253. Carbon vs Electrons: The Great Schism? - Nov26

0:07 With Laurent Seguelin from London and Gerard Reid from Berlin, this is Redefining Energy. Today on Redefining Energy, we're going to talk about carbon, Laurent.

0:18 Yeah, and the financial impact of oil reserves on the carbon budget.

0:23 I'm looking forward to the conversation about carbon, Laurent, because if I really be honest, I don't use the word carbon anymore. And the reason I don't want to use it is because it's not in fashion, but it's actually more than that. I just feel that it's become politicize that word. And when something gets politicized, then it's very difficult to bring two sides of the political stream together.

0:45 And I try my best to be always in the middle.

0:48 Yeah, it's kind of crazy because there's a lot of conversation about carbon and then it stops. When it comes to the real thing, which are bi-level cubic meter of gas or megawatt hour, It's like it's two different types of people. So you have this clique of people talking about carbon, carbon, carbon, and then you've got a real world.

1:08 And somebody is trying to bridge those two worlds, and that's our guest.

1:12 Yeah, you're right, Laurent. And that's why we bought Marc Campanel from Carbon Tracker. And obviously he's been in this area for, I think, probably 15 years. I think he really set that up. So I'm really interested just to hear what's going on in the world of carbon. And also I'm really interested in how he communicates these days?

1:31 And has he changed the way he communicates, the language he uses, all that type of stuff?

1:35 Yeah, because Mark started his career as an investment banker, so he was a kind of colleague. And then when he found Carbon Tracker, he morphed into a financial green think tank, you know, looking at the interaction between climate change, energy transition, and the capital markets, and fossil fuel investments.

1:55 Let's see how his thinking has evolved over time.

1:59 Well, let's bring him on the show. Marc, looking forward to this conversation. Thanks for coming to the show.

2:04 Thank you. I'm delighted to be joining you today. So Marc, you've been at the end of Carbon Tracker, Think Tank, Financial, which is something we really like around carbon, oil, and energy in general. What was the idea at the beginning and what is it right now?

2:21 I spent 20 years in the investment management industry. And in the early noughties, I noticed a lot of coal and oil and gas companies coming onto the market, listing through.

2:31 An initial public offering.

2:33 And it struck me that I just wonder how many of those companies would be able to extract and develop their reserves, given that there was the beginnings of a clean energy revolution and we were setting climate targets and fossil fuels as a central problem. What we didn't know is whether the companies like Exxon and Shell were 5% of the world's fossil fuel emissions problem, i.e. they produce 5% of the world's fossil fuels, or whether they were 100% of the problem in terms of, do they own enough reserves together as a group, you know, Exxon, Chevron, Glencore, all the others, that would take us beyond the planetary limits that we would know we need to keep to to stabilize the Earth's weather systems. And we didn't know that.

3:18 We had no idea, actually. There was a sense that they were a significant part of the problem. but no absolute sense of where they sat. So that was the idea behind the launch. And then, of course, what do you do about it? What did we find? We found that the top 200 publicly traded coal, oil and gas companies and the world stock markets, led by London, led by New York and Moscow and a few other centres, I'll have to re-add a few more, that those companies alone had enough carbon dioxide in their reserves, in their P1 reserves, their P2 reserves, to take the world way beyond two degrees of warming that was the big reveal nobody realized that that their reserves were enough to take us beyond two degrees and why is that important and

4:04 just to quickly say we use the framing of the carbon budget how much carbon dioxide will be released into the atmosphere before you go through 1.5 1.7 to three degrees and so on the IEA uses these different scenarios like steps and announced policy scenarios current policy scenarios so The carbon budget to well below two degrees when we launched the report back in 2011. Today, we're through 1.5 degrees, as you probably know. We're past 1.5. Two degrees, we've probably got a carbon budget depending on the probability of around 600 gigatons. We emit about 40 to 50 gigatons a year, which I think most people know. So the reserves today of The list of majors is about 1,000 gigatons.

