How Can A Canadian Transit Suppose Tank Be So Deeply Incompetent?

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Just lately, I had the chance to sit down down with Michael Raynor, previously a managing director of sustainability and thought management for Deloitte and creator of a number of books on innovation and technique. We talked about not solely an modern method to addressing Scope 3 emissions that Raynor has developed, but additionally an odd case of a nasty research of bus transit that’s creating issues in Canada, one which really useful plenty of hydrogen buses together with battery-electric ones. Beneath is the hyperlink to the second half of the dialogue and a frivolously edited transcript. The primary half is out there right here.

Michael Barnard (MB): Welcome again to Redefining Vitality – Tech, sponsored by TFIE Technique. I’m your host Michael Barnard. My visitor immediately is somebody whose work has formed my pondering and method to innovation for twenty years, Michael Raynor. He’s the co creator with the late Clayton Christensen of The Innovator’s Resolution. Till lately he was a managing director engaged on sustainability and thought management for Deloitte. Now he has a few companies he’s invested in and based, together with S3 Markets. Returning for the second half of our dialog, which is specializing in the Canadian City Transit Analysis and Innovation Consortium’s deeply flawed situation modeling for Brampton’s bus decarbonization that led Brampton to hunt to have hydrogen buses as a part of their fleet. 

That they had a $10 million distinction between the 2 situations, and I’ve simply recognized, simply glancing at the very first thing, the value of hydrogen they use a possible swing of $200 million multi instances for one issue. And if that was all, then I’d say, nicely, possibly we will rerun it and see what that’s. However then I checked out how lengthy drivetrains and batteries had been lasting in actual world circumstances with full warranties for eight years in Europe and the way quick a time gas cells had been lasting. Nicely, that they had the identical alternative time of six to seven years for each of their research. In order that’s two and a half to 3 instances distinction. So a gas cell bus, you’re going to switch the gas cell over 15 years 5 instances, not twice. 

And battery electrical buses, when you’ve obtained a 15 yr life cycle, nicely guess what, you’re going to switch the battery. 

Michael Raynor (MR): As soon as, not twice. 

MB: And so not changing the batteries. CATL simply introduced they’re warrantying batteries for EVs and heavy transportation for 1,000,000 miles. Now I did the mathematics. Fundamental transit bus size of journeys yearly in North America in 70,000km whereas CUTRIC and Brampton agreed on 58,000 km, a slight variance. Don’t know the explanations for that. However assuming 70,000 kilometers, that’s about half of 1,000,000 miles over the lifespan of the bus. So CATL is delivering batteries this yr, which is able to final twice so long as a bus. And so that you sort of sit there and go okay, why are gas cells, from knowledge, empirical knowledge documented by the EU of their standing reviews lasting three years being changed on the similar charge as these different issues. So it’s $100 million swing in favor of battery electrical simply by extra reasonable length for battery packs. 

There’s a second one although. In addition they don’t appear to suppose that batteries are getting cheaper. 

MR: So hydrogen is. However batteries aren’t. 

MB: Yeah. Gas cells are going to get higher and batteries aren’t. The previous 15 years has confirmed that gas cells are remaining the identical and batteries are getting loads cheaper. You recognize, there’s all the Wright’s Legislation factor. You’ve undoubtedly frolicked taking a look at manufacturing and Wright’s regulation and manufacturing the expertise curve. Why don’t you lean into this one and provides your clarification of it? As a result of I find yourself saying this an excessive amount of. 

MR: The applied sciences that go into making hydrogen are nicely understood. They’ve been manufactured at huge quantity for lengthy intervals of time. And one of many issues that I’ve noticed working within the local weather house for that matter, is that individuals speak about economies of scale as if it was some magic wand, as if it was created by Harry Potter. That merely making extra of something goes to outcome within the prices getting dramatically decrease for causes that don’t have to, which can be completely inscrutable and needn’t be defined. And that’s unlucky. Proper. As a result of I believe to start with, as you level out, as the info would present, price of gas cells and the price of hydrogen don’t go down although they’ve been manufactured at scale for lengthy intervals of time. 

Batteries are getting cheaper on a Wright’s regulation curve. So each doubling of manufacturing price falls by a predictable share for causes that we perceive. The underlying applied sciences are such that we’re a lot the identical. The one that everyone is all people, that many individuals are intuitively conversant in is how microprocessors obtained smaller and cheaper, et cetera. In reality, they obtained cheaper as a result of they obtained smaller. And the identical types of issues are taking place with the underlying chemistry and design of batteries as nicely. Proper. So they’re getting cheaper empirically for causes we perceive. And it’s since you’ve obtained these two issues to lean on that you just’re justified in saying {that a} affordable particular person can count on this to proceed for some significant time frame. For those who’ve solely obtained one or the opposite, that’s a wobbly stool. Proper. 

Since you’re like, nicely, it’s been doing it for this lengthy. Nicely you then’re in mutual fund territory. Previous returns will not be indicative of future efficiency. And when you’ve solely obtained a proof, nicely, then it’s a theoretical prediction. However once you’ve obtained each, it’s accomplished this for a purpose we perceive. Nicely, now you’ve obtained a principle of the case you can depend on. And I’d assert that we’ve obtained each dimensions for each applied sciences. It’s simply they lead you to utterly completely different conclusions. Proper. Hydrogen is empirically not getting higher for causes we perceive, and batteries are empirically getting a lot better for causes we perceive. And so we will extrapolate these curves. Downside is certainly one of them is a horizontal line and the opposite one’s an exponential price discount. And that appears to have been ignored. So does that scratch the itch? 

