Tackling Climate Change: A View from The Hill

Let’s start off with your business background in the clean energy and environmental space and what inspired you to run for Congress.

The only thing I’ve really done for the last 20 years is work on climate change. Getting out of college, I was nervous about it, so I went back to grad school to get a degree in biochemical engineering. I ended up doing a lot of modeling of advanced power cycles and how you might make a cellulosic biorefinery as energy efficient as possible and lower the CO2 footprint as much as possible.

The consistent theme had been to profitably reduce greenhouse gas emissions. Because if we can make money at this, maybe people will copy us. It’s just too big a problem, and as a species, we truly don’t totally contemplate what we’re up against right now. By the time we realize it, it’ll be too late. So I did that in total for five or seven years, I was a CEO for 16 years and happily would have still been doing that, but we’d put a couple hundred million of private equity to work and, for a variety of reasons, were under pressure to sell the company. So we sold in September of ’16, and while trying to figure out what to do next, I was thinking that the biggest barrier to going forward is really the structure of capital markets because there’s almost no pocket of capital in the market right now that really likes to build things. There’s lots of pockets of capital that want to own things once they’re built.

Then Trump happened, and there I was sitting there thinking, “OK, everything that matters to me is at risk right now.”

What do you think is the role of insurance here?

There’s a hard question for insurance. The insurance company is exposed to the risk of climate change, but most of the policies are only written a year ahead. So by the time you’re really facing this risk, it’s too late to change course. The place where I think there’s a really interesting line for the insurance industry is on the investment side. Because you have a whole lot of money tied up in things that really want long-term dividend income. Right? You’re not looking at one-year hold periods there; you have 10-, 20-, 30-year horizons that you want.

To the extent that insurance companies can take a more active role in investing, I would submit to you that most of the things that we can do to meaningfully lower the risk of climate change are really, really attractive to the investment side of your house portfolio.

If we’re going to de-risk the climate exposure, we’ve got to get the assets built. Nobody goes to bed at night who owns a solar panel and says, “I wonder what the price of power is going to be tomorrow, because I might have to turn off my solar panel.” Every coal plant operator does that every hour. Every gas plant operator does that every hour. Getting them built is the challenge. Owning them is pretty easy… It’s getting these assets built. Once they’ve built them, for the most part, they drive all the dirty stuff out of the market, so it is more economic.

You recently introduced legislation that would require the Federal Reserve to develop stress tests to gauge how prepared financial institutions are to handle various climate change scenarios. But companies already attempting this are struggling with applying future-based scenario analysis because it’s so unpredictable. If the U.S. government were to implement this type of thing, how might they might do it differently?

I’d challenge [the idea] that it’s not predictable, because at least at an actuarial basis, it’s very predictable. We know how much sea level rise is coming. We know where the communities are that are going to be most affected by that. Do we know where the particular hurricane is going to hit or where the particular sea wall breach is going to occur? No, but on a portfolio basis, you kind of know that the eastern seaboard is in some trouble; you know that Florida is in trouble.

We can map and see where wildfire risks are statistically more likely. There’s a group at the University of Chicago… [that has] done a map looking at quantifying all of the risks county by county in the United States. Where are we going to see reduced heat-related mortality because you’re not going to have as much cold weather? Where are we going to see losses from agriculture because certain seeds are just not going to germinate anymore because we don’t have a way to deal with the increasing cycle of drought and flood conditions?

We are already a degree above where we were before the industrial age started. A degree sounds like a small thing, but you know, the degree is the average on the bell curve. And it’s those tail events with a one degree—you know, you had something that was only going to happen [every] 100 years and you move up a degree. Now it happens once every 10 years. Degrees are big deals because it’s the tail events that drive.

We have the ability to turn the corner on this, but we have to get really serious about this really fast. I think we’re at a window where, if you just look at this from financial markets, we have a huge savings club right now. Globally, right? There’s a lot of really cheap money. And this is a point in time when we should be investing.

If we don’t move when something like $900 billion of property is at risk on the coasts—now that’s $900 billion property at current values. Right? When the water level starts rising, that goes away. What’s the ripple effect? What happens if the insurance company pulls out because they said, ‘I don’t want exposure to this property’? So we do have an opportunity because we’ve got huge amounts of cash right now. And huge amounts of value. We’ve got an opportunity to turn the corner, but we have to move now.

So why not endorse the Green New Deal or something drastic like that?

Because the Green New Deal understands the urgency and doesn’t understand the complexity…You have to understand power markets to know where that sits. Why is it that the industrial sector consistently turns away from your paybacks and energy efficiency? There’s good reasons for it. But you’ve got to understand that stuff to go do it. If you put a price on carbon, is it structured to penalize polluters or is it to incentivize people who are going to reduce? Those are not synonyms.

How is your approach being received?

We all want exactly the same thing, which is really rapid climate action. And I have no problem getting along with people who say we agree where we have to get to but we have constructive differences of opinion about how to get there. And so we get along generally pretty well, because we’re not rowing in different directions.

The challenge I see is that, had we dealt with this 25 years ago when we were talking about Kyoto, we had the time to get it wrong and correct course. There’s no time to get it wrong right now. Kyoto was structured in a way that never got to a price that was high enough to really drive the kind of behavior that it wants at the point where capital decisions are made. These are fixable problems.

The knowledge in Washington tends to be at the staff level, not at the member level. And I feel like the point we’re at right now, if we go and we dedicate all our resources to naming and shaming and environmental justice for the least affected—I’m not knocking those things as though there’s no value in it. But what we have to do is get the bloody carbon down. Most of the Green New Deal—let’s be honest—is about wealth reallocation. The environmental stuff is kind of an afterthought.