Jigar Shah is the Cofounder and President of Generate Capital, a financial services firm dedicated to building the infrastructure necessary to deliver affordable and reliable resource solutions. A luminary in the realm of financing renewable energy, Jigar is also the author of Creating Climate Wealth: Unlocking the Impact Economy. On this episode of Reversing Climate Change, Jigar joins Ross and Christophe to discuss his mission to help entrepreneurs and companies scale up proven climate solutions.
Full Transcript
Unknown speaker: Hey everyone, welcome to season two of Reversing Climate Change. We are doing that podcast thing now and launching a Patreon. You can find it at patreon.com slash nori podcast. There are various tiers with different types of goodies available. Do you want to receive a special newsletter digest of what nori knots are reading that week? Be a part of a nori book club, get special access to nori events. Go take a look at patreon.com slash nori podcast for what we’re offering. And in that spirit of being lean in that startup kind of way that, you know, we like to do, this list of goodies is subject to change and we’d very much like your feedback.
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Ross Kenyon: Hello and welcome to the Reversing Climate Change podcast. I’m Ross Kenyon. We are back for season two of Reversing Climate Change. It was a weird break because we put out a bunch of bonus episodes. Was that confusing? It may have been confusing if you were listening and wondering why we were doing that. But I didn’t want to leave you totally in the lurch with nothing to listen to. And great shows were coming by that we could just give little nuggets to supply you with during the interim. But we are now back.
We’re doing full episodes again. Kristoff, what did you do with your break? Was it good? Are you feeling happy?
Christophe Jospe: I had a great break. I spent some time in Minnesota looking after 23, what turned into 22 chickens in rural Minnesota. I felt like it was a big rite of passage having to take one down because it was sick. That was pretty eventful.
Ross Kenyon: Oh no. Good. Pretending to be a farmer. That’s a fun thing that Nori Knots like to do occasionally. You read some Wendell Berry, you hang out on a farm, and you get to talk like that for a while. One of the privileges of the job. Well, today we are so happy to have with us Jigar Shah. You may know from his many activities, and I will pass it to Kristoff for a more formal introduction.
Christophe Jospe: Yeah, I’m humbled to have Jigar on here. He is the president of Generate Capital and co-host of the Energy Gang. Jigar probably doesn’t remember, but he gave a talk in 2013 when I was a grad student at Columbia University. And I was totally drinking his Kool-Aid then and was one of the nerds who ran up to the stage afterwards to try to say something smart and impress the guy. And at the time I had been working with Klaus Lackner at the Lenfest Center for Sustainable Energy. And I wasn’t an engineer.
And I was like, here’s an engineer turned finance guy. Maybe I can try to talk engineer. And I just read this paper called Small Modular Technology and was trying to relate the costs of the modular elements of solar technology coming down dramatically in cost and saying, well, what do you think about direct air capture having a similar impact? Potential cost drawdown when you’re looking at deployment-led innovation. And wouldn’t it be cool if you were just using solar energy and carbon removal technologies and then converting that into useful fuels, blah, blah, blah.
I think, Jigar, you probably don’t remember. You said something nice and then you’re like, there are a bunch of people behind you. Next. Thank you for putting me in my spot. Here we are now. We finally get you to come on to our podcast. So it’s really a delight to have you on here.
Jigar Shah: I should answer that question again, I think, on this podcast.
Christophe Jospe: Yeah, and wow, hasn’t Direct Air Capture had a real run of it since 2013 to 2020? We don’t need to start there, but I think it would be useful for the audience to get a sense of maybe why are we so excited that you’re on here? And yeah, maybe we sent you an outline, but we’ll probably just pick and choose of what we want to talk about from the outline. As I keep doing this innovation or this introduction, You have been credited with doing a lot of work at SunEdison, not to be confused with SunPower.
And in many cases, we’re sort of the grandfather of the PPA, that’s the Power Purchase Agreement, which was a way to unleash a lot of capital. You wrote a book or two along the way, which helped people look at some of these opportunities. But what’s the path that took you to generate capital?