MB: Yeah, it completely does. We’re constructing billions of batteries similar to we’re constructing billions of photo voltaic panels. And each time we double manufacturing volumes, the value goes down by 20% to 27% per unit. Then we assemble them into packs, and the packs are happening within the encompass, however all of the content material, the massive contents, the massive value driver, the batteries, goes down. I truly did knowledgeable engagement this yr with a European funding fund that offers with inexperienced infrastructure to check this. And we’re solely this yr sort of on the tipping level for a diminishing return on battery price as a share of the whole battery pack price. 

We’re now attending to the purpose the place the battery pack price is the slight majority of the price of the whole battery pack, not the batteries, however the encompass, thermal administration, the shell, the facility administration, these sorts of issues which aren’t topic to the identical diploma of transformation. We’re going to see a diminishment in advantages. However again to, you understand, CUTRIC, their assumption was, you understand, tons of of 1000’s of {dollars} to switch a battery pack. The primary battery plaque replacements could be within the 2030s, and there’d be two of them, and so they had been each priced at in all probability 2022 charges for battery pack alternative, as if there was no discount in these prices. 

MR: Proper. In order that they’ve accomplished it twice as usually at 50% above the fee, which signifies that principally 4 instances the fee has been loaded onto batteries. 

MB: And to be clear, nonetheless they needed to recreation the system to get hydrogen in there in any respect, as a result of the costliest situation was hydrogen solely, and battery solely was simply $10 million dearer. So this swing, that’s one other hundred million greenback swing in favor of batteries. Ten instances that, $10 million. And I wasn’t accomplished. Then there have been the hydrogen gas cell replacements. Nicely, changing them not each six to seven years, however each three years. Nicely then that provides one other 25 million bucks to your alternative prices. Proper. It’s similar to you’re doing it extra. In order that’s one other factor which additionally exceeded the $10 million variance they clearly stated made it the most affordable different. 

Now I stated they didn’t truly value hydrogen. Nicely, that included not costing Canada’s carbon value on carbon emissions. Grey hydrogen is comprised of pure fuel. Each kilogram of hydrogen is roughly equal in power to a gallon of gasoline. It comes with 10-12 kg of carbon dioxide or equivalents. And it seems it’s much more. 

Now, you understand, they didn’t even value this one. If we simply assert the 408 hydrogen buses and their consumption, it turns into one other $25 million in prices on high of this as soon as once more blowing this $10 million. 

MR: Nicely, yeah, I imply I’ll allow myself to leap in there too. Now, you’ll undergo the wages of my undergraduate diploma. Which is that, which is that once more, if the purpose of this had been to attenuate the price of the transformation of the fleet, don’t remodel the fleet, simply run frickin diesel buses and pay the carbon tax and also you’ll decrease your price. Job accomplished. That’s tremendous straightforward. That’ll take 12 seconds and we simply did it. 

Proper. For those who’re inflicting all of this ache and struggling on it, however that received’t serve the hydrogen foyer as a result of when you maintain burning diesel, you’re not burning hydrogen. Proper. So when you’re going to say, look, let’s take an financial lens to this and purely an financial lens, nicely then simply keep on with diesel and shut up about it. For those who’re going to take a carbon lens to this, nicely then as we simply mentioned a minute in the past, 100% battery is the one factor that makes any sense. 

For those who, when you take a look at the minimization of the carbon that you just’re left with on the finish of the transformation after which henceforth in perpetuity. So inform me once more how hydrogen snuck in there by some means as a result of it doesn’t make sense economically and it doesn’t make sense ecologically. So now I’m. Now I’m confused. 

MB: Let me simply shut off on that one further factor I discovered. These numbers are benchmarked with international prices for these items. I’ve seen the reviews and so they’re low balling hydrogen refueling services on the stations. They’re asserting liquid hydrogen services for storage of hydrogen. For individuals who haven’t listened to me rant about liquid hydrogen, I’ll enable myself 10 seconds. It’s 20 levels above absolute zero, in all probability it’s 290 levels Celsius beneath snug temperature for you. 

MR: I’m from Thompson [a northern city in Manitoba]. Besides. 

MB: Even so. Okay, okay. So 270 levels. I’m from North Bay and Moosonee [northern towns in Ontario]. So the liquid hydrogen is there to attempt to obtain density of hydrogen storage. It’s a really costly option to do it. It takes a 3rd of the power within the hydrogen to show it right into a liquid to get some advantages of decrease quantity. They usually’re going to have liquefication services and seize services and boil off services on these crops. Now, for the variety of buses they’re taking a look at, they’ve solely priced for the refueling services, not for liquefication services. So far as I can inform, I’m not seeing any proof. 

Right here’s an information level for you. The federal government of Quebec, one other province neighboring the place Michael is sitting. I used to be there for weeks this summer time, excellent spot. 

