Ep110: Adair Turner "Lord of the Net Zero Transition"

Michael Liebreich Adair, thank you so much for joining us here today.

Adair Turner Well, thank you, looking forward to it.

ML Let's do the following. Let's start if I might by asking you to do a thumbnail sort of biography of who you are, what you do. The audience is very mixed. Some you will know very well, they'll know you, and then there'll be other people who, bless them, will not know. So, why don't we start there?

AT Well, look, after going to Cambridge, my first major job was at McKinsey, the management consultants. So, I did that for about ten years in the UK. And then I actually built McKinsey's practice in Eastern Europe and Russia, between 1992 and 1995, and the collapse of the Soviet system and the early emergence of a market economy. I then became Director General of the Confederation of British Industry from 1995 to 2000. And it was actually in that time that I first got interested in the issue of climate change. I think up until then, a lot of British business and business around the world, its reaction to climate change has been, nothing to do with us, don't bother us with regulation, etcetera, etcetera, don't impose costs on us. And I thought we had to take it seriously. So, I got really interested in it, and I tried to shift our policy into a more progressive, forward-looking basis. Thereafter, in the early 2000s, I ended up with a portfolio career, I was on a number of boards, I was on the board of Standard Chartered bank, I was for a time, vice-chairman of Merrill Lynch Europe, an Investment Bank. But I also did a series of bits of work for the government: I was chair of the Low Pay commission; I was chair of the Pensions Commission; and in 2008, I became simultaneously the chair of the Climate Change Committee, the UK committee which is charged with working out what is the UK route to zero emissions by 2050. But also - and frankly, the second one took up most of my time - I was appointed chairman of the UK Financial Services Authority five days after the collapse of Lehman Brothers. So, I had to spend a lot of the rest of the following four years working out, with other regulators and central banks around the world, how were we going to put the financial system back together again. After that, I returned to a portfolio career with some business activities and some public policy activities, but the thing that takes up the vast majority of my time now is as chair of a thing called the Energy Transitions Commission, which is a global coalition of now about 50 companies and NGOs from across the world, working out, what are the technologies, what are the investments that get us to a net zero economy? And what are the public policies and individual, financial sector, and corporate actions, which can take us in that direction?

ML Right, now - that was fabulous, because you've touched on so many different things. But I'm going to sort of summarize if you like. There's three things that I think are important about what you've just said. One is, the Climate Change Committee, Energy Transitions Commission; you are the kind of technocrat overlord of the net zero transition. But also, the second thing is finance; being a regulator, having these very important roles. And the third thing is McKinsey, which is, of course, where you and I met.

AT We did indeed. We met there, 30 years ago, at least, I think.

ML It would be 30 years ago. And in fact, I sort of interact with McKinsey a little bit. During the New Energy Finance days, I think we were sort of rather competitive because, you know, I was taking food off their table by providing information services. But more recently, I sort of cross swords a little bit with some of their views. You know, they seem to be enormously bullish on things like hydrogen, to the point that I don't think it's credible. So, I cross swords with them a little bit there.

AT Well, we can come back to that. And I think I probably agree. It's probably true that there is McKinsey material in itself, and then there is McKinsey material - like all consulting companies - which is done for a particular organization. The Hydrogen Council, we may come back to it, I think are still over-bullish on the role of hydrogen, even in passenger road transport. I very simply believe that hydrogen is going to play an enormous role, enormous, in the overall path to net zero and I think almost no one is going to ever drive a passenger hydrogen car. And I think that some work, I think, has not caught up with that reality.

ML I think it goes beyond that to be honest, and we can sort of take hydrogen you know... I was going to come back to it, but let's do it now. I think also you do have things like, McKinsey saying that there's going to be hundreds of thousands of hydrogen trucks by 2035 in Europe. Well, the trucks don't exist, the fueling doesn't exist, the logic doesn't exist. And yet they're saying that, at the behest of the Hydrogen Council.

AT I think what's interesting about trucking, is that my own and the ETC's opinion on it has sort of shifted over the last five years as to, where is the dividing line between hydrogen and electricity. And each time we look at it, the segments that can be purely electrified, sort of tend to go up, both in distance and in tonnage. And I think most of us are now in a position where we think that most of the ten tonne trucks that deliver something round a city environment traveling 150 kilometers, 200 kilometers a day, those are going to be electric, and hydrogen is retreating to, will we need hydrogen for the very long distance, very heavy trucks, 40 tonne trucks on the roads? However, even at that distance, we may be able to do electric. I was with Volvo Trucks - they're a member of the ETC - in Gothenburg in March this year, and they unleashed me driving a 40 tonne, 16 metre electric truck round their test track. And I didn't think that was going to be a possibility five years ago. So, I think the debating issue on trucking is, how big is that very heavy truck, very long-distance space? Which I think still will be hydrogen, but less than I thought it used to be. But hydrogen we think will be very big in the production of steel, the production of either ammonia or methanol for long-distance shipping, the production of sustainable aviation fuels, radiation. Even in all those sectors of the economy added up, it could be 500 to 800 million tonnes a year, versus the 100 million tonnes produced at the moment.

ML So rather than go down the hydrogen rabbit hole, because I agree - I mean, broadly, I think we agree - I actually think that the numbers will be lower than the 500 to 800; I'm more in the kind of, you know, couple of 100, 200 to 300. But rather than go down there, what I'd like to do... you've got this prolific output as the Energy Transitions Commission. And what I want to do is go through some of those, not report by report, because there's simply been too much over the last, you know, how many years? Five, six years?

AT Seven years. Seven years this December.

ML Can we do this? Let's do topic by topic. So, I'll name a topic, you tell us what the Energy Transition Commission thought, and then I might come back and say, no, I'm not sure about that, or I'll say, yeah, we can move on immediately. So, let's start with, what overall would the power system, the electrical system, look like in the future. Let's take a sort of 2040... or something sufficiently far out that nobody can immediately and instantly prove us wrong!

AT  The figures that I have in my mind are all the way to 2050. Far, far bigger than it is at the moment. 27,000 terawatt hours of electricity produced a day in the world, somewhere between 70,000 and 90,000 used directly as electricity by mid-century, with another potential 20,000 produced, used to produce hydrogen, though that depends on whether we're at the 500 million level or the 300 million level. And just crucially in this, with increases even in rich developed countries, using two, maybe two and a half times as much as we do at moment. UK, probably on 700 terawatt hours a year versus 300 today. Countries like India: five times as much electricity as they used today. Places like Sub-Saharan Africa, 15 times as much as they use today. So, first of all, a much bigger system as we electrify as much as the economy as possible. And we see the direct use of electricity going from 20% of final energy demand today, to 60% or higher by 2050.

ML What I was looking for was the simple numbers; it's going to be three times as big in the developed world, or two and a half times, it's going to be five times as big and potentially much more in some of the lesser developed countries today. And then you said 60% of... [final energy demand].

AT Or possibly even 65. An interesting thing: every time the IEA, the International Energy Agency, always has lower figures than us. But every report they produce, they go up a bit and they get closer to us. So, I'm waiting for them to come up to our level at some stage.

ML So that process I've been engaged in for nearly 20 years. Every single time they publish, there's more wind, more solar, more electric vehicles, more electrification and so on. So, I feel very comfortable that they are sort of...

AT They have moved enormously. Their net zero report last year was a huge step forward in envisaging what the system would have to look like if we're serious about net zero.

ML And of course, the current situation, with the Ukraine invasion by Russia, has already led them to say, we're going to see this enormous acceleration. And we're seeing things like double the amounts of solar panels.

