Speaker 1: Welcome to Zero. I am AKSHATARTI this week how to
Speaker 1: think about geopolitical chaos. I don't know if it's a
Speaker 1: good thing, but I'm reading the news these days and
Speaker 1: it keeps reminding me of one of my favorite sci
Speaker 1: fi novels, The Three Body Problem. At the heart of
Speaker 1: that story is an alien world that oscillates between a
Speaker 1: stable era and a chaotic era no one can predict
Speaker 1: when it happens. Here on Earth, it feels like we
Speaker 1: are entering one of those chaotic eras. So today on
Speaker 1: the show, I wanted to bring on a guest who
Speaker 1: thinks a lot about the chaos around us and has
Speaker 1: through the decades advised world leaders and CEOs about how
Speaker 1: to manage in times of chaos. Gerald Buds is the
Speaker 1: chairman of the Eurasia Group, a political risk consultancy that
Speaker 1: he was the chief of staff for Canada's Prime Minister
Speaker 1: Justin Trudeau, and just last year he also ran the
Speaker 1: campaign that successfully put mccarnie in as Trudeau's replacement. I
Speaker 1: wanted to understand how he thinks about the energy shocks
Speaker 1: we are facing and how they will reshape the world
Speaker 1: where the energy transition might falter where it might accelerate,
Speaker 1: and who will be the winners in a decade from now.
Speaker 1: These are questions that will decide where trillions of dollars
Speaker 1: I invested and thus where our climate future goes. As always,
Speaker 1: please send feedback or suggestions to zero Pod at Bloomberg
Speaker 1: dot net. Here's my conversation with Gerald Putts. Welcome to
Speaker 1: the show, Gerald Putts.
Speaker 2: It's great to be here. Longtime listener, first time caller.
Speaker 1: Ah, it's nice to have you on the pod. Finally,
Speaker 1: there's a lot going on in the world, many many fronts.
Speaker 1: I want to talk about energy and climate, but before
Speaker 1: we get there, just tell the audience a little bit
Speaker 1: about yourself. How do you come to working on climate
Speaker 1: and energy issues.
Speaker 2: Well, I've been working on energy transition, climate related issues
Speaker 2: for most of my professional career in both well actually
Speaker 2: in all three sectors. My first exposure to it was
Speaker 2: when I was running policy for the Premier of Ontario,
Speaker 2: which is Canada's largest province, and we I think we
Speaker 2: were the first jurisdiction anywhere to voluntarily retire coal at scale.
Speaker 2: So we retired about seventy five hundred and fifty megawatts
Speaker 2: of coal and replaced it with rebuilt nuclear renewables gas,
Speaker 2: a mix of a very broad mix of generation, and
Speaker 2: that got me interested in the topic. Dalton McGuinty was
Speaker 2: that man's name. He was a three term Premier of Ontario,
Speaker 2: and I think, not coincidentally, he was a scientist, and
Speaker 2: maybe I think he's the one and only scientist to
Speaker 2: have been Premier of Ontario. And because of that, he
Speaker 2: had high conviction that climate would be the issue that
Speaker 2: young whipper snappers like I was at the time would
Speaker 2: be spending most of my career thinking about and trying
Speaker 2: to solve the problems created by it.
Speaker 1: And then you also were chief executive officer of the
Speaker 1: World Wildlife Fund and then chief of staff do Justin
Speaker 1: Trudeau as Prime Minister of Canada. Tell us a little
Speaker 1: bit about those times.
Speaker 2: Well the WWF, and I'm still a proud board member
Speaker 2: of the World Widlife Fund in the United States. I'm
Speaker 2: speaking to you from Silicon Valley, where I'm here for
Speaker 2: a WWF board meeting later today. We are very much,
Speaker 2: as your listeners would know, a conservation organization in its
Speaker 2: broadest possible form. Bit we're in the business of the
Speaker 2: conservation of nature, and that is something that has attracted
Speaker 2: me like I think it should attract all humans, because
Speaker 2: ultimately it is the biosphere that we depend on. And
Speaker 2: in Canadian politics, both for former Prime Minister Trudeau and
Speaker 2: current Prime Minister Carney, I played a strategic in designing
Speaker 2: the campaigns, and in Prime Minister Trudeau's case, I ran
Speaker 2: his office for the first four years of his tenure.
