Transcript provided by Kensho.

Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

On this podcast, we bring you many different views to understand how sustainability discussions are unfolding because one thing we hear repeatedly is that stakeholders need to work together across silos to solve the world's big sustainability challenges. And I think this is especially true when it comes to climate and the energy transition.

As we've covered quite a bit in past episodes, there is tension. On one hand, we hear from scientists and the climate community about the urgency of the climate crisis. On the other hand, we hear from many stakeholders that the world continues to need energy affordability, reliability, and security.

Esther Whieldon: This tension between competing priorities was on display at COP28, the UN's Climate Change Conference the United Arab Emirates hosted in 2023. It was also on display earlier this year at the World Economic Forum's annual gathering in Davos, Switzerland. Davos 2024 took place under the umbrella theme of rebuilding trust against a backdrop of severe geopolitical unrest and during a year when about half of the world's population is set to vote in elections.

Throughout Davos, we heard that the fraught geopolitical situation could impede progress towards sustainability goals. And the tension was evident in March in Houston at CERAWeek, an S&P Global Conference at the Financial Times has described as the Davos of energy. We'll include a link in our show notes to our coverage of those events.

Lindsey Hall: So we're about 6 months out until the UN's next annual Climate Change Conference, COP29, takes place in Azerbaijan, and finding ways to break down silos between different stakeholders is going to be a big focus in the lead up to this event. So today, we're going to be talking to someone with unique insight into the topic of energy and climate diplomacy.

Daniel Yergin is an authority on energy, international politics and economics. He is the Chairman of the CERAWeek conference, and so he is the one on stage throughout the event interviewing CEOs from some of the world's largest energy companies. Dan is also Vice Chairman of S&P Global and author of a number of books, including a Pulitzer Prize winner. And I talked with them shortly after the March 2024 CERAWeek conference to hear his outlook for the energy transition, climate diplomacy and the technology that will facilitate many of these solutions. Here's Dan.

Daniel Yergin: I'm Dan Yergin, and my title is Vice Chairman of S&P Global. I came to that position really by several decades of deep immersion in energy, energy research, trying to understand how the energy world is changing, how it interacts with environmental and climate considerations.

And I've been fortunate to be able to both have a career working in companies, including one of the predecessor companies to this current S&P Global, which is IHS Markit, but having originally started a research company with one other person and a $3 file cabinet from the Salvation Army after I've been teaching at the Harvard Business School. And had done a book there on energy and wanted to just continue to do energy research.

And in a sense, that's what I've done. But I've been able to write a series of books as well that deal with energy and the global economy. The best known one is a book called The Prize, which is a geopolitical history of oil that, despite its title, actually ended up winning a Pulitzer Prize, which I thought a book called The Prize could not win the Pulitzer Prize, but it did.

And then, The Quest, and most recently, The New Map: Energy, Climate, and the Clash of Nations, but I also did a book called Commanding Heights: The Battle for the World Economy, which is really about that shifting frontier between governments and markets. And when I was writing that book, the boundary was shifting in favor of markets, but today, it's very much shifting back in favor of governments. So my research interest and what I do in S&P Global all come together. And basically, I'm still -- basically do research, work with research teams.

And one of the things we do, do is every year, CERAWeek, which is a big conference, I'd call it now an energy transition conference rather than an energy conference, and the subtitle tells all. It was markets, climate, technology and geopolitics, and all of that was covered. And we had about 10,000 people for the conference in Houston, in March.

Lindsey Hall: And I was one of those people. This was my first time at CERAWeek and I saw you on stage interviewing big names like Microsoft Co-Founder Bill Gates, and U.S. Department of Energy Secretary, Jennifer Granholm. Can you tell me what were some of your key takeaways from this year's event?

Daniel Yergin: Well, I think one is, I think, they sort of focused on low carbon, including in the major traditional energy companies. That came through more clearly. I would say a couple of the others is electricity, that up until recently, electric utilities focused and expected -- demand to either be flat or decline and didn't kind of just preparing for that. Suddenly, we're in an era in the last year or 2 in which we see that electricity demand is going to go up and forecasts for demand are being raised.

One major regional electricity organization in the United States, their forecast for growth going forward in 2023 is twice what it was in 2022. S&P did an analysis of earnings calls by electric utilities. And if you go back to 2022, a couple of mentions of data centers. Now there were, in 2023, 120 mentions of data centers. And all of this is about rising energy, electricity demand and the big challenge of how to meet that demand.

