My Climate Journey

Ep 102: Alex Dewar, Sr. Manager at BCG's Center for Energy Impact

Episode Summary

Today's guest is Alex Dewar, Senior Manager at Boston Consulting Group’s Center for Energy Impact. Alex is responsible for business development and growth of additional topic expertise within the BCG Center for Energy Impact (CEI). Prior to joining the CEI team, Alex spent seven years with BCG's energy practice. There he advised clients around the world on oil and gas, power generation and transmission and renewable energy topics. His expertise is in energy market analysis, climate change mitigation and strategy development in oil and gas, specifically. We have a great discussion in this episode about the oil and gas industry. What they knew about climate change and when, what type of accountability they should have as organizations and where they are with the clean energy transition. I enjoyed this one and I hope you do as well. Enjoy the show! You can find me on twitter @jjacobs22 or @mcjpod and email at, where I encourage you to share your feedback on episodes and suggestions for future topics or guests. Also, big thanks to Arcadia, the episode sponsor. Arcadia is a first-of-its-kind app helping residents access clean energy like wind and solar at prices LOWER than what the utility offers. I’ve had an account with Arcadia for 2.5 years now and have been really pleased. Not only is 100% of my usage matched with wind energy, but Arcadia also negotiated a lower energy rate for me, so I’m paying less for energy than I was before. Some of you might remember Arcadia from an earlier episode I did with CEO Kiran Bhatraju. If that conversation hadn’t convinced you to join Arcadia, maybe this extra incentive will -- get $25 off your first clean power bill when you set up a free account for your home or apartment at

Episode Notes

In today’s episode, we cover:

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Episode Transcription

Jason Jacobs: Hello everyone. This is Jason Jacobs and welcome to My Climate Journey . This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help . Today's guest is Alex Dewar, a senior manager with Boston consulting group.

Alex is responsible for business development and for managing the growth of additional topic expertise within the BCG Center for Energy Impact. Prior to joining the CEI team, Alex spent seven years with BCG's energy practice. There he advised clients around the world on oil and gas, power generation and transmission and renewable energy topics.

His expertise is in energy market analysis, climate change mitigation and strategy development in oil and gas, specifically.

We have a great discussion in this episode about the oil and gas industry. What they knew about climate change and when, what type of accountability they should have as organizations and as individuals for any misdeeds that might've occurred, where they are with the clean energy transition, what some of the more forward thinking organizations are doing and what some of the laggards are doing.

What types of tactics still exist in terms of saying things one way and working behind the scenes on something different, whether it be directly or through trade organizations, and also just the problem of climate change in general and how we get ourselves out of this pickle. I enjoyed this one and I hope you do as well.

Alex Dewar, welcome to the show.

Alex Dewar: Thanks so much, Jason.

Jason Jacobs: This is show number two from the remote headquarters for My Climate Journey, which is my home office, AKA my bedroom. We're making the best of it here, but you know a little bumpy given everything that's going on, but I think important to try to power through and keep the rhythm going, if nothing else, to get a break from pandemic mania and crazy kids.

Alex Dewar: Exactly. I think we're all dealing with a new environment here and adapting and it's, I think a really interesting example applying it to climate change on what can we can learn from how society can react when necessary and how we can adapt our behaviors. So we want to take a positive lesson from what's happening with Corona virus. I'd say, let's do it and let's apply it to climate change.

Jason Jacobs: Yeah, I mean, I think since we're right in the thick of it, it's hard to do a postmortem at this stage, but it is fascinating to watch how it's playing out and, you know, of course, no one wants to see, you know, suffering and deaths and economic suffering and things and, and, um, you know, praying that we do the best we can to get a handle on that and minimize those.

I do think there, there are going to be some positives that come out the other side in terms of learnings around how to tackle these thorny systems challenges and the tragedy of the commons, if you will. But I wish that that this wasn't the way that, that we achieved that learning.

Alex Dewar: Exactly. I think it already tells us the importance of preparation and we can take some lessons as well on, you know, listening to experts and understanding risk and taking, I think, a wider aperture around what's really possible and how it can affect our lives. But certainly I think the near term public health, personal and economic as well, impacts of this are, are quite substantial. Let's hope we can get through that quickly and start applying some of the more positive learnings or take away a positive aspect from this to how society and governments work going forward.

Jason Jacobs: Jumping into it here. Maybe let's start by just talking a bit about BCG and your role at BCG and some of the work that you've done in the oil and gas industry over the last many years.

