December 10, 2023 • 45 mins
Ken Medlock III, Baker Institute Senior Fellow, joins Kym this week in the Oil Patch to talk about the transistion the government wants to go to renewables and energy production for the future.
Inside the Oil Patch. The Latest information on the Oil, Gas, and Natural Gas industry with your host, Kym Bolado. For more information visit https://shalemag.com/in-the-oil-patch-schedule/
Inside the Oil Patch. The Latest information on the Oil, Gas, and Natural Gas industry with your host, Kym Bolado. For more information visit https://shalemag.com/in-the-oil-patch-schedule/
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(00:00):
Welcome to in the oil Patch,presented by Shale Magazine, broadcasting from the
oil Field Experts Studios. Oil FieldExperts where you get the right products right
now in the oil patches, wheretogether we explore topics that affect us all
in oil gas business and in yourcommunity. Every week, your host,
Kim Balato will visit with the moversand shakers in this fast paced industry.
(00:21):
You'll hear from industry experts, electedofficials, and many more right here on
in the oil Patch. And nowit's time for me to welcome to my
guest, Ken Medlock the Third,who is the senior director with the Baker
Institute, which was founded by RiceUniversity in nineteen ninety three. Ken,
welcome back to In the oil PatchRadio show. Thanks Kim, it's good
to be here. I've interviewed youbefore years back. I believe we were
(00:44):
attending a conference together at Deloitte's,one of their conferences that that put on,
and we had a great interview withyou. But I'm glad that you
decided to come back and talk tous a little bit about what you're working
on. But give us a littlebreakdown of what the Baker Institution is all
about that was found in nineteen ninetythree by Rice University. Yeah, so,
the Baker Institute is a think tank, university based think tank that tries
(01:08):
to really focus on data to supportanalysis of markets and policy. We have
multiple programs. I of course leadto Center for Energy Studies, but we
have programs that look at health policy, at immigration policy, at various aspects
of economic policy, lots of differentthings that either have a direct focus on
(01:30):
the US or internationally with some regionalfocus in Mexico for example, Latin America,
Middle East, Eurasia. So wekind of cover the world very global
looking and again we bring data tobear in order to analyze some of the
world's most pressing issues. That tendsto put us in a place where we
(01:53):
and I often tell my staff thiselevate, don't advocate. It's really about
getting the truth out there so thatreal conversations that are productive can be had
about some of these issues. Because, without a doubt, there's a number
of issues we face a on aas a global population, on a day
to day basis, on an annualbasis. Unless the reality is presented,
(02:15):
there's no way that policymakers can actuallycome up with rational rational solutions. Well,
that's a good point. There arewe really having rational discussions when we
talk about the world's energy needs?And why i'd like your opinion on this
is we know that the world's populationis only going to increase in the future,
and we also see a lot ofpeople use the word energy transition.
(02:38):
I don't really see it as atransition. I see it as an evolution.
As we are on the march totry to find greener ways to develop
our energy. But it seems likewe're adding more than removing more. And
as we go off or minimize ouroil and natural gas footprint, we're also
increasing in the areas of solar andwind and other energy that we see coming
(03:00):
on. But we're not really losingany We're actually adding into the grid,
and so is that sustainable in theway of we have to lower our carbon
footprint? At the Institute Bakers,you guys are actually breaking down a lot
of these topics that we're not reallymaking a whole They're not making a whole
lot of sense right now when youlook at how are we going to achieve
this? If are like you said, our elect officials are not They're not
(03:23):
experts in this area like you guysare. So I want to cover an
article that you helped write, andit was basically it's titled The Pride and
Prejudice of Sustainability, Rethinking sustainability froma system's perspective. But before we get
started on that article that you releasedNovember the eighth, first we're going to
talk about ESG, Environmental Social governance. Break it down for our listeners.
(03:46):
What is this so that way wecan get into your report. Sure,
boy, that's a We could probablyspend the next hour just talking about ESG.
It's it's uh, it stands forEnvironmental Social governance, right. It's
really about addressing various issues in acollective way to promote outcomes that are beneficial,
(04:11):
also in multiple ways. So,for example, how do we actually
address the potential environmental harm associated withan action? How do we address the
potential social impacts associated with an action? And then actually how do we institute
governance and the right institutions quite frankly, so that we can actually deliver what
we promise to deliver to investors,to shareholders, to the general public.
(04:33):
I mean, all of these thingssort of rolled up into a single bundle,
right, And the definition I justgave you. Is it's something that
people are still discussing, right,What exactly do we mean by ESG?
What are we trying to accomplish whenwe talk about ESG reporting for example for
firms, and depending on who youask, they will emphasize a different aspect
(04:56):
of that without a doubt, andso that makes this really a difficult issue
to tackle. Probably one of themost most discussed issues related to ESG has
really been around reporting. So youknow, s the SEC for example,
stepping in and proposing rules for companiesto report climate impact social impacts. You
(05:20):
know. Unfortunately in a lot ofthe ESG discussion, the E has been
dominant in most of those conversations.S has risen a bit in the last
couple of years. Is this ismatured, but g Uh, the governor's
aspect is something that is often noteven brought to the fore. Uh.
It's important, though, when youthink about policy and regulation as they relate
(05:42):
to ESG, that you actually addressall three because at the end of the
day, you're not going to ringall the bells, so to speak,
unless you do. You know,at the end of the day, also,
a company is beholden to its shareholders. Any company is in business because
it is able to generate a rateof return for its mended capital, shareholders
are not going to typically continue topour capital into companies that don't generate positive
(06:06):
rates of return. And so thething that you always have to wrestle with
when you're addressing ESG is are weend up? Are we going to end
up starving certain industry segments of capitalthat is required for them to do their
business? And then what are thebroader social impacts and economic impacts of that
kind of outcome? So if youlean too heavily into E, you might
forget those other things and you endup in and ultimately a cycle that's unsustainable.
(06:30):
So to bring it into sustainability rightbecause you have to and we'll get
into this, I'm sure in afew minutes. You have to be able
to address everything that matters in orderfor an outcome to be sustainable. And
just addressing the E doesn't necessarily getyou there. Doesn't mean it's not important,
but it means that you have tothink about other aspects of the issue.
So Ken in your report it specificallyyou write the article sustainability is the
(06:53):
life cycle balance, balancing across severalvictors. Achieving sustainability and its truest born
requires system level approach that considers awide range of environmental, social, and
economic factors to assess how they interact. And it evaluates things like government policies,
geopolitical impact on indigenous communities, socialeconomics, and demographic influences are a
(07:18):
few in there. So it's quitecomplicated, and I just want to give
our listeners an understanding when they hearwe're on the march to net zero in
companies, large companies are saying,you know, we're going to lower our
carbon footprint by twenty thirty, twentyfifty. These are some of the this
is the tools that you're talking aboutthat they're using. And so in this
report, again titled the Pride andPrejudice of Sustainability, rethinking sustainability from a
(07:44):
system's perspective, ESG seems to beto me, we are trying to do
the best we can, but alot of these things are unknown, so
we're kind of making it up aswe go. And in this report,
this great report, you talk aboutsustainability by let's get into that first.
Give me what is sustainability bias?Why is this important? So it's sustainability
(08:07):
bias is like any bias, right, it's really the eye of the beholder.
So if I can almost guarantee ifyou were to survey all the listeners
here and ask them what to themis sustainability, you would almost invariably get
a thousand different answers. And sowe have to kind of step back and
when we say bias, understand thatit's about perspective. Often when we get
(08:28):
into a discussion about sustainability, youhear a heavy emphasis on environment and lately
on climate. Right, So adiscussion about a sustainable future is often in
many circles rooted in a discussion aboutclimate change. So taking a step away
from that, then the natural sortof evolution of that conversations. We need
to eliminate fossil fuels, and itmight even go as far as the oil,
(08:52):
gas and coal industries need to goaway. Right, Well, it's
not really a stretch if you towalk down that path to figure out that
there are a lot of there's alot of turbulence introduced into the global system
if that's the path you walk.For example, and I use this example
a lecture just the other day,but there's a lot of interest and emphasis
(09:16):
quite frankly in using legal channels togo after major oil companies on climate grounds.