They really did a hydrogen fleet trial which simply ended final yr. In 2019, they leased 46 vehicles, 45 Toyota Mirais and a Hyundai for governmental staff. They usually dispersed them throughout ministries in Quebec Metropolis. They paid $5.2 million Canadian for a single pump hydrogen refueling station that had a small hydrogen compressed tank beside it. Not liquefication, nevertheless it additionally had an electrolysis facility there. In order that they’re truly making hydrogen on the facility with inexperienced electrical energy from the grid. And it’s Quebec so that is truly inexperienced electrical energy. It was low carbon, one of many few fleet issues the place it’s virtuous. However that $5.2 million is for a single automotive to have the ability to refill 5 kg at a time and repair six vehicles an hour if it’s fortunate. It doesn’t have any liquefication services. 

408 buses between two services, 300 in a single and 108 within the different, so want one thing a bit extra strong than that. And guess what? Every a type of services goes to be rather more strong than the $5 million facility in Quebec, and so they had prices of $3 million for every facility. The numbers simply don’t add up from international benchmarks on hydrogen refueling and liquefication services. And so I simply stated that’s in all probability one other $10 million by itself. But once more, blowing that $10 million variance out. And in order that’s sort of my factor. Mine got here as much as about $360 million primarily based upon international benchmarking in opposition to in opposition to reasonable actual world costs, not no matter CUTRIC has of their knowledge. I figured that was sufficient. 

And I shared that with you, Michael, as a result of, you understand, I stated, and by the best way, there’s that materiality factor. After which your mind, which is formed otherwise than mine, noticed one thing very attention-grabbing. So now’s the time to speak about your 2007 ebook. 

MR: Oh, sure, in order that’s known as The Technique Paradox, which was, as they are saying within the enterprise, the commerce model of my doctoral thesis. So it was an exploration of the implications of uncertainty on technique. The bumper sticker in the usual technique house is that methods about commitments within the pursuits of being completely different out of your competitors, however sadly, dedication essentially implies sure assumptions concerning the future. The long run tends to be considerably unpredictable. So how do you sq. that? How do you make daring commitments within the section of uncertainty with out simply turning technique into a visit to Vegas? There’s a bunch of firms, all of them make completely different bets and we see who wins. And that’s not a operate of who was the very best, who had the very best strategery. That simply turns into a operate of who picked 17 crimson. 

I don’t play a lot roulette, so possibly 17 isn’t crimson, however anyway, you understand what I imply? And what that led me to was a selected tackle situation primarily based planning. And that’s the place, after I checked out these three situations, to your level, these are all level estimates of what the following 20 years are going to appear to be, which is essentially topic to some significant uncertainty. However once you name it unsure, that doesn’t imply you need to throw your arms up and say, I do not know what the longer term goes to be. Again to our earlier dialog about below what circumstances you may make credible claims concerning the vary of future outcomes. For those who had been to embed that into the fee projections that they made, you might provide you with a spread of outcomes for every of their three situations. 

So that you, and actually, you don’t have to do them independently. You’ve obtained batteries, you’ve obtained gas cells, and also you make projections concerning the prices related to every and the way these are anticipated to vary over time. And all. And every of them can have their error bars. And so that you identified causes to counsel that, hey, wait a minute, present prices are a lot increased than your projected prices. Previous efficiency and what we learn about what drives previous efficiency means that the outcomes you’re betting on are literally fairly unlikely. Proper? So your, the purpose estimate that you just’ve utilized in your projection is definitely sort of within the ninety fifth percentile of all outcomes. And that’s fairly aggressive. And worse, the projection you’ve used for batteries is within the fifth percentile of all outcomes for batteries. 

And so in consequence, you might be arguably underestimating the price of hydrogen and overestimating the price of batteries. And that’s an issue. So it’s a nasty concept to make these selections primarily based in your level estimates. It’s a good worse concept to make these selections primarily based on extremely biased level estimates.

MB: And in order that was sort of statement #1 for each of us. It’s like, hey, $10 million bucks on $9 billion is a nothing burger. And the diploma of variance could be increased. That was my statement and your total thesis and the ebook that resulted from it says the variance on the hydrogen is loads increased. 

MR: And skewed otherwise, proper? The purpose estimates that they use are drawn from a unique level within the distribution. For those who’re going to make use of the modal end result of that distribution, honest sufficient. However even into that, you’ll be able to say one thing concerning the distribution of these outcomes. These are nicely developed instruments. It’s not prefer it’s some massive secret. You possibly can simply do an easy Monte Carlo evaluation and say, okay, what share of the time does my blended fleet come out with a selected price profile? That’s straightforward to do, proper? So that you construct the distribution for batteries, you construct the distribution for gas cells, after which you understand, put them collectively in no matter combination you suppose goes to make sense.

How one can even run a sequence of simulations with an optimization operate and say, wonderful, right here’s the very best end result. However that, after all, ignores one other key dimension of the issue. And I’ll guess that that is the place we go on subsequent, which is the implicit price of the complexity. 

MB: Yeah. Why don’t I discuss to the primary half of the complexity and you then discuss to the massive drawback. I’m going to speak about bus complexity. 

MR: Certain. 