AT Well, I think what is intriguing is, solar is going through a huge explosion, it's going through an enormous explosion in China; they probably put about 100 gigawatts in this year. What is also happening is enormous amounts of solar panel capacity are being built in China and elsewhere across the world. And although there has been an increase in the polysilicon price, one of the key inputs over the last year, we think there's so much capacity going to be built that we're going to see the prices come thumping down. And so solar, certainly, I think is on a big roll and the IEA, you're quite right, set that out in their latest report of just how much that could accelerate.

ML And it's an extraordinary figure; the polysilicon capacity by 2025 is going to be nearly a terawatt of annual ability to make solar silicon. And of course, there's lots of other moving parts, but it could get very competitive,

AT No, I think... I wouldn't like to be a man sitting on top of a business owning polysilicon capacity, because there's a hell of a lot being built. But to go back on the power system... I mean, that is how much there will be. What do we think about how it will be produced? We think that anywhere between 70% and in some parts of the world, 90%, could be produced by variable renewables: by wind, solar, onshore and offshore wind. The question is how far you can push that? Some countries will find it easy to go to 100% renewables if they've got a lot of dispatchable plants, such as hydro. Many may get very high figures, because we'll increasingly deploy batteries, or use hydrogen. But when I look at commitments like Spain saying there'll be a 82% renewables by 2030; Australia saying they'll be about 80%, 82%, this is absolutely believable. It does vary around the world. In the UK, we have this fantastic offshore wind resource, Spain and Australia, onshore wind, and sunshine. Go to Malaysia, you've got low wind speeds, and you've got rather hazy cloud. So, you can't simply turn up everywhere in the world and say, it's always going to be 70%, 80%, 85%, wind and solar. But wind and solar will be fine by far the biggest bit of the system.

ML Again, it's one of these things that's very gratifying for me, because I was saying these things back in 2006, 2007, and people thought that I had gone completely crazy. It was crazy talk back then. But it's very gratifying to be in this position now, just being able to kind of nod along. Now, let's move on, and we're going to do this rapid fire, we probably need to speed up a bit. Transport: now, we've already talked about trucks and cars. Do you want to talk about cars?

AT I think cars will go electric.

ML All of them? Do you think there'll be niches?

AT There might be a very small niche of somebody who wants, you know, literally who's driving 600 kilometres every day. But I think within five or ten years, we are going to have plenty of cars on the road, electric cars on the road, which have a range of, say 600 kilometres. And once the range is 600 kilometers, for the vast majority of people, the vast majority of the time, it's not just that that will be sufficient; they won't even need to go to a motorway fast charging point. Certainly, if they've got their own charging off-street, and if they're going to a location which has charging as well... I think the vast majority of people are going to go electric for passenger cars, I just can't see the space still existing for a significant role for hydrogen.

ML And then of course, if the vast majority have gone electric, then even the ones that would like to have...

AT Just like VHS versus Betamax, the standardization, the economies of scale, where is the charging infrastructure; that drives you in that direction.

ML I agree entirely. The only use case that I've got, I've got two use cases that give me pause for thought. One is my own, because every so often I drive to the Alps, that's 1000 kilometres. But there I sort of think well, a 600-kilometre car with one nice stop for lunch or dinner somewhere nice...

AT You've got to stop for 40 minutes, an hour. There will be a fast enough charger to do it in that period of time.

ML I sincerely hope, having been chair of the safety panel at Transport for London, anybody driving 600 kilometres is stopping at some point.

AT It's interesting when you look at the trucking side. On trucking, Heavy-Duty trucks are not allowed in Europe to go faster than 96 kilometres per hour and they have to stop for a break every three and a half hours. And so, you can just run the numbers from that. If you can provide a range which - is I'm trying to get my fingers right - it's about 350 kilometres, and then give it another 100 for margin - you've got something where at that time they are legally required, and of course through the black boxes they are absolutely monitored to make sure that they're hitting that. So, for those, they literally do not have the legal option of saying I want to drive eight hours without stopping.

ML It's a bit longer than three and a half hours. I thought it was four and a half.

AT I'll need to check. It's a 45-minute break. But the crucial point is, the truck manufacturers know what they're aiming for. They're aiming for the maximum speed x the maximum hours; as long as they can hit that range, they have got the range that the trucks are legally allowed to use.

ML I talked about this with somebody you probably, Patrick Graichen, who's the Secretary of State for the Economy and Climate Action in Germany. I asked him whether he was sort of spooling up to do hydrogen for trucks in Germany, and he was absolutely unequivocal on this show saying, it's going to be electric, high-voltage charging from the mid and high-voltage grid, and of course, the challenge is the chargers. But we've got sort of 28 years to build them between now and....

AT I don't exclude the fact that there may be some hydrogen trucks. I mean, you have some truck manufacturers like Scania, who have said they're going all electric. Volvo, I know, are still looking at both the hydrogen route and the electric route. And by the way, there may be more hydrogen in the US, because the US does have just longer distances, there's that great big bit of middle America where the distances are really huge. So, I think there will be a variance. Also, do not exclude for trucks, battery swap, do not exclude it, and do not exclude overhead wires, to pick up electricity over them on the motorway.

ML One of the last episodes was David Cebon, the Cambridge engineering professor who's the big champion of overhead catenary charging. I think that's exactly right. And there's also just biofuels. I mean, as we stop using biofuels, you know, E10, E-this, E-that, in normal transportation, that frees up as well. Let's move on, let's talk about aviation. How do we do... I'm going to assume that, you know, we think that the world is a better place and a more cohesive place for having aviation. But how do we do that in a net zero?

AT Can I just say, personally, I try to keep my flying to a limit. I always go by train. My rule is by train north of the Alps, or the Pyrenees. I'll fly to Rome, if I have to on business, but I will never fly to Germany, etc., that's by train. And I think it's important to be responsible, as long as every flight is burning up an existing fossil fuel. But I think our aim should be to be able to have flight, to be able to have the benefits for young people to fly around the world, the business links that come with that, and I think the answer is, at short distance it goes electric or hydrogen or electric-hydrogen hybrid. How big is short? Well, some people think it could be 1000 kilometres, 1500 kilometres, we'll see how that plays out. I think at the moment, nobody assumes that we're going to be able to get across the Atlantic with a battery-fired plane. And so, we go for a drop-in fuel, we go for sustainable aviation fuel, which is the precise chemical equivalent of existing, conventional jet fuel. Indeed, it could be better, it could have fewer particulates, and therefore produce less of the aerosol and other disadvantages, the secondary effects of air flight. We can make those sustainable aviation fuels either from hydrogen plus direct air capture co2, synthetic jet fuel, or we can use a bio resource. Both are possible. It will add to the cost of aviation. But if the fuel is 50% more expensive, but by 2050, the planes are 30% more fuel efficient, that still means that the real ticket prices will be the same in 2050 as they are today. And I think that's the overall vision of what will probably occur here.

ML Very good. So I was just at the Whittle Lab, just outside Cambridge, because I've been very disparaging about hydrogen, the longer distance planes, and they explained to me, they showed me, and I'm actually going to have to fess up and say, I was actually overly negative. The issue though is not the plane, it's actually getting the hydrogen to the airport. Liquid hydrogen, you can't pipe it, you either stick it in thousands and thousands of road tankers - which I don't think we want to do - or you liquefy it in Gatwick, Heathrow, Luton, etc. And that is gigawatts of power requirement, which we have no way of getting to airports.

