Ep1: Prof. Cameron Hepburn "Building back better"

Transcript

Welcome, and thanks for joining me for this first episode of 'Cleaning Up'. I was sat here during the COVID lockdown, thinking of all the extraordinary people that I've met over nearly two decades working in clean energy, clean transportation, climate finance, sustainable development, and thinking how wonderful it would be to be able to catch up with those people. But also to share some of their wisdom, some of their knowledge, some of their leadership lessons with a wider audience. This is a great range of people, people from policy, people from business, investors, civic society. Their people at the top of their game, they've become great, great friends. They're also great fun. So what we're going to do is get a beverage, maybe a beer, maybe a cup of tea, and we're going to chat, we're going to talk about their journey as they've worked on the climate transition, and all the associated sectors. And then we're going to share that with you, so that you can also enjoy the conversation with these extraordinary people. So without further ado, I'm gonna get myself a beer. And we're gonna get started with the very first episode of 'Cleaning Up'.

Our first guest is an old friend of mine, Professor Cameron Hepburn. I'll give you his official bio. He's a professor of Environmental Economics at University of Oxford, Director of the Smith School publishes about 500 interdisciplinary research papers each year on enterprise and the environment - not just Cameron, that's the whole school. But I know he's involved in quite a few of them. He also serves as Director of the Economics of Sustainability Programme at the Institute for New Economic Thinking at the Oxford Martin School. He's got degrees in law and engineering from Melbourne University, I'm sorry to say - he is an Aussie. And he's also got a master's and doctorate in economics from Oxford, which he attended as a Rhodes Scholar. So he's a clever guy. He's co-founded three businesses, has provided advice on energy and environmental policy to governments and ministers in China, India, UK, and Australia, and to international institutions, including the OECD and the UN. Now, the unofficial part of it is that he's also a reasonably good cyclist. In fact, he's so reasonably good. He's a little bit faster than me, although I blame my bicycle. Let's bring Cameron into the conversation. Hi, Cameron. How you doing?

Good evening, Michael. I'm not too bad. And I think you do need a new bike, we can agree on that to start with.

Well, you're very charitable, because, you know, you beat me up and down these mountains. And then you said: oh, I think it's the bicycle. And it's like, well, you took the words out of my mouth. So listen, thank you very much for agreeing to be the guinea pig on 'Coming Clean'. And what we've got is, we got a lot to talk about, let's see how we go. But I'd like to start with some of the stuff that you've done very recently. We are still in the middle of the COVID-19 pandemic. It looks like in large parts of the world, certainly in Europe, the case numbers are coming down. But certainly in other parts of the world they're not. And already talk has turned to the stimulus, the green stimulus, how we can come out of COVID-19 and also help the transition towards low carbon energy, and transportation, and climate safe future. So you did a piece of work with Nobel Prize winning, Professor Stiglitz, can you talk us through? Because I kind of read it...I didn't read it all, but talk us through: what did it say? And what did you do? And what did it say?

Well, what we did... We started out just asking the question: is this gonna be good or bad for the environment? Simple question, turns out fiendishly difficult to actually get a handle on. And once we start to think about it, for any length of time, we realise actually... The answer question is kind of up to us. Because the stimulus packages, the response, it's a kind of choice variable. And what we choose to do there in large way determines whether we're going to kind of head down, to one half or two-degree pathway or kiss Paris goodbye. So that was the kind of starting question, and the way we thought to try to get a handle on whether we were likely to take climate sensible action, was to survey the people closest to the levers of power. So we surveyed 231 officials in central banks, or in finance ministries around the world, to get their views on 25 different categories of policy. And we created these 25 categories by looking through all of the hundreds of responses. The last financial crisis and kind of bucketed them up and then said: so you know, which of these do you think is overall, the good thing, which of these it is going to give you a long run high economic multiplier, and which of them is quick to deploy. But also, which of them is good or bad for the climate. And so, doing that gave us a sense of just whether these officials were particularly concerned about the climate, or whether or not they were concerned about the climate. Did they see merit in policies that were going to be good for the climate, in some sense. And what emerged from that study was somewhat reassuring, I'd say. The policies that were perceived to be good for the climate, were also perceived to be good for the economy. And I say 'perceived to be' because these are the collected average views of these 231 officials. I have my own views, and they're not entirely in sync with the average, but it's the perceptions that matter to determine what actually happens. And so, I found that encouraging and walked away from that survey thinking: maybe there is hope, of a sensible green recovery to this recession that we're in, hopefully not depression that we're going into. And then, within the set of policies, there were five that really stood out for us. So now moving from the descriptive, what do people think into the normative: what should we do? We looked at the range of the literature, the evidence on different policies from last time and in the past. And it seemed to us that there were five that stood out. So one, clean infrastructure. So you know, the classic things that you think of when you're cleaning your energy system, or your economy: energy efficiency of buildings, upgrades, you know, very labour intensive, you know, pays off over long periods of time, natural infrastructure, greenspaces good for people and their mental health. But also good for resilience, climate resilience, and in many cases, cheaper than building, you know, artificial concrete, flood defences. Clean energy R&D is a key one, because actually driving the cost down further, just is good for the economy. And the last one is retraining and education of workers. Because if you've got a whole lot of people that are unemployed, we're over 100 million unemployed in India, now over 30 million, I think, coming towards 40 million unemployed in the US, or <inaudible> So lots of unemployed people, it's a good time to retrain and to gain some new skills. So those five were kind of top five in richer countries, and in poorer countries, actually, rural support type of policies, shifting agricultural patterns, and so on, is probably a better bet, then, you know, sinking money into scientists in those economies. So they were our conclusions.