4:47 So they already own enough reserves to take you beyond two degrees. And then governments have another 3,000 gigatons. So why do we call it a carbon bubble? We didn't say it was a financial bubble. It could be. We said it was a carbon bubble. There's 4,000 gigatons of carbon dioxide in the reserves of oil and gas and coal, chasing a carbon budget of around 600 gigatons. It's a game of musical chairs. And not everyone reserves gets to come to market. If we do, we're heading way into four, five, six degrees territory. We haven't seen that for millions and millions of years. The Earth is a very different place when you do that. So that's the constraint. And that's been the big question of my work the last 15 years.

5:31 So Mark, let's go back to the present today. And I'd love to hear your views really on the state of carbon worldwide. And related to that really is, Are you positive, negative, neutral when you look at the future?

5:45 I'm positive that we have a technological answer to the world's challenges. We know for power and for transport with renewables, particularly the big developments in battery systems and storage, we have the technological answers. Where I'm pessimistic is we've run out of time. Where we are today in 2026, I'd love it to be 2001 and that we had 25 years to accelerate the energy transition to deploy the technologies that will allow us to avoid 1.5. But we've rather blown it. Global emissions are still at 40, 45 gigatons annually.

6:22 And this carbon budget is running down. We're running out of time. And people think that once you've disrupted the Earth's weather systems, which have stabilized over the last 20,000 years, that somehow after five years, you can just die yourself back in You're back to where you were before. Unfortunately, a lot of the science thinks that once you go past tipping points, you're really kind of done for. We're going to make decisions in the next 10 years that have consequences for a thousand years.

6:50 We have those scientific predictions and of course they're getting better. Okay, great. I mean, there's a lot of statements and we have activists and a lot of very motivated people, but it doesn't seem to move the needle. And what really freaked me out the past three, four years are the heat waves and the melting of glaciers. Because melting of glaciers, if you look at the Himalayas, if you look at the Alps, if you look at Canada, a lot of energy systems used to rely on hydro. It was like a biblical certainty that hydro would always be there. And now they start looking at Lake Powell or they start looking at BC Hydro. In India, they need to restart some coal plants because there's not enough hydro. And I'm

7:33 not even talking about the cooling of nuclear plants. For me, these are the first huge economic impacts of climate change. People start thinking differently.

7:44 Yeah, and the El Nino, which will reach its peak in the sort of beginning of next year, is the one we're all looking out for as yet another indicator. There's going to be a tremendous shock to the system that may change how people think. The optimism is that even though we have a regime in the largest, most powerful country in the world economically that is pro-fossil fuels and opposed to clean technology rollout, that nonetheless, there's still a renewable energy revolution happening at scale in that country.

8:18 And the rollout of clean technologies around the world is happening. I mean, the simple figures, there's about a $ 2 trillion a year investment in clean technologies at about a trillion for fossil fuels. so double the amount is going into renewables, is we need to get it to about 5 trillion a year, 6 trillion a year. In terms of the global economy, that's just a fraction of the size of the global GDP. So it is, in theory, doable if there is the political will. And even where there's political opposition, countries have a very good way of nonetheless going ahead with the deployment. I think a lot of this is down to China. I think China's technological leap to clean technologies has been a great benefit to the rest of

9:01 the world. And they are just radicalizing and revolutionizing everything across electrification of final energy demand. But the rest of the world has these other challenges. We've got deeply entrenched systems industrial systems that are using vast amounts of heat, vast amounts of power, and we're going to have to do something pretty significant there. Starting off with rebuilding a grid, a grid to carry electricity, and then converting final energy demand, electrifying it to clean it. All of these are the challenges.

9:36 I'm optimistic about the technological solutions, but I'm a little bit pessimistic about timing. Marc, I think it's a bit the whole world, because the political will, it doesn't come from the scientific report. The political will, it comes when the fuel is at 2 euros per liter or 6 dollars per gallon. The economic pressures are much more important.

