Why Global Decarbonization Bodes Well for the Economy and Planet

Christopher J. Wolfe, Chief Investment Officer, First Republic Private Wealth Management
February 17, 2023

  • First Republic Chief Investment Officer Christopher J. Wolfe interviewed Dr. Michael Webber about decarbonization and the future of energy.
  • Dr. Webber says that despite the polarizing nature of climate change discussions, there are multiple motivations that can drive action. 
  • There are several emerging technologies that will accelerate progress toward a cleaner energy system. 

Discussions around climate change, decarbonization and clean energy are often fraught, with the talking points focused on the extremes. However, First Republic Chief Investment Officer Christopher J. Wolfe is more interested in the decarbonization possibilities that benefit the majority. This includes how countries are leveraging alternative energy to meet 2035 decarbonization goals and the impact of these changes on the economy.

To get to the bottom of these questions, Christopher interviewed Dr. Michael Webber for the First Republic 2022 Climate Change Forum. Dr. Webber is a professor of mechanical engineering at the University of Texas at Austin, where he teaches and conducts research on clean energy engineering, policy and commercialization. He's also the author of Power Trip: The Story of Energy, which was transformed into a six-part PBS series.

The pair recently reconnected to delve further into the future of clean energy, the economic effects of decarbonization and the role investors play in the process. Here's an excerpt from their conversation:

Christopher J. Wolfe: In many cases, the conversation around climate change is polarizing. What does it take to drive agreement across these important issues?

Dr. Michael Webber: Different motivations can get people to the same answers and lead us to quicker action on climate issues.

For example, a decarbonized power sector uses less imported fuel. Or if we use less gas, we have more gas to export. So there's now a suite of national security solutions that look the same as the decarbonization solutions. The same is true for air pollution, water use and various other issues. We may have 10 different motivations, but the answer looks the same. It's easier to take action.  

Christopher: Regarding that action, multiple countries are currently driving towards a 2035 carbon-free goal. What trends do you see that will support their success? 

Dr. Webber: There are a couple of trends that merit watching. The first is a macro trend toward efficiency. That's helpful because when it comes to decarbonization, efficiency gains help us reduce the height of the hurdle we have to clear.

Another trend that helps is the increasing information intensity of everything in society — particularly the energy sector. There's more data, sensors and insights into what's happening. That allows us to optimize energy systems.

In addition, there's also a broader non-technical trend regarding asset life. Most of the power plants in the U.S. that emit greenhouse gases are slated for retirement by 2035. We can get most of the way to the 2035 goal by building new, cleaner power plants to replace the older ones.

Christopher: People frequently establish an all-or-nothing mindset about energy sources — they focus on one to the detriment of the rest. Why is it essential to have a diversity of energy solutions? 

Dr. Webber: As you know, diversity is a strength in a financial portfolio; you don't want to put all your financial bets on one option. The same is true for an energy system — diverse options build resiliency.

When it comes to alternative energy sources, different types have different impacts. So you don't want to be all solar because while it reduces emissions and uses less water, solar uses more land. Each source has different performance profiles, costs and risks. Building a diverse suite of options minimizes their downsides but also allows you to optimize the upside of each. 

Christopher: There's a lot of concern that we may not be able to change fast enough, but one of humanity's greatest traits is our ability to adapt. What progress are we making toward diversifying energy sources here and abroad?

Dr. Webber: It's going well in the United States. We're building a lot of wind and solar, which is diversifying our fuel mix in the power sector and reducing our emissions.

In Europe, progress is mixed. France is still dependent on nuclear and is struggling with drought, so they can't get the water cooling they need. As a result, they're considering more offshore wind and solar.

Also, countries dependent on Russia for natural gas are considering diversifying away from it. Overall, energy diversification happens in regions where you have nimble decision-making. More autocratic governments are less likely to diversify as quickly. But there are many glimmers of hope out there. 

Christopher: You have a front-row seat to commercialization opportunities as a researcher and engineer at the University of Texas and in your venture capital work. What interesting technology is developing in the alternative energy space?

Dr. Webber: Some of the most exciting stories are about energy storage. That includes batteries, thermal storage, phase change materials and pumped hydropower. Another thing that's interesting to me is the new ways researchers are developing to produce hydrogen. For example, some bacteria and termites produce hydrogen. Most headlines regard conventional ways of making hydrogen, but we're still learning a lot about the world of biology.

In some ways, the 20th century was the century of physics. This century will be about biology. For example, some people get uncomfortable with genetically modified organisms. But what if you could use them to consume carbon dioxide or make hydrogen?

Christopher: What role do you see investors playing in driving energy diversification and innovation? 

Dr. Webber: Energy is a very capital-intensive sector, so access to capital is key to its success. For example, this can be via venture capital — I dabble with early-stage companies trying to prove out technology — or investors can deploy capital at a larger scale. Government funds also come into play through bonds, taxes and various mechanisms. But creating these new systems is expensive, and capital is critical.

Beyond funds, investors are also driving change by additional criteria to their investments beyond financial return. They're looking for environmental sustainability and good social and governance practices as part of the investment. So while capital is required, in many cases, these added criteria also now steer the kinds of projects that get funded.  

Christopher: As we experience climate change, the impacts will likely be uneven, with the impacts varying by region and socioeconomics. However, decarbonization efforts may mitigate some of that risk. What impact will decarbonization have on the U.S. economy specifically? 

Dr. Webber: It will lead to a massive shot in the arm economically. I'm an optimist, so I think it will benefit the economy. Decarbonization will create a wave of investment, leading to a lot of job creation. And that leads to a better quality of life.

It will also create more vibrant ecosystems that can increase agricultural productivity or the quality of ecotourism or fishing. Some say it will be expensive, but it will be cheaper to decarbonize than remain at the status quo.

The guest speaker is neither an employee nor affiliated with First Republic. Opinions expressed by the guest speaker are solely his own and do not necessarily reflect those of First Republic. This information is governed by our Terms and Conditions of Use.