Speaker 2: I left in twenty nineteen to join eurras Group.
Speaker 1: The Eurasia Group is a political risk consultancy. That's sort
Speaker 1: of the broadest way I could describe it, but it
Speaker 1: is still a vague phrase. Can you explain what does
Speaker 1: it involve day to day?
Speaker 2: Well, it's getting a lot less vague for people right.
Speaker 2: The way I tend to describe it is that ten
Speaker 2: years ago Eurasia Group was called into a board dinner
Speaker 2: to give an interesting speech that people could think about
Speaker 2: and then get down to their core businesses the next day.
Speaker 2: And as we're discovering and as investors in particular, and
Speaker 2: our clients are in two classes. We advise large investors
Speaker 2: who have to absorb these risks around the world as
Speaker 2: they think about their asset allocation strategy, and also large
Speaker 2: corporations who have to manage their supply chains, and for
Speaker 2: most of my life if the stable equilibrium and policy
Speaker 2: that private sector actors enjoyed actually meant that this was
Speaker 2: an afterthought. But now, obviously, in particular in this decade,
Speaker 2: it's become a core business for everybody. So trying to
Speaker 2: understand what's causing geopolitical disruption, how long it may last,
Speaker 2: where it's going to be regionally concentrated, in which industries
Speaker 2: it's going to affect most approximately, is our core business.
Speaker 1: Let's talk about one slice of those risks, which comes
Speaker 1: from the current energy shock. It's been more than seventy
Speaker 1: days since the US and Israel attacked Iran, and there
Speaker 1: has been a virtual closure of the Strait of Hormuz,
Speaker 1: responsible for twenty percent of the world's oil and gas.
Speaker 1: On Sunday, Iran replied to the latest US proposal, and
Speaker 1: President Trump declared the response was totally unacceptable. We don't
Speaker 1: know where this goes next. But when you are talking
Speaker 1: to companies and investors in this position, there are some
Speaker 1: of the things are pretty obvious the types of regions
Speaker 1: that are affected right now by the straight disclosure, But
Speaker 1: what are the kinds of things that they are worried
Speaker 1: about that are beyond the obvious that you talk to them.
Speaker 2: About well X energy. I think that a lot of
Speaker 2: people are learning that there's a whole bunch of consequential
Speaker 2: stuff that's created on the other side of the strait
Speaker 2: of Wurmos, from the rudiments of the agricultural supply chain
Speaker 2: to helium, which the healthcare system meant semiconductor industry is
Speaker 2: very reliant upon. So not unlike what happened with both
Speaker 2: the pandemic and the Russia Ukraine crisis, which of course
Speaker 2: also both happened this decade, and if everybody feels tired,
Speaker 2: that's probably why. So we've learned a lot about the
Speaker 2: complexity and the inter relatedness of supply chains through those crises.
Speaker 2: As we feel them come apart, it's less of a
Speaker 2: surprise than it would have been before twenty twenty, but
Speaker 2: it's still surprising to people that so much of what
Speaker 2: their stuff is made of is originating in places that
Speaker 2: they don't really understand, and it can be disrupted by
Speaker 2: forces that they have never reckoned with. So that's what's
Speaker 2: happening here, and the energy side, if we kind of
Speaker 2: telescope out and look at longer range. She'd recall we
Speaker 2: spoke in the aftermath of Russia's invasion of Ukraine, and
Speaker 2: it was a big open question. You wrote about it.
Speaker 2: Lots of thoughtful people were thinking about it at the time,
Speaker 2: whether or not it would accelerate or decelerate the energy
Speaker 2: transition in Europe. I think five years later, six years later,
Speaker 2: we can pretty much declare that it accelerated the energy
Speaker 2: transition in Europe. And I think in this particular case,
Speaker 2: there are so many precarious, economically precarious countries and regions
Speaker 2: that are dependent upon the hydrocarbons that are on the
Speaker 2: wrong side of the Strait of Hormuz right now that
Speaker 2: other actors with supply chains and technologies that could replace
Speaker 2: hydrocarbons are acting very aggressively to do just that in
Speaker 2: the aftermath of this crisis. So when you think about
Speaker 2: growing economies like Vietnam, like the Philippine, Sri Lanka, India, Pakistan,
Speaker 2: all of these countries are those that have already faced
Speaker 2: the shock of watching LNG tankers turn around in the Pacific,
Speaker 2: go back through the Suez Canal and sell contracted hydrocarbons,
Speaker 2: hydrocarbons that they had contracted for four or five, six,
Speaker 2: sometimes ten x the spot price in a region while
Speaker 2: a crisis was underway, and they're going to think twice
Speaker 2: about it now. So the Chinese, to be direct about it,
Speaker 2: have a larger pool of potential interested customers in their
Speaker 2: own region because of this crisis. And I think that
Speaker 2: have a long term impact on the global energy system
Speaker 2: that people are not appreciating right now.