I mean, it's a fascinating, a very rich piece of work. I was one of the experts, I was very flattered to be one of the experts. And I, like you, you know, I look at the results. And I think, well, you know, I sort of disagree with them ... which is fine. Difference of opinions is fine, it's okay. But there was something... I just worry that what you've discovered is that, you know, sort of technocratic experts in economics and transition and climate and so on. They like interventions, they think that the things that are good for them and also good for the world. And that, you know, that they've... If they like a policy, that they've said: it is sort of long term good, short term good, fast, good for the climate, incredibly smart, correlating entirely. And actually, if they don't like a policy, then they say: oh, it's very slow and much too difficult and won't make any difference anyway, and so on. So you know, it is, I suppose, you know, 'welcome to the world of social sciences'.

I mean, look we're worried about, you know, we're social scientists, we spend our lives critiquing each other and being critiqued for selection bias. So omitted variable bias and other biases and, you know, you can't eliminate bias. What we did in this study other than the fact that, you know, it was the invitations came from me. I didn't actually know you're on that list, it was... The methodology is in there to determine who was selected. But other than the fact that the invitations came from me, there was nothing to suggest that this was a survey about climate change. And then we also did some statistical analysis for this sort of thing, exactly what you just suggested. People who like green policies are more likely to up-rate them on the other dimensions. And equally people who dislike green policies, they are more likely to down-rate their performance on non-climate dimensions. And that showed no significant bias as mean, there's no bias, but they're no statistically significant bias in the group of kind of climate lovers. It showed a very minor directional bias within those who didn't like climate policies, they're more likely to, you know, down-rate them. But I, you know, I wouldn't place... I wouldn't get too worried about that.

But you know, if I look at the kind of the... There's a sort of two by two matrix, I'm just going to show you that. We probably can, we'll link to the study in the show notes. But you can sort of see, there's this two by two matrix here. And one dimension is long run multiplier because, obviously, it's good to have a big, long run impact on the economy. And the other one is climate impact. And it's colour coded for speed. But you've got liquidity support, which as far as I can see, it's just lending lots and lots of money. And cash transfers are down here as having a long run multiplier, basically just lending people lots of money and giving cash counts as a multiplier. But building upgrades and greenspaces sorting out the livability of our cities, those sorts of things apparently, don't have long run multiplier. So there's just some real oddities in there, in my view. I don't know, maybe I'm wrong. The one that I really liked, when I answered the questionnaire, was energy efficiency building upgrades, because, to my mind, it's a way of putting money in the hands of a lot of people, craftsman, tradesmen, very quickly. So it's immediate. It has a short-term multiplier quite clearly. And also, you're upgrading an asset, a building. And so therefore, it ought to have a long term, a long run multiplier effect as well. So I've sort of argued strongly for building efficiency, but it doesn't seem to have won through in the study.

Well, that's interesting, isn't it? Because actually, your views are buttressed by the economic literature on this topic, which is very strongly supportive. And you know, as it happens is my view too, but it's so tells you something informative, that officials around the world aren't necessarily thinking of it in the same light. Despite the fact that post financial crisis last time, 2008 - 2009, there were a number of big energy efficiency programmes instituted in a number of countries: Australia, US, Canada, for instance. I guess one question is, how successful they are in a socially distant way, it's probably not too bad. Compared to other things you might be doing. It's a question to ask. But then, yeah, and the nice thing about, as you say, is that you use a lot of spare labour now, it's not particularly high skilled labour. So it's not like you need to study for 10 years and get a doctorate before you can start installing insulation, but you do need some training, but that's not too onerous. And, you know, we know from past experience, you can get going pretty quickly. So it is one of the five areas that actually, you know, kind of more normative recommendations, we suggest prioritising.

And that's... it's interesting that you say that officials don't seem to kind of grasp it. But actually, if you look at the UK preparation for COP26, there's a big stream around energy efficiency, product efficiency, but also in the built environment. But also the European Green Deal. They've got these 90 billion euros, by far, the biggest chunk, by far, probably more than half is actually their renovation. I don't know quite what they call it, the renovation is not really a fund, but the renovation bucket, let's call it a bucket of what they're doing. Which would suggest that perhaps the policymakers are ahead of the respondents to the questionnaire

You know, look, I mean, we all can draw conclusions from the aggregated average views. I mean, they're global so you know, you're getting a number of responses from the African continent, from the Americas, from Asia as well in here. And I daresay there's probably a mix of views, prioritising buildings efficiency from one location to another. So that might be part of it. Maybe the Europeans are going harder at this now, this point. But yeah, look, there are some... There is definitely some aggregate answers in there with which I wouldn't share...

What I'm going to keep banging the drum for energy efficiency, because I think anybody who's looked at the challenge of 2030 and what has to happen to emissions between now and 2030, but obviously out to, till 2040 - 2050 and beyond, you can't get there with just supply side, clean energy, renewable energy, even if you add in nuclear. We've got to, you know... We've got to move the needle, got to bend the arc on energy efficiency. So I'm going to be banging the drum there. But I want to move on to some other stuff that you've worked on. That I'm extremely, you know... That I've been, I've been very supportive, and I followed in quite some detail, which is the restatement or the attempt to get national accounts restated. So, you edited book in 2017, with Kirk Hamilton, which was called National Wealth: What is Missing, why it Matters So what is missing? And why does it matter?