Jigar Shah: Wow, that’s a long path. I started off in this industry as an engineer. And when you have these small companies that you work for, you’re sort of doing all the jobs. And one of the jobs I was doing was sales too. And you realize early on that the customers really don’t want to buy the equipment we’re selling. They really want to buy the service that comes from the equipment, right? So they want to buy wind power, not a wind turbine, right? They want to buy solar power, not a solar panel.
And so what ends up happening is that I just sort of realized over time that people really wanted these sort of power purchase agreement solutions. And there really wasn’t anybody out there that was really systematically... Capable of financing that stuff, right? You just weren’t like even thinking about it. And the folks who were doing project finance were minimum, you know, $100 million, $200 million projects. They weren’t really interested in doing a $800,000 project or even an $80,000 project. And so, you know, that’s what led to the creation of SunEdison. And then after I sold SunEdison, I went to go to the Carbon War Room and...
We looked at all these different sectors. And one of the things we realized was the same thing was true in all these other sectors, whether it was efficiency technologies for ships or fuel cells or lots of things. And even though SunEdison’s business model was widely published, and in fact, NREL, the National Renewable Energy Laboratory and others had actually written papers on it, these other sectors really weren’t copying the What we learned at SunEdison or in the wind industry. And so that’s what led me to generate was I realized that all these other entrepreneurs could be helped by scaling up what we did in the solar and wind industries.
Ross Kenyon: Indeed. And there are so many things that you said in there, Jigar, that I want to establish the relationship between because when most people think about clean tech or clean power, they imagine that policy is driving a lot of this. But the way that you speak about this with Project Finance, which I What is the relationship between policy and market actors? Is that divide nearly as simple as people want to pose it?
Jigar Shah: Yeah, it’s a great question. I think you start with the end product. The customer wants a certain service, whether it’s biochar or they want electric vehicles or whatever it is. And then there’s a certain sensitivity that the customer is willing to tolerate. So they might say, well, I’ll be willing to pay a 20% premium for that service because it’s green and it’s wonderful and it makes me feel better. Fine. But they’re not willing to pay a 200% premium for it because that’s just crazy. And so then you sort of start to figure out, well, where is this technology in the lifecycle of the deployment cycle, right?
And part of that is determines whether... You get a cheap interest rate, right? So if the technology is really well understood, you get a much cheaper interest rate than if the technology is right out of the lab. And so as you crunch all those numbers, you realize there’s a gap, right? And then policy steps in to fill that gap if it’s in the best interests of the public, right? So if policymakers say, we should have a lot more electric vehicles, electric vehicles are too expensive, a $7,500 tax credit would help close that gap.
Well, then, you know, they try to pass policy to do that. And the same thing is true with renewable portfolio standards or renewable energy credits or all sorts of other policy measures that we’ve had before. I mean, the most recent one that everyone’s following is the low carbon fuel standard, you know, process in California, right? So I think policy and market makers are related, right? But it usually starts with, you know, what are the customers’ needs and, you know, what is the price point they really need to achieve to be able to see this market take off and the, you know, customers start to deploy the technology.
Ross Kenyon: Does that necessarily have to take place at the level of purchase? We’ve had Ramez Nam, who’s one of our advisors on before. He’s spoken so much about how solar became cheap. My understanding is that a large part of the story was largely... So I’m going to talk a little bit about how to do these work in conjunction. How should we think about these broadly two approaches?
Jigar Shah: Yeah, those two approaches are completely divorced from each other. And I find it so shocking that people link them. And Ramez is one of the smartest people I know. So I certainly don’t want to step on his toes. But I think like we fund lots of stuff, right? We fund like why do butterflies fly from Brazil to the United States? We fund, you know, like advanced materials, Kevlar, all sorts of stuff. And a lot of these things have other... So they can be used in material science and then they can be used in battery storage.
So there’s lots of ways that... Basic R&D and then even practical R&D make it into production. But for most of the technologies like solar, for instance, the solar panel has largely been stable and able to be scaled up since the 80s. So it’s not like we needed to wait until the Japanese 10,000 roof program in 1992 or the German subsidy programs in 1998. We could have scaled them up much sooner. But there just wasn’t any policy will by which to do so, right? And so we ended up not providing the policy support necessary to do so.