And this goes as far in someadvocate circles to you know, be
construed as well, they need togo out of business, they need to
go away. There's a you know, there's there's a there's a thought in
some circles that the industry is evil, right, I mean we we hear
(09:37):
these things all the time, yes, exactly. The fundamental issue with that
is, first of all, youhave to understand all the data. So
in twenty twenty two, Exxon Mobile, for example, produced, in terms
of it's it's raw crude oil production, about two point three five million barrels
a day. That sounds like abig number, but when you look at
(10:00):
the global market, it's not.It's actually a relatively small fraction of the
overall market system. The six supermajorscombined, so this is Exon, E
and I total Chevron shell BP.They produce less oil than a ram Co
produced last year. So it begsthe question, going after individual international majors,
(10:22):
what does that actually accomplish? Right, Because in point of fact,
if you're in the United States,for example, and you're operating properties in
West Texas. If for some reasonthat company goes out of business, Company
X goes out of business, maybeit's through legal pressures or whatever, those
assets don't disappear. They actually getrolled up into bankruptcy filings to get redistributed,
and production doesn't go away. Soyou then have to beg the question,
(10:46):
well, then how do you actuallyaddress the issue? Well, it
gets even more complicated. And bythe way that that signals there's a demand
side solution potentially to this. Butit gets even more complicated when you start
to look at the global supply portfolio. About two thirds of global production is
in the hands of national oil companies, and those national oil companies are beholden
(11:07):
to their host governments, and thehost governments quite frankly use those revenues to
support a variety of economic interests withintheir own countries. So I ask you
a simple question and visional world,where in the next ten to twenty years
oil disappears. What happens to allof those countries? Right? It creates
a massive amount of geopolitical instability thatI'm not sure anybody in the West is
(11:28):
prepared to deal with. And sothat's where you get into what are the
other ramifications, what are the additionalimpacts of the concerted action to really reduce
the production and use of oil.Well, there are knock on effects that
are massive, and it doesn't discount, you know, concerns about climate change.
It's just that you have to realizethere are other impacts that are not
(11:48):
necessarily climate related, but that areequally as dangerous for civilization. So yeah,
absolutely, you know, Ken,I've been on the air for about
eight years and through all of theinterviews, one thing is becoming clear,
which is there are no countries thatare doing well if they are in energy
(12:09):
poverty. It also when they don'thave access to reliable energy, which would
be oil and natural gas. Stillto today, their infant mortality rate is
higher. They don't live as longas people in the West do. Everything
in the quality of life. Wehave to start thinking about it in that
way. And in your report SustainabilityBias, you really cover how important it
(12:33):
is to look and see if we'regoing to limit industries by the ESG radar
and we're making it up as wego. There's a lot to think about.
Like you said earlier that it's verycomplicated when we come back from break,
I want to try to focus backin on the bias and then move
into how complex of a system isit going to require? And do we
have to rethink this? And that'skind of what your report is alluding to
(12:54):
you. But let's take a quickbreak. You're listening to an old Patch
radio show. Will be right back, and we're back. You're listening to
indool Patch radio show. My guesttoday is Ken Medlock, who is the
Baker Institute's Center's Senior director. Ken. Before the break, we were talking
about a report that you co authored. Its titled Pride and Prejudice of Sustainability,
(13:16):
Rethinking Sustainability from a system's perspective.And I want to jump back into
this because you guys are now releasinga brand new newsletter. It's called Energy
three sixty and it's really needed.I encourage our listeners to go to your
website Baker Students sign up for it. But in this report, you're basically
(13:37):
breaking down that as we move intoESG and looking at what does that mean
to us. In your report,you're basically alluding to that it's very complicated
the sustainability bias that actually we haveright now and when we're looking at ESG.
(13:58):
It's not fully figured out out yet. It's kind of like if you
are just focusing on the industries,it's going to affect the finances of how
these projects are financed or governments thatas you said earlier, So I want
to get back on that. Tellme a little bit about how complex you
(14:20):
think this is and do we haveto think about it in different layers or
level Tell me about your report itsays sustainability is complex requires system level thinking.
What is that? Absolutely? SoI'll back up at the very sort
of opening you mentioned. You knowtwo words energy transition, and first of
(14:43):
all, there is no such thingas a single energy transition. It's energy
transitions. In other words, you'regoing to see things evolve differently everywhere,
and understanding why is a great wayto really begin to digest how complex this
entire discussion is. Sustainability at itscore, particularly when you think about energy,
(15:07):
is connected to the idea of transitioningenergy systems around the world to lower
carbon footprints, lower environmental impact overall, I would say, but at the
same time continuing to facilitate growth.You know, the comments you made to
sort of open this segment was aroundenergy poverty and how countries that don't have
(15:31):
access to modern energy services are generallynot that well off. You have to
first understand why. I mean,if you think about basic electricity services,
they facilitate things like clean water,running water because of water sanitation services actually
require energy. They facilitate refrigeration services, which are great for you know,
(15:52):
those of us who like to youknow, air condition our homes. But
they're also vitally important for a varietyof health services, such as you know,
keeping vaccines and other medications you know, reliable and usable for a long
period of time, and so ithas direct implications for one of the things
you mentioned, like infant mortality.So energy is vital, vital for well
(16:14):
being and higher standards of living,and that's not really going to change anytime
soon. As we uh sort ofstep into a discussion about sustainability, if
you understand that basic point, youbegin to understand at a deeper level what
a truly sustainable outcome is. Butnotice, in order to get there,
we have to actually have a discussionabout the overall energy system and the overall
(16:38):
economic system so that we can connectthose two and ultimately begin to understand what
it means to be sustainable. Justbeing low carbon is not necessarily not necessarily
sustainable because what if the low carbonoutcome that you propose leads to significantly higher
costs and promotes greater greater energy insecurity. That is, that's not an
(17:03):
outcome really anybody wants to see,wants to see going forward. It's it's
really important for most populations that theycontinue to see improvements in living standards.
And this goes beyond just clean air, clean water. It goes into roof
over my head, food on myplate, close on my back, all
the typical things we talk about whenwe talk about well being. So you
(17:26):
have to truly think about the entireenergy and economic system if you want to
get to a truly sustainable outcome.And so that's really at a high level
what we're talking about. So I'mgoing to drill down into it because in
your report it says a part ofit says the primary focus on climate and
admissions just two elements of a widerange environment LEG while ignoring the socioeconomic and
(17:52):
financial commercial financial LEG is a threepart like stool. So but it will
eventually lead to collapse or the system'sfailure in sustainability. Sustainability is thus a
balance of all three domains. Therefore, understanding the first order impacts specific action
(18:15):
is never sufficient because the law ofunintended consequences is ever present, often predictable,
and can render specific pathways of unsustainability. We're going to take a quick
break. When we come back,I want you to tell me what that
is. Your report continues on andsays sustainability is not a property of something.
