Michael Crabb [00:11:22] Welcome to another episode of the Energy Impact Podcast. Our guest today is Tony Rooke, the Executive Director and Head of Transition Finance at the Glasgow Financial Alliance for Net Zero. Tony, great to have you on.

Tony Rooke [00:11:34] Great to be here, Michael. Thank you so much for having me.

Michael Crabb [00:11:37] It's our pleasure. Okay, so before we find out what that lengthy title is all about, let's hear about you a little bit. Where are you from, originally?

Tony Rooke [00:11:47] So, I'm from the UK. I've spent my childhood growing up just outside of London. And I studied in the UK and also in Geneva as a physicist, basically, and then went into work in IT. I spent a bit of time there, but for the last 17 years or so, possibly a bit more now, I've been focused on climate change and sustainability.

Michael Crabb [00:12:20] Fantastic. Okay, well, let's unpack that a little bit. Physicist is not sort of your everyday study. What was the impetus for getting into such a technical field?

Tony Rooke [00:12:34] I mean, I've always been interested in science. One of my heroes of science is an American scientist called Carl Sagan. He had a great show when I was growing up called Cosmos. It really sparked my interest in not just science, but the history behind it as well. And it is one of the first places I actually heard about the greenhouse effect and greenhouse gases, how that makes the earth the perfect environment for us. But on other planets, it's made it either too cold because there's not enough greenhouse gas. Or, like Mars or on Venus, where so much of it has caused a runaway greenhouse effect, it's hot enough to melt tin and lead on Venus. So, I guess that's always been in my mind there.

Tony Rooke [00:13:29] I managed to get onto a PhD program on particle physics. I worked at CERN in Geneva as part of my PhD. The largest scientific tool ever created at the time, the big particle accelerator, a hundred meters underground. And yeah, loved that, but had a difficult choice at the end of it. Do I stay in academia or go into business? And I was interested in how I could help out in the world. So, my first job was programming satellite control systems.

Michael Crabb [00:14:06] Oh, wow. I can't imagine how cool it would have been at that stage to be working on such a fascinating scientific project. What drove that sort of business versus academia decision? I mean, I imagine you were a bit in the minority versus your peers at that time.

Tony Rooke [00:14:30] It was mostly where did I think I could make the most impact. And that's actually been a theme throughout my life. My career choices have been always, "That interesting. That's interesting, there. I want to do that. That's interesting." And I had an opportunity to work on space programs, which is also an interesting part of my life and an interest of mine. And one of the great things about it is I eventually got to work at the European Space Agency.

Michael Crabb [00:15:02] Oh, cool.

Tony Rooke [00:15:02] Earth observation was a massive part of what I was helping support. I was at the European Space Agency when the first CryoSat satellite went up, which was measuring ice thickness. And it really sort of helped spark my interest. Plus, I also took a sabbatical just the year before and went traveling to all seven continents as a sort of last chance to see the world of nature. I spoke to scientists in Antarctica, for example, and they were talking about ice melting there. Then CryoSat came along and I went, "Oh, connection." And I also spoke to people in Africa, spoke in South America about deforestation. So it really sparked my interest and I said, "Alright, I want to do something about this. I want to come back to business."

Michael Crabb [00:15:53] Very cool. Yeah, I mean, I can hear even the space theme in why you talked about being a physicist, right? What exactly were you doing then on that team? Talk us through that progression.

Tony Rooke [00:16:08] So, I got to play with lots of cool gadgets. It was mostly from an IT point of view. We had a 3D cinema where you could fly through the solar system across the plains of Mars and 3D images of, for example, the Virunga National Park in Rwanda, where I'd just come back from seeing mountain gorillas in the wild.

Tony Rooke [00:16:30] But I would say primarily what came out of that action of traveling was to do something about climate change and how we were forcing the climate system. And as a result of that, I took up a post... Or, I created a post really, of helping my company that I was working for on its own energy efficiency, but also a carbon reduction program. I managed to save them £32 million in four years and the add-on profit level was £50 million. So I really, really should have gotten a bonus tied to that. That's one of my regrets.

Tony Rooke [00:17:14] But I also got to do some cool stuff through that. For example, working on the first and the largest smart grid program in the UK and Low Carbon London and on a couple of other ones as well. Modeling how emissions might change through the deployment of renewable energy grids, smart grids, and electric vehicles through 40 years in the UK and how that would change the carbon emissions of the UK.