MB: Simply briefly and simply introduce it. Diesel buses are well-known. They’re nicely understood. They’ve an engine, they’ve a transmission, they’ve a drivetrain, they’ve brakes, they’ve a shell, they’ve seats, they’ve alarms and horns and stuff. And a battery electrical bus removes plenty of complexity. It has a strong state battery. The battery simply sits there. Nothing strikes. The battery, it’s obtained some energy administration stuff and it’s strong state. Nothing strikes there. No transferring components within the energy administration. Then it’s obtained the electrical motor and there’s one transferring half within the electrical motor. After which there’s all the remainder of the stuff. There’s brakes and all the remainder of the stuff {that a} diesel has. We’ve gotten rid of plenty of complexity. 

That’s very nice, which is why all people’s asserting that battery electrical automobiles are decrease upkeep or ought to theoretically be decrease upkeep than inner combustion engines. And we’re discovering they’re California stuff once more, like 60 to 70% of the upkeep prices of diesel buses as a result of they’re so easy and the brakes last more and stuff. 

So then a hydrogen gas cell bus. One of many little identified info a couple of hydrogen gas cell is that it’s not a black field. You’re placing air and hydrogen in, you’re getting water out. And the within of a gas cell is like the within of a battery. It wants pure stuff at sure climatic norms. In any other case stuff goes fallacious. 

We have to take any air that is available in out of metropolis streets, driving behind cement vans with their diesel engines spewing fumes and we have to purify it to hospital grade air high quality and we have to humidify it to precisely the proper humidity that gas cells like and the temperature vary that gas cells like. In order that’s sensors and pumps and filters and humidifiers and dehumidifiers and thermal management. All that stuff doesn’t exist in a battery electrical bus. 

After which on the hydrogen, we’ve obtained the tanks which must be licensed for the equal to 3 to seven kilometers underwater. That’s how a lot stress is in these issues. Then when the fuel comes out, it modifications temperature radically. So we obtained to have thermal administration for that. 

It’s obtained stress administration as a result of the tanks cut back in stress over time. We even have to have the ability to get pumps to pump the fuel into the gas cell on the stress it likes, which is about 3 atmospheres, like being 30 meters below the water as a result of that’s what the stress it likes. And it’s obtained to be the proper temperature and it’s obtained to be pure. 

Then we’ve obtained the water popping out, which, as a result of once you run a gas cell with hydrogen, it turns water comes out, which is the benefit. No emissions, simply water. Nicely, water freezes within the wintertime. Whistler’s buses, for instance, saved breaking as a result of the water saved freezing inside them as a result of water that got here out of the gas cells wasn’t managed thermally and pumped out earlier than it froze. So we have now to have thermal administration for that. 

And all of these issues must be assembled across the gas cell. The gas cell has not one enter and output of energy and a few sensors. It has fuel and different sensors and energy and a complete bunch of different sensors that must be assembled for. Want water out, you want air in, want hydrogen in all these sorts of issues. So the complexity of assemblage is increased. That’s all on high of what’s within a battery electrical bus, as a result of a hydrogen bus nonetheless has a battery energy administration and an electrical motor. You’re including all this complexity, and it’s finicky complexity. You’re driving this throughout potholes and also you’ve obtained 700 atmospheres. You need to protect the steadiness of. 

You’ve obtained all this HVAC stuff you need to protect the standard of. It’s a lot higher local weather management than the passengers get.. Think about simply doing this for all of the passengers inside. I simply really feel so good after I get out of there as a result of my lungs clear up as a result of I’m not respiration metropolis air. You recognize, that’s what the gas cell will get, not the passengers. 

So that is all complexity. We see that within the reliability components for gas cell automobiles versus battery electrical automobiles. That’s already been lined. However you then noticed the systemic factor, tons of complexity. 

MR: I believe that’s a great setup due to the complexity of the know-how you’re describing. I’ll assert that it’s considerably charitable to say that the price of all of that complexity is captured within the embedded prices of the units themselves. Whenever you say hydrogen buses price extra, they’ve barely increased upkeep prices, we’re going to say, you understand, we are going to grant the belief that all the complexity you’ve described has been accounted for in the fee related to that bus. 

However the complexity that occurred to me comes from the truth that you’re working a number of applied sciences concurrently. And so now you’ve obtained a complete new ballgame across the organizational complexity required to deal with that technological complexity. And also you’re working three completely different sorts of buses. Which means you’ve obtained three and utterly completely different applied sciences in each. 

So now you’ve obtained utterly completely different upkeep personnel who must have completely separate and distinct expertise and experience and expertise and all that go, all intuitions and all that goes with it, proper? You possibly can’t simply choose up the instruction handbook and you understand, this isn’t your, your, your flyboard bookcase from Ikea, proper? The place you choose up the pictogram and put the factor collectively. These items are robust to determine and it takes actual experience and talent to take care of them. And so now what’s that going to appear to be? So take into consideration the specifics. You’re going to have a upkeep depot. Are you going to have a number of depots for each? Are you going to place all three applied sciences in the identical depot and the necessity for the completely different components. 