Alex Dewar: Absolutely. Yeah, so a little bit of background. I've been a management consultant for a little over a decade now.

Before that, I have a academic and applied policy background in climate change, and over the last decade I've worked in the energy industry. Tried to do as much climate work as possible, and I think we've seen various boom and bust cycles in the energy industry and around focus on climate change.

Fortunately, recently, we've been very much in a boom cycle. So the level of interest and concern about climate change, I think is reaching an all time record in my estimation. So that's, that's very positive. But what I do as a management consultant at a very high level is effectively we work with clients mostly in the private sector, but governments as well, to really help them think through and understand what are the major trends that are going to affect their business, their operations in terms of governments, their societies, their populations.

And what the impacts are and how they can respond to those impacts, and ultimately to really help them to find strategies for maximizing their objectives, whatever they may be over the longer term. So in my role, I tend to work a lot with oil and gas companies on climate change topics, which may seem like a contradiction to some, but really is not.

And I think we'll explore in our conversation today, how oil and gas companies are acting on climate change positively. Things they've done negatively, certainly, and opportunities they have going forward. And so that's most of my work is really helping a range of oil and gas companies so that the majors, both the European ones who have been more proactive on climate change and the U S ones who've been less active, as well as national oil companies around the world, understand the problem of climate change and understand what they can do about it, and ultimately to define and implement strategies to respond to that.

Jason Jacobs: So how long have you been working with these oil and gas companies on climate change? How many years?

Alex Dewar: So I'd say over the past decade that I've been in management consulting, it has been a topic within oil and gas in one form or another at very high levels. So really going up to the C-suite, you know, CEO level within companies.

The focus has shifted over time, though, I think in the past it's largely been around understanding where policy is likely to go and how that would affect the markets in which they operate. So what would be really the cost of carbon? How would that play out in the transport sector or power generation, for example?

It's shifted quite a bit, I would say, in the last few years, to focus a lot more on number one emissions from their own operations. So getting a better understanding of where oil and gas companies are directly generating emissions, not just from the consumption of their fuels, that so-called scope three emissions.

Well, there's scope one and two emissions. What are they emitting directly from their own operations and what can they do to reduce those emissions? And then secondly, the focus has shifted quite a bit recently away from just looking at governments, but understanding what is society asking companies to do.

And how is that influencing investor perceptions and other key stakeholders of these companies, and how can they start taking action on climate change in the absence of clear policy directives in the absence of clear pricing or regulatory mandates. So I think these two new dimensions for how willing gas companies are looking at it, that's been a big source of our business and our engagement with clients.

And frankly, it's a very exciting and dynamic opportunity here to be, you know, engaging with this sector.

Jason Jacobs: And so what do you think has been driving them to make the shifts that you were just describing?

Alex Dewar: So number one, clearly the scientific and public understanding of the. Absolutely massive existential risks that we as a society face around climate change.

That has played a huge role in, I would say, focusing the attention, the efforts much more so.

Jason Jacobs:  Is it their understanding of the science or is it the broader society's understanding of the science?

Alex Dewar: It's both.

Jason Jacobs: Yeah. Cause they've had the understanding of the science for a lot longer than, than they've actually been making the shift with their, with their words, let alone their actions, right?

Alex Dewar: Oh, absolutely. I mean, it was really research that came out of a number of oil and gas companies decades ago. That was some of the earliest research around the impacts of climate change, understanding the potential impacts of climate change from a scientific perspective.

So I think what has really changed in the last decade, I would say, is a more granular understanding of what the impacts are, or likely to be from a sort of atmospheric physics perspective. Right? But also most importantly, from a socioeconomic perspective, really translating the climate impacts into human impacts.

And I would say the, you know, the IPCC work on this has been absolutely instrumental in shifting, understanding and focusing attention on the immediate need to move us towards a well below two degree pathway. And that's really what's different. And I think what's evolved, and I've seen in my own time, right from when I was in grad school looking at these things, you know, 15 years ago or so, the conversation then I would say is was much more on a sort of theoretical basis around this and more of a, I'd say, scientific basis. It's really shifted into being a socio socioeconomic discussion now and a human discussion at the end of the day. And I think that's what's new and different. And that's also why you're seeing new sources of pressure being applied on companies to act.

So again, in the past it was largely around. What are governments going to do, how are they going to regulate? Are they going to set a price on carbon, et cetera. Now it's our stakeholders are demanding action. Our customers, our shareholders, NGOs, and the broader community want to see action from corporations.