Tony Rooke [00:17:52] And so, really sort of the great thing about the work I do is you get to actually understand how a lot of industries work. Power sector, how power feeds into all of those industries that rely upon it, and so much of what we need to do to decarbonize the economy and to secure the 21st century economy is electrification. So, my knowledge of grids and my experience with grids and power is really, really helping. At the same time, I've also experienced it from a user of power. How do we actually decarbonize from that side when we're not necessarily a power utility?

Michael Crabb [00:18:41] Walk us through that trajectory, then, in another level of detail. Tell us about the London Smart Grid program. How did you identify the specific problems? What were the solutions at the time, and how has it evolved since it was implemented?

Tony Rooke [00:18:55] Well, just before I started on that, I'd run through a business case on how to do a power purchase agreement for a wind turbine that we were going to use for our data center. I'd gone through a lot of process there. And then off the back of the money and the emissions, I actually helped our organization to save. I got asked to start a consulting practice, and one of the first things that we actually had a challenge for was how do we help the Smart Grid program in the UK? And the company I worked for was very uniquely positioned as a data provider into that sort of work.

Tony Rooke [00:19:31] But I would say many power companies were going, "Okay, how do we do this? Because this is a change to our business model." And they were bringing in advisors from academia, from consultancies, from implementers, from the power sector and elsewhere. And so, I formed part of that team. I was brought in to do that, to help with some of the modeling, to help with some of the understanding of how would these technologies deploy.

Michael Crabb [00:20:04] And what year was this, approximately?

Tony Rooke [00:20:07] Oh, we started in about 2009, 2010?

Michael Crabb [00:20:11] Okay. So yeah, right out of the sort of banking collapse and sort of in between what I'll call Transition 1.0 and 2.0. Very interesting time.

Tony Rooke [00:20:21] And working with utilities that were used to being very streamlined, regulated, making sure that they were delivering cost reductions and the sort of optimized cost for consumers of power. But these are change management programs as much as anything else. So it was really sort of trying to help those utilities through that as well as them having their own change management, but really bringing that sort of ethos to it. So yeah, a lot of learning, I would say. Everybody learning as we were going as much as anything else, because these were all... At the time, they were very new technologies, and now, some of them are in the mainstay.

Michael Crabb [00:21:09] Yeah. What was the conversation like then? I mean, you talked about... So in '08, '09, a power purchase agreement for a wind project would have been quite expensive and sort of a new territory in many ways, right? I mean, how did you get all these different people with all of these different perspectives driving towards a new answer in a relatively stodgy industry?

Tony Rooke [00:21:37] It's an interesting way to think about it. I would say it's...

Michael Crabb [00:21:44] You can correct my thinking, but if I think about the frameworks that I have from the US at that time, smart grids and distributed energy were not even a glimmer in anybody's eye, really.

Tony Rooke [00:21:55] Yeah. I think it was more sort of... There was an excitement that there was something new, there was something different, and how did you channel that? And this is probably where the first sort of pre-scenario analysis models were coming from. So, it was a first exposure to actually trying to model things. And that was really, I think, a key galvanizing. You had a lot of people very engineering focused. "How do we make this work? What sort of cables do we need? What sag can we tolerate under climate change?" But it was really sort of, "Well, how will these business models actually help the grid? What grid do we need as well?" Those are still problems we have today, but I think like all of this, when you're really sort of getting down to the nitty gritty, you have to have models to sort of help people see guide paths through this.

Tony Rooke [00:22:58] And the irony of that is that I'm still doing that sort of work to this day. Last year at GFANZ, I led the technical team at GFANZ alongside financial institutions to produce a report on how to choose sectoral pathways, sectoral scenarios to shape financial institutions, emissions reduction targets, to shape their targets for helping the economy decarbonize. So, the models have always sort of been there, but it's really there to sort of give a a guidance on what the world of the future will be or could be when it's definitely not business as usual.

Michael Crabb [00:23:46] And how do you think about these models? In my background, it's like all models are wrong, but some are useful. I mean, how do steer or... How do we walk the line? I'll ask it this way. How do we walk the line between trying to model an incredibly complex, ever-changing system versus getting stuff done that may not be the optimal solution, but is an improvement, right? Like, how do you communicate that balance?

