Policy Gaslighting² – Social Transformation Biggest Potential Force for Meaningful Climate Change³

Change is hard until it’s made so easy to do, it becomes the ‘new normal’ and we all do it in big way.

In 1807, gas street lamps on Pall Mall were lit by the London and Westminster Gas Light and Coke Company, making it the first street in the world to be illuminated by the warm glow of gas light. Incredibly, in the face of cheaper alternatives, several areas of London are still lit by natural gas (1300 gas lamps) two centuries on, including a large part of Covent Garden, the Royal Parks and the exterior of Buckingham Palace. Earlier this year, members of the City Council of Westminster, in direct rebuke of clean energy targets of London, successfully revoked converting to electric powered LED lighting on account of these gas lights were:

• “an enchanting feature of the area,”
• “replacement would mean losing something historic” and
• “Westminster is the oldest city in the world that was lit by gas … and thus has a responsibility to history to retain the original.”

It’s not just the British, 25,000 gas lamps remain in Berlin, 2,800 in Boston, 700 in Prague and 4 in Hong Kong. This entrenched behavior occurs despite the fact that the world has had electric street lamps since 1875 and universally understands that the burning of fossil fuels is the main reason for increased CO2 emissions.

Consumption habits, and behavior in general, are hard to change. Mired in a realm of thinking fallacies (gas lights in 2022 is a responsibility to history!), perceived rewards and general challenges with commitment, an entire psychological practice is devoted to helping organizations and people develop positive habits. We have all probably read a self-help book or two about habit forming and are still struggling with effecting sustained change. Sadly, ‘old habits die hard’ even if you know they are harmful.

However, when societal sentiment does change, broad based behaviors can drive massive new consumption trends. Despite the obstinance of gas lighting city governments, we feel that we are on the cusp of such a change for carbon-conscious consumption. This new normal will be made easy for consumers by offering them green choices for everything they buy. This transformational change will go beyond popularized electric vehicles and solar powered homes to everything from:

• soft drinks – PepsiCo,
• cosmetics – L’Oréal SA (Global Bioenergies)
• banking – UBS (Togetherness Program)
• apparel – Patagonia (Worn Wear Program / Carbon Neutral Clothing ), to
• flights – JetBlue (Sustainable Travels Partners Program) and
• consumer product VCs – Regeneration VC (Leonardo DiCaprio’s family office).

Net Zero⁴ will Cost nearly $30+ Trillion – Removing 60 Gigatons of Carbon is an Economy onto Itself

Reaching net zero globally will require as much as $1.7trillion in spending each year for at least 20 years⁵.

Bill Gates, pursuer of ambitious global health initiatives, equates the effort and cost to transform to a net zero planet to 15 Marshall Plans – the monumental rebuilding of Europe after World War II that took the direct contribution of millions of people and their respective governments to achieve. Despite the obvious threats climate change possess to our well-being, nothing even approaching the capital commitments of a single Marshall Plan is in effect or contemplated by a major government. No central government mandatory plan exists that remotely achieves self-imposed, idealistic emission goals. In fact, over the last 20 years US natural gas power generation has tripled to 1.5 trillion kWh, 40% of the nation’s total. Unfortunately, little political will exists to reverse the trend of fossil fuel consumption⁶.

Decarbonizing the Grid Chart ~ 20 of 60 Gigatons – Total Carbon to be Removed to Achieve Targets

Wired to current versus future existential threats, 98% of society is completely disconnected from climate related matters. The vast majority of people lack reverence for our environment and possess zero sense of feedback for nature’s current rate of loss. So, despite the incurable ambivalence and resultant lack of devoted resources, how could we possibly have reached a positive inflection point? What has so drastically changed to influence the actual removal of a meaningful portion of the estimated 60 gigatons of carbon from our biosphere by 2030 that is required to avoid disastrous global temperature increases?

Consumption Driven Decarbonization – A Capitalist Path to Meeting Environmental Goals

Meeting the carbon and greenhouse initiatives of self-regulated corporations is the largest profit-making opportunity of our investment careers.

In our previous new year letter we recommended Post CORONA by Scott Galloway⁷. We wanted to explore how our post-pandemic teams would facilitate learning and working remotely together in new, perhaps better ways. This year in the aftermath of battling the virus that is reshaping our $25 trillion economy, we recommend ways to explore another behavioral trend – our invigorated willingness to do something about climate change.

More powerful than the current set of voluntary government climate policies⁸, the purchasing power associated to planet conscious consumer sentiment will indirectly enforce net zero standards and goals. Corporations producing planet harming products and services will be vilified or shamed by developed economy consumers. It will not be long before a consumer connects the maker of Poland Spring mineral water, Nestlé, to 180 million metric tons of CO2-equivalent emissions, 3x that of Boeing, and choose an alternative bottle of water. With political intransigence and most individuals lacking a clear path to influence policy at the macro level, consumers are defaulting to one area where they can exercise control: discretionary spending.