They expect action. That's a new, and I think very different type of ecosystem in which private sector actors are operating and has sort of focused the mind, if you will, to sort of seek out ways that they can take action.

Jason Jacobs: So from the cheap seats here, and granted I'm a lot less competent and comfortable talking about this topic than I am talking about technology startups focused on climate change, for example.

So, so that's kind of the caveat here. This is kind of much more of a out of my comfort zone learning episode for me than some other ones. But one thing I'm trying to understand is it seems like a lot of these companies are starting to use some of the right words, but it's hard to know, you know, whether they're just words or there's actually any substantive action behind them.

Alex Dewar: I would say, you know, for the casual observer to understand whether companies are really committed on this or not, there are a couple things you can really look for. Number one is commitment from the top down, followed up by specific measures that can track and incentivize performance against those targets.

So taking BP, which has now set a aspiration of net zero along with more near term targets and shell, which has, which has more specific targets around the carbon intensity of their scope three emissions, their energy supplied. I think what you really need to look for there are how are these targets translated into incentives?

So in terms of executive compensation, how is that linked to climate targets and how are incentives set up within companies to ensure that their organizations respond and prioritize the right measures to reduce emissions and change their portfolio? The second thing to look for is where's the money being spent?

And is there a change in R and D focus as well as portfolio of companies or their operations companies? Operations, excuse me, where they're spending their capital and is it going to new energies, both in terms of the renewable segment, but also low carbon energy options like CCUS or hydrogen? And is there a change in that capital allocation process where they're putting the money.

So I think those are two things that you can really look for to say, are company is really serious about it, or is it just, you know, greenwashing, right? Is it statements that they've long been making that they're supportive and are concerned about it or whatnot, but they aren't really changing their business models or their practices?

Jason Jacobs: How do you think about the topic of the sins and the sins of the past and accountability? And those are two separate questions. One is were their sins and to what degree were their sins. And you don't have to mention any company specifically by name, given the sensitivities of your perch. But then the the other is, is just what type of accountability should those companies or individuals face for those sins?

Alex Dewar: Yeah. And it's a question that frankly, the industry is dealing with right now because they're dealing with the consequences of some of these decisions that were made. In the past, you know, unfortunately, various companies did find organizations that denied the fundamental scientific consensus around climate change. That did seek to slow down government policy making in this space.

And frankly, you can argue some companies in the industry continue to fund organizations that will not overtly denying the scientific consensus are at least working to weaken regulatory regulations that affect the industry on, on the topic. I think, you know, the industry is going through a shift on this, and there's obviously a tremendous number of companies with a very wide range of approaches on this.

So it's kind of hard to put everybody in one bucket here. But I would say what I sense is certainly a shift in understanding of how the impacts of those decisions are affecting them and their ability to operate today. In the industry has sort of called social license to operate. Right. Which is basically saying that in order to function, in order to get the permits you need to drill in order to have even shareholder support and public enough public sentiment to do your job, you need to insure a license to operate. You need to ensure sufficient public support and the steps taken in the past and climate change have really weakened that license to operate.

And so make the environment for companies more challenging today. You know, they just don't have credibility on the topic. Many of them, they face public opposition at every step. And you can understand why that is in many ways. So I think there's a shifting understanding of that, but, and, and, and, you know, focusing then on the importance of being credible and honest in their engagement on climate change. But you know, that's very much a process. And I think some companies have been better than others.

Jason Jacobs: And what about on the topic of accountability at the company level, at the individual level? Where should that accountability lie, if anywhere, looking backwards at, at some of the misdeeds, the lies, the misrepresentations?

Alex Dewar: Exactly. Yeah, I mean, I think that's another really challenging question. And in some ways, you know, you can completely understand the focus on, you know, making companies pay, right, and on promoting accountability through economic or financial consequences today. And you know, in some ways that's, that's what the lawsuits, the legal risks that companies are facing.

That's what it's what it's all about. Right. I would say, you know, there certainly is a role for that and you know, that will work its way through the legal system. In many cases, and you can point to parts, communities in the world that are just worse, only affected by climate change and completely see their claims and understand their concerns and why they're, you know, pursuing, I think very direct accountability for contributions to climate change.

There's a separate but related question to this though, which is how do we take this forward. And how do we motivate the right action on climate change and utilize the assets that we have at play to to do that. And I think this is where, you know, oil and gas companies have argued that they have certain capabilities and assets that will be critical for action on climate change going forward.

