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Not too long ago, I had the chance to sit down down with Michael Raynor, previously a managing director of sustainability and thought management for Deloitte and writer of a number of books on innovation and technique. We talked about not solely an modern method to addressing Scope 3 emissions Raynor has developed, but in addition an odd case research of a foul research of bus transit that’s creating issues in Canada, one which beneficial a number of hydrogen buses together with battery-electric ones. Beneath is the hyperlink to the primary half of the dialogue and a calmly edited transcript.
Michael Barnard (MB): Redefining Vitality Tech sponsored by TFE Technique. I’m your host, Michael Barnard. My visitor as we speak is somebody whose work has formed my pondering and method to innovation for 20 years, Michael Raynor, co-author with the late Clayton Christensen of the Innovator’s Resolution. Till just lately, he was a managing director engaged on sustainability and thought management for Deloitte. And now he has a few corporations he’s invested in and based, together with S3 Markets. Welcome, Michael.
Michael Raynor (MR): Thanks. Good to be right here.
MB: And we’ve been speaking fairly a bit just lately and sure, that’s going to be the topic of fairly a little bit of what we’re speaking about. However let’s return, let’s wind again. Not all people’s as conversant in you, not all my viewers is as conversant in you as I’m. And there’s stuff I don’t know. I at all times like to begin with, the place the heck did you come from to get right here? What’s the journey that led you right here? Since you’ve bought this amazingly sturdy deal with sustainability now, however you got here from some place else.
MR: Yeah, properly, I used to be. I used to be born in Brantford Normal, similar hospital as Wayne Gretzky, however he bought all of the hockey expertise. I grew up in Northern Manitoba, Thompson, particularly nickel mining city, and ended up going to college within the US and type of backed my manner right into a collection of consulting jobs till after some time thought possibly I’d ask questions that is likely to be a little bit extra attention-grabbing than shoppers. So I made a decision to pursue my doctorate on the Harvard Enterprise College after which to my shock and amazement, ended up again in consulting doing one thing that regarded on its good days like I used to be a professor with no college students and a guide with no shoppers. So it was good. And did that for 25 years and had the chance to work on, as you talked about, Innovator Resolution with my late good friend Clayton.
I did three different books as well as, most just lately the ebook known as the Three Guidelines, A Examine on the Drivers of Lengthy Time period Profitability. After which the shift into sustainability occurred round, I assume all people’s on their very own journey. For me, the epiphany was about 2017 or so after I was simply studying various things that type of come your manner on this subject. Type of lengthy been , as I prefer to say, longtime listener, first time caller, and had come throughout a paper by a paleoclimatologist. There actually are such folks at MIT who was taking a look at charges of change in carbon concentrations slightly than Absolute ranges. Proper. So the extent of carbon within the environment is actually not an issue. Proper. Through the Carboniferous it was properly over a thousand components per million and all people was effective. The difficulty is price of change.
And when the biosphere modifications sooner than the related life varieties can adapt, you get mass extinctions. And of the 5 massive mass extinctions, 4 of them had been attributable to carbon air pollution. The best of them was the permian extinction about 255 million years in the past. And we’re altering carbon concentrations, atmospheric carbon concentrations, about 200,000 instances sooner than they modified throughout the Permian extinction. So I’ll simply say that once more. 200,000 instances sooner. So when it’s the speed of change that issues and we’re 5 orders of magnitude past what triggered the worst mass extinction within the historical past of the planet. Effectively, I needed to cease serious about it as a result of that scared the hell out of me. And so I ended up in search of methods to work on sustainability inside the agency.
Discovered one thing that was interesting, bounced round on a lot of totally different initiatives, after which a few years in the past, landed on the set of concepts that has develop into what’s now S3 markets. So there you go. I constructed your watch to let you know the time, however you made the error of asking.
MB: However as a guide, you really take the watch as cost, borrow the watch and inform them the time, then maintain the watch.
MR: Effectively, I’m not a guide anymore, so I clearly. Now you inform me.
MB: Yeah, no, it’s the price of change. Simply to lean into that a little bit bit, I like to speak concerning the price of change of temperature modifications. You realize, I say that between 25,000 years in the past and 20,000 years in the past, the environment elevated in temperature by a complete of 5 levels Celsius over 5,000 years. And that eradicated 3 to 4 kilometers of ice on all of the continents. Now we’re on observe. If we get to 2 levels, that’s 40% of that, proper? In 100 years.