I think the other big thing that came through to me and the theme of CERAWeek this year, was the multidimensional energy transition. And I think that there's a process of change going on now in terms of kind of rethinking energy transition and recognizing that it's more complex than the kind of linear transition that maybe you just draw a line in a scenario that you get to Net Zero by 2050 and it just kind of happens.

And I think that some of that thinking was pandemic thinking because a lot of the thinking about energy transition recently was forged during COVID, when demand was down and price is down, and now we see energy security is back on the table, energy disruptions on the table. So recognizing this multidimensional energy transition, and just to say what does that mean?

It means that the transition proceeds but at different paces in different parts of the world with different technologies and different priorities, and I think that was another major takeaway.

There's one other that really struck me, and this is going to sound odd to many of the listeners, it's Texas. And you mentioned Bill Gates. Bill Gates, of course, with breakthrough energy, has funded many projects, about 100 of energy to get to Net Zero. But he kind of said you could -- the thinking and development can be on the East Coast or the West Coast, but if you want to build something substantial, you probably have to build it in Texas because that's the place you can get it done. And to me, that was really quite an astonishing statement that I heard it from other companies, too, because it just doesn't fit the mental map.

Lindsey Hall: And why Texas?

Daniel Yergin: Because you can get things permitted more quickly. A theme that ran through CERAWeek is a problem of permitting. Permitting transmission lines that you need to meet the electricity demand would take 5 or 10 years. Permitting natural gas, permitting any kind of a big facility just takes a long time in many parts of the United States and in Europe, and in other parts of the world. We certainly heard that in Europe.

And if you want to do a big project, you also have a labor force, you have the space, and it's a place that welcomes building things. In Germany, it's very hard to get permits to build things and there are environmental objections or people just don't want in my backyard. Texas, I guess, you can say, has a very big backyard that not many people are in and that you can get it done.

So I came away from CERAWeek this year, realizing that a lot of what the energy transition is really about engineering and about building things as opposed to just conceptualizing what needs to be done and that you need to be at places where you can get it done.

Lindsey Hall: On this topic of the multidimensional transition, which definitely flowed throughout this entire CERAWeek event. This was my first time, as I mentioned, at a CERAWeek conference, and I was attending as part of the event's Future Energy Leaders Program, which convenes professionals from across sectors to learn, to network, share ideas about the future of energy.

And I have to say, and I'm really interested, Dan, to get your perspective. The messaging at CERAWeek was really different than what I tend to hear when I go to a climate-focused event like Climate Week NYC or the UN's Climate Change COP Conferences. And there, the focus is really around the need for urgent action, urgency to address the climate crisis.

But then at CERAWeek, one person you were on stage with was the CEO of the world's largest oil and gas company, Saudi Aramco. And he said the current transition strategy is "failing on most fronts." My question is, how do you reconcile the need to move with urgency with the pragmatism that we are hearing from many energy executives at CERAWeek?

Daniel Yergin: I think it's a reality. I think that's part of what the multidimensional energy transition means that, for instance, the priorities for the Global South are just different than they are for people in Paris or Brussels or Berlin or Washington or New York, that it's also about economic growth, and they balance things differently.

So you look at India, Prime Minister Modi has a very big and aggressive commitment to renewables. But he also has a $67 billion program to build out a natural gas supply system to generate electricity, to mean that people don't heat their homes and cook with waste products and have indoor air pollution.

And you look at demand is actually going up. People said 2019 oil demand was going to be -- had reached its peak in 2019. After 2019, people during COVID said 2019, it's going to be a 3 million or 4 million barrels a day higher. So one of the issues in the energy transition is a North-South division.

I hear it all the time. We did a big energy conference in Southeast Asia in Kuala Lumpur, and we heard that growth is a priority as well. And then there are the constraints that one of the things that S&P has looked at is, well, what do you need for the energy transition, and we can talk about that, is minerals.

I think a larger thing, if I can say, is I got really interested when I was writing The New Map, and okay, everybody was talking about energy transition, but what is an energy transition? And so in The New Map, I went back and looked at all the previous energy transitions, and I went so far as to go on a limb and say the energy transition began in January of 1709 when an English metalworker figured out that you could make iron better using coal rather than wood.

But all these energy transitions up until then took like a century and they were really energy additions. And the best example for this is coal. Oil is discovered in 1859 in Western Pennsylvania. By the 1960s, oil overtakes coal as the world's #1 energy source. What happened since then?

Coal consumption today is three times as high, and last year, coal was its highest level ever. So it's sort of saying, what is the reality? And by the way, if that is the reality, what are the other technologies you need like carbon capture, use of hydrogen? What else do you need if you want to meet these climate objectives?