Speaker 1: Yeah, and let's take one of those things at a time.
Speaker 1: So if you look at Europe, and Europe's transition has
Speaker 1: certainly accelerated. I think the biggest evidence I see is
Speaker 1: in Spain. So before the Russia Ukraine crisis, you know, gas,
Speaker 1: natural gas used to set the price of power in
Speaker 1: Spain something like sixty to sixty five percent of the time.
Speaker 1: In this first quarter it's down to nine percent of
Speaker 1: the time because of the sheer amount of solar, and
Speaker 1: solar is the biggest contributor. There's been another contribution from
Speaker 1: wind as well, and a little bit from batteries, but
Speaker 1: really it's solar power and it can show you what
Speaker 1: a country has been. It's not a small country. It
Speaker 1: can do within a small period of time, and not
Speaker 1: all other European countries have quite gone down that pace.
Speaker 1: But even in those play like you're in the UK
Speaker 1: or in Germany, you are seeing much more muted price
Speaker 1: on electricity relative to the type of gas shock that
Speaker 1: has come through because twenty percent of the energy is
Speaker 1: and stuck in the strait of foremost. One single energy
Speaker 1: tanker in the last seventy days has passed through, and
Speaker 1: that was just this past week, so you can start
Speaker 1: to see that change pretty quickly. The oil industry is
Speaker 1: sort of known for its boom and bus cycles. When
Speaker 1: the price is high, they invest a lot to find
Speaker 1: more oil and then the price comes down rapidly. But
Speaker 1: there's something different that governments and even people do when
Speaker 1: there is a dual energy shock. You know, we talked
Speaker 1: about the twenty twenties, but like it's worth going back
Speaker 1: fifty years and thinking through the nineteen seventy three and
Speaker 1: seventy nine shocks. We know that there was a rapid
Speaker 1: decline in the burning of oil for electricity, which at
Speaker 1: the time twenty or twenty five percent of global electricity
Speaker 1: came from burning oil fell and it just continued to
Speaker 1: fall even after the oil price really came back to
Speaker 1: being normalized in the eighties. Governments invested heavily in nuclear power,
Speaker 1: France among them, but so many others, and you saw
Speaker 1: this rapid increase of nuclear power. You also saw increase
Speaker 1: in coal burning, which was on the decline for a
Speaker 1: while with the oil being burned. But then you've got
Speaker 1: much longer term investments, things like battery technology investments that
Speaker 1: Exonomobile made, for example, but also solar investments which are
Speaker 1: bearing fruit today. There were energy efficiency measures, you know,
Speaker 1: cars became just a lot more efficient and they've continued
Speaker 1: to increase their mileage steadily ever since the seventies. If
Speaker 1: you are now looking at this dual energy shock, you're
Speaker 1: seeing countries start to take on renewables, take on electrification.
Speaker 1: What kind of impact do we think we will see
Speaker 1: in ten twenty year's time.
Speaker 2: Oh, it's a great question. And what tends to happen
Speaker 2: in the aftermath of all of these shocks. Local availability,
Speaker 2: which is a policy objective to secure security of supply,
Speaker 2: which has always been an issue with energy since we
Speaker 2: were walking out of caves and cutting down trees so
Speaker 2: that we could burn our evening meal. Local availability has
Speaker 2: always been a prime directive when it comes to energy supply,
Speaker 2: and in Placid geopolitical periods, it starts to feel like
Speaker 2: everywhere is local, right, and policymakers feel that way, large
Speaker 2: investors feel that way. People who operate local businesses feel
Speaker 2: that way. They have no idea and no reason to
Speaker 2: have an idea where their feedstock comes from. And then
Speaker 2: suddenly a disruption like this happens and people are wait
Speaker 2: a second, my stuff comes from where, and my monthly
Speaker 2: budget is dependent on what and how can I put
Speaker 2: pressure on the people who control power in my local area,
Speaker 2: i e. The politicians, both power in the political sense
Speaker 2: and in the energy sense, so that we can insulate
Speaker 2: ourselves against future shocks of this kind. And everything else
Speaker 2: flows from that realization. So what happened in the post
Speaker 2: seventy three period, And I was a child in the
Speaker 2: nineteen seventies playing on a beach in Nova Scotia that
Speaker 2: suddenly had a coal plant at the end of it.