So let's take a quick break.You're listening to in the ol Patch
(18:37):
radio show. We're going to getinto the unintended consequences. We will return
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Nola Patraradio show. My guest todayis Ken Medlock, who is the Baker
Institute Centers Senior Director. Kin Beforethe break, we were covering the article
(21:32):
that you co authored titled The Prideand Prejudiced Sustainability, Rethinking sustainability from a
system's perspective, and we talked aboutwhat is ESG, what's driving most of
the ESG changes is really geared towardsthe environment, and we kind of covered
what are some of the unintended consequenceswhen we look at how we're doing this,
(21:56):
how we're rating this ESG, anda lot of it is we've never
done this before, so we're kindof doing it as we go and does
it or does it not make sensein your report I'm gathering this is just
my personal thought. I'm gathering wherewe really need to evaluate this. We
probably are not doing this correct.So let's talk about in your report,
(22:18):
sustainability is not a property of something. What are the unintended consequences when we
start looking at lowering our ESG orcarbon footprint through ESG. So I'm going
to take a step back because priorto the break, you referenced the sustainability
stool as a way to think aboutsustainability, and I think it's a great
way to frame basically this entire conversation. So imagine sustainability as a platform or
(22:47):
a tabletop if you will, wherethe seventeen un sustainable development goals are that
table top? Well, how doyou actually ensure that all of those goals
are met and you end up withsustainable growth long term? Uh, you
have to think about what holds thatthat platform up, and you can think
about it like a three legged stool. One of them, of course,
(23:10):
is environment So if if you areignoring environmental harm associated with various actions,
could be industrial activity, activity,it could be waste, which of course
raises the you know, the notionof the importance of recycling. But if
you're ignoring those issues, you ultimatelyend up causing harm to the ecosystem and
(23:32):
it can lead to ecosystem collapse,which is generally not good at all for
an economy. So you have toreally pay attention to environmental issues. At
the same time, though, youalso have to pay attention to socioeconomic issues.
So when we say socio economic issues, it's not just about like social
justice platforms, those matter, butit's also about well paying jobs and the
ability for households to you know,generate wealth and ultimately savings and bequests for
(23:59):
future generations. If you're ignoring thosethings, then generally you're not going to
see successful growth, sustainable growth,largely because the population within an economy or
a given region is not actually reapingthe benefits of the activities are going ongoing.
We see this, We have seenthis historically, for example, in
(24:21):
some countries that you've seen, youknow, just rampant corruption, for example
associated with resource development, where thegeneral the overall per capita income level looks
really promising, but when you lookat the distribution of income, it's it's
completely warped towards a very small fractionof the population, and those outcomes generally
(24:41):
don't last either, they're not sustainable. But then there's a third leg to
this which is often completely ignored insustainability conversations, but it's equally as important,
and that's the commercial and financial leg. What do I mean by that,
Well, if you are a companythat wants to do business in a
particular economy, particular region, country, whatever the case may be, you
(25:04):
are only going to be successful ifyou can generate a profit, if you
can actually generate a return to shareholders, if you can generate a return the
sufficient to pay back debt. Right, so all of these things are critically
important if you want to see anenterprise that is lasting. And so when
you think about those three legs,if any one of them is malnourished,
(25:27):
so to speak, then the stoolcollapses. So you can't let any one
of them be weak. Now thereare three buttresses that tie all of this
together. One of them, ofcourse, is innovation. It's very important
that innovation be fostered and promoted sothat you can get the kind of economic
growth that will beget greater socioeconomic wellbeingthat will actually beget better environmental outcomes.
(25:49):
So innovation is critical to all threeof these legs, but so are things
like market design and policy. Ifyou don't have the right policies in place,
the right institutions in place, theright regular tory structures in place,
then you can see an over emphasison one or two legs and not all
three, and ultimately that will leadto collapse of the system. So when
you think about a systems level approachsustainability, you have to think about all
(26:12):
of those things together, and that, unfortunately is not something that a lot
of people do. And so that'sactually that's in a nutshell, what we
tried to really highlight with this piece, and you did an amazing job.
Again, I'm going to encourage mylisteners go to the Baker Institute and look
up your report because it really doesbreakings down. We're going to take a
(26:33):
quick break, but Kim, whenwe come back from break, now,
I want to get into the USSecurity Exchange Commissions proposed climate disclosure requirements for
ESG. How is that going tocomplicate an already complicated topic. If you
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long Star Energy. And we're back. You're listening to in the old Patrido
show. My guest today is KenMedlock, who is with the Baker Institute
and he is the center's senior director. Ken. Before the break, we
were covering an article that you coauthored titled The Pride and Prejudice of Sustainability,
Rethinking sustainability from a system's perspective,and in this report, it's really
(27:42):
you're really hitting home of how thisis panning out when we talk about ESG
ESG meaning environment, Social and Governance, and how that is affecting all of
us as we look at our energyneeds for the future and as we are
in this evolution, if you will, of trying to lower our carbon footprint,
(28:04):
specifically of lowering and getting off coal, natural gas and crude two more
greener energy forms. ESG has comein and is taking a lead role pertaining
to how we're going to figure thisout in the future. In your article
you discussed how ESG should not beconstrued as sustainability. So tell me a
(28:27):
little bit about what is ESG ina way of how is it being created?
And there's now the US Security ExchangeCommission proposed climate change disclosure requirements for
companies that are public. How isthat going to change things? So Wow,
that's uh, that might be twoquestions. Yeah. Look, ESG
(28:53):
is is is constantly evolving, right, And you know, lately the conversation
around es G and you know,what firm should or shouldn't do, what
investors should or shouldn't favor, youknow, when they're evaluating where to put
their money. You know, it'sbeen very heavily focused on environment with A
(29:17):
with A with A with a massiveemphasis on climate. Right, so greenhouse
gas reporting for example. Uh,ESG of course is much bigger than just
that. And one of the pointsabout ESG is not sustainability is precisely that,
Right, if we just focus onthe E and ees G and only
one aspect of the E at that, if we just focus, for example,
(29:38):
on carbon emissions, we are missinga host of other things that as
an investor or as a firm,are actually important for the decision that we
ultimately need to make with regard towhere we're going to put the money,
or what kind of investments we're goingto make, or what kind of what
kind of market activities we're going toengage in. If policy leans to heavily
(30:00):
into only one aspect of that,it will tilt or distort our decision making
process, which could ultimately unleash awave of unintended consequences that either lead to
unprofitability or spikes and price or supplychain constraints a host of things that ultimately
matriculate into the consumers and households andtwo budgets. So we have to think
(30:23):
about everything. We can't just thinkabout one aspect of this. So you
know, one example are some ofthe greenhouse gas reporting requirements that are being
discussed and the discussion around scope one, Scope two, Scope three emissions.
You know, when I started lookingat this a couple of years ago,
it was really interesting because you realizevery quickly when you're looking at a supply
(30:45):
chain, you up and down asupply chain depending on where you are along
that supply chain. Every aspect ofthat supply chain needs to work in order
for a product to be delivered tothe market. So if we're talking about
pharmaceuticals, if we're talking about energyproducts, if we're talking about plastics,
if we're talking about consumer goods,there is a very long supply chain that
(31:07):
has touch points with ultimately the energyindustry at some point. So when we
start to focus on scope one,two and three emissions and ask one entity
in that supply chain to handle allof them. We're actually ignoring the implications
of not asking other entities in thatsupply chain to do the same. And
in point of fact, if everybodyjust focused on their scope on emissions,
(31:30):
you handle the emissions along the entiresupply chain. But that requires getting every
actor to effectively address their own scopeon emissions. In many respects, that
could be more efficient. The problemis no, there's no way to really
incentivize that right. There's no wayto price that in which is why,
quite frankly, a lot of economists, instead of taking a heavy handed regulatory
(31:52):
approach, argue that you ought toprice the externality some other words, tax
carbon, and a lot of energycompanies have said, yeah, if we
had CO two price, we'd actuallyknow how to do business. So absent
a direct intervention like that, there'sgoing to be a lot of uncertainty that
remains. And if we use thethe long arm of regulation to try to
control this, it can get reinterpretedwith a new administration, you know,
(32:15):
new appointments at different agencies. Itjust injects more uncertainty the entire process.
So it's important first of all,that you understand that right before you can
get to a point where you canactually say, okay, well, what
do we need to do if we'regoing to take this sort of ESG mantle
forward and really think about how todrive a sustainable outcome ESG by itself?
(32:37):
Hopefully that's what comes out of whatI just said. Is not sustainability because
it entirely depends on how it's regulated, how it's implemented. It can be
sustainability can be an outcome of variousESG directed measures, but it's not guaranteed.
