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162: Are We Seeing the Extinction of Fossil Fuels?

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Buck: Welcome back to the show everyone. Today my guest on Wealth Formula podcast is Hunter Lovins, the president and founder of Natural Capitalism Solutions which is a non-profit formed in 2002. She’s a renowned author and champion of sustainable development for over 35 years, has co-authored 15 books and hundreds of articles and was featured in the award-winning film Lovins on the Soft Path. She is a two-time winner of the Shingo Prize and has been featured in the Harvard Business Review. Hunter has taught at numerous universities around the world and currently is a founding professor of his sustainable management at Bard MBA Hunter lectures regularly to audiences around the globe and has brief senior officials in more than 30 countries. Hunter, welcome to Wealth Formula podcast.

Hunter: Thank you so much it is an honor to be with you.

Buck: It is great to have you. And well let’s talk a little bit about you know your area, sustainable development I think the most basic question for some of us less and less involved with this you know who are in the thick of it would be what exactly is sustainable development?

Hunter: It is a way of meeting the needs of the world that does not destroy our life-support systems that enhances everyone’s well-being. The way in which we do development now and indeed most of economics is really good at flowing money to the 1% or 0.01 percent while many of the rest of the inhabitants of the earth human and beyond human are suffering. So there the Oxfam number from a few years ago is that 8 men have as much wealth as the bottom 3.5 billion poorest. Inequality is now at soaring levels. Studies from Thomas Piketty’s book Capital in the 21st Century to the human and nature dynamic study show that high levels of inequality like this are causative of collapse. And indeed the HANDY study observed that under conditions closely resembling those now on the planet we find it very difficult to avoid collapse this is unsustainable.

Buck: The collapse of government’s collapse of what?

Hunter:  Total system collapse. And the HANDY study studied collapse throughout human history they found it’s actually fairly common, when it happens it lasts for hundreds of thousands of years you really don’t like it. And they said it is driven by one or both of two things you overrun your resource base or you have high levels of inequality. Hello we have both.

Buck: Right exactly so give us an example in history when that happened.

Hunter: The Handy study went through a whole series of examples indeed there are cultures that we are only now finding the remnants of but the Roman Empire is one example the collapse of the Mayan Empire collapses of empires across Asia and arguably the the now incipient collapse of our own.

Buck: Yeah so what do you say to people argue well you know we live in different times now we live in a global economy you know things are different than they were during the Roman Empire and you know we have all sorts of different support systems you know sort of life support systems as we’ve seen in numerous occasions to back up that idea of you know collapsing and maybe falling into the you know zombie apocalypse?

Hunter: Well it’s ironic we actually know more about how to survive a zombie apocalypse then we know how to build a world that works for everyone. But the the life-support systems are failing. We are losing life on the planet now at a faster rate than since when the dinosaurs went extinct. The great scientist Robert Watson in a piece two days ago said that the loss of biodiversity is as serious a crisis as climate change, of course both are very serious and they are interconnected the our ability to provide for the well-being of almost eight billion people now is increasingly at risk and so we have across Africa the Middle East sixty eight million human beings as refugees. What are we going to do with those people? They’re fleeing failed crops, failed states, religious ethnic rivalries tensions war, and all of these are interrelated to the unsustainability of the way in which development is done.

Buck: So the thesis is I guess not only so it’s it sort of two-pronged as I can tell one is one is sustainability in terms of the environment in terms of our resources and then the other sustainability in terms of our global stability because of inequality and trying to kind of deal with those at the same time is that fair?

Hunter: Yes sustainability is not just about the environment it’s certainly not about polar bears it is about how we and all of life live on this planet and we cannot have a spaceship earth as I’d like Stephenson pointed out half wealthy half poor half incredibly well fed half hungry half with access to the greatest knowledge humankind has ever had and half uneducated and struggling.

