Building a Net Zero Economy
[music] Great, so thank you all for being here with me and with the rest of the audience here. When we talk about net zero, I think there's a lot of different threads that we can pull out. Before we get into I guess the nitty-gritty of the discussion, I wanted to get all of your assessments on where you think we're at in terms of goal set and reach? Feisal, may be you start giving your perspective from Malaysia.
-Two things, goal set and then reach. I think goal setting-- The good is I think in the last coop and the year before that, there's actually been a lot of progress in terms of nations as well as corporates committing to some form of a net zero target. Goal setting, I think that's there. I think when you look at Malaysia as an entity, and not just Malaysia. I think you look at the Southeast Asia in general.
That's something where the mind is all focus on trying to achieve a net zero economy of some sort. Now, are we there yet or is there a lot more to do? That's where-- in a way, some people are setting goals, and we'll figure out how to get there, and that's where we are. I think some countries and some corporates are a bit more advanced in terms of being very care in identifying how much emissions are actually - that they have to cover. How much to reduce it, what requires some credits, some are more advanced. When you actually look at the whole problem that we have, it's not just large corporates but we're talking about SMEs, we're talking smaller players, and I think that's where there is still a lot more work. -Bob, I see you nodding your head there.
-A couple of things. I agree there's been tremendous progress relevant to the goals that have been set, there hasn't been what I'll call a reconciliation of the goals throughout the entire system. Governments have made some commitments over here, businesses have made commitments over here. In between the two, they aren't meeting, they're aren't meeting yet. How do you actually pull this altogether so it's a comprehensive goal setting that you understand how all of the different pieces of the pie come together. That's point number one.
While we've seen progress on the goal setting, what we haven't seen is the progress at any one of the levels. The reality is when we look at our own statistics in some of the surveys that we've done, the decarbonization that is needed has fallen behind, and we probably need to decarbonize 11 to 15 times faster than we have in the last decade to even achieve or have a sense of potential to achieve the reality of the goals in terms of the ultimate setback that we're looking at. The other piece I would say is as we talk about these, the other thing that's got to be supportive, and the previous speaker just spoke on it is the allocation of capital towards that, and we are getting the capital in the right places, in the right places, in the right ways, and are we getting the accountability right? We have a lot ways to go in terms of the progress versus the commitments and the goals that we've set as a society at large. -Ursula, the accountability part that Bob was just talking about, that still, there's not a unison, a unifying agreement about what that looks like considering you sit across various sectors.
What's your take on this accountability portion of reaching Net Zero? -Before I get into that, I just want to comment on two previous comments to say that I agree 100% If you think about 15 years ago, 10 years ago even, we couldn't have this conversation, this conversation that there was even a goal that we could shoot for was not universally agreed or understood. The fact that certain sides believe one thing and other side believes another thing was still really high in the rhetoric and in the conversation. We're making progress in moving that off the table, it's still there. We're moving that off the table and now we're getting to the real crux of the problem, which is what should the goals be, how do we invest to get there. One of the things that nobody mentioned is that we don't have all the technology in hand yet to get there. It's not like we can just get there tomorrow if somebody said, "You have to do X, Y, or Z," and had this much capital, the technologies don't, [?], and any decarbonization technology, and how do you manage hydrogen, how do you manage ammonia, is all of these things that are possibilities, we still have a lot of work to do from a technical standpoint.
I liked the fact that this is in discussion. I like the fact that there's some disagreement, because that means that we have to continue to be at the table to actually figure out a solution that serves the planet, but serves all the constituents well as well. -We also, just on that note, we heard the other day from Exxon, in particular, pushing back exactly on what you said, it's going to be too costly to manage a lot of these reporting structures, and also that they think it's unlikely that we'll reach Net Zero by 2050. What is your take on that? -There is credibility in the discussion about reporting structure, reporting requirements, driving the level of cost that's really not sustainable.
I separate that from technology that we have to invest in to decarbonize our supply chain and our world in the future, that's two separate things. We have to invest in the decarbonization steps. If you believe that the world is going to continue to boil, you have to do something, and I believe that. What we're getting a little bit caught up in is how precise, what do we count exactly, how precisely do we count it, who's responsible for counting it. Bob and I see each other a lot in board rooms, and I'm on one committee of a board and all I say is if they want me to sign on some of this decarbonization rhetoric, the same as I signed on my financials, it'll be very difficult for an audit committee to do that because the exactness to precision is not quite there yet. Reporting one thing, actually decarbonizing and supply chain another.