You actually have to have that system'slevel approach in order for a sustainable
(32:58):
outcome to ultimately be cheap. Well, you know, in your report,
as you said earlier, we're focusinga lot on climate and when you look
and you realize, okay, sowe lower our carbon footprint with oil and
natural gas and move to what theNGOs are you know, in favor of
which is solar and wind. Theybelieve that that's greener, which they're not
(33:19):
really green either, but they mightbe a little greener, but they're not
the solution because when you look atit, they cannot exist or be created
without oil and gas. So inyour report you kind of go into that
like it's these unintended consequences that wedon't think about. Well, we want
to go to solar wind. Ifyou turn off oil and natural gas,
you're not going to get solar awin because they're a byproduct of it.
Tell me we are going to goto break. But when we come back,
(33:42):
I want you to explain to mein your report the carbon tunnel vision.
And let's get a little further intothat. Let's take a quick break
you're listening to in the Old Patchradio show, and we'll be right back.
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is your one stop shop for growingyour business. Pick up the phone today
and call two ten, two fouroh seven one eight eight again two ten,
two four oh seventy one eighty eightand we're back. You're listening to
in the Olpatch radio show. Myguest today is Ken Medlock, the third
who is with the Bigger Institute.E's the Center's senior director. Ken.
(36:22):
Before the break, we were discussingthe report that you co authored. It's
titled The Price and Prejudice of Sustainability, Rethinking sustainability from a system's perspective,
and it's really focusing a lot onESG and these consequences of how we are
putting ESG together. There has alsobeen some movement pertaining to there are recommendations
(36:45):
from the US Security Exchange Commission proposedclimate disclosure requirements. You list that in
this report of what those suggestions are. But give our listeners an understanding of
Indie report. You discussed today's narrowvision of sustainability creates carbon tunnel vision.
What is that? So I'll kindof try to weave in what we were
(37:06):
discussing just before the break into thatthat statement, right, what is carbon
carbon tunnel tunnel vision? I thinkpeople don't fully understand or comprehend that.
One of the reasons that transitions energytransitions are so complex, because they really
are, is that they ultimately arelinked to materials transitions as well. So
(37:29):
if we're going to talk about movingto things like wind and solar, for
example, in batteries, so inall renewable zero carbon grid, ultimately we're
going to have to have a conversationabout nuclear power. That's that's always going
to be present because it's dispatchable,it is reliable when it's on, it's
on. It's very different than exactlyzero missions. It's very different than other
(37:51):
types of renewable other renewable energy resourceswhich are what we call intermittent. So
when the wind's not blowing, thesun's not shining, you don't you don't
get those things. The the theidea of carbon tunnel vision and materials transition
very much connects to a host ofthings related to trying to electrify the world
(38:13):
and do it only with renewables.So there are many components in in a
solar array, in a wind farmthat derived directly from the oil industry.
UH, and without rethinking how youwould develop those components, you cannot divorce
(38:34):
those industries from oil. Now,what's interesting about UH? You know renewables,
wind and solar is they are whenthey're when they're installed, they are
lower, they're lower variable cost,they are lower emission. That is definitely
true, that's undeniable. But youhave to take a step back and think
about the life cycle of these things. How long do they last? What
do we do with them when theywhen they're retired. At the moment,
(38:54):
a lot of these components are justbeing land filled. Is there a way
to actually think about REX, whichis recycle, repurpose, reuse, re
everything right so that you can alleviatestresses that might emerge on the supply chains
that are going to ultimately have toexpand to provide the materials that are required
to continue to build these things andreplace things as they get retired. That
(39:16):
right now can't be done without theoil industry, So it creates the circularity
that is oftentimes missed in conversations aboutwhat a transition to renewable power actually means.
There's another thing that is becoming veryapparent to a lot of folks,
and that's namely that when you expandrenewable generation capacity on a grid, you
(39:37):
also see an increasing reliance on naturalgas as the balancing fuel. So you're
not going to necessarily be able todivorce yourself from that for a while until
there are some significant innovations and otherdispatchable forms of generation. As a matter
of fact, if you look atlike the state of Texas, arkat this
last summer, we had a reallyinteresting development and that there were multiple conservation
(40:00):
alerts and people pointed to you know, well, it's because it's hot,
But in point of fact, that'snot the only reason. We've also had
significant load growth across the state.Because the population keeps growing, the economy
keeps growing. That means we needmore electricity. But what's interesting is back
in roughly twenty nineteen, peak demandand URCAT eclipsed for the first time dispatchable
(40:21):
generation capacity, which meant everything thatyou were going to try to do to
meet peak demands ultimately would be relyingon intermittent resources, so wind and solar,
that very quickly has revealed itself tobe an unsustainable outcome because you need
dispatchable resources because occasionally the wind doesn'tblow and the sun doesn't shine, and
we saw this summer there's a windowof time every day when the sun is
(40:45):
setting and the wind really hasn't pickedit up up yet where you really need
to rely on dispatchable generation resources tokeep the grid rolling so that you know,
we don't notice that there's a problemif we continue to expand renewables without
dispatchable generation, that is only goingto get worse. And you're seeing elements
of this and other places around theworld. There's concerns about in Germany,
(41:07):
for example, increased electrification and theintroduction of electric vehicles and the addition of
heat pumps and things like this,and how that actually might lead to certain
restrictions on delivery of power to customerswho rely on the grid to fuel those
things, because there's concerns about reliabilitybecause they have not been building dispatch and
(41:27):
they're actually going back to coal asthey have increased the use of coal a
lot of that is rooted in what'shappened with their natural gas market, right,
what's I actually been going on there? But what it shows you is
there is a distinct connection to theneed for dispatchful generation and the oil and
gas industry. And so we talkabout carbon tunnel vision. If you only
(41:49):
focus on reducing CO two emissions,is if that's the only goal for a
sustainable outcome, you will ignore everythingthat I just talked about for starters.
You'll also ignore a host of otherissues like waste management. What do you
do about existing hazardous waste sites sosuper fun sites in the United States?
And there's a you know, letme read them for you. Let me
(42:13):
read them for it's huge. It'swaste management, clean energy, resource scarity,
education, gender issues, deforestation,health, water crisis, poverty,
environmental justice, affordable goods and services, over consumption, air pollutants. I
mean, it goes on on.And then as you in your report,
it continues to say perspectives matter,and it's talking about that there is not
(42:35):
one path forward for sustainability and wehave to think about I love this and
this report says progression towards energy transitionand sustainable sustainability goals. When you look
at there's seven hundred million people,that's ten percent of the population still live
in extreme poverty. We talked aboutthat earlier in the show. And nine
hundred and forty million people worldwide donot have access to energy. How are
(42:55):
we going to do this? Doall these people don't? They don't matter.
It's this report is so worth readingin helping people understand this is complicated.
Folks, tell me where to lookup this report. We have completely
run out of time, but Ican't wait to talk about some more of
these great reports. Baker Institute.You guys, you're doing it right with
(43:17):
writing the truth about energy is complicatedand this is not going to be a
simple change. It's going to requirea lot of work, and no,
I appreciate it. Right, You'reabsolutely right. It is complicated. And
you know, I tell my studentsthis all the time. If you're interested
in solving complex and interesting problems,the energy sector is the place to be
(43:37):
because it is loaded with complicated andyou know, very intensely technical problems that
require very sophisticated solutions. Oversimplification doesnobody any good. We've got to think
about the entirety of this stuff.Think about it from a systems level perspective
so that we accomplish the ultimate goal, which is sustainable growth. We need
(43:58):
to address emissions, but we allalso need to address socioeconomic concerns. We
need to address profitably the path towardsdecarbonization because ultimately that's what engenders wealth and
provides jobs and creates opportunities for everybody, and we can't do that by ignoring
segments of the population. To yourpoint, we actually have to be sort
(44:19):
of comprehensive in how we approach this, and it doesn't make it easy.
It's certainly not a thirty second soundbite or an elevator pitch, but sometimes
the world is not that simple andcertainly hard to energy and sustainability. It's
not that's correct, Ken. Thankyou for being a guest on in the
oil Patch Radio Show. We willinclude the link to this article and more
articles that our listeners are welcome togo read if you want to learn about
(44:42):
energy and no spin. It's thetruth. This is the reports that they
need. They need to visit y'all'swebsite and look and gather the data.
