 Welcome to The Boundary Spanners, a podcast on residential decarbonization with me, Nate, the blue-collar CEO of Atrack 2.0. And I'm Abhi, a white-collar policy researcher based in Canada. In this podcast, we're taking tacit, unspoken, and hands-on knowledge from the white and blue-collar worlds and turning it into explicit and actionable out loud insights for residential decarbonization. The views expressed in this show are entirely personal. You can follow The Boundary Spanners podcast on YouTube or wherever you get your favorite podcast from. Thank you for listening. This particular episode, I think, is titled The Four Horsemen of H. Vacalypse. Is that sound about right? Ding-ding-ding. That is exactly it. So we have now created, like, another horrible word out there. So it's like two celebrities getting together. We're going to mix their names together. Yeah, I mean, from the church and the kitchen table to, like, you know, The Four Horsemen of the H. Vacalypse, there's been sort of a pattern here, like, the very end of days, you know, biblical themed pattern. So in this episode, is putting my ability to blend in with the locals to the test, okay? One thing I pride myself in is being able to blend in with the locals, no matter where I go. I work hard on it. The way I'm speaking now is this is an affectation. This is not how I normally speak. When I speak with my friends from India, even if we end up do speaking in English, and this is, you know, this is an affectation, and I pause, I enunciate every word differently because when we speak English, because it's not my first language, I end up speaking in a monotone. Whereas when I speak my native language, it kind of, it has natural inflections. So I have to pause myself like I just did so I can enunciate. So this is, this is part of me trying to blend in with the locals so I'm better understood. I can better belong in places. So over the past four or five years, I've been blending in with the blue collar workforce and I've identified the four horsemen of the HVAC ellipse, by which I mean, there are four large scale selection pressures, deep existential issues that are bearing upon the HVAC industry that keeps the men and women of HVAC industry up at night. And these four issues are creating incredible selection pressures on the industry. And layering on decarbonization on top of these four big existential challenges is a recipe for disaster. And unless policymakers try to work with the HVAC industry to find solutions to these four existential challenges, simply just slapping on decarbonization as a goal on top of this is not going to be, it's not going to result in, it's not going to bring out good results for anyone involved. The HVAC contractors, blue collar workers, the policy makers, the taxpayers, the citizens, public, no one. So this is like me, like I'm like a war correspondent, right? Like I'm like this year five, I've blended in with the locals, they don't, you know, they see me as one of them and here's my report. And so I want to bounce these off of you because for me, this is, I'm trying to tap into the tacit knowledge stuff that you know, from decades of experience and me, I'm trying to see if me make, if I'm right on the money in how I'm able to tap into the existential angst that I feel like is pervasive through the HVAC industry. OK, let's do it. Hit me. What are the four? OK, so number one, skills, pardon me, skills shortage. So what I mean by skills shortage is there's both. We talked about this in a different in an earlier episode. HVAC is an incredibly skilled trade, much more so than perhaps some of the other trades because you need a combination of skills, plumbing, gas, electrical, maybe even sheet metal, some kind of sharpening, refrigeration. And this is just for the technical people on staff. You also need sales in order to run a successful business. You need you need salespeople who can you need. Well, first of all, you need marketing people. So that you can turn your service territory into prospects. You need salespeople that can turn good, good leads or prospects into clients. You need program managers. You need supervisors in it. So the whole the whole sector, the whole ecosystem, fantastic word, whole ecosystem in HVAC industry is experiencing both a shortage of quality and quantity. And there are a lot of people who do things with rule of thumb stuff, but skilled workforce that can grow the industry, that can respond to new challenges, that can play across these different knowledge domains that can turn from marketing to sales. And that to me, a lot of HVAC companies are worried about being able to recruit and retain skilled workforce. Does that sound about right? You want to expand on that? Yeah, so we have spent the last 20 years. I mean, you and I are both largely products of it. Maybe you less so being originally from India. But we spent the last 20 years telling everyone, go to college, go to college, go to college, go to college. And now we have, frankly, an overabundance of overeducated people and not enough positions for them. So we have that issue, but that has caused, on the other hands, we're looking down on the trades in general to the last acceptable prejudice. And that has created a skill shortage because it's like, well, go to college. That kid's not a good fit for college. I mean, like my dad was an extraordinarily mechanical person, like unlike anything I've ever seen, which made me feel like an idiot because it's like being Michael Jordan's son who, you know, can barely make a layup. It just sucked. It's like, I will never, like at my best, I'm maybe 25 percent of my dad's ability at my absolute best. Everything's perfect. So he went to college for a year at the Oral Roberts University, so very conservative Christian college. And he's like, they wanted you to be either a preacher or a teacher. And I didn't want to be either. So he made it for a year and six weeks and quit. And he found a path that was better for him. He was fundamentally a blue collar person. Now, he had a business. He was not the best businessman, but he had a business. And his skills were just spectacular, although so much of his knowledge was tacit and it died with him when he committed suicide in January. And that's that's a horrible shame because there was a lot of cool stuff rattling around in that brain that was very mentally ill brain. But we have spent 20 years now pushing kids