Tony Rooke [00:24:19] I think the most important thing is to actually choose a number of models and see where there are similarities and understand what those similarities come from. Are they choosing exactly the same assumptions, or are they choosing different assumptions? How are they modeling? Are the different approaches coming with different outputs? And then finally, what is it saying? And it's really important to understand where the similarities are. And particularly, there are the two components.

Tony Rooke [00:24:47] In the work that I do with GFANZ and with financial institutions, what they want to know is sort of what is the science telling us in terms of how much we need to decarbonize? But also, what is the industry telling us is feasible? And this is why it's really important to marry these models and choose models... Not just one model, but several models that help you understand what the science says and also what is feasible. So, what's credible, what's feasible, how do you put those together? And then, that's when the similarities tell you, "Well, there's a common path here. There's a common sort of guidelines or guide paths to how we actually do this."

Tony Rooke [00:25:35] So for example, in aviation. Most of the ways to decarbonize aviation in the next 15 years are incremental. The only ways that you can really decarbonize aviation at significant levels in line with the science is through the use of sustainable aviation fuels. And if you look at steel... If you look at the pathways there, all of the investment that comes into these models, whether it's from the science or whether it's adding science and feasible, tell us that 72% of the investment needs to happen outside of the steelworks. It's in the power infrastructure. It's in the hydrogen infrastructure. It's in the grids, the storage of both hydrogen and power. So, there's a lot of common threads coming out of that.

Tony Rooke [00:26:32] Now as you said, will those models be... They're not predictive. They are just "This is a plausible world." And that's why it's important to choose a few models to help guide you so that you don't put all your eggs in one basket.

Michael Crabb [00:26:50] Yeah, it's funny that you say that. I feel like the technical tools to do a lot of this already exist. Like you mentioned, starting to decarbonize the electricity grid, sustainable aviation fuels... Like, the science exists. I sort of feel like one of these big barriers is this idea that it will also be cheap, right? And like, yes, over time it will be economic, but just the energy sector alone, trillions of dollars every year. That isn't inexpensive, right. I mean, I don't know. Maybe I'm jumping to the conclusion, and I shouldn't put words in your mouth. But how do you marry those those technical glide passes you call them with the investment and the market mechanisms to incentivize that behavior?

Tony Rooke [00:27:44] One of the first things in the models is trying to actually understand what the investments needed are. But also, I think it's really important to understand what business as usual models will tell you about investments. If we take sort of electrification of the economy, which is effectively a way of displacing some particularly unabated fossil fuels, then by going to electrification... If we take renewables or nuclear, there's a high capital cost to actually install these, but the operational costs should be coming much lower. And particularly in the case of renewables, once you've actually installed them, by and large, there's a very low operational sort of cost to them, relatively speaking, or at least once the technologies mature. And that's exactly what finance was set up to do, is help you manage a high-capital cost risk so you can lower your operational costs later.

Tony Rooke [00:28:51] So, I don't think any of this is particularly new in terms of risk sharing, risk appetite. It's about sort of understanding that also, fossil fuel use for power generation, for whatever use, there's a high operational cost there because you have to keep buying it. And you're also locked into a lot of volatility, as we've experienced in the last three or four years and certainly in the last two years, post the Ukraine-Russia tragedy, there. And that we'll continue to have this volatility on fossil fuels. But my real point is that if you can take that ongoing cost out by switching to something high-capital cost at first, but it has low operational cost because, essentially, wind and solar energy are free, then you actually changed the investment profile.

Tony Rooke [00:29:55] That has the potential, if we tie it into, also, grid work, of over time reducing the cost of energy for consumers. But it does mean that we have a capital cost to get over it. But it's about investing in the economy, investing in the world that we want it to be so that we have an economy that can thrive. I feel like I'm making a lot of generalizations, but that's what the models tell us. Over time, the price of energy can come down. Actually, I think the really interesting thing is when we go to this sort of low operational cost of energy, how that might change the economy in ways that we can't judge right now. A low operational cost of energy could actually change what we do with it both as consumers but also as power producers.