Spend the money to do that, and let's be really careful about this throwing millions and millions and millions of dollars behind trying to get down to the last nanometer of emission. -As you think about the discussion that Ursula just went through, let me expand on a little bit. Today, we've got examples of innovation, and technologies that are not scaled sufficiently to take advantage of the opportunity and actually have the impact. That's where more investment is needed, and as well, not necessarily just investment, but change is needed in the system. For example, when you think about some of the renewable energies or the energy sources that are out there, and the production and the supply chain that has to be altered, the access to minerals is a question mark.
How much time and energy it takes to get approval to mine for those minerals is equally as problematic, candidly, as the money and the investment necessary. You actually have to look at changes to the infrastructure, the bureaucracy, government policies and procedures as well as getting capital in the right place. Between these two things, then you might have a chance of getting scalability and faster innovation with scale to actually achieve the problems that we're trying to solve for. The second piece that you went to, though, Jennifer is, this accountability point.
Today, we've got a series of rules and recommendations for potential rules that are out there. You have the SEC in the US, you have the EU directive that's coming, you've got a global initiative coming out, what is called the International Standards Sustainability Standards Board. Each one of them is putting requirements on companies of all sizes to report on progress. Each one of them does it slightly differently, to Ursula's point. The problem we have right now is the intent of reporting was to demonstrate, are you making progress, and how can I compare you against somebody else? As an investor makes a decision? As a consumer makes a decision? As a former or future employee makes a decision? If we've got this convergence of multiple different ways, and lots of different data sources, you're going to confuse the audience yet again. That's the big problem now, is that you don't have this convergence, you've got actually a whole bunch of fracturing that's happening, which adds cost, complexity at a time where you don't need it, and that money could be better placed elsewhere to actually deal with some of the other things that we've been talking about.
-It allows naysayers, or people who are stepping behind, people who are not really that engaged, to have something to debate other than the facts, other than the actual problem. The problem is I think that we're on a path where we know we have to decarbonize, significantly decrease carbon. Decarbonization may not be the ultimate but to decarbonize. We're spending a lot of time debating what standard, these four different places we have to look-- -That doesn't seem to be going away anytime soon, though, as Bob mentioned. It's globally that there's different reporting standards.
How do we catch up and not fall too far behind given all of the different directives that we're hearing? -First of all, we have to recognize that the problem that we're dealing with, we've been using thermal energy for more than a century. We want to transition in 27 years. The problem here is huge. Just think about it. Talking about accounting, talking about how to measure it, talking about how to invest in it, et cetera. Quite honestly, sometimes we can't let perfection be the enemy of good.
-Absolutely. -Sometimes we just have to move on. When we look at transition, like it or not, it is mobilizing the capital in order that we actually put it into the right direction.
The source of energy, yes, you're talking about investing in solar, hydro, look at the minerals for batteries. Now that in my mind is something where it's relatively mature and capital is actually finding its way in order to invest that but you have huge other problems that we really need to talk about. We have coal fired plants, which continue.
Now, for Asia, if you look at the youngest coal fired plants and this is less than 20 years, 90% of that is in Asia. You have a population, Southeast Asia you've got 650 million people and of course, there's China, there's India. The median age in Southeast Asia is 28 years old, which means that the children of today will be alive in 2100. In 2100, that's 50 years after 2050.
If the world is boiling, if we don't do anything about it, our children will experience it. It's a huge problem. Let's get the capital flowing. How do we actually transition? I'm going to talk a bit about that if you don't mind. How do we actually retire coal fired plants? How do we actually encourage people in order to reduce the emission? It comes back to pricing. How do you price capital? We attract the capital into doing something that doesn't really make money.
It comes back to carbon pricing. Here is an example where you have carbon pricing, you have CCUS, where basically if you have the technology, then you can actually have carbon credits and people fund that. If you do a CCUS, you're actually reducing emissions but guess what? If you retire a coal fired plant early, isn't that reducing emissions? Can we get carbon credits for that? Then can we actually invest that into renewable? I think these are things that-- I know there are gold standards looking at this, but these are really mechanisms that we really need to focus on in order to mobilize capital for what we need. Let's not perfection be an enemy of good, let's get move on. -Bob, where else are we seeing opportunities to mobilize capital and invest? -Let me come back to Feisal's point for a second.
