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Richard Helppie
Hello, welcome to The Common Bridge. I'm your host Rich Helppie, and we've got a great topic for you today. It's all about energy; energy as it relates to the petroleum industry, to renewables, to about where we're going, to the impacts on climate change, and all of those factors that go into making up this world that we live in and this earth that we want to preserve. Our guest today is Fred Gallagher, a geologist by training with an incredible background in all phases of the energy industry. The Common Bridge, of course, is available at substack.com. Just look up The Common Bridge, click subscribe, and join our discussion. Podcast [is] available on your favorite podcast outlets, on YouTube TV, and at Mission Control Radio on your Radio Garden app. So I welcome today, Mr. Fred Gallagher. Fred, it's really good to see you. How are you?
Fred Gallagher
Good to see you, Rich, thank you very much. Doing very well, thank you.
Richard Helppie
Well, I've been very much looking forward to this day and trying to read up as much as I can. There's a lot of information out there and frankly, most of it, I don't understand. So hopefully in a couple hours, we're going to know a little bit more. Fred, the Paris Climate Agreement had set a goal of limiting global warming to less than two degrees Celsius, two degrees above the pre-industrialized levels, as best as they can be managed. The Intergovernmental Panel on Climate Change, IPCC, has taken the position that even a two degree Celsius increase is too high, and global warming should be limited to one and a half degrees Celsius to prevent all of the really bad things that could happen from climate change. The IPCC and others say that the current efforts aren't going to be enough. But others say that countries maximizing their ambitions and pledges could result in a decline of greenhouse gas emissions that might set a pathway onto that safe range between 1.8 and 2.1 degrees Celsius. Of course, all of those efforts play into the production, the transmission and the consumption of energy. And everyone listening, reading or viewing this episode of The Common Bridge is consuming electricity to do that. Reliable, cheap, always on, electricity is an assumed part of modern life. It's a measure whether you're a first world country or not. So where are we today in the transition to new energy sources? Mr. Gallagher is going to shed some light on this. Look, he's had a unique career, because he's located oil and then he had to figure out where to place wind farms. So, Fred, welcome to The Common Bridge. Our audience likes to know a little bit about our guests. So tell us a little bit; where did you grow up and what were your early days like?
Fred Gallagher
I'll give you a real quick sketch on that. I'm Canadian and I was born and raised in Calgary. Many of your audience will probably know Calgary, either through their work or other events. I'm a geologist by my background. I spent quite a bit of time exploring for minerals in the Arctic, in northern Canada. That was in the late 70s. That was before and after graduation, so that was kind of my early start out in the field, pounding on rocks and looking for minerals or looking for oil and gas. I became a geologist, petroleum geologist, with AMICAL, which many of you would also be familiar with, the organization based out of Chicago, and I spent my early career in Canada, but then also went to Australia, Houston, and eventually ended up in Chicago.
Richard Helppie
Those are all the energy hotspots. I understand you are a degreed geologist from the University of Calgary and you also had postgraduate work in Switzerland?
Fred Gallagher
Yes, I did my MBA in Switzerland at an institution called IMD in Lausanne, Switzerland. And that was a very interesting opportunity in my life, because I was questioning how does this energy business go forward. It seems like we have this unitary product, seems like we think that that's all there is there. What I wanted to understand was how the rest of the world viewed energy and I didn't want to stay in the North American bubble with respect to that. I wanted to understand a little bit more about what the world thinks. So I went to IMD and lo and behold, I got some really great eye opening experiences; 30 different nationalities in my class. I spent quite a bit of time in the UK as the UK was really embracing both the electrical business change, which was brought on by Margaret Thatcher. The whole deregulation of the electricity business became very exciting to me and I was trying to figure out how I could plug into that. Renewables were a big part of that change in the UK at the time so it was an excellent opportunity to just really try to understand the world from a larger perspective. In fact, in the oil and gas business, we always thought that was the energy business and, of course, electricity was just utilities. Well, I found out that energy is much, much larger and much, much broader than just that, and that was a big part of it. So when I came back from my MBA, it transitioned from petroleum to wind, and that was in the early 90s. I graduated in '91. And I was trying to figure out where in the world to really put my skills in place. I looked at the UK quite a bit, looked at Europe quite a bit. And then I realized that my own backyard was actually probably one of the most interesting places for renewable energy in the world. It was after a long project of about six months, really trying to figure out what energy resources I could really plug myself into, when I landed on wind energy.
