Jan 15, 2020

Solving Climate Change with a Loan

This is a repost from Saul Griffith at OtherLab. You can find the original here.


Introductory caveat ; I’m a science-y engineer, I’m not an economist, so read this at your own risk. Also, ask yourself whether you call an engineer or an economist in case of an emergency.

The car loan was invented in the 1920s.
The modern home loan was invented in the 1940s.
The invention we need for the 2020s is the climate loan.

A mortgage, or credit, is like a time machine; it allows you to afford the future you want, today. Auto financing was popularized in the 1920s and 30s. Modern, 25-year home financing was popularized in the 1940s and 50s. Modern America and indeed the modern world would not be recognizable without these two financial instruments that help the bulk of the population afford their big-ticket capital items. The climate loan is the financial invention we need to popularize in the 2020s.

Finance is the world of changing the game of capital turn-over. We need to finance our 21st century infrastructure.
Solutions to climate change are readily available, at a lower cost than is widely believed — but only if we think about how to finance 21st-century infrastructure instead of doubling down on troubled and broken 20th-century ideas of bridges, roads, and power lines. Globally wind and solar are now the lowest-cost energy sources at wholesale prices of 2.5–5c/kWh. Cheaper even than natural gas. Energy storage prices are low enough that they are starting to compete with transmission and distribution. The difference between whether fossil fuels or renewables are cheapest literally is now down to the interest rate.


Forty years’ worth of data on energy production and use provides us with a rich opportunity to imagine a zero-carbon economy that is not only realizable, but can improve everyone’s quality of life. The data show that we could — and should — live in a net-zero carbon world, but only if we use technologies that have emerged in the last few decades. This zero-carbon approach is quite different from the conversation we’ve been having since the 1970s about making existing energy sources more efficient. You can’t “efficiency” your way to zero; that requires transformation.

Let’s stop imagining that we can buy enough LEDs, catch enough public transport, and purchase enough stainless steel water bottles and reusable coffee mugs to solve climate change. We need to focus on the half-dozen big decisions that we make irregularly, and make those choices correctly. A small set of decisions has the biggest impact on climate change: the building you live in, the solar on its roof, the cars in its garage, the type of furnace in its basement, the refrigerators, dryers, and washers. It’s the things we buy every 10–20 years that make the difference, much more than the things we purchase every day. This is the infrastructure we need to focus on. Whereas infrastructure in the 20th century was roads bridges and power lines, the balance of our future infrastructure is connected to our homes.

How quickly we decarbonize relies on us making every one of those choices correctly at the next opportunity. You can think of this as purchasing your own clean infrastructure, the things that will make your life fit into the new zero-carbon infrastructure of the 21st century. Commitment to massive electrification by renewables, nuclear power, electric vehicles, and heat pumps can realise lower-energy costs for all consumers, cleaner air, and less noisy streets.

This is quite different from starting with “business as usual” model and wondering how to evolve the world to where we might like it to be. The good news is that this clean-sheet analysis brings us closer to reasonable and affordable climate solutions than we are generally led to believe. It also allows us to focus on one very important point: the principal roadblock to a zero-carbon future is financing, and great opportunity lies in understanding that. We don’t solve climate change if only the wealthiest can afford it.


The oil crises of the 1970s led a succession of governments from Nixon to Carter to create the public institutions that today help us understand the links and challenges between our energy supply, carbon emissions, and climate outcomes. These agencies — the Department of Energy, the Energy Information Administration, and the Environmental Protection Agency (among others) — have done a great job of collecting the information that informs the energy-climate conversation.

This information tells us, both big-picture and small, how we produce and use our energy: what we use oil and natural gas for, how much electricity we produce and how efficiently, and detailed breakdowns of industrial use vs. commercial, residential, and transportation. But the origins of the agencies that collect the data, and even the data itself, mire us in a certain way of thinking about the energy system that constrains us from seeing the big picture. The 1970s rightly gave us great concern for efficiency: how efficiently our coal and nuclear plants turned steam into electricity, or how many miles per gallon our cars and trucks achieved. Efficiency appeals to conservatives who want value for money and liberals who don’t like waste in the environment. This gave us CAFE standards and ENERGY STAR appliances. But one problem with the focus on efficiency is that we didn’t even define what we were talking about; both the efficiency opportunity of improving the mpg of your big car and the behaviour change opportunity of reducing the size of your car were both celebrated as wins. The bigger flaw with this focus is that we can’t “efficient” our way out of our current climate crisis. We need to do things fundamentally differently, and we need to recognize that behaviors are harder to change than our technologies.


