my field like economists, there's this kind of laser focus on put a price on carbon and the world gets solved and I don't think the world's that simple. Again, I'm very supportive of that, but it's far more complex and there are opportunities that we're not maybe fully levering here to try to advance these technological shifts. Massive spending on R&D and really trying to push some of these technologies in sectors that aren't there yet, really important there. I do make a quick comment on industrial policy. It's interesting that that wasn't in favor in the United States for like 30, 40 years here and it's only been within like the last two years that we suddenly have rediscovered the idea of industrial and technology policy. So I'm very excited to see like, this is now part of the conversation set in the U.S. And that's very different than we were like five years ago. We're just gonna write up the other one. Yeah, just on the slide where you showed the electricity production where unfortunately the renewables are, you can barely see them. And then are you, is your, I'm just curious what you're thinking. I mean, do you think solar and wind can replace that or do we need something that we don't even know yet that can replace because it looks quite frankly, pretty depressing. Just, you know, how are we gonna decarbonize? Yeah, like I said, I'm an optimist but now I'm showing you all this depressing things. You know, again, you'll hear a lot of people say nuclear, nuclear's gotta be part of the solution. But as I said, the evidence isn't there right now. Like the market is not taking nuclear up for a variety of reasons that we can all probably imagine. It's taking like 20 years to build these plants. They're billions and billions of dollars of investment. It's just not happening. Solar and wind are the ones that are happening right now. So I think that's the one we've got to really push. There are barriers here. We have a company called Apex who's out of Charlottesville is one of the leading solar installers and wind installers in the country. They're talking about NIMBY problems. They're running into and building solar fields. You always hear this about wind but now solar fields are being resisted by community because they're not aesthetically pleasing. They'd rather have the farmers field than the solar panels. So that ability to build out the amount of land that needs to be developed for solar and wind is an incredibly tough lift in itself. If you follow the Inflation Reduction Act and some of the legislation that came in the wake of that about reducing environmental requirements to allow for infrastructure development there, which is an interesting trade off that I would support that we need to build high powered electrical lines. We need to build out the solar and wind and we might need to be able to like say we're not gonna be as quite as against these changes because we just need it at scale. And then the other part I think is distribution. So solar on home, solar on commercial buildings. We need to be pushing that as much as we can because it's a little bit less. Yeah, sorry. What's the biggest mistake you think the government's making with industrial policy right now? Well, the classic one and this is I think the challenge ethanol, corn based ethanol, right? So we had a policy in the United States to really push corn based ethanol, arguably driven largely by the corn lobby, right? In the middle of the country and the Iowa and the like there. I think that's an example of overreach of directing innovative activities. So the way I think about it is the following. We have a lot of work about how do we drive the rate of innovative activity in the economy? But what we're talking about here is how do we direct innovation towards these clean technologies? And I think of it as if any of you ever gone bowling and you can put up like the guardrails to prevent gutter balls, that's the way I think about this. You need to create a lane where you can still experiment and learn but constrain it enough that it goes towards the direction we have. So that to me is the challenge. So I think bad government policy says, this is the technology, just do this. Better policy says, here's where we'd like you to go but we create a wide enough lane that you can still experiment and learn because that's so critical to technology and innovation and these transitions here. Because we really don't know exactly how these technologies might evolve. Take batteries by the way. Right now there's real concerns about lithium prices and what's happening there. Maybe there's an innovation out there that gets us out of lithium mire, right? That could be a game changer if that's available but I don't know what the answer is or where that's gonna be. So you gotta keep the lanes wide and not too narrow. People working on that last question. Thank you so much for your presentation. And I think listening to each sector breakdown, you have a bunch of policy levers for each of them that you think should be implemented. Yeah. And I think one of the, something that stood out to me was that there's a lot of cultural barriers that act as the kind of thing that's stopping us from actually implementing those policy levers, right? Do you think to achieve a truly sustainable economy in the long run, we need to break down those cultural barriers as well, especially when it comes to agriculture and meat consumption. And what are the mechanisms that we can use to achieve that cultural change? Yeah. And again, now I'm gonna show my cards here. There's a whole world of behavioral economists and behavioralists thinking about nudges and how do we convert like personal preferences to the things we kind of need for decarbonization. So again, consumption of meat is a great example. I am a little worried about that approach because repeatedly we see that the idea that there'd be this big consumer upswell just doesn't happen. Even in places like Europe where there's arguably a more advanced sensitivity to environmental issues, people's willingness to pay for green goods is always not as robust as we want. So I'm more of on the technology side if we gotta drive the cost structure down, right? So for meat, you know what you basically mean. Yeah, maybe it is clean meat or something that drives down that cost curve, but I don't wanna say it's gotta be part of the solution for sure. I just struggle with like, I don't know. I don't know how you get American society or the Brits or the Australians for that matter to suddenly say, I don't want hamburgers and steak anymore, and I'm not sure behavioral nudges will necessarily get us there. Well, Michael and Chuck, thanks very much for that pragmatic but optimistic future. We ended on a sad note, but yes. Thank you.