Episode 139: Renewable Energy Expert [4/7 Series] with Dan Fiorino

Announcer:
This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to the WealthAbility Show, where we're always discovering how to make way more money and pay way less tax. Hi, this is Tom Wheelwright, your host, founder and CEO of WealthAbility. So biggest issue right now going on, it seems in the news is the climate, but more so is energy and what type of energy and what's coming with energy and are we going all electric? What happens with fossil fuels? Do we go to nuclear? Do we go to hydrogen? Whatever we're going to. And we have a great guest today for this Dan Fiorino who this is his topic, this is his discussion. He is at American Education. He wrote the book The Clean Energy Transition, which is perfect for what we're talking about, and then the subtitle of Policies and Politics for a Zero Carbon World. So really interesting.

Dan, really happy to have you on the show today. Thank you so much. And would you just tell us a little bit about what's your background? Why are you discussing this and what's your interest in it?

Dan Fiorino:

I'm a political scientist by training, but ended up having a career at the US Environmental Protection Agency and always looked at big picture issues. And then I came back to a university about 12 years ago and to teach an environmental policy. But I got increasingly interested in clean energy because when you think about the environment, you think about air pollution that affects human health. You think about all kinds of damage to ecosystems, oil spills and catastrophic failures of various kinds. And you think about obviously the effects of climate change, of which the current energy system is really the cause of at least two thirds of the problem. It is hard to get away from energy.

So I got very interested in the whole issue of clean energy. And thought if we could fix the energy system, if we could decarbonize, we also would reduce air pollution very significantly and achieve a lot of other environmental goals. So that's how I got into clean energy and I just thought it was really a fascinating subject.

Tom Wheelwright:

Interesting, and I've always been interested. Now I went to school at the University of Texas, my background is the other kind of energies, the fossil fuel energy, and actually took a law course on oil and gas law. And so I have a very strong background in that. So I'm very interested in energy.

Let's set a premise here. From an energy standpoint, meaning that we're using the energy in the economy, how big a driver is energy and how important is energy in the world? It may seem obvious, but I want to get your take on because I think this is… It can't be understated is my thought. Would you tell us what your thoughts are?

Dan Fiorino:

Yeah, I agree. It can't be understated. The modern world as we know it, and modern prosperity in developed countries was made possible by energy, which usually is defined as the ability to do work beyond just having human and animal muscle. Going back to the days of the industrial revolution, the emergence of coal and then the emergence of oil and eventually natural gas and nuclear power, and now more recently wind and solar power, energy is absolutely strongly connected with economic growth and development. There's no way around that. And it's also obviously critical to modern lifestyles.

I forget the exact number, but there are calculations for what percentage of the global economy is devoted to energy and how does that look in different countries. And that's significant. But I think the fact that energy is just so pervasive and so much a part of modern life and really essential to modern prosperity. So we need energy, that is absolutely clear. The question is where do we get it and how do we use it and what effects does it have on the world?

Tom Wheelwright:

Exactly. We relied on fossil fuels for literally hundreds of years because before it was oil, it was coal. And so when you look at that, that's what's driven our equipment, that's what's driven our machinery, that's what's driven our industrialization, and that's what's driving the industrialization of countries like China, India, Africa. They are heavily reliant, even more so than the US perhaps on fossil fuels and looks like will be in the future.

We've established where we are. Where do you see, okay, 20, 30 years from now, what do you think… Get at your crystal ball, tell us what you think where we will be in 20 or 30 years?

Dan Fiorino:

In 20 or 30 years, I think we will be well on our way. The question is how much on our way to a significantly, certainly in developed countries, clean energy system and in the emergency and rapid growth economies where you are absolutely right, there's a huge demand for energy and thus for fossil fuels, I think the transition will be well underway. I think in most of the world, wind and solar power will be the basis of the electricity systems. So we won't entirely eliminate fossil fuels, but we should be very close to eliminating them.

All clean energy scenarios start with the electricity system because that's where the powers and the benefits of renewables like wind and solar and hydro, which has long been a part of renewable energy and geothermal and some other sources that are more on the drawing boards, that's where they can really contribute. The whole premise of this transition is you decarbonize the electricity system and you move as rapidly as you can to mainly rely on wind and solar. That's what most of the scenarios call for. And probably some nuclear, I know nuclear is controversial, but most scenarios that I consider to be realistic have some role for nuclear power. And maybe later we can get to some newer [inaudible 00:07:34].

