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Not too long ago, I had the chance to sit down down with Michael Raynor, previously a managing director of sustainability and thought management for Deloitte and creator of a number of books on innovation and technique. We talked about not solely an progressive strategy to addressing Scope 3 emissions that Raynor has developed, but in addition an odd case of a nasty examine of bus transit that’s creating issues in Canada, one which really useful loads of hydrogen buses together with battery-electric ones. Beneath is the hyperlink to the second half of the dialogue and a evenly edited transcript. The primary half is offered right here.
Michael Barnard (MB): Welcome again to Redefining Power – Tech, sponsored by TFIE Technique. I’m your host Michael Barnard. My visitor at the moment is somebody whose work has formed my pondering and strategy to innovation for twenty years, Michael Raynor. He’s the co creator with the late Clayton Christensen of The Innovator’s Resolution. Till just lately he was a managing director engaged on sustainability and thought management for Deloitte. Now he has a few companies he’s invested in and based, together with S3 Markets. Returning for the second half of our dialog, which is specializing in the Canadian City Transit Analysis and Innovation Consortium’s deeply flawed situation modeling for Brampton’s bus decarbonization that led Brampton to hunt to have hydrogen buses as a part of their fleet.
That they had a $10 million distinction between the 2 eventualities, and I’ve simply recognized, simply glancing at the very first thing, the worth of hydrogen they use a possible swing of $200 million multi instances for one issue. And if that was all, then I’d say, properly, possibly we will rerun it and see what that’s. However then I checked out how lengthy drivetrains and batteries had been lasting in actual world circumstances with full warranties for eight years in Europe and the way quick a time gasoline cells had been lasting. Nicely, that they had the identical alternative time of six to seven years for each of their examine. In order that’s two and a half to 3 instances distinction. So a gasoline cell bus, you’re going to switch the gasoline cell over 15 years 5 instances, not twice.
And battery electrical buses, in the event you’ve acquired a 15 yr life cycle, properly guess what, you’re going to switch the battery.
Michael Raynor (MR): As soon as, not twice.
MB: And so not changing the batteries. CATL simply introduced they’re warrantying batteries for EVs and heavy transportation for one million miles. Now I did the maths. Primary transit bus size of journeys yearly in North America in 70,000km whereas CUTRIC and Brampton agreed on 58,000 km, a slight variance. Don’t know the explanations for that. However assuming 70,000 kilometers, that’s about half of one million miles over the lifespan of the bus. So CATL is delivering batteries this yr, which can final twice so long as a bus. And so that you type of sit there and go okay, why are gasoline cells, from information, empirical information documented by the EU of their standing experiences lasting three years being changed on the similar charge as these different issues. So it’s $100 million swing in favor of battery electrical simply by extra practical length for battery packs.
There’s a second one although. Additionally they don’t appear to suppose that batteries are getting cheaper.
MR: So hydrogen is. However batteries aren’t.
MB: Yeah. Gasoline cells are going to get higher and batteries aren’t. The previous 15 years has confirmed that gasoline cells are remaining the identical and batteries are getting lots cheaper. You already know, there’s your complete Wright’s Legislation factor. You’ve undoubtedly frolicked taking a look at manufacturing and Wright’s regulation and manufacturing the expertise curve. Why don’t you lean into this one and provides your rationalization of it? As a result of I find yourself saying this an excessive amount of.
MR: The applied sciences that go into making hydrogen are properly understood. They’ve been manufactured at monumental quantity for lengthy durations of time. And one of many issues that I’ve noticed working within the local weather area for that matter, is that individuals discuss economies of scale as if it was some magic wand, as if it was created by Harry Potter. That merely making extra of something goes to end result within the prices getting dramatically decrease for causes that don’t must, which are completely inscrutable and needn’t be defined. And that’s unlucky. Proper. As a result of I feel initially, as you level out, as the information would present, price of gasoline cells and the price of hydrogen don’t go down although they’ve been manufactured at scale for lengthy durations of time.
Batteries are getting cheaper on a Wright’s regulation curve. So each doubling of manufacturing price falls by a predictable share for causes that we perceive. The underlying applied sciences are such that we’re a lot the identical. The one that everyone is all people, that many individuals are intuitively aware of is how microprocessors acquired smaller and cheaper, et cetera. The truth is, they acquired cheaper as a result of they acquired smaller. And the identical kinds of issues are occurring with the underlying chemistry and design of batteries as properly. Proper. So they’re getting cheaper empirically for causes we perceive. And it’s since you’ve acquired these two issues to lean on that you simply’re justified in saying {that a} affordable individual can anticipate this to proceed for some significant time period. In the event you’ve solely acquired one or the opposite, that’s a wobbly stool. Proper.
Since you’re like, properly, it’s been doing it for this lengthy. Nicely you then’re in mutual fund territory. Previous returns will not be indicative of future efficiency. And in the event you’ve solely acquired an evidence, properly, then it’s a theoretical prediction. However once you’ve acquired each, it’s executed this for a motive we perceive. Nicely, now you’ve acquired a principle of the case which you can depend on. And I might assert that we’ve acquired each dimensions for each applied sciences. It’s simply they lead you to fully completely different conclusions. Proper. Hydrogen is empirically not getting higher for causes we perceive, and batteries are empirically getting significantly better for causes we perceive. And so we will extrapolate these curves. Drawback is certainly one of them is a horizontal line and the opposite one’s an exponential price discount. And that appears to have been ignored. So does that scratch the itch?