away from the traits. So we're not allowing people to go find their path like that. So I mean, it's kind of cool. I live in a holler now in West Virginia. So I mean, there's there's nobody white collar near where I live. Everybody's good with their hands here. Everybody knows how to fix stuff. It's a different thing. And I would love to see like in Germany, auto mechanics are revered. I would love to see skills going back to being revered. But as it is, I mean, I made a couple of HVAC owners groups on Facebook and it's just constantly like, I can't find anybody. I can't find anybody. I can't find anybody. And then worse, the programs that are out there for trade schools are usually teaching kids either the incorrect stuff or the incorrect way of thinking. So nine out of 10 HVAC contractors I've talked to have said, I don't want kids out of trade school because they're hard to retrain in the right way that it is to just get an 18 year old off the street and take them green and run them through everything. But we have a little knowledge. Little knowledge is a dangerous thing. Yes, exactly, especially when you know enough to be dangerous. Yeah, yeah, but it's harder to unteach. I mean, it's what is that Mark Twain saying? Like the truth has barely crossed the street before the line goes around the world. And so we have kind of similar problems there. But the other issue that we have, which I think we'll get to in a little bit is the kids that are 18 years old haven't really worked on anything. So they may not know which end of the screwdriver to use. You know, they're they're good at working phones and oftentimes they know programming and things like that. But the the basic mechanical skills are, in my opinion, much more rare than they once were because we don't have to fix stuff. So that's an issue. So yeah, skill shortage. We're in this for 20 years like we we have to first change our cultural norm. Like I love watching micro doing this dirty jobs. I mean, he's been out there beating this drum for years and he's so smart and so funny and so right and so much of this. Go watch what micro is doing, please, because that's really important. We need to restore the honor and the dignity to blue collar. 100 percent. And micro talks about this on an individual level. Don't pursue your passions because, you know, they might not always lead to opportunity or you might actually fall out of love with things that you're passionate about at any point of time in your life. But pursue opportunity, but bring your passion with you. Be passionate about things that, you know, bring your passion into whatever you do and pursue opportunity instead. So now at this point of time, HVAC trades in general are a good pathway to. A reasonable middle class job, real class lifestyle, right? Yep. So we were to use like micro's like pursue opportunity and, you know, one of the things about, like, you know, what you were talking about earlier when we were pushing kids to go to university instead of letting them find their passion or opportunity. But instead of narrowing down their opportunity space, I think in part because over time it's become the pathway to, you know, at least it works. It works smart, not hard kind of mentality, right? And, you know, like why do you want to be a frontline worker when you can be the foreman? People have been talking about this for millennia. There's actually, you know, if some listeners want to look this up, there's a poem written in 3,500 B.C. They got to, sorry, 1,500 B.C. So like 3,500 years ago in Egypt called a satire on the trades where a dad is talking to his son and saying, what do you want to go into the trades? What do you want to spend 12 hours next to a furnace when you can be the boss pointing fingers at someone and paying them what to do instead? So this mentality is enduring. And that's what, when you mean it's the last prejudice that's still alive, culturally we have that mentality. And that makes it difficult for young people, impressionable people to make the choice. It's almost seemed like a fallback option, plan B, plan C. Oh, maybe I'm not smart enough. I was just talking to a 16-year-old the other day and he was saying, I was asking him what his plans were because he's going into high school now, senior. And he was saying, man, I don't know if I'm smart enough to go to university so I think I'll just go get a trade. That attitude, right, where it's the fallback option that's leading to a self-selection of individuals who may be exceptionally gifted mechanically and technically end up in trades. But at the same time, what happens is that they, trades become narrowly specific to people who can just sling boxes together. But the entire ecosystem struggles to retain that high level of talent. I know, for example, and you can corroborate this, but this is my tacit understanding. In an HVAC business, the owner usually has high closing rates and high job numbers, right? So they have like 60, 70% closing rates, maybe if they're really good. But the next person in line has a closing rates of like 40%. Yeah, or 30 or 25. 30 or 25. The owner is like 50, 60 years old, likely retiring in the next decade or so. The next person in line is 30 years old with a closing ratio of 40%. So what you describe with your father and a lot of the tacit knowledge that he had, just went with him when he left us. He's also happening in the HVAC industry where a lot of people have developed skills through long years of experience in the sector, like business skills, sales skills, being able to actually diagnose a client's problem with fixed stuff. And once that generation of owners and senior techs are gone, the mechanism through which we produce the next generation of techs is focused on credentials and focused on technical and explicit knowledge. But there's not enough spaces through which they learn tacitly about the developing skills around marketing, developing skills around talking to clients, developing skills around closing jobs better. And that's taken together. This is, you talk to HVAC owners and senior techs in the industry, they're worried sick about the next generation of workforces. I mean, some of this is, I mean, let's be honest, right? Some of this is, oh, the young kids. I mean, that's typical. You know, you go to any... If I could, people these days, yeah. Like you and I, I take it from now. Like, I mean, take it five years. Two months from now, you