I tend to agree with that. We can get into why I don't think it's a given, but I think they certainly have capabilities and assets that can be instrumental in meeting the goal of well below two degrees. And so it then becomes a question of how much is there a focus on accountability, which again, is an important element of this versus action going forward and mobilizing the, utilizing the assets that capabilities that we have, some of which sit in that industry.

And I think that's, that's an important balance that society needs to, you know, will be worked out. Right. How much of it is, is backward looking versus forward looking? How do you balance that? Both are important.

Jason Jacobs: So I mean, as a member of the general public, why should I or why should anyone for that matter.

Trust that after so many years of willful lies, misrepresentation, misdeeds, misleading the public, et cetera, whether they have the capability, but let's, let's just say they do have the capabilities, right? Why should we believe that their intent or actions or good faith, if you will, will be any different going forwards in it was historically.

Alex Dewar: So I think the most important thing that anybody should be thinking about oil and gas companies, or frankly anybody in the private sector, is what are their incentives going forward? And this is where policy becomes absolutely critical. In that, if it's just less left to companies and there's not implementation of clear, consistent, or strong enough policy on climate change, then I think the actions will be insufficient and you're not going to see the type of response that's ultimately needed by companies to deploy those assets, those capabilities in ways that can mitigate climate change going forward.

So it comes back to policy in many ways, and I think positive moves by oil and gas companies or any, anyone else in the private sector are great and are necessary, but they're far from sufficient. So that effort, that focus at the end of the day, in many cases, still needs to be challenged and channeled, excuse me, into a social action, political action and adopting policy measures that set the right regulatory environment and the right incentives for companies to to change their behavior.

Jason Jacobs: And if, if we were to double click on that, any specific policies or policy frameworks that we should be thinking about to get this right?

Alex Dewar: So I think number one is carbon pricing in my mind, in some form or fashion. You know, having an economics background and working in business, I've always to look at what are the economic incentives to take a certain action or to avoid other actions.

And at the end of the day, carbon pricing is the policy lever that is most significant. And has the greatest impact in terms of, of, you know, achieving outcomes. We can look at case studies that demonstrate this as well as, of course, the economic literature. Around what's necessary to achieve material action on climate change.

So I think number one, first and foremost, is carbon pricing. Number two, I would say is there are areas, there are types of emissions where carbon pricing is less effective at achieving certain outcomes, and regulatory measures are effectively the more efficient means of reducing emissions. Methane is a great example of that, right?

Where what's occurring is there's no economic incentive or rationale, frankly, for many of the methane emissions we're seeing globally from the oil and gas industry. And so there's an abundance of literature that now has demonstrated the most efficient means of reducing these emissions is regulation.

And you now have multiple oil and gas companies saying the same thing, right? That they see clear regulatory steps as being required to achieve the outcomes that both the environmental community and the oil and gas industry is sort of seeing as necessary there. So that would be the second element is targeted regulation in the right areas that promote best behavior, right?

And where the economic impacts are minimal. And then the third, of course, is really around how do we develop the new technologies and deploy those technologies going forward. And so in that space, policy around subsidy is supporting early stage research, kind of the, the whole gamut of leavers that you can can deploy there to ensure that even though we have a carbon price right, there's still room for new technologies to emerge, that they have the support to develop and be deployed.

So we can effectively replicate the tremendous success that we've seen. From the cost reductions in wind and solar and are now experiencing from battery technologies so that that can be extended and we can deploy or utilize the same sort of approach and other low carbon technologies.

Jason Jacobs: So we talked a bit about words versus action, but one thing we haven't talked about is that in some cases. The words say one thing, but it's not just about inaction. It's about actively deploying vast sums of lobbying dollars, for example, to work against the things that the words are advocating for.

Or another tactic that I've heard about is keeping your hands clean as a company by funding the trade groups that are doing that work quietly on your behalf.

How much is that that type of behavior is still occurring in the industry?

Alex Dewar:  Yeah, it's, it's still a challenge, and I think this is why you've seen some pretty high profile moves by different companies to stop participating, stop funding certain trade groups. I think the nature has changed. So you see, it's less common to see now overt denial of the scientific consensus around climate change.

What you see more often. Is engagement on the kind of economic case for climate change, right? So, so you may have different groups saying, well, we, you know, the costs are very high. We can't afford it at limited limits, competitiveness issues like that. Now there's a tremendous  body of economic research that suggests otherwise, right?