And it wasn’t like we weren’t doing policy support. In the 1980s, we subsidized natural gas because we realized that industry was a fledgling industry and needed a lot of financial support. So we were subsidizing energy, just not clean energy.
Ross Kenyon: I really hope I didn’t mischaracterize Mez there. I hope I’m not expecting an angry email now. I think I got pretty close to the mark.
Jigar Shah: You can find him on Twitter, so you don’t have to get an email from him.
Ross Kenyon: Okay. Sounds good. Go ahead, Kristoff.
Christophe Jospe: So I’m going to play dumb for a second, but I’m still a little bit unclear on what is the connection between the Power Purchase Agreement and Project Finance?
Jigar Shah: So project finance is basically a financial transaction that happens in a vacuum, right? So basically, when you think about buying an apartment building, that apartment building is in a vacuum. You buy the apartment building. If people rent from you, that’s great. If rents go up, you make more money. But you’re not actually buying stock in the supplier of the cement or in the supplier of the You know, the windows or even in the development company that decided to develop the project, right? You’re not an equity shareholder in a corporation that is growing and replicating the apartment buildings all across the world.
You’re only an investor in this particular apartment building, right? That’s it. And that’s what project finance is, right? So now you’re an investor in this project, this solar project, this wind project, this fuel cell, this biochar facility, like that actual facility. You’re not separately investing through the corporation or the LLC that sort of sponsored and developed the project, right? And so it’s a different set of risk profiles. So by definition, because you’re buying a specific project, there’s no way to get a 100x return on your investment, right? You get the return that you thought you were going to get if it performs well and it underperforms, then you get a slightly lower return, right?
But you in general never believe unless you have a catastrophic failure that you’re going to lose your money.
Christophe Jospe: Got it. That’s helpful. And in your book, Creating Climate Wealth, Unlocking the Impact Economy, Effectively, you’re talking about this $10 trillion wealth-creating opportunity, which, broadly speaking, whether that’s investing in solar or other clean energy assets, you have innovative models like Project Finance, which are ultimately getting unlocked. I was listening to the Energy Yang podcast a couple episodes ago, and you said this phrase, deployment-led innovation, which I think has something to do with that whole wealth-creating But could you unpack that a little bit for us? What does deployment-led innovation mean in the context of financing projects?
Jigar Shah: So this goes back to the previous conversation we had about R&D, right? So R&D is hugely important. I just want to make sure everyone understands that. But what leads to cost reduction is deployment. And so there’s this misnomer that the reason why carbon reducing technologies are not available at scale today is because they’re not cheap enough. But that’s actually not true. Like what solar and wind have proven and other sectors are now starting to follow is that you only get that cost reduction if you start deploying technology that works. And so solar panels and solar projects were producing power at 50 cents a kilowatt hour in 1998.
And the Germans put in a feed-in tariff at 50 cents a kilowatt hour. And everyone knows that 50 cents a kilowatt hour was more expensive than And so every year, the solar got cheaper by 5%, 8%. Right. Every year. And then that learning curve is what has now gotten us to two cent per kilowatt hour solar in many parts of the world. Right. But if you didn’t invest in the first projects deployments, then you wouldn’t have started this beneficial cycle of deployment led innovation. You would just be simply doing R&D all day.
Christophe Jospe: Yeah, that’s really important. And it sort of speaks to the mantra that we try to breathe at Nori, which is learn by doing. And I think in general, that’s how you figure things out. And you’ve been around the block in the clean tech world. You’ve spent a lot of time at Carbon War Room, which brought together many smart people trying to figure all this out. I’m sure you’ve seen a few failures and successes along the way. As probably one of the best pundits out there, in the last decade, would you say it was the biggest failure and then biggest success in cleantech?
Jigar Shah: Well, I mean, I think the biggest failures are all the technologies that, you know, fundamentally, you know, weren’t really worth deploying at scale that were deployed, right? So there were a lot of dead ends that we knew were dead ends at the time. That we continue to move on, right? So these are things like solar, thermal, electric plants, tidal, and, you know, sort of ocean wave technologies, right? If you take all of the tidal and ocean potential in the world, it’s still like is going to produce less than a few percentage points of total global energy, right?