and I are probably going to hit that age group where we're like, oh, it gets these days. Right? But some of it is just natural, you know? I understand that. But still, in this trade, especially in HVAC, the next generation is confronted with significantly different challenges than the previous generation did, but don't have the same long runway. Don't have the same cultural expectations that the early generation did and how they got into the industry versus the new generation coming in. So the selection pressures on a new generation is making it, we have fewer and fewer people entering into the industry. The ones that do enter into the industry are entering into it because they're self-selecting themselves because they don't think they're quote-unquote enough a university. And once they're there, the explicit way in which we teach these things doesn't touch on the other aspects of how to be successful in a business. They might teach you how to sling boxes together. You're saying maybe they don't even have those skills. As we're taking it together, there's a skill shortage in the industry that is keeping people up at night. Yep. That's not about right. Am I right on that? That is the first of the horsemen right there. That's going to be a challenge for a long time. Right on. And then we can talk about, so let me do the horsemen first. And then maybe in the next episode, we can take each one of those and then lay our decarbonization on top and then see what happens then. Sounds like a plan to me. Okay. So my second horseman of the HVAC ellipse is commoditization or if you will, commodification of HVAC. So this is, we touched upon this in a different episode. This is like the race to the bottom on price. HVAC is sold as a bulk commodity. It's not sold on value. So it's not sold on non-energy benefits. It's not sold on, you spend a vast majority of your private life in your home and we are here to make your living as comfortable and healthy as possible. HVAC contractors don't sell on that. They sell on, here's the cheapest equity you can get in. I can get it in as quick as two hours from now and here's an incentive program that will give you 80 bucks back and that's it. So HVAC is commodified and there's a commodification, commoditization of HVAC. We should define those two actually. So commoditization is when a specialized trade becomes commoditized. So it becomes more of a commodity. Like I discussed last time, when people don't realize that cheap paint is bad. So they're just like, oh, well, it's just all about price. It doesn't matter. There's no difference in the products. It's all a commodity. Where commodification with an F is taking something that currently is not a commodity or it doesn't have a good process behind it. It's making it saleable. So you're taking something that previously you couldn't sell and now you can. I think about Etsy is actually a really good example of that. I mean, most of the sharing things like Airbnb is taking something that previously you couldn't sell and now you can't. It commodified people's homes and it's a chunk of our income now. We are keeping our Ohio house and it's rented out. So commodifying something is important. And so maybe next time we can dig more into commodifying decarbonization because that's something that has to be done because right now you can't go out and buy a decarbonization job of your house. You just, you can't. I keep hearing this again and again and again and particularly I'm hearing it which is amazing in the Bay Area in California. And I mean, that's where decarbonization is happening. Yeah, it's ground zero. It's like, well, I wanna put a heat pump in my house and I called contractors like, oh no, you don't want that. You just wanna furnace. So do you recognize like this is ground zero and you can't do what you wanna do. It is not yet commodified. So yeah, commoditization and commodification are both problems here. Fantastic distinction. So let me try to try an analogy and see if I'm getting it right in my head. So commoditization, which is one of the problems is homeowners do not know, cannot differentiate the value between a couple of different contractors just like how people can't tell the benefits of a cheap coat of paint versus a high quality, more expensive. Slyer wins. Who tells the best story? They're the best. How are you gonna prove it? I mean, it's not like, it's like, I'm the fastest runner. Great, we're going to the track with a stopwatch. We're going to find out. There is no way to do that when somebody says they're good. Yeah, so people might not be able to differentiate between a good contract versus a bad contractor. Just like they don't know the difference between a good coat of paint and a bad coat of paint until after the fact. That's one problem, which is commoditization. Commodification is when things like home comfort boil down like complicated problems around a home as a system or system is turned into a single commodity that you can sell, which is HVAC. So what I mean by that is HVAC contractors, where they compete only on price and not talk about the value that they can provide to a home. In terms of being able to solve the company problems, moisture problems, like air quality problems. And all of those issues with your house are boiled down to making a budget purchasing decision on a single commodity, which is HVAC. That's commodification. So what happens? We talked about this in a different episode, 85% of installs happen on duress. So, which means that in the cold winter night, your furnace breaks down. That's commodification. You want someone to come in as quickly as possible, sell your commodity. You want heat. You don't aren't worried about the quality of heat. You just want heat. And that is a 15 or 20-year decision that you're making with the gun to your head. That is not the way you want to do it. So yeah, that's a problem. So let's unpack this a little bit. Because we unpacked the earlier commoditization when homeowners can't tell the difference between a good contractor and a bad contractor. Then you said the best liar wins. The best marketing plan wins. The best one wins. And then whatever problems come up after the fact, that's between the homeowner and their ability to get the contractor to come in and fix those problems. Is there anything else you want to expand on that? I'm sure there is. But we'll come back to number three. Yeah. I want to layer