That says, really on a cost benefit basis, clearly the balance is around action on climate change, right? That that is going to make the world better off in pretty much every way. Imaginable going forward. Now there are certainly issues with a just transition, how we deal with that, et cetera, et cetera, right?

But I think the challenge with, with kind of lobbying groups, trade groups on this is it's shifted from the scientific basis to the socioeconomic basis and continuing to create I think discord and misunderstanding on some of the facts and evidence around that space. So, you know, now really the pressure is, of course, on oil and gas companies to say, do they want to continue to be part of that?

And you know, basically take the responsibility for continuing to extend that debate or misunderstanding, frankly, even when, when certain debates are starting to be settled or are they going to take proactive steps to stop funding or stop the support in other ways of some of these organizations.

Jason Jacobs: And where are we strictly from an economic standpoint in terms of at what point does continuing to invest in the fossil fuels side of the energy portfolio just not make good business sense?

Is it reliant on price, on carbon to make the math work in the clean direction, or are we already starting to see the scales tip?

Alex Dewar: So you're, you're thinking of stranded assets, for example, right?

Jason Jacobs: Yeah.

Alex Dewar: Yeah. And this, this is where it gets quite tricky and I think very reasonable people can disagree on this discussion.

Part of the fundamental reality of oil and gas is that these are investments that will deplete over time. So every year, looking at the oil balances, every year, the world needs to replace about 8%. Of its global oil supply. So new investment is needed to ensure that effectively we have enough supply going forward.

There's a very high decline rate in effect of our current assets. So it becomes quite a complicated question of at what point does that tip, right? When do we need to start as, as a planet, right? Reducing investment. Arguably, the faster we do, the better for climate change, but balanced with that there are challenges of if investment falls extremely quickly, there may be under supply of certain oil and gas resources at at certain times, and that drives price spikes, economic volatility, you know, ultimately consequences for the economy and everything, the output in other ways.

So, you know, it's, it's a really tricky discussion, right? And we're not kind of getting into too many technical details on it. I think you can look at the same data. And come to different conclusions about when that will be. Now, there is a tendency, unfortunately for, of course, oil and gas companies to present a public picture that is very much in favor of sustained investment in oil and gas over the longterm.

And I think an activist picture, which is that, you know, assets are going to be stranded in the near term. And it's fundamentally all about what assumptions you believe. So at the end of the day, I think the focus needs to be around how quickly can we as a planet move towards creating the right economic incentives to shift that investment to ensure that we are developing new energy systems that are lower carbon, while also being competitive and supplying energy.

At a reasonable cost that promotes human development, promotes economic development. But fundamentally, that's, I would say, where, again, governments are central to all of this in setting those economic incentives for companies to make investments and to adjust their hydrocarbon oriented investments away from fossil fuels towards renewables and lower carbon measures like CCS, like hydrogen at the right time.

So there's no kind of clear one path towards this, and there's a high degree of uncertainty around it. But I think the common point of consensus we should all align on is policy action to accelerate those, those incentives to shift investment.

Jason Jacobs: And where does divestment fit into all of this? If you were speaking with Larry Fink, for example, from BlackRock, what counsel would you have for him on, on how to think about divestment and where it fits into this transition?

Alex Dewar: Sure, so I think the divestment movement, to be very frank with you, I, I think it's been relatively ineffective. I think a much more constructive lever is engagement around so-called ESG investing, so that that's an acronym for environment, social and governance, and it's a field of investing that's really been around for 20-plus years now. What it does is set, I'd say the philosophy of it, right, is for investors to pool their resources in ways that set positive incentives for companies. To take measures on those three leavers on environment, social and governance. So this is much broader than climate change, right? But, but climate change has really, I think, come into the fold very materially in ESG investing in the last, last few years.

So what we're already seeing is that is a very positive lever to promote, I would say more constructive action on climate change by, by corporations. And ultimately the the Larry Fink letter, you know, what BlackRock's doing with that, as you say, is fundamentally an ESG oriented play, right? So it's not about, say, divesting from the industry writ large.

It recognizes that there, this is a very large industry. It plays a sort of central role in the global economy and in supply of energy to society for human development impacts, et cetera. But that there are leavers investors can pull. To promote more constructive engagement. And I think in the last few years, it's, it's yielded some much better engagement.

And I think that's the lever. That's the venue, right? ESG investing through which I think investors can really have positive impact, just kind of retain their seat at the table with companies, promoting them to move in a more positive direction.