As you think about the transition that he described. The need, the urgency, and the scale. The problem is people are dealing with this in piecemeal. Let's step back and talk about energy transition more broadly. As you look about the demand that's going to be needed. How much energy ultimately society at large is going to require, and then again, the transformation of that in terms of its sources from brown, black, to green, and other aspects of it.
Let's go to some of the Nordic countries, for example. The Nordic countries have actually done a fantastic job of creating wind and solar opportunities. They've done a lousy job of actually transforming the grid to transform that energy and transport that energy into the right places and, oh, by the way, if we actually priced it through a carbon market mechanism, you would figure out a way to actually move that a heck of a lot faster and have the right infrastructure to bring that to where the need is greatest, and ultimately where people could potentially benefit from it.
That's why the whole system needs to be thought about in terms of the pieces of the cogs of the wheel that have to change and be integrated. Now, let me come back to capital reporting, and now incentives and behaviors. What we find is people are looking at this strategically.
You talked about the back end. That is just the back end which is the reporting. What we're missing is the incentives and the changed behaviors. How do we get behaviors in government to think about the whole system? How do we get changes in corporates to think about that? If you look at-- -Is that like the Inflation Reduction Act? -Beyond that. It's Inflation Reduction Act in the US and other aspects of what the EU is doing. It's even at the corporate level.
Let's just take a look at the corporate level. In the EU today, we just did a survey of about 100 companies, each one of them talk about strategically what they want to change. Each one of them is starting to report. Out of 100, one of them had implications to incentive compensation to the management team because they didn't met the one-year commitment. The one-year commitment around what the transition should be for that particular company, so you've got to look at the entire system of incentives, behaviors, and ultimately the capital allocation that comes from that. Actually, make it-- Who is it that needs to look at that? -What's that? Who is it that you think needs to look at that? [crosstalk] -This is where the challenge is. The challenge is it's not one person.
-Yes. -It would be great if it were one person. I could do it. If somebody wanted me. Bob and I. [chuckles]
The three of us could get in a room. Who do you think it starts with then? -It's going to take a coalition of the well meaning governments. Absolutely. NGOs that have to line up and help, corporates for sure.
We do need participation by citizens around the world because it impacts different citizens differently. Think about where that kind of stuff happens, the last time it happened, unfortunately we had a pandemic and we literally had to get together and we came together, not perfectly, but better than ever before. This kind of coalition, thinking about a problem that seems like it's a long way away, but you just said it.
People born in their 20s today are going to be alive 20 years after we hit 2050, 2030 for sure, many years after that. We have to fix this soon. Coming together in a cooperative way with all of the people that need to be represented, represented in a room, is going to be required. It's not easy to do and it's not normal to do.
-I mentioned the IRA because there has been a lot of talk about it from President Biden. Ursula, I want to get your take on whether you think-- I mean you mentioned that it does need to be a coalition, but is the framing of the IRA in the right way in the direction that globally that we should all be headed in? -IRA is not a global framing. It's a US framing. It's really important to understand that with a view to try to incorporate certain global impacts and needs.
I think that the start here is laudable and strong, but not enough. It will need more of this. We're already in this, in the IRA, arguing about the edges instead of literally digging deep party debates, all kinds of stuff.
It is literally about technology. It's about capital, it's about funding that technology and it gets down eventually to reporting. I think the IRA is a good start. It's a bold start.
-I will say the one thing that the IRA has done, if in fact it meets the intentions that it created, was not only to deal with the innovation and the scaling of that quickly, that should be beneficial from a climate perspective, but also beneficial from an economics perspective more broadly in terms of growth, GDP and employability. It actually went to changing consumer behavior. -It did. Big deal. -That's a really important piece whereas as you look at the EU, for example, and what they did on the financing side through the green bond deal and the green finances structure, it really didn't go after changing consumer behavior. That's Ursula's point here in terms of looking at the supply side as well as the demand side. -It's interesting on the consumer behavior piece, when I first started thinking about this many, many years ago, it was when I joined the board of ExxonMobil, I get my auditor sitting next to me, so I could be really careful there.
I started thinking about the fact that if you did everything right from a technology standpoint and presented consumers with the option, generally, they would make the right choice. If you incent them the right way, they follow the lead of great marketers. What was happening back then is we were not presenting them with the right set of choices. We made it very difficult, we're starting to see improvement here, for example, in the number of places that you can charge your electric vehicle. You can buy one, but if you had to wait hours and hours and hours and hours to get it charged, it's not an inceptive. Now we're starting to get the entire supply chain, the entire value chain, incorporated in such a way that we'll be able to get some speed up, I hope.