Buck: Right now when you look at how to address these problems how do you address these problems while staying within the confines of free markets and not immediately jumping to you know I guess tax the top one percent and and try to create you know try to tax into equality what other options are there?

Hunter: Lots and lots and that’s the good news. You know don’t do this because it’ll put you in a very bad mood but you can Google near-term human extinction and find what purports to be science saying that humans go extinct within 10 years. I think the attitude taken by groups like dark mountain that it’s over we’ve lost is profoundly irresponsible. We have all the technologies we need all of the policy measures we need to solve all of the problems facing us so let’s go. My organization Natural Capitalism Solutions, our middle name is capitalism. Let’s use the very powerful market mechanisms that we know about to encourage entrepreneurialism the greatest force of innovation that humanity has ever developed. We know how to solve the climate crisis at a profit through allowing the market to work. Now across the world renewable energy is cheaper than fossil energy. It is only going to become more so. So we have idiots saying I dig coal, I’m gonna do everything I can to keep coal was an option when coal is dying from an attack of market forces. it simply is no longer cost-competitive with energy efficiency, solar, wind,  battery storage. I work with a man named Tony Seba who says inevitably for fundamental economic reasons the world will be a hundred percent renewable powered by 2030. That is 20 years ahead of when the UN says the world has to be carbon negative if we’re going to avoid the worst ravages of climate change. Tony’s a Stanford Prof, Silicon Valley entrepreneur who says this is being driven by four forces: fall in the cost of solar, falling the cost of storage batteries, the electric car, and the driverless car. No polar bears involved. This is basic market economics. I live on a ranch that is powered by the Sun. I Drive a leaf a little electric car and I have a higher quality of life from doing that lower cost of power to meet all of my desires, it’s just a better way of living. Now if Tony is right and I think he is more right than not, we are looking at the dissolution in value within 10 years time of oil, gas, coal, uranium, nuclear, the utility industry, the auto industry, the banks that hold paper, and them the insurance companies and pension funds that are invested in them. That’s going to be the mother of all economic dislocations unless we manage this transition. One for a just transition taking care of the people who would otherwise be left behind, but getting the economic institutions like the banks like the pension funds to recognize that it is no longer good business to hold fossil energy stocks. So a few years ago a group of us got together and created a little company called change finance to do just that, transform the finance sector. We built the first index of companies that are truly fossil fuel free. Launched it on Wall Street and it is it it’s a large and ETF that is according to fossil free funds the only hundred percent fossil free index. We have the lowest carbon footprint of any large blend fund and this is a way that you can get your money out of ownership of fossil stocks which are about to be stranded. Group called carbon tracker last November came out with a report saying that the fossil stocks that are about to be stranded represent 23 trillion in assets on on various balance sheets. And they said peak fossil 2023 it’s coming it’s coming fast where is your money?

Buck: So tell me, help me understand why what are the forces that are what are the forces that are preventing in this case what you’ve described not as a you know not as a social you know save the polar bears as you’ve eloquently put it movement but as simply hey this is these are market forces this is what it’s you know this is how it’s going to happen. What are the forces that are in the way of that if there are?

Hunter: Inertia. This is the way I’ve always done it what’s wrong with the way I’ve always done it and I’ve had this debate with for example a guy who advises the New York common fund one of the really big pension funds and I pointed out the work from a brilliant man named Tom Sanzillo that had the New York common fund divested from owning Exxon and other fossil stocks ten years ago they would have made seventeen point five billion dollars more than they did make. Exxon time used to lead the indices, it no longer does and fossil stocks are dragging down portfolios. People say well but there’s you you have to Modern Portfolio Theory you know you have to be invested in in all asset classes. Not if they’re going down, that’s just bad investment philosophy. Modern Portfolio Theory didn’t help anyone in ‘08 and it surely won’t help anyone in the in the coming dislocation if we don’t make this transition to a to a green future in an orderly fashion. The ‘08 collapse was over 2.7 trillion in stranded mortgage assets, if it’s 20 plus trillion of stranded fossil assets, you don’t want your your money anywhere near that stuff.