Lindsey Hall: Yes. I think it's really hard to argue. In fact, I don't think I have heard anyone argue with the idea that we need all those things, energy, affordability, access to energy, reliability, security, that's all vital.

But then coming back to this question about the science shows that we don't have the luxury of time. And so when you talk about those long time lines, I feel a bit stuck. Like what is the solution here when you're at this big CERAWeek conference, and you're hearing that, hey, we need to slow down. This isn't going to happen really fast.

Daniel Yergin: Well, first, let me say, some people said that there, other people did not. We had over like 150 start-ups that we're focused on climate solutions. We had many people. We had John Podesta. We had John Kerry there. So it was not a one-sided message. I want to make that clear. It was a big tent, where there are a lot of different perspectives.

And I think what you're getting at is, well, okay, you're hearing these different perspectives, how do they balance out? So yes, the CEO of Saudi Aramco said, "The numbers don't work." I think one has to go back and say, well, okay, which of his numbers? And he was saying that the narrative, the energy transition narrative is going to be written by the Global South, where 80% of the people live.

So there's different perspective. And the reality, if you take China, India, Indonesia, Nigeria, Russia, that's 45% of emissions. None of them have a 2050 goal. And at least in some of those countries, that's where demand is going to grow. So okay, you can tell China, you have to have a 2050 goal, but China may not agree with you on it.

I mean we had leaders from the Biden administration, leaders from the EU, who are very committed to exactly what you're saying. But I think -- and how do you advance it? Well, one thing is you have a program like the IRA, the Inflation Reduction Act, which is trying to create the incentives to bring the technologies forward faster than they were.

And even if you look at a company like Saudi Aramco, they have a huge budget for venture capital. They're going to be one of the leading players in hydrogen. They're using solar in their own operations. So I mean, I know the media focused in on the CEO of Saudi Aramco's speech, but there was a lot else.

There was Bill Gates talking about 100 start-ups that they've done to accelerate climate, and people acknowledge that the hard to decarbonize sectors are industry that, that's a particular challenge. I think there are a host of perspectives. Most of the Agora, the technology part of the conference, was about climate solutions, but the solutions are not going to be words or declarations, they're going to be technology and engineering.

Lindsey Hall: So what we just heard Dan saying is a recurring theme in my conversations with sustainability professionals over the past few years, this idea that, first, we had a lot of stakeholders making bold declarations about their climate goals. But more recently, I've heard a push to go further. And this question of how do you back up those words and goals with concrete actions?

As Dan said, technology will be part of the solution, and we'll include a link in our show notes to the episode we spoke to some emerging tech companies that took part in CERAWeek's Agora program. Another topic that came up at CERAWeek was climate diplomacy. The CEO of Saudi Aramco said his industry is painted as the energy transition's "archenemy", and he said that "Demonization is not dialogue."

In another session at CERAWeek, I heard John Kerry speak. He's the former U.S. Secretary of State, and until recently, he was also the first U.S. Special Presidential Envoy for Climate, and in his panel, he responded to the Aramco CEO's comment that the energy transition has failed. John Kerry said, "It's not a switch you flip on and off at the end of the COP." And then he added, "It's a process."

He also talked about the importance of climate diplomacy. I asked Dan for his view on this back and forth and more broadly, the role of climate diplomacy in the energy transition.

Daniel Yergin: Well, I think client diplomacy has been really central to where we are right now in terms of both focusing on the issue and building international consensus and collaboration. And I think inclusivity is part of it, too. As you know, at COP28, you had the private sector there, which had been kind of resisted at previous COPs, but actually, who has the engineering skills? Who builds things? Who can work at scale?

It's the private sector, again, like I said, it's not just going to be words, but it's actually putting things in the ground, building things. And I think the climate diplomacy has been essential. Frankly, it's one of the few areas where there's U.S. and China these days are on the same page, and those are the 2 biggest consumers of energy in the world.

Lindsey Hall: This idea of collaboration comes up a lot in my discussions about climate and the energy transition, and it comes up in different contexts. So we talk about the need for cooperation between countries, for example, or between different companies and industries, and also between the private and public sector.

As we heard Dan say, the private sector showed up in force at COP28 in Dubai in 2023. And notably, this time, the oil and gas industry played a big role in this annual Climate Change Conference. For example, Dr. Sultan Al Jaber is the CEO of Abu Dhabi National Oil Company, or ADNOC, and he served as the President for COP28.

Now critics questioned how effectively a petrostate like the UAE could host the climate talks. But on stage in Houston, Dan presented the CERAWeek Leadership Award to Dr. Al Jaber, who appeared virtually to accept it. Here's Dan again to explain more about that decision.