It’s 250 instances sooner than what eradicated all of the glaciers on all of the land plenty of the world, just about. And that price of change simply makes it actually arduous for something, together with us, to adapt. So let’s begin by getting S3 markets out of the best way, as a result of I spent a little bit time with you on this a 12 months in the past. I’m in all probability going to write down about it at a while as a result of it’s an intriguing thought. Inform me the perception, the aha second, after which what it’s changed into.
MR: Proper. Thanks. Yeah. So the excessive stage statement for me was after I was trying on the work had been doing serving to firms making an attempt to grapple with their web zero commitments was the rising readability across the notion that company stage web zero is a fantasy. The concept that any firm goes to make a web 0:35 or a web 0:40 dedication and truly hit it in any significant sense of the time period is ridiculous on its face. Solely due to the scope 3 drawback, proper? So should you take your typical legislation agency, a legislation Agency might be 1%, scope one and 99% all the things else. And that all the things else is the entire upstream emissions comes from the manufacturing of the entire issues that go into the entire issues that go into supporting a legislation agency.
And the perception for me was that while you take a look at the place industrial emissions come from, 92% of all industrial emissions come from 80 or 90 totally different excessive emitting commodities that collectively account for 15% of GDP. In order that’s it’s all of the belongings you would guess, proper? It’s aluminum, it’s nickel mining, it’s trucking, it’s all of the agricultural commodities, et cetera and so forth. And on the different finish of the spectrum, you’ve bought 50% of GDP that generates 1% of emissions. And that’s an issue, proper? So all the cash’s over right here and all of the carbon’s over right here and by no means the twain shall meet.
And so the statement that we made was that the usual method says your obligation as a legislation agency should you’re going to make a web zero dedication is you’ve bought to crawl up your individual provide chain and discover the bauxite mine in God is aware of the place that led to the aluminum that’s sitting within the laptop computer. It’s ridiculous on its face. Not solely are you able to not discover it on the upstream journey, there’s no manner in hell you’re ever going to trace the molecules again down into the belongings you really purchase. It’s absurd. And there’s a number of people operating round making an attempt to money checks telling firms that they might help them do that. I encourage to vary. And so all people’s scope three comes from the identical place as a result of that’s the place all of the emissions come from. They’ve bought nowhere else as a supply to be from.
So what S3 Markets does, is says to firms which have a web zero ambition. Look, cease losing your time looking for the carbon. That’s pointless. You’ll not be web zero till principally all of these, all of these commodities are produced in a web zero vogue, proper? International web zero is a reason behind company web zero, not a consequence. And so if you wish to pursue significant local weather motion, what it’s best to do is exactly the factor that has proved so efficient with scope 2 or electrical energy emissions. Proper? It is best to spend money on basically an instrument that means that you can buy the environmental attributes of upstream commodities produced in a radically decarbonized manner.
And so our idea of change is that this can permit comparatively few firms to mixture and focus no matter it’s they’re keen to spend on decarbonization, voluntary decarbonization, and help these lighthouse initiatives which can be pursuing the radically decarbonized approaches which have line of sight to industrial competitiveness. Now that’s not true for all of those arduous to abate commodities. Proper. I imply air journey’s bought professional. Something the place we’d like liquid fuels has bought a long run value drawback. And that’s a special class. However the actually excellent news, I feel is that the overwhelming majority of those commodities may be produced in economically viable low carbon methods. They simply want the activation vitality essential to recover from the hump, very like we’ve achieved with renewables. So we’ve bought sufficient time that I made a decision to provide you once more the lengthy type of the reply there.
However Scope three is all about working with firms that need to make a significant affect in international decarbonization in methods which can be according to their company web zero targets. And so we permit them to attract a Venn diagram and determine these alternatives that lie within the intersection of these two aims.
MB: And S3 acts as a dealer between these white collar corporations the place 99% of their emissions are scope three and out of their management, and organizations which are trying to create, for instance, manganese in a totally decarbonized manner.
MR: Completely.
MB: The place the normal strategies, approaches and vitality sources and funding don’t permit that. So that you’re bridging.
MR: That’s precisely proper. Yep. So we take it upon ourselves to determine sellers of those inside credit of those environmental attributes certificates which can be doing exactly that. And also you don’t want enormous scale. That’s the opposite factor that I feel folks get wrapped across the axle with is that they like. Effectively that’s a trivial tonnage. Effectively, in fact it’s, as a result of nothing massive begins massive. Proper. It’s simply that’s not the best way this works. And if you wish to create radically decarbonized options, you need to construct a small scale, giant scope system stage transformation. Proper. Show that it may be achieved. A very good good friend and colleague of mine refers to it because it’s not a gas swap, it’s a system swap. Proper.
