 We're going to move on to our next speaker. I would like to introduce David Victor, who will be speaking on the topic of global commitment. David is a professor of innovation and public policy at the School of Global Policy and Strategy at UC San Diego. Thank you very much, Sarah, and thank you, Tom, for that excellent scene setter and to Stanford for the invitation. I'm going to do something outrageous, and I'm just going to talk instead of have slides. Because I think when people address the question that's been put to me about the role of global commitment, we have a tendency to think of that role as one that instructs everybody on what to do and how do you set out all the obligations, and how do you enforce those obligations, and so on. And that aligns with our view of governance, which is governance is a centralized process. But at the international level, governance isn't really a centralized process. And if anything, it's become more decentralized in the last few decades. Gone are the days when the US was a reliable leader, not just on this topic, but on a lot of other topics. Gone are the days when there was one economy that was reliably dominant over all the others, and others could like it or not like it, but that was life, and you had to kind of follow and align. Gone are the days when most international institutions were almost automatically credible. Think trade institutions. Think international investment arrangements. Think the framework convention on climate change. So in a different world, it kind of much mess your world in a more decentralized world, in a world where the governing institutions are not as powerful. And I think that then informs the topic that we have in front of us today, which is about how should we think about the role of global commitment, or commitments generally, and then investment in these new technologies around carbon capture and storage, direct-deer capture in particular. So I wanna say three things in my remarks, and then look forward to the question and answers. And I first, why does global commitment matter, especially if almost all of us, to put it bluntly, have the wrong idea about the role of global commitment? The international institution and global treaties are not nearly as strong or directly relevant as people think they are. So I think the reason it matters is because commitments, not quite the right word, it's credibility is the right word. This is really powerful result that comes out of essentially all the energy models that look at a world of deep decarbonization, which is a world of deep decarbonization is a world of electrification and a world of capitalization. In effect, you're moving from OPEX, from buying fuels to a lot of CAPEX. And the models that show that the overall cost of that will be tolerable, maybe zero, are models that make a key assumption that almost nobody talks about, which is that the cost of capital is gonna remain very low. And that is true because of macroeconomic assumptions and it's true because of the credibility, the assumptions, frankly, of credibility around the quality of the policies that are in place, the commitments that are there. The assumption is that those commitments are robust. Tom talked about the IEA net zero report. I don't know how anyone at IEA has time to sleep because every week there's a new IEA report and it's not just a small report, it's a big report. This week's big report is this phenomenal investment report that looks in particular at the emerging economies, but actually makes a larger argument about costs of capital and about investment includes some scenarios where the IEA team varies the cost of capital and shows a big impact. I think they do big variations in the cost of capital, but my sense and the intuition of the models is that even 50, 100 basis points has this really huge impact on where do we deploy capital? What is the overall cost of deep decarbonization? And so that's my first point, which is we really need to pay attention to commitment in the sense of credibility. And my guess is that the credibility of global commitments per se is very low. And instead what we're gonna be observing over time is variations in the credibility of policy environments and places where the credibility is high is where we're gonna see reasonably efficient deployment of capital around deep decarbonization. And we're gonna see frankly, if you're worried about inequality right now, we could see inequality on steroids where we have a complete bifurcation of the world between the parts of the world that do deep decarbonization with low capital costs and the parts of the world that struggle to do deep decarbonization where the capital costs are relatively high. That tells me that in the domains that we're talking about here today, CCS, Director of Captions on all emblematic of capital intensive technologies, in those domains, investors are gonna shop the world for poor space and so on, but the world's a wash and pour space. What they're gonna shop the world for is credibility. And that's where we're gonna see these projects emerge. When I was at Stanford, way back in the Stone Age like 15, 20 years ago when I was there working with the program of energy and sustainable development, we did this big project on the future of natural gas and in particular on the transportation networks for natural gas, LNG pipelines and things like that. And we're working with a team of collaborators who have built a model that knew about where all the gas was or we thought we knew about where all the gas was and what it cost to build pipes, what it cost to build LNG facilities. And what the model would do is it'd go find inexpensive gas and start pouring capital there and building projects. And then when you look at the real world, which you see something very different, which is investors shopped the world for places that had a combination of a lot of gas underground and then enough political stability above ground that whatever you invested in and you sunk your capital in literally bolted to the