Thank you again for being a gueston in the oil Patch Radio Show.
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(45:05):
You'll hear from industry experts, electedofficials, and many more right here
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(00:21):
You'll hear from industry experts, electedofficials, and many more right here on
in the oil Patch. And nowit's time for me to welcome to my
guest, Ken Medlock the Third,who is the senior director with the Baker
Institute, which was founded by RiceUniversity in nineteen ninety three. Ken,
welcome back to In the oil PatchRadio show. Thanks Kim, it's good
to be here. I've interviewed youbefore years back. I believe we were
(00:44):
attending a conference together at Deloitte's,one of their conferences that that put on,
and we had a great interview withyou. But I'm glad that you
decided to come back and talk tous a little bit about what you're working
on. But give us a littlebreakdown of what the Baker Institution is all
about that was found in nineteen ninetythree by Rice University. Yeah, so,
the Baker Institute is a think tank, university based think tank that tries
(01:08):
to really focus on data to supportanalysis of markets and policy. We have
multiple programs. I of course leadto Center for Energy Studies, but we
have programs that look at health policy, at immigration policy, at various aspects
of economic policy, lots of differentthings that either have a direct focus on
(01:30):
the US or internationally with some regionalfocus in Mexico for example, Latin America,
Middle East, Eurasia. So wekind of cover the world very global
looking and again we bring data tobear in order to analyze some of the
world's most pressing issues. That tendsto put us in a place where we
(01:53):
and I often tell my staff thiselevate, don't advocate. It's really about
getting the truth out there so thatreal conversations that are productive can be had
about some of these issues. Because, without a doubt, there's a number
of issues we face a on aas a global population, on a day
to day basis, on an annualbasis. Unless the reality is presented,
(02:15):
there's no way that policymakers can actuallycome up with rational rational solutions. Well,
that's a good point. There arewe really having rational discussions when we
talk about the world's energy needs?And why i'd like your opinion on this
is we know that the world's populationis only going to increase in the future,
and we also see a lot ofpeople use the word energy transition.
(02:38):
I don't really see it as atransition. I see it as an evolution.
As we are on the march totry to find greener ways to develop
our energy. But it seems likewe're adding more than removing more. And
as we go off or minimize ouroil and natural gas footprint, we're also
increasing in the areas of solar andwind and other energy that we see coming
(03:00):
on. But we're not really losingany We're actually adding into the grid,
and so is that sustainable in theway of we have to lower our carbon
footprint? At the Institute Bakers,you guys are actually breaking down a lot
of these topics that we're not reallymaking a whole They're not making a whole
lot of sense right now when youlook at how are we going to achieve
this? If are like you said, our elect officials are not They're not
(03:23):
experts in this area like you guysare. So I want to cover an
article that you helped write, andit was basically it's titled The Pride and
Prejudice of Sustainability, Rethinking sustainability froma system's perspective. But before we get
started on that article that you releasedNovember the eighth, first we're going to
talk about ESG, Environmental Social governance. Break it down for our listeners.
(03:46):
What is this so that way wecan get into your report. Sure,
boy, that's a We could probablyspend the next hour just talking about ESG.
It's it's uh, it stands forEnvironmental Social governance, right. It's
really about addressing various issues in acollective way to promote outcomes that are beneficial,
(04:11):
also in multiple ways. So,for example, how do we actually
address the potential environmental harm associated withan action? How do we address the
potential social impacts associated with an action? And then actually how do we institute
governance and the right institutions quite frankly, so that we can actually deliver what
we promise to deliver to investors,to shareholders, to the general public.
(04:33):
I mean, all of these thingssort of rolled up into a single bundle,
right, And the definition I justgave you. Is it's something that
people are still discussing, right,What exactly do we mean by ESG?
What are we trying to accomplish whenwe talk about ESG reporting for example for
firms, and depending on who youask, they will emphasize a different aspect
(04:56):
of that without a doubt, andso that makes this really a difficult issue
to tackle. Probably one of themost most discussed issues related to ESG has
really been around reporting. So youknow, s the SEC for example,
stepping in and proposing rules for companiesto report climate impact social impacts. You
(05:20):
know. Unfortunately in a lot ofthe ESG discussion, the E has been
dominant in most of those conversations.S has risen a bit in the last
couple of years. Is this ismatured, but g Uh, the governor's
aspect is something that is often noteven brought to the fore. Uh.
It's important, though, when youthink about policy and regulation as they relate
(05:42):
to ESG, that you actually addressall three because at the end of the
day, you're not going to ringall the bells, so to speak,
unless you do. You know,at the end of the day, also,
a company is beholden to its shareholders. Any company is in business because
it is able to generate a rateof return for its mended capital, shareholders
are not going to typically continue topour capital into companies that don't generate positive
(06:06):
rates of return. And so thething that you always have to wrestle with
when you're addressing ESG is are weend up? Are we going to end
up starving certain industry segments of capitalthat is required for them to do their
business? And then what are thebroader social impacts and economic impacts of that
kind of outcome? So if youlean too heavily into E, you might
forget those other things and you endup in and ultimately a cycle that's unsustainable.
(06:30):
So to bring it into sustainability rightbecause you have to and we'll get
into this, I'm sure in afew minutes. You have to be able
to address everything that matters in orderfor an outcome to be sustainable. And
just addressing the E doesn't necessarily getyou there. Doesn't mean it's not important,
but it means that you have tothink about other aspects of the issue.
So Ken in your report it specificallyyou write the article sustainability is the
(06:53):
life cycle balance, balancing across severalvictors. Achieving sustainability and its truest born
requires system level approach that considers awide range of environmental, social, and
economic factors to assess how they interact. And it evaluates things like government policies,
geopolitical impact on indigenous communities, socialeconomics, and demographic influences are a
(07:18):
few in there. So it's quitecomplicated, and I just want to give
our listeners an understanding when they hearwe're on the march to net zero in
companies, large companies are saying,you know, we're going to lower our
carbon footprint by twenty thirty, twentyfifty. These are some of the this
is the tools that you're talking aboutthat they're using. And so in this
report, again titled the Pride andPrejudice of Sustainability, rethinking sustainability from a
(07:44):
system's perspective, ESG seems to beto me, we are trying to do
the best we can, but alot of these things are unknown, so
we're kind of making it up aswe go. And in this report,
this great report, you talk aboutsustainability by let's get into that first.
Give me what is sustainability bias?Why is this important? So it's sustainability
(08:07):
bias is like any bias, right, it's really the eye of the beholder.
So if I can almost guarantee ifyou were to survey all the listeners
here and ask them what to themis sustainability, you would almost invariably get
a thousand different answers. And sowe have to kind of step back and
when we say bias, understand thatit's about perspective. Often when we get
(08:28):
into a discussion about sustainability, youhear a heavy emphasis on environment and lately
on climate. Right, So adiscussion about a sustainable future is often in
many circles rooted in a discussion aboutclimate change. So taking a step away
from that, then the natural sortof evolution of that conversations. We need
to eliminate fossil fuels, and itmight even go as far as the oil,
(08:52):
gas and coal industries need to goaway. Right, Well, it's
not really a stretch if you towalk down that path to figure out that
there are a lot of there's alot of turbulence introduced into the global system
if that's the path you walk.For example, and I use this example
a lecture just the other day,but there's a lot of interest and emphasis
(09:16):
quite frankly in using legal channels togo after major oil companies on climate grounds.