Jason Jacobs: So correct me if I'm misspeaking here, but it, it seems that over the last decade, we have been in an economic boom and the stock market has been up and to the right consistently, yet the oil and gas sector hasn't performed well at all.

So what I want to make sure that's actually true because I don't have the charts in front of me and don't want to misspeak. But then two, if it is true, why is that?

Alex Dewar: That's a great question. It's absolutely true. So BCG, we do analysis on what's called total shareholder return. So this is looking at effectively how much value companies create for their shareholders over a time period over the both the last five year period and 10-year period, the oil and gas industry has been dead last out of the sectors that we look at in total shareholder return.

I'd say there are a lot of reasons for this that, that are kind of highly complex when you get into the industry. Not a lot of it necessarily has to do with climate change though. It has to do with other substantial changes in the industry, most significant of which is likely the rule of U.S. shale oil production.

And this is, I think, a change that's happened irrespective of climate change, but provides an important lesson for how climate change can impact the industry going forward. What I mean by that, right, is that the rise of U.S. shale oil production effectively has changed the understanding of how oil and gas is valued.

There's traditionally been a mindset that oil and gas is a scarce resource, and so has increasing value over time. What the rise of U.S. Shale and the availability, the abundance it has provided in this market. What that has done is change that perception. To be one where this is not a resource that is constrained.

It's actually abundant. There is ability of the industry to bring more capacity online relatively quickly. And so it's changed the valuation of it. That's there's, there's some evidence to support it. And that's enough part hypothesis, right? Um, it's, it's always, always difficult trying to pick apart all the different factors that the interplay with each other when this, particularly when you're looking at investors, but if that is the case, and this is kind of the climate change lesson coming out of it.

Right? If that's the case, that that mindset has shifted from, again, one of scarcity towards one of over abundance, that's a really important factor going forward because if we are going to move towards a lower carbon trajectory, that inherently means less demand, certainly for oil. You can argue whether and how much less demand for natural gas there is. But then if we are entering a peak, basically a peak oil demand period, you know, that will incentivize production in the near term, which means a lower price environment and less incentives to invest in oil and gas going forward versus lower carbon options that have a more resilient future.

So to recap that really I think yes, the, the industry has, has significantly underperformed for reasons other than climate, but that's an important baseline to start from an important frame to use to say what are the impacts likely to be going forward?

Jason Jacobs: Is it true that the cost of capital to finance these projects has been increasing? And if so, what's been driving that?

Alex Dewar: Cost of capital definitely is going up. How and where exactly is a little bit complicated. But I think we see a number of indicators that suggest that the, at least on on a project finance basis, that oil and gas companies are likely to face a higher cost of capital going going forward.

That's going to be really critical because at the end of the day, oil and gas companies, again, are large capital allocation machines. They're trying to find where they're going to get the highest return. And ability to achieve that return, of course, on the money that they have, the capital they have, right?

So as the cost of capital increases for oil and gas, that effectively will incentivize investment in renewables or other low carbon types of investment options for them. Historically, companies have run into a challenge, right? Where oil and gas returns tend to be quite high. So if you take a conventional assumption around cost of capital at 10% you know, you can achieve basically a very high NPV with on a net net present value on a project with a sort of 10 15% to 20% return return on that capital.

But if you change that calculus and increase the cost of capital, all of a sudden that NPV becomes a lot less. So you might have the same return on capital of say 20%. But you have a smaller NPV because your cost of capital is going up that then if that occurs, then can shift the balance towards focusing on renewable projects where because you have a lower cost of capital, even though returns are lower, you might be only getting a five to 7% return on that investment that it can yield a higher NPV for the money that you're putting in.

So that lever around changing the cost of capital and the assumptions around that is incredibly important for the industry. And I think the, the focus of a lot of attention right now on how that's going to change our investors, both from the equity side and the debt side, are they changing their perceptions?

Are they going to value these projects differently? And how will that affect cost of capital?

Jason Jacobs: Will widespread divestment by the largest institutional investors drive up the cost of capital?

Alex Dewar: I think that's a really challenging question to answer. I think from a theoretical lens, yes, it would, right? Less demand for oil and gas equity would mean effectively having to return, you know, higher yields to those investors.

The challenge though of it is that the impact is so small, the amount of divestment is so minimal today that you'd have a hard time arguing it's really changing that demand profile for equity investment.

Jason Jacobs: But wouldn't that suggest that we just need a lot more of it?