Tom Wheelwright:

Yeah, I'd like to get that. I live in Phoenix, Arizona, home of the Palo Verde nuclear Generating Station. I actually worked for the company, Arizona Public Service, I worked for them for several years, who runs that nuclear plant. But before we get there, so you see this as basically this is something that's moving. Because there's this constant fight, you have this fight between the fossil fuel people and the saying, “Wait a minute, you've got all these issues over here” and the renewable people. You think that this is moving at such a rate that it will not be stopped?

Dan Fiorino:

I don't know if I could say it will not be stopped. I think the transition to clean energy is well underway. The most significant factor have been the rapidly falling costs of wind and solar photovoltaic generation. And I think markets are recognizing that so we're seeing changes. And I think now public policy in the latest example in the United States is the Inflation Reduction Act, which investors should pay a lot of attention to because there are just huge opportunities.

Tom Wheelwright:

We will get to that one.

Dan Fiorino:

Yeah, yeah. Good.

So I think the clean energy transition is underway. For a variety of reasons, I think governments are smart to try and accelerate that transition and make sure it takes hold. There's certainly a role for government in helping to move it along. There's also a very important role for government and public policy just to manage and coordinate all the different parts of this transition. For example, things like the Inflation Reduction Act create lots and lots of incentives to increase generation through renewables and electric vehicles and those things. But we have to build the transmission capacity to get the energy from where it's generated to where it's consumed. And so there's going to be a lot going on for that. Those kinds of issues I think are going to require a lot of attention.

Tom Wheelwright:

What do you see as the primary issues and obstacles when we're talking about converting to renewable energy?

Dan Fiorino:

So I think the price issue is on its way to… Certainly it's much improved over 10 years ago. 20 years ago if you talked about renewable energy, you were mostly talking about hydropower and maybe some biomass, wind and solar just were not competitive in the marketplace. They are now. You frequently see in the energy literature that in two thirds of the world, it's now cheaper to generate electricity through wind and solar or other renewables than it is with fossil fuels. So that's happening.

I think the barriers will be getting the scale of investment, some public, but mostly private investment that is needed to move this transition along because there's just going to be a huge demand for investment and financing. I think doing all the infrastructure, the transmission lines, the approvals for siting of renewable generation sites. Just charging stations for electric vehicles. A premise of this transition is that we're going to move fairly rapidly from an oil-based transportation system to one that's based on electric vehicles, at least for the passenger fleet. Well, that means we need a whole lot of charging infrastructure. All those gas stations that we see on the corner, we need to come up with something similar.

So I think it's the investment, it's the infrastructure and it's the planning and coordination and building the right set of incentives that are the potential roadblocks.

Tom Wheelwright:

Let me ask you about a couple of others. One being, which is I think one of the biggest questions that comes up with renewables is reliability. Wind is great when the wind's blowing, but I travel to San Diego all the time, we see… Or Los Angeles in a car and I'm seeing the windmills. There's a lot of times they're not turning. And solar, we all know, solar's great in Arizona, it's great in Arizona, maybe not so much in the upper peninsula of Michigan. And again, it's only half the day at the most. So what do see is going to happen in order to make that… When you say wind and solar will be the predominant energy sources, how do they overcome that reliability issue? Which is to me the biggest issue with wind and solar.

Dan Fiorino:

You're absolutely right. That is a big issue. In the energy field it's described as grid integration. That is how do we reliably integrate variable or intermittent sources of energy, wind and solar, classic, into a reliable electricity system because the electricity, we expect when we pull the light switch or we turn on the TV or whatever, that something will happen.

Tom Wheelwright:

Or in the winter we expect heat.

Dan Fiorino:

Yes, in the winter we expect heat, and in the summer we expect cooling, especially in Arizona.

Tom Wheelwright:

Exactly.