And then, you know, putting that kind of technology in saltwater, you’re just begging for, you know, components that fail early. And so you can never see that being cost-effective without subsidies. There’s just no way to get it there. So I think the biggest failures were us investing in the deployment of technologies where you could tell that just the fundamental physics of the technology wasn’t capable of getting to... A certain, you know, sort of level of competitiveness. The biggest success story is probably, you know, I mean, obviously solar and wind are big ones, but probably one of the biggest ones are lithium ion batteries, right?
I mean, they were ubiquitous in laptops and phones before 2010. And, you know, I think when we started using them in electric vehicles, you started seeing a dramatic increase in the production of lithium ion cells, and that’s dropped the cost of lithium ion batteries by an enormous amount.
Ross Kenyon: Why do you think that technologies that shouldn’t have been scaled up and deployed were? Do you think that there was political reasons for doing so? Or were people just a bit Pollyanna? Or was it just throwing everything at the wall and hoping something would stick? What happened there?
Jigar Shah: Yeah, I think that in general, there’s a political aspect to some of this stuff, which is totally fine. And so you end up with a lot of people who say, hey, if you want your project to get policy support, then you have to support my project or my technology. And so some of the other big failures were the integrated gasification technologies that were championed by Texaco back in You know, in 2010, and these are, you know, the Kemper plant in Mississippi and some of those other plants, right? Like those were clearly never going to be cost effective or profitable, right?
And they turned out to be just huge boondoggles, right? And so, but that was a political tradeoff that the Obama administration made, right? During the stimulus bill and other things. They were like, well, you need to give some of this money to this technology. Otherwise, you can’t give it to the other technology.
Ross Kenyon: Wow. So just log rolling, basically.
Jigar Shah: Yeah, totally.
Ross Kenyon: Okay, that’s a bit depressing. But I guess that’s at least a it’s a better explanation than just people were irrational and deployed stuff that clearly wouldn’t have worked from the outset for, you know, fundamental technological reasons. So that’s at least reassuring, I guess. Yeah, if you’re a bit cynical.
Christophe Jospe: So I’ve got a good reason to be cynical. Because he brought up Kemper. I actually got to visit that facility in 2014 on the research experience in carbon sequestration right after graduation. I remember the day we were in a room with a bunch of executives from Southern Power Company. And Lisa Jackson, who at the time was the administrator of the EPA, had just announced this clean power rule. And the smirks of the executives in Southern Power that’s like, yeah, we’re not going to do anything. This isn’t actually going to affect us.
And what the rule was is sort of a certain interpretation of the Clean Air Act saying, we need to reduce our greenhouse gas content by a certain percent. They basically said, our strategy is to sue the government. And so it just, honestly, of all the different signals that pushed me away from the carbon capture and storage field into one that’s more looking at carbon capture from land-based, that was pretty monumental in my journey. There’s no question, I just felt like sharing it. And I cut you off, Ross, so go ahead.
Jigar Shah: No, no. I think that’s a really interesting anecdote. And it is true, right? And I don’t know that it’s unexpected, right? There’s certainly a lot of people who work in the traditional energy field who feel threatened by the changes that are coming. And I could see them taking that strategy. I certainly don’t think that’s the permanent view of I think that you see a lot of folks now realizing that climate change is real and that whether it’s mechanical ways of sequestering carbon or whether it’s more terrestrial and natural ways of sequestering carbon, that we’ve got to figure that out.
Christophe Jospe: Yeah, totally. And it sets up very nicely the next question that I actually wanted to ask, which is increasingly, I think perhaps at a rate that executives couldn’t have even expected that There’s a pressure coming from society that says, if you want a license to operate, you need to do something about your emissions. And even on the Energy Gang podcast, you guys refer to this as a social license to operate. And we’ve obviously seen amazing momentum coming from a lot of the youth. Greta Thunberg has been a great spokesperson in this space.
But what does it mean to have a social license to operate as, let’s just say, a large company who emits a significant amount of carbon in the year 2020?
Jigar Shah: Yeah, I mean, I think it’s one of those things where it can be as simple as you can’t slow down the implementation of climate solutions within your own footprint anymore just because you’re busy, right? They, you know, now are saying, well, we’re too busy, right? And now I think people are saying, well, we can’t be too busy. You better put the resources behind getting it done because BlackRock and others have spoken. And if you’re not doing the basics, then you really don’t have a social license anymore to continue to... Ask for things from your local city or your local state or other things because you’re not being a good citizen, right?