And now you’ve obtained these actually finicky or high quality clear rooms on your gas cells. I don’t suppose you’re going to place them subsequent to your diesel buses. Anyone who’s ever been in a great quaint diesel bus storage, no, that doesn’t sound like a good suggestion. Are you going to have the proper individuals there on the proper time to repair the bus that’s damaged down in a selected approach? On and on we go, proper? And in order that sort of complexity, it’s a complexity and expense born of diversification. So take into consideration any firm that’s obtained three or 4 or 5 completely different traces of enterprise that compete and function in completely completely different industries in several markets. There’s a really well-known diversification low cost that goes together with that sort of complexity and overhead. 

And that’s what they’re inflicting on themselves by working this very gradual rollout of two completely different applied sciences and a really gradual wind down of the diesel buses. I didn’t see something in there that acknowledged a value arising from that. And what I’d say with a reasonably excessive diploma of confidence is that these prices are removed from trivial. 

MB: There are two factors there. The primary one was their transformation situation. Their timeline didn’t respect the discontinuity. That is your statement. The discontinuity that once you get right down to a few hundred diesel buses, the fee per bus for upkeep shoots up so radically that you just need to get them off the streets as quick as attainable. 

MR: I believe that’s proper. That’s good quaint economies of scale that most individuals perceive fairly intuitively. If you need to keep a complete diesel upkeep store for 3 buses, these issues don’t scale simply. You construct it to handle the 600 diesel buses that you just’ve obtained, and once you dial that again down, you’ve solely obtained 50 left. Okay, wonderful. The labor price could also be considerably variable, however all of that fastened infrastructure isn’t nothing. Sooner or later you’re like, that is ridiculous. Time to get out of the diesel enterprise. 

MB: And CUTRIC, I’ll remind all people, is within the enterprise of fleet transformation. It is a easy statement that ought to have been caught someday previously 9 years. They’re serious about how fleets would transition. This isn’t rocket science. 

MR: I say various things with completely different levels of ferocity primarily based on my stage of certainty. Which is that it appears to me that the, the advanced, the complexity born of diversification is one thing to take very severely. Every little thing I’ve discovered would counsel that we have to take a look at it. How pricey is it? I don’t know, however we’d be capable of provide you with some affordable estimates. And what I’d counsel is that CUTRIC’s been serious about fleet transformations for 9 years, however no one’s ever accomplished one. So principally it’s knowledge free. What does it price to switch? I imply, in Canada, like, what does it price to do that? They might, they might throw their arms up and say, we don’t know, time to inform. 

However again to the place you began the dialog. Proper. What concerning the reference? You recognize, the very best reference case examples. Different individuals have accomplished it. And so there’s one thing to study from them, one would hope. 

MB: Nicely, I’ll return to 2019. Considered one of my bizarre experiences is that I used to be within the preliminary phases of consulting earlier than COVID hit with Translink in British Columbia for his or her battery electrical truck and battery electrical bus transition. You recognize, I’d run into the one who was accountable for it at a convention and I began speaking. And so we had been having discussions round this and I requested him a easy query. That is the particular person accountable for changing this. He’d had this function for a yr or so he’s nicely into planning. I stated, so when are you going to China to get the teachings discovered from the main practices of huge fleet transformation from, for instance, Shenzhen, the place they now have 16,000 electrical buses on their roads? He stated it hadn’t occurred to him. And this isn’t a slight on this particular person. 

Then I recommended the following factor. New Flyer, the first vendor for transit buses in North America, had a peak variety of delivered buses in any yr of 6,500. You might have 2,100 buses in a small geography, there are 72,000 in the US. New Flyer clearly can’t scale to an unfamiliar know-how within the timeframe you’ve obtained. So clearly the technique there’s to three way partnership with Yutong or BYD, two major bus producers in China, or simply get them to ascertain a manufacturing unit. Oh nicely, he stated, Canadian clients wouldn’t settle for Chinese language high quality of buses, indicating that he’d by no means been to China’s present cities and so he had very completely different concepts about Chinese language customers would or wouldn’t need. 

Anyone who’s been to Beijing or Shanghai or one of many different trendy Chinese language cities proper now, together with Shenzhen, the place they’ve 16,000 electrical buses. Chinese language customers, for anyone who’s listening, are extremely choosy. They’ve a tremendous selection of low cost stuff that’s insanely prime quality and various. That’s why Ford’s CEO lately got here again from China and stated that is an existential risk. They’re doing stuff we will’t for decrease costs. This isn’t, as soon as once more, a slight on the person. It is a systemic problem. I stated initially, transit organizations are geographically certain and so they’re very targeted on operational excellence. Good on that. However ask them to be transformational individuals and lookup and outdoors of their patch is difficult. They need assistance to do this. 

MR: Nicely, I imply, yeah, not that anyone wants defending from me, however that’s true of all of us. It’s a shared pathology. To your level, it’s not affordable to ask individuals working the present system to determine learn how to remodel it. 

MB: However I’d say the following factor. Do you suppose that ought to apply to CUTRIC, this nicely funded suppose tank whose job it’s to go and discover these classes discovered globally? Have they been to China? Have they been to Shenzhen? Have they documented and introduced again the teachings discovered? Have they checked out any of this? I see no proof of it. 