Dan Fiorino:

All those kinds of things. I say in the book that the quickest way to kill a clean energy transition is to have an unreliable electricity system. So that absolutely is critical. And that's why there are different ways that we can try and integrate renewable electricity, wind and solar generate electricity into the grid. One is have relationships among different grid systems so they can draw on different sources, sort of expand the grid. Another is really working hard to manage demand. With electricity a lot of it's these peaks where you have to meet peak demand and then maybe for an hour or two. So trying to maybe even those out through tiered pricing and communication with users and those kinds of things. That's also where the case for nuclear and maybe some role for natural gas is there, because nuclear does give you steady baseline flow of electricity. And that can be very important for balancing out [inaudible 00:15:00].

Tom Wheelwright:

And it is very cheap and it is perfectly clean. Except for obviously you've got spent fuel rods, but Palo Verde's actually been very successful. I think Palo Verde is actually a really good example. Palo Verde nuclear generating station, what we call the BRTs out there, the big round things. That's literally what the nuclear engineers call the containment facilities, the BRTS.

Okay, so one of the things that comes up then if you're talking about inner relationship of the grid is transmission. And then you've got transport on top of that. So let's talk about transmission first because a little different than transport. So for transmission, still transmission lines lose a good 30% of their energy. We don't have that really efficient ability to transmit electricity over long distances. We can do it short distances, but we're still losing a lot. What do you see in that area? Are you seeing technological developments that are changing that? How do you see that improving?

Dan Fiorino:

I know less about the technology for transmission. I know that from a public policy perspective, a big issue lately has been permitting. Just getting permits for transmission lines can take four years-

Tom Wheelwright:

And you're going to have-

Dan Fiorino:

Or more.

Tom Wheelwright:

You're going to have way more transmission lines because you're using way more electricity. If you eliminate-

Dan Fiorino:

Absolutely, yeah.

Tom Wheelwright:

Eliminate fossil fuels in your cars. Cars aren't free, electric cars aren't free. My wife drives a little BMW electric car and while it's less expensive, it's not free, you're still paying I think the equivalent of about 11 cents a mile.

And then we have the second issue, which is transport. So transmission being different. Because of course energy is important when it comes to military energy and how do you transport that energy? If you look at World War II, World War II was lost, fought, and one and lost over energy. It was all over oil. It was Romania's oil. Hitler could not get the energy that he needed in order to do what he wanted to do. So that actually played a major role and it continues to play a major role. It plays a major role right now in Ukraine. So how do you see that? What do you see happening from a transport standpoint? Because to me that is certainly one of the biggest issue from a defense standpoint. Of course, energy is a lot about defense.

Dan Fiorino:

The national security aspects, sometimes the term used is energy security, are very important. And that's where I think you can make a very strong case for renewables because you don't have to depend on importing oil from Russia or Saudi Arabia or somewhere else. And when people talk about using domestic sources of energy, well yeah, that applies to fossil fuels, but what's more domestic than wind and the sun, which is available? Nobody owns it. Once you have the facility up and operating, the source of energy is free. You have to deal with the intermittency and those kinds of issues. And there's certainly challenging but not impossible to solve.

So I think one of the advantages of renewable energy or clean energy solutions is that you avoid a lot of those transportation problems because you don't have to physically move the oil in particular, from one place to another. You still have to generate the electricity and transmit.

Tom Wheelwright:

I was going to say-

Dan Fiorino:

It's a different set of issues. Yeah.

Tom Wheelwright:

Exactly. If you're rolling tanks across the Ukraine or you're flying a plane, you've got to have the electricity. Of course, that's going to be the first thing that the opposition is going to target is those big developments, the power grid obviously. I just think that's a really interesting issue because I think the transport, I get that side of it. I think Germany's done itself a huge disservice, frankly, in relying so much on Russian natural gas when it had all these great nuclear plants.

And so let's transition a little bit because I want to transition to the types of renewables. Because we talked so much about wind and solar and so forth. But let's talk about the other types of renewables first, and let's come back to wind and solar and some of the challenges that revolve around those, what you call the primary sources. So let's start with nuclear, because here you've got Germany on one hand who's decommissioned all of its nuclear plants, and you have France who's doubling down on nuclear, and yet they're both clean energy focused. Talk about that whole debate in nuclear. I will tell you, I'm a fan, so I'll start there, but I'm interested in the debate and why not nuclear?

