Fireside Chat at IHS CERAWeek

As Delivered

Speakers: Ernest J. Moniz, President & Chief Executive Officer, Energy Futures Initiative; John Kerry, Special Presidential Envoy for Climate

Moniz: I would like to add to Dan’s welcome my own. I am Ernie Moniz, CEO of the Energy Futures Initiative and I had the pleasure of serving President Obama as the 13th Energy Secretary and in that role, as Dan already said, I had the enormous pleasure of working very, very closely with the 68th Secretary of State, my great friend, John Kerry. In fact, as Dan mentioned, in 2015 we lived together quite a bit, both on the road to Paris and on the negotiation of the Iran deal. And this is a case where I am very pleased to say that familiarity bred friendship, and I think one that will continue to serve as well as John serves President Biden, and maybe I can help kibitz from the outside with the great team that the President has put together. John and I are also fellow Boston College eagles, fellow Bostonians, we have lots and lots of associations. Again, I welcome him and I welcome all of you for what I think is a very important conversation, as John can elaborate on the President’s and his plans as Special Envoy – Special Presidential Envoy for Climate. In fact, John, again welcome, great to see you, and let’s just jump right into it with telling us about the President’s and your plans for the international climate scene in 2021.

Kerry: Well thank you, Ernie. It’s great to be with you, and I’m delighted to appear during this week’s important gathering of folks in the energy field and every aspect of the energy sector. And I might just add, it bred not only friendship, Ernie – but it bred respect because your knowledge was essential both in helping us with the Iran nuclear agreement as well as Paris.

President Biden has set out the most ambitious climate agenda not as a matter of ideology, not as a matter of politics, but exclusively as a matter of listening to the scientists and watching and evaluating the evidence. And the fact is that from rejoining the Paris agreement within hours of being sworn in, to pulling together a climate team that I certainly have great respect for and am proud to be a part of – this is very, very high on our agenda. The climate crisis – and it is a crisis, and I think the International Energy Agency will be releasing data today that will document this even further – is a national security threat. It’s a health threat, it’s an economic threat – we’ve spent billions upon billions of dollars just cleaning up after now much more intensive hurricanes, storms, floods, fires. Science is completely unified around the reality of what is happening to the planet and what will continue to happen. With great threats to human beings in terms of conflict potential, massive numbers of refugees – we already have climate refugees. We are seeing dislocation with respect to crops, growing farmers around the world, food disruption. Our own military, the Pentagon, has long said that the climate crisis is in fact a threat multiplier, and the military is making all kinds of contingency plans accordingly.

So our plan, the President’s plan, is to have the United States step back in and help lead a sensible, thoughtful approach that is based on the science and based on good economics and seizing the prospects of the future which is filled with opportunity for new jobs, for extraordinary growth in our economy, but to do so, building back better from COVID-19 and investing in the energy transition that is just an enormous marketplace of the future. Some 500 billion dollars was invested in transportation, in new energy power, in reduction of emissions over the course of the last year alone. And the prospects are that there will be about 10 trillion invested over the next 30 years as we move to the mid-century measurement of net-zero. So, our goal is to in Glasgow, in about 8 months, we will meet with the nations that met in Paris to hold the Earth’s temperature hopefully to no larger than 1.5 degrees Celsius increase. Our hope is that by keeping 1.5 degrees alive in the next ten years, we lay the groundwork for the exciting venture of transitioning to clean energy, new energy, hydrogen, whatever it’s going to be, and hopefully so many of the folks joining us today will be part of this important transition.

Moniz: Great John, and you mentioned the importance of the President’s rejoining Paris so soon after inauguration, but I would also add it was a big signal when he appointed you so soon after the election, and in fact that also raised the national security implications you mentioned by also giving you that seat on the National Security Council and cabinet running. So these signals are really important.