AT Well, the answer is we haven't looked at that in detail, but we are certainly... the crucial thing in the ETC is, at any one time we have a point of view of what is most likely, but we are like you Michael continually being approached by people who say, well, have you thought about this, have you thought about that? And I think it's very important that we all say open-minded to that. So, we are open-minded on this hydrogen issue. As we both know, and many of the audience will know as well, the challenge with hydrogen is not the weight - it's incredibly light per energy - it just takes up a lot of space. It has what's called a low volumetric density, but a high gravimetric density. And the challenge, therefore is what do the fuel tanks look like, how do you do the pressurization? But if somebody can crack that? Wonderful, that would be very good indeed.

ML There is another challenge, particularly with liquid hydrogen, the huge energy requirement to liquefy it. And it's an absolute bear to work with. So, the funny thing is, I see all this stuff about how we're going to do this, that and the other, and then you talk to safety engineers, and they just roll their eyes; they absolutely don't see it. So, you talked about Volvo and Daimler. They've got electrified trucks; they're also working apparently on liquid hydrogen trucks. But I mean, you wouldn't even be able to park those in a workshop [inaudible]...

AT Well, the truth is Michael, if we'd never invented the internal combustion engine, and somebody said, I've got this idea for a car, and I'm going to put in some high explosive, and I'm going to set off a set of controlled explosions which turn a piston, somebody would probably say, you're completely mad; no health and safety regulator will ever allow that on the road. So, you know, we do sometimes over a period of time solve what look like intractable problems.

ML We do, but I think [inaudible]...

AT The problem with hydrogen is the molecule is very, very small, it gets through whatever crack there is.

ML The one I love is, if somebody came along, if we were all charging our cars, you know, at home, on the driveway, from lampposts around the corner, and somebody said, you know how you have to stop for 20 minutes every 250 miles? I've got a thing that will avoid that, but you'll have to go every week to something called a petrol station. And you'd kick them out. You'd say no.

AT That's absolutely right. I mean, I now have an electric car, and I haven't been to a petrol station for, you know, this year. I don't miss it.

ML Not many people enjoy recreationally going to petrol stations. Let's move on, let's do shipping. How do we do shipping?

AT Well look, shipping, again, like aviation, there's a short distance bit, which is pure electrics. Norway is saying all its cross-Fjord ferries are going to be electric. I think we'll probably see electric cross-channel, across the Irish Sea, across the Baltic. We may also see electric for cruise ships moving around the Mediterranean. But the vast majority of bulk movements, dry container shipping and tankers - though the tankers may eventually be [moving] hydrogen. But that long distance stuff, we think there are two competing technologies: one is methanol, one is ammonia. Our own belief so far is that ammonia will win in the long term, because the great benefit of ammonia is you don't have to lay your hand on a zero carbon [inaudible] atom to put into it. Ammonia, on the other hand does have some challenges from the health and safety point of view of handling. It is highly toxic, it can be handled, but it will require a big challenge there. But if you look at MERSK, biggest container shipping company in the world, they have said they will be net zero by 2050. They are already placing some orders for methanol-burning ships. And that is the way we think we will go. Again, this is one where the fuel burn will be more expensive. But the crucial thing to realize with shipping is even if freight rates were double the current level, the impact of that on a pair of jeans made in Bangladesh and bought in London is so trivial, you wouldn't even notice it. Indeed, freight rates in the world oscillate up and down 50%, 100% through the economic cycle in any case. So, shipping will be more expensive, but shipping is such a fundamentally low cost and efficient way to move stuff around the world that it won't matter if it's a bit more expensive.

ML It won't matter as long as everybody bears that cost, and where it falls over as if half the shippers are flagged in countries that say, this is what you've got to do, and the other half aren't. Because for the shipping, for the freight-forwarders and the ship owners, it's a big number.

AT That's absolutely right. What we have across all of these sectors of the economy is costs, which once you run them through to the impact on the consumer are trivial, but at a particular step in the value chain.... The procurement officer who buys this one, not that one, is going to get fired for buying too expensively. So, we have to have an international coordination. The good news, of course, on aviation and shipping uniquely is that we have global regulators with rulemaking power. We have the ICAO, International Civil Aviation Organization, and we have the International Maritime Organization. They have regulated for instance, high sulfur diesel out of the system. They have the ability to put in place regulations that say no port is allowed to keep putting dirty old heavy fuel oil into a ship even if someone wants it. So there, we need to get as much international coordination as possible, but in a sense, in those two sectors, we do have vehicles to agree mechanisms to a degree there, which are not so available in steel in chemicals, etc.

ML Right, we'll get onto those... Just on shipping, the only thing where I think there might be a sort of cigarette paper of potential disagreement is around whether there will be hydrogen in ships. I actually think the correct number will be none of it. And that's because it is so bulky, it is just multiples of the cost - just because of physics. It's multiples of the costs of LNG shipping. And so...

AT Oh, I see, to transport it? Our tendency has been to believe that... we are uncertain about hydrogen in LNG ships in a liquid form; we think it's far more likely that if you are a place which knows how to produce lots of really cheap green hydrogen, you should be looking at what you turn it into before you export it. If you're in Egypt, you might build a pipeline up to Europe; if you're in Namibia, you probably want to say, I'm going to turn it into ammonia, and then I'm going to turn it into fertilizer before I export it, or I'm going to turn it into green steel before I export it, rather than trying to export it as green hydrogen in itself.

ML So, there we are absolutely aligned. And of course, the interesting question is that, spelled out a different way, it's called deindustrialization. Because what it means is, all of this stuff about you know... it's wonderful to make hydrogen steel in Sweden, and thyssenkrupp in Germany and... All of that surely is going to be highly uncompetitive?

AT With one variant: what becomes uncompetitive is the ironmaking. You may still ship the ironmaking, what's called the sponge-iron; the steelmaking, which is the turning it into the speciality steels, may still be done close to the end industrial customer. And if you look at the employment breakdown, I was told by one of the companies you just mentioned, two thirds of the employment is in the steel making, rather than the iron making. So yes, it does have some challenges. I mean, why was ironmaking done in the Ruhr Valley? Because the coking coal was there, right? What is the logical place for a lot of ironmaking in future? It is where green hydrogen will be cheapest. So yes, we probably will see some shifts, but if the majority of the employment is in the downstream speciality steelmaking, it's not as dramatic as you might think.

ML I think that's right, in many cases, although I would note that places like Brazil have got phenomenally good steelmaking. I would bet on them in the steel industry.

AT They may do that. But the point is there isn't, you know... Once you've got the iron, there isn't a huge, there isn't an automatic advantage in doing the steelmaking. The steelmaking can be done, either at the beginning or the end of the transport thing.

ML Just a question about how you work as the Energy Transition Commission. The implication for this would be, somebody needs to be talking to Japan, Germany, Austria, Sweden, UK, and saying, look, don't try and fight this. By the way, carbon border adjustment, which is always postulated as the way that we keep the steel industry won't help, because it's going to be clean steel, clean iron...

AT I'm in favour of border carbon adjustments, I think it's absolutely right. If it is the case that it is cheaper to produce green steel, or more likely green iron, in another location, then the border carbon adjustment doesn't change that equation. And look, there will be, over time, some shifts in the logical location of where stuff is made, because the current location of where it's made reflects the current use of raw materials. If we change the raw materials, we have a different pattern...

ML [inaudible] very strongly in aluminium - or for the American listeners or watchers, it'd be aluminum - but that has moved to completely different countries from where it was originally being made. Let's move on, we've got a number of other ones. We sort of actually... Is there anything else we need to say on steel?