Dan Fiorino:

The different approaches taken in Europe toward nuclear power are very interesting. A lot of this goes back to the oil embargoes of the 1970s and the recognition that depending on imported oil was very risky. In European countries, with a few exceptions, don't have a lot of their own oil and gas. So the decision in Denmark, for example, where there was a strong anti-nuclear sentiment was to develop wind. And now they have a very substantial wind sector. They helped deal with the intermittency by importing a lot of hydroelectricity from Norway. So they had some possible solutions. France went very heavily into nuclear. So that was one set of choices. Germany, more of a mix. But for the green party in Germany and green parties in Northern Europe generally, nuclear energy was always a big issue. As one writer wrote, it's in their DNA. Specifically anti-nuclear sentiment. And I think we just saw that surviving and that was a strong factor. And then after Fukushima, that's like that closed the deal.

I don't think they were really smart choices. And there have been studies that calculate just the air pollution impacts of having to restart some old coal plants and increasing particulate and other kinds of emissions. There are a lot of premature deaths and a lot of illness associated with that that you wouldn't have had with nuclear. So countries are going to make all these choices. I agree nuclear should still be on the table. There are some newer technologies that if they pan out could be very successful, small, modular.

Tom Wheelwright:

That's what France is going to, it's going to the smaller. In the US we've gone in the last 20, 30 years to a lot of the small gas-fired power plants that actually… A factory might have its own gas-fired plant rather than relying on the grid. It looks like France is going that same direction, but with nuclear, I think that's really interesting.

On top of that, I find it interesting that Inflation Reduction Act actually has incentives for nuclear.

Dan Fiorino:

Yeah. Again, if you look at virtually all of what I consider mainstream or realistic scenarios for clean energy, there is a role for nuclear to balance out the grid, to provide that steady source of baseline power, potentially to produce green hydrogen, although I think they call it pink hydrogen with nuclear, but basically non-fossil fuel hydrogen to meet other kinds of needs. With small modular generators, you could be meeting a particular need on a local basis.

Tom Wheelwright:

So we've got nuclear, there's that big debate going on, but it is reliable. The great thing about nuclear is that it's inexpensive and it's reliable. The only issue being the safety. But the reality is that we've had very few serious accidents in nuclear, frankly, compared to oil spills. Nuclear has been way safer frankly, than-

Dan Fiorino:

The worst case for nuclear, at least on the old, big, centralized reactor model are so scary that I think that has inspired a lot of public opposition. And certainly safety is an important issue. And that's what these newer generations, they call them third and fourth generation reactors, are designed to overcome. And the smaller scale can help reduce costs and also make it a more versatile source. I think nuclear has to be on the table. And you're right, it's recognized in a lot of these different financial incentives.

Tom Wheelwright:

It seems to me one of the things that has to happen is the nuclear industry and actually the proponents of a nuclear need to do a better job educating. So for example, I remember when I started, and I started at Arizona Public Service, 1990, it was a long time ago. And I remember going out there and going through the visitor center and watching this film, they actually put a 747 on rails and they ran at full speed into a concrete wall that was built out of the concrete that's used to protect the nuclear reactors. There was literally not a scratch on the wall, but the plane disintegrated. There's things like this, people think, “Well, we have 9/11, but we have running into a nuclear plant?” Well, clearly not an issue. It's an issue for those running into it, but it's not an issue for the nuclear plant itself because the protection is so strong. That kind of education clearly will need to be done.

But let's turn a little bit to the wind and solar. And one of the big issues that has become public lately is the mining. Because in order to build the panels and particularly build the batteries, because you have to have a lot of batteries if you're going to run electric cars because they run on a battery. If you're going to transport, if you're going to store solar especially, because it's intermittent. By definition, it's intermittent it except in the summer in Anchorage. But because it's intermittent, then what you have to do is you have to have really good batteries. I found myself, I put solar on my house several years ago and the batteries went down and my utility costs doubled overnight because the batteries are so important to being able to efficiently use that energy.

So we've got this issue between drilling, it's like we're going to go from drilling to mining because of the batteries. How do you address that? Historically, the green parties have been against mining and now we're going to do more mining and we've got lithium, we've got all of these sourcing issues that it's really hugely impactful on the environment. How does that get balanced out?

