Climate change may seem like an insurmountable challenge. But while politics and passions paint a bleak picture of inaction, Carbon Lighthouses recognize climate change as just another problem — and problems are meant to be solved. Many of the tools for profit-driven carbon elimination already exist, what matters is finding the combination of willpower, business sense, and financial structure that make it possible. Climate Solved is a podcast celebrating the ideas and collaborations that make use of market forces to take climate action. Each week, Co-founder and CEO Brenden Millstein sits down with a new guest to discuss the solutions that will stop climate change in our lifetime. Created for entrepreneurs and leaders in commercial real estate & hospitality investment, asset management, solar, and energy services, Volume 1 will introduce you to key members of the Carbon Lighthouse team and how they’re uniting commercial interests with a mission to stop climate change.
In the second episode of Climate Solved, Brenden joins Carbon Lighthouse Engineering VP, Matt Ganser, to discuss the origins of “Efficiency Reserves” and “Efficiency Production,” concepts borrowed from the oil industry playbook to describe the hidden value of clean energy and efficiency in buildings. According to Matt, it’s an intimacy with the problem that gets you to the best solution.
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Brenden: The stone age did not end because we ran out of rocks. Hi, my name is Brenden Millstein. I’m a physicist, former jazz saxophonist, and co-founder of Carbon Lighthouse. This is Climate Solved, a podcast that celebrates the ideas and actions that will stop climate change with in our lifetime.
Welcome to episode 2 of a four part series of discussions with my Carbon Lighthouse colleagues. I’ve asked them to share some stories from the work we’re doing to eliminate carbon emissions from non-residential buildings, which are responsible for 20 percent of greenhouse gas emissions world-wide, and 40 percent of emissions within the United States.
Today, you’ll meet Matt Ganser. Matt’s father is an oil man, and Matt grew up amongst the Texas, Californian and Norwegian oil fields. After college, he became an oil man himself, and was a drill engineer at Shell. He’s a fellow Stanford alum, and one of our chief architects of a concept we call the efficiency reserves. He’s also an avid surfer and father of twin girls. Matt and I had a great conversation about how big oil’s playbook is helping us solve climate change. I hope you enjoy it.
You have a fascinating journey from growing up in oil fields of California or Texas or Norway, to getting to a company that is dedicated to stopping climate change, which pretty much requires eliminating demand for oil and gas for energy sources.
Matt: You have to have intimacy with the problem if you’re gonna solve it.
Brenden: You come from a family of oil men, how did you get here?
Matt: My first early thoughts, and remembrance was my dad showing videos of installing these steel jackets off the coast of California, which are almost a thousand feet long. That was my upbringing, was high on engineering. Early on, I was one of the few kids in classes who knew that being an engineer was not being a train conductor, it meant something else. Oil and gas was the industry that I learned it through.
Brenden: What are some of the things people have right, and what are some of the things that maybe are a little different than you may have expected?
Matt: The things that people definitely have right is, it is big. It’s global, it’s international. When we talk about energy consumption and energy development, it depends on the country of course and what it’s energy mix is, but we’re talking about huge fractions of any energy … any of the transportation or the energy generation, comes from oil and gas. People are right about, it does create emissions. The other thing I think people miss, that really frustrates me at times is, especially as a person who has a strong environmental bent; people have this idea that we are gonna run out of oil and gas. We are not gonna run out of oil and gas.
Brenden: There’s a great quote on this, I think it’s from one the ministers of Aramco which is the state owned, Saudi Arabian oil company. The quote is, “The stone age did not end because we ran out of rocks.” It’s a great quote, I think you’re saying a similar thing about the oil age, here.
One of the two concepts you explained to me early on after we had met, were the concepts of reserves and proven reserves and gas reserves and oil reserves. Can you talk a little bit about what reserves and proven reserves actually are?
Matt: When you think about resources reserves and proved reserves, what that’s basically talking about … the resources represent every potential molecule that scientists and academics and people in industry, think might exist of a certain substance, in this case oil and gas. The reserves are what we think could be produced with today’s technology and today’s energy prices. The proved reserves, which is that last subset of resources, to reserves to proved reserves; the proved reserves are the fraction of the reserves that we actually have on going data about, cause we’ve begun drilling wells for it.
It’s kind of like, with more certainty of becoming economic, that’s how you move from resource to reserve to proved reserves.
Brenden: To summarize, and correct me if I’m wrong here, the simple form of this; the resource base, this is every molecule of oil and gas that we think might be there. The reserves are what we think we can get out of the ground with current technology at today’s prices. The proven reserves are refining that number after we’ve actually started drilling and producing oil or gas from that well. Is that-
Matt: You got it.