If all you do is go in and discover one thing that for 100 years has been optimized across the traits of fossil fuels and attempt to drop in a battery, you’re in for a world of distress. If you happen to go as a substitute and say, I’m going to revamp the manufacturing course of across the new vitality supply that we have to use. Seems more often than not, when you will get your vitality for principally zero marginal value, a complete bunch of recent design choices current themselves. And so the market, I imply, we’ve got a local weather drawback due to market failure. So the market failure right here is that capital markets specifically, and fast stage product markets extra typically aren’t keen to fund these lighthouse initiatives. And too usually authorities finally ends up getting captured by all of the incorrect lobbies.
Anyway, on the threat of invoking your form phrases on the outset, one of many many issues I realized from Clayton through the years, proper, is that methods don’t change themselves. You construct a special system outdoors of it and shove the previous one apart. And so counting on incumbents to search out methods to do issues on the margins which can be going to essentially change issues they’ve spent their whole lifetimes perfecting, that’s what they name within the enterprise a heroic assumption.
MB: I might say that each of us tilted on the windmill of remodeling our international consultancies to be centered on the longer term that shall be, versus the revenue facilities which can be.
MR: Effectively, you mentioned it, I didn’t.
MB: However to that subsequent level, a 12 months in the past, I didn’t ask you this query once we’ve been talking just lately as a result of all people foreshadowing a sound literary system. We’re going to speak hydrogen buses for fairly a little bit of a lot of the remainder of this. However a 12 months in the past, when had been talking, you’re utilizing the time period insets. And that confused me due to my typography and visible background, which is kind of sparse, however I had that language. And so you employ the time period insets versus offsets. What’s the distinction? And the way do you defend individuals who say. To defend these insets from individuals who say, properly, that’s simply one other voluntary carbon market offset that’s price nothing.
MR: So it’s affordable to say it’s a. It’s a little bit of an inside baseball distinction. You realize, it’s type of just like the, , the infield fly rule. You bought to be an actual professional to type of inform the distinction. And an offset is usually seen as one thing the place you’re investing in some type of carbon absorption or carbon abatement course of. Course of that lies completely outdoors something associated to your financial exercise. Proper. So, and I don’t imply to dismiss it in any respect and spend. I spent a few years making an attempt to work on one thing to create monetary mechanisms to fund reforestation initiatives. As a result of I feel that’s a. I feel planting timber are a respectable factor to do. Plenty of issues hooked up. So then make no mistake, we don’t have to disappear down that rabbit gap. However that will be seen as an offset, proper?
So should you’ve bought a legislation agency that claims, okay, I’ve bought all these emissions, and the best way I’m going to deal with that’s I’m going to pay cash to absorb the carbon that will get emitted in the midst of me performing, doing my factor. We are able to have a special dialog about how defensible that’s. However type of with taken on its face, by itself phrases, that’s not a loopy factor to go do. That would work. An inset, then again, is the place you’re decarbonizing the manufacturing of the inputs that you simply in reality require to do your job proper. So should you’re a legislation agency and also you’re flying round, you need to decarbonize air journey, should you’re utilizing laptops, you need to decarbonize the lithium that goes within the batteries.
And so that you need to decarbonize the manufacturing of the commodities you rely on within the portions you rely on them. And that’s what makes it an inset. And the rationale it’s an inset, versus precise direct worth chain provide chain decarbonization is what I used to be alluding to earlier than. If, , should you’re a legislation agency in Poughkeepsie, discovering the lithium in Peru that landed in your desk is an impossibility. So as a substitute you search for methods to decarbonize an equal amount of manufacturing elsewhere. Now, there’s a number of conversations you possibly can have with folks say, yeah, however wait a minute, we’ve bought say’s legislation. So that you’re supplying extra lithium to the market, you’re not going to offset as a lot as you really produce. To which I might say, yeah, true, however not related. As a result of in the long run, proper?
No, and that is simply between you and me, you perceive? Don’t inform anybody else. No firm has bought a checkbook large enough to purchase sufficient insets to truly declare themselves web zero. It’s inconceivable. Not going to occur. You want 150% of income. Neglect it. And should you take a look at what firms are literally keen to spend, it’s like 0.05% of income should you’re fortunate, and that’s effective. We are able to save the world with that you simply get me the S&P 500 to provide me 0.05% of income and 10 years from now, the world’s going to be a really totally different and a lot better place. So all I’m. All we’re doing with S3 is saying, look, let’s leverage the framework that’s in place. Let’s use this assemble of insets to get the correct factor to occur and belief in a essentially totally different idea of change.