D carb on that. Yeah. So on part B on number two, which is briefly on commodification, what happens when a homeowner, what happens when a contractor is compete on price and price alone? What does that do to the industry when we're racing to the bottom? Well, it's going to kill your quality. You're going to get early failures. You're going to get weird problems. And those are ultimately going to cost the client. I can't remember the full phrase, but it's the bitterness of poor quality outlasts getting a low price. So when things break, like, yeah, so you got a deal on it, but it's broken and you have to buy another one. Congratulations for getting a good deal. You moron. That is basically what comes of the industry. And we see that sort of thing all the time. I mean, I'll give one quick example. The more I've learned about what's called static pressure, or we call it duck pressure because it's easier to understand. So basically, if you blow up a balloon and you hold the end close, it has static pressure inside. So there's pressure inside. It can't go anywhere. It's static. But we call it duck pressure. The same thing happens inside ducks. You want that pressure to be high enough. So basically, if you open up the end of the balloon, it flows. You get velocity pressure, but not so high that the balloon pops. And the same principle works in an HVAC system. You want it to be high enough so it flows, but not too low. And then also not so high that it pops. So when static pressures get too high, it puts a bunch of back pressure on the fans. It slows down the airflow, which is going to be hard on all the components. The furnace is going to get too hot in the heat exchanger. The coil is going to get too hot or too cold, depending on what it's doing, air conditioning or heating. And early failure throughout the system is endemic at that point. 70% of systems from a data set that I got are above specification from the manufacturer. Should be no more than half an inch of water column, 70% of systems. And remember, these are contractors that are actually testing. And not many do. And some of these systems are surely ones that they replaced. So it's probably better than it was before because they're paying attention to static. So that's in that data set that 70% are above spec. In above average contractors, which means reality is probably worse. Almost half 47% are above 0.7. The 10th of an inch, which is considered the danger zone for failure for the new variety of fan motors that are out. So almost half of the systems out there have installed problems so large that they're very likely to cause early failure. That is what happens by slam, bam, thank you, ma'am. Free quotes, braced to the bottom. We get poor installs. And at this point, when it comes to HVAC, we can make it more efficient, but we're getting to the point where it doesn't matter anymore. You can buy a 98% furnace. We can't do any better because you can't burn it any better than that. We're at the edge of stoichiometry. It's bad things are going to start happening going beyond that. And getting beyond 90%, like 90% to 94% doesn't matter. Probably not getting from 50 to 90, which is what we've done. That's a huge thing, but we're running out of room there. So now the problem is not so much in the efficiency of the appliances and same goes for air conditioners and heat pumps. We're getting good enough that now we don't need to focus on appliance efficiency. We need to focus on install quality and overall system quality. That's where the next gains are going to come from. You can't make those gains for low price. And then you're not going to make those gains off the backs of a business model of where it's the fastest and the cheapest guy that gets the job invariably because homeowners, they ask for quotes. They'll default to the cheapest guy who can get there as fast as he can. And so the market is structured in a way that it incentivizes this kind of behavior. So we're not going to advance on any of these other metrics that you talked about on the expense of guys or just van ban. Thank you, ma'am. It's like, get in, get out, go quick sale. Yes. So now we need to commodify the comfort and commodify the better installs because we have de commoditized everything until now. Makes sense. So fantastic. So this is actually a good segue into our, my next, my third horseman of the age of academics. And that's what I'm calling business model backlash. But what I mean by that is there's a lot of stop and start programs, incentive programs from utilities, from governments that come and go seemingly off their own accord. No one knows when, I mean, after sometimes programs end at the end of election, but they come and go and there's, and there's rapidly changing kind of regulation that messes. Like if you're a business, you're trying to develop a sustainable business model, especially when your margins are super tiny, given that you're trying to get the smallest bit impossible. And do the quickest job possible. What happens when, and we touched on this in a different episode, we'll link that in the bottom of this, of this, you know, this episode. We expanded on that in a little more detail, but can you give a brief summary of what happens when, when you're trying to develop a business around these, like rapidly changing government regulations, programs that come and go, how does it affect contractors, HVAC contractors business model? Well, so I'm going to jump to a different industry. Let's talk about the solar industry. And what is known as the solar coaster. So it like on and off, there's, there's an incentive that goes in. So, you know, say January 1st, an incentive program starts and then it ends December 31st. So let's just say it's a one year program. It comes in and it makes it fairly rich. So people go out there and they sell stuff. And, but because people know what's going to end, the fourth quarter is usually insane. So everybody's trying to beat the clock and get it. And like, was it in the tax incentives? If you had bought the equipment, I think you had to spend like 10% of the project money. If you bought it, as long as you did it within the next three years, you could still back date that incentive, but it's creating this cliff. So that everybody's slammed the fourth quarter, but nobody knows if it's going to happen the next year. So everybody's trying to jam all that stuff in. And then January 1st comes again