Richard Helppie
My understanding with wind, you just can't put up a windmill any place, just like you can't put an oil rig someplace, because they just don't work. What did you have to do to figure out where to put those windmills or turbines or whatever you were putting up?
Fred Gallagher
Well, wind is a natural resource, sun is a natural resource, just like oil and gas. So it really was much of that same mindset of okay, where do we find the best spots, what can we do to explore for the best spots. Of course, the technology was changing rather rapidly at the time. I joined with two partners who had already been in the business for 15 years; believe it or not, that's 30 years ago and they had already been in the business for 15 years. It was really a marrying of those two aspects. They were very technological in their orientation and I was very resource oriented. So we spent quite a bit of time setting up masts all over the place, in various different great locales. We had about 50,000 acres under lease to try to sort that out and figure out where was the best spot, and we started figuring out how we can build great wind farms. But the real challenge was that utilities weren't buying technology - they weren't interested in technology - they were interested in power. A lot of the industry have been focused on trying to sell technology to the utilities, and we kind of went a different route; we started selling power to utilities, and that made all the difference.
Richard Helppie
So you've been involved with decarbonisation with carbon based fuels, geothermal, I understand, early hydrogen development, wind and solar. We're going to dig into all those things today. What is it you're up to today? What's your personal life like? And what's your job like today?
Fred Gallagher
I've kind of struck out on another angle of this package, which is how are we going to get to a goal like net zero by 2050? And what's it going to take to get there? So this is kind of an interesting part of our whole discussion today. One of the things it's going to take is a lot more interconnection. I've been working on trying to figure out how do we create rights-of-way that deal with all of the social and other issues associated with rights-of-way and pathways for energy development, and trying to figure out how we develop corridors that we can then use for the next generation of energy transportation. So that's what...and so my day really looks like talking to politicians, talking to energy resource people, talking to experts, in all manner of fields from governance to First Nations issues. It's a pretty exciting, pretty broad reaching opportunity. But I like the name that you use, The Common Bridge, because that's the way I look at my career. My whole career has been trying to figure out how do we bridge the gaps between various different opportunities and various different ideologies, thought processes, and that's essentially...I think it's what I can bring to the package, is how do we bridge those gaps and how do we bring those together. So my early career really brings that to light and I think that's what I pursued most of my life.
Richard Helppie
And getting that to market. I'm glad that we have you on that and colleagues like you. But here's what the average person hears. They hear, oh, hey, we're going to have electrification of cars, we're going to have renewable energy, we maybe are going to slap carbon taxes on. And what do they see? They see gasoline prices soaring, they see droughts coming up, they see more severe weather. And they're wondering how all this plays in. Then they're getting these simple answers, hey, let's quit searching for oil and coal, because we have to mine that stuff and refine it and ship it and then burn it and that just dumps carbons and other pollutants into the atmosphere. I'll just switch over, because look, we've got abundant renewables; the sun's out, the wind blows, it's renewable, it's free and it's better than oil from dictators. But look, we know there's a lot more behind the headlines and the slogan, so let's get into some education and maybe some policy ideas. Fred, in your view, what is the transition to renewables, if that's indeed where we're going? What's it going to look like?
Fred Gallagher
Well, let's try and tease that apart a little bit. First of all, energy is really fundamental to our current prosperity. I mean, without energy, our society would be still back in the Stone Age, literally. I think it has created the population explosion that we have, it's the prosperity that we've seen and it really enters every single part of our life. One of the things that I like to use is the analogy that it's from upstream resource exploration right to your toothbrush. Just every part of our life is affected by this, and it is one of the most capital intensive businesses in the world. Just to give you a little bit of example; IEA was doing some work - that's the International Energy Agency - was doing some work on what is the amount of capital that's put into the business each year to rejuvenate what we already have? We're talking about $2 trillion a year annually, worldwide, put into just fixing up and replenishing what we already have. So that gives you a bit of perspective on the size of this industry; it is enormous and it is extremely complex, because it embraces every form of energy you can imagine and every form of delivery you can imagine. So that's really an important part of the package for us to really understand that. When you look at how do we change this package, well, the energy business really was developed to deliver hydrocarbon fuels and other forms of energy - but largely hydrocarbon fuels in the early stages - to the end use customer that would consume it, consuming that, combusting it, burning it. And that's really the way our system is set up. We're going to have to rethink that because right now, we got billions of tailpipes, exhaust pipes, all over the world, and they are producing lots of emissions, not just carbon dioxide, but lots of other emissions. That, logically, we need to change when we've got almost 10 billion people on the planet. We [have] got to figure out better ways to do that without dumping the benefits that we have into our atmosphere willy nilly. So I mean, that's the scope of the issue.