Speaker 2: And the reason we had a coal plant at the
Speaker 2: end of our beach and all over the rest of
Speaker 2: Nova Scotia is because we mind coal in Nova Scotia
Speaker 2: and it was the locally available resource to replace oil
Speaker 2: fired electricity. In other places it was different things. So
Speaker 2: I think that people in climate circles right now tend
Speaker 2: to believe, Aha, well, people will finally come around to
Speaker 2: our way of thinking. And the evidence is the excitlerating
Speaker 2: adoption of evs, especially in markets outside of North America.
Speaker 2: It is the adoption of solar with battery as a
Speaker 2: replacement for hydrocarbons like LNG. That's not what's happening on
Speaker 2: the ground, and I think that people need to appreciate that,
Speaker 2: otherwise they make long term policy mistakes. The example you
Speaker 2: used of Spain, which I think is a really important
Speaker 2: one of upper middle class economy, let me put it
Speaker 2: that way, a G twenty country. They are proving to
Speaker 2: the rest of Europe that from an engineering perspective, renewables
Speaker 2: a scale work. Now, lots of people will say Spain
Speaker 2: is a sunny southern European country. There are others, by
Speaker 2: the way, But as you and I both know and
Speaker 2: probably don't want to spend too much time explaining, that's
Speaker 2: not the way physics works. And the biggest barriers for
Speaker 2: any system planner or policymaker in a large economy is
Speaker 2: whether or not the stuff is going to work at
Speaker 2: the end of the day. And now there's a whole
Speaker 2: series of examples not only that it does work at scale,
Speaker 2: but that it is appreciably cheaper than the old system.
Speaker 2: So you put those two things together, and you have
Speaker 2: an aggressively marketing global power like China that can arrive
Speaker 2: at your policymaker's doorstep with the entire electric stack and
Speaker 2: say we can do this for you, so you don't
Speaker 2: have to worry the next time, or worry as much
Speaker 2: the next time there's a disruption in the global hydrocarbon industry.
Speaker 2: Then it becomes a very You put those three things
Speaker 2: together and it's a very attractive prospect. So my own
Speaker 2: view is that people are under appreciating how much this
Speaker 2: crisis will accelerate the energy transition.
Speaker 1: The other fourth dimension, maybe i'll add in, is one
Speaker 1: that some experts are calling the hyper agency of consumer.
Speaker 1: So typically the energy system has been these long dated,
Speaker 1: a large billion dollar assets that need to be invested
Speaker 1: in by governments and buy large private investors. And this
Speaker 1: time around there is because of the modularization of some
Speaker 1: of these technologies like solar and batteries in particular, consumers
Speaker 1: are able to act even before governments make changes in policy.
Speaker 1: And you know, again you talked about Spain being an
Speaker 1: upper middle class economy. But you know, I'm reporting on
Speaker 1: the Philippines right now, and I heard from a nurse
Speaker 1: whose annual salaries less than ten thousand dollars, whose desire
Speaker 1: was to try and get solar on the roof because
Speaker 1: eight will lower my bills, but also because I want
Speaker 1: my own energy. And lots of people in the past
Speaker 1: may have said I want my own energy but could
Speaker 1: not have done anything about it. Now they can.
Speaker 2: Yes, that is a critical point. I wouldn't overstate it,
Speaker 2: but it is a critically new thing. It is a
Speaker 2: bona fide new thing in the global energy system. I
Speaker 2: would counterbalance that by saying, the most powerful and underappreciated
Speaker 2: force in politics and arguably in nature is inertia, right,
Speaker 2: and incumbents will fight change tooth and nail. And it's
Speaker 2: not an accident that the process you described in the
Speaker 2: nineteen thirties wasn't really about replacing hydrocarbons. It was about
Speaker 2: replacing one hydrocarbon with another and finding different use cases
Speaker 2: for individual hydrocarbons. That meant that the transition, while important,
Speaker 2: was happening largely within the confines of the oil and
Speaker 2: gas and coal industry. Itself right, and I suspect what
Speaker 2: you'll see, and you certainly have seen. It's disrupted politics
Speaker 2: already in many places and especially including the United States.