Buck: You see this as a, I’m curious kinda how you see this playing out if there’s not some concerted effort to make orderly transition from carbon fuels to sustainable energy. Like what do you what do you see happening and what is it that needs to be herded?

Hunter: Well for example in about 2015 Peabody Coal had a little item in their 10k that if this divestment movement actually took hold it might negatively impact their stock value, it was less than a year in Peabody was broke, bankrupt. These are the kinds of one-off dislocations that when you put it all together as the world transitions to renewable energy, again for fundamental economic reasons, oh and because if we don’t we will continue to have the fires in California, the Cyclones hitting Mozambique, the bomb cyclone that hit the Midwest, the rains that are literally today flooding Houston, these all have economic impacts. Corporate supply chains are at risk from the effects of climate change, oh and people are dying and people are having to leave their homelands. So we can solve all of those problems and do so at a profit if we’re smart about it, we just have to ensure that the money transitions in an orderly way and that the people whose jobs will be lost have somewhere to move in to.

Buck: You know my friend and CPA Tom Wheelwright who’s a very smart guy when it comes to taxes describes the tax code to me as a series of incentives, right? And the incentives you know certainly in the last several decades I don’t know how long, but for investors particularly investing in private investments in oil and gas or coal etc, are tremendous, right? I mean they’re the possibility for tax benefits is enormous. I’ve always been struck even to now how there really isn’t the same level of tax benefits for sustainable energy. And in the context of what you’re saying which is the market forces dictate that this is you know this is the future I would think that there would be significantly more lobbying efforts on Capitol Hill from sustainable energy and to try to improve some of those tax incentives…

Hunter: There are some tax incentives for renewables the investment tax credit and such. The subsidies that are given to individuals who buy electric cars, although in my case I bought a used one so the tax benefit was already gone, and I bought mine in part because a friend said he had bought one and what he paid in his monthly car payment was what he used to pay in gasoline, so in a sense he had a free car. I said really I went took a look round the numbers and sure enough.

Buck: Sure no and I get that I understand that and there’s a lot of you know there’s a lot of reasons for it economically but it hasn’t really hit the government code it hasn’t hit the tax code. I mean there is incentives but nowhere near what you see in oil and gas and coal.

Hunter: Well take a look at what the fossil companies pay in lobbying.

Buck: Well that’s my point exactly.

Hunter: They have a wholly owned and paid for Congress so globally there are five point three trillion dollars a year given in subsidies to the various forms of fossil energy all of the subsidies ever given to efficiency renewables as a fraction of that.

Buck: My point I think in part is that if we’re saying that free market forces will dictate that renewable energies will sort of rise to the top. That those lobbying efforts should actually shift in resources as well, right? I mean those renewable companies those solar companies etc should start to be able to get to the point where they own the Congress not oil and gas and coal.

Hunter: Well I would prefer that the people own the Congress but then I believe in the tooth fairy too. What’s amazing is that even given the massive incumbency power of the fossil industries, that solar is doing so well. Here in Colorado in the end of 2017 our coal loving utility put out an all source bid: who can get us 1,100 megawatts any price any source y’all bid. Fossil natural gas came in at four cents a kilowatt hour. Wind came in a bit below two cents, solar a bit above two cents, wind plus solar plus storage three cents a kilowatt-hour. So we said no bid it again the solar tariffs well solar tariffs had raised the price for the cost of solar had brought it back to where it was the numbers came in the same. Went to the Public Utility Commission and said can we close two of our coal plants and pledge to go two-thirds renewable? Since then they have pledged to go 100% renewable. These are real-life commercial utility scale bids from the renewables industry so maybe they don’t even have to go to Congress lobbying, although they they endeavor to and they endeavor to get a level playing field. I mean we’re talking about the free market as if we had one, we don’t. We have what my friend Randy Hayes calls cheater economics cheater capitalism where the incumbents are heavily subsidized and even given that renewables are winning. So again where is your money and do you want it tied up with an industry that is manifestly a losing industry.