AT I think it's interesting, because but you know, it's interesting to see how rapidly you change your mind. So, six years ago, if you'd asked me - and we hadn't really looked at it in detail yet, but from what I then knew - what did I think would happen with steel, I thought we'd continue to use coking coal and we'd add carbon capture and storage. Six years on from that, we are producing forecasts that say that cooking coal demand will and should fall by 80% or more by 2050, because there are a set of better technologies. Initially, a gas, methane-based DRI, but that can be a transmission path to hydrogen-based DRI, or things called, gas smelt-based DRI processes with CCS. There are a variety of technologies, but the one that looks like it's dead is the blast furnace with carbon capture and storage.

ML So, I have to ask you then - not just as an expert on this, but also as a former financial regulator - what would you say... We've just had this mine allegedly, we're going to give the planning, approval has been given allegedly, we're going to build a coking coal mine in Cumbria. What would you say to the investors in that potential mine?

AT Well, I would say to the existing investors, try to sell it to another idiot before they've realized that this is an absurd asset; I would say to every banker, do not lend money to this absurd asset. I think building a coking coal mine at this period of time, as we face what is a revolution going on in the possibilities of steelmaking is not only, you know, a really bad thing for the UK to be doing; just the signaling of that to the rest of the world, when at Glasgow last year, we were very proud of getting an end of COP26 commitment that the world was going to agree to phase down coal. Now saying, we'll have a new coal mine just puts a coach and horses through our international credibility. But separate from that, this is a really stupid business decision. This is a dying technology.

ML Let's come back to the role of finance, because I would love to chase... is that something that... Let's come back to whether the financial regulators should get involved, but let's do a few more industries. We've sort of talked about aluminium; I assume goes to wherever the electricity is cheapest?

AT At one level aluminium is straightforward; a lot of it decarbonizes immediately once you have zero carbon electricity, so it migrates to that. You have to do stuff with the anodes, the graphite anodes, which at the moment put out some co2, and you have to do some stuff at the bauxite refining into alumina. But aluminium, look, aluminium is not all that hard, okay.

ML So much harder: cement.

AT Cement, look, is the one where at the moment, I do assume you need carbon capture and storage because the very chemical process of starting with calcium carbonate, CaCO3, and calcinating it to produce CaO, calcium oxide, produces CO2; write it down and look at the formula. And so there, you do assume that there will be CCS. Now, what you may well do, is stop using a fossil fuel as the energy source, as a heat source, and the good news is if you stop using the fossil fuel as the heat source, the CO2 stream that you then produce is so pure, that the cost of capturing it becomes much lower. There are, however, there are some new mineral sources, there are people playing around with manganese-based, silicate-based chemistries. And I think they may come along as well. But at the moment, predominant thought is we will continue - at least on a significant amount, not universally significant amount - to use limestone, calcium carbonate, decarbonize, take the fossil fuels out of the heat source and capture what will then be a very pure CO2 stream. It will add to cost. Again, once you get to what does that do to the cost of a building to the end consumer - very little. What does it cost to do at all the intermediate stages, which are involved in the construction business? Yes, it can be significant.

ML So, the interesting thing... the alternative chemistries for cement, they've been knocking around, I've been seeing them for 20 years, and none of them - I don't know quite why - they haven't happened yet.

AT I mean what they say is that this is a very conservative industry, which knows how to use calcium carbonate, and when you come along with something else, they say oh, that's very complicated, I'd have to change my machinery. That's the story. And I met one of these guys at COP27, with a new chemistry, you know, very impressive. So, let's see, I think something could break through this.

ML I need to maybe do a bit of a more of a deep dive because, it is a conservative industry, but then you meet these brilliant innovators, people at LaFarge and [inaudible]. But the heat source, very quickly, the heat source has to be hydrogen, or can it be a kind of electricity?

AT It can be electric. I mean electric... fascinating new technology. I was talking to some guys from Finland, a company called Coolbrook the other day, they say they can produce 1400-degree heat from a process of accelerating the motion of a gas, and then suddenly slowing it down; that produces a work-to-heat transfer, in thermodynamic terms. I was also told by the head of a major, one of the world's biggest cement companies, that concentrated solar, in places where you are in, you know, sunny countries, actually using concentrated solar to produce heat straight into your cement kiln. So, a set of technologies emerging there, which would be an alternative to either fossil fuels or biofuels. I mean, I know another cement producer in India who's talking about just using bamboo. Bamboo is a rapidly growing biofuel, and you can burn that

ML I would strongly hope they don't do that. I think we'll need the bio for aviation and lots of other things. But it's a fascinating one - we had Silvia Madeddu, Dr Silvia Madeddu, on the show a few episodes ago talking about industrial heat, because there's this trope that, oh, well, for high temperatures, you have to use a gas, it has to therefore be hydrogen and so on. And she absolutely demolished that. And the company you talked about, 1400 degrees heat, which you need for the clinker for cement, there are plenty of electrical ways to get to 1400 degrees, and then you have to be able to buffer it, if it's intermittent.

AT I think this is an area where, frankly, where at the ETC we haven't looked at this enough. We're going to do just a little side piece of work from our main thrust of work next year, just to understand everything that is going on with the electrification of both medium temperature heat, the sort of 300, 400 degrees which is used in the food processing industry, but also these above 1000 degree heats, what are the technologies? How fast can they develop?

ML Now let's stay on... Well, we sort of touched on bamboo, but let's go to bio resources. And you know, you've got a certain amount of bio, you've got primary crops, you've got waste from agriculture, you've got waste from forestry, you've got potentially growing algae in the desert type of things, you might be able to create a lot more, or bio intensification, a very good friend talks about that in Italy. And he believes that we can just produce a lot more bio out of our system, if that was what we were optimizing for, rather than just food crops or whatever. What should we use it all for?

AT Well, we've been cautious at the ETC, we produced a report on the future of bioenergy. People produce estimates of how much you can develop sustainably without having adverse effects on food supply, or biodiversity, or the climate itself. And our figure was about 50 exajoules; IEA have produced figures as high as 100 exajoules. There used to be much bigger figures in the literature. I think most people have come down to those sorts of levels. If it's 50 exajoules, we think you've got to have a very strong budgeting approach, you've got to have a hierarchy. Do not use them for road-transport biofuels, because we have better alternatives. Yes, for aviation, though, probably, we eventually move aviation away from bio to synthetic. Use it as much as possible as a material itself. I mean, build things out of wood, because then you're doing really a form of carbon capture and storage, at least for as long as the house stays in place. And use them as a bio feedstock for the chemical industry. So, very strong sense of, budget the use and design policy to focus it on where there aren't the alternatives. Now, we had an alternative scenario that does go to 100 exajoules, where does that come from? If, but only if, you could get a big shift in diet - towards plant diets, or synthetic meat, or by some other mechanism - dramatically reduce the impact of red meat consumption on the requirement for land, then, but only then, can we see a possibility of freeing up land, which could be used for much bigger bioenergy requirements. Because let's remember that we do have this fundamental problem in the use of land, that the thing which is incredibly intensive in use of it, is the production of red meat, because you have a photosynthetic process to produce vegetable protein, which is about 1% efficient. And then we put it through a process called a cow, to turn vegetable protein into meat protein, which is only 4% efficient. So, by the end, you end up having to use a hell of a lot of land to produce a relatively small amount of the energy we consume.

ML So now the social media commentary is going to go absolutely crazy because you... I think you've used the word vegan?

AT No, I didn't use it, I used plant-based. I didn't use vegan. I'm not vegan, and I'm not completely without read meat. I can just tell you; we have a pescatarian diet, lots and lots of vegetables, some fish, some shellfish, and red meat about four times a month - once a week - but almost entirely duck and venison, not beef or lamb.