And then to the point where it could be even bigger, right? So like Lyft and Uber, for instance, there’s tonnes of data now that shows that they create massive amounts of additional traffic and congestion. And now also a lot of ground level emissions, which kill 53,000 people a year in You know, lung disease and other things, according to the American Lung Association. So at some point, they are going to have to switch to electric vehicles. And if they don’t, cities are going to say, you’re not allowed to operate here unless you switch to electric vehicles, right?
Now, they’re still going to produce traffic and congestion, but at the very least, they’re not killing people with ground level emissions, right? And so you start to see that the social license for a lot of these companies is dependent upon their seriousness around, you know, their Deploying clean energy technologies. Clearly the IT companies have had this huge problem since Greenpeace went after them all 10 years ago. And now they’re all realizing that, yeah, their social license is dependent upon them not building data centers that are just using grid power, but they actually have to Supplement that power with clean energy to make sure that they’re offsetting their emissions footprint, right?
And you see Microsoft making that huge announcement that even includes carbon sequestration and hopefully the whole company going carbon negative on a cumulative basis from the beginning of their company.
Ross Kenyon: Why do you think all of this is changing now, Jigar? Do you think that people are having a change of heart? Are they realizing now that it’s just urgent? Or is it just that they recognize that either their voters or their customers are demanding this and will increasingly demand this of companies to be environmental stewards who are climate hawks? Is that just the trend that everything is going? I’m pretty sure that’s what’s going at least from where I sit.
Jigar Shah: Yeah, like I totally agree with your assessment. It’s sort of all the above. But the one thing I would say is that, I mean, and obviously I’m biased, but I think that one of the reasons why they’re doing it is because they’ve had such an extraordinary experience, positive experience with solar and wind. And so I think a lot of them took increasingly larger amounts of risk around signing billion-dollar contracts. And those contracts were done extraordinarily professionally and, you know, in large part saved companies a lot of money. And so I think a lot of the CFOs and others have said, you know what, that experience went well.
We’re willing to hear pitches in other areas because we think that there are credible counterparties in all these other areas that, you know, can bring us up the curve just like the solar and wind guys did.
Ross Kenyon: So in your mind, it isn’t just CEOs and CFOs twirling their mustaches and wiping and polishing their monocles? That’s not the reason why? It’s about risking billion-dollar contracts that’s been the holdup?
Jigar Shah: I do think the mustache wax is coming back, right? So that could be the case. But no, I mean, I do think that in general, the supply chain matters, right? So a lot of these folks don’t really want to solve the fundamental problems, right? They just want to sign a contract. So they want to say, great, we signed a net zero waste contract. Who wants to take our waste? Great, we’ll pay you to take our waste. Here’s the tip fee and now go put it in a digester, right? And so Generate Capital is the largest owner of food waste digesters in the US.
But like, and so we make it easy for these companies. But if they had to then Go to Italy and Germany and figure out what technology to put in and then hire an engineering firm and put it in themselves. You could imagine them maybe not deploying at speed and scale because it’s just not their core competency.
Christophe Jospe: So clearly, I mean, you’ve played a role in seeing a huge scale in the clean tech space. And I’m not even sure if you would categorize carbon sequestration or carbon removal as a subset of that space. But let’s just set them aside completely.
Jigar Shah: Sure. The water’s warm. Yeah. Come on in.
Christophe Jospe: So carbon removal is part of clean tech, but where are the parallels to, let’s just call it clean energy and pulling carbon dioxide out of the atmosphere from a deployment-led innovation perspective?
Jigar Shah: Well, so I think that it’s very clear that putting soil back into the carbon is something that people have been doing for 20 years, right? Regenerative agriculture in a more formal sense, I’m sure they’ve been doing it for centuries, but in terms of from a more formal sense, there’ve been people studying it through the US Department of Agriculture. There’s like all sorts of folks like the Rodale Institute and others who’ve been sort of like writing white papers and figuring this out, right? And so there’s all these co-benefits of Putting carbon in the soil, et cetera, right?