Michael Crabb [00:31:00] Yeah. Obviously, having low energy costs, all in, is super constructive to the economy. Whether you label that as a capital investment that has a return on and of over time or an operating cost, I'm not sure that really matters from the end consumer. You're sort of comparing apples and oranges a little bit. And so, the example I like to give is... Okay, if you have a neighborhood of houses, and you decided you want to replace all of those houses in a short amount of time, it's going to be rather expensive. You can't pretend that you just didn't already invest in the existing houses, right?

Michael Crabb [00:31:52] And I think you made the right point, which is, "That cost is probably worth it. We should make that investment. We need to make that investment. The alternative is much, much, much more expensive." But I think not acknowledging that cost, I think is hindering real progress. Because if you just create your supply demand fundamentals on how much capacity we're going to procure of whatever your favorite sustainable resources, if you're trying to get the cheapest price, you'll procure the least amount. There is some elasticity.

Michael Crabb [00:32:24] I don't know, maybe I'm... It's sort of a point for me that I wish we would have more honest conversation about and I think you probably recognize in these models. So, it's interesting to hear your perspective as you work through those problems.

Tony Rooke [00:32:39] Yeah, I think you're right. There needs to be the honesty around that. I think a lot of the conversation I see when we talk about this investment and climate change doesn't take into account what the cost of doing nothing is, right?

Michael Crabb [00:32:56] Oh, exactly.

Tony Rooke [00:32:59] And there was a very interesting McKinsey report that came out around the turn of the year on the potential cost post the Inflation Reduction Act of not continuing that investment and what it will cost later. I mean, arguably, I think well... If we look at sort of the 19th century and before, it was all about coal. Last century was all about oil and gas. But there was a huge amount of investment in every century in that maybe over a longer time period. But the trouble that we have right now is that from the science, what that's telling us about climate, is we have to change quickly. Otherwise, those really, really high costs to us may not actually include an electricity price, but may include our insurance costs. It may include our home repairs that we have to do post another bout of flooding or another bout of... Your own home may become a stranded asset if you don't do something about it. So, I think the problem is that the dialog on the investment costs is usually focused on purely "how much does it cost to install this" and "how much is the price of energy" without, actually, any total cost of the whole system.

Michael Crabb [00:34:30] Totally. And that is a really hard concept, I think, to communicate politically. Because it is a social negative externality that is almost impossible to price. And if politicians at large can push that cost or not talk about it or not face that problem... We don't have to dwell on it because I think folks recognize that. Yeah, it's just like the examples you gave, right? The scaling up of coal, the scaling up of oil and gas, they are driven by this underlying profit mechanism, which is how we as a society accomplish what we need to accomplish. And so, I worry that in this idea that, "Well, renewables are free." No, of course they're not free, and if we paid more for it, we'd have a lot more and a lot faster. And we probably should be doing that. Yeah, I think that's just a hard conversation to have. I don't mean to pick on you about free because I know what you mean. Like, the cost of goods sold is zero, right?

Tony Rooke [00:35:36] The cost of the fuel is really what I'm talking about there.

Michael Crabb [00:35:40] Of course, of course. It's just challenging, I think. It's a very nuanced conversation. I'm very curious. You've seen a decade of this evolve, and it must be fascinating for you to see that.

Tony Rooke [00:35:52] I've had ex-colleagues turn round to me. I can remember one who worked for an oil and gas... He was a relationship manager for an oil and gas firm. We were trying to do consulting for that oil and gas major. I can remember in 2010, it's a really hard conversation to have. I was just trying to get some data to them so they could make the decisions. And he did actually contact me on LinkedIn like 12 years later and said, "You know, Tony, you were right." It was quite a satisfying sort of thing to hear.

Tony Rooke [00:36:30] I think that the evidence is there and the conversation's there, it's just actually how you turn it into reality. And if I can give you a specific example of where we're trying to do this. We've set up something alongside local government, international governments, and like the US, Japan, the EU, called the Just Energy Transition Partnerships, JETPs. Specifically, two countries that we're working with are Vietnam and Indonesia. And the main focus is to try and help them retire early their coal energy, the power generation, and replace it with lower carbon generation, particularly renewables, but also bring forward those retirement dates.

