Conversation with Timothy Puko
“This is Climate. Tech Solutions”
Wednesday, Sept. 20 at 11:30 a.m. ET
“I can’t tell you that every renewables company will be on the winning side. They won’t…. Not every industry and every country will win either. So when you look at the transatlantic clean energy race, there’s a reason why von der Leyen, the European Commission president, is rightfully jumping up and down and saying, ‘wait, this US inflation reduction act is in fact disadvantaging European companies up to a point.’ But … Europe’s GDP in 2030 will be higher because of the US Inflation Reduction Act.” – Gernot Wagner
WaPo Live conversation with Timothy Puko and Reina Otsuka.
Info, podcast, full transcript:
MR. PUKO: Hello, and welcome to Washington Post Live. I’m Timothy Puko, The Post climate correspondent.
Today we’re going to be talking about the role of technology in addressing climate change. With us from the Columbia Business School, our guest, Gernot Wagner. He is a climate economist.
Gernot, welcome to Washington Post Live.
MR. WAGNER: Hi there.
MR. PUKO: Hi. Great to have you.
So I want to get started with just a little question about you and what you do. I feel like over the past five or ten years, we have seen so many new types of jobs develop in climate sustainability, the types of jobs that did not exist before, both in business and in academia. So could you just tell us a little bit about what a climate economist actually does and how your job is different from the conventional economists, as we may usually think of them?
MR. WAGNER: So, yeah, I guess one of those jobs was mine here at the business school. I guess–okay. Frankly, I’ve been a climate economist all my life. My wife makes me wear these glasses so I don’t get confused with students. But still, I’ve been at this for 20 years by now, and yeah, back then it was an oxymoron, right? You’re either, you care about the climate or you care about employment or know about interest rates and so on and so forth.
Nobody considers a climate economist an oxymoron these days, right? We know that the problem is misguided market forces, and what’s the solution? It’s guiding them in the right direction.
MR. PUKO: Well, let’s talk about some of those market forces. I used to do a little bit of markets coverage before I came to D.C., and I remember–I think it was only about five years ago–reading some investment bank analysis that they’re just–there wasn’t enough to invest in, that even for financial institutions that wanted to get ahead on climate change that we’re thinking about clean energy, there simply were not enough places, enough capacity to take the money that they wanted to invest. Now it seems like we have all types of new climate–especially tech, climate tech investments being talked about, announced all the time. What changed?
MR. WAGNER: Exactly, right? The clean energy race is on, and frankly, it was Washington, right, 14 or so months ago–13 months ago, August last year, right–14 months ago, instead of, climate policy dead again for a generation, what to do now, and then in many ways, as a surprise, we saw the U.S. Inflation Reduction Act. And the race is on. There are certainly plenty of investable, scalable projects out there.
We are literally talking trillions of dollars’ worth of investments pointing in the right direction, and frankly, what changed is, yeah, climate tech, climate policy, all pointing in the right direction. When solar PV is the cheapest form of electricity in history, right, that’s tech. It might be sort of, you know, boring old tech by now, as in, you know, it’s not the sexy new fusion technology. That’s always going to be 10 years out and has been forever. It’s solar panels, it’s heat pumps, it’s induction stoves, but yes, that too is climate tech. Of course, it is, and there is plenty of it out there.
MR. PUKO: I want to come back to some of that in a second, and we’ll talk about unicorns, but first, you said a magic phrase, the “Inflation Reduction Act.” I know that Post readers, people in the Post community are very savvy, but I always like to make sure, because there’s a lot of misunderstanding out there, that the Inflation Reduction Act, despite its name, is actually largely a climate bill. Whether you’re taking calculations from Congress or from bank analysts, anywhere from $250 billion to $1 trillion, is going to be provided directly or maybe unlocked in future tax credits from that bill that was passed a year ago.
And I want to ask you–you mentioned the U.S. government. You mentioned that giant bill, but there are other countries–I think all of Europe–doing similar plans. Could you give us a little guidance on that? Is the climate tech that we’re talking about and the money flowing into it just in the U.S., or is this happening all over the world?
MR. WAGNER: So it’s happening all over the world, right? That’s the global clean energy race, and frankly, it was jumpstarted by the U.S. by this Inflation Reduction Act.
I would say that it is absolutely appropriately named, right? So not in the sense that Biden signs it into law and inflation goes down the next day. Of course not, but frankly, when most of current inflation, inflation last year, inflation this year still, is due to high fossil fuel prices, surprisingly high fossil fuel prices, right, in part due to Putin’s invasion of Ukraine, right? When he blows a fuse and invades Ukraine on February 24th, right, prices spike that day. Well, how do you attack–tackle fossil-flation? You get off fossil fuel.