ML So, one of the challenges on the bio front, is the unit of competition with other... it's about land use. But there is also standards and regulation. And of course, the stories about where the wood actually comes from for Drax, about the use of whole trees versus actual... because I'm very good with, you know, with bio-based resources becoming energy, getting into the energy system, all the plastics and petrochemicals and so on. But only if it's well-regulated.

AT Well, the crucial thing is regulation. And what Drax would argue, and you know, I don't know what has happened in these latest debates, but certainly, the majority of their stuff was coming from forests in the southern-eastern states of the US, the Carolinas, Georgia, where you can prove that the total forest cover is actually growing rather than shrinking, and where people are utilizing the sawdust. Now, the crucial thing is, is that true? Is the regulation really making sure that we are only using those sorts of things?

ML The latest news stories, which I have not verified, are that actually if you look at the areas where they're taking the wood from, there has not been that increase in forest cover.

AT And I haven't looked at that either, Michael.

ML There's a fascinating, I'm reading Oliver Rackham, The History of the Countryside. And this trope that we ran out of trees, which was why we had to use coal, it turns out not to be true at all, because as we used trees in industry, and so on, actually, what we did was grew more of them, right, which is exactly what you'd expect, right? We moved to coal because it was just cheaper and easier.

AT And at that stage, we probably then said, well, let's turn the trees over to sheep.

ML Anybody who's interested in the bio resources, the bio interaction with energy, there's a fantastic episode with Jennifer Holmgren, at LanzaTech, LanzaJet, that was episode 100, and everybody should listen to that. Okay, cracking on. We have got, you've touched on using wood in buildings. Anything else you want to say about buildings? How much work have you done at the commission on buildings?

AT Well, we're going to do a lot of work on buildings next year. Buildings obviously there are issues about how you build the buildings; do you build them with wood? Do you build them with concrete? Do you build with steel? What is the inputs? Now, a lot of it is about decarbonizing the steel and the cement and the concrete inputs, and we've talked about that, but then of course, there is the in-use. And here there is the in-use energy efficiency, there is a big difference between a lot of the developing world, where it's all about new build; it's about making sure that the urbanization wave, which is still to come - largely complete in China, but still largely to come in India and almost entirely to come in Africa - how do we make sure that that is done in a low carbon fashion? Of course, the crucial thing there, is heat insulation in the sense of cool insulation; it's how to end up not building things in a crazy way so that you spend a huge amount of electricity on the air conditioning. Here, of course, in the UK, the most crucial issue is the insulation of buildings. I mean, I've been looking at my own carbon footprint, and my carbon footprint from my electric car is now trivial, my carbon footprint for the electricity you I use is relatively small, and I still have gas central heating in my house in London, and that is a huge proportion of my total carbon footprint. And the issue of how do we both improve the insulation of the UK and other housing stocks, and decarbonize the heat source, where I do think it will primarily be heat pumps. Though, in some cases, it may be just resistive electric heating. For some people that may be the most efficient way to go. But I would say in the UK, when I think about what I'm confident will happen, and what I'm not yet confident: the UK will decarbonize its electricity. So, we have a target, a fully decarbonized electricity system, just about, by 2035. It's going to happen, you know, because we just build enough offshore wind, it will happen. When I look at how do we get 20 million people each to spend - what is it? - £10,000, £15,000, whatever it is per household? How do we make sure we've got enough plumbers and electricians, enough small and medium enterprises which are certified, which know what they're doing, trusted to do this job? This to me is the big unanswered question in UK policy. Probably worse in the UK than a lot of other countries. When you go to Scandinavia, they just... they've always had better insulated houses. Places like Germany, to be blunt, more of their housing stock is new, it's postwar because we bombed quite a lot of it. But we have this old Victorian, Edwardian housing stock. We're sitting in one here, which I know you've insulated to the hilt, but you've done it, with the financial resources to do it and the determination to do it, but it is a big challenge for a lot of people.

ML It is, and I've been talking about the skills as a bottleneck for this transition for, I think, probably about a decade and certainly right now that question of how UK housing gets decarbonized is absolute trench warfare, it's a cage-fight. And it's a cage-fight between people promoting hydrogen, and I think entirely cynically, because they're claiming, they say, change the change the gas, keep the boiler. And the amount of things you have to change to go to hydrogen, and then the cost of the hydrogen, it's just so so cynical.

AT I mean with the hydrogen, depending on how you make your hydrogen, you're pushing against a big inefficiency. If you take electricity, and turn it into hydrogen, you're going to lose 30% or so of the energy. Maybe you'll get 20%, you may get down to 20%, maybe even 15% with the best electrolyzers. Suppose it's 20%. But you're going to use 20% at that stage, so you're going to get an 80% efficient solution. Whereas you put it through a heat pump, you can get a 300% efficient solution most of the year. So, the heat pumps, where heat pumps are possible, they are naturally, you know...

ML Even those numbers, next time you look at this, you'll find that my Twitter timeline is full of people who are getting a coefficient of performance - so the efficiency uplift for a heat pump - at these temperatures - as we record, we're about freezing and it's gone below freezing at night - they're getting coefficients of performance of 3, 3.2 in these conditions, and 4, 4.5, 5 throughout the year.

ML And that's compared to... If you electrolyze, you lose the 20%, but then you start to compress, you have to move it around, and the boiler is not 100% efficient.

AT The boiler, I know, there'll be the boiler inefficiency.... You'll lose another, what, 30% on the boiler?

ML Well, 15% in the boiler, and then [inaudible]. Overall, it'll be 50%. So, the way I put it is, hydrogen divides, and heat pumps multiply.

AT I think what's very interesting about the heat pumps.... One of the things we find useful in the technologies is to work out, how far are we away from the technological, the thermodynamic technological frontier? So, with electrolyzers, we have electrolyzers, using 50 kilowatt hours of electricity to produce a kilogram of hydrogen. You're never going to go below 39, right, because you're just hitting some absolute limits there. So, nice to squeeze it down to 45, or lower, but it's not [inaudible]. Heat pumps are very interesting. If you run the fundamental thermodynamics, which are to do with the relationship with the temperature of the source, and the temperature of the sink, defined in absolute temperatures, how many degrees above -273 centigrade, you find out that most of the year, theoretically, they could have coefficients of performance of 15 times. So, with heat pumps we're a long, long way away from the technological frontier - I'm sure we will never get anywhere near it. But there's a lot to go for, for trying to squeeze out greater efficiency out of heat pumps,

ML I believe the only thing I can say at this point is, preach. But one thing is very interesting, because then you say, ah, what about if it's blue hydrogen. And there's a little known, or little appreciated fact, that if you start with your natural gas, and you take out the co2, then you end up with hydrogen, by definition, you need to start with 1.5 times as much gas. Because to get the same amount of, same number of heat units, you would have to start... So, it cannot be that your fuel be less than 1.5 times...

AT By definition, it must be more expensive. At least with a heat pump, if you get it right, you will end up essentially investing upfront to end up with a lower operating cost. Yeah, no, I hadn't thought about that, and that's a good piece of maths.

ML You know, the folks who are doing... The Hello Hydrogen folks, they don't want to talk about [inaudible] quality, nitrous oxides. They don't want to talk about hydrogen costs, they don't want to talk about safety. They don't want to talk about all the things you have to do to your home, in terms of ventilation and venting and flow valves. They just want to pretend it's a one-for-one swap.

AT One of the great things about electricity is, every home in the world either has or will have electricity. So, you're building off something which is required in any case, and always will be required. And it is. in its local internal [inaudible], it's very flexible. Electricity is just a very, very flexible form of electricity, of energy.