And so people have been trying to categorize it and figure it out and what’s the protocols and how do we determine how much carbon they’ve sequestered in the soil. And so now that a lot of that stuff is completed, right? And it’s in 1. 0, so it’s a functional system, right? Now the question is like, well, who’s going to buy all these credits, right? Like now that we’ve created all these credits, who’s going to buy them, right? And so that’s the So one of the similarities within the power purchase agreement structure is getting people to say, well, we’ll buy the credits and in exchange, like we’ll actually even maybe pay for the credits before they’re completely generated to help the farmers actually get paid to change their practices.
And so you start to get this beneficial cycle. And then at some point, the cost of everything goes down. The transaction costs go down. The ability to actually do the sequestration by the farmers goes down. You start to get support not just from... You know, nonprofits, but also from like folks like Monsanto and others say, actually, we won in this game and they start, you know, providing services to help their farmers do this, right? And that is how this works, right? As you end up with 2. 0 and 3. 0 and 4.
0 and the costs come down and now the volume of credits goes up and the buyers buy more of it because they’re at a more affordable price and you start to see these sort of beneficial cycles.
Christophe Jospe: That’s such a beautiful setup for where I want to take this conversation next. And maybe just to explain a little bit about what Nori does or how crazy we are that we think we’re able to do this. But effectively, we’re new kids on the block and administering a carbon market. And what that means is that we help what we call suppliers, which is really anyone who can remove carbon dioxide, generate a unique asset. Which represents one ton of CO2 removed, plus or minus 10%, and retained for a minimum of 10 years.
And then in looking at all of the challenges within carbon markets, and ultimately it comes down to how do you do the carbon accounting, we have developed an approach that is not bespoke to Nori, but very much we’re standing on the shoulders of giants and using USDA tools and have a system that basically is first in line to run a bunch of data through an application programming interface of a USDA platform called Comet Farm that creates an estimation and quantification around which we can issue these sellable assets. So whether it’s an NRT, which is a Nori Carbon Removal Ton, or a VCU, which comes from the Verified Carbon Standard, or a CRT, which is the Climate Action Reserve Carbon Reserve Ton, It’s all alphabet soup, but in the end of the day, it opens the opportunity for project financiers to show up and tell farmers, hey, if you can make this alphabet soup, I’ll provide you some upfront financing and now start to take on some of the risk or share in some of the risk on the projected returns that you might have in selling this asset.
So I’m curious because we’re in our infancy and we’re right now in pilot phase and we’ve sort of done a proof of concept and we’re quickly enrolling farmers into our platform to help sell these NRTs. It’s worth noting that If you’re going to sell carbon removal, you can only sell carbon that’s already been pulled out of the atmosphere. But we want those trillions of dollars which are sloshing around to go to accelerate the drawdown of carbon to the atmosphere. So clearly that requires project finance. But what is the most intelligent way to basically set up the financial infrastructure so that the project financiers such as yourself want to come play?
Jigar Shah: Well, I think that we start with smaller numbers. The problem with trillion-dollar scale is that people sometimes get sucked into trillion-dollar thinking, and you really need to think about million-dollar thinking and $10 million thinking first. And so then the question really becomes, what does it take to create the behavioral change and the sort of permanence that the credit buyers want to see within this process, right? So you might want to actually pay the farmers over time for the carbon that they’ve sequestered as opposed to paying them upfront, right? You may want to actually give the farmers a loan for providing all of the extra services and changes in behavior to sequester the carbon and then pay off the loan with the carbon credit sales and then And then give them whatever’s left over after the loan is repaid.
So there’s lots of structures that we can identify that we could use. But I think the key to it is to figure out what does it take to go from 25,000 acres or 100,000 acres or a million acres to 70 million acres. What kind of infrastructure do we need to pay for?
Christophe Jospe: Yeah, totally. And I really appreciate you saying slow your roll, Kristoff. Don’t talk to me about trillions until you can even talk about thousands or tens of thousands or hundreds of thousands. And from our perspective, We’re still enrolling farm by farm, field by field. In some cases, that’s 40 acres at a time and figuring out how to build software that just makes it easy to accept and enroll that data.