If I go back to Paris, and the road to Paris, I think one can argue that in late 2014 when President Obama and President Xi appeared together and talked about the road to Paris together, that may have been really the key turning point for the nations of the world coming together and accepting responsibility. I’m assuming that work with China, with you today is going to be critical but of course, the geopolitical situation with China is so much more complicated and tense. Can you just say a little bit about how you see that going forward?

Kerry: Well Ernie, it’s a great question and it’s obviously a compelling moment with respect to the relationship with China. Yes, there are tensions today that did not exist back then, or they existed but they were a little more sub rosa. Now they are out in the open and it is no secret that there is strong competition with China with respect to any number of fields, and there ought to be. That’s not a problem – I think the United States, people don’t believe us when we say that, President Obama used to say it – we welcome the competition! The United States does well with competition, and we’re not afraid of it. What we don’t want is an unfair playing field. What we don’t want is our companies having their intellectual property stolen or exacted from them as a price for being able to do business, and so forth. These things are obviously significant issues, and they will exist.

But climate – the climate crisis is not something that can fall victim to those other concerns and contests. Because China is 30% of all the world’s emissions, it is the number one emitter in the world, we are the number two emitter in the world, and when you add Europe, the EU as an entity, you are well over 55% of all the emissions of the world with three entities. So there is no solving this by any one country alone. You have to have China at the table. And just as Ronald Reagan was able to go to Reykjavík and negotiate with Mikhail Gorbachev and turn around 50,000 warheads pointed at each other and reduce them to some 1,500+ today, so we can deal with this as a compartmentalized issue. There will be no other choices if we don’t deal with this one correctly.

So I believe the relationship that we built with China, I remember going there and meeting with President Xi, negotiating a change in the Chinese approach because until we negotiated in 2015, China had been leading the G77 and in opposition to most of what we were trying to do. So that has changed, and we will engage with China, we will be pursuing a track on climate that does not get confused by the other items. And we’ve made it very, very clear that that’s the way we have to proceed. I think China can be a critical partner in this, as they were before.

Hopefully India also, and other countries. Russia is 7% of emissions, Japan is about 5%. We have to get the major emitting nations back together. And to that end, President Biden has instructed me and our team to pull together a Summit in April – April 22nd – of all of the major emitting nations of the world. We are already talking to them about this, they will be there virtually and we will specifically be asking all those major emitter nations to raise their ambition as we go to Glasgow. We are way behind, Ernie, and you know this.

Even if we did everything that every country set out to do in the Paris Agreement – and we’re not, but even if we did – the Earth’s temperature is predicted to rise to something like 3.7 degrees Celsius. That’s obviously catastrophic. That is why the raising ambition as we go to Glasgow is so critical. We are working now on designing our Nationally Determined Contribution – NDC. We are hopefully going to announce our NDC at this summit in April. It will have to be aggressive because we are behind. I think it will become more apparent to countries and corporations around the world how far behind we are in the course of these next weeks. So, this issue of raising ambition and getting more done, of holding alive the 1.5 degree limit and of setting the pathway clearly defined, with real roadmaps for how we get to net-zero by 2050 – that’s the key. And that’s exactly what we are going to be focused on with China and with a lot of other countries.

Moniz: John, you could make some real news by telling us what you think the NDC will be.

Kerry: *laughs* Aggressive. It’s got to be achievable. It also has to be real, Ernie. And we know that. It’s got to be real, achievable. Look, exciting things are happening. I think people need to be more upbeat about the possibilities here. We are staring at the opportunity to have the greatest economic transformation since the Industrial Revolution, certainly since the communications and technology burst of the 1990s. But this is the biggest market the world has ever known. It’s a five billion user market today, it’s going to go up to nine billion users over the course of the next 30 years as we grow the population of the planet. There are a billion people who have no electricity today, they need it, they want it.