and business falls off cliff. What happens to the sales of that company? And if the sales of that company, what happens to the sales of that company? And if the sales fall off a cliff, what happens to profits? And if the sales fall off, can you keep the employees? And this is really problematic because you train people and then you lose the training. When I guess it feels like kids summer vacation, how they lose like 40% of what they learned the year before over summer vacation. And I watched this in weatherization, which is the low income weatherization program from the US government. So they have a large budget and then they feed it out to the all 50 states in a certain amount. And then the states deal with it from there. And it's in general a really good program. So it figured out a ton of the building science. So much of what we know technically about making houses work well, we learned from weatherization. So that part was awesome. We view governments good at a couple of things. It's good at R&D because R&D doesn't pay well. I mean like the last nine years of my life have largely been R&D trying to figure out residential D card. And I can tell you from personal experience, it doesn't pay for crap. Just constantly trying to hand the mouth, just constantly trying to sell the project so I can make enough to keep going. R&D is something the government's good at. The government's also good at being first customer. So when you're trying to get through the valley of death where there's nobody to buy something, that's where government's good. And WAP also serves, Weatherization Assistance Program, also serves as first customer. So they're really good. So now that you have kind of an understanding of that, this goes to low income homes and it does insulation and sometimes it'll do health and safety stuff. And sometimes it'll do a furnace, things like that. So that's where we're going to be working. It's a big part of that program. Now in 09 with the ARRA program, the American Recovery and Reinvestment Act, Obama 10x'd the budget for weatherization. For those couple of years, 2008, 2009. Yep, exactly. And this is what Biden's talking about doing right now too, is he wants to weatherize 2 million homes, which is gonna be a huge jump. So I was part of that back when I was contracting. So I did, I wasn't, I don't know, 20 of them, something like that. So it was it wasn't like a gigantic number of jobs, In fact, a lot of my chops come from the training that I got from there. So the technical training is fantastic, but they don't need to sell anything. In fact, they struggle to sell weatherization jobs to low-income people for free. We actually, we showed up to someone's job and they refused us. We couldn't work that day. They're like, no, you can't come in. This is free work that's going to make your life better. So they have difficulty selling something for free, which is kind of wild. My point of this whole story is a whole lot of people got trained, a whole lot of equipment got bought, you know, the blower doors and blowing machines and just all kinds of stuff that got bought. After the era era, they cut original funding to half of original levels, which means it was a 95% drop in funding. So you, so you 10 X funding for two years and then you have 0.5 X it. So you went up and then you actually went down. You actually 0.05 X it. Oh, my word. It was for 5% of what it was. 5%. Okay. It was a 95% production in funding. So all of that training that you did, yes, you gave people jobs and you did stuff, but you just, you went straight up and then you went straight down. And that is what's cliff incentives tend to do. So in the solar world, that's called a solar coaster. So, you know, business is good for a year until incentives end. And then it craters the next year and then it comes up again and it craters. Now, the key thing that we want to do in residential decarbonization, just decarbonization in general, we need to have a smooth upward slope that is geometric. We can't bounce around. So what these programs have caused is it's a large degree of bell curve, but it's worse than a bell curve because it's like it goes up as a bell curve and then it falls off cliff. It's about flip. Yes. Yes. So I mean, I just pictured like Wiley Coyote, you know, going up a cliff or going up a hill and then running out of the cliff and looking down and be like, oh crap. And if we want to succeed at decarbonization, we cannot under any circumstances do that because we are out of time. We were out of time a decade ago. We are really, really out of time now. And so if we create business model whiplash over this, which is what happens with kitchen table programs that mess up things, you create demand and then you kill it and then you create demand and then you kill it and we need to encourage in whatever way we can that geometric slope experiencing 50% annual growth year over year or more, we're going to fail, period. So when you say 50% annual growth, are you talking about new contractors or contractors doing business like there? Well, it's going to be everything. So I mean, it will be a number of contractors on one hand, but ultimately what we're looking for is number of jobs. So I mean, rough numbers. We have 100 million existing homes in the U.S. Canada is probably about a tenth of that because it's populations, you know, 35 million in Canada and, you know, 330 in the U.S., something like that. So there's 100 million existing homes in the U.S. 40 million of them are already electric, primarily in the southeast of the United States, some in the southwest, but the southeast is really heavily heat pumps because they work well in milder climates. Up to climates on four, they work really well. And they didn't have enough gas supply and they figured out how to make electricity pretty reasonably. So economics drove the southeast already be electric. So 40 million of 100 million are already done, although we are we're losing that war year by year because heat pumps, single stage heat pumps just deliver okay experiences. So when people get access to gas, they're usually hooking up. So we're going backwards in a lot of cases, but let's just say we have the 60 million. If we want to finish by 2050, we'll call it 30 years rather than 29 to make the math easy. We need to be doing 2 million homes a year. Starting, let me check my watch yesterday. In fact, a year ago, because now we need like 2.05 