Will we ever really adopt electric vehicles? Should we believe oil companies that say they want to help? Clean energy expert Michael Liebreich gives his two cents.
Not that long ago, the concept of “clean energy” seemed like a wildly radical idea. Few people cared or even knew about the dangers of climate change and it appeared as if our world would continue to burn through fossil fuels until the Earth became a flaming hot crisp.
Today, our world is still on track to becoming a flaming hot crisp. But compared to a decade ago, we’re doing much better. Less coal, more wind; fewer cars, better public transport. Clean energy no longer sits on the fringes, and it’s something Michael Liebreich predicted more than 15 years ago when he set up a company called New Energy Finance. That company later sold to Bloomberg in 2009 with Liebreich going on to serve in a number of roles spreading the clean energy gospel.
On a recent visit to New Zealand to talk about transitioning to a low-emissions economy – as a guest of New Zealand’s largest petrol retailer, Z Energy – Liebreich sat down to talk about our farming sector, our willingness to buy EVs, and why New Zealand’s actions matter on a global scale.
As someone who’s advocated for clean energy for over a decade, at what point did you start to see attitudes towards clean energy really shift?
When I talk to policymakers, executives and investors, I talk about decision cycles – six or seven years is a decision cycle. From 2004 to 2010-2011 was one cycle where there was all this stuff going on but a low level of knowledge. Then from about 2011 onwards, there was a different cycle. It took a while, but the weather definitely changed around 2012 when people like Warren Buffett started buying into a lot of wind and solar. Everyone thought he was becoming a philanthropist [by investing in clean energy], but what he was actually doing was buying a bond… That was when a lot of pension funds and asset managers saying ‘Yeah, we’re going to do that Buffett thing too!’
The reason I came up with this concept of decision cycles is that it’s been very helpful at getting people to think about taking action with more urgency. If you look at what the IPCC says about 2030 in which we’re going to need a very dramatic change to our system, that means we’ve got two business cycles left. During the first business cycle, you can experiment with some things which will either work or not work, and then you have another bite at the cherry [during the second business cycle]. Of course, if that doesn’t work, you’re kind of screwed. If you’re an infrastructure investor and you want to have a different portfolio by 2030, you better start now. You can restructure your portfolio only so many times and only so quickly.
What do you make of New Zealand’s clean energy chops overall?
First of all, I think you’ve got a good level of political momentum and cohesion. If you compare it to say, the US or Australia, there doesn’t seem to be this vast pushback. There’s nobody saying climate change is a hoax and we shouldn’t be doing any of this. So you’ve got this good momentum and I’ve been impressed by the political consensus about the journey.
The extent to which you’ve got hydropower in your electricity mix is a real advantage as well. I don’t think you’re going to be adding much more hydro [in the future], but I think you’ll be adding a lot more wind, some more solar, and using hydro a lot better.
Is there anything you’ve learnt that’s really surprised you?
I was shocked to find out when I came down here that you’re still drying your milk powder with coal. That was just a complete eye-opener, to be honest. It’s just very old school, and frankly, it’s shocking.
This isn’t a uniform diagnosis, but it does seem to me that the agricultural sector here has been circling the wagons. You’ve got this incredibly strong, innovative, and dynamic farming community that’s science-driven, well integrated, and well connected with the government. It would be great to see the farming community leaning in a lot more and innovating, whether it’s around land use practices in its existing dairy sectors, or whether it’s looking into different types of protein.
Then there’s New Zealand’s aviation sector. New Zealand should be pushing much harder on finding ways to do aviation more sustainably. Without the ability to fly in and out, New Zealand’s got a problem. It’s an existentially important thing and I’m not seeing the level of urgency and creativity around solutions. Is it biofuels? Is it synthetic fuels? Is it the electrification of your domestic aviation? Is it electrification of your ferries? Given the geographic location of New Zealand, I expected to see much more concern if you’re trying to be net zero by 2050.
You’ve talked extensively about the importance of shifting to electric vehicles. When do you think this will really start to gain real momentum?
On the electric vehicle front, we’re sort of waiting for scale… what we’ve not got [yet] are large volumes of cheap vehicles which I predict will arrive around 2021-2022. By then, most countries will have about 2 – 5% electric vehicles and then suddenly, it’s going to go up to 5 – 15%.
There’s something called the Osborne effect where people go ‘I’m going to buy a new car, but I’m not going to buy it this year because I think my next car’s going to be a Leaf or maybe a Volvo Electric. But I don’t want to make that decision now and potentially get it wrong.’ [It’s similar] to how people think of buying mobile phones. When the new Apple iPhone comes out, a lot of people will wait for six months.