I guess the answer, you know, go and read the book is not...

It's actually... It's a long book. And it's not for somebody who doesn't want the details and academic text. But the short, the short answer for this kind of discussion is that in many national accounts, not all, natural capital is missing. You know, one of the most central of our capitals, just isn't in the accounts and...

<laugh>

Explain, because this is the first one of these 'Coming Clean' shows, and I have no idea who's gonna watch it, if anybody. So explain what you mean by natural capital, I mean, national account, just assume that. Assume that, I know nothing, you won't be far from the truth, but assume, the audience is similarly needing some basic terminology.

Sure. Well, I mean, economists typically have thought of the world as being divided into two factors of production. You use capital and you use labour, and then you produce stuff. But as, I think, it was probably Herman Daly famously said once: you know, you can't make a cake with a chef, and another, you need the eggs and the flour, as well. So you need the raw inputs, I mean, the material inputs are essential too. So natural capital includes all of the raw environmental inputs, whether it's coal, oil, and gas, actually. They're all part of natural capital, believe it or not, or our food system, but also the ecosystems that enable us to breathe, and to go about our business <inaudible>. So you know, that everything nature provides to us is natural capital. And in, in some countries, it is now being accounted for pretty well. So, the UK is increasingly doing a very good job on this. Australia, Canada, two other nations where, you know, their equivalents to the Office of National Statistics, their Bureaus are drawing out fairly detailed national accounts that capture natural capital. And I think the reason those countries are interested in... I mean, if you're Australia or Canada, then you're very aware of the mineral wealth of the nation, because it's very big, including the fossil wealth of the nation. And once you're there, it's a small step to start to think about the ecosystem wealth and the agricultural wealth of the nation. So that's a big element that's, if not missing, then not accurately and comprehensively accounted for. But there are other capitals that we don't, you know, economists just haven't really grasped, because it's hard. You know, I mean, it's not a kind of critique of economics profession. It's...

Economists like doing easy things.

Well, everyone likes doing easy things.

What are the other ones, what are the other capitals?

Very important capital that is very difficult to account for and to price, but we know it's vital, is the social capital of the nation. So this includes things like 'how much do we trust one another'. You know, if I go into a classroom, what's the odds of a student pulling a gun on me, because if the odds of that are very high, then I'm not going to be teaching. I mean, maybe I'll do it digitally. But you know, so if you're in a society where trust levels are really high, in each other and in public institutions, then it's no surprise that you can do lots of deals because, you know, you're not going to trust the other person to shaft you. And with more deals comes more economic activity, you've got the rule of law working, you know, that if somebody does something wrong, you can take them to court and you've got a functioning legal system. All these sorts of things enable economic output, they're kind of key inputs into the production process. And that's hard to measure, but it's vital, because without those things, you've got a failed state and you've got no economy,

Right. And then you've got some other ones in there. You've got infrastructure, your human capital. I mean, I'm gonna... You know, I'm going to maybe run ahead of your explanation. But also, where's the intellectual capital, the intellectual property? They're just the sheer knowledge that you've gotten in an economy, the patents, but also the know-how. Is that, you know, is that in there as well?

Yeah, it's another one of these capitals that is, unfortunately, too often missing from the accounts. And the tricky thing about knowledge capital is that it splits into two forms. There's knowledge that is embodied in humans. And there's knowledge that, you know... If we wipe out all of the humans, it's still not that you do that, but it's still in the records. It says there's this disembodied.

Okay, so how do you disaggregate it from the value of your humans?

Yeah, right.

Because isn't this fundamentally about saying: well, we really want to be using a nation's balance sheet as a measure of how we're doing. And not GDP, which is just kind of some, you know, transactional activity. GDP gets a bit of a bad rap, in my view, I think that one of the things with COVID that has woken us up, is that jobs matter. And GDP seems to be quite a good measure of jobs. So a lot of the kind of recent, you know, we've really got to move away completely from GDP seems to me to ignore the jobs piece. But other than that, the asset side, kind of a balance and national balance sheet seems more sensible.

Yeah, I mean, it's a bit like this kind of debate sometimes really needs to be better informed, because it's... People looking at an orange and getting really upset that the orange isn't an apple, you know, it's just an orange, once you understand it's an orange, you're fine with it. And GDP isn't an apple, it's an orange. And what it does is measure the market based economic output of the nation. That's what it measures, there's nothing wrong with that it's a useful indicator, because it correlates with things like employment and many other economic variables of interest. It's not a measure of well-being, it's not even a measure of material prosperity. And it's not a measure of the wealth of the nation, because...

It is the measure that we obsess about. I mean, we talk about recession, incessantly as though, that last, you know, 0.5% growth or not growth, you know, is the difference between national success, national failure, human well-being, human misery, and so on. So you're saying that we've wasted acres of newsprint?

Well, I think... So I agree with you. There's nothing wrong with GDP. But I would say that you need... Look, put this way. It's a bit like if you're running a company, you look at the P&L. Sure. But you also look at the balance sheet, you know, every company has to have both, and you can't properly run the company without both. And in a sense, it's scandalous that we attempt to run our countries, entire nations without having a proper picture of the balance sheet of the nation. What are our stocks of assets? Are they going up? Are they going down? Not just was this year, a good year or a bad year? So yeah, I'm not critiquing GDP.