So I don’t need to get wrapped across the axle about, . Oh, however you’re double counting. Oh, however you’re. This. Don’t fear about it. The article of the exit. If we’d misplaced our minds with that round renewables and renewable vitality credit and digital energy buy agreements, we wouldn’t be the place we’re with renewables. Proper. So my view of it’s that the parents who get actually exercised about this are involved about the issue that we’ve got with the electrical energy markets now. However the purpose you might have these issues with RECs as we speak is as a result of they’ve been so fabulously profitable. So don’t load my fabulous little magnesium venture out in New Brunswick. Don’t load it with the entire issues which have visited the rec market after 35 years of success, like as soon as the insets are questionably extra and are now not displacing soiled product.
Meaning you’ve received. Proper. Meaning there may be now sufficient of that manufacturing on the market that it in all probability now not wants the subsidy. And now it’s time to maneuver on to the following arduous drawback.
MB: Yeah. So the 2 themes right here, one, the tilting at windmills of making an attempt to get giant bureaucracies to raised. And the second is avoidance of emissions, not cleansing up after emissions, not sweeping up after the factor is finished. And people come collectively into our current little expertise combating metropolis corridor in Mississauga. Why don’t you lead off? Since you reached out to me on this per week or two in the past and now I’ve simply been sucked right into a vortex of fairly outstanding awfulness.
MR: Effectively, you’re welcome. My present to you. Yeah.
MB: It’s my life, as I feel . So inform us why we’re speaking, why we’re combating metropolis corridor, what triggered this?
MR: That’s . You realize, it’s not that way back, so clearly I’ve solely bought just a few good years left as a result of I can’t keep in mind exactly how I ended up tripping over the Mississauga hydrogen bus pilot. So I gathered that is one thing that now that this has been authorized some years in the past, I feel 2022, they. They began they began the planning and the approval course of, however the precise pilot deployment that they bear in mind has but to be funded. And so I believed that is not sensible. And, and courtesy of LinkedIn I ended up tripping over your work and form of the conflict of anti Hopium people who, from whom I’ve realized an incredible deal just about near definitely the parents who pointed me on this path.
And now I really feel that I do know sufficient to have an knowledgeable opinion concerning the relative deserves of hydrogen and battery powered electrical autos. So I took it upon myself to ship a completely unsolicited e mail to the mayor and council of Mississauga and mentioned, I’ve bought a query for you guys. What are the next 15 cities have in widespread? Which is that they’ve all achieved what we’re about to and it’s all ended very badly. And in order you may count on, largely ignored. A number of people wrote again and mentioned the place do you reside should you’re, I imply these are my phrases, not theirs. The place do you reside should you’re not in my ward, I’m not . And to her credit score, my ward counselor, we’ll give her the shout out. Deepika demurla mentioned, I might like to be taught extra about this. Why don’t you apply to council?
You may be deputed is the time period of artwork and make a presentation. So I’ve bought 5 minutes. I’ll select my phrases rigorously. So I’ve bought 5 minutes with Mississauga Metropolis Council on October thirtieth and I’m gonna for no matter it’s price, allow them to know what I feel. Again to your quixotic metaphor. And I assume the tower at Mississauga does look a bit like a windmill and I’ll discover out the arduous manner what impact that may presumably have after which properly the remainder of it’s your story which is out of that you simply ended up bumping into the Is it do we are saying Cutrich evaluation the town of Brampton.
MB: I don’t assume I’ve ever mentioned it out loud and I’ve a reader’s vocabulary. I’m going to go cutrick the Canadian City Transit Analysis and Innovation Committee or council a type of, .
MR: Bravo. Shut sufficient. Yeah.
MB: Based in 2015. It’s as I perceive it, a not for revenue member funded and , some funding from municipalities interact in analysis and reporting and assume tank for city transit decarbonization. In order that’s that is its area, that is its jam. Proper now it has in all probability 50 members 40 or 50 members throughout trade, academia, municipalities and transit organizations. Of varied varieties.
MR: However, however. Forgive me for interrupting, however. However member funded. Proper. So go. I ponder, I ponder how the funding works amongst the members. I’m going to guess it’s not equally shared they usually don’t form of go the hat and Everyone chips in 20 bucks and that’s the way it will get. I don’t know that is true, however I’ve a suspicion.