Alex Dewar: Sure. But then there is a challenge of, ultimately it is passive investment, so equity investors who are in, you know, have pension funds who have tracking funds, et cetera. They just kind of track the industry that it would require a sort of a huge upheaval in divestment from the industry across all of those funds. And I think that that's quite hard to believe for a few reasons. I think one is, you know, how does that pan out?

How does that work out in practice? The second one, no more fundamental to it is, you know, there is a certain profile that oil and gas equities provide to investors that is, that is highly valued and plays a critical role in their portfolios. And basically it's a high dividend yield type of play where the dividend payouts from the oil and gas industry are very high.

And that balances it in. There are few other sectors that are, that are like that. On the whole, there may be companies that have very high dividend payouts, but on a sector wide basis you don't quite see that in in other areas as much. So you would have to believe then that again, these large, you know, more passively managed investments are going to find some other source that they're going to change their entire investment philosophy and balance their portfolios.

So, you know, you can talk about it. But the practicality of, of implanting that and seeing that happen is, is I think challenging.

Jason Jacobs: But it's an important point because earlier you said you didn't think it would be an effective tool, but actually it's less because it wouldn't be effective if it was deployed at scale. And it's more because practically you don't think it will be deployed at scale.

Alex Dewar: Right. So my, my point earlier is from earlier, right, is that if the goal is to maximize the impact of activist engagement, I would assert that you can likely achieve more results in the near return through an ESG or more positive oriented positioning on it than a divestment.

Jason Jacobs: So instead of, instead of writing off the whole category, going through and holding, making sure there's standards for an oil and gas company that you invest in, is that correct?

Alex Dewar: Exactly. That there's their standards and ultimately investors will value, the types of constructive action that companies, in terms of reducing their own emissions and shifting their portfolios towards lower carbon.

Jason Jacobs: So is all money green at BCG in terms of the criteria to work with an oil and gas client?

Alex Dewar: At BCG, we have a set of very clear ethical standards for what types of clients we engage with and how we engage them. So there are a number of things we absolutely do not do. We don't engage in any unethical behavior that effectively would be using our work or our support to mislead the public shareholders, governments, what have you.

So, you know, with that, we work in an evidence-based way, recognizing, you know, on climate change, there are many issues of uncertainty and you can have a reasonable debate on it. We are fact-based, evidence-based in the analysis we do and engage with our clients in that way. So you won't see us do any sort of advocacy engage with, you know, trade groups or organizations that we feel are, you know, misleading or unethical or frankly dishonest on the debate.

You know, we reserve our efforts, you know, our work in our support for supporting our clients to make engaged constructive, you know, fact-based evidence based decisions for where they should take their companies going forward.

Jason Jacobs: Okay. And then the last topic I'd like to cover, and we've had a long substantive discussion so far, which I appreciate, is, is more around the topic of energy, poverty, GDP growth, right? Because, well, from a carbon standpoint and from a methane standpoint as well, I think there's been some harms for sure if that had been caused by fossil fuels and other emission sources. But energy in general has brought a lot of good to the world. And so, I mean, we've spent this conversation talking about how to power the energy to support our way of life. Is it all about just continuing to support our high energy consuming life that's going to continue to consume more and more energy across more and more people? Or do we need to change as a society?

Alex Dewar: We definitely need to change how we consume energy writ large. Right? One of the clue words we can use on climate change is, is energy efficiency, and it unfortunately has been the case for the past, you know, two, three decades that we have seen I think what is really the low hanging fruit continue to be the low hanging fruit, right? So theoretically, energy efficiency is this lever where it's relatively low cost. It provides economic benefits, financial returns, et cetera, to invest in. But is quite challenging to execute.

And there's a number of issues with this, right? Individual action does not always make sense when you know there is even a case for collective action on it, right? So, you know, for, for me personally, if I improve my home energy consumption by, you know, 5% if everybody did that, that would have a tremendous impact.

But am I as an individual consumer likely to take all the steps to achieve that? You know, that's where it gets more challenging, right? So I think this is, again, where. The intersection of governments and companies plays a really important role here because number one, there does need to be the right incentives and the right regulatory environment to help enable energy efficiency to unlock that, but then companies really need to embrace that as well, both in their own operations and really ensure that they are going after all of that low hanging fruit as well as providing the right incentive structures to their customers to do that.

So the overall energy efficiency can have upwards of a 20% impact on achieving our Paris goals. I mean, there's, it's really quite substantial in many ways, and I think it's incumbent on companies to both do that themselves through to unlock that potential directly in their, their own operations and enable their customers to do that.