Hey, if you like financial education the way I do, you're going to love Buck Joffrey's podcast. Buck's a friend of mine, he's a client of mine, he's a former board-certified surgeon, and he's turned into a real estate professional. So he has this podcast that is geared towards high-paid professionals. That's who he is geared towards. So if you're a high-paid professional, you're going, “Look, I'd like to do something different with my money than what I'm doing. I'd like to get financially educated. I'd like to take control of my money and my life and my taxes.” I would love to recommend Buck Joffrey's podcast, which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

Dan Fiorino:

Yeah, I think that is one of the really tough issues because for batteries, lithium, cobalt, copper, lots of materials, and that involves some environmental damage of various kinds. In particular, for example, some huge percentage of cobalt comes from Democratic Republic of Congo. So that's one place, a very authoritarian government. There are concerns about child labor and a lot of social issues. And so I agree, that's a very tough issue. In writing this book, reading about various barriers, some people say, “Oh, this is a solvable problem,” and others say, “This is going to be a serious issue.” So there seem to be some different points of view.

I know that a priority for battery storage is how do you do it with… Or what are the alternatives to lithium? And that may involve other critical materials. How do you do Teslas with batteries with less cobalt? Those kinds of things. I assume there'll be progress with that, but I agree that's going to be a very challenging issue. We're going to see a lot less damages from the oil and gas and coal mining. And the damages are historically very substantial, but they're going to be another set of issues because it's going to be more mining and it's going to be, as you pointed out earlier, more demand for electricity. Just having all these electric vehicles in the fleet. Yeah, we want to make use of wind and solar generate electricity, but we need to be ready for that.

Tom Wheelwright:

Let's move to… You brought up the Congo, we need to recognize that the West is only about 20% of the population of the world, and the rest of the world does not seem to be going this direction. China does not seem to be going renewable. India does not seem to be going renewable. Africa is certainly not going to go renewable because they have so many resources. That seems like a very unlikely scenario that Africa goes to renewable in the anytime near future. So how do you deal with that? It's great. Let's say you've got… So California is going renewable, France is going renewable, but then you have most of the world, it's not. And we know that you don't get to contain pollution. It doesn't just stick in one place, it moves. So how do you see that evolving? Because to me, that's one of the arguments that I keep hearing from the fossil fuel people is “I don't understand we're doing this and we're going to have a negligible effect because 80% of the world is not.” How do you see that evolving?

Dan Fiorino:

Yeah, I think the developed countries, the post-industrial economies of the world, the US, Canada, the British Commonwealth countries, most of Europe, are moving toward the goal of carbon neutrality, net-zero carbon by 2050. And I think the odds are that sometime around 2050, 2060, we should be pretty much there. In rapid growth economies with big populations, I think I just read that India is about to surpass China as the most populated country in the world within the next month or two, both of those countries, India and China, have high economic growth rates, a little slower lately, but they'll probably pick up again, India in particular. And there's going to be a tremendous appetite for energy. And they both have a lot of coal. When you're trying to feed the economic system and provide the energy necessary, and if you have fossil fuels, you're probably going to use them. We know-

Tom Wheelwright:

As an example, we just saw China do a deal with Saudi Arabia. We've seen China and their relationship with Russia. We've seen India that has not condemned Russia, even though they're really part of the non-Russia, but they're part of BRICS. So you see all these countries wanting to enter BRICS, which is that coalition of countries that is really not going towards renewables right now. So how does that evolve? How does that actually happen? How do you get that to happen?

Dan Fiorino:

In all the scenarios that I looked at, economic growth is going to be highest in those countries in Southeast Asia generally, and eventually in Africa. Now, there's some African countries that are trying to move toward a cleaner energy system. Morocco gets a lot of credit for investments in solar. Kenya has some excellent geothermal resources, but the demand for energy will be so strong as they enter into rapid growth phases with large populations that there'll be a real temptation to use what's available. And that's a lot of fossil fuels. So there, I think the… It's really important for the rich countries to be part of global financing mechanisms to share technologies. I think there's a role that the US and the Europeans and Japan and other countries can play in supporting that transition. But yes, that's where I would say most of the worries are about arriving at a clean energy transition.

The countries now have widely adopted net-zero goals by sometime around mid-century. President Biden has adopted 2050, the EU is 2050, and some countries are even sooner. China says they will be carbon-neutral by 2060, we'll see. India has set a 2070 goal. So they're recognizing that it's going to be more difficult and they're entering into a rapid growth phase. But whether they get there or not, I think that's going to be a challenge. We in the rich countries can help influence that.