And this goes as far in someadvocate circles to you know, be
construed as well, they need togo out of business, they need to
go away. There's a you know, there's there's a there's a thought in
some circles that the industry is evil, right, I mean we we hear
(09:37):
these things all the time, yes, exactly. The fundamental issue with that
is, first of all, youhave to understand all the data. So
in twenty twenty two, Exxon Mobile, for example, produced, in terms
of it's it's raw crude oil production, about two point three five million barrels
a day. That sounds like abig number, but when you look at
(10:00):
the global market, it's not.It's actually a relatively small fraction of the
overall market system. The six supermajorscombined, so this is Exon, E
and I total Chevron shell BP.They produce less oil than a ram Co
produced last year. So it begsthe question, going after individual international majors,
(10:22):
what does that actually accomplish? Right, Because in point of fact,
if you're in the United States,for example, and you're operating properties in
West Texas. If for some reasonthat company goes out of business, Company
X goes out of business, maybeit's through legal pressures or whatever, those
assets don't disappear. They actually getrolled up into bankruptcy filings to get redistributed,
and production doesn't go away. Soyou then have to beg the question,
(10:46):
well, then how do you actuallyaddress the issue? Well, it
gets even more complicated. And bythe way that that signals there's a demand
side solution potentially to this. Butit gets even more complicated when you start
to look at the global supply portfolio. About two thirds of global production is
in the hands of national oil companies, and those national oil companies are beholden
(11:07):
to their host governments, and thehost governments quite frankly use those revenues to
support a variety of economic interests withintheir own countries. So I ask you
a simple question and visional world,where in the next ten to twenty years
oil disappears. What happens to allof those countries? Right? It creates
a massive amount of geopolitical instability thatI'm not sure anybody in the West is
(11:28):
prepared to deal with. And sothat's where you get into what are the
other ramifications, what are the additionalimpacts of the concerted action to really reduce
the production and use of oil.Well, there are knock on effects that
are massive, and it doesn't discount, you know, concerns about climate change.
It's just that you have to realizethere are other impacts that are not
(11:48):
necessarily climate related, but that areequally as dangerous for civilization. So yeah,
absolutely, you know, Ken,I've been on the air for about
eight years and through all of theinterviews, one thing is becoming clear,
which is there are no countries thatare doing well if they are in energy
(12:09):
poverty. It also when they don'thave access to reliable energy, which would
be oil and natural gas. Stillto today, their infant mortality rate is
higher. They don't live as longas people in the West do. Everything
in the quality of life. Wehave to start thinking about it in that
way. And in your report SustainabilityBias, you really cover how important it
(12:33):
is to look and see if we'regoing to limit industries by the ESG radar
and we're making it up as wego. There's a lot to think about.
Like you said earlier that it's verycomplicated when we come back from break,
I want to try to focus backin on the bias and then move
into how complex of a system isit going to require? And do we
have to rethink this? And that'skind of what your report is alluding to
(12:54):
you. But let's take a quickbreak. You're listening to an old Patch
radio show. Will be right back, and we're back. You're listening to
indool Patch radio show. My guesttoday is Ken Medlock, who is the
Baker Institute's Center's Senior director. Ken. Before the break, we were talking
about a report that you co authored. Its titled Pride and Prejudice of Sustainability,
(13:16):
Rethinking Sustainability from a system's perspective.And I want to jump back into
this because you guys are now releasinga brand new newsletter. It's called Energy
three sixty and it's really needed.I encourage our listeners to go to your
website Baker Students sign up for it. But in this report, you're basically
(13:37):
breaking down that as we move intoESG and looking at what does that mean
to us. In your report,you're basically alluding to that it's very complicated
the sustainability bias that actually we haveright now and when we're looking at ESG.
(13:58):
It's not fully figured out out yet. It's kind of like if you
are just focusing on the industries,it's going to affect the finances of how
these projects are financed or governments thatas you said earlier, So I want
to get back on that. Tellme a little bit about how complex you
(14:20):
think this is and do we haveto think about it in different layers or
level Tell me about your report itsays sustainability is complex requires system level thinking.
What is that? Absolutely? SoI'll back up at the very sort
of opening you mentioned. You knowtwo words energy transition, and first of
(14:43):
all, there is no such thingas a single energy transition. It's energy
transitions. In other words, you'regoing to see things evolve differently everywhere,
and understanding why is a great wayto really begin to digest how complex this
entire discussion is. Sustainability at itscore, particularly when you think about energy,
(15:07):
is connected to the idea of transitioningenergy systems around the world to lower
carbon footprints, lower environmental impact overall, I would say, but at the
same time continuing to facilitate growth.You know, the comments you made to
sort of open this segment was aroundenergy poverty and how countries that don't have
(15:31):
access to modern energy services are generallynot that well off. You have to
first understand why. I mean,if you think about basic electricity services,
they facilitate things like clean water,running water because of water sanitation services actually
require energy. They facilitate refrigeration services, which are great for you know,
(15:52):
those of us who like to youknow, air condition our homes. But
they're also vitally important for a varietyof health services, such as you know,
keeping vaccines and other medications you know, reliable and usable for a long
period of time, and so ithas direct implications for one of the things
you mentioned, like infant mortality.So energy is vital, vital for well
(16:14):
being and higher standards of living,and that's not really going to change anytime
soon. As we uh sort ofstep into a discussion about sustainability, if
you understand that basic point, youbegin to understand at a deeper level what
a truly sustainable outcome is. Butnotice, in order to get there,
we have to actually have a discussionabout the overall energy system and the overall
(16:38):
economic system so that we can connectthose two and ultimately begin to understand what
it means to be sustainable. Justbeing low carbon is not necessarily not necessarily
sustainable because what if the low carbonoutcome that you propose leads to significantly higher
costs and promotes greater greater energy insecurity. That is, that's not an
(17:03):
outcome really anybody wants to see,wants to see going forward. It's it's
really important for most populations that theycontinue to see improvements in living standards.
And this goes beyond just clean air, clean water. It goes into roof
over my head, food on myplate, close on my back, all
the typical things we talk about whenwe talk about well being. So you
(17:26):
have to truly think about the entireenergy and economic system if you want to
get to a truly sustainable outcome.And so that's really at a high level
what we're talking about. So I'mgoing to drill down into it because in
your report it says a part ofit says the primary focus on climate and
admissions just two elements of a widerange environment LEG while ignoring the socioeconomic and
(17:52):
financial commercial financial LEG is a threepart like stool. So but it will
eventually lead to collapse or the system'sfailure in sustainability. Sustainability is thus a
balance of all three domains. Therefore, understanding the first order impacts specific action
(18:15):
is never sufficient because the law ofunintended consequences is ever present, often predictable,
and can render specific pathways of unsustainability. We're going to take a quick
break. When we come back,I want you to tell me what that
is. Your report continues on andsays sustainability is not a property of something.
So let's take a quick break.You're listening to in the ol Patch
(18:37):
radio show. We're going to getinto the unintended consequences. We will return
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Nola Patraradio show. My guest todayis Ken Medlock, who is the Baker
Institute Centers Senior Director. Kin Beforethe break, we were covering the article
(21:32):
that you co authored titled The Prideand Prejudiced Sustainability, Rethinking sustainability from a
system's perspective, and we talked aboutwhat is ESG, what's driving most of
the ESG changes is really geared towardsthe environment, and we kind of covered
what are some of the unintended consequenceswhen we look at how we're doing this,
(21:56):
how we're rating this ESG, anda lot of it is we've never
done this before, so we're kindof doing it as we go and does
it or does it not make sensein your report I'm gathering this is just
my personal thought. I'm gathering wherewe really need to evaluate this. We
probably are not doing this correct.So let's talk about in your report,
(22:18):
sustainability is not a property of something. What are the unintended consequences when we
start looking at lowering our ESG orcarbon footprint through ESG. So I'm going
to take a step back because priorto the break, you referenced the sustainability
stool as a way to think aboutsustainability, and I think it's a great
way to frame basically this entire conversation. So imagine sustainability as a platform or
(22:47):
a tabletop if you will, wherethe seventeen un sustainable development goals are that
table top? Well, how doyou actually ensure that all of those goals
are met and you end up withsustainable growth long term? Uh, you
have to think about what holds thatthat platform up, and you can think
about it like a three legged stool. One of them, of course,
(23:10):
is environment So if if you areignoring environmental harm associated with various actions,
could be industrial activity, activity,it could be waste, which of course
raises the you know, the notionof the importance of recycling. But if
you're ignoring those issues, you ultimatelyend up causing harm to the ecosystem and
(23:32):
it can lead to ecosystem collapse,which is generally not good at all for
an economy. So you have toreally pay attention to environmental issues. At
the same time, though, youalso have to pay attention to socioeconomic issues.