This effort to transition to clean vehicles, it’s happening. Ford Motor Company put 22 billion into new vehicles, into EVs. You have GM, which has announced by 2035 it’s only going to produce electric cars. You have Tesla, the highest-valued capitalized corporation in the world in the automotive industry producing only electric vehicles, so that’s going to happen. The effort to transition into clean power production is absolutely going to happen. Already it is cheaper to produce with both wind and solar as opposed to many fossil fuels, most – certainly coal.

And the result is that that transition is already being made by the marketplace. Not government-ordered, not regulated, but the marketplace is making the decision for people. And I think if you look at what is going to happen in terms of investment, the Bureau of Labor Statistics says that the only three places where they predict more than 50% job growth in the next year (and there are 3.6 million jobs now in that area) which is in retail. And then you have about double that number of jobs being predicted for and being held by hotels and triple that amount of jobs of currently working folks in oil and gas. So there’s just a clear direction that the marketplace is moving already. We think in the administration that if we build back smart, build back better, put the right incentives in place, and work with the industry (and we invite the industry), there are huge opportunities here. You know this better than anybody, Ernie, that oil and gas has incredible infrastructure, incredible capacity to move energy from one place to another. What if that happened for hydrogen? There’s a future in I think this new partnership as we design the energy modalities of the future, and I think it’s a very, very exciting transition that we are looking at.

Moniz: John, that’s great. Let me just pull the thread a little bit more on the Chinese “compartmenting” of the climate and other issues in the sense that we are seeing, frankly increasing tension on supply chain questions, China supplying most of the rare-earth minerals that are so critical for clean technologies. The question is, do you really see being able to untangle that kind of competition from climate cooperation?

Kerry: I think you can disentangle some of it, Ernie, perhaps not all of it. The fact is that India, for instance, is extremely focused on the idea of creating its own solar capacity. You know full well there are advances being made in solar panels that create panels that are 40% more efficient and don’t rely on the same ingredients as the panels being produced by China in a market they have cornered at this moment. So there are future possibilities here of new supply chains, of new powerhouse production entities, as the technology advances, which it will – technology always does. I think we are going to see a very different field of competition, number one. Number two, I think China, in the conversations that I had when I was Secretary and even more recently in these last couple of years at various conferences, expresses a willingness and desire to work with other countries with respect to some of those and I think you have to put that to the test. I don’t think we have yet. The One Belt, One Road is a challenge with respect to their funding of coal in various parts of the world. About 70% of the new coal-fired power coming online in various parts of the world is Chinese-funded, and we’ve raised that issue with them and that will continue to be a bone of contention. But I do think for instance on hydrogen, that’s “jump ball” right now. We need to get much more involved in the development of that.

I know India, I’ve talked to industrialists in India and government leaders who are focused on the potential of creating India the hydrogen economy as a future.  I think if we can make that happen in a way that is not as energy intensive as it is today, not as fossil fuel-intensive as it is today, or as CO2-intensive I should say, because if you have – I mean, as unabated carbon intensive. That’s the key here. And I think the fossil fuel industry could clearly do a lot more to transition into being a full-fledged energy company that is embracing some of these new technologies. It’s not that people – I don’t object per se to fossil fuel, I object to the byproduct of fossil fuel which is the carbon. That’s the problem – and the methane, that’s another major problem emerging. So, we have to be able to abate. It’s the debate between unabated and abated production.

In addition, I think we have to pursue every other form of energy as a hedge against whatever technology can or can’t produce. Obviously if we have a breakthrough on storage that is going to be a game changer and people are chasing that Grail. In addition, if we can find a breakthrough on the next generation of nuclear, some people may be shocked to hear me say that, but I think fourth generation, modular, some variation thereon. Bill Gates is pursuing that now, assiduously. I think we need to see how that comes out in the event that something else doesn’t produce. As Bill Gates has said, one of three miracles: either the miracle of storage, the miracle of fusion, or the miracle of fission. Some people object to that but I believe we need an “all of the above” approach because it’s urgent that we reduce the emissions at a much faster rate than we are today.