ground wouldn't get destroyed by the above ground factors. And so when you look at the world in terms of the availability of natural gas, there's a huge amount of natural gas and then you should just find the cheapest gas. When you look at the world, when there's this marriage between the resource and the environment above ground, it's much scarcer. And so thus you saw the early projects in the Atlantic Basin and Trinidad and Tobago because for a while that was stable. Turns out that didn't pan out. You see interesting things like people are more excited about investing in the offshore in Nigeria than the onshore, even though it's more expensive to do offshore. Why? Because it's easier to protect your asset offshore. So all these things that are interesting that we know from the history of oil and gas operations and other capital intensive mining operations and so on that I think that same scenario is gonna play out in the area of deep decarbonization and climate change. It also helps explain a very important thing that's in Tom's presentation, which is this huge uptick on CCS projects in natural gas processing. I'm at Abdullah as the lead author on a terrific paper in ERL that came out in January where we did an elicitation about the costs of carbon capture and storage technologies. And one of the things we did as part of that is look at the death rate of projects that are proposed. The death rate for natural gas processing projects is very low because everyone knows how to do it. The policy environment is relatively stable. You just go do the project. Voila, you've got a project, PR departments thrill because then you get to tell everybody you're a world leader in CCS and as if you're saving the planet. And then when you look at the death rate of the projects that really matter, which are the projects that are dealing with flue gas, industrial sources, power plants and on and on and on. The death rate there by our estimations about 95% because it's easy to propose a project and really hard to put the policy and the investment together along with the variations in the immaturity of the technology and hold the project together to the point of operation without blowing up at some point along the way. So that's the first point I wanted to make which is we as analysts should be paying much more attention to credibility. How do we measure it? How do we know it when it walks down the street and says, hi, I'm credibility and how do you believe different kinds of policy environments? Cause I think that concept is gonna be dramatically more important than the more abstract idea of global commitments and so on. Second of the three points I wanna make is about politics and the relationship between politics and technology. I think it's useful to think about the deep decarbonization phenomenon as a series of technological revolutions that have to unfold. I happen to think that most of those revolutions are gonna unfold relatively slowly and thus I'm pessimistic as people know, pessimistic about 1.5 degrees, two degrees and so on. People are just smoking and inhaling some amazing product when they develop those scenarios. So I'm glad people are doing it, great product. But when you think about this realistically it's very hard to see how the rates of normal technological search and uncertainty and risk, how that plays out at the same time scale needed to deal with the climate crisis. Now, had we started 20 or 30 years ago and gotten serious about this problem as opposed to basically develop the skill of going to meetings, had we done that, we'd be in a different situation today, but we didn't for various reasons and so we're in the situation that we're in today. The processes that test and deploy these new technologies are experimentalist in nature. They involve government and business together, collaborating because neither has enough control over its environment and control over the investment space to be able to do the search individually and in effect a portfolio of different kinds of technologies that work sector by sector. Frank Heels, who is historian of technology and a student of innovation, fundamentally. Simon Sharp is part of the British government, part of the team that's hosting COP26 and I had a paper that we released, not a paper book actually, we released a COP25 in Madrid way back before the pandemic or before we knew we were about to be in a pandemic that lays out this vision of the sector by sector approach of technological change. I think it's useful when we look at CCS and direct air capture to ask ourselves the questions around where are those niches gonna be. Tom mentioned a few in his remarks. I happen to think one of the most interesting and important projects being developed right now and the CCS space is the Northern Lights project. There's the stuff around Rotterdam. There's all these other hubs where you see a combination of government and business working together to try and really deploy technologies in these niches, drive down costs. And here's the part of it that I think is so interesting as somebody who's originally trained in political science which is as the technologies improve the politics also shift because the firms that succeed in this they gain market share, they gain resources, they gain the capacity to behave politically and greater resources and authority in that realm. People study trade will recognize the logic here immediately as new new trade theory which is the interaction between trading rules and the power of firms that are successful in an open trading environment because they gain market share, they gain power and then they can help anchor those rules and expand those rules. We're gonna have something equivalent to that. I think in carbon which is kind of new new carbon theory, if you like. And for those of us who study technological change and try and model it which is a lot of people in the meeting here today they need to engage more seriously with the interaction between the technologies and the politics because it makes you frankly this