Jason Jacobs: And what about in terms of the energy mix? A lot of people talk about how we should be driving towards this a hundred percent renewables future. We should be electrifying everything and things like that. How do you think about that?

Alex Dewar: Yeah, so I think a great source to really understand this is the work that the IPCC has been doing recently and the 1.5 degree report they put out in late 2018 I think it was now, is I think just foundational in understanding the role of different technologies and sources of energy in the longterm and what is really compatible with what, you know, in this case, a 1.5 degrees scenario. So the big takeaway from that for me is that clearly the low hanging fruit here is renewables plus battery technologies, right?

For managing short, short term intermittency. That these are technologies that are already cost-effective or rapidly becoming so. And then when you look at the ability to increase the consumption of electricity in buildings, in transport, and in certain industrial applications, that there's tremendous potential there.

And so ultimately what that RPCC modeling showed is that renewables plus electrification can basically contribute around half, maybe upwards of 60% of what we need to get to a 1.5 degree pathway. That's up from less than 20% today. So honestly, you know, many people think of energy and they think of power.

They think of, you know electricity flipping on the switch. But globally, from an energy systems perspective, that's less than 20% of the overall energy mix today, increasing that to 50 60% while reducing the carbon intensity of that electricity generation is the first, the the dominant lever, first and foremost.

But then you still have another 40%, 50% of the picture of how do you. Achieve net zero on the remainder of the energy balance. And that's where technologies like carbon capture or useless storage and hydrogen biofuels as well. And then of course, the so-called negative emissions leavers, like reducing emissions emissions from destruction degradation becomes critical and broader nature-based solutions.

So electrification is great. It's the pathway we clearly are on, should be on, but it's only part of the picture. And I think we really need to be looking at holistically around what can CCUS hydrogen, other negative abatement leavers as well contribute to to get to net zero.

Jason Jacobs: So if you had $100 billion and you could put it towards anything to maximize its impact on accelerating this transition, where would you put that money and how would you allocate it?

Alex Dewar: Great question. I, I think to answer that it's important to understand where is capital flowing today? Where is there already an economic case for deploying technologies that reduce our emissions. And I would say in that case, you know, wind and solar, it's established, it's now mature. It's cost advantages well demonstrated. Batteries is rapidly becoming that way. I think there are some more emerging technologies in the power value chain that can unlock further potential cost improvements, greater scalability, easier grid integration, et cetera, et cetera. But the area that I'm very excited about in spending a lot of time with clients working on right now.

Is what's possible in carbon capture and hydrogen as well. Because again, these are technologies that are absolutely essential if we're going to achieve net zero. But there has been very limited investment in the technology as well as the deployment of, of technologies that are frankly already viable today.

And so that's the area I would suggest that, you know, focus of research dollars and particularly deployment dollars, right? So getting projects built to kick off the learning and the scale effects that we've seen in wind and solar to replicate that model. It's, it's really in those, what we call sort of deep decarbonization technologies, the things that are essential for net zero, but not get widely deployed today.

Jason Jacobs: Anything that I didn't ask you that I should have, or any parting words for listeners beyond what you just said?

Alex Dewar: You know, I would just add that I think, you know, there's been a lot of focus on corporations. What their responsibility is, how they can act on climate change, which is I think, very constructive and where, you know, we need to go, right?

Because we need to be looking as a society at. What is the contribution of anybody and everybody in terms of individuals, institutions, corporations, governments, right towards climate change and what's the responsibility to act? I guess this sort of comes from an economist's perspective, but I would also encourage, you know, everybody to kind of come back to policy and what governments can do and governments still are our primary means of social action.

In terms of implementing the public will into the right rules, incentives, etc. To ensure that we get the outcomes we want. And I think, you know, we've seen with coronavirus writ large, you know, the, the role that governments can play or, or often don't play until it's too late. So whatever's happening in whatever sort of space of society. I think it's, it's critical we all keep an eye towards what governments are doing, can do and that, that, you know, it's very, very hard to act unilaterally. Policy is essential. So we all sort of need to, where kind of the public campaign policy oriented hat in addition to whatever other hats, you know, we're wearing wherever else we sit in society and the economy.

Jason Jacobs: Great. Well, Alex, this was a great discussion and thank you so much for coming on the show.

Alex Dewar: My pleasure. Thanks so much.

Jason Jacobs: Hey everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at my. Climate journey dot C O note that is dot C O not dot com. Someday we'll get but right now dot CO. You can also find me on Twitter at @jjacobs22 where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.