Tony Rooke [00:37:33] And there's a lot of nuance of what you need to go through here. But in many cases, the actual business case because of risk appetite, because of other things is not necessarily immediately forthcoming. But by working together through this sort of influx of public money, but also private finance, understanding the local situation, we're actually trying to overcome some of those structural issues and make it profitable to retire these early. But at the same time, acknowledging what we've actually got to do is provide... Not we as GFANZ, but what needs to happen is energy is there for providing to end customers at affordable prices.

Tony Rooke [00:38:26] But you also keep the employment going, as well. And we've seen from a lot of models from the IEA, for example... Yes, there will be a change in jobs in this, but actually, potentially there's going to be an upside in the economy in creating more jobs rather than less jobs. It's just a transfer of those skills. And that's one of the things that we have to do with that.

Tony Rooke [00:38:49] But the Vietnam one, for example, we're hoping to bring forward the peaking of greenhouse gases emissions from power by five years to 2030, reducing the peak annual power sector emissions by up to 30%. So, there's a lot of good stuff that can be doing that and at the same time, providing power to help the development of Vietnam and Indonesia, support their industry and support their power delivery to their citizenry. So yeah, there's a lot of good stuff there as well.

Tony Rooke [00:39:28] But to your point, in many cases, the initial projects aren't necessarily profitable. By learning them, you can usually reduce the capital costs by 20 to 30%, and then, suddenly, there's a lot more interest. You've proven the point. You've proven how it can work. And we're in that sort of a game at the moment. But you have to overcome things like power purchase agreements that lock in coal for 15 to 20 years. That's everywhere; it's not just in Vietnam and Indonesia. So, getting the finance mobilized, that is a real key outcome for us as well.

Michael Crabb [00:40:05] Yeah. Maybe you could go one level deeper on an example in either of those countries. I mean, if I have a 100 megawatt power plant that's employing 150 people... I'm a developing country. I need to double... Let's say for example's sake, I need to go from 100 megawatts of supply to 200 because I'm trying to pull my society out of poverty. You're replacing 100 megawatts of baseload and 150 jobs, round numbers, with what? 500 megawatts of solar and however many batteries? I mean, that's an expensive proposition today, right?

Michael Crabb [00:40:45] Can you walk through maybe... I know it's hard to give numbers, but like, what are the solutions? Let's say we can get over the the human imposed elements. There's commercial structures that break PPAs. Let's say we can solve that. Can we actually solve it technically?

Tony Rooke [00:41:08] Yes, I think we are. And actually, maybe not in those countries, but one of the key things within these works is how much of the supply chain can you actually deliver in country? The components, the manufacturing, how many... I wouldn't say ancillary jobs, but supporting and enabling jobs can you also bring? Because then that also brings economic benefit, it brings tax, it allows the public money to recoup, perhaps, through taxes and others as well.

Tony Rooke [00:41:39] And particularly in in these countries, it's not just about the capital cost right there. Although I agree with you, that's a very high capital cost. It's about what it enables. And most of these economies are SME economies. They are small, medium enterprise. They are not big, huge constructs. But some of the early projects were probably looking at how can we do that for a particular industrial to prove how it can actually work, whether that's on grid or off grid.

Tony Rooke [00:42:14] Then, the second point is how can we actually then extend that and connect that to the grid to do a local area? And in many of these cases, you have to look at, is this a local grid? Is it a microgrid? Is it a full grid? Is it a PPA with a particular industrial plant? And what we're learning from this is every project needs to be originated in a way that makes sense for that local area. So, I can't give you the theoretical construct for what you just actually talked about, but I know we're looking at a particular project that's a 660 megawatt replacement. It's about how can we get those emissions down soon? What can we do in the meantime as we build up the replacement for it?

Tony Rooke [00:43:09] And that's what we're trying to help our financial institutions that are members of the alliance that make up GFANZ, which is seven sector alliances, banks, insurers, asset managers, asset owners, investment consultants, financial service providers. We're trying to help them to enable that decarbonization in the economy and really giving them the opportunities around it. And to me, this is the greatest opportunity of our age. But at the end of the day, it gets down to the very technical nitty gritty. What works there? What works here? How do we draw all that together as part of an overall plan that will also help? And that's, I think, also where a lot of the discussion around grids comes in.

Michael Crabb [00:44:05] Yeah, wow. A lot of your background kind of all coming together. And I should have done this sooner. Maybe give us the overview of GFANZ and how your role fits in. Because you sort of alluded to different Scope things, but just to help level set all of these different things into one package.