Richard Helppie
If I understand what you're saying, and I hadn't thought about it that way, that the energy systems have been built to deliver these hydrocarbon fuels and we're burning them right where we're using them. So the furnace in my home burns natural gas, and I use it right there. If you put gasoline into an internal combustion engine, it doesn't do anything until you combust it and so now we're dealing with that. But I think if I am inferring what you're saying, we're going to move that generation someplace else; like the power from my car is going to come from a power plant some place, transmitted some way and then charges the batteries in my car that's going to be stored. The magnitude of that change, over 10 billion people and for all these millions of tailpipes, that's just hard to get my head around.
Fred Gallagher
Well, I think that's exactly right. And I think electricity is an interesting example because electricity is the opposite. In the case of electricity, you're combusting or burning or producing the electricity either remotely or in a centralized station, and then you're shipping the energy - zero emissions energy - to the end user. So the end user is not actually producing any carbon or emissions at the point of use. So this is the kind of flip around that we got to think about with respect to the energy system; that it's currently built for the end user to combust the majority of the product, versus being able to do it centrally. Either generate it from zero emission sources or take the emissions and put them somewhere centrally, where they can be stored and kept away from the atmosphere. So I mean, it's a fundamental change. And IEA has really done some interesting work around this. Considering it takes $2 trillion a year just to keep our energy system going currently, they estimate that somewhere in the order of $4 trillion dollars a year is going to need to be invested to get us to that magic net zero by 2050.
Richard Helppie
We have these long term investments that we need to make in power generation, transmission, and then the devices for the end user and we are feeding that to the tune of $2 trillion a year just to keep it going. We need $4 trillion to get to what's coming next, we think, which are also long term investments. I think we should talk about that because the Intergovernmental Panel on Climate Change, they claim - these are their words - there's already cost effective and technology mature solutions to help lessen climate change. And they cite wind and solar capacity that are facilitated by flexible technologies. Is that true or true to a degree? What do we know about cost effective and mature technologies? It just sounds oversimplified, but what's the real story?
Fred Gallagher
I think the real point is that, yes, wind and solar are now, on an unsubsidized basis, cost effective with any other new resources that might be hydrocarbon based. So that's very true, in fact, they're less expensive now than they were, than the current hydrocarbon based technologies. They're even competitive if you just look at the marginal cost of running, let's say, a coal plant or running a natural gas plant. They're cost competitive in that sense as well on an unsubsidized basis. The issue is really inertia; I think the key problem here is we tend to look for silver bullets. Humanity...that's one of our Achilles heels, I think. We tend to look for silver bullets, we tend to think that everything is maybe simpler than we think it is. Let's talk about the energy industry from [the] point of view of the size and scale here. We've already alluded to it takes about $2 trillion a year just to keep us going as we currently are, and about $4 trillion a year will be needed between now and 2050. That's basically 30 years at $4 trillion a year invested. So let's talk about capital stock, and I'm going to throw that term out because it's a useful one to think about. Because this industry is so capital intensive, it takes time, people make investments, and they make investments that are going to be 20, 30 years long. So if you think about, let's say, a natural gas plant today, you install a natural gas plant today, you're going to expect 20 to 30 years of investment returns out of that to turn that over, or what's called capital stock turnover. It just makes no sense. So, if you think about it in terms of your car, okay, you purchase a car, probably the average life of a car is somewhere around 15 years that you get, so think of if you turn that car in after one year or two years, economically, that doesn't make a lot of sense. And really physically, if we have to invest $4 trillion a year, that's a significant proportion of the world's GDP. Can you imagine trying to accelerate that? Well that's the conundrum we're dealing with in terms of trying to change from one to the other. So getting to your question of cost, today wind power and solar are more competitive than most other resources that are available on hydrocarbon or nuclear basis. On a levelized cost of of equivalent, they are more competitive. On an unsubsidised marginal cost basis they compete really well with, let's say, natural gas or coal, meaning that they are less costly to build and operate than just operating a current coal or natural gas plant. And that's the point at which sometimes you start to see a lot of capital start turnover happening, is when you start to get to that point. And that's really where we're trying to get to.