10:00 And now, of course, we have energy security. And I can tell you that energy security, fear, fear is a much stronger accelerator of trends. Fear and greed. So greed is what you see with.

10:13 The AI technology. Development in the U.S. and fear, it's what's happening, Russia, Ukraine, the Middle East, and so on. I mean, I used to be a green or aligned with the green. And they always advocated for a carbon tax. But I need to tell to my friends, I don't know if they're friends or former friends, we have a carbon tax now. And, you know, with the price of oil, the equivalent of the high price of oil is a carbon tax of $ 100 per ton of CO2. As primary energy, and if you could use full energy, it's $ 250 per ton of CO2. But the problem is who's collecting the carbon tax? It's Putin. It's Trump. It's the Ayatollahs. And what they do with that money, they just spend it on misery and warfare. So the whole carbon tax, for me,

11:06 the ship has sailed. What is extremely hopeful and where I align with you is the technology. And especially the low-hanging fruit is electrification of transport. Because half of the oil produced in the world goes to transport. And the rest, chemicals, marine, so on. Now, my theory, and we'll debate it, is that, okay, people say we do 100 million barrels of oil per day and we need to go to zero. But we don't need to go to zero anymore. If we manage even to remove 10%, which is this 10 million barrel surplus, of course we don't have now because of the war and the Strait of Hormuz, but the moment we have 10 million barrel oil surplus, the price of oil will collapse.

11:54 Collapse to the point where the capex is going to disappear. And that creates a movement where oil is going to disappear. Because every producer now not only will not make a voluntary reduction, they'll continue to fight and they will sell oil at 50, at 30, at 20, they'll continue. That's my view. Maybe you have another one.

12:16 No, no, I think it's exactly what we've been saying for some time now. I mean, I'm just looking at Barclays Bank producing a paper for their investors, for their clients, just a few weeks back, which is forecasting 108, 110 million barrels of oil demand a day, oil demand going up. And it contrasted very much with the IEA's electrification report that sees oil demand coming down to 85 million barrels of oil a day. That's quite a big spread between the two. So you've got one part of banking and investment world being greatly, hugely optimistic for growing energy demand for oil. I share your view, actually. I think that we're going to see a lot of demand destruction and only very small changes in demand lead to very significant

13:04 drops in price. During COVID, as you probably remember, the world was using, what, 101 million barrels a day, and it dropped by 5%. It went down to 95 million barrels a day. But prices didn't drop by 5%. They dropped by 80%. And you remember that time when oil prices, with just that tiny change, relatively tiny change, dropped down to $ 10, $ 20 a barrel, and there was a period when, of course, prices were negative. I agree, and the biggest problem that the oil and gas faces from an investor point of view is it needs, new projects typically need high prices to make a break even price and a return for their shareholders. And if prices drop below, your production costs could be $ 40 a barrel and your market

13:51 price could be $ 40 a barrel, which is another way of saying you're making no money whatsoever. I think investors realize this. And that's the reason why the last decade, with the exception of the last year, Oil and gas has underperformed the S & P 500 pretty consistently. And in terms of pricing, they're trading on single-digit multiples of earnings, when the rest of the market trading 10, 12, 14, 16 times. So the market doesn't believe that these companies, the oil companies, have a hugely optimistic future. Until you get a year like now with the Straits of Hormuz, that you see prices accelerate up above $ 100 a barrel.

14:33 And of course, if you're producing at 10, 20, and you're selling at 100, you're going to want to do that as long as you can. But the problem that the investors know about is that you don't want to be spending tens of billions in investing in projects that won't come on stream for another 10 years. And that's why we've seen a decline in capital investment by about 25% from its 2016 peak into new projects. But of course, it still leaves a lot of fossil fuels that people think they're going to produce that can't be produced if we have any chance to stabilize the climate.

15:06 Guys, I have a completely different view, isn't it? I think you guys are getting it completely wrong. And the reason is because the scenario you just put forward, we've had that for the last 15 years. So yeah, capex has fallen, et cetera, but we still have a surplus. And all these traders, they live for these brilliant shocks that we have. They make all the money now because they're producing at 30 and selling at 100. They love it.