Tony Rooke [00:44:29] Yes, so GFANZ was set up in 2021. We're a coalition of financial institution alliances whose members have all set...

Michael Crabb [00:44:39] Financial institutions like investment banks or like pension funds or private equity funds? Like, what does that mean in this context?

Tony Rooke [00:44:47] Well, what I would say is banks. And they can be retail banks, they can be private, international finance. They can be a combination of both. They can be investment banks. Asset owners, asset managers, insurers, investment consultants, financial service providers like, for example, Moody's or stock exchanges. We're hoping a new one's coming along soon, but I won't say what that is until it's formally announced.

Tony Rooke [00:45:17] But really what we're trying to do as GFANZ... And we stand for the Glasgow Financial Alliance for Net Zero. GFANZ is just a lot easier to say. We're trying to provide the tools and the pan-sectoral, pan-financial sector view of how those institutions can get to net zero. So, in 2021 we were formed. It was all about trying to get financial institutions to say, "We are committed to net zero," allied to 1.5 degree pathway with little or no overshoot. Very tough sort of aims and goals, but very ambitious because everybody's realized this is a systemic risk as well as a commercial risk to their portfolios.

Tony Rooke [00:46:05] 2022 was about... Okay, well what does making the commitment mean? And so, we worked very hard on tools like sectoral pathways, offering alignment measurement, manage phase out methodologies of high-carbon assets, high-emitting assets, to support, ultimately, what is a financial institution making a commitment into their strategy. And we call that a net zero transition path. So, we provided guidance across the sectors for that last year.

Tony Rooke [00:46:46] This year, it's all about how do we put that into practice? And we're sort of doing that in a number of different ways. But one of the ways is mainstreaming transition finance. That's the reason I'm head of that. How to implement a transition plan, how to describe the financing or providing that helps those high-carbon sectors, high-GHG emissions sectors to transition and providing the finance to enable that. I'm looking at passive investing and also looking at real economy and energy transition, as well.

Tony Rooke [00:47:22] But we're also looking at how we help mobilize investment into emerging markets and developing economies where, typically, a huge amount of the emissions are and are going to continue to be. And then finally, a policy suite as well. But that's what GFANZ does. Providing the tools, helping bring that together. I mentioned the JETPs as an example of what we're doing. Transition plans is another example. And providing that forum to bring financial institutions together with policy makers, with companies that actually have these emissions and helping them to transition by providing that finance and supporting and enabling them. That's really what we're all about.

Michael Crabb [00:48:13] Yeah, just that's it. Just this whole... I'm exhausted hearing all of that activity you guys are doing in just two years. That's fantastic.

Tony Rooke [00:48:20] And it's 40% of the world's private finance that's members of these alliances. So, it's about $150 trillion worth of financial assets that they have, or what they have enabled. It's 550 plus financial institutions. So, there are a lot of different situations that they will find themselves in. And our sort of job is to try and elevate that as pan-financial view. And mobilize that capital, because everybody can see that it needs to happen.

Tony Rooke [00:48:57] We're in, I think, the early stages, but we're already seeing some upticks on this already. The IEA recently came out and said, "Solar panel deployment is getting close to, if not is already at, the deployment rates that we need to achieve 1.5 degrees, if we just look at solar panels." It needs to be more other areas. We're starting to see some of those. We're actually coming to the points where we're actually what we're trying to achieve. And we're still in the early stages. So, it is... I hate the "j-word," but it is a journey. There's a reason why it's called transition and not called the end point.

Michael Crabb [00:49:43] I think that was sort of why I dove into the detail, I guess, earlier in the conversation, because I love talking about it. I think it so much larger, it's more enormous than anyone really can wrap their head around just because of human bias. And sort of the way the news portrays both the positives and the negatives is very sensationalist and frankly, silly.

Michael Crabb [00:50:14] It must be fascinating to deal with this diversity of investors with different risk appetite and different exposures. Because I think at the end of the day, that's where I come back to price. If we just sort of committed... And I know that's not realistic. But if we just committed to sort of demand-led market constructs that compensated for what is a premium product, then I think it happens a lot faster as just sort of supply and demand. You're $150 trillion all have a fiduciary commitment to the people that are funding that to serve that.