MB: Yeah, it completely does. We’re constructing billions of batteries identical to we’re constructing billions of photo voltaic panels. And each time we double manufacturing volumes, the worth goes down by 20% to 27% per unit. Then we assemble them into packs, and the packs are taking place within the encompass, however all of the content material, the massive contents, the massive worth driver, the batteries, goes down. I really did knowledgeable engagement this yr with a European funding fund that offers with inexperienced infrastructure to check this. And we’re solely this yr type of on the tipping level for a diminishing return on battery price as a share of the full battery pack price.
We’re now attending to the purpose the place the battery pack price is the slight majority of the price of the full battery pack, not the batteries, however the encompass, thermal administration, the shell, the facility administration, these forms of issues which aren’t topic to the identical diploma of transformation. We’re going to see a diminishment in advantages. However again to, you already know, CUTRIC, their assumption was, you already know, a whole lot of hundreds of {dollars} to switch a battery pack. The primary battery plaque replacements can be within the 2030s, and there’d be two of them, they usually had been each priced at in all probability 2022 charges for battery pack alternative, as if there was no discount in these prices.
MR: Proper. So that they’ve executed it twice as typically at 50% above the price, which signifies that mainly 4 instances the price has been loaded onto batteries.
MB: And to be clear, nonetheless they needed to recreation the system to get hydrogen in there in any respect, as a result of the costliest situation was hydrogen solely, and battery solely was simply $10 million dearer. So this swing, that’s one other hundred million greenback swing in favor of batteries. Ten instances that, $10 million. And I wasn’t executed. Then there have been the hydrogen gasoline cell replacements. Nicely, changing them not each six to seven years, however each three years. Nicely then that provides one other 25 million bucks to your alternative prices. Proper. It’s identical to you’re doing it extra. In order that’s one other factor which additionally exceeded the $10 million variance they clearly stated made it the most cost effective different.
Now I stated they didn’t really worth hydrogen. Nicely, that included not costing Canada’s carbon worth on carbon emissions. Grey hydrogen is created from pure fuel. Each kilogram of hydrogen is roughly equal in vitality to a gallon of gasoline. It comes with 10-12 kg of carbon dioxide or equivalents. And it seems it’s much more.
Now, you already know, they didn’t even worth this one. If we simply assert the 408 hydrogen buses and their consumption, it turns into one other $25 million in prices on prime of this as soon as once more blowing this $10 million.
MR: Nicely, yeah, I imply I’ll allow myself to leap in there too. Now, you’ll endure the wages of my undergraduate diploma. Which is that, which is that once more, if the purpose of this had been to reduce the price of the transformation of the fleet, don’t remodel the fleet, simply run frickin diesel buses and pay the carbon tax and also you’ll decrease your price. Job executed. That’s tremendous straightforward. That’ll take 12 seconds and we simply did it.
Proper. In the event you’re inflicting all of this ache and struggling on it, however that received’t serve the hydrogen foyer as a result of in the event you preserve burning diesel, you’re not burning hydrogen. Proper. So in the event you’re going to say, look, let’s take an financial lens to this and purely an financial lens, properly then simply keep on with diesel and shut up about it. In the event you’re going to take a carbon lens to this, properly then as we simply mentioned a minute in the past, 100% battery is the one factor that makes any sense.
In the event you, in the event you take a look at the minimization of the carbon that you simply’re left with on the finish of the transformation after which henceforth in perpetuity. So inform me once more how hydrogen snuck in there one way or the other as a result of it doesn’t make sense economically and it doesn’t make sense ecologically. So now I’m. Now I’m confused.
MB: Let me simply shut off on that one further factor I discovered. These numbers are benchmarked with world prices for this stuff. I’ve seen the experiences they usually’re low balling hydrogen refueling services on the stations. They’re asserting liquid hydrogen services for storage of hydrogen. For individuals who haven’t listened to me rant about liquid hydrogen, I’ll enable myself 10 seconds. It’s 20 levels above absolute zero, in all probability it’s 290 levels Celsius beneath snug temperature for you.
MR: I’m from Thompson [a northern city in Manitoba]. Besides.
MB: Even so. Okay, okay. So 270 levels. I’m from North Bay and Moosonee [northern towns in Ontario]. So the liquid hydrogen is there to try to obtain density of hydrogen storage. It’s a really costly option to do it. It takes a 3rd of the vitality within the hydrogen to show it right into a liquid to get some advantages of decrease quantity. They usually’re going to have liquefication services and seize services and boil off services on these vegetation. Now, for the variety of buses they’re taking a look at, they’ve solely priced for the refueling services, not for liquefication services. So far as I can inform, I’m not seeing any proof.
Right here’s a knowledge level for you. The federal government of Quebec, one other province neighboring the place Michael is sitting. I used to be there for weeks this summer season, great spot.