is why I'm more optimistic as time goes on is political barriers that exist in time step one start to melt away as the interest groups get more powerful in time step two, three, four and on. That's the lesson from the history of solar in the early days of the solar revolution. We have Greg Nemet with us here today is a leading scholar in this area. The early days of the solar revolution you had some governments, notably Germany investing massively in it and the solar revolution spoke German and then it started speaking Mandarin as solar went global and at each step the interest groups that favored more investment in solar got more powerful and thus the solar revolution was a technological and a political phenomenon together. So that's the second of the three points that I wanted to make about this. I wanna just poke IEA a little bit. IEA is so polite about this real state of technological change and I think this comment that half the technologies are not ready and half are more mature and we know what they are is brilliant because it allows everybody to see the glass either as half full or half empty. Things that the IEA says are maturing are also themselves still in the early stages. And so we really have to take seriously the need for profound technological change and the fact that we aren't that far along and what we're trying to do here is not just drive down learning curves but we're actually trying to manage the politics and make the politics more favorable for deeper action. Third and last thing I wanna talk about more briefly is about net zero. 70% of global emissions now come from countries that have net zero pledges by mid-century. Most 2050, China's 2060. I think that this is great in the sense that it reflects political ambition and pressure. You got a lot of firms making similar pledges as these firms are run by folks who are concerned about existential impacts if they don't take the climate change problem seriously. They lose license to operate. This helps explain the variation why the European oil and gas companies are doing a lot more than companies and headquartered in other countries because they're faced those kinds and have long faced those kinds of existential threats. Nobody really knows what to do but they know they gotta look like they're doing something and then you go work on the problem and you learn along the way what it's gonna be. Are you gonna turn yourself into an electric company, a green electric company? Are you gonna turn yourself into a CCS hedge amount? Are you gonna turn yourself into an offshore expert and expert in due offshore wind and platforms and things like that? Nobody knows but now we're seeing some experimentation and experimentation has to be with capital on the ground. You can't just put out a press release and say we're gonna do a $100 billion project with the Gulf of Mexico. You gotta actually go work on a project like Northern Lights and a variety of others. So I think that's exciting and net zero I see as symptomatic of the pressures on these companies and on these governments. I do think it's very important that we in the analyst community not confuse symptom with cause and symptom with reality because there's a dark side in net zero which is that zero is a small number. And if you continue to have emissions and that means you have to do offsets and there's a very, very powerful incentive right now to do offsets of the type nature based solutions or I have a particular IR for them offsets of the type that are not real. And I know there's a whole workshop in the last in this series but when you look at the markets right now the markets suggest pretty strongly that the counterfactual problems have not been easy to solve that there are strong incentives for perverse investment and that the vast majority of the offsets in the compliance markets at least are I think the technical term for them is garbage. They just don't represent real reductions in emissions. And then you've got higher quality offsets to the extreme investing in direct air capture machines and so on. I think Tom called it the cherry on the top. It's an expensive cherry. It's a gold plate and not just gold it's a solid gold cherries. These are very expensive options right now whose costs will come down to a point. Second law of thermodynamics dealing with a 419 per million gas initially is gonna be rough on us but the costs will come down but we have this disconnect and the disconnect we need to be much more serious about because if we allow the markets to basically continue to invest or over invest I should say in the low quality carbon offsets that are dominating right now we have Gresham's law applied to decarbonization and we won't get real changes real investment in new technology real credibility to my first point. I think that's a central challenge. Ryan Hanna and I have a piece of nature energy last week which takes the pulse of where we are with the energy transition and includes some discussion of this kind of dark underbelly of net zero that we probably as analysts need to spend a little more time talking about and let me just close by saying that these are all questions, these political questions questions about commitment to credibility of commitment and so on are I think fundamental to the investment environment these days but they're also amenable to systematic treatment in models and a team of us, John Wyant among them we're on a paper that came out I think today in nature that lays out some ways of bringing more of these institutions more humans into the integrated assessment models a lot of people involved in this activity at Stanford are working on similar problems I think it's the frontier for the modeling it's obviously a frontier that must be crossed in teams where you've got people who are social scientists who think about the credibility of institutions and where and how does capital get deployed along with people who are technologists along with people who are macro economists teamwork is hard but it's rewarding and I don't see how we're