Tony Rooke [00:50:50] I mean, what we're seeing across the board is that actually in many cases, it is actually commercially competitive to invest in what I call the 21st century. I hate calling it the green technology, because it makes it very polarizing. I think it is the new technology that will enable our... Well, not even the new. Some of it's actually quite mature now. The issue we've got is the speed that we need to deploy that.

Michael Crabb [00:51:20] And that's where I think there's conflict in the messaging and how we talk about it and what problems we're trying to solve. I think, looking back, the pace isn't what we need. And we're getting closer; we're starting to catch up. But there are some real barriers looming around continuing that pace. And I am concerned that as an industry, some of these have been bid down to such scarce margins or even negative margins at time.

Michael Crabb [00:51:54] Think of the offshore wind guys. This is a booming market and they haven't made a cent. That's not a sustainable growth... Like, you can't accelerate that. You accelerate negative income, it's not a good thing. And so, there just seems like there is a disconnect between some of the reality that I'm seeing and some of the way we talk about it, and that makes me nervous. I can't articulate it any better than that. And I'm glad smarter people like yourselves are working on solving that.

Tony Rooke [00:52:26] It's very kind of you to call me a smarter person, but I don't think I am. I just think in many of these cases... If it was an easy thing, we would have solved it already. So, there is a lot of effort that is needed. I think the really important point here to what you're talking about is it needs all parts of the economy working together on this.

Tony Rooke [00:52:50] So, you need policy incentives. You need policy to enable it. I mean, one of the biggest problems for us is planning at the moment, I would say. The Inflation Reduction Act in the US has massively accelerated not just the important rollout but also the supply chains underneath it. And that, I think, has been a missing component. There's far too much geo-concentration of the supply chain, and that's not good for a variety of risk reasons.

Michael Crabb [00:53:23] But it's economic! It's economic, right? That's why I love... People are like, "Oh, we don't need subsidies anymore." But like, yes. I don't know, I think everyone does. That's why we want them. And that stuff, whatever you want to call the market mechanism.

Tony Rooke [00:53:38] I mean, you can argue that there are subsidies on the other side in the mature technologies, the oil and gas and the unabated side, as well. And there's still continuing, in many parts of the world, to be fossil fuel subsidies. They may not be direct ones. There are subsidies on both sides. So, yeah. I agree with you. There still needs to be incentives and subsidies. There needs to be some stick and carrot in that policy regime to, as you said, help make it economically viable as well to generate a profit.

Tony Rooke [00:54:14] I often tell financial institutions that my point of view is that this is the greatest economic opportunity. It's also an economic opportunity where financial institutions can actually help deliver the 21st century economy in a way that's really positive. And banks in particular, but financial institutions often get sort of a lot of criticism for just being moneymaking machines and not caring about anything. But this is an opportunity for financial institutions to do good, I would say, as well as make money.

Tony Rooke [00:54:59] And I do think you're right that when you get down to the detailed level, we're at the bottom of an S-curve on most of these things. So that's one of the reasons why it's not yet profitable or not always profitable. But that's why we need those incentives to sort of help kickstart that. And then, I think we'll see more and more come through. But that also relies on the transition across many industries that also need that as well. So for me, the energy industry and the power industry is ahead of the curve. But it's still on the upward curve. And like all transformations, it's an S-curve. It's not linear.

Tony Rooke [00:55:54] So I think at the moment, if you look at most organizations on this... I mean one I usually hold up is an example of a company that has really transformed itself. It's not at zero emissions and it's going to take time. But it's doing some really innovative things like the H2 Green Steel Project, where not only is it providing the power, but it's also agreeing to take some of the steel from these new green steel plants to build more wind turbines. And that's the sort of creative thinking I think that really, really helps. And we'll learn a lot by doing these new facilities that down the line will turn into a massive profitable industry in steel or in other industries at zero emissions and that keep people in jobs. It will them longevity and livelihoods that then also fund tax systems and things like that.

Tony Rooke [00:57:01] I just think if we talk about right now in the economics that we need to think in terms of sort of short, medium, and long-term time frames. Because the Green Deal in the US is a good example of an investment in the economy that then actually stretched not just over 10 years, but 30, 40, 50 years.