15:28 It's brilliant. We need demand destruction. If the price of oil collapses, that means gasoline prices, diesel prices, caps. And I'm a customer. I go, I'll keep my diesel car. I'll do this. I'll do that. So it goes back to demand. And for me, it's all about technology. The good news is, and you said it, Mark, in terms of China, how they're electrifying their fleet. 80% of new cars have in September are all electric in our country. Why?

15:58 Because the technology is better. It's cheaper to produce. They're cheaper to run. They're more fun to drive.

16:04 It's a technology.

16:05 And that's what's going to drive the rest of the world. But it's economics. And the concern I'd have is that it all slowed down because the price of oil and the price of gas drops. And you go, ah, Jesus, I'm back to the old days of cheap energy. The Germans go, oh, yeah, this is great. I've got cheaper Russian gas again. and they go back to the old world.

16:25 So again, I'm just coming back to technology.

16:28 I'd be surprised if somebody having driven an electric vehicle would jump back to an internal combustion engine car.

16:34 That I agree on, that I agree on.

16:35 The reason for that is the economics. They're just so much cheaper to run. One of the other things that's happening, not at the scale we want to see it, but the household.

16:45 thinking.

16:46 Of itself as an energy generator instead of an energy consumer. The wire running two ways instead of one way. So you're putting solar on your roof, you know, battery in your basement. You've got your battery in your car and you're storing your energy. You bought it cheaply in the nighttime. You're storing it. You could be selling it into the grid when prices are peaking. Or you could be using it in your house. So you can now buy a panel for your garden if you've got a garden or a balcony. and you're generating electricity at sort of 5 cents a kilowatt hour, when the electricity companies are trying to sell it to you at 25 cents a kilowatt hour, all the energy companies can see is energy demand disappearing

17:24 from their customers essentially generating their own electricity. This is only ramping up and scaling up. And that's where your demand destruction will happen, not just in transport, which I think is going to be very significant in the coming years, but also in other parts of your household. The problem politicians have got, is they are trying to serve two different competing groups. They're trying to keep the ordinary retail customers' prices down, but they're trying to meet the energy demand needs of big industry, also to keep it cheap.

17:56 And we're trying to run our power system serving both groups. And it's quite possible that The ordinary retail customer really fed up with high prices, just withdraws from the traditional energy sector. And then governments are going to be left with industry sort of screaming for the investment in the grid system and power generation to generate low prices. I mean, the UK used to have very low energy prices. A decade ago, now some of the highest in Europe, if not the world. And that's why in the UK here, you know, people are moaning about high prices. We have to replace an old system with a new system. There comes a price at that, and people are feeling it in their pockets, unfortunately. But once that price has been paid,

18:35 my expectation is that prices will drop for everybody because, of course, you're not paying for your fuel. Sunlight and wind are free. So that whole system changes. The energy system gets smaller. We're not going to need to transport oil and gas from one side of the world to the other.

18:51 We share the vision. It's really a question of timing. And in the meantime, the oil industry, which is full of very brilliant people, they have put AI to work much faster than the utilities, I can tell you. And they have totally revolutionized the way they look for reserves. Now they put all their geological data for about 30 years in AI and they say, OK, we can drill there, we can drill there, which means we're not going to run out of oil. The spice must flow. They always find ways. You say, oh, almost, the oil goes to 200, 300, and it doesn't.

19:26 Why?

19:27 They found other routes. The development of Latin America, Africa, this industry is phenomenal. Don't count them as obsolete. They really always find ways. Probably, let's talk about carbon, because we're going to have the COP 31. I remember it was at COP 7. COP 7, they say, planet is safe. We signed all the agreements, planet is safe. Are you still going to COPs? Or what do you think of that process? Because it looks like a talking shop now.