Buck: Sure and I think one of the things that I think potentially is not there yet that would benefit is you mentioned for example in the case of oil and gas you’ve got companies like Exxon, these big companies that are known as industry leaders, you don’t really have those so much yet in in renewables do we?

Hunter: No, although they are coming what is too bad in in a sense is that many of them are coming in China. The Chinese government took a look at the basic economics and said it’s all over but the shouting and has put a lot of subsidies into solar into batteries into electric cars. When I was in China about a month ago they had opened an entire freeway lane for autonomous vehicles. Autonomous vehicles will cost you one tenth what it costs to buy fuel maintain insure a private vehicle to deliver what you want which is to get from here to there. And they’re coming there on the road today, when I was in Vegas last December from national finals rodeo I whistled up a lift and up came a little dialog box would I accept an autonomous vehicle and I hit yes yes in the event I got one with a driver but recently Ford Motor Company announced it was buying room on the electric truck company we’re going to start seeing electric SUVs electric pickup trucks. Tesla has said we’re going to have an autonomous vehicle transit service we’re gonna shift from the mental model of I own a car to I purchased the service of getting from here to there. And when we do that of course there go the oil companies. So the smart oil companies will start to transition and if you look for example at Shell Oil’s recent scenarios, their sky’s scenario sounds very like what I’m talking about it’d be interesting to see if the corporate leadership is smart enough to move that company in that direction.

Buck: What direction is that? Can you talk a little bit about what are you seeing with that?

Hunter: Shell was many years ago back in the 90s the world’s largest company in one of the world’s smartest because they used this discipline called scenario planning, where they told themselves plausible contradictory stories about how the future might unfold. Based on that work then they found it entirely plausible that by 2050 Europe would be half renewable. So they created Shell solar wind Shell hydrogen Shell efficiency then the very capable manager Sir Mark Moody Stuart was managing director rotated out man named Phil Watts came in Phil was an old-line oil man he said we’re just on a drill oil. They had a little problem they didn’t have the proven reserves of the other oil majors now to Sir Mark this wasn’t a problem they were transitioning away from oil. To Phil it was a real problem so he did what a lot of corporate leaders will do in that circumstance he cooked the books he got caught shell shareholders took the 40% share bath he then was replaced and the man who is now managing director has gone back to scenario planning. Shell has these three scenarios mountains oceans and sky. You can go on the Shell website and read these scenarios of how the future might unfold. Under sky it looks very much like what I’ve been talking about a transition to renewable energy not as fast as Tony Seba says we’re going to make it so then it’s a question of who’s right. The transition is fast right and so in that regard you may see a company like Shell or Exxon actually transitioning from an oil company to an energy company because they’re probably in the best position to take advantage of that you, see that it was that company the film photography film company that didn’t switch to digital cameras.

Hunter: You mean Kodak.

Buck: Kodak right and went broke well presumably they were in the best position to adapt the technology and take a lead because they had the you know they had the brand and they had the money etc and this could similarly be one of scenarios where you have some of these oil leaders actually coming out and being the big companies in renewables.

Hunter: But you have to have the intelligence and you have to have the unfettered foresight now scenario planning will give you that. Will Shell be smart enough to then execute on that? If I were holding a shell stock I would be looking for every evidence that they are or I’d be getting the heck out. I don’t believe Exxon has that intelligence obviously remains to be seen. Exxon is making a big play around algae oil but it’s still this notion of we’re gonna sell oil. Yeah but if you have autonomous electric vehicles does anybody gonna want to buy your oil right? So recently Shell bought the largest electric vehicle charging company in Europe I went aha somebody’s awake over there right right makes a lot of sense.