They really did a hydrogen fleet trial which simply ended final yr. In 2019, they leased 46 automobiles, 45 Toyota Mirais and a Hyundai for governmental workers. They usually dispersed them throughout ministries in Quebec Metropolis. They paid $5.2 million Canadian for a single pump hydrogen refueling station that had a small hydrogen compressed tank beside it. Not liquefication, nevertheless it additionally had an electrolysis facility there. So that they’re really making hydrogen on the facility with inexperienced electrical energy from the grid. And it’s Quebec so that is really inexperienced electrical energy. It was low carbon, one of many few fleet issues the place it’s virtuous. However that $5.2 million is for a single automotive to have the ability to refill 5 kg at a time and repair six automobiles an hour if it’s fortunate. It doesn’t have any liquefication services.
408 buses between two services, 300 in a single and 108 within the different, so want one thing a bit extra sturdy than that. And guess what? Every a kind of services goes to be far more sturdy than the $5 million facility in Quebec, they usually had prices of $3 million for every facility. The numbers simply don’t add up from world benchmarks on hydrogen refueling and liquefication services. And so I simply stated that’s in all probability one other $10 million by itself. But once more, blowing that $10 million variance out. And in order that’s type of my factor. Mine got here as much as about $360 million based mostly upon world benchmarking towards towards practical actual world costs, not no matter CUTRIC has of their information. I figured that was sufficient.
And I shared that with you, Michael, as a result of, you already know, I stated, and by the best way, there’s that materiality factor. After which your mind, which is formed in a different way than mine, noticed one thing very attention-grabbing. So now could be the time to speak about your 2007 guide.
MR: Oh, sure, in order that’s known as The Technique Paradox, which was, as they are saying within the enterprise, the commerce model of my doctoral thesis. So it was an exploration of the implications of uncertainty on technique. The bumper sticker in the usual technique area is that methods about commitments within the pursuits of being completely different out of your competitors, however sadly, dedication essentially implies sure assumptions in regards to the future. The long run tends to be considerably unpredictable. So how do you sq. that? How do you make daring commitments within the section of uncertainty with out simply turning technique into a visit to Vegas? There’s a bunch of corporations, all of them make completely different bets and we see who wins. And that’s not a operate of who was the perfect, who had the perfect strategery. That simply turns into a operate of who picked 17 purple.
I don’t play a lot roulette, so possibly 17 isn’t purple, however anyway, you already know what I imply? And what that led me to was a selected tackle situation based mostly planning. And that’s the place, once I checked out these three eventualities, to your level, these are all level estimates of what the subsequent 20 years are going to appear like, which is essentially topic to some significant uncertainty. However once you name it unsure, that doesn’t imply it’s a must to throw your arms up and say, I don’t know what the longer term goes to be. Again to our earlier dialog about beneath what circumstances you may make credible claims in regards to the vary of future outcomes. In the event you had been to embed that into the price projections that they made, you could possibly provide you with a spread of outcomes for every of their three eventualities.
So that you, and actually, you don’t must do them independently. You’ve acquired batteries, you’ve acquired gasoline cells, and also you make projections in regards to the prices related to every and the way these are anticipated to alter over time. And all. And every of them can have their error bars. And so that you identified causes to counsel that, hey, wait a minute, present prices are a lot larger than your projected prices. Previous efficiency and what we learn about what drives previous efficiency means that the outcomes you’re betting on are literally fairly unlikely. Proper? So your, the purpose estimate that you simply’ve utilized in your projection is definitely type of within the ninety fifth percentile of all outcomes. And that’s fairly aggressive. And worse, the projection you’ve used for batteries is within the fifth percentile of all outcomes for batteries.
And so in consequence, you’re arguably underestimating the price of hydrogen and overestimating the price of batteries. And that’s an issue. So it’s a nasty concept to make these choices based mostly in your level estimates. It’s a good worse concept to make these choices based mostly on extremely biased level estimates.
MB: And in order that was type of commentary #1 for each of us. It’s like, hey, $10 million bucks on $9 billion is a nothing burger. And the diploma of variance can be larger. That was my commentary and your complete thesis and the guide that resulted from it says the variance on the hydrogen is lots larger.
MR: And skewed in a different way, proper? The purpose estimates that they use are drawn from a unique level within the distribution. In the event you’re going to make use of the modal end result of that distribution, honest sufficient. However even into that, you possibly can say one thing in regards to the distribution of these outcomes. These are properly developed instruments. It’s not prefer it’s some huge secret. You may simply do an easy Monte Carlo evaluation and say, okay, what share of the time does my blended fleet come out with a selected price profile? That’s straightforward to do, proper? So that you construct the distribution for batteries, you construct the distribution for gasoline cells, after which you already know, put them collectively in no matter combination you suppose goes to make sense.
How one can even run a sequence of simulations with an optimization operate and say, positive, right here’s the absolute best end result. However that, after all, ignores one other key dimension of the issue. And I’ll guess that that is the place we go on subsequent, which is the implicit price of the complexity.
MB: Yeah. Why don’t I speak to the primary half of the complexity and you then speak to the massive downside. I’m going to speak about bus complexity.
MR: Certain.