19:56 It's a very important political process that brings countries together which have made international and binding commitments. So we have to recognize that. I do, however, think that it was flawed at conception. It's an emissions reduction treaty. Countries to commit to reduce their emissions. When actually, if the climate problem is primarily a fossil fuel problem, where you would have started 25, 30 years ago is you would have said, well, what's the carbon budget left available to stabilize to well below two degrees?

20:26 And I've given a figure. It's around 600 gigatons if you had a high probability. And you'd say, well, how many years have we got left current emissions? And how do we quickly replace the fossil fuels? So you would have come up with a fossil fuel supply agreement, and you would have ended up auctioning permits to produce, where countries to produce would have to buy a right to produce.

20:49 That would have accelerated the transition. It would have made people fix very hard on a timeline and a date. And so I've been a strong supporter of, and I'm on the steering group of the Fossil Fuel Treaty, the Fossil Fuel Non-Proliferation Treaty, fossilfueltreaty.org, which we're already 30, 40 countries are on a pathway to negotiate giving up production rights, cancelling permits, cancelling auctions. And there's a similar initiative called BOGA, the Beyond Oil and Gas Initiative, which is just focused on oil and gas. And together, many countries met in Santa Marta in Colombia. I was there. I was helping to lead the economics and finance track at the science convening that met before governments arrived. And then I was

21:33 part of the civil society finance delegation that went into the main roundtable discussion, where there were probably about a thousand delegates, 30, 40, 50 countries, including some very major producers like Nigeria and Brazil were represented. Now this process, the TAF, the transitioning away from fossil fuels, and what we now call in the Santa Marta process, a lot of opportunity to create a political consensus in between the cops, where we can talk about what we really need to do, which is to give a date and a timeline to phase out fossil fuels. But it will have to be a negotiation, and therefore it's tricky. And of course, you've got three or four countries, the US, Saudi Arabia, Russia, opposing constraints on production. But that's really where the political

22:22 battle lies. But also we've got technology behind us. It's about scaling the technology, deploying the cheaper, more efficient, more reliable technology. But we've got to get the politics working together at the same time. So I'm not going to disagree with you about your comments to the COP. I've been to many COPs and I've always wondered where's the real discussion happening. And it's only when I went to Santa Marta in Colombia that I really felt now we're at the serious discussion of what we really need to do.

22:50 And so I'm putting a lot of my personal effort and the team's effort into supporting that process.

22:56 Mark, do you really believe that we can actually get a phase-out agreement for fossil fuels?

23:00 Yes.

23:01 I think that with El Niño happening next year, I think the people will realize that we've got to stop messing about. We've got to get onto the serious process of phasing out fossil fuels and that countries, to have an equitable, just solution, we have to have a political process. So there's no way around it. It's inevitable. But actually, if you're a country and you produce a country and you see demand destruction happening, actually, you're probably going to want a negotiated phase out because time is not on the side of the fossil fuel industry because of the rise of the replacement technologies. When I started Carbon Tracker 15 years ago, I didn't foresee how quickly the technologies would scale and how cheap they would get. And that's

23:45 not going to reverse. There's no way fossil fuel production is going to compete Because it doesn't get cheaper. It gets more expensive because all the cheap stuff has been found.

23:54 Pretty much. Well, Mark, thank you so much for coming and this exchange of ideas. Yeah.

24:00 Delighted to help.

24:01 To be continued. But hopefully we are in the right direction. And hopefully we're going to go faster.

24:07 Let's say we do. Thank you for having me on your talk show.

24:11 Great pleasure. Great pleasure. Thanks, Mark.

24:14 Cheer hard. I've got mixed feelings because it sounded very much ESG old world.

24:21 I feel the same, Laurent. I wanted to ask the question, has he changed the way he's communicated in the language he uses? And actually, he hasn't. So I didn't need to answer the question. And I'm saying this because I think both of us have changed the language we use. We both realized that there are huge issues with climate change, huge issues with the planet. But we also realized that You need to be able to bring people together. And I don't care if you're left or right. To bring people together requires quite a neutral language. That's what I think.