Okay, so I agree with you entirely what you said, I think it's absolutely scandalous. It's ridiculous that we, you know, we fetishize this pick, this single metric GDP of activity. But don't look at whether we've got, you know, more forests, more miles of motorway in good condition, more patents, more teachers, more of all the good things in life. More, more fine wines laid down for future generations, etc., etc. So it's absurd, but the thing that troubles me is, what is the... How do you get society? How do you get the Daily Mail to focus on that kind of asset side, even partially? Even if you say: okay, well, you know, you can kind of use both. The fact is, they're going to use one metric. And if it isn't, you know, if it isn't GDP, and it's going to be some kind of measure of national wealth. I mean, that's, that's your thing, right? How do you get them to focus on that? How do you get society to say: actually, I care much more about the value of everything around me, because that's what drives well-being and happiness and medical care, and all that good things, and not just this stupid measure of activity?

Yeah, well, I mean, you got to take on both sides, like any entrepreneurial dilemma, if you want to change things, you got to get both sides moving. So there's a demand for this and a supply of it. And the supply is from the offices of national statistics. It's arguably not that sexy. The Daily Mail isn't going to go in there undercover and work out what the... Might be one day, they will, that's a sign of success. But, on the demand side, it's getting public figures and politicians asking the question. I mean, I'd love to have a leader of the opposition. And maybe, you know, in the UK, Keir Starmer, who is an Oxford grad, of course, could ask that other Oxford grad who's running the country: why it is that the nation's wealth has declined in recent years? I mean, assuming it has - got to check the books. But you know, is natural capital on the way down or up? Is human capital on the way down, if we're losing skills and capabilities in the country? And that's a more interesting question then GDP only raised by 1% last year.

I agree with that. I think, I mean, it's... But it is a, it's a huge challenge because, of course, some of the things that you listed though around social capital.... How the hell do you measure it? You know, one person, one person say, you know: we've got, we've got tight control of our population with fantastic surveillance, they can't move without the government knows about it, and therefore we have fabulous social capital. And somebody else might look at that and say: I'm going to put a line through that balance sheet. I think you're doing it the wrong way. It's oppressive. It's dictatorial. And I don't call that social capital, I call a bit of chaos social capital, because countries that muddle through and are used to chaos, perhaps have more resilience. How on earth do you quantify which one is doing better?

You know, it's hard. And yeah, I'm the first to say that. Luckily, for me, it's not the thing I spend my time trying to do, I leave that better economist than me. But what I would say is that it's not an impossible task to do this roughly right. And you know, you don't have to be perfect, to be better than what is the implicit value, which is zero, which is currently in the accounts. And the reason you can be roughly right about things is that you can do a bit of triangulation here. So you can get a sense roughly of what the aggregate wealth of the nation is. And then you can look at, you can do the bits from the bottom up and add them up and say: well, does that roughly match with our estimate from the top down? And, you know, if it doesn't, that the numbers are out by a bit, you can start to work out: well, where are we going wrong? And the point is, at some stage, you think: okay, these numbers are wrong, all numbers are wrong, by the way, GDP is wrong, too. And there's, there's the estimates: there' dodgy stuff in the calculation of GDP, left, right and centre. But at some point, you say: well, it's more useful to have this number than it is not to have the number. So we'll start to try and work on it. And we'll improve it as we go along.

And where do you get the value for infrastructure? Where do you get the asset value for? Is that taken out of sort of all of the accounts of all companies and entities that own infrastructure?

Well, that's in a sense, it's an easier number than many of the others because produced capital, which is what, that's part of the kind of physical produced capital, human produced capital of the nation has asset values on it. You can get into the bowels of do you use a regulatory asset base approach? Do you do the discounted net present value of the future stream of social benefits of the piece of infrastructure? You know, in theory, what you're looking for is, is the discounted future value of the shadow value of that infrastructure over the lifetime of its.

Yes. I guess the more we talk about it, I'm just sort of filled with, you know, in a sense objection, even though I approve of this. This is, I think, the right thing, but maybe it's just kind of... Maybe I'm just getting sucked into the vortex of your... Next thing I'll be doing is applying for, you know, to do a PhD at Smith School, so I can really drill down. But, you know, I was on the board of Transport for London, and the balance sheet showed that TfL's entire asset base was 24 billion pounds. 24 billion pounds. I mean, we were spending at the time, we thought, we were spending 15 or 16 on Crossrail Two, it turns out, it was 18 or 19. But you know, that's just for one line. And then the whole of everything else was supposed to be worth 24. And of course, the replacement value, or the net present value of fair income or something, would be way bigger than 24 billion. I mean, the replacement value of London Underground must be hundreds of billions, if you really tried to build it.

Yeah, in principle, what you're looking for with these calculations is the full social value of the asset, not the value to any particular owner. So, you know, I'd be surprised if the TfL numbers weren't used by ONS in some form, which tells you immediately that you've probably got an, in your view, at least and underestimate...

That's what worries me.

Yeah, right. Right. Right. But yeah, that is something ...

Let's move on, because as I say, you know, I could raise endless objections, but actually, I really like the work and I don't know whether you're going to be updating or doing more on national wealth, but I do hope so, because it is such an important transition.

I agree. It's extremely important, which is why we put the book together. But I really what I want to have happen is that for the statisticians to spend their time dealing with objections like yours and...