From President Jimmy Carter’s famous comments about wearing sweaters (which are oddly in the same vein as what Nixon said 6 years before him) to the efforts of the Rocky Mountain Institute to have us think of efficiency as “NegaWatts” instead of MegaWatts, the efficiency focus clouds our thinking.

Let us instead begin by thinking about 100% decarbonization: this means we can’t burn natural gas, coal, oil, or gasoline, at all, ever. Assume that all of our energy will be provided by nuclear and renewables, and consequently that nearly everything is electrified. Our cars and trucks will use ⅓ of the energy (they will be roughly the same sizes and convenience, only faster and quieter and more reliable). We won’t need to expend all that energy finding and refining fossil fuels. Merely by committing to 100% decarbonization, we realize we only need about half as much “primary energy” as we use today. Already we can see that solving climate change is only half the problem we think. No thermostats were turned down, no vehicles were downsized. While those behavioural things may also be desirable, if we focus on decarbonization by electrification we get the biggest efficiency gains without drastically changing our lifestyles. In fact, our lives very likely improve: more reliable cars, cleaner air, cleaner rivers and environments, and less noise (all internal combustion engines make noise; that’s where some of their inefficiency comes from).


One could criticize the green and environmentalist movements for not providing a positive and engaging vision for the future. What in reality would a world with 100% decarbonization look like?

  1. We will convert all electricity generation to zero carbon using solar, nuclear, wind, hydroelectricity, geothermal, and a small amount of biofuels.
  2. We will electrify nearly all our cars and trucks. There’s a chance we’ll run some of them on hydrogen and biofuels, but for the sake of argument, they’ll be mainly electric.
  3. We will electrify all of our commercial and residential heat loads (natural gas is the new coal, heat pumps are the new electric vehicle).
  4. Since a much larger proportion of our energy will need to be electric, we’ll need the electricity grid to be three times larger. The arguments of distributed generation versus traditional utility models are moot and fruitless; we’ll need so much electricity, we’ll be needing more of both.
  5. We’ll need to electrify all of your other whitegoods (Australian for refrigerator, washer, dryer, etc.), clothes dryers, hot water tanks, etc.

In short, the future will be quite recognizable in terms of the sizes and shapes of the major objects in our lives — cars, homes, furnaces, and refrigerators. They’ll just be electric.


The 20th century saw a flourishing of infrastructure, and the very word came to be defined by the things we built at large scale: roads, bridges, dams, and electricity transmission lines. As we consider the To-Do list for decarbonization, we have to rethink “what is infrastructure?” Our 260-million-vehicle strong collective car fleet defines a huge proportion of the energy we use. Our 120 million homes, and particularly their heating and cooling systems, do, too. Our collective rooftops could provide ¼–½ of the energy we need. We might think of using our homes and cars as the batteries that are critical to this neighbourly infrastructure of a clean electrified world.

The average age of cars in the US hovers around 13 years. The average roof needs to be replaced every 15–20 years. Our refrigerators, dryers, and washers last about 10 years. We move or remodel homes every 12–15 years. As citizens, our biggest opportunities for solving climate change come every 10 years or so, and lead to a surprisingly short list of what you need to do:

  1. Your next car, and every subsequent car, should be electric.
  2. Install solar on your roof at the next opportunity whether that be a retrofit, replacing your shingles, or buying or building a new house.
  3. Replace your furnace or gas fired heating system with electric heat pumps (and insulate and seal your home while you are at it). Install hydronic heating in your floors next time you re-do the floors.
  4. Choose the most efficient and electric, refrigerators, dryers, water heater and dish and clothes washers available to you.
  5. As your life becomes increasingly electrified there will come a moment where a small home battery will make economic sense for you to install as a backstop to your own demands as well as in making the grid more robust.