MB: Simply briefly and simply introduce it. Diesel buses are well-known. They’re properly understood. They’ve an engine, they’ve a transmission, they’ve a drivetrain, they’ve brakes, they’ve a shell, they’ve seats, they’ve alarms and horns and stuff. And a battery electrical bus eliminates loads of complexity. It has a strong state battery. The battery simply sits there. Nothing strikes. The battery, it’s acquired some energy administration stuff and it’s strong state. Nothing strikes there. No transferring components within the energy administration. Then it’s acquired the electrical motor and there’s one transferring half within the electrical motor. After which there’s all the remainder of the stuff. There’s brakes and all the remainder of the stuff {that a} diesel has. We’ve gotten rid of loads of complexity.
That’s very nice, which is why all people’s asserting that battery electrical automobiles are decrease upkeep or ought to theoretically be decrease upkeep than inner combustion engines. And we’re discovering they’re California stuff once more, like 60 to 70% of the upkeep prices of diesel buses as a result of they’re so easy and the brakes last more and stuff.
So then a hydrogen gasoline cell bus. One of many little recognized information a couple of hydrogen gasoline cell is that it’s not a black field. You’re placing air and hydrogen in, you’re getting water out. And the within of a gasoline cell is like the within of a battery. It wants pure stuff at sure climatic norms. In any other case stuff goes flawed.
We have to take any air that is available in out of metropolis streets, driving behind cement vehicles with their diesel engines spewing fumes and we have to purify it to hospital grade air high quality and we have to humidify it to precisely the suitable humidity that gasoline cells like and the temperature vary that gasoline cells like. In order that’s sensors and pumps and filters and humidifiers and dehumidifiers and thermal management. All that stuff doesn’t exist in a battery electrical bus.
After which on the hydrogen, we’ve acquired the tanks which need to be licensed for the equal to 3 to seven kilometers underwater. That’s how a lot stress is in these issues. Then when the fuel comes out, it modifications temperature radically. So we acquired to have thermal administration for that.
It’s acquired stress administration as a result of the tanks scale back in stress over time. We even have to have the ability to get pumps to pump the fuel into the gasoline cell on the stress it likes, which is about 3 atmospheres, like being 30 meters beneath the water as a result of that’s what the stress it likes. And it’s acquired to be the suitable temperature and it’s acquired to be pure.
Then we’ve acquired the water popping out, which, as a result of once you run a gasoline cell with hydrogen, it turns water comes out, which is the benefit. No emissions, simply water. Nicely, water freezes within the wintertime. Whistler’s buses, for instance, saved breaking as a result of the water saved freezing inside them as a result of water that got here out of the gasoline cells wasn’t managed thermally and pumped out earlier than it froze. So we’ve to have thermal administration for that.
And all of these issues need to be assembled across the gasoline cell. The gasoline cell has not one enter and output of energy and a few sensors. It has fuel and different sensors and energy and a complete bunch of different sensors that need to be assembled for. Want water out, you want air in, want hydrogen in all these forms of issues. So the complexity of assemblage is larger. That’s all on prime of what’s within a battery electrical bus, as a result of a hydrogen bus nonetheless has a battery energy administration and an electrical motor. You’re including all this complexity, and it’s finicky complexity. You’re driving this throughout potholes and also you’ve acquired 700 atmospheres. You must protect the soundness of.
You’ve acquired all this HVAC stuff it’s a must to protect the standard of. It’s a lot better local weather management than the passengers get.. Think about simply doing this for all of the passengers inside. I simply really feel so good after I get out of there as a result of my lungs clear up as a result of I’m not respiration metropolis air. You already know, that’s what the gasoline cell will get, not the passengers.
So that is all complexity. We see that within the reliability elements for gasoline cell automobiles versus battery electrical automobiles. That’s already been coated. However you then noticed the systemic factor, tons of complexity.
MR: I feel that’s a superb setup due to the complexity of the know-how you’re describing. I’ll assert that it’s considerably charitable to say that the price of all of that complexity is captured within the embedded prices of the units themselves. While you say hydrogen buses price extra, they’ve barely larger upkeep prices, we’re going to say, you already know, we are going to grant the belief that the entire complexity you’ve described has been accounted for in the price related to that bus.
However the complexity that occurred to me comes from the truth that you’re operating a number of applied sciences concurrently. And so now you’ve acquired a complete new ballgame across the organizational complexity required to deal with that technological complexity. And also you’re operating three completely different sorts of buses. Meaning you’ve acquired three and fully completely different applied sciences in each.
So now you’ve acquired fully completely different upkeep personnel who need to have completely separate and distinct abilities and experience and expertise and all that go, all intuitions and all that goes with it, proper? You may’t simply choose up the instruction guide and you already know, this isn’t your, your, your flyboard bookcase from Ikea, proper? The place you choose up the pictogram and put the factor collectively. This stuff are robust to determine and it takes actual experience and ability to take care of them. And so now what’s that going to appear like? So take into consideration the specifics. You’re going to have a upkeep depot. Are you going to have a number of depots for each? Are you going to place all three applied sciences in the identical depot and the necessity for the completely different components.