So when we say socio economic issues, it's not just about like social
justice platforms, those matter, butit's also about well paying jobs and the
ability for households to you know,generate wealth and ultimately savings and bequests for
(23:59):
future generations. If you're ignoring thosethings, then generally you're not going to
see successful growth, sustainable growth,largely because the population within an economy or
a given region is not actually reapingthe benefits of the activities are going ongoing.
We see this, We have seenthis historically, for example, in
(24:21):
some countries that you've seen, youknow, just rampant corruption, for example
associated with resource development, where thegeneral the overall per capita income level looks
really promising, but when you lookat the distribution of income, it's it's
completely warped towards a very small fractionof the population, and those outcomes generally
(24:41):
don't last either, they're not sustainable. But then there's a third leg to
this which is often completely ignored insustainability conversations, but it's equally as important,
and that's the commercial and financial leg. What do I mean by that,
Well, if you are a companythat wants to do business in a
particular economy, particular region, country, whatever the case may be, you
(25:04):
are only going to be successful ifyou can generate a profit, if you
can actually generate a return to shareholders, if you can generate a return the
sufficient to pay back debt. Right, so all of these things are critically
important if you want to see anenterprise that is lasting. And so when
you think about those three legs,if any one of them is malnourished,
(25:27):
so to speak, then the stoolcollapses. So you can't let any one
of them be weak. Now thereare three buttresses that tie all of this
together. One of them, ofcourse, is innovation. It's very important
that innovation be fostered and promoted sothat you can get the kind of economic
growth that will beget greater socioeconomic wellbeingthat will actually beget better environmental outcomes.
(25:49):
So innovation is critical to all threeof these legs, but so are things
like market design and policy. Ifyou don't have the right policies in place,
the right institutions in place, theright regular tory structures in place,
then you can see an over emphasison one or two legs and not all
three, and ultimately that will leadto collapse of the system. So when
you think about a systems level approachsustainability, you have to think about all
(26:12):
of those things together, and that, unfortunately is not something that a lot
of people do. And so that'sactually that's in a nutshell, what we
tried to really highlight with this piece, and you did an amazing job.
Again, I'm going to encourage mylisteners go to the Baker Institute and look
up your report because it really doesbreakings down. We're going to take a
(26:33):
quick break, but Kim, whenwe come back from break, now,
I want to get into the USSecurity Exchange Commissions proposed climate disclosure requirements for
ESG. How is that going tocomplicate an already complicated topic. If you
will, let's take a quick break. You're listening to an old Patrito show.
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long Star Energy. And we're back. You're listening to in the old Patrido
show. My guest today is KenMedlock, who is with the Baker Institute
and he is the center's senior director. Ken. Before the break, we
were covering an article that you coauthored titled The Pride and Prejudice of Sustainability,
Rethinking sustainability from a system's perspective,and in this report, it's really
(27:42):
you're really hitting home of how thisis panning out when we talk about ESG
ESG meaning environment, Social and Governance, and how that is affecting all of
us as we look at our energyneeds for the future and as we are
in this evolution, if you will, of trying to lower our carbon footprint,
(28:04):
specifically of lowering and getting off coal, natural gas and crude two more
greener energy forms. ESG has comein and is taking a lead role pertaining
to how we're going to figure thisout in the future. In your article
you discussed how ESG should not beconstrued as sustainability. So tell me a
(28:27):
little bit about what is ESG ina way of how is it being created?
And there's now the US Security ExchangeCommission proposed climate change disclosure requirements for
companies that are public. How isthat going to change things? So Wow,
that's uh, that might be twoquestions. Yeah. Look, ESG
(28:53):
is is is constantly evolving, right, And you know, lately the conversation
around es G and you know,what firm should or shouldn't do, what
investors should or shouldn't favor, youknow, when they're evaluating where to put
their money. You know, it'sbeen very heavily focused on environment with A
(29:17):
with A with A with a massiveemphasis on climate. Right, so greenhouse
gas reporting for example. Uh,ESG of course is much bigger than just
that. And one of the pointsabout ESG is not sustainability is precisely that,
Right, if we just focus onthe E and ees G and only
one aspect of the E at that, if we just focus, for example,
(29:38):
on carbon emissions, we are missinga host of other things that as
an investor or as a firm,are actually important for the decision that we
ultimately need to make with regard towhere we're going to put the money,
or what kind of investments we're goingto make, or what kind of what
kind of market activities we're going toengage in. If policy leans to heavily
(30:00):
into only one aspect of that,it will tilt or distort our decision making
process, which could ultimately unleash awave of unintended consequences that either lead to
unprofitability or spikes and price or supplychain constraints a host of things that ultimately
matriculate into the consumers and households andtwo budgets. So we have to think
(30:23):
about everything. We can't just thinkabout one aspect of this. So you
know, one example are some ofthe greenhouse gas reporting requirements that are being
discussed and the discussion around scope one, Scope two, Scope three emissions.
You know, when I started lookingat this a couple of years ago,
it was really interesting because you realizevery quickly when you're looking at a supply
(30:45):
chain, you up and down asupply chain depending on where you are along
that supply chain. Every aspect ofthat supply chain needs to work in order
for a product to be delivered tothe market. So if we're talking about
pharmaceuticals, if we're talking about energyproducts, if we're talking about plastics,
if we're talking about consumer goods,there is a very long supply chain that
(31:07):
has touch points with ultimately the energyindustry at some point. So when we
start to focus on scope one,two and three emissions and ask one entity
in that supply chain to handle allof them. We're actually ignoring the implications
of not asking other entities in thatsupply chain to do the same. And
in point of fact, if everybodyjust focused on their scope on emissions,
(31:30):
you handle the emissions along the entiresupply chain. But that requires getting every
actor to effectively address their own scopeon emissions. In many respects, that
could be more efficient. The problemis no, there's no way to really
incentivize that right. There's no wayto price that in which is why,
quite frankly, a lot of economists, instead of taking a heavy handed regulatory
(31:52):
approach, argue that you ought toprice the externality some other words, tax
carbon, and a lot of energycompanies have said, yeah, if we
had CO two price, we'd actuallyknow how to do business. So absent
a direct intervention like that, there'sgoing to be a lot of uncertainty that
remains. And if we use thethe long arm of regulation to try to
control this, it can get reinterpretedwith a new administration, you know,
(32:15):
new appointments at different agencies. Itjust injects more uncertainty the entire process.
So it's important first of all,that you understand that right before you can
get to a point where you canactually say, okay, well, what
do we need to do if we'regoing to take this sort of ESG mantle
forward and really think about how todrive a sustainable outcome ESG by itself?
(32:37):
Hopefully that's what comes out of whatI just said. Is not sustainability because
it entirely depends on how it's regulated, how it's implemented. It can be
sustainability can be an outcome of variousESG directed measures, but it's not guaranteed.
You actually have to have that system'slevel approach in order for a sustainable
(32:58):
outcome to ultimately be cheap. Well, you know, in your report,
as you said earlier, we're focusinga lot on climate and when you look
and you realize, okay, sowe lower our carbon footprint with oil and
natural gas and move to what theNGOs are you know, in favor of
which is solar and wind. Theybelieve that that's greener, which they're not
(33:19):
really green either, but they mightbe a little greener, but they're not
the solution because when you look atit, they cannot exist or be created
without oil and gas. So inyour report you kind of go into that
like it's these unintended consequences that wedon't think about. Well, we want
to go to solar wind. Ifyou turn off oil and natural gas,
you're not going to get solar awin because they're a byproduct of it.
Tell me we are going to goto break. But when we come back,
(33:42):
I want you to explain to mein your report the carbon tunnel vision.