gonna get serious about answering the core question here on this panel which are about barriers, questions about barriers and in particular the questions around global commitment as an essential part of investment and deep decarbonization without doing that kind of analytical teamwork so with that I'm gonna stop and look forward to the discussion. Next one, as you look at the evolution sector by sector to decarbonize how do you then look at the system level question of optimizing the use of capital? Well, the system-wide question has market answers which is cost of capital but I think actually the system-wide stuff gets in the way because if you're gonna create a bunch of revolutions you need each corner of your revolution first of all revolutions are not planned by global committees they're implemented by revolutionaries and they are often brutal processes especially for the incumbents so a lot of people kind of rubbing their necks wondering, you know, am I gonna be next and so on, you see that in the auto industry today and it's really, really interesting to watch and my guess is that most of the firms most of the incumbents will be dead but some of them will survive and make the transition. I think that we've got to focus more on where and how does capital get deployed and held inside an individual sector and the more we think that there's economy-wide solutions to these problems where all you need to do is, you know set a carbon price for example and then voila, the markets figure out the right place to do that. That works for mature technologies that's the experience for example I think with the EU ETS that's experienced in Britain right now those experience in the US Sulfur Trading Program really good at getting firms to optimize their choice of mature technologies but when it comes to creating the revolutionary context you've got to do the opposite of economy-wide you got to zero in on a particular sector hold it together not make the resources fungible outside the sector that I think is one of the lessons from the way the Norwegian government in particular has put together the Northern Lights project. Question with reference to the politics, technology and other agents all coming together do you believe that there will be a tipping point in the US and maybe other countries where high momentum is reached and multiple renewable technology low carbon technology takes off and we transition to a low carbon society in essence and if so, when do you think that's going to happen and if not, what's the alternative vision? Well, I have an app on my phone that's counting down to that exact date the problem is I can't find the app on the phone because there's so many apps and plus the phone update of the software so I don't know. My guess is that there's going to be places there will be lots of tipping points. Here's where the ecological concepts and the political concepts where they don't quite speak to each other because when you imagine there's a tipping point you think that everything's going to change the next day and then when you look at real markets where the facts on the ground are changing Indian power market, a great example where in most settings now solar just crushes everything else but you still have some coal being built and you have questions about what's going to be the firm power supply that's going to integrate the renewables and so on and so you don't have a tipping point in terms of the overall system behavior but you have kind of a hysteresis where the history of the system then creates conditions where the system's properties change over time so I think that's probably the right way to model it and to think about it and it's going to be done individually in individual segments and sectors. I want to push back a little bit on the renewables part of it. My guess is that on the power side on the power side that the dominant investment for zero carbon is going to be renewables but a bunch of people have been working on what do you do with the last year, 20 or 30% or whatever the fraction is and how do you integrate renewables reliably what's the clean firm power source and I think that the jury's out as to what that's going to be. I think that's an area where natural gas is dominant in my mind, last thing I'll say about this we'll go back to the question. The single most important and the most uncertain and profound question about the future of the energy system is the question about the future of gas because of the value of gaseous fuels, ease of storage, Rob Jackson's with us today, others, I mean, this is what you guys work on but it's just central and the more renewables you put on the grid the more actually that question becomes in stark relief. So over investment and offsets is a very interesting point. Is there a good estimation of reality versus this potential, is it a smoke screen and what percentage of the investments are in real nature-based solutions? Don't know the answer to that question because they're very powerful incentives for everyone to lie and there's almost nobody really paying attention to the truth. I mean, I'm kind of beginning to sound evangelical about this, but maybe I am. And frankly, I've learned the person who's taught me the most about this is Danny Cullenward. It's really impressive, really impressive what he and his colleagues have done most recently in the work they've done on the California offsets market. And it's through that work and related work that I've just, I think we're not ready to be awarding in effect money, direct money, which is what an offset is once it's monetized in a system where nobody really knows how to run the accounting system. And then every time people come back to oh, we got some fancy in the satellite and we got this drone is gonna go over and like hug every tree and figure out what's going on, but nobody really fundamentally deals with the core problem which is the counterfactual against which the offset gets computed. So I think offsets should be done as a sandbox kind of idea right now where you've