MB: Effectively, there’s funding after which there’s funding. They really, for his or her membership, they are saying, and right here’s funding which you can. Memberships which you can achieve and what the advantages are. And they also’re, , a few of them are within the vary of $8,000 a 12 months and a few of them are extra. And I’m positive then there’s particular venture funding and stuff like that, . And lots of the people who find themselves on this group are undoubtedly fully virtuous and making an attempt desperately to do the correct factor as a result of it’s a tricky factor to do. As I’ve shared with you, I’ve an incredible quantity of respect for transit organizations. They’re insanely good operational organizations who cope with little transformation and they’re making small quantities of {dollars} go a tremendous distance for high quality service for, amongst different issues, in North America, particularly the least advantaged amongst us.
Yeah. You realize, In North America, 92% of weekday journeys are by automotive as a result of we constructed a cult. We’ve constructed a whole infrastructure and concrete panorama that’s primarily based on getting round by automotive. You realize, while you and I final spoke yesterday or the day earlier than, you had been in your latest Tesla and caught in Visitors on Freeway 10 in your technique to the ghost station so you will get downtown.
MR: Proper.
MB: However that’s type of the place we’re. We are able to get to collectors by automotive for a few of us. And. However that’s what it’s. And buses are there for all of the individuals who can’t afford vehicles greater than not. And so it’s a really tough problem we’ve got with this brawl we’ve created. So the transit companies which can be concerned with CUTRIC undoubtedly have their hearts in the correct locations. I might say that in all probability all the tutorial organizations, the colleges which have memberships have their hearts in the correct locations. They’re doing analysis associated to city transit decarbonization. They’ve bought city affairs and concrete research packages. They get engaged with research on stuff. Super quantity of labor there. Though in fact there’s a number of academia which spirals down into useless ends.
We’re simply not going to place overhead wires and have catenary overhead wires when petagraphs on prime of vehicles or little electrical Wires within the roads that vehicles connect to. I’ve bought a European acquaintance on this area who simply loves that. I’ve bought a pair and possibly for giant freight. And so then there’s different organizations which can be of much less. I might say they’re not essentially. They don’t have. They’ve an agenda that’s totally different. So proper now Putrik has three members who’re pure fuel utilities. And also you type of sit there and go actually decarbonizing. What do pure fuel utilities must do with low carbon buses and trains in cities? And the reply is that they’re pushing renewable pure fuel they usually’re pushing compressed pure fuel.
20, 25 years in the past, once we didn’t have batteries, a bunch of individuals mentioned, hey, compressed pure fuel is the reply. And there. So there’s a complete bunch of CNG buses operating round. And now the large reply from the fossil gas firms is, oh, renewable pure fuel or hydrogen. Proper. So we find yourself with this case the place Fortis bc Fortis, Alberta, and most significantly, from Ontario’s perspective, Enbridge are members. And Enbridge, the individual answerable for enterprise growth for his or her fuel is definitely on the board of administrators of Kutryk. Yeah, that looks like a battle of curiosity personally.
MR: Proper. At a minimal, it’s a Caesar’s Spouse drawback. Proper. Not solely should there not be a battle of curiosity, there should not look like a battle of curiosity, you.
MB: Know, and so then we’ve got Ballard Energy, the B.C. Firm which has managed to lose $1.3 billion, $55 million a 12 months on common since 2000 and has by no means turned a revenue. And it’s been concerned in gas cell trial after gas cell trial all over the world. It’s offered gas cells to China, it’s offered gas cells to Europe. It’s. And it’s, , promoting gas cells which find yourself in buses and autos which find yourself rusting in parking tons as a result of the trials inevitably find yourself in failure. And so, , I used to be type of like taking a look at this. I used to be conscious as a result of not like you, that is my radar. It is a massive a part of my patch. So it was on my radar. I used to be conscious that, , Mississauga was taking a look at. And I attempt to not beat up Canada an excessive amount of.
I determine if I publish about all the things else, I don’t must go deep and annoy Canadians as a result of I really feel unhealthy. Proper. And there’s greater fish to fry normally.
However you triggered me. You bought me taking a look at this. So then you definitely despatched me some stuff on their. What they, , was associated to the stuff that they’d by way of Mississauga. And so I checked out it. There’s some questionable assertions in there. There’s some stuff that doesn’t.
MR: Nothing you hadn’t seen earlier than in broad define, I’m positive.