million a year. So number of houses converted is really what we're aiming for. And if we don't see really fast growth, I mean, by the time we get to where we have 100 percent electrification happening all the time, it's still a 20 year clock. So instead of like, I mean, it's going to take 20 years once we get to 100 percent to actually decarbonize everything because you have to work through all the existing stuff. We're going to need to do more than 2 million homes a year. And then if we want to move the goal up to 2040, you know, we're going to be talking four or five million homes a year in the Bay Area, you know, the decarbonized central in the United States. They can't do hundreds of homes a year. We are screwed. And so if we are careful in incentive design and we set people up to start decarbonizing and we throw lots of money at them and then we take the money away or we create rules that get too hard to do, you're going to stop that upward swing and you're going to kill it. So we cannot do that. Well, the bell curve cliff, we can't do that if we're going to succeed. I can validate, you know, I can substantiate what you're saying by just my own research here in Canadian cities on, you know, and what they're doing in terms of being able to. So in order to meet their goals, there's a certain update, right? Like that rate you're talking about a number of homes that you want to decarbonize or switch to renewables and stuff like that. The upgrade rate you want is in the order of several hundreds, you know, thousands of homes every year, every decade. Several, you know, a hundred dozen houses every year. But the number of houses have actually done over the past five or six years is maybe 40 or 50. And there's not enough contractors in the entire province to do the number of jobs that are required. It's just, you know, one of the major, one of the few major cities in my province alone, you know, and so the industries have got to grow both in terms of size, more contractors being able to take on this challenge. But also for each contractor, their business models, the number of people they employ, the the size of jobs that they do has to grow while still maintaining the same level of success that they have with the current auto job. And so when you expand incentives, like rapidly expanding incentives, not every business is able to respond to that sustainably in a way that they can take and learn and then retain. If you're a and you've talked about this before, you know, every business every time you scale by three X is a whole new business. So if you're a one truck truck, a single guy or girl with an HVAC company, you're making, you know, $100,000 a year, $100,000 a year to go from like 100 to 300, let's say 302, like a million. Then now you have in sales, sorry, in sales. Then all of a sudden now you're employing two or three people. Then that needs a whole new approach to admin to HR to, you know, workplace safety policies and all of these things. Managing them. Then we go from one million in sales to three million in sales. Now you've got a couple of different trucks. You're expanding your service strategy. So each time you scale up, you become a new business. And so now when we're talking about expanding the industry, there are existential risks that come from expanding too quickly, not being able to maintain a workforce like that, not being able to sustain jobs of that size or magnitude when you come up with like these kind of new incentive programs. So you have this whiplash where you've suddenly expanded your, you hire new people because there's this NX of incentive and you've pivoted your business model to incorporate those incentives. And then now the incentive goes away. Now you're stuck with three trucks and 10 guys and you don't have the same jobs because, you know, the funding has dropped off. Now what? So to me, whatever program you propose, can you 1,000 exit without changing it? So what's tempting is you can use a program to very quickly ramp. But you're only looking at the first year or two and then you kill it. So you create that cliff and everybody falls off the cliff. I would much rather see a slower ramp that is sustainable all the way up. So it's geometric. So it may take three years to get the ramp to really start rolling. But once it starts rolling, if it is totally unstoppable, we win. I guess I think the old story of there was a wise man who went to a king and showed a chessboard. And so what was it? One grain of rice on the first square. Yeah, four. And then the king is like, OK, that's great. That sounds doable. But by the time you get to the 64th square, I think. Yeah, it was a bit more grain than there is on the planet. Yes, exactly. And that that's what we're looking for is that geometric growth. If we don't create that geometric growth, we will fail. Yeah. So this so contractors who are burned by this web lash with previous programs are somewhat skeptical about participating and having that kind of the intervention from policymakers in this domain. So they'd rather have a program that rather have ways in which they can scale their business because everyone wants to grow, but grow sustainably. And so so we can come back to that in the next episode when we talk about living on decarbonization on top of this. How do we scale business and grow an opportunity in there? Yes. So to summarize my third apocalypse, they're the business model web lash between the programs starting and ending and falling off the cliff and stuff makes it difficult for HVAC contractors to grow, not this grow their business, but also for new HVAC contractors to come in and occupy that space. And if we're not growing, then we're not reaching our goals, our climate energy costs, HVAC industry is not growing. We're not reaching our primary goals. So we're so in order to reach our climate and energy goals, I think a common purpose that we can all share is to help HVAC industry sustainably grow. Yes. And right now incentive programs because of the web lash makes it difficult for new business, new contractors to enter into the market and makes it difficult for contractors to sustainably expand that existing business market. So that's a that's a big existential risk. Yeah. And a key point there, just a hammer at home, whatever program you design, if you can't 1000 exit, you shouldn't do it because we need to 1000 X whatever we're doing. Makes sense. So the last one, this