got companies who want to do something that's quality, they should be running in effect an auction around a variety of diverse portfolio projects and seeing what scales, that's what Stripe is doing to some degree, a handful of others. I'm trying to make some progress, but we're not making progress in the compliance market, we're making progress in the non-compliance of the voluntary market. What are your thoughts on carbon price? And in particular, whether this code or should vary as a function of the degree of certainty of permanence? Well, I've always thought, so there are two issues here. One is that concept applied to offsets. I've always thought going back to when I look closely at the Kyoto Protocol and I wrote a book about it called Collapse of the Kyoto Protocol which kind of reveals a message, it's not uplifting, that the liability rules were all screwed up, that the pressure to create volume in the offsets market in that time it was called CDM. But the acronyms change, every few years you have to just update all the acronyms, do a global search and replace the underlying problems don't really change. And I'm sure there'll be people irritated at me for saying that but I just, having looked at this for a long time and really, really impressive. I've always thought that the pressure for volumes created an incentive for streamlining rules, common procedures, seller liability, so once you get rid of your permit then it's monetized and it's fungible. And that mindset, I understand the logic behind the mindset which is you're trying to create a market with as much liquidity as possible and get that completely. The problem is you don't know what the quality is and so you should be doing the opposite. You should be having buyer liability such that these things are constantly being repriced as we learn as opposed to being commoditized. And I think you were seeing a refresh on that there's been a handful of reports in the last six months arguing for standardization of rules and so on. I don't know how you standardize rules in a market where you don't really know how to do the fundamental oversight questions. It's very different from a lot of what central bankers do where central bankers, tools are not perfect but they have some concept of the money and how to assign value to the money that they're managing and that is not the case here. So then is there any way to tailor policy for mature versus immature or short-term versus long-term technologies? Yeah, we should be assigning areas where we're extremely confident of the robustness of the adjustment should have a higher value than others. And I don't know off the top of my head what that would do but for example, that would overweight DAC projects because no sane person's gonna go off and do a DAC project with robust sequestration and deep sale on aquifers without, you know, on their own. There's gonna be no selection problem there whereas a lot of people with clever accounting procedures are gonna go off and pretend to do something in a forest and then gain a big credit for it. And so long as all those credits have the same value, the DAC will be underweighted and the garbage force projects will be overweighted. If net zero by 2050 is not a good target, then what is? If I were running a company that was highly exposed in this area and people are super gluing themselves to the front door and that's inconvenient for my business, I'd do the same thing as these companies. I'd say, hey, we're gonna do net zero by 2050 and we set up a committee and we're gonna go off and invest and we're gonna redeploy some capital and work on a problem. So that's great. So I would do the same thing. I think what we need to do in the analyst community though is focus less on the net zero and the degree of obsession about net zero right now is worrisome. There's been some treatment and we should downplay that and focus much more on where and how are we really bending the curves? What do the revolutions look like? How quickly do they scale? That's why Ryan Hanne and I wrote this piece that was in Nature Energy last week which just takes stock because we look at the global picture, it's not great. You look at the revolutionary picture and the individual issues, it's much more encouraging. So we should be focusing much more on that and less on whether the overall numbers add up. They won't add up. The probability that the world's gonna do net zero or even most of these places that say they're gonna do net zero, the probability is not zero because there's a small number, but it's low. Who do you think ends up funding CCUS and DAC projects to achieve scale? My guess is the backstop funder is government and the government is gonna fund it either on budget, tax credits or direct cash payments and things like that. That's the bulk of the Northern Lights project, for example, or they're gonna fund it as an unfunded liability where they're gonna have a mandate and the mandate's credible and thus private capital is gonna flow in. And so think of that as something similar to the renewable portfolio standards but with a zero carbon standard and then firms will see that standard, they'll believe it and they'll then invest in it because they know they're gonna have to meet the standard. My hunch is it's gonna be done either mode. It's gonna be over-weighted by more credible firms. I think regulated utilities are gonna end up playing a very big role in this space. And people often think of regulated firms as kind of lumbering and not innovative and so on and that criticism sometimes applies. I think it's been overstated. The average Johnson effects have not seen as many as you might think but that's what the regulated utility brings to the table is low borrowing costs, highly credible policy environment and stability around their infrastructure. And my hunch is that they're gonna be the backbone of a big chunk of this. Okay, thank you so much, David. This was really wonderful, really wonderful to hear all of your comments. I'd like to thank you for participating today.