And now you’ve acquired these actually finicky or high quality clear rooms on your gasoline cells. I don’t suppose you’re going to place them subsequent to your diesel buses. Anyone who’s ever been in a superb quaint diesel bus storage, no, that doesn’t sound like a good suggestion. Are you going to have the suitable individuals there on the proper time to repair the bus that’s damaged down in a selected manner? On and on we go, proper? And in order that type of complexity, it’s a complexity and expense born of diversification. So take into consideration any firm that’s acquired three or 4 or 5 completely different traces of enterprise that compete and function in solely completely different industries in numerous markets. There’s a really well-known diversification low cost that goes together with that type of complexity and overhead.
And that’s what they’re inflicting on themselves by operating this very gradual rollout of two completely different applied sciences and a really gradual wind down of the diesel buses. I didn’t see something in there that acknowledged a price arising from that. And what I might say with a fairly excessive diploma of confidence is that these prices are removed from trivial.
MB: There are two factors there. The primary one was their transformation situation. Their timeline didn’t respect the discontinuity. That is your commentary. The discontinuity that once you get right down to a few hundred diesel buses, the price per bus for upkeep shoots up so radically that you simply wish to get them off the streets as quick as potential.
MR: I feel that’s proper. That’s good quaint economies of scale that most individuals perceive fairly intuitively. If it’s a must to keep a whole diesel upkeep store for 3 buses, these issues don’t scale simply. You construct it to handle the 600 diesel buses that you simply’ve acquired, and once you dial that again down, you’ve solely acquired 50 left. Okay, positive. The labor price could also be considerably variable, however all of that fastened infrastructure isn’t nothing. Sooner or later you’re like, that is ridiculous. Time to get out of the diesel enterprise.
MB: And CUTRIC, I’ll remind all people, is within the enterprise of fleet transformation. It is a easy commentary that ought to have been caught someday previously 9 years. They’re fascinated about how fleets would transition. This isn’t rocket science.
MR: I say various things with completely different levels of ferocity based mostly on my degree of certainty. Which is that it appears to me that the, the advanced, the complexity born of diversification is one thing to take very significantly. Every part I’ve discovered would counsel that we have to take a look at it. How expensive is it? I don’t know, however we would be capable of provide you with some affordable estimates. And what I might counsel is that CUTRIC’s been fascinated about fleet transformations for 9 years, however no person’s ever executed one. So mainly it’s information free. What does it price to switch? I imply, in Canada, like, what does it price to do that? They may, they might throw their arms up and say, we don’t know, time to inform.
However again to the place you began the dialog. Proper. What in regards to the reference? You already know, the perfect reference case examples. Different individuals have executed it. And so there’s one thing to be taught from them, one would hope.
MB: Nicely, I’ll return to 2019. One in all my bizarre experiences is that I used to be within the preliminary phases of consulting earlier than COVID hit with Translink in British Columbia for his or her battery electrical truck and battery electrical bus transition. You already know, I’d run into the one that was accountable for it at a convention and I began speaking. And so we had been having discussions round this and I requested him a easy query. That is the individual accountable for changing this. He’d had this position for a yr or so he’s properly into planning. I stated, so when are you going to China to get the teachings discovered from the main practices of huge fleet transformation from, for instance, Shenzhen, the place they now have 16,000 electrical buses on their roads? He stated it hadn’t occurred to him. And this isn’t a slight on this individual.
Then I advised the subsequent factor. New Flyer, the first vendor for transit buses in North America, had a peak variety of delivered buses in any yr of 6,500. You’ve got 2,100 buses in a small geography, there are 72,000 in america. New Flyer clearly can’t scale to an unfamiliar know-how within the timeframe you’ve acquired. So clearly the technique there may be to three way partnership with Yutong or BYD, two main bus producers in China, or simply get them to determine a manufacturing unit. Oh properly, he stated, Canadian prospects wouldn’t settle for Chinese language high quality of buses, indicating that he’d by no means been to China’s present cities and so he had very completely different concepts about Chinese language customers would or wouldn’t need.
Anyone who’s been to Beijing or Shanghai or one of many different fashionable Chinese language cities proper now, together with Shenzhen, the place they’ve 16,000 electrical buses. Chinese language customers, for anyone who’s listening, are extremely choosy. They’ve a tremendous selection of low cost stuff that’s insanely prime quality and various. That’s why Ford’s CEO just lately got here again from China and stated that is an existential menace. They’re doing stuff we will’t for decrease costs. This isn’t, as soon as once more, a slight on the person. It is a systemic problem. I stated at the start, transit organizations are geographically certain they usually’re very centered on operational excellence. Good on that. However ask them to be transformational individuals and lookup and outdoors of their patch is difficult. They need assistance to try this.
MR: Nicely, I imply, yeah, not that anyone wants defending from me, however that’s true of all of us. It’s a shared pathology. To your level, it’s not affordable to ask individuals operating the present system to determine the right way to remodel it.
MB: However I might say the subsequent factor. Do you suppose that ought to apply to CUTRIC, this properly funded suppose tank whose job it’s to go and discover these classes discovered globally? Have they been to China? Have they been to Shenzhen? Have they documented and introduced again the teachings discovered? Have they checked out any of this? I see no proof of it.