is a big one, is a cultural decline in workmanship. A cultural decline, both in valuing workmanship and demonstrating workmanship. And this is and this is not just within the HVAC industry, but broadly, culturally, you know, I'm noticing and it just even just in my decade of time in North America, we touched on parts of this earlier where, you know, we before skids in the university systems and that sort of thing, but the shop class not as not just as a career, but as a vocation and a hobby is dying. People don't spend enough time. Part of this is, you know, consumerism, you know, for stuff is cheaper and you know, it's some for a lot of time. And because people have busy lives and, you know, being they're uprooted from their family and not many people might have the means and the methods. And, you know, then they might not live close enough to their family members or peers who might be involved in some of these hobbies like woodcrafting and stuff like that. And so people in general, there's a decline in workmanship. There's a decline in maintenance. People don't want to anchor that stuff anymore, not at least as much as they used to. People don't want to upgrade and just oil their cars regularly anymore. And all of this, what this comes down to is that people don't want to take care of and nurture and maintain their HVAC systems at home anymore. And as a consequence of that, they just want to fix things when they break. And they want and maybe you talked about this earlier, 85 percent of HVAC replacements, furnace replacements happen under duress. And most HVAC installers make most of their money and get most of their jobs during the four peak months in a year. So the two coldest months of the year and the two warmest months of the year is when most systems break. And the reason most systems are deep and that itself is I mean, that's a structural problem. I mean, I get it. Stuff breaks when it has to do most work. And I understand that. But I think the challenge that I'm hearing in the industry that one I'm picking up on is those peak months. It's called the double humpback problem, right? It's the camel hump, so you have to have a camel problem. Those humps are getting bigger and bigger. So a vast majority of a contractor's jobs happen in those four months. And the percentage of the jobs that they do, those four months is getting bigger and bigger. So it's forcing. It's like it's just forcing the entire industry to capitalize on those like four months where they have like people working overtime like 16, 17 hour days, they're doing 10 jobs a day. And as a result, because of because and this is in part driven by the fact that workmanship is not valued and maintenance and tinkering around stuff is not valued by the homeowner. So they don't do maintenance well enough. And so stuff keeps breaking. And then because of the earlier problem we talked about because they don't value workmanship off the contractor. And because the commoditization you talked about where they can't tell the difference between a good contractor and a bad contractor, a good workman and a bad workmanship. And so this is and so this is driving the industry to a point where the guys and girls are doing 10, 12 jobs, working 10, 12 research calls, service calls on 17, 18 hour days for four months of the year and the rest of the time is mostly just downtime. And so this is driving like it's this is driving like a very frenetic and hectic pace in the industry that is leading to and we talked about like mental health and employee burnout. And this is leading to this is leading to what I believe is almost like a long modtization of HVAC industry where you have like HVAC companies that grow in size because they can do this sort of dispatch at scale. And it's leading to a lack just like one modtization of products is leading to lack of workmanship and a lack of a culture. It's like a circle that feeds onto itself. Yeah, so I'll take a step back. I think there's two sides to this. So one is we know how to make stuff really cheap in China. So if a product is $40 and it's a lot of work to fix, you should just buy another $40 product at the end of the day, that's what you should do. And also a lot of products are manufactured. So they are no longer easy to service. So they basically are throwaway products. So that's one piece of it. And that's globalization. Like that's free trade. That's what it leads to. We all do the things we're most efficient at and we drive costs down. Like that's how it works. We have an amazing amount of stuff these days that's cheap. I mean, this microphone, this is a really nice mic for a hundred bucks. My two podcast buddies, Brian Orr and Steven Lacey, they're both like, this is the one you want, which is pretty wild to hear. This happens to be an American made one, but we know how to make things cheap now. So that's one piece of it. So the things are just replaceable. So the other piece is when it comes to cars, they're just better. I mean, it used to be a 100,000 mile car was worn out, taken to the junkyard. My wife's car has 205,000 miles on it. It's got some dings and scratches. You know, it's not the nicest car in the world. But it runs. I'd go in and get in it right now and drive to California right now. Well, it needs an oil change. So I change your oil and then take off for California. But because things tend to last so long and our engineering has gotten better in so many ways, we don't learn how to work on stuff. And so I think that's a fundamental thing. So like I see so many of my white collar friends, they are terrified of the mechanical things in their life. And I find myself doing that too. I'm not extremely mechanical, but I'm pretty decent. I would say I'm marginally above average. And part of that is because I grew up just around mechanical stuff. I've rebuilt three engines, only one of them blew up. I still don't know what I did on that thing, but it was a $220,000 motors that survived. So I'm glad those survived. So my car was the one that died. But, you know, we generally are not teaching kids how to work on stuff anymore. So one thing that I hear pretty consistently from contractors is these 18-year-old kids don't know which end of the screwdriver to use. So we have to teach them basic mechanical skills before we can even begin to teach them the actual trade. And so this is a really steep climb. And we're asking this of them while like you said, they're