Answer my questions, but not you. Okay. Let's move on, because lots and lots of your work, you could almost say that sort of the central focus of your work is around climate change, at least. If I look at your list of publications, whether they're on sort of China or the West, or on the... It could be around... You know, you'd probably say: well, it's sustainability more broadly. But climate change is very much at the centre of it. Where do we stand? You've, you know, because you've got lots of touch points, everything from the fact that you like biking around mountains to knowing the statistics. And, you know, probably as much as the theory and the costs, the sort of Stern review costs, and also the energy trends. You know, as much as... far more than me and as much as anybody I know. I mean, are we really in trouble? Or are we winning? Are we losing? Where are we?

I feel like saying: we're winning and losing at the same time. So I mean, we're losing the sense that the, you know, emissions were it not for the virus was still heading up, not as fast as they had been in the past. As you know, we're kind of at 40 gigatonnes a year all up, and mid 30s from the energy sector alone, gigatonnes of CO2 or CO2 equivalents. And, you know, the only thing that has pulled them down has been the last recession, and obviously, this one. So you can look at that and say: well, you could conclude negatively that while the economy is growing, emissions are growing, and we don't want a shrinking economy, so we're stopped. And, you know, certainly my colleagues do draw those conclusions. That's the sense in which we're losing. And there's a sense in which, you know, we really, ideally, would have got going seriously on this problem 20 or 30 years ago, and we've squandered a lot of time. The sense in which we're winning, is that the, you know, you don't necessarily see it in the aggregate data so far. But it's the point, Michael, you made so powerfully and strongly all the time, which is that the cost of the alternatives to the fossil dirty old economy, just keep coming down year on year. You know, reliably, incredibly and over decades and decades. You look at, you look at the long-time theories here. And there's no doubt which set of technologies wins in the long run. And actually, the long run is increasingly the short run, because, again, further we've had 20 or 30 years of this stuff ticking away in the background. So we're winning, because solar and wind are now cost competitive in many locations, a lot of the time, they keep on getting cheaper. And you're just not seeing that in oil and gas. You had a crash in the oil price, obviously, as...

Can I...? Let me turn this is sort of embarrassing, but it's embarrassing and good. I said: oh, you know these numbers much better than me. But now I'm going to challenge you. Because, you know, that the... You say that, you know, emissions keep going up. But actually, in 2019, before COVID, they didn't go up, they were actually flat. And they were flat in 2014, and 2015, and 2016 - plus or minus -0.1%. So the last six years, they've been flat, they went up in 2017 and 2018. But I look at that... Okay, so we've now said that GDP is a rubbish indicator, anything except maybe jobs, but it's a rubbish indicator. But actually, in the last six years, GDP went up by 23%. And emissions only went up by 3%. So you could say: well, yeah, that's still going up. And maybe you stick with your earlier answer. But I think you've been too pessimistic.

Well, no, no. I take that point. I mean, they are... They're certainly decelerating the increase. That's .... And well, I guess we're rapidly getting into this decoupling debate, because, you know, it's clear to me that we... I mean, it's obvious in the data that we have been decoupling economic output from emissions over a matter of decades. And the last decade is, a great example, then where this debate moves on to next is, well, you know, you get this relative decoupling, but can you actually keep on growing your economy and shrink your emissions base? And of course, the answer to that is yes. You know, I mean, I think those who say it can't be done, because it hasn't been done before, just it's a failure of the imagination, really. It doesn't even require that much imagination. It's kind of, it's just a projection of where we have been going. So that's the sense in which we're winning. Yeah, if you look backwards, we're kind of losing. And if you look at where we are, we're losing. But if you look forwards - and you know, not the naive and kind of stupid way, but based on some of the more fundamental underlying structural shifts in the economy - I think we're winning.

Well, so it's very interesting. You say: well, of course, we can absolutely decouple because... I mean, there will be people - I don't know whether they'll watch this - they certainly should, they might learn something, but there will be people who say, they'll be jumping out of their chairs and saying, you know: no, it's absolutely clear, absolute decoupling is impossible. I mean, you brought Herman Daly into it earlier. You know, his acolytes will be saying: it is thermodynamically impossible to have economic growth on a finite planet, etc., etc. Jason Hickel will be saying: oh, there's much, too much stuff that needs to be shifted, you'd have Vaclav Smil saying everything takes 50 years, so you're a fool. He would say it in a very nice way, because he's a charming guy, I'm paraphrasing. You would have people saying: oh, the energy returned on energy invested from the technologies, solar and wind that you mentioned, are far too low, and of course, only nuclear could possibly achieve this. And so, you'd have some people really riled up by your answer. But you're convinced that absolutely, we can have absolute decoupling, you're likely to...

Totally convinced. You know, and I know all of those people, if you're watching: Hi! I mean, they're very nice people. In fact, in many cases, very good friends. And so we have this: Hi!

You heard it here. You're nice. But you're wrong!