Michael Crabb [00:57:25] Yeah, I think it's those phases, how we think about them, how we talk about them, and the constructs. There is inherent tension, often, between short-term and long-term objectives. This is one example, but as humans, we deal with that all the time, right? To me, that's the nuance that doesn't always get captured. And there are companies like you mentioned that you can make a bet on that, right? I think it's a good bet, but I also think it's a hard bet if we're talking about $150 trillion of asset managers. And that can be a hard bet to justify versus incentives today.

Tony Rooke [00:58:06] Oh, yeah, you bet. They've still got their risk thresholds for these investments. At the moment, there's no shortage of money that wants to invest, there is a shortage of good projects. And that's really, I think... This is where we're talking about getting out of that valley of investment death into a cycle where, actually, these will continue and spiral and we'll get more and more projects.

Tony Rooke [00:58:39] One of the things, one of the challenges for us is what does good look like from a financial institution in terms of its balance sheet? What are the metrics? And they have targets with financed emissions, which are sort of measures of how is your portfolio decarbonizing? We're also developing metrics that help understand what is the investment that goes into that? So for example, we work with the Bloomberg New Energy Finance. They delivered a report that synthesized pathways... Back to pathways again. How do you make sense of it?

Tony Rooke [00:59:14] They said, "You need a 4 to 1 ratio of $4 in clean energy solutions for every $1 in fossil fuel finance." And the reason that's really important is we need to keep the energy system going that we've got as we replace it. A lot of oversimplification in public discourse is, "Fossil fuel bad. Clean, good. And it's only pure green. Brown is bad." But now we need to keep that going as we replace it, as we provide alternatives to it. And then that number, that ratio of 4 to 1, which is the sort of average for the decade to 2030, needs to go to 7 to 1 and then 11 to 1 in the following decades.

Tony Rooke [01:00:07] And what we're seeing is an upturn in that. I mean, 2020, it was about $500 billion in energy transition investment. 2022, it was $1 trillion. If we continue on that path, then we're getting up to that. I mean, the ratio in 2020 was about 0.7 to 1. In 2022, it was 0.9 to 1. We're seeing this upturn. We're seeing that acceleration. So yeah, I just think there's some hope there. And with that, economies of scale, and we'll see potential rewards returning faster.

Michael Crabb [01:00:53] Yeah, absolutely. Your comment is so true. It's not a capital shortage problem. It's a good project problem. And I couldn't agree with that more. I think if there's one takeaway from this conversation... There's lots. But I think that's the message that resonates with me, particularly.

Michael Crabb [01:01:14] I didn't give you a lot of time to talk about your expectations for the future, but I do like to make sure to ask what are you most excited about over the next decade?

Tony Rooke [01:01:28] I mean for me, it's seeing that we now understand what those solutions are in the majority of cases, and it's really channeling that finance to those solutions. It's seeing the green steel plants, the green aluminum plants, the sustainable aviation fuel, the power generation, but also the power grid, the supply chain for that. I'm really excited about the economic opportunity to redefine how we do things and to actually take ourselves in a positive way in the economy.

Tony Rooke [01:02:08] There's too much, I think at the moment, in our political discourse, in our social discourse, which is anger. That sort of thing is a negative. And for me, this is massively positive and it's a global phenomenon. So, maybe I'm a "glass is half full" type person. It does mean some change, but it's a positive change and we can embrace that. So, what I'm most optimistic about is this has the potential to be positive, to bring investment to areas that have suffered from underinvestment. And we can see that through the IRA already. I think we can see that from the REPower EU plan. The latest one is the Net-Zero Industrial Act as well, which is a little bit confusing for us because that's the net zero insurance alliance as well.

Tony Rooke [01:03:08] But yeah, we're seeing these positives. We're seeing, actually, the start, I think, of a race on this and the economic opportunities. The technologies that are coming out... We're just at the start. Some of these technologies that we're talking about now are just first, second, third generation. The fourth, fifth, sixth generation technologies are just so powerful. So, all of it's so exciting to me. What we can do, how this can be really transformational for us. And the power sector is at the heart of everything we do.

Michael Crabb [01:03:48] Amazing. I'm ready. Put me in, Coach; I'm amped up. I love it. That was great. What a way to close out, and what an inspiring message for folks to take away. So, thanks so much for your time.

Tony Rooke [01:04:05] My pleasure. Thank you, Michael, for inviting me on here.