Moniz: John, I can only say that your allusion to carbon capture, the abatement issue, carbon dioxide removal, hydrogen, advanced nuclear – I can only say that, for whatever it’s worth, I am completely aligned with you. We need to provide as many options to everyone to go to low carbon as we can. But you know, you have also raised now a couple of times India. Of course, India and China also have some “tensions”, shall we say! And India continues to grow enormously, even since Paris. Any comments on that triangular relationship? US, China, and India?

Kerry: Yes, well as you know Ernie, you worked very hard with us in the development of Mission Innovation, and Mission Innovation needs to come back in full force, there are folks working on that, we are going to try and see if we can push the innovation curve with India. India has a plan to produce about 450 gigawatts of renewable power by 2030, it’s a very ambitious goal. It’s a great goal but they need about 600 billion dollars in order to be able to help make that kind of a transition. Their finance is perhaps one of the biggest challenges with respect to India. But they are determined to lead and to be an important player here and we think that’s very, very significant, we want to work with them. I’ve put together a small consortia of a number of countries that are prepared to help India with some of the finance and transition, I’ve been working with major investment houses and asset managers in our country to try to determine how much private sector capital can be directed in the right place here so that we can make this transition faster. Many, many companies, as you know, are dealing with ESG as well as SDG commitments and in addition now finding that it’s very attractive to focus on a directly climate-related type of investment. I know Hank Paulson is working on the development of a new SPAC that will be focused on some of this.

There has been enormous growth in investment, in longer-term speculation investment and I think it’s a clear “why”. Predictions are that by 2050 you’re going to have about 6 trillion dollars a year of economic transfer taking place in the clean energy technology sector. It’s the market of the future. You’re already seeing massive allocation, last year that 500 billion that was allocated to wind, solar power, transportation – clean transportation, electric vehicles – is enormous and there is no sign that that is suddenly going to be reduced. Most people are predicting it’ll be significantly more this year. The marketplace is making a critical decision here. I think this is going to race ahead, personally. That’s just a personal feeling about it, watched it over the years. This is an unprecedented level of interest and an unprecedented level of capacity that’s been developed.

Moniz: And you mentioned Mission Innovation, I think the major step forward taken on the first day of COP21. I feel that even in these last four years, we have seen in Congress quite a bit of bipartisanship on the innovation agenda. How do you see that going forward? Do you think the United States going back into Paris is going to really elevate Mission Innovation and maybe establish some new directions? How do you see that playing out?

Kerry: Well I do, Ernie. I think it should, put it that way. Congress – I spent 26 years in the Senate – is more unpredictable today than at any time historically. Obviously, the partisanship is a problem when it comes to asserting America’s best interests because we are just not doing it in many ways. We need a major infrastructure investment in the United States of America. Texas is a prime example of what we need to build out, which is a capacity to transmit energy all around our country. We have an East Coast grid, we have a West Coast grid, we have this singular Texas grid, and then we have a line that goes across the north of our country from Chicago into the Dakotas, etc. We have a gaping hole in the middle of our country, and you can’t send energy from one place to another. You bear the scars, Ernie, of trying to get transmission that would bring electrons from the western part of our country to the east, and you ran into the politics that resisted that. We can’t afford that anymore; we need to have a smart grid. We need, in this age of artificial intelligence and quantum computing, to be able to use that facility to be able to send energy and to predict ahead of time what’s going to happen and to create literally, a smart grid. That will save us huge amounts of money, it will actually reduce emissions, and produce a capacity to have the baseload challenges met without necessarily having yet developed all of the storage. So you get to maybe 80 or 90% of a virtuous cycle with renewables and a better mix. We are working with Canada now to see what we can do to perhaps augment the amount of energy coming from Canada that is clean and help us produce. We are going to have to get rid of some of our chauvinism and our parochial components that resist common sense and the need to move very, very hastily to get this done.