Yeah, right. You're great. But you're wrong. And I think, for me, at least, this is actually fairly obvious. So one point I'll concede immediately, right. Which is that you, in theory, can have infinite growth in value on a finite planet. That's clearly true. That's not a concession. That's my point. But the thing I'll concede is that practically, right now as I sit here, it seems pretty difficult to imagine infinite growth forever and ever, right on a finite planet. But we don't need to be thinking about 100 million years into the future or, you know, 2 billion years into the future, or even 20,000 years in the future, if humanity gets that far, I'd be really thrilled. And in the course of the next hundred, two hundred, maybe even more years, this idea that we're going to come up against some fundamental thermodynamic limit. I think is just misplaced. And the reason comes: well, there's lots of reasons but let's take the energy return on energy invested point. So for those of your viewers who aren't familiar with this, this is the idea that it takes a certain amount of energy to build a solar panel, you got to get some energy out, to justify the energy that goes in. And the claim has been that amount that you get out is low, you might only get five times as much out as you put in, that's probably 10 years ago, and then until maybe you only get 10 times as much. Okay, well, maybe you get 20 or 30. And the point is that solar panels get more and more efficient, and as they get cheaper, you get more energy out compared to the energy you put in. And fundamentally provided you're getting more than one. I mean, okay, significantly more than one, but you know, some multiple of one, you're getting more energy out than you're putting in. And then the question is, well do you have to make the solar panels with fossil fuels? Because you've got to make them with fossil fuels <inaudbile>? And of course, the answer that is well no, in due course, I mean, so we'll make solar and we're fine. So you know, I don't think there's any... Go back to your thermodynamics, this is not a closed system, Michael, you're gonna remind me of the correct term?

Yes, it's closed, because it's close to matter, largely. But it's not an isolated system

That's right. Your engineering is older than mine, but it's accurate. And it's... We've got all these photons beaming in it.

Yes. The energy return on energy invested discussions is a fabulous one, I enraged people on Twitter by pointing out that if nuclear produces 60, a return of 60 over 60 years, and renewable energy produces a return of 20 over 20 years, those are exactly equivalent. Because, you know, just saying: well, all we care about is energy return on energy invested. It's like saying: I judge an investment based on the cash return. And I don't care whether it takes 20 years to double, or 100 years to double, or 20 minutes to double, my investment. And it's of course, that's not how you choose investments. Its energy return on energy invested per year is what you should be looking at. Once it's more than one.

Yeah, and I guess... For me, the slam dunk point is that the cheapest energy is going to win, even if it has lower energy return on energy invested.

I think we're furiously agreeing. And I think it'll be interesting to see how this plays out. Actually, what I'd love to do is kind of get a short segment here, where we get you on the record for posterity with a few sort of, you know... This is the sweepstakes round. Which year will peak emissions be? And you're allowed to say 2019, because obviously COVID has taken a big slice out of emissions. And so, in a way, your answer might encapsulate some thought about what happens in terms of the bounce back after COVID?

Well, I'm going to a pain Michael, of course. And say, the premise of your question is a deterministic world where we can specify an answer. And of course, that's not the world we live in. So let me give you a couple of scenarios.

Give me a probability distribution function.

There you go, that's probably better, even better would be a number of different probability distributions. So we had some ambiguity around this... So I think it's a reasonable bet that 2019 will be the year of peak emissions. And I say that because it's, obviously, they're going to be down significantly this year, 5% to 10% down on last year, it's a big drop depending on, you know... Who you believe in how it plays out? And then the question is 2021, we will have a bounce back in economic activity that will lead to emissions returning, but it doesn't need to lead to them returning to the level that they're at in 2019. And this is where kind of forecasting becomes, in a sense, the wrong paradigm. Because these are, these are function of choices that we make. And we can choose with these recovery packages to have emissions lower in 2021 than in 2019. And I think the evidence thus far, you look at the EU and the German package, they're in pretty good shape. The Americans haven't been particularly strong on this, as you'd expect. But actually, in a way, if there's no big recovery package before the next election, that means whoever is the next prime minister has control that... A president rather, has control over it. And that could be a good or a bad thing. China, it's all to play for right now. There are some good and bad signs. But you know, these are conditions and choices that we have to make. So it's not a bad bet that 2019 is the peak. If it isn't the peak, it will be probably because we have failed to take the green recovery seriously. And in that kind of scenario, you're peaking, you're still peaking within the 2020s, I would say, perhaps late 2020s. But yeah, just because the fundamental structural drivers, that we were talking about before, of cleaner becoming cheaper.

Yeah, for what it's worth, I think my answer is 20... It's either 2019. Or it's sort of 2024. Because I think that in that second scenario, I think that the COVID recession is going to take a few years to recover from. So I don't see it as being 2021 or 2022. We bounce back to the old levels. I think that takes a bit longer. But then these powerful downward, downdraft of efficiency, solar, wind, etc., etc. cut in. And I think, you know, if COVID hadn't come along, I would have probably said 2026 - 2027 - 2028. But with the recession, so I don't know... I mean, I think we've probably... We could probably split the difference over another beer at some point when COVID is over. Okay, so what about peak oil? I mean, that has to be part of peak, something at some point, but we, you know... And there is... You've now got even Saudi Aramco IPO document said that they anticipate peak demand for oil in transport to be this side of 2040. What do you reckon? If you had to pick a year, if I forced you to choose one, what would it be?

Well, so we were at roughly 100 million barrels a day, weren't we before the crisis. And now we're down to, you know, 90 or below, I think, on an annualised basis. And oil demand was still rising before the crisis, I guess. So I take the aviation forecast that I last looked at, that seemed plausible to me was that air travel is not a huge chunk of oil demand, actually, but the kerosene demand would take five years to recover. I think land based transport recover more quickly, but then, you know, by 2030 you start to get... Sorry, I'm thinking aloud here, but I guess I would say, I think it's probably... Again, I mean, it's not completely impossible it's 2019. But it's much, you know, it's probably less likely. And I would say it's probably in the 2030s because, you know, the simple reason is that it's a much easier job to squeeze your emissions out of Europe electricity sector, because of the cost advantages of renewables than is to replace all of your transport with solar and wind or other. Yeah, fundamentally solar wind powered molecules or electrons. So yeah, I think I'm probably in the 2030s there, possibly even late 2030s? Again, it depends on the scenarios, these are things that we have some control over, it is kind of for us to choose.