Jigar Shah: Yeah, and that’s totally normal. Yeah.
Christophe Jospe: Well, I was just going to say the hard work is actually not the financing or necessarily the software geekiness that we’re building to make this open and transparent, but it’s the work that the farmers need to do in taking on New farming decisions that they’ve never done before, whether that’s like financing for a new piece of equipment, like a roller crimper. So you’re rolling over cover crops so that your roots can stay longer and you can plant into those or even funding the technical assistance providers who can be helping inform some people on how might they transition in a certain geography.
And as soon as we start going down that road, then things look super crazy. I mean, it’s just no longer monolithic in the same way that you’re funding a simple solar project and you can look at risk in the same way. And so I’m just curious to now point out, I asked you a little bit on the similarities, but to look at the differences from specifically regenerative agriculture from assessing risk and trying to enter this space as a project financier.
Jigar Shah: Yeah. So I actually think that it’s easier in some ways, right? Because reaching farmers is something the government has done for years. And so the policy part of this is actually pretty straightforward, right? Once you Prove that the market actors are capable of doing all the tasks that you described, then it’s actually pretty easy to go to the politicos and saying, hey, we’d like to pay farmers for sequestering carbon as opposed to paying them off for our bad trade practices. And a lot of politicians are like, that’s a good idea.
That makes farmers feel more empowered as opposed to the payoffs they’re getting for the trade practices, which makes them feel disempowered. And so the policy part of this, I think, is going to be a lot easier than it was in the electricity space. The harder part is obviously the verification, because as you described, the verification really is not something that’s fully automated and as easy as it was in solar, right? In solar, we had a GE sort of bubble meter that was invented decades ago. That we could use as the determinative way that we could calculate how many kilowatt hours we’re actually going into the store and we could charge for those.
Here, you’re not really going to do physical soil sample tests for every single acre. You’re going to use discoloration and LIDAR and all sorts of other approaches. You might even use statistical sampling to benefit from it, but you’re never going to be as accurate as we were in You know, solar and wind. And then the permanence piece is another problem, right? Even though you can sequester soil, carbon in the soil, once you get to, you know, 10% sequestration, my sense is that, you know, you start to see that the soil is not going to go to 100% carbon.
And so there is like some sort of place where, you know, you guys have done what you can do in terms of sequestering carbon. And so like, that’s the other piece of this is the permanence is harder to define here.
Ross Kenyon: Kristoff, you can’t just invite luminaries on and ask for free advice about Nori.
Christophe Jospe: I think I just got it though. I’m tempted to take the bait and explain a little bit more how Nori does verification, but I’ll save that just to say, it’s really important to recognize that soil carbon goes up and down based on things that no one can control, which is the weather. Like if it’s raining a lot, Or if you have a drought, you’re going to lose soil carbon or gain it. And so what we need as a marketplace and creating a market in the instrument, which is the NRT, we need to be sure that we isolate for additionality and practice-based additionality while focusing on those outcomes.
So it’s basically saying, how can we ensure that what we’re able to line up to are those additional things, whether... It’s the adoption of cover crops or the addition of certain stimulants or microbes that can sequester more carbon or the reduction of tillage, all these different things, and then isolate for that dynamic baseline. Bottom line is it’s tricky. It’s fun that more people are thinking about it. We like thinking about it with all of these people. I think there’s a way to get it right. But unlike sort of the exactitude to the however many decimal points of how many clean Kilowatt hours or megawatt hours you’re creating, you can only have uncertainty ranges of diminishing amounts when it comes to soil carbon.
You can’t actually measure it. So it’s how do you estimate it and then have something that’s good enough and in the right direction so that people who are doing that work can monetize the outcome.
Jigar Shah: Yeah. And there’s lots of other areas where this is a feature, right? So, you know, like a lot of the anaerobic digesters that we own, They’re enormously operationally intensive, right? And the quality of the feedstock that comes in can vary. And the way the bacteria operates differs based on the feedstock quality. So you’ve got all of these variables that go in, right? And you get to best practices. So I don’t think this is an impossible task. I think it’s just different than solar and wind.