MR: No, no, completely. I imply, they’re nominally, on the danger of placing phrases of their mouth, they’re nominally the mechanism. And your query is rhetorical. They’re nominally the mechanism to do exactly that. That’s why it exists, in order that the people who find themselves operating Brampton and Mississauga Transit can preserve worrying about the right way to run Brampton and Mississauga Transit whereas it will get reworked. Proper. You bought to rebuild the ship whereas at sea. That’s no trivial enterprise.
MB: And it’s been executed to your level. It has been executed globally. It’s been executed in China. The place to go to be taught that’s China. This whole query has been totally explored and documented. In the event you go to Chinese language cities, it’s transit. It’s not like their energy system. They’re very collegial. They’ll welcome individuals and inform you stuff. It’s a really completely different factor. It’s not like their transmission traces which aren’t on Google Maps as a result of they’re safe important infrastructure. Need to know the way they’ve reworked their transit? Simply go ask them. You already know this can be a completely different factor. So that is but once more a spot the place I might say the information was on the market, CUTRIC didn’t get it. It is a recurring theme. This isn’t all although as a result of we’ve already talked about your observations that materiality is non-existent.
My commentary is that the variance actually favors battery electrical and it’s fully lacking from the report. It’s not that there are not any error bars. There’s no point out of confidence of their estimation over 20 years and you already know, 1100 buses of three differing types. No point out of confidence. It’s a failing grade. I assert this, you was once an MBA professor. Would you’ve got given this situation modeling a passing grade?
MR: Nicely, there may be such a factor as grade inflation. So possibly they could have handed. They wouldn’t have been prime of the category, that’s for certain. I might really feel that I had failed a pupil that got here up with that as their greatest effort.
MB: One in all your observations was that they’ve labeled a graph flawed.
MR: That’s a kind of issues the place it’s a small factor, that’s an enormous factor. I used to be fascinated about this earlier. Many individuals have been uncovered to that story about Van Halen and the, and the Brown M&Ms. Oh sure, you’ve heard that. I discovered of it in Atul Gawande’s guide The Guidelines Manifesto.
So for people who haven’t heard it, this was again within the mid-70s when it was the actual Van Halen. When it was in the entire stadium rock live performance had simply type of taken off and it was extremely advanced. There was not a properly established infrastructure for organising live performance venues with all of the pyrotechnics and the lights and the explosions and all that. And so there was type of a telephone guide of directions that went to the right way to set all these items up. And in the event you did it flawed, individuals can get damage and even killed. And so the story is that Van Halen on, you already know, web page 274, paragraph 838, sub, paragraph 7, sub paragraph I stated a bowl of brown M and Ms within the inexperienced room.
And so once they acquired to the venue, the very first thing they did was go search for the brown M and Ms. And in the event that they had been there, they’re like, seems like they learn the telephone guide, proper? So it’s a option to guarantee that individuals have executed what they wanted to do.
CUTRIC has a chart within the report that’s labeled internet current worth. That’s my bowl of purple of Brown M&Ms, which is that the vertical axis on their discounted prices related to every of the eventualities is labeled internet current worth. It’s a really small factor, nevertheless it does probably betray a misunderstanding of what they’re really doing as a result of that’s not a internet current worth, it’s a gift worth of prices.
A internet current worth is the place you’re in search of the online, therefore the title, between a sequence of adverse money flows and a sequence of constructive money flows that happen at completely different instances, proper? Within the stereotypical instance, you’ll have a sequence of investments, adverse money flows for the primary few years, after which once you’ll begin producing income and funding tails off. Then you definately’ll have a sequence of constructive money flows sooner or later. You low cost all of them again at the moment to get a internet, the online of the constructive and adverse current as of proper now, worth of the general funding. Honest sufficient.
What they only did is that they took the entire adverse money flows, that’s to say the entire bills related to every of those three eventualities, and discounted them again at the moment. So that they weren’t netting something, they had been simply calculating the current worth of the longer term bills. Completely professional factor to do, by the best way. The truth is, precisely the suitable factor to do, simply mislabeled. And the humorous half is, to me, no less than, as a result of I do know precisely why that occurred, I’ve spent sufficient time as an Excel jockey.
The current worth operate in Excel, the PV operate, doesn’t admit of variable income streams or price streams. To do this, it’s a must to use the NPV operate. And they also, I can see it as a result of I’ve seen those who have executed these items for me again in my consulting days, they only, they wrote it out, they are saying, oh, I take advantage of the NPV operate, so it have to be an NPV, nevertheless it’s not. And if all the pieces else within the report had been gold plated, then that’s straightforward to miss. However when it’s a part of a sample of what appears to be inadvertent oversights, then one can solely start to marvel, proper? As soon as your Bayesian prior is that possibly these of us aren’t fairly as knowledgeable as one may like. A lot of issues I can’t do properly both, by the best way.
So no person’s criticizing anyone personally, nevertheless it does counsel possibly these weren’t the suitable tradespeople for this specific evaluation.