Yes, I think that I'm probably a 2030. Maybe, you know, maybe if I'm feeling good, I'll say this side of 2030. Otherwise, that side, but it is very hard in transportation, because we've just got so much of the supply chain of electric vehicles and the chargers. And we've got so much still to build. And there are cars, and there are vehicles that just take a long time to cycle through the fleet.

Yeah, a big chunk of it.

Have you done any work on plastics, chemicals? Because of course, the other piece, that people said it's all very dull to talk about industry. And usually people just say: oh, hydrogen, and hope that's the get out of jail free card. But have you looked at particularly around biofuels, bio plastics, chemicals. Because that's... You know, a lot of oil companies say what they'll always be, they'll always be plastics. So we can reorient our business around that, even if the transportation piece goes away or comes under huge pressure.

Yeah, I'm familiar with that line. And I mean, there's a sense in which is not a bad line for a while. But to give an example, we've got a programme at Oxford on the future of plastics. And we've already got technologies that are economic to produce plastics, not from barrels of oil. They're far cheaper to produce them from captured CO2, actually, because it's purer. And you don't have to be, you know, processing all of the nasties that come up with a with a barrel of oil. So I mean, these are very niche, high value products at the moment. But it's not, you know, it's far from inconceivable. I think it's, you know, it's virtually bound to be true that before the century is out, we'll have all sorts of different feedstocks for plastics that aren't petrochemicals, will either be bio or there'll be direct, you know, if we sought out direct air capture at low cost. Then you got your carbon from your CO2 molecule that you capture, and you got your hydrogen from splitting water, which is all powered from the sun and the wind and off you go start building up your hydrocarbons that way.

Yeah, had you said 2050, rather than the end of the century. I would not have been... I would not have disagreed. And it seems to me inconceivable that the best way of getting a big complicated, nice molecule, hydrocarbon molecule will be, you know, sucking brown goo out of the ground and then looking for the big molecule. You know, rather than just building it, whether that takes 20 years, I don't think it's gonna take 80 years. I think it's gonna take 20 or 30 at the most.

Yeah, well, I mean, you might be right, that it's so well put this way. You're certainly right, because some of these plastics are already being produced as well, because it's cheaper. So the question is, how long does it take before you squeeze out all of the petrochemical base plastics from the global economy? And I think that takes a bit longer.

The end point will be after the beginning. That's for sure. Okay, good. So I've been, I've got emissions from energy in 2030. You said that a peak before 2030? What do you think they'll reach by 2030? Sort of from... Let's go from 2019 down to 2030. What do you reckon? Just for posterity name a number.

So we're... So emissions from energy, so we're about 35 billion tonnes, gigatonnes a year now. 2030, again... I'd be thinking about scenarios. I guess, I would probably not quite on a... I'm certainly not on a 1.5 degree scenario, probably around an IEA or an Aurora. Say absolutely in Aurora, two degree kind of scenario, which is probably roughly 25 to 30. ish.

That is a five out of that, so about a 12% or 13% to a 25%. reduction.

Yeah, so you might think not huge, but then...

No, I think that's absolutely huge. Compared to 2019 emissions, I think it's huge.

Yeah. So but, that's... That... Yeah, I think that's totally plausible, particularly given that we've just knocked... You know, okay, it's gonna come back on again, but we've just knocked 10% of...

I'm probably somewhere around 7,5%, maybe 10%, down from the 2019 figure. Just can't, I can't... I just think these, there's so much inertia and growth in the developing world. And then, which year for net zero?

So I don't... So we've just, you know... UK has got it net zero by 2050 target, legal commitment, I should say. And, you know, got a lot of countries in that category now. But these are the leaders. So if could be global, by global net zero isn't going to be before 2050 at the current rate. So what could change that? If you had a bunch of really severe climate impacts and generational shift, which of course, we will have before then. The people with their hands on the levers of power will have grown up with, this an issue, and know that action is required. And, and those who just haven't properly understood the science, I think, will be in in very low numbers. But so, so I'm not ruling global net zero out by 2050. But I'd say it's a very big stretch. I mean, I think probably 2070 is more realistic, which still puts you on a two- ish, you know, degree world, and I think that's probably where we end up about two, maybe a bit higher, possibly a bit lower. And that depends up, again, depends up on our choices, these are not some...

This is another one where there's going to be people watching, if anybody is watching it, jumping out of their chair and saying: you know, you are condemning the world to this appalling apocalypse of two degrees, and we have to go for one and a half to get. There will be other people, I mean, in my book, what you've just said: net zero by 2070, you know... Well, this side of the century, actually makes you an optimist. And, and so, you know... I'm hearing where we're going be, you know, something like, what you said... 5 to 10 gigatonnes emissions down by 2030, we're going to be at net zero by 2070, to also central scenario, depending on what we do, and with all the caveats that I'd have expected from you. That's pretty optimistic. So I mean, is that fair to say? Yeah, I know, you are an optimistic guy. How do you square that with some of the stuff that you see around in the political space?