Speaker 2: The oil and gas industry will not go quietly. They
Speaker 2: will fight change. They will fight the transition every step
Speaker 2: of the way. And as a consequences where we come
Speaker 2: in as you raise your group, because that's an analytical
Speaker 2: judgment from our perspective, not a normative one. It means
Speaker 2: that while the direction of travel is set and the
Speaker 2: trajectory is accelerating in the energy transition itself, it means
Speaker 2: that it will be a lot longer and bumpier than
Speaker 2: the science on the climate side would dictate necessary and
Speaker 2: on the technology side would allow, because the incumbents will
Speaker 2: fight it every step of the way, just because of
Speaker 2: the amount of money that's at stake.
Speaker 1: After the break, more of my conversation with Gerald Buds.
Speaker 1: If you're enjoying this episode of Zero, please take a
Speaker 1: moment to read and review the show on Apple Podcasts, YouTube,
Speaker 1: and Spotify. It makes the algorithms happy and helps more
Speaker 1: people find this podcast. Picking up on your point about
Speaker 1: the disposition of the people and power in governments and
Speaker 1: the directions they may take as a result of a crisis.
Speaker 1: You need to tell me why Canada is taking the
Speaker 1: direction that it is because in power is Mark Carney,
Speaker 1: a man who very well understands climate science and the
Speaker 1: climate urgency better than I would say any world leader
Speaker 1: in power right now, maybe Claudia Scheinbaum would be the
Speaker 1: one who can compete with him on climate science knowledge.
Speaker 1: And yet over the past twelve months fourteen months that
Speaker 1: he's been Prime Minister, that you helped in his campaign
Speaker 1: to put him into that position, he has not done
Speaker 1: the things that you would expect a predisposition to thinking
Speaker 1: on a clean energy dimension, do wanted in his campaign.
Speaker 1: He wanted Canada to become a clean energy superpower. He
Speaker 1: wanted Canada to become an energy superpower of all kinds.
Speaker 1: He has certainly worked on trying to get an oil
Speaker 1: pipeline to the West, but has he done anything to
Speaker 1: really accelerate the clean energy equation.
Speaker 2: Well, I would say it's early days. And I will
Speaker 2: say actually, one of the many, many, many reasons I
Speaker 2: did not go back into active politics after the campaign
Speaker 2: is that I never again want to be in the
Speaker 2: business of explaining the actions of policymakers to people. So
Speaker 2: I'm I'm not going to offer to speak for Prime
Speaker 2: Minister Kearney, but I will say that as someone who
Speaker 2: who cares a lot about my country and who has
Speaker 2: observed it very closely, both as an analyst and as
Speaker 2: a key advisor to policymakers over time, that Canada is
Speaker 2: a more complicated place than it looks from the outside,
Speaker 2: and its core psychosis is internal integration. When I was
Speaker 2: a grad student at McGill back in the nineteen nineties,
Speaker 2: we almost lost the country in a referendum by less
Speaker 2: than one percentage point. There has been another secession referendum
Speaker 2: in my lifetime in nineteen eighty which Prime Minister Pierre
Speaker 2: Trudeau won by twenty points. But it's always in the
Speaker 2: back of your mind that is there a set of
Speaker 2: policy issues that is acting as a force to pull
Speaker 2: the country apart. And I'm not making a normative judgment
Speaker 2: on the actors who will use that as an excuse
Speaker 2: to promote their own interests, which of course always happens
Speaker 2: in politics everywhere in Canada is no exception to that.
Speaker 2: But that coupled with the I was going to say
Speaker 2: the unique, but you could argue that the McKinley administration
Speaker 2: did the same thing in the latter last part of
Speaker 2: the nineteenth century. The aggressive posture of the United States
Speaker 2: to Canada means that policy choices that you would have
Speaker 2: in peacetime look a lot less attractive if you're governing
Speaker 2: the country at a time of unique crisis. So to
Speaker 2: answer your question directly, I think that let's wait and
Speaker 2: give Prime Minister Carney some time to adjust to this
Speaker 2: new reality and see what the climate policy is that
Speaker 2: he proposes to use to make progress in this context.