You also worry about the next iteration of being cheaper and better. If you go back to the 1990s, you didn’t want to buy a laptop as soon as it came out. You wanted to wait a year and then buy a laptop because processor speeds were going up with every iteration. Eventually, it got to the point where people thought ‘I guess they’re all the same now!’
With vehicles, you think: ‘Well, I don’t want to buy my Leaf now because it’s only got a 140-mile range. The next one’s probably going to have a 180 or 220-mile range and I’d feel really stupid having an old machine’. Then when you try and sell it in three or four years’ time, who’s going to buy a Leaf with a 120-mile battery? The new ones will have a better battery and won’t cost that much more since battery prices would have come down.
Do you think this will happen in New Zealand sooner rather than later? We have a high rate of car ownership, and a lot of us really love owning these big, gas-guzzling SUVs.
The issue more with New Zealand is that you get half your cars secondhand from Japan and those won’t go electric quickly because there’s a lag there. The first lot of cars will be expensive and it’ll take a while for them to come through to New Zealand.
The first ones buying electric will be the ones buying new, not used. It won’t be somebody who wants a cheap Prius or Hyundai. Those people may not be doing that until 2024-2025.
I’ve heard that right now in New Zealand, you can buy a used Nissan Leaf with 40-50K on the clock for $8,000. So why wouldn’t it happen at the lower end? Electric is cheaper to run and the maintenance costs are also reduced since there aren’t as many moving parts. Sure, you’ve got a battery to worry about, but that’s why it’s $8,000, not $18,000.
I don’t see any reason why it wouldn’t happen, but it might happen a year or two later. Predicting the timing of phase change is difficult, but predicting phase change itself? I feel pretty comfortable it’s coming.
You’re here as a guest of Z Energy whose core business relies on trading in fossil fuels but has been vocal about becoming more sustainable. What do you think of oil and gas companies like Z who say they want to be part of the solution rather than part of the problem? Should we be taking them seriously?
I’m here as a guest of Z so I’m going to say nice things about them, but I truly believe that the discussion on becoming more sustainable is in good faith. Also, look at it this way: if I’m right about these trends, then Z only has two choices. It can go slowly and chuck out cash along the way, or it can lean in and try and have a business at the end of it. Both are perfectly viable. Some shareholders might say ‘just give us the cash and we’ll invest it’, but others will say ‘Actually, you’ve got a really good team and customer relationships, so keep the money within the business and lead the transformation’.
Frankly, I think Z is in a good position. You can redefine it and say that Z is trading in ‘fuels’ to keep vehicles moving. People are always going to need to move around. We’re always going to need to move goods around. Someone’s got to be in the business of enabling that.
As great as it is that New Zealand is trying to play its part in saving the planet, the reality is that New Zealand is ultimately a very small part of a very big problem. What’s the value of New Zealand doing these things? Can we have an impact that’s more than just symbolic?
Yes, absolutely. One reason why it’s important to do this is whether you want your kids to see yourself as a good person. There’s a moral aspect to it and that matters. Do you want to be good custodians? Do you want to be socially just?
You might ask whether it matters if New Zealand uses coal or not to produce milk powder when China uses a lot more coal than New Zealand ever could. But you know what? If you can figure out how to do it without coal, it becomes a template for others like China to follow. Don’t think China isn’t innovating itself.
There’s something called the Kuznets curve which states that as countries develop, they get filthier and filthier. When they reach a certain level of wealth, people start to realise that air is horrible and it’s unpleasant to live there, so you try and improve that. For example, when I first went to South Korea, the river in the middle of Seoul was toxic. Now, there are parks, and you notice the city is surrounded by mountains! It can still be bad, but it’s better than it used to be.
New Zealand is a wealthy country it should be well over that curve. New Zealanders see themselves as these environmentally aware people with great natural resources and a great love of their country. And yet, they’re driving around in these big diesels, they’re drying their milk powder with coal, and they’re flying around like it’s nobody’s business. Even very senior people in the environmental community fly every single week from Auckland to Wellington and back. They’re like ‘yeah, it’s not great’. Hang on, what do you mean it’s not great? It’s horrible.
Lastly, just look at the climate science. If we’re going to maintain temperatures by two degrees, emissions will have to drop 20% by 2030. If we’re going to maintain temperatures by 1.5 degrees, emissions will have to drop 45% by 2030. Nobody should be allowed to sit this one out.
This interview has been edited for clarity.