Richard Helppie
I'm looking at some data here that forecasts the next 30 years, 2023 to 2053. And based on inputs from sources around the world, the calculation is that investments in solar are going to go up nearly 200%, wind over 250%. And interesting, number two, and to your earlier point in the preamble here, was transmission and delivery - 225%. But fossil fuel, down 56%, we're just not going to invest there and then extraction, that's also going to be coming down. Now granted, the solar, wind, transmission and delivery, those percentages are coming off of a fairly small base, and the fossil fuels and extraction are coming off a fairly big number, but still; the magnitude of that change. I guess the big question I know that is on everybody's mind is, are we going to produce enough electricity, are my lights going to work, is my heat going to work in the winter? So about these technologies...is the Hoover Dam is about ready to stop because we don't have enough water in there? Are we getting enough electricity?
Fred Gallagher
Yeah, I think let's sort of tease that one apart a little bit. Just to give you a scaler for where the wind energy industry is in the US today. In 2020, there was over 14 gigawatts of wind installed in the US. So what does that mean? Well, that's equivalent to seven Hoover Dams.
Richard Helppie
Okay, nice. Good to know.
Fred Gallagher
So, we're talking about an enormous industry at this point in time, and it's growing at about 8% per year. But let's put that into the scale. Even though we've been doing this - probably [for] 40 years we've been putting new wind energy into the package and basically most of it has happened in the last ten - we're still only 10% of the US energy needs coming from wind currently, and for solar, it's only 3%, but both are growing dramatically. So it's going to take a while to move this needle. Just to give you another piece of scaler, the US is the largest nuclear energy producer in the world, you produce more electricity from nuclear energy. Wind now produces almost half of what nuclear energy produces in the United States today. So just to give you an idea, it's already a very big industry, it's already well established and it's already something that I think can be counted upon as being an excellent resource. NREL, which is the National Renewable Energy Lab, has done a lot of electrical system integration studies, and those system integration studies have illustrated that some 70% to 80% of the system could be combined, could be made up of renewable energy and zero emissions energy resources (Rich Helppie: Wow, 70 80%.) And that won't require a lot more transmission. Some, there's certainly some transmission, as you've alluded to, but more importantly, it's about regulation and it's about the way in which the electricity business is currently regulated, which is jurisdiction by jurisdiction. And those jurisdictions don't play well in same sandbox. They don't want to take resources from their system and share it with anybody else. Conversely, they don't feel confident that they can depend upon another system to basically help them in times of need. So essentially, each jurisdiction is built like a little fiefdom that takes care of its own energy needs and very rarely transmits back and forth other than for commercial reasons or in the case of extreme emergency.
Richard Helppie
That is a very interesting aspect of this whole discussion. I had no idea that these renewables were coming on so strong, albeit from a small base. What about the question of reliability? I know that there are critics that will say, look, we can generate power using coal, we can use natural gas plants, we can use nuclear and your lights will still work when you hit it, you plug in your car and it's going to charge. What's the work that's going on in making renewables reliable or is that just fear tactics?