MB: However I didn’t count on to see it in a Canadian transit, an unbiased transit group’s materials. It made hydrogen appear much more possible and viable and it made it forged some asparagus at battery electrical buses. And, , I used to be like, that’s odd. And so then, , I revealed on that and saying, , there’s some questionable stuff right here and, , undoubtedly it’s not going the correct manner. After which I type of went again and, , did. So certainly one of my contacts is Professor Ben Flo. He’s the Danish knight of all issues and educational, is so affiliated with Oxford and the IT College of Copenhagen. I feel I bought that proper. And naturally, he’s the writer of 2023’s finest ebook, Enterprise ebook of the 12 months, in response to nearly all people, how massive issues get achieved.
And so certainly one of his massive issues is reference class forecasting. Now, in fact, reference class forecasting says go get as many knowledge, as a lot knowledge from different initiatives which can be just like the one you’re doing and forged a giant web after which estimate from that and provide you with the averages of price range and length from all the information that you simply get from different initiatives after which use that because the baseline estimation in your venture.
MR: Proper. Extra colloquially, who’s achieved this earlier than?
MB: Who’s achieved this earlier than? And there’s a number of that knowledge that’s publicly obtainable. And so as a result of I do know this, I imply, I used to be concerned with a. The Swedish Rise Analysis Institute. They did a research on decarbonizing highway freight in Europe. Proper. And so I used to be on the board of advisors for that research together with the hydrogen lead from Daimler for example, just like the board. And David Saban. David Saban is a professor at. I’m at all times questioning if it’s Oxford. I used to be Cambridge or Oxford? Cambridge or Oxford. [It’s Cambridge.] He’s additionally the founder and director of the middle for Sustainable Highway Freight. So we’re giving recommendation to the researchers who’re doing the modeling for decarbonization potential for highway freight. And that included biofuels, artificial fuels, hydrogen gas cell buses, straight electrified buses with batteries, overhead container wire buses, and in comparison with precise diesel emissions.
And we did that. And a part of my job was to say, properly, let’s take a look at the assumptions, what he was asking of me. And so I used to be going and taking a look at what’s the instance from the true world. And so I discovered, for instance, that California, the USA, it’s an exquisite place. It’s a narcissistic naval gazer oversharer, which implies any knowledge that you really want, they’ve revealed and made public. Not like China, the place it’s simply inconceivable for researchers like me to search out actually prime quality knowledge about detailed stuff except the World financial institution has helped fund it. And so I went and located the information on all their refueling stations which had been out of service for two,000 extra hours than they had been pumping hydrogen of their highest quantity six months.
I discovered all the information on their hydrogen gas cell buses, which have 50% larger upkeep prices than the diesel buses and 100% greater than battery electrical buses. Proper. And, and so the reliability of refueling and the reliability of buses we introduced again and we put that some, , variant in it as a result of the numbers I say the, for hydrogen refueling stations, it’s 10 to 30% of capital expenditures are spent on operational upkeep and fixing them yearly.
MR: Proper. So that you’re shopping for a brand new one each three years.
MB: You’re shopping for a brand new one each three years. It’s nutty.
MR: And forgive me, however forgive me for leaping in, however that appears very totally different PS from the shiny brochures that they hand you when, while you’re saying, gee, I ponder if we must always have hydrogen buses. And it’s not like the parents who’re promoting it to you both don’t know that’s what’s good. I imply, they know you wanted upkeep prices. They offer you a quantity. What one doesn’t know is the extent to which these numbers are grounded within the knowledge, the type of knowledge that you simply’re juicing right here.
MB: Yeah. Now the opposite factor is the EU has been making an attempt desperately to shove hydrogen, the sq. peg of hydrogen, to the spherical gap of transportation for 20 years, 25 years. You realize, they’ve been, their jive program has been funding stuff. And the good factor there may be yearly they publish a standing report. And so in 2023, the top of 2023, they revealed, properly, the start of 2024, they revealed the 2023 standing report. And I went by your entire factor throughout their gas cells. Gasoline cells fail on common each three years and have to get replaced.
MR: So that you’re shopping for a brand new a type of each three years on prime of it.
MB: They usually’re 40 to 50, 40 to 45% of the price of bus is the gas cell. Now, I don’t know. I wasn’t in a position to parse down whether or not that included all the additional stuff within the bus, but it surely’s actually costly. Whereas they’re additionally unable to get past 20 months of drivetrain guarantee for gas cell buses in anyplace in Europe. In the meantime, they’re getting 5 12 months full components and guarantee, like all service and all components warranties or 8 12 months full drive coaching guarantee, together with batteries. Strive.