Now that’s a middle term–long-term play, right, not happening overnight. That’s years, decade in the making, but yes, absolutely. The right economic answer to fossil-flation is the Inflation Reduction Act, something like the Inflation Reduction Act, getting off fossil fuels, and that is a global race.
MR. PUKO: So if I could test you a little bit on the economist part of climate economist just a little more, getting into–getting in further into this like inflation idea and the tie-in between inflation and where we’re getting our energy from, I think on its face, the logic of what you’re saying makes a lot of sense. You get more solar wind, any type of energy production capacity out there, and theoretically, that should boost supply. If you keep boosting supply, that should reduce prices and reduce inflation. But it takes years, as you alluded to, in some cases, decades to build a lot of the infrastructure that we need, and we’re still–right now, even as the dynamics change, still dependent on fossil fuels, as you say, in the short term. So when–so that type of inflation–or I guess I should say deflationary effect from all this clean energy investment, how long do you think it’s going to take? Two, five years, ten years for that to really have deflationary effect?
MR. WAGNER: So the short answer is yes, right? This is not overnight. It does take years. I would say we do see plenty of positive effects already, right? So first of all, there’s the investment angle, right? Literally hundreds of billions of dollars invested in the right kind of projects. That creates jobs. It also, of course, puts some upward pressure on prices itself, right? So there is fossil-flation on the one hand. There’s, on the other hand, what you might call sort of climate-flation, right, sort of the clean tech version. If there’s a lot of demand for solar panels, heat pumps, in the short run, their prices will go up as a result. But that sets exactly the right kind of price signals, right? We want more of that, and frankly, we are pitting a technology, renewable energy, against a commodity–oil, coal, gas–commodity prices are always going to fluctuate. Technologies can only get better, cheaper over time, right? So I like the chances here on the clean tech side.
MR. PUKO: Well, I’ll have you put your crystal ball away just for a little bit, and I want to go back to what you were talking about before about how in some ways it’s like bread and butter, solar and wind technology. That’s still the core of climate tech, and we’re going to diverge a little bit from there. But I want to talk about some of the things that you’ve said in the past about unicorns and the over-exaggeration, the hyperbole, the froth, maybe–I’ll let you characterize it–that sometimes develops around these things. And start-ups, when we talk about unicorns, we’re talking about start-ups with valuations above $1 billion. So I’m curious if all of that excitement in some way has the potential of ending up like hurting consumers or hurting the fight to slow climate change. What is it about these emerging climate technologies that you want the average American to consider?
MR. WAGNER: I think the key bit is that this goes back to the International Energy Agency calling solar power, rightfully, the cheapest form of electricity in history. It is. I mean, you know, there’s a couple of bits here, right? You’ve got to put the solar panel on the south side of the roof if you live on the Northern hemisphere, of course. But you’re not going back here, right? Solar power isn’t going to get more expensive.
So, yes, it is the bread and butter here of climate tech, if you will–or look at induction stoves.
MR. PUKO: You’re not–I’m sorry.
MR. WAGNER: Yeah.
MR. PUKO: Can I jump in for a second here? Just because I got to challenge you a little bit on this or at least play devil’s advocate. I know you’re saying that solar tech is not going to get more expensive, but, you know, we are dealing with a completely new interest rate environment right now that has tested all sorts of energy technologies. You really don’t think there’s a chance that–especially as we’re like having trouble finding the land for solar, that combined with interest rates, other issues could not lead to increases in solar tech prices again down the line?
MR. WAGNER: Okay. So happy to point you to my Washington Post op-ed that talks about the three main challenges to overcome here. Absolutely, right? You know, this is not, you know, just get out of the way and everything will run swimmingly. Of course, right?
Okay. NIMBYism, right? You don’t want anything built near–anyone, for that matter, right? BANANA, I believe is the acronym here, right? It is crazy, of course, right? And we’ve got to overcome some of those challenges, yes. But the economics is absolutely pointing in the right direction.
MR. PUKO: Let’s go back to some of the market dynamics here and the point that we were discussing about unicorns and these start-ups. Correct me if I’m wrong, but I think a lot of that fervor was fed by interest in an investment vehicle often referred to as SPACs. It’s an acronym for Special Purpose Acquisition Companies. There was just such an appetite for this type of business structure a few years ago in the market, and that fed a lot of money, the way it was being moved around, creation of new companies, merging of companies. Was that just a bubble that’s popped, and what does that mean now for growth and adoption of new climate tech?