Fred Gallagher
Well, I think, let's sort of examine that a little bit deeper in terms of what is reliability? In the early stages of the electricity business, basically, you had a generator right next to your use. Essentially, demand was unreliable. Basically, you didn't know when somebody was going to turn on a light switch. Electricity is very different than any other energy resource, because it has to be there in milliseconds. So the supply and demand has to be balanced instantaneously; there's no sort of fudge factor in here. For instance, in the natural gas business, you've got packing in the pipeline that allows you some search opportunities and you've got storage in the natural gas business and you've got reservoirs you can turn on or turn off. Well, the electricity business is very much supply and demand must be instantaneously matched. So how do we know that somebody's going to turn on their light switch and consume X amount of energy? Well, the answer is you don't, but in aggregate, we know approximately where that demand curve's going to be during the day. We know it simply because [those are] the habits that people have; they wake up in the morning, they turn on everything, they come home at night, they turn on their air conditioning, et cetera, et cetera. So we know what the patterns are. Demand can generally be predicted. Well, the same thing happens when you're looking at renewable energy. You end up with renewable energy over a dispersed area - and this is really where interconnection is extraordinarily helpful - is that it's not windy in all places at all times, and it's not sunny in all places at all times. But in aggregate, you can start to map it out. So when we start to talk about reliability, it's really around whether it's predictable, and whether you can figure out how to predict it. Then the other piece of the puzzle is the electricity business as always built from a supply basis. So demand had to be met and demand was considered totally inelastic. As an economist, you know what I mean when I say that, but basically, demand was whatever it was, and supply had to meet it. So it was really only above the supply curve. Today, with digitalization and some really major changes to the electrical business, we're starting to see demand actually being able to play. So a perfect example of this is Uber, right? Uber, there's a supply of people driving around with their cars and there's a demand for rides and digitization has really allowed those two to be matched in a much more economically viable fashion. You do get surge pricing, then people avoid riding at that time, or whatever. So I think the the most important part of this is that as we're evolving technologically here, we're also seeing reliability being becoming less and less of an issue.
Richard Helppie
I was watching an interview earlier this week with John Doerr, the prolific and very successful investor, talking about the transition; it's going to be a bumpy road. And I kind of put that next to a lot of the data that we see that in the United States oil production from 1970 until 2008, really decreased, it came down. [In] 2009 that trend reversed and production started to rise. And in 2019, the United States made more crude oil than ever at over 12 million barrels a day. Then, of course, there was fracking and other things involved in Texas and North Dakota, Ohio, elsewhere, and also concurrently that the demand decreased and we reached the lowest level of imported oil since 1985. Some of those policies, of course, have been reversed and I was starting to be concerned about that. I'm thinking, well, if those renewables get here quick enough and people can afford electric cars - both of which are question marks - maybe this is a bump in the road. But I did want to ask you about that because consumers are experiencing record high gasoline prices, the heating season's coming up. So I'm wondering, how are we doing on timing? Are we cutting over to renewables too quickly to sustain this?
Fred Gallagher
Let's go back and get a little perspective. Back in the 70s, you and I lived through the 70s [Laughter].
Richard Helppie
Yes, we did. Thankfully, there were no cell phones, so I was never there. [Laughter].
Fred Gallagher
The free market is an amazing thing and the ingenuity of individuals is remarkable. When we sort of look at this on a macro scale - I'm not being pollyannish with respect to that - I'm looking at back in the 70s, we thought we were going to run out of oil very quickly. We thought that oil was a very...that we explored for and basically found all the oil in the world.
Richard Helppie
Peak Oil, remember, that it would take too much energy to get what was left out of the ground. And Peak Oil was over. There were lots of books and papers written about Peak Oil; they turned out to make money for the guys that wrote the books, but they really were off base.
Fred Gallagher
Well, I think it was based on a lot of good talent. I mean, I remember M. King Hubbert, he was the guru, if you will, to most of us geologists in that age and Peak Oil was a big deal. But what we found out is actually there's just more oil than we know what to do with on the earth and that's largely because we found brand new ways to extract it, but also brand new reservoirs. Things that we'd never even thought were so called reservoirs - shales that are packed full of organics and oil - that we never thought were actually reservoirs. We knew the oil was there, we just didn't know how to get it out and that's changed that whole picture dramatically. So I tend to try and take a long view on this, which is, are we cutting over to renewables too quickly? No, I don't think so. And I don't think that we're going to make any serious errors with respect to that from a point of view of the technological benefits that you and I receive in our electrical plug at the end, because basically, the electrical companies and the market is set up to deliver electricity. And when it doesn't, there are severe penalties for doing so. Texas is a perfect example.
Richard Helppie
What happened down there? I mean, people are experiencing power outages. I mean, California, you have rolling brownouts and Texas, basically freezing the residents of Texas because they couldn't manage the power grid.