Speaker 2: But don't judge the actions and decisions that he's taken
Speaker 2: as if those two other big things that I just
Speaker 2: described are not happening, because they are. And if you're
Speaker 2: Prime Minister of Canada, the relationship with the United States
Speaker 2: and the unity of the country itself in reverse order,
Speaker 2: are the two things that are on your desk every day,
Speaker 2: no matter whether you want them there or not.
Speaker 1: One thing that he did do which sort of stood
Speaker 1: a lot of minds was give the speech at the
Speaker 1: World Economic Forum in Davos talking about the Middle Powers.
Speaker 1: You know, Canada, India, Germany, France, the UK like these
Speaker 1: are now all middle powers and with what's happening at
Speaker 1: the very highest level between China and the US. There
Speaker 1: is an opportunity, he said, for the Middle powers to
Speaker 1: come together to work on challenges, including climate change, that
Speaker 1: they could do something about. Now he has been going
Speaker 1: around the world talking to lots of countries, lots of
Speaker 1: Middle powers, trying to make treat deals happen. He's restored
Speaker 1: relationships with India, for example. Specifically, how do you think
Speaker 1: that will come together? Are we seeing any place where
Speaker 1: these middle powers are acting can act?
Speaker 2: Yeah, definitely, I think it will come together. I don't
Speaker 2: think it'll be in the traditional sense of an alliance.
Speaker 2: I don't see the headquarters of the Middle Power alliance
Speaker 2: in Madrid, where everybody where they're where there are five
Speaker 2: thousand bureaucrats working there and everybody comes for a leader's
Speaker 2: summit every year. I don't see it developing that way.
Speaker 2: But I also think that that's part the structural problem,
Speaker 2: is part of the problem with legacy alliances as well.
Speaker 2: I think he described it in DeVos as he didn't
Speaker 2: quite use these terms, but as a networked alliance that
Speaker 2: exists to reinforce each other's values and strategic policy objectives.
Speaker 2: And I think that's the kind of thing that you
Speaker 2: only notice it when you see it, and then when
Speaker 2: you see it you say, oh, okay, that's what Mark
Speaker 2: Carney meant. A large investment agreement between the Golf Cooperation
Speaker 2: Council and Canada wouldn't have happened outside of this context.
Speaker 2: So I wouldn't see it as a replacement for NATO,
Speaker 2: and I certainly wouldn't see it as a replacement for
Speaker 2: the European Union. But it is a viable, I think,
Speaker 2: a practical response to a world in which neither of
Speaker 2: the two superpowers can be depended upon to set the
Speaker 2: rules of the road and then more importantly obey them
Speaker 2: themselves as they conduct global affairs. So I see it
Speaker 2: as usual things get overblown in the media, but I
Speaker 2: see it as a very practical response to roads being
Speaker 2: closed off for the expansion of trade with traditional partners
Speaker 2: and security partnerships that are being undermined by the leader
Speaker 2: of the most important security partnership in the world, which
Speaker 2: is NATO.
Speaker 1: Well, one of the members I didn't mention, which you
Speaker 1: can now count as a middle power is the United
Speaker 1: Arab Emirates, you know, as part of OPEK, which it
Speaker 1: was until last month. It acted as Opek did in
Speaker 1: in geopopolitics. Obviously, their main goal is to try and
Speaker 1: keep oil prices not swinging as wildly as they could swing.
Speaker 1: They do swing wildly still, but at least try to
Speaker 1: mute the swings on the most extremes they have. Now
Speaker 1: the United Arab Emirates is now left Opek, how do
Speaker 1: you think that plays for the energy transition?
Speaker 2: Well, I think it's super interesting and I think it
Speaker 2: will be consequential over the long term. It depends, and
Speaker 2: nobody really knows what the true motivation was for the
Speaker 2: Emoradis to do this. That you can speculate a lot
Speaker 2: about the bilateral relationship with the Saudis, that they have
Speaker 2: a different forward view of oil in particular. My view
Speaker 2: is it's a mix of both those things. That the
Speaker 2: Emaradis have become wealthy enough that they want to chart
Speaker 2: their own course and they don't want to be bound
Speaker 2: to a club that has an obvious permanent president. Right, So,
Speaker 2: whether it's a chicken and egg argument, how many of
Speaker 2: those relationship problems between the Saudis and the Amoradis are
Speaker 2: generated by that strategic judgment versus the other way. Around.