ML We need to keep moving. We've got one more sort of sector, and that is carbon management, if you like, so CCUS carbon capture, use and storage, and of course, you mentioned it earlier, direct air capture. Where are we going with that?

AT We believe we will need negative emissions, as they're called, carbon removals. When we looked at what is required to stay within a carbon budget compatible with limiting global warming to 1.5 degrees centigrade. Even if we really pushed an optimistic point of view of how rapidly we could get gross emissions down, we said we will probably need a role for actual carbon removals. Two different categories of those: one, what people call nature-based solutions, reforestation forms of carbon management; and the other is direct air capture. The way to think about those is on a sort of risk-return spectrum. We know how to do direct air capture. Once you've done it and put it underground, it will pretty definitively be there and stay under there, but it's pretty expensive at the moment per tonne of carbon, $300 per tonne. Maybe we can get that down to $100, to $60. Nature-based solutions, at the other level - if you did them right - you ought to be able to sequester carbon, at a much lower cost, say $20 a tonne, but there's a lot of risks about you know, is that forest in future going to get deforested by somebody else? Is it going to burn down? How do you make sure, how do you verify? So, we think both have a role to play; the nature-based solutions more in the short term, the direct air capture more in the long term. We also obviously see a role for carbon capture and storage, for instance, with cement and things like that. Overall, you know, from the 40, or 35 to 40 gigatonnes of CO2 being produced today - and then there's some more from the land use sector, maybe take it to 45 - we could see somewhere between the last six gigatonnes of that, of getting to net zero, the work being done by carbon capture and storage of something. You think that's rather high? That includes both the industrial point source stuff, and the carbon removal stuff. The carbon removal stuff would be three or so of that, so it would be sort of three for the point source stuff, and maybe another three for the carbon removal area.

ML So, Julio Friedmann, who calls himself the Carbon Wrangler, we sort of whittled it down, we sliced and diced, got rid of some of the points. got down to capture and storage of two gigatonnes, that was a third of the... So, it's kind of consistent with what you're saying.  I think it's more expensive and stays...

AT You think it will always be more expensive? We've looked at the technology, and we do think there will be technologies, which are technically possible, which bring down the electricity requirement. But of course, the crucial thing is, what do you think is your electricity cost?

ML [inaudible] because you have to move huge amounts of air, and it's also not free, and very often, they want to talk about Faraday efficiencies of doing things, but not the actual sort of boring stuff of fans...

AT No, you're going to have fans, you've basically got to, you've got to produce motion, you've got to have heat, and you've got to have solvents...

ML I conceded to Julio, I said, I don't agree, but let's assume $100, and then two gigatonnes. That's $200 billion a year that somebody has to spend. So, it's bigger than the international aid budget, annually spent, doing nothing of any value to anybody other than carbon capture. And I just found that sort of hard to believe.

AT I mean, the issue is, will there be a steel company that has made a net zero commitment, and can get down to 95% 96%, by things it does in its own operation, and then just says, you know, I have made a commitment, and I'm now being legislated, that I've got to get to absolute zero. Is it better on that last 3% to pay $100 a tonne for that, or to do something very expensive internally, that will be the choice.

ML You're doing all the work here for me as that's a beautiful segue into offsets, and into voluntary carbon, because that was a voluntary carbon market commitment that you just...

AT Well, all are compulsory.

ML What role do offsets play in all of this?

AT Well, look, we in our work on carbon removals, really said, let's be a bit careful of offsets which are reductions. We are pretty wary about the idea of, I've got a whole load of emissions here, so I pay somebody to invest in renewable electricity in another part of the world, and I claim somehow that that was additional to what they were going to do in any case. Now, given that every country in the world is now putting in place NDCs and commitments, it gets more and more difficult to say that that was additional. So, we would say first of all, it's very important that all companies and countries have commitments to get to net zero in themselves. If a company, which is on a path to net zero by 2050, wants to say, and I am willing to spend some money to claim that I'm net zero today, as well as on a path, and I can't get there today within my operation immediately, but I want to make that claim, there's no downside of them buying offsets. We would encourage them to buy either real removals, or particular categories of offsets, where we can't see why anybody would do what needs to be done unless they were paid. So, avoiding deforestation... Let's be clear, we have a problem on avoiding deforestation: there is an economic incentive to avoid deforesting. So, to avoid deforestation, we've got to pay somebody to do something which is not in their short-term economic interests. That's different from investing in renewables. So, there, there may be a role for offsets, if you work very hard to make sure it's really true. The other one, which I think is clear, is achieving an exit from existing coal faster than it would otherwise be. Now I think we have already the good news in the environment where it makes very little sense to build new coal power plants anywhere in the world. And I think most existing coal power plants will close over time. But some of those do have large contractual, contracts to sell at fixed price on what's called power-purchase agreements, going out for 15 or 20 years. And so even if they're...  it'd be cheaper to shut them down and replace them with solar, in pure economics, they're sitting on a fixed-price contract, which makes it profitable. So, the process of buying an offset that buys out some of those contracts and get some of these coal plants out faster than they otherwise would. So broadly speaking, offsets have to be as well as. not instead of, your own commitment to get to net zero as fast as possible, one. Two, think carefully about, if at all possible, buying removals. Three, concentrate on the offsets where you can really say, there's an additionality here, because the person whom you're buying it off, would not do it unless someone paid them an offset.

ML See I kind of sort of agree. The worry I have is that you create, you've just created three vast consulting industries, you know, the base-case industry... [inaudible] enormously lucrative. And that brings me on to...

AT My final rule is if somebody offers you an offset for $5 a tonne, it's probably not worth the paper it's written on. If it sounds too easy, it's probably nonsense.

ML But it raises the question of cynicism, because these offsets, those are the sort of the Turner rules that we've just heard, in fact they've been enshrined in various places, what is it, the high integrity [carbon offsetting programme] ...? Mark Carney on this show, as well talked about those. But, you know, and I know that there are companies that are, you know, talking about and planning, and they're trying to get, you know, their sort of green checkmark from the science-based targets, based on offsets, forever.

AT No no, they can't do it forever. Or they can only do it forever for a small size. And broadly speaking, the science-based target initiative is insisting that they will not sign off that this is a science-based target, unless 90% plus of your emissions reductions are things really within your own operation: your steel mill not putting out co2; you buying zero carbon electricity. So, the debate on the science-based targets is, what is our attitude to the last %5to 10%? And should it be the last 10%, or should it be the last 2%? I think we've moved beyond... I mean, five years ago, if you talked to an airline, and they said, I'm making a zero-carbon 2050 commitment... Once you progressed the conversation, you'd realize that the last 50% of that was the purchase of offsets, but they've moved on.

ML Or have they? Some of them certainly have, but you know, let's home in on a particular group of companies that may have moved on; some of them I don't think have: your members. You've got 50 members, and some of those... that includes some big oil companies, right? And what is their...?

AT The situation with oil and gas, is you have to introduce this idea of scope one and scope two, and scope three - listeners may well be familiar with it... But broadly speaking, scope one is what you very directly control - gas you put into a boiler, in your own operation - scope two is the electricity you buy in, scope three is stuff that either your customers deliver, produce, or your suppliers produce. Now, there is a simple... you could argue in the world, why do we bother about people influencing their scope three? Because there's a very simple piece of logic: if everybody in the world got their scope one and scope two to zero, there is no scope three, because everybody else...

ML We had Farhana Yamin, who glued herself to the Shell headquarters, on this show yeah. And that argument would not fly with a lot of activists.