Fred Gallagher
Yeah. So I mean, that's a really great example of what's going on here. It was interesting, because I was reading an article in the Wall Street Journal, and a friend of mine was reading another article in the Wall Street Journal. One article was blaming wind energy for the collapse of the electricity business in Texas. And the other one was really examining what was really at the heart of the whole problem, which was that our infrastructure, or Texas' infrastructure, was not hardened to any kind of cold temperatures. And when you look at the gas pipelines and individual gas wells that were producing to the energy system, basically they froze off. Hydrates form, which is ice in the pipes and it blocks it off, and it takes sometimes weeks to to clear it. [In] other parts of the world we put alcohol into the natural gas stream to deal with hydrates. But in Texas they don't do that and as a consequence, the entire gas system essentially collapsed. Meaning that you couldn't get heat to your home simply because you couldn't get natural gas if you were on natural gas. You couldn't get electricity because a lot of the natural gas generators were down. Coal plants were trying to be fired up but actually the coal piles were frozen. So it was difficult to get enough coal into the coal plants, into various coal plants, to be able to generate enough electricity. Yes, wind energy was not at a maximum, but it was anticipated not to be high simply because of the period; the time of the year when wind was not high and solar was not high. So it was really a failure of the infrastructure, not a failure of any one resource. I think that's an important thing for people to remember, is that our infrastructure needs to be hardened to many of the challenges that we're going to face as we go forward; either on the hot side, or on the cold side. California is another example of that, which, I think, sadly, so many wildfires in California have really created [a] huge disruption for people, some of them even caused by electrical wires coming down; when you get too much load on electrical wire, it sags and if it's really significant, both from a hot day and from a point of view of the amount of electricity going through it, it sags enough that it can cause fires. These are the kinds of things that can happen to our infrastructure that lead to rolling blackouts. In California now, it's almost a precautionary tale in order to try to make sure that they don't create problems with fires. When they have high winds and very hot days, they will shut down various different parts of the system, but that's not the resource. It's really important to divorce some of this chatter, if you will, about what's going on, and start to really tease it out and say, how do we make the infrastructure more bulletproof? Texas is a great example; ERCOT is an island, ERCOT does not do much trading with its surrounding partners. Had they been better interconnected, ERCOT would have probably survived what happened.
Richard Helppie
ERCOT, the kind of proprietary Energy Resource Coalition of Texas, something like that.
Fred Gallagher
Well, ERCOT is basically the control district of Texas, basically; the electricity control district of Texas and they basically run everything in the Texas electricity system. Which [also] happens in various different regions; PJM, which is on the east coast, and New York ISO, and California ISO; so they are control districts. But again, these groups don't generally talk to one another very well, in terms of through the interconnection system. Had ERCOT been better interconnected, we probably wouldn't have seen the kind of catastrophe that we did in Texas.
Richard Helppie
Fred, one of the things we're trying to get done on The Common Bridge is to talk about policy and most of our politics - or maybe not most of it, but too much of it - it's about attacks; one party attacks the other party and tries to scare people about them and vice versa. And we talk about, frankly, nonsense, it's not going to make a difference in our lives. I mean, wouldn't it be refreshing if a person running for a state office or national office said, look, I want to do the following things for energy. Kind of it would be a better day if we had more computer scientists and geologists serving in the Congress than maybe some of the products out of law school; failure of our government. But what we try to do on The Common Bridge is to talk about policy and hopefully, people will use that as a means of communicating with those that they elect. Fred, we talked a lot about the production and the transmission of energy and about that global appetite for energy, the demand side; cooling, emerging markets, you got people [who] are buying air conditioners now, as they become more modern, more industrialized society, electric vehicles, talked about demand response, energy storage. Can we produce the amount of kilowatts to meet that growing demand? I mean, it's not like we're chasing a fixed amount of demand; we're chasing a demand that appears to be rising.