As a result, the basic need to compete for corporate profit will drive net-zero competitiveness to produce 
products and services with neutral carbon emission profiles. And, the recently defined international carbon off-set rules⁹ will dramatically improve the private sector’s ability to comply by making voluntarily offsets truly translate into real emission reductions.

The net-zero transition will occur at massive scale – retooling manufacturing processes, changing suppliers and welcoming a re-industrialization that is hyper-climate aware. Regardless of government policies like the SEC’s recent mandatory Scope 3 emissions disclosure requirements¹⁰ for public companies¹¹, more than 13,000 companies already disclose climate-related information to non-profit CDP¹². Some interesting measures include:

• Amazon’s renewable power portfolio is slightly larger than that of Electricite de France SA, which has the 13th-largest portfolio of renewable power generation assets globally.
• Amazon’s total annual electricity consumption is 24 million megawatt-hours compared to 62 million for all household lighting in the United States.
• Bloomberg estimates an additional 246 terawatt-hours by 2030 — about equal to California’s current power consumption — from today’s existing RE100 members. That equates to nearly 100 gigawatts of new wind and solar power contracts.
• According to the International Energy Agency, the world would have to add 1,000 gigawatts of wind and solar capacity per year to limit the average global temperature rise to 1.5 degrees Celsius. That is 4x the amount built in 2021. The US built approx. 33GW last year.
• To reach net-zero by 2050, the world would have to spend $666 billion per year on renewable power and is currently on track to spend less than two-thirds that amount.
• Goldman Sachs’ Global Climate Change Analysis Model predicts a carbon tax that rises linearly to $100 per ton – or roughly $1 per gallon of gasoline – by 2030 (Canada and Germany carbon tax at $30 per ton today).
• If warming temperatures are to remain below 1.5 degrees Celsius, then 89% of coal reserves, 58% of oil reserves and 59% of gas reserves identified will have to stay in the ground, according to modelling work published by Nature journal.

Whether it’s the shocking impacts of the COVID pandemic, the California/Amazon/Australia wildfires or the mind-boggling floods in Germany, consumers are acutely aware of their own vulnerability to an antagonistic Mother Nature. A global temporal reorientation has occurred and now even our children understand that global disasters can smash civilization. Aligning their consumption to better influence, whether real or imagined, the outcomes of their surroundings will be an easy, positive action to take for millions of consumers. We think most large and medium sized companies are recognizing this profound sentiment and demand change, especially from the next generation of consumers. Top performers across industries over the next 2 to 3 years will rush to make their products and services demonstrably greenhouse gas emitting neutral. Employing renewable energy will be a widespread practice for these companies in helping them achieve these green initiatives.

In our recommended reads, we explore how some of the most thoughtful leaders of our time are envisioning how we can deliver the needed resources to industry today, without any new technological advances needed:

Green Electron Premium – Power Purchasing Considerations Value Sustainability

Paradigm shift in commodity power market valuations drives discount for uncontracted, future renewable power generation capacity to low single digit return levels (this is extraordinary!).

As many of you know, we recently monetized our $100mm+ investment in a solar+battery project development portfolio and realized in excess of two times our original senior loan amount. As thrilled as we are with the investment performance, we are equally proud of having originated projects with a power generation equivalency potential of 17 nuclear power plants across 6 states. We are hopeful the new owners make a good portion of these power plants operational over the coming decade. We have made similar asset-based investments with Sunpin Solar, and, just this month, with Bridgelink Power.

Last quarter, recognizing that we could leverage our learnings to further capture the insatiable appetite for solar power, we also launched a project development platform called Crayhill Renewables in partnership with Exelon Power, the largest renewable power utility in the US. The operational strategy called the Accelerant Program, is being executed by our solar power plant development team which consists of solar power developers, electrical transmission engineers and project management engineers. The collaborative approach consists of partnering with independent, small and medium sized solar developers to rapidly and confidently take pre-construction projects to operation. Already, that effort has over a gigawatt of solar assets in the development pipeline and that we expect will deliver 3 to 4 gigawatts of operational power assets in the next 5 to 6 years.

So, as we face irreversible climate damage and the inevitable changes of our environment¹³, whether we are ready or not, US (long-term strategy¹⁴) and international (UN’s IPCC Climate Change 2022 Report¹⁵) plans rely heavily on renewable power as a key part of the solution mix.

Grim messages from the future by science fiction novelists portraying the challenging state of our planet’s biosphere in twenty year’s time (see: Neil Stephenson in Termination Shock or Kim Stanley Robinson in Ministry of the Future) help us further to commit to our immediate call to action to deliver what we know works – renewable power in the form of utility-scale, combined solar+battery solutions. With corporate industrial demand far exceeding the 15 to 20GW per year of build in the US, the near-term prospects are predictable and profitable in various electricity pricing and regulatory scenarios¹⁶.

We hope you enjoy the books¹⁷ – they contain a treasure of knowledge across sustainable enabling technologies and best practices – and we look forward to working together with you in profitably capturing these emerging trends while positively impacting the world around us.

Sincerely,
Carlos & Josh