MR: No, no, completely. I imply, they’re nominally, on the danger of placing phrases of their mouth, they’re nominally the mechanism. And your query is rhetorical. They’re nominally the mechanism to do exactly that. That’s why it exists, in order that the people who find themselves working Brampton and Mississauga Transit can maintain worrying about learn how to run Brampton and Mississauga Transit whereas it will get reworked. Proper. You bought to rebuild the ship whereas at sea. That’s no trivial enterprise. 

MB: And it’s been accomplished to your level. It has been accomplished globally. It’s been accomplished in China. The place to go to study that’s China. This complete query has been completely explored and documented. For those who go to Chinese language cities, it’s transit. It’s not like their energy system. They’re very collegial. They’ll welcome individuals and inform you stuff. It’s a really completely different factor. It’s not like their transmission traces which aren’t on Google Maps as a result of they’re safe crucial infrastructure. Wish to know the way they’ve reworked their transit? Simply go ask them. You recognize it is a completely different factor. So that is but once more a spot the place I’d say the info was on the market, CUTRIC didn’t get it. It is a recurring theme. This isn’t all although as a result of we’ve already talked about your observations that materiality is non-existent. 

My statement is that the variance actually favors battery electrical and it’s utterly lacking from the report. It’s not that there are not any error bars. There’s no point out of confidence of their estimation over 20 years and you understand, 1100 buses of three differing types. No point out of confidence. It’s a failing grade. I assert this, you was once an MBA professor. Would you will have given this situation modeling a passing grade? 

MR: Nicely, there’s such a factor as grade inflation. So possibly they may have handed. They wouldn’t have been high of the category, that’s for positive. I’d really feel that I had failed a scholar that got here up with that as their finest effort. 

MB: Considered one of your observations was that they’ve labeled a graph fallacious. 

MR: That’s a type of issues the place it’s a small factor, that’s an enormous factor. I used to be serious about this earlier. Many individuals have been uncovered to that story about Van Halen and the, and the Brown M&Ms. Oh sure, you’ve heard that. I discovered of it in Atul Gawande’s ebook The Guidelines Manifesto. 

So for people who haven’t heard it, this was again within the mid-70s when it was the actual Van Halen. When it was in the entire stadium rock live performance had simply sort of taken off and it was extremely advanced. There was not a nicely established infrastructure for establishing live performance venues with all of the pyrotechnics and the lights and the explosions and all that. And so there was sort of a telephone ebook of directions that went to learn how to set all these things up. And when you did it fallacious, individuals can get harm and even killed. And so the story is that Van Halen on, you understand, web page 274, paragraph 838, sub, paragraph 7, sub paragraph I stated a bowl of brown M and Ms within the inexperienced room. 

And so once they obtained to the venue, the very first thing they did was go search for the brown M and Ms. And in the event that they had been there, they’re like, appears to be like like they learn the telephone ebook, proper? So it’s a option to ensure that individuals have accomplished what they wanted to do. 

CUTRIC has a chart within the report that’s labeled internet current worth. That’s my bowl of crimson of Brown M&Ms, which is that the vertical axis on their discounted prices related to every of the situations is labeled internet current worth. It’s a really small factor, nevertheless it does probably betray a misunderstanding of what they’re truly doing as a result of that’s not a internet current worth, it’s a gift worth of prices. 

A internet current worth is the place you might be on the lookout for the online, therefore the title, between a sequence of damaging money flows and a sequence of constructive money flows that happen at completely different instances, proper? Within the stereotypical instance, you’ll have a sequence of investments, damaging money flows for the primary few years, after which once you’ll begin producing income and funding tails off. Then you definitely’ll have a sequence of constructive money flows sooner or later. You low cost all of them again immediately to get a internet, the online of the constructive and damaging current as of proper now, worth of the general funding. Truthful sufficient. 

What they simply did is that they took all the damaging money flows, that’s to say all the bills related to every of those three situations, and discounted them again immediately. In order that they weren’t netting something, they had been simply calculating the current worth of the longer term bills. Completely reliable factor to do, by the best way. In reality, precisely the proper factor to do, simply mislabeled. And the humorous half is, to me, at the very least, as a result of I do know precisely why that occurred, I’ve spent sufficient time as an Excel jockey. 

The current worth operate in Excel, the PV operate, doesn’t admit of variable income streams or price streams. To do this, you need to use the NPV operate. And they also, I can see it as a result of I’ve seen those that have accomplished these things for me again in my consulting days, they simply, they wrote it out, they are saying, oh, I exploit the NPV operate, so it have to be an NPV, nevertheless it’s not. And if all the things else within the report had been gold plated, then that’s straightforward to miss. However when it’s a part of a sample of what appears to be inadvertent oversights, then one can solely start to surprise, proper? As soon as your Bayesian prior is that possibly these people aren’t fairly as professional as one may like. Plenty of issues I can’t do nicely both, by the best way. 

So no one’s criticizing anyone personally, nevertheless it does counsel possibly these weren’t the proper tradespeople for this explicit evaluation. 

MB: It’s a part of the deeply substandard work that they’ve accomplished, by my skilled opinion, as somebody who spends huge quantities of time taking a look at hydrogen transportation situations and reviews, by yours as a situation modeler and an individual who’s written a ebook actually on it. But it surely got here to a different couple of insights. So one of many insights you made was why are we taking so lengthy? If we’re making an attempt to get advantages, why not implement the battery electrical buses quicker? However you then stated, huh, when are they really shopping for and implementing gas cell buses? So what was your statement there? 