Speaker 2: But in any case, I think you've got a really
Speaker 2: significant oil producer, the most one of the most significant
Speaker 2: gas producers now looking at the downslope of the hydrocarbon
Speaker 2: era and saying we want to have more policy freedom
Speaker 2: to play it in our own interest. It was interesting
Speaker 2: to me to listen to you try to describe what
Speaker 2: the preferred oil price outcome is for Opek, how you
Speaker 2: would describe it, And in my view, it's the same.
Speaker 2: Everybody has the same preferred outcome, which is a zone
Speaker 2: of self interest. You want the oil price to be.
Speaker 2: If you're a Saudi, you want to be high enough
Speaker 2: so that you make money, but not volatile so that
Speaker 2: it takes up too much attention and elicits the kind
Speaker 2: of policy responses that we're talking about on this podcast.
Speaker 2: If the United States, for most of my lifetime, you
Speaker 2: wanted the old price to be low, period. But I
Speaker 2: think this is one of the most underappreciated developments of
Speaker 2: the twenty first century, geopolitically or otherwise, certainly from a
Speaker 2: climate perspective. When the United States went from producing about
Speaker 2: three and a half three point eight million barrels in
Speaker 2: two thousand to thirteen and a half fourteen today. That
Speaker 2: is a fundamental change in the posture of the United States.
Speaker 2: Our friend and colleague Jason Bordoff wrote a good piece
Speaker 2: about this last week that it's probably unimaginable that this
Speaker 2: crisis happens if the United States does not have what
Speaker 2: it perceives to be energy independence is the holy grail
Speaker 2: of presidential policy that every president since at least Eisenhower
Speaker 2: has been chasing. Trump, Obama, and Biden have all had that.
Speaker 2: So they've interpreted and used that in very different ways.
Speaker 2: You can only understand Trump's decision making, his administration's decision
Speaker 2: making if you foreground that growth in the oil and
Speaker 2: gas industry domestically in the United States.
Speaker 1: The last question, I would bring up China because you know,
Speaker 1: in some form we've mentioned China here and there, but
Speaker 1: it's been sitting in the background for what is happening
Speaker 1: to the energy system now. There is an equivalence that
Speaker 1: people make about, well, you know, okay, we will move
Speaker 1: away from fossil fuels, but when we end up just
Speaker 1: depending on China because that's where all the non fossil
Speaker 1: fuel technologies are coming from. And then you look at
Speaker 1: the sales figures and the country is that don't care
Speaker 1: about whether stuff comes from China are very happily increasing
Speaker 1: their purchases of Chinese electrotech. In the month of March,
Speaker 1: thirty three countries set a record for the amount of
Speaker 1: solar panels, batteries and electric cars that they imported from China.
Speaker 1: But then places like Europe and the US are still
Speaker 1: very much oh China as a problem. How do you
Speaker 1: see the China dependence And when you talk to investors
Speaker 1: and large corporations, how do you tell them about thinking
Speaker 1: of this new dependence.
Speaker 2: Well, it's real, for one thing, and I think that
Speaker 2: for a long time. As someone who has advised policymakers
Speaker 2: in a G seven country, you know there are two
Speaker 2: kinds of people who advise heads of government on foreign policy.
Speaker 2: There are people who look very much like you and me,
Speaker 2: who think about the types of things that we think about,
Speaker 2: who are trying to maximize the economic value of the
Speaker 2: country's relationships around the world. And then there are people
Speaker 2: who tend to be dressed in uniforms who are skeptical
Speaker 2: of commercial actors and say things to heads of governments like,
Speaker 2: look at what all of those and suits have done
Speaker 2: for the country. They've exposed us to a massive security
Speaker 2: risk that Chinese don't share our values. They just want
Speaker 2: to steal our stuff and replace us at the apex
Speaker 2: of the geopolitical food chain. And the trouble if you're
Speaker 2: a policy maker is that both sides are right. And
Speaker 2: I think that whether you're in public policy directly or
Speaker 2: whether you're downstream of it in the investor class or
Speaker 2: the executive class, then you're trying to weigh these things
Speaker 2: that have no easy answer. Right, So it sounds like
Speaker 2: I'm avoiding your question, actuat, But this is what I
Speaker 2: say to our clients, that you have to define for
Speaker 2: yourself what your core interests are and where you're willing
Speaker 2: to absorb risk on in the aftermath of those big
Speaker 2: strategic decisions. And I think that you know, normally, historically
Speaker 2: the best technological wins. And I'm in the long term,
Speaker 2: in the long term, not necessarily in the short term.