Tom Wheelwright:

I was going to say, isn't it a little disingenuous for us to complain about their growth when we grow unabated and used fossil fuels to grow, our economic development is a result of fossil fuels. I don't know any other way to look at it, but because we have a lot of fossil fuel, we've used the fossil fuel, we've developed the fossil fuel. And so now we're saying, “Yes, but you don't use fossil fuel.” Or like in Brazil where we say, “Don't cut down the rainforest,” but we cut down all our forests hundreds of years ago. So we had rainforests, we had forests, we've cut them down, but you can't cut yours down. So it seems to me a little bit… Doesn't it seem a little disingenuous for the rich countries to tell the poor countries what to do when the rich countries did it themselves?

Dan Fiorino:

Yeah, I'd say it's hypocritical because we're saying, “We became rich,” not everybody, but as a society, very high per capita incomes and so on, “Based on fossil fuels, now you can't use the fossil fuels because we're worried about the climate and air quality and those kinds of…” Climate in particular, I think is really driving this transition. And that's where I think maybe less preaching and more sharing of technologies and supporting global financing mechanisms would make sense because that argument is not going to work. And added to that is that lower-income countries are just more vulnerable to the impacts of climate change. So they're also saying, “You rich countries use fossil fuels. You created this problem and now we're bearing the consequences. And now on top of that, you're saying we should use less fossil fuels when this really need it because we're entering rapid growth phase.” There's a lot of disingenuous arguments floating around. But I think support, don't shame, provide financing, share technologies, those kinds of things.

Tom Wheelwright:

Exactly. So one of the fuels we haven't really addressed is natural gas. So natural gas is historically a very clean burning fuel. So what have you found… Let me ask you this. And it's plentiful, we have an almost unlimited supply in the US of natural gas. We've capped so many natural gas wells. Why is there such this anti-natural gas? I get the oil and I get the combustion engines and that kind of stuff, but natural gas is a whole different animal, isn't it?

Dan Fiorino:

Well, it's a different animal. And in terms of carbon dioxide emissions, the usual description is that you're getting about half the CO2 emissions from natural gas that you would get from coal. So that's good. The US' ability to stabilize and slightly decrease our emissions are because natural gas is replacing coal. 12 years ago, coal was about 50% of electricity generation in the US, now it's 20% floating plus or minus. Natural gas has made up most of the difference renewables to some degree. The issue with natural gas is it's a fossil fuel. So there still are some carbon dioxide emissions. And if our goal is to get to zero, that's a problem.

There's also the methane issue. So methane in the short term is a very potent greenhouse gas. There are different estimates over the releases from the natural gas production pipeline system. So there is concern about methane. We're seeing this play out at a local level in requirements that don't allow new natural gas, say, stove hookups or natural gas heating hookups in residential construction. And that's all part of this decarbonization impulse to get fossil fuels out of the energy system.

I think those fights will continue. Natural gas certainly is better than coal. There still are climate-related issues associated with natural gas and maybe some health issues in terms of when you consume it in your kitchen.

Tom Wheelwright:

Yeah, I'm sorry. I've got grandkids and a gas stove is so much safer for those grandkids than electric stove. For me, from a pure safety issue, electric stoves are far more dangerous than a natural gas stove because when the gas is off, the heat's off. When the electricity's off, the heat's still on. I have a tough time. I admit, I have a tough time with that argument.

Let's talk about two [inaudible 00:41:13] things before we actually start talking about the incentives that I want to talk about. First is plastics. So plastics play a major role. Of course, they're all carbon fuel, they all come out of oil. How do you see that evolving? Because plastics are… Everything in the hospital it's plastic. Lifelines are plastic. There's a lot of plastic on electric cars. How do you see that? Do you see that just… Okay, because you mentioned earlier that fossil fuels I gathered that you think will have a place, they'll just be highly diminished. Is that how you see it with plastics as well?