And let's get a little further intothat. Let's take a quick break
you're listening to in the Old Patchradio show, and we'll be right back.
Are you a business owner feeling overwhelmed? Where to begin your business is
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is your one stop shop for growingyour business. Pick up the phone today
and call two ten, two fouroh seven one eight eight again two ten,
two four oh seventy one eighty eightand we're back. You're listening to
in the Olpatch radio show. Myguest today is Ken Medlock, the third
who is with the Bigger Institute.E's the Center's senior director. Ken.
(36:22):
Before the break, we were discussingthe report that you co authored. It's
titled The Price and Prejudice of Sustainability, Rethinking sustainability from a system's perspective,
and it's really focusing a lot onESG and these consequences of how we are
putting ESG together. There has alsobeen some movement pertaining to there are recommendations
(36:45):
from the US Security Exchange Commission proposedclimate disclosure requirements. You list that in
this report of what those suggestions are. But give our listeners an understanding of
Indie report. You discussed today's narrowvision of sustainability creates carbon tunnel vision.
What is that? So I'll kindof try to weave in what we were
(37:06):
discussing just before the break into thatthat statement, right, what is carbon
carbon tunnel tunnel vision? I thinkpeople don't fully understand or comprehend that.
One of the reasons that transitions energytransitions are so complex, because they really
are, is that they ultimately arelinked to materials transitions as well. So
(37:29):
if we're going to talk about movingto things like wind and solar, for
example, in batteries, so inall renewable zero carbon grid, ultimately we're
going to have to have a conversationabout nuclear power. That's that's always going
to be present because it's dispatchable,it is reliable when it's on, it's
on. It's very different than exactlyzero missions. It's very different than other
(37:51):
types of renewable other renewable energy resourceswhich are what we call intermittent. So
when the wind's not blowing, thesun's not shining, you don't you don't
get those things. The the theidea of carbon tunnel vision and materials transition
very much connects to a host ofthings related to trying to electrify the world
(38:13):
and do it only with renewables.So there are many components in in a
solar array, in a wind farmthat derived directly from the oil industry.
UH, and without rethinking how youwould develop those components, you cannot divorce
(38:34):
those industries from oil. Now,what's interesting about UH? You know renewables,
wind and solar is they are whenthey're when they're installed, they are
lower, they're lower variable cost,they are lower emission. That is definitely
true, that's undeniable. But youhave to take a step back and think
about the life cycle of these things. How long do they last? What
do we do with them when theywhen they're retired. At the moment,
(38:54):
a lot of these components are justbeing land filled. Is there a way
to actually think about REX, whichis recycle, repurpose, reuse, re
everything right so that you can alleviatestresses that might emerge on the supply chains
that are going to ultimately have toexpand to provide the materials that are required
to continue to build these things andreplace things as they get retired. That
(39:16):
right now can't be done without theoil industry, So it creates the circularity
that is oftentimes missed in conversations aboutwhat a transition to renewable power actually means.
There's another thing that is becoming veryapparent to a lot of folks,
and that's namely that when you expandrenewable generation capacity on a grid, you
(39:37):
also see an increasing reliance on naturalgas as the balancing fuel. So you're
not going to necessarily be able todivorce yourself from that for a while until
there are some significant innovations and otherdispatchable forms of generation. As a matter
of fact, if you look atlike the state of Texas, arkat this
last summer, we had a reallyinteresting development and that there were multiple conservation
(40:00):
alerts and people pointed to you know, well, it's because it's hot,
But in point of fact, that'snot the only reason. We've also had
significant load growth across the state.Because the population keeps growing, the economy
keeps growing. That means we needmore electricity. But what's interesting is back
in roughly twenty nineteen, peak demandand URCAT eclipsed for the first time dispatchable
(40:21):
generation capacity, which meant everything thatyou were going to try to do to
meet peak demands ultimately would be relyingon intermittent resources, so wind and solar,
that very quickly has revealed itself tobe an unsustainable outcome because you need
dispatchable resources because occasionally the wind doesn'tblow and the sun doesn't shine, and
we saw this summer there's a windowof time every day when the sun is
(40:45):
setting and the wind really hasn't pickedit up up yet where you really need
to rely on dispatchable generation resources tokeep the grid rolling so that you know,
we don't notice that there's a problemif we continue to expand renewables without
dispatchable generation, that is only goingto get worse. And you're seeing elements
of this and other places around theworld. There's concerns about in Germany,
(41:07):
for example, increased electrification and theintroduction of electric vehicles and the addition of
heat pumps and things like this,and how that actually might lead to certain
restrictions on delivery of power to customerswho rely on the grid to fuel those
things, because there's concerns about reliabilitybecause they have not been building dispatch and
(41:27):
they're actually going back to coal asthey have increased the use of coal a
lot of that is rooted in what'shappened with their natural gas market, right,
what's I actually been going on there? But what it shows you is
there is a distinct connection to theneed for dispatchful generation and the oil and
gas industry. And so we talkabout carbon tunnel vision. If you only
(41:49):
focus on reducing CO two emissions,is if that's the only goal for a
sustainable outcome, you will ignore everythingthat I just talked about for starters.
You'll also ignore a host of otherissues like waste management. What do you
do about existing hazardous waste sites sosuper fun sites in the United States?
And there's a you know, letme read them for you. Let me
(42:13):
read them for it's huge. It'swaste management, clean energy, resource scarity,
education, gender issues, deforestation,health, water crisis, poverty,
environmental justice, affordable goods and services, over consumption, air pollutants. I
mean, it goes on on.And then as you in your report,
it continues to say perspectives matter,and it's talking about that there is not
(42:35):
one path forward for sustainability and wehave to think about I love this and
this report says progression towards energy transitionand sustainable sustainability goals. When you look
at there's seven hundred million people,that's ten percent of the population still live
in extreme poverty. We talked aboutthat earlier in the show. And nine
hundred and forty million people worldwide donot have access to energy. How are
(42:55):
we going to do this? Doall these people don't? They don't matter.
It's this report is so worth readingin helping people understand this is complicated.
Folks, tell me where to lookup this report. We have completely
run out of time, but Ican't wait to talk about some more of
these great reports. Baker Institute.You guys, you're doing it right with
(43:17):
writing the truth about energy is complicatedand this is not going to be a
simple change. It's going to requirea lot of work, and no,
I appreciate it. Right, You'reabsolutely right. It is complicated. And
you know, I tell my studentsthis all the time. If you're interested
in solving complex and interesting problems,the energy sector is the place to be
(43:37):
because it is loaded with complicated andyou know, very intensely technical problems that
require very sophisticated solutions. Oversimplification doesnobody any good. We've got to think
about the entirety of this stuff.Think about it from a systems level perspective
so that we accomplish the ultimate goal, which is sustainable growth. We need
(43:58):
to address emissions, but we allalso need to address socioeconomic concerns. We
need to address profitably the path towardsdecarbonization because ultimately that's what engenders wealth and
provides jobs and creates opportunities for everybody, and we can't do that by ignoring
segments of the population. To yourpoint, we actually have to be sort
(44:19):
of comprehensive in how we approach this, and it doesn't make it easy.
It's certainly not a thirty second soundbite or an elevator pitch, but sometimes
the world is not that simple andcertainly hard to energy and sustainability. It's
not that's correct, Ken. Thankyou for being a guest on in the
oil Patch Radio Show. We willinclude the link to this article and more
articles that our listeners are welcome togo read if you want to learn about
(44:42):
energy and no spin. It's thetruth. This is the reports that they
need. They need to visit y'all'swebsite and look and gather the data.
Thank you again for being a gueston in the oil Patch Radio Show.
Absolutely in the oil patches, wheretogether we explore topics that affect us all
in oil gas business and in yourcommunity. Every week, your host,
kimball Otto, will visit with themovers and shakers in this fast paced industry.
(45:05):
You'll hear from industry experts, electedofficials, and many more right here
on in the oil patch
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