And so I used to be type of like taking a look at this and going, properly let’s do a reference class forecasting and dealing it up. And I did that. Then, , that turned out to be. Effectively, it appears to be like such as you get a smaller variety of buses. You will get 12 battery electrical buses for the worth of 5 gas cell buses and also you’ll get higher service out of them. Effectively, this led to one thing else. A metropolis that isn’t removed from the place you’re sitting, Brampton now, if reminiscence serves, as a result of it’s been a very long time since I attempted to even discover Brampton on a map. Principally you begin on the CN Tower and also you go north and a bit west and you find yourself the place you’re In Mississauga, about 20 km, 25 km away. And also you go one other 10 or 20 km and also you get to Brampton.
MR: Just about, yeah. You simply go north on the 410 from the middle of Mississauga. Yep. And Brampton’s enormous. Brampton. I imply, name me a liar. For 10 or 15%, I feel the inhabitants of Brampton now could be like 700,000. Yeah.
MB: And it’s an enormous sprawling bed room group of Toronto, but it surely’s additionally an industrial group, and has a bunch of distribution facilities and industrial parks. You realize, it has an trade. It’s not all people’s simply getting up within the morning, getting their vehicles or getting a go transit and heading downtown.
MR: It’s gone by the identical evolution that Mississauga went by. Proper. You began as a bed room group for downtown, then you find yourself with a bunch of department crops from the US Fortune 500. After which you find yourself with your individual type of service and lightweight trade and distribution hubs. And it’s a predictable course of.
MB: So then we bought to the purpose the place I revealed a few issues and what occurs is info comes out of the woodwork. One other contact in Ontario reached out and mentioned, hey Mike, right here’s the precise report that CUTRIC did for the town of Brampton that led to them with suggestions for a blended battery electrical, hydrogen bus suite and diesel.
MR: By the best way, they run all three for like seven years.
MB: Yeah, longer really. I feel they retire the final diesel fairly late. You realize, which is affordable. You’ve bought to truly run till you.
MR: Accumulate sufficient buses on its face. That’s not a disqualifying statement.
MB: Yeah, it’s a transition. Now we’ll discuss. Since you had some actually nice observations. Now I went by that when and we’ll discuss my findings after which we’ll discuss your findings as a result of your findings dwarf my findings. So only for all people, should you’re type of , there’s actually massive numbers coming.
MB: However the good factor is CUTRIC’s assumptions, that are, so far as I can inform, embedded of their techno financial physics primarily based mannequin, which was invented initially by the founder and the one who based CUTRIC. You realize, they created it and as a part of their preliminary factor, that’s in its third model and it really has the sum image within the center. So I’m not even going to attempt to pronounce it. It’s similar to the artist previously often known as Prince is what the identify appears to be like like as branding. As branding goes, it’s an odd alternative, however. And now it’s in its third model. However I at all times go to the stories after which take a look at the precise assumptions as a lot as doable. What are the items utilizing per unit of value for hydrogen? And , that was type of the primary massive what the heck I discovered.
MB: So due to hydrogen, there’s this phantasm in hydrogen for transportation and hydrogen vitality circles that finally hydrogen shall be filth low cost. And actuality is it’s not going to be. They usually even have this phantasm that it’s going to be low cost at factors of distribution versus factors of producing. Simply getting hydrogen to locations to make use of it, except you might have a giant pipeline, is pricey. And so it prices two to 4 bucks to make a kilogram of hydrogen from pure fuel. Canadian. After which In keeping with the US DOE, it takes about 14 bucks to maneuver it by truck to a refueling station. So meaning, oh, name it 16 bucks. That appears to be an affordable value per kilogram of grey hydrogen.
MR: Effectively, the cushion which hasn’t gone anyplace in about endlessly. Is that proper?
MB: No. You may look all over the world. Many of the hydrogen refueling stations, all those in Europe, like there’s seven in Austria, for instance, I found 20,000 electrical automobile recharging stations, seven hydrogen refueling stations. You look all over the world, there’s a declining quantity in California as a result of Shell bought out of the enterprise as a result of it was a mug scheme. However in California it’s been up as excessive as 36 US$50 Canadian per kilogram of hydrogen allotted retail. In Europe, it’s 12 to 25 Euros, which is like 20 to 40 {dollars} delivered. And that’s grey hydrogen, 99% of it. Proper. And in order that sounds, . So what quantity is CUTRIC utilizing? Effectively, they’re utilizing $8 Canadian.
For the fee for grey hydrogen delivered, like all in. All in all, there’s no. Effectively, not fairly all in. They do really value the price of refueling stuff. I’ll get to that. However simply getting it delivered, they’re half the worth level for the main consumable operational expense merchandise.