Daniel Yergin: What he did, I mean, he is committed to the climate objectives. And he's refashioning the company heads, which is called ADNOC, to low carbon, to renewables, to reducing its carbon footprint even as it's an oil company, carbon capture, use of hydrogen, et cetera. But what he did at COP28 was done something that had never done before, made the COP inclusive.

He brought in the private sector, which had been kept out before, and they participated in it on the premise that if you actually want something to get done, you need the companies who can work at scale, who do projects to be part of it. And I could see the impact on those companies being part of COP got them on board around these targets in a way that wasn't the same when they were shut out of the discussion.

So building the consensus and the series of agreements to triple renewables by 2030, I think triple nuclear by 2050, really putting nuclear back on the table again, which has been off the table for so long. Supporting the developing world so that they actually have funding for their climate projects rather than just admonitions about what they should do because that's been a big frustration of the developing world is that the promised resources aren't there.

So it was really hard for him to do that. Talk about climate diplomacy. That was climate diplomacy to bring those parties together from the people who just focus on climate as an issue in their life to bring it together and to bring in the private sector, that took a lot of diplomacy and hard work. And I think even in the midst of it, it was not clear whether you'd get to the outcome, but it was a very significant outcome, and it does talk about a transition.

Lindsey Hall: Yes. And coming back to the remarks from John Kerry at CERAWeek, he said, "How can you solve any problem if you don't have all the players at the table?" And he was asked, should industry have a seat at the table at future COPs? He said, of course. So I'm hopeful about what might come from COP29 if we have the same level of private sector engagement.

Daniel Yergin: Right. And you need strong leadership to bring the parties together, to get to outcomes. But I think one difference you've seen the IPCC, the UN, which is the bible on climate, their reports said you can't achieve these goals without carbon capture, and that requires industry to do that. The world is still, even according to the UN, is going to be using oil and gas in 2050. The thing is, what are you going to do with the emissions and how are you going to manage the emissions?

Lindsey Hall: I think that gives us a good opportunity to pivot to the topic of technology. So your book, The New Map: Energy, Climate, and the Clash of Nations, which I have a copy of right here in my hand. It contains a lot of really compelling history about energy systems around the world.

One thing that struck me is that in the past, you talked about how energy companies have embraced rapid change. For example, you lay out how quickly and dramatically is the development of horizontal drilling as a technology completely changes the U.S. landscape for natural gas. My question is, is similar change possible at such a rapid and wide scale for new low-carbon technologies.

Daniel Yergin: Yes. I mean that's a really interesting question. How long do innovations take? The Shale Revolution, which you're referring to, took about 30 years of failure before it succeeded. And I write about there's one man named George Mitchell, if he hadn't really been determined and it was his company and he was willing to spend the money, it wouldn't have happened -- it might not have happened.

I think there's a solar revolution. The cost of solar have plummeted from like 90%, and that's been revolutionary. And a large part of that has been driven by large-scale Chinese manufacturing. The Chinese have just dominated solar and the cost structure. I would say there was a lot of talk about hydrogen at CERAWeek and I've, obviously, write about it in The New Map as the, is this going to be an alternative to hydrocarbons?

But it's still early in terms of, to get to scale, it's going to take a lot of engineering, a lot of pipes, a lot of infrastructure. And I think one of the big questions that was being debated at CERAWeek is how do you create a market for hydrogen, and who will be the buyers of hydrogen?

I think the other theme that ran through there, the conference, was AI, just artificial intelligence. On the one hand, it's going to mean this much greater demand for electricity, we think. But is it also going to mean much greater efficiency in how energy is used and how energy is produced?

And so it seemed that we're at early days of that. But is it kind of just a general question, how is AI going to change everything? One of the questions is, how is it going to change the energy sector? And how is it going to change our ability to address the climate challenge?

Lindsey Hall: Right. In addition to what you mentioned from CERAWeek, you also, a couple of years ago, co-authored a study for the Gates Foundation and the Breakthrough Energy coalition, advancing the landscape of clean energy innovation. Can you give us a little overview of what you identified as some of the most promising technologies out there?

Daniel Yergin: Well, there's quite a long list of them, but a lot of it was around what you can do in terms of buildings and industrial processes. And it was sort of an agenda for investment. I think the other big message it had is, if you ask me kind of what's the most important thing to do or one of the most important things is the money you spend on research and development in a consistent way so that people can focus on achieving these outcomes.

I think that for the venture capital world, there was a lot of early enthusiasm about investing in energy and then discovered that lead times in energy and climate innovations take longer than innovations in software, and particularly when you're getting to energy, you also have to demonstrate reliability.