AT What the oil and gas companies like Shell and BP have done, is to say that they are committed to getting their scope one and scope two to real zero in itself. And as for the scope three, the stuff that they sell, yes, they will have a role for offsets on the scope three, but... And I think one has to tighten that up. But if you believe there is any use at all of fossil fuels, in 2050, or 2060, then to get to zero, there will have to be some carbon removal, some offsetting approach. So, broadly speaking, our vision of the energy system in, let's say, mid-century, is, let's say, 65% direct use of zero carbon electricity, 15% use of hydrogen - this is as a percent of final energy demand - hydrogen produced in a zero carbon fashion, 10%, maybe of bioenergy, and 10%, yes, is still fossil fuels, still, but fully offset by some category of carbon offset.

AT Offset, or abated?

AT Captured in some way, or one or the other. So, I don't think it's entirely unacceptable for an oil and gas company to have some element of offsets as part of its final endpoint. But the crucial thing, let's be clear: Shell and BP, you know, have signed up to reports that we have produced, which talk about the world of 2050 being 15 million barrels of oil a day, right? So, they're not sitting there saying, you know, the world has got to go on producing at the current... The other thing to say about oil production in particular: yes, we need the big IOCs, as they're called - the international oil and gas companies - to sign off. That's not where the big numbers are. The big numbers are in the NOC's, the big numbers are in Saudi Aramco, ADNOC, PETRONAS, Petrobras, you know, all of those. That's where the big numbers are, that's whom we've really got to convince that the world is going to see a fall in oil and gas. And at the moment, they're not buying on it.

ML Supposing that after this conversation, you check your email, and PETRONAS wants to become a member and Saudi Aramco and Sinopec, and a few others, what would you say to them? Do they get to be members?

AT Yeah, we talking to at least one of the people on that sort of list. The answer is we will only do it, if they are signed up seriously, to an overall commitment to seek to limit global warming to 1.5 degrees centigrade. We will only do it if they are committed in themselves to some category of net zero in some form. And will only do it if what they've done so far suggests that they are heading in the right direction. I think... I don't want to go through those names, but you know, I wouldn't let Exxon into membership today, I just wouldn't, I don't think they're serious.

ML Do you think they're in bad faith?

AT I don't think they're necessarily in bad faith. I think they simply are not really taking this seriously. And I think there is such a recent history of bad faith that one needs a bit of time on the naughty step before one lets them off.

ML Once again, you've given me a great segue into the last thing that I'd like to talk about, which is the role of finance. Because what you're doing in a sense there is you're judging Exxon not worthy...

AT By the way, one of the biggest things against them, is they have continued to fund climate change denial organizations, or organizations that have argued against policies, which in all states of the world, we need in order to drive towards net zero. And I think, this issue of, what have they put their money into in lobbying? And what are they doing? And have they pulled out of organizations, which are on the bad side of this, is a highly pertinent criteria?

ML Surely, I mean, far beyond what Exxon is doing, what about Saudi Arabia?

AT Yeah, I think that's probably true. I mean, Saudi is moving along way in many of its things. But until recently, it was the drag anchor on the commitment to 1.5 degrees centigrade.

ML They were strongly associated with the impossibility of phasing out [inaudible]

AT They are still in the mode of the impossible. They are still in a different [inaudible]

ML [inaudible] in the sense of you having to make these decisions. What is the role of a regulator, particularly in the area of finance, because what we've got is a bit of a sort of Wild West, free-for-all, it's called ESG, everybody's got their own definitions. There's all these different organizations. I've charted I think 60 or 70 of them. Mark Carney has single-handedly created about four or five. At what point do we just really have a finance framework? Or is that...?

AT I would say two things. First of all, I think that some of the ESG Standards cover so many things and cover it all together, that you can hide, you know, by saying you're going to do well on one of these factors - diversity or gender or you know, social responsibility or employment - the fact that you're not doing much on climate. So, I would actually prefer breaking these things up into, what are you doing on this? What are you doing on that? What are you doing on that? And within the climate bit, which is my particular concern, I think the crucial thing is just absolute clarity of what are your scope one emissions? What are your scope two emissions, what are your scope three as best you can tell? What are your plans? Are you tracking it? Are you doing it? And I think investors have a right to have that information. It's up to them what they do with it, and let me be clear: I see the role of both financial regulation and of voluntary commitments by financial institutions - and financial institutions saying we intend to be compatible to being net zero - as useful, but ancillary to what I call the crunchy policy levers, which are, we are going to ban the purchase of internal combustion engines by 2025, we are going to have a carbon price, we are going to do enough pump priming investment in offshore wind that the offshore wind is cheaper. I don't think we should ever assume that the financial sector, even with whatever regulation they have, can do the real heavy lifting there. Having said that, I think it is useful that major banks are making a thing which says we intend to be on a path to net zero. It's incredibly important that then you operationalize, what does that mean? How are you working out what you're doing now? What are your financed emissions? And what is the path that how you intend those to reduce in 2013? And 2014?

ML I think there's two issues in there, which can be pulled apart. One is, I agree with you completely, that the role of finance... If we don't have regulation on how you make cement, how you do transport, how you do this, then there's only so much that the finance sector can do. And it used to be heavily tilted towards funding fossil stuff, and I think now we've got a pretty level playing field. But the other question is that operationalizing, where I've got much, much more concerns. Because I've been a data provider to the finance sector; it's all very well to say, well, you know, tell everybody your gender mix, your salaries, your social responsibility...

AT Some of those are fads, some of them are a bit fuzzy, but some are fads.

ML Thing is, you've got these people in the world called bond dealers, and they often they just trade bonds on behalf of some asset owner or asset manager. And the fact is, they don't have the knowledge, they don't... Even if the data is at their fingertips, they... it is unrealistic to...

AT Scope one, scope two and scope three? Or can you only do scopes one and two?

AT There's some bits you just can't cover. If you're a major bank, and if you have a trading portfolio used for liquidity purposes, it'll be incredibly difficult to make sure that that changing portfolio, which is different, hour by hour. On the other hand, you have a lending portfolio. It is possible to do work, which says, to whom am I lending? And for each of the ones that I'm lending on a large scale, I am looking at what their emissions are, and I'm looking at what their plans are.

AT I think when you're lending to an oil and gas company, you have to be doing a scope three, because otherwise, it's meaningless. I think they have to be funding through it. Most financiers, many financiers, not most, but many, have headed towards, we're not going to lend against, you know, coal mines, right? I mean, if they'd taken the attitude that all that mattered was the scope one, they could have said, well, I'm going to lend to a well-run coal mine; they haven't they've basically said, coal mines are problematic in their scope three. So, I do think you have to look through to the scope three in terms of finite emissions. The other thing to say, and it's a crucial point for banks to think about: pretty much every bank in the world, what's the biggest bit of their loan portfolio? It's lending against property. Actually, and I often find a lot of them are thinking, should I lend to oil and gas companies? How do I make sure that the [inaudible] that I lend against are net zero. And on a few occasions, I've said to a bank CEO, by the way, you're not talking to me about what I actually, when I observe your balance sheet, is 50% of all your lending, which is mortgages and property development and various forms of property investment. You need to be thinking about, is there any way that you can leave your use your leverage there as well.

ML And that's something that the bank can really influence; they can use their leverage, because those are decisions about how you heat a building, how you fuel, etc. I think the scope three at the level of an individual loan or an equity investment, I'm sort of okay with. It's when we start talking about scope three at portfolio levels, I suddenly, I just think that then it goes into a whole other area of data problems which is epistemological.