Brenden: Those are concepts you taught me about, very early on at Carbon Lighthouse, which we then took and ported over to our energy world of buildings and energy efficiency. To translate that to commercial buildings, we have what are called efficiency reserves, which is the amount of energy that is wasted, that instead of wasted could be turned into economic value for building owners or educational institutions or tenants.
When we go to actually produce that value and go about converting that wasted energy into real money, we call that efficiency production. Can you talk a bit about our process of efficiency production and how we actually go about tapping people’s efficiency reserves and turning it into reductions in C02 and improvements in profit for them?
Matt: The parallel in my mind is similar to an oil and gas mineral lease. Say you owned a piece of land, you’re not gonna try to develop it yourself, it’s too risky, it takes too much time and you don’t really know how to do it, you bring in an expert. In exchange for developing that resource, for scoping out the land, characterizing the resource, and all that stuff, you get paid a percentage, a fee. There’s other ways to do it, but that was the general idea, trying to de-risk the situation for the holder of this energy resource space and allow a developer who has the expertise, the knowledge and the capital to develop it efficiently and quickly.
At Carbon Lighthouse, that’s what we are trying to do, quite explicitly, is borrow heavily from the oil and gas, this mature energy development model. What we’re trying to do, is we try to figure out; how much energy is being consumed, try to characterize it into all of its different components, whether its the heating side, the ventilation, the cooling side, the lighting side. Using what’s available today in terms of technology, how much things cost, and what the value of that energy … electricity or gas or whatever it might be, is … we can come up with a pretty good idea of how much energy we can save and keep it sustained over the long run.
Brenden: There’s another element of oil and gas which I really like, that we borrow from as well; which I think is sadly, unique in the energy efficiency industry. There’s two concepts in oil and gas, which I think that industry nails. The first is, you only pay for the energy you use. When you go to a gas station, you buy the gas. You don’t pay for the derrick, you don’t pay for the rig, you don’t pay for the drill, you don’t pay for the pipeline. You just pay for the gas. That is fantastic.
The other thing oil and gas does really well is, they are incredibly accountable at the pump. Which is, if you bring a gallon bucket to a gas station and you pump what the machine says is a gallon in there and there’s a big discrepancy, you have someone to sue. The energy efficiency industry’s history is totally different. It didn’t start as an energy industry, it started as an equipment industry.
You have all of these companies that make these incredible pieces of equipment, but the contract is for that piece of equipment. Then there’s all these contractors who install that piece of equipment. There’s consultants, who help building owners figure out what equipment to install. None of the contracts are structured like oil and gas. The benefit here with contracts is that, the hurdle for the efficiency industry; which is so different than oil, is that all of these sales are justified based on saving energy. The contract is for equipment, it’s not for energy savings; or hire us to be consultants, we’ll write a report that if you follow you can save energy. The contract is for a report, it’s not for energy savings.
The thing that Carbon Lighthouse does that I like so much, that we took directly from oil and gas, is just having the contract be for the actual economic value; which is, we charge a fixed monthly fee, in exchange, we guarantee we’ll deliver energy saving above a certain amount.
Another example of where the oil and gas industry has really led to a contract structure that another industry can take, that is in this industry, completely innovative and aligns the financial incentives and creates a huge amount of value in and of itself.
Do you have ambitions that, that same sort of thing happens here at Carbon Lighthouse?
Matt: I would love imitators. I would love for people to be as, or more successful than we hope to be. The reason is because, there is this existential crisis that we have to address. While I hope Carbon Lighthouse is a major force and part of dealing with climate change, there’s no way that we’re gonna be successful in dealing with climate change in the built environment, without a lot of imitators.
Brenden: I agree. To quantify that a little bit, there are seven trillion dollars per year, spent on fossil fuels. I believe the single largest individual market in the world. Maybe if you lump all of healthcare together, you lump all financial products together, they would be larger than that. At any rate, it’s top three, if not. Seven trillion dollars is a hundred times greater than the revenue of Apple or Google, two hundred times greater, depending on the year. It’s incredibly large of a problem to be solved.
One thing that makes me really excited, is that we are not at all alone. Hundreds and hundreds of companies that are working on electric cars, that are working on solar, that are working on reducing energy use in residential … there’s already this spectacular movement. It’s not altruistically based, which makes me very excited about it for it’s long run health, in terms of capitalistic markets; which is, there’s huge amounts of profits to be had in tackling this problem, and there’s all these companies going after it. That makes me fired up.
Matt, thank you so much for coming on the show.
Matt: Pleasure to be here.