MR: Yeah. So all into tough flip of phrase. I meant manufacturing transportation. Yeah, yeah.
MB: And so like Air Merchandise, I feel is their identify. They’ve a facility in Sarnia. They manufacture it from pure fuel they usually truck it to industrial shoppers.
Nevertheless it’s not going to be low cost. It is likely to be low cost to make, however getting there with a tank, it’s costly. In order that was type of factor one, and that’s a swing of as much as $200 million by itself. Now’s the time to say, properly, $200 million in comparison with what? If that’s in comparison with a whole bunch of billions of {dollars}, possibly that’s okay. However that is the place it will get hinky. The report really picks one thing. They three situations, did a battery solely, hydrogen solely. They usually did a blended state of affairs, , round 700 electrical buses and 400 battery buses. And so, , that blended state of affairs is the one which they picked. And it was $8.94 billion for the blended state of affairs. And the battery solely state of affairs was $8.95 billion. The distinction was 0.01 billion. That’s 0.1% of the whole value.
And I checked out that. I’ve a bizarre background. I began out as a pc audit technician man in an accounting agency. I mentioned, that’s far under the extent of materiality for any discovering. I type of pointed you at that. We’ll get into what you discovered as a result of it’s very attention-grabbing. However principally at that stage of quantification of a 20 12 months state of affairs primarily based research, 0.1% variance between two choices, they’re precisely the identical. Yeah. Even when the modeling is ideal. Even when the modeling is ideal.
MR: And what I can keep in mind there may be if that quantity was as a result of they modeled it in 3 ways with grey, blue and inexperienced hydrogen. And I can’t recall in the event that they modeled. They couldn’t have given all three of these the identical value. So the 9.85, was that inexperienced hydrogen or grey hydrogen, do you recall?
MB: Largely grey hydrogen till inexperienced hydrogen arrived they usually did value inexperienced hydrogen Extra appropriately, , even perhaps too excessive in a single case, however problematic. And so blue hydrogen, by the best way, has the identical drawback as grey hydrogen does, is you don’t make it on web site on the bus station. You must make it some place else and ship it.
MR: Proper, properly, so put a pin on this, that this can be a little bit out of order. However one of many issues that I checked out was, okay, you’ve bought three totally different situations for carbon emissions primarily based on inexperienced, blue or inexperienced. So there’s 10. Let’s simply fake all three of them value the identical, precisely the identical sum of money. In order that’s a fantasy proper there. However we’re not going to fret about it. We’re going to say they, you’ve bought a $10 million benefit whatever the coloration of hydrogen you’re utilizing, after which say, all proper, so in each case the battery solely state of affairs has decrease emissions.
And for the reason that solely purpose you’re doing that is to have decrease emissions, a query price asking is how a lot, what number of tons of carbon are prevented in your $10 million should you had been to pursue battery solely as a consequence? And so I’m going to have a look at the numbers right here so I don’t get it grossly incorrect. It seems that should you. Yeah, right here we go. So if in comparison with the grey hydrogen state of affairs, you’re paying $58 per ton prevented. That’s actually good by the best way. I imply, if it. As a result of this can be a ton prevented, proper? So this isn’t sequestration the place possibly the tr. The tree burns down. This isn’t like, that is hardcore. Hey, no kidding. It simply by no means will get emitted within the first place, proper?
MB: That is like within the very excessive insets versus offsets.
MR: Yeah, completely. Sure, completely. See, these are extremely dependable. So, okay, so it’s 58 bucks a ton on a grey hydrogen state of affairs. It’s 91 bucks a ton on a blue state of affairs, and it’s $144 per ton on a battery solely state of affairs. And that’s not a very costly value to pay, by the best way. No, these numbers are completely affordable. So you could possibly take a look at it that manner and say, okay, effective, I’m going to consider all the things you simply informed me. I’m going to assume that $10 million value distinction is rock stable. And I’m going to fake that inexperienced hydrogen prices the identical as grey hydrogen.
And even underneath these situations, you could possibly take a look at it and fairly conclude, properly, insofar as this can be a local weather initiative, proper, that’s utilizing buses to realize a local weather final result not a local weather final result used to realize a local weather initiative used to realize a bus final result. Let’s notice the worth of the abatement. And it’s not a loopy value. And so there you go.
MB: If they really had costed the abatement, that will be nice. However one of many observations we made is that they assert a tonnage avoidance, however they by no means priced carbon.
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