MB: It’s a part of the deeply substandard work that they’ve executed, by my skilled opinion, as somebody who spends monumental quantities of time taking a look at hydrogen transportation eventualities and experiences, by yours as a situation modeler and an individual who’s written a guide actually on it. Nevertheless it got here to a different couple of insights. So one of many insights you made was why are we taking so lengthy? If we’re attempting to get advantages, why not implement the battery electrical buses sooner? However you then stated, huh, when are they really shopping for and implementing gasoline cell buses? So what was your commentary there?
MR: Nicely, they’re all pushed out to, I feel it doesn’t begin till 2034, 10 years. I imply, name me a liar for a yr or two somehow. It begins very late within the planning and that has a really attention-grabbing consequence for a few causes. First, it could be a fig leaf behind which one can cover to say that’s why the hydrogen prices are so low. Proper. We’re modeling them decrease than present prices, however belief us, it’s 10 years sooner or later, so we’ll get there. However the quantitative implication is that hydrogen buses even then are larger price.
And they also’ve taken the upper price and put it out 10 years, which suggests these larger prices get discounted again, whereas the entire buses that, the battery electrical buses that you simply’re deploying proper now don’t get discounted again. And so the hydrogen seems artificially cheaper in the event that they had been the identical price, if hydrogen buses and battery buses had been the identical price, that discounting wouldn’t matter as a result of it will simply be one for one. Proper? The current worth of the price of the full challenge can be the identical regardless in the event that they price the identical. You’re shuffling round one unit right here versus there. Doesn’t matter. However as a result of hydrogen buses are dearer, that’s not what occurs.
If a hydrogen bus prices 1.3 instances as a lot as a battery bus, all in capital, opex, the entire bit, which isn’t loopy. The truth is, that’s beneficiant given what you’ve described. That has a fabric impression, proper? As a result of now what’s occurring is {that a} $1 battery bus isn’t discounted, however a $1.30 hydrogen bus is. And swiftly it has an actual materials impression. In the event you had been. In the event you take these differential prices and simply say, positive, I’m going to provide the future prices of the hydrogen buses. I’m going to present it to you proper now. You may have hydrogen buses for what you suppose they’re going to price in 2034, however in trade, I’m going to make you deploy them now. And once I do this and rerun the low cost, the entire situation blows up, proper?
So the seemingly comparable prices change into an artifact of the timing and the deployment and nothing else. When the viability of your complete situation activates that and solely that, like, let’s throw all the pieces else out the door now, swiftly, all the pieces determines. Every part activates the timing of the deployment. And if anyone can inform me to a certainty that what they suppose they’re going to do 10 years from now could be precisely what they do 10 years from now, I’m again to my error bar dialog.
MB: You had an estimate, and I’m operating with the estimate whether or not you’re snug with it or not. However Mainly it’s a 3 and a half p.c discounting charge they use. Individuals can argue up or down. The EU’s steering is 4%. The US steering is 2 and a half p.c.
MR: Large deal.
MB: 3 and a half p.c.
MR: 3 and a half. 3 and a half of like, not a loopy quantity.
MB: Nope, it’s very affordable. However that’s yearly and it’s accumulating and turns into about 40% in 10 years, which signifies that stuff from 10 years on is discounted by no less than 40%. Now, I did math towards the total hydrogen gasoline cell bus situation and I took the 408 buses within the blended situation and I took a piece of that and I multiplied by 0.4 to search out out what share can be, you already know, what grossed it up. And it’s $1.1 billion.
MR: It’s now 10% of your complete challenge that activates your timing assumption.
MB: I simply take a look at that. And my stuff provides to that, by the best way, as a result of they’re low quantity prices after which they’re pushing them out. If we add my $360 million to their hydrogen gasoline cell prices after which deliver them, don’t low cost them by 40%, then we find yourself with a good larger quantity. And the full variance that they based mostly the blended situation on was $10 million.
MR: Yeah. And once you add all of it collectively, we acquired one thing shut to love a billion 5.
MB: I take a look at that and I’d say I personally, if I used to be a transit company and checked out our findings, I might be significantly questioning CUTRIC and whether or not they had been biased in direction of hydrogen. I might be getting third social gathering others to redo any numbers that CUTRIC had offered me as a result of they’re not credible. And if I used to be CUTRIC, I’d be taking a look at my governance very significantly and questioning how we’d ended up on this horrible place and getting third social gathering individuals to help them to enhance their modeling. As a result of if CUTRIC doesn’t enhance this, they don’t have a motive to exist.
MR: Yep. The very last thing I’ll throw in, which is the other of the criticism we simply leveled, proper? Which is that they need to be discounting, they’re simply doing it inappropriately. While you take a look at the local weather advantages of the transition, which they don’t think about in any respect there, you really can’t low cost the longer term impression of the modifications. So once you roll this out slowly for no matter you already know, there are causes. I feel it was Feynman who stated this, or possibly not. Time is nature’s manner of stopping all the pieces from occurring without delay. Proper? So you possibly can’t, you possibly can’t simply wave your wand and say positive, battery buses, poof. It takes some time. So sure, there needs to be a transition, as we’ve mentioned.