AT Which is why I come back to; all of this stuff is ancillary to really good public policy. Unless we get really, all the countries in the world, signed up to, they are going to do net zero targets, and they're serious, and they're going to have the carbon prices or the building regulations or the preference

ML How do you deal with shipping....

AT That's what we've got to do. And actually one of the most important things for, not just the finance sector and for business - I go back to the lobbying point - is in its lobbying and in its public engagement, to support strong public policies within which they can get on with what they're good at, which is making profit within a tightly-defined public policy environment.

ML So, we've crunched through a huge amount of stuff, we've started out some industries, we've sorted out finance - very briefly, which is a shame. But that's all we've got time for. But... that's great for a lot of countries. What about the developing world? I'm thinking particularly not of the sort of the rapid developing world - not so much the Brazils and the Chinas - but what about the rest of it? Africa, the poorer countries in Southeast Asia, and so on. Now, one of the core issues that time and again I've come up against over the last few decades is cost of capital in those countries.

AT That's the crucial thing. We've done some recent work on Sub-Saharan Africa and Sub-Saharan Africa, excluding South Africa - South Africa is different, because it already has a significant power system, etc. Take Sub Saharan Africa apart from South Africa, and you will find that the per capita use of electricity is so low, you might as well say they have no electricity systems; about 150 kilowatts per person per annum, compared with 6000 in the UK, and 12,000 in the US So, it's trivial. It's even a tenth of what it is in India. So effectively, you are building an energy system for the first time. Or, more specifically, the biggest element of the current energy system is the traditional use of biomass as it's called, which is, you know, terrible health, getting sticks out of the local woodland and burning them in bad inefficient stoves for cooking, etc. So absolutely clear in Sub-Saharan Africa, this isn't about transitioning away from an existing electricity system. It's about building a far, far bigger one. And there's a big debate goes on about do they need fossil fuels to do this, or can they skip a generation. And this is a big debate, it was a big debate at COP27. A lot of the NGOs say you should skip a generation, you should go straight to clean electricity. You have the most amazing renewable energy resources in the world. But you have somebody like President Macky Sall of Senegal, saying, you mustn't stop us developing our oil and gas, you developed your oil and gas. And you sometimes get, we need that in order to provide baseload electricity. Now, the statement baseload electricity is wrong, modern electricity systems don't have baseload. But it's still an interesting debate, and the debate comes down to the cost of capital. It's as simple as this: if the cost of capital in Sub-Saharan Africa was the same as in North-west Europe, I don't think you'd build a gas turbine. Well, you'd build a few gas turbines as flexible backup to the core system. You'd build huge amounts of wind, and solar. But if your cost of capital is 25%, it's not only that you don't build wind and solar, you don't build gas turbines; you buy diesel Gensets. When your cost of capital is high, you minimize your upfront capital cost, even if it means you face a high cost for the fuel, rather than with wind and solar, maximizing the upfront capital in order to then enjoy zero marginal cost electricity. It's absolutely obvious.

ML And how do we solve it?

AT Well, what we will need to really - and there's a report out on this last week by Nick Stern and Vera Songwe, which was produced at COP27 - we will need to mobilize much more money, I think, through the multilateral development banks. More money from them, but more effective ways of using their money to leverage the private sector. A more risky approach, more willingness to take risks, and also a greater willingness on the part of the multilateral development banks to help form the strategies. Because these are challenges you can't deal with in an atomistic fashion. If you try in many Sub-Saharan African countries to build a wind and solar plant as a standalone operation, and say, OK, now I need an offtake agreement with the local utility, you'll find that the local utility is fundamentally insolvent, because it is selling electricity to a group of people who are either paying below the cost of production, or who are not paying you at all. So, these fundamental issues of how do you create solvent counterparties... It's not going to be easy, but without that really ambitious mobilization of technical assistance, and of finance flows at a reasonable cost of capital, I just don't think we will see in Sub-Saharan Africa... we won't see economic development quite apart from the fact that we won't see green economic development.

ML Yes, exactly. And I think there are some signs of it changing. So, I'm on the advisory board of something called Greenmap, and this is the team that put together Argentina's ReNovar programme, which brought in a huge amount of overseas capital, and continued to service it, despite the troubles that plague the rest of Argentina. And I have to get Sebastian Kind, who's behind all of that, I have to get him on to this show, because... Without changing the cost of capital, everything else is sort of pointless. And the problem, the issue I have with the multilaterals is that they actually have quite small annual lending. If you compare it to the trillions that you need, and they do a few tens of billions, it’s actually just insufficient. We need to scale in some way.

ML Well, I think you could scale it. I mean, the crucial thing is, how big are their balance sheets? How much capital have they got? How much are they willing to leverage, how much are their balance sheets? How much of that is devoted to the new stuff, not the old stuff? And when they use that balance sheet, how many units of private capital are leveraged by each unit of...

ML [inaudible] About ten years ago, I wrote something called, I developed this idea, the Big Green Bucket, which is creating a big bucket of what they had already lent, and selling it, and taking that money [inaudible]

AT That's the issue. They may have to play the role of going through the risky period to end up with a project which is sufficiently bankable, that they can sell it to free up their balance sheet

ML [inaudible] bond or something.

AT They free up their capital. But it is a major challenge. Now, there are some developing countries where it's less of a challenge: you go to India, I mean, India has people like, billionaires like Mukesh Ambani and Mr. Adani. These guys are operating on massive scales with... So, it is difficult to know what the cost of capital is of an entity largely owned by you know, individuals - it's whatever they want it to be. You are seeing big deployments of capital there, but you are just not, you do not have the equivalent of that domestic savings, capital mobilization; you just don't have that on that scale in Sub-Saharan Africa.

ML Now, the little final question, summing everything up: is 1.5 still alive?

AT Probably not. I would be amazed if we get to 2050 and we are below 1.5 degrees centigrade. I think with effort, we can get it significantly below two degrees centigrade, and I think it's absolutely vital that we make the overshoot above 1.5 as small as possible. But look, on the pure mathematics, you'd have to try incredibly hard to limit it to 1.5, on an average ongoing basis. On an individual year basis, we may well have one individual year above 1.5 within the next 10 years. So, look, it's incredibly difficult, but you know, if we can limit this to 1.6, 1.7, 1.8, that will be fundamentally different from a world where we end up with a warming of, say, 2.5 degrees centigrade.

ML Have you managed, therefore, to remain optimistic? Or are you increasingly optimistic? What's the direction of travel? That's probably the most...

AT I'm much more optimistic than I was five years ago that we have the technological solutions to do this. Because the work that we've done in the ETC, and the fact that, because what we do in the ETC, people with technological ideas keep on coming to us, I'm just amazed by the ferment of technological innovation, which is out there that provides the potential solution. And I think that makes me reasonably optimistic that the technologies and the will will be there, that we will keep it significantly below two degrees centigrade at the end of the day. I'm almost inevitably... Realistically, I can see less chance of us limiting to 1.5 than there was five years ago. On the other hand, the technologies are so strong, that I think I have a greater confidence that we will avoid a really, really catastrophic result, than I thought five years ago,

ML I think 2018 was about when I said OK, 1.5, nice, but we're not going to... But two, we can definitely come in. So, I'm very orthodox Paris Agreement, I'm a well-below two, and let's try and do 1.5, but we'll probably fail. But that's, you know, that's where we are today. Adair, it's been great pleasure.

AT Thank you.

ML Wonderful to talk... I think we covered a huge amount

AT We did, almost everything.

ML I hope everybody's kept up with us, and good luck, and I look forward to the next sort of output from the Transition Commission.

AT Thank you. Very enjoyable.

ML Very good. Bye bye.