MR. WAGNER: Okay. Look, right? So there will always be winners and losers, right? I can’t tell you that every renewables company will be on the winning side. They won’t. Yes, there will be bubbles. Of course, there will be. For the matter, not every industry in every country will win either, right? So when you look at sort of the transatlantic clean energy race, there’s a reason why von der Leyen, the European Commission president, is rightfully jumping up and down and saying, “Wait. This U.S. Inflation Reduction Act is, in fact, disadvantaging European companies up to a point,” but–this is actually a close colleague here of mine at Columbia Business School, Conor Walsh, who just wrote a paper, coauthored a paper called “Clean Growth” where, frankly, Europe’s GDP in 2030 will be higher because of the U.S. Inflation Reduction Act. And by the way, vice versa, right, in the sense of Europe, when Europe, as Europe is investing in clean energy, in learning by doing and climbing the learning curves, sliding down the cost curve, U.S. companies, global companies, global GDP will go up as a result.
So no, not–not everyone will be a winner, right? Some businesses will win; some businesses will fail, of course. But overall, again, we are certainly racing in the right direction here, and frankly, the one winner, the ultimate winner is clear, right? That’s the planet. That’s us actually doing something about climate change.
MR. PUKO: Let’s talk about one of the winners on the tech side or at least potential winners to tie in what we’re discussing about the Inflation Reduction Act and U.S. policy. There has been a real emphasis by the Biden administration and Congress that EVs get constant bipartisan support and seem to be popular with average consumers too. Americans love to drive.
And so I want to bring up an article that you wrote that touched on this. I’m going to–I’m going to quote you here. You say, quote, “It is right to cheer the rapidly growing electric vehicle market, but it is similarly important to consider the vast potential not only of transportation alternatives like e-bikes or old-fashioned bicycles but also a better city.” In Washington, the political dynamics are not really–the vibes aren’t going in that direction right now, quite frankly, and I’m just wondering if you think that our lawmakers have given up on bicycles and mass transit. Like how grave is it that that situation, that that dynamic has emerged? And what could make that type of new technology, again, old–even old technology, old bikes, but also new bikes like electric bikes more effective, maybe adopted more frequently, cities styled differently, as you say, to fight against climate change?
MR. WAGNER: So sure, right? So, I mean, frankly, let me start out by pointing you to the American Enterprise Institute and their Walkable Neighborhoods program, right? So no, this is not–or frankly, it shouldn’t be a “Oh, the, you know, the left wants us to bike and live in small walkable places and turn us all into vegans,” and so on and so forth.
Now, full disclosure, you are talking to a vegetarian non-driver. I’ve never had a driver’s license, never needed one, certainly don’t need that one now living in New York City, and by the way, more than half of adult New Yorkers agree, right? Don’t have a driver’s license. Eighty percent of us in Manhattan don’t drive.
Okay. Now, does that work everywhere? No, of course not, right? Massive lock-in effects of building massive suburbs, exurbs, and so on and so forth, but, well, actually, the ex-head of Tesla AI tweeted about a year or so ago–I think actually this was April of last year when he was still in the employ of Tesla. Basically, the guy responsible, chiefly responsible for the ultimate techno fix, right, turning EVs into AVs, autonomous vehicles. He tweeted, essentially saying I always forget how lovely European cities are, much more walkable, and so on and so forth. And, of course, right? The appropriate response is to basically say, okay, well, walk up, right? Turns out there is a better way to organize ourselves than the sprawling suburbs of Silicon Valley.
Now, no, am I going to win elections in Silicon Valley or nationwide with this sort of statement? No, of course not, right? So, yes, there is a balance to be struck between, frankly, picking people where–picking of people where they are, right, and essentially saying, “Look, you’re currently driving. You’re dependent on a car. Here is the electric version which, yes, is fundamentally a better technology.” It drives five times as far on the same amount of energy as the internal combustion engine or even the internal combustion engine using e-fuels, right? So great. Here is a techno fix, and yes, let’s cheer it. The Ford 150 Lightning is a fantastic vehicle, much, much better than the Ford 150, right? Most popular car in the U.S. Now, does that mean that every New Yorker should pick up driving suddenly because there’s this thing called an electric vehicle? Of course not, right? You still live a longer, healthier life if you bike to work than if you drive to work, right? So that’s not going to go away.
And, yes, of course, at the end of the day, it’s a balance here, a balance between the techno fix and the broader changes that, for example, New York City introducing congestion pricing next year. We don’t know the level yet. We know it’s coming. Well, that alone isn’t going to fix climate either, but yes, that too is a step in the right direction.
MR. PUKO: Gernot, I’ve got you on good old-fashioned urban planning, bicycles, and then bread-and-butter new tech, solar, wind, EVs. Sounds like a pretty comprehensive prescription for addressing climate change.
Thank you so much for joining us here on Washington Post Live.
MR. WAGNER: Thanks, Tim.