Fred Gallagher
Well, overall energy demand is actually - in the United States - pretty flat, overall, primary energy demand. It's hard to imagine, but it's been relatively flat over the last several years. And it's declining in most OECD countries. So, in many ways, I think we do think of energy needs as growing dramatically. Now, one place where it is growing dramatically is in Asia and also in Africa. Those economies definitely are requiring substantially more energy. But even those economies are slowing down in terms of the amount of energy use and this has been something that's been happening over the last several years. They're still growing, but they're slowing. A lot of that's being driven by efficiency, a lot of that's being driven by the move to electrification; electrification is substantially more efficient than primary energy use, combustion. Probably 60% of combustion goes out in the form of heat and is lost. So electricity and electrification is a really valuable improvement to our energy use. So can we produce enough kilowatt hours? Well, I think that's a really interesting question when you look at is it just kilowatt hours that we need. If you look at the United States energy consumption, primary energy consumption, it's about 100 quadrillion BTUs annually. That doesn't mean much, but let's just sort of pick that apart.
Richard Helppie
It's not zero, okay? [Laughter].
Fred Gallagher
Let's just pick that apart a little bit, because when you boil it right down to it, only about 30% of that is electricity. Actually, it's closer to 40% of the primary energy requirements come from electricity.
Richard Helppie
You know, Fred, it's very comforting to know that we can produce kilowatts for electricity. It's really interesting what those that we elect aren't doing that they should, and that there's a lot more to this than electricity. I know we've only skimmed the surface today and it sounds like the pathway away from hydrocarbons is well underway. Spain for example, is at 58% of renewables; 18% of that is hydro, 40% wind and solar but they're still using coal and oil and other hydrocarbons. And I understand that the world's going to be dependent on hydrocarbons and will be for the foreseeable future. And I understand you're nuanced that getting down to zero emissions that we can get to those emission standards, and maybe bring down that increase in worldwide temperature is possible. So what is the policy or what are the policy solutions? What things make sense to you, in terms of energy policy, either for the United States, North America or the world - any way you want to talk about it.
Fred Gallagher
Well I think it's important to remember that one, how large this business is, and how all encompassing this business is, and that takes you to the place of the free market. The marketplace is really essential to being able to solve these issues. I mean, there's a reason why central casting of the energy business doesn't work and that's because it's just so disseminated. So I really focus my efforts on trying to bring people to the understanding that the marketplace is an essential tool to trying to be able to solve this problem. Certainly partisan politics isn't helping this because we get into these pitch battles that really are ridiculous, right? We're all trying to solve this problem, or we all like to try and solve this problem, we have various different ways of coming at it; let's figure out the best ways to try and get at it, versus trying to fight or put our heads in the sand or whatever it happens to be. So I'm a big supporter of the carbon tax, and quite frankly, it was a Republican led initiative, by Schultz and Baker, some time ago now. I provided some of that information in the show notes that I'm sending along. I think it could garner some real support across party lines. And the reason why is because the whole idea is you put a tax on the carbon, but you give the proceeds back to the citizens. And the citizens can [inaudible] the carbon tax; you dividend out, if you will, the proceeds of the carbon tax on a more distributed basis across the country. So people are making their choices based on the carbon content basically, is what it boils down to. That puts a lot of imagination and a lot of individual initiative into trying to figure out how to solve this problem rather than trying to pick winners and losers. I think the real danger that we have is that we'll go out and we'll pick some technology and we'll say that's a winner. Perfect example is electrolysis to produce hydrogen - and we can get into that in another moment - but basically it's trying to pick a winner versus trying to let the market determine what should be the right solution. So I really like a carbon tax. I think if you look at Schultz and Baker's work, it was excellent and it, to me, forms a framework that the United States should be having a very solid conversation about this and I don't think it's a partisan conversation. I think you can have a very nonpartisan conversation.
Richard Helppie
We've already proven that you can take a state that is basically one party; for the Democrats in California and screw up the electric grid, and you can take a state that is largely one party for the Republicans in Texas and freeze people. So yeah, I think I kind of like the market better. Fred, off-line, you talked to me about a carbon import tariff, if I understand that correctly, that could mean more domestically produced products. What is a carbon import tariff? And how would it work?
Fred Gallagher
I think Schultz and Baker call it something different in their paper. But regardless, what it is, is essentially, goods coming into the country are ranked by their carbon content, from a point of view of the energy used or the emissions associated with the product coming in. The products that come from countries that have very loose emission standards, will be basically charged this tariff, and it makes products that are made in a less carbon intensive fashion, basically, lower cost. So it really does foster domestic production of various different products that are much lower carbon. So I think it's an important tool to be able to discriminate against just off-shoring our carbon issues. And I think that's really the point of the matter here.