Buck: Well listen tell me a little bit about your consulting, what types of consulting you do and you know tell us a story about a victory or you know some promise that you saw through one of these consulting efforts.

Hunter:  Arguably the biggest victory was a little company called interphase carpets. Man named Ray Anderson had bought a European carpet company and its employees said what’s your environmental policy. Ray said do we have one? Quick somebody get me a book on the environment. A woman handed him a copy of Paul Hawken’s book Ecology of Commerce and the book essentially said business as usual is destroying life as we know it on the planet it is therefore the business of business to save the earth. Ray read the book the night before he was to give a speech to this the employees of this new carpet company that he owned and described the moment as a spear in his chest. He said there is nothing sustainable about my company. We take thread made from polymers made from oil spin it into carpets where it lays on the floor for maybe five years then we tear it up send it to landfill where it lasts for 20,000 years. And he said we are going to be the first company of the next Industrial Revolution and I haven’t any idea how to do that. He called poha consider there any others out there like you Paul said yeah pulled a bunch of us together, Ray created what he called his dream team and over the next five years or so we helped Ray transform Interface into a commitment to have zero footprint zero negative impact on the earth 100% renewable 100% circular economy closed-loop no waste. Interface isn’t all the way there yet they set the goal of 2020 but they’ve come a very long way and I was sitting with Ray in 2001 and he was amazed he said I did all this because I thought it was the right thing to do. What I’m finding is every aspect of my commitment to sustainability is enhancing shareholder value. And that got me to think what is shareholder value you’ve heard the phrase the triple bottom line that companies should have these three bottom lines of profit and then people and planet. In practice that doesn’t work come on we know if times are hard the company’s gonna look at profit if I got to make payroll where’s the money coming from. But if I can show you that a commitment to behaving responsibly to people and to planet enhances every aspect of profitability, now it’s not something that’s bolted on it’s integral to the way you do business. So behaving more responsibly cuts your costs because you’re no longer wasting. It reduces your risks if you’re not having toxic materials if you’re not endangering your workers or the communities in which you do business you have less Liability, you’re less likely to get sued, you have better access to impact investment these are the kinds of companies that particularly the younger people who are about to inherit something like what thirty trillion dollars of daddy’s money want to put their money into. It better differentiates your brand it enhances worker productivity if you enable your workers to be implementing more sustainable practices as part of their day job they’re engaged and an engaged workforce will give you six to sixteen percent higher productivity. It enables you to reduce the cost of distrust. When Walmart started going green it cut in half the number of people who said I will never shop at a Walmart. Then of course they lost all of that brand equity when some idiot store manager put out a box so that the Walmart associates could donate canned goods so the poorer Walmart associates could afford to have a Thanksgiving, they just shot themselves in the head. Basically the companies that get it right will be first to the future and this approach that we call the integrated bottom line shows that behaving more sustainably it’s just better business.

BUck: This is good information. If somebody’s interested in learning more about this topic and sort of understanding the free market elements of this and what you’ve been talking about what should they start with? What book should they read? What research should they go to? It can be any of your own stuff as well but I’m curious sort of from an investor 101 standpoint where would you point them?

Hunter: They can go to the website change-finance.com and read a lot of my short writings. They can come to the Natural Capitalism website and get more of my writings. They can get my latest book A Finer Future: Creating an Economy in Service to Life. They can read the brilliant book by Kate Raworthh called Donut Economics. Kate says we have to live below the planetary boundaries, but above the human minimums. This sweet and safe operating space for humanity. There are literally hundreds of books now, if that’s too much come take an MBA at the Bard MBA in Sustainable Management where I teach where every class is taught from the standpoint of how do you do business honorably in this time of crisis and where this concept of the integrated bottom line is baked in to how we teach you to do business.

Buck: Hunter thank you very much for joining us today on Wealth Formula Podcast.

Hunter: Thanks so much for having me it is a great honor.

Buck: We’ll be right back