going through the two hump camel. And while they're being looked down on. So it's kind of funny, like I'm terrified of this, but why did they want so much money to fix that? Like it brings out everybody's Karen. And it's like, damn it, like appreciate the knowledge or the phrase, like you're not paying me for the half an hour of time that it took me to fix this. You are paying me for all the time that it took me to learn how to do this in half an hour. And so that's a key thing or there's something I call blue collar art, which is a job that is done for the love of doing it well. My favorite example is like going to an electric panel and all the wires are just dead, perfect around it. Or you see a boiler job where all the pipes are just perfect and it looks like art. It's nobody even sees that thing, but it's done beautifully. And this is part of the tacit knowledge, right? And I mean, I'm a programmer in part. It's part of what I do is I write computer programs and I know what beautiful code looks like. Beautiful computer code looks like. I can't describe it. I can't write down what it is or how to write it. I don't know that I myself can always write beautiful code, but sometimes it's like it's part. So it's doing art at a production scale is what blue collar work is, right? Yeah, yeah. Because I mean, every, it's not like you're not just like taking a black box and putting it down. You have to, there's literal craftsmanship involved in doing this. And now you're expected to do this at a production scale. How many artists can produce art, beautiful art at a production scale? Do you think Bob Ross can go do 10? I mean, maybe Bob Ross could actually do 10 paintings. You know, 70, 80, 80, 80, 80, 80. There's enough sable trees. Yeah, sable trees. I'm depressed now because I'm doing so many paintings. Yeah. So we're asking craftsmen and women to do more and more in less and less time. And then those peaks are getting bigger. And so naturally what happens, I mean, it's a vicious cycle that feeds onto itself is that the workmanship in the industry is not incentivized. And also speaking more broadly, we talked about how workmanship is not valid and culturally, there's also structural problems like right to repair. You don't have the right to repair a lot of, you got your own car and some of the vehicles now anymore on your iPads and stuff. You don't have the right to repair and thinker. And so structurally you're barred from working and fixing stuff that you own. You pay with your own money. And also there's regulations around what you can fix and not fix. And some of it is valid. I think maybe some of it is a bit much. But, and so when you've got these structural barriers against you fixing stuff culturally, regulation, poison and structurally, then it leads to this problem where the hubs of the do-hub capital are getting peakier and peakier. Now what happens when you layer decarbonization on top of that? That's something we can talk about perhaps in the next episode. Thank you for listening to the Boundary Spanners podcast. In this episode, we learned about the four horsemen of the HVAC ellipse. These are massive selection pressures and existential threats that are looming large on the horizon for the HVAC industry in US and Canada. So the four horsemen of the HVAC ellipse are number one, a massive skills shortage in the HVAC industry where many companies struggle with recruiting, retaining and training a generation of talent that can lead the industry into meeting the challenges of today and tomorrow. This happens in part because trades are undervalued as a career choice for many families in a society where disdain for the undereducated remains perhaps as the last acceptable prejudice. Number two is commoditization of HVAC where HVAC is sold only on price and not on value or other distinguishing attributes. When the only thing left to differentiate between one contractor from another or one HVAC system from another is just price, margins in the industry shrink rapidly. This sits up a race to the bottom where everyone including the consumer ends up losing. Number three is business model whiplash from participating in government or utility programs with funding that ramps up quickly and then immediately and precipitously drops off. Nate calls this the bell curb cliff. While funding programs like this can help with technical training or upskilling some contractors, the whiplash from participating in this sort of start and stop funding programs makes it difficult for HVAC contractors to scale their company and grow their business model in a sustainable and sustained way over a long period of time. Lastly but also crucially is the cultural decline of craftsmanship, tinkering, maintenance and upkeep. Very few households in US and Canada invest in regular maintenance and upkeep of their heating and cooling systems. This leads to what the HVAC industry calls the double humpback camel problem where the HVAC industry ends up making most of its revenue and doing most of its service calls during the two warmest and the two coldest months of the year. And this is when most systems happen to break down as a consequence of a lack of regular maintenance. And what's been happening in the recent years is that the peaks of this double humpback camel are only getting much, much steeper. This ends up setting up a frenetic pace for the industry leading to a decline in workmanship on the side of HVAC contractors and an undervaluing of workmanship by homeowners which again feeds back into the other horsemen of the HVAC ellipse like the commoditization or the wall monetization of the HVAC industry. Taken together, these four horsemen of the HVAC ellipse pose a massive existential threat to the future of the HVAC industry. And since all roads to residential decarbonization go through HVAC contractors, it is perhaps in the shared interests of policy makers and the HVAC industry to find ways of grappling with these four horsemen of the apocalypse. As a policy maker, my head is already churning with a whole bunch of ideas, but for now I will leave you with this one big question. What happens when you layer on decarbonization on top of an industry that's already grappling with the existential threat of the four horsemen of the HVAC ellipse? We will be asking and answering questions like these in the next and subsequent episodes of the Boundary Spanners podcast. Thanks for listening.