Richard Helppie
Another policy that I'm curious about that, at the top of the interview, you talked about the work that you're doing looking for pathways and transmissions and to get the energy to the point of use. Are there things that can be done to incentivize interconnecting infrastructure?
Fred Gallagher
I think this becomes a bit of a regulatory discussion. But it's more than a regulatory discussion, because United States and Canada have the same problem which is that we are very regional, we have very significant regional powers and, if you will, jurisdictional responsibilities. Energy is one of them. We have to figure out how do we start to work together in order to solve the larger problems associated with interconnection. And that really is quite fascinating, because Australia has a very similar situation to what we have, but all of the states decided that they were going to get together and figure out how they could mutually benefit from an interconnected grid and they've done it. That's a really highly interconnected grid. Now, it doesn't mean there aren't [inaudible] fights and issues associated with that. But it's a whole lot better than the way we are right now in North America where we are so restricted in terms of...that everything must be generated within the jurisdiction, or at least we must have the kind of reliability within the jurisdiction to be able to survive any outage. We need to learn how to be more dependent upon one another's strengths. That's essentially my pitch with respect to why we need more interconnection. Can you imagine the United States without the Interstate Highway system? (Rich Helppie: Right, exactly.) I mean, this is what we're talking about. We're talking about each little jurisdiction has their own highways, and they don't talk very well with the states between. Can you imagine what that would have...the break on commerce must have been, back in the 50s when Eisenhower decided that the interstate system needed to be well supported. It's been such an enormous benefit to United States, this interconnected system of highways that is so robust. It was really an essential element to prosperity developing the United States over the last...since the 50s. So that's the kind of situation we've got in the electrical power business, is we have no interstate highway system.
Richard Helppie
Fred, this has been a great conversation. I know I've learned a lot. I like the policy clarity, and my guess is going to be our readers, our listeners, our viewers are going to want to hear more from you. You've been very generous with your time. For the purposes of today, what didn't we cover today that perhaps we should have discussed?
Fred Gallagher
Well, I think electrification is a very powerful tool and renewable energy is a really important part of developing a better electrical system. But even if we completely electrify the...sorry, even if we completely reduce the emissions on the electric power system and we electrify all passenger car transportation, like truck transportation, it's still about 50% of our energy use in the United States that is really hydrocarbon based. That's cement plants and steel mills and fertilizer and petrochemicals and many other intense energy users. And to get at that we need a second energy carrier, second zero emissions energy carrier. So like electricity, in order to be able to flip that thing on its head, like we talked about right at the beginning, which was, instead of sending the carbon to the end user to to burn, we need to take the carbon up front. Hydrogen is one of those opportunities that allows us to do for the rest of our energy system, what electricity has done for a significant portion of it. So 50% of the problem still remains and it's not going to get solved with electricity. So in my view, we need to find that second zero emissions energy carrier and hydrogen looks like it's pretty good because it can be burned, it can be turned into petrochemicals and it's right away a precursor for fertilizers. It provides intense heat for things like cement kilns, etc. So I really think that it's important to delve into that one really deeply and figure out how do we produce hydrogen. And to me, your Common Bridge is a perfect example, we need to bridge the gap for the petroleum industry into refining their product to a lower carbon fuel at the far end. So in other words, how do we get the petroleum industry to refine the carbon out and just produce energy for that end user that's not covered by electricity?
Richard Helppie
Fred, you know something, I think I'd feel a lot better with you as a secretary of energy. This has been a great conversation, lots more to talk about in terms of energy, but you've been very informative. I'd like to have you back just to talk about hydrogen and the role there. For the readers, listeners and viewers of the Common Bridge we've been visiting with our guest, Fred Gallagher, who has been involved with the energy industry in all forms; in not only the generation but the transmission, the use, and has a great balanced view about our policies. Please join us on The Common Bridge and comment at Substack. Please look up The Common Bridge. You can subscribe for free and add your comments to the discussion on podcast outlets, your favorite podcasts, Apple, Amazon, Spotify, Buzzsprout, and others as well as on YouTube TV. And so with our guest, Fred Gallagher, this is Richard Helppie, your host, signing off on The Common Bridge.
Transcribed by Cynthia Silveri
A Pathway to Carbon Reduced Energy