However there may be actual profit in accelerating the deployment as a result of it reduces carbon sooner. Future harms are simply as dangerous as current harms, not like future prices, which prices lower than present prices as a consequence of discounting. Future harms don’t low cost as a result of they don’t hurt simply you. Local weather change is all in regards to the externalities. And traditional commonplace finance principle says you possibly can solely low cost advantages or, you already know, advantages or prices in the event you’re the one one benefiting or being harmed. As quickly as you violate that assumption, and the rationale for that’s that if any individual else is harmed, how are you aware they use your low cost charge. You don’t know what their low cost charge is. Possibly they’ve a adverse low cost charge, proper?
Ten years from now, people who find themselves harmed by these emissions are, they’re getting harmed then, not now. So chances are you’ll suppose that hurt 10 years from now could be price some fraction of what it will be price 10 years from now as a result of it’s you. However for somebody who will get harmed, then it’s price 100% of the hurt to them then, proper? And also you don’t get to resolve for them what that’s really price. There are each good monetary causes and good ethical causes to take a look at these future emissions and say they’re simply as damaging then as they might be in the event that they had been occurring now. And that offers you an excellent motive to take that under consideration when deciding how rapidly to have an effect on the transition.
So there’s good financial causes to do it quick. There’s good ethical and ecological causes to do it quick. There are good financial causes to make it easy. There are good organizational causes to make it easy and simply. And on each a kind of dimensions, it’s simply, you get an enormous purple X all the best way down the checklist, which is absolutely disheartening.
MB: To that time of discounting, I’ll preserve you for one more two minutes simply to precise this thought. The European Union with their emissions buying and selling system and their carbon pricing and the core carbon border adjustment mechanism, get this future discounting factor. They are saying, we’ve a carbon worth, it’s going to go up. And we’ve, for budgetary steering, for tasks, for lifecycle carbon assessments and for enterprise instances, as a result of the carbon has a worth to your online business case, right here’s your schedule, yr by yr by way of 2050 for the carbon worth to pay, proper? What they did although, is that they stated, okay, in 2030 it’s going to be round €200. In 2040 it’s going to be round €300 and 2050 it’s going to be somewhat extra.
However then they stated at our 4% discounting charge, we’re going to gross these up in line with the discounting charge into the longer term. And you employ the gross up quantity in your online business instances in order that once you deliver again 2040, €300 per ton to 2023 or 2024, it’s nonetheless €300 a ton.
MR: I used to be not conscious of that. That’s impressively refined and coherent. That’s superb. Good for them.
MB: And they’re placing a carbon worth on the earth with the carbon border adjustment mechanism they usually’re taking a look at getting scope 3 emissions into the CBAM.
Let’s internet this out. CUTRIC did a very dangerous situation report for Brampton and Brampton’s transit normal supervisor has accepted their suggestions and made that assertion to the town. So now they’re looking for $9 billion to spend on this, which is definitely $10.5 billion to go down a nasty path that emits much more carbon and supplies worse transit service for the residents of Brampton. You already know, it’s unimaginable to know how a corporation like CUTRIC has arrived at this place.
To be clear, I don’t anticipate transit managers to have written a guide on situation modeling and variance, however they need to have people who find themselves doing due diligence on the proposals they obtain. So I believe there’s a high quality management subject that the town of Brampton may wish to take a look at somewhat bit.
Let’s go away this on a unique observe. On the finish of this stuff I all the time go away an open ended alternative so that you can say no matter you’d like. So something we’ve talked about, something we’ve missed, any ideas for different people who find themselves, you already know, late to the social gathering, you already know, I overlook the time period you employ, however arriving at sustainability later of their careers, One thing like that.
MR: Sure, I did. Longtime listener, first time caller. I watched too many episodes of Frasier going by way of the doctoral program. I received’t generalize from my expertise, I’ll simply share it, and if that’s useful to anyone, then that’s a contented coincidence. I feel I discussed in passing, I’ve come to the view that we’re all type of on our personal journey in the case of fascinated about the local weather disaster and what we wish to try to do to contain ourselves. As they used to say in Chaplin highschool, in the event you’re not a part of the answer, you’re a part of the issue. An excellent bumper sticker and we must always all concentrate on that one.
And I suppose I might say that it’s, it may well actually appear overwhelming. I’m steadily overwhelmed by it. It may be miserable. I’m steadily depressed by it. Nevertheless it appears to me there’s type of two selections, strive or surrender. And for now, no less than, I select to strive. And my hope is that for anyone who’s on their very own journey and fascinated about the diploma to which it’s price doing one thing, I suppose I might I’ve come to the conclusion that I’ll remorse not having tried way more deeply than I’ll remorse having failed. In order that’s why I’ve acquired my lance tilted at these specific windmills.
MB: And on that observe, Michael, I’m Michael Barnard and this has been Redefining Power – Tech. My visitor at the moment has been Michael Raynor, former managing director engaged on sustainability and thought management with Deloitte, now co founder and investor in S3 Markets and Canary Medical, creator of many books you must learn, no less than certainly one of which has been guiding my observations of the world of innovation and know-how for 20 years. And the windmill he’s tilting at at the moment are turning scope 3 emissions for actually prosperous white collar companies into avoidance of carbon by way of S3 markets and the town of Mississauga the place he lives, the place they’re doing one thing actually silly with hydrogen buses. Michael, it’s been an absolute pleasure. Thanks a lot.
MR: My pleasure. Take care.
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