Speaker 2: And if a lot of the people who are ideologically
Speaker 2: complaining about the ascent of China in this era, in
Speaker 2: this kind of micro era we're living through, are precisely
Speaker 2: the same people who fought the adoption of the technologies
Speaker 2: that would have made the United States a leader in
Speaker 2: these technologies, because after all, the US had a multi
Speaker 2: decade lead. They just surrendered it right and really without
Speaker 2: a shot being fired. So I think that these decisions
Speaker 2: are incredibly complex and they depend on what your specific
Speaker 2: use case and problems set look like as an investor
Speaker 2: or a corporate leader. But my sense is that the
Speaker 2: prevailing winds are blowing in China's direction on the energy
Speaker 2: system globally, and they of course could surrender that lead
Speaker 2: in the same way that the United States did. But
Speaker 2: as we've written pretty extensively both of us, the most
Speaker 2: important thing that's happened in the energy transition over the
Speaker 2: past ten years is that it is broken in half, right,
Speaker 2: and it is accelerating in the part of the world
Speaker 2: that looks to China as the technological apex predator, and
Speaker 2: it is decelerating in the part of the world that
Speaker 2: looks to the United States. That way, geographies like Europe
Speaker 2: are caught in the middle of it. But that's also
Speaker 2: as we both know not where the growth is going
Speaker 2: to be. Maybe I can conclude with this big picture thought.
Speaker 2: I often think about this when I think about these
Speaker 2: geopolitical trends. Over the course of my life, When I
Speaker 2: was born a million years ago, in the summer of
Speaker 2: nineteen seventy one in kperet Nova, Scotia, there were three
Speaker 2: point eight billion people in the world and it was
Speaker 2: controlled by the powers that won the Second World War. Right.
Speaker 2: I have two kids, one just turned twenty and the
Speaker 2: other is eighteen. Their core gen z and there are
Speaker 2: three point five billion people in their generation, and ninety
Speaker 2: percent of those people were born in emerging markets. So
Speaker 2: much of the disruption we're feeling in the world is
Speaker 2: a consequence of what we as a firm called the
Speaker 2: G zero many many years ago, that the institutional architecture
Speaker 2: that was set up to govern the world multilaterally by
Speaker 2: the United States and its allies in nineteen forty six
Speaker 2: from forty six to sixty has really dissolved because the
Speaker 2: world that it was created to govern has dissolved. And
Speaker 2: we're living in this interregnum where we don't know what
Speaker 2: the state the next staple equilibrium will look like. For
Speaker 2: fans of science fiction, as you and I were joking,
Speaker 2: we're living in a chaotic era, right, and we just
Speaker 2: don't know how long it will last and what will
Speaker 2: replace it. But certain things are becoming pretty clear that is,
Speaker 2: whatever energy drives the next stable equilibrium will be low
Speaker 2: carbon and probably dependent upon electrons rather than high carbon
Speaker 2: and dependent upon hydrocarbon molecules.
Speaker 1: Thank you, Jeredy Butts.
Speaker 2: Great to be here, real thrill.
Speaker 1: And thank you for listening to zero. Now for the
Speaker 1: sound of.
Speaker 2: The week Way Budd.
Speaker 1: That is the sound of the citizens of Trisolaris from
Speaker 1: the Netflix adaptation of The Three Body Problem, being told
Speaker 1: to rehydrate as their world enters a stable era, or
Speaker 1: so they think. If you liked this episode, please take
Speaker 1: a moment to rate and review the show on Apple Podcasts, YouTube,
Speaker 1: and Spotify. This episode was produced by Oscar Boyd. A
Speaker 1: theme music is composed by Wondering. Special thanks to Laura
Speaker 1: Milan and Sharan chan Aymakshatrati. Back soon.