I am an optimistic person by nature. And certainly, you know, the kind of parameters of you've pinned me on to one particular set of numbers here, which I would prefer to resist, but it's not for instance, the Aurora central scenario, which is far less optimistic than mine. But so how do I square that with current politics? I think, there's quite a lot to be pleased with, and optimistic about, in the current political environment. As I say, the Germany's recovery packages, you know, 30% to 40% green, depending on how you count. And obviously, we need to study the details. These are big numbers going into turning the economy around. You've got the IMO commitment, International Maritime Organisation on shipping. Tremendous progress in the cost of electrolysis is... Michael, you know, coming out of China cost reductions there. And we saw yet more records being broken on the solar cost side. So I... For me, these numbers, these cost numbers, which people keep dismissing, you know, like a few years ago, it was... Well, we've seen those wind numbers, they're just options, nobody's actually going to build a wind farm at that price, and the wind farms get built at that price. So these kind of cost reductions, 140£ a megawatt hour down to 50£ pounds a megawatt, stunning progress. And that's what we're able to do, when we put our minds to it. Now, I guess you asked about the political environment, rather than the scientific and tech environment. And there, yeah, the politics has always moved more slowly, will keep moving more slowly. But actually, politicians are just responding to their voters. And public opinion is changing helpfully here, too. It was changing very strongly before the pandemic. And you've probably seen the Yougov poll showing that. You know, in many countries, it's 70% to 80% of the population want a green recovery to this pandemic. Even in, you know, countries like the States, which has not been particularly proaction on climate change in the last few years. It's a comfortable majority who wants a green recovery. So I take some pleasure in those numbers.

And... So what, what keeps you up at night? No, do or does anything? Is there another side to you sort of, if you drank another three Coronas? Would you suddenly start sort of saying: well, actually, there is a chance that this ends in, you know, real catastrophic outcomes? And, you know, do you sometimes say: well, you know, actually, we are all being way, even those people are concerned, you know... You and I being... Because I broadly see things the same way that you do. Are we being way too complacent?

Well, I'm so... To give you a literal answer to your question, there's only two things that keep me up at night. One is actually trying to do some research, because, you know, my day job is managing a school and the only time I get to do any thinking or writing is between about 10pm and 2am. And the other thing that keeps me up at night is my children. So I'm not being woken up by nightmares about climate change. But I probably should be, because you can hold these two thoughts in your mind at the same time, which is one optimistically the combination of technology and awareness and sensitive intervention points, you know, the sort of tipping points that we talk about in our academic work, will get us to somewhere like two degrees, on the one hand. And yet on the other hand, as you rightly point out, there'll be people listening to this saying: you're condemning humanity to horrific climate catastrophe. Which is also, I mean, I'm not condemning anybody, I'm just trying to give a slightly ludicrous point estimate. But it is highly likely that we will have very, very serious disasters to face. And the thing that I'm really worried about, probably the biggest climate related risk, is a multi-breadbasket failure, where you have climate impacts in a number of, what are called, breadbasket major crop growing staple regions, that grow what we eat around the world. And you can tolerate a drought in one area in one year, and a flood in another area in another year. But the risk of those events individually is rising quite rapidly. And then the risk of joint events thus rises as well. And you get a multiple breadbasket failure, and then a lot of us are starving.

I agree with you. I think that the, you know, the sort of monsoon failure type outcomes, that's what really is incredibly scary. As is... I think long term sea level rise, just the inexorable rise. You know, if we are talking, you know... There's a lot of focus on sort of this century and 2100. But actually, I don't want, you know, I don't want... I don't want London to be underwater in 2200, or 2300, or 2400. It doesn't keep me up at night. But there are some really big urgent things, as you pointed out. And there are also some really big long-term things, and the fleet feedbacks, and so on. I mean, we could get onto, we could do a whole other hour on how these get encapsulated or not in climate scenarios, and the dreaded RCP 8.5, which tries to pretend that the long term things happen in the short term, and so on. But I really strongly suggest that we don't go there.

I'd agree.

It's been incredibly fascinating. It's been great catching up. You know, we've both been in lockdown. So we... haven't seen you around for a good few months, I hope to again, soon, we'll have another beer, live, face to face.

In a socially distanced way

And I'm going to buy a new bike. As soon as, I know, that COVID is over. And I have some economic, you know, as soon... As soon as the pressure is off economically, I'm going to be out there. I'm gonna buy a new bike, and I'm going to lead you up and down those passes next time.

Of course, the risk in buying a new bike is that the excuse that it's the bike goes out the window. You've got to actually do some training then.

You haven't seen that bike I've got my eyes on.

All right.

It may have a small motor. I think that's fair. You know, I'm giving... you're giving me a few years disadvantage. Give me a small motor and a little battery.

Yeah, fair enough. Okay. I promise you. Hide a motor.

Look after yourself. Stay safe.

You too. Enjoyed the conversation, see you.

So there you have it. The first episode of 'Cleaning Up'. Cameron Hepburn, an extraordinary friend, and an extraordinary leader in the world of enterprise and environment. Our guest next week on the second episode of 'Cleaning Up' will be Rachel Kyte. I've known Rachel since she was at the IFC, the private sector part of the World Bank, all the way through her time as the Special Representative on Climate Change at the World Bank. And then working as the CEO of Sustainable Energy for All, we've worked very closely together. She's a great friend, she's one of the leading voices on clean energy, climate and sustainable development. And she is now the Dean of The Fletcher School at Tufts University, one of the leading schools in the world on international relations. She's an extraordinary woman. It's going to be a great conversation, and I very much hope that you join us. Thank you.

Ep1: Prof. Cameron Hepburn "Building back better"

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