Dan Fiorino:

I think probably. Again, looking toward mid-century, we'll still see a role for say, natural gas in that. One of the really toughest areas to decarbonize is in industrial applications. Now, some light industry and some processes you can go to electricity and generate by renewables and so on. But there's some very tough areas, plastics, other chemicals, cement, iron and steel production where they need very high levels of heat, which fossil fuels are good at delivering. They also often use… As you pointed out, fossil fuels are just part of the production process. They're an input into production.

So those are going to be the really, really tough areas. And that's where there's some expectations that maybe hydrogen can play a role, but hydrogen is like electricity. It takes energy to produce it. So the question is where do you get that energy? If you're getting it from coal or mostly it's from natural gas, there's still fossil fuels, so you still have an issue. Some very small percentage, 5% or less of hydrogen is termed green hydrogen produced through renewables, and that will have to increase. I think we've talked about some of the toughest issues with the clean energy transition, balancing out the grid, integrating renewables into the grid and some of these heavy industry applications. And then things like aviation and marine shipping. Those are going to be very challenging.

Tom Wheelwright:

Those are challenging. And there's one more that we really haven't discussed, and that is what do the poor and middle class do? I see cars… My son, frankly is driving a car that he bought in 2007. I drive a car that I bought in 2006, just because I like it, but he drives it because that's what is of… That's his car. And for him to buy a new car, he doesn't have the funds to do that. And I think he ought to learn on his own. What do you do about that? Is that just providing incentives? Because that would be trillions of dollars. We're not talking about a few billion dollars here. If you were literally to go in and take away all those cars first, you'd have a terrible issue in the junk pile. But second of all, and you put an enormous number of people out of work who actually service those cars, et cetera, and all the parts and all that kind of stuff. But beyond that, think about just the people who depend on that cheap gas-powered car. How do you see that being solved?

Dan Fiorino:

Yeah, well, Tom, you've identified a whole bundle of issues revolved around the fairness of an energy transition. I'm a big believer in really aggressively pursuing energy efficiency policies because that at least will help reduce costs for lower-income groups. If you rent, you don't control. [inaudible 00:45:42].

Tom Wheelwright:

Although in the meantime you've got oil prices at historic highs. And that's what these people are relying on. Right now, it's not the rich people that are being hurt by $5 gallon gas, it's the poor people that are being hurt by the $5 gallon gas.

Dan Fiorino:

Right. And that's a big issue.

We know from various studies that low-income households spend like six or 7% of their disposable income on energy, high-income households, it's 2% or less. So there's a big energy burden built in. A lot of these electric vehicle incentives are tax incentives. If you don't pay much in taxes, they don't do you much good. It's hard to come up with the upfront capital to afford a lot of energy efficiency investments. So I think public policy has to give a lot of emphasis on affordability, on recycling revenues. California's Cap-and-Trade program, it's a mission trading program, recycles money to low-income communities and other people who are affected by energy burdens.

There's also the, it's usually called the Just Transition. The whole issue of which you alluded to. There are a lot of people's… A lot of jobs are going to be displaced. Overall, a clean energy, energy efficiency, renewables will probably create more jobs, but some are going to be lost and others gained and they won't always be in the same place or by the same set of people. So we need to give a lot of attention to this issue of a just transition. And that's obviously greatly affected the whole coal industry. Now, the number of coal mining jobs is way down. We're going to see it play out in oil and gas.

And even in auto manufacturing. It's not only the repair. Electric vehicles are simpler, so require less maintenance, but they require fewer workers to manufacture. All of those are going to be very tough issues. So this is a social and economic and equity transition as well as a technology transition.

Tom Wheelwright:

I appreciate your willingness to discuss those because not everybody's willing to discuss both sides, and you've been very willing to do that.

Let's finish up with incentives. So the Inflation Reduction Act, which I call the Inflation Enhancement Act because I don't think it did anything. Actually, I think it did a lot to increase inflation and nothing to reduce it. But that aside, let's look at the energy policy here, because we've long had… Since Ronald Reagan, we've had major tax incentives for fossil fuels. You put in a hundred thousand dollars into an oil development, you get an $80,000 deduction day one. So it's a huge incentive. You're only taxed on 85% of your income. With this new Inflation Reduction Act, now, ignoring the electric car incentives, because I think they're actually minimal, they've actually reduced them in that because of the requirement for them to be built in the US.