Moniz: You certainly remind me of the scars that you referred to in terms of also facing in some sense, the conflict between federal and state prerogatives, and I’ll just mention John that I have had a chance to talk with Jennifer Granholm, now confirmed as the 16th Secretary of Energy, and we’ve talked about the opportunity for her to acquire some of these scars as well as a major focus of her activities. John, you mentioned something very important that I would like to go back to, you mention how the oil and gas companies in particular can become part of – let’s call it your ‘allies’ in this climate adventure. I think today the large utilities in the United States have certainly been in the lead in decarbonization. Can you be a little more specific in terms of what you see the oil and gas companies doing to become energy companies? And in fact, just this morning, looking at the newspaper, I saw that the American Petroleum Institute is talking about supporting a carbon charge.

Kerry: Well, you know I’m reminded of the Saudi oil minister in the 1970s. I was going to law school and sitting in a traffic jam for hours just to get gas as we were lined up during the crisis, doing my contracts and my criminal law sitting there in the car, advancing five feet every three minutes. The oil minister said that “the Stone Age didn’t end because we ran out of stones, and the oil age is not going to end because we run out of oil”. And I think we need to take that to heart here.

The market is changing. People want electric vehicles. People are buying differently, and they are looking for solutions. People are demanding this.

One of the reasons China joined us a number of years ago was not just what I hope was some power of persuasion, but they joined us because their citizens were rebelling against the quality of their air, the quality of their water, and in China there was a political rationale for them moving. Here we are now, if you’re a chieftain of an oil and gas company, you can’t help, I would think, but read the tea leaves of the spreadsheets of what’s coming in front of you as you look at where the market is going. You already see that people are going to be buying less gas in the future, they are going to be moving to electric vehicles. President Biden is going to be building out 500,000 charging stations across the country. He is going to be rolling out – hopefully fast – the transformation of 500,000 school buses to electric buses.

So this question of producing clean power is going to grow as there is more demand for that energy, but also it’s going to be clear that there are going to be less users, less people coming into a gas station. And that will accelerate, I believe, with time. Where’s the revenue going to come from? If you’re sitting there in an oil and gas company, you don’t want to be sitting there with a lot of stranded assets. And some people are obviously fighting to hold off that inevitability, but that fight, I think, is useless and you’re going to wind up on the wrong side of this battle. What they ought to be doing is figuring out ‘How do we become not an oil and gas company, but how do we become an energy company? How do we produce and how do we reduce the byproduct of oil and gas, which is carbon (which is the problem) and the methane (which is a problem)?’

So that’s the challenge. There are some companies, I’m not going to get into naming individual companies, but there are some companies you are all familiar with which are moving more aggressively to make that transition. And there are others which continue to fight to hold onto whatever the market share is, which is going to diminish. I think you’re gonna have long haul hydrogen trucks whether it is Tesla or Daimler or Nikola or whoever it’s going to be- I don’t know, but it’s going to happen. Europe is moving more rapidly to smaller but nevertheless hydrogen vehicles. You have hydrogen cars; the test is going to be how do we produce the hydrogen in a way that is not damaging and so energy intensive? We will get there, we are going to do that, I have no doubt about it. So, if you’re involved as an oil and gas company today, you’ve got this incredible infrastructure, you have the ability to move and transport hydrogen. There are all kinds of ways to transition – and to accelerate this transition, which we need to do. I think it’s fairly obvious, Ernie, I don’t think there’s any rocket science in it. But yes, there still is resistance to this transformation and that’s something we really can’t afford very much anymore.

Moniz: Well thanks John, I think this has been very, very illuminating for everyone to understand how you’re approaching this year and the President’s approaching this year. You’ve got a big job to do, an important job to do, and it’s in good hands. Thanks for sharing this time with us here and the CERAWeek audience and thanks for all of you for listening in.

Kerry: Thanks for your leadership too, Ernie. We appreciate it. Thank you.