24:55 And Mark, for me, was still using a lot of old world language when I'm hearing about fossil fuels are bad, fossil fuels are bad. You know, that's what I was hearing. Which again, what that does is you're not bringing people together, right? That's what you're causing a divide. And the reality is climate change, there is a divide at present.

25:13 It's all initiative to stop oil production and they bring a thousand people in Colombia. But the president was a leftist. And now they change and now you've got the president, he's a guy from the right. And he's wiping his ass with whatever protocol they've done. Whatever investment decision we do, they need to survive political cycles. Otherwise, you're going to feel great. And then the next administration comes because our investment cycles are long. The political cycles are shorter. So if you are doing some militant activist stuff, you're going to feel very good. You're going to feel great. And you're going to achieve nothing. Nothing. Nothing. The Greens are the useful idiots of the fossil fuel company because they

26:03 get so extreme. And then there's a political cycle. So, OK, there's money. We're going to do hydrogen and carbon capture. All this is destruction. Look, I really appreciate his work. OK, he goes after Exxon and Shell, the bad guys and so on. But the real issue is coal. But of course, coal is 100 percent public company in India and China.

26:24 So it does not even appear on his radar anymore. You know, it's like that drunken guy who at night has lost his key, so he's looking at the lamppost and says, did you lose your key here? I say, no, but at least there's light. Yeah, I'm very frustrated.

26:38 Yeah, and by the way, I don't disagree with anything you said there. I think the only thing I would say is, and I'm going to be positive at this point of view, is look, we know the way forward. The way forward is you electrify, and we have the solutions and the power to do that. Yeah, there's a few roadblocks along the way, But we're moving on that path.

26:59 There's no doubt if you look at the Global South, the Global South is going to build an energy system completely different than what we've done in the Western world. And the reason is because the alternatives are there. And I'm also positive in the sense that, look, I also realize the brilliance of humanity and the brilliance of AI coming our way, that we will find solutions to climate change.

27:24 Don't get me wrong. I'm not doubting it's going to be bumpy along the road because you said it earlier as well, which is we've got huge changes in rain levels, glaciers are melting, et cetera, et cetera. And so we have to deal with climate change. So we're going into this world of mitigating climate disaster. That's what we're doing.

27:44 And I don't know how you feel, but I'm not negative. I'm much more positive than I was because of the fact that there is the technology in there. And the other thing is China is showing us the way forward. And then India will follow China, two biggest countries in the world. They bring everything, everybody with them. Am I naive? No.

28:05 I look at the reports on a regular basis, so they produce a lot of very good data. But I think you're right. I think it's the communication angle which really needs a total revamp. If I look at all the think tanks we like and follow, like Ember, Ember is much more positive. Yeah, sure. Because at the end of the day, emissions are not going to be reduced by themselves. They're going to be reduced because we invest in clean. You know, we say, oh, we do $ 2 trillion, we need to do $ 5 trillion. Well, man, $ 2 trillion, first, it's enormous, but $ 2 trillion means there are guys inside credit committee, inside investment committee, in governments who are working on investments. It works like you think it's coming out

28:49 of thin air. But $ 2 trillion means people think that investment A or investment B or investment C, this is good, they create value, value for shareholders, value for the population, for the people. When you do an investment in transmission, you need to demonstrate that not only the investment is going to pay for itself, but it's also good for society.

29:13 That work is done. And sometimes when I hear, oh, they just do two trillion, they should do six. Man, they do two trillion.

29:21 Yeah, you're right.

29:22 So respect.

29:24 Respect, you're absolutely right. You're absolutely right.

29:28 Okay, anyway, it was good to have Mark. But again, we are a bit conflicted with the message.

29:34 Yeah, but anyway, there's a lot we agree on, Mark. so I wanted to thank him again for coming on the show.

29:40 Gerard, I'll talk to you next week.

29:43 Looking forward to it. Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple Podcasts, Spotify, or the platform of your choice.