And so there's only three car manufacturers that now qualify, whereas there were like 20 who qualified last year in 2022, 2023, there's three. And so it's actually reduced that, that availability. You've also reduced the number of people who can receive it because it's got income limitations. So while that's maybe policy, it may make sense to the policy makers, those people aren't buying cars, they're not buying the electric cars, the electric cars are still too expensive.

But let's go to the other side of it, which is the energy production, the renewable, the solar, the wind, those credits, because I think they're substantial. Because under the IRA we have a 30% tax credit, which goes through I think 2032 right now. So it was way extended. It was supposed to actually expire this year or next, and it's 30% plus if it's used in investment property. This year at least we have this bonus depreciation. So you still get to depreciate the equipment on top of that incentive. So basically the way it works is if you're in a high tax bracket, then of course investments come from high-income people, we know that, that's where the investment comes from because they can afford to invest. And that investment. So basically the government right now is paying anywhere from 60 to 65% of the cost of installing solar in a commercial situation.

How important do you see those types of incentives when it comes to developing the whole renewable energy and getting people to latch onto it?

Dan Fiorino:

Yeah, I think they're very important. In the public policy field, we talk about carrots and sticks. So sticks is regulate or a carbon tax or something. And carrots are incentives like these where you're smoothing the wave financially. The Inflation Reduction Act, I like to think of as a carrot cake because it's just full of carrots. And interestingly, a friend pointed out that the reason it even could be passed was because it's a budget. It's seen as a budget measure. It could be passed under the reconciliation provisions in the Senate. And so it was a simple majority and it was doable. Plus, that's generally more acceptance. Sticks are not too politically popular these days. I think they're really important. There's the production tax credit, which has been on and off for decades, and I've seen studies that find that when the production tax credit is in place, that wind investment goes up, and when it lapses, it goes down. So we've had a test.

Tom Wheelwright:

So people do react to it?

Dan Fiorino:

Yeah. Various studies of, say, electric vehicle incentives around the world find that they really do have an effect on behavior. If our goal is to speed up the energy transition to increase investment and opportunities to realize benefits and level the playing field or even favor renewable clean energy sources, I think that can be very effective. And the Inflation Reduction Act does a lot of that.

Tom Wheelwright:

It does. And way more than actually says it does.

You see incentives continuing. In other words, you think those incentives are going to be needed to continue, and other incentives are going to have to come in. They might have to adjust the incentives for the electric cars, because that one's not working right now. But the incentives for the solar and wind are. As you said, that they are [inaudible 00:53:09].

Dan Fiorino:

Yeah, I think they'll work and eventually you reach a decision where, “Do you really need these incentives anymore?” We probably could have done away with a lot of the fossil fuel incentives some time ago, but my first rule of politics is once you grant a benefit-

Tom Wheelwright:

Hard to take it away.

Dan Fiorino:

Hard to take it away. Yes.

Tom Wheelwright:

Exactly.

Dan Fiorino:

Eventually we're going to see the same thing with a lot of these renewables incentives and EV incentives where they're out there, and it's going to be very difficult to take it away, even though maybe a lot of the logic for having them in place will have faded away because, in market terms, these are competitive technologies and products.

Tom Wheelwright:

Awesome.

Dan, thank you so much for being with us. Any final words and where can we find out more about what you're doing?

Dan Fiorino:

Thanks, Tom. It's been a pleasure to talk with you today.

Yeah, I did this book with Polity press, Rhe Clean Energy Transition. And my goal was… It's very much aimed at students and others who want to just grasp the outlines of a clean energy transition and some of the challenges, most of which we've talked about today. So I think that's very good. I teach at American University and direct the Center for Environmental Policy here, and certainly invite people to follow that and other work. But it's been a pleasure talking with you.

Tom Wheelwright:

Awesome. Thank you, Dan. The book is The Clean Energy Transition. Dan Fiorino from American University. Thank you so much.

And just remember, from an investment standpoint, we're looking at where does the government want us to invest? And very clearly they want us to invest in renewable energy. So if you want to do what the government wants done, then they will incentivize you and they will pay you to actually do that. And when you do, of course you make way more money and pay way less tax.

Thanks everyone. We'll see you next time.

Announcer:

You've been listening to the WealthAbility Show with Tom Wheelwright. Way more money. Way less taxes. To learn more, go to wealthability.com.