Something that I was struck by and had followed from COP28 at CERAWeek was this new re-energization if I can say that about nuclear power and particularly about small nuclear reactors and that it's no longer if, but it's when, when will they be ready? When will they go through the process? And one company said they'll have one up in 6 years in one of their big industrial facilities in Texas.

So I think that re-attention to nuclear was something that we hadn't really seen a few years ago. And certainly, small nuclear reactors would be on that list as well. I think that one other question that complicates this whole question of energy transition that we need to talk about is the return of energy security as a concern.

And during COVID, that just was not a concern, after Russia invaded Ukraine, it really changed. And if you talk to Japanese and others, they're very concerned about it. Even Europe, I mean, there's Germany, which is as committed as any country to the energy transition to renewables. And they've just announced a $17 billion program to build natural gas-fired generation to complement their wind and solar.

And what we see with the turmoil in the Middle East now, 2 wars going on Middle East and also in Russia's invasion of Ukraine, where energy is very much involved in it in so many different dimensions of it, that it has brought an issue that had kind of fallen off the table, energy security. So we look at it or I look at it, energy transition needs to also rest on a block of energy security because otherwise, you get a backlash, you get real problems.

And in some ways, we're in a pretty precarious world we're in right now with a lot of risk. And the Red Sea, I mean, just take that, that was a major avenue for energy shipments and now people are having to avoid it because the Houthis have launched over 70 attacks on shipping. So I think we can't forget when we talk about energy transition, we can't forget the element of energy security.

And even if you look at the Biden administration before the innovation of Ukraine in 2021, they were using the strategic petroleum reserve because they were worried about tight supplies. So I think the message of all of this is that, that's why I think of multidimensional energy transition. To change the energy basis of $105 trillion world economy, it's a pretty big job. It's never been done before.

Lindsey Hall: It's incredibly complex. Dan, should we expect another book from you on this topic since there is just so much to consider?

Daniel Yergin: Well, writing a book, I think it's 3x. I always think a book is three times as it turns out to be, three times as hard to do as you think it will be when you start. I think, I'm still in a way, The New Map turned out to be so relevant and prescient in so many different ways. People tell me that I feel I'm living it every day.

But you asked a very good question. And I am taking it to heart, I don't know, you've been a writer. You start to get an itch and then you say, well, I think I see a shape of how to do it. So I think the answer is yes, but I sort of say you have to let enough time pass to forget how hard it was to do the last book.

Lindsey Hall: Yes. I feel like that about children. You have to get a little amnesia so you can move on to the next one.

Daniel Yergin: Right. Well, I guess you could put that all into the heading of creation.

Lindsey Hall: Yes. There you go. Well, thank you so much for sharing your time and perspective, and I hope we can have you back on the podcast again soon.

Daniel Yergin: Thank you. Great talking with you.

Lindsey Hall: So we heard today about the complex geopolitical landscape. As Dan explained, this is going to have significant implications for how the world navigates the energy transition.

Esther Whieldon: And we heard that words and declarations are one thing, but we need to back up energy transition goals with concrete actions. Often, that will mean technology and engineering solutions and partnering together across silos. With about 6 months to go until COP29, we'll be watching closely to see how climate diplomacy is evolving and what that means for the energy transition. So please stay tuned.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

Copyright ©2024 by S&P Global  

This piece was published by S&P Global Sustainable1, a part of S&P Global.     

DISCLAIMER  

By accessing this Podcast, I acknowledge that S&P GLOBAL makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this Podcast. The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional advice. Unless specifically stated otherwise, S&P GLOBAL does not endorse, approve, recommend, or certify any information, product, process, service, or organization presented or mentioned in this Podcast, and information from this Podcast should not be referenced in any way to imply such approval or endorsement. The third party materials or content of any third party site referenced in this Podcast do not necessarily reflect the opinions, standards or policies of S&P GLOBAL. S&P GLOBAL assumes no responsibility or liability for the accuracy or completeness of the content contained in third party materials or on third party sites referenced in this Podcast or the compliance with applicable laws of such materials and/or links referenced herein. Moreover, S&P GLOBAL makes no warranty that this Podcast, or the server that makes it available, is free of viruses, worms, or other elements or codes that manifest contaminating or destructive properties.  

S&P GLOBAL EXPRESSLY DISCLAIMS ANY AND ALL LIABILITY OR RESPONSIBILITY FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES ARISING OUT OF ANY INDIVIDUAL'S USE OF, REFERENCE TO, RELIANCE ON, OR INABILITY TO USE, THIS PODCAST OR THE INFORMATION PRESENTED IN THIS PODCAST.