MR: Nicely, they’re all pushed out to, I believe it doesn’t begin till 2034, 10 years. I imply, name me a liar for a yr or two by hook or by crook. It begins very late within the planning and that has a really attention-grabbing consequence for a few causes. First, it might be a fig leaf behind which one can conceal to say that’s why the hydrogen prices are so low. Proper. We’re modeling them decrease than present prices, however belief us, it’s 10 years sooner or later, so we’ll get there. However the quantitative implication is that hydrogen buses even then are increased price. 

And they also’ve taken the upper price and put it out 10 years, which suggests these increased prices get discounted again, whereas all the buses that, the battery electrical buses that you just’re deploying proper now don’t get discounted again. And so the hydrogen appears to be like artificially cheaper in the event that they had been the identical price, if hydrogen buses and battery buses had been the identical price, that discounting wouldn’t matter as a result of it might simply be one for one. Proper? The current worth of the price of the whole challenge could be the identical regardless in the event that they price the identical. You’re shuffling round one unit right here versus there. Doesn’t matter. However as a result of hydrogen buses are dearer, that’s not what occurs. 

If a hydrogen bus prices 1.3 instances as a lot as a battery bus, all in capital, opex, the entire bit, which isn’t loopy. In reality, that’s beneficiant given what you’ve described. That has a fabric affect, proper? As a result of now what’s taking place is {that a} $1 battery bus isn’t discounted, however a $1.30 hydrogen bus is. And rapidly it has an actual materials affect. For those who had been. For those who take these differential prices and simply say, wonderful, I’m going to provide the future prices of the hydrogen buses. I’m going to provide it to you proper now. You possibly can have hydrogen buses for what you suppose they’re going to price in 2034, however in change, I’m going to make you deploy them now. And after I do this and rerun the low cost, the entire situation blows up, proper? 

So the seemingly comparable prices change into an artifact of the timing and the deployment and nothing else. When the viability of your total situation activates that and solely that, like, let’s throw all the things else out the door now, rapidly, all the things determines. Every little thing activates the timing of the deployment. And if anyone can inform me to a certainty that what they suppose they’re going to do 10 years from now’s precisely what they do 10 years from now, I’m again to my error bar dialog. 

MB: You had an estimate, and I’m working with the estimate whether or not you’re snug with it or not. However Mainly it’s a 3 and a half p.c discounting charge they use. Individuals can argue up or down. The EU’s steerage is 4%. America steerage is 2 and a half p.c. 

MR: Massive deal. 

MB: 3 and a half p.c. 

MR: 3 and a half. 3 and a half of like, not a loopy quantity. 

MB: Nope, it’s very affordable. However that’s yearly and it’s accumulating and turns into about 40% in 10 years, which signifies that stuff from 10 years on is discounted by at the very least 40%. Now, I did math in opposition to the complete hydrogen gas cell bus situation and I took the 408 buses within the blended situation and I took a bit of that and I multiplied by 0.4 to search out out what share could be, you understand, what grossed it up. And it’s $1.1 billion. 

MR: It’s now 10% of all the challenge that activates your timing assumption. 

MB: I simply take a look at that. And my stuff provides to that, by the best way, as a result of they’re low quantity prices after which they’re pushing them out. If we add my $360 million to their hydrogen gas cell prices after which convey them, don’t low cost them by 40%, then we find yourself with a good increased quantity. And the whole variance that they primarily based the blended situation on was $10 million. 

MR: Yeah. And once you add all of it collectively, we obtained one thing shut to love a billion 5. 

MB: I take a look at that and I’d say I personally, if I used to be a transit company and checked out our findings, I’d be severely questioning CUTRIC and whether or not they had been biased in direction of hydrogen. I’d be getting third social gathering others to redo any numbers that CUTRIC had offered me as a result of they’re not credible. And if I used to be CUTRIC, I’d be taking a look at my governance very severely and questioning how we’d ended up on this horrible place and getting third social gathering individuals to help them to enhance their modeling. As a result of if CUTRIC doesn’t enhance this, they don’t have a purpose to exist. 

MR: Yep. The very last thing I’ll throw in, which is the other of the criticism we simply leveled, proper? Which is that they need to be discounting, they’re simply doing it inappropriately. Whenever you take a look at the local weather advantages of the transition, which they don’t take into account in any respect there, you truly can’t low cost the longer term affect of the modifications. So once you roll this out slowly for no matter you understand, there are causes. I believe it was Feynman who stated this, or possibly not. Time is nature’s approach of stopping all the things from taking place directly. Proper? So you’ll be able to’t, you’ll be able to’t simply wave your wand and say wonderful, battery buses, poof. It takes some time. So sure, there must be a transition, as we’ve mentioned. 