Ross Kenyon: Well, Jigar, I saw that there was a very big announcement regarding a figure that is just a beautiful figure, $1 billion. I like saying it. I like thinking about it. And now that I see that you are able through Generate Capital, you raise this money for the purpose of renewable energy infrastructure development. What exactly are you using that money for? Congratulations. And what do we have to look forward from you in the future?
Jigar Shah: That’s right. This is where you cue, you know, bare naked ladies. It’s like, if I had a billion dollars.
Unknown speaker: God, yeah. Didn’t even think of that.
Christophe Jospe: I was thinking of Austin Powers with Dr. Evil.
Jigar Shah: Dr. Evil. Yeah, look, I mean, we’re going to do a lot more of the same, right? So, I think that we have always been in the business of supporting entrepreneurs, change makers, corporations who are deploying And we don’t take technology risk. The commercial success or financiers focus on them, right? Fuel cells is one big area that we have positions. Same thing’s true for anaerobic digesters we talked about or electric vehicle buses. But the other areas is just business model innovation, right? There’s just been a lot of... Barriers in the way of getting energy efficiency deployed.
And so figuring out how to fund these new models that have come out from Pace financing to Meats financing that Seattle City and Light are doing to, you know, other sort of technologies. And so what you find is there’s a lot of people out there who have good ideas. And most of the financing shops, they sort of give people like a half an hour to explain themselves. And Generate actually sits there and says, you know what? We’re going to give you 10 hours to explain yourself. We know what you’re doing is super complicated.
Let’s actually sit down and really understand it. And then we can tell you whether it’s possible to put it into a project finance model or whether it’s just not possible and you really just need more expensive corporate dollars because you have a lot of merchant risk, for instance, or you just have technology risk that we can’t quantify.
Ross Kenyon: Great. Well, that’s fantastic to hear. I’m sure our listeners are enthused by that too. If someone wanted to follow your work, what do you think is the best way for them to do so?
Jigar Shah: Well, there’s certainly a lot on generatecapital.com. If they want to follow my writing specifically, I have a pretty robust set of articles on LinkedIn. And so just look me up on LinkedIn. But yeah. But yeah, no, I’m super excited about where we’re headed. And the number of changemakers out there that are pushing the envelope here is just at an all-time high. And so I’m pretty bullish that we’re going to figure out how to really scale up here. I think Generate Capital plays a small role in getting that done, but so does all the investors that support the individual companies directly.
Ross Kenyon: Absolutely. And you also are very active on Twitter and your podcast with your co-hosts. The Energy Gang is very good and worth a listen if you haven’t already. Clearly, you like podcasts if you’re listening to this one. So you should add that one to your repertoire. Thank you for being here with us.
Jigar Shah: My pleasure. Thanks for all the great work you’re doing and spreading the message.
Ross Kenyon: Absolutely. Anything you want to add there, Christophe? Are you content?
Christophe Jospe: I’m content. I’m very happy with how this podcast went. I’ll give a shout out to a quote. On Jigger’s profile picture on LinkedIn, which is, if you don’t find a way to earn while you sleep, you’ll work till you die. And I remember in thinking about some of the early ideas around Nori, it’s like, how can we just create a carbon removal marketplace that’s making money passively? So thank you for that inspiration, Jigger.
Jigar Shah: Anytime. As you know, that’s a Warren Buffett quote, but I’m happy to take credit for promoting it.
Ross Kenyon: Okay, great. Well, thank you so much for joining us for the first episode of season two of Reversing Climate Change. We should be back weekly from now on or mostly weekly. We try to keep that weekly cadence going every Tuesday morning. If you like what we’re doing, tell a friend, rate and review us on Apple Podcasts or on Stitcher. And thank you so much for listening. Well, thank you so much for listening. If you like the show, please rate and review it in Apple Podcasts and or Stitcher. It really helps us a lot to get this content to a wider audience.
If you think what we’re doing is useful, interesting, fun, hopefully all three, we’d certainly appreciate your rating and review. You can keep up with Nori at nori.com where there is a newsletter. That’s nori.com slash subscribe. There’s podcast. There’s a whole bunch else. Or you can send us an email at podcast at nori.com. We are also now on Patreon at patreon.com slash noripodcasts if you’d like more content, engagement, and community. And thank you so much for your support.