In 2017, for the first time, the American Automobile Association found that electric vehicles had the lowest total cost of vehicle ownership per mile. In Australia, where residential rooftop solar is installed at about ⅓ of the cost it is in America, the cheapest energy by far available to the consumer is the solar on their roof. If we can finance households to change their infrastructure, their energy costs will go down, air quality will go up, and we’ll stop climate change faster than you think.

The financing instruments we invented for large capital 20th-century infrastructure need to be made available to households. The low interest rates we make available to utilities to build new generation capacity and pumped hydro should be made available to households to purchase solar cells, heat pumps, electric vehicles, and batteries. Why should a utility get financing at 4% to build yesterday’s infrastructure yet consumers get stiffed by 9–12% interest rates to finance the infrastructure of the future?

We need to challenge utilities to embrace this new world; they can’t be allowed to lean back on energy security and universal access as justifications for their broken model. They are a huge part of the solution, but not until they enable the new grid that gives power back to the homeowner and consumer and fully enables sharing between neighbours.

The climate solutions space properly understood is a capital substitution for fuel. Finance is the world of changing the game of capital turn-over. We must develop financing methods and institutions for this type of infrastructure: bond measures, public-private financing, and regulated utilities. We need to be there with finance, product, and policy, at every one of those consumer purchasing decisions. The conversation about equity and universal access to cheap energy is really a proxy for this financing conversation.

The future can’t be built on lay-away; we need a loan. America’s strength for much of the 20th century was inventing new financing models and exporting those banking skills to the world. We need to put that to work once again, this time for climate change. The key insight here is to extend infrastructure financing closer to the home where the infrastructure of the 21st century will sit.



In 2018, Otherlab was contracted by the Department of Energy to take a closer look at all of the data that ends up being summarized as a “Sankey” flow diagram of energy in the US, from its mining, production, and import, to its end uses in homes, factories, and even churches. This effort revealed a small number of important points that cloud our thinking about a new energy economy.

  1. Nearly 10% of the energy we think we use is never really generated at all. In order to sensibly put solar, nuclear, wind, hydro and fossil fuel data into the same picture, we needed to define “efficiencies” for all of them, and this caused us to invent an accounting method that requires “ghost quads” to balance the books. The defined “efficiencies” for wind, solar, nuclear and hydroelectricity, while solving an accounting problem, made us misrepresent how much energy we really need.
  2. Nearly 10% of our energy economy is required to find, refine, and transport our fuels around.
    This is the energy required to pump natural gas through our 4.4 million miles of pipelines, to ship coal by rail from mine to power plant, to turn oil into gasoline, and to find and operate our mines and wells. If we move away from a carbon economy to a clean electric economy, much of this energy will also never be needed again.
    We will need to use solar energy to make new solar cells and wind energy to make batteries (as examples) but whereas the current economy requires 8–10% of its energy to access more energy, we’ll only need about 3–5% of our renewable energy to make new renewable energy infrastructure.
  3. The inefficiency of internal combustion engines for vehicles is a huge opportunity.
    Electrifying all of our vehicles would lead to a 15% reduction in the amount of energy we need were we to produce that electricity from nuclear power and renewables.
  4. The other defining inefficiency of our energy economy is “thermoelectric generation losses.” Burning things to make steam to spin a turbine to make electricity is just not efficient and we lose about another 15% of our energy in this activity.
  5. About 5% of our energy economy winds up as energy materials in products. The oil and gas in plastics, road base, and fertilizers isn’t used for creating energy at all. It isn’t sensible to count it in an energy analysis of getting from here to zero carbon.
  6. Another accounting problem we have is which columns in the ledger we register various activities in. The energy used in the production of gasoline from oil is counted under “industrial” use, and is therefore not registered under transportation, where it is actually used. This means that your 25 mpg car is really only getting 20 mpg if you think of it in barrels of oil instead of gallons of gasoline.

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