However there’s actual profit in accelerating the deployment as a result of it reduces carbon sooner. Future harms are simply as unhealthy as current harms, in contrast to future prices, which prices lower than present prices attributable to discounting. Future harms don’t low cost as a result of they don’t hurt simply you. Local weather change is all concerning the externalities. And basic customary finance principle says you’ll be able to solely low cost advantages or, you understand, advantages or prices when you’re the one one benefiting or being harmed. As quickly as you violate that assumption, and the rationale for that’s that if anyone else is harmed, how are you aware they use your low cost charge. You don’t know what their low cost charge is. Perhaps they’ve a damaging low cost charge, proper? 

Ten years from now, people who find themselves harmed by these emissions are, they’re getting harmed then, not now. So chances are you’ll suppose that hurt 10 years from now’s price some fraction of what it might be price 10 years from now as a result of it’s you. However for somebody who will get harmed, then it’s price 100% of the hurt to them then, proper? And also you don’t get to determine for them what that’s truly price. There are each good monetary causes and good ethical causes to take a look at these future emissions and say they’re simply as damaging then as they’d be in the event that they had been taking place now. And that provides you an excellent purpose to take that into consideration when deciding how shortly to have an effect on the transition. 

So there’s good financial causes to do it quick. There’s good ethical and ecological causes to do it quick. There are good financial causes to make it easy. There are good organizational causes to make it easy and simply. And on each a type of dimensions, it’s simply, you get an enormous crimson X all the best way down the checklist, which is de facto disheartening. 

MB: To that time of discounting, I’ll maintain you for one more two minutes simply to precise this thought. The European Union with their emissions buying and selling system and their carbon pricing and the core carbon border adjustment mechanism, get this future discounting factor. They are saying, we have now a carbon value, it’s going to go up. And we have now, for budgetary steerage, for initiatives, for lifecycle carbon assessments and for enterprise circumstances, as a result of the carbon has a value to what you are promoting case, right here’s your schedule, yr by yr by way of 2050 for the carbon value to pay, proper? What they did although, is that they stated, okay, in 2030 it’s going to be round €200. In 2040 it’s going to be round €300 and 2050 it’s going to be a bit extra. 

However then they stated at our 4% discounting charge, we’re going to gross these up in accordance with the discounting charge into the longer term. And you utilize the gross up quantity in what you are promoting circumstances in order that once you convey again 2040, €300 per ton to 2023 or 2024, it’s nonetheless €300 a ton.

MR: I used to be not conscious of that. That’s impressively subtle and coherent. That’s wonderful. Good for them. 

MB: And they’re placing a carbon value on this planet with the carbon border adjustment mechanism and so they’re taking a look at getting scope 3 emissions into the CBAM. 

Let’s internet this out. CUTRIC did a extremely unhealthy situation report for Brampton and Brampton’s transit normal supervisor has accepted their suggestions and made that assertion to the town. So now they’re looking for $9 billion to spend on this, which is definitely $10.5 billion to go down a nasty path that emits much more carbon and supplies worse transit service for the residents of Brampton. You recognize, it’s inconceivable to know how a corporation like CUTRIC has arrived at this place. 

To be clear, I don’t count on transit managers to have written a ebook on situation modeling and variance, however they need to have people who find themselves doing due diligence on the proposals they obtain. So I think there’s a top quality management situation that the town of Brampton may need to take a look at a bit bit.

Let’s go away this on a unique observe. On the finish of these items I all the time go away an open ended alternative so that you can say no matter you’d like. So something we’ve talked about, something we’ve missed, any ideas for different people who find themselves, you understand, late to the social gathering, you understand, I neglect the time period you utilize, however arriving at sustainability later of their careers, One thing like that. 

MR: Sure, I did. Longtime listener, first time caller. I watched too many episodes of Frasier going by way of the doctoral program. I received’t generalize from my expertise, I’ll simply share it, and if that’s useful to anyone, then that’s a contented coincidence. I believe I discussed in passing, I’ve come to the view that we’re all sort of on our personal journey in terms of serious about the local weather disaster and what we need to attempt to do to contain ourselves. As they used to say in Chaplin highschool, when you’re not a part of the answer, you’re a part of the issue. bumper sticker and we must always all pay attention to that one. 

And I assume I’d say that it’s, it will probably actually appear overwhelming. I’m often overwhelmed by it. It may be miserable. I’m often depressed by it. But it surely appears to me there’s sort of two selections, strive or surrender. And for now, at the very least, I select to strive. And my hope is that for anyone who’s on their very own journey and serious about the diploma to which it’s price doing one thing, I assume I’d I’ve come to the conclusion that I’ll remorse not having tried much more deeply than I’ll remorse having failed. In order that’s why I’ve obtained my lance tilted at these explicit windmills. 

MB: And on that observe, Michael, I’m Michael Barnard and this has been Redefining Vitality – Tech. My visitor immediately has been Michael Raynor, former managing director engaged on sustainability and thought management with Deloitte, now co founder and investor in S3 Markets and Canary Medical, creator of many books you need to learn, at the very least certainly one of which has been guiding my observations of the world of innovation and know-how for 20 years. And the windmill he’s tilting at immediately are turning scope 3 emissions for actually prosperous white collar companies into avoidance of carbon by way of S3 markets and the town of Mississauga the place he lives, the place they’re doing one thing actually silly with hydrogen buses. Michael, it’s been an absolute pleasure. Thanks a lot. 

MR: My pleasure. Take care.