I was reading an article earlier today, I was telling this to Bob about the impact on private jets into the UK last year. It was actually a startling set of statistics. For this to change, for that behavior to change, there has to be something that drive that change in behavior, because it's just not going to happen naturally. Unfortunately, it's going to have to be something that drives it. Some legislation, some additional tax, some embarrassment, whatever it is that actually makes it valuable and viable for you to move away from that.
You said embarrassment. It's a great motivator. [laughter] This was one of the other motivations. -That's true.
I want to touch on the point that I think sometimes gets missed when we're talking about this discussion. It's the just part of it. The equity in the transition, especially for those communities that are relying on dirty fuel.
When it comes to policies, what more can we see from the government? Maybe you can speak from Malaysia's perspective, because there's a lot of jobs that are at stake, and potentially, that could be made with this transition. -That's right. I think you're right, because at the end of the day, when when we want to move as fast as possible, ultimately, it's about us, about the people of society as well. When we transition, we always have to be careful about the implications it would have on the people, whether it's suddenly you get an increase in cost of living, or you could have jobs being lost, because simply we have to retire plants early.
There's all these many aspects that have to take into account. I think in terms of policy setting, and this is the formulation they are looking at is you don't do one without considering the other. -Right, you can't. -It is a transition where you actually try to either retrain the program, have all these programs in place, so that the whole society moves together, it's more inclusive in nature. Now, one thing which is absolutely necessary in order to do this is public awareness. If you go to the rural areas of the villages, and suddenly cost of electricity gets higher and you know things-- what do they understand, what's this thing.
It becomes very, very difficult for them to really understand why people are moving simply because it doesn't really hit them. One way about this public awareness, and this is applicable to Malaysia, is to look at the implications of climate change. This year, and I've never experienced this, but this year the Ministry of Education had a temporary halt in outdoor activities in schools because of El Niño. The heat levels, the heat wave is coming, and I've seen people being affected by it. When you actually see this, and you see more floods happening, it's easier to comprehend. Then when you have that-- unfortunately, we're experiencing disasters in order to realize that we have to do this, but that helps where everyone, the whole of society, can come in and basically make that transition.
As far as policymaking is concerned, we have to move fast, but be inclusive in how we approach it. -There's one other thing that I do want to bring to the table relevant to government policy in dealing with this just transition. That is the issue of the reality that we may not get there.
The world is already heating up sufficiently that you have people at risk either because of water flooding, over excessive heat, droughts, you name it. The issue of mitigation, which we've talked about, actually comes back to the issue of are we adapting quick enough as well to the realities of what we're going to deal with? Adaptation. Today, when you look at the capital allocation, I'm going to argue with you there's not enough capital that's going to adaptation.
Most of it is going to mitigation. One of the things I will say is that you can't replace one with the other. It actually has to continue on the mitigation piece while ramping up on the adaptation piece, and to the point, how do we become more resilient? How do we think about the commercial opportunities, so there's now an ROI in the capital that could be there? How do you actually leverage the lessons learned as quickly as you possibly can, country to country, place to place, around the world? What you can't do if you think about those spots in the world where it's problematic for flooding or heat or otherwise, is walk away from them. If you're going to say, “I'm going to move my plant,” or “I'm going to move the schools,” then people are out of jobs, out of homes, and out of, cannily, their livelihood and we leave another aspect of society behind as well. Mitigation and adaptation is another angle to that just transition that we have to be talking about much more so, as we look ahead. -Ursula, I'll give you the last word here.
Are you optimistic about this? -More optimistic than I normally am. Most people who know me, know I'm not that optimistic, but I think in the last ten years, I've seen an acceleration on this topic that is amazing, across society, in cities all over the place, in business for sure, and in governments around the world. I think we have to speed up.
We cannot take 10 more years to just figure out how to report the damn thing or whatever. We can't do that, but we have to continue the conversation. Unfortunately, as you said, disasters are amazing kinds of eye-opener and awakening, right? The more they happen, the more we realize something has to be done, so I'm optimistic that we're heading in the right direction. I'm just really concerned about how much time we really have. -The politic is getting, too, in the weeds.
Well, we have to leave it there. Thank you all so much for joining me and thank you, everyone, for listening to this session. [music]